Economic Framework

During 2003 the economic situation in the European Union has only improved slightly due to the adverse impact caused by the Iraq war rising ernergy prices and relativity weak economic development in some EU countires and the US. The prognosis for economic growth in the EU in 2003 only amounts to 0.8%. Conversely, our key Eastern European markets in Poland and the Czech Republic are expecting significantly higher growth rates of approx. 3% each thanks to their increasing export dynamic for 2003. After weak growth (0.2%) in Germany in 2002, the gross domestic product for all of 2003 will likely remain at last year’s level.

Regulatory Framework for the Energy Industry

In June 2003 the European Parliament passed a directive on the second phase of liberalisation for the energy markets. The heart of the so-called acceleration directives are in fact legal guarantees for non-discriminatory access to existing power and gas grids for all participants in the market as well as freedom of choice of power and gas suppliers for companies as of July 2004 and for residential and small business customers as of 2007. While in Germany all electric power customers have been able to choose their suppliers freely since the beginning of liberalisation in 1998, this has not been possible for all customers Europe-wide up till now. Moreover, the EU directive makes it mandatory for European energy utilities to unbundle their respective generation, network and sales activities organisationally by July 1, 2004, and in accordance with corporate law by July 1, 2007. Furthermore, the directive specifies that a regulatory agency must be instituted for network access. In Germany a corresponding system will thus have to be introduced to regulate network access.