The profit growth is driven by the highlyprofitable, non-regulated production business, where the profitabilityratio is nearly 45%. The production and sales of crude oil alonecontributed PLN 0.5 billion to the yearly operating profit for thecompany.

Major improvement was also observed in distribution withthe operating profit of the segment increasing by 66% up to the levelof PLN 0.2 billion. This is attributed to higher sales volume andincreased distribution margin.
The segment of regulated gas saleshad a negative impact on the overall financial performance of theGroup. In Q4, PGNiG incurred a loss on this part of its activityamounting to PLN 225 million. This was due to a significant increase inthe import prices while the regulated sales prices remained unchanged.

Theloss on regulated activity in Q4 completely offset the profit generatedin the first half of the year and the yearly result on regulated gassales diminished to a mere PLN 15 million. This corresponds to approx.1% of the Group's operating profit (PLN 1.2 billion). The profitabilityon this activity dropped to 0.2%. This result is due to the lack of gasprice increase in the second half of the year.

Despite theattempts to increase the gas prices in the last three quarters of 2006,the Regulator did not agree to any tariff adjustment. The profitabilityof gas sales improved only as of 1 January 2007 with the gas priceincrease that was approved by the Regulator in December 2006. Thecurrent decrease in the oil prices will lead to stabilization of thegas prices at a lower level, thereby minimizing the loss on importedgas sales.
Despite the difficulties in the regulated segment,PGNiG demonstrated the ability of improving its financial resultscomparing to the previous year. Among other things, this is attributedto improved efficiency of the financial activities, where there resultgrew by PLN 220 million. This improvement was achieved through areduction of the interest, commission and guarantee costs by 75%.

Theresults for Q4 2006 confirm that PGNiG is delivering predictablebusiness performance. This is also reflected in independent agencyratings. On 5 February 2007, Standard&Poor's (S&P) upgraded thelong-term credit rating of PGNiG to "BBB+" from "BBB". The ratingoutlook is stable. The rating reflects strong financial performance andincreased financial liquidity of the PGNiG Group. Specifically, theagency considered good profit prospects for PGNiG's operations in theupstream segment.

With strong financial performance, the companywill be able to implement investments that will contribute to valuecreation while enhancing the energy security of the country.

Inaccordance with the "Policy Guidelines of the PGNiG Group for years2007-2011" with were adopted by the Management Board and theSupervisory Board in December 2006, the company will focus on thefollowing activities:

• diversification of gas supply directions and routes,
• expansion of the underground gas storage capacity,
• development of exploration and production business both domestically and offshore
• development of trade activity.