European Energy Market

Centrica PLC 29 June 2001 June 29, 2001 Centrica enters Continental European energy market Centrica plc has today announced the purchase of a 50 per cent share in Luminus N.V., a newly created energy supply business in Belgium. The transaction represents Centrica's first step into the liberalising energy markets of Continental Europe. The joint venture has been established with a consortium of five Flemish municipal utilities ('intercommunales'), led by Interelectra and WVEM. The partners expect that Luminus will be the main alternative to Electrabel in the Belgian retail energy market. The Flemish Government has announced a phased opening of the electricity market, with household competition starting on 1 July, 2003. The market for the largest electricity customers in Belgium above 100GWh has already opened. In Flanders the market above 20GWh is due to open on 1 July, 2001, with the above 1GWh market opening on 1 January, 2002. The opening dates for the electricity market in the other regions of Belgium and the gas market will be announced in due course, but are expected to follow close behind the timescale for Flanders. On completion, Luminus will assume management of the supply business of the consortium members as part of the process of preparing for market opening. The electricity and gas distribution networks serving these customers will remain with the intercommunales. As the market opens up and the customers become eligible for competition, the beneficial interest from the customer base will transfer to the joint venture. The consortium has 595,000 electricity and 166,000 gas customers in the areas of Limburg, East and West Flanders, Antwerp and Brabant (around 90 per cent of the gas users are dual fuel customers). This joint venture will establish a strong platform from which to grow market share throughout the rest of Belgium and cross border into the Dutch and north west German markets. Centrica will pay a consideration of £52 million (Euro 85 million) for its 50 per cent stake, which values the whole business at an average cost per customer account of £135. The agreement marks a key stage in Centrica's strategy of exporting the skills and expertise it has gained during deregulation in the UK and creates a platform for the provision of other products and services. Centrica's Chief Executive, Roy Gardner, said: 'In the consortium we have found a joint venture partner who shares our vision for developing the competitive European market. Most importantly, this enables us to be involved at the formative stage of market development. We aim to be a significant player in Benelux, which is attractive due to its favourable regulatory climate relative to the rest of Continental Europe.' The transaction follows Centrica's acquisition of Direct Energy in Canada and Energy America in the United States. 'I am delighted that we have now established a presence in our two strategic growth areas of Continental Europe and North America,' added Mr Gardner. Energy Minister Brian Wilson today gave a warm welcome to Centrica's new joint venture. He said: 'This deal is a strong first sign of progress in energy market reform - in which consumers across Europe will be the winners.' Jo Geebelen, CEO of Interelectra, commenting on behalf of the Belgian consortium, said: 'We set out to find a joint venture partner with whom we could seize the opportunities offered by liberalisation of the Belgian and neighbouring markets. Centrica fits that bill perfectly. Together we aim to establish ourselves as a major competitive force in Benelux and bring benefits to millions of customers.' The joint venture will have a Belgian chairman and Rob Leonard, currently a Business Development Director at Centrica, will be appointed Managing Director. Enquiries Centrica Media Relations 01753 758445 Centrica Investor Relations 01753 758114 Background Information on Luminus and the Belgian Energy Market Luminus Retail Joint Venture Luminus is a 50/50 JV between Centrica and a 'consortium' of five Flemish municipal utilities in the areas of Limburg (Interelectra), West Flanders (WVEM), Brabant (PBE), East Flanders (VEM) and Antwerp (VEM and Iveg). The main area of the consortium, Limburg, goes right up to the Dutch border and is close to the German Ruhr area with over 40 million people living within a 150km radius. The HQ of the JV will be based at Hasselt in this province. (A map showing the areas supplied by members of the consortium can be found in this document on the Centrica web site - www.Centrica.com ) * Consortium members are mainly involved in the distribution of electricity and gas and the provision of cable television services in their franchise areas. * The network assets (i.e. the gas and electricity pipe and wire networks and generation plant) will remain wholly owned by the members of the consortium and will not form part of the Luminus JV. * Luminus will focus on supplying energy and household related services to its customers and will seek to grow its customer base mainly in the Benelux markets. * Together the consortium is the second largest energy player in the Belgian market with 595,000 electricity customers and 166,000 gas customers. * In 2000, the consortium members distributed a total of 5.8TWh of electricity (12% of Belgian mass and mid market) and 23,160 TJ of gas (9% of Belgian mass and mid market). * Combined energy turnover in 1999 was EUR 700m. Consortium Proportion of JV electricity Proportion of JV gas members customers customers Interelectra 59% 47% WVEM 17% 19% PBE, IVEG, VEM 24% 34% Competition timescales Customers will transfer to Luminus in stages, as they become eligible for competition. Flemish electricity market, Competition opens 1 July 2001 over 20GWh Flemish electricity market Competition due 1 January 2002 over 1GWh Flemish electricity market Competition due 1 January 2003 over 56KVA Remaining Flemish Competition due 1 July 2003 electricity customers Flemish gas market Expected to open in stages, approximately one year after electricity market Wallonia Timescale not yet set, but expected to follow closely on Flemish timescales The Belgian Energy Market Electricity CPTE, owned by Electrabel (91.5%) and SPE (8.5%), generates around 96% of electricity consumed in Belgium. Auto generators and imports (of which about two thirds is from France) account for the rest. The high voltage grid is also owned by CPTE, and is operated by Electrabel. Municipalities have a legal monopoly over electricity distribution and the distribution networks are owned and operated by 'Regies' and 'Intercommunales'. There are nine independent municipally owned utilities 'intercommunales pures', nineteen utiliIities partially owned by Electrabel, 'intercommunales mixtes', and eight 'regies', run directly by the relevant local authority. There are approximately 5 million electricity customers in Belgium consuming a total of 78.7TWh. Belgian customers use per capita slightly more electricity than in the UK at around 8,000 kWh pa. compared with the UK at around 6,500 kWh pa. Belgian electricity prices are among the highest in Europe. The average residential electricity price (excluding taxes) is around 7.5p/kWh i.e. around 22% higher than the European average. Electricity prices to industrial customers (net of taxes) in Belgium are on average 3.5p/KWh for loads greater than 24GWh pa; 12% higher than the EU average. Gas There are approximately 2.5million gas customers in Belgium, supplied entirely from imports - Netherlands (28%), Norway (29%), Algeria (24%) and the spot market (19%). Gas consumption in Belgium increased by 87% between 1988 and 2000, to approximately 621,700 TJ. This strong demand for gas has been driven primarily by demand from electricity generators, which account for 42% of the total increase in gas consumption. Over the same period residential customers' consumption increased by 40.8% and industrial customers' consumption increased by 49.7%. Historically, the gas distribution network in the province of Limburg has been rather limited in comparison with other Flemish provinces. In 1996 only 25% of households in Limburg were connected to a gas distribution system, compared with between 50% and 60% for some of the provinces. Higher than average growth is expected in future years. Gas prices in Belgium are broadly in line with the EU average.

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