An Interview withthe President

Tokyo Gas Co., Ltd.

2Annual Report 2003

Japan’s energy markets are undergoing rapid and dramatic changes. Tokyo Gas sees the intensifying
competition that is resulting from deregulation as a business opportunity. Frontier 2007 is themedium-term management plan covering the fiscal years from 2003 to 2007 that will help the entire
Tokyo Gas Group respond accurately to change. In the following interview, Norio Ichino, whobecame President of Tokyo Gas in June 2003, reports to shareholders on how Tokyo Gas is taking acomprehensive approach to transforming itself into an Energy Frontier Corporate Group.

QTokyo Gas achieved the objectives of the medium-term plan, covering the five years tothe end of fiscal 2004, two years ahead of schedule. How did this recently concluded
plan benefit shareholders?

The overall thrust of the medium-term plan covering the five years through March 2005 was totransform Tokyo Gas into a public utility that serves the interests of not only our customers, but also ourshareholders, by increasing our corporate value. The concept of satisfying both our customers and ourshareholders has now become an accepted standard for Japanese public utilities. We are proud to saythat Tokyo Gas was the first to recognize and pioneer this concept.
The most important components of the medium-term plan were increasing free cash flow, raising
corporate value by deploying resources more efficiently and improving asset efficiency as measured byreturn on assets (ROA). Free cash flow and ROA are closely related to the earnings available to commonstock. Greater free cash flow enables stable dividend payments while still allowing investment in new
businesses with good potential. Moreover, the city gas business requires substantial infrastructure
investment and is therefore asset intensive. Consequently, increasing asset efficiency through effective
asset deployment is essential for improved performance.
Another key objective was reducing interest expenses by reducing interest-bearing debt. Tokyo Gas
reduced its interest-bearing debt to ¥731.3 billion, as of March 31, 2003. As such, we have already met
our target for March 31, 2005, set in November 1999, which was the reduction of interest-bearing debt to¥786.0 billion. At the same time, we increased free cash flow to ¥88.2 billion and ROA to 3.5 percent,both substantially exceeding our objectives.

Tokyo Gas made outstanding progress in creating the foundation for future growth by achieving theobjectives of the medium-term plan ahead of schedule. The most significant results have been that wehave created a lean corporate organization that can respond accurately to changing market conditions,and have increased our corporate value as expressed by returns to shareholders through higher dividends
and stock price increases.

QDeregulation has progressed through revisions of the Electricity Utility Industry Law and theGas Utility Industry Law. How do you evaluate these changes, and how does Tokyo Gas plan torespond to them?

Deregulation will generate
major business opportunities.

Primary Objectives of Frontier 2007
TEP*ROAFree cash flow
Interest-bearing debt

FY2002

FY2007¥3.0 billion
2.8 percent¥61.0 billion¥775.0 billion¥10.0 billion
3.9 percent¥105.0 billion¥627.0 billion*TEP: Tokyo Gas Economic Profit, Tokyo Gas’s version of EVA. (EVA is a registeredtrademark of Stern Stewart & Co.)
Figures for fiscal 2002 are projections made when the medium-term management plan
was finalized in October 2002, not the actual results.

Tokyo Gas has determined the objectives ofFrontier 2007, outlined in the accompanying
table, according to four management
indicators: Tokyo Gas Economic Profit (TEP),
which is a profitability metric that takes cost ofcapital into account; free cash flow; ROA; andthe volume of interest-bearing debt. To achieve
our objectives, we must succeed at four key
tasks, which are business model innovation,

3Annual Report 2003

QTokyo Gas finalized Frontier 2007 in October 2002 and implemented it in April 2003,
for the period through March 2008. What are the primary objectives of this new
medium-term plan?

Tokyo Gas Co., Ltd.

A key element of the recent reforms was expansion in the scope of liberalization. Presently, 30 to 40
percent of total sales volume in the gas and electricity markets has been liberalized. The recent legal
revisions will also result in a staged expansion in the scope of the gas and electricity market
liberalization. In 2007, 50 percent of the gas market, specifically customers using over 100,000 m3
annually, will be liberalized.
Deregulation presents both risks and opportunities. Among the risks, electricity companies and otherfirms are now able to enter the gas business.
Appropriate risk management, based on a clear
understanding of the potential impact of therisks we face, is therefore essential. Frontier
2007 has been designed to accommodate various risks with the potential to impact cash flow. The effects
that new entrants in the gas business will have on demand and the potential for new competition to resultin lower rates are both addressed. Yet, these issues do not obscure a key result of deregulation: Tokyo Gas
will also be able to take advantage of the many opportunities that deregulation presents, foremost among
them being our ability to participate in the electricity and other businesses.
Tokyo Gas has been competing with other forms of energy, including electricity, oil and liquefied
petroleum gas (LPG), since the Company’s foundation more than a century ago. Our powerfulcompetitiveness in the gas business is a core competency. Our strengths include ample free cash flow
derived from cash generated by returns on our investment in gas business assets, a solid ability togenerate sales proposals that meet customer needs, and leading-edge technologies for efficiently utilizing
gas that will expand gas usage. These capabilities are producing business opportunities that we expect
will allow us to benefit fully from deregulation. We intend to deploy the experience we have acquired
over many years to create new corporate value that translates into shareholder returns.

business expansion into energy-related areas, construction of a Group management system, andstrengthening our corporate structure.
Frontier 2007 will help Tokyo Gas to prevail in these times of intensifying competition. It will make thenext five years a period of innovating our Group structure, business areas and operating framework, inorder to achieve growth. We will develop as a corporate group and will make Tokyo Gas the energy
supplier of choice among customers. Frontier 2007 will also help Tokyo Gas increase its profitability overthe next five years.
Tokyo Gas will increase the pace at which it moves toward its objective of transforming the Tokyo Gas
Group into a public utility with emphasis on both its customers and its shareholders, as envisioned in therecently conducted medium-term plan. We intend to focus all of our resources on becoming a corporationthat supplies energy and value-added energy-related products and services, with an emphasis onenvironmentally friendly natural gas, while continually working to be the company customers choose for
their energy needs. The following feature section covers the contents of Frontier 2007 and the initiatives
that Tokyo Gas is now implementing in greater detail.

Q

Your determination to achieve the objectives of Frontier 2007 is readily apparent.

Tokyo Gas Co., Ltd.

4Annual Report 2003

We’re not resting on our laurels after achieving the objectives of our previous medium-term plan twoyears ahead of schedule. Frontier 2007 is an aggressive plan with high but attainable goals, and it
incorporates a clear understanding of the risks that we will face. My mission under Frontier 2007 is tofacilitate the achievement of our objectives, preferably ahead of schedule, just as was the case of theprevious medium-term plan.
One reason for my confidence in theattainability of these goals is that the energetic
participation of Tokyo Gas’s employees was
key to creating Frontier 2007. This is not a topdown management plan. Frontier 2007 wascreated through the input, and was designed
to use the combined strengths, of theemployees who will implement it. The role of senior management in this process was to thoroughly consider
what the employees had created and to finalize the details. Employee participation in the creation of Frontier
2007 was particularly important because many issues, such as the changes in corporate organization,
embodied in the plan will require the understanding and participation of each and every employee of theTokyo Gas Group.
Another reason for my confidence is that we created Frontier 2007 through exhaustive discussions of
the risks and opportunities presented by deregulation. A fact worth noting is that in creating Frontier
2007, we assumed a level of risk that exceeds the speed and scope of deregulation that the recent
regulatory reforms will engender. Because we will be able to implement Frontier 2007 with a high level ofrisk tolerance, I have every confidence that our goals are attainable.

Frontier 2007 is an aggressiveplan that incorporates risk
factors associated withmarket changes.

QThe Tokyo Gas brand stands for safety and reliability, which makes the issue ofcompliance critical. How is Tokyo Gas ensuring appropriate compliance?

Since Tokyo Gas is a public utility, our efforts to ensure compliance are not something we started
yesterday. Both management and employees are held to rigorous standards of behavior, and are bothaware of and comply with all relevant laws. Compliance is, in fact, a foundation of corporate activities, forwithout it, a company can neither continue to exist nor develop. Moreover, Tokyo Gas intends to raisecompliance to an even higher level as part of the drive to strengthen the Company’s organization, whichis a core theme of Frontier 2007. In 2002, Tokyo Gas formulated abasic policy for compliance, establishing an organization with overall
responsibility for compliance. The Management Ethics Committee,
chaired by the president, and compliance committees within eachdivision were also established. In March 2003, Tokyo Gas alsoestablished two Compliance Hot Lines, one in-house and the other toan outside law firm, to assist Tokyo Gas in managing its risk and toincrease employee awareness of compliance-related issues. Tokyo
Gas’s reputation for quality and trustworthiness is an invaluable asset
that we will protect through a complete commitment to compliance.

QTokyo Gas takes an active approach to corporate governance that responds to theinterests of shareholders. How did Tokyo Gas strengthen corporate governance during
the past fiscal year?

Q

How will Tokyo Gas increase shareholder value?
Tokyo Gas recognizes that increased earnings per share and stable dividend distributions are essential
to maintaining the trust and confidence of shareholders. A sound financial structure is crucial tomaintaining stable dividends, and Frontier 2007 will continue to address this issue through measures suchas emphasis on reducing interest-bearing debt.
Tokyo Gas is also implementing a share buyback program to compensate for and thus preclude thedilutive effect of the projected conversion of currently outstanding convertible bonds to common shares.
Moreover, during the next five years, we will use the free cash flow we generate to maximize shareholder
value, while balancing the Company’s need to make new investments.
Tokyo Gas begins Frontier 2007 with high hopes and enthusiasm. We are grateful for the trust andsupport we have received from our shareholders, and intend to devote every effort to achieving ourobjectives.

5Annual Report 2003

Establishing a reputation
as a trustworthy company
that acts in the interest ofshareholders and investors

Tokyo Gas Co., Ltd.

Tokyo Gas has the highest ratio of foreign shareholders among listed companies in Japan’s electricity
and gas industries. Consequently, establishing a reputation among global capital markets, as a trustworthy
company that acts in the interest of shareholders and investors, is extremely important for us. To do so, westrive to provide fair and timely disclosure of information to all investors, inside and outside Japan, and tomaintain a high level of management transparency.
During the past fiscal year, Tokyo Gas
implemented a number of measures to further
strengthen corporate governance. We
substantially reduced the number of board
members, from 28 to 12 at present. This includes
three board members from outside Tokyo Gas’s
senior management. We feel that this strengthens
the checks and balances to which the board is subject and improves management transparency. We also
implemented an executive officer system and have appointed 23 executive officers that include myself andbusiness division chief executives, thus creating a system focused on business execution. We expect thissystem to accelerate decision-making and to raise the efficiency of business execution.
We plan to pay close attention to this area, so that these systemic initiatives will substantively
improve our system of corporate governance.