The Company's principal areas of activity in 2003

In  2003  the  activities  of  JSC  "Latvijas  Gāze"  will  be aimed at

achieving the following objectives:

-     performance  of  activities envisaged in the marketing program of

JSC "Latvijas Gāze" ensuring further expansion of the gas supply system

and attraction of new consumers;

-     implementation of the Inčukalns UGS modernisation and enlargement

project;

-     cooperation  with  authorities  regarding  the elaboration of the

market  liberalisation measures and pricing methodologies for regulated

services;

-    improvement of customer service;

-    implementation of the JSC "Latvijas Gāze" technical reconstruction

and modernisation program for the years 2000 - 2005.

Main assumptions made when drawing up the Company's budget of 2003

1.     The  consumption  of  natural  gas will reach 1 490.7  mio m3 in

Latvia,  including the gas sales of 1 450.0 mio m3 (- 7.6 % compared to

the  actual  sales volume of 2002). This is a conservative forecast, as

the  requests  of  clients for gas deliveries in 2003 amount to 1 510.0

mio m3.

2.    Natural gas imports                     - 1 470.0 mio m3:

 incl.  JSC "GAZPROM"                   - 1 150.0 mio m3;

                LLC "ITERA Latvija"        -  320.0 mio m3.

3.     As  the  result of the changes of heavy fuel oil quotation group

and  natural  gas  delivery price formula the average purchase price of

natural gas will grow for 14.7% or 9.96 USD per1000 m3.

4.     Due to the economic problems of the large countries of the world

Latvian lats will maintain its positions versus the USA dollar with the

value  of  the  dollar  continuing to decrease. The dollar share of the

budget spending part has been converted to lats using the exchange rate

1 USD - 0.620 LVL (1USD - 0.624 LVL in 2002).

5.     The  draft  budget  has been drawn up in accordance with the new

unified chart of accounts that has been implemented simultaneously with

the  implementation  of the information system Oracle Applications. The

principal  difference  lies  in  the  inclusion  of  reserves  into the

operation  costs.  To make information comparable also the data for the

years 2001 and 2002 have been arranged correspondingly.

6.     The  forecast  of JSC "Latvijas Gāze" budget income from natural

gas  sales  for  the  first  half of 2003 has been drawn up taking into

account the tariffs approved by the Energy Supply Regulation Council on

19  December 2000 (price discounts have been set for consumer groups at

the  heavy  fuel  oil with sulphur content 3.5% average quotation price

BARGES FOB ARA above 140 USD/t); for the second half of 2003 the income

forecast  has  been  drawn up taking into account the natural gas sales

tariffs  approved  by  the Public Utilities Commission on 9 April 2003,

which provide for a gradual increase of the tariffs for 16.5% above the

current level over the period of three years.

The Company's main activity plans for 2003

1.    Capital investment program

The capital investment program will have following priorities in 2003:

-     Installation  of  spare  compressor  capacity,  modernisation  of

control panels and construction of the unified operative management and

control centre in Inčukalns UGS (36.8%);

-      Construction   of   gas   distribution   pipelines,  gas  supply

installation to towns and villages (21 %);

-      Reconstruction   of   6   gas   regulation  stations  (GRS)  and

modernisation  of  gas  regulation  installations  (36 GRP and 82 SGRP)

(7.6%);

-     Construction of pig launching and receiving installations for gas

transmission pipeline diagnostics (3.68%);

-      Development   of  information  technologies  (IT)  and  systems,

including the development of the customer accounting and service system

and  the launch of the development of a common gas pipeline digital map

(3.2 %);

-    Replacement of vehicles and machines (3.3 %);

-    Development of the LPG supply system (1.5 %).

The  investment  of  LVL  17  442  thousand is envisaged for the mother

company  in  2003,  including  LVL  3  713.3  thousand for gas pipeline

construction.  Assessing  the  capacities of construction companies and

time  for  procedures  required  from  the  order of a gas installation

design  till  the gas pipeline commissioning realistically, the Company

can  build 119.8 km of gas pipelines for LVL 2.9 mio in 2003 connecting

to the natural gas system consumers with the total expected consumption

60.0- 64.0 mio m3 per year in the future. LVL 0.7 mio has been reserved

for  gas  supply  installation to other economically feasible sites and

LVL 0.12 mio for designing new gas pipelines.

LLC "Latvijas Propāna Gāze" has envisaged investing LVL 270 thousand in

2003.

2.    Natural gas sales in 2003

The  draft  budget  of  2003  has  been drawn up assuming that the next

year's   natural   gas   sales   volume  1  450.0  milj.m3  objectively

substantiated.  The consumption of natural gas for process needs (incl.

gas  losses)  and  production  premises heating has been planned in the

amount  of  40.7  mio  m3.   This  forecast  is  realistic with equally

favourable:

-     market  conditions  as in 2002, i.e. with the price of heavy fuel

oil remaining unchanged in the local market;

-    climate conditions, i.e. with low ambient temperatures.

3. Liquefied petroleum gas sales

Liquefied  petroleum gas sales amounted to 23.04 thousand tons in 2002,

which  is  for  420 tons more than planned initially. Compared to 2001,

the  sales  of  gas  grew for motor transport to intermediaries and for

heating  of  individual houses but decreased to households in cylinders

and  from  underground  tank  groups.  The  intensive  expansion of the

natural  gas  system  facilitated  this  process.  Assessing the market

situation objectively, in 2003 the LPG sales volume has been planned in

the  amount of 22.85 thousand tons. Offering a new service - heating of

individual  houses using cabinet installations with 4 or 6 pieces of 80

l cylinders, as well as opening of new motor transport filling stations

-  will allow maintaining the gas sales volume of the level of the last

year.

Competition in the LPG market is still growing in Latvia; therefore the

economic  activity results may change in 2003 due to unexpected actions

of competitors.

According  to  statistical  information  the  market share of LLC "LPG"

constitutes  about 50%. Main activities to maintain the market position

in 2003 will be:

-    expansion of the motor transport gas filling network, establishing

filling  stations in commercially strategic places (Rēzekne). Necessary

investment  amounts to LVL 50.0 thousand, pay-back period will be about

6-8 years;

-     widening of the range of services offered at Riga motor transport

LPG  station in Skanstes Street by launching gasoline and diesel retail

sales. Investment amounts to LVL 50.0 thousand, pay-back period - about

2-3 years.

-    Installation of LPG-fired heating systems of individual houses. It

is  planned  to  spend LVL 32.0 thousand to transfer to gas the heating

systems  of  approximately  40-50  individual  houses. According to the

calculation  of  the  return  on investment, objects with surface tanks

will  pay  back in 7 years time but objects with cylinder cabinets - in

4-5 years time.

4.    Average number of employees

In  2002  the  average  number  of employees reached 1256 people in the

natural  gas  supply system; LLC "LPG" employed 472 people in 2002. The

total average number of employees was 1728 people in 2002.

According  to  the  Board  of Directors' resolution JSC "Latvijas Gāze"

will  employ  1788  people  in  2003, including 1300 in the natural gas

supply  system  and 488 in LLC "Latvijas propāna gāze". The increase of

the  number  of  employees is connected with the growth of gas pipeline

length  and the number of equipment to be serviced as the result of gas

supply  installation  (14  people), as well as creation of a geographic

information  system  (GIS)  (14  people,  1  engineer  in each regional

office)  and  increasing  amount  of  work for the design, strategy and

development  department other and basic activity support functions. LLC

"LPG"  will  need new jobs in gas filling stations to be opened and for

the installation of heating equipment.

In  2002  the average monthly salary of JSC "Latvijas Gāze" reached LCL

317,  but in 2003 it is planned to be LVL 336 (growth of 6%), incl. LVL

350  in  the natural gas supply system and LVL 228.15 in the LPG supply

system.



Main  financial  and economic indices of the JSC "Latvijas Gāze" budget

of 2003 

 1. Gas sales 



The  natural gas sales revenues are planned to be LVL 97 551.3 thousand

or 89.8% of the total basic activity revenues of the concern in 2003.



When  drawing  up the balance of gas flows in Inčukalns UGS in 2003, it

has  been  planned that 1 870.0 mio m3 of gas will be injected into the

facility in summertime, including 800.0 mio m3 of the total volume that

will  be  injected  and  withdrawn for the needs of other countries and

yield  to  the  Company  the  revenue  of  LVL 3. 89 mio or 3.6% of the

concern's total basic activity revenues.



The  volume  of  LPG sales is planned to be 22.85 thousand tons in 2003

that  would  ensure the revenues of LVL 6 655.1 thousand , i.e. 6.1% of

the total basic activity revenues of the concern.



The  basic  activity  revenues  of  JSC  "Latvijas Gāze" are planned to

amount  ot  LVL 108 626.8 thousand in 2003, incl. LVL 6 611 thousand of

LLC  "LPG",  but the concern's total basic activity cost is expected to

be LVL 99 481.3 thousand , incl. LVL 6 450.3 thousand for LLC "LPG". 



2.      The Company's profit 



In  2003 the Company's profit before taxes is planned to be LVL 9 232.3

thousand  , but the undistributed profit will be LVL 7 449.4 thousand ,

including LVL 18.9 thousand from LLC "Latvijas propāna gāze".