1. National Control Commission for Prices and Energy (NCC) of Lithuania Loreta Kimutyte Head of Public Information Department (NCC) Budapest, Hungary May 19, 2004 4 th Annual Meeting of the Energy Regulators Regional Association

2. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 2 Key Events and Activities in 2003 Through May 2004 Electricity Sector The liberalization started after the adoption of the Law on Electricity on 01 01 2002 has been further continued. Since 2004 the status of an eligible customer will be granted to customers consuming more than 3GWh per year – about 30% of the market. The following players have been acting in the market: 8 producers, 2 distribution operators, 3 public suppliers, 5 independent suppliers. The distribution company Vakarų Skirstomieji Tinklai was privatized, and the privatization of another distribution company Rytų Skirstomieji Tinklai was postponed because of unacceptable qualification of a single bidder - Eesti Energia.

3. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 3 Key Events and Activities in 2003 Through May 2004 Gas Sector The liberalization, started in 2001with the adoption of the Law on Natiral Gas, has been further continued. Since 2004 the status of an eligible customer (entitled to choose a supplier) will be granted to the customers consuming more than 1 Mm 3 - 74 customers, nearly 90% of the market. There were 4 suppliers in the market: Lietuvos dujos, Dujotekana, Achema (to cover its own demand) and Haupas. In 2003 there were 22 eligible customers. The privatization was finally completed - 34% of shares were sold to Gazprom, the natural gas supplier.

4. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 4 Key Events and Activities in 2003 Through May 2004 Heat Sector On May 20,2003 after the prolonged and complicated debates, the Law on Heat was adopted. The Law regulates the state control over the heat sector, activity of subjects of economy operating in the sector, their relations with heat consumers, their interrelationship and responsibilities. The Law facilitates competition: Between independent producers when purchasing heat energy; Between suppliers of hot water or between the types of hot water supply; Between district heating and hot water systems’ maintenance organizations ; Between alternative types of fuel.

5. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 5 Key Anticipated Issues & Activities for the Next Year The Laws on Electricity and Gas will be amended to reach their compliance with the EU Electricity Directive (2003), the liberalization will be facilitated: starting from 01 07 2004, all non- residential customers will become eligible customers, from 01 07 2007 the status of an eligible customer will be granted to the remaining customers. Methodolgies for calculating electricity and gas prices will be revised. Secondary legislation needed for the implementation of the Law on Heat are being drafted.

6. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 6 Key Issues and Status of Tariff Methodologies and Levels New Pricing in Heat Sector Unbundling of heat production, transmission, distribution and sales operations. The district heating and hot water price setting methodology embedded the principle of basic and re-calculated prices. Basic heat and hot water prices are set by the Commission for the period of 3-5 years. Every year the utilities recalculate these prices by applying the approved formulas. Prices for small utilities (less than 5GWh) are set by the Municipalities according to the methodology established by the Commission. Nearly in all cases the newly set basic prices are below the effective ones.

7. © Energy Regulators Regional Association 4 th Annual ERRA Meeting Budapest, Hungary, May 19, 2004 Slide 7 Key Issues and Status of Tariff Methodologies and Levels Incentive pricing methodologies have been used for electricity and gas and newly introduced for heat sector. With an implementation of the new EC Gas and Electricity Directives into the national legislation, electricity and gas pricing methodologies will be amended. Electricity prices were stable but with an expected closure of the Ignalina NPP some growth is foreseeable. Natural gas prices due to stable growth in demand, deflation and USD/Euro exchange rate have been reduced. The district heating prices finally became stable.