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104/2010 Partial decision issued in arbitration proceedings between TP S.A and DPTG. - Orange Polska

Pursuant to art. 56, clause 1, item 1 of the Law of July 29, 2005 on public offering and the conditions for introducing financial instruments to the organised trading system and on public companies (Journal of Laws of 2005, No. 184, item 1539 with amendments), the Management Board of Telekomunikacja Polska S.A. (“TP S.A”) informs about the partial decision issued in arbitration proceedings between TP S.A and DPTG.

TP S.A. is considering legal action against the arbitration decision granting an equivalent of PLN 1,568mn to Danish Polish Telecommunications Group.

Today’s partial decision should not have any impact on TP S.A.’s dividend policy and targeted benefits of its medium-term action plan as disclosed on February 23, 2010

On September 3, 2010; 5 PM CET, a partial decision has been issued in arbitration proceedings before the Arbitration Tribunal in Vienna (Austria) in the case of Telekomunikacja Polska S.A (“TP S.A.”) vs. Danish Polish Telecommunications Group (“DPTG”).
The dispute arose in 2001 with respect to a contract concluded in 1991 by TP S.A.’s legal predecessor, the then state-owned enterprise Poczta Polska Telegraf i Telefon, with DPTG (currently owned as to 75% by GN Nord and 25% by TDC), over the interpretation of a contract for the sale and installation by DPTG of a fiber-optic system known as North-South Link (“NSL”). The contract provided for payment of part of the contract price (approximately €17mn) by allocating to DPTG 14.8% of certain revenue from the NSL over a period of 15 years from February 1994 to January 2009. In 1999, the parties came to a disagreement regarding the calculations of the revenue. In 2001, DPTG filed ad hoc arbitration proceedings before the Arbitration Tribunal (under the United Nations Commission on International Trade Law “UNCITRAL” Rules) in Vienna.

The total amount due to DPTG according to today’s partial decision, for the period from February 1994 to June 2004, is, after currency conversions, approximately DKK 2,946mn (approx €396mn), or PLN equivalent of 1,568mn. It covers the settlement of the NSL revenues in the period from February 1994 to June 2004 (DKK2,000,890,629 or the equivalent of PLN 1,065mn), interest at the contractual rate of 6% amounting up to the date of this report to DKK 913,135,119 or PLN equivalent of 486mn, and part of the costs of proceedings amounting to DKK 31,779,176 (approximately PLN 17mn) that the Arbitral Tribunal awarded to DPTG.
As reported since 2001 in its consolidated financial statements periodically filed with the Warsaw Stock Exchange, TP S.A.’s management has made what it considers to be an appropriate provision for this matter; it was based on a proper interpretation and application of the contract as supported by outside Counsel and other professional advisers. The amount arising from today’s decision exceeds the total provision made by TP S.A.’s management by approximately PLN 467 mn.

As a consequence, it will negatively impact TP S.A.’s consolidated net income for the nine months ending September 30, 2010 and for the full year ending December 31, 2010. The Net Free Cash Flow objectives set forth by TP Group on July 28, 2010 upon reporting its results for the first half year ended June 30, 2010, remain valid as it was stated excluding exceptional items and unpredicted regulatory impacts.
The Management Board of TP S.A. will diligently conduct the necessary evaluations needed to revise the said provision, which should be made in connection with today’s decision and also in connection with the claim for the period from July 2004 to January 2009 (“phase two”). The adjustment to provisions for claims, litigations, risks and other charges will be reflected in the financial statements for the nine months ending September 30, 2010.

Today’s decision was issued after nine years of arbitration proceedings. During this time, TP S.A. consistently contested both the basis of the claimant’s case and, in particular, its interpretation of the contract, as well as the amount it claimed.
The Management of TP S.A. is presently evaluating the possible legal actions to challenge the Arbitral Tribunal’s decision and its enforceability. The decision regarding further legal steps will be made public as soon as possible
DPTG’s claim for the period from July 2004 to January 2009 will be dealt with in a second phase of the arbitration proceedings, unless the parties settle them by negotiation.

The above-mentioned decision and TP S.A.’s current best estimates of its consequences concerning phase 2 should not have any impact on TP S.A.’s dividend policy and targeted benefits of its medium-term action plan as disclosed on February 23, 2010.

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