1. Dr Joanna Kudełko Advisor to the President of the ERO Budapest, Hungary April 14, 2005 5 th Annual Meeting of the Energy Regulators Regional Association Country Update - Poland

2. © Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 2 Key events in the gas subsector Explor ation & Produc tion Whole sale Trade Storag e Distribut ion Retail POGC Trans mission Trans mission 6 Distribution Companies Unbundling and restructuring of the Polish Oil & Gas Company - 98% market share

3. © Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 3 Consolidation Generation - two big groupings Distribution - 4 consolidated groups, plans to create 2 more groupings from 8 remaining distribution companies; two distribution companies already privatised vertical integration (under discussion) Termination of the Long Term PPA’s: According to the European Commission the contracts contain the elements of public aid, the producers will obtain compensation calculated on the basis of stranded costs the energy prices will be monitored for 10 years, and the size of eventual compensation will depand on their level. In July 2004 the President of the ERO designated the Transmission System Operator : „PSE-Operator” (PSE - the Polish Power Grid Company) Key events in the electricity subsector

4. © Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 4 Key events and activities: May 2004 - April 2005 Liquid fuel subsector: 7000 licences issued (mostly for retail) Privatisation of the second largest Poland’s oil company is being discussed District heating subsector: On January 1st, 2005 the President of the ERO released the CHP tariffs for electricity from obligatory approval by the Regulator - electricity generation market is recognised as fully competitive Tariffs for heat are based on calculation of planned costs-earlier on historical costs. Key events in the fuel & heat subsectors

5. © Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 5 Challenges for gas subsector enforcement of market behaviour through privatization complete unbundling (TSO and network assets outside dominant POGC capital group) renegotiation of the Yamal contract (take -or-pay, destination clauses, gas release programs) diversification of gas suppliers Challanges for electricity subsector: Termination of the LT PPA’s practical implementation of the new rules and duties regarding the system operator, refusals to render services and reporting Challanges for distring heating sector: Taxes and fuel prices increases Amandement in the law concerning costs of capital as part of justified cost for tariff calculation Challanges

6. © Energy Regulators Regional Association 5 th Annual ERRA Meeting Budapest, Hungary, April 14, 2005 Slide 6 Key Issues & Status of Tariff Methodologies & Levels Since 2001 - incentive regulation Revenue cap method gives oportunity ti increse profits by costs reduction.