In their Autumn 2004 Survey, the six leading German economic research institutes forecast economic growth of 1.5% in Germany in 2005. This will therefore fall short of the growth of 1.8% predicted for 2004. In view of the subdued economic climate in Germany, we do not expect the economy to provide any significant stimuli for our business as an energy distribution company.
In the 2004/05 financial year, the economic environment of our industry will continue to be shaped by the further development of competition in the electricity and gas markets. Furthermore, the performance of our core businesses in the district heating, gas and water segments will be highly dependent on weather conditions. With regard to our valueadded services business, further dynamic growth is expected in the market for energy services in which the MVV Energie Goup has already successfully established itself. We therefore expect to see a significant increase in demand in this segment. Positive developments can also be expected in the environmental energy segment, and especially in the incineration of non-recyclable waste. As a result of the Technical Guidelines for the Disposal of Municipal Solid Waste (TASi), from 1 June 2005 it will no longer be permitted to deposit municipal solid waste in Germany without prior treatment. As one of the largest waste incineration companies in Germany, we therefore expect to benefit from the resultant increase in the volumes of waste which cannot be put to alternative uses in terms of their component materials.
The German Electricity and Gas Regulatory Authority is expected to commence operations in the course of 2005. Its precise objectives and its competencies, procedures and instruments have yet to be defined conclusively. We assume that the new standards issued by the regulatory body for network operators will lead to an increase in the level of competition in the domestic electricity and gas markets. We expect to see improvements in the regulations governing cross-border electricity trading and energy-balancing, which will enable us as a distribution company to meet our future electricity procurement requirements on the basis of better competitive terms on the market.
Network regulation is expected to exert pressure on usage fees both for the utilisation of high-voltage transmissions networks and for end distribution networks.
In view of the fact that this regulation could affect our level of earnings, it is difficult at present to assess the net impact which network regulation could have on our electricity segment.
The price of gas, which following a certain delay largely tracks that of oil (oil price link), will rise significantly in 2005 as a result of the sharp increase in the price of heating oil. An improved network access model, coupled with a new usage fee system, is expected to provide significant impulses to create functional competition in the gas market.
A further rise in electricity prices is looming on the horizon on account of the increase in wholesale prices and in maximum voltage network usage fees. Usage fee increases of up to 19% for maximum voltage transmissions have been announced for 2005 by some of the large German transmissions network operators. Based on the wholesale prices at the end of the 2003/04 financial year, prices can be expected to rise in the 2004/05 financial year. | |
