Risk factors associated with the legal environment

Difficulty in obtaining or renewing licenses and concluding mining usufruct contracts within the required deadlines
The Group's key business relies on the effective power of its licenses, its compliance with the terms of those licenses and its capacity to obtain new licenses. Granting of a new mining license or extension of a current license requires certain requirements prescribed by the law to be met. The granting or extension of a license may be refused if the intended activity violates environmental requirements, is contrary to purpose of the real property or is a threat to its safety or is a threat to defense and security of the state or its citizens. The Group consults with local government bodies regarding the opening of coal resources in deposits adjacent to the mines. A mining license is granted based on a local zoning plan and if there is no zoning plan – based on the study of zoning conditions and directions. New licenses may be obtained on certain conditions, which include changes to local zoning plans which allow for the possibility of coal mining. Life expectancy of mines may be reduced significantly if new deposits are not opened.

If the Group's licenses are canceled or if new licenses or extensions are not granted to the Group, the Group may be unable to fully utilize its identified mineral deposits, which may have a material adverse effect on the Group's performance and business outlook.

The Group may be subject to a higher excise tax on coal gas and coking gas after 31 October 2013
Pursuant to Directive 2003/96/EC, coal gas and coking gas classified in the combined nomenclature under code CN 2705 are also subject to excise tax. At the same time, this directive gives the power to implement a total or partial exemption or discount on the level of taxation applied to the products under code CN 2705 (including coking gas and coal gas) under the condition that they are used for heating purposes. The excise tax law contemplates an exemption from excise tax for other gaseous fuels for the duration of the natural gas exemption, i.e. until 31 October 2013 or until the time when the percentage of natural gas in energy consumption in Poland reaches 25%. On 30 January 2013, a draft act amending the excise tax act was published. In the coming months, interministerial agreements and consultations will take place in which the final wording of the new regulations governing the taxation of gas with excise tax will be adopted. The proposed wording of the regulations contain numerous exclusions, e.g. use for heating purposes in the electricity generation process and for co-generation of heat and electricity, which applies to the methane drainage gas sold by the Group. In light of the above, the risk of excise tax occurs only if the gas is sold for liquefaction, but the proposed wording shifts this risk to the buyer, raising the prices by the excise tax amount. Nevertheless, until the final wording of the regulations is determined, we cannot rule out that adverse changes are introduced potentially burdening the Group with the excise tax.

The Parent Company may be obligated to remedy mining damages or reclaim mining sites to a greater extent than planned
According to the Geological and Mining Law, the Group is obligated to repair mining damages and it may be obligated to reinstate land to its previous state from before commencing mining activity. Any and all changes to the law that would make these requirements more stringent may lead to higher costs of reclamation and repairing damages.

The Group may be forced to adjust its operations to the EU Climate Policy
One of the priorities of the European Union is to prevent climate change, among others through limiting the consumption of natural energy resources, introducing modern and efficient energy generation technologies, limiting carbon dioxide emissions, reducing energy consumption and increasing the importance of renewable energy generation. In order to achieve these objectives, the European Union has introduced a package under the name of “3x20% by 2020”. As the recent years has shown, the European Commission is very consistent in implementing these goals and it is highly probable that all the future decisions referring to those matters will make the binding standards of consumption, efficiency and quality of energy even more stringent.

Obligations relating to the requirement to increase consumption of energy from renewable sources
SEJ as a power utility producing and trading in electricity and selling electricity to end users is obliged to obtain and present for redemption to the President of the Energy Regulatory Authority (URE) certificates of electricity origin from renewable sources ("green certificates") or pay a substitution fee.

There is also a risk that the cost of obtaining such certificates or the amount of the substitution fee will increase in the years to come. Furthermore, failure to present such certificates for redemption to the President of the Energy Regulatory Authority or pay the substitution fee will result in the imposition of a fine on the company by the President of the Energy Regulatory Authority. This as a result may adversely affect the Group's activity, financial standing and performance.

The Group is a member of the community scheme for greenhouse gas emission allowance trading
Koksownia Przyjaźń, KK Zabrze and SEJ are participants of the community scheme for greenhouse gas emission allowance trading in connection with CO2 emissions.

The necessity to purchase the allowances at an auction, if any, or the necessity to execute projects aiming at reduction of emissions may have negative impact on the Group’s financial standing.

The Group will be forced to adapt its activity to the Industrial Emissions Directive
The Industrial Emissions Directive came into force on 6 January 2011. It defines the rules associated with integrated prevention and control of pollution associated with industrial activity and rules associated with reduction of air, water and soil emissions. The implementation deadline of the Industrial Emissions Directive elapses on 7 January 2013, which means that after elapse of this deadline industrial installations will have to satisfy the emission standards defined in the Industrial Emissions Directive.

The Group may be subject to more stringent environmental protection standards and legal regulations
The legal regulations applicable to the environment and the usage of natural resources are subject to constant change and the trend over the most recent years has been toward making the binding standards more stringent, which may exert an adverse impact on the Group’s operations. Changes to the environmental protection law may force the Company to adapt to new requirements (e.g. adjusting the technologies used by the Group to curtail atmospheric emissions or changes to how waste is managed or water and sewage management), inclusive of obtaining new permits, or changes to the conditions of the current permits which may drive up the Group’s operating expenses.

Introduction of chemical substances into trade by the Group entails the risk of failure to satisfy the legal requirements or change of the regulations pertaining to introduction of such substances in accordance with the REACH Regulation, which may cause financial burden to the Group in the form of additional expenditures, which may then have material negative influence on the Group’s operations, financial standing and results.

The Group strives to limit risk by constantly overseeing environmental protection legal requirements and making the necessary investments to meet all environmental requirements. These actions create great opportunities to lower the level of risk and the costs of adaptation in the Group’s environmental operations and to new conditions.

The Parent Company may be obligated to remit property tax on underground mine workings or equipment (facilities) located in underground mine workings
On 13 September 2011 the Constitutional Tribunal pronounced a judgment unambiguously precluding underground mine workings (tunnel costs) from property tax and making the tax on plant and facilities located in these underground mine workings dependent on their classification as structures within the meaning of Construction Law. In light of the judgment of the Constitutional Tribunal and the decisions made in all the cases pending before the Voivodship Administrative Court in Gliwice (“WSA Gliwice”), which were favorable to the Group, the only doubts are related to the taxation of property, plant and equipment located at the bottom of the mine (in underground workings) and the possibility that the Group may have a duty of paying liabilities for this. Nevertheless, the rationale for those decisions is challenged by the Local Government Appeal Court in Katowice Local Government Board of Appeals in Bielsko-Biała, which filed cassation complaints with the Supreme Court of Administration against all the judgments which were favorable to the Group.

On account of opinions according to which the infrastructure situated at the bottom of the mine in underground workings, just like underground mine workings (tunnel costs) should not be subject to property tax, the Group has not included this infrastructure in tax declarations since 2009.

In assessing the risk linked to the further court proceeding resulting in the possibility subjecting to taxation some of the property, plant and equipment located in these workings, the Group has revalued the liabilities and provisions recognized in the ledgers for prospective disputes with the Townships. Nevertheless, despite the favorable decisions made by WSA Gliwice and the judgment of the Constitutional Tribunal, the Townships continue the proceedings to enforce the funds under the issued tax decisions.

Implementation of a mineral tax
The Group's financial performance may deteriorate if additional new encumbrances (taxes, fees) are imposed on the extraction of coal.