0 Rymantas Juozaitis Director General Lietuvos energija AB PAN BALTIC PPP CONFERENCE-SEMINAR Vilnius, November 2006 POWER SECTOR OF LITHUANIA and OVERVIEW OF OPPORTUNITIES

1 IE UK 390TWh UCTE Russia 930 TWh 420TWh Centrel 260 TWh 510TWh Iberia 280 TWh 480TWh 320TWh Baltic IPS 25 TWh 9TWh ELECTRICITY CONSUMPTION IN REGIONS OF EUROPE IN 2004

2 THE STRUCTURE OF POWER SECTOR IN LITHUANIA PRODUCTION: 3 production companies 3 CHPs owned by district heating companies Few private mini HPP Few industrial power plants DISTRIBUTION: Three distribution companies (one private) TRANSMISSON: One Transmission System Operator company – Lietuvos Energija AB

3 ASSETS AND INCOME OF BALTIC POWER COMPANIES (€ m), 2005

4 ELECTRICITY PRODUCTION AND CONSUMPTION, TWh

5 ANNUAL ELECTRICITY DEMAND GROWTH RATE (%) IN LITHUANIA

6 THE CLOSURE OF IGNALINA NPP The EU has made the early closure of Ignalina NPP a precondition for Lithuanian- EU membership Unit I was shut down on December 31, 2004 The closure of Unit II is scheduled in 2009 Ignalina NPP can be substituted by Lithuanian PP, but this power plant has to be upgraded to meet environmental requirements Ignalina NPP is a dominant producer and its closure will place the power system and the market in a completely new situation

7 INSTALLED GENERATING CAPACITIES AND FORECAST IN LITHUANIA Fuel MW Nuclear: Ignalina nuclear Thermal: Lithuanian PP (condensing) Vilnius CHP Kaunas CHP Mažeikiai CHP Others Gas, HFO, orimulsion Gas, HFO HFO Hydro: Kaunas HPP Kruonis PSPP Small scale HPP totally Other renewables: Wind Others Total generation Total without hydro and wind Daily demand Peak demand

8 Tallinn Vilnius Riga ESTONIA LATVIA LITHUANIA NARVA TPP BALTIA TPP TALLIN CHP RIGA CHP-1 RIGA CHP-2 RIGA HPP KEGUMS HPP PLAVINAS HPP KAUNAS HPP IGNALINA NPP KAUNAS CHP MAZEIKI CHP VILNIUS CHP LIETUVOS TPP KRUONIO PSP ESTONIA LATVIA LITHUANIA INSTALLED CAPACITY (MW) PLANTS MAIN GENERATION FACILITIES IN THE BALTIC STATES Dependance on energy produced from natural gas

9 DEMAND FORECAST OF THE BALTIC STATES BY 2025

10 A NEW NUCLEAR POWER PLANT The Prime Ministers of Lithuania, Latvia and Estonia signed Communiqué on 27th of February, 2006, where the following energy cooperation objectives were stated: To prepare a common energy strategy of the Baltic States by the end of 2006; To cooperate fully on and support the construction of interconnections between the Baltic and other EU counties; To support the initiative to build a new nuclear power plant in Lithuania; To invite the state owned Baltic energy companies Lietuvos Energija, Latvenergo and Eesti Energia as the participating parties, on equal terms among them, to invest in the preparation and construction of the new nuclear power plant in Lithuania.

11

12 NUCLEAR POWER PLANTS IN EUROPE

13 Dresdner Kleinwort (Financial) Governments of Estonia, Latvia, Lithuania Eesti Energia Latvenergo Lietuvos energija Freshfields Bruckhaus Deringer (Legal) Colenco (Technical) Project Sponsors Appointed Advisors MAIN PARTIES INVOLVED IN PREPARATION OF THE FEASIBILITY STUDY

14 WORKING GROUPS OF THE FEASIBILITY STUDY The Technical and Environmental Working Group, responsible for conducting technical assessment of best available technologies for the new nuclear plant, possible reactor size, and the potential investment and operational costs of the facilities The Financing Working Group, responsible for economic and financial appraisal of the Project, The Legal Working Group, responsible for structuring the Project in the light of applicable legal, contractual, regulatory and EU law requirements The Transmission Working Group, responsible for investigating the adequacy of the Baltic transmission system for ensuring power flows from the new plant in Ignalina to power systems in all countries involved and estimating the reserve capacity required after construction of the new plant.

15 ANALYSIS WAS BASED ON INFORMATION AVAILABLE TODAY ON: available reactor technologies current market environment for commodities (in particular oil and gas) legal and regulatory framework for nuclear generation specifically in the Baltic region applicable legal framework in Lithuania and the EU technical status of the interconnected Baltic system current and forecast financial standing and financial market environment

16 BALANCE OF CAPACITY IN THE BALTIC STATES 2500 MW 4170 MW 430 MW 540 MW in Estonia in 2012

17 BALANCE OF CAPACITY IN THE BALTIC STATES (optimistic scenario) MW in Estonia MW in Latvia MW in Lithuania

18 ELEVEN NUCLEAR TECHNOLOGIES WERE ACCEPTED

19 MAIN PARAMETERS Capacity needed MW Investments2,5 – 4,0 billion € Overnight capital cost €/kW Possible project completion2015

20 INDICATIVE ELECTRICITY GENERATION NEW ENTRY COSTS FOR DIFFERENT FUELS

21 CONCLUSIONS OF THE STUDY The main conclusion – It would be feasible to develop a new nuclear power plant to replace Ignalina NPP Lietuvos energija, Latvenergo and Eesti Energia undertaking jointly to build a new nuclear power plant appears feasible from a technical, electrical system, financial and legal perspective; Likely cost advantage of nuclear reactor over alternative sources of new generation; Sufficient space at the Ignalina NPP site is available to accommodate the new nuclear reactor units; Availability of suitable reactors designs; The nuclear fuel market is effectively a global market; The current electrical system is capable of accommodating up 3000 MW of nuclear capacity.

22 ALLOCATION OF NEW NUCLEAR UNIT AT IGNALINA NPP one reactor case

23 ALLOCATION OF NEW NUCLEAR UNIT AT IGNALINA NPP Two reactors case

24 NEW INTERCONNECTIONS Expected future interconnections: Estonia – Finland Sweden – Lithuania Poland – Lithuania Main objectives and benefits: Integration of the Baltic power systems into the EU IEM Ensuring security of supply in the Baltic region

25 EXPECTED INTERCONNECTIONS OF BALTIC TRANSMISSION GRID Krievija Ukraina Baltkrievija Polija Čehija Vācija Lietuva Latvija Igaunija Somija Norvēģija Dānija Zviedrija NORDEL UCTI/ CENTRAL Russia Ukraine Belorus Poland Czech Germany Lithuania Latvia Estonia Finland Norway Dānija Sweden Integrated Baltic and CIS energy system NORDEL UCTE/ CENTRAL Europe ESTLINK 350 MW Lithuania - Sweden 1000 MW Lithuania – Poland 1000 MW

26 INTERCONNECTION ESTONIA – FINLAND (ESTLINK) Three Baltic power companies (Lietuvos Energija, Latvenergo and Eesti Energia) and two Finish companies signed the Agreement on July 7, 2004; Capacity of interconnection MW; Total investment cost of ESTLINK – 106 million EUR: –Debt – 84 million EUR (loan agreements signed on by NEL) 53 million EUR loan from Nordic Investment Bank 31 million EUR loan from AS SEB Eesti Uhispank –Share capital of NEL – 22 million EUR (paid in ) 39.9% AS Eesti Energia 25% State JSC Latvenergo 25% AB Lietuvos energija 10.1% Pohjolan Voima Oy and Helsingin Energia/City of Helsinki subsidiary Finestlink Oy. Projected commissioning of interconnection – December 4, 2006.

27 Capacity MW Length – ~350 km Investments – ~ € 400 m Terms of Reference of the Feasibility Study are agreed between AB Lietuvos energija and Svenska Kraftnät Feasibility Study will provide detailed technical and economic analysis of the Interconnection Tender for Preparation of the Feasibility Study is announced INTERCONNECTION LITHUANIA – SWEDEN

28 LT-PL interconnection project is listed in the European Commission “Quick start” projects’ list and in the updated TEN Guidelines; €142.8m for interconnections for are marked in the programme of Ignalina NPP closure; The line route has been defined on the Lithuanian territory ; Lithuanian side is ready to start the implementation of the Project immediately by establishing a project implementation company; Polish side is willing to continue with analysis; In 2006 Polish Government approved the Program on Electricity of Poland where the top priority was given to new interconnection with Germany, strengthening of Polish grid, rehabilitation of 750kV line with Ukraine. Only after that the Program contains the provision on interconnection between Lithuania and Poland, on the condition that the pay- back of the project and EU financial support will be ensured. INTERCONNECTION LITHUANIA- POLAND

29 INTERCONNECTION LITHUANIA – POLAND

30 INVESTMENTS IN INTERCONNECTION LITHUANIA - POLAND Investments, € mln. Grant267 Commercial167 TOTAL434 Investments,.€ mln Interconnection304 Upgrading of power plants in the Baltic states130 TOTAL434 Financing: According IPA-EBRD study, year 2003: The upgrading of the Baltic states power plants is presently implemented by using financial sources not related to the project. Remaining part of investments for LT- PL interconnection is 304 mln. €.

31 INVESTMENTS IN INTERCONNECTION LITHUANIA - POLAND (continued) Unit€ mln. LT territory 1000 MW back-to-back converter kV line Alytus – state border (48 km) kV line Kruonis – Alytus (double circuit, 53 km)20 PL territory 400 kV line state border – Elk (106 km) kV line Elk – Narew (134 km) and Elk – Matki (169 km) 89 Preliminary work to promote the project27 TOTAL304 International Ignalina NPP Decommissioning Fund (provisional) 144 Commercial part160 TOTAL304 Financing of the Project

32 ELECTRICITY SALES VOLUME IN EUROPE 2005 m. (TWh)

33 ELECTRICITY CONSUMPTION PER CAPITA, kWh EC forecast

34 NECESSARY INVESTMENTS ProjectInvestments A new nuclear power plant € billion Interconnections € million A second nuclear power plant?

35 CONCLUSIONS The new nuclear power plant and new interconnections will enhance security of energy supply in the region and will reduce dependence on one supplier. Cooperation of private and public funding is needed. Interconnections Lithuania-Sweden and Lithuania-Poland will create conditions to integrate Baltic electricity market to Nordic and Central European markets and to be more efficient. Cooperation of private and public investments is needed. Development of cooperation of the Baltic power companies facilitates security of electricity supply and affordable prices

36