Suez 20-F/A 2005 FY Annual report (foreign) (amended)

 As filed with the Securities and Exchange Commission on February 1, 2007

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F/A

	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2005 OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ OR
	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report ________________ For the transition period from ________________ to ________________

Commission file number: 1-15232

SUEZ

(Exact name of Registrant as specified in its charter)

SUEZ
(Translation of Registrant’s name into English) The Republic of France
(Jurisdiction of incorporation or organization)

16, rue de la Ville l’Evêque, 75008 Paris, France

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Shares of nominal value €2 each represented by American Depositary Shares	The New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close
of the period covered by the annual report.

The number of outstanding shares of SUEZ on December 31, 2005 was 1,270,756,255

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YesNo

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934.

YesNo

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17Item 18

If this is an annual report, indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YesNo

TABLE OF CONTENTS

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Explanatory Note

This Amendment on Form 20-F/A to our annual report on Form 20-F for the fiscal year ended December 31, 2005, filed with the Securities and Exchange Commission on June 26, 2006 (the “Original Report”), is being filed for the purpose of providing additional disclosures or making some changes in the Original Report pursuant to comments we received from the Staff of the U.S. Securities and Exchange Commission.

INTRODUCTION

FORWARD-LOOKING STATEMENTS

This annual report contains certain statements that are forward-looking within the meaning of Section 21E of the Securities Exchange Act of 1934, the Exchange Act, including statements with respect to management’s business strategies, expansion and growth of operations, trends in our business, competitive advantage, and technological and regulatory changes, information on exchange rate risk and generally all statements preceded by, followed by or that include the words “believe”, “expect”, “project”, “anticipate”, “seek”, “estimate” or similar expressions. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information contained in this annual report on Form 20-F/A, including, without limitation, the information under “Risk Factors”, “Information on the Company”, “Operating and Financial Review and Prospects” and “Financial Information”, identifies important factors that could cause such differences. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date of this annual report on Form 20-F/A.

FINANCIAL AND CERTAIN OTHER INFORMATION

SUEZ is incorporated as a joint stock company, orsociété anonyme, under the laws of France. As used in this annual report, “SUEZ”, “we” or the “Group” refers to the parent company and its consolidated subsidiaries unless the context otherwise requires. Our legal life expires on December 31, 2040, unless we are dissolved prior to that date or it is extended. Our statutory documents may be consulted at our administrative office, 16, rue de la Ville l’Évêque, 75008 Paris, France, telephone (33-1) 40-06-64-00.

In this annual report, references to “United States”, “U.S.”, or “USA” are to the United States of America, references to “U.S. GAAP” are to United States of America Generally Accepted Accounting Principles, references to “US dollars” or “$” are to United States dollars and references to “euro” or “€” are to euros. References to the “Euronext Paris” are to the integrated national dealing system through which trading of all listed French securities occurs. References to kWh are to kilowatt hours, references to MW are to megawatts, references to GWh are to gigawatt hours, references to MWe are to megawatts of electricity, and references to MWth are to megawatts of thermal energy. References to EONIA are to Euro Overnight Index Average and references to EURIBOR are to Euro Inter Bank Offering Rate.

Various amounts and percentages set out in this annual report have been rounded and accordingly may not total.

EXCHANGE RATES

Unless otherwise indicated, U.S. dollar amounts herein have been translated from euro amounts at the rate of €1.00 = $1.1842, the noon buying rate in New York City for cable transfers in euro as announced by the Federal Reserve Bank for customs purposes on December 31, 2005 on its website www.federalreserve.gov. The exchange rate in effect on June 23, 2006 was €1.00 = $1.2522.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Consolidated Financial Data

The selected consolidated financial data at December 31, 2005 and 2004 and for the years ended December 31, 2005 and 2004 have been derived from our Consolidated Financial Statements included in this annual report. The selected consolidated financial data at year-end 2001, 2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003 have been derived from our Consolidated Financial Statements that are not included in this annual report. Our Consolidated Financial Statements for the years ended December 31, 2005 and 2004 were audited by Barbier Frinault & Autres – Ernst and Young and Deloitte & Associés.

Our Consolidated Financial Statements for the years ended December 31, 2005 and 2004 have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, which differs in certain significant respects from U.S. GAAP. Notes 42 to 44 to our Consolidated Financial Statements describe the principal differences between IFRS and U.S. GAAP as they relate to us, and reconcile our net income and shareholders’ equity to U.S. GAAP.

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(in millions, except per share amounts)	As of and for the year ended December 31,
	2005	2005(1)	2004	2003	2002	2001
	€	$	€	€	€	€
Income statement data:
Amounts in accordance with IFRS
Revenues	41,489	49,131	38,058
Income from operating activities before mark-to-market on commodity contracts other than trading instruments, impairment, restructuring costs and disposals of assets, net	3,902	4,621	3,737
Income from operating activities	4,522	5,354	3,540
Financial loss	(725)	(859)	(1,079)
Income tax expense	(585)	(693)	(926)
Share in income (loss) of associates	566	670	277
Net income/(loss) from discontinued operations	-	-	716
Net income	3,777	4,472	2,528
Minority Interests	1,264	1,496	832
Net Income Group share	2,513	2,976	1,696
Earnings per share	2.39	2.80	1.70
Diluted earnings per share	2.36	2.80	1.69
Diluted earnings per share from continuing operations	2.36	2.80	0.98
Amounts in accordance with U.S. GAAP
Total revenue	37,368	44,252	34,902	35,644	27,387	25,606
Income (loss) from operating activities	1,715	2,031	2,426	765	(76)	967
Income (loss) from continuing operations(2)	1,758	2,081	1,153	(1,565)	(3,250)	1,083
Income (loss) from discontinued operations(2)				(712)	81	(55)
Cumulative effect of adopting SFAS 143				(26)
Cumulative effect of adopting SFAS 133						(132)
Net income (loss)	1,758	2,081	1,153	(2,303)	(3,169)	896
Basic per share information
Income (loss) from continuing operations(2)	1.67	1.98	1.16	(1.57)	(3.28)	1.1
Cumulative effect of adopting SFAS 143				(0.03)
Cumulative effect of adopting SFAS 133						(0.13)
Income (loss) from discontinued operations(2)				(0.72)	0.08	(0.06)
Net income (loss) per share	1.67	1.98	1.16	(2.32)	(3.20)	0.91
Diluted per share information
Income (loss) from continuing operations(2)	1.66	1.97	1.15	(1.57)	(3.28)	1.1
Cumulative effect of adopting SFAS 143				(0.03)
Cumulative effect of adopting SFAS 133						(0.13)
Income (loss) from discontinued operations(2)				(0.72)	0.08	(0.06)
Net income (loss) per share	1.66	1.97	1.15	(2.32)	(3.2)	0.91
Balance sheet data:
Amounts in accordance with IFRS
Property, plant and equipment – net	20,212	23,936	19,367
Long-term borrowings	16,407	19,429	16,252
Short-term borrowings	9,080	10,752	4,002
Cash and cash equivalents	10,374	12,285	6,912
Shareholders’ equity	16,511	19,553	7,838
Minority interests	2,578	3,053	5,079
Total assets	80,282	95,069	60,227
Amounts in accordance with U.S. GAAP
Long and short-term borrowings	23,316	27,611	19,424	24,998	34,436	31,717
Shareholders’ equity	21,376	25,313	14,993	14,520	18,397	25,100
Minority interests	2,275	2,695	5,224	3,915	936	1,754
Total assets	82,597	97,811	66,818	70,059	72,725	79,396
Other data:
Dividends per share	1.00	1.18	0.80	0.71	0.71	0.71
(1) Translated for convenience into US dollars at the noon buying rate for euros in New York on December 31, 2005 as reported by the Federal Reserve Bank on its website www.federalreserve.gov. (2) The Group sold Ondeo Nalco, Coditel and Codenet in 2003. The results of operations from January 1, 2003 to the respective date of disposal of Ondeo Nalco, Coditel and Codenet has been eliminated from the Group’s ongoing operations, then the related results of operations for the current and prior periods (through 2001), including any related impairments, are reflected as discontinued operations in the U.S. GAAP Consolidated Income Statement.

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Exchange Rates

The following tables set forth, for the periods and dates indicated, information concerning the noon buying rate in U.S. dollars for euro for 2001, 2002, 2003, 2004, 2005 and 2006 (through June 23), based on rates reported by the Federal Reserve Bank of New York on its website www.federalreserve.gov. No representation is made that euro amounts have been, could have been or could be converted into U.S. dollars at the noon buying rates indicated for any given date.

Year ended December 31,	At end of period	Average rate(1)	High	Low
2001	0.8901	0.8909	0.9535	0.8370
2002	1.0485	0.9495	1.0485	0.8594
2003	1.2597	1.1411	1.2597	1.0361
2004	1.3538	1.2478	1.3625	1.1801
2005	1.1842	1.2400	1.3476	1.1667
2006 (through June 23, 2006)	1.2522	1.2302	1.2953	1.1860
Monthly
December 31, 2005	1.1842	1.1861	1.2041	1.1699
January 31, 2006	1.2158	1.2126	1.2287	1.1980
February 28, 2006	1.1925	1.1940	1.2100	1.1860
March 31, 2006	1.2139	1.2028	1.2197	1.1886
April 30, 2006	1.2624	1.2273	1.2624	1.2091
May 31, 2006	1.2833	1.2760	1.2888	1.2607
through June 23, 2006	1.2522	1.2679	1.2953	1.2522
(1) The average of the noon buying rates on the last day of each month during the relevant period. The “Noon Buying Rate” is the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.

A substantial proportion of our assets, liabilities, revenues and expenses are denominated in currencies other than the euro. Accordingly, fluctuations in the value of the euro relative to other currencies can have an effect on the translation into euro of our assets, liabilities, revenues and expenses. For information with respect to the impact of fluctuations in exchange rates on our operations, see “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Industrial risks and risks related to the economic, commercial, legal and contractual environment.

Failure to comply with laws and government regulations or to react to changes in laws and regulations could negatively affect our business and financial condition

We are subject to energy, environmental and administrative laws and government regulation in each of the jurisdictions in which we conduct business. Regulatory agencies have broad administrative power over many aspects of the energy services and environmental business, which may include ethical issues, money laundering, privacy, record keeping, and anti-corruption practices. Furthermore, we cannot predict the timing or form of any future regulatory or law enforcement initiatives. Changes in existing energy and environmental laws and regulations may materially affect the way in which we conduct our business, our products or services and the value of our assets. If we fail to address, or appear to fail to address, these changes or initiatives in an appropriate way, our reputation could be harmed and we could be subject to additional legal risk. This could, in turn, increase the size and number of claims and damages asserted against us or subject us to enforcement actions, fines and penalties. Despite our best efforts to comply with applicable regulations, there are a number of risks, particularly in areas where applicable regulations may be unclear or where regulators revise their previous guidance or courts overturn previous rulings. The regulators and law enforcement have the power to bring administrative or judicial proceedings against us, which could result, among other things, in suspension or revocation of one or more of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action which could materially harm our business, results of operations and financial condition.

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Many aspects of our business, particularly the production, transport and distribution of electricity, the transport and distribution of natural gas and liquefied natural gas, or LNG, water management, the operation and maintenance of nuclear facilities, and the collection and treatment of waste, are subject to strict regulations at the European, national and local levels, including antitrust regulation and required licenses, permits and authorizations. Regulatory changes may affect prices, margins, investments, operations, systems, and consequently, our strategy, financial condition and profitability. Despite the oversight systems we have put in place, it is impossible to anticipate all regulatory changes.

Our businesses are also subject to numerous laws and regulations concerning the environment, health protection and safety standards, related to air quality, waste water, drinking water quality, the treatment of hazardous and non-hazardous waste, the management of nuclear facilities and LNG terminals, and soil contamination. A change or tightening of these laws and regulations could lead to costs or investments, including non-recoverable costs if we are forced to close down an operation. Furthermore, in the course of our business, we must obtain and renew various permits and authorizations from regulatory authorities, an often long, unpredictable and costly process. Despite the substantial expense of applying for such permits or authorizations, they may in the end not be granted, or be granted too late.

Finally, regulations require investments and operational outlays not just by us, but also by our customers, particularly concession-granting municipalities, to upgrade their facilities to regulatory standards. If the customer does not meet these obligations, our reputation as an operator and our growth perspective may be damaged.

Our energy trading activity, including fuel procurement and power marketing, exposes us to risks associated with the fluctuation of energy prices, the participation in evolving markets, exposures to our counterparties and other factors that may have a negative effect on our results of operations and financial condition

We trade natural gas, electricity, crude oil and other petroleum products as well as emission rights on the spot market and other competitive markets. We also enter into derivative contracts and a variety of other instruments to purchase and sell natural gas, electricity, petroleum products and coal as part of our energy trading operations or for our own use. With respect to such transactions, our revenues and results of operations are likely to depend, in large part, upon the prevailing market prices for power in our regional markets and other competitive markets. These market prices may fluctuate substantially over relatively short periods of time. As a result, our energy trading activities, including fuel procurement and power marketing, expose us to risks of commodity price movements. We attempt to manage our exposure through enforcement of established risk limits and other risk management activities. However, these may not always be followed or may not work as planned and cannot always eliminate risks associated with energy trading. As a result, we cannot predict the impact our energy trading and risk management decisions may have on our business, results of operations or financial condition.

Authorities with jurisdiction over wholesale power rates in the United States, Europe and elsewhere, as well as independent system operators overseeing some of these markets, may impose price limitations, bidding rules and other mechanisms which may adversely impact or otherwise limit trading margins and lead to diminished opportunities for gain.

We are also exposed to the risk that counterparties to our energy trading contracts owing us money or energy will breach their obligations. In such cases, we may be forced to enter into alternative hedging arrangements or honor underlying commitments at the then-current market prices, which may exceed our contractual prices and adversely affect our results of operations and/or result in losses. Although we attempt to estimate probability of default by a counterparty, we cannot predict our actual exposure to this risk.

Certain of our businesses and our financial condition may be negatively affected by economic slowdowns or raw material price increases

Some of our business areas, especially those services supplied to industrial customers, are sensitive to economic cycles. Any economic slowdown, particularly in developed countries, has a rapid effect of reducing industrial investment, and, as a result, a negative influence on demand for the engineering and installation services that our service companies offer. This fluctuation in demand results in significant variations in activity levels in these businesses, which may result in reduced revenues in some periods.

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In western Europe, our business for industrial customers may also be affected if those customers relocate some of their activities to countries with lower salary levels.

Similarly, changes in raw materials prices, especially with respect to oil-based products whose prices are subject to sudden rises, may have a significant impact on the cost of supplies. Despite the fact that most contracts contain cost indexing clauses, it is possible that the indexing formula used is not perfect or takes time to come into effect, and does not therefore completely offset the cost increase. The profitability of affected businesses and therefore our financial condition may temporarily deteriorate.

We operate in increasingly competitive and evolving markets, which has increased pressure on our market share and may have a negative effect on our results of operations and financial condition

Most of our businesses are subject to strong competition both from large international competitors and, in a number of markets, small niche players. Electricity or gas industry deregulation in the European Union and in the United States has opened most markets to new competitors, brought volatility into the market and shortened contract terms. This competitive pressure could have a significant negative effect on our sales prices, margins and our market share. Our Environment businesses of Water and Waste Services are also subject to strong competitive pressure from both international and local operators, the effect of which may be lower prices for our services to industrial or municipal customers or both. Such decreases in prices could have a negative effect on our business, results of operations and financial condition.

Currency exchange rate fluctuations may negatively affect our results of operations

We hold significant assets and liabilities, earn income and pay expenses of our subsidiaries in US dollars and a variety of foreign currencies. Our Consolidated Financial Statements are presented in euros. Therefore, when we prepare our Consolidated Financial Statements, we must translate our assets, liabilities, income and expenses in currencies other than the euro into euros at applicable exchange rates. Significant currency fluctuations, in particular in the United States, Brazil, Chile and Thailand, may have an adverse effect on our results of operations and financial condition. For example, increases and decreases in the value of the euro will affect the value of these items in our Consolidated Financial Statement even if their value has not changed in their original currency. Similarly, many of the commodities and other goods that we purchase as part of our operations are indexed in currencies other than the euro, particularly in US dollars. As a result, decreases in the value of the euro against these other currencies, particularly the US dollar, can effectively increase the price we have to pay for these commodities, even if their prices in the index currency does not change, which could have a negative effect on our results of operations and financial condition.

Failure by significant customers and suppliers to meet their contractual obligations could have a negative effect on our results of operations and financial condition

In our Energy and Environment operations, our subsidiaries frequently enter into contracts with municipal authorities or private local entities, the performance of which can depend on a few or even a single customer. This is the case, for example, in delegated water-management contracts, certain electricity production and sale operations involving medium and long-term power purchase agreements, and in the operation of non-hazardous waste incinerators.

A customer’s refusal or inability to uphold its contractual obligations, particularly regarding rate adjustments, can compromise the economic equilibrium of the contracts and the profitability of investments we or our subsidiaries have made. Although we usually negotiate contractual provisions requiring compensation for non-performance, full compensation is not always recoverable, which can materially adversely affect our gross revenue and net income. We have faced such situations with our water concessions in Argentina for example.

Likewise, in managing our water treatment plants, thermal power plants and waste treatment units, we frequently depend on a limited number of suppliers for water, non-hazardous waste, various types of fuel and equipment. Any supply interruption or delay, or breach of the technical performance warranty of a piece of equipment even if caused by a supplier’s breach of contract, can materially adversely affect a project’s profitability. This is particularly true in electricity generation, with the arrival of new high-output gas turbines.

We are subject to risks on retirement commitments

Our commitments to employees relating to retirement and various post-employment benefitsare subject to assumptions and laws, changes in which could negatively affect our financial condition.

Where these commitments arise from defined benefit plans, provisions are made in the accounts, see Note 25to our Consolidated Financial Statements, and their financing is partially covered through pension funds and insurance companies. The risks pertaining to these plans relate to both the amount of the commitments and to the evolution of the related asset coverage. The amount of these commitments is calculated on the basis of estimates which depend on certain assumptions, particularly concerning inflation, salary increases, mortality rates, employee turnover, retirement age, and legal benefits. In the future, these assumptions may be subject to adjustments which may increase our actual commitments to pensions, and it may therefore be necessary to increase the amount of related provisions and, in certain cases, pay in additional contributions. More specifically, changes in national legislation may cause mandatory new adjustments, for example regarding discrimination between beneficiaries. This would have a negative effect on our balance sheet, income and financial condition.

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Furthermore, the calculation of commitments is based on a discount rate, which is tied to market interest rates; a drop in market rates could result in a substantial increase in the present value of commitments, which would not necessarily be offset by an equivalent appreciation of the related asset coverage, whose value is tied to the equity stock market.

We are subject to a risk of occupational illnesses and related liability

We may be exposed to cases of occupational illness, which may give rise to legal actions against us, and the potential payment of damages and interest which could have a negative effect on our financial condition.

The principal exposures to this risk concern:

·

activities involving work on facilities situated in the hot zone of nuclear plants due to the risk of ionizing radiation;

·

activities involving work on pipes or technical facilities which are insulated against heat or cold, or located in flocked areas of buildings, presenting asbestos-related risk; and

·

activities involving work on refrigeration, air conditioning or hot water network installations entailing the risk of Legionnaire’s disease.

Our business and results of operations may be negatively affected by the decision of our local and municipal partners to terminate or modify partnership agreements

We develop many of our local operations in partnership with municipal governments or private local entities. These partnerships are one of the ways we share economic and financial risks of certain large projects, limiting the capital we commit and enhancing our ability to adapt to specific local-market conditions. Such partnerships may also be required by local regulations.

Changes in project plans, local political and economic conditions, or a partner’s financial condition may result in the termination of a partnership, where a partner requests dissolution of a joint venture, sells its interest or exercises its contractual rights to purchase our interest. As a result, we may be required to increase our financial commitment on some projects to maintain our interests, or, in the event of a conflict with a partner, to seek resolution in litigation or arbitration. Such events may have a material adverse effect on our business, results of operations or financial condition.

Revenues from markets outside North America and Europe represent a significant portion of our total revenues and our capital employed and present certain country specific risks to our business and results of operations

Although our businesses are primarily concentrated in Europe and North America, revenues from markets outside North America and Europe represented approximately 11% of our revenues and 18% of our capital employed in 2005.

Our activities in these countries entail a higher degree of risk than in developed countries. In particular, these include volatility in the gross domestic product of these countries, economic and governmental instability, changing regulations, nationalization or expropriation of private assets, collection difficulties, social unrest, significant fluctuations in interest and currency exchange rates, income and other taxes levied by foreign governments and local authorities, currency exchange control measures, and other unfavorable interventions and restrictions imposed by foreign governments, any of which could have a negative effect on our business and results of operations. Changes in the situation of Suez Environment in Argentina which led to the termination of the Aguas de Santa Fe and Aguas Argentinas concessions are described in Item 4 and Item 8.A.

Our financial condition may be negatively affected by changes in interest rates

As of December 31, 2005, about 65% of our gross debt was under a variable rate and 35% was under a fixed rate, after taking into account derivative instruments used to hedge underlying exposures to change in interest rates. We may have exposure to interest-rate variations in the future as any rise in interest rates increases the cost of our variable-rate debt.

Our business and results of operations may be negatively affected by operational disruptions or interruptions

The operations of our power plants, gas networks, LNG terminals, incinerators and water systems are subject to hazards and unforeseen interruptions, including natural disasters, adverse weather, accidents or other events beyond our control. A severe occurrence might result in injury and extensive property or environmental damage as well as in unplanned business interruption. Although we intend to maintain the customary insurance coverage to protect our assets and related liabilities from such risks, we can offer no assurance that those coverages will be sufficient for any casualty loss we may incur to present a negative effect on our business and results of operations.

We are dependent on natural gas and hydro energy for electricity generation

We own and operate electricity generation plants using various fuels including coal, gas, fuel, nuclear and hydraulic power. The operation of those plants is dependent on the availability of such commodities at any time while their profitability is dependent on the prices paid for their purchase. As a consequence our business and financial condition might be negatively affected by (i) the rise of fuel prices such as gas and other oil-related products for thermal generation if the related sales contract is not fully transferring the price risk to the client or by (ii) the absence or deficit of rainfall impacting the reservoir levels necessary for optimal hydro energy generation.

Fluctuations in the demand for our products and services may negatively affect our sales revenues and our financial condition

In all countries where we operate, sales volumes and prices of our products and services may be impacted by a number of factors outside our control, including but not limited to:

• the level of consumer demand;
• weather conditions;
• governmental regulations; or
• overall economic conditions.

Fluctuations in those parameters could impact the demand for our products and services and may negatively affect our sales revenues and our financial condition.

The issue of special warrants (BSAs) to our shareholders could have anti-takeover effects or negatively affect the likelihood of success of any unsolicited tender offer for our Shares that does not have the approval of our Board of Directors

At our Annual General Meeting of Shareholders held on May 5, 2006, a resolution was passed, authorizing the Board of Directors to issue special warrants calledbons de souscription d’actions, or BSAs, to all our shareholders. Our Board of Directors was given the authority, in the case of an unsolicited tender offer by a third party and under the circumstances described below, to issue BSAs without consideration to all of our shareholders and under terms and conditions which would allow the latter to subscribe new Suez shares at preferential conditions . The Board of Directors was delegated the authority to fix the number, exercise price and conditions and other terms of the BSAs, provided however that the maximum nominal amount of the share capital increase that could result from any such issue of BSAs may not exceed 2.7 billion euros and the number of BSAs to be issued could not exceed the number of shares composing the share capital at the time of the issue.

This category of BSAs is new in France, as they have been introduced by a new legislation in March 2006. There is no practical experience with their use.

Our Board of Directors would be entitled to issue the BSAs during an unsolicited tender offer period, without further shareholder action, in the event (i) the bidder or any co-bidders acting in concert with it within the meaning of the French Code de commerce (were any of them be itself the subject of a tender offer) was entitled to frustrate a bid without having to get specific shareholder approval during the offer period, or (ii) the entities described in (i)

above are controlled respectively, within the meaning of the French Code de Commerce, by entities, at least one of which would be entitled to frustrate a bid without implementing measures described in (i) above.

The exercise of the BSAs, if issued, may cause a significant dilution to any bidder that attempts to make a tender offer for the Company without advance approval of our Board of Directors. As a result, the issue of BSAs by our Board of Directors and the subsequent exercise of the BSAs could jeopardize the success of a tender offer for our Shares. The BSAs would lapse if the unsolicited tender offer or any competing offer fails or is withdrawn.

See “Item 10. Additional Information – B. Articles of Association – Disclosure of Share Holdings” for the disclosure obligations to be complied with when certain thresholds in our share capital or voting rights are crossed. See also “Item 10. Additional Information – B. Articles of Association – Change in Control” for the provisions of our by-laws which would be relevant in the event of a change of control.

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Environmental risks

Exposure to specific environmental regulations and environmental risks generally may negatively affect our financial condition

Facilities that we own or manage for local industrial and municipal third parties pose risks to the natural environment, including the air, water and soil, as well as risks to the health of consumers, employees and subcontractors. These health and environmental risks are subject to strict and precise national and international regulations and regular audits by government authorities. Evolving regulations covering environmental responsibility make it difficult to assess risks related to our past activities, particularly in the case of closed landfills. In addition, it is difficult to quantify and assess whether any responsibility would include liability for damage to wildlife habitats or plant species because in any given case, whether or not such damage occurs could be the subject of debate even within the scientific community. Even where past activities complied with regulations in force when they were in operation, the conditions created by such past activities may nonetheless be a source of pollution to the natural environment in the future, and may be subject to retroactive regulation. Non-compliance with laws and regulations can result in contractual financial penalties or fines. Eight of our sites in the European Union are Seveso “High Tier” sites, whose activities include chlorine solvent incineration, hazardous industrial waste treatment and underground natural gas storage.

In the course of our business, we handle or generate dangerous products or by-products, such as fissile materials, fuels, and certain chemical byproducts of water treatment. Some of our waste facilities have industrial and medical waste treatment operations that may be potentially toxic.

The gaseous emissions of concern are greenhouse gases, gases precursors of acid rain, toxic gases and dust. In the Water business, the primary potential air pollutants are chlorine and gaseous by-products resulting from accidental releases of water treatment by-products. In addition, waste treatment and sewage treatment operations can create odor problems.

Potential impacts of activities on water in the natural environment include leachates from poorly controlled landfills, the release of heavy metals into the environment, and aqueous discharges from the smoke treatment systems of incineration facilities. These various emissions can pollute groundwater and waterways. Sewage treatment plants discharge treated water into the natural environment. It is possible that this water may not meet discharge standards in terms of its organic, nitrogen and phosphorus content. Also, some of the facilities we manage are not equipped to treat rainwater.

Soil pollution issues include the storage of hazardous products and liquids, leaks during processes that use hazardous liquids, and storage and spreading of treated sludge.

Failure to observe standards may result in contractual financial penalties or fines that would have a negative effect on our financial condition.

Our activities are likely to be covered by stricter national and international standards relating to climate change and related costs may negatively affect our results of operations and financial condition

Particularly in electrical power generation and waste treatment and waste recycling, we are engaged in activities that come under national, international and European Union climate change programs established pursuant to the Kyoto Protocols. In particular, on January 1, 2005, the EU Emissions Trading Scheme, or EU ETS, came into effect, setting carbon dioxide emission reduction targets for 2005 to 2007. The EU ETS directive covers about one hundred and twenty of our facilities.

In Europe, we may experience increased costs with respect to our efforts to comply with these new carbon dioxide regulations. If our activities produce more carbon dioxide than the national allocation plans allow, we may have to enter the market to purchase emissions allowances, to allow us to continue such activities. It is not clear at this stage how expensive it will be to purchase such allowances. In particular, with such a young market, price volatility experienced so far is extremely high.

We also face the risk of regulatory uncertainty surrounding our obligations with respect to climate control. For example, the EU ETS directive has not yet been fully implemented in every country of the European Union, and may be implemented differently in each country. Also, the permitted carbon dioxide levels for the 2008-2012 period have not yet been established, and we expect them to be stricter than the levels established for 2005 to 2007. The scope EU ETS directive itself may be revised and we might be negatively affected if more of our activities had to be captured by the revised regulations. In the longer term the national allocations under the EU ETS directive are planned to be reviewed every five years beginning in 2008. This exposes us to a risk of stricter regulations each time there is a review which could increase our costs and cause a negative effect on our results of operations and financial condition.

Outside of the European Union we face even greater difficulties in assessing our regulatory risk with respect to climate control, in the United States because each state has its own regulations, and internationally where the future is even more unclear.

SUEZ 2005 FORM 20-F/A |8

We may incur liability from our ownership and operation of nuclear facilities

We own and operate nuclear power facilities in Belgium for the production of electric power. Risks of liability arise from the ownership and operation of nuclear facilities, including mechanical or structural problems at a nuclear facility, the storage, handling and disposal of radioactive materials. Although experience exists at the international level about decommissioning of nuclear facilities at the end of their useful lives, uncertainties remain with respect to the technological and financial aspects depending on their institutional framework which can still evolve in the future.

Besides the abandonment of nuclear activities in Belgium, other political decisions or difficulties encountered in obtaining new permits (for example for biomass in the Netherlands and for the offshore wind farm in Belgium), may have a negative effect on our activities and on the improvement of our environmental performance. If the provisions of the Belgian law on the gradual exit from the use of nuclear energy to produce electricity adopted in January 2003 are actually implemented, our revenues could decrease in proportion to the length of the discounted technical life of the facilities from the date of the first effective closing (2015).

ITEM 4. INFORMATION ON THE COMPANY

A. History and development of Suez

SUEZ was formed in June 1997 by the merger of Compagnie de Suez and Lyonnaise des Eaux. At that time Compagnie de Suez, which had built and operated the Suez Canal in Egypt until its nationalization in 1956, was a highly diversified holding company with operating units in financial services and energy, largely in Belgium and France. Lyonnaise des Eaux was a diversified company, with activities in the management and treatment of water, waste, construction, communications, and technical facilities management.

At the time of the merger, we gradually ceased to be a conglomerate, becoming an international industrial and services group. Today, we design sustainable and innovative solutions for the management of public utilities as a partner of public authorities, businesses and individuals. We see our mission as responding to essential needs in electricity, gas, energy services, water and waste management.

Recent major transactions include our sale of 29.2% of the share capital of Métropole TV in January, 2004 in a market transaction combined with a sale to institutional investors; our sale of Noos to UPC Broadband France, the holding company of United Global Com (UGC) France group, and our taking of a 19.9% stake in UGC, in March, 2004; and our sale of Nalco to a consortium of The Blackstone Group, Apollo Management L.P. and Goldman Sachs Capital Partners in September  2003.

In 2005, we pursued steps to integrate our various businesses, notably following our successful combined cash and share public tender offer for the 49.9% of Electrabel which we did not already own. Electrabel purchased 40% of the share capital of Société Hydroélectrique du Midi, or SHEM, in January 2005, from SNCF, and has undertaken to purchase the remaining share capital from SNCF.

The year 2006 will be dominated by preparations for the merger between SUEZ and Gaz de France, as announced on February 28, 2006, which is expected to be submitted for approval to both groups’ extraordinary general shareholders’ meetings at the end of the year, after the various requirements to implement the merger have been satisfied.

We are asociété anonyme, a joint stock company, established under French law until December 31, 2040. We are governed by the French Business Code anddécret no. 67-236 of March 23, 1967. We are registered in theRegistre du Commerce et des Sociétés de Paris, the Commercial and Companies’ Register of Paris, under reference number SIREN 542 062 559 R.C.S. Paris. Our registered office is at 16, rue de la Ville l’Evêque, 75008 Paris, France, telephone 33-1 40 06 64 00. Our agent for U.S. federal securities law purposes is Tim Dunne, General Counsel, SUEZ Energy North America, 1990 Post Oak Boulevard, Suite 1900, Houston, Texas 77056.

SUEZ 2005 FORM 20-F/A |9

B. Business overview

VISION AND STRATEGY

We provide services that respond to the basic needs of our diverse customer base.

We respond to the needs of cities and businesses which are facing new demands due to population growth, urbanization, improved standards of living and environmental protection. Our subsidiaries respond to this challenge every day at a local level, with partnerships based on performance, innovation and exchange of ideas. Their technical and managerial expertise allows them to control energy consumption, limit the release of greenhouse gases, preserve natural resources, and give access to sanitation services, while providing ongoing control of risks that could affect the health and security of the population.

Our special ability is to conceive, design, implement and manage systems and networks in each of our businesses in order to meet the needs of our business, community and individual customers. We strive to bring them the innovative and customized solutions they require.

Our growth thus depends on its diversified offering of services, which is based on our extensive expertise, long experience and many frames of reference, on our financial and geographic flexibility which provides dependable cash flows, and finally on our international network.

In both of our sectors of activity, Energy and Environment, we hold first-tier market positions.

·

In the Energy sector, we are a major player, with renowned expertise in various segments of the value chain, from electricity production to energy trading and support activities, transport and marketing of electricity and natural gas, management of transport and distribution networks, services including construction and operation on the sites of cogeneration units, technical management of facilities owned by customers, optimization of systems, and engineering activities.

·

In the Environment sector, we are a major player in services related to water. We design and manage production and distribution systems for drinking water and the treatment of wastewater, perform engineering activities, and supply industrial companies with a wide range of services. We are also a world class player in waste management for municipal customers and businesses. Our capabilities cover the entire value chain, including collection, sorting and recycling, incineration and landfill, and the majority of categories of waste, both hazardous and non-hazardous.

We believe that our diversified customer base provides the basis for ongoing business with the potential for growth greater than that of the gross domestic product of the countries in which we operate.

We provide services to two main customer segments:

a) Municipal and individual customers

Demands from the private sector are growing, because of new liberalization in the markets, public authorities’ awareness of the limitations of their resources and specialized knowledge, and increasingly strong environmental regulations regarding waste services. These demands on the private sector may take the form of privatizations, concessions, or operating and maintenance contracts. The same situation holds true for many communities and international institutions which strive for greater efficiency, prices that better reflect economic realities, a superior level of service and an increase in the population served.

We believe that the long-term development potential of these markets is tremendous. In the Energy sector, the continuation of liberalization in Europe will make all residential customers eligible starting on July 1, 2007. With regard to the Environment sector, delegation to the private sector of the management of services pertaining to water and the collection and treatment of waste remains generally confined to Europe and the United States. On the international front, the long-term requirements are enormous, but the approach to public/private partnerships has not yet been worked out.

As indicated in the March 2003 report of an international task force on the financing of global infrastructure for water access, the Camdessus report, the private sector can only play a role in the resolution of this international problem if solutions are found to avoid excessive risk-taking to the detriment of operators, and to ensure that public authorities are in a position to honor their contractual commitments, particularly those relating to charges. The Group’s international development strategy in the Environment business line is based on strict criteria which ensure a balanced contract and a carefully weighted distribution of risk among all stakeholders.

Recognition that some conditions surrounding certain contracts have not been optimal has led the Group to take certain steps, such as rate adjustment negotiations. See “—Environment – Strategy and Commercial Development”.

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b) Business customers

Customers in the industrial and service sectors often seek customized solutions which we are well equipped to offer in our areas of specialization.

We offer all of the following:

·

the provision of basic products and services, including electricity, gas, water and waste management;

·

a vast range of specialized services, which include the treatment of hazardous industrial waste, the design and supply of water treatment facilities, electrical and mechanical facilities, and air conditioning expertise; and

·

management services for industrial, commercial and service facilities, ranging from maintenance to complex outsourcing activities.

We believe that the market for providing services to businesses will continue to grow in the coming years; the rate of this growth will be correlated with the soundness of national economies. The development of activities that businesses delegate to their service providers shows several marked trends:

·

the increasing trend from simple maintenance services to more complex services, such as facilities management and complete waste management;

·

the necessity for the service provider to commit itself to the success of the project and not just the work to complete it;

·

the sharing, and even the transfer, of all or part of the industrial risk (out-sourcing externalization); and

·

opportunities related to the pursuit of opening new energy markets.

The contracts that we offer can be both multi-site, due to our international presence, and single-service or multi-service depending on the customer’s requirements. In this case, they may, for example, include the supply of ultra-purified water by Ondeo, electricity, gas and heat by SUEZ Energy Europe and SUEZ Energy International, the incineration and treatment of waste by SITA, the provision of industrial services by Fabricom, facilities management, or site-based management of energy production by Elyo.

Group Organization

We are organized in four operational branches in our two lines of business, Energy and Environment. As part of our new brand architecture, the branches were renamed on March 15, 2005.

·

The Electricity & Gas Europe business line, which covers all European activities in the gas and electricity sector, became SUEZ Energy Europe, or SEE.

·

The Electricity & Gas International business line, which handles SUEZ activities in the gas and electricity business outside Europe, became SUEZ Energy International, or SEI.

·

The Industrial and Energy Services business line, which performs SUEZ activities in industrial installation and maintenance services, and in energy and engineering services, became SUEZ Energy Services, SES.

·

The SUEZ Environment business line covers all of our activities in the Water and Cleanliness businesses. Its name remains unchanged.

Please also refer to Note 41 to our Consolidated Financial Statements which shows a list of the main consolidated companies included in each operational division.

SUEZ 2005 FORM 20-F/A |11

Business Activity Growth

In 2003, an action plan we had announced in January 2003 was implemented, which targeted the improvement and stability of our profitability as well as the strengthening of our financial condition. At the conclusion of 2003, performance was in line with all the objectives of the action plan, including debt reduction and cost cutting, the Optimax program, and a reduction of our exposure in emerging countries.

Within this context, during 2004 we refocused on our two sectors of activity, Energy and the Environment, and launched a profitable growth strategy based on these two core activities.

In 2005, we continued this integration, and successfully launched a combined public offering in cash and shares for Electrabel on August 9, 2005. This offer was based on two major strategic objectives:

·

first, to increase our exposure in the buoyant energy market through Electrabel; and

·

second, to allow us to seize the growth opportunities made possible by the liberalization of the energy market in Europe, and particularly in France.

The realization of these strategic objectives was particularly well facilitated by our greater functional integration, which allowed us to accelerate the implementation of operational synergies. In coordination with Electrabel, we plan to implement operational synergies which will complement the current cost reduction program, Optimax. We believe that operational synergies worth approximately €250 million before taxes should be feasible at the Group level.Following this transaction, we own 98.62% of Electrabel’s share capital.

In 2005, we also pursued a strategy of profitable growth in our activities. Our activities experienced dynamic growth in 2005 with revenues showing growth of 9.0%. Our revenues were €41.5 billion in 2005.

SUEZ 2005 FORM 20-F/A |12

Breakdown of revenues:

(in € millions, except percentages)	IFRS				Gross growth
	2005		2004
SUEZ Energy Europe	14,193	34%	12,896	34%	10.1%
SUEZ Energy International	5,879	14%	4,892	13%	20.2%
SUEZ Energy Services	10,329	25%	9,733	25%	6.1%
Suez Environment	11,089	27%	10,537	28%	5.2%
Group total	41,489	100%	38,058	100%	9.0%

As in 2004, the business of SUEZ Energy International has been bolstered by very buoyant sales activities and has enjoyed extremely sharp growth of 20.2%. Growth in electricity sales volumes was particularly strong in North America, boosted by the success of direct sales to industrial and commercial customers and new power stations coming on stream. Sales in South America and in Middle East and Asia also enjoyed sharp growth. In Europe, growth in SUEZ Energy Europe revenues amounted to 10.1% with, for Electrabel, an increase in wholesale sales of electricity and gas and the continued development of commercial activities in France, Germany and Italy. The activities of SUEZ Energy Services produced growth of 6.1%, boosted by commercial development in France, the Netherlands and Italy, which more that offset a contraction in engineering activities attributable to the completion of several turnkey projects. In conclusion, the 5.2% growth of SUEZ Environment is a significant rise when compared to 2004. The activities of Eau Europe, or Europe Water, showed growth of 9.2%, coming principally from Agbar in Spain and the strong growth in sanitation activities and service provision in France. After flat growth in 2004, the activities of Propreté Europe, or Europe Waste Services, resulted in growth of 1.4% in 2005, driven by growth in France and the United Kingdom, particularly owing to the commissioning of new incinerators and an improved economic environment. Suez Environment’s international activities experienced growth of 3.8%, resulting primarily from price increases in Chile and growth in Lydec’s sales in Morocco, as well as continued growth in Brazil, Australia and China. Finally, Degrémont benefited from new contracts in South America and Australia, which brought its growth to 14.3% in 2005.

Viewed from a geographic perspective, our activities are global but Europe remains our most important market. We earned 79% of our revenues there in 2005. France and Belgium made the largest contribution of 50%. The combined contribution of Europe/North America was stable compared with 2004 levels at 89%.

The table below reviews the changes in our consolidated revenues, profitability and financial situation over the last two years:

	IFRS
	2005		2004		Gross variance in %
	(in € millions)
Revenues	41,489		38,058		+9.0	%
Net income Group share	2,513		1,696		+48.1	%
Cash flow from operating activities	5,826		4,970		+17.2	%
Cash generated from operations before income tax and working capital
requirements	5,751		5,681		+1.2	%
Borrowings	25,487		20,253		+25.8	%
Borrowings less securities and cash and cash equivalents(1)	13,809		11,696		+18.1	%
	December 31, 2005		December 31, 2004
Borrowings/equity ratio	133.5	%	156.8	%
Net debt/equity ratio(1)	72.3	%	90.6	%
(1) See below (Reconciliation of our non-GAAP financial measures).

Growth for SUEZ Energy Europe’s gross operating income¹ amounted to 7.7%, with especially high growth in the Benelux countries of Belgium, the Netherlands and Luxembourg, that was boosted partly by non-recurring items including intercommunity sales, but above all by a sharp improvement in margins due to higher electricity and gas market prices, the diversified structure of Electrabel’s production capacity and continued efforts on cost control. 2005 also saw steady confirmation of growth at Electrabel’s plants outside Benelux including several plants coming on stream in Italy. In addition, Electrabel’s trading business was considerably bolstered by the high prices of petroleum products and electricity, while Distrigas posted gains on financial hedging instruments. The sharp rise and volatility in gas prices on the short-term markets also enabled Distrigas to benefit from arbitrage opportunities.

SUEZ Energy International posted an increase in gross operating income of 13.3% overall. Growth varied depending on the geographical region. South America contributed the most, particularly Brazil, where it was the last year for the replacement of the initial contracts by bilateral contracts with higher margins, which more than offset the negative impact of a rise in sales taxes. Similarly, the Middle East and Asia region posted sharp growth in gross operating income due to sales increases, the renegotiation of maintenance contracts in Thailand and the full-year effect of the power plant in Baymina, Turkey, that came on stream in February 2004. By contrast, North America declined due to the poor operating environment in the second half, including startup problems in the liquefaction plants of Atlantic LNG, which, coupled with a global lack of LNG on the world market led to under- capacity for a methane tanker, losses on the unwinding of hedging contracts and pressure on margins for direct sales of electricity to industrial and commercial customers in a period of sharp price increases.

⁽¹⁾  Gross operating income is our key segment operating measure. See Note 4 to our Consolidated Financial Statements.

SUEZ 2005 FORM 20-F/A |13

SUEZ Energy Services posted growth in gross operating income of 0.9%. This low apparent increase arose due to difficulties facing Tractebel Engineering on the Norwegian Snohvit contract while the services and installation activities sharply improved performance largely due to continued commercial development in services in France and Europe, an improved order book for Ineo and new contracts for installation and related services coming into effect, and lastly, the positive effects of the restructuring undertaken and renegotiation of loss-making contracts in the various entities.

Lastly, SUEZ Environnement enjoyed particularly sharp growth in gross operating income of 8.5%. This growth arose primarily due to the water business in Europe and internationally while Degrémont made a steady recovery following the year 2004 when it was hit by the closure of the business in the UK and Colombia. Waste services in Europe continued to suffer from a dull economic climate largely due to high diesel prices, additional waste sorting costs following the introduction of the “Tasi” law on June 1, 2005 in Germany, and generally due to a difficult economic environment in France in the first half of the year and in the Netherlands throughout the year.

Overall, for the year 2005, we beat the objectives which had been previously announced: growth in sales, including the effects of acquisitions and disposals, exchange rate variations and gas price variations, amounted to 9%.

Reconciliation of our non-GAAP financial measures

To assess the financial strength of the Group and make management decisions regarding liquidity, we use various indicators, in particular borrowings less securities and cash and cash equivalents (or “net debt”) and the ratio of net debt to equity. We believe that these measures are useful to investors as they provide a view of the Group’s level of debt overall and on a relative basis when compared to equity in a manner which is consistent with our internal approach. The use of these measures is also consistent with the reporting practices of other entities in France (e.g., these measures are the most common liquidity measures used in France) and they are the measures utilized by the rating agencies. However, because these measures have limitations as outlined herein, we limit the use of these measures to these purposes.

As shown in the table below, our “borrowings less securities and cash and cash equivalents” is defined as the sum of our borrowings (current and non-current), derivatives hedging borrowings under liabilities (current and non-current), less our available-for-sale and short-term securities, cash and cash equivalents, and derivatives hedging borrowings under assets (current and non-current). The most comparable measure calculated in accordance with IFRS is “total borrowings” as shown below.

	2005		2004
	(in millions of euros)
Borrowings – non-current	16,406.9		16,251.6
Borrowings – current	9,079.9		4,001.5
Total Borrowings	25,486.8		20,253.1
Derivatives hedging borrowings under liabilities – non-current	206.8
Derivatives hedging borrowings under liabilities – current	57.6
Available-for-sale and short-term securities	(885.6	)	(1,645.6	)
Cash and cash equivalents	(10,374.4	)	(6,911.6	)
Derivatives hedging borrowings under assets – non-current	(670.3	)
Derivatives hedging borrowings under assets – current	(12.3	)
Borrowings less securities and cash and cash equivalents	13,808.6		11,695.9

We calculate the net debt to equity ratio by dividing the amount of borrowings less securities and cash and cash equivalents, as computed above, by our total equity. The most comparable measure calculated in accordance with IFRS is the borrowings to equity ratio as shown below:

	Dec. 31, 2005		Dec. 31, 2004
	(in millions of euros)
Borrowings	25,486.8		20,253.1
Equity	19,089.6		12,916.2
Borrowings/equity ratio	133.5	%	156.8	%

     Borrowings less securities and cash and cash equivalents and net debt to equity ratio as presented by the Group may not be comparable to similarly titled measures used by other entities. Further, these non-GAAP measures should not be considered as alternatives to the most directly comparable financial measures (borrowings and borrowings to equity ratio) calculated and presented in accordance with IFRS as an indicator of operating liquidity.

2006 strategic priorities

We have an excellent industrial outlook based on a buoyant market for energy and the environment and dynamic sales teams.

Our competitive position in our business segments, our experience and our technological leadership represent strong sources of future growth.

We will continue our campaigns to increase operating margins and generate cash in all our businesses.

For 2006, operating performance is expected to come in at the top range of our medium-term objectives:

·

growth, excluding the effects of acquisitions and disposals, exchange rate variations and gas price variations, in sales of between 4 and 7%;

·

growth in gross operating income of more than 7%; and

·

in view of the accumulated total capital expenditure as of December 31, 2005 of €6.2 billion, excluding the purchase of the minority interests in Electrabel, the total capital expenditure target over the period 2004 to 2006 of €10.5 billion and the ongoing objectives to improve return on capital employed, or ROCE, are expected to be met.

Confident in the prospects facing each of our business lines, at its meeting on March 8, 2006, the Board of Directors confirmed its dynamic dividend payout policy in line with growth in net income and offering a competitive dividend yield. For 2006, the ordinary dividend that was submitted to the general shareholders’ meeting was 1 euro per share, up 25% over the dividend paid in 2005 in respect of fiscal year 2004.

In this context, the primary strategic objectives of the operating business lines are as follows:

a) SUEZ Energy Europe (SEE)

·

Maintain leading position and safeguard margins in Benelux by focusing on customer relations and strengthening competitivity of production plant.

·

Develop convergence of gas/electricity.

·

Develop activities in France from positions acquired in electricity and gas based on SUEZ’s existing sites in the environment and services businesses.

·

Continue business developments and targeted investments on the markets of the traditional major operators and on other European markets on an ad-hoc basis.

SUEZ 2005 FORM 20-F/A |14

b) SUEZ Energy International (SEI)

·

Focus on growth around SUEZ Energy International’s key positions (United States, Brazil, Thailand, LNG and the Gulf Cooperation Council countries) and in other countries where growth in energy demand is expected to be strong on an ad-hoc basis.

·

Concentrate sales activities on commercial and industrial customers.

·

Maintain a balanced portfolio management strategy aimed at achieving optimal risk/return ratio.

c) SUEZ Energy Services (SES)

·

Continue improvement in SUEZ Energy Services’ profitability by implementing all internal synergies.

·

Strengthen leadership position on domestic markets (France and Benelux) and selectively grow on other profitable European markets.

·

Develop the business mix by bolstering the proportion of services.

d) Suez Environment (SE)

·

Prioritize profitable growth targeted on developed countries, particularly Europe, by maximizing our technical and commercial advantages in a context of ever stricter environmental regulations.

·

Outside Europe, maintain strict selectivity of opportunities and improvement in the profitability and financial returns of the lowest performing assets.

Furthermore, 2006 will be dominated by preparations for the merger between SUEZ and Gaz de France, as announced on February 28, 2006 which is expected to be submitted for approval to both groups’ extraordinary general shareholders’ meetings at the end of the year, after the various requirements to implement the merger have been satisfied, including the following:

·

changes to the law, particularly to allow the French government to reduce its equity interest in Gaz de France below the current minimum limit of 70%;

·

submission of the transaction to the European Commission and other relevant authorities; and

·

registration of documents relating to the merger by the financial market authorities.

Following the successful tender offer for Electrabel in 2005 and the launch of the planned merger project in 2006, the new group arising from the SUEZ/Gaz de France combination would be one of the best placed to benefit from the deregulation of the energy markets in 2007.

Organizational Structure

The following is a simplified list of our major subsidiaries and our percentage of ownership interest as of December 31, 2005. It includes significant operational entities and the head companies of operational sub-groups consisting of subsidiaries that are not significant individually.

SUEZ 2005 FORM 20-F/A |15

Name	Headquarters address	% interest
		Dec. 2005	Dec. 2004
SUEZ ENERGY EUROPE (SEE)
ELECTRABEL	Boulevard du Régent, 8 – 1000 Brussels – Belgium	98.6	50.1
ELIA/ELIA SYSTEM OPERATOR – ESO	Boulevard de l’Empereur, 20 – 1000 Brussels – Belgium	27.1	32.1
ALP ENERGIA ITALIA	Via Tiziano 32, 20145 Milan, Italy	98.6	25.0
ELECTRABEL France	Le César, 20 Place Louis Pradel,69001 Lyon, France	98.6	50.1
ELECTRABEL CUSTOMER SOLUTIONS	Boulevard du Régent, 8 – 1000 Brussels – Belgium	94.5	48.0
ELECTRABEL NETTEN VLAANDEREN	Guldensporenpark 52-56 – 9820 Merelbeke – Belgium	98.6	50.1
DUNAMENTI	Eronu Rt. C/o Electrabel MagyarorszàgCsenterics u. 82440 Szazhalombatta, Hungary	73.8	37.5
ELECTRABEL NEDERLAND NV	Dr. Stolteweg 92, 8025 AZ Zwolle,Netherlands	98.6	50.1
ELECTRABEL DEUTSCHLAND AG	FriedrichstaBe 200,10117 Berlin, Germany	98.6	50.0
ENERGIE SAARLORLUX GmbH	Richard Wagner Strasse 14 – 16,66111 Saarbrücken – Germany	50.3	25.5
ELECTRABEL NEDERLAND SALES BV	Dr. Stolteweg 92, 8025 AZ Zwolle,Netherlands	98.6	50.1
POLANIEC	Elektrownia im. Tadeusza Kosciuski – Spolka Akcyjna w Polancu – Poland	98.6	50.1
ROSIGNANO ENERGIA SPA	Via Piave N° 6 Rosignano Maritimo Italy	98.1	49.8
ACEA Electrabel group(a)	P. le Ostiense, 2, Rome, Italy	40.0	20.3
CASTELNOU	General Castanõs 4 - 3e planta,28004 Madrid, Spain	98.6	50.1
TIRRENO POWER SPA	Largo Lamberto Loria, 3, Roma, Italy	34.5	17.5
COMPAGNIE NATIONALE DU RHONE (CNR)	2, rue André-Bonin69 316 Lyon Cedex 04 – France	49.3	25.0
SYNATOM	Place du Champ de Mars 5– 1050 Brussels – Belgium	98.6	50.1
SHEM	Le César, 20 Place Louis Pradel69001 Lyon, France	78.9
DISTRIGAS	Rue de l’Industrie, 10– 1000 Brussels – Belgium	57.2	57.2
DISTRIGAS & Co	Rue de l’Industrie, 10– 1000 Brussels – Belgium	57.2	57.2
FLUXYS	Avenue des Arts, 31– 1040 Brussels – Belgium	57.2	57.2
FLUXYS LNG	Rue Guimard 4, 1040 Brussels, Belgium	60.2	59.4
SUEZ ENERGY INTERNATIONAL (SEI)
TRACTEBEL ENERGIA (formerly GERASUL)	Rua Deputado A. Edu Vieira 999Pantanal, Florianopolis SC, Brazil	68.7	78.3
COMPANHIA ENERGETICAMERIDIONAL	Rua Antonio Dib Mussi, n°366Centro FlorianopolisSanta Catarina, Brazil	68.7	78.3
ENERSUR	Av. República de Panamá3490, San Isidro, Lima 27, Peru	61.7	78.9

SUEZ 2005 FORM 20-F/A |16

Name	Headquarters address	% interest
		Dec. 2005	Dec. 2004
GLOW (THAILAND)	26th Floor, M. Thai Power 87,Wireless Road, Phatum Wan, Bangkok 10330, Thailand	69.1	99.1
SUEZ LNG FINANCE SA	1st Floor, Chamber of CommerceBuilding Columbus Circle, WestmooringsTrinidad W.I. - Trinidad & Tobago	100.0	100.0
SUEZ ENERGY RESOURCES NORTH AMERICA	1990 Post Oak Boulevard,Suite 1900Houston, TX 77056-4499, USA	100.0	100.0
SUEZ ENERGY MARKETING NORTH AMERICA	1990 Post Oak Boulevard,Suite 1900Houston, TX 77056-4499, USA	100.0	100.0
SUEZ ENERGY GENERATION NORTH AMERICA	1990 Post Oak Boulevard,Suite 1900Houston, TX 77056-4499, USA	100.0	100.0
ELECTROANDINA	Isidora Goyenechea 3365, piso 7,Las Condes - Santiago - Chile	33.3	33.3
EDELNOR	El Bosque 500 – Piso 9 – of. 902Las Condes – Santiago – Chile	27.4	27.4
LITORAL GAS	Mitre 621 2000 Rosario – Sante Fe – Argentina	64.2	64.2
SOHAR POWER COMPANY	PB 147, PC 134, Jawharat Al ShattiMuscat – Oman	50.0	-
AL EZZEL POWER COMPANY	PB 11753Manama – Bahrein	45.0	-
SUEZ LNG AMERICA	1990 Post Oak Boulevard, Suite 1900 Houston, TX 77056-4499, USA	100.0	100.0
HANJIN CITY GAS	711 Sang-Gye-6-Dong 139-206 Seoul – Korea	75.0	75.0
COLBUN(b)	Av. Apoquindo 4775,Piso 11, 12 & 13,Las Condes - Santiago – Chile	19.0	29.2
BAYMINA	Ankara Dogal Gaz Santrali,06900 Ankara – Turkey	95.0	95.0
TBL ENERGIA DE MONTEREY	Carretera a Villa de Garcia km.9,C.P. 66000 Garcia Nuevo Leon - Mexico	100.0	100.0
SUEZ ENERGY SERVICES (SES)
ELYO	235, av. Georges Clémenceau92000 Nanterre – France	100.0	100.0
AXIMA AG	12, Zürcherstrasse – 8400 Winterthur – Switzerland	100.0	100.0
CPCU	185, rue de Bercy75012 Paris – France	64.4	64.4
FABRICOM SA	254 Rue de Gatti de Gamond– 1180 Brussels – Belgium	100.0	100.0
ENDEL	15, rue Saint-Denis93125 La Courneuve Cedex – France	100.0	100.0
FABRICOM GTI SA	Rue de Gatti de Gamond, 254 – 1180 Brussels – Belgium	100.0	100.0
GTI GROUP	Kosterijland 50, 3981 AJ Bunnik, Netherlands	100.0	100.0
INEO	2, allée Jacques Brel92247 Malakoff Cedex – France	100.0	100.0

SUEZ 2005 FORM 20-F/A |17

Name	Headquarters address	% interest
		Dec. 2005	Dec. 2004
ENVIRONMENT
SUEZ ENVIRONNEMENT	1, rue d’Astorg75008 Paris – France	100.0	100.0
LYONNAISE DES EAUX France	1, rue d’Astorg75008 Paris – France	100.0	100.0
DEGREMONT	183, avenue du 18 juin 194092500 Rueil-Malmaison – France	100.0	100.0
AGBAR	Torre Agbar, Avenida Diagonal, 211, 08019 Barcelona - Spain	25.5	25.8
NORTHUMBRIAN WATER GROUP	Abbey Road – Pity Me – Durham – DH1 5FJ – United Kingdom		25.0
SITA HOLDINGS UK LTD	Grenfell Road, Maidenhead,Berkshire SL6 1ES, United Kingdom	100.0	100.0
SITA DEUTSCHLAND GmbH	Industriestrasse 161 D-50999Köln – Germany	100.0	100.0
SITA NEDERLAND BV	Mr. E.N. van Kleffensstraat 6,Postbus 7009, NL – 6801 HA Arnhem, Netherlands	100.0	100.0
SITA France	123, rue des 3 Fontanot92000 Nanterre – France	100.0	100.0
SITA SVERIGE AB	Kungsgardsleden – 26271 Angelholm – Sweden	75.0	75.0
AGUAS ANDINAS	Avenida Presidente Balmaceda 1398, Piso – 4, Santiago – Chile	7.4	20.8
AGUAS ARGENTINAS	Reconquista 823,1003 Buenos Aires – Argentina	46.3	46.3
LYDEC	20, boulevard Rachidi,Casablanca – Morocco	51.0	59.0
UNITED WATER RESOURCES	200 Old Hook Road,Harrington Park New Jersey – USA	100.0	100.0
OTHER
SUEZ SA	16, rue de la Ville l’Evêque– 75008 Paris – France	100.0	100.0
SUEZ-TRACTEBEL	Place du Trône, 1– 1000 Brussels – Belgium	100.0	100.0
GIE - SUEZ ALLIANCE	16, rue de la Ville l’Evêque– 75383 Paris Cedex 08 – France	100.0	100.0
SUEZ FINANCE SA	16, rue de la Ville l’Evêque –75383 Paris Cedex 08 – France	100.0	100.0
GENFINA	Place du Trône,1– 1000 Brussels – Belgium	100.0	100.0
SI FINANCES	68, rue du Faubourg Saint-Honoré– 75008 Paris – France	100.0	100.0
(a) Ownership interest in the ACEA/ELECTRABEL holding company. (b) The method of consolidation for Colbun has changed from proportional consolidation to consolidation by the equity method (associate company), reflecting the reduction in our ownership interest following asset transfers carried out by one of Colbun’s shareholders.

SUEZ 2005 FORM 20-F/A |18

ENERGY

Organization and key figures

The following table presents comparable revenue and employee figures for the Energy businesses for the last two fiscal years.

(in € millions, except employee data)	December 31, 2005	December 31, 2004
Revenues	30,401	27,521
Number of employees	84,902	87,300

Our competences in the energy sector encompass the whole value chain, apart from gas exploration and production. Such diversity enables Electrabel, Distrigas, Fluxys, SUEZ Energy International, Elyo, Fabricom and Tractebel Engineering to develop tailor-made solutions corresponding to the many requirements of companies and local communities.

Production Capacity

We own and are developing a flexible and efficient production capacity in our key markets: Europe, North America and South America, as well as the Middle East and Asia. Our installed capacity and capacity under construction at December 31, 2005 amounted to 54,622 MW, excluding development. MW always expresses net output unless otherwise specified: gross output less the power plant’s consumption. The installed capacities correspond to 100% of the power from power plants entering into the scope of consolidation by the equity method, proportional consolidation and full consolidation.

Installed capacity and capacity under construction, at December 31, 2005

Natural gas is the fuel most used by production units managed by us with 39% of capacity managed, including contracted capacities, versus 12% for oil and 9% for coal. Hydraulic power represents 24%, nuclear power 12%, and other sources 4%.

Managed capacity breakdown by type of fuel, at December 31, 2005

We consider that this structure guarantees a robust competitiveness in terms of return from power plants as well as in terms of environmental impact. In fact, for the most part, the production capacity includes efficient technologies and fuels that are less polluting than other fossil fuels such as coal. We are continuing our development effort along these lines, but are also participating in research work aiming to increase the return from coal-fired power plants and improve the environmental impact of this technology.

SUEZ 2005 FORM 20-F/A |19

Projects under construction by region, at December 31, 2005 (in MW)

Projects under construction are projects for which a construction contract is in place and an order has been given to the contractor to commence work. They are distinct from projects under development, which are projects that are identified and under study, but as to which a decision to proceed has not been made. Cumulative capacity from projects under construction amounted to 4,981 MW at 31 December 2005. Taking into account the provisional timetables for the operational launch of units, SUEZ anticipates an increase in its installed capacity of 3,223 MW in 2006, 1,696 MW in 2007 and 62 MW in 2008.

Gas technologies such as CCGT and Open Cycle are used for 88.8% of projects under construction, renewable technologies such as wind for 7.6% and small hydro for 1.4%, and classical thermal solutions for 2.2%.

Energy Trading

Our energy trading activities aim to manage the balance between production assets, long-term fuel procurement contracts and sales through centralized portfolio management. In addition, we are developing an energy trading activity in Europe on our own account as well on behalf of our customer base.

At the European level, Electrabel is one of the pioneers in energy trading. This long experience allows it to offer innovative products and services by combining the physical supply of electricity and natural gas, access to networks and financial instruments. Its trading activities enable it to optimize its overall position on energy markets, including fuel purchases, exploitation of power plants and sales. Electrabel is active on all energy markets across Europe, from Scandinavia to Spain and from Benelux to Poland. It is one of the founding members of the Amsterdam Power Exchange (APX), the European Energy Derivatives Exchange or Endex, and Powernext, the manager of the French Power Exchange.

On the Belgian market, Elia, APX and Powernext have signed a cooperation agreement to set up the Belgian Power Exchange, Belpex. The linking of Belpex, APX and Powernext is anticipated in 2006 in order to ensure sufficient liquidity on Belpex.

In the United States, the energy trading activities implemented by SUEZ Energy International companies are currently centered around trading based on existing assets. This activity, which requires initiatives in the area of risk management linked to the prices of products, including purchases of fuels and sales of electricity, calls directly on SEI’s assets and is intended to optimize the operating results of such facilities.

SUEZ Energy International manages its trading activities in the United States through SUEZ Energy Marketing NA, formerly Tractebel Energy Marketing, Inc., while Electrabel and Distrigas assume this function in Europe for SUEZ Energy Europe.

Our presence on the electricity and natural gas markets and services is covered by three operating business lines:

a) SUEZ Energy Europe:

Development of our electricity and gas activities in Europe is entrusted to the SUEZ Energy Europe division, SEE. It aims to maximize all synergies present within to the benefit of its customers.

SUEZ 2005 FORM 20-F/A |20

For electricity and gas activities in Europe, the major companies making up SEE are as follows:

·

Electrabel, which was 98.62%-owned as at December 31, 2005 and is a European provider of global and tailor-made energy solutions, including production, trading, sales, and distribution networks.

·

Distrigas and Fluxys, which are the result of the split of the former Distrigas’ trading and transport activities. Our interest in these two companies was increased in 2004 in line with Shell’s withdrawal. At December 31, 2005, we held a 57.24% participating interest in Distrigas and a 57.25% participating interest in Fluxys.

Electrabel, Distrigas and Fluxys are listed on Euronext Brussels.

Overall, SEE’s activities represent some €14.2 billion in revenues in 2005 for a workforce of approximately 15,800.

b) SUEZ Energy International:

SUEZ Energy International, SEI, is responsible for our energy and service activities on markets outside Europe. Electricity and natural gas make up SEI’s core business. This covers the production of electricity, the trading, marketing and sale of energy, as well as the management of transport and distribution systems and Liquefied Natural Gas, or LNG.

SEI is organized into four regional entities coordinated by a central organization located in Brussels.

·

North America, where SUEZ Energy North America, a wholly-owned subsidiary of SEI based in Houston, Texas manages all of our electricity and gas activities in the U.S., Canada and Mexico, including the LNG regasification facilities;

·

South America, where SUEZ Energy South America, a wholly-owned subsidiary of SEI based in Florianopolis, Brazil manages all of our electricity and gas activities in Brazil, Chile, Peru and Argentina;

·

Middle East and Asia, where SUEZ Energy Asia, a wholly-owned subsidiary of SEI based in Bangkok, Thailand manages all of our electricity, gas and sea water desalination activities in Thailand, Laos, South Korea, Singapore, Turkey and the Gulf Cooperation Council countries; and

·

LNG, a sector in which SUEZ Global LNG, a wholly-owned subsidiary of SEI based in London and Luxembourg, is responsible for LNG activities, procurement, coordination of transport and management of holdings in liquefaction projects around the world.

Overall, SEI’s activities represent some €5.9 billion in revenues in 2005 for a workforce of approximately 4,100.

c) SUEZ Energy Services:

As the European leader in installation and technical services, SUEZ Energy Services, SES, offers its customers in the industrial and tertiary sectors, local communities and public authorities, in particular the Ministry of Defense, and infrastructures, global solutions ranging from the design, realization and maintenance of installations, through to energy and utilities management or even long term multi-technical management. With its presence across the whole value chain of technical services, SUEZ Energy Services makes its many and varied skills available to its customers and accompanies them throughout the life-cycle of their facilities and sites. The services provided by SUEZ Energy Services enable its customers to optimize their assets, manage their costs more effectively and focus on their core business.

SES’s businesses are well-positioned on growing segments. Among other things, they correspond to the growing needs of customers to achieve ever greater efficiency in terms of energy and the environment for their heat and electricity generating systems. While energy-intensive industrials such as iron and steel, cement and petrochemical plants were among the first to seek out solutions that were at the same time efficient and cost-effective in order to have control over their energy costs, this growing need now extends across all sectors, including infrastructures, local authorities, tertiary and industrials.

To these economic concerns can be added environmental and governmental constraints such as the management of green certificates, the possible introduction within the EU of white certificates or energy saving certificates, which have already been introduced in various forms in Italy and the United Kingdom and in France, and the European directive in the field of energy efficiency which is particularly ambitious with regard to the energy savings to be realized between now and 2015. In this context, it is essential to choose a partner such as SES that has the capacity to assume overall responsibility for the issue and put forward an offer that is scaled to the specific requirements of customers.

The offer from SES may include techniques representing high energy efficiency such as cogeneration; it may also incorporate the use of renewable energies such as biomass, geothermal or solar energy.

SUEZ 2005 FORM 20-F/A |21

In addition, SES companies are ideally placed, in terms of technical expertise, project and contract management as well as geographical networking, for dealing with the huge challenges that face many customers in the industrial and services sectors:

·

refocusing on core businesses and decisions to outsource in search of complete and integrated multi-technical solutions, in the private as well as the public sector;

·

modernization of healthcare facilities, requiring installation services as well as multi-technical operations services over the long-term; and

·

increasing attention paid to mobility and safety with, as a consequence, major requirements for the modernization of rail, road and urban transport infrastructures.

SUEZ Energy Services is now a fully-fledged business line within SUEZ, alongside SUEZ Energy Europe, SUEZ Energy International and SUEZ Environment. The Business Line has been set up from a legal and organizational point of view in order to strengthen its effectiveness. Since June 2005, SUEZ Energy Services has relied on a clear and legible organization that classifies and incorporates complementary businesses, while respecting each business’s own features: engineering, installations and related services, energy services and technical management. The entities that belong to SUEZ Energy Services are now organized by country into seven business units, or BUs.

SUEZ Energy Services: Business organization by country

The organization that has been chosen is essentially geographical, taking into account the proximity of the activity. Each BU is placed under the authority of a single manager who reports directly to the business line general management for his results; the method for managing the business line is intentionally decentralized so that decisions can be taken as close to the operations as possible. Commercial and technical cooperation between SES entities and with other SUEZ entities is encouraged in order to achieve optimal efficiency in terms of sales and costs.

The offer from SUEZ Energy Services covers the whole value chain for technical services:

·

design;

·

realization of electrical, mechanical and HVAC installation;

·

industrial;

·

multitechnical maintenance and management;

·

energy networks and on site utilities management;

·

facilities management.

SUEZ 2005 FORM 20-F/A |22

In addition, the Electricity and Gas Companies are specialized in the production and distribution of electricity in Monaco, Casablanca, Morocco, and in the Pacific. They are also partners in the development of these areas because they provide services of international quality with the support of a major group.

SES’s activities represented approximately €10.3 billion in revenues for 2005.

Its 65,000 employees are present in more than 22 countries, mainly in Europe, where the business line’s activities are conducted on no less than 800 sites.

Energy Strategy and Sales Development

In Europe, our priority energy strategy focuses on profitable growth relying on our strong domestic positioning and targeted developments in electricity and gas.

On an international scale, we primarily intend to exploit our industrial know-how and look to dynamic expansion based on our five key positions with high potential (U.S., Brazil, Thailand, the Gulf region and LNG).

SUEZ Energy Europe

·

development of activities in France starting from positions acquired in electricity and gas based on our existing facilities in the environment and services sectors;

·

defense and consolidation of our position as leader on the Benelux market;

·

ensuring balanced growth on the markets of incumbent operating companies (France, Germany, Italy, Iberian Peninsula); and

·

development of the growth portfolio in our Central, East and South-East regions.

SUEZ Energy International

·

priority given to growth around the five key positions of SUEZ Energy International (United States, Brazil, Thailand, LNG and the Gulf Cooperation Council countries) as well as, in a more opportunistic manner, in other countries where the growth in demand for energy is expected to be strong;

·

concentration of selling activities on the commercial and industrial customer-base; and

·

maintenance of a balanced portfolio management logic aiming to achieve optimal performances in terms of risk/profitability.

SUEZ Energy Services

With revenues of over €10 billion, SUEZ Energy Services is currently the top company present on the European services market acting under well-known commercial brand names: Axima, Elyo, Endel, Fabricom GTI, GTI, Ineo and Tractebel Engineering. The business line is number one in France, Belgium and the Netherlands; it holds a strong position in neighboring countries such as the United Kingdom, Germany, Italy, Spain, Switzerland, Austria and Norway, and it has preliminary bases for development in other countries such as Portugal and Greece as well as Central Europe. In this context, the strategic priorities of SUEZ Energy Services are as follows:

·

continue improvement in the business line’s profitability;

·

strengthen its position as leader on domestic markets (France and Benelux);

·

increase market share in other European countries;

·

expand in Central European countries; and

·

develop the business mix towards more long-term service activities.

In order to achieve these objectives, efforts will be focused on operational efficiency, extending and even accelerating actions already undertaken in a good number of entities. This is particularly the case in terms of operating profit, safety, and participation in the “Group” effect. The business line will also exploit growth opportunities more intensively in such profitable segments as energy and environment efficiency, mobility or healthcare.

SUEZ 2005 FORM 20-F/A |23

Significant Events

SUEZ Energy Europe

January 2005

Europe

·

The European Union Greenhouse Gas Emission Trading Scheme, or EU ETS, comes into force. Electrabel plays an active part.

France

·

The Board of Directors of Société Hydro-Electrique du Midi, SHEM, ratifies the acquisition of 40% of SHEM’s capital by Electrabel France from SNCF and the appointment of three directors from SUEZ onto the Board. SHEM becomes fully consolidated within the Group.

·

Another 40% of SHEM’s capital will be automatically transferred to us within two years of this acquisition. Electrabel also grants SNCF the right to put the remaining 19.6% of SHEM capital to us in the future.

January-December 2005

Belgium – Portugal

·

Electrabel boosts its capacities in wind energy with four Lanaken 2 MW and five Perwez 1.5 MW wind farms in Belgium; and three Meadas 3 MW and forty Fafe 2 MW wind farms in Portugal.

Belgium – Italy – Spain

·

Electrabel continues the development of its diversified European production capacity thanks to high-performance combined-cycle gas turbine, or CCGT, units. The 395 MW Zandvliet Power plant, a joint venture between Electrabel and RWE owned 50% by each party, produces the first kilowatt-hours. In Italy, the 385 MW Voghera power plant and repowered units of the 569 MW Torrevaldaliga power plant are ready to be brought into service. The construction of new 760 MW units in Castelnou, Spain, and 385 MW units at Leinì and Roselectra, Italy, as well as several repowering projects in Italy are all making progress.

February 2005

Belgium

·

Electrabel commercializes on the Belgian electricity market “Electrabel Vert”. This label guarantees that 100% of the energy generation in respect of that label comes from renewable energy sources.

·

In partnership with APX, Huberator, a subsidiary of Fluxys and operator of the Zeebrugge hub, launches a natural gas exchange for the hub. This involves an electronic platform which enables traders, anonymously and without credit risk, to enter into short-term trading contracts for natural gas. This exchange creates new opportunities for increasing liquidity on the market.

Belgium and Qatar

·

Distrigas and RasGas (II) sign an agreement for the supply of LNG, under which, as of 2007 and for a period of 20 years, Distrigas will import around 2.75 billion cubic meters a year, some 2.05 million tons, of LNG from Qatar to the LNG terminal in Zeebrugge. Distrigas has reserved the corresponding capacity.

SUEZ 2005 FORM 20-F/A |24

February-June 2005

Netherlands – France – Germany

·

In France, Electrabel receives permission to sell natural gas to non-residential customers and suppliers of natural gas. In Germany and the Netherlands, it expands its offer to the sale of natural gas to industrial customers and to the medium-sized company segment.

March 2005

Belgium

·

Distrigas acquires Sofipar SA from Belgian Shell. Sofipar is a member of the Finpipe EIG. Distrigas’ participating interest in the EIG thus increases from 56% to 63.33%.

·

The TGV unit of Zandvliet Power, a joint venture between Electrabel and RWE which produces 395 MW, is put into service to provide steam and electricity for the firm BASF.

March and June 2005

·

Through the exercise of its pre-emptive rights, in two transactions in March and June, Distrigas raises its participating interest from 10 to 16.4% in Interconnector.

June 2005

Belgium

·

On June 20, shares of Elia are listed on the Brussels stock market for the first time. This listing on the stock exchange constitutes a decisive step in the split between transport system management activity, on the one hand, and production and selling activities, on the other. Electrabel has thus brought its participating interest in the transport system manager to approximately 27.6% from 64% at December 31, 2004. The transaction resulted in a consolidated capital gain of €626 million. The flotation of this major portion of Electrabel’s stake in Elia resulted in cash inflows of €395 million, or €352 million after taking into account Electrabel’s subscription for €43 million of Elia’s capital increase.

·

Distrigas has acquired Methania from Exmar. This methane tanker will continue to play a major role in Distrigas’ strategy for the procurement of LNG. This transaction enables it to strengthen its presence in the LNG transport segment and will allow it to take advantage of the commercial opportunities that this activity can offer.

·

In connection with its plan to increase the East-West transport capacity on the Zeebrugge-Zelzate/Eynatten axis, the rTr axis, in the direction of Zeebrugge between the years 2009 and 2010, Fluxys is circulating an Information Memorandum with a view to measuring the market’s interest with regard to reserving long-term transit capacity on this axis. A change in supply conditions in the United Kingdom, which is soon to become an importer of natural gas, constitutes the driving force behind this project. In fact, an increase in capacity on the rTr axis will make it possible to transport much higher volumes of natural gas to the United Kingdom from Eynatten, as well as from Zelzate.

July 2005

Belgium

·

On July 7, the Belgian electricity exchange Belpex is created. It benefits from the active support of Electrabel and contributes to correct operation of the deregulated electricity market. The exchange will be starting up the spot market during 2006.

·

Distrigas signs a contract for the supply of natural gas with an industrial customer in Gironde, an area formerly under Gaz du Sud Ouest. By signing this contract, Distrigas becomes the first new arrival to supply customers across the whole of France.

SUEZ 2005 FORM 20-F/A |25

August 2005

Belgium

·

Electrabel launches a revolutionary offer on the deregulated energy market. This offer is based on four “energy packs”, called Electrabel EnergyPlus, Electrabel ServicePlus, Electrabel Vert, and Electrabel OptiBudget, allowing customers to choose the supply contract best suited to their needs.

Belgium – France

·

SUEZ launches a combined public offering in cash and shares on Electrabel minority interests which it does not yet own. At the end of this transaction, SUEZ holds almost 99% of Electrabel’s capital.

·

In its meeting of August 9, 2005, the Board of Directors of SUEZ approved the launch of a cash and share bid for the portion of Electrabel not already owned by the Group (49.9%). SUEZ offered €322 in cash and four SUEZ shares for each Electrabel share. Electrabel’s Board of Directors approved the bid on August 24, 2005.

·

On August 9, 2005, SUEZ also put in place a credit facility for an initial amount of €7.9 billion, later reduced to €3.2 billion, aimed at partially financing the cash component of the offer. This credit facility was syndicated in September  2005.

·

On September  7, 2005, the Board of Directors of SUEZ approved a capital increase under the following terms and conditions:

-

capital increase with preferential subscription rights: €2,368 million;

-

number of shares issued: 114,973,952;

-

subscription price: €20.60.

·

Due to this capital increase, the offer price was subsequently adjusted to €323.56. By the end of the offer period on December 6, 2005, SUEZ had acquired a further 48.54% of Electrabel’s shares, raising its total stake to 98.62%. This transaction is recorded in the financial statements as a financial investment of €11,092 million; a capital increase of €2,414 million; a recognition of goodwill of €7,332 million; a decrease in minority interests of €3,760 million; and an additional share in net income of €117 million (corresponding to the further interest acquired in Electrabel from November 1, 2005).

September 2005

France

·

Electrabel commercializes the Harmonie and Stratégie products, allowing big companies to choose between different pricing formulas.

·

On September  5, 2005, we sold without recourse litigious receivables due from the French State to a financial institution for a firm and definitive price of €995.4 million. The impacts of this sale were recognized in the consolidated financial statements for the year ended December 31, 2005 as (i) we have no commitments to reimburse the sale price, (ii) the triggering of the commonly granted warranties given by SUEZ is deemed to be improbable and (iii) we no longer have any active involvement in the recovery procedures. As the assigned receivables relate to tax previously paid by us via a deduction from equity, the corresponding sale price has been recorded as an increase of equity under IFRS.

Belgium

·

On July 30, 2004, a gas explosion occurred in Ghislenghien on the transit pipeline Zeebrugge-Blaregnies; 24 people lost their lives and 131 people were injured as a result of the accident. On September 27, 2005, Fluxys SA, one of our subsidiaries, was indicted as a corporate entity as part of the judicial inquiry into the circumstances surrounding the accident in Ghislenghien on July 30, 2004. Fluxys stresses that the pipeline in Ghislenghien was found to have suffered serious damages by third parties prior to the accident and it were these damages that caused the crack in the pipeline and the subsequent explosion. In view of this, Fluxys decided in 2005 to act as a civil party and bring legal proceedings against unknown parties.

SUEZ 2005 FORM 20-F/A |26

October 2005

Belgium

·

Since cable broadcasting is no longer part of its base activities, Electrabel decides to participate in the initial public offering of shares of Telenet, selling its stake in Telenet for €136 million.

United Kingdom

·

Distrigas delivers LNG to the Isle of Grain terminal in the UK located on the Thames estuary to the east of London, which has been operational since the summer of 2005. It is to date the only LNG terminal operational in the United Kingdom.

·

The cargo is the third delivered to this terminal and the first imported by Distrigas to the United Kingdom.

November 2005

Belgium

·

Electrabel reconverted a group to coal in the Awirs power plant, which produces 80 MW, so that this now uses biomass as its only fuel. This unit is the biggest producer of green energy in Belgium.

·

The compression plant brought into service in Zeebrugge a month earlier than planned, lifts the Interconnector’s export capacity intended for the British market from 8.5 to 16.5 billion m3 per year.

December 2005

Belgium

·

Electrabel’s Board of Directors approves the project to set up a single distribution operator in Flanders. During 2006, this will group together the assignments of the three existing operators, Electrabel Netten Vlaanderen, GeDIS and the Flemish hub of Indexis. This operation will signal a simplification of the distribution sector in Flanders.

·

In liaison with its parent company Arcelor, the iron and steel business Sidmar chooses Electrabel to supply it with electricity and to build an electric power plant of 350 MW on its site near Ghent. Electrabel thus remains the supplier to one of the main consumers of electricity in the country.

·

In one week, Distrigas acquired three cargos of LNG for Zeebrugge, confirming the enormous attractiveness of the market in north-western Europe for trading LNG and the dynamism shown by Distrigas in an extremely competitive environment.

SUEZ Energy International

January 2005

USA

·

SUEZ LNG NA signed a Heads of Agreement with Sempra Energy for one third of the regasification capacity of the Sempra LNG terminal under development near Lake Charles, Louisiana.

February 2005

USA

·

SUEZ LNG NA announces the continuation of the deepwater port called Neptune LNG LNC, intended for deliveries of liquefied natural gas and located in federal waters off the coast of Massachusetts. In October, the company received a letter from the American coastguards indicating the closure of their license application. This letter’s publication in the federal registry marks the start of a compulsory period of verification lasting for 330 days, required for approval of a permit to build an LNG facility offshore.

SUEZ 2005 FORM 20-F/A |27

March 2005

Thailand

·

Glow Energy and Hemaraj sign a joint development and enterprise agreement with a view to setting up possible projects for independent production of electricity needed to supply the public electricity company in Thailand called EGAT, or Electricity Generating Authority of Thailand. In addition, Glow Energy signs a contract for the supply of electricity and steam for a term of 15 years covering the sale of an additional 40 MW to Vinythai, located at Map Ta Phut. The contract also extends the term of the current sales of electricity and steam to the existing Vinythai facilities by 10 years, so that it expires in 2022.

April 2005

Thailand

·

A proportion of the Glow Energy shares are traded on the Bangkok stock exchange on April 21, 2005. At the end of the initial public offering, SUEZ Energy International remains the company’s principal shareholder with 69.11%. The involvement of local investors, which is essential to a Thai company as big as Glow Energy, the main independent producer of electricity in the country and major supplier to businesses located in the industrial complex of Map Ta Phut, helps to explain the decision to return part of the company’s capital to Thai share ownership.

May 2005

Brazil

·

Tractebel Energia issues ordinary bonds amounting to BRL 200 million. The purpose of this issue is to reduce the foreign exchange risk, while at the same time benefiting from the favorable climate on the market. The operation aroused lively interest from investors, since demand of BRL 600 million was three times higher than the BRL 200 million amount on offer. The funds raised through this offer were used for the early reimbursement of a December 2000 loan of US$165 million to the Industrial Development Bank, or IDB, which had been used to finance the construction of the hydroelectric power plant at Cana Brava, in the state of Goiás.

USA

·

SUEZ Energy Generation NA officially inaugurates its combined-cycle 746 MW natural gas power plant in Wise County. In July, the company starts up the commercial production of electricity in its Hot Spring Power plant, combined-cycle gas turbine, in Arkansas.

June 2005

USA

·

SUEZ Energy North America finalizes the sale to Thermal North America of 10 urban heating and cooling systems located in ten different American states and operated by Trigen Energy Corporation, a subsidiary of SUEZ Energy North America. The sale of these facilities corresponds to the strategy of rotating non-strategic assets.

August 2005

Chile

·

SUEZ Energy Andino and the Matte group sign an agreement on their intention to merge the electrical assets of the Matte Group with those of Colbún. At the end of the merger carried out in October, the stake held by SUEZ Energy Andino in Colbún has been decreased from 29% to 18.99%.

LNG

·

SUEZ LNG Trading SA signs an agreement with Yemen LNG covering the purchase of 2.5 million tons of LNG per year. The supply, which must start in 2009, will be spread over a period of 20 years. The LNG will come from a new liquefaction plant located at Bal Haf, Yemen, where two trains of 3.4 million tons per year are to be constructed. The power plant is due to come into service by the end of 2008. To transport this LNG, mainly to the U.S., SUEZ LNG Trading SA has signed two charter agreements for a term of 20 years with Bergesen Worldwide Gas ASA for two vessels with a capacity of 156,100 cubic meters each and another charter agreement with Trinity LNG Carrier Inc. for a methane tanker with a capacity of 154,200 cubic meters.

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October 2005

Brazil

·

Tractebel Energia participates successfully in the 4th “old energy auction”, for production from power plants brought into service before January 2000, with the key to success being the 8-year contracts coming into effect in 2009. Tractebel Energia sold the highest volume of electricity during the 4th auction, 381 MW on average across a total of 1,166 MW sold. The contracts to be signed by Tractebel Energia subsequent to this auction represent a guaranteed cash flow of BRL 2,475 million, more than US$1 billion, for the company between 2009 and 2016. In December 2005, Tractebel Energia and SUEZ Energy South America participate in the “new energy auction” for production coming from power plants brought into operation after January 2000 and from power plants in the process of construction or about to be built, the objective being to enter into a 30-year contract with electricity distribution companies. The contracts to be signed by Tractebel Energia subsequent to auction represent a guaranteed cash flow of approximately BRL 6 billion, or US$2.6 billion, between 2010 and 2039.

November 2005

USA

·

SUEZ Energy Resources NA signs a contract covering the supply of electricity to the facilities of Boston Properties. These are among a number of facilities owned by the company in the Boston area and include some 930,000 square meters of office and hotel space.

Peru

·

SUEZ Energy International successfully conducts the initial public offering of EnerSur on the Lima stock exchange. Almost 34.5 million EnerSur shares, representing 17.2% of the company’s capital, were sold to institutional and individual Peruvian shareholders. At the end of this offering, SUEZ Energy International remains the company’s principal shareholder with a stake of 61.73%.

December 2005

Brazil

·

A secondary offer of Tractebel Energia shares is launched with a view to integrating the company into the New Market segment of the Sao Paulo exchange. On December 8, SUEZ Energy South America, or SESA, sells 55 million Tractebel Energia shares, to which are added a further 7.5 million shares on December 27, with a view to satisfying the strong demand from investors. These 62.5 million shares were all sold at BRL 13, corresponding to a market value of approximately €3 billion for Tractebel Energia. Through this offer, SESA sells 9.57% of equity capital in Tractebel Energia, reducing its share to 68.73% and cashing in the equivalent of €292.6 million.

SUEZ Energy Services

·

The year 2005 was marked by significant, above targets commercial activity. The contracts obtained were many and varied. Among the major contracts demonstrating the commercial dynamism of 2005, the following are worth mentioning:

SUEZ 2005 FORM 20-F/A |29

For the BU France Energy Services:

January 2005

·

Elyo wins a utilities delegation contract worth €90 million over 13 years with Bergerac NC, a subsidiary of the SNPE Group. This contract covers the operation of the production of steam, compressed air and process water as well as the financing and rehabilitation of five MW cogeneration facilities.

February 2005

·

Elyo signs a utilities delegation contract worth €122 million over 15 years with Norske Skog Golbey (Vosges). This contract covers, in particular, the construction and operation of a 12.5 MW power production facility from a steam turbine supplied by paper and urban sludges, wood cuttings and paper waste.

October 2005

·

Elyo renews for a second time the multi-technical and multi-service management contract for all IBM sites in France, Belgium, and the Grand Duchy of Luxemburg. For a further 5 years, Elyo will be in charge of operations and maintenance of technical equipment, including air-conditioning, heating and electricity, specialized management of “data centers,” along with ancillary services including telephone, photocopying, mail, reception, cleaning, green spaces, and others, at nearly 70 IBM facilities, for a total floor space of more than 400,000 m2.

For the BU France Facilities and Associated Services:

October 2005

·

EDF awarded to Endel all services necessary for operations in the machine room and the reactor building at its Gravelines and Civaux nuclear power plants. Endel will act as coordinating agent for this 6-year agreement.

·

Cofiroute, licensee and private operator of motorway toll infrastructures, calls on Ineo for the maintenance of its toll, telecommunications, traffic and security facilities. The contract, amounting to €27.5 million, was signed for a term of five years.

·

Axima and Ineo are awarded work by Airbus for a total amount of €6 million in respect of the construction of buildings in Toulouse intended for deliveries of Airbus A380, the Saurous project. Ineo will manage the electrical facilities, both high and low voltage. Axima installs an air treatment plant and fan convectors making it possible to provide air conditioning for a surface area of 20,000 m2.

December 2005

·

The Dijon Le Bocage university hospital center calls on Seitha in respect of the construction of a technical biology area that will group together 17 university hospital center laboratories and the activities of Etablissement Français du Sang, the French national blood services. For €4.3 million, Seitha looks after the air treatment facilities, several of which are in the P2 and P3 containment category.

For the BU Belgium:

March 2005

·

Aker Stord AS awards Fabricom GTI a €53 million contract for the construction of modules for Ormen Lange’s onshore facilities in Norway.

May 2005

·

Axima Contracting is awarded related orders, including hydraulic connections to the production of refrigeration, heat and steam, supply of utilities, and other activities, on top of the HVAC contract awarded in March 2005 in respect of the construction of a quality control laboratory by the pharmaceutical company GlaxoSmithKline.

SUEZ 2005 FORM 20-F/A |30

June 2005

·

Axima Services is awarded the luggage handling system management at Dorval airport, Montreal for €160 million over 20 years.

September 2005

·

Axima Services wins the maintenance contract for the North Galaxy building in Brussels. This contract, worth a total of €35 million for a term of 17 years and 2 months, includes a maintenance component, where the customer is Régie des Bâtiments, and a technical management component, where the customer is Cofinimmo.

October 2005

·

Fabricom GTI, in partnership with AEG Belgium, is awarded a contract for a total value of €16 million by SNCB-NMBS. The contract includes the supply, commissioning and maintenance of remote display facilities in 18 Belgian railway districts.

For the BU Netherlands:

April 2005

·

Orbis Medisch in Zorgconcern awarded to GTI the electrical and mechanical engineering installation work in respect of a new hospital complex, the construction of which will be completed by mid-2008. GTI is part of the consortium of entrepreneurs to whom Orbis has awarded this large-scale project.

August 2005

·

GTI, in association with Ooms Avenhorn and Bemo Rail, was awarded a multi-technical contract worth a total of €54 million related to the construction of the new Euromax container terminal at the port of Rotterdam. GTI looks after the services ranging from design to commissioning of electrical transformation and distribution stations, electricity pylons and video towers, the CTM control station and cabling networks.

October 2005

·

In cooperation with EPZ Borssele and Fluor, GTI starts work on shutting down the EPZ coal-fired power plant in Borssele. During this work, representing several tens of millions of euros, four major projects will be conducted: review of the power plant, extension of its lifetime, compartmentalization to ATEX standards and installation of a Denox system.

For the BU International:

February 2005

·

Framatome calls on Axima Refrigeration GmbH for the design and installation of six refrigeration units on the site of the new Finnish nuclear power plant, Olkiluoto 3. This power plant will be equipped with the first European evolutionary pressurized water reactor (EPR). In 2004, Framatome had called on the competences of Tractebel Engineering in respect of the design of fluid systems, piping and the command-control of this power plant.

March 2005

·

British Airways World Cargo calls on Elyo Services Ltd to manage the maintenance of its Ascentis cargo centre at Heathrow airport. The contract is signed for a period of five years.

April 2005

·

Districlima, a subsidiary of Elyo, wins the call for tenders launched by the company 22@bcn.SA for the design, construction, operations and maintenance of heating and air conditioning production and distribution in the Poble Nou area of Barcelona. The annual revenues from the 27-year concession come to €216 million.

SUEZ 2005 FORM 20-F/A |31

June 2005

·

The contractor ISG Interior/Exterior plc awards Axima Building Services Ltd a contract worth €13.5 million in respect of the Bishop Square property development project in London, which consists of 70,000 m2 of office space and 4,000 m2 of commercial areas. The offices have already been rented for 25 years to the law firm Allen & Overy LLP. AXIMA will be installing 2,500 fan coil units and will take charge of the pipe work.

December 2005

·

Kellogg’s awards Elyo Industrial Ltd the construction and management of a 5 MW cogeneration power plant on its main production site in Manchester. This contract amounting to €62 million over 10 years also includes the operations and maintenance of facilities for heating and air conditioning, fire safety, production of compressed air and waste water treatment.

For the BU Tractebel Engineering:

May 2005

·

Tractebel Engineering and GTI win a contract for carrying out modifications to the EPZ nuclear power plant in Borssele. This project covers the engineering and realization of several measures for optimization that need to be implemented subsequent to a ten-year safety assessment.

June 2005

·

Electrabel Deutschland AG awards Tractebel Engineering a contract for the conversion, or repowering, of the Römerbrücke thermal power plant into a 120 MW cogeneration unit.

September 2005

·

Tirreno Power calls on the competences of Tractebel Engineering for an Owner’s Engineer assignment for the conversion of Unit 1 of the Vado Ligure power plant into an 800 MW CCGT. Tractebel Engineering will also carry out a review of the feasibility study for the conversion of Unit 2 to coal.

For the Electricity and Gas Companies BU:

July 2005

·

EEC, a subsidiary of Elyo, renews for 20 years and a total of €340 million the concession contract for the distribution of power over the district of Mont-Dore, the second biggest area in New Caledonia after Nouméa.

Events occurring since the year end:

January 2006

Bahrain

SUEZ Energy International, International Power, based in the United Kingdom, and Sumitomo Corporation of Japan have signed a power and water purchase agreement, or PWPA, for a term of 20 years with the Ministry of Electricity and Water for the Al Hidd independent electricity and water production project in Bahrain. The PWPA will cover the production from the existing combined-cycle gas turbine of 910 MW, and from the sea water desalination plant which produces 136,000 m³ per day, as well as from a new extension of 272,000 m³ per day expected to come into service between now and the end of 2007.

March 2006

LNG

SUEZ LNG Trading SA signed a Memorandum of Understanding (MOU) with Brass LNG for the purchase of 2 million tons of LNG per year. The LNG supply is primarily destined for North American markets with the ability to divert cargoes to other locations and markets including possibly the Neptune LNG project located 10 miles off shore Boston. First delivery of LNG is expected in 2010 with a term of 20 years. The LNG supply will come from a new two train liquefaction facility in Nigeria, which will have a total capacity of 10 million tons per year.

SUEZ 2005 FORM 20-F/A |32

Calypso LNG, LLC, a subsidiary of SUEZ Energy North America, filed a License Application with the U.S. Coast Guard related to the development of a submerged buoy system off the southeastern coast of Florida, known as a “Deepwater Port” that would serve as an offshore delivery point for liquefied natural gas delivered by specially-built LNG tankers. The Calypso Deepwater Port is proposed to be located approximately 10 miles offshore from Port Everglades, Florida, and will comprise a marine offloading buoy and anchoring system that will reside approximately 150 feet below the ocean surface when not in use. It will connect to an undersea pipeline, which will transport natural gas from the Deepwater Port to customers in Florida.

May 2006

According to a KEMA report on electric retailer market share statistics on megawatts under contract, SUEZ Energy Resources NA is now the fourth largest energy provider in the U.S. Since SUEZ Energy Resources NA launched its marketing efforts in January 2003, it has become the fastest growing retail energy provider in the nation and now serves more than 12,000 commercial and industrial customer accounts.

SUEZ Energy Andino mandated J.P. Morgan and Larraín Vial to organize the sale of its 19% stake in Chilean power generator Colbún.

Business Activities and the Regulatory Environment

SUEZ Energy Europe

Electricity production, transmission and distribution

Regulatory environment

The European directive of 1996 has been replaced by directives 2003/54/EC, for electricity, and 2003/55/EC, for gas. In 2005, both directives were still in the process of transposition into the legal systems of certain member countries.

The major differences are based on the following principles:

·

deregulation of the whole non-residential customer base from July 1, 2004 at the latest and the residential customer base from July 1, 2007 at the latest;

·

legal separation of transport and distribution activities from production and supply activities;

·

creation of a national regulator in each Member State;

·

introduction of network tariffs approved and published by the national regulators;

·

introduction of certain public service obligations, or PSO, for example, the protection of vulnerable customers and the appointment of a supplier by default; and

·

introduction of monitoring systems in terms of security of supply and importation of energy.

Given the effective date of these two directives, Electrabel continued its deployment in 2005.

In the Netherlands, deregulation of the market is now complete. In France, as well as in Italy, all non-residential customers are deregulated, corresponding to a 70% opening up of the market. In other countries such as Germany and Spain,deregulation was already complete.

As a general rule, the European environment remains marked by an acceleration in deregulation.

In Belgium, the existing institutional framework had already anticipated most of the measures in the directives of 2003. Accordingly, the transport activities had been brought into a separate entity called Elia. Various corporate governance measures had been implemented with a view to ensuring the independence of the transport network’s manager. In 2005 the producers SPE and Electrabel reduced their stake in Elia to 30%, while 30% of the interests in Elia transferred by Electrabel and SPE to the company Publi-T5, and 40% of the interests was listed on the stock market via an initial public offering in 2005.

SUEZ 2005 FORM 20-F/A |33

Directives 2003/54/EC, for electricity, and 2003/55/EC, for gas, were transposed into Belgian legislation by the laws of June 1, 2005. In 2005, various initiatives were pursued with a view to improving the liquidity of the electricity production market in Belgium. These have resulted in a production capacity available for third parties of up to 25% of the Belgian facilities. Particularly notable were the organization by Electrabel of auctions of virtual capacities, for example a virtual power plant or VPP, for a total capacity of 1,200 MW.

In terms of transport, an increase has been made in the commercial capacity for interconnection of the transport network between France and Belgium of 700 MW with a mechanism for allocation of capacity in the form of auctions and the elimination of privileged historical transport contracts.

In terms of the wholesale market, it has been decided to start up a spot market during 2006 on the Belpex electricity exchange in conjunction with the APX exchange in the Netherlands and Powernext in France with a view to linking the three markets together.

In terms of distribution, each of the regions is completely autonomous in determining its own timetable for deregulation, in compliance with the cut-off dates imposed by the directives. The Flemish market for electricity and natural gas has been totally open since July 1, 2003. The timetable for total opening up of the other two regions of Belgium is planned for 2007.

In December 2005, the creation of a single operating company, combining the operational distribution activities of GeDIS, the Flemish hub of Indexis and Electrabel Netten Vlaanderen, was approved by Electrabel’s board of directors. In addition, over the next few years, Electrabel will gradually reduce the level of its participating interest in the capital of inter-municipalities to less than 30%.

Business activity

Electrabel is a European producer and supplier of electricity, natural gas and energy products and services. It also carries out trading activities on energy markets in Europe. In Belgium, it operates electricity and natural gas networks. The company is organizing its gradual withdrawal from this last activity.

Electrabel belongs to the lead group of European power producers. In Europe, Electrabel’s strategy consists of maintaining its position as leader on the Benelux market and developing strong positions in France, Italy, the Iberian Peninsula and Germany, by taking advantage of development opportunities offered by deregulation of the energy market. Electrabel is developing a growth portfolio in Poland, Hungary and other East European countries.

At the European level, Electrabel is one of the pioneers in energy trading. Its trading activities enable it to optimize its overall position on energy markets through fuel purchases, exploitation of power plants and sales. These activities play a key role in its European strategy. Electrabel is active on all energy markets across Europe, from Scandinavia to Spain and from Benelux to Poland.

By 2009, Electrabel intends to realize electricity sales amounting to 200 TWh per year and have access to an electricity production capacity of 35,000 MW, including 18% on the basis of renewable energy sources. It is also counting on an annual growth in net profit from operations of at least 5%.

In 2005, Electrabel’s sales of electricity, including wholesale, rose to 145.4 TWh. 68.9% of sales were made in Benelux, 17.7% in the France-Italy-Iberian Peninsula area and 13.4% in the Poland-Germany-Hungary area.

Belgium

In Belgium,Electrabel manages a capacity of over 13,000 MW exploiting various techniques: combined-cycle gas-steam power plants, cogeneration, nuclear power plants, conventional coal, gas and oil thermal units, hydroelectric power plants, wind energy and energy recovery. This diversity represents flexibility and versatility. Production capacity is supplied from a wide range of energy sources: natural gas, uranium, coal, oil, industrial residual gas, hydraulic power, biomass and wind energy. Procurement is from suppliers from around the world. This two-fold diversity of energy sources and suppliers makes the production capacity less vulnerable to fluctuations in the market price and also makes it possible to take advantage of price variations on fuel markets.

Electrabel is also developing a whole range of energy products and services that satisfy the needs and expectations of its industrial and business customers. For the residential segment, the company’s aim is for energy to become synonymous with comfort and stimulate customers into carrying out their projects. In order to achieve this, Electrabel is developing an entire network of partners and pricing its products and services competitively.

SUEZ 2005 FORM 20-F/A |34

Rest of Europe

In the Netherlands,Electrabel is now the leading producer of electricity, via its subsidiary Electrabel Nederland, and represents over 20% of the market for electricity. In 2005, the subsidiary Electrabel Nederland Sales was founded in response to this growth. In addition, the company is considering whether to invest in the construction of three new production units.

In France since July 1, 2004, the date of deregulation for all business customers, Electrabel has been ranked second-highest energy supplier behind the incumbent operating company. It operates in France under the name “Electrabel, Groupe SUEZ” and has a very complementary production capacity combining nuclear, for 1,108 MW, water, for 2,937 MW prime hydraulic output, via CNR, for which Electrabel is reference shareholder with 49.98% and 773 MW peak hydraulic output via SHEM for which, since May 1, 2003, Electrabel has commercialized production and is responsible for operations.

In Italy,AceaElectrabel, an association between Acea and Electrabel, is the company in charge of commercial and production activities. This association has, in particular, resulted in the acquisition, from Enel, of Interpower, the fourth-ranked Italian producer, since then renamed Tirreno Power. In Tuscany, Electrabel operates a cogeneration unit in Rosignano supplying steam to Solvay and selling electricity on the market. In 2005, construction of the new Voghera power plant, a combined-cycle gas steam 385 MW power plant in Lombardy, and Torrevaldaliga CCGT units has been finalized. The future 370 MW Roselectra and 370 MW Leini CCGT power plants together with several repowering projects are in the construction phase. The commercial activities of AceaElectrabel therefore rely on a fast-developing and diversified production capacity.

Although the Iberian market istheoretically 100% open to competition, restrictions on imports make it essential to have local means of production. The operational launch of a combined-cycle gas steam power plant for an output of 760 MW in Castelnou, Aragon, is in progress. Other projects are being studied for strengthening the company’s local presence. They benefit from Electrabel’s expertise in gas technologies for the production of electricity. In addition, the Portuguese company Generg, in which Electrabel holds 42.5%, today manages wind energy capacity of over 50 MW and hydraulic power plant capacity of 33.2 MW. New wind energy projects for a total of over 300 MW are in the process of construction. In addition, Electrabel has signed an agreement with the Spanish group Gamesa with a view to the development of wind energy capacities.

Elsewhere in north-eastern Europe,Electrabel is developing selectively. In Germany, SUEZ sales are improving outside the Saarbrücken and Gera areas where Electrabel has production assets. In 2005, the company extended its offer to the sale of natural gas to industrial customers. It also envisages the construction of new power plants in Germany. In Poland, the company is running the 1,654 MW Polaniec power plant which is in fact a major producer of green energy, due to biomass combustion. In 2005, the company made its debut on PolPX, the Polish energy exchange. In Hungary, Electrabel is pursuing its program to restructure the Dunamenti power plant.

The table below gives the breakdown of installed capacity and sales in Europe.

Installed capacity⁽¹⁾ and sales in Europe

	2005 Sales		Installed Capacity as of 31/12/2005		Capacity under Construction
	TWh	%	MW Net	%	MW Net	%
Belgium	100.1	68.8	18,252.2	64.3	-	-
Rest of Europe	45.3	31.2	9,724.2	35.7	2,290	100.0
Total	145.4	100.0	27,976.4	100.0	2,290	100.0
(1) Installed capacities correspond to 100% of the output from power plants within the scope of consolidation, by the equity method, proportional consolidation and full consolidation. Installed capacities therefore do not cover the capacities from Chooz, 650 MW, or Tricastin, 457.6 MW.

Natural gas transmission and distribution

Regulatory environment

Directive 98/30 of June 22, 1998 relating to common rules for the natural gas domestic market was an important step in the deregulation of the European gas market. The principal purpose of this legal text was to ensure the progressive opening up of the European natural gas market to competition by offering certain purchasers, referred to as eligible customers, the possibility of signing supply contracts with producers or suppliers of their choice and having access to the transport infrastructure for that purpose. EU regulations have, as of August  10, 2000, imposed a requirement that between 20% and 30% of the market become eligible, a threshold raised to between 33% and 43% by 2008.

SUEZ 2005 FORM 20-F/A |35

In Belgium, this first directive was transposed into Belgian law through amendments made to the gas law of 1965, particularly in 1999 and 2001. The gas law gives third-party access to the natural gas transport infrastructures on the basis of annual tariffs approved beforehand by the regulator. The system of regulated tariffs applies to natural gas transport, natural gas storage and LNG terminaling. Pursuant to the gas law, a code of good practice was drawn up in April 2003 setting out the rights and obligations of transport companies and of the network’s users.

The second EC Gas Directive 2003/55 adopted on June 26, 2003 supersedes the abovementioned directive. It is called on to accelerate the opening up of markets by stipulating that Member States should ensure eligibility as of July 1, 2004, for all non-residential customers; and as of July 1, 2007, for all customers.

It specifies certain obligations on the companies designated as managers of the transport or distribution network, especially in terms of the separation of legal, functional and accounting duties. The directive also aims to promote minimal regulation of access to the network (in fact specifying, in this area, an optional dispensatory system for new infrastructures).

In Belgium, this second directive was transposed into Belgian law through additional amendments made to the gas law of 1965. The new gas law resulting from this was published in June 2005.

·

The law specifies an official procedure to appoint a single network manager for the natural gas transport network, for the natural gas storage facilities, and for the LNG terminaling facilities. Fluxys and Fluxys LNG are preparing their candidature for mid-2006 as single network manager.

·

The law also specifies the transition, for regulated services, from the system of annual tariffs to a system of multi-year tariffs, which should increase the predictability of tariffs in the long term and stabilize their development. If the necessary executory decisions are enacted in time, the new system of multi-year tariffs could come into effect as early as 2007.

As far as specific projects are concerned, an amendment to the Belgian gas law had already been made on August  12, 2003 with a view to creating, in the context of an annual tariff system, the possibility of introducing pricing stability in the long term. This concerns new infrastructures of national or European interest which are necessary to the long-term development of natural gas transport companies. The introduction of pricing stability takes on special importance for the development of the transit and LNG terminaling activities, which are for the most part offered in long-term contracts in order to address investment risk.

·

The law also provides for subjecting the cross-border transport of natural gas (transit) to a regulated pricing system. By virtue of the principle of the sanctity of contracts, existing transit contracts remain governed by their negotiated pricing terms. After this law comes into effect, new transit contracts will need to be subjected to a specific regulated system.

In Belgium, pursuant to the guidelines of the second gas directive, all non-residential customers have been eligible since July 1, 2004. In addition, residential customers in the Flemish Region have been eligible since July 1, 2004. These changes to the regulations have raised the Belgian market’s level of openness to 91.5%.

In France, pursuant to the guidelines of the second gas directive, all non-residential customers have been eligible since July 1, 2004.

Business activity

We are the biggest supplier of natural gas in Belgium, via Distrigas, Electrabel and Electrabel’s holdings in mixed inter-municipalities. In Belgium, the transport network, managed by Fluxys, is comprised of 3,800 kilometers of ducts, some 80% of which are high-pressure pipelines.

As for electricity, regional governments would like Electrabel to reduce the level of its holdings in inter-municipal gas distribution structures to a minority interest.

In Belgium, since the end of 2001, the Group has provided gas activities (apart from distribution) through two legally distinct Groups: Fluxys and Distrigas.

SUEZ 2005 FORM 20-F/A |36

Fluxys

·

Fluxys is the independent operator of the natural gas transport infrastructure in Belgium. Its principal activity is the operation, maintenance and development of its integrated natural gas transport infrastructure and storage facilities in Zeebrugge and Loenhout. With its excellent inter-connectivity, the Fluxys network is ideally placed at the heart of the continental mass. It effectively provides access to the main sources of natural gas production in Europe and to the main user countries of natural gas in north-western Europe.

In the context of regulated access to its infrastructures, Fluxys commercializes transport capacities and storage capacities enabling the supply, via third parties, of natural gas to consumers in Belgium. In addition to its transport services, Fluxys also offers transit services on the primary market. These services cover the cross-border transit of natural gas. Natural gas transiting through the Belgian system is transported to the Netherlands, Germany, France, Spain, Italy and the United Kingdom. Fluxys is a shareholder in the BBL company, which is project manager, owner and future operator of the BBL, a 235-kilometer long pipeline currently being laid between Balgzand, located to the north of Amsterdam on the Dutch North Sea coast, and Bacton off the British coast in Norfolk.

·

Fluxys LNG, a subsidiary of Fluxys, is owner and operator of the Zeebrugge LNG terminal, and commercializes terminaling capacities as well as ancillary services. The Fluxys LNG terminal in Zeebrugge currently has a maximum capacity of 4.5 billion m3 per year. Since its operational launch in 1987, the terminal has offloaded more than 900 methane tankers. Fluxys LNG uses the cogeneration process in order to increase the rational use of energy in electricity production units: it uses residual heat to regasify the LNG. The system forms a whole making it possible to achieve cost savings when compared with separate production of steam and electricity. A project to extend the facilities with the aim of doubling its capacities for 2007/2008 is in progress.

·

Huberator, a subsidiary of Fluxys, is operator of the Zeebrugge hub, the main international short-term gas market in Europe. Thanks to the services offered by Huberator, customers have the guarantee that gas volumes which they sell or buy are actually available at the hub for trading and subsequent transport.

Distrigas

Distrigas is a merchant company whose principal activity is the purchase and sale of natural gas in Europe. Distrigas also commercializes the international transport capacity that it has under contract or owns, including transit contracts, capacity in the “Interconnector” underwater gas pipeline linking Belgium and the United Kingdom, and LNG transport capacities. Based on its natural gas supply portfolio, its activities therefore cover the following areas: sales of natural gas in Belgium and Europe, plus LNG on other markets; arbitrage activities on natural gas spot markets; contract management for transit in Belgium with cross-border capacity; commercialization of transport capacities outside Belgium; and transport of LNG.

Currently, in favor of opening up European energy markets, Distrigas is deploying its commercial activities in Benelux, France, Spain, Germany and the United Kingdom.

In 2005, Distrigas sold 211.3 TWh of natural gas and 81% of these volumes were sold in Belgium. Sales outside Belgium and trade-offs amount to 19% of volumes.

The Belgian customer profile is presented in the table below:

Sales of natural gas

TWh	2004	2005	Difference	2005 Breakdown of Sales
Resellers/Distribution	71.7	66.3	-7.6%	31%
Industry	51.1	51.4	+0.6%	24%
Producers of electricity	54.4	54.2	-0.4%	26%
Sales in Belgium	177.2	171.8	-3%	81%
Sales outside Belgium	19.4	24.5	+26.5%	12%
Arbitrage	8.6	15.0	+74.5%	7%
Total sales outside Belgium and arbitrage	28.0	39.5	+41.2%	19%
Total sales	205.2	211.3	+3.0%	100%
Total in billions of m3	17.6	18.2
1 m3 (n) = 0.01163 MWh

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SUEZ Energy International

Electricity — installed capacity and sales

	Sales 2005(a)		Net installed capacity in MW(a) at December 31, 2005		Net capacity under construction in MW(a) at December 31, 2005
	TWh	%	Net MW	%	Net MW	%
North America	29.1	27.7	4,781.0	24.2	746.0	28.9
South America	53.1	50.5	10,757.2	54.3	243.0	9.4
Middle East and Asia	22.9	21.8	4,253.6	21.5	1,590.0	61.7
TOTAL	105.1	100.0	19,791.8	100.0	2,579.0	100.0
(a) Sales of electricity, installed capacities, and capacities under construction correspond to 100% of sales and capacities of companies within the scope of consolidation, by the equity method, proportional consolidation and full consolidation.

Gas – sales and customer portfolio

	Sales 2005(a)		Customer portfolio
	Gm3	%	Number	%
North America	7.638	56.1	103,404	7.9
South America	4.744	34.8	506,902	38.9
Middle East and Asia	1.236	9.1	693,843	53.2
TOTAL	13.618	100.0	1,304,149	100.0
(a) Sales of gas (including quantities distributed and shipped on behalf of third parties) correspond to 100% of sales of companies within the scope of consolidation (equity method, proportional consolidation and full consolidation).

North America

In North America, SUEZ Energy North America manages SEI activities carried out through several energy companies operating within an integrated value chain, ranging from fuels such as natural gas, oil and coal, to direct sales of electricity for commercial and industrial customers, including the production of electricity and wholesale electricity activities. These companies are SUEZ LNG NA, SUEZ Energy Generation NA, SUEZ Energy Marketing NA, SUEZ Energy Resources NA and SUEZ Energía de México, S. A. de C.V.

SUEZ LNG NA operates the LNG regasification terminal at Everett, Massachusetts, and owns all capacity and related rights. SUEZ LNG NA also delivers LNG into the Cove Point, Maryland, terminal and the terminal at Lake Charles, Louisiana, on the Gulf of Mexico. SUEZ LNG NA also supplies LNG to the EcoElectrica complex in Puerto Rico. LNG is resold as natural gas to electricity producers, wholesalers, or local distributors. During 2005, in response to market conditions, SUEZ LNG NA delivered several cargoes to European destinations that otherwise would have been delivered into North America.

SUEZ Energy NA, in conjunction with its SUEZ LNG NA affiliate is proceeding with the development of the Neptune LNG project, a deepwater port LNG receiving facility to be located in US federal waters off the coast of Massachusetts. When Neptune is completed, specially designed LNG ships with on-board regasification equipment will moor at off-shore buoys and deliver a daily average of slightly over 11.3 millions cubic meters of natural gas vapor into the New England market, which will be in addition to deliveries into that market through the Everett terminal.

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Although the joint venture with FPL Group Resources that was announced in 2004 has been dissolved, SUEZ Energy North America is continuing with its efforts to serve the Florida market with vaporized LNG, either through a land-based terminal in the Bahamas or a deepwater port off the coast of Eastern Florida along the permitted undersea pipeline route.

SUEZ Energy Generation NA operates 45 plants, whose electricity production is sold to distribution or manufacturing companies under power purchasing agreements, PPAs, or as merchant on the wholesale market. Many of the facilities generate steam, which is sold under contract to industrial customers.

SUEZ Energy North America is developing projects that are financed long-term and transferred to SUEZ Energy Generation NA or SUEZ LNG NA for operation, depending upon the nature of the investment. The largest of SUEZ Energy North America’s current development activities include the completion of one power plant with capacity of 746 MW as well as development projects for LNG regasification terminals.

SUEZ Energy Marketing NA consolidates the management of all raw material and credit risks for North America. For this purpose, it provides risk hedging services for all other operating entities.

SUEZ Energy Resources NA is licensed to operate in twelve states: Massachusetts, Maryland, Maine, New Jersey, New York, Pennsylvania, Ohio, Rhode Island, Connecticut, Illinois, Michigan, and Texas, plus the District of Columbia. SUEZ Energy Resources NA is active in nine of these: Massachusetts, Maryland, Maine, New Jersey, New York, Pennsylvania, Illinois, Washington DC, and Texas. During 2005 SUEZ Energy Resources NA expanded its retail operations by opening an office in Chicago, Illinois. SUEZ Energy Resources NA has continued to expand its customer footprint both geographically and vertically. SUEZ Energy Resources NA recently expanded into the small commercial segment in Texas, via the use of an agent network supported by SUEZ Energy Resources NA FastTrac™ pricing platform. SUEZ Energy Resources NA plans to continue this technology expansion into other markets that show a compelling value proposition. As of December 31, 2005, the company served approximately 8,000 customer accounts, amounting to 3,000 MW, using 15.5 TWh/year. Since inception SUEZ Energy Resources NA has generated greater than US$2.8 billion in contract revenues and margin of US$81 MM. SUEZ Energy Resources NA ranks as the fourth largest retail energy provider in North America.

SUEZ Energía de México, S. A. de C.V., in Mexico, operates three regulated natural gas local distribution companies, as well as three steam and electricity cogeneration projects.

For SUEZ Energy North America’s activities, the attractiveness of the commercial environment depends to a large extent on the region and sector. In the case of natural gas, because wholesale markets have been deregulated for some time now in North America, SUEZ Energy North America is able to operate there under equitable competitive conditions.

Regarding electricity, the differences are much greater from one region to the next. In regions such as New England (ISO NE) Pennsylvania, New Jersey and Maryland (NJM), New York (NYISO) and Texas (ERCOT), the deregulation of wholesale and retail electricity sales sectors is quite advanced and appears irreversible. The level of spark spreads (profit margin per MWh for a benchmark combined-cycle gas turbine unit) and attractiveness of merchant power operations in these regions have generally continued to improve from the difficult market conditions experienced following the Enron bankruptcy. These are regions where SUEZ Energy Generation NA and SUEZ Energy Resources NA are active and well positioned. In other regions, such as the Southeastern and Western United States, the pace of deregulation is considerably slower, or even stagnant, with the result that the timing of recovery in the merchant power sector is unclear.

South America

In South America, the regulatory environment and the extent of market deregulation vary from country to country. In this region, SEI’s main positions are concentrated in Brazil, with a few facilities in Chile, Peru and Argentina.

In Brazil, SEI owns 68.73% of Tractebel Energia, or TBLE, the largest independent power producer in Brazil with 6,870 MW of installed capacity, including CEM, Ita, Lages and Machandinho. The business sells its power primarily through long-term agreements with distributors and industrial customers.

Several auctions were held in 2005 under the new regulatory framework established in December 2003. The first four auctions, called the Old Energy Auctions were held by the Brazilian electricity regulatory agency, ANEEL, to contract the energy from pre-existing power plants for an eight-year period. Then, in December 2005, ANEEL held the first New Energy Auctions for plants built very recently and new plants under construction. As a result of this procedure, contracts were awarded for power produced by hydroelectric and thermal plants, for 30- and 15-year periods, respectively.

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For the Old Energy Auctions, 19,500 MW or approximately half of Brazilian consumption, were contracted on average between December 2004 and October 2005 with delivery start dates between 2005 and 2009. The average price was set at about BRL65/MWh. The lowest price in the series is BRL52 and the highest is BRL96. Prices have gradually increased, as shown in the following chart.

The New Energy Auction model is still in the experimental phase. In December 2005, 3,286 MW were awarded at prices slightly below the BRL117/MWh ceiling imposed by the authorities. In reality, only one-quarter of the volume will be supplied by real new capacity, as three-quarters will be provided by capacity that is newly constructed or already under construction. Tractebel Energia has entered into agreements involving 200 MW, with supplies expected to start in 2010. Given the uncertainty surrounding Uso do Bem Publico, or UBP, the prices obtained at the December auction were too low to ensure the profitability desired from the Estreito and San Salvador greenfield hydroelectric projects.

Auction prices of energy

Auction prices of existing and new hydroelectric power generation in BRL/MWh.

SEI also maintains a significant presence in the Chilean market, in association with its local partners, where it is one of the leading operators with a 33.25% stake in Electroandina, the largest producer in the SING system of Northern Chile with installed capacity of 938 MW, with a 27.38% stake in Edelnor, the third-largest producer in the SING system with 681 MW, and with an 18.99% minority interest in Colbún, the second-largest power producer in the SIC system of Central Chile with installed capacity of 1,766 MW and another 70 MW under construction.

The regulatory environment in Chile has remained fairly stable since it was established in 1982. The electricity sector has been fully privatized.

In response to the Argentine gas crisis, in May 2005 the Chilean government approved new legislation related to electricity known as the Ley Corta II, or Law 20.018, which led to a significant increase in regulated prices. SEI benefited from this increase primarily in the SIC system, where according to SCEMP published by ECS in November 2005, node prices reached US$63/MWh in October 2005, which is much higher than the USS$35/MWh generally applied in the first few years of this decade. The SING system was much less affected, as most of the electricity produced in this system is sold to unregulated customers and particularly mining companies.

For its part, the Argentine government has negotiated gas availability commitments with each local producer, guaranteeing:

·

domestic market supplies by concurrently limiting exports to 2003 levels; and

·

application of what are known as interruptible clauses in industrial agreements.

The impact of this crisis on our Chilean activities has been uneven, but SEI will continue to face unpredictable supply conditions. Colbún, which benefits from interruptible contracts, has thus been particularly exposed to the restrictions imposed by the Argentinean government on gas exports.

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Gasoducto Norandino, 84.7% owned by SEI, owns and also operates a gas pipeline designed to import 3.22 billion cubic meters of natural gas (“intended primarily for power generation”) per year between Argentina and northern Chile. SEI also owns a small gas distribution company, Distrinor, which supplies industrial customers.

In Argentina, SEI has a presence through Litoral Gas, which according to El Ente Nacional Regulador del Gas, or Energas, in Argentina, is one of the country’s four largest gas distribution companies, in which it owns a 64.16% stake, and through Energy Consulting Services, an energy consulting and marketing company, in which it holds a 46.67% stake. The gas sector was fully privatized in the 1990s. The electricity sector has on the whole followed suit in this decade, with the exception of electric companies in some provinces.

The legal environment in Argentina remained uncertain in 2005. The sector is faced with the Government’s growing intervention, illustrated by the expansion of the gas transport system, in which the government is currently instituting a non-traditional system. Apart from a few new provisional agreements entered into with electric companies, no major progress can be reported in terms of the renegotiation of power sector contracts with the government.

The government also plans to invest in hydroelectricity and in upgrading old nuclear power plants that were not completed in order to secure the country’s power supplies in the medium term. However, an energy crisis could arise in the short term owing to the significant increase in demand for electricity and the lack of major private investments over the past few years.

Moreover, there is a growing risk in the short term that a long-lasting inflationary process could emerge, which could affect profitability if rates remain frozen.

In Peru, SEI has a presence through EnerSur in power generation, Cálidda (GNLC) in gas distribution and TIS in retail power sales in the medium and large consumer segment, and has a minority interest in TGP, which owns gas pipelines transporting gas and condensates from Camisea.

EnerSur, in which SEI currently has a 61.73% stake, was the fourth-largest power producer in 2005 with 502 MW of capacity on line. At the end of the year 2005, 130 MW came from the rights to use the Yuncan hydroelectric plant and 173 MW were under construction in Chilca.

There was a strong increase in the use of natural gas in Peru in 2005. Future gas-fired electric power plants should influence the spot market as they are more competitive than diesel-fired plants.

Middle East and Asia

In the Middle East and Asia, SEI’s main presence is in Thailand, South Korea, the Gulf Cooperation Council countries and Turkey.

In Thailand, the scheduled deregulation of the electricity sector has been the subject of critical analysis, given, particularly the problems that arose in California and the blackouts that struck the United States and Europe. Instead of a complete split-off and deregulation of the electricity sector, Thailand has opted to maintain a regulated monopoly and single-buyer model, along with plans to privatize generation and distribution in state-owned enterprises, on the one hand, and additional private participation in new investments in generation, on the other. A new regulatory body was created to oversee the sector. Existing private electricity producers, including SEI, continue to sell their production to industrial customers and to EGAT under the former Independent Power Producers and Small Power Producers systems. The government has transformed EGAT, the integrated generator/single-buyer company, into a trading company and proposed that it be listed on the Bangkok stock exchange. However, this listing has been postponed indefinitely pending a decision by the Supreme Administrative Court, which must rule on the legality of certain procedures implemented as part of EGAT’s transformation into a trading company.

Through Glow Energy, with installed capacity of 1,666 MW and 39 MW of capacity under construction, in which it holds a 69.11% stake, SEI produces and supplies electricity, steam and treated water to approximately 30 large-scale industrial customers in the Map Ta Phut region. Moreover, most of the electricity produced is sold under a long-term contract to EGAT. Glow Energy was listed on the Bangkok stock exchange in April 2005. It also entered into a 15-year agreement to supply electricity and steam in connection with the sale of 40 MW to the new Vinythai facilities, which manufacture vinyl resins and are located in Map Ta Phut.

SEI has a 69.80% interest in the Houay Ho project, a 153 MW hydroelectric plant in Laos. This plant also sells its production to EGAT under a long-term contract.

The launch of a new Independent Power Production program in Thailand was postponed. It should be launched in 2006.

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SEI also has a 40% stake in PTTNGD Co. Ltd., which distributes natural gas to industrial customers in greater Bangkok. The company is 58%-owned by PTT PCL, Thailand’s national oil, gas and petrochemical company.

In South Korea, little progress was made in deregulating the gas and electricity sector in 2005. Under its current laws, the government granted two companies the right to import gas for their own use. SEI has a 75% stake in Hanjin City Gas, a regulated natural gas distribution company operating in the region covered by its concession, namely the northern metropolitan districts of Seoul and the Kyunggi province.

SEI is present in the Gulf Cooperation Council countries, with a 32.81% stake in UPC, a 288 MW plant in Oman, and a 20% stake in Taweelah A1, a water desalination facility generating 1,360 MW of electricity and 385,000 m3/day of desalinated water. In July 2004, two consortiums in which SEI has stakes won substantial new contracts. In Oman, a consortium in which SEI has a 50% stake won a 15-year contract to build, own and operate a facility capable of generating 586 MW and 150,000 m3/day of desalinated water. The Sohar project should come on line in 2006-2007. In Bahrain, a consortium in which SEI has a 45% stake was awarded a supply contract to build, own and operate a 966 MW plant. This 20-year contract involves providing electricity to the government. The Al Ezzel project in Bahrain should generate its first MWs in 2006. The market for new electricity projects in Gulf Cooperation Council countries was active in 2005. SEI, in partnership with other companies, is considering new projects in this region.

SEI also has a 95% stake in a combined-cycle plant in Baymina, Turkey.

In May 2005, SEI opened a representative office in Bangalore, India, in order to explore the opportunities offered by the large Indian electricity market. The sector is gradually opening up, in compliance with the law enacted in 2003 regarding regulation of the electricity market.

In the People’s Republic of Vietnam and in the Republic of South Africa, SEI has announced its interest in participating in potential independent electricity production projects based on long-term contracts with Vietnam Electricity and ESKOM, respectively.

LNG

LNG trading consists of transporting liquefied natural gas between producer countries and importer countries using an infrastructure and vessels designed specifically for that purpose. SUEZ Global LNG, a wholly-owned subsidiary of SEI based in Luxembourg and London, is responsible for the following:

·

sourcing LNG supply for SEI;

·

executing all of SEI’s short-term LNG trading activities throughout the world;

·

coordinating SEI’s fleet of LNG ships;

·

coordinating LNG supply negotiation for SUEZ;

·

promoting the development of new long-term LNG ventures; and

·

managing all SEI interests in liquefaction projects.

Existing facilities and LNG regasification development projects, as well as some long-term LNG supply agreements, generally operate under the SEI regional entities. For example, the Everett regasification facility, near Boston, belongs to SUEZ Energy North America. Currently SEI operates four LNG ships, with a total capacity of 539,000 m3. For the Yemen LNG supply of 2.5 mtpa, which is planned to come on line in mid-2009, three newly built vessels have been ordered. In Trinidad and Tobago, SUEZ Global LNG manages a 10% interest in Atlantic LNG 1, which owns and operates one of the three existing liquefaction trains, with a production capacity of 3.3 million tons of LNG per year. Atlantic LNG 1 shareholders also own the rights and related privileges to future expansions of liquefaction trains, but only up to a possible sixth train. SEI is not a co-investor in lines 2, 3 and 4.

SUEZ Energy Services

Regulatory environment

Regulatory restrictions related to the rational use of energy and to greenhouse gas emissions are intensifying at both the European and national levels.

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This regulatory trend, combined with increased energy prices, provides SES with opportunities for growth. These regulations are first imposed on SES’s customers, which are therefore increasingly in need of the services of thermal and environmental experts to design, build and manage their power generation facilities under the best financial conditions.

Engineering

Tractebel Engineering is one of the leading engineering consulting firms in Europe. It designs sustainable and innovative solutions that meet the needs of the following sectors:

·

electricity: combined-cycle plants, wind energy farms, hydroelectric plants, nuclear power plants, radioactive waste treatment facilities, electricity transport infrastructures, and energy systems;

·

gas and industry: gas transport, treatment and storage facilities; decentralized production of energy and working fluids; and

·

infrastructures: high-speed lines, multimodal platforms, navigable waterways and port infrastructures, dams, complex buildings and structures, and integrated urban development.

Tractebel Engineering maintains a permanent presence in more than 20 countries and offers a wide range of services throughout the life cycle of facilities, allowing its customers to choose between customized services or a complete package of services.

Facilities and associated services – construction and maintenance

Through subsidiaries such as Axima, Endel, Ineo, Fabricom GTI and GTI, SUEZ Energy Services builds and provides maintenance for electrical, mechanical and HVAC facilities for industry, the services sector and buildings as well as major infrastructure works. The division also provides services associated with these activities:

·

in proximity businesses, our entrepreneurial culture is reflected in service to customers close to their facilities and their needs and enhanced by access to the leverage of a European network and the complementarities of the various services offered;

·

in specialty businesses, development is supported by a high degree of proficiency in basic technologies, in order to offer state-of-the-art developments and thus support customers as they evolve technologically;

·

lastly, in large projects, by using specialized and multilingual teams, SUEZ Energy Services implements, mainly in the international chemicals/petrochemicals and oil and gas sectors, a specific methodology for project and contract management.

Project management remains a key factor in the facilities and associated services activities: strict control of bids and costs and contractual proposals throughout execution will determine the final profitability of each project.

Energy services – optimization and operations

Experts in energy services solutions created to provide delegated management and outsourcing, Elyo and Axima Services offer comprehensive and innovative solutions to highly diversified customers, including businesses, local governments, residential and industrial site managers. Elyo and Axima Services design and implement long-term, effective and all-inclusive solutions with guaranteed results, while remaining environmentally friendly:

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·

management of the energy and utilities required in industrial processes;

·

management and maintenance of thermal and technical equipment;

·

management of local energy networks; and

·

facilities management.

With a wealth of expertise as integrators and enjoying strong local relationships, Elyo and Axima Services intend to consolidate their European leadership positions by taking advantage of the growth opportunities afforded by cost optimization, the reorientation by companies towards their core businesses, the opening up of the energy markets and the recognition of environmental restrictions.

Apart from traditional technologies, Axima Services has expanded its services to airport technologies, baggage sorting systems, boarding bridges and aircraft approach systems.

Markets and Competition

The production and marketing of electricity and the marketing of gas are sectors of activity which are largely open to competition in Europe and the United States. However, activities which constitute natural monopolies like the transport of electricity and, to some extent, the transport of gas, are strictly regulated. Elsewhere in the world, with just a few exceptions, markets are less open to competition and international players operate in more regulated environments, usually under long-term contracts.

In Europe, the main competitors of Electrabel and Distrigas on markets open to competition are: in electricity, the German companies E.ON and RWE, the French company EDF and the Italian company ENEL; in gas, all the major gas companies such as Ruhrgas and Gasunie. New competitors are also emerging, such as the large European gas producers and other players specialized in marketing activities, like the British company Centrica which has become established on the Belgian market. With respect to Fluxys, one of the major new requirements to emerge from the transposition into Belgian law of the 2nd European gas directive is the official designation of one or more network managers. The new Belgian law on gas defines the procedure for the official appointment of an entity to manage the natural gas transport network as well as the natural gas storage facilities and LNG terminaling facilities. This appointment is valid for a period of 20 years. As they hold the relevant authorizations to transport natural gas, Fluxys and Fluxys LNG will seek to be appointed as the network managers.

We also have a development policy for LNG. With SUEZ LNG NA and Fluxys, SUEZ is the only group to own LNG terminals on both sides of the Atlantic. It also holds an equity interest in a liquefaction plant in Trinidad, which provides great arbitrage capabilities. SUEZ estimates that this segment of the gas sector needs to develop quickly, especially given the decline in gas reserves in the United States and the on-going improvement of technologies.

In some regions of the United States, electricity markets are currently suffering from an excess of installed capacity, exacerbated by a slowdown in the deregulation process. In the short-term, “spark-spreads” are too low in some areas for electricity producers to obtain a profit higher than their capital costs when they trade on the spot market. It is difficult to foresee whether in the mid-term, growth in demand and the decommissioning of obsolete power plants will successfully absorb the excess capacity.

While a resurgence of electricity generation using coal and nuclear power could constitute an additional threat for the long-term profitability of combined cycle power plants against a backdrop of high gas prices, the political and environmental issues tied to these fuels are obstacles that will be difficult to overcome, especially in markets such as the Northeastern United States. Nuclear energy continues to suffer from the negative reputation it gained in the 1970’s, although the industry has continued to operate its existing fleet of plants, largely without incident. The government has adopted a limited program of incentives aimed at commercializing integrated coal gasification technology; however, its high capital costs and operational inflexibility should prevent significant development of this technology. A threat could arise from the easing of siting obstacles for new transmission lines that could connect existing and/or proposed coal-fired facilities located away from densely populated areas, with those markets.

In 2005, two LNG receiving terminals to be located in the Canadian Maritime Provinces and intended to service the markets of New England were approved by the US government. Since these terminals are located upstream from the gas pipeline of the Maritime Provinces, the effects that these terminals will have on the price of gas in New England remains highly uncertain. A project involving an LNG terminal in South-East Massachusetts was awarded a FERC license. However, the project faces significant problems associated with location and the provisions of the most recent legislation on energy, which will block traffic to the site. Its success has therefore been compromised. The FERC rejected another application concerning an LNG terminal project in Rhode Island.

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Demand for energy has continued to grow steadily in most countries of South America. Reserve margins have declined in all markets of the South Cone and are now approaching their limits, except in Brazil which will maintain a sufficient reserve capacity for at least a few more years.

As a general rule, prices increase as a result of fuel price changes, but the conditions specific to each market differ significantly. The Pacific axis of Chile and Peru remains more orthodox and prices tend to be influenced by hydrological conditions, fuel trends, the cost of new expansions and related technologies. On the Atlantic coast in Brazil and Argentina, the authorities moved successfully to limit price increases. Priority was given to preventing or delaying these price increases, at least for existing power plants. Specific and complex provisions have been created to stimulate new developments.

Demand for gas has increased substantially in all markets as a result of economic growth and because gas offers an alternative to liquid fuels. In Peru and Brazil, oil companies have continued to make investments. However, their Argentinean and Bolivian counterparts have been forced into a holding position, due to government intervention and a lack of clear rules for the future. This situation has resulted in a fragmented market and only partial satisfaction of the demand in Chile, Uruguay and Argentina.

In the Middle East and Asia, most countries apply different forms of regulation to the electricity and gas markets, resulting in a single centralized company acting as the buyer for independent power producers. Some countries like China and India have taken the initial steps to split up the sector, but transparent rules that would ensure free and fair competition have not yet been put into place. Even though the demand for energy in this region is generally high, in the short term, viable opportunities for foreign investors are limited and are essentially related to new projects for the independent production of water and electricity in the Middle East, a region known for the clarity of its regulatory framework, and a two-year electrical project in South-East Asia.

Since SEI is a diversified company operating in several countries and in many segments of the electricity and gas value chain, its competitors are as numerous as they are diverse and often include local government-owned businesses and national operators. The international operators AES, Endesa and International Power, usually emerge as our competitors in several countries. It is important to note, however, that the current number of players at the international level has declined significantly in recent years; a number of US and European companies opted to refocus on their respective historical markets, following difficulties in their national markets or with investments in the distribution of electricity to households, a segment in which SEI does not operate. Companies from Japan, Hong Kong, Malaysia, and Singapore, which participated in projects under long-term contracts in their country of origin, are increasingly trying to export these types of contracts abroad. With the free flow of capital, financial investors attracted by the low risk and profitability of the programs in question, are increasingly looking for regulated or fixed return energy projects and acquisitions.

Oil and gas companies like ExxonMobil, Shell, BP, Total and BG Group have emerged as major competitors for LNG activities on the Atlantic basin.

SUEZ Energy Services essentially operates in Europe. SES is ranked number one in France, Belgium and Holland, has a strong position in neighboring countries, and offers an base for expansion into countries located further away, such as Central Europe.

Since its three market segments, Industry, Services, which includes collective housing, and Infrastructure, have different economic cycles, SES has relatively little exposure to risks related to economic changes.

Although the Industry market segment is experiencing stagnation in its investments, this segment offers growth opportunities for targeted service activities, which benefit from the outsourcing trend, the strengthening of environmental constraints and the search for efficient energy.

The development of public/private partnerships, especially in the Services market segment, is a favorable factor for the development of operations at facilities and services.

Finally, the Infrastructure market segment remains attractive due to numerous initiatives taken by local authorities to improve mobility and security. SUEZ Energy Services is recognized as a major player in this market through niche activities in transportation and intelligent security technologies.

Its balance of activities, with 50% in production facilities and related services, 44% in services and 6% in engineering, SES holds a unique portfolio in the European market which sets it apart from its competitors.

Its competitors are generally smaller in size and include, most notably, Vinci Energies, ACS, Cegelec, Amec-Spie and Imtech for operations at facilities and Dalkia, Cofatech and RWE Solutions for service-related activities.

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The complementary nature of our different divisions is also an advantage for SUEZ Energy Services when, for example, it is called upon to provide services, supply electricity and gas to a deregulated market and/or provide services related to water and waste services.

ENVIRONMENT

Through our SUEZ Environment division, we are involved in the full water and waste cycle. We produce drinking water, distribute it to consumers, collect and treat wastewater, and manage and recover the waste resulting from household and industrial activities: SUEZ Environment provides the services and equipment that are essential to human life, to human health and to the protection of the environment.

SUEZ Environment seeks to be the benchmark player in the regions of the world in which it is present. Being the benchmark player means that the company is consulted by market players of their own accord and that it is recognized by its customers for its know-how and expertise.

SE continued its profitable growth in 2005, following through on its action plan by improving operating profitability, controlling investments and reducing risks.

Organization and key figures

The following table presents comparable revenue and employee figures for the Environment businesses, for the last two fiscal years.

(in € millions, except employee data)	Year ended
	Dec. 31, 2005	Dec. 31, 2004
Sales revenues	11,089	10,537
Number of employees	72,130	72,781

Organization

Delegated water and sanitation management, water treatment engineering and waste collection and treatment activities are consolidated within SUEZ Environment. These activities are divided into the following four business units:

·

Europe Water;

·

Europe Waste Services;

·

International Water and Waste Services; and

·

Degrémont.

Water Europe

Water Europe had sales revenues of €3.5 billion in 2005. Europe is a priority water market for SUEZ Environment.

Lyonnaise des Eaux France represents 50% of European sales, with the balance generated primarily in Spain through partnership with Aguas de Barcelona, or Agbar.

SUEZ Environment is also present in the high growth potential markets of Germany, through Eurawasser, and Italy, through Acque Toscane and Nuove Acque.

Waste Services Europe

Waste Services Europe had sales revenues of €4.6 billion in 2005. SUEZ Environment is focused on the following subsidiaries: SITA France and its subsidiaries, including Novergie and TERIS for hazardous waste, SITA UK, SITA Deutschland, SITA Nederland, SITA Sverige in Scandinavia and SITA Belgium.

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Water and Waste Services International

Water and Waste Services International had sales revenues of €2.1 billion in 2005. Outside the European Union, SUEZ Environment conducts business in 15 countries, but has focused primarily on building a strong presence in Central Europe and in the following four countries: the United States, Mexico, Morocco and China.

As the Water and Waste Services activities share a common structure, they are able to implement operating cost synergies on the ground, provide joint offers and, depending on the country, make use of the commercial development already accomplished by each business.

Degrémont

Degrémont, a wholly-owned subsidiary of SUEZ Environment, specializes in water treatment stations. Degrémont had sales revenues of €0.9 billion in 2005.

Degrémont is organized according to the market, and thus the Europe business line and the International business line are each profit centers and have their own sources of funds for marketing, work sites and services. Sharing engineering capabilities and expertise and implementing a network of local associates such as technical directors, executive directors, and others, and a global network of engineering offices in India, China, Chile and Europe, allows the business lines to free themselves from geographic location and to mobilize all the Group’s resources based on business needs. A new business line was created in January 2005 to support growth in equipment sales by specialized subsidiaries such as Innoplana, Ozonia, Aquasource and Infilco Degrémont.

Strategy and Commercial Development

SUEZ Environment is continuing its policy of mainly controlled, selective and profitable growth.

On the strength of its number two position in the environmental services sector in Europe, SUEZ Environment believes that its proven experience, competitive positioning, and size each work to its advantage, allowing it to build on its success while making the best use of available external financing, such as European funds and bilateral aid, to fund infrastructures and/or partnership agreements with local companies.

Thus, in October 2005, SUEZ Environment, through its Ondeo Services Italia subsidiary, increased its stake in the capital of ACEA SpA, one of the leading Italian companies active in the environment and energy sector. SUEZ Environment and its partners provide drinking water and sanitation services to 1,150,000 residents of Italy and Degrémont has built more than 550 water treatment plants in Italy.

Outside the European Union, SUEZ Environment has focused primarily on the United States, Mexico, China, Australia and Morocco. SUEZ Environment’s first challenge in these countries is to consolidate its positions and optimize profitability before considering new developments.

In Brazil, although the household waste collection agreement with the city of São Paulo came to an end, Vega, a SUEZ Environment subsidiary, was awarded the twenty-year concession to collect and treat municipal waste for one part of the city.

In the rest of the world, we are, with the support of international financial institutions, considering very selective growth that meets its self-imposed profitability and risk reduction requirements, particularly in emerging countries. The Algiers agreement is a good illustration of this strategy. On November 28, 2005, SUEZ Environment and the Algerian authorities signed an agreement to manage drinking water and sanitation services for the city of Algiers, serving 3.5 million inhabitants.

In 2005, SUEZ Environment continued its active asset portfolio management.

LYDEC confirmed its local presence in Morocco. SUEZ Environment and its Moroccan institutional partners RMA Wataniya and Fipar Holding (CDC Group) listed 14% of the company’s capital in July 2005. This listing was particularly well received by Moroccan investors. SUEZ Environment and Elyo remain 51% shareholders of LYDEC.

In Jakarta, rate adjustment negotiations resulted in an addendum to the concession agreement entered into between PT PAM Lyonnaise Jaya and its customer on December 24, 2004, providing for an automatic half-yearly rate revision. PT PAM Lyonnaise Jaya was therefore able to obtain an 8.3% rate revision in January 2005 and another 9.5% revision in July 2005. In addition, PT PAM Lyonnaise Jaya’s US$-denominated debt was refinanced in July 2005 through an IDR 650 billion bond issue of approximately US$67 million.

In Chile, SUEZ Environment and its partner Agbar listed a 43.4% stake in Inversiones Aguas Metropolitanas on the Santiago exchange in November 2005; SUEZ Environment’s residual equity percentage in IAM is now 14.4%.

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Order intakes at Degrémont were once again strong during the year, as indicated by the US$260 million contract it won in Qatar in December 2005 to design, build and operate a wastewater treatment station, and by the contract it won in April 2005 to design, build and operate the first desalination plan in Australia, worth €380 million for 25 years. With its references at Fujairah (170,000 m3/day) in the United Arab Emirates, Wadi Ma’In in Jordan, Curaçao, Dutch West Indies, and more recently, Minera de la Escondida in Chile, and thanks to its long-standing experience operating this type of facility, Degrémont has thus confirmed its ability to provide optimized reverse osmosis desalination solutions. Degrémont will pursue development in its equipment service and sales activities, which represent its two engines for growth.

Significant events

January 2005

·

SUEZ Environment takes action to assist the populations devastated by the Tsunami in South-East Asia. More than 100 volunteers from PT PAM Lyonnaise Jaya, Degrémont and Aquassistance are mobilized and over 12 tons of equipment sent to the island of Sumatra.

·

SITA France teams up with Airbus and SOGERMA to carry out a project to dismantle airplanes at the end of their life cycle in Tarbes.

·

Through the acquisition of Applus Danemark, Agbar becomes the first private operator in the Danish Inspection and Certification market.

·

SITA UK wins a new 16-year contract for selective collection and urban waste services in London for the borough of Kensington & Chelsea, worth annual revenues of €18 million.

February 2005

·

In Canada, SUEZ Environment sells Matrec Inc., a waste services company, to Transforce.

March 2005

·

SDEI, a subsidiary of Lyonnaise des Eaux, renews its delegated services contracts for sanitation and water with the Syndicat des Eaux Rhône Ventoux for a term of 8 years, worth total revenues of €70 million.

·

Degrémont signs a contract to build two purification stations at Arcachon for €31 million.

April 2005

·

Degrémont signs a 25-year contract with the Regional Water Authority of Western Australia to build and operate the first reverse osmosis seawater desalination plant in the city of Perth, worth a total of €380 million.

·

SUEZ Environment transfers its 25% equity interest in Northumbrian Water Group plc to Ontario Teachers, a Canadian pension fund, for €377 million.

·

In Manila, the Court of Quezon City approves the recovery plan signed between the creditors of Maynilad, the shareholders and the contracting authority, MWSS.

May 2005

·

SITA Deutschland inaugurates the mechanical and biological waste treatment plant in Cröbern, with a capacity of 300,000 tpa, in western Germany.

June 2005

·

SITA France wins the Paris Airports contract at Roissy Airport, worth €5.7 million.

·

United Water signs three new operation and management water contracts, a non-regulated activity, in Glynn County (Georgia), Durham County (North Carolina) and Carthage (North Carolina), in the United States.

·

Degrémont wins 7 contracts to build and operate on the African continent, worth a total of over €100 million (in Morocco, Algeria, Tanzania, Congo and Nigeria).

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·

SITA Sud inaugurates its platform for the biological recovery of sludge and fermentable fractions of household waste located at Entraigues-sur-la-Sorgue.

·

SITA Deutschland GmbH inaugurates a waste incineration plant in Zorbau with a capacity of 300,000 tpa close to Leipzig.

·

SITA Polska opens the landfill site in Ryman.

·

Lyonnaise des Eaux renews its water concession and sanitation contracts with the Communauté de l’Agglomération Creilloise for a term of 12 years and cumulative total revenues of €90 million.

July 2005

·

Lydec, the first management company to be awarded a delegated public service contract in Morocco, is listed on the stock exchange for the equivalent of 14% of its capital. SUEZ now holds 51% of the company’s capital alongside institutional investors and the general public in Morocco.

·

Safege joins forces with Tractebel Development Engineering and secures a European framework contract for hydraulic infrastructures and transportation, representing approximately 150 assignments worth an average of €100,000 each, over a period of 48 months.

·

SITA CZ starts construction of the depollution site in Spolana, a chemical industrial complex located north of Prague. This site will account for the treatment of over 35,000 tons of contaminated material, especially material contaminated by dioxins.

·

PT PAM Lyonnaise Jaya floats a fixed-rate bond issue on the local Indonesian market, worth IDR 650 billion, with maturities ranging from two to seven years.

August  2005

·

VEGA renews the waste collection contract for the city of Sao Isodro, Peru, for a term of 10 years, worth cumulative revenues of €36 million.

·

Lyonnaise des Eaux renews a delegated public services contract for water with the municipality of Le Vésinet for a term of 18 years, worth cumulative revenues of €34 million.

September 2005

·

SITA France and Airbus inaugurate a platform for waste management at an industrial site in Toulouse.

·

Lyonnaise des Eaux renews a delegated public services contract for water with the Verneuil-Vernouillet syndicate, for a term of 20 years, worth cumulative revenues of €29 million.

·

Lyonnaise des Eaux renews a contract with the City of Nice to manage rainwater sewers for a term of four years.

·

Lyonnaise des Eaux signs a 20-year concession contract with the municipality of Vallauris Golfe-Juan worth cumulative revenues of €80 million which involves the management of sanitation services and the construction, for an investment of €29.5 million, and operation of a treatment plant.

·

VEGA wins a concession contract for waste collection in Rio Grande, Brazil for a term of 20 years, worth revenues of €62 million.

October 2005

·

Through Ondeo Services Italia, the Group increases to 8.6% its equity interest in ACEA SpA, whose majority shareholder is the city of Rome.

·

In Paris, SITA France wins the third lot for the collection of household waste, in the administrative divisions of the 10th, 18th and 19th arrondissements, worth revenues of €17 million over four years.

·

SITA NL renews its contract with the commune of Arnhem for the collection of household waste over a period of four years, worth cumulative revenues of €15 million.

·

SUEZ Environment signs a strategic partnership with the municipality of Chongqing, China, for water, through its Sino-French subsidiary.

·

Ondeo Industrial Solutions signs a contract for wastewater treatment at the Atofina platform in Villers-St Paul for a term of 10 years, worth cumulative revenues of €26 million.

·

Lyonnaise des Eaux renews its delegated public services contract for drinking water in the Dunkirk area for a term of 12 years, worth cumulative revenues of €140 million.

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November 2005

·

SUEZ Environment and the Algerian authorities sign a management and operation contract for the water and sanitation service in the city of Algiers, for an initial term of 5 years, worth a total of approximately €120 million.

·

Agbar sells 60% of its equity interest in the construction company ACSA.

·

SUEZ Environment and Agbar list IAM, the majority shareholder company of Aguas Andinas in Chile, on the Santiago stock exchange and sell 43.4% of shares to local and international investors. SUEZ Environment’s residual equity stake in IAM now amounts to 14.4%.

December 2005

·

Degrémont teams up with the Japanese group Marubeni to secure a contract awarded by the Public Works Authority in Qatar, to design, build and operate the wastewater purification plant in Doha-West, for a term of 10 years, worth a total of US$260 million.

·

Novergie signs a delegated public services contract with Clermont-Ferrand for a term of 20 years and an investment of €128 million. This contract involves the creation of a multi-channel complex for waste treatment.

·

Novergie announces that all its incineration plants were in compliance with the European directive for waste incineration.

·

SITA France renews its waste management contract with the city of Dijon and is authorized to operate the community’s future recycling center for a term of five years, worth a total of €53 million.

·

As part of a consortium, Degrémont wins a contract to build and operate an urban wastewater treatment plant in Csepel, Budapest over a period of four years, worth total revenues of €290 million.

January-February 2006

·

SITA UK is selected as a preferred bidder for a contract to manage all household waste in the county of Cornwall for a term of 30 years, worth total revenues of €730 million.

March-April 2006

·

The Argentinean Government proceeded on March 21, 2006, by decree, with the termination of the concession contract of Aguas Argentinas, citing faults of the concessionaire. The decision of the Argentinean authorities in particular resulted in the suspension of the payments of the company which requested on April 28 to benefit fromConcurso Preventivo (comparable with the bankruptcy administrative proceeding in France and which involves the provisional suspension of the proceedings). On April 20, 2006, Aguas Provinciales de Santa Fe has challenged the validity of the administrative decree terminating the current concession contract. ICSID arbitration procedures in relation to the protection of foreign shareholders’ interests in both of these contracts are ongoing.

Business Activities

In light of our desire to systematize and accelerate the rationalization of its industrial processes, the description of activities is presented according to business line (water, waste services, etc.) rather than in the format of the management organization matrix implemented when SUEZ Environment was created.

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WATER

Integrated management of the water cycle

SUEZ Environment provides water and sanitation services in 23 countries. According to the Masons Water Yearbook 2004-2005, SUEZ Environment is ranked second in European Management Services, providing 31 million people with drinking water and 18 million with sanitation services. It carries out 76% of its business in the European Union, which remains the main focus of its business and development.

Through Lyonnaise des Eaux, Eurawasser, Agbar, LYDEC, United Water, Sino French, Ondeo Industrial Solutions, Degrémont and Safège, SUEZ Environment covers the entire value chain of the water cycle:

·

studies and master plans, modeling of underground resources, project management;

·

engineering, design, construction and operation of water treatment plants; and

·

operation and delegation of services: on behalf of municipalities, other local authorities and industrial companies, SUEZ Environment manages the catchment, treatment and distribution of drinking water, as well as network maintenance, the collection and treatment of municipal and industrial wastewater, the conversion of sludge from purification activities, the collection and treatment of rainwater and customer relations.

Its activities also include meter reading and the collection of payments from end users, and vary according to the nature of customers and the country. We are supported by an advanced research center which allows it to offer long-term partnerships and solutions adapted to the needs of its customers.

We are generally party to the following types of contracts:

·

contracts for the management and maintenance of water and sanitation facilities financed and built by local authorities, in which a SUEZ subsidiary is designated as the operator for a period that usually ranges between 5 and 20 years, and the local authority is billed for the services provided;

·

concession contracts, under which we ensure the construction and financing of new capital investments, in addition to providing distribution, maintenance and management services. For existing facilities, we assume responsibility for renovations and possible extensions, and services are usually billed to end users. When one of our subsidiaries builds water purification and management facilities, it usually runs the operations for periods of between 20 and 30 years, after which the facilities are transferred to the local authorities. In some cases, we may also own the assets involved. In addition to government concessions, we also operate throughout the water value chain on behalf of industrial customers.

France

In France, local authorities are responsible for the distribution and management of drinking water as well as for the collection and treatment of waste water. They may delegate all or part of these activities to private companies as part of concession or operations management contracts. The industry therefore estimates that private companies provide distribution services for drinking water, and thus bill users for water and sanitation services, to approximately 74% of the population, according to Les services collectifs d’eau et d’assainissement en France, Economic social and technical data – BIPE/SPDE July 2005. In the wastewater sanitation market, both collection and treatment, roughly 58% of the population is served by private companies and 42% by municipalities. However, actual revenues earned by private companies for providing water and sanitation services to the general public amount to only 38% of the water market in France. Of the remaining 62% of actual revenues, roughly 44% are received by local authorities and approximately 18% are taxes and royalties collected on behalf of government and water agencies.

Lyonnaise des Eaux France, a subsidiary of SUEZ Environment, is the second largest private operator in the French market, according to the Masons Water Yearbook 2004-2005.

The term of our contracts in France for both water distribution and water purification services is generally between 10 and 20 years.

European Union

In Spain, SUEZ Environment holds an equity interest of 25.8% in Aguas de Barcelona, or Agbar, which is the largest player on the Spanish market in water distribution and listed on the Spanish stock market. Agbar is also established in South America, particularly in Argentina, Chile, Colombia and Uruguay, and the majority of projects which SUEZ conducted in South America were completed in partnership with Agbar.

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In Italy, we are established in Tuscany, primarily in Pisa, in partnership with ACEA, and in Arezzo. In October 2005, Ondeo Services Italia, a subsidiary of SUEZ Environment, acquired an additional stake of 3.62% in ACEA, increasing our equity interest in ACEA to 8.6%. Additional share redemptions at the end of the year further increased this interest to 8.8% as at December 31, 2005.

In Germany, we are present in Rostock and Cottbus in particular, essentially through water and sanitation concession contracts.

In the United Kingdom, we sold our minority interest in Northumbrian Water Group to the Ontario Teachers’ Pension Plan in April 2005. This transaction completed SUEZ Environment’s divestment of its stake in Northumbrian Water Group, first acquired in May 2003.

For several years now, SUEZ Environment has been operational in some of the ten new Member States of the European Union. We provide drinking water and sanitation services to several regions of the Czech Republic, where we have been established since 1993, and supply drinking water to Budapest, Hungary, in partnership with RWE; we have also operated in two other Hungarian cities since 1994 and in Trencin, Slovakia since 1999. We manage a contract for the construction and operation of the Maribor purification station in Slovenia.

Worldwide

In the rest of the world, SUEZ Environment provides services related to drinking water and sanitation in partnership with local investors, local authorities, affiliated companies or businesses majority-owned by local interests. In the area of water management, our revenues outside the European Union amount to roughly 25% of total sales. Concession contracts outside France are usually for a term of between 25 and 30 years.

In Morocco, we secured a concession contract in 1997 for a term of 30 years involving water distribution, sanitation services, and the supply of electricity to approximately 3.5 million consumers in Casablanca. We were also awarded an operation and maintenance contract in Amman, Jordan, and won a similar contract in Tripoli, Libya, at the end of 2002.

In the United States, over 80% of water-related services are provided by municipal or government agencies which are increasingly interested in forming partnerships with private operators for the supply of drinking water and sanitation services. We are active in this market through United Water, which we estimate to be the second largest in the non-regulated market in terms of revenues and the third in the regulated market, with 82 subsidiaries. Its main activity is the supply of water to users in areas where its regulated services subsidiaries have franchises or other licenses to provide these regulated market services. United Water is established in eighteen States, particularly in the eastern and central parts of the United States. In the deregulated sector, United Water provides water distribution and sanitation services under operation and management contracts concluded with municipal authorities.

In South America, SUEZ Environment has served up to 20 million people. Argentina was the first South American country to call upon private operators to manage its water services and we entered the market via Aguas Argentinas in 1993, the year that it won a concession to provide water and sanitation services to 7.9 million consumers in Buenos Aires for a period of 30 years. We also hold thirty-year concession contracts in Santa Fe and Cordoba. Despite the difficulties experienced after the devaluation of the Argentinean peso and the non-application of contractual price increases, we maintained our operational presence under these three Argentinean contracts and opted to start international arbitration proceedings as well as negotiations with the licensing authorities and the banks, in order to exercise our contractual rights and try to re-establish the economic and financial balance of the contracts. However, when it became clear that it would be impossible to obtain a positive conclusion to these negotiations, we and the other European shareholders of these Argentinean companies decided to request the termination of the Aguas de Santa Fe concessions in May 2005, and the Aguas Argentinas concession in September 2005. See also Note 39 to our Consolidated Financial Statements and Item 8.A.

SUEZ Environment also supplies water services to Limeira and Manaus in Brazil.

In Asia, we are present in China via 18 subsidiaries associated with local authorities that produce drinking water. We operate through different types of contracts such as Build Operate Transfers, or BOTs, for the construction and restoration of water treatment plants, and concessions. We also manage a 25-year concession contract to manage water resources in Macao.

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The world expert in water purification

With Degrémont, a 100%-owned subsidiary, SUEZ Environment is one of the major world players in the engineering of urban wastewater treatment. Degrémont ensures the design, construction and sometimes the operation of water treatment facilities, including:

·

drinking water production plants;

·

wastewater treatment plants;

·

reverse osmosis desalination plants; and

·

sludge treatment units.

Degrémont provides the entire range of services for the turnkey delivery of a facility, particularly engineering services, construction, work site management and the start-up of equipment. Since it was created in 1939, Degrémont has built over 10,000 water treatment plants around the world. With the growth of urban populations, requirements for both water quality and sanitation have increased, resulting in growing demand for water treatment infrastructures.

Increasingly, Degrémont’s international development strategy is based on strict criteria which ensure a balanced contract and a carefully weighted distribution of risk among all stakeholders.

WASTE SERVICES

The range of activities carried out by SUEZ Environment in waste services under the SITA brand and through its subsidiaries SITA France, Novergie, Terralys, Teris, SITA Deutschland, SITA Belgium, SITA Sweden, SITA UK, SITA Australia, Swire Sita, etc., has expanded to keep up with regulatory, technical and economic changes as well as increasingly specific requests from customers. In Europe, this has meant developing processes related to waste re-use, recycling, physical recovery, waste-to-energy recovery and the depollution/rehabilitation of industrial sites; in Asia Pacific, the development of reliable processing and development facilities for urban services; and in South America, the adoption of environmental standards. In terms of revenue, we estimate, based on information published by competitors, that SITA is the world’s third largest player in this market, and the largest in Europe.

We are not only active in waste collection, but also in recycling and the treatment of all forms of waste, including physical and waste-to-energy recovery, stabilization and storage. As a pioneer in the selective collection of household waste in the 1990s, SUEZ Environment owns a fleet of approximately 11,500 heavy vehicles adapted to all types of waste collection: selective collection of packaging, large objects, hospital waste and industrial waste.

We are also conducting trials for on-board computerized weighing and identification for various applications, including optimizing collection runs and management of billing based on the weight of the waste.

In 2005, we collected 24.0 million tons of household waste, non-hazardous industrial waste and medical waste.

Before any treatment of the waste, 199 sorting and conditioning centers ensure the delivery of ready-to-process waste material to the various divisions. Specialized in the sorting of household waste and industrial packaging, the sorting centers are the cornerstone of the recycling economy: they provide recyclers with a regular, high-quality supply while providing waste generators with a continuous supply of regulated waste. In 2005, these centers received 7.4 million tons of waste, including 4.9 million tons of recyclable material.

The natural process of degradation and oxygenation of organic materials is reproduced on an industrial scale at 97 SUEZ Environment composting platforms using varying degrees of technical sophistication, depending on whether the material received is “green” waste or sludge from purifying stations. In the latter case, additional technical investments are made to ensure the deodorization of the process and the hygienization of the product. In 2005, the Group composted 1.3 million tons of organic waste.

At the end of 2005, SUEZ Environment consolidated all its activities and expertise relating to sludge treatment in France under one operational entity called Terralys, which offers a range of additional processes and the multi-disciplinary expertise of Group companies.

Through 49 facilities around the world, including 47 with waste-to-energy conversion capabilities, SUEZ Environment applies its expertise in the incineration of urban waste, in France through Novergie, and in Belgium, the United Kingdom and Taiwan. This activity is subject to several regulatory restrictions aimed at reducing the impact of processes, such as smoke emissions and the production of bottom ash, and recovering the energy produced by burning waste in the form of heat and/or electricity. In 2005, 6.0 million tons of household waste, non-hazardous waste and medical waste were incinerated.

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Storage is the main processing operation in many countries. SUEZ Environment manages 170 landfill sites. Upstream, the search for a site must meet the requirements of imprescriptible specifications, concerning, most notably, soil quality, avoidance of contact with groundwater, and distance from residential populations. During the operational phase, all changes are planned and controlled, effluents such as biogases and leachates are captured, converted or eliminated, and the environmental parameters are measured on a very regular basis. When they are decommissioned, these sites continue to be monitored for thirty years. SUEZ Environment operates centers around the world and in 2005, 24.8 million tons of waste were received by the company’s landfills.

Expertise in the treatment of toxic waste extends to incineration by different subsidiaries of SUEZ Environment: Teris and Teris North America, 100%-owned subsidiaries of SUEZ Environment, and SPOVO in the Czech Republic. In the Shanghai Industrial Chemical Park site in China, SUEZ Environment and its local partners won a BOT contract in March 2003 for an incinerator of hazardous industrial waste. Moreover, activities related to the storage of toxic waste in class I centers in France are carried out by SITA FD, a 100%-owned subsidiary of SUEZ Environment, and by Essensis in Brazil. SUEZ Environment can therefore offer its customers solutions adapted to all types of hazardous industrial waste, from the conditioning of 100 grams, which it would provide in the case of hazardous household waste or laboratory waste, up to several hundred tons of material. In 2005, 2.4 million tons of hazardous industrial waste were processed, including pre-treatment on ad-hoc platforms, stabilization and storage in class I centers, incineration of heavily chlorinated or sulphurized waste, and co-incineration at cement plants. This latter expertise saved 269,000 tons of oil equivalent fossil fuels.

Through its sanitation and industrial maintenance activities, SUEZ Environment provides local authorities, individual and industrial customers with services related to sanitation, industrial clean-up, particularly after factories are decommissioned, and collection of hazardous industrial waste as well as more specific services such as oil-related activities, network management and cleaning of water towers. The Group has also developed recognized expertise in the area of depollution and conversion of industrial sites. The SITA Agora projects for the depollution and conversion of the Metaleurop site in Pas-de-Calais as well as the Spolana project north of Prague in the Czech Republic are prime examples.

Finally, urban waste services are a concern for local authorities and a health necessity. Services provided by SUEZ Environment in this area include mechanical and manual sweeping, maintenance of street furniture, removal of posters, graffiti and snow, clean-up of beaches, maintenance of garbage bins, and running awareness campaigns. Depending on the country, additional services may also be offered, such as the maintenance of parks and municipal green spaces.

Regulatory Environment

SUEZ Environment operates its water and waste services in Europe and the United States under a highly structured regulatory framework. Environmental regulations are clearly changing, especially in China and Brazil.

The regulatory environment can be divided into three levels:

·

regulations governing the awarding of contracts;

·

regulations governing activities; and

·

environmental responsibility.

Regulations governing the awarding of contracts

In France, there are two main models of government contracts.

·

Delegated public services contracts are governed by the Sapin Act of 1993, which defines the applicable procedures for awarding such contracts. They are usually used for water-related services. Communities, generally comprised of “communes” or groups of communes, can choose between direct management by local government and the total or partial delegation of management to a private company. The delegated management services contract defines the respective obligations of the delegator and the delegate as well as the price structure; it does not include provisions regarding a transfer of the ownership of existing assets to the delegate, who operates simply as the manager. Since the Mazeaud Act of 1995 was implemented, the delegate is now required to produce an annual technical and financial report.

·

Service and construction contracts are subject to the French Code on Public Contracts and, more generally, to the European directives mandating the use of competitive bidding for awarding contracts. Activities related to waste services and those carried out by Lyonnaise des Eaux and Degrémont are generally subject to this type of procedure.

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In the United States, the federal government plays a major role in the water sector, but the individual States exercise powers related to the management and regulation of operations and the planning of investments. Two main types of contracts co-exist: the first is regulated, as in England, while the second is non-regulated, as in France.

Each State has a Public Utility Commission which sets pricing structures, for water and sanitation services, and the return on shareholders’ equity granted to companies operating in the regulated sector.

In the non-regulated sector, each municipality determines the rules that govern the awarding of contracts to public-private partnerships and their mode of operation. Generally, the operator is selected following a bid procedure.

Elsewhere in the world, the method of awarding contracts changes according to the type of public/private partnership, regardless of whether it is a delegated service contract, such as a long-term concession, BOT or short-term provision of service, or a regulated contract. A clear definition of the regulatory context is an extremely important criterion for the development of SUEZ Environment activities.

Regulations governing activities

Legislative and regulatory restrictions that apply to SUEZ Environment’s activities essentially arise from European directives:

Water:

The directive of May 21, 1991 on the treatment of waste water in urban settings sets the minimum quality standards for the treatment of waste water and sludge in urban areas with a population of 2,000 or more residents. It was subsequently transposed into French law and has been phased in gradually with the final deadline set for 2005.

·

The directive of November 3, 1998 on the quality of drinking water strengthened certain quality standards. The deadline for compliance with all the new requirements was December 2003, excluding the requirement related to lead, which was pushed to 2013.

·

The framework directive of December 22, 2000 on water established a regulatory framework for a Community policy on the protection of inland surface waters, transitional waters, coastal waters and groundwater, in order to prevent and reduce pollution, promote sustainable water use and protect the environment. It established an objective for “good ecological status” and mandated the change from a resources-based logic to an objectives-based logic. It also introduced the obligation on Member States to implement water pricing policies by 2010 that would motivate consumers to use resources more effectively. This key directive was adopted by French law on April 22, 2004.

Waste Services:

The directives relating to waste management are described below.

·

The framework directive of July 15, 1975, the first European directive to cover the treatment of waste. This directive favors the prevention and reduction of waste production by imposing the use of cleaner technologies to protect the natural environment. This text also introduces the Polluter Pays principle. It was amended by the directive of March 18, 1991, which defines objectives with respect to at-source reduction of waste, and sets out the different methods of treatment (recycling, composting, incineration with energy recovery, and elimination).

·

The directive of December 20, 1994 regarding waste from packaging, which aims to reduce the impact of packaging waste on the environment. This guideline sets quantifiable objectives for the recycling and conversion of packaging placed on the European market. The directive was revised in 2004 and sets new recycling objectives by material.

·

The directive of April 26, 1999 regarding the burying of waste in landfills defines new standards for the management of sites including standards for containment and controls. This directive imposes certain obligations on the manager for a period of 30 years after a site is decommissioned.

·

The directive of December 4, 2000 regarding the incineration of waste applies to all categories of hazardous and non-hazardous waste and sets strict limits for incineration equipment in order to protect the quality of air and water.

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In the main European countries where we operate, these directives have been transposed into national law and are often complemented by specific legal provisions in each country.

The activities of the Group in the United States are also subject to federal and local regulations with respect to the environment, hygiene and security. The water sector is governed at the national level by the Clean Water Act of 1972 and the Safe Drinking Water Act of 1987 implemented by the Environmental Protection Agency.

The primary effects of the strengthened directives have been increased capital expenditure on infrastructure and higher operating expenses for operators. As a general rule, contracts concluded by SUEZ Environment protect it from regulatory changes by authorizing some form of consequence on contractual pricing. Due to the increasingly stringent nature of environmental objectives, local authorities have been required to call upon the expertise of ever more qualified professionals to manage their resources. The need to build new plants, or replace or adapt old ones, and obtain access to cutting-edge technology bodes well for the activities of Degrémont. Therefore, in principle, the changing regulatory context has created development opportunities for SUEZ Environment.

Environmental responsibility

After almost 15 years of discussions, Europe has issued a new directive on environmental responsibility, Directive 2004/35 of April 21, 2004, which strengthens the principle of Polluter Pays within the European Union. This directive is to be implemented, under the national law of each country, by April 30, 2007 at the latest.

The directive covers three categories of environmental damage: damage to species and natural habitats, water damage and soil contamination.

Under the terms of this directive, the operator bears primary responsibility for such damage.

SUEZ Environment has begun a study to evaluate the impact of this directive on its activities:

·

as the manager of a potentially polluting facility, where it may be impacted by pollution by treatment facilities or the burial of waste, river pollution by the effluents of a purifying station, or agricultural conversion of sludge or compost; and

·

as a victim of pollution, either pollution by a classified facility of the raw water which SUEZ Environment uses to produce drinking water, or pollution by a third party of a landfill, purifying station or contaminated soil.

Elsewhere in the world, the regulatory changes with respect to environmental responsibility are as follows:

·

in the United States, the Polluter Pays principle is included in legislation. The current US administration, however, is rather reluctant to strengthen environmental regulations;

·

in Brazil, the legislative framework has developed over the past few years, based on the Environmental Act No. 6.939/1981. However, the limited resources of the administration and the sheer scope of the territory covered means that control measures may occasionally result in punitive action meant to serve as an example, but control measures are far from being generalized; and

·

China is in the process of strengthening its environmental regulations to ensure that it complies with more stringent standards especially with regard to marine pollution, air pollution, the protection of groundwater, species and natural habitats. When the process of strengthening these environmental regulations is completed, it will probably have an impact on the costs for managing water and waste services. As a result, contracts signed by SUEZ Environment are very mindful of the changing dimensions of Chinese environmental law.

Markets And Competition

Markets

The entire water sector has changed since the end of the 1980s, moving from operations largely dominated by government-owned organizations, to a market where the private sector has gained market share and is consolidating.

We estimate that public/private partnerships have major long-term potential for development, especially in Europe.

In Europe, the potential for growth in environment-related markets is substantial for the following reasons:

·

consumer demands for quality will continue to increase;

·

most of the fifteen original Member States of the European Union are behind schedule in the application of the technical directives related to water, and specifically, the 1991 directive on urban waste water;

·

the ten new Member States are required to comply with the European standards; and

·

pressure on government spending, greater demands from consumers for public service efficiency, and the higher level of technical expertise required in the sector have motivated several local authorities to endorse public/private partnerships and sustainable development.

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In emerging countries, where immense needs are yet to be satisfied, the action plan of the World Summit for Sustainable Development emphasizes the fact that the supply of clean drinking water and adequate sanitation services are necessary for the protection of human health and the environment. In this regard, the Millennium Declaration invites countries to commit to reducing by half the number of people without access to drinking water or without the means to access it, by 2015. According to the 2000-2015 Global Water Partnership/WB Estimates, US$267 billion in investments will be required to achieve this objective. The affected countries therefore present major opportunities for development with respect to construction, the operation of water treatment facilities and the management of water-related services. However, opportunities related to the operation of water treatment facilities come with potentially high risks which require solutions to be identified before any intervention can be considered for these countries. The main risks are exchange rate risks, and the risk that the contracting authority may not respect the terms of the contract often due to an inadequate understanding of the applicable legal issues.

Even if recourse to the private sector continues to increase, its involvement is currently still limited to approximately 9% of the world population. Local situations are very dissimilar: in France, municipal water systems are often turned over to the private sector; in England, the entire sector has been privatized since 1989. In the United States, however, private sector intervention with respect to water management is limited to less than 20% of the population.

The waste management market has great potential for growth, especially in Europe where the environmental map is very different from the US model. Europe is becoming increasingly demanding with higher recycling objectives and pressure on landfill sites, and therefore offers growth potential. On municipal markets, volumes of household waste are steadily increasing in the majority of European countries, according to Eurostat by between 1% and 3% every year, and therefore public customers continue to resort to private partnerships. The lack of treatment facilities is a concern in some regions.

With respect to industrial markets, the first signs of a decline in the quantity of waste produced are now emerging: this is not simply a consequence of the economic slowdown, but is also attributable to the increased weight of services, which produce less waste, in the economy as well as industry’s efforts to optimize manufacturing processes and adopt clean technologies. This trend has encouraged SITA to provide more than just basic services relating to waste disposal and develop value-added services to help customers comply with increasingly stringent environmental standards such as recycling objectives, recycling of packaging, EU directives for vehicles at the end of their life and for electrical waste and electronic equipment, and obligations relating to the depollution of soil. Initiatives taken by SITA France in these areas include a partnership with Geodis for the collection of electrical waste and electronic equipment, the dismantling of airplanes at the end of their life and the Agora project.

Competition

The competitive environment is constantly changing with the emergence of new aggressive players.

In the water and sanitation sector, following the announcement that RWE would be selling American Water Works operations in the United States and its Thames Water operations in the United Kingdom, the Group’s main international competitor is Veolia Water, a subsidiary of Veolia Environnement.

In 2005, a number of local, credible players emerged, particularly in Asia, where new equipment manufacturers such as G.E. and Siemens revealed their intention to target the provision of services, and the interest of financial investors continued to grow, for example in the United Kingdom, Deutsche Bank acquired Sutton & East Surrey from Terra Firma and Mid Kent Water was sold to two Australian pension funds, HDF and UTA.

There were several transactions in the waste services sector in the United Kingdom, the Netherlands and Germany. RWE withdrew from this market by selling most of its operations to Remondis, a German group formerly operated under the Rethmann brand, which consequently became the third largest operator in Europe after Veolia Environment, formerly the Onyx brand, and SUEZ Environment which operates under the SITA brand. The Australian group Brambles sold its subsidiary Cleanaway Germany to the SULO group and announced its intention to sell another subsidiary, Cleanaway U.K.

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Moreover, apart from the strict exercise of its current activities, when it comes to management of water and waste products, we have an open dialogue with the communities with which we form long-term partnerships and examine how major contributions would contribute to their sustainable development.

A network of officers for the deployment of the environmental policy

In 2005, the Group strengthened the environmental aspects of the organization and continued developing its network of Environmental Officers appointed for this purpose in divisions across all the Group’s relevant activities.

Through this network of Environmental Officers, the Group encourages subsidiaries to deploy an environmental policy based on their activities, local economic conditions and the expectations of their industrial and community customers.

At the end of the 2005 financial year, revenues generated by entities which produced a Statement of Environmental Commitment amounted to 90.2% of relevant revenue in terms of the environmental impact on the Group (versus 84.5% in 2004). These policies may lead to the implementation of an environmental management systems (EMS) based on economic conditions and the interest in this type of process. These systems therefore rely on documentation, a comprehensive set of procedures and specific objectives defined as part of a process of continuous improvement. These environmental management systems may subsequently be subject to external certification. At December 31, 2005, 48.2% of relevant revenues compared with 43.5% at December 31, 2004 were covered by certified environmental management systems including ISO 14001 certificates, EMAS registrations, ISO 9001 version 2000 certificates with an environmental element, and local certifications. At the end of 2005, the Group therefore held 271 ISO 14001 certificates, 312 ISO 9001 version 2000 certificates with an environmental element, 11 EMAS registrations and 81 local environment certificates. The consolidation of ISO 14001 certificates now covers 925 sites, which include 60 more sites than in 2004.

Whenever the implementation of a certified or registered Management System is not economically justifiable, the entities involved are encouraged to define an internal environmental management system which guarantees proper treatment of the environment during execution of their strategy. Some Group entities have therefore found it more useful to define their own management system standards and have them recognized internally. There were 139 of these types of systems at the end of 2005.

The Group also makes an ongoing effort to educate personnel about environmental issues as evidenced by the “quality-security-environment” training session which accounts for 31% of the total number of training hours and the total amount invested in these programs which was over €16.4 million in 2005.

Several power plants – including two nuclear sites – obtained ISO 14001 certification and/or EMAS registration. Close to 60% of the total power of Electrabel’s production capacity in Europe is covered by ISO 14001 certification. Processes designed to improve environmental results continue to be implemented and certification processes have either started or are being prepared for several sites. During the course of 2005, the sites at Twinerg in Luxembourg, Polaniec in Poland and Montmartini in Italy obtained their first ISO 14001 certificate.

Several SUEZ Energy International plants also obtained ISO 14001 certification. Others are currently involved in the process of obtaining the certification.

Every year, entities of SUEZ Energy Services also receive new ISO 14001 certifications. In 2005, 5 new certificates were obtained, for a total of 66 SES sites with ISO 14001 certification. Through their environmental management, these entities also assist the certification of their customers and more generally speaking, contribute to their improvement goals; this can also be achieved by integrating an environmental element, into ISO 9000 processes.

Tractebel Engineering provides positive contributions through its consulting and support services for ISO 14001 certification and EMAS registration, which it has offered since 1996. In 2005, Tractebel Engineering contributed to the implementation of an internal environmental management system, known as IPMS Environment, at Electrabel Generation Belux, that integrates most of the standards required for ISO 14001 certification. In 2005, subsidiaries active in the gas industry also started the process of implementing the ISO 14001 system.

SUEZ Environment takes measures to have the quality of its operations certified by an independent organization in accordance with international standards, but as a preliminary measure, it ensures that the information through consultations involve neighboring residents, users, associations and employees is recognized, is known and shared.

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Strengthening measurement and performance monitoring systems

In order to direct the deployment of its environmental policy, control environmental risks and encourage the communication of its environmental performance to stakeholders, SUEZ has been committed to implementing a specific reporting system since 1999. Development of this system was based on work carried out during international conferences such as the Global Reporting Initiative and the World Business Council for Sustainable Development, or WBCSD. The reporting exercise completed in 2005 and the Group’s practices in this regard, have contributed to improving procedures for collecting and disseminating data on the environment. This information is also provided in the Group’s Activity and Sustainable Development Report.

Environmental reporting is closely linked to reporting on operational performance and therefore serves as a management tool. With respect to environment-related activities, the development of indicators which can measure and improve environmental performance is studied and the results submitted to the operating managers. They indicate the progress that has been made and provide benchmarks for comparable operating entities within the Group.

This desire to include environmental elements as an integral part of management processes is led by the Group’s Executive Management and implemented by the operating teams working on the ground. Environmental audits are carried out by head office departments to ensure that environmental regulations are respected on the ground and also to measure major environmental risks. Procedures to monitor the quality of drinking water that is produced and distributed, as well as the discharge from purification stations, are carried out at the local level through self-inspections that are reported to head office; the head office then measures the changes in performance.

Group companies pay close attention to controlling the various impacts of their activities on the environment, as evidenced by the performance levels reported in the following summary table:

Environmental performance by SUEZ in 2005

Indicator name	2005 data	Scope covered (% of pertinent revenues)
Environmental policy or commitment statement	90.2% pertinent revenues	99.7%
Environmental management program	65.3% pertinent revenues	99.7%
Certified environmental management system	48.2% pertinent revenues	99.7%
Certified environmental management system – ISO 14001	271	99.7%
Certified environmental management system – EMAS	11	99.9%
Certified environmental management system – ISO 9000
version 2000 with environmental component	312	99.9%
Certified environmental management system – Other local standards	81	99.7%
Environmental analyses	57.7% pertinent revenues	98.8%
Risk prevention plans	60.9% pertinent revenues	99.7%
Crisis management plans	70.1% pertinent revenues	99.2%
Companies publishing environmental reports	45.2% pertinent revenues	99.7%
Environment-related complaints	111	99.9%
Environment-related convictions	29	99.9%
Amount of fines	€384 k	99.9%
Environmental expenditures – Energy Activities	€452.9 m	91.2%
Environmental expenditures – Environment Activities	€2,226.2 m	91.2%
Environmental provisions (refer to Note 15 in the notes to the consolidated financial statements)	€5,040.1 m	100%
Primary energy consumption – Energy production	289,117.6 GWh	100%
Primary energy consumption – Transport of gas	1,476.6 GWh	89.1%
Primary energy consumption – Waste treatment	1,067 GWh	100%
Primary energy consumption – Wastewater collection and treatment	669 GWh	100%
Electricity consumption – Energy production	10,012 GWh	57.1%

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Indicator name	2005 data	Scope covered (% of pertinent revenues)
Electricity consumption – Waste treatment	350.3 GWh	100%
Electricity consumption – Wastewater collection and treatment	1,067 GWh	100%
Electricity consumption – Drinking water distribution	2,026 GWh	100%
Total greenhouse gas emissions (excluding vehicle fleet)	79m tons CO2 eq.	94.3%
CO2 emissions– Energy production	72 m tons	98.4%
CO2 emissions – Transport and storage of gas	0.3 m tons	100%
CH4 emissions – Transport, storage and distribution of gas	13.6 kilotonnes	89%
GHG emissions – Controlled landfill sites	3.7 m tons	100%
GHG emissions – Incineration	2.7 m tons CO2 eq.	97.8%
GHG emissions – Wastewater treatment	0.12 m tons CO2 eq.	100%
CO2 emissions – Vehicle fleet	0.6 m tons	94.3%
NOX emissions	110,589 tons	99%
SO2 emissions	189,270 tons	98.8%
Particulate emissions	9,882 tons	98.8%
Installed capacity – Renewable sources	5.9 GW el eq.	96.9%
Vehicle fleet –% “green” vehicles in the fleet	3%	100%
Consumption of water for industrial use – Surface water	45.3 m m3	80.7%
Consumption of water for industrial use – Water tables	4.6 m m3	97.2%
Consumption of water for industrial use – Public networks	23.6 m m3	97.8%
Consumption of water for cooling – Evaporated surface water	136.5 m m3	99.9%
Consumption of water for cooling – Water tables	6.8 m m3	99.9%
Consumption of water for cooling – Public networks	3.7 m m3	99.9%
Production of specific waste – Fly ashes, smoke residue from incineration of household waste	3 m tons	100%
Production of specific waste – Cinders, bottom ash	2.7 m tons	100%
Production of specific waste – Desulphurization by-products, gypsum	0.2 m tons	97.6%
Production of specific waste – Sludge from waste water treatment stations	0.5 m tons	100%
Production of non specific waste – Non hazardous	3.7 m tons	99.9%
Production of non specific waste – Hazardous	0.1 m tons	97.8%
Recovery – Waste and by products except for sludge	43.3%	98.1%
Recovery – Sludge from waste water treatment stations	52.2%	100%
Energy recovery from waste – Electricity production (incinerators and TLC)	2,142 Gwhe	96.9%
Energy recovery from waste – Heat production (incinerators)	2,479 Gwhe	100%
Quantity of leachates collected	4 m m3	-
Quantity of leachates treated	4.2 m m3	-
Pollution load treated in sanitation networks (DBO5 eliminated)	504 kilotons/year	100%
Technical efficiency of drinking water distribution networks	72.5%	100%
Radioactive gaseous emissions – Rare gas	14.1 TBq	100%
Radioactive gaseous emissions – Iodes	0.07 GBq	100%
Radioactive gaseous emissions – Aerosols	0.04 GBq	100%
Radioactive nuclear waste (low and medium activity)	180.7 m3	100%
Radioactive liquid discharge – Beta and Gamma Transmitters	26.3 GBq	100%
Radioactive liquid discharge – Tritium	84.7 TBq	100%

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Daily environmental management

The environmental policy also aims to stimulate initiatives on the operational level that contribute to the principal goals of sustainable development, including climate change, preservation of natural resources and control of impacts on the environment. Accordingly, the Energy and Environment units have developed specific action plans.

Legislative and regulatory framework

The activities of SUEZ are so diverse that any regulations addressing the reduction of emissions into the air, water or soil or aimed at reducing their impact on biodiversity and health have a more or less direct influence on the management of facilities. An accurate outlook on developing environmental legislation allows the Group to maintain the utilization of its assets at an optimal level.

For the European facilities of SUEZ Energy Europe, European directives and regulations constitute the principal sources of uncertainty and/or environmental restrictions on the utilization of electricity plants. These regulations may be broken down into three categories:

·

regulations imposing restrictions on performance by type of facility, such as those addressed by the IPPC (96/61/EC) and LCP (2001/80/EC) directives;

·

regulations governing the local or global impacts on affected areas, such as the directives for a Community Policy in the field of Water policy (2000/60/EC), Ambient Air Quality (96/62/EC) and Environmental Responsibility (2004/35/EC);

·

and finally, directives setting global objectives which are imposed on emitters, such as the directive setting the National Emission Ceilings (2001/81/EC), the directive defining the Trading Scheme for Emission Quotas of Greenhouse Gases (2003/87/EC), and the directives promoting cogeneration (2004/8/EC) and the use of renewable energy (2001/77/EC).

Each of these directives is subject to periodic revisions, the content of which is difficult to forecast precisely, but which tend to push for more systematic enforcement of restrictions. In addition, their transposition into national and regional legislation often varies strongly, with each government including its own environmental objectives and socio-economic restrictions.

In practice, the oldest facilities are most affected. Compliance with this legislation cannot be assured without significant investments in overhauling facilities and reducing emissions, converting from one fuel to another, or the fundamental transformation of a facility involved the conversion of conventional plants into combined-cycle plants. When the expected return on investment is inadequate, the adoption of environmental standards may result in the outright closure of a facility.

In particular, despite the implementation of the European directive initiating a market for greenhouse gas emission quotas in the European Community, effective as of 1/1/2005, any facility which has not obtained a greenhouse gas emission permit is in principle not authorized to be in operation and therefore to emit greenhouse gases. The transposition of this provision of the quotas directive into national law has resulted in delays in some of the 25 EU Member States, so this requirement should be viewed with caution. In addition, in situations of failure to observe the quota calculated as the total of emission rights to be reduced equivalent to the volume of emissions in Year n, the consequence would be to reduce the volume of quotas or rights, by that amount in Year n +1.

Various political decisions, such as those regarding the abandonment of nuclear power in Belgium and the difficulties encountered in procedures for obtaining new permits exemplified by biomass in the Netherlands and offshore wind farms in Belgium, may also have a negative effect on the Group’s activities and the ongoing improvement of its environmental performance. If the provisions of the Belgian law on the gradual exit from the use of nuclear power to produce electricity adopted in January 2003 are actually implemented, there could be a reduction in revenues related to the length of the discounted technical life of the plants starting from the date of the first effective shutdown, scheduled for 2015.

The affected activities of SES are primarily services which supply utilities namely gas, electricity, heating and waste treatment, from facilities it operates, such as heating networks under concession and outsourced industrial cogeneration. Environmental questions likely to have an impact on the utilization of intangible fixed assets are identical to those cited for SEE. However, the economic model for these activities generally makes it possible to define optimal solutions with the customer, implement these adjustments and integrate the economic repercussions into the contracts.

The environmental questions addressed by the European texts are obviously not the only ones to affect the Group’s activities. National, regional and local legislation and regulations also have a direct influence on the operation of our assets. An illustration would be the implementation circulars in France on risk minimalisation regarding contracting legionnaires disease from air conditioning units.

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The same constraints affect SEI. These restrictions are imposed by national and local laws, or, in their absence, by the World Bank’sEnvironmental Guidelines.

Our water and waste treatment activities are fully affected by European directives and their national and regional transpositions, as well as by local regulations. The current and future implications of environmental issues on the operation of facilities are understood and controlled. It should not be forgotten that most environmental questions raised, whether on the European or local levels, actually represent business opportunities for the Group. The tightening of restrictions encourages the use of outsourcing services provided by companies, such as SUEZ; these increasingly strong restraints also place demands on service providers which large companies are in a better position to handle.

Some directives have already had significant consequences and have led to major investments in upgrades to meet standards. Among these is a directive on the incineration and co-incineration of industrial and municipal solid waste (2000/76/EC) and the directives on urban waste­water treatment (91/271/EEC and 98/15/EC). Some upgrades are still in process.

Work underway at the European level on composting, the treatment of sludge and the quality of drinking water may also make it necessary to make new investments in order to be able to continue operations.

As with the energy sector, the Environmental Responsibility Directive, currently being transposed by Member States, may result in accelerated protection and rehabilitation measures in the water and waste management sectors.

Climate Change

The institutional framework for carbon emission controls is based on the outline agreement on climate change, the Kyoto Protocol and the European Union directive pertaining to the European Union Emissions Trading Scheme, or EU ETS.

The European directive which established the European market for quotas affects almost 12,000 facilities in Europe and controls almost 50% of European emissions of CO₂. A rigorous agenda required the transposition of the directive into national laws. This agenda could not be met by all Member States; some experienced serious delays, both in setting up their registries and in finalizing the allocations and supervision rules and reporting of CO₂ emissions for the initial commitment period, which runs from January 1, 2005, to December 31, 2007.

Experience to date suggests that further delays related to allocation plans for the second commitment period (2008-2012) will occur in the future.

The “Projects” directive, adopted in 2004, which has just amended the EU ETS directive, establishes the means by which businesses may use the emission reductions generated abroad in Clean Development Mechanism (CDM) and Joint Implementation (JI) projects, in order to fulfill European objectives for the reduction of greenhouse gas (GHG) emissions in the EU ETS system. The implementation of this directive into the national laws of the 25 Member States must still determine the limits of use and the practical means by which the projects could be submitted for approval. Here again there are delays, and it should be noted that as of the deadline for implementation, November 13, 2005, only 6 of the 25 Member States namely, Denmark, France, Germany, the Netherlands, Spain and the United Kingdom, had completed this transposition.

Associated with climate change, SUEZ is on the one hand subject to a risk – that its production costs for electricity and heat will increase in the countries listed in Appendix B — and on the other hand could benefit from diverse opportunities. These opportunities include the higher margins made possible by the production of electricity not associated with CO₂ (nuclear, hydroelectricity, renewable sources), the expected growth in the market for energy consulting for major accounts (an area in which we have significant expertise, particularly at SES, European leader in energy efficiency), and the development of specific projects for reducing greenhouse gas emissions which generate value in the frameworks of the CDM and JI projects.

In 2005, the Group’s greenhouse gas emissions were 79.6 million tons CO₂, eq. of which 72 million tons CO₂, eq. were for energy production, 0.6 million tons CO₂, eq. for gas transport and distribution, and 7 million tons CO₂, eq. for environmental activities.

The impact of climate change is of course significant for the electricity and heat production activities of SUEZ within the European Union, especially for Electrabel and Elyo, following the EU ETS directive on January 1, 2005. However, the environmental activities, particularly methane emissions in discharges and industrial services, particularly services assisting our customers to reduce energy consumption are also affected.

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The relative scale of these two trends, risks and opportunities, is still largely dependent on the measures to be taken by various public authorities to fulfill their obligations under the Kyoto Protocol, particularly considering the uncertainties concerning the structure and amount of restrictions which will result from international agreements aimed at controlling GHG emissions in the long term, after 2012.

However, by taking early initiatives through its unique combination of businesses in environment, energy, liquefied natural gas trading, and industrial services, the flexibility of its production capacity, organization that combines policy communications at the Group level with actions taken at the actual decentralized operational level, and by its determination to contribute to the development of technologies allowing significant emission reductions over the long term, SUEZ is well prepared for the future and in a favorable position compared to its direct competitors.

The inclusion of climate change in the vision and procedures of the entire Group, both in its current activities and in the development of new projects, is a vital link in the chain of its long-term growth and prosperity.

In connection with this, an ongoing effort to upgrade awareness of GHG emissions is provided by all of SUEZ’s activities with the assistance of Tractebel Engineering’s Study Group. Computerized annual environmental reporting systems covering CO₂ emissions have been implemented.

Beginning in January 2005, the European facilities eligible for the EU ETS directive have been required to oversee their emissions in accordance with the supervision protocols validated by national authorities. They must provide annual declarations after verification by authorized inspectors.

In 2004, Electrabel, in cooperation with Tractebel Engineering, developed a systematic method for the monitoring and declaration of CO₂ emissions, in accordance with European regulations, for all of its Belgian production sites in the three regions of the country. While some of these sites may use up to eight different fuels, these protocols allow detailed supervision of the information flow and an understanding of the role and responsibility of each participant, without losing the advantage of centralized management of the fuels used and the inventories to be declared.

During 2005, the monitoring process was optimized and integrated into Electrabel’s quality control system. In this framework, an internal audit procedure, including detailed checklists, has been developed, and internal audits have been carried out in order to make optimal preparation for the declarations of emissions. In 2004, Fluxys also requested Tractebel Engineering develop such protocols for monitoring and declaration of CO₂ and CH₄ emissions for seven sites eligible for the European trading scheme for greenhouse gas emission quotas.

Despite the derogation from the application of the EU ETS directive, Fluxys is pursuing a proactive environmental policy in the spirit of the Kyoto protocol. In 2004 and 2005, in coordination with Tractebel Engineering, the company developed a documented system of monitoring CO₂ for the six sites eligible under the European trading scheme for greenhouse gas emissions. Procedures have been instituted to report on all stages of the processes. They include the daily recording of the consumption of fuel gas, the determination of gas quality, and the final calculation of actual CO₂ emissions. These procedures have been verified and approved by the outside inspector VBBV (Verificatiebureau Benchmarking Vlaanderen), an inspector authorized by the Flemish Region. In addition, an external audit of the system at Winksele and the LNG terminal have not found any failure in compliance. Henceforth, the entire Quality unit will be subject to an annual internal audit.

At the same time, Fluxys has also proceeded with the application procedure for CO₂ emissions permits for the six affected sites. One of the conditions for obtaining this license was the establishment of an approved monitoring protocol. As of January 1, 2008, the documented monitoring procedures must also be applied to CH₄.

All Elyo sites have instituted methods, approved by the appropriate national authorities, for the supervision and calculation of their emissions. Experience accumulated on this subject has allowed them to satisfy regulatory requirements. In France, for example, the methodology adopted by Elyo for its heating networks and outsourced facilities has been approved by the Minister of Ecology and Sustainable Development.

For SUEZ Environment in 2005, under the aegis of Entreprises Pour l’Environnement (EPE), the French partner of the World Business Council for Sustainable Development (WBCSD), professionals in water and waste management represented by SUEZ Environment, VEOLIA, and TREDI Séché, have developed a proposal for a protocol for evaluating GHG emissions for all the sanitation and water sectors. This protocol will be used by the 3 companies mentioned above. It will be presented to the French federation for depollution and the environment (FNADE) and the European Commission in 2006 for proposed implementation throughout the European Union, and will subsequently be presented to the WBCSD to complement existing protocols, particularly in the area of transport.

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Keeping pace with institutional developments at the United Nations and European levels, SUEZ had all the structures and knowledge required to manage the CO₂ risk before the beginning of 2005, despite the institutional delays mentioned at the beginning of this Section, over which the Group had no control. This preparation has allowed entities within the group to perform an early integration of the economic trade-offs based on the choice of fossil fuels, and the use, purchase or sale of quotas. This experience has permitted it to gain a position in the market for emission rights through significant trading activity.

Each of the Group’s subsidiaries, in every country where they are active, is involved in the national processes concerning greenhouse gas emissions. These processes vary from one region to another, and the technical and legal uncertainties are many.

The Group is continually reducing specific CO₂ emissions, which are calculated on a constant basis, tied to its electricity and heat production, using natural gas and gas/steam turbines (combined-cycle turbines) for the production of electricity, cogeneration for urban heating and industrial applications, and increasingly using biomass in its traditional facilities.

In addition, SUEZ is an active participant in the development and promotion of other renewable energy sources such as wind, hydraulic and biomass, where economic conditions permit. In 2005, these represented the equivalent of more than 5.9 GW of installed electrical capacity either wholly owned or in partnership; this figure excludes the taking of minority interests.

In the energy sector:

In Belgium, the 385 MW combined-cycle turbine plant in Zandvliet, owned in a 50/50 partnership with RWE, was brought on line in 2005. In addition, use of biomass is favored, most often in combined production with coal. Electrabel has in fact increased its research efforts in this area over the last few years, and these efforts are producing results in several plants. Electrabel has achieved a world first in the Wallonia Region: Awirs 4, which previously functioned on coal, is now exclusively fuelled by wood granules generating 80 MW of power. Various modifications have been made at the Langerlo and Rodenhuize facilities to allow biomass co-combustion:

·

two wind farms have been brought on line in Belgium, in Lanaken and Perwez. The nine new generators bring Electrabel’s total wind power in Belgium to 58 MW, of which about fifteen are in partnership. In addition, requests for licenses have been made for approximately 100 MW. At the end of 2005, Electrabel acquired a new wind farm of 80 MW in Portugal. Numerous other projects are in the study phase or in the process of completion in southern Europe;

·

Electrabel Nederland has signed two voluntary agreements, or covenants, with the Dutch authorities. One requires Electrabel Nederland N.V., in its capacity as operator of a coal-fired plant, to pursue the objective of a total annual reduction of 0.466 million tons of CO₂ between 2008 and 2012. The second requires all Dutch electricity producers to be among the top 10% of performers at a global level by 2012, measured by energy efficiency;

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Electrabel Deutschland, following improvements already made in 1996, transformed its cogeneration facility in Saarbrücken to a combined-cycle gas-steam turbine system;

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in Poland, the Polaniec plant is partially fuelled by industrial forest product residues, which significantly reduces its emissions.

Only half of Elyo’s energy production is conventional, and that comes primarily from natural gas. The other half comes from cogeneration, recovery of waste energy, and renewable energy. This energy mix, with a growing part consisting of renewable sources of energy, allows a minimal use of fossil fuels and significantly reduces emissions when compared to traditional systems.

In the area of natural gas transport, the proactive policy of Fluxys has also been fruitful. The amount of CO₂ emitted by the company in 2005 was 207,386 tCO₂, a much larger reduction compared to 1990 levels than the 7.5% required for Belgium in the Burdensharing Agreement among the 15 European Member States, which allocated the responsibilities that were undertaken in the Kyoto Protocol. This decline is largely attributable to the installation of an LNG cogeneration terminal in Zeebrugge, the application of the improved techniques available in new locations, and various adaptive work performed in existing locations. Major progress has also been made in optimizing control of combustion facilities, by measuring atmospheric emissions on a periodic basis, among other measures.

In 2004 and 2005 Fluxys performed an energy audit on the six sites affected by the directive. This audit resulted in a list of potential reduction measures and improvements in their respective energy yields for each of the sites. Fluxys is committed to carrying out all the profitable investments in energy efficiency before the end of 2007. In addition, this energy audit will be repeated every four years. For the LNG terminal in Zeebrugge, the company has instituted five new measures, including the installation of additional frequency regulators on the low-pressure pumps and a new electric motor on the high-pressure pumps. At Peak Shaving in Zeebrugge, a new air compressor was installed and the boiler in the administrative building was replaced. In the Compression Center in Weelde, the compressed air installation will be replaced. In Winksele and Berneau, there are no economically viable investment possibilities for the time being. Finally, in Loenhout Storage, the gas fuelling the machinery will be preheated by a high performance boiler.

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In the environmental sector, efforts have been directed to optimizing itineraries, collection of methane from discharges, and treatment of sewage sludge. In regard to the collection of waste material, the objective is to reduce greenhouse gas emissions by optimizing collection itineraries, which will also serve to reduce fuel consumption, objectionable noise, and carbon dioxide emissions. With regard to the treatment of non-hazardous waste, the policy focuses on improving recycling, producing high quality compost and green energy from its incineration plants and its technical landfill centers. For these, SITA has arranged a program for the collection of methane generated by the decomposition of waste materials; the gas collected is either burned to reduce the greenhouse effect or used in the production of electricity when it is economically feasible to do so.

SUEZ Environment’s environmental performance improved in 2005 when compared to 2004. There was a marked decline in direct GHG emissions from discharges and incinerators, and of indirect emissions through the reduction of primary energy consumption by waste treatment facilities and by drinking and waste-water treatment facilities. SUEZ Environment also improved its “emissions avoided” balance sheet, due to a more efficient use of discharged and incinerated waste and by the recovery of recyclable materials after the sorting of waste, to be used as secondary raw materials.

We remain alert to opportunities which may present themselves in the framework of CDM (Clean Development Mechanism) and JI (Joint Implementation) projects when the anticipated revenues allow us to cover additional costs tied to GHG emission reduction measures. Several experiments are underway in the energy sector as well as in the environmental sector. In particular, we cite the VEGA project, which in December 2005 was one of the first 4 projects in the world to receive certified emission rights from the Clean Development Mechanism Executive Committee.

In the development of so-called domestic projects, SUEZ Environment has proposed initiatives that could result in projects in France and the United Kingdom. These developments relate primarily to improving the capture and treatment of biogas from discharges, especially from those already released.

Finally, as an example of the actions undertaken by the group, we refer to the brochures published in May 2005: “SUEZ – Renewable Energies” and “SUEZ – Combating Climate Change.”

This experience reinforces our ability to react promptly and efficiently to future developments in the coal market. In all situations where significant investments are required, the analysis of risk factors and the economic impact present numerous uncertainties. These uncertainties include fluctuations in fuel prices, particularly with the introduction of carbon restrictions, the possibility of being able to take advantage of incentive mechanisms intended to promote renewable sources, administrative delays required to obtain operating licenses for new facilities and the market prices adopted by the European system of emission quotas. Our experience in these areas is an important success factor.

Electrabel’s Trading division, which specializes in the gas and electricity markets, has been able to use its knowledge and the Group’s experience, and has strongly developed its expertise in the area of trading emission rights, performing a growing number of transactions on the emerging CO₂ market. This has contributed to Electrabel’s global position in emission rights, although the current regulatory uncertainty prevents us from having a clear and definitive picture of the quotas allocated to the Group.

SUEZ-TRACTEBEL is also an active member of the International Emissions Trading Association, which includes the most proactive companies in the area and also benefits from significant exchanges of operational information and SUEZ-TRACTEBEL is the prominent voice of the association with international authorities.

At the beginning of 2004, at the conclusion of an international call for bids, the European Commission selected Trasys to implement CITL. CITL is an electronic information database which records all transactions involving European emission quotas and verifies that they conform to European legislation in terms of trading emission quotas. Experts from the European Commission and Trasys, assisted by experts from Tractebel Engineering, have collaborated in the development of this system, which has been operational since January 1, 2005, the date initially set by European legislation for exchange of emission quotas. In 2005, Trasys continued to develop tests for connection of national registries to the CITL, to develop the Community’s registry (CR), and it set up and managed a helpdesk for the Commission.

Electrabel has invested US$5 million in the World Bank’s Prototype Carbon Fund, and for the fourth consecutive year will chair its Investment Committee. In 2005, the Fund continued to select projects in developing countries and in central and eastern Europe. A remarkable breakthrough occurred with the first Chinese initiatives in the CDM (Clean Development Mechanism) framework. Despite delays due to the difficult execution of such innovative projects, it is expected that purchase contracts on saved emissions will total US$152 million in June 2006, thus bringing to a close the first phase of the Fund (planning and development) with a portfolio of some 25 projects. In four years, the Fund will have studied over 400 projects to build this portfolio, which is diversified in the technologies employed, the type of gas targeted, and geographic distribution. The experience gained in the development of projects for combating climate change is centralized and disseminated among subsidiaries to allow them to launch their own projects and thus encourage the discovery of investment opportunities. Several individuals in the Group have also had the opportunity to undergo specialized training in the “Carbon Finance” center at the World Bank in Washington.

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With the exception of Canada, SEI is active only in countries not included in Appendix 1 of the Kyoto Protocol or the countries in Appendix 1 which have refused to ratify the Protocol and which are therefore not required to reduce their greenhouse gas emissions. In the near future, therefore, SEI’s subsidiaries will not confront the regulatory restrictions in terms of greenhouse gas emissions (except for the plant in West Windsor in Canada, which is a gas cogeneration facility of 112 MW). We are very closely monitoring the situation, particularly in the United States, with the adoption of a Memorandum of Understanding (MOU) on the Regional Greenhouse Gas Initiative (RGGI) establishing a regional emission trading scheme for the states of Connecticut, Delaware, Maine, New Hampshire, New York, New Jersey and Vermont.

Knowledge acquired at the Group level on flexibility mechanisms has allowed SEI’s subsidiaries to design and document projects to prepare for their integration into CDM, while remaining close to their basic areas of expertise. SEI is thus well prepared to seize opportunities in this still embryonic market. A hydroelectric project in Chile is already in the process of completion and a biomass cogeneration plant in Brazil was brought on line in 2005. Other designs are in preparation. Electrabel itself is testing institutional procedures for CDM (Clean Development Mechanism) projects based on a coal and biomass co-combustion project in Poland.

One of the critical phases for the assessment of the profitability of CDM and JI projects is based on the establishment of the baseline against which emission reductions will be measured. Tractebel Engineering is aware of this issue and has developed competence and experience allowing it to offer strong expertise in this area to the Group and its customers.

Access to renewable energy sources

We continue to make progress in gaining access to renewable energy sources. Electrabel’s strategy demonstrates its firm commitment to reducing CO₂ emissions, in compliance with the Kyoto Protocol and European regulations concerning the reduction of greenhouse gas emissions.

The use of hydraulic power for a portion of its production, as well as the growing use of other renewable energy sources, allows us to combine its ambitious environmental objectives with a high level of performance.

Electrabel is making a special effort to adapt some of its traditional plants to production based on biomass. Important projects have already been completed such as Les Awirs, in Belgium in 2005, are in the process of completion, or are under study. In addition, wind farms and wind projects are on the increase. Besides French projects in this area (in partnership with CNR), there are projects, in partnership with Gamesa, on the Iberian peninsula and in Italy. Several wind farms were started up under the Generg program in Portugal and 16 MW were brought on line in Belgium in 2005. Other projects are in feasibility study stages by administrative authorities, with installed power of approximately 100 MW.

On the other hand, the development of a wind farm in the North Sea was halted following a decision made by the federal government to cancel all the permits granted in 2002 in light of the construction and operation of 50 wind power engines, each with 2 MW power.

In the United States, SEI has an installation with thirteen plants burning biomass (wood, biogas, and black liquor) with a net total capacity of 187 MW equivalent.

In Brazil, Tractebel Energia has recently started up a biomass plant in Lages (23 MW and 25 t/h steam). Tractebel Energia operates six hydroelectric plants which produce total combined nominal power of 5,754 MW, and intends to begin construction of two new units with combined nominal power of 1,328 MW.

In Chile, Colbún operates seven hydroelectric plants which have combined nominal power of 814 MW.

In Laos, Houay Ho Power Cy operates a hydroelectric plant of 153 MW.

In Peru, EnerSur operates a hydroelectric plant of 130 MW.

It should be noted that SEI is not the 100% owner of all the projects which it operates; the figures provided here represent the total of the capacities operated by SEI.

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Energy efficiency

Elyo is developing its expertise with the constant goal of energy efficiency, optimizing its facilities and those of its customers in order to reduce consumption without, however, affecting the comfort of customers or the quality of their supplies. This policy also holds for all phases of Elyo’s services, from initial diagnostics to implementation, in the selection of equipment and of energy source. In addition, Elyo monitors that the return of energy systems does not decline over time. Such declines may for example be caused by the failure of a sensor, a maladapted conductor, or may be the indirect consequence of an exterior change to the system. In fact the most frequent problems have multiple causes. As operator of facilities entrusted to it, Elyo responds to every anomaly and mobilizes its expertise. It makes a long-term commitment through result-oriented contracts, and thereby guarantees the consistency of its environmental performance.

Axima focuses on the use of refrigerants that are the least harmful to the environment in its refrigeration activities.

In 2005, Tractebel Engineering continued to develop its expertise with the ongoing goal of optimizing energy efficiency in existing or planned facilities of the Group and of our customers.

Electrabel provides its customers with a wide range of services, allowing it to monitor its information on consumption of electricity, natural gas, water and fuel via secure Internet connections, and thus to adapt its own consumption and develop an efficient energy policy. Electrabel also makes available to its customers a wide range of training programs focused on the rational use of energy. In addition, it offers customized energy and technical audits.

Since 1990, Electrabel has started up approximately twenty natural gas plants fitted with gas turbines. These include combined-cycle gas turbine plants (CCGT) and cogeneration units. In Castelnou in Spain, and in a number of sites in Italy, new gas-steam turbine units are under construction. Other investments are under study for other countries. CCGT plants, which are among the highest performing production technologies, allow us to obtain returns in the range of 55% of electrical energy produced compared to input.

In addition, Electrabel is a member of the European association that includes the largest electricity producers and plant builders. This consortium is developing a project aimed at significantly improving the return of future coal plants to take it to over 50% of electrical energy produced compared to input.

Nuclear energy

The two Belgian nuclear sites offer a very high rate of availability and, in 2005, provided 60% of Electrabel’s total power production in Belgium. This output, compared with the best natural gas technologies, prevents the emission of at least 20 million tons of carbon dioxide every year; thus, it makes a very substantial contribution to the effort to reduce greenhouse gas emissions. A steady reduction in the volumes of low and medium radioactive waste was also achieved. In effect, in relation to the kWh produced, the volume of those wastes in 2005 represented half the volume in 1997. This result was achieved thanks to continual efforts to improve the technology and organization.

The corresponding emissions of liquids and gases remains well below authorized limits.

Pursuant to the Belgian government agreement of 1999, the proposed law on the progressive withdrawal from nuclear energy for power production was adopted in January 2003. This text essentially provides for the deactivation of the plants forty years after they were commissioned for industrial service and a ban on the creation or operation of new nuclear power production units. However, one section of the law authorizes adjustments in the event of a force majeure related to supply security with the government’s authorization. Under this law, the first decommissioning would take place in 2015.

The fuel used in Electrabel’s nuclear plants is essentially enriched uranium and, in certain cases, a mixed fuel containing plutonium oxide and uranium oxide. All supplies for the plants are provided by Synatom, a company held by Electrabel, in which the Belgian government holds a “golden share.” This “golden share” allows the government to oppose any decision it deems contrary to national interests and to be represented on the Board of Directors, where the Belgian government has two members. Synatom is supplied under long-term contracts with several foreign suppliers.

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