Latvijas Gaze

Quarterly Report • Sep 8, 2009

"Latvijas Gāze" Joint Stock Company

Unaudited Financial Report of 6 months of 2009

Prepared according to the Requirements of International Financial Reporting Standards

Riga, 2009

Contents

Information on the company 3
Report on activity of the "Latvijas Gāze" JSC in the 6 months of the year 2009 4
Shares and shareholders 5
Statement of Director's responsibility8
Balance sheet9
Consolidated income statement – by function of expense10
Consolidated statement of recognized income and expense 10
Cash flow statement 11
Changes in equity capital12
Notes to the financial statements13

Information on the company

Name of the Company	JSC Latvijas Gāze
Legal status of the Company	Joint Stock Company
Registration number, place and date of registration	000300064 Riga, March 25, 1991
	Reregistered in Commercial Register December 20, 2004 with common registration No 40003000642
Address	Aristīda Briāna street 6 Riga, LV-1001 Latvia
Names of major shareholders	E.ON Ruhrgas International AG (47.2%) Gazprom JSC (34.0%) Itera Latvija LLC (16.0%)
Names and positions of the Board members	Adrians Dāvis – Chairman of the Board Aleksandrs Mihejevs (Александр Михеев) – Member of the Board, Deputy Chairman of the Board Jörg Tumat – Member of the Board, Deputy Chairman of the Board Anda Ulpe – Member of the Board Gints Freibergs – Member of the Board
Names and positions of the Council members	From July 3, 2009 Kiril Seleznov (Кирилл Селезнев) – Chairman of the Council Juris Savickis – Deputy Chairman of the Council Achim Saul – Deputy Chairman of the Council Joachim Hockertz – Member of the Council Mario Nullmeier – Member of the Council Uwe Fip – Member of the Council Heinz Watzka – Member of the Council Jelena Karpel (Елена Карпель) – Member of the Council Aleksandr Krasnenkov (Александр Красненков) – Member of the Council Vlada Rusakova (Влада Русакова) – Member of the Council Igor Nazarov (Игорь Назаров) – Member of the Council
	Untill July 3, 2009 Kiril Seleznov (Кирилл Селезнев) – Chairman of the Council Juris Savickis – Deputy Chairman of the Council Achim Saul – Deputy Chairman of the Council Eike Benke – Member of the Council Uwe Fip – Member of the Council Marcus Anton Söhrich – Member of the Council Heinz Watzka – Member of the Council Jelena Karpel (Елена Карпель) – Member of the Council Aleksandr Krasnenkov (Александр Красненков) – Member of the Council Vlada Rusakova (Влада Русакова) – Member of the Council Igor Nazarov (ИИИИИ ИИИИИИИ) – Member of the Council
Financial period	1 January – 30 June 2009

Report on activity of the "Latvijas Gāze" JSC in the 6 months of the year 2009

Financial activity

In 6 months of the year 2009, "Latvijas Gāze" Joint Stock Company (hereinafter – LG) sold to consumers 807,1 million nm³ of natural gas. In comparison to the respective period of 2008, the natural gas sales have decreased by 10,0 %.

The decrease of natural gas consumption in 6 months of 2009 has been caused by the temperature as well by more economical use of resources and decisions made by natural gas consumers to decrease business activities because of global financial crisis and decreasing growth pace of national economy of Latvia.

The gas injection season at the Inčukalns UGS was commenced on May 14, 2009. At commencement of natural gas injection, the reserves of active gas at the Inčukans UGS were 860,3 million nm³ . According to operational data it is planned to inject 1204 million nm³ of natural gas at the Inčukalns UGS in 2009, reaching 2,06 billion m³ of active gas at the end of the injection season. At the end of the reporting period, the total natural gas injection plan had been executed by 34,3 %.

In 6 months of 2009, consumers were sold natural gas and provided services for LVL 205,2 million, which is by 25,4 % more than in the respective period of 2008.

LG completed 6 months of 2009 with a profit of LVL 6,7 million, which correspond to profit for first 6 months of planned budget 2009.

Within the framework of the capital investment programme, LVL 6,37 million were utilized in 6 months of 2009. The funds of investment were mostly used for modernization of technological equipment and construction of new gas pipelines.

The meeting of shareholders of July 3, 2009 passed a resolution on the net profit of 2008 (LVL 19,928 million), determining that the unavailable share of the profit is LVL 1,770 million while the distributable share of profit LVL 18,158 million shall be used as follows – LVL 15,162 million or LVL 0,38 per share shall be paid to shareholders in dividends, setting July 21, 2009 as the date of calculation of dividends and July 28, 2009 as the date of payment of dividends, whereas LVL 2,996 million shall be included in the reserves stipulated by the Articles of Association.

At the Council meeting of LG of July 3, 2009 for a period of three years the new Council of the LG was elected and the Board of the Company was re-elected.

Shares and shareholders

1) Composition of shareholders¹ of LG as on December 31, 2008:

Shareholder	31.12.2008.	31.12.2007.
"E.ON Ruhrgas International" AG	47.2 %	47.2 %
"Gazprom" OJSC	34.0 %	34.0 %
"Itera Latvija" Ltd	16.0 %	16.0 %
Others	2.8 %	2.8 %
TOTAL	100,0 %	100,0 %

2) Distribution of holdings according to holding groups as on December 31, 2008:

3) List of shareholders with special control rights as on December 31, 2008:

Members of the Board		Number of shares
Chairman of the Board	Adrians Dāvis	417
Deputy Chairman of the Board	Jörg Tumat M.A.	500
Deputy Chairman of the Board	Alexander Mihejev	417
Member of the Board	Anda Ulpe	729
Member of the Board	Gints Freibergs	416

	Members of the Council	Number of shares
Chairman of the Council	Kirill Seleznev	0
Vice-chairman of the Council	Achim Saul	0
Vice-chairman of the Council	Juris Savickis	0
Members of the Council:	Eike Benke	0
	Uwe Fip	0
	Marcus Anton Söhrich	0
	Heinz Watzka	0
	Yelena Karpel	0
	Alexander Krasnenkov	0
	Vlada Rusakova	0
	Igor Nazarov	0

Since February 15, 1999, the shares of LG are quoted at the NASDAQ OMX Riga, and its share trade code since August 1, 2004 is GZE1R. The shares of LG were quoted in the Official list of the

1 Shareholders owning not les than 5% of capital

NASDAQ OMX Riga and the General list of the Baltic Stock Exchange till July 31, 2008. Pursuant to the resolution passed on June 25, 2008 by the Board of the JSC "NASDAQ OMX Riga", due to the insufficient number of quotable LG shares available in free public trading, the shares of LG were shifted to the Second list of the Baltic Stock Exchange and the NASDAQ OMX Riga as from August 1, 2008.

The capitalization value of LG on the 30 June 2009 reached LVL 170,77 million – by 38,9 % less than on the 30 June 2009 when capitalization value was LVL 279,30 million. By share market capitalization LG took the 2nd place among companies quoted in Latvia and the 6th place at the Baltic Stock Exchange.

4) Share price of LG as on June 30, 2009 and previous period

	6 months 2009	6 months 2008
Shares price (LVL):
Highest	5.23	8.20
Lowest	3.32	6.00
Avarage	3.95	7.26
Last	4.28	7.00
Number of shares	27 190	22 950
Turnover (mio LVL)	0.107	0.167
Capitalization (mio LVL)	170.772	279.300

Source: NASDAQ OMX Riga

The shares of LG are included in the following index baskets – OMX Baltic, OMX Riga, OMX Baltic Energy.

OMX Baltic

An index of all shares, a Baltic-wide index. Its basket is comprised of the shares of the Official and the Secon list of the Baltic exchanges. The index reflects the actual situation and changes in the Baltic market overall.

OMX Riga

An index of all shares, a local index. Its basket is comprised of the shares of the Official and the Second list of the NASDAQ OMX Riga. The index reflects the actual situation and changes in the NASDAQ OMX Riga.

OMX Baltic Energy

A sector index, a Baltic-wide index, based on the Global Industry Classification Standard (GICS) developed by Morgan Stanley Capital International Inc. (MSCI) in association with Standard & Poor's. The purpose of GICS is to satisfy the investors' need for a more precise, exhaustive and standardized classification of companies. The sector index shows the trends of a sector and enables comparison of similar companies within the sector. The index consists of the shares of the Official and the Second list of the OMX Baltic market, and indexes are calculated for each GICS sector separately.

Source: NASDAQ OMX Riga

Indexes/shares	01.01.2009.	30.06.2009.	Change
OMX Riga	271.29	242.42	-10.64%
OMX Baltic GI	190.76	195.55	2.51%
OMX Baltic Energy GI	280.55	269.01	-4.11%
LG share price	4.55	4.28	-5.93%

Source: NASDAQ OMX Riga

Indeksi/Akcijas	01.01.2008.	30.06.2008.	Izmaiņas
OMX Riga	595.30	518.73	-12.86%
OMX Baltic GI	515.40	419.23	-18.66%
OMX Baltic Energy GI	569.41	503.81	-11.52%
LG akciju cena	7.12	7.00	-1.69%

Statement of Director's responsibility

The Board of Directors of the Joint Stock Company "Latvijas Gāze" (hereinafter – the Company) is responsible of the preparation of the interim financial statements of the Company. Interim financial statements of the Company are not audited.

The financial statements on pages 9 to 14 are prepared in accordance with the underlying accounting records and source documents and present fairly the financial position of the Company as of 30 June 2009 and the result of its operations and cash flows for the period ended 30 June 2009.

The financial statements are prepared in accordance with International Financial Reporting Standards on a going concern basis. Appropriate accounting policies have been applied on a consistent basis. The Board of Directors in the preparation of the financial statements has made prudent and reasonable judgements and estimates.

The Board of Directors of JSC "Latvijas Gāze" is responsible for the maintenance of proper accounting records, the safeguarding of the Company's assets and the prevention and detection of fraud and other irregularities in the Company. The Board of Directors is also responsible for operating the Company in compliance with the legislation of the Republic of Latvia.

On behalf of the Board of Directors,

Adrians Dāvis Chairman of the Board

Balance sheet

		30.06.2009.	30.06.2008.	30.06.2009. 30.06.2008.
	Note	LVL'000	LVL'000	EUR'000	EUR'000
ASSETS
Non-current assets
Property, plant and equipment		316 281	318 560	450 027	453 270
Intangible assets		2 135	1 555	3 038	2 213
Trade receivables		10	11	15	16
Total non-current assets		318 426	320 126	453 080	455 499
Current assets
Inventories	1	23 756	55 971	33 801	79 640
Trade receivables		22 915	14 858	32 605	21 141
Current income tax receivable		7 780	2 252	11 070	3 204
Other current assets		20 162	21 678	28 688	30 845
Cash and cash equivalents		46 530	63 083	66 206	89 758
Total current assets		121 143	157 842	172 370	224 588
TOTAL ASSETS		439 569	477 968	625 450	680 087
EQUITY AND LIABILITIES
Equity
Share capital		39 900	39 900	56 773	56 773
Share premium		14 320	14 320	20 376	20 376
Revaluation reserve	2	187 069	187 153	266 174	266 294
Other reserves		66 544	55 416	94 684	78 850
Retained earnings	3	23 831	28 923	33 908	41 154
Total equity		331 664	325 712	471 915	463 447
Liabilities
Non-current liabilities
Deferred income tax liabilities Accruals for post employment benefits		29 915	33 676	42 565	47 916
and other employee benefits		4 673	2 500	6 649	3 557
Deferred income		13 580	12 282	19 323	17 476
Total non-current liabilities		48 168	48 458	68 537	68 949
Current liabilities
Trade payables		29 661	80 764	42 204	114 916
Corporate income tax payable		2 219	3 792	3 157	5 396
Deferred income		3 332	470	4 741	669
Other current liabilities		24 525	18 772	34 896	26 710
Total current liabilities		59 737	103 798	84 998	147 691
Total liabilities		107 905	152 256	153 535	216 640
TOTAL EQUITY AND LIABILITIES		439 569	477 968	625 450	680 087

Consolidated income statement – by function of expense

		30.06.2009.30.06.2008.		30.06.2009.30.06.2008.
	Note	LVL'000	LVL'000	EUR'000	EUR'000
Sales		205 165	163 575	291 923	232 746
Cost of sales	4	(185 631)	(154 184)	(264 130)	(219 383)
Gross profit		19 534	9 391	27 793	13 363
Administrative expenses	5	(6 348)	(6 154)	(9 032)	(8 756)
Other income	6	1 330	1 443	1 892	2 052
Other expenses	7	(6 526)	(495)	(9 285)	(705)
Operating profit		7 990	4 185	11 368	5 954
Finance income	8	838	1 270	1 192	1 807
Finance expenses	8	(4)	(59)	(6)	(84)
Finance income, net	8	834	1 211	1 186	1 723
Profit before income tax		8 824	5 395	12 554	7 677
Income tax expense		(2 219)	(5 380)	(3 157)	(7 655)
Profit for the period		6 605	15	9 397	22
Earnings per share (EPS)		0.166	0.000	0.236	0.001

Consolidated statement of recognized income and expense

Total recognised income for the year		6 700	642	9 533	914
Profit for the period		6 605	15	9 397	22
Net income recognised directly in equity		95	627	136	892
Items net of tax Disposal of revalued property, plant and equipment	2	95	627	136	892

Cash flow statement

	30.06.2009. LVL'000	30.06.2008. LVL'000	30.06.2009. EUR'000	30.06.2008. EUR'000
Cash flow from operating activities
Cash generated from operations	51 149	50 179	72 778	71 398
Interest received	1 021	1 298	1 453	1 847
Income tax paid	(3 938)	(2 473)	(5 603)	(3 519)
Net cash generated from operating activities	48 232	49 004	68 628	69 726
Cash flow from investing activities
Purchase of property, plant and equipment	(6 153)	(10 155)	(8 755)	(14 449)
Proceeds from sale of property, plant and	15
equipment		119	21	169
Purchase of intangible assets	(218)	(101)	(310)	(144)
Net cash used in investing activities	(6 356)	(10 137)	(9 044)	(14 424)
Cash flow from financing activities
Repayment of borrowings	(1 788)	(20 030)	(2 544)	(28 500)
Interest paid	(4)	(59)	(6)	(84)
Net cash (used in) / generated from financing activities	(1 792)	(20 089)	(2 550)	(28 584)
Net (decrease) / increase in cash and cash equivalents	40 084	18 778	57 034	26 718
Cash and cash equivalents at the beginning of the year	6 446	44 305	9 172	63 040
Cash and cash equivalents at the end of the year	46 530	63 083	66 206	89 758

Changes in equity capital

	Share capital	Share premium	Revaluation reserve	Other reserves	Retained earnings	Total
	LVL'000	LVL'000	LVL'000	LVL'000	LVL'000	LVL'000
December 31, 2007	39 900	14 320	187 584	55 416	28 280	325 500
Income in year 2008, total Rounding	-	-	(431)	-	642 1	211 1
June 30, 2008	39 900	14 320	187 153	55 416	28 923	325 712
December 31, 2008	39 900	14 320	187 060	66 544	17 131	324 955
Income in year 2009, total	-	-	9	-	6 700	6 709
June 30, 2009	39 900	14 320	187 069	66 544	23 831	331 664

	Share capital	Share premium	Revaluation reserve	Other reserves	Retained earnings	Total
	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000
December 31, 2007	56 773	20 376	266 907	78 850	40 238	463 144
Income in year 2008, total Rounding	-	-	(613)	-	914 2	301 2
June 30, 2008	56 773	20 376	266 294	78 850	41 154	463 447
December 31, 2008	56 773	20 376	266 163	94 684	24 375	462 371
Income in year 2009, total	-	-	11	-	9 533	9 544
June 30, 2009	56 773	20 376	266 174	94 684	33 908	471 915

Notes to the financial statements

LVL'000 LVL'000 EUR'000 EUR'000 1 INVENTORIES Materials and spare parts (at net realisable value) 3 023 3 142 4 301 Gas and fuel (at cost) 20 733 52 829 29 500 23 756 55 971 33 801 2 REVALUATION RESERVE At the beginning of the period 187 060 187 584 266 163 Revaluation of property, plant and equipment 104 196 147 Disposal of revalued property, plant and equipment (95) (627) (136) (892) 187 153 At the end of the period 187 069 266 174 3 RETAINED EARNINGS At the beginning of the period 17 131 28 280 24 375 Disposal of revalued property, plant and equipment 95 627 136 Profit for the period 6 605 15 9 397 22 Rounding - 1 - 2 At the end of the period 23 831 28 923 33 908 4 COST OF SALES Purchase of natural gas 164 097 132 769 233 489 Salaries 6 015 5 536 8 559 Social insurance contributions 1 406 1 295 2 001 Life, health and pension insurance 421 391 599 Materials and spare parts 1 945 2 864 2 767 Depreciation and amortisation 9 794 9 177 13 936 Other 1 953 2 152 2 779 185 631 154 184 264 130 5 ADMINISTRATIVE EXPENSES Salaries 1 471 1 478 2 093 Social insurance contributions 356 349 506 Life, health and pension insurance 73 70 104 Maintenance and utilities 430 418 612 Real estate tax 81 70 115 Depreciation and amortisation 299 238 425 Bank charges 215 99 306 Provisions for impairment of bad and doubtful debts, net (34) (20) (48) (28) Other expenses 3 457 3 452 4 919		30.06.2009.	30.06.2008.	30.06.2009.	30.06.2008.
4 471 75 169 266 907 279 266 294 40 238 892 41 154 188 913 7 877 1 842 556 4 075 13 058 2 103 497 99 595 99 339 141 4 911
					79 640
					3 062
					219 383

	6 348	6 154	9 032	8 756
6 OTHER INCOME
Penalties from customers	760	358	1 081	509
Profit on sale of fixed assets	262	240	373	341
Provisions for slow moving and obsolete
inventories impairment	8	14	11	20
Other income	300	140	427	199
Net foreign exchange gains	-	691	-	983
	1 330	1 443	1 892	2 052
7 OTHER EXPENSES				137 390
Materials	10	7	14	10
Salaries	68	66	97	94
Social insurance contributions	11	10	16	14
Depreciation and amortisation	50	47	71	67
Sponsorship	389	23	553	33
Loss from sale of fixed assets	74	232	105	330
Loss from increase in exchange rates, net	712	-	1 013	-
Other expense	5 212*	110	7 416*	157
	6 526	495	9 285	705
* incl. LVL 5100 (EUR 7256) provisions for operating costs
EXPENSES BY NATURE				189
Purchase of natural gas	164 097	132 769	233 489	188 913
Depreciation and amortisation	10 143	9 462	14 432	13 464
Employee benefit expense (see Note 26)	9 821	9 194	13 975	13 082
Material and spare parts	1 955	2 871	2 781	4 085
Net provisions for impaired receivables Other expenses	(34) 12 523	(20) 6 557	(48) 17 818	(28) 9 328
	198 505	160 833	282 447	228 844
8 FINANCE INCOME, NET				144 135
Finance income
- Interest income	838	1 270	1 192	1 807
	838	1 270	1 192	1 807
Finance expenses
- Interest expenses	4 4	59 59	6 6	84 84
Finance income, net	834	1 211	1 186	1 723