1. Overview of the latest developments of the Hungarian energy market Mr. György Hatvani Deputy State Secretary of energy and industry Ministry of Economy and Transport HUNGARY Black Sea Energy Conference 3-5 April, Bucharest

2. 2 Primary energy sources balance in 2005

3. 3 Gross electricity consumption: 41.2 TWh Import demand: 6,2 TWh Built-in power plant capacity: 8700 MW Peak load: 6439 MW Yearly consumption increase 1,5- 2% in the years 2005-2020 General characteristics of the Hungarian electricity industry in 2005

4. 4 Primary energy sources of power plants in 2005

5. 5 The Hungarian electricity market liberalization in data Dec 2003Dec 2004Dec 2005 Legal market opening (%)3570 Size of the active market (%)192235 Licensed traders (piece)112230 Registered eligible customer (piece) 505501740 Domestic power plant capacities feeding the free market (MW) 110350450

6. 6 Modell of the electricity market

7. 7 Key questions of the electricity market 1. Establishment of the TSO the TSO is a subsidiary of the MVM Holding company control, governance and budgetary mechanisms as well as legal regulations for unbundling of different activities was created Amendment of the dual market model single (free) market model simultaneously introducing the universal service supply for the households and S&Ms

8. 8 Key questions of the electricity market 2. DG-COMP investigation regarding the Hungarian PPA System the most urgent objectives in the mid of the ’90s was to ensure the security of supply at least costs, the modernisation of the infrastructure with particular regard to the prevailing standards of environmental protection the PPA system fulfilled its role regarding the modernisation of the power plants system in Hungary do the PPAs themselves constitute forbidden State aid to the power generators? the Hungarian Government is ready to cooperate with DGCOMP to find an acceptable solution by amending the system adapting to the Treaty

9. 9 Key questions of the electricity market 3. Latest EU targets regarding the renewable energies and energy efficiency The new indicative target regarding the share of renewable energies by 2015 is 15% Hungary has already fullfild its former undertaking by 2005 The current share of the renewable energies in the total and in the electricity consumption is 5,2 and 4,5 respectively. The indicative target of energy saving potential is 20% by 2020 The EU shall pay more attention to the CEE countries substantial need of economic growth

10. 10 General characteristics of the Hungarian natural gas industry in 2005 The gas consumption of Hungary is 13 billion m 3 annually, which is about 40% of the country’s energy consumption 80% of the consumed gas comes from import, the import dependency is steadily growing Hungary has two import intake routes, but the source of the import is exclusively the Russian Federation

11. 11 The Hungarian natural gas market liberalization in data Dec 2004Dec 2005 Legal market opening (%)70 Size of the active market (%)67,5 Licensed traders (piece)1014 Registered eligible customer (piece) 2363

12. 12 Conditions of natural gas market extension 1. Demand side –(The consumers are interested in the opening of the gas market, there is a real need, they are able to raise demand.)  Supply side –(Apart from MOL Ltd, only 1 gas trader could come up, who is selling also Eastern gas, and it is not expected, that a new actor will enter the market.)  Infrastructure The development of the Hungarian gas system is reasonable, it is also justified by the security of supply, besides the commercial and market widening expectations. The capacity of the Hungarian gas system is 96 Mm 3 /day. On 9 February 2005, every former demand record was broken: on that day the consumption was 91,65 Mm 3 (-7,3 o C).

13. 13 Conditions of natural gas market extension 2. Eliminating the infrastructural barriers taking into also consideration the recent regional gas supply problem at the beginning of 2006 -construction of new cross-border capacities: MOL Ltd. is analyzing the interconnection of the Hungarian- Slovakian, and the Hungarian-Romanian gas networks. The Nabucco project is currently under preparation -for security of supply reasons it is also essential to connect the national systems -extension of the underground gas storages, building emergency underground gas storage facilities -diversification of gas import supply: the competition could only be boosted substantially, when new gas supply sources will be available for the Central European Region: Nabucco or new Mediterranean or north Adriatic LNG terminals

14. 14 Thank you very much for your kind attention!