Report of the Board of Directors and Financial Statements 2013

​Stock Exchange Release February 27, 2014

Report of the Board of Directors and Financial Statements 2013 (pdf)

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Corporate Governance Statement 2013 (pdf)

Operating Environment

At the end of 2013, a total of 438 nuclear power plant (NPP) units were in operation in 30 different countries throughout the world. They produced an estimated 12 per cent of all electricity consumed in the world. In addition, 71 new reactors are under construction. It is expected that in the next few years, new NPP projects will be initiated, besides in Europe, in China, India, South Korea, USA, and Russia, among others. By 2035, the world's total capacity of nuclear power is expected to increase from the current 400 gigawatts (GW) to the level of 580 GW.

Nearly 28 per cent of all electricity in the European Union is generated in nuclear power plants. A total of 131 reactors are in operation in 15 different Member States. The total capacity of the plants is 132 GW. Currently there are four reactors under construction in the EU. An extension of the operation lifetime of existing plants is also being planned in many countries.

Following the safety assessments made in the EU, the EU Commission has proposed a revised nuclear safety directive which is currently under discussion in the European Council and Parliament. At the same time, the national action plans following the safety assessments are under implementation in the Member States. The EU Commission launched in the fall a public consultation on the possible harmonization of national liability regimes for nuclear damages.

In December, the new regulatory guides on nuclear safety (YVL Guides) compiled by the Radiation and Nuclear Safety Authority in Finland (STUK) came into effect. The new Guides will be applied as they stand to all new nuclear power plant units. Later it will be decided how the new requirements are to be applied to existing plant units and those now under construction.

Nuclear power plays an important role in Finland's energy policy

The Finnish Parliament approved in December the Energy and Climate Strategy update of Prime Minister Katainen's government. The target of the Strategy's so called Clean Energy Program is to reduce greenhouse gas emissions, create jobs, reduce energy imports, and accelerate development and use of domestic clean energy technology. New nuclear power plays an important role in achieving the objectives set.

A new act on power plant tax was approved by Parliament in December. The act will come into force by government decree. According to the act, the amount of tax to be collected from nuclear, hydro, and wind power plants taken in use prior to the year 2004 will be EUR 50 million per year in total. More than fifth of the tax amount would be imposed on nuclear power as of the beginning of 2014. The law will not enter into force until it has been confirmed by the European Commission.

A small decrease in Finland's electricity consumption

The total consumption of electricity in Finland in 2013 was 83.9 terawatt hours (TWh). The consumption decreased by 1.5 per cent compared to the previous year. The share of net electricity imports was high as in the previous year, one-fifth of the total consumption. The share of domestic hydropower decreased, the use of coal increased. The amount of nuclear power generated in 2013 was 22.7 TWh, which accounted for 27 per cent of the electricity procured.

Main Events

Fall 2013 marked the 35th anniversary of the production start-up of the Olkiluoto nuclear power plant. Olkiluoto 1 (OL1) was synchronized to the Finnish national grid on September 2, 1978. After the first years of operation, the load factor of OL1 and Olkiluoto 2 (OL2), which was commissioned in 1980, has remained constantly at a high international level. On November 1, 2013, OL2 achieved the milestone of 200 terawatt hours (billion kilowatt-hours) in commercial production. Thanks to the modernization and safety investments, the net electrical output of the plant units has increased from 660 MW to 880 MW, and the safety and energy efficiency of the production have considerably improved. The principle is to keep the plant units as good as new at all times.

The Olkiluoto NPP achieved in 2013 the highest ever production result in its history, 14.63 TWh of electricity, despite a few unplanned outages. For OL1, the production volume in 2013 was the highest ever, 7.47 TWh. The combined load factor of the plant units was 95.1 per cent. Together with the share of the Meri-Pori coal-fired power plant TVO's production was 15.36 TWh. The electricity produced in Olkiluoto accounted for about 17 per cent of all electricity consumed in Finland.

The annual outages of the plant units were executed on May 12–June 14, 2013.

The civil construction works of the Olkiluoto 3 (OL3) plant unit are mainly completed, and the major components of the reactor plant have been installed. Planning, documentation and licensing of the reactor plant automation are not yet completed.

Based on the progress reports received from the AREVA-Siemens-Consortium (Supplier), who is constructing the plant unit as a fixed-price turnkey project, TVO announced in February 2013 that the Company will prepare for the possibility that the start of the regular electricity production of the OL3 plant unit may be postponed until year 2016. After the reporting period, in February 2014, TVO announced that it had not received the requested overall schedule update for the OL3 project from the Supplier. Therefore TVO does not provide an estimate of the start-up time of the plant unit at the moment. TVO has required the Supplier, who is in charge of the project schedule, to update the overall schedule and to provide a clarification of the measures needed to ensure proper progress to complete the plant unit. Information about the start-up date of electricity production of the OL3 plant unit is pending the finalization of the Supplier's schedule clarification.

The Supplier updated in October its claim to the ICC arbitration proceedings concerning the delay of the project. The updated quantification until the end of June 2011 is in total EUR 2.7 billion. TVO has considered and found the earlier claim by the Supplier to be without merit, scrutinizes the updated claim and will respond to it in due course.

In December, the Supplier informed that it is planning to focus efforts on the OL3 site on urgent design tasks that are the most critical to the project. At the same time, the Supplier also informed that it is planning to reduce the number of subcontractors and work staff at the construction site.

TVO received in January bids related to the new Olkiluoto 4 (OL4) NPP to be constructed in Olkiluoto. Bids were received from all the plant supplier candidates involved in the bidding process. Engineering with the potential plant suppliers to clarify licensability and constructability of the plant alternatives continued. According to the decision-in-principle, the construction license application must be submitted to the Government by mid-2015.

TVO signed in May an agreement with Wärtsilä Finland Oy for the delivery of emergency diesel generators and associated auxiliary systems to Olkiluoto. The replacement project of the emergency diesel generators is the largest individual plant modification project ever realized in Olkiluoto. The total investment of the replacement project is more than EUR 100 million. The project is estimated to continue until 2020.

The Board of Directors of TVO proposed in February to the Company's B-series shareholders a new EUR 300 million shareholder loan commitment. By means of the proposed shareholder loan, the Company will prepare to maintain a sufficient level of equity for the OL3 project and cope with possible additional delays and costs in finalizing the project. In June, all the Company's B-series shareholders undersigned the loan agreement in accordance with the proposal made by the Board of Directors.

Fitch Ratings (Fitch) downgraded in May TVO's long-term issuer default rating (IDR) and senior unsecured rating from BBB+ to BBB and short-term rating from F2 to F3. The outlook Fitch assessed as being stable.

Financial Performance

TVO operates on a cost-price principle (Mankala principle). TVO's goal is not to make profit or pay dividends. Due to the Company's operating principle, key indicators based on financial performance will not be presented. The shareholders are charged incurred costs in the price of electricity and thus in principle the profit/loss for the financial year is zero. The shareholders pay variable costs based on the volumes of energy supplied and fixed costs in proportion to their ownership regardless of whether they have made any use of their share of the output or not.

The consolidated turnover for 2013 was EUR 365.9 (352.2) million. The amount of electricity delivered to the shareholders was 15,331 (14,853) GWh.

The consolidated profit/loss was EUR 30.5 (-1.8) million. An updated cost estimate based on a new nuclear waste management technical plan and schedule and the changes of the provision regarding nuclear waste management obligation have an effect on the profit/loss for the period under review. The positive profit impact of the updates and changes is mainly non-recurring. (See Notes 24: Assets and provision related to nuclear waste management obligation.)

Financing and Liquidity

TVO's financial situation has developed as planned.

TVO's liabilities (non-current and current) at the end of the year, excluding the loan from the Finnish State Nuclear Waste Management Fund relent to shareholders, totaled EUR 3,426.6 (December 31, 2012: 3,196.9) million, of which EUR 339.3 (229.3) million were subordinated shareholder loans. During 2013, TVO raised a total of EUR 361.5 (775.0) million in non-current liabilities, of which EUR 110.0 (50.0) million were subordinated shareholder loans. Repayments during the period under review amounted to EUR 175.8 (241.2) million.

In March 2011, TVO signed a EUR 1.5 billion five-year syndicated credit facility with two one-year extension options. In March 2013, the facility was extended again by one year with EUR 1.45 billion. At the year end, TVO had undrawn credit facilities and cash and cash equivalents amounting to EUR 2,362 (2,164) million. From that amount EUR 720 million were subordinated shareholder loan commitments of which EUR 500 million is allocated to the financing needs of the OL3 project and EUR 220 million to the financing of the bidding and engineering phase of the OL4 project.

The Board of Directors of TVO made a decision in February to propose to the Company's B-series shareholders a new EUR 300 million shareholder loan commitment. By means of the proposed shareholder loan, the Company will prepare to maintain a sufficient level of equity for the OL3 project and cope with possible additional delays and costs in finalizing the project. In June, all the Company's B-series shareholders undersigned the loan agreement in accordance with the proposal made by the Board of Directors.

The OL3 project's share of financing costs has been capitalized in the balance sheet.

TVO uses its right to borrow funds back from the Finnish State Nuclear Waste Management Fund within the framework of legal regulations. On December 31, 2013, the amount of the loan was EUR 931.7 (December 31, 2012: 881.7) million and it has been relent to the Company's A-series shareholders. On April 2, 2013 loan from the Finnish State Nuclear Waste Management Fund was increased by EUR 50.0 million (April 2, 2012: EUR 39.2 million).

In February 2013, Japan Credit Rating Agency (JCR) kept its AA rating for TVO. In May, Fitch Ratings' downgraded TVO's long-term issuer default rating (IDR) and senior unsecured rating from BBB+ to BBB and short-term rating from F2 to F3. Standard & Poor's Rating Services held its BBB long-term and A-2 short-term corporate credit ratings for TVO. The outlook was assessed as being stable by all the agencies.

In June, TVO updated the Euro Medium Term Note Program (EMTN) and raised the size of the program from EUR 3 billion to EUR 3.5 billion. Under the EMTN Program, the Company has issued during the second quarter of the year a EUR 23 million private placement and during the third quarter of the year in the Swedish market SEK 1,125 million and SEK 875 million bonds.

In June, the Company raised a EUR 100 million shareholder loan for the OL3 project and a EUR 10 million shareholder loan for the bidding and engineering phase of the OL4 project.

Share Capital

TVO's share capital on December 31, 2013 was EUR 606.2 (606.2) million.

The Company has 1,394,283,730 (1,394,283,730) shares, of which 680,000,000 belong to the A series, 680,000,000 to the B series and 34,283,730 to the C series. The A series shares entitle to electricity generated at the OL1 and OL2 units and the B series shares to the electricity generated at the OL3 unit. The C series owners have right to acquire electricity generated by TVO's share of the Meri-Pori coal-fired power plant.

Administrative Principles

Because TVO is an unlisted public company applying the cost-price principle, it observes the Corporate Governance Code for listed companies where applicable. TVO is not obligated to observe the Corporate Governance Code nor therefore the Comply or Explain principle. According to the Securities Market Act (14.12.2012/746), the issuer of a security subject to public trading must provide a Corporate Governance Statement in its Annual Report or separately. TVO has given a separate Corporate Governance Statement which is published on its website, www.tvo.fi at the same time with this Report of the Board of Directors.

Administrative Bodies

TVO's administrative bodies and their functions in 2013 have been described in a separate Corporate Governance Statement to be found on the Company's website.

Regulatory Environment

The purpose of the nuclear energy legislation is to ensure that the use of nuclear energy is conducted in a manner that benefits the common good of society. The main rules of the use of nuclear energy, monitoring the use, and nuclear safety, are included in the Finnish Nuclear Energy Act and the Nuclear Energy Decree as well as lower level statutes issued pursuant to them, such as the Radiation and Nuclear Safety Authority's YVL (NPP) guidelines. Other regulations pertaining to the exploitation of nuclear energy are to be found in the Radiation Act.

New regulatory guides on nuclear safety (YVL Guides) came into effect at the beginning of December. The new regulations are stricter than the previous ones and are meant to improve the safety of nuclear facilities in Finland. The new Guides will be applied as they stand to all new nuclear power plant units. Later it will be decided how the new requirements are to be applied to existing nuclear power plant units and those now under construction, such as OL3. Along with new YVL Guides, also the Nuclear Energy Degree and government decrees were revised and renewed. The changes to the Nuclear Energy Decree and government decrees came also into effect at the end of 2013.

In addition, the Nuclear Liability Act concerns the liability the operator of a nuclear plant has in the event of a nuclear accident. A temporary amendment to the Nuclear Liability Act came into force as of the beginning of 2012. According to the temporary amendment, the plant operator's liability for a nuclear incident in Finland is unlimited but limited to a maximum amount of 600 million Special Drawing Rights (SDR), corresponding to EUR 700 million, for nuclear damage outside of Finland. The operator has to have insurance up to a minimum of 600 million SDR.

The use of nuclear energy is subject to license. Applications are made to the Government for a decision-in-principle, construction license and operating license. The Radiation and Nuclear Safety Authority Finland (STUK) is responsible for monitoring the safety of nuclear energy use. STUK is also responsible for monitoring safety and emergency arrangements and nuclear material.

Risk Management, Major Risks and Uncertainties

Risk Management

Risk management is a systematic approach which aims to support the fulfillment of TVO´s strategy and business objectives as well as to ensure the existence of TVO´s operational preconditions. Risk management is executed based on the company's policies and corporate governance.

Risk management is supervised by the Board of Directors of the Company, which endorses the principles on which it is based. The CEO, with the help of the Company's Management Board, is in charge of the risk management according to TVO's objectives and strategy. Under the Management Group there is a risk management group that is in charge of ensuring adequate risk treatment in the company.

The organization units are responsible for risk identification, analyzing and risk treatment. Risk identification is carried out as part of TVO´s strategic and operational planning and follow-up as well as part of project management.

TVO has launched a company-wide risk management process which the Company's organization units comply with. By operating in accordance with the risk management process TVO ensures that all risks facing the Company are systematically identified and each risk is treated according to its significance. The objective of the risk treatment process is either to prevent the risk from materializing or to reduce its likelihood or consequence.

TVO reduces risks connected with safety and production by keeping the plant units in good condition. Safe and reliable production is ensured by efficient life-cycle management of the plant units and high-quality planning and implementation of the annual outages. TVO has started to prepare for the upcoming operating license renewal of OL1 and OL2 in 2018 by launching a preliminary planning process of plant modifications and safety adjustments.

Indemnity and property risks are covered with insurances. The aim of insurance management is to keep the scope, cover and cost of insurance in an acceptable level. TVO is a member of European nuclear insurance associations. Statutory liability insurance is in force for nuclear liability.

Fuel for the production of electricity, uranium and coal, is bought on the global market. Risks connected with nuclear fuel have been reduced by making purchases from a variety of suppliers and by concluding long-term contracts.

At OL3, risk management during the construction stage is primarily a question of overseeing and guiding the work of the Supplier according to the terms of the turnkey contract. Property damage risks and possible delays caused by them are covered by insurances.

TVO's financing and financial risk management is dealt with centrally by the Company's Treasury department, in accordance with the financing policy adopted by the Board of Directors. The financing risks of TVO's business include liquidity and market and credit risks. By diversifying sources of finance, and with long-term credit commitments and liquid funds, financing risks can be reduced. The financial position has been strengthened by issuing long term private placements and bonds. TVO has reduced market risks by making use of interest rate and currency derivatives. According to the Company's financing policy the loans denominated in foreign currencies will be hedged to the euro until the maturity date by using derivatives. Financial risk management and fuel price risks are dealt with in the notes to the consolidated financial statements, note 27 (Financial Risk Management).

Major Risks and Uncertainties

TVO's major risks are related to the schedule of the OL3 project. Based on the progress reports received from the Supplier, TVO announced in February 2013 that the Company will prepare for the possibility that the start of the regular electricity production of the OL3 plant unit may be postponed until year 2016. Originally the electricity production was scheduled to start at the end of April 2009.

After the reporting period, in February 2014, TVO announced that it had not received the requested overall schedule update for the OL3 project from the Supplier. Therefore TVO does not provide an estimate of the start-up time of the plant unit at the moment. TVO has required the Supplier, who is in charge of the project schedule, to update the overall schedule and to provide a clarification of the measures needed to ensure proper progress to complete the plant unit. Information about the start-up date of electricity production of the OL3 plant unit is pending the finalization of the Supplier's schedule clarification.

The delay causes additional costs and losses, for which the Company has claimed compensation from the turnkey supplier of the OL3 plant.

There are no major risks or uncertainties concerning electricity production at OL1, OL2 or the Meri-Pori coal-fired power plant.

Pending Court Cases and Disputes

TVO submitted in 2012 a claim and defense in the International Chamber of Commerce (ICC) arbitration proceedings concerning the delay and the ensuing costs incurred at the Olkiluoto 3 project. The quantification estimate of TVO's costs and losses was approximately EUR 1.8 billion which included TVO's actual claim and an estimated part until August 2014.

The proceedings were initiated in December 2008 by the OL3 Supplier. The monetary claim the Supplier updated in 2013 is in total approximately EUR 2.7 billion. The updated quantification is until the end of June 2011, and the sum includes approximately EUR 70 million of payments delayed by TVO under the plant contract as well as approximately EUR 700 million of penalty interest and approximately EUR 120 million of alleged loss of profit. TVO has considered and found the earlier claim by the Supplier to be without merit, scrutinizes the updated claim and will respond to it in due course.

The arbitration proceedings may continue for several years, and the claimed amounts may be updated.

TVO has not recorded any receivables or provisions on the basis of claims presented in the arbitration proceedings.

Nuclear Power

TVO owns and operates two nuclear power plant units, Olkiluoto 1 (OL1) and Olkiluoto 2 (OL2), and is building a new plant unit, Olkiluoto 3 (OL3) at Olkiluoto in Eurajoki, Finland. The Finnish Parliament ratified in 2010 the Government's favorable decision-in-principle concerning the construction of the Olkiluoto 4 (OL4) nuclear power plant unit.

Olkiluoto 1 and Olkiluoto 2

The electricity production of the Olkiluoto power plant units, OL1 and OL2, during 2013 was 14,633 (14,450) GWh. The total load factor was 95.1 (93.7) per cent.

The plant units operated safely. OL1's net production was 7,470 (6,973) GWh and the load factor 97.1 (90.4) per cent. OL2's net production was 7,163 (7,477) GWh and the load factor 93.1 (96.9) per cent.

OL2 encountered a production shutdown on September 9–15 caused by a failure in the cooling circuit of the generator. The plant unit was disconnected from the national grid, when the protection system of the generator tripped and initiated a turbine scram. The protection systems of the plant unit operated as planned, and steam generation in the reactor was stopped in a controlled manner. The generator failure and the resulting turbine scram did not risk nuclear safety. OL1 operated reliably throughout the year except for a short production stop in the beginning of December.

Annual Outages

The annual outages of 2013 at the Olkiluoto nuclear power plant were carried out in May 12–June 14. OL1 had a refueling outage which took less than eight days, and OL2 underwent a maintenance outage which lasted more than 18 days.

The main maintenance activities during the outage at OL2 included replacement of the low-voltage switchgears, as well as work on the reactor. Modern low voltage switchgears and transformers, which meet the latest regulations and standards as well as future plant modification needs, were installed in two subsystems of the plant. The replacement of the switchgears is part of the systematic long-term development of the plant units. Other significant activities carried out were repair of the generator stator, refueling, leak-tightness test of the containment and replacement of two seawater pumps. Up to 800 external employees were involved in the OL2 outage, in addition to TVO's own personnel.

In the outage at OL1, apart from refueling, two main seawater pumps were replaced, and annual maintenance activities, tests and fault repairs were carried out.

Olkiluoto 3

OL3, currently under construction, was commissioned as a fixed-price turnkey project from the Consortium (referred to as the Supplier) formed by AREVA GmbH, AREVA NP SAS and Siemens AG. Originally commercial electricity production was scheduled to start at the end of April 2009. The completion of the project, however, has been delayed. The Supplier's installation works and plant automation system engineering at the plant unit have not progressed according to the Supplier's schedules.

Based on the progress reports received from the Supplier, TVO announced in February 2013 that the Company will prepare for the possibility that the start of the regular electricity production of the OL3 plant unit may be postponed until year 2016. After the reporting period, in February 2014, TVO announced that it had not received the requested overall schedule update for the OL3 project from the Supplier. Therefore TVO does not provide an estimate of the start-up time of the plant unit at the moment. TVO has required the Supplier, who is in charge of the project schedule, to update the overall schedule and to provide a clarification of the measures needed to ensure proper progress to complete the plant unit. Information about the start-up date of electricity production of the OL3 plant unit is pending the finalization of the Supplier's schedule clarification.

The civil construction works of the plant unit have been mainly completed. Cladding works of the buildings' exterior walls continue.

The major components of the reactor plant, such as reactor pressure vessel, pressurizer and four steam generators have been installed, and the primary coolant circuit pipeline has been welded. Pipeline welding works and pressure tests continue. Commissioning of the power distribution in the reactor plant is ongoing. Planning, documentation and licensing of the reactor plant automation are not yet completed.

The first phase of the commissioning of the turbine plant is ongoing.

The pending disputes concerning the plant unit are described in paragraph "Pending Court Cases and Disputes".

The workforce at the site at the end of the year was about 2,000. The Supplier informed in December that it is planning to focus efforts on the OL3 site on urgent design tasks that are the most critical to the project. At the same time, the Supplier also informed that it is planning to reduce the number of subcontractors and work staff at the construction site.

The occupational safety at the site remained at good level.

All the realized costs of the OL3 project that can be recognized in the cost of the asset have been entered as property, plant and equipment in the Group balance sheet.

Olkiluoto 4

On July 1, 2010, Parliament approved the favorable decision-in-principle made by the Government on May 6, 2010 regarding TVO's application to construct a fourth nuclear power plant unit (OL4) in Olkiluoto.

TVO continued preparations for the OL4 nuclear power plant project. Engineering with the potential plant suppliers to clarify licensability and constructability of the plant alternatives proceeded, as did also the procurement process aiming at the plant selection. The evaluation of updated bids related to the new NPP and preparation of the next phases of the project are ongoing.

All the realized costs of the OL4 project that can be recognized in the cost of the asset have been entered as property, plant and equipment in the Group balance sheet.

Nuclear Fuel

In 2013, the nuclear fuel purchases amounted to EUR 56.5 (67.4) million and the amount consumed to EUR 48.2 (46.1) million.

The nuclear fuel and uranium stock carrying value on December 31, 2013 was EUR 207.9 (December 31, 2012: 199.7) million.

Nuclear Waste Management

Under the Finnish Nuclear Energy Act, the Company is responsible for the measures related to nuclear waste management and the related costs. Posiva Oy, jointly owned by TVO and Fortum Power and Heat Oy, is responsible for taking care of the final disposal of TVO's spent nuclear fuel.

As the actual tunnel part of the underground rock characterization facility ONKALO was completed in 2012, ONKALO has been equipped with technical facilities and systems during 2013. Concrete structures for the emergency shelter and rest room facilities, a pool for collecting leak water, permanent ventilation and electrical systems as well as testing area for ONKALO's floor coating have been built at a depth of 437 meters, among other things. During 2013, also the injections of one of the two ventilation shafts and personnel hoist equipment shaft were completed, and raise boring of the shafts were started at the end of the year. Reinforcement and equipping of the hoist equipment shaft for installing the hoist can be started next.

In the final disposal demonstration facilities at a depth of 420 meters, an international technology development project of eight countries for testing plugging and sealing systems for final disposal tunnels has been started. The project, partly funded by the EU, is coordinated by Posiva. Besides coordination, Posiva will construct two 25-meter-long tunnels in ONKALO, of which excavation works have been completed. One of the tunnels will be sealed with a massive concrete plug of the type which will be used also in the actual final disposal, and the other tunnel will be equipped with measuring devices needed in the test.

Preparations to start the second construction phase of the above-ground hoist equipment building have been made by completing the excavation works necessary for the construction. The actual construction will start in early 2014.

The Ministry of Employment and the Economy (MEE) organized in September 2013 a public debate and hearing concerning Posiva's construction license application, which Posiva had submitted to the MEE at the end of 2012. The MEE has received all stakeholders' opinions requested, to which Posiva will respond during 2014.

During 2013, Posiva has prepared for starting construction of the final repository and encapsulation plant in early 2015 by making detailed project and system planning as well as by recruiting project staff. Moreover, the final disposal concept has been further developed, the construction license application has been supplemented by additional clarifications required by STUK, and demonstration actions to prove that Posiva is capable of starting the final disposal in 2022 have been initiated.

The spent fuel produced by the NPP units of TVO and Fortum in Finland will be disposed of in the Olkiluoto final disposal facility.

The expansion of the interim storage facility for spent nuclear fuel in Olkiluoto has proceeded according to plan. With the expansion TVO will double the capacity of the existing fuel pools. The expansion project is based on TVO's plans to provide interim storage facilities for the spent fuel elements of both the existing plant units, OL1 and OL2, and OL3 under construction. The expansion is scheduled to be taken into use in 2014.

The liabilities, in the consolidated financial statement, show a provision related to nuclear waste management liability of EUR 897.9 (December 31, 2012: 857.6) million, calculated according to the international IFRS accounting principles. A corresponding amount, under assets, represents the Company's share in the Finnish State Nuclear Waste Management Fund.

In order to cover the costs of nuclear waste management, TVO makes contributions to the Finnish State Nuclear Waste Management Fund. In December 2013, the MEE set TVO's liability for nuclear waste management at EUR 1,317.8 (1,242.3) million to the end of 2013 and the Company's funding target for 2014 at EUR 1,310.4 (1,242.3) million.

In March 2013, the Finnish State Nuclear Management Fund confirmed TVO's nuclear waste management fee for 2012 at EUR 43.1 (34.1) million, which was paid into the Fund on April 2, 2013 (April 2, 2012). The nuclear waste management fee for 2013 will be confirmed in March 2014.

A total of 6,118 (5,965) m³ of low- and medium-level radioactive waste has accumulated from the OL1 and OL2 plant units during their operation. During 2013, the amount of waste increased by 153 m3. In 2012, the total amount of waste decreased by 795 m3, which was due to a demolition project of decommissioned reheaters implemented in Studsvik, Sweden. The waste is disposed of in the final repository for low- and medium-level waste (VLJ repository) in Olkiluoto.

The total amount of spent nuclear fuel by the end of the year was 1,362 (1,327) tons, of which 36 (36) tons accumulated in 2013. The spent fuel is stored in the fuel pools of the plant units and in an interim storage facility (the KPA storage facility) at Olkiluoto.

Coal Power

TVO has a 45 per cent holding in the Meripori coal-fired power plant owned and operated by Fortum Power and Heat Oy. The Meripori power plant is located on the Tahkoluoto island in Pori, Finland.

Meri-Pori

The amount of electricity produced by TVO's share at the Meri-Pori coal-fired power plant was 725.4 (477.4) GWh requiring 254.4 (168.7) thousand tons of coal and 592.0 (399.8) thousand tons of carbon dioxide emission rights.

The Meri-Pori power plant was shut down for turbine inspection on August 5, 2013. In the inspection, a damage requiring repair was detected in the turbine. The annual outage of the plant and repair of the turbine were started. The turbine repair and maintenance were completed on November 6, 2013. Test run of the turbine and new pulverized coal burners was conducted in November 7–13, 2013.

Research and Development

Research and development costs were EUR 20.8 (24.1) million, most of which was used for R&D activities related to nuclear waste management.

TVO is a major financier of Finnish public sector research programs for reactor safety and nuclear waste management. In 2013, TVO's contribution to the Finnish State Nuclear Waste Management Fund, which finances such programs, amounted to EUR 4.6 (4.6) million.

Acquisitions of Tangible and Intangible Assets and Shares

Investments during 2013 were EUR 335.1 (337.3) million. Investments of the parent company were EUR 302.5 (336.9) million, of which EUR 260.8 (274.2) million was allocated to the OL3 project.

TVO signed in May 2013 an agreement with Wärtsilä Finland Oy for the delivery of emergency diesel generators and associated auxiliary systems to Olkiluoto. A total of nine generators will be delivered, and TVO is in charge of the construction work required for the project as well as for the connection of the diesel generators to TVO's other systems. The replacement project of the emergency diesel generators is the largest individual plant modification project ever realized in Olkiluoto. The total investment of the replacement project is more than EUR 100 million. The project is estimated to continue until 2020. The replacement of the generators will be carried out as far as possible during normal power operation at OL1 and OL2 plant units.

Carbon dioxide emission rights acquired for the Company's share of the Meri-Pori coal-fired power plant have been relinquished to the Energy Market Authority worth of EUR 0.9 (6.7) million. In 2013, emission rights for the Company's share of the Meri-Pori coal-fired power plant were acquired worth 2.7 (0.9) million. The Company's need for carbon dioxide emission rights for the period under review was covered by acquired emission rights.

Safety and Environmental Issues

The Olkiluoto nuclear power plant units operated safely during the year. No incidents with a major impact on nuclear safety occurred. In 2013, four special reports were prepared for the Radiation and Nuclear Safety Authority (STUK). A total of five events were classified on the international INES scale (0–7) at level 0 (No safety significance).

TVO's operations were in accordance with the Company's environmental policy, environmental permits, and environmental management system. Its environmental management system, which also covers the construction phase of the OL3 unit, complies with the international ISO 14001 Standard and is EMAS registered.

The environmental impacts of the Olkiluoto nuclear power plant were minor. As in previous years, radioactive emissions into the atmosphere and water were extremely low, and significantly lower than the limits set by the authorities.

The operations were developed considering the requirements of the environmental permit and according to environmental management system. TVO has identified 7 significant environmental aspects related to the Company's activities. For each these aspects, 4 long-term goals have been set. In order to achieve these goals, continuing or a few years-long objectives are set. A total of 15 targets were set for the year 2013, and all of them were reached wholly or in part. Within the year, no significant environmental deviation occurred. Overall, 13 minor environmental observations or minor deviations were detected during the operating cycle. Those were related to chemicals or waste management. At the OL3 construction site, 29 environmental observations were recorded.

TVO has a certified occupational health and safety system compliant with the OHSAS 18001 Standard, in which also the activities at the OL3 construction site are included. The systems of OL1 and OL2 operating and OL3 construction phase were integrated in 2013. The occupational safety goal on the whole Olkiluoto island is zero accidents and common working methods. As in earlier years, actions to reach the zero-accident goal were continued, and the systems integration will provide a basis for common working methods.

More detailed information on the environmental issues and indicators as well as occupational safety indicators for 2013 will be reported in the Corporate Social Responsibility Report and Environmental Report which will be published on TVO's website www.tvo.fi. The contents of the reports will be verified by an outside body.

Group Personnel and Training

Personnel

At the year-end, the total number of personnel in the Group was 857 (868), and the average during the year was 894 (884). The year-end total number of personnel in the Company was 852 (863), and the average during the year was 890 (879). The year-end total for permanent personnel was 762 (772).

TVO recruited 25 (71) employees in 2013. During the year, 65 (53) employees changed jobs and 36 (36) permanent employees left the Company, including 24 (21) who retired.

The collective agreements for different groups of personnel in the energy industry will be in force in accordance with the so called framework agreement of labor confederations until January 1, 2017.

The human resource issues and indicators for 2013 will be reported in more detail in the Corporate Social Responsibility Report on TVO's website, www.tvo.fi. The contents of the report will be verified by an outside body.

Training

As in previous years, basic and supplementary training for TVO personnel was carried out in accordance with the training program for the year. The personnel was trained a total of 8,401 (8,636) days, on average of 9.4 (9.8) days per each TVO employee.

In accordance with their refresher training program, the OL1 and OL2 operators took part in operation training and advanced simulation training in spring and fall 2013. Training, basic simulation course and basic training period, of the new operators who started they work in 2011 and 2012, progressed according to plan.

The OL3 operators participated, in accordance with their refresher training program, in operation training in spring and fall 2013. Additionally, a simulation exercise was organized for the operators. At the same time, also TVO's trainers were trained and familiarized for the use and maintenance of the OL3 simulator. At other times, the OL3 operators worked in commissioning tasks and trainers in training planning tasks.

Induction training is required from all those working at the Olkiluoto nuclear power plant area. The general training is meant for all persons working at the Olkiluoto site and the radiation protection training for those who work inside the controlled area. During 2013, a total of 2,918 persons took part in the general training and 851 in the radiation protection training (registered by January 16, 2014). Both trainings were given in Finnish and English.

More detailed information on the competence development of TVO's personnel and its indicators for 2013 will be reported in the Corporate Social Responsibility Report on TVO's website, www.tvo.fi. The contents of the report will be verified by an outside body.

Subsidiaries and Joint Ventures

TVO Nuclear Services Oy (TVONS) is a wholly-owned subsidiary of TVO. TVONS provides its customers with expertise and services related to high-level nuclear safety, cost-effective operations, and nuclear waste management. The special expertise of TVO personnel is at TVONS customers' disposal.

Merger of TVO's wholly-owned subsidiaries, Olkiluodon Vesi Oy and Perusvoima Oy, with TVO was registered in the Trade Register on December 31, 2013. The merger agreement signed by the companies and merger announcement to the creditors of the subsidiaries were registered in the Trade Register in August. The objective of the merger was to simplify the corporate structure. Olkiluodon Vesi has been responsible for the raw water supply for TVO's and Posiva Oy's operations at Olkiluoto. Perusvoima did not have activities during 2013.

Posiva Oy, jointly owned by TVO and Fortum, is responsible for research into and implementing the final disposal of its shareholders' spent nuclear fuel. TVO owns 60 per cent of Posiva. Posiva continued construction and equipment of the underground research facility for final disposal according to plan.

Major Events after the End of the Year

TVO announced in February 2014 that it had not received the requested overall schedule update for the OL3 project from the Supplier. Therefore TVO does not provide an estimate of the start-up time of the plant unit at the moment. TVO has required the Supplier, who is in charge of the project schedule, to update the overall schedule and to provide a clarification of the measures needed to ensure proper progress to complete the plant unit. Information about the start-up date of electricity production of the OL3 plant unit is pending the finalization of the Supplier's schedule clarification.

Prospects for the Future

Electricity production is expected to continue as in previous years. The prerequisites for nuclear power production at Olkiluoto are good. Nuclear fuel availability is guaranteed by long-term agreements.

In accordance with the new safety guidelines under preparation, TVO continues planning of the required systems changes. Based on the current estimate, the changes will not have major impact on TVO's capital expenditure program.

Realization of the OL3 nuclear power plant project and preparing the plant unit for production use will be continued.

Preparations for the OL4 nuclear power plant project will proceed. Clarification of the licensability and constructability of the plant alternatives as well as procurement process aiming at the plant selection will continue.

The Meri-Pori coal-fired power plant capacity will be used in accordance with the former principles.

Posiva Oy will continue the construction, equipping and investigations of the underground research facility at Olkiluoto. Construction of the above-ground hoist equipment building and the site is progressing. During the processing of the construction license application for the disposal facility for spent nuclear fuel, Posiva is preparing to start the construction projects of the encapsulation plant and final repository immediately after the construction license has been granted.

Proposals to the Annual General Meeting

Teollisuuden Voima Oyj's distributable equity as of December 31, 2013 amounted to EUR 9,360,000. The Board of Directors proposes to the Annual General Meeting that no dividend shall be paid.

For more information:
Anja Ussa, Senior Vice President, Finance, tel. +358 2 8381 6100