Principal directions of the Company's activities in 2004



In  2004  the  activities  of  JSC  "Latvijas  Gāze"  will  be aimed at

achieving the following objectives:



  * fulfilment  of  the activities envisaged in the JSC "Latvijas Gāze"

    marketing  program  ensuring  further  expansion  of the gas supply

    system and attraction of new consumers;

  * modernisation  and  installation  of  spare  compressor capacity at

    Inčukalns UGS;

  * cooperation  with  the  state authorities to ensure compliance with

    the  requirements  of the European Parliament and Council Directive

    2003/55/EC (of 26.06.2003) concerning common rules for the internal

    market in natural gas;

  * improvement of customer service;

  * implementation  of the JSC "Latvijas Gāze" technical reconstruction

    and modernisation program for 2004 - 2006.



The Company's main activity plans for the year 2004

 1. Capital investment program



The  capital  investment program for 2004 has been drawn up taking into

account  the  fulfilment  of the terms of licences issued by the Energy

Supply Regulation Council, the three-years investment program submitted

to the Public Utilities Commission (PUC) and accepted by PUC during the

tariffs  approval  process,  instructions  issued  by other supervisory

authorities  (fire  safety, environmental and sanitary inspections) and

'Gazobezopasnostj',  failure statements and the implementation of other

safety-related measures.



It is planned to invest LVL 25.4 mio 

in 2004.



The basic priorities of the capital investment program are following:



  * Construction of the compressor plant KC-1 and installation of spare

    compressor capacity at Inčukalns UGS (24.4%);

  * Reconstruction  of  methanol  storage,  KC-2  building, underground

    bore-wells and power supply system at Inčukalns UGS (9.8%);

  * Gas  distribution pipeline construction, gas supply installation in

    cities and villages (29.0%);

  * Refurbishment  of  GRS  (8)  and modernisation of GRP (21) and SGRP

    (26) (8.5%);

  * Development of information technologies (IT) and systems, incl. the

    development   of   a   customer  billing  and  service  system  and

    continuation  of  the development of a unified gas pipeline digital

    map (2.9%);

  * Replacement of vehicles and mechanisms (3.9%).



The  operation  unit  "Gāzes  Transports"  operates  47  gas regulation

stations  (GRS),  4  of  which  are  new.  At  present 23 GRS have been

refurbished,  and  it  is planned to refurbish 8 more stations in 2004.

According  to  the JSC "Latvijas Gāze" adjusted investment program, the

GRS modernisation program will be completed in 2006, and altogether LVL

7.0 mio will be spent for this purpose.



The  natural  gas  distribution  system maintains 233 GRP, 623 SGRP and

3344 MR. 197 (96.6%) GRP and 334 (92.8%) SGRP will be modernised in the

end of 2003. The modernisation program will be completed in 2004.



It  is  planned  to  construct  195.2  km  of  gas  pipelines  in 2004,

connecting  to the natural gas supply system new clients with potential

consumption 8.0 mio m3 in 2004 and gradually increasing to 61.9 mio m3.



1. Natural gas sales in 2004 

According  to  operative  information,  natural  gas  sales amounted to

    1 629.4 mio m3 in 2003, i.e. the largest ever volume of natural gas

    sales  after  regaining the independence of Latvia. The 5.1% growth

    of  the  gas  sales  volume in comparison with the year 2002 can be

    explained  by  the unexpectedly low ambient temperatures during the

    first four months of 2003, when the average air temperature was for

    3.9oC  lower  than  in  the  corresponding  period of 2002, and the

    connection of new clients to the natural gas supply system.

    The  natural  gas  purchase price and tariffs for Latvian users are

    tied  to  the  heavy  fuel  oil  price quotations BARGES FOB ARA at

    present. The current structure of prices, from the point of view of

    competition,  is  favourable for the gas sales volume at high heavy

    fuel  oil  prices.  The  most  favourable  situation occurs for the

    tariff  group  at  the fuel oil quotation above 140 USD/t. At heavy

    fuel  oil  quotations  around  110  USD/t it is to be considered as

    still  competitive to heavy fuel oil, however, these advantages are

    lost at heavy fuel oil quotations below 100 USD/t.

    As  experts'  forecasts  show  that  heavy fuel oil quotations will

    remain  on the current level, then in 2004 the sales of natural gas

    are planned to be 1 600.0 mio m3 

    .  The  budget  for  2004  has  been  drawn up evaluating enquiries

    submitted  by  natural  gas  users  (totalling  to 1 628.0 mio m3),

    statistics of former years adjusted taking account the normal range

    of  ambient  temperatures, as well as the assumption that municipal

    management  will involve in solving the debt settlement problems of

    municipal   heat   supply   utilities  and  continuous  gas  supply

    interruptions will not be needed due to debts.

    In  the JSC "Latvijas Gāze" budget the forecast of income generated

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

    tariffs  set  by  PUC  order nr. 105 "About the JSC "Latvijas Gāze"

    proposal  of  natural  gas tariffs" of 09.04.2003 at the heavy fuel

    oil  with  sulphur  content 3.5% average quotation BARGES FOB ARA -

    above 140 USD/t and the provisions of individual contracts with new

    clients.   Also   gas  purchase  prices  have  been  calculated  in

    accordance  with  the provisions of gas delivery contracts, planned

    gas  flows  and  price at heavy fuel oil quotation BARGES FOB ARA -

    above 140 USD/t.

    During  the first half of 2004 natural gas will be sold to users at

    tariffs  set in the second half of 2003, but as of 01.07.2004 those

    will rise for 2.5% on average.



  2. Average number of employees



In  2003  the  average  number  of  employees of the natural gas supply

system  will  amount  to  1262 people , but in 2004 JSC "Latvijas Gāze"

will employ 1300 people. 



The  increase  of the number of employees is related to the increase of

the gas pipeline length and the number of equipment to be maintained as

the  result  of  gas  supply  installation,  creation  of  a geographic

information system (GIS) and the increased volume of work for the basic

activity support functions.



In  2003  the  average monthly salary in JSC "Latvijas Gāze", excl. the

management's remuneration, will be LVL 358, but in 2004 - LVL 382 (6.6%

growth, real growth ~ 3.6%, because the Bank of Latvia anticipates that

in 2004 the average inflation level will be 3%).



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

2004



  1. Natural gas sales



In  2004 the natural gas sales revenues are planned to be LVL 115 485.4

thousand or 95.8% of the total basic activity income.

When drawing up the gas flow balance of Inčukalns UGS for the year 2004

it  has  been  planned that 2 100.0 mio m3 of gas will be injected into

the  storage  in  summertime.  For  the  needs of other countries it is

planned to inject 1 000.0 mio m3 of the total volume and withdraw 987.0

mio m3 that will yield to the Company income amounting to LVL 4.49 mio.

In  2004 the JSC "Latvijas Gāze" basic activity income is planned to be

LVL 120 574.23 thousand 

, but costs - LVL 107 324.0 thousand. 



2. The Company's profit.



 In  2004  the  profit  before taxes is planned to be LVL 13.2 mio, but

after  the  payment of the real estate and corporate income taxes - LVL

10 086.4 mio. 

The  net  profitability is anticipated to reach 8.4%, but the return on

equity - 6.9% (profit before taxes).

Changes  of the year 2004 profit in comparison with the previous years,

when  the  net  profit  was  higher  at lower volumes of gas sales, are

connected with the increase of depreciation deductions as the result of

the fixed assets revaluation.

In  2004  the  JSC "Latvijas Gāze" liquidity will be sufficient and the

accumulated  funds  will fully ensure financing for the planned capital

investment program.



JSC  "Latvijas  Gāze"budget  of  2004  is aviable -   here

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