Fortum and Nordic power markets

Mikael LiliusPresident and CEO, Fortum Corporation

Enskilda Securities, Finnish Blue Chip Seminar 2005Helsinki, 22 September 2005

2

Fortum's strategy

Fortum focuses on the Nordic and Baltic rim marketsas a platform for profitable growth

Become the leading Power and Heat

company

Become the energy supplier

of choice

Benchmark business performance

3

Strengthened position in the Nordic market• increased CO2 -free hydro and nuclear

power generation• strengthened position in electricity

distribution and retail• foothold in Norway, NW Russia and Poland

Disposal of non-core businesses• power and heat businesses outside the

Nordic and Baltic Rim focus market• power plant and transmission engineering

businesses • gas retail and trading businesses• oil businesses separated

Consistent delivery of strategy Restructuring worth 14 billion in 2000-2005

4

Electricitydistribution

Powergeneration

Retail sales of electricityHeat

# 1 # 2

Leading market positions in the Nordic area

5

0.55 0.57

0.79

0.91

2001 200320022000 2004

1.44EPS, EUR

Good financial performance

1999

0.41

6

0.230.26

0.31

0.42

2001 200320022000 2004

0.58*Dividends, EUR

Good returns to shareholders - dividends

Dividend policy

Fortum Corporation's dividend policy states that the company aims at paying a dividend which corresponds to a payout ratio of 50% to 60% on the average

1999

0.18

CAGR: 26%

* Cash dividend, Neste Oil shares not included

7

Good returns to shareholders - share price

Quotation of Fortum shares and Dow Jones 600 utilities index volume weighted weekly averageweekly averages, 2001 week 1 = 100

Divident payout:• 0,58 eur cash• Neste Oil shares

507090

110130150170190210230250270290310330350370390

Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05

Fortum volume weighted index DJ600 index

8

National Nordic European1990's 2000 - 2010 -

Towards open European power markets

• Increasing competition• Increasing efficiency

Lowest possible prices - gradual price convergence in Europe

9

Nordic market is a forerunner

• The Nordic market is the only regional market in the EU today

• Recognized functionality of the market design

* European Commission strategy paper 2003

Iberian market(2005?)

W. European market(2005-2008?)

SE Europe market(2005-2008?)

Nordic market

Baltic market(2008?)

GB/IRL market(2005?)

Italian zonal market(2004?)

E. European market(2005-2008?)

from "Nordic today 2000 -" to "Europe tomorrow 2010 -"

19 July 2005 10

FortumVattenfall

Elsam

others

StatkraftE.ON

EONVattenfall

Steag

others

British Energy

E.ONRWE

Scottish&Southern

EdF

others

Source: Eurelectric, Nordel, Fortum estimates, Company data

A large Nordic power generation marketGeneration, 2004

379 TWh

385 TWh

570 TWhEnBW

RWE

11

A fragmented Nordic power market

Distribution14 million customers

Retail14 million customers

Generation379 TWh

2004 figures

Source: Fortum, Company data

FinlandSweden

NorwayDenmark

>350 companies >500 companies120

702*

160

90

18080**

160

~450 companies70

12040

220* 2 major generators; in addition hundreds of

small CHP and wind generators

Fortum

Vattenfall

Nesa

others

Hafslund

E.ON

FortumVattenfall

Hafslund

others

E.ON

Fortum

Vattenfall

Elsam

others

Statkraft

45%

E.ON

64% 66%

** excl. 40 minor transformer associations

Nesa

12

New capacity will be required

• Generation capacity is needed– to cover increasing

demand– to replace old capacity

• Stable and predictable investment environment is required to guarantee– security of supply– efficient capacity also in

the future0

100

200

300

400

500

1990 2000 2004 2005E 2010E 2015E 2020E

CommittedRemainingExisting

TWh/a

Demand

13

• Investments are made on rational financial basis

• Price signals and confidence in regulatory framework are necessary for investment decisions

• New capacity requires a long-term price of at least 35-40+ €/MWh

Price signals guide new capacity investments

Source: Nord Pool, Fortum

€/MWh

0

10

20

30

40

50

60

-94 -04-02-00-98-96 -06 -08

ForwardsSep 2, 2005

14

Prices are higher in central Europe

0

10

20

30

40

50

60

70

80

90

100

110

2002 2003 2004

EUR/MWh

2005 2006 2007German Spot Nordpool SystemGerman futures Nordpool futures

UK SpotUK futures

German Spot Nordpool SystemGerman futures Nordpool futures

UK SpotUK futures

German Spot Nordpool SystemGerman futures Nordpool futures

UK SpotUK futures

German Spot Nordpool SystemGerman futures Nordpool futures

UK SpotUK futures

20 Sep 2005 15

Price of EU emission allowances

€/tCO2

2003 2004 2005Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

0

5

10

15

20

25

30

16

Power and heat sector reformStrong growth potentialNeed for investmentsEfficiency improvement potential

Russia is an emerging opportunity

17

Population in key geographicalmarketsMillion

• Largest utility in north-western Russia

• 10 thermal and 6 hydro plants

• Power generation capacity ~3,245 MW and production ~13.5 TWh/a

• Heat generation capacity ~13,900 MW and production ~26.9 TWh/a

• Personnel ~12,500• Fortum's share 32,8% of

voting shares

1 2 7

3

Lenenergo – a strong foothold for Fortum in NW Russia

18

Source: Fortum, company web pages

Kolenergo1 593

Karelenergo915

Lenenergo3 245

Finland 13 400

NW Russia TGC-1total 5 753 MW*(of which hydro 2874 MW)

* Capacity to be finally included in TGCs may be different. Kolenergo thermal capacity 335 MW probably not to be included into TGC-1. NW Russia total generation capacity 14 354 MW including also generation outside the reform (e.g. nuclear).

Capacity(MW)

Norway 23 000

Sweden 27 500

Denmark 7 900

TGC-1 established in NW Russia

19

Fortum in the Baltics and Poland

Fortum today in the Baltic countries– Strong heat market position

established in Estonia– Distribution business in Estonia– Heat platform established in

Lithuania

Fortum today in Poland– Heat has established a platform

for growth– Ongoing privatization of district

heating– Privatization of electricity

generation and distribution

Estonia

Latvia

Lithuania

VilniusKaunas

VentspilsRiga

Tartu

Tallinn

Klaipeda

Jelgava

SiauliaiPanevezys

Kohtla-Jarve

Estonia

Latvia

Lithuania

VilniusKaunas

VentspilsRiga

Tartu

Tallinn

Klaipeda

Jelgava

SiauliaiPanevezys

Kohtla-Jarve

Existing Fortum DZT operationsPESC Cz ęstochowa

20

Forward power prices in NordPool

21

Solid business performance in the first half of the year

• Solid business performance in the first half of 2005

• Net debt decreased due to strong cash flow - strong financial position

• At the beginning of July, Fortum had hedged approximately two-thirds of its Nordic Power Generation sales volume for the next 12 months

• Market fundamentals support further good performance

608 654

1148 1194

I-II/04 I-II/05 2004 LTM

Fortum's comparable operating profitEURm, continuing operations

LTM = Last twelve months III/03-II/05

22