Opinion of the Supervisory Board
Report no. 96/20052007-05-14

Pursuant to Par. 3.2 of the Supervisory Board’s Rules of Procedure and Section 18 of “Best Practices in Public Companies”, having examined the Financial Statements of the LOTOS Group for 2006, the Auditor’s Opinion and Report attached to the Financial Statements, Directors’ Report on the Company’s Operations in 2006, as well as the Letter of the President of the Management Board to the Company’s Shareholders, the Supervisory Board of Grupa LOTOS S.A. hereby submits to the General Shareholders Meeting its position and assessment of the LOTOS Group’s standing. In 2006, the LOTOS Group’s consolidated sales revenue amounted to PLN 12,810.8m and was 32.8% higher than in 2005. The increase in revenue was primarily attributable to a higher sales volume recorded at the Parent Undertaking as well as higher unit selling prices. The 2006 consolidated operating profit stood at PLN 798.4m and was PLN 271.5m (or 25.4%) lower than in 2005. The LOTOS Group’s 2006 net profit (attributable to the equity holders of the parent) amounted to PLN 679.9m, 25.7% below the 2005 figure. The decisive drivers of this financial results included a decrease in the average refining margin, and negative goodwill of PLN 266.6m which added to operating profit for Q1 2005 and was related to the recognition of excess of the share in net assets over the acquisition cost of the Southern Refineries and Petrobaltic, acquired on February 3rd 2005. Net of the negative goodwill and upon the relevant adjustment of the Company’s 2005 financial result, the 2006 operating profit would be PLN 4.9m, or 0.6%, lower than the 2005 figure, while the 2006 net profit would be PLN 31.4m, or 4.8%, higher year on year. In the Supervisory Board’s opinion, 2006 saw intensive work on preparation and implementation of “The LOTOS Group’s Strategy until 2012” approved on June 27th 2006 and providing for a material acceleration of building the shareholder value through a more dynamic leveraging of the potential existing in three business areas (i.e. exploration, production and diversification of feedstock supplies; refining; and marketing). Implementation of the Strategy was based on the key development projects, including in particular the Comprehensive Technical Upgrade Programme (PKRT); PROSTA Project; development and optimisation of the sales structures; operational and management excellence programme; development programme for crude oil exploration, identification and production, currently under preparation; as well as restructuring of the Southern Refineries’ assets. Within the PKRT Programme, the steps undertaken were designed to carry out further work on technological development and negotiating agreements concerning various areas of the Project. Contracts were signed for execution of the front-end engineering design, diesel oil hydrotreater, and construction of a new crude oil distillation unit (CDU). Within the PROSTA Project, the Management Board’s activities, aimed at establishing a state-of-the-art country-wide network of LOTOS service stations, focused on the continued expansion of the network of the Company’s CODO and DOFO stations, as well as integration into the LOTOS Group’s network of the service stations acquired from ESSO and Slovnaft. The efforts aimed at integrating the Southern Refineries included further adaptation of LOTOS Czechowice and LOTOS Jasło to the operations of the LOTOS Group. In the Supervisory Board’s opinion, 2006 was a period of development of new growth paths, and identification of optimum organisation and management forms, including in particular taking into account – in the operations and programmes carried out by the Group ¬– possible diversification of crude oil sources, securing logistics support, increasing mandatory stocks, and adapting the PKRT Programme to the changing market environment. The steps undertaken have been gradually contributing to improvement in the Company’s market position and are certain to contribute to the Company’s growth and an increase in shareholder value in the future. Following a detailed examination and assessment of the Company’s financial statements for 2006, conducted by the Audit Committee, the Strategy and Development Committee, as well as the Remuneration Committee, the Supervisory Board recommended certain actions and presented its opinions and comments in the following areas: -Rules for implementation of “The LOTOS Group’s Strategy until 2012”, -Supervision over and responsibility for implementation of the PKRT Programme, -Directions of diversification of crude oil supply sources and the related financial issues, -Fine-tuning the risk management functions within the Company’s organisational structure, -Implementation of a business-process management model, -Development of an integrated information protection system, -HR policy, -Intensified exploration and production of crude oil on the Baltic Sea shelf, -Restructuring plans for the Southern Refineries, -Fixed cost management, -Cash flow management within the LOTOS Group, -Distribution of the Company’s 2006 net profit, with a recommendation that dividend should not be paid out, given the execution of the PKRT Programme, increase in mandatory stocks and cost of diversification of feedstock supply sources. Considering the Company’s growth prospects for 2007, as well as the aforementioned opinions and recommendations of the Audit Committee, the Strategy and Development Committee, as well as the Remuneration Committee, the Supervisory Board assesses the Company’s condition as good and its financial standing as stable.