30 October 2003

The enactment of price and tariff decrees will enable the partial liberalisation of the gas market

MOL Hungarian Oil and Gas Company hereby announces that, following the acceptance of the Gas Supply Act, the Minister of Economy and Transport issued decrees governing the precise method of calculation of public utility (regulated) gas prices and the regulated tariffs for gas transmission and public utility gas storage. The enactment of these decrees will enable eligible consumers to purchase gas on the open market under free market conditions, if they opt to step out of the public utility supply service. Eligible consumers are those with consumption above 500 cm/h (currently representing over 40% of total consumption) from 1 January 2004 and from 1 July 2004 for all other non-household consumers.

The transmission and storage tariffs set in the tariff decree should ensure the balanced and profitable operation of these businesses from 2004, and thereby create the conditions necessary to guarantee a secure gas supply. According to MOL`s calculations, the regulated asset value, which is the basis of the determination of tariff levels, is HUF 177 bn for transmission assets and HUF 110 bn for storage assets. The regulated return is 8.5% in transmission and 10% in storage serving public utility supply. There is no regulated tariff set for non public utility gas storage, the tariff is subject to the agreement of parties concerned.

The price decree determines the wholesale and retail price of gas supplied as part of the public utility service, on the basis of the import gas price. The actual regulated price of natural gas will in future continue to be set and published by the Minister of Economy and Transport. However, it should be noted, that if the published price is not set in line with the rules of the price mechanism, based on the current court practice, MOL does not have efficient legal remedial tools. If the rules set in the price decrees are fully applied, the wholesale price of gas will cover all justified costs of the gas wholesaler from 2004.

The decrees will also enable MOL`s Board of Directors, based on calculable regulated gas business profitability, to determine the value of the gas business and to make a strategic decision on a potential partnership.