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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                -----------------

                                    FORM 20-F

                     Annual Report Pursuant to Section 13 or
                  15(d) of the Securities Exchange Act of 1934

                   For the Fiscal Year Ended December 31, 2003
                     Commission File Number 333 - 7172 - 01
                                -----------------

                                   CEZ, a. s.
             (Exact name of Registrant as specified in its charter)

                                 Czech Republic
                 (Jurisdiction of incorporation or organization)

                                   CEZ, a. s.
                                  Duhova 2/1444
                                 140 53 Prague 4
                                 Czech Republic
                    (Address of principal executive offices)

     Securities registered or to be registered pursuant to Section 12(b) of the
                                   Act: None.

 Securities registered or to be registered pursuant to Section 12(g) of the Act:

                        7 1/8% Guaranteed Notes due 2007

              Securities for which there is a reporting obligation
                  pursuant to Section 15(d) of the Act: None.

     The number of outstanding shares of each of the issuer's classes of capital
or common stock as of December 31, 2003 was: 592,210,843 shares of common stock

                                  -------------

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

     Indicate by check mark which financial statement item the registrant has
                   elected to follow. Item 17 [ ] Item 18 [x]

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                 TECHNICAL TERMS AND PRESENTATION OF OTHER DATA

The technical abbreviations and expressions used herein have the following
meanings:

CO                          Carbon monoxide.

Demand                      Consumption of the final consumer not including
                            transmission and distribution losses and self
                            consumption by the Company (including electricity
                            used in pump storage facilities) and other
                            electricity generators and distributors.

FBB                         Fluidized-bed boiler, a kind of boiler which reduces
                            the content of sulfur dioxide emissions in the flue
                            gases during the combustion process.

FGD                         Flue-Gas Desulphurization, a flue stack technology
                            for reducing sulfur dioxide content in power plant
                            emissions.

GW;GWh                      One gigawatt equals 1,000 MW; one gigawatt-hour
                            represents one hour of electricity consumption at a
                            constant rate of 1 GW.

Installed Capacity          The highest constant level of generation of
                            electricity which a power plant is designed to be
                            capable of maintaining.

IPP                         Independent Power Producer.

kV                          A kilovolt is a unit of electric tension; one
                            kilovolt equals one thousand volts.

kW;kWh                      A kilowatt is a unit of power, representing the
                            rate at which energy is produced; one kilowatt-hour
                            represents one hour of electricity consumption at a
                            constant rate of 1kW.

MW;MWh                      One megawatt equals 1,000 kW; one megawatt-hour
                            represents one hour of electricity consumption at a
                            constant rate of 1 MW.

NOx                         Nitrogen oxides.

PWR                         A type of pressurized water nuclear reactor designed
                            in the United States. This type of reactor uses
                            water as both a moderator (the medium in the reactor
                            core which facilitates the chain reaction) and
                            coolant (the medium which conveys the heat generated
                            in the reactor to a steam generator).

SO2                         Sulfur dioxide.

T/h                         Tons of steam per hour.

TW;TWh                      One terawatt equals 1,000 GW; one terawatt-hour
                            represents one hour of electricity consumption at a
                            constant rate of 1 TW.

Ton                         Metric ton.

VVER                        A type of pressurized water nuclear reactor designed
                            in the former Soviet Union which uses water as both
                            a moderator and coolant.


Unless otherwise indicated, all figures in this Annual Report presenting units
of electricity generation are gross (i.e., including the electricity consumed by
the power plants themselves).

We have provided the data contained in this Annual Report as to installed
capacity, generation and other market share information with respect to the
electricity and heating industries in the Czech Republic. We compile and publish
certain of this data on a regular basis, and also supply certain of this data to
the Czech Statistical Office for use in compiling national data on the energy
sector.

We have based the data contained in this Annual Report as to end-users of
electricity (including end-user average prices and electricity demand) on data
supplied to us by eight regional distribution utilities (the "REAS") on a
voluntary basis. We have no means of independent verification of such data.

                                       2


                                TABLE OF CONTENTS

Part I
Item 1.      Identity of Directors, Senior Management and Advisers...........5
Item 2.      Offer Statistics and Expected Timetable.........................5
Item 3.      Key Information.................................................5
Item 4.      Information on the Company......................................12
Item 5.      Operating and Financial Review and Prospects....................37
Item 6.      Directors, Senior Management and Employees......................49
Item 7.      Major Shareholders and Related Party Transactions...............55
Item 8.      Financial Information...........................................56
Item 9.      The Offer and Listing...........................................57
Item 10.     Additional Information..........................................57
Item 11.     Quantitative and Qualitative Disclosures about Market Risk......66
Item 12.     Description of Securities Other Than Equity Securities..........70
Part II
Item 13.     Defaults, Dividend Arrearages and Deliquencies..................70
Item 14.     Material Modifications to the Rights of Security Holders and
             Use of Proceeds.................................................70
Item 15.     Controls and Procedures.........................................70
Item 16A.    Audit Committee Financial Expert................................70
Item 16B.    Code of Ethics..................................................70
Item 16C.    Principal Accountant Fees and Services..........................70
Item 16D.    Exemptions from the Listing Standards for Audit Committees......71
Part III
Item 17.     Financial Statements............................................71
Item 18.     Financial Statements............................................71
Item 19.     Exhibits........................................................72

                                       3


                               General Information


Forward-Looking Statements

Certain statements contained in this Annual Report are "forward-looking
statements" within the meaning of U.S. federal securities laws. We intend that
these statements be covered by the safe harbors created under these laws. Those
statements include, but are not limited to:

     o    statements as to expected revenues, operating results, market
          shares and certain expenses, including interest expenses, in
          respect of certain of our operations;
     o    expectations as to the operation of Temelin and its power output;
     o    expectations as to the anticipated privatization of our Company;
     o    expectations as to energy prices and the deregulation of the
          energy market in the Czech Republic;
     o    statements as to the rate of growth of the electricity market in the
          Czech Republic;
     o    expectations as to our relations with the regional electricity
          distributors, and our integration with some of the regional
          electricity distributors;
     o    statements about the rent we anticipate paying for certain of our
          hydroelectric power plants;
     o    expectations as to the issuance of operations licenses, the schedule
          and cost for the refurbishment of Dukovany;
     o    statements about the transfer of land to our Company;
     o    expectations as to the approval and construction of interim fuel
          storage facilities;
     o    expectations as to the expansion of our transmission grid;
     o    expectations as to the future sale of regional electricity
          distributors and as to the sale of our remaining shares in CEPS, a.
          s.;
     o    expectations as to our future acquisitions, participations in tender
          processes for such acquisitions and results of such tender processes;
     o    expectations as to the development of our telecommunications services;
     o    expectations of our future capital expenditures;
     o    statements as to the funding of future expenditures and investments;
     o    expectations of risks and liabilities of hedging transactions entered
          into;
     o    statements as to the expected outcome of certain legal proceedings;
     o    estimates of future levels of employees; and
     o    expectations as to the legal and regulatory framework for our
          industry.

These forward-looking statements are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from future results
expressed or implied by the forward-looking statements. Important factors that
could cause actual results to differ materially from the information set forth
in any forward-looking statements include:

     o    the effect of general economic conditions and changes in interest
          rates in the Czech Republic;
     o    encountered in the privatization of our Company;
     o    difficulties encountered in the integration of our Company with some
          of the regional electricity distributors;
     o    difficulties encountered in the integration of our Company with
          businesses newly acquired by our Company in the future;
     o    increases in competition in the markets in which we operate and
          changes in sales and marketing methods utilized by competitors;
     o    changes in the structure and regulation of electricity prices in the
          Czech Republic;
     o    difficulties encountered in the initial operational testing of our
          Temelin nuclear power plant and refurbishment of our Dukovany nuclear
          power plant;
     o    the potential loss of key personnel;
     o    acts of war or terrorism; and
     o    fluctuations in exchange rates between other currencies and the Czech
          crown in which our assets, liabilities and operating results are
          denominated;

as well as the other factors discussed elsewhere in this Annual Report. Many of
these factors are beyond our ability to control or predict. Given these
uncertainties, readers are cautioned not to place undue reliance on the
forward-looking statements.

                                       4


                                     PART I

Item 1.   Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.   Offer Statistics and Expected Timetable

Not applicable.

Item 3.   Key Information

                      SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction
with, and are qualified in their entirety by reference to, our Consolidated
Financial Statements (including the notes thereto) contained in Item 18
"Financial Statements" of this Annual Report. We prepare the Consolidated
Financial Statements in accordance with International Financial Reporting
Standards ("IFRS") which differ in certain important respects from U.S.
Generally Accepted Accounting Principles ("U.S. GAAP"). Note 29 to the
Consolidated Financial Statements provides a description of the principal
differences between IFRS and U.S. GAAP and a reconciliation to U.S. GAAP of net
earnings and total shareholders' equity for the periods and as of the dates
therein indicated.


                                                                  As of or for the year ended December 31,
                                              ----------------------------------------------------------------------
                                                 1999       2000      2001       2002       2003         2003
                                                 ----       ----      ----       ----       ----         ----
                                                              (CZK millions except rate, ratios      (USD millions,
                                                                operating and per share data)(1)        except per
                                                                                                       share data)(2)

Consolidated Income Statement Data
IFRS:
Revenues......................................    53,528    52,431    56,055      55,578     84,816       3,306.2
Operating expenses............................    43,579    39,711    41,377      44,324     77,316       3,013.8
Income before other expense and income taxes..     9,949    12,720    14,678      11,254      7,500         292.4
Other expenses (income).......................     4,740     2,119     1,386       (542)        841          32.8
Income before income taxes....................     5,209    10,601    13,292      11,796      6,659         259.6
Income taxes..................................       919     3,364     4,169       3,375        208           8.1
Minority interests............................         -         -         -           -        519          20.2
Net income....................................     4,290     7,237     9,123       8,421      5,932         231.2
Net income per share (CZK per share)
  Basic.......................................       7.2      12.2      15.4        14.3       10.0          0.39
  Diluted.....................................       7.2      12.2      15.4        14.2       10.0          0.39
Cash dividend per share (CZK per share).......       0.0       0.0       2.0         2.5        4.5
Cash dividend per share (USD per share) (3)...       0.0       0.0     0.052       0.080      0.156
Weighted average number of shares (000's)
  Basic.......................................   592,088   592,088   591,926     590,363    590,772
  Diluted.....................................   592,088   592,088   592,088     592,150    592,211

U.S. GAAP:
Revenues......................................    53,528    52,431    56,055      55,578     84,816       3,306.2
Net income(4).................................     5,291    13,299     8,538       8,421      8,837         344.5
Other comprehensive income....................         -         -         -           -       (142)         (5.5)
Total comprehensive income....................     5,291    13,299     8,538       8,421      8,695         338.9
Net income per share (CZK per share) .........
  Basic.......................................       8.9      22.5      14.4        14.3       15.0          0.58
  Diluted.....................................       8.9      22.5      14.4        14.2       14.9          0.58

Consolidated Balance Sheet Data
IFRS:
Property, plants and equipment--net (5)........   99,661    98,717    93,605     146,914    222,313       8,665.8
Construction work in progress.................    91,460   103,591   111,929      56,513     10,204         397.8
Other assets..................................    20,368    19,952    23,493      28,038     41,626       1,622.6
Total assets..................................   211,489   222,260   229,027     231,465    274,143      10,686.2
Shareholders' equity..........................   122,205   129,442   136,726     143,675    149,687       5,834.8
Minority interests............................         -         -         -           -      7,893         307.7
Long-term debt, net of current portion........    51,084    49,704    43,081      35,729     30,965       1,207.0
Other long-term liabilities (6)...............    18,457    20,902    21,396      23,866     28,521       1,111.8
Total long-term liabilities (6)...............    69,541    70,606    64,477      59,595     59,486       2,318.8
Deferred tax liability .......................     6,265     8,057     9,870      12,541     14,721         573.8

                                       5


Current liabilities...........................    13,478    14,155    17,954      15,654     42,356       1,651.0
Stated capital................................    59,209    59,209    59,050      59,041     59,152       2,305.8

U.S. GAAP:
Total assets..................................   207,059   222,260   229,027     231,465    277,998      10,836.4
Long-term liabilities (6).....................    67,186    70,476    64,477      59,595     59,486       2,318.8
Deferred tax liability........................    10,162     8,098     9,870      12,541     15,942         621.4
Shareholders' equity..........................   116,232   129,531   136,726     143,675    153,114       5,968.4
Minority interests............................         -         -         -           -      8,351         325.5

Other Financial Data
IFRS:
Depreciation rate.............................       5.5       5.4       5.3         5.6        5.7
Ratio of earnings to fixed charges............      1.30      2.35      3.13        3.42       2.46
Capital expenditures..........................    22,982    21,346    15,318      10,419     52,316       2,039.3
Ratio of shareholders' equity to total
  capitalization (7)..........................      0.71      0.72      0.76        0.80       0.83

U.S. GAAP:
Ratio of earnings to fixed charges............      1.49      2.33      3.13        3.42       3.35
Capital expenditures..........................    22,982    21,346    15,318      10,419     52,316       2,039.3
Ratio of shareholders' equity to total
  capitalization (7)..........................      0.70      0.72      0.76        0.80       0.83

Selected Operating Data
Installed capacity (MW).......................    10,151    10,146    10,146      11,146     12,297
Generation (GWh)..............................    45,722    50,842    52,162      54,118     61,399
Employees.....................................     9,749     9,278     8,011       7,677     18,100
---------------
(1)  Certain prior year financial statement items have been reclassified to
     conform to the current year presentation.
(2)  Czech crown amounts have been translated into U.S. dollars at the rate of
     CZK 25.654 per USD 1.00, the CNB Exchange Rate on December 31, 2003.
(3)  Translated into USD at the Czech National Bank rate on the dividend payment
     date.
(4)  U.S. GAAP net income for 2000 includes the cumulated effect from prior
     years of an accounting change that under IAS is recorded as an adjustment
     to retained earnings.
(5)  Plant in service less accumulated provision for depreciation and nuclear
     fuel at amortized cost.
(6)  Amounts include accumulated provision for nuclear decommissioning and
     storage of spent fuel and other nuclear waste.
(7)  Total capitalization includes stated capital, retained earnings and
     long-term debt (net of current portion).

                                       6


Exchange Rates

The following table sets forth, for the periods and dates indicated high and low
exchange rates for Czech crowns ("CZK") into U.S. dollars ("USD") as reported by
the Czech National Bank (the "CNB Exchange Rate") for each month during the
previous six months and, for the last five years, the average rate for each year
calculated as the average of the exchange rates on the last day of each month
during the period. No representation is made that the Czech crown or USD amounts
referred to herein could have been made or could be converted into USD or Czech
crowns, as the case may be, at the rates indicated or at any other rate. The
Federal Reserve Bank of New York does not report a noon buying rate for Czech
crowns. As of June 22, 2004, the CNB Exchange Rate was CZK 26.41 = USD 1.00.

                                                CNB Exchange Rates

              Month                         Low(1)               High(1)
              -----                         ---                  ----
                                                   (CZK per USD)
              December 2003                 27.12                25.65
              January 2004                  26.89                25.38
              February 2004                 26.67                25.43
              March 2004                    27.17                26.01
              April 2004                    27.66                26.59
              May 2004                      27.25                25.92
              Source: Czech National Bank
              ------------

              (1) Actual high and low, on a day-by-day basis, for each period.


                               CNB Exchange Rates

              Year         Low (1)      High (1)      Average(2)    Period-End
              -----        ----         ----          -------       ----------
                            (CZK per USD)
              1999         36.35        29.65         34.87          35.98
              2000         42.13        34.88         38.58          37.81
              2001         40.29        34.84         38.03          36.26
              2002         37.16        29.12         32.74          30.14
              2003         30.35        25.65         28.23          25.65

              Source: Czech National Bank
              ------------

              (1) Actual high and low, on a day-by-day basis, for each period.
              (2) Average of the exchange rates on the last day of each month
                  during period.

For information regarding the effects of currency fluctuations on our results,
see "Risk Factors" on page 8, "Item 5. Operating and Financial Review and
Prospects" on page 37 and "Item 11. Quantitative and Qualitative Disclosures
about Market Risk" on page 66.

                                       7


                                  RISK FACTORS

Factors Relating to the Company

OUR MAJORITY SHAREHOLDER MAKES DECISIONS THAT REFLECT CZECH GOVERNMENT POLICY

The Czech National Property Fund (the "NPF" or the "National Property Fund"),
which is under the direct control of the Czech Republic, holds approximately
two-thirds of all shares in CEZ. The National Property Fund also holds
significant equity interests in certain of our subcontractors, including Czech
suppliers of coal. Consequently, certain of our decisions and the decisions of
our suppliers and contractors that are mandated by the National Property Fund
reflect Czech Republic government policy. We can give no assurance that these
decisions will not adversely affect our business, prospects, financial condition
or results of operations.

LIBERALIZATION OF THE ELECTRICITY MARKET COULD ADVERSELY AFFECT OUR BUSINESS

Since January 1, 2002, if an electricity end user's electricity consumption at
one supply point exceeds 40 GWh (including self-generated electricity) then such
user (so called "eligible final customer") may choose its electricity supplier
(and freely negotiate prices). From January 1, 2003, customers with annual
consumption between 9 to 40 GWh were also accorded the "eligible final customer"
status. From January 1, 2004, the definition of "eligible final customers"
further includes all customers with reserved energy input higher than 250 kW
from high-voltage lines who are equipped with continual consumption metering
(amount of energy or mean value of capacity within the period measured is
recorded continuously). We have direct access to all eligible final customers
and this liberalized market represents approximately 50% of the Czech
electricity market. On the other hand, the remaining 50% of the Czech
electricity market (mostly retail customers) is served by regional distribution
companies (the "REAS") which are free to choose on the wholesale market the
supplier to cover demand of their customers. The wholesale market is also
liberalized and we compete on this market. As a consequence of this
liberalization, the REAS and eligible final customers have purchased some
electricity from producers outside the Czech Republic, which in fact has reduced
our revenues. We have responded to these price and other pressures by increasing
the quantity of electricity sold for low prices while keeping fixed costs
constant. We can provide no assurance that decisions of independent REAS or
independent eligible final customers will not adversely affect our business,
prospects, financial condition or results of operations.

As a consequence of the liberalization of the electricity market, a provisional
administrative procedure has been implemented (until December 31, 2004) which
regulates the import and transmission of electricity within the electricity
transmission grid in the Czech Republic in the case of danger to the integrity
of the transmission grid and the safety and reliability of operation. This
system is designed to prevent imported electricity together with our planned
domestic electricity production from exceeding the transmission capabilities of
the transmission grid. This administrative procedure has not been applied yet.
Consequently, we can provide no assurance that, as a result of complications in
the implementation of this procedure, the electricity system in the Czech
Republic may not suffer interruptions of service.

Furthermore, Act No. 458/2000 Coll., ("Energy Act") (including the enforcement
provisions thereof) has relatively recently begun to be implemented by
regulation, and judicially or administratively interpreted. We can give no
assurance that the specific regulatory framework and practices that actually
develop in the Czech Republic will not adversely affect our business, prospects,
financial condition or results of operations.

INTEGRATION WITH REAS COULD ENCOUNTER OBSTACLES, NEGATIVELY INFLUENCING OUR
BUSINESS

On April 1, 2003, we acquired from the Czech government its shares in eight
REAS. Accordingly, we hold majority stakes in five REAS. We are required to
dispose of one of the majority stakes. We intend to fully integrate the
remaining four REAS into our Company. While we believe that we will be
successful in our efforts, we can give no assurance that the integration of REAS
will proceed smoothly and that minority shareholders in REAS in which we hold a
majority stake will not obstruct the integration process. Consequently, we can
provide no assurance that our business, prospects, financial condition or
results of operations will not be adversely influenced by these factors.

                                       8


WE MAY BE UNABLE TO DISPOSE OF OUR SHARES IN REAS AND CEPS, A. S. AT
ADVANTAGEOUS CONDITIONS

The Czech Anti-Monopoly Office requires that we dispose of one of the majority
stakes and of all three minority stakes in REAS, and that we dispose of our
remaining shares in CEPS, a.s. Majority stakes in two of three REAS have been
already disposed and such disposal had no negative impact on our business and
financial condition. However, as there is only a limited number of prospective
buyers and we may encounter difficulties in trying to negotiate conditions of
such disposals that would be advantageous or our disposal of the shares may be
delayed. Consequently, we can provide no assurance that our business, prospects,
financial condition or results of operations will not be adversely affected by
the requirement to sell the remaining REAS and shares of CEPS, a.s.

INTERRUPTIONS IN OPERATION OF THE TEMELIN NUCLEAR POWER PLANT COULD
SIGNIFICANTLY LOWER OUR CASH FLOW

We have experienced continuing environmental and other opposition to our
operation of Temelin nuclear power plant with demonstrations by Austrian
citizens and others. As a result, the prime ministers of Austria and the Czech
Republic met in the past and agreed to further studies and monitoring performed
on Temelin. We can provide no assurance that, as a result of such studies and
monitoring, the operation of Temelin will not be disturbed as a result of events
beyond the control of management. We can provide no assurance that any such
problems will not adversely affect our business, prospects, financial condition
or results of operations.

OUR COMMERCIAL RELATIONSHIP WITH THE REAS AND THE COMPETITIVE ENVIRONMENT FOR
THE SUPPLY OF ELECTRICITY IN THE CZECH REPUBLIC COULD CHANGE

We sell a significant portion of the electricity we produce to the eight REAS.
Except for two REAS for which ten-year supply contracts have been signed in 1996
(but contracts specifying volumes and prices, among others, for these two
long-term contracts are signed annually), we sign our contracts with the other
REAS annually. We own majority shares in five REAS, but will have to dispose of
one of these majority shares. It is likely that key European competitors will
control four of the REAS eventually. We can provide no assurance that the four
REAS we will not control will continue to purchase power from us in the same
quantities as they have in the past and/or for the same or better prices or that
the competitive environment for the supply of electricity in the Czech Republic
will not change.

BECAUSE WE LOST CONTROL OF THE TRANSMISSION GRID, ELECTRICITY TRANSMISSION
PRICES MAY INCREASE

Until April 1, 2003, we controlled the electricity transmission grid in the
Czech Republic through our wholly-owned subsidiary, CEPS, a.s. As a part of
process of the liberalization of the energy market and/or privatization in the
Czech Republic, CEZ had to sell its majority stake in CEPS, a.s. and we thereby
lost control of the transmission grid. The prices for electricity transmission
could increase as a result of our lost control of CEPS, a.s. If these
transmission prices increase and such increase is followed by increases in end
prices for electricity, we can give no assurance that the possible resulting
decrease of consumption or our increased costs would not adversely affect our
business, prospects, financial condition or results of operations. Further, we
can give no assurance that the specific regulatory or other relationship that
actually develops with respect to the transmission of electricity will not
adversely affect our business, prospects, financial condition or results of
operations.

STATE SUPPORT TO SELECTED POWER GENERATION SOURCES COULD ADVERSELY AFFECT THE
PORTION OF OUR BUSINESS SUBJECT TO REGULATED PRICES

The Energy Act requires the REAS to purchase certain amounts of electricity from
environmentally friendly "co-generation," "small hydro," "decentralized" or
"renewable" facilities and it provides state subsidies to them. This approach
leads to a significantly higher state support for small generation sources or
those that are connected directly to the REAS grids. We, however, operate large
plants and transmit a major portion of our electricity to the transmission grid
and thus cannot take full advantage of the state support for otherwise
comparable power generation sources. While we believe that these purchases by
the REAS will remain an insignificant portion of overall REAS electricity
purchases, we can provide no assurance that this will in fact be the case and
that our electricity sales to independent REAS will not decrease as a result and
will not adversely affect our business, prospects, financial condition or
results of operations.

                                       9


THE COSTS WE ARE BEING CHARGED FOR RADIOACTIVE WASTE DISPOSAL MAY INCREASE

Under Czech law we are required to contribute funds to a "Nuclear Account"
administrated by the Ministry of Finance based on the amount of electricity we
produce in our nuclear power plants. This fund is used by the Radioactive Waste
Repository Authority (the "Repository Authority") to centrally organize,
supervise and undertake responsibility for all final disposal facilities and
deposition of nuclear waste therein.

We can give no assurance that the government will not increase the contributions
which the Nuclear Act requires us to pay into the Nuclear Account. Additionally,
if the cash amounts accrued in the Nuclear Account are not sufficient to pay the
final disposal costs, we may be required to pay additional amounts.

THE AMOUNTS WE HAVE TO KEEP IN A SPECIAL ESCROW ACCOUNT FOR FUTURE
DECOMMISSIONING OF OUR NUCLEAR POWER PLANTS MAY INCREASE; WE MAY BECOME LIABLE
FOR INCREASED COSTS OF FUTURE DECOMMISSIONING

Under Czech law we are required to keep funds in a special escrow account based
on the expected costs of future decommissioning of our nuclear power plants.
These funds can be used only for such decommissioning and only with the
permission of the Repository Authority.

We can give no assurance that our contributions to the special escrow account
will not increase as a result of increased expected costs of decommissioning or
other factors determining the amount of our annual contributions. Additionally,
if the cash amounts accrued in the special escrow account are not sufficient to
pay the decommissioning costs, we may be required to pay additional amounts.

OUR INSURANCE DOES NOT FULLY COVER OUR RISKS AND FACILITIES

We have limited insurance (e.g., property and machinery insurance) for certain
of our significant assets, including the Dukovany and Temelin nuclear power
plant. We can give no assurance that our business will not be adversely affected
by the costs of accidents or other unexpected occurrences at such facilities.

WE COULD INCUR SIGNIFICANT LOSSES IF WE SUFFERED A NUCLEAR ACCIDENT

In accordance with the Vienna Convention, the Nuclear Act provides that the
operator of a nuclear facility is liable for any damage caused by a nuclear
accident up to CZK 6 billion per accident. The Nuclear Act also provides that
operators of nuclear facilities, such as ourselves, are obligated to acquire
insurance covering potential liabilities for nuclear damages in an amount of not
less than CZK 1.5 billion. We have concluded insurance policies for both
Dukovany and Temelin which provide coverage at these amounts. However,
notwithstanding such limitation of liability and our additional coverage, any
nuclear accident at a nuclear power station could have a material adverse effect
on our business, prospects, financial condition or results of operations due to,
inter alia, potential shut-down of the nuclear facility involved in the accident
and the resulting loss of generation capacity, remedial and replacement expenses
and negative public response. In addition, as the Nuclear Act has not been
tested in court, we can give no assurance that judicial interpretations will be
consistent with its stated limitation of liabilities.

DEVALUATION OF THE CZECH CROWN AGAINST THE U.S. DOLLAR AND/OR EURO WOULD
NEGATIVELY IMPACT OUR BUSINESS; WE MAY SUFFER EXCHANGE RATE LOSSES IF CZECH
CROWN BECOMES SIGNIFICANTLY WEAKER TO U.S. DOLLAR AND/OR EURO, OR LOSSES DUE TO
HEDGING IF CZECH CROWN BECOMES SIGNIFICANTLY STRONGER

Majority of our revenues are denominated in Czech crowns and, after giving
effect to foreign exchange swaps, approximately one-third of our indebtedness is
effectively denominated in, and is expected to continue to be denominated in,
currencies other than the Czech crown. Consequently, we are exposed to currency
exchange risks that could impact our ability to meet our debt obligations and
finance our business. The Czech crown to euro exchange rate has been relatively
stable and there has been a trend of stronger Czech crown versus the U.S. dollar
in 2003 and the first quarter of 2004. However, we can give no assurance that
the stability against euro and the trends with respect to the U.S. dollar will
continue. Devaluation of the Czech crown against the U.S. dollar and/or euro
would result in a larger proportion of our revenues needed to service our
indebtedness denominated in currencies other than the Czech crown, including the
7 1/8% notes due 2007 issued by CEZ Finance B.V. and guaranteed by our Company
(the "Notes" and the guarantees provided by us the "Guarantees") which could
have a material adverse effect on our ability to service the Notes or other
indebtedness denominated in currencies other that the Czech crown.

                                       10


We have entered into foreign exchange swap transactions (principally U.S.
dollars and euro to Czech crowns) in order to reduce our exposure to the
exchange rate risk by adjusting our exposure to non-Czech crown denominated
liabilities. Although we intend to further reduce our exposure to exchange rate
risk by entering into other hedging transactions, we can give no assurance that
such hedging will be available or profitable.

Factors Relating to the Czech Republic

POLITICAL INSTABILITY IN THE CZECH REPUBLIC COULD NEGATIVELY IMPACT ECONOMIC
CONDITIONS IN THE CZECH REPUBLIC AND, CONSEQUENTLY, OUR BUSINESS

The next general elections for the Chamber of Deputies, the Lower House of the
Czech Parliament, are scheduled for 2006. The current political situation has
remained relatively stable as a result of the coalition among the Czech Social
Democratic Party ("CSSD"), a center-left party, which received over 30.2% of the
votes in the last election in 2002, and two other smaller center and
center-right parties. The second strongest party in the Chamber of Deputies is
the Civic Democratic Party ("ODS"), a center-right party, which received over
24.5% of the votes in the last election and is currently in the opposition. The
current coalition holds only a marginal majority in the Chamber of Deputies, and
it has minority of seats in the Senate, the Upper House of the Czech Parliament.
It cannot be ruled out that the current coalition will break up as a result of
different political opinions of its members or as result of other factors. On
March 7, 2003, Vaclav Klaus became the new President of the Czech Republic. Mr.
Klaus is a former chairman of ODS and this could have an impact on his political
decisions.

With respect to the macroeconomic environment in the Czech Republic, it may be
expected that drawing up the state budget for 2005 might be connected with
difficulties, since the cabinet will have to choose between substantial
restrictions of its expenses and setting a budget with a significant deficit.

We can give no assurance that changes to the current government, the creation of
a new government or early Parliamentary elections will not occur. The factors
described above may have an adverse effect on the overall stability of the Czech
Republic and subsequently on our business, prospects, financial condition or
result of operations. Moreover, any change in the government may affect the
structure of the presidium of the NPF, and/or the structure of the Supervisory
Board and the Board of Directors of our company.

IF THE CZECH ECONOMY PERFORMS POORLY, OUR BUSINESS WILL BE IMPACTED NEGATIVELY

Our revenues are sensitive to the performance of the Czech economy. Virtually
all of our assets and operations are located in the Czech Republic and we derive
the substantial majority of our electricity revenues from domestic sales.
Changes in economic, regulatory, administrative or other policies of the Czech
government, as well as political or economic developments in the Czech Republic
over which we have no control, could have a significant effect on the Czech
economy, which in turn could have a significant effect on our business,
prospects, financial conditions or results of operations or our ability to
proceed with our business plan.

The Czech Republic has experienced growing public finance deficits which could
potentially destabilize the Czech crown against foreign currencies, increase
inflation and increase the borrowing costs of the Czech Republic through lower
debt ratings, and for CEZ as well. While political parties in the Czech Republic
acknowledge this problem, they have not reached political accord on a solution.
Though the Czech crown is currently strong and the inflation low, we can give no
assurance that this will be the case in the future years.

WE COULD INCUR UNFORESEEN TAX PENALTIES AND/OR SANCTIONS

Changing interpretations of tax regulations by the tax authorities, extended
time periods relating to overdue liabilities and the possible imposition of high
penalties and other sanctions result in the tax risk for a Czech company being
significantly higher than in countries with more mature tax systems.

                                       11


Item 4.   Information on the Company

History and Development of the Company

CEZ, a.s. (the "Company" or "CEZ") was established on May 6, 1992 as a
joint-stock company organized under the law of the Czech Republic. We were
established through the aggregation of formerly state-owned companies into one
enterprise. The resulting company is the largest electricity generation company
in the Czech Republic in terms of installed electricity generation capacity and
one of the largest companies in the Czech Republic in terms of operating
revenues. We are governed by the provisions of Czech Civil and Commercial law
and are registered with the Commercial Register of the District Court for
Prague. Our headquarters is located in Prague, Czech Republic. Our U.S. agent's
name and address is CT Corporation System, 1633 Broadway, New York, New York
10019.

Our registered address is:

                                   CEZ, a. s.
                                  Duhova 2/1444
                                 140 53 Prague 4
                                 Czech Republic

                             Tel: +420 (2) 7113 1111
                          Internet address: www.cez.cz

Following the acquisition of majority stake in five REAS on April 1, 2003, we
created a new consolidated group consisting of a total of 94(1) companies as of
December 31, 2003. The core business of our consolidated group, which is
undertaken by 10 companies, is the generation, distribution, and sale of
electricity generated in our group's own facilities, and related provision of
power grid ancillary services. In addition to electricity generation and
distribution, businesses of individual companies in our group also include the
generation and sale of heat, mining of raw materials, telecommunications,
scientific research, as well as engineering and activities in the construction,
maintenance and upgrading of power plants.

All power plants that we operate are located in the Czech Republic. The total
installed capacity of our generation facilities as of December 31, 2003 amounted
to 12,297 MW. In 2003, we generated 61,399 GWh of electricity. Of this amount,
coal-fired plants accounted for 55.8%, our nuclear power plants accounted for
42.5%, and hydroelectric plants accounted for 1.7% of electricity produced. The
remaining electric power consumed in the Czech Republic comes from independent
power producers, self generators and imports. CEZ operates twenty-four(1) power
plants, including ten coal-fired plants, twelve hydroelectric plants and two
nuclear power plants while other members of our consolidated group operate a
number of small power plants with aggregate installed capacity of 144 MW. See
"Property, Plants and Equipment" on page 27. Of the quantity of electricity we
sold in the Czech Republic in 2003, we sold approximately 89.3 % to the REAS. We
also purchase electric energy from two independent producers on the basis of
long-term contracts (Sokolovska uhelna, a.s., and Harpen CR, s.r.o.) and from
traders (Energotrans, a.s., and Prvni energeticka a.s.).

------------------

(1)    For consolidation of financial statements please see "Notes to
       Consolidated Financial Statements."

(2)    The calculation of the number of plants that we operate varies depending
       on whether a plant is counted independently or as part of a larger
       organizational unit. The number of plants used herein is based upon
       larger organizational units than may appear elsewhere in our
       publications.

The following table sets forth a breakdown of the amounts of electricity that we
supplied and which was consumed in and exported from the Czech Republic from
2001 through 2003:

                                                            2001          2002          2003
                                                            ----          ----          ----
                                                                        (GWh)
Supplied:
Generated in-house (gross)............................    52,162        54,118        61,399
Purchased from other producers .......................     3,274         2,018        10,701
Purchase from (OTE *) - deviations....................         0           881         1,002

                                       12


Purchase from OTE* - organized spot trading...........         0            19             7
Purchases to cover own consumption....................        17            18            21
Purchased outside the Czech Republic..................       688         1,338           919
Purchased from electricity distribution companies.....         0             0            47
Purchased from traders................................         0             0         3,235
                                                       ------------   -----------  ------------
Total.................................................    56,141        58,392        77,331
                                                       ============   ===========  ============

Consumed:
Sold in the domestic market...........................    38,721        36,245        48,883
   Sold to electricity distribution companies.........    36,942        31,466        14,107
   Sold to OTE * - positive regulatory work...........         0         1,356           576
   Sold to OTE * - negative regulatory work...........         0          (385)         (481)
   Sold to OTE * - deviations.........................         0           137           809
   Sold to OTE * - organized spot trading.............         0           225           169
   Sold to eligible customers **......................         0            69         9,467
   Sold to protected customers **.....................         0             0        21,259
   Sold to traders ***................................         0         2,593         1,935
   Sold to CEPS to cover losses.......................     1,393           598           719
   Other domestic sales...............................       386           186           324
Exports...............................................    12,122        16,008        19,227
Trading outside of the Czech Republic (sales) ........         7           921           895
Total Sales...........................................    50,850        53,174        69,005
Other consumption of CEZ Group........................     5,231         5,218         5,665
Losses................................................        60             0         2,661
                                                       ------------   -----------  ------------
Total.................................................    56,141        58,392        77,331
                                                       ============   ===========  ============

*) Operator trhu s elektrinou, a. s. (Electricity Market Operator)
**) Customers pursuant to Section 28 of Act No. 458/2000 Coll. (Energy Act)
***) Electricity traders pursuant to Section 28 of Act No. 458/2000 Coll.
     (Energy Act)

In addition to electric power, we also generate heat, which we supply to
municipalities, district heating companies and industrial consumers via
steam/hot water pipelines that we operate with other persons. See "Heat
Generation" on page 17.

Until April 1, 2003, we also owned and operated through our subsidiary, CEPS,
a.s., approximately 2,902 kilometers (approximately 1,803 miles) of 400 kV and
1,441 kilometers (approximately 895 miles) of 220 kV high-voltage electrical
power transmission lines. These lines comprise all of the high voltage
transmission lines in the Czech Republic and transformers which reduce the
electrical voltage to 110 kV, the maximum voltage used in the distribution
networks owned by the REAS. See "Transmission of Electricity" on page 18 and
"Material Contracts" on page 60.

Breakdown of Revenue by Activity

The following table sets forth a breakdown of our principal activities together
with the revenue generated from such activities for the years 2001 through 2003:


                                                            2001          2002          2003
                                                            ----          ----          ----
                                                                     (CZK millions)

Electricity and Transmission Sales(1) ................    53,300        52,938        79,548
Heat Sales............................................     1,721         1,673         1,833
Other.................................................     1,034           967         3,435
------------

(1)   In 2002, our revenue from electricity sales amounted to approximately CZK
      41,021 million, and our revenue from transmission sales amounted to
      approximately CZK 11,917 million. After the sale of 66% of our shares in
      CEPS, a.s. on April 1, 2003, we do not account for our transmission sales
      separately and we have no comparable data available for 2003.
      Additionally, we do not account for our electricity sales from our
      nuclear, hydro-electric and coal-fired power plants separately.

                                       13


Electricity Generation

In 2003, we produced a total of 61,399 GWh of electricity, which represents
approximately 73.8% of the total electricity produced in the Czech Republic.
Revenues from electricity sales and transmission amounted to approximately CZK
79.5 million or 93.8% of our total revenue for 2003.

The following table provides information regarding our installed electricity
generating capacity at December 31, 2003 and the method of electricity
generation during the year ended December 31, 2003:


                                                            At December 31, 2003     Year Ended December 31, 2003
                                                          Installed       Installed     Electricity         Total
                                                           Capacity        Capacity      Generation    Production

                                                                (MW)             (%)           (GWh)           (%)
Coal-Fired Plants.....................................         6,603           53.7          34,342         55.8
Nuclear Plants........................................         3,760           30.6          25,872         42.5
Hydroelectric Plants, Wind(1) and Solar Power Plant(2)         1,934           15.7           1,185          1.7
                                                          -------------  -------------  --------------  -----------
Total.................................................        12,297            100          61,399          100
                                                          =============  =============  ==============  ===========


-----------

(1)  Power plant in the locality of Mravenecnik near the Dlouhe Strane
     hydroelectric power plant.
(2)  Included under the Dukovany power plant organizational unit.

Coal-Fired Power Generation

We own and operate ten (10) coal-fired power plants which are further described
below under "Property, Plants and Equipment" on page 27. In 2003, our coal-fired
plants generated 34,044 GWh of electricity representing 55.8% of our total
electricity production.

Our coal-fired plants have a diversified age profile, and we have a planned
program of regular repairs and overhauls for the generating units. In most
cases, parts of these units have already been completely reconstructed and
modernized. As of December 31, 2003, we had installed FBB or FGD equipment on
all of our coal-fired capacity and we have installed or refurbished
electrostatic precipitators (which reduce particle emissions) on all but two of
our coal-fired power plants. The coal-fired plants that we own and operate are
situated at various locations throughout the Czech Republic, the largest
concentration being in the lignite mining region in the northwest of the Czech
Republic. We have decommissioned the Ledvice I power plant, two units of the
Melnik II power plant and three units of the Tusimice I power plant. We decided
to decommission these plants because, in our judgment, we have sufficient
capacity to satisfy demand using our existing plants.

Types and Sources of Coal. The majority of our coal-fired power plants (95.5%)
utilize lignite. Currently only one of our power plants (and partially another
one) uses hard coal. We have four main domestic suppliers of lignite and one
domestic supplier of hard coal.

Most of our coal-fired power plants are located in the vicinity of the North
Bohemian brown coal basin. Conveyor belts from nearby mines directly supply coal
to three power plants, Ledvice II, Tisova I and II and Tusimice II. In other
cases, rail is primarily used to transport coal supplies over relatively short
distances. We maintain coal stocks at a general level of 16% of our annual
consumption at plants that are not in direct proximity to coal mines.

Coal Contracts. For the purchase of lignite we have entered into a number of
annual, five-year and fifteen-year contracts with Appian Group, a.s., Sokolovska
uhelna, a.s., Severoceske doly, a.s, Lignit Hodonin, s.r.o., GEMEC-UNION, a.s.
and with OKD, a.s, for the purchase of hard coal. We have signed a long-term
contract with Severoceske doly, a.s., and short term contracts with Severoceske
doly, a.s., Appian Group, a.s., Sokolovska uhelna, a.s. and Lignit Hodonin,
s.r.o. for lignite. We have signed a short term agreement with OKD, a.s. for
hard coal. See "Equity Interests of CEZ in Other Companies as of December 31,
2003" on page 27.

We generally enter into contracts for coal deliveries on the basis of tenders.
Short-term contracts resulting from such tenders fix prices for one year.
Long-term contracts are designed to fix amounts for a period of five years.
Although long-term contracts do not set specific prices, they contain guidelines
for setting prices.

                                       14


In October 1997, we signed a long-term contract with the largest producer of
lignite in the Czech Republic, Severoceske doly, a.s. In 1999, we increased our
stake in Severoceske doly, a.s. to more than one-third of the capital stock of
Severoceske doly, a.s. Severoceske doly, a.s. supplies more than 60% of our
total consumption of lignite. This contract covers supplies through the year
2015 and reserves certain amounts of stock through 2030. We purchase the largest
amount of coal in the Czech Republic.

The following table sets forth the rate of price increases (decreases) for which
we purchased lignite and hard coal as compared to inflation rates for the years
2001 through 2003:

         Year          Lignite (%)       Hard Coal (%)         Inflation(%)
         ----          ----------        -------------         -----------
         2001            0.8               14.1                   4.7
         2002            0.0                0.7                   1.8
         2003            0.0                0.0                   0.1

Although we have been in a good bargaining position vis-a-vis coal suppliers and
we have generally been able to keep increases in coal prices below increases in
the annual inflation rates, there can be no assurance that we will be able to do
so in 2004 or future years. The stagnation in lignite and hard coal prices in
2003 was influenced primarily by the low inflation rate, market conditions and
increased competitive pressures among suppliers.

For the importation of hard coal, an import license from the Ministry of
Industry and Trade of the Czech Republic is necessary. In instances in which we
were not able to obtain such an import license, we purchased hard coal supplies
from domestic sources.

We purchase limestone and lime for desulfurization facilities and fluidized-bed
boilers under long and medium-term contracts from a total of five domestic
suppliers. LOMY MORINA spol. s r.o. supplies approximately 48% of the total
amount. We hold 51.05% of the registered capital of LOMY MORINA spol. s r.o. We
hold 64.87% of the registered capital of KOTOUC STRAMBERK, spol. s r.o., which
supplies approximately 21% of our total limestone and lime needs at prices which
are renegotiated each year. These prices do not differ significantly from market
prices.

Historically, prices for lime, limestone and other raw materials have generally
risen, but such changes have not been material.

Taking into account geographical restrictions and current estimates of
coal-fired generation needs, we estimate there are sufficient lignite reserves
in the Czech Republic for the operation of our coal-fired power plants for
approximately 30 years.

Total expenses for lignite, hard coal, and biomass consumed in 2003 amounted to
CZK 10,824 million or 14% of our total operating expenses. Total expenses for
lime and limestone consumed in 2003 amounted to approximately CZK 683 million or
0.9% of our total operating expenses.

Final Disposal of Coal Waste. Pursuant to the 1997 Act on Wastes, effective from
January 1, 1998, and related regulations, we dispose of coal ash by depositing
it in landfills and disused shafts of existing mines. We sell some of the coal
ash residues to certain producers of building materials. In addition, we have
been selling a portion of the FGD gypsum remaining after the desulfurization
process to certain producers of construction materials. Although such sales have
not been material to our revenues, they represent an important element in our
environmental initiatives.

Sources of Working Materials. We select suppliers of caustic soda, sulfuric
acid, hydrochloric acid, technical gases, turbine and transformer oils and other
working materials on the basis of tenders. Individual power plants conclude
these supplier contracts. Our total expenditure for such supplies do not
represent a material portion of our overall expenses.

Nuclear Power Generation

We currently own and operate two nuclear power plants, one situated at Dukovany,
in the South Moravian District of Trebic and the second at Temelin, in the South
Bohemian district of Ceske Budejovice. We describe both

                                       15


Dukovany and Temelin in further detail below under "Property, Plants and
Equipment" on page 27 and "Capital Investments" on page 32. In 2003, our nuclear
power plants generated 25,872 GWh of electricity, including 12,117 GWh of
electricity produced by Temelin during testing, representing 42.5% of our total
electricity production.

Both nuclear power plants are equipped with VVER reactors. VVER is a pressurized
water reactor in which water acts as both the moderator and the coolant. The
design of a VVER plant is generally considered identical to the design of PWR
plants based on U.S. technology (in which water also acts as the moderator and
the coolant) and which is the most common reactor type commercially used around
the world.

Unlike analogous western nuclear power plants, the units of the Dukovany nuclear
plant have no full pressure containment, however the function of the barrier
which prevents escape of radioactive steam into the atmosphere in case of any
breach of the primary circuit (the sealed circuit comprised of the steel
pressure vessel containing the reactor, the steam generator and the connecting
pipe work) is ensured by hermetic zones complemented by bubbler tower which
prevents hermetic zones from overpressurizing. In the Temelin nuclear power
plant, both units are constructed with standard full pressure containment of
western type. The Dukovany and Temelin nuclear plants are designed to withstand
the maximum design accident caused by a breakdown of the primary circuit and are
designed to be able to reduce the pressure and temperature of steam escaping
from the primary circuit to the hermetic zones or containment by using spray
systems.

Dukovany Nuclear Power Plant. The construction of the Dukovany nuclear power
plant began in January 1979 and its four units became operational between May
1985 and July 1987. The power plant has been in continuous operation since 1985.
The power plant uses four Soviet designed VVER 440-213 pressurized water
reactors with a total installed electricity generating capacity of 1,760 MW.
Outside the former Soviet Union, such reactors are in operation in the Czech
Republic, Finland, Hungary, Bulgaria and the Slovak Republic.

The State Nuclear Safety Authority (the "Nuclear Safety Authority") grants
operating licenses that are renewable upon application. The following table sets
forth the status of licenses at the Dukovany power plant:

                 Unit             License Valid Until:
                 ----             --------------------
                  1                December 31, 2005
                  2                December 31, 2006
                  3                December 31, 2007
                  4                December 31, 2007

From its initial operation to December 31, 2003, the Dukovany nuclear plant has
generated approximately 224,396 GWh of electricity at an average load factor per
year of 82.96%.

Temelin Nuclear Power Plant. Our second nuclear power plant, currently at the
end of trial operation (Unit 1 since June 10, 2002 and Unit 2 since April 18,
2003), is located at Temelin in South Bohemia. It employs two VVER 1,000
pressurized water reactors, each with a capacity of 1,000 MW. See "Capital
Investments - Nuclear Power Plants" on page 35 for more information about the
Temelin power plant, including recent developments related to costs of
completion and time delays in the completion schedule. From its initial
operation to December 31, 2003, the Temelin nuclear plant has generated
approximately 18,714 GWh of electricity.

Nuclear Fuel Materials and Fuel Procurement. Nuclear fuel materials and services
(i.e., uranium, conversion and enrichment) are supplied to us mainly on the
middle and long-term contractual basis by several primary suppliers. The main
portion of our uranium needs has been covered from domestic sources up to now.
Since Czech uranium production has been continuously decreasing in recent years
with the perspective of almost full cessation in 2006, we will seek to cover our
future needs by increased purchases on the world market. We will aim to create
and maintain a diversified portfolio of uranium suppliers in a similar way as it
has already been established regarding conversion and enrichment services. One
of our important sources of uranium in the future will be Russia, as we plan to
purchase a substantial portion of nuclear fuel for the Dukovany nuclear power
plant as a package of all contained materials and services within the framework
of our long-term fuel contract with the Russian fabricator OAO TVEL. We expect
that in the near future we will start activities on securing supply contracts
for nuclear materials and services for the period after expiration of the
current contracts. Effective May 1, 2004, the day of entry of the Czech Republic
to the European Union, our procurement of nuclear materials and services became
subject of European Supply Agency (the "ESA") supervision, i.e. all new
procurement contracts must be concurred and co-signed by the ESA. However,
contracts being in force before May 1, 2004, will be grandfathered by ESA.

                                       16


Our long-term nuclear fuel supplier for Temelin is Westinghouse Electric
Corporation which produces nuclear fuel for us at its facilities in Columbia,
South Carolina. Deliveries of fresh fuel for Temelin nuclear power plant are
covered for the period of at least the three following years with an option to
extend the contract. We have started activities on securing supplies of fresh
fuel after expiration of the current contract. Shipments of nuclear fuel for the
Temelin nuclear power plant from Westinghouse are performed according to the
requested schedule agreed under the contract. First refueling at Unit 1 was
completed in March 2003 and at Unit 2 in April 2004. Regarding the Dukovany
nuclear power plant deliveries of nuclear fuel designated for transition for
"five-year fuel cycle" continue under very long-term commitments concluded with
Russian OAO TVEL.

Spent Nuclear Fuel Storage. Operation of an interim storage facility for spent
nuclear fuel which utilizes transport and storage containers licensed and used
in a number of countries (including the United States) at the site of the
Dukovany nuclear power plant became operational in December 1995. The capacity
of this facility is sufficient for the operation of the power plant until 2005.
A second stage of the construction of the interim storage facility for spent
nuclear fuel at the Dukovany power plant site is currently under preparation.
Upon the completion of this second stage, we expect that the capacity of the
interim storage facility will be sufficient for the planned life of the power
plant. In 1999 the State Office for Nuclear Safety issued a zoning permit for
the second stage storage facility for spent nuclear fuel and an environmental
impact assessment was completed. In 2000 we received a local zoning permit for
this interim storage facility and in 2001 we entered into an agreement for the
provision of storage containers for this facility. We received the construction
permit in 2003. We are also planning the construction of an interim storage
facility for spent nuclear fuel from the Temelin power plant at the Temelin
site. An underground interim storage facility at the Skalka site in South
Moravia is being considered as an alternative for the storage of spent fuel from
both power plants. A local zoning permit for this site was issued to us in March
2001. In 1999 we sold the repository for disposal of nuclear waste from the
operation of both Dukovany and Temelin nuclear power plants to the Repository
Authority (state agency). The Repository Authority has engaged us to continue
operating this repository located at Dukovany site.

Hydroelectric Power Generation

We operate twelve (12) hydroelectric power plants (small storage or pump
storage), which are described in individual detail under "Property, Plants and
Equipment" on page 27. In 2003, our hydroelectric power plants generated 1,018
GWh of electricity representing 1.7% of our total electricity generation.

Eight of these plants are situated on dams on the Vltava river creating a
cascade operation controlled by a central control system. The total of 1,868 MW
of hydroelectric power capacity that we operate represents an important and
cost-effective source of peak load generation for CEZ. In recent years, the
electricity consumption pattern in the Czech Republic has exhibited increasing
intra-day peak demand. Additional development of hydropower generation in the
Czech Republic is limited by the topography of the country and we currently are
not constructing and do not have plans to construct any new hydroelectric power
plants.

Hydroelectric power plants have a high degree of flexibility in the regulation
of their output. The ability to control conventional storage hydroelectric power
plants and pump storage plants centrally permits the hydroelectric plants to
commence operating very rapidly thereby facilitating our regulation of electric
output.

Neither conventional storage nor pump storage hydroelectric power plants release
polluting emissions into the atmosphere. These plants also represent an
inexpensive source of electric energy, particularly in periods of peak demand.
In addition, pump storage power plants allow the productive use of excess
electricity generated by base load plants by operating storage pumps in periods
of low demand.

Heat Generation

In general, heat is a by-product of the generation of electricity. We sell heat
to municipalities, district heating companies and industrial consumers. At the
present time, we are supplying heat from all of our coal-fired plants and both
of our nuclear power plants. Heat is supplied to customers via steam/hot water
pipelines operated by us and other persons. In 2003, sales of heat amounted to
CZK 1,833 million or 2.2% of our total revenues.

Transmission of Electricity

Until April 1, 2003 we controlled the electricity transmission grid in the Czech
Republic through our wholly-owned subsidiary, CEPS, a.s. See "Risk Factors" on
page 8. We operated through CEPS, a.s. a total of approximately

                                       17


4,477 km (approximately 2,782 miles) of transmission lines, of which
approximately 2,902 km operate at 400kV, 1,441 km operate at 220kV and 134 km
operate at 110kV, primarily in connecting the power plants to the transmission
grid. The efficiency of the transmission grid in the Czech Republic is
comparable to international standards. In 2002, transmission losses of the
high-voltage system that CEPS, a.s. operates amounted to 695 GWh representing
approximately 1.2% of transmitted electricity.

Currently, dispatching within the electrical power system of the Czech Republic
is carried out on a lowest cost producer basis for CEZ by a control center which
is a part of CEPS, a.s. This control center also coordinates the operations of
the transmission grid, as well as exchanges of electricity with other power
grids. This control center is allocated to CEPS, a.s.

On March 11, 2002 the Czech government decided to sell to us its shares in the
eight REAS (regional electric power distribution companies) held by the National
Property Fund and the Czech Consolidation Agency. The Czech government also
decided to purchase our 66% share in our transmission subsidiary CEPS, a. s. The
transactions were approved at our shareholder's meeting held on June 11, 2002.
On March 20, 2003, we received an affirmative opinion from the Czech
Anti-Monopoly Office approving the sale of the distribution companies to us.
After the fulfillment of this last condition precedent for the integration of
the electric power industry, we signed promissory notes on March 28, 2003, and
on April 1, 2003 the transfer of the shares of the eight distribution companies
to us was consummated. Concurrently, we transferred a 51% share in CEPS, a. s.
to OSINEK, a. s., a wholly-owned subsidiary of the National Property Fund, and a
15% share in CEPS, a. s. to the Ministry of Labor and Social Affairs. After
netting the price we should pay for the REAS against the price that we should
receive for CEPS, a.s., we are required to pay the National Property Fund
approximately CZK 15.2 billion by mid-2006. As requested by the National
Property Fund, we accelerated the repayment and the last installment of CZK 3.7
billion will be repaid on June 30, 2004. See "Material Contracts" on page 60.

In its affirmative decision on the sale of REAS to us, the Czech Anti-Monopoly
Office stated three conditions which we are required to fulfill and which were
in the opinion of the Czech Anti-Monopoly Office necessary for the protection of
economic competition in the electricity distribution market in the Czech
Republic:

     o    We have to dispose of our remaining 34% share in CEPS, a. s. to the
          Czech government;

     o    We have to dispose of a majority share in one of the REAS in which we
          acquired majority shares. The Anti-Monopoly Office did not specify
          which REAS in particular we should sell, and therefore we can choose
          to sell any of Severoceska energetika, a.s., Severomoravska
          energetika, a.s., Vychodoceska energetika, a.s., Zapadoceska
          energetika, a.s., or Stredoceska energeticka, a.s. Our Board of
          Directors decided to sell Severoceska energetika, a.s.; and

     o    We have to dispose of all our minority shares in the three REAS in
          which we hold such minority shares, namely in Jihoceska energetika,
          a.s., Jihomoravska energetika, a.s., and Prazska energetika, a.s.

As regards deadlines in which we have to fulfill these conditions, the original
non-binding decision of the Anti-Monopoly Office issued on December 10, 2002
stated that we have to fulfill the conditions within one year after the decision
becomes binding and effective. We appealed this non-binding decision, and in the
final, binding and effective decision of the Anti-Monopoly Office that was
issued on March 20, 2003 the deadlines for fulfillment of the above conditions
were extended. This gives us greater latitude in finding suitable purchasers of
the relevant shares and in negotiating conditions which would be advantageous to
us. We can however give no assurance that we will actually achieve advantageous
conditions for the disposals, primarily because of the fact that the number of
potential purchasers is limited. Also, these potential purchasers know that we
are obliged to dispose of the relevant shares in REAS and they may attempt to
use this against us in the negotiation process.

After we satisfy the above conditions, out of the eight REAS, we will hold
majority shares in four of them (Severomoravska energetika, a.s., Vychodoceska
energetika, a.s., Zapadoceska energetika, a.s., or Stredoceska energeticka, a.s.
if we sell Severoceska energetika, a.s.), and we will have no share interest in
the remaining four. Also, we will have no ownership interest in CEPS, a.s.

We have already fulfilled our obligation in relation to our two minority
interests by swapping our minority shareholding interests in Jihoceska
energetika a.s. and Jihomoravska energetika, a.s. with E.ON Czech Holding AG
("E.ON") for minority interests in Zapadoceska energetika, a.s. and Vychodoceska
energetika, a.s.

                                       18


In 2003, we compulsorily bought out minorities in Stredoceska energeticka, a.s.,
Zapadoceska energetika, a.s., and Vychodoceska energetika, a.s., for CZK 4.5
billion.

As of March 2004 we have still to sell minority stakes in Prazska energetika,
a.s., CEPS, a.s., and a 51.0% stake in Severoceska energetika a.s. At the
beginning of May 2004, we have announced a tender offer for sale of our minority
stake in Prazska energetika, a.s. Currently, there are more than 20 participants
in the tender offer and we expect the sale to take place by the end of year
2004. Also, we are considering our options regarding the sale of our minority
interest in CEPS, a.s. and we expect to sell this minority interest also by the
end of 2004. We are currently exploring possibilities for Severoceska energetika
a.s. to remain in our Company's group despite the original ruling of the Czech
Anti-Monopoly Office, such as an amendment to this ruling. We remain however
committed to selling our stake in Severoceska energetika a.s. as required by the
original ruling of the Czech Anti-Monopoly Office if we are unable to find a
solution how to keep Severoceska energetika, a.s. as a part of our Company's
group.

Exports, Imports and International Exchange of Power

In 2003, we only imported 1 GWh on behalf of the Czech grid operator CEPS, a.s.

In 2003, our revenues from electricity exports amounted to CZK 13.3 billion or
approximately 16.7% of revenues from electricity sales. In 2003, we exported a
total of 19,227 GWh. Our high-voltage transmission grid is inter-connected with
the transmission grids of Germany, Poland, Austria and the Slovak Republic. We
exported electricity to or via all of above mentioned countries on the basis of
both short and long-term contracts. We consider exports to be an important part
of our revenues and we intend to seek further opportunities for expanding and
diversifying our exports in the future. However, our export sales in 2003 set
our record, and we do not expect such high export activities in future.

Sales of Power

CEZ sells most of the electricity it supplies (approximately 62 % of total
revenues from electricity sales in 2003) to the eight REAS. In 2003 our direct
sales of electric power to the regional distribution companies increased by
3,448 GWh in comparison with 2002, an increase of 11%. Our total sales in the
domestic market increased by 2,848 GWh, an increase of 8%.

Changing Conditions in the Electricity Market.

In accordance with the Energy Act, starting from January 1, 2002, a gradual
liberalization of the electricity market was initiated in the Czech Republic.
The electricity market is based on regulated access to the transmission grid and
the distribution systems. The participants in the electricity market include
power-generation companies, the operator of the power transmission grid, the
market operator, the commodities exchange, traders, and end customers. On
January 1, 2003, the second group of end customers (customers with an annual
consumption in excess of 9 GWh) obtained the status of eligible customers with
the right of access to the transmission grid and the right to choose their
supplier of electricity. Government regulated prices for electricity apply only
to protected customers (those who are not yet able to choose their electricity
supplier), to prices for the transmission and distribution of electricity, and
to system-related prices (the prices of network monopolies).

We responded to these new conditions, under which the market for domestic power
producers had been fully opened up and it became possible to secure power from
foreign competitors, by selling electricity in a completely new and
fundamentally different way. Under the brand name "Duhova energie" (Rainbow
Energy), we offered electricity in the domestic market in the form of
standardized products similar to those being traded in the liberalized European
markets. The structure of the offered products consists of "building blocks"
from which the customers can build the required supply regime. The structure of
this offer makes it possible for all of the regional distribution companies to
fully satisfy not only the requirements of the protected customers, to whom the
law obligates them to supply electricity, but to also fully satisfy other
requirements for delivery of electricity from us.

We have offered several "Duhova energie" products to the distribution companied
on the domestic market. Approximately 90% of the domestic market sales targets
for "Duhova energie" were achieved before the year 2003 started. In the course
of 2003, we also used our available power production capacities for immediate
sales of electricity on the Czech spot market that is organized by the
Electricity Market Operator (Operator trhu s elektrinou, a. s.) and for the sale
of electricity on the basis of bilateral agreements that were concluded for such
purpose. We were selling electricity on the Czech and Moravian Commodities
Exchange in Kladno as well.

                                       19


Electricity exports represented an important component of our business
activities, one which had an impact on the overall volume of electricity sold in
2003.

Ancillary Services.

In order to ensure system-related services, CEPS, a. s., the operator of the
transmission grid, announces tenders for the purchase of ancillary services, and
based on the results of such tenders concludes bilateral contracts with the
providers of such services, and also organizes a short-term (daily) market for
ancillary services. In 2003, a total of ten companies, including us, offered
ancillary services. We successfully presented our bids for such tenders and also
successfully engaged in trading in the short-term market for ancillary services.

Insurance Matters

We maintain several types of insurance against damage of our property and
against our potential liabilities. These include property insurance of
conventional power plants, property insurance of nuclear power plants, nuclear
liability insurance, other liability insurance and other property insurance. Our
insurance coverage complies with the Act No. 18/1997 Coll. (the "Nuclear Act")
and the Vienna Convention on Civil Liability for Nuclear Damage (the "Vienna
Convention") requirements in respect of responsibility for damage caused by a
nuclear incident.

Our coal-fired plants and hydroelectric plants are covered by property insurance
since June 1, 1997. In 2001, we extended the insurance policy for another three
years. The policy covers any and all property of the power plants (except for
land) duly kept in our accounts. In 2002, the covered risks were reduced to
"general natural hazards" and "machinery breakdown". As a result of developments
in the international insurance and reinsurance markets, the premium has grown
significantly over the past two years with the coverage being diminished at the
same time. Currently, the maximum coverage under the policy is CZK 2 billion,
and the deductible per event is CZK 50 million. Damages we suffered as a result
of floods in August 2002 have had an unfavorable impact on the amount of
premium. The floods damaged the majority of our hydro-electric power plants on
the Vltava river and the coal-fired power plant in Melnik. Liquidation of these
damages has been completed at the end of 2003; the amount of damages accepted
and covered by the insurers was CZK 766 million.

Pursuant to the Nuclear Act and the Vienna Convention, we are obliged to arrange
insurance of liability for nuclear damages caused by operation of nuclear power
plants and liability for nuclear damages caused during the transport of fresh
nuclear fuel. The Nuclear Act also stipulates limits of operators' liability for
nuclear damages and the minimum limits of liability insurance. As regards
liability for operation of a nuclear facility, the operator is liable for
nuclear damages up to CZK 6 billion and must be insured at least for CZK 1.5
billion. As regards transport of fuel, the maximum liability is CZK 1.5 billion,
and the operator must be insured at least for CZK 200 million. As a rule,
liability insurance for nuclear damages is concluded separately for each site
and transport of fuel with the Czech Nuclear Pool.

In accordance with the requirements of the Nuclear Act, we have concluded a
nuclear third party liability policy for damages connected with the operation of
the Dukovany and Temelin nuclear power plants covering damages up to CZK 1.5
billion, and insurance policies covering the nuclear third party liability up to
CZK 200 million for transport of nuclear fuel to the Dukovany and Temelin power
plants.

We maintain insurance policies that cover all property of both Temelin and
Dukovany nuclear power plants. These insurance policies were concluded under
different conditions of risk coverage, in particular with different limits of
insurance proceeds and various deductibles. Property insurance policy for the
Dukovany nuclear power plant was concluded as of December 31, 1998 with the
maximum coverage of CZK 3 billion, and the deductible per event CZK 80 million.
For Temelin, property insurance policy is effective from July 5, 2000, the
maximum coverage is CZK 35 billion, and the deductible per event is CZK 180
million.

All insurance policies for Dukovany and Temelin nuclear power plants are
maintained with the Czech nuclear pool, which is an association of about 10
major insurance companies in the Czech insurance market and which enjoys a
monopoly on nuclear risk insurance. The leader of the Czech Nuclear Pool is
Ceska pojistovna, a.s. Through reinsurance, the Czech Nuclear Pool assigns the
majority of risk to other approximately 20 national nuclear pools all over the
world.

Apart from the above, we maintain other insurance policies, including directors
and officers liability insurance to cover certain damage caused to the third
parties by members of the Board of Directors, Supervisory Board and other

                                       20


management bodies of our Company and our subsidiaries (including in some cases
subsidiaries in which we gave minority shares).

Seasonality

The electricity generation business is seasonal, with electricity consumption in
the Czech Republic increasing during the colder winter months and decreasing
during the warmer summer months. Accordingly, sales of electricity and our
revenues are generally higher in the first and fourth fiscal quarters than in
the second and third fiscal quarters. In addition, unusually warm weather during
the winter months in any single year can negatively affect our revenues during
such year.

Dependence on Intellectual Property

We own a number of registered tradenames and trademarks, including the marks for
"CEZ" and our company logo. In 2002, we introduced the new brand "Duhova
energie". Our tradenames and trademarks are not of material importance to our
operations.

Economic, Fiscal, Monetary or Political Policies or Factors Which Impact Our
Business

Effect of Czech Economy on Electricity Demand

Our revenues are sensitive to the performance of the Czech economy. Virtually
all of our assets and operations are located in the Czech Republic and we derive
most of our electricity revenues from domestic sales. The Czech Gross Domestic
Product ("GDP"), annual rate of inflation and demand for electricity has
fluctuated as follows for the period from 1999 through 2003:

                               1999        2000       2001       2002     2003
                               ----        ----       ----       ----     ----
          GDP                  0.5%        3.3%       3.1%       2.0%     2.9%
          Inflation(1)         2.1%        3.9%       4.7%       1.8%     0.1%
          Electricity
          Demand              (2.6)%       2.8%       2.8%      (0.2)%    2.1%
          -------------

          (1)  As measured by the consumer price index reported by the Czech
               Statistical Office.

Electricity Demand

Electricity demand is the net consumption of the final consumer, which does not
include transmission losses and self-consumption (including electricity used by
pump storage facilities). In 2003, when GDP rose by 2.9%, industrial demand
increased by 1.6%, residential demand by 2.7% and commercial demand by 3.3%.
Overall electricity demand increased in 2003 by 2.1%. Residential and consumer
demand increased as a result of higher average temperatures in June and August
(by 3.8 degree Celsius) and lower average temperatures during first four months
in 2003 (by 2.2 degree Celsius). Adjusted for the weather, the overall growth in
electricity demand was 1.7%.

Inflation

The rate of inflation in the Czech Republic was 2.1% in 1999, 3.9% in 2000, 4.7%
in 2001, 1.8% in 2002 and 0.1% in 2003. Businesses, in general, are adversely
affected by inflation because amounts retained after the payment of costs are
inadequate to replace the productive assets consumed. Electricity companies in
the Czech Republic in particular have been especially affected as a result of
their capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent environmental requirements. Because the accounting and
the revenue establishment processes followed by our regulators limit the amount
of depreciation expense to the original cost of utility plant investment, the
resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of stockholders'
equity previously invested. Further, prices charged by us to the REAS have
increased at a rate substantially lower than the rate of inflation. We are
attempting to offset the adverse effects of inflation by reducing employee
levels and by attempting to keep price increases with respect to fuel and other
goods and services at levels less than the inflation rate.

                                       21


A large portion of our debt is denominated in foreign currencies while
substantial part of our revenues (approximately 75.8%) are in Czech crowns.
While we have hedged against currency fluctuations to a certain degree, the
value of the Czech crown has an impact on our financial results. In the first
quarter of 2004 the value of the Czech crown has decreased against the U.S.
dollar and remained at the same level against euro. We can give no assurance
that this trend will not continue (with respect to U.S. dollar) or that it will
not be reversed (with respect to Euro) and that such events will not affect our
financial results adversely.

Czech National Property Fund

The Czech National Property Fund, a property holding agency of the Czech
Republic accountable to the Czech Parliament (the "Parliament"), owns
approximately 67.6% of our outstanding voting shares. See "Major Shareholders
and Related Party Transactions" on page 55. The NPF is headed by a presidium,
members of which are appointed by the Chamber of Deputies, which is the lower
chamber of the Parliament.

The NPF is a legal entity established pursuant to a special law of the Czech
Republic that is accountable to Parliament. The Czech government established the
NPF in 1991 for the purpose of, among other things, holding shares of
state-owned companies during the distribution and sale of their shares pursuant
to government resolutions on a company's privatization. The NPF is managed by a
presidium consisting of nine members. The Minister of Finance is the chairman of
the presidium and the Chamber of Deputies appoints the remaining members of the
presidium.

The NPF, as the majority shareholder of CEZ, nominates and elects two-thirds of
the members of our Supervisory Board. Czech law requires that our employees
elect one-third of the members of the Supervisory Board. Our Supervisory Board
elects members to the Board of Directors. For a description of the powers and
responsibilities of members of the Board of Supervisors and Board of Directors,
see "Item 10. Additional Information" on page 57.

The NPF has historically appointed the Minister of Industry and Trade as a proxy
to exercise its voting rights in respect of our shares held by the NPF.

The NPF is under the direct control of the government. The NPF owns property,
including equity interests, transferred to it in accordance with privatization
decisions. The NPF holds significant equity interests in certain of our
subcontractors, including Czech coal suppliers and equipment contractors and
suppliers for the Temelin nuclear power plant. Consequently, certain of our
decisions and the decisions of our suppliers and contractors which are mandated
by the NPF reflect Czech Republic government policy. We can give no assurance
that these decisions will not adversely affect our business, prospects,
financial condition or results of operations.

Primary Regulators

The primary regulators of the energy industry in the Czech Republic are the
Ministry of Industry and Trade, the State Energy Inspection, the Ministry of
Environment, the Czech Environmental Inspection, the Energy Regulatory Office
and the Nuclear Safety Authority. The Ministry of Industry and Trade and the
Energy Regulatory Office have the authority to grant and cancel authorization to
engage in business in the energy industry and to issue regulations to implement
certain provisions of Act No. 458/2000 Coll. (the "Energy Act"), effective as of
January 1, 2001. The Ministry of Industry and Trade also develops the energy
policy for the Czech Republic and ensures that we comply with the Czech
Republic's obligations resulting from international agreements and treaties or
obligations resulting from membership in international organizations. The State
Energy Inspection, which operates under the Ministry of Industry and Trade, is
responsible for enforcing compliance with the Energy Act.

On June 1, 2002, a new Clean Air Act on the protection of air quality entered
into force. The Clean Air Act introduces provisions for a "smog situation" where
the air is extremely polluted such that the level of air pollution is so high
that even a short-term situation may cause a risk of damage to human health or
the ecosystem. The emergence of a smog situation is announced publicly by the
Ministry of the Environment which is authorized to temporarily restrict or
suspend the operation of power generation sources that account for the largest
share of air pollution irrespective of whether a particular source meets general
air pollution limits or meets the specific air pollution limits stipulated by
the Czech government for individual power generation sources. Every operator of
an air pollution source (such as ourselves) must comply with the limits so
stipulated. The Czech Environmental Inspection monitors compliance and may
impose fines for exceeding pollution limits and may prohibit the operation of a
pollution source that exceeds the applicable emissions limits. The Clean Air Act
also authorizes regional

                                       22


authorities to set, on the basis of a formula specified in the act, annual air
pollution fees to be paid by the operator of each pollution source.

The Czech government established the Energy Regulatory Office to support
economic competition and protect consumers' interests in energy sector areas
where competition is limited or impossible. The Energy Regulatory Office grants
and revokes energy producer licences and regulates energy prices. The Energy
Regulatory Office also sets quality and service standards, determines the rules
regarding the organization of the electricity market and sets pricing
principles. In addition, the Energy Regulatory Office resolves disputes arising
from the failure to conclude agreements between individual licence holders
and/or their customers.

Effective as of January 5, 2001, the Czech government transferred the authority
to set electricity prices, as well as gas and heat prices, to the Energy
Regulatory Office pursuant to Act No. 526/1990 Coll. (the "Act on Prices"). The
Czech government controls the Energy Regulatory Office. Consequently, the
electricity prices set by the Energy Regulatory Office reflect Czech Republic
government policy.

The Nuclear Safety Authority supervises nuclear-related activities in general
and in particular the safety of nuclear facilities. The approval of the Nuclear
Safety Authority is required for the operation of nuclear facilities.

Energy Act

The Energy Act regulates the electricity, gas and heat industries in the Czech
Republic. Pursuant to this Act, the Ministry of Industry and Trade and the
Energy Regulatory Office authorize activities in such industries and determine
the rights and obligations of authorization holders. Under the Energy Act and
the related regulations promulgated by the Ministry of Industry and Trade and
the Energy Regulatory Office, a company must be authorized to operate in the
energy industry. Before receiving an authorization an applicant must
demonstrate, amongst others, its financial, technical and material qualification
for the exercise of the authorized activity, and that such activity does not
harm the environment (as defined in environmental regulations).

The Nuclear Safety Authority must also approve any nuclear electricity
generation facility before the Energy Regulatory Office may authorize such
facility. The Energy Regulatory Office has authorized us to operate nuclear
facilities for power generation. The Energy Regulatory Office has also
authorized us to operate power generation, power transmission, heat generation
and heat distribution facilities.

Pursuant to the Energy Act, the Ministry of Industry and Trade and the Energy
Regulatory Office each act independently as the state regulatory authorities and
the State Energy Inspection acts as the supervisory body of business activities
in the energy industry. The Ministry of Industry and Trade and/or the Energy
Regulatory Office can regulate our activity and investment in resources and
transmission lines with the aim of achieving a competitive environment depending
on the extent of the investment. The Ministry of Industry and Trade and/or the
Energy Regulatory Office can also monitor our capital investment plans and
activities.

Liberalization of the Electricity Market

The Czech government passed the Energy Act with the aim of harmonizing Czech Law
to EU requirements. The Energy Act establishes rules for the liberalization of
the Czech electricity market with the aim of securing the reliable and efficient
supply of electricity while protecting the environment. The new rules regulate
access to the transmission system and the distribution systems and allow the
operation of independent electricity generating plants and transmission lines.
Regulated third-party access of electricity transmission and distribution began
on January 1, 2002.

The Energy Act liberalized the Czech electricity market in a step-by-step
fashion that can be summarized as follows (there was an amendment to the Energy
Act adopted on August 6, 2003 which slightly increased the pace of
liberalization):

     o    starting January 1, 2002, if an electricity end user's electricity
          consumption at one supply point exceeded 40 GWh (including
          self-generated electricity) in the year 2000 (or in the one-year
          period from July 1, 2000 to June 30, 2001), then such user may choose
          its electricity supplier (and prices) from those electricity license
          holders producing more than 10 MW of electricity per year;

                                       23


     o    starting January 1, 2003, if an electricity end user's electricity
          consumption at one supply point exceeded 9 GWh (including
          self-generated electricity) in the year 2001 (or in the one-year
          period from July 1, 2001 to June 30, 2002), then such user may choose
          its electricity supplier (and prices) from all electricity license
          holders;

     o    starting January 1, 2004, if an electricity end user's delivery point
          is equipped by the continuous consumption meter, then such user may
          choose its electricity supplier (and prices) from all electricity
          license holders. Distribution companies are obliged to install such a
          metering devise if the end user reserves the maximum connection
          capacity 250 kW.

     o    starting January 1, 2005, all end users except households may choose
          electricity suppliers (and prices) from all electricity license
          holders.

     o    starting January 1, 2006, all end users may choose electricity
          suppliers (and prices) from all electricity license holders.

For further discussion of the changing conditions in the Czech electricity
market, see "Sales of Power" on page 19.

Nuclear Act

On June 24, 1994, the Czech Republic became a party to the Vienna Convention on
Third Party Liabilities for Nuclear Damage. On the basis of the principles of
the Vienna Convention, the government initiated, and Parliament enacted, the
Nuclear Act. The Nuclear Act came into force on July 1, 1997 and was amended in
January 2002 (with the majority of the amendments taking effect from July 1,
2002). In accordance with the Vienna Convention, the Nuclear Act determines that
only the operator of a nuclear facility is liable for any damage caused by a
nuclear accident and that the operator's liability for such damage is limited to
CZK 6 billion per accident. The Nuclear Act also prescribes that operators of
nuclear facilities (such as our Company) are obligated to acquire insurance
covering potential liabilities for nuclear damages in an amount of not less than
CZK 1.5 billion. The Dukovany power plant is fully insured in accordance with
the Nuclear Act and the Vienna Convention. Insurance covering the Temelin plant
in accordance with the Nuclear Act and Vienna Convention has been in effect
since the date fuel was loaded in the Temelin reactors

The Nuclear Act requires the Ministry of Industry and Trade to establish the
Repository Authority (the Radioactive Waste Repository Authority), as the
central organizer and operator of facilities for the final disposal of spent
fuel and other nuclear waste. The Repository Authority was established on June
1, 1997. The Nuclear Act provides that an owner of nuclear waste (such as our
Company) will remain responsible for all storage costs of nuclear waste, but
that the Repository Authority will centrally organize, supervise and be
responsible for all final disposal facilities and deposition of nuclear waste
therein. The establishment and activities of the Repository Authority are
financed through a special fund or "Nuclear Account" funded by the producers of
nuclear waste. We contribute CZK 50 per each MWh produced in our nuclear power
plant to the Nuclear Accout. Since October 1, 1997 we have made regular payments
to the Nuclear Account based on the nuclear MWh generated. Since 1997 until the
end of December 2003 we have paid CZK 4.7 billion to the Nuclear Account.

The Nuclear Act does not expressly indicate whether the Repository Authority
will be liable for nuclear accidents involving nuclear waste under its
supervision. The Nuclear Act, however, contains a provision to the effect that,
subject to the conditions of the Nuclear Act, the Czech Republic shall guarantee
the safe final disposal of nuclear waste.


Nuclear Safety Authority

Under Czech law, the Nuclear Safety Authority is responsible for state
administration and supervision of utilization of nuclear energy and ionizing
radiation. It shall carry out supervision of the nuclear safety, radiation
protection, physical protection and emergency preparedness of nuclear
installations. The Nuclear Safety Authority supervises compliance with relevant
regulations and decrees and reviews our operating documents, safety reports
regarding the operation of nuclear facilities, the quality of selected
facilities, repair and maintenance and personnel training. The Nuclear Safety
Authority representatives (local inspectors) are permanently on site at Dukovany
and Temelin to monitor the facility's performance and compliance with safety
standards and operating procedures, and to make recommendations for improvements
where appropriate. Safe operation at Dukovany and Temelin is controlled

                                       24


through approval by the Nuclear Safety Authority of various documentation (such
as technical specifications, etc). Compliance with regulations and requirements
set out in approved documentation is plant responsibility. The Nuclear Safety
Authority carries out its supervision through inspections. In 2003, there were
246 inspections at the Dukovany nuclear power plant and 96 inspections at the
Temelin nuclear power plant. In its Annual Reports on nuclear safety and
protection against radiation presented to the government of the Czech Republic,
the Nuclear Safety Authority has evaluated the operation of the Dukovany nuclear
power plant as reliable and safe. Since their initial operation, the Dukovany
and Temelin nuclear power plants continuously monitor (under supervision of
Nuclear Safety Authority) levels of radiation in the immediate vicinity of the
plants. To date, results of monitoring in the ventilation outlets and in the
drains of the plants have indicated that radiation levels remain below statutory
limits and, in the majority of cases, considerably below these limits.

IAEA, WANO

The Czech Republic is a member of the International Atomic Energy Agency
("IAEA"), a United Nations inter-governmental agency. We are also a member of
the World Association of Nuclear Operators ("WANO"), and, like other members of
such organization, submit our nuclear power plant to periodic peer review by
members of such association. A peer review mission carried out by WANO at the
Dukovany nuclear power plant in 1997 commended the power plant for a high level
of operation. As it is practice for such peer reviews, we have implemented the
recommendations of the WANO peer review mission. In 1999 a WANO peer review
verified whether its recommendations had been implemented. Such inspection
concluded that its recommendations were being implemented according to the
recommended timetable. Similar WANO peer review mission is scheduled at Temelin
plant for the end of 2004.

As a result of the Czech Republic's membership in the IAEA, the IAEA carried out
an on-site IAEA assessment mission (ASSET mission) in October 1993 in order to
evaluate the Dukovany nuclear power plant's operation with respect to failures,
investigation thereof and remedial action in respect thereto. The IAEA mission
commended Dukovany for a high level of operational safety, citing, among other
things, a low occurrence of nuclear safety related incidents and the reduction
of such incidents over the years immediately preceding the study. The next IAEA
OSART mission of the Dukovany power plant which was initially scheduled for 1999
was rescheduled for November 2001. In November 2001, Dukovany underwent an
Operational Safety Review Team (the "OSART") review. Dukovany received several
"recommendations" "suggestions", which in overall put the plant among well
operated nuclear power plants. Based on the review, Dukovany prepared action
plan and fulfils it. In October 2003, a follow-up OSART mission was held to
review implementation of its earlier recommendations and stated excellent
fulfillment of previous recommendations. In February 2001 Temelin underwent an
IAEA inspection (of the PRE OSART type), the results of which commended Temelin
for its level of safety. As is usual with such inspections, the mission made
recommendations regarding additional safety measures and suggested improvements
which were already implemented. The main conclusions of the mission were
positive (commitment of Temelin managers to improve operational safety and
reliability, highly professional plant staff, plant material condition and
housekeeping in accordance with good international practices). A follow up OSART
mission took place at the end of 2003. The conclusions states that the OSART
team was impressed with the actions taken in most areas to resolve the findings
of the original mission. In November 2001, Temelin also underwent different IAEA
review mission focused on resolution of safety issues recommended for
implementation at VVER-1000 reactors. This mission concluded that most of the
IAEA recommendations have been fully implemented and a few improvements are in
an advanced stage of implementation. The resolution of these improvements,
however, should not preclude safer operation of the Temelin power plant. The
IAEA review also noted that in some areas Temelin exceeds generally applicable
safety standards. In April 2002, a mission IPPAS (International Physical
Protection Advisory Service) performed final physical protection assessment of
Temelin. The final report evaluated well the physical protection of the nuclear
plant and stated that the level of the protection is adequate to the current
international standards. In March 2003, a Site Seismic Hazard Assessment mission
took place in Temelin to perform final seismic hazards assessment. The final
report of this mission did not contain any negative conclusions as to the
seismic hazard at Temelin.

In 1991, IAEA and the Nuclear Energy Agency of the OECD introduced a seven-grade
international nuclear events scale ("INES"), an internationally recognized
standard used to inform the public of the safety significance of a nuclear
event. Grades 5 to 7 mark accidents with a significant radiation exposure
off-site, while grades 2 through 4 signify events with effects on the nuclear
facilities only. Grade 1 means a deviation from normal operation and Grade 0 an
incident not related to safety. According to this scale applied retrospectively,
the Dukovany nuclear power plant has experienced since 1999 until the end of
2003 only 5 incidents assessed Grade 1 and no incident assessed Grade 2 or
higher. The Temelin nuclear power plant has experienced throughout its lifetime
5 incidents assessed Grade 1 and no incident assessed Grade 2 or higher

                                       25


To enhance the performance of and safety at the Temelin nuclear power plant, we
introduced a large modification program in the period of construction and
commissioning. Main improvements are the instrumentation and control system
replacement and supply of nuclear fuel assemblies in accordance with new design.
Affiliates of the Westinghouse group were selected to supply this system. It is
a requirement of the Nuclear Safety Authority and a contractual condition of the
Company that the components comply with the relevant licensing standards of
their countries of origin as well as the standards applicable in the Czech
Republic. We believe that due to this modification program Temelin nuclear power
plant has reached a technical level assuring compliance with not only existing
Czech law and IAEA safety recommendations, but also a level comparable with the
standards and recommendations of the U.S. Nuclear Regulatory Commission. This
fact was confirmed by several international assessments.

European Monetary Union

The Treaty on European Economic and Monetary Union provides for the introduction
of a single European currency, the euro, in substitution for the national
currencies of the member states of the EU that adopt the euro. The euro became a
reality on January 1, 1999 when irrevocable conversion rates were set between
the national currencies of the 11 member states of the EU that have qualified to
participate, and have elected to participate, in the euro at this time and when
foreign exchange operations in the euro commenced. In the near term, the
introduction of the euro has not had a material effect on our results of
operations, cash flow or financial condition. However, we will continue to
monitor closely developments with respect to the introduction of the euro. In
the long term, however, we believe that adoption of the euro might reduce our
risk exposure to currency exchange fluctuations and the management of foreign
currency risk.

European Union

In March 1998, Czech Republic launched negotiations with the European Union on
becoming a member state of the European Union. The negotiations were
successfully concluded on December 13, 2002 and on April 16, 2003 the Accession
Treaty was signed between the European Council and the Czech Republic. The
treaty was subject to ratification by all member states of the European Union
and all candidate countries. A referendum in the Czech Republic was held on June
13 and 14, 2003 and the citizens of the Czech Republic approved the accession of
the Czech Republic to the European Union. After the completion of the
ratification procedure, the Czech Republic acceded to the European Union on May
1, 2004. Even prior to this date, Czech Republic harmonized many of its laws and
policies with those of the European Union. As the Czech Republic joined the
European Union, it can be expected that gradually more of our laws and
governmental policies will be dependent on the laws and policies formulated on
the European Union level. These laws and policies may in the future influence
the way we conduct our business and the environment in which we conduct it. We
can give no assurance that these laws and policies will not adversely affect our
business, prospects, financial conditions or results of operations.

                                       26


Organizational Structure

Subsidiaries

The following table sets forth an overview of our equity interests in other
companies as of December 31, 2003:


                               Equity Interests of CEZ in Other Companies as of December 31, 2003

                                                    Country of              Registered                CEZ's
Company                                             Incorporation       Capital(1) CZK `000        Interest in %
-------                                             -------------       -------------------        -------------
Shareholdings over 50%:
CEZnet, a.s.                                         Czech Republic           770,000                100.00
HYDROCEZ, a.s.                                       Czech Republic           412,798                100.00
rpg Energiehandel GmbH                                      Germany            48,608                100.00
I & C Energo s.r.o.                                  Czech Republic            45,000                100.00
Energeticke opravny, a. s.                           Czech Republic            40,000                100.00
CEZ ENERGOSERVIS spol. s r.o.                        Czech Republic            18,000                100.00
CEZTel, a.s.                                         Czech Republic             1,000                100.00
CEZ FINANCE B.V.                                    The Netherlands               588                100.00
AB Michle s.r.o. (2)                                 Czech Republic           420,100                 99.99
Zapadoceska energetika, a.s.                         Czech Republic         1,605,615                 99.13
Vychodoceska energetika, a.s.                        Czech Republic         2,549,544                 98.83
Stredoceska energeticka a.s.                         Czech Republic         3,210,369                 97.72
OSC, a.s.                                            Czech Republic            13,900                 66.67
KOTOUC STRAMBERK, spol. s r.o. (2)                   Czech Republic           569,259                 64.87
Severomoravska energetika, a.s.                      Czech Republic         3,407,265                 59.08
Ustav jaderneho vyzkumu Rez a.s.                     Czech Republic           524,139                 52.46
LOMY MORINA spol. s r.o. (2)                         Czech Republic           333,000                 51.05
Severoceska energetika, a.s.                         Czech Republic         3,257,667                 51.00
SIGMA - ENERGO s.r.o.                                Czech Republic             4,014                 51.00
Shareholdings of 20% - 50%:
GAPROM, s.r.o. (3)                                   Czech Republic            12,000                 50.00
JVCD, a.s.                                           Czech Republic           100,000                 49.00
KNAUF POCERADY, spol. s r.o.                         Czech Republic           372,350                 40.00
Severoceske doly a.s.                                Czech Republic         9,000,055                 37.20
CEPS, a.s.                                           Czech Republic        13,034,685                 34.00
Prazska energetika, a.s.                             Czech Republic         3,869,443                 34.00
VLTAVOTYNSKA TEPLARENSKA a.s.                        Czech Republic            58,820                 34.00
ESE, s.r.o.                                          Czech Republic            10,000                 34.00
SKODA PRAHA a.s.                                     Czech Republic           557,524                 29.80
Coal Energy, a.s.                                    Czech Republic            50,000                 20.00
Other :
Jihomoravska energetika, a.s.                        Czech Republic         3,531,570                  1.71
_______________

(1)  This table sets forth the amount of the registered capital as indicated on
     the share registry as of December 31, 2003.
(2)  Our voting rights do not reflect our share on the registered capital (see
     note 7 to the Consolidated Financial Statements).
(3)  Currently in liquidation.

Property, Plants and Equipment

Coal-Fired Power Plants of CEZ, a. s.

In 2003, CEZ generated 34,044 GWh of electricity in its coal-fired power plants.
Each of its coal-fired power plants is located in the Czech Republic. CEz's
coal-fired plants have a diversified age profile as indicated in the table
below.

                                       27


CEZ owns and operates the ten (10) coal-fired power plants in the following
table:

                                                                     Installed
                                            Average Load             Capacity                  Start of
                                           Factor in 2003               (MW)                   Operations
                                           --------------            ---------                 ----------

Location
Prunerov I and II....................             58.2                 4 x 110                 1967-1968
                                                  68.9                 5 x 210                 1981-1982
Tusimice II..........................             70.2                 4 x 200                 1974-1975
Melnik II and III....................             52.7                 2 x 110                      1971
                                                  62.6                 1 x 500                      1981
Tisova I and II......................             56.2                  3 x 57                      1959
                                                                      1 x 12.8                      1960
                                                  70.8                 1 x 112                      1961
Hodonin..............................             34.6                  1 x 55                      1958
                                                                        1 x 50                      1954
Chvaletice...........................             45.9                 4 x 200                 1977-1978
Detmarovice(1).......................             29.6                 4 x 200                 1975-1976
Ledvice II...........................             73.5                 2 x 110                      1966
Ledvice III..........................             61.7                 1 x 110                      1968
Pocerady I and II....................             78.2                 5 x 200                 1970-1977
Porici(2)............................             46.4                  3 x 55                 1957-1958
Dvur Kralove(3)......................             21.4                 1 x 6.3                      1955
                                                                        1 x 12                      1963
                                                                     --------
Total installed capacity.............                                 6,524.1
                                                                    =========

______________

(1)  Uses hard coal as fuel.
(2)  Uses hard and lignite coal as fuel.
(3)  Primarily heat generating plant--included under the Porici power plant
     organizational unit.


We sold the Nachod heat generation plant in March 2003. We also intended to sell
the Dvur Kralove heat generation plant but in the end we cancelled the tender
process due to the low bid which we received. However, our management decided
that the tender would be repeated.

Hydroelectric Power Plants of CEZ, a. s.

In 2003, CEZ generated 1,018 GWh of electricity in its hydroelectric plants. CEZ
operates the twelve (12) hydroelectric power plants in the following table. Each
of its hydroelectric power plants is located in the Czech Republic.



                                  Average Load          Installed              Type of             Start of
                                 Factor in 2003         Capacity                Plant             Operations
                                 --------------         ---------               -----             ----------
                                                           (MW)

Location
Vrane ........................      31.4                 2 x 6.94               Storage             1936
Stechovice 1 and 2............      12.4                2 x 11.25               Storage             1943
                                     1.3                   1 x 45          Pump Storage             1996
Slapy.........................      20.1                   3 x 48               Storage             1954
Lipno 1 and 2.................      13.1                   2 x 60               Storage             1959
                                                          1 x 1.5               Storage             1957
Orlik.........................       0.2                   4 x 91               Storage             1961
Kamyk.........................      17.3                   4 x 10               Storage             1961
Mohelno(1)....................       5.6                  1 x 1.2               Storage             1977
                                                         1 x 0.56               Storage             1999
Dalesice......................                          4 x 112.5          Pump Storage             1978
Hnevkovice....................      27.7                  2 x 4.8               Storage             1992
Korensko 1 and 2..............      24.7                  2 x 1.9               Storage             1992
                                    31.0                 1 x 0.94               Storage             2000

                                       28


Zelina........................      30.6                2 x 0.315               Storage             1993
Dlouhe  Strane................       4.1                  2 x 325          Pump Storage             1996
                                    20.8                 1 x 0.16               Storage             2000
                                                         --------
   Total installed capacity...                           1,867.77
                                                         ========
______________


(1) We calculate the average load factor for Mohelno and Dalesice together as
one unit.

We own the dams at the Dalesice, Mohelno, Dlouhe Strane and Zelina power plants
and lease the other dams used at all of our hydroelectric power plants. The
leased dams are owned by the Czech Republic and managed by Povodi Vltavy, a.s.,
a company whose sole shareholder is the Czech Republic. In 1995, we entered into
agreements with Povodi Vltavy, a.s. to lease the dams. The agreements were
concluded for an indefinite period of time and do not permit unilateral
termination. The rent we pay is based on a cost model and is agreed upon
annually for each succeeding year. In 2003, the rent for all dams amounted to
approximately CZK 102 million.

Wind and Solar Power Generation by CEZ, a. s.

CEZ operates three (3) wind power plants with installed electricity generation
capacity 1 x 220 kV, 1 x 315 kV and 1 x 630 kV in the locality of Mravenecnik
near the Dlouhe Strane hydroelectric power plant. In 2003 this wind power plants
generated 235 MWh of electricity.

One solar power plant was installed in October 2003 in the locality of the
nuclear power plant Dukovany with installed electricity generation capacity 1 x
10 kV. This solar power plant was originally installed in the locality of
Mravenecnik.

Nuclear Power Plants of CEZ, a. s.

Each of our two nuclear power plants is located in the Czech Republic.

Dukovany. We own and operate a nuclear power plant at Dukovany, which has a
total installed capacity of 1,760 MW and started operating between 1985 and
1987. In 2003, plant generated 13,755 GWh of electricity. From its initial
operation to December 31, 2003, the Dukovany nuclear plant has generated
approximately 224,396 GWh of electricity at an average load factor/year of
82.96%. In the years 1999 through 2003, the nuclear plant's average load factor
was 86.6%, 87.9%, 88.2%, 86.3% and 89.2% respectively.

Temelin. We have presently in trial operation second nuclear power plant
situated at Temelin. Unit 1 has been in trial operation since June 2002 and Unit
2 has been in trial operation since the second half of April 2003. In 2003, we
generated 12,117 GWh of electricity at Temelin nuclear power plant. See "Capital
Investments - Nuclear Power Plants" on page 27 and "Nuclear Power Generation" on
page 16.

Agreements regarding the construction of the Temelin power plant were concluded
in 1986 with general contractors Skoda Praha, a.s. for the delivery of
technology and Vodni stavby Bohemia, a.s. for the delivery of civil part of the
plant. Both of these contracts were initially governed by the now repealed
Economic Code, a law dating back to 1964, under which the contractor had title
to the plant until the contracted performance was rendered in full (i.e., until
the delivery of the completed plant). In mid 1995, we renegotiated the agreement
with Skoda Praha, a.s. to be based on the current Commercial Code, under which
we acquire title and ownership to parts of the plant as they are constructed,
and to update the scope of work and estimated cost of the plant. On April 18,
2004, Skoda Praha, a.s. delivered Unit 2.

Power Plants of Other Members of Our Consolidated Group

Our power plants are mainly owned and operated by CEZ and these power plants are
discussed in the preceding sections. The following table shows power plants
owned and operated by other members of our consolidated group:

Owner                              Location                       Installed             Start of
-----                              --------                       capacity (MW)        operations
                                                                  ------------         ----------

Fossil Plants
Energetika Vitkovice, a.s.         Ostrava - Vitkovice                 79                  1995
Total                                                                  79

                                       29


Hydroelectric Plants
Severoceska energetika, a.s.       Strekov                            19.5                 1936
VCE - elektrarny, s. r.o.          Prelouc                            1.75                 1927
                                   Spalov                              2.4                 1926
                                   Hradec Kralove                     0.75                 1926
                                   Pracov                             9.75                 1953
                                   Jaromer                            0.104                1908
                                   Pastviny                             3                  1938
HYDROCEZ, a.s.                     Obristvi                           3.358                1995
                                   Les Kralovstvi                      1.2                 1923
                                   Predmerice nad Labem                2.1                 1953
                                   Pardubice                          1.96                 1978
                                   Spytihnev                           2.6                 1951
                                   Brno - Kninicky                     3.1                 1941
                                   Veseli nad Moravou                 0.27              1914, 1923
                                   Brno - Komin                       0.212                1923
Zapadoceska energetika, a.s.       Vydra                               6.4                 1939
                                   Hracholusky                        2.55                 1959
                                   Cenkova Pila                       0.09                 1912
                                   Cerne jezero                        1.5                 1930
Total                                                                  63
-----

Wind Power Plant
Vychodoceska energetika, a.s.      Novy Hradek                         1.6                 2002
Total                                                                  1.6
-----

The Transmission Grid

Until April 1, 2003, we controlled through our wholly-owned subsidiary, CEPS,
a.s., the electricity transmission grid in the Czech Republic. The high-voltage
electrical transmission grid (220/400kV) in the Czech Republic is used for
transmission of electricity from source to the REAS 110kV transmission network
and, to a much lesser extent, to our direct customers. The transmission grid is
also connected with foreign power grids and used for the import, export and
transmission of electricity across the territory of the Czech Republic. The grid
consists of 400/220kV transformers and transformers that reduce the voltage of
the transmission grid to 110kV, the highest electrical voltage used in the
distribution systems of the REAS.

Prior to June 1998 we owned the assets of the transmission grid. In June 1998,
our shareholders' general meeting assigned our Board of Directors the task of
transferring the transmission grid to an independent entity wholly owned by our
company and to ensure that such entity commenced its operation by January 1,
1999. This requirement is in accord with a proposed energy policy of the Czech
Republic which anticipates, among other things, the opening of the electricity
market and the segregation of the transmission grid from the generation and
distribution of electricity in compliance with the EU 96/92/EC and 98/30/EC
directives.

On August 20, 1998 we founded a new company, CEPS, a.s. which was subsequently
incorporated on October 16, 1998 with a cash contribution of CZK 1 million. We
gradually transferred the assets used for the transmission of electricity to
CEPS, a.s. in the course of 1999 and 2000. The initial registered capital of
CEPS, a.s. was valued at CZK 12.6 billion which includes investment of CZK 17.0
billion in assets minus an assumption of liabilities of CZK 4.4 billion. The
second contribution of stated capital of CEPS, a.s. was valued at CZK 5.2
billion. CEPS, a.s. now independently owns and operates the transmission grid.

On March 11, 2002, the Czech government decided to purchase our 66% share in our
transmission subsidiary CEPS, a. s. The transaction was closed on April 1, 2003
when we transferred a 51% share in CEPS, a. s. to OSINEK, a. s., a wholly-owned
subsidiary of the National Property Fund, and a 15% share in CEPS, a. s. to the
Ministry of Labor and Social Affairs. Currently, as a result of these transfers,
we own a 34% share in CEPS, a. s. which we are required to sell to the Czech
government eventually. See "Transmission of Electricity" on page 18 and
"Material Contracts" on page 60.

Telecommunications

                                       30


In October 1999, we established a wholly owned subsidiary, CEZTel, a.s., to own
and operate all of our telecommunications assets and business. We have not yet
contributed our backbone digital network to CEZTel, a.s. consisting of
approximately 2,400 km of fiber optical cable lines connecting all regions of
the Czech Republic, including connections abroad. With the aim of incorporating
a strategic partner to cooperate in the development of CEZTel, a.s. we signed an
option agreement with Vivendi and Vivendi Telecom International on January 20,
2000 pursuant to which we granted them the right, subject to various approvals
of CEZTel, a.s., Vivendi and Vivendi Telecom International, to purchase up to
66% of the share capital of CEZTel, a.s. This option agreement has since expired
and we, together with Vivendi and Vivendi Telecom International, entered into an
option cancellation agreement on June 21, 2001 which eliminated further
obligations on our part under the option agreement.

During the course of 2001 we gradually contributed the telecommunication
activities related to the provision of voice, data and internet services
together with CEZ system integration operated by CEZTel, a.s. to a newly founded
company which has recently changed its name to CEZnet. We own all of the issued
and outstanding shares of CEZnet. The core of our development strategy in
respect of CEZnet and our telecommunications activities is focused on:

          o    completion of the restructuring of our telecommunications assets
               and activities;

          o    relatively large-scale investment into the telecommunications
               system and evaluation of the need for further expansion; and

          o    introduction of quality telecommunications services for
               businesses in the CEZ group and the commercial use of reserve
               telecommunications capacity.

Title to Land

Under Czech real estate law, in principle the rightful owner of real property is
the person in whose name such real property is registered in the local property
register. Though we believe that we are the rightful owner of all our material
real estate property, due to certain deficiencies in the local property
registration of real estate in the Czech Republic and to certain provisions of
applicable privatization laws, we were not registered as the rightful owner of
all plots of land underlying our generating facilities. We assembled the
necessary data regarding such plots of land and attempted to mend the situation
by procuring proper registration in the property register and by purchasing the
relevant plots where desirable. We do not own certain sites that we use to store
of ashes. Where we are not the owners of such sites, we executed a lease
agreement to enable us to use such storage sites.

Our legal predecessor has settled all restitution claims and we are not aware of
any plot of land under our generating facilities that would be materially
affected by a restitution claim. We cannot exclude that a restitution claim
could be filed with respect to the storage sites mentioned above.

Environmental Issues

Under Czech law, we are strictly liable for environmental damage that we cause
to agricultural producers and forestry companies. Under Czech environmental
laws, we are obligated to compensate parties for damage related to our business
operations that pollute the environment (as defined in Czech environmental
legislation). In 2003, we paid CZK 3.8 million in such damage compensation out
of a total of CZK 27.8 million in damage claims. We are currently litigating
environmental compensation claims in the amount of CZK 139.9 million. The
reduction of emissions has been reflected in a reduction of damages for air
pollution, but other damages for pollution of the environment together with
indemnities claimed by legal entities and individuals managing forests and
farmland represent a financial burden for us. We have accumulated a provision
for future indemnity of damage caused by emissions amounting to CZK 200 million
as of December 2003. We accumulate provisions every year based on the amount of
expected damage payments for such year. We expect that damages claimed from us
by third parties due to air pollution will gradually decrease as a result of the
implementation of the program of decommissioning the pollution sources and
installation of facilities with limited solid and gaseous emission levels.
However, a problematic trend for us has been that courts have tended to allow
damage claims against us even when the concentrations of emissions do not reach
critical levels that could cause damage as set under applicable Czech
environmental laws.

Air Pollution. Pursuant to the Clean Air Act, all sources of air pollution,
including coal-fired power plants, had to comply with a series of progressive
limits between 1996 and 1998 set by the Czech Environmental Inspection.

                                       31


These limits affect emissions of SO2, NOX, CO, solid pollutants (e.g., fly ash)
and hydrocarbons. We are currently in compliance with all requirements under the
Clean Air Act. As the emission limits set under the Clean Air Act are generally
in accordance with the limits in EU countries, the adoption of more stringent
limits for existing power plants in connection with the possible membership of
the Czech Republic in the EU is not anticipated.

We have a planned program of regular repairs and overhauls for the generating
units to maintain our coal-fired power plants. In some cases, parts of these
units have already been completely reconstructed and modernized and most of them
have been equipped with desulfurization units. Since January 1, 1999, all
coal-fired plant units have been in compliance with the requirements of the
Clean Air Act.

The Clean Air Act empowers the Ministry of Environment to temporarily restrict
emissions from, reduce output of or shut-down certain pollution sources (such as
some of our coal-fired power plants) if overall air pollution levels are
exceeded even if a given pollution source does not exceed applicable limits. In
addition, the Clean Air Act empowers the Czech Environmental Inspection to order
any pollution source exceeding pollution limits to be shut down. The Clean Air
Act requires the operators of pollution sources exceeding a certain size to pay
fees into a special environmental fund, based on the level of emissions released
into the environment, whether or not the emission limits for such company have
been exceeded. In 2003, our expenses for this fund amounted to approximately CZK
124 million.

Water Pollution. We observe all water pollution limits set by government
regulations and applicable water management decisions set by local authorities.
We are preparing, but have yet to implement, changes in our water management
that will enable power plants to comply with anticipated limits to be put into
effect after 2005. In 2003, we paid approximately CZK 15 million to the
environmental fund.

Coal Waste Storage. We have prepared a project aimed at the collection of dry
ash and desulfurization of end-products and their conversion into solids. This
conversion reduces the negative impact of mines on the water table when such
solids are deposited in landfills, open cast mines or disused shafts of existing
mines. The new de-ashing technology used in the power plants allows us to
process the ash and desulfurization end-products into a material with properties
that will permit its deposition into existing mud pits without any further
measures, or to use a portion of such waste as building material. We paid
approximately CZK 403 million for the disposal of dry ash and desulfurization
by-products, including costs for third party services, in 2003.

Nuclear Waste Final Disposal. Under the Nuclear Act, the responsibility for
securing the final disposal of nuclear waste, including spent fuel, is the
responsibility of the Repository Authority. We are required to finance the final
disposal through contributions to the Nuclear Account. For a description of
funds contributed, see "Nuclear Provisions" on page 37.

Capital Investments

Since enactment of the 1991 Clean Air Act we have undertaken an extensive
capital investment program aimed primarily at minimizing the environmental
effects of electricity generation, including the diversification of power
sources, in order to comply with the Clean Air Act rather than to increase or
diversify electricity production.

Since we were established as a new legal entity in 1992, we have embarked on a
significant capital expenditure program aimed at reducing the environmental
impact of coal-fired electricity generation and complying with Czech
environmental laws designed to meet European Union ("EU") standards. The main
elements of this program were aimed at reducing sulfur emissions at our
coal-fired plants and the continuation of construction and completion of the
Temelin nuclear power plant. We have completed the installation of
desulfurization equipment. As of June 10, 2002 Unit 1 of the Temelin power plant
is in an 18-month pilot operation, and Unit 2 is in a similar pilot operation as
of April 18, 2003. As of January 1, 1999, we have been in full compliance with
all Czech environmental laws, some of which are stricter than EU standards.

We have been in compliance with the Clean Air Act since January 1, 1999 and our
electricity generating operation is now at a level comparable to western
European operational environmental standards.

Upon completion of the environmental program, the updated strategic core of our
development is focused on:

                                       32


          o    preparation for next steps in the liberalization of the domestic
               and European energy market with the aim of increasing our share
               of the domestic electricity market and maintaining our dominant
               position in the provision of ancillary services to operators of
               the transmission grid;

          o    successful completion of the pilot operation of both units at the
               Temelin nuclear power plant;

          o    commencement of the modernization of the Dukovany nuclear power
               plant, together with its control center and preparation of the
               construction (extension) of the interim spent nuclear fuel
               storage facilities located at the nuclear plant sites; this
               process gradually started in April 2003;

          o    completion of our integration with REAS and establishment of new
               group structure; and

          o    evaluation of investment opportunities in the power sector so
               that we are able to respond flexibly to developments in demand.

Capital Investment Program Implementation Costs. From 2001 through 2003, we made
investments totaling approximately CZK 50.1 billion as part of our capital
investment program.

The following table sets forth a summary of our capital investments over the
past three years (on a consolidated basis):


                                                                          Year ended December 31
                                                                            (in CZK millions)
                                                                              (consolidated)

                                                                        2001          2002            2003
                                                                        ----          ----            ----
Additions to tangible fixed assets..................................  14,275        10,025          11,794
   Out of which: purchase of nuclear fuel...........................   3,400         1,997           2,220
Additions to intangible fixed assets................................     401           339             880
Additions to financial investment...................................     642          (34)          12,997
Change in payables from fixed assets acquisitions...................       -            89         (1,729)
                                                                -------------------------------------------
          Total ....................................................  15,318        10,419          23,942
                                                                    =========   ===========    ============

The following table sets forth a summary of our capital investments (1) over the
past three years (on a standalone basis for CEZ, a. s.):


                                                                        2001          2002            2003
                                                                        ----          ----            ----
                                                                                (CZK millions)
                                                                             (unconsolidated)(2)
Nuclear power plants:
     Temelin nuclear power plant construction.......................   4,959         2,693           1,732
     Dukovany nuclear power plant modernization.....................   1,324           691             865
     Central interim fuel repository................................      53            44             131
     Other..........................................................       4            52             106
                                                                -------------------------------------------

          Total nuclear power plants...............................    6,340         3,480           2,834
                                                                    =========   ===========    ============
Environmental improvement investments:
     Desulfurization.......................................                3            57              11
     Fluidized-bed boilers..........................                      11             -              20
     Other..........................................                     143             9               9
                                                                -------------------------------------------
          Total environmental investments...........                     157            66              40
                                                                -------------------------------------------
Waste management....................................                     407           463             356
Technical improvements..............................                     457           291             163
Heat supply.........................................                      41            30              26
Hydroelectric power plants..........................                     106             6             112
Other investments...................................                     593         1,487             652
          Total additions to plants, property and
           equipment................................                   8,101         5,823           4,183
                                                                -------------------------------------------
Purchase of nuclear fuel............................                   3,400         1,997           2,190
Capitalized interest(3).............................                   2,392         2,037             937
Change in payables from fixed assets acquisitions...                     494            92             182
                                                                -------------------------------------------
          Total ....................................                  14,387         9,949           7,492
                                                                    =========   ===========    ============

                                       33


______________

(1)  Excluding financial investments.
(2)  In order to allow comparison with previous years, this table only contains
     data for CEZ, a. s. on a standalone basis. The data contained in this table
     is not available on a consolidated basis for 2003 (see preceding table for
     data on capital investments which are available on a consolidated basis).
(3)  The amounts represent interest capitalized for IFRS purposes which are in
     addition to amounts capitalized under Czech accounting standards.

As of December 31, 2003, the total investment cost for the implementation of
program of CEZ, a. s. from 2004 through 2008 is currently projected to be CZK
51.3 billion. This number does not include the expected acquisitions of
subsidiaries and associates, which are estimated at CZK 43.6 billion for the
same period.

Financing Capital Expenditures. We generally finance our capital expenditures
from loans, the issuance of bonds and cash depending on our cash sources and the
situation on financial markets at the time in question.

Compliance with Emission Limits for Air Pollution. The Clean Air Act requires us
to reduce the concentration levels of certain pollutants produced by our
coal-fired power and heating plants and contained in waste gases, including,
without limitation, solid emissions (i.e., fly ash), SO2, NOx, CO and
hydrocarbons, to levels below the law's emission limits. While deciding upon
emission limits, the authorities responsible for air protection took into
account the condition of the environment, the thermal output, the age of the
sources of pollution and technical parameters. The limits were set on a
case-by-case basis.

In order to reduce emissions and meet the Clean Air Act compliance standards we
undertook a specific program directed primarily toward the decommissioning of
obsolete coal-fired power plants and their partial replacement with the new
Temelin nuclear power plant. To date, this process has included the following
efforts:

          o    construction of desulfurization and denitrification units;
          o    reconstruction of electrostatic precipitators;
          o    increase efficiency of fossil fuel-fired power plants;
          o    installation of new combustion technologies;
          o    use of lower-sulfur coal; and
          o    decommissioning of selected coal-fired power plant units.

Construction of Flue Gas Desulfurization Facilities. The construction of flue
gas desulfurization units has been an important part of our environmental
program. As of December 31, 2003, desulfurization units were in operation at
five 200 MW units of the Pocerady power plant, four 110 MW units of the Prunerov
I power plant, five 210 MW units in the Prunerov II power plant, two 110 MW
units of the Ledvice power plant, four 200 MW units of the Tusimice II power
plant, four 200 MW units of the Chvaletice power plant, one 100 MW unit of the
Tisova power plant , four 200 MW units of the Detmarovice power plant, two 110
MW units of the Melnik II power plant and one 500 MW unit of the Melnik III
power plant, accounting for a capacity of 5,930 MW out of our total coal-fired
capacity of approximately 6,517 MW.

Construction of Fluidized-Bed Combustion Boilers. In addition to the
construction of desulfurization facilities, we have replaced the existing
boilers of certain smaller 55 MW and 100-110 MW units by modern boilers with the
circulating fluidized-bed combustion technology, which reduces sulfur dioxide
emissions by adding limestone during the combustion process. As of December 31,
2003, we completed the installation of two new fluidized-bed boilers with a
capacity of 350 t/h at Tisova I, two boilers with a capacity of 170 t/h at the
Hodonin power plant, two boilers with a capacity of 250 t/h at the Porici power
plant and one boiler with a capacity of 350 t/h at the Ledvice power plant. FBBs
installed represent electric power capacity of 497 MW.

Solid Emissions and NOX. The levels of solid emissions from coal-fired power
plants have been reduced as a result of the implementation of a long-term
program of refurbishment and replacement of electrostatic precipitators started
as early as the 1970s. A program of combustion process optimization through the
adjustment of burners and the control of the combustion air supply into the
boilers is aimed at reducing nitrogen oxide emission levels.

Nuclear Power Plants

Temelin Nuclear Power Plant. Our most important capital investment project in
last years was the construction of a second nuclear power plant at Temelin in
South Bohemia. As of December 31, 2003, approximately CZK 97 billion

                                       34


had been invested in the Temelin nuclear power plant. For a discussion of some
of the risks associated with Temelin, see "Risk Factors" on page 8.

The construction of the Temelin nuclear power plant commenced in 1986. According
to the original project, the power plant was to have four Soviet designed units
with a capacity of 1,000 MW each.

Following the Velvet Revolution in 1989, and as a result of an ensuing
uncertainty with respect to the energy policy of the Czech Republic,
construction of the Temelin nuclear power plant was delayed. In March 1993, the
government approved the completion of two out of the originally planned four
units and at the same time ordered a fundamental change in the design of the
reactor, primarily to enhance operational safety of the nuclear power plant.
This change consisted of adapting the existing installed Soviet plant technology
to function with western instrumentation and control systems. Following the
decision to fundamentally change the design, we launched a tender and selected
Westinghouse to supply the instrumentation and control technology as well as the
nuclear fuel to be used at Temelin. Other contracts have been concluded
concerning additional technology needed for the completion of the power plant.
The adaptation of U.S. technology supplied by Westinghouse to the original
Soviet plant construction at Temelin is the first such adaptation of its kind
and, accordingly, has posed and continues to pose difficult technical challenges
beyond what had been anticipated in 1993. As a result of extensive design and
construction changes, the estimated completion date for Temelin has been delayed
several times.

At the time of the government's decision in 1993, we estimated that fuel loading
of the first unit of the power plant could take place at the end of 1995, with
commercial operation commencing eight months later, and that the total
investment costs would amount to CZK 68.8 billion. By year end 1994, as a result
of the technical difficulties with the compatibility of U.S. and Soviet
technologies becoming more apparent, we changed our estimate of the date of fuel
loading of the first unit to September 1996. In early 1995, we announced a
further delay of fuel loading to June 1997. In mid 1995, at the time the
contract with Skoda Praha, a.s was renegotiated, we performed an extensive
review of the required design and technical modifications. As a result, we
revised the budgeted cost of the plant to CZK 76 billion with fuel loading to
commence in fall of 1997--both subject to final design changes and contract
modifications.

In June 1996, we announced that the envisaged date of initial fuel loading of
the first unit was likely to be further delayed until mid 1998, again because
the design changes resulted in unanticipated and further modifications necessary
to make the original project safety standards meet U.S. standards. This delay
had arisen, in particular, with regard to cabling, the control system and the
primary circuit auxiliary systems. At year-end 1996, the budgeted cost for
Temelin remained constant at CZK 76 billion. Analysis of the construction
schedule shortly after year end, however, indicated that further delays and
design changes would be required. At that time additional costs were estimated
to be up to CZK 10 billion.

In August 1998, the Czech government commissioned an independent review of the
Temelin project and, inter-alia, the expended and projected cost, financing,
existing supply contracts, the risks jeopardizing the completion, social impact
and alternative power supply solutions. The report made no clear recommendation
on whether to complete or discontinue the construction. The report emphasized
risk factors, particularly in relation to future developments in electricity
demand in the Czech Republic. On the basis of this report the Czech cabinet
decided on May 14, 1999 by a vote of eleven ministers to eight to proceed with
the construction of both units of the Temelin nuclear power plant. However,
government approval was conditioned on the budgeted cost not exceeding CZK 98.6
billion and the two blocks being loaded with fuel by September 2000 and December
2001, respectively.

In July 2000, we loaded Unit 1 of Temelin with nuclear fuel and in October 2000
we essentially completed construction on Unit 1 with initial nuclear reaction
and testing activities beginning shortly thereafter. In January 2001 we
connected the generator from Unit 1 of Temelin to the electricity network and
test transmitted the first electricity from Temelin to the transmission network.
By March 2001 we had brought Unit 1 up to 30% of its production capacity. During
the month of March 2001, we brought Unit 1 to 55% of its capacity and did so
again in early October 2001. In mid-October, after receiving approval from the
Nuclear Safety Authority, we performed tests at 75% of Unit 1's capacity. In
January 2002, we continued the energy generation start-up process of Unit 1 that
had been commenced in November 2000 and proceeded to the start-up up to 100% of
the nominal power output of the reactor. This phase was prolonged by delivery of
new armatures and the necessary shut-down for the performance of the work
connected with the replacement of the armatures. Following tests at a power
output level of 100% and the completion of a 144-hour comprehensive testing
process, Unit 1 obtained approval for pilot operation, which commenced on June
11, 2002. At the end of January 2003, a planned two-month shut-down commenced in
connection with the replacement of one quarter of the fuel. After the inspection
by IAEA and the

                                       35


Nuclear Safety Authority of the correctness of the delivery of fuel into the
reactor's active zone and the deposition of spent fuel into the storage pool for
spent fuel, the warranty-inspection was completed at the end of April 2003 and
the pilot operation continues.

In early 2002, the phase of non-active testing of Unit 2 was completed, a review
after an integrated hydro-test was performed, and preparatory work for active
testing was completed. In March, the Nuclear Safety Authority issued a permit
for the commencement of active testing. Following the delivery of fuel, the
reactor was closed and preparatory work and testing for the first activation of
fuel was performed in May 2002. At the end of June 2002, following successful
physical start-up, the phase of energy-generation start-up commenced. In the
course of this phase, repeated defects appeared in the generator rotor. We had
the generator rotor repaired, the defects were mended and there are no further
consequences for the operation of Unit 2. The first turbo-generator phasing did
not take place until December 29, 2002, during a sub-phase when the reactor was
run up to a level of 55% of its nominal power output. Pilot testing operation of
the block commenced on April 18, 2003.

The contract with Skoda Praha, a.s. was revised and amended to reflect the
increased costs and fuel loading dates on June 10, 1998. Since July 1999 the
Ministry of Industry and Trade, with the personal participation of Minister
Gregr (at that time the head of the Ministry of Industry and Trade), has
conducted monthly reviews of the progress of the Temelin project focusing on the
completion timetable, meeting the projected cost estimate and satisfying the
conditions necessary for licensing the Temelin nuclear plant and bringing it
into operation. Further, we performed hot tests of Unit 1 at the beginning of
April 2000 and conducted a general review of the control system. The budgeted
investment cost to construct Temelin is currently CZK 98.6 billion and this
amount is final. We may also incur other testing and adjustment costs but these
costs will be accounted for as operational expenses. As a result of past
experience, however, we cannot assure that further increases in costs will not
occur. Further associated additional costs may arise, for example, from (i)
changes necessitated by tests performed during the trial operations of the power
plant, and (iii) requirements of supervisory bodies. For example, while
assembling the turbine for the secondary circuit for Temelin's Unit 1 we
discovered certain technical problems that we have subsequently eliminated.
However, we can give no assurance that these difficulties or any other
difficulties that arise during testing or otherwise will not adversely affect
our business, prospects, financial condition or results of operations.

We can provide no assurance that the operation of Temelin will not be
interrupted as a result of events beyond the control of management. We can
provide no assurance that any such interruptions will not adversely affect our
business, prospects, financial condition or results of operations.

Dukovany Nuclear Power Plant. We have initiated a study assessing the
possibility of the extension of the operating life of units at the Dukovany
nuclear power plant beyond 2015/2018, the current operating life. The results of
this initial study show that it is technically possible to extend the operating
life of the Dukovany units.

We have been improving the safety standards at the Dukovany power plant in
accordance with the requirements of the Nuclear Safety Authority and in respect
of further operation. In 2003, we spent approximately CZK 1.2 billion on all
modifications. As part of our modernization program we have also been
progressively implementing recommendations resulting from domestic and foreign
technical audits, including recommendations by the International Atomic Energy
Agency, including, among others, introducing:

          o    a multi-function and full scope simulator;
          o    a main condenser tube exchange using titanium;
          o    emergency feedwater pumps;
          o    pump suction filters;
          o    bus switchboards; and
          o    vital power system reconstruction.

Additionally, we have implemented measures to improve the economy of operation
and to extend the life of the main components of the production equipment
including, among others, increasing the efficiency of the main condenser,
improvement of the secondary circuit and up-rating the turbo-generator.

In 1996, a pre-feasibility study was started for a refurbishment of the
instrumentation and control system (I&C) at the Dukovany power plant to improve
its reliability and to prolong the plant operation. During the course of 1998,
we continued to carry out work related to the development of this project and
invited bids for the first stage of implementation in 1999. In September 2000,
we signed an agreement with SKODA JS for the complete

                                       36


refurbishment of the major parts of the I&C system at the Dukovany power plant.
The current project timetable anticipates an initiation of the refurbishment by
2002 and lasting until approximately 2010 with a budgeted cost of approximately
CZK 7 billion. Because this refurbishment is being implemented in the course of
standard refueling outages, we do not expect any additional loss of energy
production.

Nuclear Provisions. We are responsible for, and have established provisions for,
decommissioning our nuclear power plants. The most recent decommissioning study
commissioned by us and verified by the Nuclear Safety Authority in 2003
estimates costs for decommissioning of Dukovany nuclear power plant at CZK 16.4
billion at 2002 price levels (compared to a 1997 estimate of CZK 12.5 billion at
1996 price levels). A 1999 decommissioning study commissioned by us and verified
by the Nuclear Safety Authority estimated that decommissioning of Temelin would
cost approximately CZK 11.1 billion at 1998 price levels. An updated study is to
be produced in 2004. Pursuant to the Nuclear Act, our provisions for the
decommissioning of nuclear plants calculated in accordance with Czech accounting
principles have been tax-deductible since October 1, 1997. We are required to
contribute funds annually to a special escrow account to cover the future
decommissioning costs. These funds are designated for decommission purposes and
can be used only with the permission of the Repository Authority.

In addition, we have provided for the estimated costs to cover interim storage
and the final disposal of spent fuel. The Nuclear Act provides that the Czech
Republic, through the Repository Authority, will be responsible for the final
disposal of spent fuel and nuclear waste, and that we must pay certain
contributions into the Nuclear Account. Our payments to the Nuclear Account
amounted to approximately CZK 1,294 million in 2003. We are responsible for the
interim storage of spent fuel.

We have recorded the provisions for decommissioning, interim and final spent
fuel storage in accordance with International Financial Reporting Standards. For
a detailed description of the accounting treatment of these provisions, see
notes 2.22 and 14 to the consolidated financial statements included herein under
Item 18. For 2003 in respect of the nuclear provisions cited above, we charged
to income CZK 1,680 million as a separate component of interest expense and CZK
113 million as fuel expense. In 2003, we charged CZK 1,399 million of current
nuclear-related expenditures against our accumulated provision for nuclear
decommissioning and fuel storage. In 2003, we revised the estimates of
provisions for spent fuel storage and charged CZK 3,373 million to other
operating expenses as a result. Based on revised the estimates of provisions for
decommissioning and final fuel storage we added CZK 385 million to fixed asset
and the provisions.


Item 5.   Operating and Financial Review and Prospects

In this section, we explain our general financial condition and the results of
our operations. As you read the following discussion and analysis, you should
refer to our Consolidated Financial Statements and the related notes thereto for
fiscal years 2001 and 2002 and 2003 contained in Item 18 of this Annual Report.
We prepare our consolidated financial statements in accordance with
International Financial Reporting Standards which differ in certain respects
from U.S. GAAP. See Note 29 to the consolidated financial statements, included
elsewhere in this Annual Report for a discussion of the principal material
differences between IFRS and U.S. GAAP as they relate to us which apply to our
Consolidated Financial Statements.

Forward-Looking Statements

For a discussion regarding forward-looking statements, see "Forward-Looking
Statements" in the front of this Annual Report under the heading "General
Information."

Critical Accounting Policies

International Financial Reporting Standards

Our accounts are initially maintained in accordance with Czech Accounting
Standards and for reporting purposes are transformed to International Financial
Reporting Standards, or IFRS. IFRS represent our primary reporting standards.
This requires the managers to adopt those accounting policies, which are most
appropriate for the purpose of the accounts giving a true and fair view.

Our material accounting policies are set out in full in note 2 to our
consolidated financial statements. In preparing the accounts in conformity with
IFRS, our management is required to make estimates and assumptions which impact

                                       37


on the reported amounts of revenues, expenses, assets and liabilities. Actual
results may differ from these estimates. Certain of our accounting policies have
been identified as the most critical accounting policies by considering which
policies involve particularly complex or subjective decisions or assessments and
these are discussed below. The discussion below should be read in conjunction
with the full statement of accounting policies.

Nuclear Provisions

Our nuclear provisions principally relate to the cost of final and interim
storage of spent fuel and the cost of decommissioning our nuclear power
stations.

In accordance with IFRS, the estimated costs of decommissioning our power plants
are provided for when the power stations begin operating commercially, are
capitalized as part of the cost of construction and depreciated over the same
lives as the plants. The estimated costs of decommissioning are discounted to
reflect the timescale before and during which the work will take place
(following closure of the power station). We anticipate that after de-fuelling
the reactors, dismantling the reactors will not be possible for at least 50
years after the closure of the relevant power station.

The estimated costs are based on decommissioning studies that are approved by
the Nuclear Safety Authority and the Repository Authority. The studies are
updated regularly to reflect changes in the estimates. We must make annual
payments to a special escrow account to cover future decommissioning costs.
These payments depend on the estimated decommissioning costs, the estimated time
of decommissioning and other factors. If these factors change, our annual
payments can change in the future.

Estimated costs of final storage of spend fuel are based on expected annual
payments to Nuclear Account. The payments are approved by the authorities and
are done in cash. The estimated cash payments include inflation considerations
because these payments will not be done for many years. The estimated payments
are discounted using the estimated risk free rate. The required annual payments
are reviewed by the authorities each year and therefore they can change in the
future.

Accounting lifetimes of our nuclear power stations reflect our current
assessment of potential life limiting technical factors and independent
engineering assessments. The operating lifetime of a nuclear power station is
limited principally by the lifetime of items, which are uneconomical to replace
such as the boiler and other components inside the reactor pressure vessel. The
methodologies and technology used to evaluate the expected lifetimes of nuclear
stations is dynamic, resulting in progressively improved measurement
capabilities that allow us to determine whether the safety case for an extended
accounting life of a nuclear power station can be supported. The estimates of
station accounting lives are therefore subjective. The extension of a station's
life may improve our results, particularly when accounting for liabilities such
as decommissioning.

The actual provisions can vary significantly from our estimate, and as a result,
the liabilities we report in our results can vary significantly if our
assessment of these costs changes. Many of the factors that are integral to the
determination of our estimate, such as governmental regulations and inflation,
are beyond our control.

Derivatives

IAS 39, Financial Instruments: Recognition and Measurement, requires every
derivative instrument (including certain derivative instruments embedded in
other contracts) to be recorded in the balance sheet as either an asset or
liability measured at its fair value. IAS 39 requires any changes in the
derivative's fair value to be currently recognized in earnings, unless specific
hedge accounting criteria are met.

We use derivative financial instruments such as interest rate swaps, options and
foreign exchange contracts to manage our exposures related to borrowings.
However, we have elected not to designate the derivatives as hedging instruments
and we treat them as derivatives held for trading.

The fair value of derivatives is estimated using valuation models. The use of
valuation models requires making assumptions and estimates regarding the
volatility of underlying and inputs of market data, such as currency rates,
interest rate curves, etc. Results of the valuation models could differ
significantly from values obtained from other valuation models because of
different assumptions, estimates and market data used in those models.

Deferred tax

                                       38


We have significant deferred tax assets and liabilities which are expected to be
realized through the statement of income over extended periods of time in the
future. In calculating the deferred tax items, we are required to make certain
assumptions and estimates retarding the future tax consequences attributable to
differences between the carrying amounts of assets and liabilities as recorded
in the Consolidated Financial Statements and their tax basis. Significant
assumptions made include the expectation that:

          o    future operating performance for subsidiaries will be consistent
               with historical operating results;
          o    recoverability periods for tax credits and net operating loss
               carryforwards will not change; and
          o    existing tax laws and rates which we are subject to will remain
               unchanged into the foreseeable future.

We believe that we have used prudent assumptions and feasible tax planning
strategies in developing the deferred tax balances. However, any changes to the
facts and circumstances underlying the assumptions could cause significant
change in the deferred tax balances and resulting volatility in its operating
results.

Impairment of assets

We undertake periodic reviews of the carrying value of our fixed assets compared
with the economic value and net realizable value of those assets. In carrying
out the economic valuations an assessment is made of the future cash flows being
generated by the assets, taking into account current and expected future market
conditions and the expected lives of our power stations. In assessing the value
we primary take production capacity as aggregate unit. The assessment of future
market conditions includes, for example, a view of likely overcapacity in the
market over a number of years and the likely timing of the market returning to
new entrant prices. The actual outcome can vary significantly from our future
forecasts, thereby affecting our assessment of expected future cash flows. The
expected future cash flows are discounted at a rate approximating to our
weighted average cost of capital, as this is the rate most representative of
those assets. A provision is created against an asset if its net realizable
value is greater than the carrying amount.

Operating Results



                                                                               Volume of Supplied Electricity
                                                                                           (GWh)
                                                                                    Year ended December 31,
                                                                            2001             2002            2003
                                                                            ----             ----            ----

Generated in-house (gross)                                                  52,162          54,118          61,399
Purchased from other producers                                               3,274           2,018          10,701
Purchase from (OTE *) - deviations                                               0             881           1,002
Purchase from OTE* - organized spot trading                                      0              19               7
Purchases to cover own consumption                                              17              18              21
Purchased outside the Czech Republic                                           688           1,338             919
Purchased from electricity distribution companies                                0               0              47
Purchased from traders                                                           0               0            3,235
                                                                       ---------------   -------------    -------------
Total                                                                         56,141          58,392          77,331
                                                                       ===============   =============    ============


                                                                                        Revenues
                                                                                     (CZK millions)
                                                                                  Year ended December 31,
                                                                                ---------------------------
                                                                      2001                2002                2003
                                                                      ----                ----                ----
Electricity revenues:
Sales to distribution companies                                        46,087               39,230             19,843
Sales to end customers through distribution grid                            -                    -             36,590
Sales to traders                                                            -                2,010              1,592
Exports of electricity                                                  7,524                9,565             12,664
Energy trading outside the Czech Republic                                   4                  578                632
Revenues capitalized during construction                                (922)              (1,373)                  -
Other domestic sales of electricity                                       607                2,928              3,893
Sales of ancillary services                                                 -                    -              4,334
                                                                  --------------     ----------------   ----------------
          Total electricity revenues                                   53,300               52,938             79,548

                                       39


Heat revenues                                                           1,721                1,673              1,833
Other revenues                                                          1,034                  967              3,435
                                                                  --------------     ----------------   ----------------
                 Total operating revenues                              56,055               55,578             84,816
                                                                  ==============     ================   ================
*) Operator trhu s elektrinou, a. s. (Electricity Market Operator)

The structure of our revenues and costs was influenced by a major change in the
structure of our consolidated group since April 2003. Since April 2003 five
distribution companies (REAS) have been fully consolidated into our consolidated
financial statements (among other relevant subsidiaries). On the other hand,
CEPS, a.s. was consolidated into our consolidated financial statements only for
the first quarter of 2003. For more information on consolidation of the
financial results see the Consolidated Financial Statements prepared in
accordance with IFRS.

Revenues. In 2002, our total revenues were approximately CZK 55.6 billion, a
decrease of 0.9% from 2001. This decrease of approximately CZK 0.5 billion was
primarily the result of lower prices in the domestic market. In 2003, our total
revenues were approximately CZK 84.8 billion, an increase of 52.6% from 2002.
This increase of approximately CZK 29.2 billion was primarily due to increase of
sales to end customers through five distribution companies (REAS) amounted to
CZK 36.6 billion. On the other hand, the sales to distribution companies
decreased by CZK 19.4 billion due to elimination of intercompany sales to the
five newly acquired distribution companies in the period from April to December
2003. Exports of electricity increased by CZK 3.1 billion, from which CZK 2.8
billion relates to CEZ only. The sales of ancillary services in 2003 represent
sales to CEPS, a.s. in the period from April to December 2003, i.e. after the
sale of the majority stake in CEPS, a.s. on April 1, 2003. These sales have been
eliminated in prior periods as intercompany transactions.

In 2002, our total revenues from electricity sold were approximately CZK 52.9
billion, a decrease of 0.7 % below the 2001 level, primarily as the result of
lower prices in the domestic market, due to the "Duhova energie" offer. The
decline in domestic revenues was partly compensated by higher exports. However,
the results for 2001 are not directly comparable with those for 2002 due to
substantial institutional changes that occurred in the domestic market in 2002.
In particular, the replacement of the simple model consisting of a "producer -
grid - distribution" by the new model "producer - organized market for
electricity - trader - grid - distribution - eligible/protected customer" lead
to the change in the structure of our customers. In 2003, our total revenues
from electricity sold were approximately CZK 79.5 billion, an increase of 50.3%
above the 2002 level as the result of primarily to enlargement of our
consolidated group. Electricity sold by our Company in the Czech Republic
increased from 36.2 TWh in 2002 to 39.1 TWh in 2003 (by 7.9%), while exports
increased to 18.7 TWh, an increase by 2.7 TWh (17.0%).

In 2002, our revenues from sales of heat were approximately CZK 1.7 billion, a
decrease of 2.8 % from 2001. The amount of heat sold decreased by 7.2 % in 2002
from 2001 levels. The decrease of revenues from sales of heat in 2002 was
primarily due to declining demand for heat by residential, business and
industrial consumers and by the increased energy efficiency in the industrial
sector. We also experienced higher than average temperatures in the Czech
Republic during 2002. In 2003, our revenues from sales of heat were
approximately CZK 1.8 billion, an increase of 9.6% from 2002. The amount of heat
sold increased by 14.6% in 2003 from 2002 levels. The increase of revenues from
sales of heat in 2003 was primarily due to the enlargement of our consolidated
group. However, the declining trend in heat demand seen in previous years
continued, driven in particular by improvements in building insulation.

In 2002, other revenues amounted to approximately CZK 1.0 billion, a slight
decrease in comparison with the level of 2001. In 2003, other revenues amounted
to approximately CZK 3.4 billion, an increase of 255% above 2002. The
year-on-year increase of CZK 2.5 million was caused by newly consolidated
companies, which contributed CZK 2.6 billion to the increase.

                                       40





                                                                                      Operating Expenses
                                                                                        (CZK millions)
                                                                                   Year ended December 31,
                                                                              2001           2002             2003
                                                                              ----           ----             ----
Fuel.......................................................                    13,220      12,894             14,307
Purchased power and related services.......................                     6,389       7,328             21,100
Repairs and maintenance....................................                     3,476       3,847              4,226
Depreciation and amortization..............................                     9,366      11,721             17,611
Salaries and wages.........................................                     3,946       3,854              7,994
Material and supplies......................................                     1,851       1,838              3,670
Other operating expenses...................................                     3,129       2,842              8,408
                                                                         ---------------  ------------    -------------
     Total operating expenses..............................                    41,377      44,324             77,316
                                                                         ===============  ============    =============

Operating Expenses. In 2002, our total operating expenses were approximately CZK
44.3 billion, an increase of 7.1% from 2001. In 2003, our total operating
expenses were approximately CZK 77.3 billion, an increase of 74.4% from 2002.
The year-on year increase of CZK 33.0 billion was primarily the result of the
enlargement of our consolidated group.

In 2002, the cost of fuel consumption was approximately CZK 12.9 billion, a
decrease of 2.5% from 2001 mainly due to the lower production of electricity
from fossil power plants and higher production from nuclear power plants. In
2003, the cost of fuel consumption was approximately CZK 14.3 billion, an
increase of 11.0% from 2002 due to increased electricity production (mainly in
nuclear power plants).

In 2002, our purchase of power and related services amounted to approximately
CZK 7.3 billion, an increase of 14.7% from 2001 mainly due to higher purchases
of ancillary services by CEPS, a.s. from outside suppliers other than CEZ. In
2003, our purchase of power and related services amounted to approximately CZK
21.1 billion, an increase of 187.9% from 2002 was mainly due to the enlargement
of our consolidated group, in opposite the purchases of power and related
services by previously consolidated companies decreased by CZK 1.9 billion.

In 2002, costs for repairs and maintenance amounted to approximately CZK 3.8
billion, an increase of 10.7% from 2001. The increase of approximately CZK 0.3
billion is attributable to CEZ, and the remaining increase of approximately CZK
0.1 billion is attributable to CEPS, a.s. due to a higher volume of repairs and
maintenance in 2002 in comparison with 2001. In 2003, costs for repairs and
maintenance amounted to approximately CZK 4.2 billion, an increase of 9.9% from
2002 primarily due to the enlargement of our consolidated group.

In 2002, depreciation and amortization expenses amounted to approximately CZK
11.7 billion an increase of 25.1% from 2001 due to commencement of use of our
investments, particularly of Unit 1 of the Temelin nuclear power plant. In 2003,
depreciation and amortization expenses amounted to approximately CZK 17.6
billion an increase of 50.3% from 2002 primarily due to both enlargement of our
consolidated group (CZK 3.3 billion) and commissioning of the second unit of the
Temelin nuclear power plant in 2003. The depreciation and amortization of
Temelin increased the total sum of this item by CZK 2.8 billion.

In 2002, salaries and wages expenses were CZK 3.9 billion, a decrease of 2.3%
from 2001 due to reduction in the number of our employees. In 2003, salaries and
wages expenses were CZK 8.0 billion, an increase of 107% from 2002. The whole
increase of salaries and wages expenses is attributable to the newly
consolidated companies

In 2002, our materials and supplies expenses were approximately CZK 1.8 billion,
a decrease of 0.7% from 2001. In 2003, our materials and supplies expenses were
approximately CZK 3.7 billion, an increase of 99.7% from 2002. There was only
insignificant increase of materials and supplies expense related to previously
consolidated companies.

In 2002, our other operating expenses which include environmental charges and
claims and purchased services, among other things, were approximately CZK 2.8
billion, a decrease of 9.2% from 2001. This decrease was mainly due to lower
cost of purchased services. In 2003, our other operating expenses were
approximately CZK 8.4 billion an increase of 195.8% from 2002. This increase was
mainly due to change in the nuclear provisions by CZK 3.5 billion (caused by a
change in the timing of the estimated cash flows as well as by the total
estimated costs) and change in provisions and valuation allowances of CZK 2
billion.

                                       41


Income before Other Expense (Income) and Income Taxes. In 2002, our income
before other expense (income) and income taxes amounted to approximately CZK
11.3 billion, a decrease of 23.3% from 2001. The decrease of approximately CZK
3.4 billion was a result of a decrease in operating revenues by CZK 0.5 billion
accompanied by an increase in operating expenses by CZK 2.9 billion. In 2003,
our income before other expense (income) and income taxes amounted to
approximately CZK 7.5 billion, a decrease of 33.4% from 2002. The decrease of
approximately CZK 3.8 billion was a result of an increase in operating expenses
by CZK 33.0 billion accompanied by an increase in revenues by CZK 29.2 billion.
Large increases in both expenses and revenues are due to the enlargement of our
consolidated group. The increase in operating expenses was further influenced by
nuclear power station changes, i.e. the introduction of both units of the
Temelin nuclear power plant into trial operation (increase in depreciation by
CZK 2.8 billion) or the extension of the useful life of nuclear power plants
from 30 to 40 years. As a result of this step, taking into account the updated
estimate of the amount and timing of expenses connected with the decommissioning
of nuclear facilities, additions to nuclear reserves increased by CZK 3.5
billion.

Other Expense (Income). In 2002, other expenses/income (net), which include
interest on debt, net of capitalized interest, interest on nuclear provisions,
interest income, foreign exchange rate losses/gains, other expenses, and income
from our associate, amounted to approximately CZK -0.5 billion. In 2003, other
expense/income (net) amounted to approximately CZK 0.8 billion. The
deterioration compared to 2002 is mainly due to higher interest expense, which
now includes also the previously capitalized part, and due to lower foreign
currency exchange gains by CZK 1.4 billion. An increase in income from
associates (by CZK 0.6 billion, i.e. by 114%) and a decrease in other financial
expenses, also by CZK 0.6 billion, had a positive impact on the other expenses
(income).

Income Taxes. In 2002, income taxes amounted to approximately CZK 3.4 billion, a
decrease of 19.0% from 2001. This decrease was primarily a result of our
decreased tax basis due to investment tax relief on technological property, in
particular Unit 1 of the Temelin nuclear power plant. In 2003, income taxes
amounted to approximately CZK 208 million, a decrease of 93.8% from 2002. This
decrease was primarily a result of a decrease in income before income tax, and a
decrease in the deferred tax liability in connection with the change of income
tax rate starting in 2004. Our effective corporate income tax rate in 2001, 2002
and 2003 was 31%, 29%, and 3% respectively.

Net Income. In 2002, net income amounted to approximately CZK 8.4 billion, a
decrease of 7.7% (CZK 0.7 billion) from 2001. This deterioration was due to
lower operating profit by CZK 3.4 billion, lower other expenses by CZK 1.9
billion and lower income taxes by CZK 0.8 billion. In 2003, net income amounted
to approximately CZK 5.9 billion, a decrease of 29.6% (CZK 2.5 billion) from
2002. This deterioration was mainly due to lower operating profit by CZK 3.8
billion, higher other expenses (by CZK 1.4 billion) and due to decreasing impact
of newly reported minority interests (by CZK 0.5 billion).

Earnings per common share were, CZK 15.4, CZK 14.3, and CZK 10.0 in fiscal years
2001, 2002 and 2003 respectively, representing a decrease of 7.1% in 2002 and a
decrease of 30.1% in 2003.

Inflation

The rates of inflation on an annual average basis in the Czech Republic during
2001, 2002 and 2003 were 4.7%, 1.8%, and 0.1% respectively. The effects of
inflation on our operations have not been significant in recent years.

For a discussion of the impact of currency fluctuations on our business and
hedging or other mechanisms that we use, see "Item 11. Quantitative and
Qualitative Disclosures about Market Risk" on page 66.

For a discussion on government economic, fiscal, monetary and political policies
or factors that have or could materially affect our operations, see "Risk
Factors" on page 8 and "Economic, Fiscal, Monetary or Political Policies or
Factors Which Impact Our Business" on page 21.

Liquidity and Capital Resources

We expect our principal capital requirements to consist of the following:

          o    commencement of the modernization of the Dukovany nuclear power
               plant, together with its control center; and

                                       42


          o    preparation of the construction (extension) of the interim spent
               nuclear fuel storage facilities located at our nuclear plant
               sites;

          o    participation in investment opportunities in the power sector so
               that we are able to respond flexibly to developments in demand;

          o    purchase of stakes in the distribution companies; and

          o    investments to replace our aging brown-coal-fired power plants
               (at least in the amount of two-thirds of the present installed
               power output of such power plants) after the year 2010. At that
               time, the present power plants will be at the end of their useful
               lives and consequently they will be replaced by newer, more
               efficient plants.

Historically, our liquidity requirements have arisen primarily from the need to
fund capital expenditures for the expansion of our business and for our working
capital requirements. We expect to continue to incur substantial additional
capital expenditures in order to expand and improve the quality of our service,
react to market conditions, and to diversify our generating capacity. We believe
that our existing financing together with cash flows provide us with sufficient
financial capacity to fund our business and capital expenditure program and
represent a source of working capital sufficient to meet our future short-term
and long-term financing of our ongoing operations.

In 2002, our capital investments totaled approximately CZK 10.4 billion, 33.7%
less than in 2001. In 2003, our capital investments, including financial
investments without acquisition of companies which are a part of our
consolidated group totaled approximately CZK 23.9 billion, 129.8% more than in
2002.


Financing Obligations

The following table presents our principal long-term financing obligations as at
December 31, 2003:


                                                                Payments Due By Period
                                        ------------------------------------------------------------------
                                                                        (in CZK millions)
                                                     Less than 1                                  After 5
                                         Total          year         1-3 years      4-5 years      years
                                        ------       -----------     ---------      ---------     --------
Long-term debt                          36,656          5,691         19,172           7,360        4,433
                                        ------       -----------     ---------      ---------     --------
   Total                                36,656          5,691         19,172           7,360        4,433
                                        ======       ===========     =========      =========     ========

We do not have significant obligations resulting from capital and operating
lease contracts.

The following table summarizes our estimated capital expenditures (for CEZ, a.
s. only on a standalone basis), including uncommitted amounts, for the next five
years (in CZK billions):


                                                          Expected Capital Expenditures By Period
                                                 ------------------------------------------------------------
                                                                      (in CZK billions)
                                       Total         2004        2005         2006        2007        2008
                                       -----       --------     -------      -------     -------     -------
Capital expenditures                   51.3          9.5         10.7         10.6        10.6         9.9
                                       =====       ========     =======      =======     =======     =======

These figures do not include the expected acquisitions of subsidiaries and
associates, which are estimated at CZK 43.6 billions in the period 2004 through
2008. The construction programs are subject to periodic reviews and actual
construction may vary from the above estimates.

Sources of Financing

The financing of our capital investment program is obtained from cash flows from
operating activities and financing. The primary sources of financing available
to us consist of the following:

          o    cash flow from operating activities;
          o    financing from banks; and

                                       43


          o    the issuance of bonds.

Cash Flow and Liquidity

Net cash generated from our operating activities provides us with a significant
source of liquidity. Our operating activities generated net cash of
approximately CZK 22.2 billion in fiscal 2001, approximately CZK 19.0 billion in
fiscal 2002, and approximately CZK 35.8 billion in fiscal year 2003. The most
important factors here were the adjustment of income before income tax for
non-cash transaction, primarily the CZK 5.9 billion increase in depreciation and
amortization and the CZK 3 billion increase in the balance of nuclear
provisions. Further, operating cash flow was increased year-on-year by a CZK 5.7
billion change in the balance of current assets and liabilities and a CZK 3.4
billion decline in corporate income taxes paid. In 2001, 2002, and 2003, we
generated 100% of our capital investment needs from operations.

At year end 2002, our net receivables amounted to approximately CZK 4.0 billion,
an approximately CZK 0.2 billion (5.6%) increase against the level at the end of
2001. At year end 2002, the largest portion of our receivables were from the
REAS, in the amount of CZK 1.3 billion, and from our exports, in the amount CZK
0.8 billion. At year end 2003, our net receivables amounted to approximately CZK
7.1 billion, an approximately CZK 3.1 billion (74.8%) increase against the level
at the end of 2002. At year end 2003, the largest portion of our receivables in
the amount of CZK 3.6 billion was associated with the five REAS (including their
affiliated entities) which are part of our consolidated group, and the second
largest portion in the amount of CZK 3.2 was associated directly with CEZ.

Our cash balances increased from approximately CZK 2.3 billion at year end 2001
to approximately CZK 4.2 billion at year end 2002. In 2003, our cash balances
decreased to approximately CZK 4.0 billion at year end 2003. Cash balances can
fluctuate substantially on the basis of the timing of borrowings and repayments
of debt.

Our total consolidated long-term debt (including current portion) decreased by
17.1% (approximately CZK 8.2 billion) during 2002 and totaled approximately CZK
40.0 billion at year end 2002. Total debt from bonds issued decreased by CZK 0.9
billion. Long-term bank loans and other loans (including current portion)
decreased by approximately CZK 7.3 billion. Our total consolidated long-term
debt (including current portion) decreased by 8.3% (approximately CZK 3.3
billion) during 2003 and totaled approximately CZK 36.7 billion at year end
2003. Total debt from bonds issued increased by CZK 1.1 billion mainly due to
addition of domestic bond of Severomoravska energetika, a.s. Long-term bank
loans and other loans (including current portion) decreased by approximately CZK
4.4 billion.

We had no short term loans at year-end 2002. Long-term debt due within one year
decreased from approximately CZK 5.1 billion to approximately CZK 4.2 billion
(or by 17.4%) primarily due to repayment of the loans or part of the loans. We
had CZK 2.3 billion short-term loans at the end of 2003. Current portion of
long-term debt increased to approximately CZK 5.7 billion (or by 34.4%)
primarily due to expected repayment of domestic bonds.

Loans and Bonds

The following table shows our outstanding long-term indebtedness as at December
31, 2003:


                                                                                 Indebtedness
                                                                                     as of
                                                                   Facility      December, 31,
Creditor                           Interest Rate    Currency         Amount          2003(1)          Maturity
--------                           -------------    --------       - ------          -----            --------
                                                                   (millions)    (CZK millions)

Bank Austria AG                    fixed              EUR               20                  113           2005
Citibank International             floating           USD              317                2,660      2007-2008
Ceska sporitelna                   fixed              CZK               50                   40           2007
Ceska sporitelna                   fixed              CZK              360                   43           2006
CSOB                               fixed              EUR               35                   43           2004
CSOB                               fixed              CZK              169                  144           2007
CSOB                               fixed              CZK              100                   25           2004
Deutsche Bank                      floating           CZK              250                  257           2004
Erste Bank AG                      fixed/floating     EUR               20                  172      2004-2006
European Investment Bank           fixed              USD               55                1,085           2013
European Investment Bank           fixed              EUR               44                1,117           2013
European Investment Bank           floating           CZK            3,441                2,647      2012-2013
Fortis Bank                        floating           USD               55                  616      2008-2009
HVB Bank                           fixed              CZK            261.5                  267           2004
IBRD                               floating           USD              246                1,709           2007

                                       44


ING Bank                           floating           EUR               27                  152           2005
ING Bank                           fixed              CZK               48                    2           2005
Komercni banka                     fixed              CZK              300                  171           2006
Komercni banka                     fixed              CZK               30                   30           2004
Komercni banka                     fixed              CZK               71                   28           2007
Nordic Investment Bank             floating           USD               50                1,283           2007
Zivnostenska banka                 fixed              CZK               51                    3           2005

------------------------------- -- --------------- ----------- --- ---------- -- ---------------- -- -----------


Total                                                                                    12,607
                                                                                 ----------------


Amount payable by December 31, 2004                                                       2,691

Balance                                                                                   9,916
                                                                                 ================
--------------

(1)  Amounts have been translated into CZK at the CNB Exchange Rate at December
     31, 2003.

The following table shows our outstanding bonds as at December 31, 2003:



    Maturity           Interest Rate       Original Nominal Value   Indebtedness      Pre-payment        Issue Date
    --------           -------------       ----------------------   -------------     -----------        ----------
                                                                   as of December
                                                                   --------------
                                                                      31, 2003
                                                (millions)       (CZK millions)

     2014                     9.22 %             CZK 2,500            2,494              -                1999
     2009          9.22 %, zero coupon(1)        CZK 4,500            3,057              -                1999
     2007                    7.125 %             USD 200(2)           4,545              -                1997
     2006                    7.250 %               EUR 200            6,467              -                1999
     2004                    8.750 %             CZK 3,000            3,000              -                1999
     2008                    3.350 %             CZK 3,000            2,987              -                2003
     2005             6M PRIBOR+0.4%             CZK 1,000            1,000              -                1998
     2005             6M PRIBOR+1.3%             CZK   500              500              -                2000
----------------- ------------------------ ----------------------- ---------------- ----------------- -----------------
    Total                                                            24,050
                                                                   ================

_____________
(1)  We realized proceeds of CZK 1,863 million on this zero coupon bond.
(2)  Open-market purchase by us in the amount of USD 22 million.

On June 8, 2004 CEZ Finance B.V. issued EUR 400 million 4 5/8% guaranteed notes
due 2011. These notes are unconditionally and irrevocably guaranteed by CEZ.

On March 3, 1999, we began a CZK 5.0 billion domestic commercial paper program
with a consortium of banks to cover short-term financing differences of cash
inflows and outflows. On April 19, 2000, the domestic commercial program was
extended up to CZK 9.0 billion. Out of this total sum CZK 3.0 billion are
committed. Six banks are participating in the commercial paper program now. Our
outstanding indebtedness under this program was CZK 2.0 billion as of December
31, 2003. The interest rates on indebtedness under this program range from the
Prague inter-bank offering rate ("PRIBOR") to PRIBOR plus 0.20%, each 0.01%
being a basis point ("b.p.").

Also, we have several committed short-term credit lines (CZK 3 billion) and
several uncommitted. For the preceding three months (March, April and May 2004)
we have not utilized neither commercial paper program nor short-term lines.

On May 30, 2000, we entered into a syndicated multi-currency EUR 85 million
guarantee facility in favor of the European Investment Bank due 2013. Our
outstanding indebtedness under this credit facility as of December 31, 2003 was
CZK 2.4 billion at a floating interest rate of PRIBOR minus 5 b.p.

On October 20, 1999, CEZ Finance B.V., a wholly owned subsidiary of CEZ
organized under the laws of The Netherlands and acting as a financing vehicle
for CEZ, issued EUR 200 million 7.25 percent Guaranteed Notes due 2006. These
notes are unconditionally and irrevocably guaranteed by CEZ.

On January 27, 1999, we exercised a call option for CZK 4.0 billion 14.375%
bonds. We repaid the bonds using a portion of proceeds from two bond issues in
aggregate amount of CZK 7 billion, an issue of CZK 4.5 billion domestic
discounted bonds (with a zero coupon so that immediate funds due 2009 were
obtained in an amount of

                                       45


CZK 1.9 billion), as well as an issue of CZK 2.5 billion domestic 9.22%(1) bonds
due 2014. On June 7, 1999 we issued CZK 3.0 billion domestic 8.75% bonds due
2004 and the proceeds were used to exercise the call option for CZK 3.0 billion
10.9% bonds. On June 6, 2000 we exercised a call option for CZK 4.0 billion
11.3% bonds. On June 27, 2003 we exercised a call option for CZK 3.0 billion 11
1/16% bonds. We repaid these bonds using proceeds from new CZK 3.0 billion
domestic 3.35% bonds due 2008 issued on June 23, 2003. On June 7, 2004 we repaid
our domestic 8.75% bonds due on 2004.

(1) In 2006 these bonds will bear interest at a variable interest rate defined
    as CPI + 4.2%.

On November 11, 1998, we entered into a syndicated credit facility agreement for
an aggregate amount of DEM 280 million with a consortium of thirteen banks with
Sumitomo Bank Limited being the Facility Agent. For DEM portion of this facility
we pay interest of LIBOR plus 50 b.p. and for the CZK portion, PRIBOR plus 50
b.p. The last installment of this facility was paid on November 11, 2003.

On January 27, 1998, we entered into a credit facility agreement with the Nordic
Investment Bank for a total amount of USD 50 million. We pay interest of LIBOR
plus 50 b.p. on this facility.

On December 14, 1995, we entered into a long-term multi-currency loan provided
by the European Investment Bank in the amount of 200 million ECU (European
Currency Unit). On July 11, 1996, we obtained a guarantee valid until 2003 from
a consortium of commercial banks required by the loan agreement with the
European Investment Bank allowing us to draw-down up to ECU 100 million under
such agreement. We have made four drawdowns on this loan in denominations and
with interest rates as follows: USD 7.05%, DEM 6.33%, EUR 5.17% and CZK PRIBOR
minus 15 b.p. A new guarantee for next 5 years was obtained from the manager of
the consortium on April 8, 2003.

On December 3, 1996, we entered into two syndicated credit facility agreements
to secure financial resources for the completion of the Temelin nuclear power
plant. The first facility, arranged by Citibank, is for USD 317 million and is
guaranteed by the Export-Import Bank of the United States and by the Czech
Republic. In 2000 we drew down a total of approximately USD 92 million from this
facility to pay Westinghouse for the delivery of the information and control
systems for Unit I and II of Temelin. In 2001, we had expected to make
additional draw downs from this facility of approximately USD 61 million, of
which we anticipated that approximately USD 32 million would be drawn down for
the information and control system of Unit 2 and approximately USD 29 million
for nuclear fuel. However, due to our financial position in 2001 we decided to
cancel the undisbursed balance of the loan, or USD 61 million. In 2003, we made
principal payments on this facility of approximately USD 23.8 million. The
interest rate on this loan is LIBOR plus 30 b.p. The second facility, arranged
by Generale Bank (now operating under the name Fortis Bank), is for USD 55
million and guaranteed by the Belgium Office of National du Ducroire and by the
Czech Republic. In 2002, we drew down approximately USD 0.6 million for the
information and control system. As at December 31, 2003 approximately USD 4.7
million of the principal had been paid and no amount remained to be drawn down
under this facility as we cancelled the undisbursed balance of the loan. The
interest rate on this loan is LIBOR plus 50 b.p. In consideration for the Czech
Republic guarantees of these two credit facility agreements, we have agreed to
pledge to the Czech Republic (i) certain of our receivables from one of the
REAS, within 30 days of demand by the Czech Republic under the applicable
guarantee and (ii) the buildings (cooling towers) at the Temelin nuclear power
plant, upon transfer of title thereto to us (after completion of construction
thereof).

On July 17, 1992, we entered into a multi-currency loan agreement with the
International Bank for Reconstruction and Development for an amount equal to USD
246 million. We currently have EUR and USD portions outstanding with applicable
interest rates of EUR London inter-bank offering rate ("LIBOR") plus 50 b.p. and
World Bank variable rate plus 50 b.p., respectively. On December 31, 2003 our
outstanding indebtedness under this multi-currency loan agreement consisted of
(i) a EUR portion of approximately EUR 8.7 million with an applicable interest
rate of 2.35% and (ii) a USD portion of approximately USD 55.6 million with an
applicable interest rate of 5.33%. This agreement contains several financial
covenants relating to, among other things, interest coverage and
revenues/expense ratio. This revenue/expense ratio requires us to maintain
operating costs at a level no higher than 60% of our operating revenues and to
furnish on a semi-annual basis to the International Bank for Reconstruction and
Development forecasts for the next following year in respect of whether we
expect to comply with the ratio. In the past our operating cost to operating
revenue ratio has neared the 60% level. With the aim of avoiding a breach of
this contract we successfully requested the International Bank for
Reconstruction and Development to waive this revenue/expense ratio requirement
for 1999 and 2000. In 2001 and 2002 we met all of the financial covenants on
this loan. In 2003, we also met all of the financial covenants on this loan.

                                       46


To manage short-term financing differences of cash inflows and outflows, we
utilize a number of instruments, including commercial paper programs, T-bills,
revolving multi-currency credit facilities and bank overdrafts. Our long-term
liquidity depends on the future prices of electricity and on the demand for
electricity. With respect to managing long-term liquidity, we believe that we
will be able to secure necessary sources of funding.

Certain of our loans and the terms and conditions of guarantees issued by us
include covenants that require us to be controlled by the Czech Republic. As
part of the anticipated sale of CEZ, a. s., we plan to negotiate amendments to
these covenants to allow the sale of CEZ, a. s. by the National Property Fund.
As indicated above, certain of our loans required the proceeds to be used for
the construction of Temelin or the refurbishment of some of our coal power
plants to meet new environmental laws. In each case, we have used the proceeds
in accordance with the restrictions on use as provided in such loans.

We hold cash and cash equivalents in EUR, USD and CZK.

For 2003 we hedged against foreign currency exchange rate fluctuations affecting
our expenses of operations by using FX option strategy (zero cost premium). We
believe this is the most effective strategy in situations where it is not
possible to accurately predict the amount and maturity of expenses. We also
executed several IR swaps to switch part of our floating rate liabilities into
fixed rate using the situation of historically low Czech interest rates. For
more information on hedging activities, see notes 2.19 and 12 to the
Consolidated Financial Statements included herein.

Material Commitments for Capital Expenditures

Our existing fixed material commitments for capital expenditures for the last
financial year and from January 1, 2004 relate to the construction of Temelin
and the commencement of the modernization of the Dukovany nuclear power plant,
together with its control center. See "Property, Plants and Equipment" on page
27 for a full discussion of capital expenditures related to Temelin. Further
capital expenditures related to the purchase of REAS as described in Material
Contracts on page 60

Research and Development

We currently do not run any material research and development programs.

Trend Information

In 2003 the Czech Republic saw another phase of progressive market opening to
final customers, with approximately 375 customers with a total consumption of
about 16 TWh being able to select their respective suppliers. The REAS, as the
regional electricity seller to final customers, refrained from purchasing
electricity imports, as was the case in 2002, and purchased a major portion of
their requirements from CEZ. The key event was the commissioning of the Temelin
power plant, bringing about an increased option to make use of the business
opportunity that presented itself in the market. Also related to these
developments is the achievement of the historically largest quantity of
electricity exports from the Czech Republic, which the first half-year
development suggests will not be repeated.

As a consequence of the liberalization of the energy market in the Czech
Republic, we have seen a decrease in the profitability on energy sold as the
Czech energy market has faced competition from energy imports. This trend has
been exacerbated by the lack of free competition and non-reciprocal rules
applicable for the export of electricity from the Czech Republic to neighboring
countries (as opposed to the import of electricity to the Czech Republic). As a
consequence, fees imposed in neighboring countries on our exported electricity
result in an energy price that is higher than prices for electricity imports
from such countries to the Czech Republic. The REAS have reacted to this
imbalance by purchasing imported cheaper electricity. This has required us to
respond by lowering our energy prices and decreasing our profitability. In 2003,
for example, we have sold electricity to the REAS at lower prices than for the
similar period in 2002 in an effort to improve our competitive position and
improve market share. If this trend continues, we may respond by temporarily
reducing our production of electricity.

                                       47


In July 4, 2003 we acquired from E.ON its minority interests in Zapadoceska
energetika, a.s. and Vychodoceska energetika, a.s. in exchange for our minority
interests in Jihoceska energetika, a.s and Jihomoravska energetika, a.s. The
deal reached with E.ON also includes a put option for E.ON and a call option for
us on E.ON's shares in Severoceska energetika, a.s and Severomoravska
energetika, a.s. These options can be exercised during 2004. The options, if
exercised, would increase our stake in Severoceska energetika, a.s. by 5.93% to
56.93% and our stake in Severomoravska energetika, a.s. by 30.28% to 89.36%, and
we would be required to pay the purchase price stipulated in the contract with
E.ON. If the options are exercised, we intend to finance the purchase price
using our internal sources and existing short term funds. If our stake in
Severomoravska energetika, a.s. increases to 89.36%, we will be required to make
a mandatory tender offer to the minority shareholders of Severomoravska
energetika, a.s. which we intend to finance from our internal sources.

In July 2003, we entered a tender process organized by the National Property
Fund of the Slovak Republic for the selection of the purchaser of its 66%
interest in Slovenske elektrarne, a.s. In November 2003, the deadline for
submission of applications to the tender process expired. We expressed our
interest in inclusion of all types of energy generation facilities (including
nuclear power plants) into the offered stake. By July 21, 2004, binding bids are
expected to be submitted and the final decision on the winner of the tender
process is expected to be made later in 2004, though the acquisition will likely
not be completed by end of 2004. If we win the tender process (and we assess our
chances of winning as being fair), we expect that the acquisition of the
privatized stake and the integration of Slovenske elektrarne, a.s. into our
group may have an impact on our business, prospects and financial conditions.
Though this impact may be negative in short term, we will only proceed with the
acquisition if we believe that eventually the acquisition will be to our
benefit. Our willingness to proceed with the acquisition and the approximate
value of the stake will mostly depend on the extent to which certain assets and
liabilities of Slovenske elektrarne, a.s. will be excluded from the assets of
Slovenske elektrarne, a.s. prior to its acquisition and on the approach how the
existing nuclear risks will be treated. We intend to finance our potential
payment obligations partially using our internal sources and partially using
outside debt financing.

In December 2003 we submitted the "Documents on Qualification" to the
Privatization Agency of the Bulgarian Republic as part of a tender process
regarding three privatization packages which cover a total of seven Bulgarian
distribution companies. The final bids should be submitted by July 9, 2004.
Currently, there are 5 participants in the tender process. The final decision on
the winner of the tender process may be expected to be made approximately by the
end of this year. If we win the tender process, we expect the acquisition of the
privatized Bulgarian distribution companies and their integration into our group
will not have a material impact on our business, prospects and financial
conditions. We intend to finance our potential payment obligations using our
internal sources.

At the beginning of May 2004, we announced a tender offer for the sale of our
minority interest in Prazska energetika, a.s. and we expect the final sale to
take place by the end of 2004. We will base our decision on the winner of the
tender offer primarily on the amount of the offered purchase price. We are also
currently exploring our options for the sale of our minority interest in CEPS,
a.s. We expect this sale to take place by the end of 2004 as well. We expect
both of these sales to have a positive impact on our financial condition.

In June 2004 we submitted the "Documents on Qualification" to Electrica S.A. as
part of a tender process regarding the privatization of two distribution
companies in Romania. The further proceeding has not been stipulated yet. We
intend to finance our potential payment obligations using outside debt
financing.

Off-balance sheet arrangements

We have not identified any material off-balance sheet arrangements.

                                       48


Tabular disclosure of contractual obligations


                                                           Payments due by period
                                                             (in CZK millions)
                                                  less than 1       1 - 3        3 - 5     more than 5
                                                  ------------      -----        -----     -----------
Contractual Obligations                 Total         year          years        years         years
                                        -----         ----          -----        -----         -----

Long Term Debt Obligations                 36,656         5,691        19,172        7,360         4,433
Insurance                                     570           570
Electricity purchase except of             18,343         8,234         4,624        3,883         1,602
members of CEZ Group
I&C System for Dukovany                     4,718           800         1,780        1,798           340
Fuel                                       15,208         1,822         4,505        2,989         5,892


Item 6.   Directors, Senior Management and Employees

We have a two-tier board system consisting of a Board of Directors and a
Supervisory Board. The Board of Directors represents us in all matters and is
charged with our management, while the Supervisory Board oversees our Board of
Directors and our executive officers. Our executive officers manage our daily
operation. Under the Czech Commercial Code, the Supervisory Board may not make
management decisions. Our highest governing body is the General Meeting of
Shareholders. Members of the Supervisory Board are elected by the General
Meeting of Shareholders, while members of the Board of Directors are elected by
the Supervisory Board.

The Board of Directors must inform the Supervisory Board on certain matters, and
the Supervisory Board may request information at any time. The Czech Commercial
Code prohibits simultaneous membership on the Board of Directors and the
Supervisory Board of any company.

Board of Directors and Executive Officers

Set forth below are members of our Board of Directors and our Executive Managers
(Executive Officers).

Board of Directors:


Name                                          Position                                       Held Since     Age
----                                          ---------                                      ----------     ---

Martin Roman..............................    Chairman of the Board of Directors                2004         34
Alan Svoboda..............................    Vice-Chairman of the Board of Directors           2004         32
David Svojitka............................    Member of the Board of Directors                  2003         42
Jiri Vagner...............................    Member of the Board of Directors                  2003         48
Petr Voboril..............................    Vice-Chairman of the Board of Directors           2002         53


Executive Managers:



Name                                          Position                                       Held Since     Age
----                                          ---------                                      ----------     ---

Martin Roman..............................    Chief Executive Officer                           2004         34
Petr Voboril..............................    Chief Strategic Development Officer               2002         53
Alan Svoboda..............................    Chief Sales Officer                               1999         32
David Svojitka............................    Chief Financial Officer                           2002         42
Pavel Klika...............................    Chief Conventional Power Officer                  2000         50
Zdenek Linhart............................    Chief Nuclear Power Officer                       2003         50
Henning Probst............................    Chief Distribution Officer                        2003         46


Martin Roman. Graduated from the Faculty of Law at Charles University in Prague.
Then he studied a one-year scholarship program at St. Gallen University
(Switzerland), the Faculty of Economics. He also spent one year studying at the
Karl-Ruprechtsuniversitat Heidelberg (Germany). He began his professional career
in 1992 when still a student, when he was appointed the sales director of the
Czech branch of Wolf Bergstrasse CR, s. r. o., a company specializing in the
manufacture of potato crisps. From 1994 to 1999 he worked as the CEO of Janka
Radotin, a. s., and in 1998, after the acquisition of the company by a strategic
partner - the American company LENNOX, he also became a member of the company
board. His third chief executive position was in SKODA HOLDING (he began in 1999
in Pilsen as Chairman of the Board and General Director of SKODA, a. s., and in
April 2000 he was appointed Chairman of the Board and a CEO of the entire
joint-stock company SKODA

                                       49


HOLDING), from where he went on to our Company. In February 2004 he was
appointed the Chairman of our Board of Directors and since April 1, 2004 he
holds position of our Chief Executive Officer. He is a member of our Audit
Committee.

Alan Svoboda. Graduated from the University of West Bohemia in Pilsen in IT and
financial management. He also completed MBA in Finance and MA in Economics at
University of Missouri in Kansas City (USA). He holds a CFA certificate
(Chartered Financial Analyst) issued by AIMR (Association for Investment
Management and Research). Prior joining CEZ, Mr. Svoboda was a partner at
McKinsey & Company where he specialized in advising clients coming from energy
sector, gas industry and petrochemistry. From April 1998 to January 2000 he was
a CFO and a Vice-Chairman of the Board of Directors of Zapadoceska energetika,
a.s. Since May 2004 he has become a Vice-Chairman of the our Board of Directors.

David Svojitka. Graduated from Julius Maximilians-Universitat in Wurzburg
(Germany), with a degree in Monetary Policy and Finance. From 1987 to 1989 he
worked in Hornblower Fischer AG company, Frankfurt u. M. He continued his
professional career from 1989 to 1991 in Vereinsbank AG, Munich, where he was a
member of the DTB team responsible for the implementation of electronic systems
for trading financial derivates on the German market (the first of its kind in
the world). Between 1991 and 2000 he worked for Vereinsbank (CZ), from January
1999 in HypoVereinsbank (CZ), a. s., as the charter member of the bank and from
October 1996 as a member of the executive board responsible for
Treasury/financial markets and internal administration. From 2000 to 2001 he was
a member of the executive board and the deputy general director of Komercni
banka, a. s., responsible for developing and marketing products, supporting
segments and for direct banking. As a member of the management he participated
in the process aimed at making the bank healthier and privatizing it (the bank
was successfully privatized in the middle of 2001). He has been with our Company
from 2002 when he became our Chief Financial Officer.

Jiri Vagner. Has a degree from the Czech Technical University's Faculty of
Electrical Engineering, where he majored in 1980 in Electric Machinery, and from
the Technical University in Brno, Faculty of Mechanical Engineering, where he
majored in 1983 (specializing in the operation and control of nuclear power
plants). In 1980 he started working in the Dukovany nuclear power plant - from
1983 onwards he was an operator in charge of the secondary circuit and from 1984
he worked as an operator of a reactor during the launch of the first unit of the
plant. In 1985 he was entrusted with the operation of the entire reactor unit
and in 1987 he became a shift engineer. In 1990 he was appointed the Deputy
Operation Manager of Dukovany nuclear power plant, in 1992 the Deputy Director
for Nuclear and Radiation Safety and in 1993 the Technical Director of the
Dukovany plant. Since 1999 he has been in charge of the preparation of the
launch of Temelin nuclear power plant and on 1 May 2003 he was appointed its
director.

Pavel Klika. A graduate of the Czech Technical University's Faculty of
Electrical Engineering in Power Industry Economics and Management, he has worked
in the electricity sector since 1976, when he began as a shift technician at the
Tusimice power plants organizational unit. In 1981 he was transferred to the
Prunerov II Power Station, where he headed up two generating units. In 1985 he
became head of maintenance at the turbine hall and in 1990 he was named Director
of the Prunerov II power station. On 1 January 1993 he was named Director of the
Prunerov sower stations organizational unit. In 1993 - 1997 he attended various
training courses (Air Pollution Control Technology Course in the USA, Combined
Cycle Study Course and Power Gen Conference in the USA, Energy Efficiency and
Energy Conservation in Japan). In January 2001 he completed a Masters of
Business Administration (MBA) at the Prague International Business School. Mr.
Klika is chairman of the Board of Directors of CEZTel, chairman of the
supervisory boards of CEZnet and Severomoravska energetika, a.s. and a member of
the supervisory board of GAPROM, s.r.o. (in liquidation).

Petr Voboril. Graduate of the Mechanical Engineering Faculty of the Czech
Technical University, where he studied work space technology, and he did
post-graduate work in district heat development. In 1997 he attended a
management skills course at the InterManager European standard level. He started
to work for Ceske energeticke zavody (the predecessor of our Company) in 1980
and spent the first ten years of his career with us in operation control and
heat industry development. After 1990 he worked in various economic section
posts, and from January 1995 to April 1998 he was Director of the Planning and
Analysis Section. In 2000 he was appointed our Vice-CEO and the Executive
Director for Finances and Administration. Since October 2002 he has held the
position of our Chief Strategic Development Officer. From February 2003 to
November 2003 he held the position of the Vice-Chairman of our Board of
Directors, than he was appointed Chairman of the Board of Directors. He held
this position until February 2004 when he became again the Vice-Chairman of our
Board of Directors. From November 2003 to March 2004 he was our acting CEO.
Since May 2003 he has been a member of the supervisory board of Stredoceska
energeticka, a.s.

                                       50


Zdenek Linhart. He graduated from the Faculty of Mechanical Engineering of the
Czech Technical University in Prague and holds a degree in Nuclear Power
Facilities. After graduation in 1977 he started to work as a construction
designer in the SKODA Plzen concern, more precisely in its detached plant in ZJV
Bolevec, and in 1978 he began participating in the process of building the
Dukovany nuclear power plant. However, prior to this he had to be trained for a
machinist operating TG 200 MW. The training took place in Ledvice power plant
and Mr. Linhart then had to go through an 8-month practice in the new job. The
Dukovany nuclear power plant started to train its staff in 1980, and Mr. Linhart
was in the first group of operators that were trained in Piestany in Slovakia.
He also practiced on model VVER reactors in the training centre on
Novovoronezska power plant in the former USSR. In 1983, the Dukovany nuclear
power plant management put him in charge of the blue shift as a shift engineer
and he performed this task until the launch of the first three blocks. Before
the launch of the fourth block, he held the position of the main technologist
responsible for the launch. When the entire power plant had been put in
operation in 1985, he was entrusted, along with another person, with the
position of the main technologists of the plant. After the re-organisation in
1991 he was appointed the head of the newly established plant management
section, in 1993 he became the Dukovany nuclear power plant deputy director for
plant management and then the Dukovany nuclear power plant deputy director for
maintenance and repairs. Lately, he has been managing the team entrusted with
the task of preparing the establishment of the nuclear power section. Mr.
Linhart is a member of the supervisory board of JVCD, a. s.

Henning Probst. Mr. Probst studied in Germany, USA and China. He gained his
professional experience with the management of generation and distribution
companies (supplying electricity and gas to end customers) in Germany. He
frequently held positions in the executive boards of these companies and was
also active in the boards of municipal enterprises. Mr. Probst was last employed
in Wesertal, German multiutility, which does not just distribute electricity but
also supplies its customers with gas and water. The company was owned by a
Finnish power company Fortum until July 2002, when it was sold to a German
company E.ON. Mr Probst also participates in the activities of the
Gemeinschaftskraftwerk Weser production company, which operates two power plants
- a conventional one and a nuclear one. Moreover, Mr. Probst was also active on
the boards of two waste incineration plants. Since January 2001, he has been our
Chief Distribution Officer, and in May 2003 he became a member of the
supervisory board of Vychodoceska energetika, a.s.

Supervisory Board

Set forth below are the incumbent members of the Supervisory Board:


                                                                                     Current
 Name                                                               Initially          Term
 ----                                                               Appointed         Expires        Age
                                                                    ---------         -------        ---

Stanislav Kazecky (Chairperson) .............................          2003            2007           55
Zdenek Hruby (Vice-Chairperson)..............................          2003            2007           47
Vaclav Krejci(1) (Vice-Chairperson)..........................          1993            2006           50
Jan Demjanovic ..............................................          2003            2007           50
Frantisek Haman(1)...........................................          2000            2004           46
Jan Juchelka ................................................          2002            2006           32
Pavel Safarik ...............................................          2004            2008           50
Martin Pecina ...............................................          2003            2007           35
Jan Sevr(1)..................................................          1999            2004           57
Vaclav Srba..................................................          2002            2006           62
Pavel Suchy .................................................          2003            2007           49
Zdenek Zidlicky(1)...........................................          2002            2006           57
-------------

(1) Employee representative.

Stanislav Kazecky. Graduated from the Prague School of Economics. Since 1994
till August 2003 he was the chairman of the Board and the Chief Executive
Officer of ZVVZ, a. s., and now he is employed there as a consultant. He is also
a member of the Supervisory Board of EKOKLIMA akciova spolecnost. Since 2001, he
is the president of the Industry and Transportation Union of the Czech Republic.
In 2003 he was elected to our Supervisory Board and became its Chairperson.
He is a member of our Audit Committee.

Zdenek Hruby. Graduated from the Czech Technical University's School of
Electrical Engineering. Currently, he holds the office of a Deputy Minister of
Finance. He is a vice-president of the presidium of the National Property

                                       51


Fund, a member of the Board of Directors of Sokolovska uhelna, a.s., a
vice-chairman of the Supervisory Board of CESKY TELEKOM, a.s., and a member of
the Supervisory Board of Ceske aerolinie, a.s. He was elected Vice-Chairperson
of our Supervisory Board in 2003 pursuant to an understanding with our majority
shareholder the National Property Fund.

Vaclav Krejci. Graduated from the Secondary Industrial School of Chemical
Technology. Mr. Krejci has seven years experience working for Chemicke zavody
Litvinov and is an employee representative on the Supervisory Board. Since 1982,
he has worked at the Dukovany Nuclear Power Station. He has also served as an
officer of the Internal Communication Department. In 1992 he was elected to the
CEZ Supervisory Board. Since 2000 he has been the Vice-Chairman of the
Supervisory Board. He is a member of the Supervisory Board of Nadace Duhova
energie (Rainbow Energy Foundation).

Jan Demjanovic. Graduated from the Faculty of Mechanical Engineering of the
Technical and Textile University in Liberec. He is business director and a
member of the Board of Directos of Severoceske doly, a.s., a vice-chairman of
the Board of Directors of Coal Energy, a.s, a member of the Board of Directors
of Teplarna Usti nad Labem, a.s. and a vice- chairman of Supervisory Board of SD
- Kolejova doprava, a.s. Until May 2003 he was the chairman of the Supervisory
Board of Severozapadni ENERGO GROUP, a.s., , and until November 2003 the
vice-chairman of the Supervisory Board of SD - Humatex, a.s.

Frantisek Haman. Graduated from the Secondary Industry School of Building
Construction. Mr. Haman has worked for CEZ since August 1984 and is an employee
representative on the Supervisory Board. Mr. Haman worked in Temelin's
investment department during the construction of the Temelin Nuclear Power
Station. Since 1992 he has been on leave, acting as the Chairman of the Labor
Organization at the Temelin Nuclear Power Station. In 2000 he was elected to the
CEZ Supervisory Board.

Jan Juchelka. Graduated from the Department of Business at Slezska University in
Karvina. From June 1995 until the present he has been employed by the National
Property Fund. He has held positions as the Director of the Securities Trading
Department, the Director of the Securities Department, Director of the Company
Holdings Department and the Second Vice-Chairperson of the Executive Committee
of the National Property Fund. Mr. Juchelka holds a broker's license. He is a
member of the Board of Directors of CESKY TELECOM, a.s. and a member of the
Supervisory Board of Komercni banka, a.s. He was elected to our Supervisory
Board pursuant to an understanding with the National Property Fund, our majority
shareholder.

Martin Pecina. Graduated from Mechanical Faculty of VSB - Technical University
in Ostrava, and obtained an MBA from Sheffield Business School. He has a CIME
qualification. Until 2003 he was the CEO of HUTNI PROJEKT Frydek Mistek a.s.
Since February 2003 he is a deputy minister of industry and trade. Mr. Pecina
was elected to our supervisory board in June 2003 pursuant to an understanding
with the National Property Fund, our majority shareholder.

Jan Sevr. Graduated from the Secondary Industrial School of Mechanical
Engineering. Mr. Sevr has worked at the Melnik Power Station since 1966 and is
an employee representative on the Supervisory Board. He has worked as the head
of the shift operations management department and is also the Chairman of the
labor union organization at Melnik Power Station. In 1999 he was elected to the
CEZ Supervisory Board.Since June 2003 till December 2003 he was the
vice-chairman of the Board of Trustees of the Nadace Duhova energie.

Vaclav Srba. Graduated from the Prague School of Economics (Department of
Industrial Economics) and graduated from the Management Institute. From 1958
until 1972 he worked at CKD Tatra Smichov holding various positions and ending
his tenure as the Director of the Finance and Expenditure Department. From 1972
until 1990 he worked in the State Planning Commission as, among other things,
the Director in the Finance and Prices Department. In the following two years he
worked at the Federal Ministry for Strategic Planning as a Director for
Evaluating Economic Policy. In 1992 he became the A Deputy General Director of
TOP INVEST EMPIRE, a.s. and from 1992 until 2000 a Deputy General Director of
the Sporitelni investicni spolecnosti, a.s. group. Since February 2001 he worked
at the Ministry of Finance and is currently a Deputy Minister of Industry and
Trade. He is Deputy Chairman of the Government Council - Investment Council,
member of the Presidium of the National Property Fund. He is the Chairman of the
Board of Directors of THERMAL-F, a.s., vice-chairman of the Board of Directors
of AERO Vodochody a.s. and is on the Supervisory Board of UNIPETROL,,a.s., CEPS,
a.s. and Severoceska energetika,a.s. Since December 2003 he is a member of the
Board of Trustees of the Nadace Duhova energie.

                                       52


Pavel Suchy. Graduated from the Prague School of Economics. Since 1994 he works
for the National Property Fund. In November 2002, he was appointed the First
Vice-Chairman of the Executive Committee of the NPF. He is a member of the
Supervisory Boards of UNIPETROL, a.s. and Konpo, s.r.o. Until June 2003 he was a
member of the Board of Directors of AERO HOLDING a.s. v likvidaci, and until
February 2003 a member of Supervisory Board of Jihomoravska energetika, a.s. He
was elected to our Supervisory Board in 2003 pursuant to an understanding with
our majority shareholder the National Property Fund. In May 2004 he was
appointed to be the audit committee financial expert.

Pavel Safarik. Graduated from the Economic Faculty of VSB - Technical University
in Ostrava. Between 1992 and 2002, he was a member of Czech Parliament and hold
positions in the budget committee and in the banking committee. He is a deputy
minister of finance and member of the presidium of the National Property Fund.
He was elected to our Supervisory Board in June 2004 pursuant to an
understanding with our majority shareholder.

Zdenek Zidlicky. Graduated from Secondary Technical School. Mr. Zidlicky has
held various positions in our company since 1979. Since 1993 he has been the
chairman of the CEZ-EPR II union organization. He represents the Czech Trade
Union of Northwestern Power Engineers in the Association of Trade Unions of
North Bohemia and in the Interregional Trade Union Council. He is also a
representative of the trade union for energy issues in the Economic and Social
Agreement Council of the Czech Republic, where he serves on the working team for
economic policy. He is a member of our Audit Committee.

Compensation

For the year ended December 31, 2003, the aggregate compensation of all members
of our Board of Directors paid or accrued for all services in their capacity as
a Board of Directors member was approximately CZK 14.7 million, including
salary, bonuses and pension plans.

For the year ended December 31, 2003, the aggregate compensation of all members
of our Supervisory Board paid or accrued for all services in their capacity as a
Supervisory Board member was approximately CZK 25.5 million, including salary,
bonuses and pension plans.

For the year ended December 31, 2003, the aggregate compensation of our
management (totaling 37 people, including members of the Board of Directors in
their capacity as our executive managers) paid or accrued for all services in
all capacities was approximately CZK 202.6 million, including salary, bonuses
and pension plans.

Board Practices

As of January 29, 1998, we restructured our management organizational structure,
creating a distinction between our Board of Directors and our executive
officers. The members of the Board of Directors were nominated by the National
Property Fund of the Czech Republic and elected at an Extraordinary General
Meeting of the Shareholders on January 5, 1999. Members of our current Board of
Directors are appointed by the Supervisory Board. See "Articles of Association
(Stanovy)" on page 57.

Pursuant to the Czech Commercial Code, our shareholders are entitled to appoint
and recall two-thirds of the members of the Supervisory Board. Members of the
Supervisory Board are appointed for a four-year term. The remaining members of
the Supervisory Board are (by law) employee representatives and are appointed
and recalled by CEZ employees. The shareholders and employees elect members of
the Supervisory Board for a period beginning at the end of the General Meeting
of Shareholders at which a resolution is adopted appointing them and serve until
the following General Meeting of Shareholders at which a resolution is adopted
discharging them. The Supervisory Board is responsible to the shareholders and
employees for the general supervision of CEZ's business.

Audit Committee. We have an Audit Committee whose statutes state that it is
composed of the Chairman of the Board and General Director of the Company
(currently, Martin Roman), the Chairman of the Supervisory Board (currently,
Stanislav Kazecky), two members of the Supervisory Board (currently, Zdenek
Zidlicky and Pavel Suchy), and the director of our internal audit department
(currently, Radek Pomije). The chairman of the Audit Committee is the Chairman
of the Board and General Director of the Company. Recently, our General Meeting
amended our Articles of Association so that now they provide that Audit
Committee can only be composed of members of our Supervisory Board. Resulting
changes will have to be implemented into the composition of the Audit Committee
and its statutes. These changes should enhance independence of our Audit
Committee of our management. Pursuant to the current statutes, the Audit
Committee is charged with the task of ensuring regular

                                       53


communication with and supervision of the internal audit department.
Specifically, the Audit Committee should discuss and evaluate the audit
department's annual report, annual audit plan, quarterly action plans and should
ensure that the internal audit department follows the ethics code for internal
company auditors. It is also responsible for, among other things, regular
communication and supervision of our external auditors and prepares for the
Board of Directors and Supervisory Board an evaluation of our external auditors.
The Audit Committee also discusses the correctness and completeness of our
quarterly, half-year and annual reports. Under Czech law, the Board of Directors
is required to make all decisions regarding our Company, unless the authority to
make a decision is delegated by statute or by articles of association to the
General Meeting or to the Supervisory Board. It is not possible that our Audit
Committee take decisions on its own, without appropriate formal action being
taken by the Board of Directors, General Meeting, or the Supervisory Board. For
these reasons, our Supervisory Board is in fact formally making certain
decisions generally required to be made by the Audit Committee. Audit Committee
however prepares documents for the Supervisory Board and discusses relevant
matters before they are being decided by the Supervisory Board.

Severance Pay. In the event that a member of our Board of Directors is recalled
from office or the office otherwise terminates prior to the end of the period
for which the member was originally appointed or elected to the board, other
than as a result of a willful criminal act committed in connection with the
performance of his duties or certain other gross violations of such duties, he
or she is entitled to receive a lump sum payment from CEZ, a.s. equal to the
aggregate amount of his or her salary calculated for the entire remaining term
of office.

Employees

The average number of our employees and our consolidated subsidiaries was 8,532,
7,806, and 16,093 for the year 2001, 2002, and 2003 respectively. As of December
31, 2003 we had 18,100 employees on a consolidated basis, and CEZ, a. s. had
6,780 employees on a standalone basis, approximately 51% of which are members of
trade unions. The present collective bargaining agreement between the Company
and the employees, legally represented by trade unions, expires on December 31,
2006.

We do not offer a defined benefit pension or other such post employment benefits
to our employees. Instead, we pay a payroll related tax (similar to FICA) to the
government. The Czech government provides pension payments to retired employees
(similar to the U.S. Social Security Program). The government also compensates,
directly, employee absences from work due to illness. We accrue for unused
available vacation pay at year end. We expense as incurred any severance pay
incurred; two months salary as required by law.

We do not have a history of strikes or work stoppages and no material labor
related claims are pending. We believe that relations with our employees are
good. There have been no strikes or work stoppages since the foundation of the
Company in 1992. Although we have experienced strike alerts in the past these
did not result in actual strikes or work stoppages. Since the date of our
foundation in 1992 we have reduced the number of employees by approximately
9,500 which represents a 59% reduction from our 1992 level. This reduction has
brought the ratio of employees to installed MW closer to ratios found in other
advanced European power companies. The reduction has also resulted in an
increase in the average level of education of our employees. We have completed
the process of an organizational audit which resulted at lowering the number of
our employees, and we are weighing other options aimed at further lowering the
number of our employees. Czech law entitles all employees dismissed by reason of
redundancy or organizational changes to a severance payment in the amount of two
months' pay.

Share Ownership

Our members of the Board of Directors hold 187 of our common shares. Our members
of the Supervisory Boards hold, in aggregate, 50,425 of our common shares. None
of the members of the Board of Directors or the Supervisory Board holds more
than 1% of our outstanding common shares.

Share Options. Our shareholders approved stock option agreements originally in
2001 with each member of our Board of Directors and Supervisory Board as part of
their compensation package. In 2003 and 2004 the conditions of stock option
agreements were slightly modified. Pursuant to such agreements, the members have
now the right to purchase, in aggregate, up to 7 million common shares of CEZ at
a price equal to the six-month weighted average of our share price on the Prague
Stock Exchange measured from the date the member is appointed to the position.
The members of the Board of Directors and Supervisory Board received these
options from us as part of their compensation package and without paying
consideration for them. Each member may exercise its call option rights, in full
or in part, at any time during the period specified in the relevant stock option
agreement, such period being

                                       54


generally set to correspond with the term for which the member was elected or
appointed to the respective board. Now, it is possible to call option right
until 3 months after the end of member's position. The stock option agreements
do not restrict a member's right to exercise call rights in the event that the
member is recalled from office or resigns prior to the original term. Our
members of the Board of Directors hold no call options for our common shares
(they held call options for 500,000 common shares as of end of 2003). Our
members of the Supervisory Board hold, in aggregate, options for 750,000 of our
common shares (they held call options for 2,750,000 common shares as of end of
2003). None of the members of the Board of Directors or the Supervisory Board
holds call options for more than 1% of our outstanding common shares.

Item 7.   Major Shareholders and Related Party Transactions

As of December 31, 2003, our registered capital was equal to CZK 59,221,084,300
in denominations of nominal value CZK 100. All of these shares have been paid in
full and are book-entry shares in bearer form. Our common stock is publicly
traded on the two largest organized trading markets in the Czech Republic, the
Burza cennych papiru Praha, a.s. (the "Prague Stock Exchange") and the RM
System, a.s.

Major Shareholders

The following table sets forth shareholdings in our company according to the
records of the Commercial Register by all owners of more than 5% of our voting
shares and by all officers and directors of the Company as a group as of June
11, 2004:


                                                                                   Percentage
                                                                                    of Total
         Identity of                                              Shares             Shares
         Person or Group                                          Owned            Outstanding
         ---------------                                          ------           -----------
         National Property Fund                                 400,407,897               67.61

         Members of the Board of Directors, members of the
         Supervisory Board, and other Executive Officers as
         a group (8 persons)                                         76,042                0.01

With the exception of the NPF, to our knowledge, no other individual shareholder
owns more than 5% of our outstanding shares.

Voting rights of shareholders owning more than 5% of our shares do not differ
from other shareholders.

24 persons with U.S. addresses directly hold a total of 6,949,138 of our common
shares. It is difficult and impractical to determine what portion of our common
shares is beneficially held in the United States and the number of such
beneficial holders in the United States.

The Czech government has passed several resolutions calling for the sale of CEZ.
The Czech government controls our majority shareholder, the NPF. While the
government has expressed its intention through such resolutions and otherwise,
there can be no assurance that the Czech government will, in fact, instruct the
NPF to sell all or part of the NPF's shareholding in CEZ. For more information
on the proposed privatization of CEZ, see "Risk Factors" on page 8.

The Notes and Guarantees are held in fully registered global form in the name of
Cede & Co. as the nominee of the Depository Trust Company ("DTC"). Thus, Cede &
Co. is the only record holder of the Notes and Guarantees.

Transfer of beneficial interests of the Notes and Guarantees are effected
through the records of DTC (for transfers among DTC participants) and through
the records of individual DTC participants (for transfers among the clients of
such DTC participants). Thus, it is difficult and impractical to determine what
portion of the Notes and Guarantees is beneficially held in the United States
and the number of such beneficial holders in the United States.

Related Party Transactions

                                       55


We purchase products from related parties in the ordinary course of business.
Severoceske doly, a.s., a company in which we hold an approximately 37% share,
supplies approximately 60% of our fossil fuel needs. In 2001, 2002 and 2003 coal
purchases (including value-added tax) from Severoceske doly, a.s., amounted to
approximately CZK 6,565 million, CZK 5,967 million and CZK 6,742 million,
respectively. The prices of fossil fuel supplies from Severoceske doly, a.s. do
not differ significantly from market prices.

SKODA PRAHA, a.s. is our general supplier of technology and equipment for
Temelin and is 55% owned by the National Property Fund. In February and July
1999, we purchased 166,122 shares of Skoda Praha, a.s., which represent an
approximately 30% interest in the company. During 2003 we subscribed for 700,000
share of Skoda Praha, a.s., with total nominal value of CZK 700 million. Payment
of the subscription price to the company for the subscribed shares was offset
against our receivables from the company in the same amount. In order to become
effective, the increase of the share capital had to be registered with Czech
commercial register administered by Czech courts. The increase was registered
and became effective on January 14, 2004. Our interest in the company thus
increased to 68.88%. Our purchases from Skoda Praha, a.s., including value added
tax, amounted to approximately CZK 4,862 million, CZK 3,461 million and CZK
1,612 million in 2001, 2002 and 2003 respectively.

As of April 1, 2003, we own majority interests in five REAS and we owned
minority interests in three REAS, all of whom are our primary customers. Since
April 2004 we own minority interest in one REAS only. We also control certain
strategic decisions of the REAS where we hold majority interests. See "Material
Contracts" on page 60.

During 2003, 2002 and 2001we granted share options to the Board of Directors,
certain members of the management and Supervisory Board members. At December 31,
2003, the aggregate number of share options granted to members of Board of
Directors was 500,000 and the number of share options granted to Supervisory
Board members was 2,750,000 (see Share Options on page 54).

Item 8.   Financial Information

See the selected consolidated financial data presented under "Item 3. Key
Information" and financial statements presented under "Item 18. Financial
Statements". We prepare the Consolidated Financial Statements in accordance with
IFRS which differ in certain important respects from U.S. GAAP. Note 29 to the
Consolidated Financial Statements provides a description of the principal
differences between IFRS and U.S. GAAP and a reconciliation to U.S. GAAP of net
earnings and total shareholders' equity for the periods and as of the dates
therein indicated.

Dividends. Prior to our general meeting of shareholders on June 19, 2001, we
have never paid dividends. Our general meeting of shareholders on June 19, 2001
approved a dividend distribution of CZK 2.0 per share to be paid to shareholders
of record as of June 13, 2001 to be paid on August 1, 2001. Our general meeting
of shareholders on June 11, 2002 approved a dividend distribution of CZK 2.5 per
share to be paid to shareholders of record as of June 5, 2002 to be paid on
August 1, 2002. Our general meeting of shareholders on June 17, 2003 approved a
dividend distribution of CZK 4.50 per share to be paid to shareholders of record
as of June 11, 2003 to be paid on or after August 1, 2003. Our general meeting
of shareholders on June 17, 2004 approved a dividend distribution of CZK 8.00
per share to be paid to shareholders of record as of June 11, 2004 to be paid on
or after August 1, 2004.

Export Sales

In 2003, we exported a total of 19,227 GWh which generated revenues of CZK 12.7
billion. In 2003, the revenues from electricity exports represented
approximately 15.9% of total revenues from electricity sales.

Litigation

We are involved in legal proceedings that are incidental to the normal conduct
of our business. We do not believe that liabilities relating to such proceedings
will have a material adverse effect on our business, prospects, financial
condition or results of operations.

On July 31, 2001 the Austrian federal land of Upper Austria filed a lawsuit with
the Land Court of Linz, Austria, against our company by which it sought a ruling
ordering to us to refrain from the potential negative impacts of the Temelin
nuclear power plant. On April 17, 2002, the court ruled that it had no
jurisdiction over a power plant located outside of Austria. The plaintiff has
filed an appeal against this decision with the Higher Land Court in Linz, which
affirmed the decision of the first stage court. However, a second appeal was
filed with the Prime Court in Vienna which overturned the original decision and
on August 1, 2003 recognized the jurisdiction of the Land Court in Linz,

                                       56


returning the file to Linz for further proceeding. The hearing has not taken
place yet and the matter has not yet been finally resolved. Even if an Austrian
court issued a ruling against us, such ruling would not be automatically
enforceable against us in the Czech Republic.

On March 1, 2002 two owners of small pieces of land in Upper Austria, filed a
separate lawsuit with the Land Court of Linz, Austria, against us and
Westinghouse by which they sought a ruling ordering to us and Westinghouse to
introduce adequate measures to prevent a threat substantially damaging use of
their land. Further, such persons have sought a declaration that we and
Westinghouse should be jointly and severally liable for any damage caused by the
Temelin nuclear power plant's operation. The matter has not been resolved yet.

On May 31, 2004, we were served with a request for arbitration before the ICC
International Court of Arbitration by DALKIA FRANCE. In this request for
arbitration DALKIA FRANCE alleges a breach of a joint venture contract by us and
seeks liquidated damages in the amount of USD 25 million. We are currently in
the process of analyzing this claim. We believe that even if an award for
damages were made in the full amount of the claim, it would not have a material
adverse effect on our business or on our financial condition.

Item 9.   The Offer and Listing

The Notes and Guarantees are not listed on any U.S. or foreign securities
exchange or other organized trading market. Thus, no reliable pricing
information is available and we can give no assurance as to the existence or the
liquidity of the trading market for the Notes.

On March 18, March 23, April 15 and June 11, 1998, we repurchased USD 2 million,
USD 10 million, USD 7 million and USD 3 million, in nominal value of the Notes,
respectively, at prices of USD 97.25, USD 96.97, USD 97.10 and USD 98.40,
respectively, per Note plus accrued interest.

Item 10.  Additional Information

Articles of Association (Stanovy)

Organization and Register

CEZ, a. s. is a stock corporation organized in the Czech Republic under the
Commercial Code. CEZ, a.s. is registered in the Commercial Register (Obchodni
rejstrik) maintained by the local court in Prague, Czech Republic, under the
entry number "B1581".

Corporate Governance

Czech stock corporations are governed by three separate bodies: the general
meeting of shareholders, the supervisory board and the board of directors. Their
roles are defined by Czech law and by our articles of association (stanovy), and
may be described generally as follows:

          o    The General Meeting of Shareholders approves the amount of the
               annual dividend, if any, amendments to the Articles of
               Association, liquidation, capital increases, electing and
               recalling of Supervising Board members (other than those elected
               by employees), our financial statements, and certain significant
               corporate transactions.

          o    The Supervisory Board appoints and removes the members of the
               board of directors and oversees the management of our company.
               This differs from the default provisions of the Czech Commercial
               Code, which state that Members of the Board of Directors are
               appointed by the general meeting. Czech law permits the Articles
               of Association to empower the Supervisory Board to appoint the
               Board of Directors. Although prior approval of the Supervisory
               Board may be required in connection with certain significant
               matters, the law prohibits the Supervisory Board from making
               management decisions.

          o    The Board of Directors manages our business and represents us in
               dealings with third parties. The board of directors submits
               regular reports to the Supervisory Board about our operations and
               business strategies, and prepares special reports upon request. A
               person may not serve on the Board of Directors and the
               Supervisory Board of a corporation at the same time.

                                       57



Several additional corporate governance provisions applicable to CEZ, a.s. are
summarized below.

Objects and Purposes

Our Articles of Association state our scope of business in Article 5. Our object
is to pursue, directly or indirectly, business in the fields of the energy
industry, in particular in the following lines of business:

          o    generation, transmission, sale, transit, import and export of
               electricity;
          o    generation, distribution, and sale of heat;
          o    electrical equipment design;
          o    production and installation of, and repairs to electrical
               machines and devices;
          o    automated data processing;
          o    installation, repair, maintenance of designated electrical
               equipment;
          o    reprographic services;
          o    testing of electrical equipment;
          o    production of de-mineralized water; analyses of oils, water and
               coal;
          o    lease of goods;
          o    purchase of goods for resale and sale - except for goods listed
               in the appendices to Act No. 455/1991 Coll. on Trades, and goods
               excluded thereby;
          o    installation, repairs, reconstruction and periodic testing of
               designated pressure equipment;
          o    installation and repairs of electronic equipment; and
          o    production of machinery, trading in goods, transport, quality
               consulting and other related support activities.

The Articles of Association authorize CEZ, a.s. to take all actions that serve
the ends of its objects.

Directors

Under Czech law, our Supervisory Board and Board of Directors members owe a duty
of loyalty and care to CEZ, a.s. They must exercise the standard of care of a
prudent and diligent businessman and bear the burden of proving they did so if
their actions are contested. Those who violate their duties may be held jointly
and severally liable for any resulting damages.

Under the Articles of Association, the general meeting of the shareholders
decides on the Board Directors compensation. Directors may not award
compensation to themselves. However, the Board of Directors may decide on the
distribution of director compensation awarded by the general meeting, unless the
general meeting has already done so.

See also "Item 6. Directors, Senior Management and Employees" on page 49 for
further information about the Supervisory Board and the Board of Directors.

Ordinary Shares

The capital stock of CEZ, a.s. consists of ordinary shares, nominal value CZK
100, which are issued in registered form. Record holders of ordinary shares are
registered in the share register maintained by the Czech Securities Center
(Stredisko cennych papiru).

Some of the significant provisions under Czech law and our Articles of
Association relating to ordinary shares may be summarized as follows:

          o    Capital Increases. The share capital may be increased in
               consideration for contributions in cash or in property, or by
               establishing authorized capital or conditional capital.
               Authorized capital provides the Board of Directors with the
               flexibility to issue new shares for a period up to five years
               under certain conditions. Conditional capital allows the Board of
               Directors to issue new shares for a specific purpose. Capital
               increases require a decision of General meeting of shareholders
               approved by 2/3 of the votes present at the shareholders'
               meeting. Our Articles of Association do not contain conditions
               regarding changes in the share capital that are more stringent
               than the law requires.

                                       58


          o    Redemption. The share capital may also be reduced by a decision
               of the general meeting of shareholders approved by 2/3 of the
               votes present at the shareholders' meeting.

          o    Preemptive Rights. Our Articles of Association provide that the
               preemptive right of shareholders to subscribe for any issue of
               additional shares in proportion to their share holdings in the
               existing capital may be excluded under certain circumstances.

          o    Liquidation. If CEZ, a.s. were to be liquidated, any liquidation
               proceeds remaining after all of its liabilities were paid would
               be distributed to its shareholders in proportion to their share
               holdings.

          o    No Limitation on Foreign Ownership. There are no limitations
               under Czech law or in our Articles of Association on the right of
               persons who are not citizens or residents of the Czech Republic
               to hold or vote ordinary shares.

Dividends

Dividends in respect of ordinary shares may be declared once a year at the
general meeting of shareholders. The Supervisory Board discusses the financial
statements for each fiscal year and recommends the disposition of all
unappropriated profits for approval by shareholders at the general meeting of
shareholders. Shareholders registered in the share register on the date of the
meeting are entitled to receive the dividend, if any. Dividends, if any, are
paid to shareholders in proportion to their percentage ownership of the
outstanding capital stock.

Our Articles of Association state that we may distribute our profit in the
following manner: we must contribute at least 5% of profit to our
non-distributable reserve fund until the reserve fund reaches a level of 20% of
the amount of our registered capital, into other funds of the Company,
dividends, and benefits for members of the Supervisory Board and the Board of
Directors.

Voting Rights

Each ordinary share represents one vote. Cumulative voting is not permitted
under Czech law. Our Articles of Association provide that resolutions are passed
at shareholder meetings by a simple majority of votes cast, unless a higher vote
is required by law or our Articles of Association. Our Articles of Association
require that the following matters, among others, be approved by the affirmative
vote of 2/3 of the issued shares present at the shareholders' meeting at which
the matter is proposed:


          o    amendments to the Articles of Association;

          o    capital increases and capital decreases; and

          o    dissolution.

Czech law requires that, among other things, the limitation or exclusion of
preemptive rights of shareholders to subscribe for new shares under certain
conditions or to acquire convertible or priority debt shall be approved by a 3/4
majority of votes of all shareholders present at the shareholder's meeting at
which the matter is proposed. Furthermore, Czech law requires that, among other
things, (i) a change of form and type of shares, (ii) a change of rights related
to certain types of shares, (iii) restrictions of the disposability of shares
and (iv) cancellation of public tradability shall be approved, in addition to
the simple majority of votes of all attending shareholders, also by at least a
3/4 majority of votes of attending shareholders holding the shares to be
affected by such change.

General Meetings of Shareholders

The Board of Directors, the Supervisory Board under specific circumstances, or
shareholders owning in the aggregate at least 3% of the issued shares may call a
meeting of shareholders. There is a 30% minimum quorum of outstanding shares
requirement for shareholder meetings. Among other things, the general meeting
approves the amount of the annual dividend, if any, amendments to the Articles
of Association, and certain significant corporate transactions. Eight members of
the Supervisory Board are appointed by the general meeting of shareholders and
four members are elected by employees.

In order to be entitled to participate and vote at the general meeting of
shareholders, a shareholder must be registered in the share register six days
prior to the meeting date. Shareholders may vote by proxy. As a foreign private
issuer,

                                       59


CEZ, a.s. is not required to file a proxy statement under U.S. securities law.
The proxy voting process for our shareholders is similar to the process utilized
by publicly held companies incorporated in the United States.

Change in Control

There are no provisions in the Articles of Association that would have an effect
of delaying, deferring or preventing a change in control of CEZ, a.s. However,
general principles of Czech law may restrict business combinations under certain
circumstances.

Disclosure Of Share Holdings

Our Articles of Association do not require shareholders to disclose their share
holdings. The Czech Commercial Code, however, requires holders of voting
securities of a corporation whose shares are listed on a stock exchange to
notify the corporation, Czech Securities Commission and Czech Securities Center
of the number of shares they hold if that number reaches, exceeds or falls below
specified thresholds. These thresholds are 5 %, 10%, 15%, 20%, 25%, 30%, 1/3,
40%, 45%, 50%, 55%, 60%, 2/3, 70%, 75%, 80%, 90% and 95% of the corporation's
outstanding voting rights.

Material Contracts

Purchase of REAS and Sale of CEPS, a s.

At our June 11, 2002 shareholders' meeting, our shareholders approved the sale
of 66% of our shares in CEPS, a.s. in exchange for the National Property Fund's
shares in the eight REAS. At the same shareholders' meeting, our shareholders
also approved the purchase of 1.98% of the outstanding shares of Zapadoceska
energetika, a.s. from Ceska konsolidacni agentura. On March 20, 2003, we
received an affirmative opinion from the Czech Anti-monopoly Office approving
the sale of the distribution companies to us. On April 1, 2003 the transfer of
the shares of the eight distribution companies to us was consummated.
Concurrently, we transferred a 51% share in CEPS, a. s. to OSINEK, a. s., a
wholly-owned subsidiary of the National Property Fund, and a 15% share in CEPS,
a. s. to the Ministry of Labor and Social Affairs.

To procure this transaction we have entered into several contracts with the
entities involved, in particular:

     o    Share Purchase Agreement between the National Property Fund as Seller
          and CEZ, a. s. as Purchaser, dated June 28, 2002;
     o    Share Purchase Agreement between CEZ, a. s. as Seller and OSINEK, a.s.
          as Purchaser, dated June 28, 2002;
     o    Share Purchase Agreement between Ceska konsolidacni agentura as Seller
          and CEZ, a. s. as Purchaser, dated July 22, 2002; and
     o    Share Purchase Agreement between CEZ, a. s. as Seller and Ministry of
          Labor and Social Affairs as Purchaser, dated August 19, 2002.

Pursuant to these contracts we purchased the following stakes in the individual
REAS:

     o    34.00% in Jihoceska energetika, a.s., and we increased our share in
          this REAS to 34.01%;
     o    33.40% in Jihomoravska energetika, a.s., and we increased our share in
          this REAS to 35.21%;
     o    48.05% in Severoceska energetika, a.s., and we increased our share in
          this REAS to 51.00%;
     o    48.65% in Severomoravska energetika, a.s., and we increased our share
          in this REAS to 59.08%;
     o    49.62% in Vychodoceska energetika, a.s., and we increased our share in
          this REAS to 50.07%;
     o    50.26% in Zapadoceska energetika, a.s., and we increased our share in
          this REAS to 50.26%;
     o    58.30% in Stredoceska energeticka, a.s.; and
     o    34.00% in Prazska energetika, a.s.

We purchased the REAS for CZK 32.1 billion and we sold 51% of our stake in CEPS,
a.s. for CZK 12.1 billion to a wholly-owned subsidiary of the National Property
Fund, OSINEK, a.s. We sold further 15% in CEPS, a.s. for CZK 3.1 billion to the
Ministry of Labor and Social Affairs. We also purchased 1.98% stake in
Zapadoceska energetika, a.s. from Ceska konsolidacni agentura for CZK 0.2
bilion. After netting the price we should pay for the REAS against the price
that we should receive for CEPS, a.s., we are required to pay the National
Property Fund approximately CZK 15.2 billion. We paid the first installment in
the amount of CZK 1.5 billion on April 1, 2003.

                                       60


We have issued four promissory notes each in the amount of CZK 3.735 billion.
Two notes were paid in 2003, the third was paid in May 2004 and the last will be
paid on June 30, 2004.

Originally, the 66% share in CEPS, a.s. was valued by an expert valuator at CZK
15.0 billion. At the request of OSINEK, a.s. a new valuation was done and the
new expert valuator valued the 66% share in CEPS, a.s. at CZK 15.2 billion. The
amounts above reflect this new valuation of CEPS, a.s.

No Other Material Contracts

Apart from the above transactions, in the years 2003 and 2002, we did not enter
into any material contracts, other than contracts entered into in the ordinary
course of business.

Exchange Controls

The CZK is a fully convertible currency. We are not required to have any foreign
exchange license or other authorization under Act No. 219/1995 Coll. (the
"Foreign Exchange Act") for direct or indirect payment of the principal and
interest on the Notes or the Guarantees. The Foreign Exchange Act sets forth
certain exchange controls, which include both direct and indirect tools. As a
principle, any person (other than licensed banks operating in the Czech Republic
and banks authorized under the "European passport" single licence) who wants to
carry out transactions in foreign exchange values or arrange payments to or from
abroad needs a foreign exchange license if such activity is to be carried out as
a business activity. Furthermore, certain transactions effected by Czech
residents (as well as foreign residents carrying out business activity in the
Czech Republic) are subject to a notification duty.

The Foreign Exchange Act has established equal access to foreign exchange for
all residents, whether individuals or legal entities and whether or not the
exchange is for business purposes. The Foreign Exchange Act no longer requires
residents to convert any acquired foreign exchange funds into crowns, and allows
all entities (whether residents or non-residents) to open foreign exchange
accounts with Czech banks or, subject to a notification duty, with foreign
banks.

Currently, the Foreign Exchange Act allows Czech and foreign residents to
purchase or sell an unlimited amount of Czech or foreign currency from or to any
person for any purpose. Prior to making any payment abroad, banks are authorized
to require the production of documents evidencing the purpose of the requested
payment.

The Foreign Exchange Act introduced the possibility of a "compulsory deposit,"
which would impose a duty upon certain entities (which could include the
Company) to keep a certain amount of cash in a special account with a Czech bank
in the interests of stabilizing the Czech currency. Such moneys include, among
others, funds raised by Czech residents through foreign bond issues or loans
provided by non-residents. The Czech National Bank, in consultation with the
Ministry of Finance, must establish and promulgate in full in the Collection of
Laws, an administrative ruling for the compulsory deposit obligation. The Czech
National Bank has not issued any such administrative ruling measure.

The Foreign Exchange Act authorizes the government to declare a state of
emergency in the foreign exchange economy in the event of an imminent and
serious danger to (i) the paying capacity with respect to foreign countries or
to (ii) the internal currency balance of the Czech Republic. The government must
announce any state of emergency in the foreign exchange economy in the mass
media and it may not last for longer than three months from the date of the
announcement. In the event of a danger to the paying capacity with respect to
foreign countries, it would be prohibited, inter-alia, to make any payments from
the Czech Republic abroad, including any transfers of funds between banks and
their branch offices, except as specifically permitted by the applicable foreign
exchange authority. In the event of a danger to the internal currency balance,
it would be prohibited, inter-alia, to sell domestic securities to
non-residents, to open accounts for non-residents in the Czech Republic, to
deposit funds into non-residents' accounts or to transfer funds from abroad to
the Czech Republic between banks and their branch offices, except as permitted
in each of the above cases by the applicable foreign exchange authority.

Taxation General

The information set out below is only a summary description of certain material
Dutch, Czech and United States Federal income tax consequences of the purchase,
ownership and disposition of the Notes, but it does not purport to be a
comprehensive description of all the tax considerations that may be relevant to
a decision to purchase the Notes.

                                       61


This summary does not describe any tax consequences arising under the laws of
any state, locality or taxing jurisdiction other than The Netherlands, the Czech
Republic and the United States.

This summary is based on the tax laws of The Netherlands, the Czech Republic and
the United States as in effect on the date of this Annual Report, as well as
regulations, rulings and decisions of The Netherlands, the Czech Republic and
the United States and their respective taxing and other authorities available on
or before such date and now in effect. All of the foregoing is subject to
change, which change could apply retroactively and could affect the continued
validity of this summary.

Because it is a general summary, holders of the Notes should consult their own
tax advisors as to the Dutch, Czech, United States or other tax consequences of
the purchase, ownership and disposition of the Notes, including, in particular,
the application to their particular situations of the tax considerations
discussed below, as well as the application of state, local, foreign or other
tax laws.

Netherlands Taxation

All payments under the Notes may be made free of withholding or deduction for or
on account of any taxes of whatsoever nature imposed, levied, withheld or
assessed by The Netherlands or any political subdivision or taxing authority
thereof or therein.

A holder of a Note will not be subject to Dutch taxation on (deemed) income or
capital gains in respect of the Note, unless: (i) such holder is, or is deemed
to be, resident in The Netherlands, or is an individual who has elected to be
taxed as a resident of the Netherlands; or (ii) such income or gain is
attributable to an enterprise or part thereof which is carried on through a
permanent establishment or permanent representative in The Netherlands; or (iii)
such holder is an individual and such income or gain qualifies as `benefits from
miscellaneous activities' (resultaat uit overige werkzaamheden) in The
Netherlands, which would, for instance, be the case if an individual performs
activities in The Netherlands with respect to the Notes that exceed normal asset
management; or (iv) such holder is an individual who has, or certain persons
related or deemed related to that holder have, directly or indirectly, a
substantial interest, as defined in the Netherlands Income Tax Act 2001 (Wet
inkomstenbelasting 2001), in the issuer of the Notes, or in any company that
has, or that is part of a co-operation (samenwerkingsverband) that has, legally
or in fact, directly or indirectly, the disposition of any part of the proceeds
of the Notes; or (v) such holder is an entity and has, directly or indirectly, a
substantial interest or a deemed substantial interest, as defined in the
Netherlands Income Tax Act 2001 (Wet inkomstenbelasting 2001), in the issuer
(unless the holder of the Note and the issuer thereof qualify for application of
EU Council Directive 2003/49/EC as implemented in article 17a-2 of the Dutch
Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969)), or, in
the event that that holder does have such interest, it forms part of the assets
of an enterprise; or (vi) such holder is entitled to a share in the profits of,
or has an interest in, an enterprise effectively managed in The Netherlands
other than by way of the holding of securities or through an employment contract
and the Note, the income or the gain is attributable to such enterprise. If a
holder of a Note is not a resident or a deemed resident in the Netherlands, but
is a resident in another country the following may apply. If a double taxation
convention is in effect between the Netherlands and the country in which such
holder of a Note is resident, such holder, may, depending on the terms of and
subject to compliance with the procedures for claiming benefits under such
double taxation convention, be eligible for a full or partial exemption from
Netherlands taxes (if any) on (deemed) income or capital gains in respect of the
a Note provided such holder is entitled to the benefits of that treaty.

Dutch gift, estate or inheritance taxes will not be levied on the transfer of a
Note by way of gift by, or on the death of, a holder unless: (i) such holder is,
or is deemed to be, resident in The Netherlands; or (ii) the transfer is
construed as an inheritance or bequest or as a gift made by or on behalf of a
person who, at the time of the gift or his death, is or was a resident or a
deemed resident of The Netherlands; or (iii) such holder owns an enterprise or
an interest in an enterprise which is carried on through a permanent
establishment or a permanent representative in The Netherlands to which or to
whom the Note is attributable; or (iv) such holder is entitled to a share in the
profits of an enterprise effectively managed in The Netherlands other than by
way of the holding of securities or through an employment contract and the Note,
the income or the gain is attributable to such enterprise.

There is no Dutch registration tax, capital tax, stamp duty or any other similar
tax or duty other than court fees and contributions for the registrations with
the Trade Register of the Chamber of Commerce, payable in The Netherlands by a
holder of a Note in respect of or in connection with the execution, delivery and
enforcement by legal proceedings (including any foreign judgment in the courts
of The Netherlands) of the Notes or the performance of the CEZ' obligations
under the Notes.

                                       62


There is no Dutch value added tax payable in respect of payments in
consideration for the issue of the Notes or in respect of the payment of
interest or principal under the Notes or the transfer of the Notes.

A holder of a Note will not become resident, or be deemed to be resident, in The
Netherlands by reason only of the holding of a Note or the execution,
performance, delivery and/or enforcement of the Notes.

The Council of the European Union has on June 3, 2003 adopted a directive
regarding the taxation of savings income. Under this directive Member States
will be required to provide to the competent authorities of another Member State
information (including the identity of the recipient) regarding payments of
interest or other similar income if the paying agent (as defined in the
directive, this not necessarily the debtor of the debt-claim producing the
interest) is resident in that Member State and the individual who is beneficial
owner of the interest payment is resident in that other Member State, subject to
the right of Belgium, Luxembourg and Austria to opt instead for a withholding
system during a transitional period. Under this directive the Member States of
the European Union are required to adopt and publish the laws, regulations and
administrative provisions necessary to comply with the directive before January
1, 2004. These laws, regulations and administrative provisions will, subject to
a number of important conditions being met, have to be applied from January 1,
2005, but it has been reported that this date would be postponed to July 1,
2005. The Council of the European Union will decide, by unanimity, whether these
conditions have been met.

Czech Republic Taxation

Payments Under the Guarantee to Holders of the Notes. In general, Czech
withholding tax is levied at a flat rate of 15% on payments by the Guarantor to
holders of the Notes who are not resident in the Czech Republic under the
Guarantee that are referable to interest payable on the Notes. Pursuant to the
applicable tax treaty between the Czech Republic and the United States, the
withholding tax is not levied if the beneficial owner of the interest is
resident in the United States, is eligible for the benefits of the tax treaty
between the Czech Republic and the United States, and does not have a permanent
establishment in the Czech Republic.

Repayment of the principal amount of the Notes by the Guarantor under the
Guarantees to holders of the Notes not resident in the Czech Republic is, to the
extent that such payment exceeds the issue price of the Notes, subject to 15%
withholding tax. Pursuant to the applicable tax treaty between the Czech
Republic and the United States, the withholding tax is not levied if the
beneficial owner of the principal amount is resident in the United States, is
eligible for the benefits of the tax treaty between the Czech Republic and the
United States and does not have a permanent establishment in the Czech Republic.

In general, Czech withholding tax is levied at a flat rate of 15% on interest
payments of CEZ to CEZ Finance B.V. to enable CEZ Finance B.V. make payments of
interest in respect of the Notes (repayment of principle of the loan is not
subject to withholding tax). Pursuant to the applicable tax treaty between the
Czech Republic and the Netherlands, the withholding tax is not levied if CEZ
Finance B.V. qualifies as the beneficial owner of the interest, is eligible for
the benefits of the tax treaty between the Czech Republic and the Netherlands
and does not have a permanent establishment in the Czech Republic.

United States Federal Income Taxation

The following is a summary of the principal U.S. federal income tax consequences
of the acquisition, ownership and retirement of Notes by a holder thereof. This
summary only applies to Notes held as capital assets and does not address,
except as set forth below, aspects of U.S. federal income taxation that may be
applicable to holders that are subject to special tax rules, such as financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, grantor trusts, tax-exempt organizations or dealers or
traders in securities or currencies, or to holders that will hold a Note as part
of a position in a "straddle" or as part of a "hedging", "conversion" or
"integrated" transaction for U.S. federal income tax purposes or that have a
"functional currency" other than the U.S. dollar. Moreover, this summary does
not address the U.S. federal estate and gift or alternative minimum tax
consequences of the acquisition, ownership or retirement of Notes and does not
address the U.S. federal income tax treatment of holders that do not acquire
Notes as part of the initial distribution at their initial issue price. Each
prospective purchaser should consult its tax advisor with respect to the U.S.
federal, state, local and foreign tax consequences of acquiring, holding and
disposing of Notes.

                                       63


This summary is based on the Internal Revenue Code of 1986, as amended, existing
and proposed Treasury Regulations, administrative pronouncements and judicial
decisions, each as available and in effect on the date hereof. All of the
foregoing are subject to change (possibly with retroactive effect) or differing
interpretations which could affect the tax consequences described herein.

For purposes of this summary, a "U.S. Holder" is a beneficial owner of Notes who
for U.S. federal income tax purposes is (i) a citizen or resident of the United
States; (ii) a corporation or a partnership organized in or under the laws of
the United States or any State thereof (including the District of Columbia);
(iii) an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or (iv) a trust (1) that validly elects to be treated
as a United States person for U.S. federal income tax purposes or (2)(a) the
administration over which a U.S. court can exercise primary supervision and (b)
all of the substantial decisions of which one or more United States persons have
the authority to control. A "Non-U.S. Holder" is a beneficial owner of Notes
other than a U.S. Holder.

If a partnership (or any other entity treated as a partnership for U.S. federal
income tax purposes) holds Notes, the tax treatment of the partnership and a
partner in such partnership will generally depend on the status of the partner
and the activities of the partnership. Such partnership or partner should
consult its own tax advisor as to its consequences.

Interest

Interest paid on a Note or under the CEZ guarantee thereof (including the amount
of any Dutch or Czech withholding tax thereon and any Additional Amounts) will
be includible in a U.S. Holder's gross income as ordinary interest income in
accordance with the U.S. Holder's usual method of tax accounting. In addition,
interest on the Notes or under the CEZ guarantee will be treated as foreign
source income for U.S. federal income tax purposes. For U.S. foreign tax credit
limitation purposes, interest on the Notes generally will constitute "passive
income," or, in the case of certain U.S. Holders, "financial services income,"
while interest paid under the Guarantee would constitute "high withholding tax
interest" payments if such interest is subject to withholding tax at a rate of
5% or more.

Subject to the discussion below under the caption "U.S. Backup Withholding Tax
and Information Reporting," payments of interest on a Note to a Non-U.S. Holder
generally will not be subject to U.S. federal income tax unless such income is
effectively connected with the conduct by such Non-U.S. Holder of a trade or
business in the United States.

Sale, Exchange or Retirement

Upon the sale, exchange or retirement of a Note, a U.S. Holder will recognize
taxable gain or loss equal to the difference, if any, between the amount
realized on the sale, exchange or retirement (other than accrued but unpaid
interest which will be taxable as such) and the U.S. Holder's adjusted tax basis
in such Note. A U.S. Holder's adjusted tax basis in a Note generally will equal
the cost of such Note to the Holder. Such gain or loss generally will be capital
gain or loss. In the case of a non-corporate U.S. Holder, the maximum marginal
U.S. federal income tax rate applicable to such gain will be lower than the
maximum marginal U.S. federal income tax rate applicable to ordinary income
(other than certain dividends) if such U.S. Holder's holding period for such
Note exceeds one year. Any gain or loss realized on the sale, exchange or
retirement of a Note generally will be treated as U.S. source gain or loss, as
the case may be. The deductibility of capital losses is subject to limitations.

Subject to the discussion below under the caption "U.S. Backup Withholding Tax
and Information Reporting," any gain realized by a Non-U.S. Holder upon the
sale, exchange or retirement of a Note generally will not be subject to U.S.
federal income tax, unless (i) such gain is effectively connected with the
conduct by such Non-U.S. Holder of a trade or business in the United States or
(ii) in the case of any gain realized by an individual Non-U.S. Holder, such
holder is present in the United States for 183 days or more in the taxable year
of such sale, exchange or retirement and certain other conditions are met.

U.S. Backup Withholding Tax and Information Reporting

United States backup withholding tax and information reporting requirements
generally apply to certain payments of principal of, and interest on, an
obligation and to proceeds of the sale or redemption of an obligation, to
certain non-corporate holders of Notes that are United States persons.
Information reporting generally will apply to payments of principal of, and
interest on, an obligation and to proceeds of the sale or redemption of an
obligation made within the United States to a holder of an obligation (other
than an "exempt recipient", including a corporation and certain

                                       64


other persons). The payor will be required to withhold backup withholding tax on
payments made within the United States on a Note to a holder of a Note that is a
United States person, other than an exempt recipient, such as a corporation, if
the holder fails to furnish its correct taxpayer identification number or
otherwise fails to comply with, or establish an exemption from, the backup
withholding requirements. Payments within the United States of principal and
interest to a holder of a Note that is not a United States person will not be
subject to backup withholding tax and information reporting requirements if an
appropriate certification is provided by the holder to the payor and the payor
does not have actual knowledge or a reason to know that the certificate is
incorrect. The backup withholding tax rate is 28% for years through 2010.

In the case of such payments made within the United States to a "foreign simple
trust," a "foreign grantor trust" or a foreign partnership (other than payments
to a foreign simple trust, a foreign grantor trust or a foreign partnership that
qualifies as a "withholding foreign trust" or a "withholding foreign
partnership" within the meaning of the applicable U.S. Treasury Regulations and
payments to a foreign simple trust, a foreign grantor trust or a foreign
partnership that are effectively connected with the conduct of a trade or
business in the United States), the beneficiaries of the foreign simple trust,
the persons treated as the owners of the foreign grantor trust or the partners
of the foreign partnership, as the case may be, will be required to provide the
certification discussed above in order to establish an exemption from backup
withholding tax and information reporting requirements. Moreover, a payor may
rely on a certification provided by a payee that is not a United States person
only if such payor does not have actual knowledge or a reason to know that any
information or certification stated in such certificate is incorrect.

THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX
CONSEQUENCES RELATING TO THE OWNERSHIP OF NOTES. PROSPECTIVE PURCHASERS OF NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF THEIR
PARTICULAR SITUATIONS.

Payment of Additional Amounts

CEZ Finance B.V. is required to make all payments in respect of the Notes and
the Guarantor is required to make all payments in respect of the Guarantees,
free and clear of, and without withholding or deduction for any present or
future taxes, duties or fines (or interest thereon) imposed by The Netherlands,
the Czech Republic or any political subdivision thereof (collectively, "Tax" or
"Taxes"), unless such withholding or deduction is required by law. In such event
CEZ Finance B.V. or CEZ is required to pay such additional amounts ("Additional
Amounts") as may be necessary to ensure that the amounts received by the holders
of the Notes after such withholding or deduction shall equal the amounts of
principal, interest and premium, if any, which would have been receivable in
respect of the Notes in the absence of such withholding or deduction.

No such Additional Amounts shall be payable, however, in respect of any Note or
Guarantee (i) in the case of payments for which presentation of such Note is
required, presented for payment more than 30 days after the later of (a) the
date on which such payment first became due and (b) if the full amount payable
has not been received in the Place of Payment by the Trustee on or prior to such
due date, the date on which, the full amount having been so received, notice to
that effect shall have been given to the holders by the Trustee, except to the
extent that the holder of the Notes would have been entitled to such Additional
Amounts on presenting such note for payment on the last day of such period of 30
days, (ii) held by or on behalf of a holder of the Notes who is liable for Taxes
in respect of such Notes by reason of having some present or former connection
between such holder (or between a fiduciary, settlor, beneficiary, member or
shareholder of such holder, if such holder is an estate, trust a partnership or
a corporation) and The Netherlands or the Czech Republic including, without
limitation, such holder (or such fiduciary, settlor, beneficiary, member or
shareholder) being or having been a citizen or resident thereof or being or
having been engaged in a trade or business or present therein or having, or
having had, a permanent establishment therein, other than the mere holding of
such notes or the receipt of amounts in respect thereof, (iii) as a result of
any estate, inheritance, gift, sales, transfer or personal property Tax or any
similar Tax, (iv) as a result of any Tax which is payable otherwise than by
withholding from payments on or in respect of any Note, or (v) as a result of
any Tax which would not have been imposed but for the failure to comply with
certification, information or other reporting requirements concerning the
nationality, residence or identity of the holder or beneficial owner of such
Note, if such compliance is required by statute or by regulation of The
Netherlands or the Czech Republic or of any political subdivision or taxing
authority thereof or therein as a precondition to relief or exemption from such
Tax and requested by the Company or CEZ Finance B.V.; nor shall Additional
Amounts be paid with respect to any payment on a Note to a holder who is a
fiduciary or partnership or other than the sole beneficial owner of such payment
to the extent such payment would be required to be included in the income, for
tax purposes, of a beneficiary or settler with respect to such fiduciary or a
member of such partnership or a beneficial owner who would not have been

                                       65


entitled to the Additional Amounts had such beneficiary, settlor, member or
beneficial owner been the holder of the Note.

Documents on Display

CEZ, a.s. is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, we file
reports and other information with the Securities and Exchange Commission. These
materials, including this Annual Report and the exhibits thereto, may be
inspected and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 233 Broadway,
New York, New York 10279. Copies of the materials may be obtained from the
Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The public may obtain information on the
operation of the Commission's Public Reference Room by calling the Commission in
the United States at 1-800-SEC-0330.


Item 11.  Quantitative and Qualitative Disclosures about Market Risk

Risk identification and analyses

In the ordinary course of business, we are exposed to foreign currency risks,
interest rate risk, commodity price risks, and counterparty (or repayment) risk.
These risks create volatility in equity, earnings and cash flow from period to
period. We make use of derivative instruments in order to manage currency risk
and interest rate risk. We generally utilize established and widely used foreign
exchange and interest rate derivatives.

As part of our risk management system, we utilize instruments such as interest
rate swaps, cross currency swaps and foreign exchange forwards and options,
seeking to reduce our risk exposure by entering into offsetting market
positions.

Foreign Exchange Rate Risk Management

Due to international nature of our certain business activities, we are exposed
to foreign exchange risk related to sales, purchases, financial assets and
liabilities denominated in currencies other than CZK. According to our foreign
exchange policy guidelines, we hedge material foreign exchange transaction
exposure. This exposure is mainly hedged with derivative financial instruments
such as forwards, swaps and options. However, we elected not to treat the
derivatives as hedging instruments in the financial statements. Financial
instruments that are used to hedge foreign exchange risk have maximum maturity
till year 2008.

The break-down by currency of our underlying foreign exchange transaction
exposure at December 31,2003 was as follows: USD 32%, EUR 23%, and CZK 45%.

We use the Value at Risk (or VaR), methodology to assess the foreign exchange
risk related to the treasury management exposure. The VaR figure represents the
potential losses for a portfolio resulting from adverse changes in market
factors using a specified time period and confidence level based on historical
data.

The VaR figures for the whole portfolio including loans and derivatives in a
one-year horizon and 95 % confidence interval are shown in Table 1, below.

Table 1  Transaction foreign exchange position Value at Risk

Value at Risk (VaR)                          2002                    2003
                                          (in million of CZK)
--------------------------------------------------------------------------

At December 31                              1,612                   1,467
Average for the year                        1,538                   1,322
Range for the year                  1,316 - 1,788           1,023 - 1,524

                                       66


Interest Rate Risk Management

Several financial assets and liabilities in our balance sheet, as well as the
derivatives, bear fixed interest rates and are therefore subject to changes in
fair value resulting from changes in market interest rates. We also face a
similar risk with regard to balance sheet items bearing floating interest rates,
as changes in the interest rates will affect our cash flows. We seek to maintain
a desired mix of floating-rate and fixed-rate debt in its overall debt
portfolio. We use interest rate swaps, cross currency interest rate swaps and
interest rate options to allow us to diversify our sources of funding and to
reduce the impact of interest rate volatility on our financial condition.

The tables below provide information about our derivative financial instruments
and other financial instruments that are sensitive to changes in interest rates,
including interest rate swaps and debt obligations. For debt obligations, the
table presents principal cash flows in corresponding year and related weighted
average interest rates by expected

maturity dates. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. Fair values are calculated as at December 31, 2003. The
information is presented in CZK, which is our reporting currency.

Table 2  Variable to variable derivatives

Outstanding notional amounts
--------------------------------------------------------------------------------------------------------

  Derivatives                 2004          2005         2006          2007         2008     Fair Value
                                (in million of CZK, except percentages)
--------------------------------------------------------------------------------------------------------

Variable to Variable (USD 12M Libor / USD 6M Libor)
--------------------------------------------------------------------------------------------------------

Notional Amounts               459           362          265           169           72           (11)
Average Pay Rate        12M Libor*    12M Libor*   12M Libor*    12M Libor*   12M Libor*
Average Receive Rate      6M Libor      6M Libor     6M Libor      6M Libor     6M Libor

Variable to Variable (USD 12M Libor / USD 6M Libor)
--------------------------------------------------------------------------------------------------------

Notional Amounts               641           641          641           641            -           (17)
Average Pay Rate       12M Libor**   12M Libor**  12M Libor**   12M Libor**            -
Average Receive Rate      6M Libor      6M Libor     6M Libor      6M Libor            -

Variable to Variable (CZK Pribor / USD Libor)
--------------------------------------------------------------------------------------------------------

Notional Amounts               545           430          315           201           86          (103)
                         6M Pribor     6M Pribor    6M Pribor     6M Pribor    6M Pribor
Average Pay Rate            +0.85%        +0.85%       +0.85%        +0.85%       +0.85%
                          6M Libor      6M Libor     6M Libor      6M Libor     6M Libor
Average Receive Rate         +0.3%         +0.3%        +0.3%         +0.3%        +0.3%

* If interest rate is in interval from 4.83% to 6.9%, we pay 4.83%
** If interest rate is in interval from 4.92% to 4.97%, we pay 4.92%

Table 3  Fixed to variable derivatives

Outstanding notional amounts
---------------------------------------------------------------------------------------------------------

Derivatives                    2004          2005          2006          2007         2008    Fair Value
                                (in million of CZK, except percentages)
---------------------------------------------------------------------------------------------------------

Fixed to Variable (EUR Euribor)
---------------------------------------------------------------------------------------------------------

Notional Amounts              1,620         1,620         1,620             -            -            19
Average Pay Rate        6M Euribor*   6M Euribor*   6M Euribor*             -            -
Average Receive Rate          7.25%         7.25%         7.25%             -            -

                                       67


Fixed to Variable (CZK Pribor)
---------------------------------------------------------------------------------------------------------

Notional Amounts              2,296         2,296         2,296         2,296            -         (457)
                          6M Pribor     6M Pribor     6M Pribor     6M Pribor
Average Pay Rate              1.25%         1.25%         1.25%         1.25%            -
Average Receive Rate         7.125%        7.125%        7.125%        7.125%            -


Fixed to Variable (CZK Pribor)
---------------------------------------------------------------------------------------------------------

Notional Amounts              1,845         1,845         1,845                                    (128)
                          6M Pribor     6M Pribor     6M Pribor
Average Pay Rate             -4.68%        -4.68%        -4.68%
Average Receive Rate             0%            0%            0%

Fixed to Variable (CZK Pribor)
---------------------------------------------------------------------------------------------------------

Notional Amounts              1,833         1,833         1,833                                    (186)
                          6M Pribor     6M Pribor     6M Pribor
Average Pay Rate             +2.84%        +2.84%        +2.84%
Average Receive Rate          7.25%         7.25%         7.25%

Fixed to Variable (CZK Pribor)
---------------------------------------------------------------------------------------------------------

Notional Amounts                925           925           925                          -         (101)
                          6M Pribor     6M Pribor     6M Pribor
Average Pay Rate             +2.62%        +2.62%        +2.62%
Average Receive Rate          7.25%         7.25%         7.25%

* If interest rate is lower than 7.25%, we pay 6.665%.

Table 4  Variable to fixed derivatives

Outstanding notional amounts
----------------------------------------------------------------------------------------------------------
Derivatives                    2004         2005         2006          2007          2008      Fair Value
                                 (in million of CZK, except percentages)
----------------------------------------------------------------------------------------------------------

Variable to Fixed (USD Libor)
----------------------------------------------------------------------------------------------------------

Notional Amounts              2,113                                                                 (442)
Average Pay Rate              3.27%
                           6M Libor
Average Receive Rate          +0.3%

Variable to Fixed (EUR Libor)
----------------------------------------------------------------------------------------------------------

Notional Amounts              2,234        2,000        1,764         1,646                          (31)
Average Pay Rate             3.245%       3.245%       3.245%        3.245%
                        6M Pribor -  6M Pribor -  6M Pribor -   6M Pribor -
Average Receive Rate          0.05%        0.05%        0.05%         0.05%

Variable to Fixed (EUR Libor)
----------------------------------------------------------------------------------------------------------

Notional Amounts              3,904        3,904        3,904         3,904                           (8)
Average Pay Rate          6M Libor*
Average Receive Rate       6M Libor     6M Libor     6M Libor      6M Libor

* If interest rate is lower than 3.75%, we pay 2%.

Remaining derivatives with their fair value of minus 1,262 million CZK as at
December 31, 2003 represent fix to fix currency swaps, which are not subject to
significant interest rate risk.

                                       68


Table 5  Debt obligations denominated in USD

Expected Maturity Date
---------------------------------------------------------------------------------------------------------------

Obligations                        2004     2005      2006      2007     2008  Thereafter    Total      Fair
                                                                                                       Value
                     (in million of CZK, except percentages)
----------------------------------------------------------------------------------------------------------------

Fixed rate debt denominated in USD
----------------------------------------------------------------------------------------------------------------

Yankee bonds due 2007 at
7.125%                                -        -         -     4,545        -           -    4,545        4,545
Long-term debt                      109      109       109       109      109         560    1,105

Weighted average interest
rate, related to long-term
debt                               7.1%     7.1%      7.1%      7.1%     7.1%        7.1%

Variable rate debt denominated in USD
----------------------------------------------------------------------------------------------------------------

Long-term debt                    1,141    1,301     1,301     1,899      344           0    5,986
                                  Libor    Libor     Libor     Libor    Libor
Weighted average interest rate   +0.37%   +0.39%    +0.39%    +0.43%   +0.38%


Table 6   Debt obligations denominated in EUR

Expected Maturity Date
----------------------------------------------------------------------------------------------------------------

Obligations                        2004     2005      2006      2007     2008  Thereafter    Total        Fair
                                                                                                          Value
                     (in million of CZK, except percentages)
----------------------------------------------------------------------------------------------------------------

Fixed rate debt denominated in EUR
----------------------------------------------------------------------------------------------------------------

Euro bonds due 2006 at 7.25%          -        -     6,467         -        -           -    6,467        6,467
Long-term debt                      287      201       164       111      111         576    1,450
Weighted average interest
rate, related to long-tem
debt                               6.3%     5.9%      5.6%      5.6%     5.6%        5.6%

Variable rate debt denominated in EUR
----------------------------------------------------------------------------------------------------------------

Long-term debt                      187      133        83        40        0           0      443

                                Euribor  Euribor   Euribor   Euribor
Weighted average interest rate   +0.23%   +0.21%    +0.16%    +0.16%                    -


Table 7  Debt obligations denominated in CZK

Expected Maturity Date
----------------------------------------------------------------------------------------------------------------
  Obligations                       2004      2005      2006     2007      2008  Thereafter   Total        Fair
                                                                                                          Value
                     (in million of CZK, except percentages)
----------------------------------------------------------------------------------------------------------------

Fixed rate debt denominated in CZK
----------------------------------------------------------------------------------------------------------------

6th issue of zerocoupon
bonds due 2009                         -         -         -        -         -       3,057   3,057       3,607

7th issue due 2014 at 9,22%,
since 2006 variable rate CPI
+ 4,2%                                 -         -         -        -         -       2,494   2,494       3,336

8th issue due 2004 at 8,75%        3,000         -         -        -         -           -   3,000       3,000
9th issue due 2008 at 3,35%                                               2,987               2,987       2,890

6M Pribor +0.4%, due 2005              -     1,000         -        -         -           -   1,000       1,000

                                       69


6M Pribor +1.3%, due 2005              -       500         -        -         -           -     500         500
Long-term debt                       591        48        51       43         -           -     733         733
Weighted average interest
rate, related to long-tem
debt                               9.88%     8.89%     8.87%   10.15%
Short-term debt                    2,320                                                      2,320       2,320
Weighted average interest
rate, related to long-tem
debt                               2.19%

Variable rate debt denominated in CZK
----------------------------------------------------------------------------------------------------------------

Long-term debt                       378       403       290      266       265       1,286   2,888       3,093
                                  Pribor    Pribor    Pribor   Pribor    Pribor      Pribor
Weighted average interest rate       +1%    +1.16%    +0.25%   -0.05%    -0.06%      -0.06%


Item 12.  Description of Securities Other than Equity Securities

Not applicable.

                                    PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of
         Proceeds

Not applicable.

Item 15. Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating
the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-14(c) of the Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this Annual Report, have concluded that, as of such date,
our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that
occurred during the year ended December 31, 2003 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

Item 16A.  Audit Committee Financial Expert

Our Supervisory Board has determined that Mr. Pavel Suchy is an "audit committee
financial expert" serving on the Audit Committee.

Item 16B.  Code of Ethics

Our Board of Directors adopted a code of ethics that applies to our Chief
Executive Officer, Chief Financial Officer, and Principal Accounting Officer.
This code of ethics for financial matters is posted on our website, www.cez.cz,
and may be found as follows:

       1.     From our main web page first click on "For investors."
       2.     Next, click on "Corporate governance."
       3.     Finally, click on "Code of Ethics."

                                       70


Item 16C.  Principal Accountant Fees and Services

Ernst & Young has served as our independent public accountant for each of the
fiscal years in the two-year period ended December 31, 2003, for which audited
financial statements appear in this Annual Report. The auditor is selected based
on a public tender and approved by the supervisory board and the Audit
Committee. We have selected Ernst & Young as our auditor also for 2004.

The following table presents the aggregate fees for professional services and
other services rendered by Ernst & Young to us in 2003 and 2002.


                                                 2002           2003
                                                 ----           ----
                                                    (CZK millions)
Audit Fees(1)                                    11.2            17.2
Audit-related Fees(2)                             5.1            31.1
Tax Fees(3)                                       0.2             1.4
All other Fees(4)                                 0               0.5
                                              ---------      ---------
Total                                            16.5            50.2
                                              =========      =========
____________

(1)  Audit Fees consist of fees billed for the annual audit of the company's
     consolidated financial statements and the financial statements of the
     company's subsidiaries. They also include fees billed for other audit
     services, which are those services that only the external auditor
     reasonably can provide, and include the provision of comfort letters and
     consents, attestation services relating to internal controls and the review
     of documents filed with the Securities and Exchange Commission.

(2)  Audit-related Fees consist of fees billed for assurance and related
     services that are reasonably related to the performance of the audit or
     review of the company's financial statements or that are traditionally
     performed by the external auditor, and include post acquisition due
     diligence of REAS, audit of subsidiary CEPS, a. s. in connection with its
     sale, comfort letter on bond offering circular, accounting methodology
     consultations in the area of derivates hedging and consolidation and
     internal control reviews.

(3)  Tax Fees include fees billed for tax consultations, such as assistance in
     connection with tax audits and appeals and advice on various corporate
     income tax issues.

(4)  All other fees include fees billed for training related to European union
     accession and comparative study of European utilities.

Audit Committee Pre-approval Policies and Procedures

Our Audit Committee is responsible mainly for the oversight of internal audit
department and communication with external independent auditors. Under Czech
law, the Board of Directors is required to make all decisions regarding our
Company, unless the authority to make a decision is delegated by statute or by
articles of association to the General Meeting or to the Supervisory Board. It
is not possible that our Audit Committee take decisions on its own, without
appropriate formal action being taken by the Board of Directors, General
Meeting, or the Supervisory Board. For these reasons, our Supervisory Board is
in fact formally making certain decisions generally required to be made by the
Audit Committee. The Supervisory Board is a board of non-executive directors
and, among other decisions, it approves the selection of independent auditors,
their fees and pre-approves audit and non-audit services. Our Audit Committee is
also involved in these processes but only through its consideration and
discussion of the matters to be formally approved by our Supervisory Board.

During 2003 our Audit Committee discussed, and our Supervisory Board formally
pre-approved our independent auditor's services on a case-by-case basis for
specific projects, such as due diligence engagements, or a general pre-approval
was granted in areas such as tax services. All services, which were performed
during 2003 by our independent auditors and fall under the pre-approval
requirement, were discussed by our Audit Committee and were formally
pre-approved by our Supervisory Board. Neither our Audit Committee nor our
Supervisory Board delegated any of their pre-approval authorities to any other
committee or person.

Item 16D.  Exemptions from the Listing Standards for Audit Committees

Not applicable.

                                       71


                                    PART III

Item 17.  Financial Statements

The Company has elected to provide financial statements for the fiscal year
ended December 31, 2003 and the related information pursuant to Item 18.

Item 18.  Financial Statements

The following financial statements are filed as part of this Annual Report on
Form 20-F:

Report of independent auditors                                                                                 F-1



Consolidated balance sheets as of December 31, 2003 and 2002                                                   F-5
Consolidated statements of income for the years ended December 31, 2003, 2002, and 2001                        F-7
Consolidated statements of shareholders' equity for the years ended December 31, 2003, 2002, and 2001          F-8
Consolidated statements of cash flows for the years ended December 31, 2003, 2002, and 2001                    F-9
Notes to consolidated financial statements as of December 31, 2003.                                            F-11


Item 19.  Exhibits

1.        Articles of Association (Stanovy) of CEZ, a. s.

4.1*      Share Purchase Agreement between Fond narodniho majetku Ceske
          republiky as Seller and CEZ, a. s. as Purchaser, dated June 28, 2002

4.2*      Share Purchase Agreement between CEZ, a. s. as Seller and OSINEK, a.s.
          as Purchaser, dated June 28, 2002

4.3*      Share Purchase Agreement between Ceska konsolidacni agentura as Seller
          and CEZ, a. s. as Purchaser, dated July 22, 2002

4.4*      Share Purchase Agreement between CEZ, a. s. as Seller and Czech
          Republic - Ministry of Labor and Social Affairs as Purchaser, dated
          August 19, 2002

4.5       Collective Bargaining Agreement, dated January 29, 2004

8.        List of Subsidiaries

12.1      Certification of Martin Roman, our Chief Executive Officer, pursuant
          to Section 302 of the Sarbanes- Oxley Act of 2002

12.2      Certification of David Svojitka, our Chief Financial Officer, pursuant
          to Section 302 of the Sarbanes- Oxley Act of 2002

13.**     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002

__________

*    This exhibit is incorporated by reference to the Exhibits filed with our
     Annual Report on Form 20-F dated June 25, 2003.
**   This document is being furnished in accordance with SEC Release Nos.
     33-8212 and 34-47551.

                                       72


REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and the Supervisory Board of CEZ, a. s.:

We have audited the accompanying consolidated balance sheets of CEZ, a. s. ("the
Group") as of December 31, 2003, and 2002, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the two
years in the period ended December 31, 2003. These financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Severoceska energetika, a.s., and Severomoravska
energetika, a.s., which statements reflect 4% of total consolidated assets as of
December 31, 2003, and 21% of total consolidated operating revenues for the year
then ended. Those statements were audited by other auditors whose reports have
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Severoceska energetika, a.s., and Severomoravska energetika, a.s.,
is based solely on the reports of the other auditors. The consolidated financial
statements of the Group as of December 31, 2001, and for the year then ended
were audited by other auditors who have ceased operations and whose report dated
March 12, 2002, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CEZ, a. s., as of December 31,
2003, and 2002, and the results of its operations and its cash flows for each of
the two years in the period ended December 31, 2003, in conformity with
International Financial Reporting Standards.

International Financial Reporting Standards, as published by the International
Accounting Standards Board, vary in certain significant respects from accounting
principles generally accepted in the United States of America. Information
relating to the nature and effect of such differences is presented in Note 29 of
the consolidated financial statements.


/S/ Ernst & Young CR, s.r.o.

April 23, 2004
Prague, Czech Republic

                                      F-1



REPORT OF INDEPENDENT AUDITORS



To the Board of Directors of Severomoravska energetika, a.s.

We have audited the accompanying balance sheet of Severomoravska energetika,
a.s. ("the Company") as of December 31, 2003 and the related statement of income
and shareholders' equity for the year ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with US generally accepted auditing
standards (US GAAS), which will be accepted as auditing standard of the Public
Company Accounting Oversight Board (United States) after the date of our report.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Severomoravka energetika, a.s. as
of December 31, 2003 and the results of its operations and its cash flows for
the year ended December 31, 2003, in conformity with International Financial
Reporting Standards.



/S/ Otakar Hora
Partner KPMG Ceska republika, s.r.o.

23 April 2004
Prague, Czech Republic



                                      F-2



REPORT OF INDEPENDENT AUDITORS



To the Board of Directors of Severoceska energetika, a.s.:

We have audited the accompanying balance sheet of Severoceska energetika, a.s.
("the Company") as of December 31, 2003 and the related statement of income and
shareholders' equity for the year ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with US generally accepted auditing
standards (US GAAS), which will be accepted as auditing standard of the Public
Company Accounting Oversight Board (United States) after the date of our report.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Severoceska energetika, a.s. as of
December 31, 2003 and the results of its operations and its cash flows for the
year ended December 31, 2003, in conformity with International Financial
Reporting Standards.



/S/ Otakar Hora
Partner KPMG Ceska republika, s.r.o.

23 April 2004
Prague, Czech Republic


                                      F-3



The audit report set forth below is a copy of the original audit report dated
March 12, 2002 rendered by Arthur Andersen that was included in Annual Report on
Form 20-F for 2001 and has not been reissued by Arthur Andersen since that date.
We are including this copy of the prior year report of independent public
accountant, Arthur Andersen audit report pursuant to Rule 2-02(e) of Regulation
S-X under the Securities Exchange Act of 1934. Your ability to assert claims
against Arthur Andersen based on its report may be limited.


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and the Supervisory Board of CEZ, a. s.:


We have audited the accompanying consolidated balance sheets of CEZ, a. s. (a
Czech joint-stock company, "the Company") and subsidiaries as of December 31,
2000 and 2001, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those Standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CEZ, a. s., and
subsidiaries as of December 31, 2000 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001 in conformity with International Financial Reporting Standards, as
published by the International Accounting Standards Board.

Accounting practices used by the Company in preparing the accompanying
consolidated financial statements conform with International Financial Reporting
Standards, as published by the International Accounting Standards Board but do
not conform with accounting principles in the United States. A description of
these differences and a reconciliation, as restated, of consolidated net income
and shareholders' equity to accounting principles generally accepted in the
United States are set forth in Note 22.

As discussed in Note 2.3 to the consolidated financial statements, in 2001 the
Company adopted International Accounting Standard IAS 39, Financial Instruments:
Recognition and Measurement.





Arthur Andersen Ceska republika, k.s.

Prague, Czech Republic
March 12, 2002



                                      F-4



CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 and 2002 (The accompanying
notes are an integral part of these consolidated financial statements)


in CZK Millions

                                                                                             2003           2002
                                                                                          ----------     ---------
Assets

Property, plant and equipment:

    Plant in service                                                                       363,165       242,338
    Less accumulated provision for depreciation                                            150,426       103,355
                                                                                          ----------     ---------
       Net plant in service (Note 3)                                                       212,739       138,983
    Nuclear fuel, at amortized cost                                                          9,574         7,931
    Construction work in progress                                                           10,204        56,513
                                                                                          ----------     ---------
       Total property, plant and equipment                                                 232,517       203,427

Other non-current assets:

    Investment in associates                                                                10,999         5,880
    Investments and other financial assets, net (Note 4)                                     8,642         5,723
    Intangible assets, net (Note 5)                                                          1,997         1,174
    Deferred tax assets (Note 21)                                                              288             -
                                                                                          ----------     ---------
       Total other non-current assets                                                       21,926        12,777
                                                                                          ----------     ---------
           Total non-current assets                                                        254,443       216,204

Current assets:

    Cash and cash equivalents (Note 8)                                                       4,014         4,225
    Receivables, net (Note 9)                                                                7,063         4,040
    Income tax receivable                                                                      103         1,994
    Materials and supplies, net                                                              3,242         2,467
    Fossil fuel stocks                                                                         979           618
    Other current assets (Note 10)                                                           4,299         1,917
                                                                                          ----------     ---------
       Total current assets                                                                 19,700        15,261
                                                                                          ----------     ---------

Total assets                                                                               274,143       231,465
                                                                                          ==========     ==========

                                      F-5



CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 and 2002
(The accompanying notes are an integral part of these consolidated financial
statements)

continued



                                                                                             2003          2002
                                                                                          ----------     ---------
Shareholders' equity and liabilities

Shareholders' equity:

    Stated capital                                                                          59,152        59,041
    Retained earnings and other reserves                                                    90,535        84,634
                                                                                          ----------     ---------
       Total shareholders' equity (Note 11)                                                149,687       143,675

Minority interest                                                                            7,893             -

Long-term liabilities:

    Long-term debt, net of current portion (Note 12)                                        30,965        35,729
    Accumulated provision for nuclear decommissioning
       and fuel storage (Note 14)                                                           28,164        23,866
    Other long-term liabilities                                                                357             -
                                                                                          ----------     ---------
       Total long-term liabilities                                                          59,486        59,595

Deferred tax liability (Note 21)                                                            14,721        12,541

Current liabilities:

    Short-term loans (Note 15)                                                               2,320             -
    Current portion of long-term debt (Note 12)                                              5,691         4,235
    Trade and other payables (Note 17)                                                      20,578         8,934
    Income taxes payable                                                                     3,203           256
    Accrued liabilities (Note 18)                                                           10,564         2,229
                                                                                          ----------     ---------
       Total current liabilities                                                            42,356        15,654
                                                                                          ----------     ---------
Total shareholders' equity and liabilities                                                 274,143       231,465
                                                                                          ==========     ==========

                                      F-6



CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002
and 2001
(The accompanying notes are an integral part of these consolidated financial
statements)

in CZK Millions

                                                                                  2003         2002          2001
                                                                                ----------  ----------     ---------
Revenues:

    Sales of electricity (Note 19)                                               79,548        52,938        53,300
    Heat sales and other revenues                                                 5,268         2,640         2,755
                                                                                ----------  ----------     ---------
       Total revenues                                                            84,816        55,578        56,055

Operating expenses:

    Fuel                                                                         14,307        12,894        13,220
    Purchased power and related services                                         21,100         7,328         6,389
    Repairs and maintenance                                                       4,226         3,847         3,476
    Depreciation and amortization                                                17,611        11,721         9,366
    Salaries and wages                                                            7,994         3,854         3,946
    Materials and supplies                                                        3,670         1,838         1,851
    Other operating expenses (Note 20)                                            8,408         2,842         3,129
                                                                                ----------  ----------     ---------
       Total expenses                                                            77,316        44,324        41,377
                                                                                ----------  ----------     ---------
Income before other expenses (income) and income taxes                            7,500        11,254        14,678

Other expenses (income):

    Interest on debt, net of capitalized interest (Note 2.9)                      1,714           582           796
    Interest on nuclear provisions (Note 2.22 and 14)                             1,680         1,532         1,463
    Interest income                                                                (319)         (149)         (177)
    Foreign exchange rate losses (gains), net                                    (1,915)       (3,340)       (2,110)
    Other expenses (income), net (Note 22)                                          744         1,330         1,774
    Income from associates (Note 2.3)                                            (1,063)         (497)         (360)
                                                                                ----------  ----------     ---------
       Total other expenses (income)                                                841          (542)        1,386
                                                                                ----------  ----------     ---------
Income before income taxes                                                        6,659        11,796        13,292

Income taxes (Note 21)                                                              208         3,375         4,169
                                                                                ----------  ----------     ---------
Income after income taxes                                                         6,451         8,421         9,123

Minority interest                                                                   519             -             -
                                                                                ----------  ----------    ----------
Net income                                                                        5,932         8,421         9,123
                                                                                ==========  ==========    ==========


Net income per share (CZK per share) (Note 26)
    Basic                                                                          10.0          14.3          15.4
    Diluted                                                                        10.0          14.2          15.4


Average number of shares outstanding (000s) (Notes 11 and 26)
    Basic                                                                       590,772       590,363       591,926
    Diluted                                                                     592,211       592,150       592,088


                                      F-7



CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
2003, 2002 and 2001 (The accompanying notes are an integral part of these
consolidated financial statements)

in CZK Millions


                                                Number of                   Transla        Fair value
                                                Shares (in     Stated        -tion          and Other    Retained      Total
                                                thousand)      Capital      Difference      Reserves     Earnings      Equity
                                              -------------  ----------  ---------------  ------------  ----------  ------------
December 31, 2000, as previously reported         592,088       59,209             -            -        70,233       129,442

   Effect of adopting IAS 39 (Note 2.4)                 -            -             -            -          (496)         (496)
                                              -------------  ----------  ---------------  ------------  ----------  ------------
January 1, 2001, as restated                      592,088       59,209             -            -        69,737       128,946

   Net income                                           -            -             -            -         9,123         9,123
   Acquisition of treasury shares                  (1,950)        (159)            -            -             -          (159)
   Dividends declared                                   -            -             -            -        (1,184)       (1,184)
                                              -------------  ----------  ---------------  ------------  ----------  ------------
December 31, 2001                                 590,138       59,050             -            -        77,676       136,726

   Additional paid-in capital                         123           12             -            -             -            12
   Net income                                           -            -             -            -         8,421         8,421
   Acquisition of treasury shares                  (1,950)        (181)            -            -             -          (181)
   Sale of treasury shares                          1,965          160             -            -            17           177
   Dividends declared                                   -            -             -            -        (1,480)       (1,480)
                                              -------------  ----------  ---------------  ------------  ----------  ------------
December 31, 2002 as previously reported          590,276       59,041             -            -        84,634       143,675

   Change in accounting policy - effect of
    change in group structure (Note 2.4)                -            -             -            -           609           609
                                              -------------  ----------  ---------------  ------------  ----------  ------------
January 1, 2003, as restated                      590,276       59,041             -            -        85,243       144,284

   Net income                                           -            -             -            -         5,932         5,932
   Change in fair value of
    available-for-sale financial assets
    recognized in equity                                -            -             -         (101)            -          (101)
   Gain on sale of subsidiary CEPS, net of
    tax (Note 25)                                       -            -             -            -         7,162         7,162
   Effect of acquisition of REAS on equity
    (Note 6)                                            -            -             -            -        (5,023)       (5,023)
   Sale of treasury shares                          1,190          111             -            -            (5)          106
   Dividends declared                                   -            -             -            -        (2,657)       (2,657)
   Returned dividends on treasury shares                -            -             -            -             4             4
   Share options                                        -            -             -           21             -            21
   Share on equity movements of associates              -            -             -            -           (25)          (25)
   Other movements                                      -            -             1           (1)          (16)          (16)
                                              -------------  ----------  ---------------  ------------  ----------  ------------
December 31, 2003                                 591,466       59,152             1          (81)       90,615       149,687
                                              =============  ==========  ===============  ============  ==========  ============


                                      F-8



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003,
2002 and 2001 (The accompanying notes are an integral part of these consolidated
financial statements)

in CZK Millions


                                                                                    2003         2002           2001
                                                                                  ----------   -----------   -----------
Operating activities:

    Income before income taxes                                                        6,659        11,796       13,292

    Adjustments to reconcile income before income taxes to net cash provided by
       operating activities:
             Depreciation, amortization and asset write-offs                         17,619        11,735        9,429
             Amortization of nuclear fuel                                             3,484         2,071        1,644
             (Gain) loss on fixed asset retirements, net                               (384)         (363)          50
             Foreign exchange rate loss (gain), net                                  (1,915)       (3,340)      (2,110)
             Interest expense, interest income and dividend income, net               1,054           356          555
             Provision for nuclear decommissioning and fuel storage                   3,656           641          387
             Provisions for doubtful accounts, environmental claims and other
                adjustments                                                           1,602           (53)         217
             Income from associates                                                  (1,063)         (497)        (360)

             Changes in assets and liabilities:
                Receivables                                                           1,138          (282)      (1,034)
                Materials and supplies                                                 (152)           44           48
                Fossil fuel stocks                                                     (343)           39           56
                Other current assets                                                  1,903           334         (387)
                Trade and other payables                                              2,141           353        1,809
                Accrued liabilities                                                   1,103          (363)         421
                                                                                  ----------   -----------   -----------

                    Cash generated from operations                                   36,502        22,471       24,017

       Income taxes paid                                                                (44)       (3,395)      (1,820)
       Interest paid, net of capitalized interest                                    (1,601)         (434)        (744)
       Interest received                                                                316           149          178
       Dividends received                                                               587           210          131
                                                                                  ----------   -----------   -----------
             Net cash provided by operating activities                               35,760        19,001       21,762
                                                                                  ----------   -----------   -----------
Investing activities:

       Acquisition of subsidiaries, net of cash acquired                            (28,374)            -            -
       Proceeds from disposal of a subsidiary, net of cash disposed of               12,208             -            -
       Additions to property, plant and equipment and other non-current
          assets, including capitalized interest (Note 2.9)                         (23,942)      (10,419)     (15,318)
       Proceeds from sales of fixed assets                                            9,585         1,078          163
       Change in decommissioning and other restricted funds                            (407)         (594)        (788)

             Total cash used in investing activities                                (30,930)       (9,935)     (15,943)
                                                                                  ----------   -----------   -----------


                                      F-9



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003,
2002 and 2001
(The accompanying notes are an integral part of these consolidated financial
statements)

continued

                                                                                  2003           2002          2001
                                                                                ----------     ----------    ---------
Financing activities:

       Proceeds from borrowings                                                    31,284         8,446        6,737
       Payments of borrowings                                                     (33,736)      (13,864)     (11,776)
       Proceeds from other long-term liabilities                                      131             -            -
       Payments of other long-term liabilities                                        (66)            -            -
       Dividends paid to group shareholders                                        (2,640)       (1,480)      (1,174)
       Dividends paid to minority interests                                          (227)            -            -
       Acquisition / sale of treasury shares                                          106            (4)        (159)
                                                                                ----------     ----------    ---------

             Total cash used in financing activities                               (5,148)       (6,902)      (6,372)
                                                                                ----------     ----------    ---------
Net effect of currency translation in cash                                            (59)         (219)         (89)
                                                                                ----------     ----------    ---------

Net increase (decrease) in cash and cash equivalents                                 (377)        1,945         (642)

Cash and cash equivalents at beginning of period                                    4,225         2,280        2,922

    Effect of change in group structure on opening balance of cash and cash
       equivalents                                                                    166             -            -
                                                                                ----------     ----------    ---------
Cash and cash equivalents at beginning of period, as restated                       4,391         2,280        2,922
                                                                                ----------     ----------    ---------
Cash and cash equivalents at end of period                                          4,014         4,225        2,280
                                                                                ==========     ==========    =========

Supplementary cash flow information

Total cash paid for interest                                                        2,538         2,562        3,527


                                      F-10



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2003


1.   The Company

CEZ, a. s. ("CEZ" or "the Company") is a Czech Republic joint-stock company,
owned 67.6% at December 31, 2003 by the Czech Republic National Property Fund.
The remaining shares of the Company are publicly held. The address of the
Company's registered office is Duhova 2/1444, Praha 4, 140 53, Czech Republic.
The average number of employees of the Company and its consolidated subsidiaries
was 16,093, 7,806 and 8,532 for the year 2003, 2002 and 2001, respectively.

CEZ is an electricity generation company, which produced approximately 73% of
the electricity and a portion of the district heating in the Czech Republic in
2003. The Company sells a substantial portion of its electricity production to
eight distribution companies ("REAS") in the Czech Republic which distribute the
electricity to end customers (see Note 19). The Company operates ten fossil fuel
plants, thirteen hydroelectric plants and two nuclear plants.

The Company is a parent company of the CEZ Group ("the Group"), which is
primarily engaged in the business of production and distribution of electricity
(see Notes 2.3 and 7).

In November 2000 the Czech Parliament passed The Act on Conditions of Business
Activity and State Administration in the Energy Industries and on State Power
Inspection (the "Energy Law"), which replaced the previous Energy Law effective
from January 1, 1995. The Energy Law provides the conditions for business
activities, performance of public administration and regulation in the energy
sectors, including electricity, gas and heat, as well as the rights of and
obligations of individuals and legal entities related thereto. The business
activities in the energy sectors in the Czech Republic may only be pursued by
individuals or legal entities upon the basis of government authorization in the
form of licenses granted by the Energy Regulatory Office.

Responsibility for public administration in the energy sectors is exercised by
the Ministry of Industry and Trade (the "Ministry"), the Energy Regulatory
Office and the State Energy Inspection Board.

The Ministry, as the central public administration body for the energy sector,
issues state approval to construct new energy facilities in accordance with
specified conditions, develops the energy policy of the state and ensures
fulfillment of obligations resulting from international agreements and treaties
binding on the Czech Republic or obligations resulting from membership in
international organizations.

The Energy Regulatory Office was established as the administrative office to
exercise regulation in the energy sector of the Czech Republic, to support
economic competition and to protect consumers' interests in sectors where
competition is not possible. The Energy Regulatory Office decides on the
granting of a license, imposition of the supply obligation beyond the scope of
the license, imposition of the obligation to let another license holder use
energy facilities in cases of emergency, to exercise the supply obligation
beyond the scope of the license and price regulation based on special legal
regulations. The State Energy Inspection Board is the inspection body
supervising the activities in the energy sector.

Third-party access is being introduced gradually between 2002 and, at the
latest, 2006 at which time all electricity customers will be able to purchase
electricity from any distributor, eligible generator, or trader.

On March 11, 2002 the Government decided to sell its shares in the eight REAS,
which are held by the National Property Fund and Czech Consolidation Agency, to
CEZ and to purchase from CEZ a 66% share in its transmission subsidiary CEPS.
The transaction was carried out on April 1, 2003 (see Notes 2.3, 6, and 25).

Through this transaction CEZ has acquired a majority share in five REAS, and a
minority share in three REAS. However, the Economic Competition Protection
Authority has ruled that CEZ should sell its shares in one of the REAS in which
it acquired a majority share and in three of the REAS in which it acquired a
minority share. The Economic Competition Protection Authority has also decided
that CEZ should sell its remaining equity share in CEPS. Following the decisions
of the Economic Competition Protection Authority, CEZ has sold in September 2003
its shares in two of the three REAS (Jihoceska energetika, a.s., a Jihomoravska
energetika, a.s.), where CEZ previously acquired minority shares.


                                      F-11



2.   Summary of Significant Accounting Policies

2.1. Basis of Accounting

The Company is required to maintain its books and records in accordance with
accounting principles and practices mandated by the Czech Law on Accounting. The
accompanying consolidated financial statements reflect certain adjustments and
reclassifications not recorded in the accounting records of the Company in order
to conform the Czech statutory balances to financial statements prepared in
accordance with International Financial Reporting Standards issued by the
International Accounting Standards Board. The adjustments are summarized in Note
28.


2.2. Financial Statements

The accompanying consolidated financial statements of CEZ are prepared in
accordance with International Financial Reporting Standards (IFRS), which
comprise standards and interpretations approved by the IASB, and International
Accounting Standards and Standing Interpretations Committee interpretations
approved by the IASC that remain in effect. They are prepared under the
historical cost convention, except when IFRS requires that certain financial
assets and liabilities be stated at fair value (see Note 2.19).


2.3. Group Accounting

a. Group Structure

The financial statements include the accounts of CEZ, a. s., its subsidiaries
and associates, which are shown in the Note 7. Other investments are excluded
from the consolidation because the impact on the consolidated financial
statements would not be significant. These investments are included in the
balance sheet under investments and other non-current assets and are stated at
cost net of provision for diminution in value (see Note 4).


b. Subsidiaries

Subsidiaries, which are those entities in which the Group has an interest of
more than one half of the voting rights or otherwise has power to govern the
financial and operating policies are consolidated.

Subsidiaries are consolidated from the date on which control is transferred to
the Group and are no longer consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of
subsidiaries from unrelated parties. The cost of an acquisition is measured as
the fair value of the assets given up, shares issued or liabilities undertaken
at the date of acquisition plus costs directly attributable to the acquisition.
The excess of the cost of acquisition over the fair value of the net assets of
the subsidiary acquired is recorded as goodwill.

In case of acquisitions of subsidiaries from entities under common control the
assets and liabilities of the acquired subsidiaries are initially included in
the consolidated financial statements at their book values at the date of
acquisition. The difference between the cost of acquisition and the share of the
book value of net assets of the subsidiary acquired is recorded directly in
equity.

Intercompany transactions, balances and unrealized gains on transactions between
group companies are eliminated; unrealized losses are also eliminated unless
cost cannot be recovered. Where necessary, accounting policies of subsidiaries
have been changed to ensure consistency with the policies adopted by the Group.


c. Associates

Investments in associates are accounted for by the equity method of accounting.
Under this method the company's share of the post-acquisition profits or losses
of associates is recognized in the income statement and its share of
post-acquisition movements in reserves is recognized in reserves. The cumulative
post-acquisition movements are adjusted against the cost of the investment.
Associates are entities over which the Group generally has between 20% and 50%
of the voting rights, or over which the Group has significant influence, but
which it does not control.


                                      F-12



Unrealized gains on transactions between the Group and its associates are
eliminated to the extent of the Group's interest in the associates; unrealized
losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. The Group's investment in associates
includes goodwill (net of accumulated amortization) on acquisition. When the
Group's share of losses in an associate equals or exceeds its interest in the
associate, the Group does not to recognize further losses, unless the Group has
incurred obligations or made payments on behalf of the associates.


2.4. Change in Accounting Principle

a. Adoption of IAS 39

In 2001 the Company adopted International Accounting Standard IAS 39, Financial
Instruments: Recognition and Measurement. Following the introduction of IAS 39,
available-for-sale investments are carried at fair value and all derivative
financial instruments are recognized as assets or liabilities. The opening
balance of retained earnings at January 1, 2001 was adjusted.

b. Change in group structure

In 2003 the Company included in the consolidated group certain companies, which
previously have not been consolidated, because the impact on the consolidated
financial statements was not significant. In previous periods the investments in
these companies have been included in other financial assets as available for
sale financial investments. The impact of consolidation of the previously
unconsolidated subsidiaries and associates was recorded in 2003 directly in
equity by adjusting the opening balance of retained earnings (see Note 7).
Comparative information has not been restated, because it was impracticable to
do so.

c. Comparatives

Certain prior year financial statement items have been reclassified to conform
to the current year presentation.


2.5. Measurement Currency

Based on the economic substance of the underlying events and circumstances
relevant to the Company, the measurement currency of the Company has been
determined to be the Czech crown (CZK).


                                      F-13



2.6. Estimates

The preparation of financial statements in conformity with International
Financial Reporting Standards requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


2.7. Revenues

The Group recognizes revenue from supplies of electricity and related services
based on contract terms. Any differences between contracted amounts and actual
supplies are estimated from meter readings and settled through the market
operator.


2.8. Fuel Costs

Fuel costs are expensed as fuel is consumed. Fuel expense includes the
amortization of the cost of nuclear fuel. Amortization of nuclear fuel charged
to fuel expense was CZK 3,484 million, CZK 2,071 million and CZK 1,644 million
for the years ended December 31, 2003, 2002 and 2001, respectively. The
amortization of nuclear fuel includes charges in respect of additions to the
accumulated provision for interim storage of spent nuclear fuel to the extent
they relate to the nuclear fuel consumed during the current accounting period
(see Note 14). Such charges amounted to CZK 113 million, CZK 82 million and CZK
107 million in 2003, 2002 and 2001, respectively.


2.9. Interest

The Group capitalizes all interest costs incurred in connection with its
construction program that theoretically could have been avoided if expenditures
for the assets had not been made. Such capitalized interest costs amounted to
CZK 937 million, CZK 2,128 million and CZK 2,783 million, which was equivalent
to an interest capitalization rate of 7.4%, 7.5% and 7.5% in 2003, 2002 and
2001, respectively.


2.10. Property, Plant and Equipment

Property, plant and equipment are recorded at cost net of accumulated
depreciation. Cost of plant in service includes materials, labor,
payroll-related costs and the cost of debt financing used during construction.
The cost also includes the estimated cost of dismantling and removing the asset
and restoring the site, to the extent that it is recognized as a provision under
IAS 37, Provisions, Contingent Liabilities and Contingent Assets. In case that
during the construction of an asset in 2002 and 2001 the constructed asset
produces products or services, which are sold, the revenues from such sales are
deducted from the original cost of that asset. Government grants received for
construction of certain environmental installations decrease the acquisition
cost of the respective items of property, plant and equipment.

The cost of maintenance, repairs, and replacement of minor items of property is
charged to maintenance expense when incurred. Renewals and improvements are
capitalized. Upon sale or retirement of property, plant and equipment, the cost
and related accumulated depreciation are eliminated from the accounts. Any
resulting gains or losses are included in the determination of net income.

The Group periodically reviews the recoverable amounts of its property, plant
and equipment to determine whether such amounts continue to exceed the assets'
carrying values.


                                      F-14



Depreciation
------------

The Group depreciates the original cost of property, plant and equipment by
using the straight-line method over the estimated economic lives. The
depreciable lives used for property, plant and equipment are as follows:

                                                               Lives
                                                          ---------------
           Buildings and structures                           25 - 50
           Machinery and equipment                             4 - 25
           Vehicles                                            4 - 20
           Furniture and fixtures                              8 -15


Average depreciable lives based on the functional use of property are as
follows:

                                                           Average Life
                                                         ---------------
           Hydro plants
              Buildings and structures                          44
              Machinery and equipment                           16

           Fossil fuel plants
              Buildings and structures                          32
              Machinery and equipment                           14

           Nuclear power plant
              Buildings and structures                          32
              Machinery and equipment                           17

           Electricity distribution grid                        30
           Transformer stations                                 12


Depreciation of plant in service was CZK 17,066 million and CZK 11,375 million
for the years ended December 31, 2003 and 2002, which was equivalent to a
composite depreciation rate of 5.7% and 5.6%, respectively.


2.11. Nuclear Fuel

Nuclear fuel is stated at original cost, net of accumulated amortization.
Amortization of fuel in the reactor is based on the amount of power generated.

Nuclear fuel includes capitalized costs of provisions (see Note 2.22). Such
capitalized costs at net book value amounted to CZK 360 million at December 31,
2003.


2.12. Intangible Assets, Net

Intangible assets are valued at their acquisition cost and related expenses.
Intangible assets are amortized over their useful life using the straight-line
method. The estimated useful life of intangible assets ranges from 4 to 15
years.


                                      F-15


2.13. Investments

Investments are classified into the following categories: held-to-maturity,
trading and available-for-sale. Investments with fixed or determinable payments
and fixed maturity that the Company has the positive intent and ability to hold
to maturity other than loans and receivables originated by the Company are
classified as held-to-maturity investments. Investments acquired principally for
the purpose of generating a profit from short-term fluctuations in price are
classified as trading. All other investments, other than loans and receivables
originated by the Company, are classified as available-for-sale.

Held-to-maturity investments are included in non-current assets unless they
mature within 12 months of the balance sheet date. Investments held for trading
are included in current assets. Available-for-sale investments are classified as
current assets if management intends to realize them within 12 months of the
balance sheet date.

All purchases and sales of investments are recognized on the settlement date.

Investments are initially measured at cost, which is the fair value of the
consideration given for them, including transaction costs.

Available-for-sale and trading investments are subsequently carried at fair
value without any deduction for transaction costs by reference to their quoted
market price at the balance sheet date. Equity securities classified as
available-for-sale and trading investments that do not have a quoted market
price in an active market are measured at cost. The carrying amounts of such
investments are reviewed at each balance sheet date for impairment.

Gains or losses on measurement to fair value of available-for-sale investments
are recognized directly in the fair value reserve in shareholders equity, until
the investment is sold or otherwise disposed of, or until it is determined to be
impaired, at which time the cumulative gain or loss previously recognized in
equity is included in net profit or loss for the period.

Changes in the fair values of trading investments are included in other expense
(income).

Held-to-maturity investments are carried at amortized cost using the effective
interest rate method.


2.14. Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, current accounts with banks and
short-term bank notes with a maturity of three months or less (see Note 8).
Foreign currency deposits are translated at December 31, 2003 and 2002 exchange
rates, respectively.


2.15. Cash Restricted in Its Use

Restricted balances of cash shown under other non-current financial assets as
restricted funds (see Note 4) relate to deposits for ash storage reclamation,
funding of nuclear decommissioning liabilities and cash guarantees given to swap
transaction partners. The non-current classification is based on the expected
timing of the release of the funds to the Company.


2.16. Receivables, Payables and Accruals

Receivables are recognized and carried at original invoice amount less an
allowance for any uncollectable amounts. At December 31, 2003 and 2002 the
allowance for uncollectable receivables amounted to CZK 2,317 million and CZK
728 million, respectively.

Payables are recorded at invoiced values and accruals are reported at expected
settlement values.


                                      F-16


2.17. Materials and Supplies

Materials and supplies are principally composed of maintenance materials and
spare parts for repairs and maintenance of tangible assets. Cost is determined
by using weighted average cost, which approximates actual cost. These materials
are recorded in inventory when purchased and then expensed or capitalized to
plant, as appropriate, when used. The Group records a provision for obsolete
inventory as such items are identified.


2.18. Fossil Fuel Stocks

Fossil fuel stocks are stated at weighted average cost, which approximates
actual cost.


2.19. Derivative Financial Instruments

Derivative financial instruments that are not designated as effective hedging
instruments are classified as held-for-trading and carried at fair value under
other current assets and trade and other payables, with changes in fair value
included in other expense (income).

An embedded derivative is separated from the host contract and accounted for as
a derivative if all of the following conditions are met:

     -    the economic characteristics and risks of the embedded derivative are
          not closely related to the economic characteristics and risks of the
          host contract;

     -    a separate instrument with the same terms as the embedded derivative
          would meet the definition of a derivative; and

     -    the hybrid (combined) instrument is not measured at fair value with
          changes in fair value reported in net profit or loss.


2.20. Income Taxes

The provision for corporate tax is calculated in accordance with Czech tax
regulations and is based on the income or loss reported under Czech accounting
regulations, adjusted for appropriate permanent and temporary differences from
Czech taxable income. In the Czech Republic, income taxes are calculated on an
individual company basis as the tax laws do not permit consolidated tax returns.
Current income taxes are provided at a rate of 31% for each of the years ended
December 31, 2003 and 2002, after adjustments for certain items which are not
deductible, or taxable, for taxation purposes.

Certain items of income and expense are recognized in different periods for tax
and financial accounting purposes. Deferred income taxes are provided on
temporary differences between financial statement and taxable income at the
subsequent year's tax rate using the liability method. Temporary differences are
the differences between the reported amounts of assets and liabilities and their
tax bases. Income tax rates are published the year preceding their effectiveness
and for 2004 the rate will be 28% (see Note 21).

Deferred tax assets and liabilities are recognized regardless of when the
temporary difference is likely to reverse. Deferred tax assets and liabilities
are not discounted. Deferred tax assets are recognized when it is probable that
sufficient taxable profits will be available against which the deferred tax
assets can be utilized. A deferred tax liability is recognized for all taxable
temporary differences, except goodwill for which amortization is not deductible
for tax purposes. Deferred tax assets and liabilities of group companies are not
offset in the balance sheet.


Current tax and deferred tax are charged or credited directly to equity if the
tax relates to items that are credited or charged, in the same or a different
period, directly to equity.


                                      F-17


2.21. Long-term Debt

Borrowings are initially recognized at the amount of the proceeds received, net
of transaction costs. They are subsequently carried at amortized cost using the
effective interest rate method, the difference between net proceeds and
redemption value being recognized in the net income over the life of the
borrowings as interest expense.

Transaction costs include fees and commissions paid to agents, advisers, brokers
and dealers, levies by regulatory agencies and securities exchanges.


2.22. Nuclear Provisions

Group has recognized provisions for its obligations to decommission its nuclear
power plants at the end of their operating lives, to store the related spent
nuclear fuel initially on an interim basis and provision for its obligation to
provide financing for subsequent permanent storage of spent fuel and irradiated
parts of reactors.

The provisions recognized represent the best estimate of the expenditures
required to settle the present obligation at the current balance sheet date.
Such cost estimates, expressed at current price levels, are discounted using a
long-term real rate of interest of 2.5% per annum to take into account the
timing of payments. The initial discounted cost amounts are capitalized as part
of property, plant and equipment and are depreciated over the lives of the
nuclear plants. Each year, the provisions are increased to reflect the accretion
of discount and to accrue an estimate for the effects of inflation, with the
charges being recognized as a component of interest expense. The estimate for
the effect of inflation is approximately 4.5%, which is based on the current
rate of interest on long-term Czech government bonds of approximately 7% and the
estimated 2.5% real rate of interest.

The decommissioning process is expected to continue for approximately a
sixty-year period subsequent to the final operation of the plants. Furthermore,
spent nuclear fuel will be stored on a temporary basis until approximately 2060
when permanent storage facilities are planned to become available. While the
Group has made its best estimate in establishing its nuclear provisions, because
of potential changes in technology as well as safety and environmental
requirements, plus the actual time scale to complete decommissioning and fuel
storage activities, the ultimate provision requirements could either increase or
decrease significantly from the Group's current estimates.

Since 2002, pursuant to a proposed interpretation of the International Financial
Reporting Interpretation Committee ("IFRIC"), changes in a decommissioning
liability that result from a change in the current best estimate of cash flows
required to settle the obligation or a change in the discount rate are added to
(or deducted from) the amount recognized as the related asset to the extent the
change relates to future periods. However, to the extent that such a treatment
would result in a negative asset, the effect of the change should be recognized
in the income for the current period. To the extent the change relates to the
current or prior periods, it is reported as income or expense for the current
period. Until 2001 the changes in a decommissioning liability were recognized as
income or expense for the period.


2.23. Leases

a. A Group company is a lessee

Finance leases, which transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalized at the
inception of the lease at the fair value of the leased property or, if lower, at
the present value of the minimum lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against income.

Capitalized leased assets are depreciated over the shorter of the estimated
useful life of the asset or the lease term.

Leases where the lessor retains substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Operating lease
payments are recognized as an expense in the income statement on a straight-line
basis over the lease term. If there is no reasonable certainty that the lessee
will obtain ownership by the end of the lease term, the asset should be fully
depreciated over the shorter of the lease term or its useful life


                                      F-18



b. A Group company is the lessor

When assets are leased out under a finance lease, the present value of the lease
payments is recognized as a receivable. The difference between the gross
receivable and the present value of the receivable is recognized over the lease
term as finance income. Lease income is recognized over the term of the lease
using the net investment method, which reflects a constant periodic rate of
return.

Assets leased out under operating leases are included in property, plant and
equipment in the balance sheet. They are depreciated over their expected useful
lives on a basis consistent with similar owned property, plant and equipment.
Rental income (net of any incentives given to lessees) is recognized on a
straight-line basis over the lease term.


2.24. Treasury Shares

Treasury shares are presented in the balance sheet as a deduction from equity.
The acquisition of treasury shares is presented in the statement of equity as a
reduction to equity. No gain or loss is recognized in the income statement on
the sale, issuance, or cancellation of treasury shares. Consideration received
is presented in the financial statements as an addition to equity.


2.25. Share Options

Board of directors, certain members of management of the Company and the
Supervisory Board members have been granted options to purchase common shares of
the Company. Employee compensation expense is measured on the date of the grant
to the extent the quoted market price of the shares exceeds the exercise price
of the share options.


2.26. Translation of Foreign Currencies

Foreign currency transactions are translated into the measurement currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies
are recognized in the income statement, except when deferred in equity as
qualifying cash flow hedges.

Translation differences on debt securities and other monetary financial assets
measured at fair value are included in foreign exchange gains and losses.
Translation differences on non-monetary items such as equities held for trading
are reported as part of the fair value gain or loss. Translation differences on
available-for-sale equities are included in the revaluation reserve in equity.

The assets and liabilities of foreign subsidiaries are translated at the rate of
exchange ruling at the balance sheet date. The income statements of foreign
subsidiaries are translated at weighted average exchange rates for the year. The
exchange differences arising on the retranslation are taken directly to equity.
On disposal of a foreign entity, accumulated exchange differences are recognized
in the income statement as a component of the gain or loss on disposal.

Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the acquiring company and are
recorded at the exchange rate at the date of the transaction.


                                      F-19



3.   Net Plant in Service

Net plant in service at December 31, 2003 and 2002 is as follows (in CZK
millions):


                                                       Plant and
                                          Buildings     Equip-         Land and
                                                        ment             Other       Total 2003   Total 2002
                                          ---------  ------------     -----------  ------------  -----------
Cost - opening balance                      74,661      166,908           769       242,338       180,252

   Plant additions                          13,715       41,728           119        55,562        63,343
   Retirements                              (1,292)     (2,739)          (50)        (4,081)       (1,257)
   Acquisition of subsidiaries              50,603       32,566           794        83,963             -
   Disposal of subsidiaries                 (7,281)     (7,269)          (67)       (14,617)            -
                                          ---------  ------------     -----------  ------------  -----------

Cost - closing balance                     130,406      231,194         1,565       363,165       242,338
                                          ---------  ------------     -----------  ------------  -----------

Accumulated deprec. and
   allowances - opening balance            (29,001)     (74,354)            -     (103,355)      (92,614)

   Depreciation                             (3,703)     (13,263)           (3)     (16,969)      (11,375)
   Net book value of assets disposed          (646)        (663)            -       (1,309)         (558)
   Retirements                               1,292        2,739             5        4,036         1,257
   Acquisition of subsidiaries             (22,069)     (18,746)           (6)     (40,821)           -
   Disposal of subsidiaries                  3,487        4,600             -        8,087            -
   Change in allowances                        (37)          10           (68)         (95)          (65)
                                          ---------  ------------     -----------  ------------  -----------
Accumulated deprec. and
allowances - closing balance               (50,677)     (99,677)          (72)    (150,426)     (103,355)
                                          ---------  ------------     -----------  ------------  -----------
Net plant in service - closing
   balance                                  79,729      131,517         1,493      212,739       138,983

At December 31, 2003 and 2002, plant and equipment included the capitalized
costs of nuclear provisions as follows:

                                                    2003            2002
                                                 ---------       ----------
Cost                                               11,464         10,461
Accumulated depreciation                           (3,778)        (2,896)
                                                 ---------       ----------
   Total net book value                             7,686          7,565
                                                 =========       ==========

At December 31, 2002 capitalized costs of provisions related to second unit of
Temelin nuclear power plant were included in construction work in progress and
amounted to CZK 873 million, of which CZK 619 million related to plant and
equipment and CZK 254 million related to nuclear fuel.

The carrying value of plant and equipment held under finance lease at December
31, 2003 is CZK 173 million. In 2002 the Group had no finance lease contracts
(see Note 16).

In 2003 and 2002 the Group capitalized CZK 0 million and CZK 1,373 million of
revenues, which were earned during the construction of assets (see Note 2.10).

None of the Group's plant in service is pledged as security for liabilities.


                                      F-20



4.   Investments and Other Financial Assets, Net

Investments at December 31, 2003 and 2002 consist of the following (in CZK
millions):

                                                         2003            2002
                                                      ---------       ----------
Investments in REAS, net (see Note 6)                    3,401          1,937
Financial assets available for sale, net                 2,262          1,969
Restricted funds for nuclear decommissioning             1,245            944
Other restricted funds                                   1,069            735
Long-term receivables, net                                 665            138
                                                      ---------       ----------
   Total                                                 8,642          5,723
                                                      =========       ==========

Investments in REAS represent shares and share rights of certain of the Czech
electric distribution companies REAS. In 2003 the investments in REAS represents
a 34% share in Prazska energetika, a.s., which based on the decision of the
Economic Competition Protection Authority has to be sold in the future.
Financial assets available for sale include also other majority and minority
shareholdings in operationally related companies (see Note 2.3).

At December 31, 2003 and 2002 impairment provisions for financial assets
available for sale amounted to CZK 909 million and CZK 190 million,
respectively. Impairment provision for investment in REAS (Prazska energetika,
a.s.) was CZK 421 million at December 31, 2003 only.


5.   Intangible Assets, Net

Intangible assets at December 31, 2003 and 2002 were as follows (in CZK
millions):


                                                             Rights and
                                               Software         Other       Total 2003     Total 2002
                                               ---------     ------------   -----------   ------------
Cost - opening balance                           1,977             46          2,023          1,742

   Additions                                       626            208            834            282
   Retirements                                     (63)            (7)           (70)            (1)
   Acquisition of subsidiaries                   2,064             22          2,086             -
   Disposal of subsidiaries                       (184)           (25)          (209)            -
                                               ---------     ------------   -----------   ------------
Cost - closing balance                           4,420            244          4,664          2,023
                                               ---------     ------------   -----------   ------------
Accumulated amortisation - opening
   balance                                      (1,188)           (24)        (1,212)          (868)

   Amortization charge for the year               (633)            (9)          (642)          (346)
   Net book value of assets disposed                (1)             -             (1)            -
   Disposals                                        63              7             70              1
   Acquisition of subsidiaries                  (1,546)           (17)        (1,563)            -
   Disposal of subsidiaries                         69             13             82             -
                                               ---------     ------------   -----------   ------------
Accumulated amortisation - closing
   balance                                      (3,236)           (30)        (3,266)        (1,213)
                                               ---------     ------------   -----------   ------------
Net intangible assets - closing balance          1,184            214          1,398            810
                                               =========     ============   ===========   ============


At December 31, 2003 and 2002, intangible assets presented on the balance sheet
included intangible assets in progress in the amount of CZK 599 million and CZK
364 million, respectively.


                                      F-21



6.   Acquisition of REAS

On April 1, 2003, CEZ acquired majority of the voting shares in 5 Czech
electricity distribution companies from Czech National Property Fund and Czech
Consolidation Agency. Through the acquisition of REAS CEZ has also gained
control over several other companies, which were owned directly by the
respective REAS companies. As the REAS companies and their subsidiaries were
acquired from the direct parent of CEZ and an agency under common control of
CEZ's ultimate parent (Czech government), CEZ has accounted for this transaction
as an acquisition of subsidiaries under common control (see Note 2.3).

The book values of the identifiable assets and liabilities of the REAS companies
acquired from companies under common control are (in CZK millions):


                                                                 Group SCE      Group SME       Group STE
                                                                -----------    -----------     -----------
Shares acquired in 2003 from entities under common
    control                                                        48.05%         48.65%          58.3%
Shares acquired in previous years *                                 2.95%         10.43%             -
                                                                -----------    -----------     -----------
   Total shares                                                    51.00%         59.08%          58.3%
                                                                ===========    ===========     ===========
Property, plant and equipment, net                                 7,306         10,523           9,741
Deferred income taxes                                                189              -               -
Other non-current assets                                             524          1,069             697
Cash and cash equivalents                                             76            265              33
Other current assets                                               3,843          7,222           4,346

Minority interests                                                    (1)             -              (8)
Long-term liabilities                                                (65)        (2,215)           (256)
Deferred income taxes                                                  -         (1,015)           (835)
Current liabilities                                               (5,839)        (6,065)         (6,738)
                                                                -----------    -----------     -----------
   Total net assets                                                6,033          9,784           6,980

Minority interests                                                (2,956)        (4,004)         (2,911)

   Share of net assets acquired                                    3,077          5,780           4,069

Effect of acquisition of REAS recognized directly in
    equity                                                         1,660          1,730            (363)
                                                                -----------    -----------     -----------
   Total purchase consideration                                    4,737          7,510           3,706

Less:

Outstanding payables from acquisition                             (1,031)        (1,450)           (866)
Consideration paid for shares in previous periods                   (327)        (1,310)              -
Cash and cash equivalents in subsidiaries acquired                   (76)          (265)            (33)
                                                                -----------    -----------     -----------
    Cash outflow on acquisition from entities under
       common control                                              3,303          4,485           2,807
                                                                ===========    ===========     ===========

*    Shares acquired in previous periods have been accounted for as available
     for sale financial assets in 2002.


                                      F-22




                                                            Group VCE      Group ZCE      Total REAS
                                                            -----------    -----------     -----------

Shares acquired in 2003 from entities under common
    control                                                     49.62%         50.26%
                                                            -----------    -----------
Shares acquired in previous years *                              0.45%             -
                                                            ===========    ===========
   Total shares                                                 50.07%         50.26%

Property, plant and equipment, net                              8,553          5,176          41,299
Deferred income tax                                                 -              -             189
Other non-current assets                                          259          1,892           4,441
Cash and cash equivalents                                         151            130             655
Other current assets                                            4,735          4,302          24,448

Minority interests                                                 (1)            (1)            (11)
Long-term liabilities                                            (109)          (262)         (2,907)
Deferred income taxes                                            (952)          (502)         (3,304)
Current liabilities                                            (5,550)        (4,069)        (28,261)
                                                             -----------    -----------     -----------
   Total net assets                                             7,086          6,666          36,549

Minority interests                                             (3,538)        (3,316)        (16,725)
                                                             -----------    -----------     -----------
   Share of net assets acquired                                 3,548          3,350          19,824

Effect of acquisition of REAS recognized directly in
    equity                                                        356          1,640           5,023
                                                             -----------    -----------     -----------
   Total purchase consideration                                 3,904          4,990          24,847

Less:

Outstanding payables from acquisition                            (903)        (1,121)         (5,371)
Consideration paid for shares in previous periods                 (41)             -          (1,678)
Cash and cash equivalents in subsidiaries acquired               (151)          (130)           (655)
                                                             -----------    -----------     -----------
    Cash outflow on acquisition from entities under
       common control                                           2,809          3,739          17,143
                                                             ===========    ===========     ===========

*    Shares acquired in previous periods have been accounted for as available
     for sale financial assets in 2002.


                                      F-23



During 2003 CEZ purchased further minority shares in 3 of the REAS from various
third parties. These subsequent acquisitions have been recorded using the
purchase method of accounting. CEZ has recorded its share of the fair value of
the net assets acquired and based on the valuation of assets and liabilities no
goodwill or negative goodwill was recognized in these transactions. The
following table summarizes the critical terms of the subsequent acquisitions of
minority shares in REAS during 2003 (in CZK millions):


                                                            Group STE      Group VCE       Group ZCE      REAS total
                                                            ----------    ------------    -----------   ------------

Shares acquired in 2003 from third parties                       39.4%         48.76%          48.87%

Share of fair value of net assets acquired                      2,578          3,799           4,854         11,231
Goodwill (negative goodwill)                                        -              -               -              -
                                                            ----------    ------------    -----------   ------------
    Total purchase consideration paid to third parties          2,578          3,799           4,854         11,231
                                                            ==========    ============    ===========   ============



The following table summarizes the cash outflows on acquisitions of subsidiaries
during 2003 (in CZK millions):

Cash outflows on acquisition from entities under common
    control                                                    17,143
Cash outflows on acquisitions from third parties               11,231
                                                             ----------

    Total cash outflows on acquisitions in 2003                28,374
                                                             ==========


From the date of acquisition, the REAS companies and their subsidiaries have
contributed the following balances to the Group's income statement for the year
2003 (in CZK millions):


                                                            Group SCE      Group SME       Group STE
                                                            ----------    ------------    -----------

Revenues                                                        8,055         10,900           7,829
Income before other expense (income) and income taxes             725            520             138
Net income                                                        238            286             256



                                                            Group VCE      Group ZCE      Total REAS
                                                            ----------    ------------    -----------
Revenues                                                        7,922          5,388          40,094
Income before other expense (income) and income taxes             193            166           1,742
Net income                                                        183             34             997


                                      F-24



7.   Investments in Subsidiaries and Associates

The consolidated financial statements include the financial statements of CEZ,
a. s., and the subsidiaries and associates listed in the following table:

                                                                      % equity     % voting        % equity
                                           Country of                 interest     interest        interest
Subsidiaries                             incorporation                  2003         2003            2002
---------------------------            ------------------          -------------  ------------   ------------
Zapadoceska energetika, a.s.              Czech Republic                 99.1%          99.1%            -
Vychodoceska energetika, a.s.             Czech Republic                 98.8%          98.8%            -
Stredoceska energeticka a.s.              Czech Republic                 97.7%          97.7%            -
Severomoravska energetika, a.s.           Czech Republic                 59.1%          59.1%            -
Severoceska energetika, a.s.              Czech Republic                 51.0%          51.0%            -
CEZ FINANCE B. V. *                       the Netherlands               100.0%         100.0%       100.0%
CEZnet, a.s. *                            Czech Republic                100.0%         100.0%       100.0%
Energeticke opravny, a.s. *               Czech Republic                100.0%         100.0%       100.0%
HYDROCEZ, a.s. *                          Czech Republic                100.0%         100.0%       100.0%
I & C Energo s.r.o. *                     Czech Republic                100.0%         100.0%       100.0%
rpg Energiehandel GmbH*                   Germany                       100.0%         100.0%       100.0%
EN-DATA a.s.                              Czech Republic                 99.1%         100.0%            -
VCE - elektrarny, s.r.o.                  Czech Republic                 98.8%         100.0%            -
VCE - montaze, a.s.                       Czech Republic                 98.8%         100.0%            -
STE - obchodni sluzby spol. s r.o.        Czech Republic                 74.4%          76.2%            -
Energetika Vitkovice, a.s.                Czech Republic                 59.1%         100.0%            -
ePRIM, a.s.                               Czech Republic                 59.1%         100.0%            -
MSEM, a.s.                                Czech Republic                 59.1%         100.0%            -
STMEM, a.s.                               Czech Republic                 59.1%         100.0%            -
Union Leasing, a.s.                       Czech Republic                 59.1%         100.0%            -
Prvni energeticka, a.s.                   Czech Republic                 53.0%          62.0%            -
Ustav jaderneho vyzkumu Rez a.s.*         Czech Republic                 52.5%          52.5%        52.5%


                                                                      % equity     % voting        % equity
                                           Country of                 interest     interest        interest
Associates                               incorporation                  2003         2003            2002
---------------------------            ------------------          -------------  ------------   ------------

CEPS, a.s.**                              Czech Republic                 34.0%            34.0%      100.0%
AB Michle s.r.o.*                         Czech Republic                 99.9%            50.0%       99.9%
KOTOUC STRAMBERK, spol. s r.o.*           Czech Republic                 64.9%            50.0%       64.8%
LOMY MORINA spol. s r.o.*                 Czech Republic                 51.0%            50.0%       51.0%
Plzenska energetika a.s.                  Czech Republic                 49.6%            50.0%           -
KNAUF POCERADY, spol. s r.o.*             Czech Republic                 40.0%            50.0%       40.0%
Severoceske doly a.s.                     Czech Republic                 37.2%            37.2%       37.2%
SKODA PRAHA a.s.*                         Czech Republic                 29.8%            29.8%       29.8%
Aliatel, a.s.                             Czech Republic                 21.1%            30.0%           -
Coal Energy, a.s.*                        Czech Republic                 20.0%            20.0%       20.0%



*    These subsidiaries and associates have not been consolidated in 2002. The
     effect of the first-time consolidation in 2003 was included in equity as an
     adjustment of the opening balance of retained earnings.
**   CEPS was in 2002 a subsidiary of CEZ.


                                      F-25



8.   Cash and Cash Equivalents

The composition of cash and cash equivalents at December 31, 2003 and 2002 is as
follows (in CZK millions):

                                                         2003          2002
                                                     ----------     ----------
Cash on hand and current accounts with banks            1,264            356
Short-term bank notes                                   2,501          3,520
Term deposits                                             249            349
                                                     ----------     ----------
   Total                                                4,014          4,225
                                                     ==========     ==========

At December 31, 2003 and 2002, cash and cash equivalents included foreign
currency deposits of CZK 866 million and CZK 1,045 million, respectively.

The weighted average interest rate on short-term bank notes and term deposits at
December 31, 2003 and 2002 was 1.7% and 2.6%, respectively. For the years 2003
and 2002 the weighted average interest rate was 1.9% and 3.0%, respectively.


9.   Receivables, Net

The composition of receivables, net, at December 31, 2003 and 2002 is as follows
(in CZK millions):

                                                        2003            2002
                                                     ----------     ----------
Trade receivables                                       9,112          4,297
Other receivables                                          63            471
Other taxes and fees                                      205              -
Less allowance for doubtful receivables                (2,317)          (728)
                                                     ----------     ----------
   Total                                                7,063          4,040
                                                     ==========     ==========

At December 31, 2003 and 2002, the total receivables included receivables from
associates in the net amount of CZK 1,113 million and CZK 341 million,
respectively.


10.  Other Current Assets

The composition of other current assets at December 31, 2003 and 2002 is as
follows (in CZK millions):

                                                        2003            2002
                                                     ----------     ----------
Securities held for trading                            1,756              -
Debt securities held to maturity                       1,476              -
Advances granted                                         360            160
Prepayments                                              477            261
Derivatives                                              230          1,496
                                                     ----------     ----------
   Total                                               4,299          1,917
                                                     ==========     ==========

                                      F-26



11.  Shareholders' Equity

The Company's stated capital as of December 31, 2003 and 2002 is as follows:


                                 Number of Shares         Par Value per              Total
                                   Outstanding             Share (CZK)           (CZK millions)
                              ---------------------    ------------------       ----------------
                                                             2003
                              ------------------------------------------------------------------
Registered shares                    592,210,843              100                    59,221
Treasury shares                         (745,000)             100                      (69)
                              ---------------------                             ----------------
   Total                             591,465,843                                     59,152
                              =====================                             ================
                                                             2002
                              ------------------------------------------------------------------
Registered shares                    592,210,843              100                    59,221
Treasury shares                       (1,935,000)             100                     (180)
                              ---------------------                             ----------------
   Total                             590,275,843                                     59,041
                              =====================                             ================


In October 2002 these treasury shares were sold. In December 2002 the Company
acquired another 1,950,000 treasury shares and at the same time sold 15,000
treasury shares. During 2003 the Company sold further 1,190,000 treasury shares.
The remaining 745,000 treasury shares are reflected in the balance sheet at cost
as a deduction from stated capital. The profit on sale of treasury shares was
included in retained earnings.

In accordance with Czech regulations, joint stock companies are required to
establish an undistributable reserve fund for contingencies against possible
future losses and other events. Contributions must be a minimum of 20% of
after-tax profit in the first year in which profits are made and 5% of profit
each year thereafter, until the fund reaches at least 20% of capital. The fund
can only be used to offset losses. As of December 31, 2003 and 2002, the balance
was CZK 9,185 million and CZK 8,872 million, respectively, and is reported as a
component of retained earnings.


                                      F-27


12.  Long-term Debt

Long-term debt at December 31, 2003 and 2002 is as follows (in CZK millions):

                                                          2003           2002
                                                      ------------  ------------

7.125% Notes, due 2007                                    4,545          5,336
7.25% Eurobonds, due 2006                                 6,467          6,299
8.75% Debentures, due 2004                                3,000          2,995
9.22% Zero Coupon Debentures, due 2009 1)                 3,057          2,832
9.22% Debentures, due 2014 2)                             2,494          2,493
11.0625% Debentures, due 2008                                 -          2,987
3.35 % Debentures, due 2008                               2,987              -
6M PRIBOR + 1,3 %, due 2005                                 500              -
6M PRIBOR + 0,4 %, due 2005                               1,000              -


Long-term bank loans:
   less than 2.00%                                        4,852             55
   2.00% to 2.99%                                         2,787          9,127
   3.00% to 3.99%                                           286          2,506
   4.00% to 4.99%                                             -             13
   5.00% to 5.99%                                         2,365          1,010
   6.00% to 6.99%                                           382          2,589
   7.00% to 7.99%                                         1,241          1,712
   8.00% and more                                           693             10
                                                      ------------  ------------
   Total long-term debt                                  36,656         39,964
Less: Current portion                                    (5,691)        (4,235)
                                                      ------------  ------------
   Long-term debt, net of current portion                30,965         35,729
                                                      ============  ============

1) Nominal value of these zero coupon debentures is CZK 4,500 million
2) From 2006 the interest rate changes to consumer price index plus 4.2%.

The interest rates indicated above are historical rates for fixed rate debt and
current market rates for floating rate debt. The actual interest payments are
affected by interest rate risk hedging carried out by the Group. For fair values
of interest rate hedging instruments see Note 13.

The future maturities of long-term debt are as follows (in CZK millions):

2004                                               5,691
2005                                               3,696
2006                                               8,464
2007                                               7,012
2008                                               3,769
Thereafter                                         8,024
                                                ------------
   Total long-term debt                           36,656
                                                ============


                                      F-28



The following table analyses the long-term debt at December 31, 2003 and 2002-
by currency (in millions):

                                 2003                         2002
                      -------------------------- ------------------------------
                       Foreign                        Foreign
                       currency         CZK          currency         CZK
                      ----------- ------------- --------------- ---------------
USD                      454          11,637             502         15,111
EUR                      258           8,360             296          9,325
CZK                        -          16,659               -         15,528
                                 -------------                  ---------------
Total long-term debt                  36,656                         39,964
                                 =============                  ===============


In the normal course of business, the financial position of the Group is
routinely subjected to a variety of risks, including market risk associated with
interest rate movements and with currency rate movements on non-Czech crown
denominated liabilities. The Group regularly assesses these risks and has
established policies and business practices to partially protect against the
adverse effects of these and other potential exposures.

As currency rate movements expose the Group to significant risk, the Group uses
sensitivity analyses to determine the impacts that market risk exposures may
have on the fair values of the Group's financial instruments. To perform
sensitivity analyses, the Group assesses the risk of loss in fair values from
the impact of hypothetical changes in foreign currency exchange rates and
interest rates on market sensitive instruments and considers the expected costs
and benefits of various hedging techniques. The Group will continue to explore
cost-effective possibilities to reduce its current exchange rate movement and
other market risks.

The Company has entered into a number of currency swap contracts to hedge its
long-term debt against currency risk (see Note 13). Although these swaps
represent effective economic hedges of the currency risk, the Company elected
not to apply hedge accounting for these transactions.

Long-term debt with floating interest rates exposes the Group to interest rate
risk. The following table summarizes long-term debt with floating rates of
interest by contractual reprising dates at December 31, 2003 and 2002 (in CZK
millions):

                                                           2003           2002
                                                       ------------   ----------
Floating rate long-term debt
   with interest rate fixed for 1 month                    1,818           2,354
   with interest rate fixed from 1 to 3 months             5,701           6,941
   with interest rate fixed from 3 months to 1 year        1,840           4,517
   with interest rate fixed for more than 1 year           2,494           2,493
                                                       ------------   ----------
Total floating rate long-term debt                        11,853          16,305

Fixed rate long-term debt                                 24,803          23,659
                                                       ------------   ----------
   Total long-term debt                                   36,656          39,964
                                                       ============   ==========


                                      F-29



13. Fair Value of Financial Instruments

Fair value is defined as the amount at which the instrument could be exchanged
in a current transaction between knowledgeable willing parties in an arm's
length transaction, other than in a forced or liquidation sale. Fair values are
obtained from quoted market prices, discounted cash flow models and option
pricing models, as appropriate.

The following methods and assumptions are used to estimate the fair value of
each class of financial instruments:

Cash and cash equivalents, current investments

The carrying amount of cash and other current financial assets approximates fair
value due to the relatively short-term maturity of these financial instruments.


Investments
The fair values of instruments, which are publicly traded on active markets, are
estimated based on quoted market prices. The management believes that for
instruments for which there are no quoted market prices the carrying amount
approximates the fair value of such investments.


Receivables and Payables

The carrying amount of receivables and payables approximates fair value due to
the short-term maturity of these financial instruments.


Short-term loans

The carrying amount approximates fair value because of the short period to
maturity of those instruments.


Long-term debt

The fair value of long-term debt is based on the quoted market price for the
same or similar issues or on the current rates available for debt with the same
maturity profile. The carrying amount of long-term debt and other payables with
variable interest rates approximates their fair values.


Derivatives

The fair value of derivatives is based upon mark to market valuations.


                                      F-30



Carrying amounts and the estimated fair values of financial instruments at
December 31, 2003 and 2002 were as follows (in CZK millions):

                                                     2003                       2002
                                            -----------------------    -----------------------
                                            Carrying                   Carrying
                                             amount      Fair value     amount      Fair value
                                            ---------    ----------    --------     ----------
Assets:

   Investments                                10,999        10,999         5,880        5,880
   Receivables                                 7,063         7,063         4,040        4,040
   Cash and cash equivalents                   4,014         4,014         4,225        4,225

Liabilities:

   Long-term debt                            (36,656)      (39,626)      (39,964)     (42,726)
   Short-term loans                           (2,320)       (2,320)            -            -
   Accounts payable                          (17,548)      (17,548)       (5,333)      (5,333)

Derivatives:

   Receivables from derivates                    230           230         1,496        1,496
   Payables from derivates                    (3,030)       (3,030)       (3,601)      (3,601)


14.  Accumulated Provision for Nuclear Decommissioning and Fuel Storage

CEZ's nuclear plant, Dukovany, consists of four 440 MW units which were placed
into service from 1985 to 1987. CEZ finalized construction of a second nuclear
power plant, Temelin, where the second of the two 1 000 MW units started
commercial operation in April 2003. Czech Republic has enacted a Nuclear Act
("Act"), which defines certain obligations for the decontamination and
dismantling ("decommissioning") of the Company's nuclear power plants and the
final disposal of radioactive waste and spent fuel ("disposal"). The Act
requires that all nuclear parts of plant and equipment be decommissioned
following the end of the plant's operating life, currently 2027 for Dukovany and
approximately 2043 for Temelin. An updated 2003 Dukovany estimate and a 1999
Temelin decommissioning cost study estimate that nuclear decommissioning will
cost CZK 15.6 billion and CZK 10.4 billion, respectively.

Pursuant to the Act, the Ministry of Industry and Trade established the
Radioactive Waste Repository Authority ("RAWRA") as the central organizer and
operator of facilities for the final disposal of radioactive waste and spent
fuel. The RAWRA centrally organizes, supervises and is responsible for all
disposal facilities and for disposal of radioactive waste and spent fuel
therein. The activities of the RAWRA are financed through a "nuclear account"
funded by the originators of radioactive waste (such as the Company).
Contribution to the nuclear account was stated by a government resolution in
1997, at 50 CZK per MWh produced at nuclear power plants. Since October 1, 1997,
CEZ has made regular payments to the nuclear account based on its average
nuclear MWh generated during the last 5 years. From 2003 CEZ is making these
payments based on the actual quantity of electricity generated in nuclear power
plants. The originator of radioactive waste directly covers all costs associated
with interim storage of radioactive waste and spent fuel. Actual costs incurred
are charged against the accumulated provision for interim and long-term spent
fuel storage.


                                      F-31


Group has established provisions as described in Note 2.22, to recognize its
estimated liabilities for decommissioning and spent fuel storage. The following
is a summary of the provisions for the years ended December 31, 2003, 2002 and
2001 (in CZK millions):
                                                                            Accumulated provisions
                                                             ------------------------------------------------------
                                                             Nuclear          Spent fuel storage
                                                            Decommis-      ---------------------------
                                                             sioning          Interim       Long-term         Total
                                                            -----------    ------------   ------------       -------
Balance at December 31, 2001                                     5,398          2,651         13,347         21,396

  Movements during 2002
    Discount accretion                                             144             70            334            548
    Effect of inflation                                            258            126            600            984
    Provision charged to income statement                            -             82              -             82
    Effect of change in estimate credited to income
        statement (Note 2.22)                                        -            (82)             -            (82)
    Effect of change in estimate added to (deducted
        from) fixed assets (Note 2.22)                             932              -            (59)           873
    Capitalized cost of Temelin provisions                         619            254              -            873
    Current cash expenditures                                        -           (135)          (673)          (808)
                                                            -----------    ------------   ------------       -------
Balance at December 31, 2002                                     7,351          2,966         13,549         23,866

Effect of change in group structure                                142              4              -            146

Movements during 2003
    Discount accretion                                             187             74            339            600
    Effect of inflation                                            337            133            610          1,080
    Provision charged to income statement                            -            113              -            113
    Effect of change in estimate credited to income
        statement (Note 2.22)                                      902            (56)         2,527          3,373
    Effect of change in estimate added to (deducted
        from) fixed assets (Note 2.22)                            (749)             -          1,134            385
    Current cash expenditures                                        -           (103)        (1,296)        (1,399)
                                                            -----------    ------------   ------------       -------
Balance at December 31, 2003                                     8,170          3,131         16,863         28,164
                                                            ===========    ============   ============       =======

The current cash expenditures for the long-term storage of spent nuclear fuel
represent payments to the state controlled nuclear account and the expenditures
for interim storage represent mainly the purchase of interim fuel storage
containers.

The actual decommissioning and spent fuel storage costs could vary substantially
from the above estimates because of new regulatory requirements, changes in
technology, increased costs of labor, materials, and equipment and/or the actual
time required to complete all decommissioning, disposal and storage activities.


                                      F-32


15.  Short-term Loans

Short-term loans at December 31, 2003 and 2002 are as follows (in CZK millions):

                                                        2003             2002
                                                       ------           ------
Bank overdrafts                                            17               -
Short-term bank loans                                   2,295               -
Other short-term notes payable                              8               -
                                                       ------           ------
   Total                                                2,320               -
                                                       ======           ======

Interest on short-term loans is variable. The weighted average interest rate was
2.1% at December 31, 2003. For the years 2003 and 2002 the weighted average
interest rate was 2.2% and 3.0%, respectively.

16.  Finance Leases

Future minimum lease payments under finance leases together with the present
value of the net minimum lease payments are as follows (in CZK millions):

                                                        2003             2002
                                                       ------           ------
Within one year                                           31               -
After one year but not more than five years               25               -
More than five years                                       -               -
                                                       ------           ------
   Total minimum lease payments                           56

Future finance charges on finance leases                  (6)              -
                                                       ------           ------
   Present value of finance lease liabilities             50               -
                                                       ======           ======

17.  Trade and Other Payables

Trade and other payables at December 31, 2003 and 2002 are as follows (in CZK
millions):

                                                        2003           2002
                                                       ------         ------
Advances received from retailers                       15,855               -
Unbilled revenues                                     (12,962)              -
                                                      --------        -------
   Advances received from retailers, net                2,893               -

Related party payables from purchase of REAS            7,470               -
Trade payables                                          6,251           4,999
Other payables                                            933             334
Derivatives                                             3,031           3,601
                                                      --------        -------
   Total                                               20,578           8,934
                                                      ========        =======

At December 31, 2003 and 2002, the total payables included payables from
associates in the amount of CZK 1,192 million and CZK 709 million, respectively.


                                      F-33


18.  Accrued Liabilities

Accrued liabilities at December 31, 2003 and 2002 consist of the following (in
CZK millions):

                                                        2003           2002
                                                       ------         ------
Accrued interest                                         805           951
Provision for ash storage reclamation                    451           432
Estimated environmental claims (Note 27)                 200           220
Other provisions                                       2,160             -
Social and bonus funds                                   254           167
Unbilled goods and services                              546           186
Deferred income                                        5,284            12
Other taxes and fees                                     864           261
                                                     --------        -------
   Total                                              10,564         2,229
                                                     ========        =======
19.  Sales of Electricity

The composition of sales of electricity at December 31, 2003, 2002 and 2001 is
as follows (in CZK millions):

                                                                    2003          2002           2001
                                                                 ---------     ---------       ---------
Sales to distribution companies                                     19,843        39,230         46,087
Sales to end customer through distribution grid                     36,590             -              -
Exports of electricity                                              12,664         9,565          7,524
Energy trading outside the Czech republic                              632           578              4
Sales to traders                                                     1,592         2,010              -
Revenues capitalized during construction                                 -        (1,373)          (922)
Other domestic sales of electricity                                  3,893         2,928            607
Sales of ancillary services                                          4,334             -              -
                                                                 ---------     ---------       ---------
   Total                                                            79,548        52,938         53,300
                                                                 =========     =========       =========

20.  Other Operating Expenses

Other operating expenses (income), net, for the year ended December31, 2003,
2002 and 2001 consist of the following (in CZK millions):

                                                                   2003           2002          2001
                                                                 --------     ----------     -------
Services                                                          4,411          3,199         2,872
Costs of ash storage, air and water pollution and
    environmental claims                                            285            365           328
Loss (gain) on sale of property, plant and equipment               (326)            20            52
Loss (gain) on sale of material                                      73            136           381
Capitalization of expenses to the cost of fixed assets           (1,889)          (437)         (430)
Fines and penalties revenue                                         (57)          (260)         (871)
Provisions and valuation allowances                               2,003            (19)          320
Nuclear provisions                                                3,373            (82)         (231)
Other, net                                                          535            (80)          708
                                                                 ------        --------       ------
   Total                                                          8,408          2,842         3,129
                                                                 ======        ========       ======


                                      F-34


21.  Income Taxes

Income Tax Legislation

Corporate income tax is calculated in accordance with Czech tax regulations at
the rate of 31% in 2003, 2002 and 2001. The corporate income tax rate for 2004
will be 28%.

The Czech Republic currently has a number of laws related to various taxes
imposed by governmental authorities. Applicable taxes include value-added tax,
corporate tax, and payroll (social) taxes, together with others. Tax
declarations, together with other legal compliance areas (as examples, customs
and currency control matters) are subject to review and investigation by a
number of authorities, who are enabled by law to impose severe fines, penalties
and interest charges. Management believes that it has adequately provided for
tax liabilities in the accompanying financial statements; however, the risk
remains those relevant authorities could take differing positions with regard to
interpretive issues and the effect could be significant.


Income Tax Provision

The components of the income tax provision are as follows (in CZK millions):

                                                            2003          2002         2001
                                                            -----         ----         ----
Current income tax charge                                   1,007           450        2,047
Adjustments in respect of current income tax of
    previous periods                                           11           254           87
Deferred income taxes                                        (810)        2,671        2,035
                                                            -----         -----        -----
   Total                                                      208         3,375        4,169
                                                            =====         =====        =====

The differences between income tax expense computed at statutory rate and income
tax expense provided on earnings are as follows (in CZK millions):

                                                                   2003          2002          2001
                                                                   -----         ----         -----

Income before income taxes                                         6,659        11,796        13,292
Statutory income tax rate                                             31%           31%           31%
                                                                   -----        ------        -------
"Expected" income tax expense                                      2,064         3,657         4,121

Add (deduct) tax effect of:
    Change in tax rates                                           (1,438)            -             -
    Czech/IFRS accounting differences                                 78           282            17
    Non deductible provisions, net                                   123           (30)            4
    Investment tax relief                                         (1,010)       (1,181)          (43)
    Other non deductible (non taxable) items, net                    140          (117)           62
    Tax credits                                                     (212)         (103)          (79)
    Additional tax assessments                                        11           254            87
    Withholding tax on dividend                                       42             -             -
    Difference between carrying and tax value of financial
        asset                                                        410             -             -
    Deferred tax on undistributed profits of subsidiary                -           613             -
                                                                   -----         -----         ------
Income taxes                                                         208         3,375         4,169
                                                                   =====         =====         ======
Effective tax rate                                                     3%           29%           31%
                                                                   =====         =====         ======


                                      F-35


Deferred Income Taxes, Net

Deferred income taxes at December 31, 2003 and 2002 consist of the following (in
CZK millions):
                                                                    2003          2002
                                                                  --------      --------

Accumulated provision for nuclear decommissioning and spent
    fuel storage                                                     6,641         6,129
Foreign exchange                                                         -             -
CASTOR containers write off                                            338           367
Derivatives                                                              -             8
Other provisions                                                       885           300
Tax loss carry forwards                                                 25             -
Revaluation of financial assets                                         17             -
Other deductible differences                                           171           187
                                                                  --------      --------
    Total deferred tax assets                                        8,077         6,991
                                                                  --------      --------
Tax depreciation in excess of financial statement
    depreciation                                                    12,102         8,226
Capitalized interest                                                 5,590         6,227
Capitalized cost of provisions                                       2,253         2,683
Repairs and maintenance accrual                                        987           967
Penalty receivables                                                     71           164
Additional foreign exchange rate differences under IAS 39                -             -
Other IAS 39 differences                                                17            25
Investment in associate                                              1,490           627
Investment in subsidiary                                                 -           613
                                                                  --------      --------
    Total deferred tax liabilities                                  22,510        19,532
                                                                  --------      --------
    Total deferred tax liabilities, net                             14,433        12,541
                                                                  ========      ========

22.  Other Expenses (Income), Net

Other expenses, net, for the year ended December 31, 2003, 2002 and 2001 consist
of the following (in CZK millions):
                                                        2003          2002         2001
                                                        -----        ------        -----

Derivative losses (gains), net                          1,157         1,643        1,720
Loss (gain) on sale of financial investments                9          (385)           3
Other, net                                               (422)           72           51
                                                        -----         -----        -----
   Total                                                  744         1,330        1,774
                                                        =====         =====        =====


                                      F-36


23.  Related Parties

The Company purchases products from related parties in the ordinary course of
business. Approximately 60% of the brown coal consumption is supplied by
Severoceske doly a.s. (SD), a company in which CEZ holds a 37.2 % share. In 2003
and 2002, coal purchases from SD amounted to CZK 5,177 million and CZK 4,921
million, respectively. Receivables from SD amounted to CZK 10 million and CZK 11
million as of December 31, 2003 and 2002, respectively. Payables to SD amounted
to CZK 508 million and CZK 560 million as of December 31, 2003 and 2002,
respectively. The prices of fossil fuel supplies from SD do not differ
significantly from market prices.

SKODA PRAHA a.s. is the Company's general supplier of technology and equipment
for the Temelin nuclear power plant and is 55 % owned by the National Property
Fund. In February and July 1999, the Company purchased 166,122 shares of SKODA
PRAHA a.s. which represents a 29.8 % interest in the company. During 2003 CEZ
subscribed 700,000 share of SKODA PRAHA a.s. with total nominal value of CZK 700
million. Subscribed shares were settled by offset with receivables of CEZ, a.
s., in the same amount. As of December 31, 2003, the increase of the share
capital was not registered. The Company's purchases from SKODA PRAHA a.s.
including value added tax, amounted to CZK 1,612 million and CZK 3,461 million
in 2003 and 2002, respectively. The purchases from SKODA PRAHA a.s. are mainly
for construction of Temelin nuclear power plant.

During 2003 and 2002 the Company granted share options to the Board of
Directors, certain members of the management of the Company and Supervisory
Board members. The following table shows changes during 2003 and 2002 in the
number of granted share options and the weighted average exercise price of these
options:

                                                               Weighted average
                                               Number of       exercise price
                                             share options     (CZK per share)
                                             -------------     ----------------
Share options at December 31, 2001               3,375,000                92.58

    Options granted                                 30,000                73.30
    Options exercised                              (30,000)               79.38
    Options forfeited                             (300,000)               96.39
                                             --------------
Share options at December 31, 2002               3,075,000                92.15

    Options granted                              1,650,000               105.23
    Options exercised                           (1,190,000)               89.65
    Options forfeited                             (285,000)               87.83
                                             --------------
Share options at December 31, 2003               3,250,000               100.95
                                             ==============

At December 31, 2003, the aggregate number of share options granted to members
of Board of Directors was 500,000 and the number of share options granted to
Supervisory Board members was 2,750,000. The options granted do not have any
vesting period and can be exercised during the terms of office of the respective
Board members and in further 3 months after the end of such period. The exercise
price for the granted options was based on the average quoted market price on
the Prague stock exchange in the six-month period preceding the date of the
grant. In 2003 the Company has recognized compensation expense of CZK 2 million
related to the granted options (see Note 2.25). No expense was recognized in
2002. The Company has settled options exercised during 2003 and 2002 using
treasury shares. The gain on the sale of treasury shares was recognized directly
in equity.


                                      F-37


24.  Segment Information

Until April 1, 2003 CEZ has reported two distinguishable segments - generation
and transmission, whose operations were accounted as separate businesses. On
April 1, 2003 CEZ has sold majority share in its transmission subsidiary CEPS,
a. s. (CEPS) and at the same moment CEZ has acquired majority shares in 5
electricity distribution companies REAS (see Note 1). Following this transaction
CEZ has modified its reporting of business segments by including new
distribution segment, which is formed by the 5 majority owned REAS companies.

The accounting policies of the segments are the same as those described in Note
2. The Group accounts for intersegment revenues and transfers as if the revenues
or transfers were to third parties, that is, at current market prices or where
the regulation applies at regulated prices. The Group evaluates the performance
of its segments and allocates resources to them based on operating income.

The following table summarizes segment information for the years ended December
31, 2003, 2002 and 2001, respectively (in CZK millions):

Year 2003:
                                   Power
                                 Production   Transmission   Distribution      Other     Combined    Elimination  Consolidated
                                 ----------   ------------   ------------      -----     --------    -----------  ------------
Sales other than intersegment
   sales                             40,636         3,569       38,212         2,399       84,816             -        84,816
Intersegment sales                   14,952           152          819         2,590       18,513       (18,513)            -
                                   --------     ----------     --------        -----     --------      ---------     ---------
Total revenues                       55,588         3,721       39,031         4,989      103,329       (18,513)       84,816

Operating income                      4,698           757        1,678           111        7,244           256         7,500

Identifiable assets                 185,508             -       44,362         2,714      232,584           (67)      232,517
Identifiable liabilities             85,076             -       15,965         2,772      103,813        (1,972)      101,841
Investment in associate               6,791         2,924            -         1,284       10,999             -        10,999

Income (share of loss) from
   associate                            531           630            -           (98)       1,063             -         1,063
Depreciation and amortization        14,173           476        2,962           256       17,867          (256)       17,611
Change in provisions and
   allowances                         5,767             4          903          (936)       5,738          (915)        4,823



Year 2002:
                                                  Power
                                                Production     Transmission     Combined      Elimination    Consolidated
                                               ------------   --------------   ----------    -------------  -------------

Sales other than intersegment sales                  43,651         11,927          55,578              -          55,578
Intersegment sales                                    6,235            441           6,676         (6,676)              -
                                                 ----------         ------          ------         -------        -------
Total revenues                                       49,886         12,368          62,254         (6,676)         55,578

Operating income                                      9,570            661          10,231          1,023          11,254

Identifiable assets                                 195,747         17,899         213,646        (10,219)        203,427
Identifiable liabilities                             74,462          3,704          78,166         (2,917)         75,249
Investment in associate                               5,880              -           5,880              -           5,880

Income from associate                                   497              -             497              -             497
Depreciation and amortization                        10,869          1,865          12,734         (1,013)         11,721
Change in provisions and allowances                    (696)             2            (694)             -            (694)


                                      F-38


Year 2001:
                                                  Power
                                               Production     Transmission     Combined      Elimination    Consolidated
                                               ------------   ------------    ----------    -------------  --------------
Sales other than intersegment sales                  44,735         11,320          56,055              -          56,055
Intersegment sales                                    7,193          1,106           8,299         (8,299)              -
                                               ------------   ------------    ------------- -------------- --------------
Total revenues                                       51,928         12,426          64,354         (8,299)         56,055

Operating income                                     13,042            524          13,566          1,112          14,678

Identifiable assets                                 197,444         19,323         216,767        (11,233)        205,534
Identifiable liabilities                             81,689          4,431          86,120         (3,689)         82,431
Investment in associate                               5,518              -           5,518              -           5,518

Income from associate                                   360              -             360              -             360
Depreciation and amortization                         8,584          1,882          10,466         (1,100)          9,366

Cash flow information:

Cash flow from operating activities                  20,055          2,066          22,121           (359)         21,762
Cash flow from investing activities                 (15,181)          (762)        (15,943)             -         (15,943)
Cash flow from financing activities                  (6,372)          (359)         (6,731)           359          (6,372)


The power generation segment sells the major part of its electricity generated
to the eight REAS. The power generation segment charges the cost of power losses
in the transmission grid and the supplies of ancillary services to the
transmission segment. The transmission segment sells ancillary services and
transmission services mainly to the eight REAS.

Prices in certain intersegment transactions are regulated by the Energy
Regulatory Office (see Note 1).

25.  Discontinuing Operation

On March 11, 2002 the Government decided to purchase from CEZ a 66% share in its
transmission subsidiary CEPS. General meeting of CEZ's shareholders held on June
11, 2002, has confirmed the above mentioned decision of the Government. This
transaction was carried out on April 1, 2003. Based on the decision of Economic
Competition Protection Authority CEZ has to also sell its remaining equity share
in CEPS in the future.

The purchase of CEPS shares was made by OSINEK, a.s., a company controlled by
the National Property Fund, and the Ministry of Labor and Social Affairs. Based
on the fact that the transaction was carried out between parties under common
control of CEZ's ultimate parent, CEZ has recorded the net gain on the sale
directly in equity. The composition of the amount recorded in equity in 2003 is
as follows (in CZK millions):

Total selling price                                       15,224
Book value of shares sold                                 (4,453)
Current income tax related to the sale                    (4,152)
Deferred tax related to the sale                             543
                                                          -------
   Effect of sale recognized in equity                     7,162
                                                          =======

The operations of CEPS were reported in the transmission segment (see Note 24).


                                      F-39


The carrying amounts of total assets and total liabilities attributable to the
discontinuing operation at December 31, 2003 and 2002 are as follows (in CZK
millions):

                                                      2003          2002
                                                     ------       ------
Total asset                                           2,924*        5,542
Total liabilities                                         -        (1,536)
                                                      -----        -------
   Total net assets to be disposed off                2,924         4,006
                                                      =====        =======

* The amount represents investment in associate only.

The amounts shown above do not include the deferred tax liability from
consolidation of undistributed retained earnings of CEPS. This deferred tax
liability has decreased as result of the partial disposal of CEPS and has
affected the income tax expense on the transaction.

The following items of income, expenses and cash flows can be attributed to the
discontinuing operation (in CZK millions):

                                              2003         2002          2001
                                             -----         -----        ------
Total revenues                               2,023         5,692        4,127
Operating profit                             1,013         1,684        1,636
Income from associate                          630             -            -
Income before income taxes                   1,609         1,531        1,424
Income tax expense                             302           470          436

Cash flow from operating activities          1,055         1,460        1,707
Cash flow from investing activities           (113)         (477)        (762)
Cash flow from financing activities              -             -            -

The income tax expense shown above does not include deferred tax from
consolidation of undistributed retained earnings of CEPS.

26.  Net Income per Share

                                                    2003         2002          2001
                                                 -------      --------    ---------
Numerator - basic and diluted (CZK millions)
        Net income                                 5,932         8,421        9,123
                                                 =======      ========    =========
Denominator (thousands shares)
    Basic:
        Weighted average shares outstanding      590,772       590,363      591,926

        Dilutive effect of treasury shares         1,439         1,787          162
                                                 -------      --------    ---------
    Diluted:
        Adjusted weighted average shares         592,211       592,150      592,088
                                                 =======      ========    =========


                                      F-40


27.  Commitment and Contingencies

Investment Program

The CEZ, a.s. is engaged in a continuous construction program, currently
estimated as of December 31, 2003 to total CZK 51,3 billion over the next five
years, as follows: CZK 9.5 billions in 2004, CZK 10.7 billions in 2005, CZK 10.6
billions in 2006, CZK 10.6 billions in 2007 and CZK 9.9 billions 2008. These
figures do not include the expected acquisitions of subsidiaries and associates,
which are estimated at CZK 43.6 billions in the period 2004 through 2008 The
construction programs are subject to periodic reviews and actual construction
may vary from the above estimates. At December 31, 2003 significant purchase
commitments were outstanding in connection with the construction program.

The Company currently projects that its planned construction expenditures will
be funded mainly with cash provided by operating activities. CEZ currently
prepares new issue of Eurobonds in the total amount of EUR 200 - 400 million to
cover the potential cash requirements of its foreign acquisitions. To the extent
financing is required, the Company has obtained the following credit ratings
from Moody's Investors Service: Baa1 and Standard & Poor's: BBB+, both with a
stable outlook.


Environmental Matters

The Company is also liable under the environmental acts and laws and regulations
("the Acts") for past environmental damage (see Note 18). In 2003 and 2002,
payments made to state farms, individual farms, cooperatives, other agricultural
firms and forests totaled CZK 6 million and CZK 9 million, respectively. Based
on current estimates of its probable future obligations, the Company provided
CZK 40 million in 2003 and CZK 47 million in 2002, respectively, for pollution
damages. In 2003 and 2002 the Company further reversed CZK 54 million and CZK 72
million, respectively. Although uncertainties exist due to interpretations of
applicable laws, management does not believe, based upon the information
available at this time, that the ultimate outcome of these matters will have a
material adverse effect on the Company's financial position or results of
operations.


Insurance Matters

The Nuclear Act (see Note 14) sets limits for liabilities for nuclear damages by
the operator of nuclear installations/licenses. The Nuclear Act provides that
operators of nuclear facilities are liable for up to CZK 6 billion per incident
and that the reimbursement of such liability up to CZK 6 billion is guaranteed
by the state. The Nuclear Act limits the liability for damage caused by other
activities (such as transportation) to CZK 1.5 billion. The Nuclear Act also
requires an operator/licensee to insure its liability connected with the
operation of a nuclear power plant up to a minimum of CZK 1.5 billion and up to
a minimum of CZK 200 million for other activities (such as transportation). CEZ
has obtained all insurance policies with minimal limits as required by the law.
CEZ concluded about mentioned insurance policies with Czech nuclear pool, a
group of insurance companies.

Group companies have various insurance policies covering Directors and Officers
Liability, a property policy covering natural disaster and operational risks
associated with the operation of CEZ's fossil, hydro and nuclear power plants,
insurance policies covering other property, general third party liability
insurance in connection with electricity production, distribution and trading,
car insurance and accident insurance.


                                      F-41


28.  Presentation of Financial Statements

The accompanying consolidated financial statements are presented on the basis of
International Financial Reporting Standards and Interpretations issued by the
International Accounting Standards Board. Certain accounting principles
generally accepted in the Czech Republic (CAS) do not conform to IFRS used in
preparing the accompanying consolidated financial statements. A description of
the significant adjustments required to conform the Company's statutory balances
to consolidated financial statements prepared in accordance with IFRS is set
forth in the following tables.

The effect on retained earnings and other reserves of differences in IFRS and
CAS is as follows (in CZK millions):

                                                                                 December 31,
                                                                          --------------------------
                                                                              2003           2002
                                                                          -------------  -----------

Balance per CAS (standalone)                                                  79,863          69,154

Impact of consolidation                                                         (635)          2,933
                                                                          -------------  -----------
Balance per CAS                                                               79,228          72,087

Accumulated provision for nuclear decommissioning and spent fuel
    storage (Note 14)                                                        (14,415)         (9,715)
Capitalized costs of nuclear provisions                                        8,046           6,910
CASTOR containers write-off                                                   (1,209)         (1,183)
Deferred tax on nuclear provisions, capitalized costs of nuclear
    provisions and CASTOR containers write-off, net                            2,113           1,236
Reversal of repairs and maintenance accrual, net of deferred tax               2,545           2,152
Impact of CAS/IFRS accounting differences on the associate, net of
    deferred tax                                                                (247)           (171)
Interest capitalized, net of deferred tax                                     16,829          15,482
Depreciation of interest capitalized, net of deferred tax                     (2,455)         (1,620)
Grants received, net of deferred tax                                            (670)           (416)
Gain (loss) on derivatives, net of deferred tax                                    -             (17)
Additional foreign exchange rate differences under IAS 39, net of
    deferred tax                                                                   -               -
Other IAS 39 differences                                                          43              57
Electrometers, net of deferred tax                                               970               -
Finance leases - lessee, net of deferred tax                                     109               -
Finance leases - lessor, net of deferred tax                                     (26)              -
Share options                                                                     18               -
Rights, net of deferred tax                                                     (116)              -
Revaluation on acquisition                                                        (5)              -
Reclassification of items from retained earnings, net                           (223)           (168)
                                                                          -------------  ------------
   Balance per IFRS                                                           90,535          84,634
                                                                          =============  ============


                                      F-42


The effect on net income of differences in IFRS and CAS is as follows (in CZK
millions):


                                                                                      Year ended December 31,
                                                                             -------------------------------------------
                                                                               2003             2002            2001
                                                                             ---------        --------        ----------
Net income per CAS (standalone)                                                 13,931          6,713           6,434

Impact of consolidation                                                          1,648            608           1,367
                                                                             ---------        --------        ----------
Net income per CAS                                                              15,579          7,321           7,801

Accumulated provision for nuclear decommissioning and spent fuel storage
    (Note 14)                                                                   (2,540)           413             452
Deferred tax on nuclear provisions                                                   -              -            (140)*
Capitalized costs of nuclear provisions                                           (994)          (261)           (132)*
CASTOR containers write-off                                                        (26)           (63)            (86)*
Deferred tax on nuclear provisions, capitalized costs of nuclear
    provisions and CASTOR containers write-off, net                                876            (28)             -*
Reversal of repairs and maintenance accrual, net of deferred tax                   179            170             252
Impact of CAS/IFRS accounting differences on the associate, net of
    deferred tax                                                                   (10)            91             (82)
Interest capitalized, net of deferred tax                                        1,348          1,405           1,650
Depreciation of interest capitalized, net of deferred tax                         (835)          (471)           (290)
Grants received, net of deferred tax                                                32             34              32
Gain (loss) on derivatives, net of deferred tax                                   (263)           431          (1,096)
Gain (loss) on embedded derivatives, net of deferred tax                             -            149             (58)
Additional foreign exchange rate differences under IAS 39, net of
    deferred tax                                                                     -           (577)            844
Other IAS 39 differences, net of deferred tax                                      (12)           (85)            127
Electrometers, net of deferred tax                                                  21              -               -
Finance leases - lessee, net of deferred tax                                         4              -               -
Finance leases - lessor, net of deferred tax                                       (26)             -               -
Share options                                                                       (2)             -               -
Rights, net of deferred tax                                                        (17)             -               -
Revaluation on acquisition                                                          (5)             -               -
Sale of subsidiary CEPS, net of tax                                             (7,162)             -               -
Deferred tax on tax loss carryforward                                                -              -             (95)
(Profit) loss on sale of treasury shares                                             5            (18)              -
Reclassification of items from retained earnings, net                             (220)           (90)            (56)
                                                                             ---------        --------        ----------
   Net income per IFRS                                                           5,932          8,421           9,123
                                                                             =========        ========        ==========

* The balances for 2001 are presented net of deferred tax and the deferred tax
on nuclear provision is presented separately.


                                      F-43


29.  Summary of Differences between Accounting Principles Adopted by CEZ and
     Generally Accepted Accounting Principles in the United States (US GAAP)

The consolidated financial statements of CEZ have been prepared in accordance
with International Financial Reporting Standards (IFRS), which differ in certain
respects from generally accepted accounting principles in the United States (US
GAAP). The significant differences are described below. Other differences do not
have a significant effect on either consolidated net income or shareholders'
equity.


Reconciliation of Consolidated Net Income and Shareholders' Equity

The effect of the significant adjustments to net income and shareholders' equity
which would be required if US GAAP were to be applied are summarized as follows
(in CZK millions):

                                                                           Year ended December 31,
                                                                  -----------------------------------------
                                                                    2003             2002             2001
                                                                  --------         --------         -------
Net income under IFRS                                               5,932            8,421            9,123


Changes in estimates of asset retirement obligations                3,428                -                -
Amortization of capitalized asset retirement costs                    671                -                -
Provision for onerous contract                                       (235)               -                -
Minority interest in reconciling items                                 44                -                -
Deferred tax effect of the reconciling items                       (1,003)               -                -
                                                                  --------         --------         -------
Net  income  under US GAAP  before  cumulative  effect  of
   accounting changes:                                              8,837            8,421            9,123
                                                                  --------         --------         -------
   Effect of SFAS No. 133 implementation                                -                -             (848)
   Deferred tax on effect SFAS No. 133 implementation                   -                -              263
                                                                  --------         --------         -------
Net income under US GAAP                                            8,837            8,421            8,538

Other comprehensive income                                          (142)               -                -
                                                                  --------         --------         -------
Total comprehensive income                                          8,695            8,421           8,538
                                                                  ========         ========         =======
Earnings per share (CZK per share):

    Income before cumulative effect of change in
       accounting policy
       Basic                                                          15.0             14.3             15.4
       Diluted                                                        14.9             14.2             15.4

    Cumulative effect of change in accounting policy
       Basic                                                           -                -               (1.0)
       Diluted                                                         -                -               (1.0)

    Net income
       Basic                                                          15.0             14.3             14.4
       Diluted                                                        14.9             14.2             14.4

Average number of shares (000's shares)
    Basic                                                        590,772          590,363          591,926
    Diluted                                                      592,211          592,150          592,088


                                      F-44


                                                                     December 31
                                                          ---------------------------------
                                                            2003        2002        2001
                                                           -------     -------     -------
Shareholders' equity under IFRS                            149,687     143,675     136,726

Changes in estimates of asset retirement obligations         3,428           -           -
Amortization of capitalized asset retirement costs             671           -           -
Provision for onerous contract                               1,251           -           -
Minority interest in reconciling items                        (458)          -           -
Deferred tax effect of the reconciling items                (1,465)          -           -
                                                           -------     -------     -------
Shareholders' equity under US GAAP                         153,114     143,675     136,726
                                                           =======     =======     =======


US GAAP Consolidated Statement of Shareholders' Equity (in millions of CZK)

                                          Number of                               Fair value
                                          Shares (in      Stated     Translation   and Other     Retained    Shareholders'
                                          thousands)     Capital      Difference   Reserves      Earnings      Equity
                                          ----------     --------    -----------  ----------     --------    -------------

December 31, 2001                            590,138       59,050             -            -       77,676       136,726

   Non-cash capital contribution                 123           12             -            -            -            12
   Net income                                      -            -             -            -        8,421         8,421
   Acquisition of treasury shares             (1,950)        (181)            -            -            -          (181)
   Sale of treasury shares                     1,965          160             -            -           17           177
   Dividends declared                              -            -             -            -       (1,480)       (1,480)
                                          ----------     --------    -----------  ----------     --------    -------------
December 31, 2002 as previously
   reported                                  590,276       59,041             -            -       84,634       143,675

   Change in accounting policy -
    effect of change in group
    structure (Note 2.4)                           -            -             -            -          609           609
                                          ----------     --------    -----------  ----------     --------    -------------
January 1, 2003, as restated                 590,276       59,041             -            -       85,243       144,284

   Net income                                      -            -             -            -        8,837         8,837
   Change in fair value of
    available-for-sale financial
    assets recognized in equity                    -            -             -         (101)           -          (101)
   Gain on sale of subsidiary CEPS,
    net of tax (Note 25)                           -            -             -            -        7,162         7,162
   Effect of acquisition of REAS on
    equity (Note 6)                                -            -             -            -       (4,501)       (4,501)
   Sale of treasury shares                     1,190          111             -            -           (5)          106
   Dividends declared                              -            -             -            -       (2,657)       (2,657)
   Returned dividends on treasury                  -
    shares                                                      -             -            -            4             4
   Share options                                   -            -             -           21            -            21
   Share on equity movements
    of associates                                  -            -             -            -          (25)          (25)
   Other movements                                 -            -             1           (1)         (16)          (16)
                                          ----------     --------    -----------  -----------    --------    -------------
December 31, 2003                            591,466       59,152             1          (81)      94,042       153,114
                                          ==========     ========    ===========  ===========    ========    =============


Dividends paid per share were CZK 4.5, CZK 2.5 and CZK 2.0 for 2003, 2002 and
2001, respectively. Dividends from 2003 profit will be declared on general
meeting, which will be held in June 2004.


                                      F-45


Changes in estimates of asset retirement obligations

Under IFRS the asset retirement obligations, which relate to nuclear power
plants ("nuclear provisions"), are estimated in similar manner to US GAAP.
However there are significant differences between the two standards regarding
the accounting treatment of the changes in estimates used for the calculation of
nuclear provisions.

Under IFRS changes in a decommissioning liability that result from a change in
the current best estimate of cash flows required to settle the obligation or a
change in the discount rate are added to (or deducted from) the amount
recognized as the related asset to the extent the change relates to future
periods. To the extent the change relates to the current or prior periods, it is
reported as income or expense for the current period. Under IFRS the
amortization of the revised capitalized asset retirement costs is calculated
retrospectively and the resulting adjustment is charged directly to statement of
income as depreciation expense.

Under US GAAP changes resulting from revisions to the timing or the amount of
the original estimate of undiscounted cash flows are recognized as an increase
or a decrease in the carrying amount of the liability for an asset retirement
obligation and the related asset retirement cost capitalized as part of the
carrying amount of the related long-lived asset. Upward revisions in the amount
of undiscounted estimated cash flows are discounted using the current
credit-adjusted risk-free rate. Downward revisions in the amount of undiscounted
estimated cash flows are discounted using the credit-adjusted risk-free rate
that existed when the original liability was recognized. Revisions to the asset
retirement obligation result in adjustments of capitalized asset retirement
costs and affect subsequent depreciation of the related asset. Such adjustments
are depreciated on a prospective basis.

Further under US GAAP according to FAS 143 the expense related to the unwinding
of the discount ("accretion expense") should be classified as an operating item
in the statement of income. Under IFRS the Company presents the accretion
expense similarly to borrowing costs as other expense.


Provision for onerous contract

Under IFRS the Group recognized a provision for onerous executory contract.
Under the definitions of IAS 37 an onerous contract is a contract in which the
unavoidable costs of meeting the obligations under the contract exceed the
economic benefits expected to be received under it. Under US GAAP, companies do
not accrue the contingent losses related to executory contracts in their balance
sheets, but rather these losses are recognized over the remaining life of the
contract when incurred. Therefore the provision, which was recognized under
IFRS, was reversed for US GAAP purposes.


Effect of SFAS No. 133 Implementation

In 2001 the Company has applied for the first time Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). In 2001 the Company applied International Accounting
Standard No. 39 "Financial Instruments: Recognition and Measurement" (IAS 39).
Although SFAS No. 133 in general requires similar accounting as IAS 39, the
transitional provisions of the two standards are different. Under SFAS No. 133
the Company is required to report the transition adjustment resulting from
adopting the statement in net income, whereas IAS 39 requires the transition
adjustment to be reported directly in equity.


                                      F-46


Other US GAAP Related Disclosures:

Associated Companies

As described in Note 7, the Company accounts for its investments in associated
companies using the equity method.

Consolidated retained earnings include undistributed earnings of associated
companies. These undistributed earnings net of deferred tax amounted to CZK
3,032 million and CZK 1,399 million as of December 31, 2003 and 2002. In 2003,
2002 and 2001, net dividends received from associated companies amounted to CZK
182 million, CZK 114 million and CZK 57 million, respectively.


Related parties

As disclosed in Note 17, the payables from purchase of REAS to National Property
Fund amount to CZK 7,470 million as of December 31, 2003. The amount is
represented by two notes payable in the amount of CZK 3,735 million each with
original maturity on June 30, 2004, and June 30, 2005. The Company agreed with
the National Property Fund to repay both notes in 2004. Both notes have an
interest rate of 3M PRIBOR + 0.3%.

At December 31, 2003 and 2002, the total payables included payables to
associates in the amount of CZK 1,192 million and CZK 709 million, respectively
(see Note 17).

As disclosed in Note 9, at December 31, 2003 and 2002, the total receivables
included receivables from associates in the net amount of CZK 1,113 million and
CZK 341 million, respectively.


Nuclear Decommissioning, Radioactive Waste and Spent Fuel Disposal Provisions

As discussed in Notes 2.22 and 14 to the consolidated financial statements in
2000 the Company adopted International Accounting Standard IAS 37 "Provisions,
Contingent Liabilities and Contingent Assets". According to the IAS 37, the
amount recognized as a provision should be the best estimate of the expenditure
required to settle the present obligation at the balance sheet date. For
calculation of these estimates in the case of nuclear provisions CEZ has
discounted expected future cash flows to their present values. The initial costs
of provisions were capitalized and are depreciated over the useful life of the
related assets (nuclear power plants). The increase of the provisions due to the
accretion of discount and effect of inflation is charged to income as a separate
component of interest expense. Under US GAAP the accretion of discount should be
presented as part of operating expenses. Changes in the provision, which result
from the consumption of nuclear fuel, are charged to income as part of the fuel
expense.

CEZ applied SFAS No. 143 "Accounting for Asset Retirement Obligations " in 2002.
The statement requires the classification of the provision as a liability on the
balance sheet using an expected cash flow approach, in which multiple cash flow
scenarios that reflect the range of possible outcomes and a credit-adjusted
risk-free rate are used to estimate fair value. Since very similar approaches
are used when calculating provision under IAS 37, there is no material
difference in calculation of the provision under US GAAP and IFRS. However as
described above, IFRS and US GAAP have significantly different accounting
treatment for changes in estimates of the nuclear provisions. This results in
different amount of capitalized costs related to nuclear provisions, different
subsequent amortization of these capitalized costs charged to income and
different amounts recorded in the statement of income as result of the changes
in estimates.


                                      F-47


Intangible assets

Aggregate amortization expenses of intangible assets were estimated for each of
the five succeeding fiscal years in million of CZK.

2004                                       581
2005                                       402
2006                                       228
2007                                        95
2008                                        10


Significant Debt Covenants

In 1992 the Company has entered into a loan agreement with the International
Bank for Reconstruction and Development. The agreement contains financial
covenants relating to capital expenditure coverage, cash flow coverage and debt
service coverage. In 2003, 2002 and 2001 the Company has complied with the
required covenants.


Stock-based Compensation

As described in Note 23, during 2003, 2002 and 2001 the Company has granted
stock options to members of the Board of Directors, Supervisory board and
certain other members of management. No options were granted in the years prior
to 2001. The Company has elected to account for employee stock options under US
GAAP in accordance with Accounting Principles Board Opinion No. 25 (APB 25)
"Accounting for Stock Issued to Employees" and related interpretations and to
furnish the pro forma disclosures required under SFAS No. 123 "Accounting for
Stock-Based Compensation".

APB 25 requires recognition of compensation expense over the period, when the
employee performs services for the Company. The expense recognized in accordance
with APB 25 is the quoted market price of the stock at the measurement date less
the amount, if any, that the employee is required to pay. The measurement date
is the first date on which are known both the number of shares that an
individual employee is entitled to receive and the exercise price payable by the
employee. In contrast, SFAS No. 123 requires recognition of compensation expense
for grants of stock options based on the estimated grant-date fair values of
those grants.

The options may be exercised immediately and at any time during the period
specified in the relevant stock option agreement, such period generally set to
correspond the term for which the member was elected or appointed to the
respective board. Accordingly, the measurement date was the grant date.


                                      F-48


In 2003, 2002 and 2001 the Company has recognized the compensation expense in
accordance with APB 25. In 2002 and 2001 the exercise price of CEZ's employee
stock options was higher than the market price of the underlying stock at the
measurement days and therefore no compensation expense was recognized in
accordance with APB 25 in these periods. Had compensation cost for management
incentive schemes been determined based on the fair value at the grant dates for
options under those schemes consistent with the method prescribed in SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below (in CZK millions, except per share data):

                                                                     2003            2002             2001
                                                                  ----------      ----------       ----------
Net income, as reported                                             8,837            8,421            8,538

    Add: Stock-based employee compensation expense
    included in reported net income, net of related tax
    effects                                                             2                -                -
    Deduct: Total stock-based employee compensation
    expense determined under fair value based method for
    all awards                                                         (2)              -*              (24)
                                                                  ----------      ----------       ----------
    Pro forma                                                       8,837            8,421            8,514
                                                                  ==========      ==========       ==========
Basic income per share (CZK per share)
    As reported                                                        15.0             14.3             14.4
    Pro forma                                                          15.0             14.3             14.4

Diluted income per share (CZK per share)
    As reported                                                        14.9             14.2             14.4
    Pro forma                                                          14.9             14.2             14.4
* The fair value of options granted in 2002 is 0.3 million CZK.

The fair value of the options is estimated on the date of grant using the
binomial option-pricing model. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

At the grant dates, the underlying assumptions and the resulting fair values per
option were as follows:

                                                                    2003             2002             2001
                                                                   ------           ------           ------
Weighted average assumptions

    Dividend yield                                                   7.6%             2.9%             2.4%
    Expected volatility                                             22.4%            40.2%            36.0%
    Risk-free interest rate                                          2.1%             2.6%             4.8%
    Expected life (years)                                            3.6              1.3              2.3

Weighted average grant-date fair value of options (CZK
   per 1 option)                                                    17.9             17.4             10.2


On December 31, 2003, 2002 and 2001, respectively, the exercise prices of
outstanding options were in the range from CZK 88.8 to CZK 128.6, from CZK 72.5
to CZK 96.4 and from CZK 86.3 to CZK 96.4 per share. On December 31, 2003, 2002
and 2001, respectively the options outstanding had an average remaining
contractual life of 1.8 years, 1.4 years and 2.0 years, respectively.

For further information on stock-based compensation see Note 23.


                                      F-49


Valuation and Qualifying Accounts  (in millions of CZK)

                                        Balance at    Acquisition                  Charges to
Provisions on assets to which          beginning of   of subsidia-    Disposal of   cost and                    Balance at
they apply:                               year          ries          subsidiary    expenses      Deductions    end of year
-----------------------------          ------------   ------------    -----------  ----------     ----------    -----------
 2002
 Nuclear provision                        21,396             -             -          3,278          (808)        23,866
 Other provisions                            649             -             -             91           (88)           652
 Provision for bad and doubtful
    debts                                    715             -             -            348          (335)           728

 2003
 Nuclear provision                        23,866           146             -          5,551        (1,399)        28,164
 Provision for onerous contract                -         1,486             -              -          (235)         1,251
 Other provisions                            652           586             -            735          (413)         1,560
 Provision for bad and doubtful
    debts                                    728         1,642            (4)         1,090        (1,124)         2,332




Discontinued Operation

The Company has classified sale of CEPS under IFRS as discontinuing operation
(see Note 25). Under US GAAP the transaction does not represent discontinued
operation, as the Company retains a 34% ownership in CEPS.


                                      F-50


Deferred Taxes

Under IFRS, the presentation of deferred taxes differs from the methodology set
forth in US GAAP. For purposes of US GAAP, deferred tax assets and liabilities
must either be classified as current on non-current based on the classification
of the related non-tax asset or liability for financial reporting. The table
presents the deferred tax assets and liabilities according to the presentation
prescribed by FAS 109 "Accounting for Income Taxes" (in millions of CZK).

                                                               2003       2002
                                                              -------    ------
Current assets:

Derivatives                                                        -          8
                                                              -------    ------
                                                                   -          8
                                                              -------    ------
Non-current assets:

Accumulated provision for nuclear decommissioning
    and spent fuel storage                                     6,641      6,129
CASTOR containers write off                                      338        367
Other provisions                                                 885        300
Tax loss carry forwards                                           25          -
Revaluation of financial assets                                   17          -
Other deductible differences                                     171        187
                                                              -------    ------
                                                               8,077      6,983
                                                              -------    ------
    Deferred tax assets                                        8,077      6,991
                                                              -------    ------
Current liabilities:

Penalty receivables                                               71        164
Additional foreign exchange rate differences under US GAAP         -          -
Other US GAAP differences                                         17         25
                                                              -------    ------
                                                                  88        189
                                                              -------    ------
Non-current liabilities:

Tax depreciation in excess of financial statement
    depreciation                                              12,102      8,226
Capitalized interest                                           5,590      6,227
Capitalized cost of provisions                                 2,253      2,683
Repairs and maintenance accrual                                  987        967
Investment in associate                                        1,490        627
Investment in subsidiary                                           -        613
                                                              -------    ------
                                                              22,422     19,343
                                                              -------    ------
Deferred tax liabilities                                      22,510     19,532
                                                              -------    ------
Total deferred tax liabilities, net                           14,433     12,541
                                                              =======    ======


                                      F-51


New pronouncements

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (FAS 150). The
statement establishes standards on how to classify and measure certain financial
instruments with characteristics of both liabilities and equity and requires
additional disclosures regarding alternative ways of settling instruments and
the capital structure of entities--all of whose shares are mandatory redeemable.
The provisions of FAS 150 were effective for all financial instruments entered
into or modified after May 31, 2003, and otherwise was effective the first
interim period beginning after June 15, 2003. However, the guidance applying to
mandatorily redeemable noncontrolling interests has been deferred. The Company
does not expect this statement to have a material impact on the financial
statements.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (FAS 149). FAS 149 generally
improves financial reporting for derivative instruments by requiring that
contracts with comparable characteristics be accounted for similarly and by
clarifying when a derivative contains a financing component that warrants
special reporting in the statement of cash flows. The guidance in SFAS 149 was
effective prospectively for contracts entered into or modified and for hedging
relationships designated after June 30, 2003. The Company has evaluated the
impact of this statement and does not expect it to have a material impact on the
financial statements.

In December 2003 the Financial Accounting Standards Board issued FASB
Interpretation No.46 R, Consolidation of Variable Interest Entities Revised. FIN
46R modifies the scope exceptions provided in FIN 46. Entities would be required
to replace FIN 46 provisions with FIN 46R provisions for all newly created
post-January 31, 2003 entities as of the end of the first interim or annual
reporting period ending after March 15, 2004. We reviewed our investment
portfolio, including associated companies, and identified no investments in
Variable Interest Entities, as defined by FIN 46.


                                      F-52


                                   SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                 CEZ, a. s.



                                 By:         /s/ MARTIN ROMAN
                                      ----------------------------------------
                                      Name:  Martin Roman
                                      Title: Chief Executive Officer and
                                             Chairman of the Board of Directors



                                 By:         /s/ DAVID SVOJITKA
                                      ----------------------------------------
                                      Name:  David Svojitka
                                      Title: Chief Financial Officer and
                                             Member of the Board of Directors



Date: June 30, 2004




                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   CEZ, a. s.

                              Exhibits to Form 20-F


1.     Articles of Association (Stanovy) of CEZ, a. s.

4.1*   Share Purchase Agreement between Fond narodniho majetku Ceske republiky
       as Seller and CEZ, a. s. as Purchaser, dated June 28, 2002

4.2*   Share Purchase Agreement between CEZ, a. s. as Seller and OSINEK, a.s. as
       Purchaser, dated June 28, 2002

4.3*   Share Purchase Agreement between Ceska konsolidacni agentura as Seller
       and CEZ, a. s. as Purchaser, dated July 22, 2002

4.4*   Share Purchase Agreement between CEZ, a. s. as Seller and Czech Republic
       - Ministry of Labor and Social Affairs as Purchaser, dated August 19,
       2002

4.5    Collective Bargaining Agreement, dated January 29, 2004

8.     List of Subsidiaries

12.1   Certification of Martin Roman, our Chief Executive Officer, pursuant to
       Section 302 of the Sarbanes- Oxley Act of 2002

12.2   Certification of David Svojitka, our Chief Financial Officer, pursuant to
       Section 302 of the Sarbanes- Oxley Act of 2002

13.**  Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
       Section 906 of the Sarbanes-Oxley Act of 2002

---------

*  This exhibit is incorporated by reference to the Exhibits filed with our
   Annual Report on Form 20-F dated June 25, 2003.

** This document is being furnished in accordance with SEC Release Nos. 33-8212
   and 34-47551.`