Management Board Report on the activity of the JSW S.A. for 2012

1.2. Changes in basic management principles in the Company and its Capital Group

Basic management principles in the Company

Pursuant to the Articles of Association of Jastrzębska Spółka Węglowa S.A., the Company’s governing bodies are:

1. the Management Board,
2. the Supervisory Board,
3. the Shareholder Meeting.

The powers of the Company’s governing bodies follow from the provisions of the Commercial Company Code and the Articles of Association of JSW S.A. The powers of the Company’s individual governing bodies are defined in:

1. of the Management Board, in the Management Board Bylaws,
2. of the Supervisory Board, in the Supervisory Board Bylaws,
3. of the Shareholder Meeting, in the Shareholder Meeting Bylaws.

The Company’s Management Board consists of three to six members. The number of members in the JSW S.A. Management Board of the 7th term of office (lasting 3 years and ending on the date of the Ordinary Shareholder Meeting approving the financial statements for the financial year 2012) was set in the Shareholder Meeting Resolution of 26 April 2010 at five members. As at 31 December 2012 and as at the date of this report, the JSW S.A. Management Board is composed of:

1. Jarosław Zagórowski – President of the Management Board,
2. Grzegorz Czornik – Vice-President for Sales,
3. Andrzej Tor – Vice-President for Technical Matters,
4. Robert Kozłowski – Vice-President for Financial Matters,
5. Artur Wojtków – Vice-President for Employment and Social Policy (elected by employees).

CVs of members of the JSW S.A. Management Board are available on the Company’s website.

The Management Board determines the strategic directions, defines goals and tasks, manages the Company directly through resolutions and decisions, and indirectly through Entity Directors, Department Directors and Proxies.

The Directors Council, composed of Directors of the Company’s Entities and other invited persons, is an opinion-making and advisory body to the Management Board.

The President of the Management Board exercises supervision over the Company’s overall operations and makes decisions not reserved for the powers of the Company’s governing bodies. The President of the Management Board also exercises direct supervision over reporting Departments, Teams and Proxies.

Vice-Presidents exercise supervision over the Company’s operations in their respective areas of activity and make decisions not reserved for the powers of the Company’s governing bodies. The Vice-Presidents of the Management Board exercise direct supervision over reporting Departments. Furthermore, the Vice-President for Financial Matters also exercises supervision over the Management Board Representative for Computerization of JSW S.A. and the Vice-President for Technical Matters also exercises substantive supervision over the Health and Safety at Work Team.

The division of powers between the distinct members of the Management Board ensures effective operation of the Company, and the Organizational Bylaws of JSW S.A., the Organizational Bylaws of the Management Board Office and the Organizational Bylaws of the Company’s Mines adopted by the Management Board ensure the effective performance of tasks assigned by the Management Board.

Pursuant to the Articles of Association of JSW S.A., the Supervisory Board consists of at least 9 members appointed by the Shareholder Meeting. On 27 February 2012, the Shareholder Meeting set the number of Supervisory Board members of the 8th term of office (lasting 3 years) at 12. As at 31 December 2012, the composition of the Supervisory Board was as follows:

1. Józef Myrczek – Chairman,
2. Antoni Malinowski – Deputy Chairman,
3. Eugeniusz Baron – Secretary,
4. Stanisław Kluza – Member,
5. Robert Kudelski – Member,
6. Tomasz Kusio – Member,
7. Alojzy Nowak – Member,
8. Andrzej Palarczyk – Member,
9. Łukasz Rozdeiczer-Kryszkowski – Member,
10. Adam Rybaniec – Member,
11. Adam Wałach – Member.

On 19 February 2013, the Minister of Economy, pursuant to § 15 sec. 12 and 13 of the Company’s Articles of Association, appointed Mr. Andrzej Karbownik to the Supervisory Board of the 8th term of office.

The powers and authority of the Supervisory Board have been described in Item 5.8 of this report.

CVs of members of the JSW S.A. Supervisory Board are available on the Company’s website.

Changes to the management principles in the Company

Changes in the organizational structure of the JSW S.A. Management Board Office

To improve management in the Company, in 2012 the Management Board adopted a number of resolutions pertaining to changes in the organizational structure of the Company’s Management Board Office. These changes were aimed at updating the range of performed tasks and improving the efficiency of operations.

The JSW S.A. Management Board made the following decisions pertaining to changes in the organizational structure, effective in 2012:

• establishing the position of the Management Board Representative for Operational Integration of Coking Plants within the JSW Capital Group, and the Management Board Representative for Spatial Planning in Mining Areas,
• establishing the Coke and Coal Derivatives Sales Strategy Department and the Team for Monitoring Investments of the JSW Group’s Subsidiaries,
• adding provisions regarding the Risk Management System,
• transferring the subordination of the Investor Relations Team from the Strategic Development Department to the Controlling Department,
• transferring the subordination of the Organization and Investor Relations Team (in Warsaw) under the President of the JSW S.A. Management Board,
• changing the current position of Department Director, Chief Accountant of JSW S.A. into Chief Accountant of JSW S.A.,
• establishing, in place of the Organization and Investor Relations Team (in Warsaw), the Organization and Investor Relations Department (in Warsaw),
• transferring the subordination of the organizational unit Management Board Representative for Computerization of JSW S.A. previously assigned to the President of the Management Board to the Vice-President for Financial Matters.

In addition, in 2012, the JSW S.A. Management Board made the decisions pertaining to changes in the organizational structure effective as of 1 January 2013:

• establishing the Internal Audit Team and the Audit Team in place of the previously existing Internal Control and Audit Department, and assigning its subordination to the President of the JSW S.A. Management Board,
• dissolving the organizational unit of the Management Board Representative for Spatial Planning in Mining Areas and establishing the organizational units of the Management Board Representative for Cooperation with Local Authorities and the Management Board Representative for Risk Management.

On 22 January 2013, the JSW S.A. Management Board decided to establish the Legal Department.

The above changes in the organizational structure of the JSW S.A. Management Board Office were aimed at improving the efficiency of operation of the Office and adapting to the changing market situation.

Changes in the organizational structure of the JSW S.A. mines

Since 1 January 2013, the Company’s Entities have been operating within the framework of a new, uniform organizational structure adopted by Management Board decision of 11 December 2012, on the basis of which detailed Organizational Bylaws and Charts of the Company’s Entities were prepared.

In addition, the JSW S.A. Management Board made the following decisions pertaining to changes in the organizational structure of the Company’s Entities in 2012:

On 27 December 2011, the JSW S.A. Management Board made a decision to change the structure of the Borynia-Zofiówka and the Pniówek mines, effective as of 1 January 2012, involving, among others:

• in the Borynia-Zofiówka mine, Borynia Section, establishing a Drilling Unit and the Drilling Senior Foreman position,
• in the Pniówek mine, establishing the Shaft Mining Work Unit.

The above changes in the organizational structure of the Pniówek mine and Borynia-Zofiówka mine, Borynia Section, were aimed at improving the operations of the mines.

On 22 May 2012, the JSW S.A. Management Board made a decision to change the structure of the Pniówek mine, involving, among others:

• dissolving the Division of Mining Works Related to Reinforcements, Liquidations and Underground Transportation,
• establishing the Division Mining Works Related to Reinforcements and Liquidations and the Underground Transportation Division.

On 12 June 2012, the JSW S.A. Management Board made a decision to adopt the draft Organizational Bylaws and the Organizational Chart of JSW S.A.’s merging mines, i.e. the Borynia-Zofiówka and the Jas-Mos mines, and the adoption of the name “Borynia-Zofiówka-Jastrzębie mine”.

On 7 August 2012, the JSW S.A. Management Board made a decision to establish in JSW S.A., as of 1 January 2013, the Borynia-Zofiówka-Jastrzębie mine created as a result of the merger of the Borynia-Zofiówka and the Jas-Months mines.

On 12 September 2012, the JSW S.A. Management Board made a decision to change the structure of the Jas-Mos mine, involving, among others:

• dissolving the Division of Mining Works Related to Reinforcements, Liquidations and Underground Transportation,
• establishing the Division Mining Works Related to Reinforcements and Liquidations and the Underground Transportation Division.

On 26 February 2013, the JSW S.A. Supervisory Board issued a positive opinion on the JSW S.A. Organizational Bylaws adopted by the Company's Management Board on 22 January 2013.

Basic management principles in the Capital Group and their changes

On 8 May 2012, the Jastrzębska Spółka Węglowa S.A. Management Board adopted the document entitled “Principles of Corporate Governance in the Jastrzębska Spółka Węglowa S.A. Capital Group” (“Principles”). The development and implementation of the Principles was based on the provisions of the Capital Group Code providing for, in Article 21, the introduction of uniform procedures and standards of conduct in the JSW S.A. Capital Group. In the Principles, changes in the legal status were taken into account and new solutions were proposed. As a result of the implementation of appropriate regulations in the area of ​​supervision over subsidiaries, standardization was introduced in such areas as the recruitment procedures and the selection of members of the subsidiaries’ corporate bodies.

As at 31 December 2012 and as at the date of this report, the Group was composed of:

1. Jastrzębska Spółka Węglowa S.A. with its registered offices in Jastrzębie-Zdrój,
2. Koksownia Przyjaźń Sp. z o.o. (“Koksownia Przyjaźń”) with its registered offices in Dąbrowa Górnicza,
3. Baza Transportu Samochodowego Sp. z o.o. with its registered offices in Dąbrowa Górnicza,
4. Zakład Remontów Mechanicznych Sp. z o.o. with its registered offices in Dąbrowa Górnicza,
5. Zakład Przewozów i Spedycji SPEDKOKS Sp. z o.o. with its registered offices in Dąbrowa Górnicza,
6. Kombinat Koksochemiczny Zabrze S.A. (“KK Zabrze”) with its registered offices in Zabrze,
7. Przedsiębiorstwo Produkcyjno-Handlowo-Usługowe REM-BUD Sp. z o.o. with its registered offices in Zabrze,
8. Zakład Transportu Samochodowego, Sprzętu Budowlanego i Usług Serwisowych CARBOTRANS Sp. z o.o. with its registered offices in Zabrze,
9. Wałbrzyskie Zakłady Koksownicze Victoria S.A. (“WZK Victoria”) with its registered offices in Wałbrzych,
10. Zakład Usług Energetycznych epeKoks Sp. z o.o. with its registered offices in Wałbrzych,
11. Spółka Energetyczna Jastrzębie S.A. (“SEJ”) with its registered offices in Jastrzębie-Zdrój,
12. SEJ-Serwis Sp. z o.o. with its registered offices in Jastrzębie-Zdrój,
13. Przedsiębiorstwo Energetyki Cieplnej S.A. (“PEC”) with its registered offices in Jastrzębie-Zdrój,
14. Polski Koks S.A. with its registered offices in Katowice,
15. Przedsiębiorstwo Gospodarki Wodnej i Rekultywacji S.A. (“PGWiR”) with its registered offices in Jastrzębie-Zdrój,
16. Jastrzębskie Zakłady Remontowe Sp. z o.o. (“JZR”) with its registered offices in Jastrzębie-Zdrój,
17. JZR Dźwigi Sp. z o.o. with its registered offices in Jastrzębie-Zdrój,
18. Centralne Laboratorium Pomiarowo-Badawcze Sp. z o.o. with its registered offices in Jastrzębie-Zdrój,
19. Jastrzębska Spółka Kolejowa Sp. z o.o. with its registered offices in Jastrzębie-Zdrój,
20. Advicom Sp. z o.o. with its registered offices in Jastrzębie-Zdrój,
21. Jastrzębska Spółka Ubezpieczeniowa Sp. z o.o. with its registered offices in Jastrzębie-Zdrój.

Pursuant to the JSW S.A. Management Board decision of 14 December 2011 regarding the introduction of a personal union in certain subsidiaries of the Group involving joint management, with effect from 1 January 2012 the President of the Koksownia Przyjaźń Management Board was also appointed to the position of President of the KK Zabrze Management Board.

Koksownia Przyjaźń Sp. z o.o. was transformed into a joint stock company pursuant to the decision of the District Court in Katowice, 8th Corporate Division of the National Court Register, of 2 January 2013 on entering the changes in the National Court Register.