Note 45 Contingent liabilities

1) The amount is adjusted compared to previously published information. See below.

On some rivers, several hydro power stations share regulation facilities. The owners of the stations are each liable for their share of the regulation costs.

Vattenfall has obligations to compensate certain owners of water rights, in rivers where hydro power stations are built, through the delivery of power. During 2008 such compensation deliveries amounted to 0.93 TWh (1.04), corresponding to approximately SEK 465 million (295).

Under Swedish law, Vattenfall has strictly unlimited liability for third-party loss resulting from dam accidents. Together with other hydro power producers in Sweden, Vattenfall has liability insurance that will pay out a maximum of SEK 8,000 million for these types of claims.

As a natural part of the Group’s business and in addition to the contingent liabilities specified above, guarantees are in place for the fulfilment of various contractual obligations.

In its German operations, Vattenfall conducted a number of leasing transactions involving power plants in 1999 and 2000. The basis for the transactions is the right of use of power plants leased to US counterparties as part of so-called head leases, lasting a maximum of 99 years, and thereafter leased back for 24 years as part of subleases. After the subleases expire, Vattenfall has the right to regain the right of use through a call option. Rents from the US counterparties have been received in advance and have been deposited in financial institutions with high credit ratings for the disbursement of the lease payments in accordance with the subleases, including payment for the options. The net difference between rental payments received and deposits made has been reported net at the time the lease contracts were entered into. In the event that the lessees or the underlying customers fail to meet their obligations during the lease period, this would give rise to termination costs for Vattenfall. On the balance sheet date, these obligations amounted to a maximum of SEK 1,175 million (1,046), which is included in the reported contingent liabilities.

In its Swedish operations, Vattenfall conducted a number of leasing transactions involving power plants in 2003 and 2005. The transactions are based on sale and leaseback agreements for each power plant, which were sold to French counterparties to be leased back for 15 years. Once the lease periods expire, Vattenfall has the right to purchase the plants via call options. Income from the sale to the French counterparts has been deposited with financial institutions with high credit ratings for the disbursement of the lease payments, including payment for the options. In the event Vattenfall should wish to prematurely redeem the lease agreements, this would give rise to costs for Vattenfall. On the balance sheet date, these costs amounted to a maximum of SEK 97 million (70). This amount is not included in the reported contingent liabilities.

In Germany, nuclear power operators have unlimited liability. The combined mandatory insurance coverage for all operators is EUR 2,500 million. Claims of up to EUR 256 million are covered by the German Mutual Atomic Energy Reinsurance Pool. Claims in excess of EUR 256 million up to a maximum of EUR 2,500 million are covered by a joint liability insurance agreement (Solidarvereinbarung) between the owners of the German nuclear power plants. The Vattenfall Group’s share of this joint liability insurance agreement, as of 1 January 2007, is approximately EUR 170 million (170) per claim and entails an obligation to keep available liquid assets corresponding to twice this amount, i.e., EUR 340 million (340).

The Group’s contingent liabilities previously included amounts that pertain to transactions contracted by subsidiaries for which Vattenfall AB, as the Parent Company, has issued guarantees. Effective 31 December 2008, these amounts have been excluded from the Group’s contingent liabilities, since the underlying transaction are reported by the subsidiaries. In addition, through a bank guarantee issued by Nordea Bank, Vattenfall AB has pledged security to Nord Pool for its electricity trading. Effective 31 December 2008, the value of this security is only reported under contingent liabilities for the Parent Company Vattenfall AB.

Under Swedish law (the Act (2006:647) on the Financing of Future Expenses for Spent Nuclear Fuel), Sweden’s nuclear power companies are required to pledge assets to the Swedish state (the Swedish Nuclear Waste Fund) to guarantee that sufficient funds exist to cover the future costs of nuclear waste management. The pledged assets consist of guarantee commitments issued by the owners of the nuclear power companies.

As security for the subsidiaries Forsmarks Kraftgrupp AB and Ringhals AB, the Parent Company Vattenfall AB has made guarantee commitments for a combined value of SEK 17,113 million (6,132). Two types of guarantee commitments have been made. The one guarantee commitment is intended to cover the requisite need for fees that has been decided on for the fees that have not yet been paid in during the so-called earnings period (25 years of operation - so-called Financing Security). The other guarantee commitment pertains to future cost increases stemming from unforeseen events (so-called Complementary Security). In previous years, Vattenfall Group has reported the entire amount as a contingent liability. Starting with the 2008 year-end closing these guarantees are not recognised as contingent liabilities, since new assessments indicate that these commitments are covered in the provision for future expenses for nuclear operations recognised in the consolidated balance sheet at 31 December. Previously published information for the year 2007 is adjusted.