As filed with the Securities and Exchange Commission on June 16, 2003
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 20-F
(Mark One)
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number: 1-13314
[Graphic Omitted]
HUANENG POWER INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
_______________________
PEOPLE'S REPUBLIC OF CHINA
(Jurisdiction of incorporation or organization)
_______________________
WEST WING, BUILDING C, TIANYIN MANSION,
2C, FUXINGMENNAN STREET, BEIJING, PEOPLE'S REPUBLIC OF CHINA
(Address of principal executive offices)
________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Name of each exchange
Title of Each Class on which registered
------------------- -------------------
Ordinary American Depositary Shares .............. New York Stock Exchange
Overseas Listed Foreign Shares of RMB1.00 each ... New York Stock Exchange*
_______________________
Securities registered or to be registered pursuant to Section 12(g) of the Act.
NONE
(Title of Class)
_______________________
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NONE
(Title of Class)
_______________________
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:
Domestic Shares of RMB1.00 each .................... 4,500,000,000
Overseas Listed Foreign Shares of RMB1.00 each ... 1,500,273,960
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.
Yes |X| No |_|
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 |X| Item 18 |_|
______________
* Not for trading, but only in connection with the registration of American
Depositary Shares.
===============================================================================
TABLE OF CONTENTS
Page
Introduction
We maintain our accounts in Renminbi yuan ("Renminbi" or "RMB"), the
lawful currency of the People's Republic of China (the "PRC" or "China").
References herein to "US$" or "US dollars" are to United States dollars, and
references to "HK$" are to Hong Kong dollars. References to ADRs and ADSs are
to American Depositary Receipts and American Depositary Shares, respectively.
Translations of amounts from Renminbi to US dollars are solely for the
convenience of the reader. Unless otherwise indicated, any translations from
Renminbi to US dollars or from US dollars to Renminbi were translated at the
average rate announced by the People's Bank of China (the "PBOC Rate") on
December 31, 2002 of US$1.00 to RMB8.2773. No representation is made that the
Renminbi or US dollar amounts referred to herein could have been or could be
converted into US dollars or Renminbi, as the case may be, at the PBOC Rate or
at all.
References to "A Shares" are to common shares issued to domestic
shareholders.
References to the "Company" include, unless the context requires
otherwise, Huaneng Power International, Inc. and the operations of our power
plants and our proposed projects.
References to "HIPDC" are to Huaneng International Power Development
Corporation and, unless the context requires otherwise, include the operations
of the Company prior to the formation of the Company on June 30, 1994.
References to the "central government" refer to the national
government of the PRC and its various ministries, agencies and commissions.
References to "Huaneng Group" are to China Huaneng Group Corporation.
References to "local governments" in the PRC include governments at
all administrative levels below the central government, including provincial
governments, governments of municipalities directly under the central
government, municipal and city governments, county governments and township
governments.
References to the "PRC Government" include the central government and
local governments.
References to "provinces" include provinces, autonomous regions and
municipalities directly under the central government.
References to the "State Plan" refer to the plans devised and
implemented by the PRC Government in relation to the economic and social
development of the PRC.
References to "tons" are to metric tons.
Previously, the Overseas Listed Foreign Shares were also referred to
as the "Class N Ordinary Shares" or "N Shares". Since January 21, 1998, the
date on which the Overseas Listed Foreign Shares were listed on The Stock
Exchange of Hong Kong Limited by way of introduction, the Overseas Listed
Foreign Shares have been also referred to as "H Shares".
1
Glossary
actual generation The total amount of electricity
generated by a power plant over a given
period of time.
auxiliary power Electricity consumed by a power plant in
the course of generation.
availability factor For any period, the ratio (expressed as
a percentage) of a power plant's
available hours to the total number of
hours in such period.
available hours For a power plant for any period, the
total number of hours in such period
less the total number of hours
attributable to scheduled maintenance
and planned overhauls as well as to
forced outages, adjusted for partial
capacity outage hours.
capacity factor The ratio (expressed as a percentage) of
the gross amount of electricity
generated by a power plant in a given
period to the product of (i) the number
of hours in the given period multiplied
by (ii) the power plant's installed
capacity.
demand For an integrated power system, the
amount of power demanded by consumers of
energy at any point in time.
dispatch The schedule of production for all the
generating units on a power system,
generally varying from moment to moment
to match production with power
requirements. As a verb, to dispatch a
plant means to direct the plant to
operate.
excess output The amount by which the total
output of a power plant in a particular
year exceeds its planned output for such
year.
GW Gigawatt. One million kilowatts.
GWh Gigawatt-hour. One million
kilowatt-hours. GWh is typically used as
a measure for the annual energy
production of large power plants.
installed capacity The manufacturers' rated power output of
a generating unit or a power plant,
usually denominated in MW.
kV Kilovolt. One thousand volts.
kW Kilowatt. One thousand watts.
kWh Kilowatt-hour. The standard unit of
energy used in the electric power
industry. One kilowatt-hour is the
amount of energy that would be produced
by a generator producing one thousand
watts for one hour.
2
MVA Million volt-amperes. A unit of measure
used to express the capacity of electrical
transmission equipment such as
transformers.
MW Megawatt. One million watts. The installed capacity of power
plants is generally expressed in MW.
MWh Megawatt-hour. One thousand
kilowatt-hours.
Net Fixed Assets The annual average of the book value of
our fixed assets (less accumulated
depreciation) and construction work in
progress, each as determined in
accordance with PRC statutory accounting
principles.
peak load The maximum demand on a power plant or
power system during a specific period of
time.
planned generation An annually determined target gross
generation level for each of our
operating power plants used as the basis
for determining planned output.
total output The actual amount of electricity sold by
a power plant in a particular year,
which equals total generation less
auxiliary power.
transmission losses Electric energy that is lost in
transmission lines and therefore is
unavailable for use.
3
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 financial data
Consolidated balance sheet data of the Company and its subsidiaries as
of December 31, 2002 and 2001 and the consolidated income statement and cash
flow data for each of the years in the three-year period ended December 31,
2002 are derived from the historical financial statements included herein.
Balance sheet data of the Company as of December 31, 2000, 1999 and 1998 and
income statement and cash flow data for each of the years in the two-year
period ended December 31, 1999, are derived from the Company's historical
financial statements not included herein. The Selected Financial Data should
be read in conjunction with the Financial Statements and "Item 5. Operating
and Financial Review and Prospects". The Financial Statements have been
prepared in accordance with International Financial Reporting Standards
("IFRS") which differ from the generally accepted accounting principles in
United States ("US GAAP").
Our consolidated financial statements are prepared and presented in
accordance with IFRS. As required under IFRS, we have adopted the acquisition
method to account for our acquisitions of Shidongkou I Power Plant
("Shidongkou I"), Taicang Power Plant and Changxing Power Plant, as described
in "Item 4. Information on the Company-History and Development of the Company.
" Accordingly, the consolidated financial statements and, except as otherwise
noted, all other IFRS financial information presented in this Annual Report,
include the results of these power plants, only from the respective dates of
acquisition. In contrast, under US GAAP, our acquisitions of these power
plants are considered as combination of entities under common control and the
acquired assets and liabilities are accounted for at historical cost in a
manner similar to pooling of interests method. Accordingly, the consolidated
financial statements for all periods presented have been retroactively
restated as if the current structure and operations had been in existence
since inception. The differences between IFRS and US GAAP that would have
significant impact on the net income for each of the years in the three-year
period ended December 31, 2002 and the equity as of December 31, 2001 and 2002
are set forth in Note 42 to the Financial Statements. The Selected Financial
Data may not be indicative of future earnings, cash flows or financial
position.
4
Year Ended December 31,
-------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002
----------------- -------------- -------------- -------------- -------------- -------------
(RMB) (RMB) (RMB) (RMB) (RMB) (US$)(1)
RMB and US dollars in thousands
except per share data
Income Statement Data
IFRS
Operating revenue, net.............. 8,082,496 10,488,158 12,553,254 15,791,362 18,474,469 2,231,944
Operating expenses.................. (5,398,607) (7,508,172) (8,646,356) (10,777,328) (12,896,455) (1,558,052)
----------------- -------------- -------------- -------------- -------------- -------------
Profit from operations.............. 2,683,889 2,979,986 3,906,898 5,014,034 5,578,014 673,892
Total financial expenses............ (474,383) (727,256) (979,866) (796,215) (510,265) (61,646)
Gain from disposal of investments... -- -- -- 24,671 1,288 156
Share of loss of associates......... -- -- -- (5,381) (11,145) (1,346)
----------------- -------------- -------------- -------------- -------------- -------------
Profit before tax................... 2,209,506 2,252,730 2,927,032 4,237,109 5,057,892 611,056
Income tax expense.................. (370,995) (384,555) (411,202) (715,220) (980,854) (118,499)
Minority interests.................. -- -- -- (71,231) (156,034) (18,851)
----------------- -------------- -------------- -------------- -------------- -------------
Net profit.......................... 1,838,511 1,868,175 2,515,830 3,450,658 3,921,004 473,706
================= ============== ============== ============== ============== =============
Basic earnings per share............ 0.33 0.33 0.45 0.61 0.65 0.08
Diluted earnings per share.......... 0.33 N/A 0.44 0.60 0.65 0.08
US GAAP (2)
Operating revenue, net.............. 15,073,428 18,692,529 19,845,599 2,397,593
Net profit.......................... 2,639,389 3,571,542 3,895,193 470,587
Basic earnings per share 0.47 0.63 0.65 0.08
Diluted earnings per share.......... 0.46 0.62 0.64 0.08
5
As of December 31,
----------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002
-------------- -------------- --------------- ------------- --------------- ------------
(RMB) (RMB) (RMB) (RMB) (RMB) (US$)(1)
RMB and US dollars in thousands
except per share data
Balance Sheet Data
IFRS
Current assets......................... 5,709,831 5,866,082 10,061,689 10,763,919 7,685,441 928,497
Property, plant and equipment, net..... 31,776,176 34,073,768 31,643,530 37,557,114 41,103,468 4,965,806
Available-for-sale investments......... -- -- -- -- 254,990 30,806
Investment in an associate............. -- -- -- 226,488 200,960 24,278
Other long-term assets................. 655,704 642,880 761,729 970,759 1,067,838 129,008
Goodwill............................... -- -- -- -- 126,560 15,290
Less: Negative goodwill................ -- -- -- (2,225,505) (1,978,227) (238,994)
-------------- -------------- --------------- ------------- --------------- ------------
Total assets........................... 38,141,711 40,582,730 42,466,948 47,292,775 48,461,030 5,854,691
============== ============== =============== ============= =============== ============
Current liabilities.................... 4,102,009 6,237,140 7,070,603 8,922,347 7,652,216 924,483
Non-current liabilities 13,683,472 12,573,185 11,616,610 9,590,637 9,482,050 1,145,549
Minority interests -- -- -- 486,261 910,704 110,024
Shareholders' equity................... 20,356,230 21,772,405 23,779,735 28,293,530 30,416,060 3,674,635
-------------- -------------- --------------- ------------- --------------- ------------
Total liabilities and equity........... 38,141,711 40,582,730 42,466,948 47,292,775 48,461,030 5,854,691
============== ============== =============== ============= =============== ============
US GAAP (2)
Total assets........................... 52,125,351 47,948,446 5,792,764
Total liabilities...................... (21,484,388) (17,164,263) (2,073,655)
Minority interests..................... (815,179) (869,621) (105,061)
-------------- -------------- -------------
Shareholders' equity................... 29,825,784 29,914,562 3,614,048
============== ============== =============
6
Year Ended December 31,
-------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2002
------------- -------------- ------------- -------------- -------------- ------------
(RMB) (RMB) (RMB) (RMB) (RMB) (US$)(1)
Cash Flow Data
IFRS
Purchase of property, plant and equipment.... (6,457,432) (2,274,342) (351,966) (2,870,858) (1,594,210) (192,600)
Net cash provided by operating activities.... 5,963,339 5,007,377 5,643,361 5,918,896 7,079,718 855,317
Net cash (used in) provided by investing
activities................................. (6,965,488) (2,634,962) (5,317,519) (4,564,536) 1,074,101 129,765
Net cash provided by (used in) financing
activities................................. 1,707,583 (2,064,635) (830,667) (1,169,597) (7,324,354) (884,873)
US GAAP (2)
Purchase of property, plant and equipment.... (909,711) (3,029,167) (1,688,589) (204,002)
Net cash provided by operating activities.... 6,093,354 6,598,191 7,469,213 902,373
Net cash (used in) provided by investing
activities................................. (5,880,521) (4,720,026) 2,620,931 316,641
Net cash used in financing activities........ (820,433) (1,567,272) (9,501,991) (1,147,958)
Other Financial Data
IFRS and US GAAP
Dividend declared per share.................. 0.08 0.09 0.22 0.30 0.34 0.04
Number of ordinary shares (`000)............. 5,650,000 5,650,000 5,650,000 6,000,000 6,000,274 6,000,274
___________________
(1) The US dollar data has been translated from RMB solely for
convenience at the PBOC Rate on December 31, 2002 of US$1.00 to
RMB8.2773.
(2) The amounts as of December 31, 2002 and 2001 and for each of the
years in the three-year period ended December 31, 2002 are
presented as if the acquisitions of the Shidongkou I, Taicang
Power Plant and Changxing Power Plant had been in existence since
the beginning of the earliest period presented, as well as the
effects of other differences between IFRS and US GAAP.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the offer and use of proceeds
Not applicable.
D. Risk factors
Risks relating to our business and the PRC's power industry
Government regulation of power rates and other aspects of the power industry
may adversely affect our business
Similar to electric power companies in other countries, we are subject
to governmental and electric power grid regulations in virtually all aspects
of our operations, including the amount and timing of electricity generation,
power rates setting, performance of scheduled maintenance and compliance with
power grid control and dispatch directives. There can be no assurance that
these regulations will not change in the future in a manner which could
adversely affect our operations. Since 1995, we have charged and collected
power rates that were designed to enable us to recover all operating and debt
service costs and to earn a fixed return on our Net Fixed Assets. However,
there can be no assurance that there will not be any change in the
implementation of the principles of setting power rates that could materially
adversely affect our operations. In addition, the PRC government started in
1999 to experiment with a program to effect power sales through a bidding
process in some of the provinces where we operate our power plants. The power
rates for power sold by this bidding process are generally lower than the
approved power rates for
7
planned output. Although the power sales through the bidding process in the
last four years constituted only a small fraction of our total output, it is
expected that the government will expand the program in the future. And if the
PRC government chooses to expand the bidding program, the power rates and the
revenues of some of our power plants may be adversely affected.
If our power plants receive less dispatching than Planned Generation, the
power plant will sell less electricity than planned
Our profitability depends, in part, upon each of our power plants
generating electricity at a level sufficient to meet or exceed the Planned
Generation, which in turn will be subject to local demand for electric power
and dispatching to the grids by the dispatch centers of the local power
corporations.
The dispatch of electric power generated by a power plant is
controlled by the Dispatch Center of the applicable power corporations
pursuant to a dispatch agreement with us and to governmental dispatch
regulations adopted in 1993. In each of the markets we operate, we compete
against other power plants for power sales. No assurance can be given that the
Dispatch Centers will dispatch the full amount of the Planned Generation of
our power plants. A reduction by the Dispatch Center in the amount of electric
power dispatched relative to a power plant's Planned Generation could have an
adverse effect on the profitability of our operations. However, we have not
encountered any such bias in the past.
The power industry reform may negatively affect our business
PRC government in 2002 announced and started to implement measures to
further reform the power industry, with the ultimate goal to create a more
open and fair power market. As part of the reform, five power generation
companies, including Huaneng Group, were created or restructured to take over
all the power generation assets originally belonging to the State Power
Corporation of China. In addition, two grid companies were created to take
over the power transmission and distribution assets originally belonging to
the State Power Corporation of China. An independent Power Supervisory
Commission was created to regulate the power industry. It is uncertain how
these reform measures and any further reforms are going to be implemented and
how they will impact our business. We may face enhanced competition as the
reform is being carried out.
We are effectively controlled by HIPDC, whose interest may differ from those
of our other shareholders
HIPDC, as our controlling shareholder, together with other local
government investment companies, is able to elect the entire board of
directors. HIPDC's interests may sometimes conflict with those of our other
minority shareholders. There is no assurance that HIPDC will always vote its
shares, or direct the directors nominated by it to act, in a way that will
benefit our other minority shareholders.
Disruption in Fuel supply and its transportation may negatively affect the
normal operation of our power plants
We have obtained our coal and oil supplies for our power plants
through a combination of purchases pursuant to allocations coordinated under
the state guidance and purchases on the open market. At the same time, we have
also enjoyed priority access pursuant to PRC Government allocations to
transportation services required to transport our coal and oil supplies. PRC
Government allocations help to assure priority in the receipt of certain
limited resources, sometimes at regulated prices. Although we have received
sufficient and timely allocations of fuel supply and transportation services
for our operations and have not experienced shutdowns or reduced electricity
generation caused by inadequate fuel supply or transportation services, there
can be no assurance that the system of PRC Government allocations which
ensures priority access by the major power plants to coal, oil and
transportation will continue in the future, that we will continue to obtain
allocations to match our operation requirements or that the loss of priority
access through PRC Government allocations will not, in the event of national
supply shortfalls, adversely affect our operations.
Power plant development, acquisition and construction are a complex and
time-consuming process, the delay of which may negatively affect the
implementation of our growth strategy
8
We develop, construct, manage and operate large power plants; success
depends upon our ability to secure all required PRC Government approvals,
power sales and dispatch agreements, construction contracts, fuel supply and
transportation and electricity transmission arrangements. Delay or failure to
secure any of these could increase cost or delay or prevent commercial
operation of the affected power plant. Although each of our power plants in
operation and the power plants under construction received all required PRC
Government approvals in a timely fashion, no assurances can be given that all
the future projects will receive approvals in a timely fashion or at all.
We have generally acted as, and intend to continue to act as, the
general contractor for the construction of our power plants. As with any major
infrastructure construction effort, the construction of a power plant involves
many risks, including shortages of equipment, material and labor, labor
disturbances, accidents, inclement weather, unforeseen engineering,
environmental, geological, delays and other problems and unanticipated cost
increases, any of which could give rise to delays or cost overruns.
Construction delays may result in loss of revenues. Failure to complete
construction according to specifications may result in liabilities, decrease
power plant efficiency, increase operating costs and reduce earnings. Although
the construction of each of our power plants was completed on or ahead of
schedule and within its budget, no assurance can be given that construction of
future projects will be completed on schedule or within budget.
In addition, from time to time, we may acquire existing power plants
from HIPDC, Huaneng Group or other parties. The timing and the likelihood of
the consummation of any such acquisition will depend, among other things, on
our ability to obtain financing and relevant PRC Government approvals and to
negotiate relevant agreements.
Substantial capital is required for investing in or acquiring new power plants
and failure to obtain capital on reasonable commercial terms will increase our
financing cost and cause delay in our expansion plans
An important component of our growth strategy is to acquire operating
power plants and related development rights from HIPDC, Huaneng Group or other
companies on commercially reasonable terms. Our ability to arrange financing
and the cost of such financing are dependent on numerous factors, including
general economic and capital market conditions, credit availability from banks
or other lenders, investor confidence in us and the continued success of our
power plants. Although we have historically been able to obtain financing on
terms acceptable to us, there can be no assurance that financing for future
power plant acquisitions will be available on terms acceptable to us or, in
the event of an equity offering, that such offering will not result in
substantial dilution to existing shareholders.
Operation of power plants involves many risks and we may not have enough
insurance to cover the economic losses if any of our power plant's ordinary
operation is interrupted
The operation of power plants involves many risks and hazards,
including breakdown, failure or substandard performance of equipment, improper
installation or operation of equipment, labor disturbances, natural disasters,
environmental hazards and industrial accidents. The occurrence of material
operational problems, including but not limited to the above events, may
adversely affect the profitability of a power plant. We maintain insurance
typical in the electric power industry in China and in amounts that we believe
to be adequate. Such insurance, however, may not provide adequate coverage in
certain circumstances. In particular, in accordance with industry practice in
the PRC, we do not currently carry any business interruption insurance or,
except for third party liability insurance coverage for accidents during
capital construction and equipment installation and other types of assets
insurances, any third party liability insurance to cover claims in respect of
bodily injury or property or environmental damage arising from accidents on
our property or relating to our operation. Although each of our power plants
has a good record of safe operation, there is no assurance that the
afore-mentioned accidents will not occur in the future.
If the PRC government adopts new and stricter environmental laws and
additional capital expenditure is required for complying with such laws, the
operation of our power plants may be adversely affected and we may be required
to make more investment in compliance with these environmental laws
Our power plants, like all coal- and oil-fired power plants, discharge
pollutants into the environment. We are subject to central and local
government environmental protection laws and regulations, which currently
impose base-level discharge fees for various polluting substances and
graduated schedules of fees
9
for the discharge of waste substances. These laws and regulations impose fines
for violations of laws, regulations or decrees and provide for the possible
closure by the central government or local government of any power plant which
fails to comply with orders requiring it to cease or cure certain activities
causing environmental damage. We have implemented a system that is designed to
control pollution caused by our power plants, including the establishment of
an environmental protection office at each power plant and the installation of
certain pollution control equipment. We believe our environmental protection
systems and facilities for the power plants are adequate for us to comply with
applicable central government and local government environmental protection
laws and regulations. The PRC Government may impose new, stricter laws and
regulations which would require additional expenditure on environmental
protection.
The PRC is a party to the Framework Convention on Climate Change
("Climate Change Convention"), which is intended to limit or capture emissions
of "greenhouse" gases, such as carbon dioxide. Ceilings on such emissions
could limit the production of electricity from fossil fuels, particularly
coal, or increase the costs of such production. At present, ceilings on the
emissions of "greenhouse" gases have not been assigned to developing countries
such as the PRC under the Climate Change Convention, and the PRC has objected
to any imposition of such ceilings. If the PRC were to agree to such ceilings,
or otherwise reduce its reliance on coal-fired power plants, our business
prospects could be adversely affected.
If there is a devaluation of Renminbi, our debt burden will increase and the
dividend return to our overseas shareholders may decrease
As a power producer operating only in China, we collect our revenues
in Renminbi and have to convert Renminbi into foreign currencies to (i) repay
some of our borrowings which are denominated in foreign currencies, (ii)
purchase foreign made equipment and parts for repair and maintenance, and
(iii) pay out dividend to our overseas shareholders. Although China has had a
stable foreign exchange rate for Renminbi for the last several years, there is
no assurance that there will not be a significant devaluation of Renminbi in
the future. And if there is such a devaluation, our debt servicing cost will
increase and the return to our overseas investors may decrease.
Forward-looking information may prove inaccurate
This document contains certain forward-looking statements and
information relating to us that are based on the beliefs of our management as
well as assumptions made by and information currently available to our
management. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," "going forward" and similar expressions, as they relate
to us or our management, are intended to identify forward-looking statement.
Such statements reflect the current views of our management with respect to
future events and are subject to certain risks, uncertainties and assumptions,
including the risk factors described in this document. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described
herein as anticipated, believed, estimated or expected. We do not intend to
update these forward-looking statements.
Risks relating to the PRC
PRC economic, political and social conditions as well as government policies
could significantly affect our business
All of our business, assets and operations are located in China. The
economy of China differs from the economies of most developed countries in
many respects, including government involvement, level of development, economy
growth rate, control of foreign exchange, and allocation of resources.
The economy of China has been transitioning from a planned economy to
a more market oriented economy. Although the majority of productive assets in
China are still owned by the PRC government at various levels, in recent years
the PRC government has implemented economic reform measures emphasizing
utilization of market forces in the development of the economy of China and a
high level of management autonomy. Some of these measures will benefit the
overall economy of China, but may have a negative effect on us. For example,
our operating results and financial condition may be adversely affected by
changes in taxation, changes in power rates for our power plants, changes in
the usage and costs of state controlled transportation services, and state
policies affecting the power industry.
10
Interpretation of PRC laws and regulations involves significant uncertainties
The PRC legal system is based on written statutes and their
interpretation by the Supreme People's Court. Prior court decisions may be
cited for reference but have limited precedencial value. Since 1979, the PRC
government has been developing a comprehensive system of commercial laws, and
considerable progress has been made in introducing laws and regulations
dealing with economic matters such as foreign investment, corporate
organization and governance, commerce, taxation and trade. However, because
these laws and regulations are relatively new, and because of the limited
volume of published cases and judicial interpretation and their lack of
precedence force, interpretation and enforcement of these laws and regulations
involve significant uncertainties. In addition, as the PRC legal system
develops, we cannot assure that changes in such laws and regulations, their
interpretation or their enforcement will not have a material adverse effect on
our business operations.
We are subject to certain PRC regulations governing PRC companies that
are listed overseas. These regulations contain certain provisions that are
required to be included in the articles of association of these PRC companies
and are intended to regulate the internal affairs of these companies. The PRC
Company Law and these regulations, in general, and the provisions for
protection of shareholders' rights and access to information, in particular,
are less developed than those applicable to companies incorporated in Hong
Kong, the US, the UK and other developed countries or regions. Such limited
investor protections are compensated for, to a certain extent, by the
Mandatory Provisions for the Articles of Association of Companies to be Listed
Overseas and certain additional requirements that are imposed by the Listing
Rules of The Hong Kong Stock Exchange with a view to reducing the magnitude of
differences between the Hong Kong Company Law and PRC Company Law. The
articles of association of all PRC companies listed in Hong Kong must
incorporate such Mandatory Provisions and these additional requirements.
Although our Articles of Association have incorporated such provisions and
requirements, there can be no assurance that our shareholders will enjoy
protections to which they may be entitled in other jurisdictions.
ITEM 4. Information on the Company
A. History and development of the Company
Our legal and commercial name is Huaneng Power International, Inc. Our
head office is at West Wing, Building C, Tianyin Mansion, 2C, Fuxingmennan
Street, Beijing, People's Republic of China and our telephone number is
(8610)66491999. We were established in June 1994 as a company limited by
shares organized under the laws of the People's Republic of China.
In 2002, we made the following acquisitions, all of which were
financed by our internal funds. Please see "Item 4 Information of the Company
-- Property, plants and equipment" for detailed description of these newly
acquired power plants.
70% of the equity interest in the registered capital of Shidongkou I,
70% of the equity interest in the registered capital of Taicang Power Plant,
44.16% of the interest in the registered capital of Huaiyin Power Plant and
the net assets of Changxing Power Plant formerly owned by Huaneng Group. These
acquisitions increased our attributable generation capacity by 1,687 MW. The
consideration was RMB2,050 million.
The remaining 30% of the equity interest in the registered capital of
Shidongkou I and the additional 5% of the equity interest in the registered
capital of Taicang Power Plant formerly owned by Huaneng Group. The
acquisition increased our attributable generation capacity by 390 MW. The
consideration was RMB415 million.
An additional 19.48% of the equity interest in Huaiyin Power Plant
from Jiangsu Huaiyin Investment Company and the controlling right of Huaiyin
Power Plant and the development right of Huaiyin Power Plant Phase Two. This
acquisition increased our attributable generation capacity by 78 MW. The
consideration was RMB185 million.
The remaining 25% of the equity interest of Jining Power Plant for a
consideration RMB109 million, increasing our attributable generation capacity
by 75 MW.
11
3% of the shareholding in China Chang Jiang Power Co. Ltd., taking the
first step in the development of hydro-power generation. The consideration was
RMB255 million.
In 2003, we entered into an agreement with Shenzhen Investment Holding
Corporation and Shenzhen Energy Group Co., Ltd. to acquire 25% interest of the
enlarged share capital of Shenzhen Energy Group Co., Ltd, representing
attributable generation capacity of 417 MW. The transaction has been approved
by the relevant government. The consideration was RMB2,390 million.
B. Business overview
We are one of China's largest independent power producers based on the
total generation capacity of 14,363 MW attributable to our ownership in 17
power plants. Our power plants are in seven of China's coastal provinces:
Liaoning, Hebei, Shandong, Fujian, Jiangsu, Zhejiang and Guangdong, and in
Shanghai Municipality, the largest financial and commercial center in mainland
China. In 2002, our power plants had an average availability factor of 92.51%
and an average capacity factor of 61.95%. We also have plans to build 6,470 MW
generation capacity in the same areas. We believe that these areas present
greater potential for increasing demand for electricity and enjoy the most
favorable conditions for running power plants. To maintain our leadership
position among independent power producers and to enhance shareholder value,
we will focus on more efficient operation of our current power plants and
aggressively pursue our development strategy. Our development strategy is to
place equal emphasis on acquisition and development, on greenfield and
expansion plants, on coal-fuel and other feasible fuel sources, and on
domestic and foreign funds.
We will also continue to leverage our relationship with HIPDC, our
controlling shareholder, as well as with Huaneng Group, the controlling
shareholder of HIPDC in respect of acquisition and development of power
projects. Within HIPDC, we are the exclusive developer of all greenfield
coal-fired power plants and other types of fuel plants in China which we may
wish to develop. HIPDC has also undertaken that it will not compete with us in
the power development business in China. With respect to Huaneng Group, we
have a preferential right to purchase interest in existing power plants owned
by Huaneng Group and the preferential right on all its future power
development projects that we may realistically develop. In 2002, the
restructured Huaneng Group reiterated its support policy to us. Furthermore,
we entered into an Entrusted Management Agreement with Huaneng Group and HIPDC
in relation to the management of their respective thermal power plants. By
entering into the Entrusted Management Agreement, we will further accumulate
management experience as a result of the expansion of our operation scale and
set a precedent for large-scale and multi-entities entrusted management in the
PRC. Please see "Item 7 -- Major Shareholders and Related Party Transactions"
for detailed description of the Entrusted Management Agreement.
We believe our significant capability in the development and
construction of power projects, as exemplified in the completion of our
projects under construction ahead of schedule, and our experience gained in
the successful acquisitions of power assets in recent years will enable us to
take full advantage of the opportunities presented in China's power market and
made available to us through our relationship with HIPDC and Huaneng Group.
With respect to the acquisition or development of any project, we will
consider, among other factors, changes in power market conditions, and adhere
to prudent commercial principles in the evaluation of the feasibility of the
project. In addition to business development strategies, we will continue to
work on our profit enhancement through relentlessly strengthening cost
control, especially in respect of fuel costs, so as to hedge against
fluctuations in fuel price and increase competitiveness in the power market.
Development of power plants
The process of identifying potential sites for power plants, obtaining
government approvals, completing construction and commencing commercial
operations is usually lengthy. However, because of our significant experience
in developing and constructing power plants, we have been able to identify
promising power plant projects and to secure all required PRC Government
approvals relatively quickly.
Opportunity Identification and Feasibility Study
12
We initially identify an area in which additional electric power is
needed by determining its existing installed capacity and projected demand for
electric power. The initial assessment of a proposed power plant involves a
preliminary feasibility study. The feasibility study examines the proposed
power plant's land use requirements, access to a power grid, fuel supply
arrangements, availability of water, local requirements for permits and
licenses and the ability of potential customers to afford the proposed power
rates. To determine projected demand, factors such as economic growth,
population growth and industrial expansion are used. To gauge the expected
supply of electricity, the capacities of existing plants and plants under
construction or development are studied.
Approval Process
In 2003, the State Development and Reform Commission was created to
replace the former State Development Planning Commission. At present, any
project proposal and supporting documents for new power plants must first be
submitted to the State Development and Reform Commission for approval and then
be submitted to the State Council. Joint venture power projects are subject to
additional governmental approvals. Approval by Ministry of Commerce (the
former Ministry of Foreign Trade and Economic Cooperation) is also required
when foreign investment is involved.
Permits and Contracts
In developing a new power plant, we and third parties obtain permits
required before commencement of the project. Such permits include operating
licenses and similar approvals related to plant site, land use, construction,
and the environment. To encourage the cooperation and support of the local
governments of the localities of the power plants, it has been and will be our
policy to seek investment in such power plants by the relevant local
governments.
Power Plant Construction
We have generally acted as the general contractor for the construction
of our power plants. Equipment procurement and installation, site preparation
and civil works are subcontracted to domestic and foreign subcontractors
through a competitive bidding process. All of our power plants were completed
on or ahead of schedule, enabling certain units to enter service and begin
generating income earlier than the estimated in-service date.
Import Duties
On April 1, 1996, the central government reduced the "General Level"
of China's import duties to 23%. Along with the change in import duties,
preferential import duty treatment, including exemptions and reductions, for
equipment and raw materials imported by FIEs were eliminated. As the Power
Plants were acquired from HIPDC, which is an foreign-invested entity ("FIE"),
we had enjoyed duty-free treatment of equipment imported for the Power Plants.
Under the new regulations, equipment and raw materials imported by FIEs may
continue to enjoy duty-free treatment if the relevant project was approved
before April 1, 1996. In October, 1997 the central government lowered the
general level of China's import duties to 17%. Any import duties will be
reflected in adjustments to our power rates under the Pricing Policy and the
Electric Power Law. In addition, the central government in 1998 reinstated the
import-duty exemption policy for equipment imported by FIEs that invested in
projects encouraged by the central government under the Catalogue for the
Guidance of Foreign Investment Industries. In addition, China's entry to WTO
will bring its import tariff to a level consistent with the average level of
all WTO members.
Plant Start-up and Operation
We have historically operated and intend to continue to operate our
power plants. Our power plants have established management structures based on
modern management techniques. We select the superintendent for a new power
plant from the senior management of our operating plants early in the
construction phase of the new plant, invest in the training of operational
personnel, adopt various rational management techniques and structures its
plant bonus program to reward efficient and cost-effective operation of the
plant in order to ensure the safety, stability and high level of availability
of each power plant. Our senior management meets several times a year with the
superintendents of the power plants as a group, fostering a team approach to
operations, and conducts annual plant performance reviews with
13
the appropriate superintendent, during which opportunities to enhance the
power plant's performance and profitability are evaluated.
After a generating unit is constructed, the contractor tests its
installation and systems. Following such tests, the contractor puts the unit
through a continuous 168-hour trial run at full load. After successfully
passing the continuous 168-hour test, the unit may enter into commercial
operation.
Pricing policy
Because we were established to develop power plants using advanced
equipment and technology financed with foreign and domestic loans, our power
rates, under the authority of State Council Document 72, were initially
designed to ensure recovery of all production and financing costs and yield a
profit of RMB40 to RMB50 per MWh during the period when such loans were
outstanding.
On June 6, 1994, the former Ministry of Electric Power (MEP) announced
the Pricing Policy applicable to us. The Pricing Policy specifies that our
power rates should be determined with reference to international principles
and methods for setting power rates based upon the return on net fixed assets
methodology to which international investors are accustomed.
While we anticipate that we will consistently generate a profitable
return and recover our costs under the existing Pricing Policy, there is no
assurance that the government agencies will approve our proposed power rates
in accordance with the Pricing Policy. We have received power rates that
delivered a return below the permitted 15% return on the Net Fixed Assets (see
Glossary) in the last several years. The Electric Power Law, which came into
effect in 1997, has provided the general principles for determining power
rates in the future. The power rate granted to a power producer shall be
formulated to provide reasonable compensation for costs as well as a
reasonable return, to share expenses fairly and to promote the construction of
power projects.
As an important element of China's power industry reform, power
bidding is being experimented in some regions, including Shanghai, Liaoning,
Shandong and Jiangsu, where some of our power plants are located. Under the
current bidding practice, about 10% of expected annual planned generation is
designated for bidding sales. In 2002, we sold 7.38% of our total output
through the power bidding program. Usually the power rate determined under the
bidding practice is lower than the power rate for planned generation,
primarily because the competitive bidding drives down the prices. We believe,
however, that the output subject to the bidding practice represents only a
small portion of our total output and power rate applicable to this portion is
calculated to enable the power plants to at least recover variable costs, part
of fixed costs and also produce some profit. For our planned generation, the
power rate is still determined on a basis which permits us to recover all the
operating costs plus a margin of profit. Moreover, our management is closely
monitoring and taking effort to minimize the potential impact of the bidding
practice on our operating results. We also believe that our highly efficient
power plants are competitive in a more open, orderly and fair power market.
Power sales
Each of our power plants has entered into a written agreement with the
local power corporation for the sales of its power output. Generally, the
agreement has a fixed term of multiple years and provides that the annual
utilization hours of the power plant will be determined with reference to the
average annual utilization hours of the similar generating units connected to
the same grid.
In addition, a small percentage of power output of Dalian, Dandong,
Shidongkou II, Shidongkou I, Taicang, Fuzhou, Nanjing and Nantong Power Plants
were sold through the power bidding process in 2002.
The following table sets forth the average power rates (RMB/MWh) of
electric power sold by the power plants which we operate, for each of the five
years ended December 31, 2002 and the approved power rate for 2002 and 2003.
14
1998 1999 2000 2001 2002 2003
---------------- -------------- ----------- ------------- ------------------------------- -----------
Average Average Average Average Average Approved Approved
Rate(1) Rate(1) Rate(1) Rate(1) Rate(1) Rate(1) Rate(1)
---------------- -------------- ------------ ------------- ------------ ----------------- -----------
Dalian Power Plant
Phase I................. 328.75 331.69 316.53 291.38 280.53 321.00 321.00
Phase II................ -- 303.97 305.42
Fuzhou Power Plant
Phase I................. 433.74 339.52 353.40 357.50 327.80 378.20(3) 365.00
Phase II................ -- 500.00 405.35 349.18
Nantong Power Plant
Phase I................. 337.07 336.17 323.71 318.38 309.54 334.57 334.00(2)
Phase II................ -- 288.66 323.71
Shangan Power Plant
Phase I................. 346.08 298.73 283.30 292.71 315.65 307.00(4) 334.00
Phase II................ 372.78 306.33 379.50 371.73 432.00(4)
Shantou Oil-Fired Plant.... 676.20 597.51 669.77 618.24 621.02 594.39 594.39
Shantou Power Plant........ 473.61 473.85 473.85 473.85 455.95 473.85(5) 436.41
Shidongkou II.............. 354.20 358.46 362.44 356.76 345.90 375.86(6) 368.80
Dandong Power Plant........ -- 309.70 306.27 298.93 273.70 330.00 330.00
Nanjing Power Plant........ -- 354.61 325.68 318.60 304.07 336.11 334.00(2)
Dezhou Power Plant
Phase I................. -- -- -- 340.33 339.64 352.50 352.50
Phase II................ -- -- --
Phase III............... -- -- -- 320.00(7) 320.00
Jining Power Plant......... -- -- -- 267.31 275.15 280.76 280.76
Weihai Power Plant
Phase I................. -- -- -- 390.72 393.74 443.50 443.50
Phase II................ -- -- -- 376.40 376.40
Shidongkou I............... -- -- -- -- 252.97 263.02(8) 259.50(8)
Taicang.................... -- -- -- -- 317.52 374.00 365.00(2)
Huaiyin.................... -- -- -- -- 314.79 345.00 343.00(2)
Changxing.................. -- -- -- -- 316.93 316.93 332.00
_____________
Notes:
(1) Includes value-added tax.
(2) New power rate was effective as of January 30, 2003.
(3) Changed to 365.00 effective as of December 1, 2002.
(4) Changed to 334.00 effective as of February 10, 2002.
(5) Changed to 436.41 effective as of July 1, 2002.
(6) Changed to 368.80 effective as of May 25, 2002.
(7) Effective as of September 1, 2002.
(8) Changed to 259.50 effective as of May 25, 2002.
Fuel supply arrangements
Sixteen of the seventeen power plants of ours are fueled by coal, and
only Shantou Oil-Fired Plant is a combined-cycle facility fueled by oil.
Coal
Most of the coal supply for the sixteen coal-fired power plants is
obtained from numerous coal producers in Shanxi Province.
In recent years, as part of its efforts to make a transition from a
comprehensive planned economy to a "socialist market economy," the PRC has
experimented with a variety of methods of setting coal prices. In 1996, the
government allowed coal prices to fluctuate within a range around a reference
price for coal allocated under the State Plan to be used in electricity
generation, and set maximum allowable prices in various coal-producing areas
for coal used in electricity generation.
15
Starting in 2002, there was no longer official State Plan for coal
supplies, but the government continues to coordinate the coal prices at the
annual sales conferences. Allocations for coal purchases are made at annual
sales conferences attended by, among others, representatives of each of coal
purchasers, coal suppliers, the railway authorities and the shipping
companies. The annual sales conferences were sponsored and coordinated by the
former State Development Planning Commission. At these conferences, we obtain
allocations for coal on a company-wide basis. We then sign delivery orders
with the coal producers and with the railway and shipping companies for the
amount of coal and transportation allocated to us. These delivery orders
specify on a monthly basis the amount of coal to be delivered to each power
plant. We, the suppliers and the railway and shipping companies then hold
monthly conferences to schedule the following month's allocated coal
deliveries.
In 2002, we obtained allocations of 21.06 million tons of coal, of
which we purchased only 15.05 million tons, representing 46.3% of the total
coal consumption of our power plants. We have been allocated 25.87 million
tons of coal and related transportation for 2003, which is more than 74% of
the coal required for the total planned generation.
We purchased 17.44 million tons of coal on the open market in 2002.
Given our good reputation and commercial relationships with open market coal
suppliers and the increasing market orientation of the coal industry in China,
we believe that we will be able to purchase sufficient coal on the open market
to meet our future requirements in excess of allocations by the PRC
Government.
Coal prices, including transportation costs and miscellaneous
expenses, for the sixteen coal-fired power plants in 2002 averaged
approximately RMB234.95 per ton. We strive to reduce the fuel costs in a
number of ways, including seeking to purchase high quality coal at competitive
prices directly from coal mines or coal shipment terminals, improving coal
storage management and inspection and demanding compensation from suppliers
for failure to deliver coal of the specified quantity and quality in
accordance with the relevant purchase arrangements. We have also started to
experiment in some of our power plants with the method of mixing different
terms of coal as a measure of cost reduction.
Oil
We obtain our entire supply of oil for the Shantou Oil-Fired Plant
through government allocation from the Shengli Oil Field in Shandong Province.
The crude oil is transported by pipeline to Huangdao in eastern Shandong
Province, loaded onto ships, shipped along the coast to the Zhanjiang port in
western Guangdong, trans-shipped to the Shantou port, unloaded into storage
tanks in Shantou and finally transported to the Shantou Oil-Fired Plant by
pipeline.
We were allocated 60,000 metric tons of oil in 2002. The price at
which the Shantou Oil-Fired Plant purchases Shengli crude oil from the China
Petroleum and Chemical Corporation is determined by the PRC Government in
accordance with the State Plan.
During 2002, the average of the State Plan prices for crude oil from
the Shengli Oil Field was RMB1,716.31 per ton.
We received allocations under the State Plan of crude oil from the
Shengli Oil Field and transportation sufficient to meet our oil supply
requirements at the Shantou Oil-Fired Plant for 2002. We believe that we will
continue to receive allocations of oil and transportation under the State Plan
sufficient to meet our crude oil requirements.
Repair and maintenance
Each of our power plants has a timetable for routine maintenance,
regular inspections and repairs. Such timetables and the procedures for the
repair and maintenance of generating units comply with the relevant
regulations promulgated by the former MEP.
Pursuant to our procedures, generating units with a capacity of 350 MW
or more are currently operating on a cycle of four to six years. At the end of
each operating cycle, an overhaul is carried out. In each cycle, there are
four different levels of maintenance:
16
(i) regular checks and routine maintenance are carried out
throughout the period during which a generating unit is in
operation;
(ii) a small-scale servicing is performed every year, which takes
approximately 20 days;
(iii) a medium-scale check-up is carried out between the two
overhauls, the length of which depends on the actual condition
of the generating unit at the time of the check-up; and
(iv) a full-scale overhaul is conducted at the end of each
operating cycle, which takes approximately 60 days.
With respect to the Shantou Oil-Fired Plant, repair and maintenance
are scheduled according to cumulative operating hours. A small-scale servicing
takes approximately seven days. A full-scale maintenance takes approximately
30 days.
C. Organizational Structure
We are 42.58% owned by HIPDC, which in turn is a subsidiary of Huaneng
Group. Huaneng Group was established in 1988 with the approval of the State
Council. In 2002, Huaneng Group was restructured as one of the five
independent power producing group companies to take over the power producing
assets originally belonging to the State Power Corporation of China. Huaneng
Group has investments in industries that are related to power generation which
include energy, transportation, raw materials development, finance,
information, environment protection and trade.
HIPDC was established in 1985 as a joint venture with 51.98% of its
interest currently owned by Huaneng Group. HIPDC is engaged in developing
power plants using foreign capital. Some of the power plants currently owned
and operated by us were originally built and later transferred to us by HIPDC.
Both Huaneng Group and HIPDC have agreed to give us preferential rights in the
power development business.
17
The following organizational chart sets forth the organizational
structure of us and HIPDC as of December 31, 2002:
China Huaneng Guohua Energy Bank of China China Resources China Cinda Trust China
Group Investment Group Investment (Holding) Co. Ltd. & Investment International Water
Corporation Corporation Limited Group Corporation & Electric Co.
| | | | | |
| | | | | |
| 51.98% | 15.77% | 15.0% | 10.0% | 5.8% | 1.45%
|------------------|-----------------|--------------------|--------------------|---------------------|
|
| Jiangsu Province
HIPDC Hebi Provincial International Trust Dalian Municipal Shantou Electric Dandong Energy
| Construction & Investment Construction Power Investment
| Investment Co. Company Limited Investment Co. Development Co. Development Co.
| | | | | |
| | | | | |
| | | | | Shantou Power |
| | Fujian International| | | Development Joint|
Listed | Existing H | Trust & Investment | Liaoning | Nantong Investment| Stock Company |
A Shares | Shares | Company Limited | Energy Corp. | Management Center | Limited |
| | | | | | | | | | | |
| 4.17%| 42.58% | 25% | 7.54% | 5.58% | 5.20% | 3.83% | 3.77% | 1.13% |0.77% | 0.32% |0.11%
------------------------------------------------------------------------------------------------------------------------------------
|
|
The
Company
D. Property, plants and equipment
The following table presents certain summary information on our power
plants, projects under construction and proposed projects.
18
Summary Information on the Company's Power Plants and Proposed Projects
Province/ Actual/Estimated Total Actual Installed Attributable Type
Plant or Expansion Municipality In-service Date (1) Cost (2) Capacity Ownership Capacity of Fuel
------------------ ------------ ------------------- -------- -------- --------- -------- -------
(Names as (Millions RMB/ (MW) % MW
defined below) Millions US$)
Power Plants
------------------------------------------------------------------------------------------------------------------------------------
Shantou Oil-Fired Guangdong Units I & II: Jan. 215/24.7 2 x 35 100% 100 Oil
1987
Unit III: April 1988 1 x 30
Dalian Phase I Liaoning Unit I: Sep. 1988 1,569/180 2 x 350 100% 700 Coal
Unit II: Dec. 1988
Phase II Unit III: Jan. 1999 3,554/408 2 x 350 100% 700 Coal
Unit IV: Jan. 1999
Fuzhou Phase I Fujian Unit I: Sep. 1988 1,713/197 2 x 350 100% 700 Coal
Unit II: Dec. 1988
Phase II Unit III: Oct. 1999 3,535/406 2 x 350 100% 700 Coal
Unit IV: Oct. 1999
Nantong Phase I Jiangsu Unit I: Sep. 1989 1,682/193 2 x 350 100% 700 Coal
Unit II: March 1990
Phase II Unit III: Jul. 1999 3,573/410 2 x 350 100% 700 Coal
Unit IV: Oct. 1999
Shangan Phase I Hebei Unit I: Aug. 1990 1,959/225 2 x 350 100% 700 Coal
Unit II: Dec. 1990
Phase II (3) Unit III: Oct. 1997 2,804/322 2 x 300 100% 600 Coal
Unit IV: Oct. 1997
Shantou Guangdong Unit I: Jan. 1997 4,942/568 2 x 300 100% 600 Coal
Unit II: Jan. 1997
Shidongkou II Shanghai Unit I: Jun. 1992 4,395/505 2 x 600 100% 1,200 Coal
Unit II: Dec. 1992
Dandong Liaoning Unit I: Jan. 1999 4,798/551 2 x 350 100% 700 Coal
Unit II: Jan. 1999
Nanjing Jiangsu Unit I: March 1994 3,212/369 2 x 300 100% 600 Coal
Unit II: Oct. 1994
Dezhou Shandong Units I & II: 1992 1,313 2 x 300 100% 600 Coal
Units III & IV: Jun. 1,760 2 x 300 100% 600 Coal
1994,
May 1995
Unit V & VI: Jun. ** 2 x 660 100% 1,320 Coal
2002; Oct. 2002
Jining (4) Shandong Units I & II: 1973 43 2 x 50 100% 100 Coal
Units III & IV: 1976 69 2 x 100 100% 200 Coal
& 1978
Weihai Shandong Units I & II: May 1,110 2 x 125 60% 150 Coal
1994,
Jan. 1995
Units III & IV: Mar. 2,834 2 x 300 60% 360 Coal
Nov. 1998
Rizhao Shandong Units I & II: Apr. ** 2 x 350 25.5% 178 Coal
2000
Shidongkou I Shanghai Unit I: Feb. 1988 N/A 4 x 300 100% 1,200 Coal
Unit II: Dec. 1988
Unit III: Sep. 1989
Unit IV: May 1990
Changxing Zhejiang Unit I: Jan. 1992 N/A 2 x 125 100% 250 Coal
Unit II: Aug. 1992
Taicang Jiangsu Unit I: Dec. 1999 N/A 2 x 300 75% 450 Coal
19
Unit II: April 2000
Huaiyin Jiangsu Unit I: Nov. 1993 N/A 2 x 200 63.64% 255 Coal
Unit II: Aug. 1994
Subtotal 15,520 14,363
------------------------------------------------------------------------------------------------------------------------------------
Project under
Construction
------------------------------------------------------------------------------------------------------------------------------------
Jining Expansion Shandong Unit I, II: 2003 ** 2 x 135 100% 270 Coal
------------------------------------------------------------------------------------------------------------------------------------
Subtotal 270
Proposed Projects
------------------------------------------------------------------------------------------------------------------------------------
Shantou Phase II Expansion Guangdong * ** 1 x 600 100% 600 Coal
Shanghai Gas Turbine Project Shanghai * ** 3 x 300 class 70% 630 Gas
Jinling Gas Turbine Project Jiangsu * ** 3 x 300 class 65% 585 Gas
Huaiyin Phase II Expansion Jiangsu * ** 2 x 300 63.64% 382 Coal
Yuhuan Project Zhejiang * ** 2 x 1000 calss 90% 1,800 Coal
Shangan Phase III Expansion Hebei * ** 2 x 600 100% 1,200 Coal
------------------------------------------------------------------------------------------------------------------------------------
Subtotal 6,200
TOTAL 21,990
------------------------------------------------------------------------------------------------------------------------------------
Notes:
(1) Commencement of commercial operations. See "Development of Power
Plants -- Plant Start-up and Operation."
(2) Including start-up costs and interest expense during construction. At
the exchange rate of US$1.00 to Rmb8.7.
(3) Assumes a current construction cost of US$322 million. The final
construction costs have not been determined as of the date of filing.
(4) Jining Power Plant became 100% owned by us after our acquisition of
the remaining 25% equity interest in 2002.
* Construction is not scheduled to commence until after the year 2002.
** To be determined.
20
The following table presents the availability factors and the capacity
factors for the years 1999, 2000, 2001 and 2002 for the power plants which we
operate.
Availability factor (%) Capacity factor (%)
-------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 1999 2000 2001 2002
Dalian
Phase I.................. 93.1 89.35 96.79 93.58 65.3 53.58 53.66 56.59
Phase II................. 88.7 88.81 90.33 94.71 32.8 50.13 49.25 58.46
Fuzhou
Phase I.................. 92.9 89.33 90.99 95.57 62.2 57.11 51.3 54.61
Phase II................. 99.1 89.61 95.42 92.19 37.5 47.71 41.35 62.82
Shangan
Phase I.................. 86.7 93.86 90.01 86.72 61.7 66.51 64.46 64.85
Phase II................. 97.3 90.48 94.52 94.16 63.2 62.99 65.6 69.44
Nantong
Phase I.................. 89.1 86.78 93.45 96.73 49.4 55.24 58.95 59.84
Phase II................. 73.4 90.09 88.28 97.28 26.3 46.50 60.34 67.03
Dandong..................... 86.9 90.03 88.35 96.07 46.1 52.55 45.37 57.37
Shantou Oil-Fired........... 92.0 92.69 91.69 82.09 22.2 19.88 22.15 23.66
Shantou..................... 85.7 92.41 90.39 96.88 60.4 74.39 73.08 79.53
Shidongkou II............... 90.8 91.25 93.33 93.43 64.5 69.99 69.98 71.71
Nanjing..................... 91.9 86.92 89.16 91.77 54.5 57.71 60.73 67.76
Dezhou...................... 88.1 90.37 92.33 91.25 58.2 63.76 64.97 49.92
Jining...................... 93.9 93.83 95.33 96.49 57.2 68.14 72.36 69.30
Weihai...................... 87.3 90.58 95.89 95.88 47.8 55.42 58.46 60.28
Shidongkou I................ -- -- -- 91.33 -- -- -- 70.70
Taicang..................... -- -- -- 90.21 -- -- -- 70.65
Huaiyin..................... -- -- -- 88.72 -- -- -- 60.84
Changxing................... -- -- -- 90.21 -- -- -- 70.65
Our power plants, their respective operations and proposed projects
are described below.
Power plants in Liaoning Province
Huaneng Dalian Power Plant ("Dalian Power Plant") Dalian Power Plant
is located on the outskirts of Dalian, on the coast of Bohai Bay. Dalian Power
Plant, including Phase I and Phase II, has an installed capacity of 1,400 MW
and consists of four 350 MW coal-fired units which commenced commercial
operations in 1988 and 1999 respectively.
The coal supply for Dalian Power Plant is obtained from several coal
producers located mostly in northern Shanxi Province. The coal is transported
by rail from the mines to Qinhuangdao port and shipped by special 27,000 ton
automatic unloading ships to the wharf at the Dalian Power Plant. The wharf is
owned and maintained by the Dalian Port Authority and is capable of handling
30,000 ton vessels. Dalian Power Plant typically stores 140,000 to 150,000
tons of coal on site.
Dalian Power Plant consumes 14,000 tons of coal per day when operating
at maximum generating capacity. In 2002, Dalian Power Plant obtained 27.3% of
its total consumption of coal pursuant to allocations and the remainder on the
open market. The weighted average cost of coal for Dalian Power Plant was
RMB261.70 (2001: RMB247.60) per ton in 2002.
Dalian Power Plant sells all its electricity through the Liaoning
Provincial Power Corporation. Electricity generated by Dalian Power Plant is
delivered to the Liaoning Provincial Power Grid.
Huaneng Dandong Power Plant ("Dandong Power Plant") Dandong Power
Plant is located on the outskirts of the city of Dandong in Liaoning. Dandong
Power Plant had originally been developed by HIPDC which, pursuant to the
Reorganization Agreement, transferred all its rights and interests therein to
us effective December 31, 1994. In March 1997, we began construction of
Dandong Power Plant, which comprises two 350 MW coal-fired units supplied by
an international consortium including Westinghouse Electric Corporation,
Mitsui Babcock Energy Limited and Sargent & Lundy L.L.C.
21
Dandong Power Plant consumes 6,200 tons of coal per day when operating
at maximum generating capacity. In 2002, Dandong Power Plant obtained 44.5% of
its total consumption of coal pursuant to allocation and the remainder on the
open market. The weighted average cost of coal for Dandong Power Plant was
RMB230.56 (2001: RMB220.45) per ton in 2002.
All the electricity generated by Dandong Power Plant is delivered to
the Liaoning Provincial Power Grid and was sold through the Liaoning
Provincial Power Corporation. The coal supply is obtained from several coal
producers in northern Shanxi Province. The coal is transported by rail from
the mines to Qinhuangdao port and shipped by barge to the Dadong port in
Dandong, where it is unloaded and transported to Dandong Power Plant using
special coal handling facilities. The wharf is owned and maintained by Dandong
Power Plant and is capable of handling 28,000 ton vessels. Dandong Power Plant
typically stores 200,000 tons of coal on site.
Power plant in Fujian Province
Huaneng Fuzhou Power Plant ("Fuzhou Power Plant") Fuzhou Power Plant
is located on the south bank of the Min River, southeast of the city of
Fuzhou. Fuzhou Power Plant, including Phase I and Phase II, has an installed
capacity of 1,400 MW and consists of four 350 MW coal-fired units which
commenced commercial operations in 1988 and 1999 respectively. The units of
Phase I and Phase II were respectively supplied by the Mitsubishi Consortium
and an international consortium including Siemens Aktiengesellschaft and
Mitsui Babcock Energy Limited.
The coal supply for Fuzhou Power Plant is obtained from several coal
producers located mostly in northern Shanxi Province. The coal is transported
by rail from the mines to Qinhuangdao port and by ship down the east coast of
China and up the Min River to a wharf located at Fuzhou Power Plant. We own
and maintain the wharf, which is capable of handling vessels of up to 20,000
tons and of unloading 10,000 tons to 15,000 tons of coal per day. Fuzhou Power
Plant typically stores 170,000 to 180,000 tons of coal on site.
Fuzhou Power Plant consumes up to 14,000 tons of coal per day when
operating at maximum generating capacity. In 2002, the Fuzhou Power Plant
obtained 45.8% of its total consumption of coal pursuant to allocations and
the remainder was obtained on the open market. The weighted average cost of
coal for Fuzhou Power Plant in 2002 was RMB273.39 (2001: RMB263.46) per ton.
All the electricity sales of Fuzhou Power Plant are made through the
Fujian Provincial Power Corporation. Electricity generated by Fuzhou Power
Plant is delivered to the Fujian Provincial Power Grid.
Power plant in Hebei Province
Huaneng Shangan Power Plant ("Shangan Power Plant") Shangan Power
Plant is located on the outskirts of Shijiazhuang. Shangan Power Plant has
been developed in two separate expansion phases. The Shangan Power Plant Phase
I has an installed capacity of 700 MW and consists of two 350 MW coal-fired
units which commenced commercial operations in 1990. The units were supplied
by the General Electric Consortium. Shangan Power Plant Phase II shares with
the Shangan Power Plant Phase I certain facilities, such as coal storage
facilities and effluence pipes, which have been built to accommodate the
requirements of plant expansions. The Shangan Power Plant Phase II utilizes
two 300 MW coal-fired units supplied by China Dongfang Group using technology
licensed for boilers from Foster Wheeler Energy Corporation. The two
generating units commenced commercial operation in 1997.
The coal supply for Shangan Power Plant is obtained from numerous
coal producers in central Shanxi Province, which is approximately 64
kilometers from Shangan Power Plant. The coal is transported by rail from the
mines to the Shangan Power Plant. We own and maintain the coal unloading
facilities which are capable of unloading 10,000 tons of coal per day. Shangan
Power Plant typically stores 80,000 to 120,000 tons of coal on site.
Shangan Power Plant consumes 9,000 tons of coal per day when operating
at maximum generating capacity. In 2002, Shangan Power Plant obtained 76.6% of
its total consumption of coal pursuant to allocations and the remainder was
obtained on the open market. The weighted average cost of coal for Shangan
Power Plant in 2002 was RMB169.91 (2001: RMB158.53) per ton.
22
Shangan Power Plant sells all its electricity through the Hebei
Provincial Power Corporation. Electricity generated by Shangan Power Plant is
delivered to the Hebei Provincial Power Grid.
Proposed project in Hebei Province
Huaneng Shangan Power Plant Phase III ("Shangan Phase III Expansion")
The Shangan Phase III Expansion is expected to be adjacent to the Shangan
Power Plant Phase I and the Shangan Power Plant Phase II. The Shangan Phase
III Expansion is expected to consist of two 600 MW coal-fired units. The
project proposal has been submitted to the former State Development Planning
Commission. Financing has not yet been arranged for this project.
Power plants in Jiangsu Province
Huaneng Nantong Power Plant ("Nantong Power Plant") Nantong Power
Plant is located in the city of Nantong. Nantong Power Plant, including Phase
I and Phase II, has an installed capacity of 1,400 MW and consists of four 350
MW coal-fired units which commenced commercial operations in 1989, 1990 and
1999, respectively. The units were supplied by the General Electric
Consortium.
The coal supply for Nantong Power Plant is obtained from several coal
producers located mostly in northern Shanxi Province. The coal is transported
by rail from the mines to Qinhuangdao port and by ship to Yaogang, 7.5
kilometers from the Nantong Power Plant, where it is transshipped onto Company
barges for the last stage of the journey up the Yangtze River to the wharf
located adjacent to the Nantong Power Plant. The Company owns and maintains
the wharf which is capable of handling 5,000 ton barges and of unloading
15,000 tons of coal per day. Nantong Power Plant typically stores 120,000 to
150,000 tons of coal on site.
Nantong Power Plant consumes up to 14,000 tons of coal per day when
operated at maximum generating capacity. In 2002, Nantong Power Plant obtained
45.6% of its total consumption of coal pursuant to allocations and the
remainder was obtained on the open market. The weighted average cost of coal
for Nantong Power Plant in 2002 was RMB252.48 (2001: RMB236.56) per ton.
Nantong Power Plant sells all its electricity through the Jiangsu
Provincial Power Corporation. Electricity generated by Nantong Power Plant is
delivered to the Jiangsu Provincial Power Grid.
Huaneng Nanjing Power Plant ("Nanjing Power Plant") Nanjing Power
Plant has an installed capacity of 600 MW consisting of two 300 MW coal-fired
units which commenced commercial operations in March and October 1994,
respectively.
The coal supply for the Nanjing Power Plant is obtained from several
coal producers located in the Shanxi and Anhui Provinces. The coal is
transported by rail from the mines to Yuxikou Port and Pukou Port and shipped
to the plant's own wharf facilities. The wharf is capable of handling 6,000
ton vessels. Nanjing Power Plant typically stores 100,000 tons of coal on site
and consumes 5,000 tons of coal per day when operating at maximum generating
capacity.
In 2002, Nanjing Power Plant obtained approximately 50% of its total
consumption of coal pursuant to allocations and the remainder was obtained on
the open market. The weighted average cost of coal for Nanjing Power Plant in
2002 was RMB247.87 (2001: RMB222.08) per ton.
Nanjing Power Plant sells all its electricity through the Jiangsu
Provincial Power Corporation. Electricity generated by Nanjing Power Plant is
delivered to the Jiangsu Provincial Power Grid.
Jiangsu Taicang Power Plant ("Taicang Power Plant") Taicang Power
Plant was constructed in the late 1990's. It is located in the vicinity of
Suzhou, Wuxi and Changzhou, which is the most affluent area in Jiangsu
Province. Taicang Power Plant is an ancillary facility of the China-Singapore
Suzhou Industrial Park and has a total planned capacity of 1,200 MW. Taicang
Power Plant now comprises 2 X 300 MW PRC-built coal-fired generation units,
which commenced operation in December, 1999 and April, 2000 respectively.
23
The coal supply for Taicang Power Plant is primarily from Shenhua in
Inner Mongolia and Datong in Shanxi Province. Electricity generated by Jiangsu
Taicang Power Plant is transmitted to the East China Power Grid through 220 kV
transmission lines.
In 2002, Taicang Power Plant obtained approximately 53.9% of its total
consumption of coal pursuant to allocations and the remainder was obtained on
the open market. The weighted average cost of coal for Taicang Power Plant in
2002 was RMB257.04 per ton.
Taicang Power Plant sells all its electricity through the Jiangsu
Provincial Power Corporation. Electricity generated by Taicang Power Plant is
delivered to the Jiangsu Provincial Power Grid.
Jiangsu Huaiyin Power Plant ("Huaiyin Power Plant") Huaiyin Power
Plant was constructed in the early 1990's. It is located in the center of the
northern Jiangsu power grid. The plant's 2 X 200MW PRC-built coal-fired
generation units commenced operation in November, 1993 and August, 1994
respectively. In order to reduce energy consumption and increase capacity, one
generation unit of Huaiyin Power Plant was upgraded in October 2001, which
increased the maximum generation capacity of that unit to 220 MW. In 2002,
upgrading of the second generation unit was completed, and the actual
generation capacity of Huaiyin Power Plant is 440 MW.
The coal supply for the Huaiyin Power Plant is primarily from Anhui
Province, Shanxi Province, Henan Province and Shanxi Province. Electricity
generated by Jiangsu Power Plant is transmitted to the Jiangsu Power Grid
through 110 kV and 220 kV transmission lines.
Jiangsu Huaiyin Power Plant sells its electricity to Jiangsu
Provincial Power Company through a power purchase agreement and through
competitive bidding. Electricity generated by Huaiyin Power Plant is delivered
to the Jiangsu Provincial Power Grid.
Proposed projects in Jiangsu Province
Huaneng Jinling Combined-cycle Gas turbine Project ("Jinling Gas
Turbine Project") The project is expected to be located on the outskirts of
Nanjing. Three 300 MW-class combined-cycle-gas-turbine generating units will
be constructed and the project investment is estimated to be approximately
RMB3.7 billion, of which 25% will be financed by equity capital and 75% by
bank borrowing. The Jinling Gas Turbine Project will be jointly developed by
us, Jiangsu Provincial Investment Management Company, Ltd. and Nanjing
Municipal Investment Corporation and is expected to be rolled out during 2003
to 2005. The project proposal for Jinling Gas Turbine Project has been
approved by the State Council. We have signed a letter of intent with
PetroChina Company Limited with regards to the purchase and transportation of
natural gas for Jinling Gas turbine Project.
Huaiyin Power Plant Phase II Expansion ("Huaiyin Phase II Expansion")
This project is planned to consist of two 300 MW coal-fired generating units.
The estimated total investment is approximately RMB2.37 billion, of which 20%
will be financed by equity capital and 80% by bank borrowing. We expect to own
63.64% equity interest in this project, with Jiangsu Provincial National Trust
and Asset Management Group an Jiangsu Provincial Power Development Joint Stock
Limited Company owning 26.36% and 10% respectively. The feasibility study of
this project has been approved by the State Council.
Power plant in Shanghai Municipality
Huaneng Shanghai Shidongkou Second Power Plant ("Shidongkou II")
Shidongkou II is located in the northern suburbs of Shanghai. Shidongkou II
has an installed capacity of 1,200 MW and consists of two 600 MW coal-fired
super-critical units which commenced commercial operations in June and
December 1992, respectively. The units supplied by a consortium of
international suppliers led by Sargent & Lundy L.L.C.
The coal supply for Shidongkou II is obtained from several coal
producers located mostly in northern Shanxi Province. The coal is transported
by rail from the mines to Qinhuangdao port or Tianjin port and shipped to the
plant's own wharf facilities. The wharf is capable of handling 35,000 ton
vessels. Shidongkou II typically stores 140,000 to 180,000 tons of coal on
site and consumes 11,450 tons of coal per day when operating at maximum
generating capacity.
24
In 2002, Shidongkou II obtained 33.9% of its total consumption of coal
pursuant to allocations and the remainder was obtained on the open market. The
weighted average cost of coal for Shidongkou II in 2002 was RMB255.09 (2001:
RMB242.21) per ton.
Shidongkou II sells all its electricity through Shanghai Municipal
Power Corporation. Electricity generated by Shidongkou II is delivered to the
Shanghai Municipal Power Grid.
Shanghai Shidongkou First Power Plant ("Shidongkou I") Shidongkou I
was constructed in the 1980's and is located in the northern region of the
Shanghai Power Grid. The plant comprises 4 X 300 MW PRC-built coal-fired
generation units, which commenced operation in February, 1988, December, 1988,
September, 1989 and May, 1990 respectively, and has a total installed capacity
of 1,200 MW.
The coal supply for Shidongkou I is primarily from Shanxi Province,
Anhui Province and Henan Province. Electricity generated by Shidongkou I is
transmitted to the East China Power Grid through 220 kV and 500 kV
transmission lines.
In 2002, Shidongkou I obtained approximately 45.2% of its total
consumption of coal pursuant to allocations and the remainder was obtained on
the open market. The weighted average cost of coal for Shidongkou I in 2002
was RMB256.26 per ton.
Shidongkou I sells its electricity through Shanghai Municipal Power
Corporation. Electricity generated by Shidongkou I is delivered to the
Shanghai Municipal Power Grid.
Proposed project in Shanghai Municipality
Shanghai Combined-cycle Gas Turbine Power Plant ("Shanghai Gas Turbine
Project") Three 300 MW-class combined-cycle-gas-turbine generating units will
be constructed, and the project investment is estimated to be approximately
RMB3.7 billion, of which 25% will be financed by equity capital and 75% by
bank borrowing. Shanghai Gas Turbine Project will be jointly developed by us
and Shenergy Company, Ltd. according to the expected ownership of 70% and 30%
respectively. The project proposal for Shanghai Gas turbine Project has been
approved by the State Council. We have signed a letter of intent with Shanghai
Natural Gas Pipeline Company with regard to the purchase and transportation of
natural gas for Shanghai Gas Turbine Project.
Power plants in Guangdong Province
Huaneng Shantou Oil-Fired Power Plant ("Shantou Oil-Fired Plant")
Shantou Oil-Fired Plant is located on the outskirts of the city of Shantou.
Shantou Oil-Fired Plant has an installed capacity of 100 MW and consists of
two gas turbine units and a single steam turbine unit. The two gas turbine
units commenced commercial operations in January 1987, and Shantou Oil-Fired
Plant commenced full-scale commercial operations in April 1988. The units were
supplied by Alsthom.
Shantou Oil-Fired Plant obtains 100% of its crude oil requirements
pursuant to government allocation under the State Plan. Prior to 1995, each
year the former State Development Planning Commission allocated 120,000 tons
of crude oil produced by the Shengli Oil Field to Shantou Oil-Fired Plant.
This allocation is currently made in accordance with our planned generation.
The crude oil purchased by Shantou Oil-Fired Plant is transported from the
Shengli Oil Field to the Huangdao port in Shandong Province and shipped by the
Guangzhou Ocean Shipping (Group) Company by tanker to storage facilities at
the Maoming Petrochemical Facility in Zhanjiang. The crude oil is then
transported twice a month by 5,000 ton barge loads to the port in Shantou
where the oil is stored in a 30,000 cubic meter storage tank. From the Shantou
port, the crude oil is pumped once a week through a 14-kilometer pipeline to
Shantou Oil-Fired Plant. Shantou Oil-Fired Plant typically stores 2,500 tons
of oil on site and consumes 200 tons of oil per day.
The average price for crude oil from the Shengli Oil Field to Shantou
during 2002 was RMB1,542.60 (2001: RMB1,674) per ton.
25
The electricity sales of Shantou Oil-Fired Plant were made through the
Shantou Power Supply Branch of Guangdian Group Company. Electricity generated
by Shantou Oil-Fired Plant is delivered to the Guangdong Shantou Municipal
Power Grid.
Huaneng Shantou Coal-Fired Power Plant ("Shantou Power Plant") Shantou
Power Plant had originally been developed and constructed by HIPDC which,
transferred all its rights and interests therein to us effective December 31,
1994. See "Item 7. Major Shareholders and Related Transactions." Located on
the outskirts of the city of Shantou near Shantou Oil-Fired Plant, Shantou
Power Plant was set up with the support of the Shantou municipal government
and the Guangdong provincial government. Shantou Power Plant consists of two
300 MW coal-fired units with boilers supplied by Dongfang Group using
technology from Foster Wheeler Energy Corporation and Russian-made turbines
and generators. The two units commenced commercial operation on January 1,
1997.
The coal supply for Shantou Power Plant is obtained from several coal
producers located mostly in the northern area of Shanxi Province. The coal is
transported by rail from the mines to Qinhuangdao port and by ship down the
east coast of China to the wharf located at Shantou Power Plant, which is
maintained by the Shantou Port Authority and is capable of handling 35,000 ton
vessels. The Shantou Power Plant typically stores 140,000 to 150,000 tons of
coal on site.
Shantou Power Plant will consume up to 5,000 tons of coal per day when
operated at maximum generating capacity. In 2002, the Shantou Power Plant
obtained 41.7% of its total consumption of coal pursuant to allocations and
the remainder was purchased on the open market. The weighted average costs of
coal for Shantou Power Plant in 2002 was RMB294.32 (2001: RMB274.14) per ton.
The electricity sales of Shantou Power Plant are made to the Shantou
Municipal Power Corporation and the Guangdong Provincial Power Corporation.
Electricity generated by Shantou Power Plant is delivered to the Guangdong
Provincial Power Grid.
Proposed project in Guangdong Province
Huaneng Shantou Coal-Fired Power Plant Phase II ("Shantou Phase II
Expansion") Shantou Phase II Expansion is expected to be adjacent to the
Shantou Power Plant. We expect that the Shantou Phase II Expansion will share
with the Shantou Power Plant certain facilities, such as coal unloading and
storage facilities and effluence pipes, which have been built to accommodate
the requirements of plant expansions. The Shantou Phase II Expansion is
expected to consist of one 600 MW coal-fired unit, with total investment of
RMB2.47 billion, of which 25% will be financed by equity capital and 75% by
bank borrowing. The project proposal has been approved by the State Council.
Power plants in Shandong Province
Dezhou Power Plant ("Dezhou Plant") Dezhou Plant, is located in Dezhou
City, near the border between Shandong and Hebei Provinces, close to an
industrial zone that is an important user of electric power for industrial and
commercial purposes.
Dezhou Plant comprises of three Phases, with Phases I and II each
consisting of two 300 MW coal-fired generation units, and Phase III consisting
of two 660 MW coal-fired generation units. Phase III was completed in 2002,
which is ahead of plan schedule by one year.
Dezhou Plant is approximately 200 km from Taiyuan, Shanxi Province,
the source of the plant's coal supply. The plant is located on the
Taiyuan-Shijiazhuang-Dezhou rail line, giving it access to transportation
facilities for coal. In 2002, Dezhou Power Plant obtained approximately 50.3%
of its total consumption of coal pursuant to allocations and the remainder was
obtained on the open market. The weighted average cost of coal for Dezhou
Power Plant in 2002 was RMB176.24 (2001: RMB165.78) per ton. The plant is
connected to the main trunk rail line at Dezhou by a dedicated 3.5 km spur
line owned by us. The plant is located 22 km from its reservoir and 108 km
from the Yellow River, which supplies water to the reservoir.
Dezhou Plant sells its electricity through the Shandong Provincial
Power Corporation is connected to the Shandong Provincial Power Grid by one
500 KV circuit and six 220 KV circuits.
26
Jining Power Plant ("Jining Plant") Jining Plant is located in Jining
City, near the Jining load center and near numerous coal mines. Yanzhou coal
mine, which is adjacent to the plant, alone has annual production of
approximately 20 million tons. Jining Plant comprises four coal-fired
generation units, with an aggregate installed capacity of 300 MW.
Jining Plant facilities have undergone replacement, renovation and
construction as necessary. Jining Plant has higher rates of auxiliary power
and coal consumption than many larger and newer plants. In order to upgrade
Jining Plant, the construction of another two environmental friendly 135 MW
coal fired generation units which consist of cycled fluidized bed combustion
boilers has started, and the completion of which is expected to be in 2003.
In 2002, Jining Power Plant obtained approximately 1% of its total
consumption of coal pursuant to allocations and the remainder was obtained on
the open market. The weighted average cost of coal for Jining Power Plant in
2002 was RMB197.17 (2001: RMB169.65) per ton.
Jining Plant sells its electricity through the Shandong Provincial
Power Corporation. The generation units of Jining Plant are connected to the
Shandong Provincial Power Grid through a combination of 110 KV and 220 KV
lines.
Weihai Power Plant ("Weihai Plant") we hold a 60% interest in Weihai
Plant, the remaining 40% interest of which is owned by Weihai Power
Development Bureau ("WPDB"). The facility is situated approximately 16 km
southeast of Weihai City, on the shore of the Bohai Gulf. Its location
provides access to cooling water for operations and transportation of coal as
well as ash and slag disposal facilities.
Weihai Plant, developed in two phases, consists of four coal-fired
generation units with an aggregate design capacity of 850 MW. Phase I consists
of two 125 MW generation units (Units 1 and 2), and Phase II consists of two
300 MW generation units (Units 3 and 4). Unit 1 began commercial operation in
May 1994, and Unit 2 began commercial operations in January 1995.
Unit 3 commenced commercial operation in March 1998. Unit 4 commenced
commercial operation in November 1998. Phase I comprises two domestically
manufactured coal-fired generation units. Phase II comprises two domestically
manufactured coal-fired generation units with sub-critical pressure turbines
and reheating boilers.
In 2002, Weihai Power Plant obtained approximately 49.2% of its total
consumption of coal pursuant to allocations and the remainder was obtained on
the open market. The weighted average cost of coal for Weihai Power Plant in
2002 was RMB253.98 (2001: RMB251.52) per ton.
Weihai Power Plant sells its electricity through Shandong Provincial
Power Corporation and delivers its electricity to Shandong Provincial Power
Grid.
Rizhao Power Plant ("Rizhao Plant") We own a 25.5% minority interest
in and do not operate Rizhao Plant.
The construction of Unit 1 and Unit 2 of Rizhao Plant, each a
coal-fired generation units with installed capacity of 350 MW, was completed
in September 1999 and January 2000, respectively. The equipment was supplied
by Siemens Aktiengesellschaft and Foster Wheeler Energy Corporation. Both
units commenced commercial operation in April 2000.
Rizhao Plant is located on the east coast of Shandong province on the
Yellow Sea 9 km southeast of Rizhao City and 4 km southwest of Shijiu Port.
Rizhao is located in the coastal open economic area of eastern Shandong
Province. Rizhao Plant supplies power to the Shandong Grid through 220 KV
circuits.
Power plants in Zhejiang Province
Zhejiang Changxing Power Plant ("Changxing Power Plant") Changxing
Power Plant was constructed in the early 1990's. It is located at the
intersection of Zhejiang Province, Jiangsu Province and Anhui Province.
Changxing Power Plant is a key power plant in northern Zhejiang area. It has 2
X 125
27
MW PRC-built coal-fired generation units which commence operation in
January 1992 and August 1992, respectively.
The coal supply for Changxing Power Plant is primarily from Jungar in
Inner Mongolia and Xuzhou in Jiangsu Province. In 2002, Changxing Power Plant
obtained approximately 51.6% of its total consumption of coal pursuant to
allocations and the remainder was obtained on the open market. The weighted
average cost of coal for Changxing Power Plant in 2002 was RMB258.47 per ton.
Electricity generated by Changxing Power Plant is transmitted to the Zhejiang
Provincial Power Grid through 110 kV and 220 kV transmission lines.
Changxing Power Plant sells its electricity to Zhejiang Provincial
Power Corporation. Changxing Power Plant delivers its electricity to Zhejiang
Provincial Power Grid.
Proposed project in Zhejiang Province
Yuhuan Power Plant. This project is expected to consist two 1000
MW-class ultra-super critical coal-fired generating units, with an estimated
total investment of RMB8.33 billion, of which 25% will be financed by equity
capital and 75% by bank borrowing. We expect to own 90% of this project, with
Beijing Guohua Power, Ltd. and Zhejiang Power Development Company each owning
5%. The project proposal has been approved by the State Council.
Competition and dispatch
All power plants in China are subject to dispatch conducted by various
dispatch centers. A dispatch center is required to dispatch electricity
pursuant to the Regulations on the Administration of Electric Power Dispatch
Networks and Grids, issued by the State Council with effect from November 1,
1993, and in accordance with its agreements with power plants subject to its
dispatch. As a result, there is competition for favorable dispatch treatment
in the PRC electric power industry, especially during the off-peak load
periods. More efficient power plants usually operate at higher output than
less efficient power plants. We believe that in order to increase system
stability, large and efficient power plants such as those of us will be
preferred as base load plants to generate power for the grids to which they
connect. We believe that our dispatch arrangements with the local power
corporations and dispatch centers, superior quality equipment, lower coal
consumption rate, higher efficiency of plant operation, lower emission levels
and larger capacity represent competitive advantages in the markets in which
we operate.
Since 1985, a number of foreign power developers and foreign companies
(including Hong Kong companies), have been pursuing investment opportunities
in the PRC electric power industry, which opportunities include the
development of power plants (through joint ventures with PRC partners) or the
purchase of interests in existing power plants. While we believe that we
currently possess advantages over such foreign developers because of our
extensive experience in the electric power industry of China and our close
relationships with the central and local governments, there can be no
assurance that we will not experience increased competition in the future.
Environmental regulation
We are subject to the PRC Environmental Protection Law, the
regulations of the State Council issued thereunder, the PRC Law on the
Prevention and Treatment of Water Pollution, the PRC Law on the Prevention and
Treatment of Air Pollution, the Emission Standard of Air Pollutants for
Thermal Power Plants (the "New Emission Standards") thereunder and the PRC Law
on Ocean Environment Protection (collectively the "National Environmental
Laws") and the environmental rules promulgated by the Local Governments in
whose jurisdictions our various power plants are located (the "Local
Environmental Rules"). According to the National Environmental Laws, the State
Environmental Protection Bureau sets national environmental protection
standards and local environmental protection bureaus may set stricter local
standards. Enterprises are required to comply with the stricter of the two
standards.
According to the New Emission Standards, promulgated by the State
Environmental Protection Agency and State Technology Supervision
Administration with effect from January 1, 1997, more restrictive standards to
control sulfur dioxide and nitrous oxide emissions are applicable to all
thermal power plant projects for which environmental impact study reports are
yet to be approved. These restrictive
28
standards govern both the total sulfur dioxide emissions from the power plant
and the emission density of each chimney. Although the New Emission Standards
are not applicable to the power plants, they apply to the Proposed Projects as
well as any additional projects that we decide to undertake. We estimate that
the equipment necessary to comply with the New Emission Standards may
constitute approximately 10% of the total cost of equipment for a power plant.
In light of recent government measures to reduce total amount of sulfur
dioxide remissions, we have requested certain power plants to conduct
feasibility study on installing sulfur removal equipment.
We have adopted measures to control different emissions into the
atmosphere. In order to reduce fly ash, we use very high-efficiency
electrostatic precipitators. Sulfur emissions are reduced by burning
low-sulfur content coal, which is reflected in the design of the coal-fired
Power Plants.
Each power plant has a waste water treatment facility to treat water
used by the power plant before it is released into the river or the sea. We
pay discharge fees on the basis of measurements made at discharge points of
each plant where waste is released. The PRC currently does not have any
regulations regarding thermal pollution of the cooling water used by the
electric power industry.
Approximately 70% of the ash remaining after the combustion of coal is
used in the manufacture of bricks and other construction materials in 2002.
In 2000, 2001 and 2002, we paid discharge fees to local governments of
approximately RMB9.7 million, RMB29.7 million and RMB38.9 million
respectively. The increase in 2001 and 2002 was primarily due to the fact that
some local governments started to implement the sulfur dioxide discharge
regulation in accordance with the PRC Law of the Prevention and Treatment of
Air Pollution, as a result of which the discharge fees were collected for the
actual amount of discharge, rather than only for the amount in excess of
certain threshold as in the past. Starting from July 1, 2003, the new
Regulations on Collection of Pollution Discharge Fees and the implementing
Standard Measures on Collection of Pollution Discharge Fees will become
effective.
We believe that we have implemented systems that are adequate to
control environmental pollution caused by our facilities. In addition to the
measures identified above, each power plant has its own environment protection
office and staff responsible for monitoring and operating the environmental
protection equipment. The environmental protection departments of the local
governments monitor the level of emissions and base their fee assessments on
the results of their tests.
We believe our environmental protection systems and facilities for the
power plants are adequate for us to comply with applicable national and local
environmental protection regulations. However, the PRC Government may impose
additional, stricter regulations similar to the New Emission Regulations which
would require additional expenditure on compliance with environmental
regulations.
Insurance
We currently maintain with the People's Insurance Company of China,
China Pacific Insurance Co., Ltd. and Ping An Insurance Company of China
approximately RMB61.8 billion of coverage on our property, plant and equipment
(including construction insurance against all risks for the expansion project
of Jining Power Plant).
We do not currently carry any third party liability insurance to cover
claims in respect of personal injury or property or environmental damage
arising from accidents on our property or relating to our operations. We have
not had a third party liability claim filed against us during the last three
years. We do not carry business interruption insurance, which is not
customarily carried by power companies in the PRC.
We believe that our insurance coverage is adequate and is standard for
the power industry in China.
ITEM 5. Operating and Financial Review and Prospects
We develop, construct and operate large thermal power plants
throughout China. Our Financial Statements may not be indicative of future
earnings, cash flows or financial position for numerous reasons, including the
acquisition of Shidongkou I, Taicang Power Plant, Changxing Power Plant,
Huaiyin Power
29
Plant, Shidongkou II and Nanjing Power Plant and merger with Shandong Huaneng
Power Development Co., Ltd ("Shandong Huaneng"), the implementation of
potentially different power rate regulations under the Electric Power Law, the
anticipated capital expenditures associated with the power plants and power
projects under construction over the next several years, the economic and
power industry reform programs of the PRC Government, changes in the prices of
fuel, the change in the tax basis of our assets and the change in the tax
rate.
Our financial performance has been affected by factors arising from
operating in a regulated industry and in an economy still in the transition
from a planned economy to a freer one. These factors include the fact that
many of our inputs, including fuel and transportation, are subject to PRC
Government coordination or allocations and a power rate setting process
whereby the power rate for most of our output is subject to PRC Government
approval. The PRC Government is implementing certain economic reform programs
which have reduced its involvement in allocations of fuel and transportation
services.
In 2002, the PRC Government announced and started to implement
measures to further reform the power industry. The announced goals of the
reform are to break up monopoly, introduce competition, reduce costs, improve
power rate setting mechanism, optimize allocation of resources and promote
power industry growth. On December 29, 2002, five independent power generation
group companies were set up or restructured to take over the power generation
assets originally owned by the State Power Corporation of China, two national
grid companies were set up to take over power transmission and distribution
assets originally owned by the State Power Corporation of China. An
independent Power Supervisory Commission was set up to regulate the power
industry. Huangeng Group was restructured to be one of the five power
generation group companies. The restructured Huaneng Group has reiterated the
existing supporting policies to us.
The other aspect is to increase the importance of power bidding
experiment in the power rate setting mechanism and total power sales, which
could lead to increase in both the regions and the percentage of power output
that applies this power bidding practice. Power output sold through the
bidding practice remained less than 10% of our total output in the last two
years. In 2003, the Central Government has stated that it will closely
regulate the experimentation with the bidding practice and that, without
proper authorization from the Central Government, the local governments shall
not proceed with any power sales reforms employing the bidding process, and
any such unauthorized practice shall be stopped.
Critical Accounting Policies
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operation is
discussed throughout Management's Discussion and Analysis of Results of
Operations where such policies affect our reported and expected financial
results. For a detailed discussion on the application of these and other
accounting policies, see Note 2 in the Notes to the Financial Statements in
Item 17 of this Annual Report on Form 20-F, beginning on page F-7. Note that
our preparation of this Annual Report on Form 20-F requires us to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
our financial statements, and the reported amount of revenue and expenses
during the reporting period. There can be no assurance that actual results
will not differ from those estimates.
Impairment of long-lived assets. Our long-lived assets include
property, plant and equipment, investments in subsidiaries and an associate
and other long-term assets. As of December 31, 2002, we and our subsidiaries
had RMB41,104 million of property, plant and equipment, RMB201 million of
investment in an associate and RMB1,068 million of other long-term assets,
accounting for approximately 87% of our total assets.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Whenever the carrying amount of an asset exceeds its
recoverable amount, an impairment loss is recognized in income statement for
items of property, plant and equipment carried at cost. The recoverable amount
is the higher of an asset's net selling price and value in use. The net
selling price is the amount obtainable from the sale of an asset in an arm's
length transaction less the costs of disposal while value in use is the
present value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its useful life.
30
Recoverable amounts are estimated for individual assets or, if it is not
possible, for the cash-generating unit to which the asset belongs.
Deferred taxes. As part of the process of preparing our consolidated
financial statements, we are required to exercise considerable judgement to
estimate our deferred tax in each individual power plant and our headquarters.
This process involves us estimating future tax effects of temporary
differences between the tax bases of assets and liabilities and amounts
reported in the accompanying consolidated balance sheets. We use currently
enacted tax rates to determine deferred income tax. If these rates changed, we
would have to adjust our deferred tax in the period these changes happen
through the income statement. Deferred tax assets relating to the carry
forward of unused tax losses are recognized to the extent that it is probable
that future taxable income will be available against which the unused tax
losses can be utilized.
31
Certain Operating and Financial Data
The following table sets forth certain unaudited operating and
financial data for each of our power plants for the fiscal year ended December
31, 2002.
Renminbi in millions, except as otherwise indicated
Dalian Fuzhou Nantong Shangan Shantou-Oil Dandong Shantou Shidongkou II
---------- ----------- ------------ --------- ------------- --------- ---------- --------------
Operating data
Actual Generation (million kWh) 7,054.62 7,201.28 7,800.33 7,626.81 213.73 3,514.74 4,180.28 7,537.71
Total Output (million kWh) 6,763.24 6,874.24 7,504.23 7,202.98 203.69 3,365.41 3,871.44 7,268.10
Bidding Output (million kWh) 1,068.24 222.10 1,028.59 - - 853.41 - 637.89
Coal Consumption Rate (grams/kWh) 310.00 308.23 312.94 323.37 326.30 309.00 313.05 298.32
Financial Date
Operating Revenue, Net 1,587.00 1,889.01 1,954.65 1,924.08 113.92 754.32 1,486.96 2,105.63
Fuel (731.30) (727.21) (788.44) (546.13) (76.00) (356.11) (467.99) (704.85)
Maintenance (52.14) (52.92) (61.22) (71.35) (12.49) (24.04) (43.51) (38.58)
Depreciation (392.57) (383.60) (393.48) (342.60) (25.13) (290.90) (304.35) (403.08)
Labor (66.16) (62.21) (83.89) (76.37) (10.38) (30.11) (72.21) (76.30)
Transmission fees - (6.14) - - - - - -
Service fees to HIPDC - (5.41) - (127.85) - - (84.00) (46.45)
Other operating expenses (50.20) (69.64) (63.64) (79.73) (6.16) (31.27) (64.66) (67.48)
Profit (loss) from operation 294.63 581.88 563.98 680.05 (16.24) 21.89 450.24 768.89
Financial (expenses) income, net (94.04) (122.46) (133.30) (14.78) 0.14 (126.27) (5.20) (59.17)
Gain from disposal of investments - - - - - - - -
Profit (loss) before tax 200.59 459.42 430.68 665.27 (16.10) (104.38) 445.04 709.72
Income tax expense (52.33) (85.42) (68.92) (99.59) - - (34.56) (123.82)
Net profit (loss) 148.26 374.00 361.76 565.68 (16.10) (104.38) 410.48 585.90
32
Nanjing Dezhou Jining Changxing Shidongkou I Weihai Taicang
------------ ----------- ---------- ----------- --------------- ----------- -----------
Operating data
Actual Generation (million kWh) 3,799.10 8,363.42 1,973.11 934.84 4,025.65 4,488.55 2,202.25
Total Output (million kWh) 3,608.33 7,873.33 1,805.19 863.47 3,792.96 4,225.47 2,109.49
Bidding Output (million kWh) 558.80 - - - 316.73 - 282.22
Coal Consumption Rate (grams/kWh) 309.85 329.47 363.60 342.38 345.00 333.20 317.04
Financial Date
Operating Revenue, Net 933.43 2,285.54 421.97 233.53 812.98 1,405.07 566.38
Fuel (351.01) (676.25) (192.60) (118.67) (447.63) (512.66) (219.20)
Maintenance (45.40) (63.20) (19.39) (9.89) (41.39) (45.95) (21.39)
Depreciation (157.82) (362.14) (39.28) (24.01) (106.70) (213.14) (87.96)
Labor (66.21) (143.53) (103.15) (25.88) (60.46) (89.53) (16.88)
Transmission fees - (24.08) (5.53) - - - -
Service fees to HIPDC - - - - - - -
Other operating expenses (44.51) (140.73) (22.16) (20.12) (70.76) (23.12) (18.62)
Profit (loss) from operation 268.48 875.61 39.86 34.96 86.04 520.67 202.33
Financial (expenses) income, net (2.29) 72.55 2.81 (3.18) (19.82) (90.77) (45.33)
Gain from disposal of investments - - 1.29 - - - -
Profit (loss) before tax 266.19 948.16 43.96 31.78 66.22 429.90 157.00
Income tax expense (41.34) (160.63) (9.89) (3.36) (45.40) (136.65) (53.55)
Net profit (loss) 224.85 787.53 34.07 28.42 20.82 293.25 103.45
A. Results of Operations
Our financial statements are prepared under IFRS. The audited
financial statements are accompanied with notes setting out the difference
from and reconciliation under US GAAP. The following management's discussion
and analysis is based on the financial information prepared under IFRS. For
material differences between IFRS and US GAAP, please refer to Note 42 to the
Financial Statements.
Year Ended December 31, 2002 compared to Year Ended December 31, 2001
General
During the year ended December 31, 2002, we successfully carried out a
number of acquisitions. On July 1, 2002, we completed the acquisition of all
the assets and liabilities of Changxing Power Plant, 70% equity interest in
Shidongkou I, 70% equity interest in Taicang Power Plant and 44.16% equity
interest in Huaiyin Power Plant. Subsequently on December 31, 2002, we further
acquired the remaining 30% equity interest in Shidongkou I, 5% equity interest
in Taicang Power Plant and 19.48% equity interest in Huaiyin Power Plant. In
addition, on June 18, 2002, we acquired the remaining 25% minority interest of
Jining Power Plant, which then became our 100% owned power plant. Furthermore,
Dezhou Power Plant Phase III, the expansion project with a capacity of
2x660MW, was put into commercial operation in 2002. These acquisitions and the
expansion project enabled us to expand our scale of operation, increase our
market share, and enhance our geographical coverage and competitiveness.
33
The total assets and liabilities of the four new power plants were
included in the consolidated balance sheet as of December 31, 2002. As we only
obtained the control of Huaiyin Power Plant on December 31, 2002, the
operating revenue and operating expenses of Huaiyin Power Plant were not
included in our consolidated income statement, but equity accounting was
applied for the original 44.16% purchased from July 1, 2002 through December
31, 2002. All of the revenue and expenses of Changxing Power Plant, Shidongkou
I and Taicang Power Plant have been consolidated in our consolidated income
statement since a controlling stake of more than 50% was acquired.
In 2002, our power output increased by 24.45% to 67.3316 billion kWh
from 54.1053 billion kWh in 2001. Accordingly, net operating revenues and net
profit were increased significantly when compared to 2001. In addition,
because of our consistent effort on cost control measures, we achieved our
cost control target on fuel costs and other costs.
Net Operating Revenues Net operating revenues represent operating
revenues net of value-added tax and deferred revenue. For the year ended
December 31, 2002, the consolidated net operating revenues were RMB18,474.5
million, representing an increase of 16.99% over the net operating revenues of
RMB15,791.4 million of last year. When compared with the net operating revenue
before deferred revenue, it had increased 18.34% over last year. Deferred
revenue represents the excess of the major repair and maintenance expenses
determined on the basis of 1% of the fixed assets cost recoverable through the
tariff setting process over the major repair and maintenance expenses actually
incurred. Because the excess of repair and maintenance expenses had been
recovered through the tariff but not yet incurred, we had recorded such excess
as deferred revenue since 2002 and deducted the same amount from the major
repair and maintenance expense (i.e. the major repair and maintenance expenses
were recorded as operating expenses based on the amount actually incurred).
The significant increase of net operating revenues was primarily
caused by increase of power output over last year. Before considering the four
power plants acquired in 2002, the power output of the original twelve power
plants increased by 11.94% over last year.
The lower growth rate of operating revenue, when compared with that of
power output, was due to the decrease of the average tariff rate. The average
tariff rate decreased from RMB342.03 per MWh to RMB325.38 per MWh in 2002. The
decrease of the average tariff rate was due to the adjustment of approved
tariff rates and the increase of excess generation as the total power output
increased. In addition, the tariff rates of the newly acquired power plants
were lower than that of the original power plants, which also affected the
average tariff rate.
Dalian Power Plant's net operating revenues increased by 5.35% to
RMB1,587.0 million in 2002 from RMB1,506.5 million of last year. The average
tariff rate was RMB280.53 per MWh in 2002, which was decreased by 3.72% from
RMB291.38 per MWh in 2001. The output of Dalian Power Plant increased by
11.81% to 6.7632 billion kWh in 2002 when compared to 2001.
Fuzhou Power Plant's net operating revenues increased by 15.61% to
RMB1,889.0 million in 2002 from RMB1,634.0 million of last year. The average
tariff rate was RMB327.80 per MWh in 2002, which was decreased by 7.34% from
RMB353.77 per MWh in 2001. The output of Fuzhou Power Plant was increased by
27.21% to 6.8742 billion kWh in 2002 when compared to 2001.
Shangan Power Plant's net operating revenues decreased by 1.64% to
RMB1,924.1 million in 2002 from RMB1,956.1 million of last year. The average
tariff rate was RMB315.65 per MWh in 2002, which was decreased by 4.04% from
RMB328.95 per MWh in 2001. The decrease of average tariff rate was mainly
caused by the adjustment of the approved tariff rate. However, as the power
output of Shangan Power Plant increased by 3.53% to 7.2030 billion MWh in
2002, the impact of tariff adjustment was minimized.
Nantong Power Plant's net operating revenues increased by 5.10% to
RMB1,954.6 million in 2002 from RMB1,859.8 million of last year. The average
tariff rate was RMB309.54 per MWh, which was decreased by 2.78% from RMB318.38
per MWh in 2001. The output of Nantong Power Plant was increased by 9.70% to
7.5042 billion kWh in 2002 when compared to 2001.
34
Shantou Oil-fired Power Plant's net operating revenues increased by
14.45% to RMB113.9 million in 2002 from RMB99.5 million of last year. The
average tariff rate was RMB621.02 per MWh in 2002, which was increased by
0.45% from RMB618.24 per MWh in 2001. The output of Shantou Oil-fired Power
Plant was increased by 8.13% to 0.2037 billion kWh when compared to 2001.
Shantou Coal-fired Power Plant's net operating revenues increased by
3.28% to RMB1,487.0 million in 2002 from RMB1,439.7 million of last year. The
average tariff rate was RMB455.95 per MWh in 2002, which was decreased by
3.78% from RMB473.85 per MWh in 2001. The output of Shantou Coal-fired Power
Plant was increased by 9.02% to 3.8714 billion kWh when compared to 2001.
Shidongkou II's net operating revenues decreased by 2.57% to
RMB2,105.6 million in 2002 from RMB2,161.2 million of last year. The average
tariff rate was RMB345.90 per MWh in 2002, which was decreased by 1.95% from
RMB352.78 per MWh in 2001. The decrease of average tariff rate was mainly
caused by the adjustment of the approved tariff. However, as the power output
of Shidongkou II increased by 2.54% to 7.2681 billion kWh in 2002, the impact
of tariff adjustment was minimized.
Dandong Power Plant's net operating revenues increased by 11.20% to
RMB754.3 million in 2002 from RMB678.3 million of last year. The average
tariff rate was RMB273.70 per MWh in 2002, which was decreased by 8.45% from
RMB298.96 per MWh in 2001. The output of Dandong Power Plant increased 26.77%
to 3.365 billion kWh when compared to 2001.
Nanjing Power Plant's net operating revenues increased by 13.32% to
RMB933.4 million in 2002 from RMB823.7 million of last year. The average
tariff rate was RMB304.07 per MWh in 2002, which was decreased by 4.56% from
RMB318.60 per MWh in 2001. The output of Nanjing Power Plant increased by
19.20% to 3.6083 billion kWh when compared to 2001.
Dezhou Power Plant achieved net operating revenues of RMB2,285.5
million in 2002, which was increased by 21.30% from RMB1,884.2 million of last
year. The average tariff rate was RMB339.64 per MWh, which represented a
decrease of 0.20% from RMB340.33 per MWh in 2001. The output of Dezhou Power
Plant increased by 21.45% to 7.8733 billion kWh when compared to 2001. Dezhou
Power Plant Phase III, the expansion project, was put into commercial
operation in 2002, with power output of 1.7650 billion kWh.
The net operating revenues of Jining Power Plant increased by 5.58% to
RMB422 million in 2002. The average tariff rate was RMB275.15 per MWh, which
was increased by 2.93% from RMB267.31 per MWh of last year. The output of
Jining Power Plant increased by 2.08% to 1.8052 billion kWh when compared to
2001.
Changxing Power Plant had become our wholly owned plant effective from
July 1, 2002. The net operating revenues of Changixng Power Plant from July to
December were RMB233.5 million. The power output and average tariff rate of
Changxing Power Plant were 0.8635 billion kWh and RMB316.93 per MWh,
respectively.
We acquired 70% equity interest in Shidongkou I on July 1, 2002 and
the remaining equity interest of 30% on December 31, 2002. Hence, it became
our wholly owned power plant as of the same date. The net operating revenues
of Shidongkou I from July to December were RMB813.0 million. The power output
and average tariff rate of Shidongkou I were 3.7930 billion kWh and RMB252.97
per MWh, respectively.
We acquired 70% equity interest in Taicang Power Plant on July 1, 2002
and an additional 5% equity interest on December 31, 2002. The net operating
revenues of Taicang Power Plant from July to December were RMB566.4 million.
The power output and average tariff rate of Taicang Power Plant were 2.1095
billion kWh and RMB317.52 per MWh, respectively.
We own 60% equity interest in Weihai Power Plant. The net operating
revenues of Weihai Power Plant was RMB1,405.1 million, which was increased by
4.18% from RMB1,348.6 million of last year. The average tariff rate was
RMB393.74 per MWh, which was increased by 0.77% from RMB390.72 per MWh in
2001. The output of Weihai Power Plant was increased by 3.38% to 4.2255
billion kWh when compared to 2001.
35
Operating Expenses Our total operating expenses increased by 19.66% to
RMB12,896.5 million in 2002, over the RMB10,777.3 million of last year. As a
result of our implementation of effective cost control measures, the rate of
increase of operating expenses was lower than that of power output.
Our primary operating expense was fuel cost. The fuel cost increased
by 34.36% to RMB6,916.0 million in 2002, when compared to RMB5,147.4 million
of last year. Before considering the four power plants acquired in 2002, the
weighted average unit price of natural coal of the original twelve power
plants increased by 5.29% to RMB232.34 per ton in 2002 from RMB220.66 per ton
of last year. The unit fuel cost per MWh increased by 6.41% to RMB101.20 per
MWh. The higher unit fuel cost per MWh of the four power plants acquired than
that of the original twelve power plants resulted in the increase of unit fuel
cost to RMB102.71 per MWh in 2002.
Maintenance expense Our maintenance expenses incurred was RMB608.0
million in 2002. The maintenance expenses of the original twelve power plants
and the four power plants acquired in current year amounted to RMB535.3
million and RMB72.7 million, respectively.
Depreciation and amortization Our depreciation and amortization were
RMB3,533.6 million in 2002. The depreciation and amortization of the original
twelve power plants and our headquarters were RMB3,313.3 million, which
represented an increase of 1.60% from RMB3,261.0 million of last year. The
depreciation and amortization of the four power plants acquired in current
year were RMB220.3 million.
Labor costs Our labor costs were RMB1,035.7 million in 2002, which
represented an increase of 28.32% from RMB807.1 million of last year mainly
due to the increase in the number of employees for the four power plants
acquired.
Transmission fees Transmission service fees paid to Shandong Electric
Power Group Corporation by Dezhou Power Plant, Weihai Power Plant and Jining
Power Plant were RMB35.8 million in 2002, which represented a decrease of
3.17% from RMB36.9 million of last year.
The service fee to HIPDC The service fee paid to HIPDC refers to a fee
for the use of its grid connection and transmission facilities based on
reimbursement of cost plus a profit.
In 2002, we incurred the service fee in relation to the grid
connection and transmission facilities for Fuzhou Power Plant Phase I,
Shidongkou II, Shangan Power Plant, Shantou Coal-fired Plant. HIPDC had
transferred the ownership of transmission and transformation facilities of
Fuzhou Power Plant Phase I and Shidongkou II to Fujian Electric Power Company
and Shanghai Power Corporation, respectively, on July 1, 2002. No service fee
is required for these two plants since the transfer. Hence, the service fee to
HIPDC decreased by 14.19% to RMB263.7 million in 2002, when compared to
RMB307.3 million of last year
Other expenses Our other expenses were RMB503.6 million in 2002, which
increased by 11.46% from RMB451.9 million of last year. Other expenses mainly
comprised environmental protection fee, general and administrative expense and
other miscellaneous expenses. The increase of other expenses was mainly due to
the inclusion of other expenses of the four power plants acquired in the
current year. Before considering the four power plants acquired in current
year, the other expenses of original twelve power plants was decreased by
12.68% to RMB394.5 million, despite the increase of total power output. This
indicated the effectiveness of the cost control measures.
Profit from operation The profit from our operation increased by
11.25% to RMB5,578.0 million in 2002 from RMB5,014.0 million of last year.
Financial expenses Our financial expenses were reduced by 35.91% to
RMB510.3 million in 2002 from RMB796.2 million of last year. The financial
expense of the original twelve power plants was RMB492.0 million which
represented a decrease of 43.29% from RMB867.5 million of last year. The
overall reduction of financial expenses was mainly due to the significant
decrease of debt balances in 2002. In addition, in order to reduce interest
expenses, we grasped the opportunity of declining market interest rate and
borrowed loans with lower interest rates to refinance the higher interest rate
loans. As a result, the financial expense of the relevant loans was decreased
by US$9.5 million (RMB78.63 million) in 2002.
36
Income tax expenses Pursuant to the relevant tax regulations, we are
treated as a sino-foreign joint venture that enjoys the relevant tax holiday.
Each of our power plants is exempted from PRC income tax for two years
starting from the first profit-making year after covering any accumulated
deficits followed by a 50% reduction of the applicable tax rate for the next
three years. In addition, as confirmed by the State Tax Bureau, our wholly
owned power plants pay their respective income tax to local tax authorities,
although they are not separate legal entities. The consolidated income tax
expense was RMB980.9 million in 2002, which represented an increase of 37.15%
from RMB715.2 million in 2001 due to a higher profit before tax in 2002. The
income tax expenses for the original twelve power plants and the four power
plants acquired in the current year amounted to RMB873.5 million and RMB107.4
million, respectively.
Jining Power Plant and Changxing Power Plant became our wholly owned
power plants in 2002. As approved by the relevant tax authorities, the income
tax rate of Jining Power Plant was decreased from 33% to 15% effective from
September 1, 2002, and the income tax rate of Changxing Power Plant was
decreased from 33% to 16.5% effective from July 1, 2002.
Net profit Our consolidated net profit increased by 13.63% to
RMB3,921.0 million from RMB3,450.7 million of last year. The increase was
primarily due to the increase of power output, the decrease of the financial
expenses and the profit contributed by the four power plants acquired in the
current year.
The net loss of Dandong Power Plant was RMB104.4 million in 2002,
which represented a decrease of 48.20% when compared to last year as the power
output was substantially increased in 2002. The net loss of Shantou Oil-fired
Power Plant was RMB16.1 million in 2002, which represented a decrease of
RMB12.9 million.
Impact of Differences between IFRS and US GAAP
In addition to the above management discussion and analysis of our
results of the operation under IFRS between the years ended December 31, 2002
and 2001, in connection with the preparation and reconciliation of our
financial statements in accordance with US GAAP, we believe the following
significant accounting differences between IFRS and US GAAP would have a
significant impact on our management discussion and analysis of the results of
our operation between the years ended December 31, 2002 and 2001 under US
GAAP. See also Note 42 to the financial statements for a complete summary of
all significant accounting differences between IFRS and US GAAP that are
relevant to us.
Under IFRS, we have adopted the acquisition method to account for our
acquisitions of Shidongkou I, Taicang Power Plant and Changxing Power Plant in
2002. Accordingly, our results of operations under IFRS include the results of
these power plants only from the respective dates of acquisition. In contrast,
under US GAAP, our acquisitions of these power plants are considered as
combinations of entities under common control which are accounted for at
historical cost and reflected retroactively to include the results of
operations for each of the years ended December 31, 2002 as if the
acquisitions of these power plants had taken place since the beginning of the
earliest period presented.
In accordance with IFRS, we capitalized interests on general
borrowings used for the purpose of obtaining a qualifying asset in addition to
the capitalization of interests on specific borrowings. Under US regulatory
accounting requirements, interests on funds borrowed generally and used for
the purpose of obtaining a qualifying asset were not capitalized if such
interests were not taken into consideration when determining the recoverable
rate base for tariff setting purposes.
Other than the above, there are no material differences between IFRS
and US GAAP that would have a significant impact on our management discussion
and analysis of the results of our operation between the years ended December
31, 2002 and 2001.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
General
Since January 1, 2001, former Shandong Huaneng owned Dezhou Power
Plant (100% interest), Jining Power Plant (75% interest), Weihai Power Plant
(60% interest) and Rizhao Power Plant (25.5% interest)
37
have all been merged into us. Operating results of Dezhou Power Plant are
combined into ours, and those of Jining Power Plant and Weihai Power Plant are
consolidated as controlled subsidiaries into our financial statements.
Shandong Rizhao Power Plant's results are accounted for by using the equity
method. The acquisition of Shandong Huaneng enables us to increase our total
installed capacity to 10,813.5 MW from 8,700 MW, which enhanced the
geographical coverage in business, increased the shares in the power market
and put us in a better competitive position.
In 2001, our power sales increased by 28.81% to 54.1053 billion kWh
from 42.0079 billion kWh in 2000 (the total power generation would be 558.6
kWh, increased by 26.5% over last year, if the power generation of Jining,
Weihai and Rizhao are included in accordance with their respective equity
ratios). Accordingly, net operating revenues and net profit have larger
increase than the year 2000. In addition, due to our consistently strict
control over the cost and expenses, the power sale cost per unit decreased
3.22% when compared with 2000, despite the increase in the primary fuels.
Net Operating Revenues Net operating revenues increased by 25.79% to
RMB15,791.4 million in 2001 from RMB12,553.3 million in 2000.
The significant increase in net operating revenues was primarily due
to the business expansion following the acquisition of Shandong Huaneng. Among
the original nine Power Plants in Dalian, Fuzhou, Shangan, Nantong, Shantou
Coal-Fired, Shantou Oil-Fired, Dandong, Shidongkou II and Nanjing, the output
of Nantong and Nanjing Power Plants in 2001 increased 13.35% and 5.19%,
respectively, from those of 2000, the output of Shantou Oil-Fired Plant
returned to recovery, and other six Power Plants' output decreased by
different levels due to the weather conditions and more generating unit's
being put in operation in some regions. However, the total output of the nine
Power Plants is approaching to the best level in history created last year.
Dalian Power Plant's net operating revenues decreased 7.39% to
RMB1,506.5 million in 2001 from RMB1,626.6 million in 2000. Due to the
increased competition in the power market in the Liaoning region, Dalian Power
Plant adopted a flexible competition strategy and obtained more unplanned
generation. Its power generation in 2001 is almost equal led to that of 2000,
maintaining its market share. Although the settlement price of the unplanned
generation is lower than the approved price, it is higher than the marginal
cost, which resulted in a marginal contribution. The total output of Dalian
Power Plant in 2001 was 6.049 billion kWh, among which the sales through
bidding process were 0.465 billion kWh, which was 7.69% of the total output,
and the bidding revenues was RMB80.8 million. The average tariff rate was
RMB291.38 per MWh, which declined 6.36% from RMB311.16 per MWh in 2000.
Fuzhou Power Plant's net operating revenues declined 17.13% to
RMB1,634.0 million from RMB1,971.7 million in 2000. This decline was primarily
due to the plentiful rainfall in 2001 in Fujian Province, which increased
hydro power, and the general decrease of generation of coal-fired generating
units within the grid. Due to this impact, the output of Fuzhou Power Plant
decreased 11.77% in 2001 than that in 2000.
Fuzhou Power Plant's Phase I net operating revenue declined 9.21% to
RMB0.9115 million in 2001 from that of 2000. Fuzhou Power Plant Phase I's
output declined 10.53% to 2.9831 billion kWh in 2001 from that of 2000.
Fuzhou Power Plant's Phase II net operating revenues was RMB722.5
million, 25.34% declined from that of 2000. Fuzhou Power Plant Phase II's
total output in 2001 was 2.4208 billion kWh, 13.25% declined from that of
2000.
Shangan Power Plant's net operating revenues increased 1.12% to
RMB1,956.1 million in 2001 from RMB1,934.5 million in 2000. Shangan Power
Plant's power generation in 2001 was relatively lower than that of 2000, which
was the best in its history. Due to better management, the output in 2001
increased 0.13% than that of 2000. At the same time, Shangan Power Plant's
weighted average tariff rate increased 0.99% to RMB328.95 MWh from RMB325.73
MWh in 2000.
Shangan Power Plant Phase I's net operating revenues increased 0.19%
to RMB942.2 million in 2001 from RMB940.5 million in 2000.
38
Shangan Power Plant Phase II's net operating revenues increased 2.00%
to RMB1,013.9 million in 2001 from RMB994 million in 2000.
Nantong Power Plant's net operating revenues increased 11.47% to
RMB1,859.8 million in 2001 from RMB1,668.5 million in 2000. The social power
usage in Jiangsu Province increased rapidly in 2001, through which, Nantong
Power Plant's total output increased 13.35% to 6.8435 billion kWh from that of
2000 (among which, the sales through bidding process was 684.4 billion kWh,
which was 10.00% of the total output sold, and generated RMB107.2 million
revenues). Therefore, the output revenues increased significantly. The
weighted average tariff rate was RMB318.38 per MWh, which represented a
decline of 1.53% from RMB323.33 per MWh in 2000.
Shantou Oil-Fired Power Plant's net operating revenues increased 4.65%
to RMB99.5 million in 2001 from RMB95.1 million in 2000. This is primarily due
to the decrease of the oil price and the recovery of generation and output.
Shantou Coal-Fire Power Plant's net operating revenues declined 1.96%
to RMB1,439.7 million in 2001 from RMB1,468.5 million in 2000. Shantou
Coal-Fire Power Plant's power generation in 2001 was relatively lower than
that of 2000. With the continuous economic development in Guangdong, the
annual generation hours still reached 6,400 hours. The weighted average tariff
rate per MWh was RMB473.85.
Shidongkou II's net operating revenues declined 1.87% to RMB2,161.2
million in 2001 from RMB2,202.5 million in 2000. The output was 7.0879 billion
kWh, which represented a declined of 0.31% from that of 2000, among which
sales through the bidding process was 0.7786 billion kWh, which was 10.98% of
the total output, and generated RMB210.2 million revenues.
Dandong Power Plant's net operating revenues declined 13.57% to
RMB678.3 million in 2001 from RMB784.8 million in 2000. The output was 2.6547
billion kWh, which represented a decline of 11.45% from the previous year.
Sales through the bidding process were 0.4387 billion kWh, which was 16.53% of
the total output sold, and generated RMB76 million revenue.
Nanjing Power Plant's net operating revenues increased 2.82% to
RMB823.7 million in 2001 from RMB801.1 million in 2000. The social power usage
in Jiangsu Province increased rapidly in 2001, through which, Nanjing Power
Plant's output increased 5.19% to 3.0271 billion kWh (sales through bidding
process were 0.4284 billion kWh, which was 14.15% of the total output).
Subject to the impact of the tariff rate's decrease, Nanjing Power Plant's
average tariff rate declined 2.17% to RMB318.60 per MWh from RMB325.68 per MWh
in 2000.
Dezhou Power Plant's net operating revenue was RMB1,884.2 million in
2001. The total output was 6.4829 billion kWh, and the average tariff rate was
RMB340.33 per MWh.
We own 75% interests in Jining Power Plant, and Jining Power Plant's
net operating revenues was RMB399.7 million. The total output was 1.7685
billion kWh, and the average tariff rate was RMB267.31 per MWh.
We own 60% interests in Weihai Power Plant, and Weihai Power Plant's
net operating revenues was RMB1,348.6 million in 2001. The total output was
4.0872 billion kWh, and the average tariff rate was RMB390.72 per MWh.
Operating Expenses Our total operating expenses increased 24.65% to
RMB10,777.3 million in 2001 from RMB8,646.4 million in 2000. The increase
resulted primarily from the business expansion following the acquisition of
Shandong Huaneng, but the increase in total operating expenses was lower than
the increase in the output, which indicated the synergy from the merger.
Fuel costs Fuel costs were the most significant operating expenses for
us, representing 47.76% of the total operating expenses and 32.60% of the net
operating revenues, and the total was RMB5,147.4 million in 2001. The cost of
coal for all power plants excluding Shantou Oil-Fired Plant accounted for
98.6% of the total fuel cost in 2001. The remaining balance of total fuel
costs represented the cost of oil, which was largely consumed by the Shantou
Oil-Fired Plant. Due to the increase in coal price, the original nine plants'
weighted average unit price of natural coal increased 4.07% to RMB229.90 per
ton in 2001 from
39
RMB220.91 per ton in 2000. The unit fuel cost per MWh increased 4.81% to
RMB95.8 accordingly. The unit prices of Dezhou and Jining Power Plant's raw
coal were relatively low, the average price of which were RMB165.78 per ton
and RMB169.65 per ton in 2001, respectively. The price was far lower than our
previous price level, hence, the unit fuel cost following the merger, which
was RMB95.1 per MWh, was lower than the average level of the original nine
Power Plants in 2001. This reflects the positive impact on our integral
business and the competitive advantages as a result of the successful
acquisition of Shandong Huaneng.
Maintenance expense Our maintenance expense in 2001 was RMB765.7
million, in which the total expenses for the original nine Power Plants and
our headquarters were RMB631.5 million. Such expenses declined 5.89% from
RMB671.0 million in 2000, which indicated the effectiveness of our cost
control. Maintenance expenses for the former Shandong Huaneng owned Dezhou
Power Plant, Jining Power Plant and Weihai Power Plant as well as the
management branch located in Jinan totaled RMB134.3 million.
Depreciation Our depreciation in 2001 was RMB3,261.0 million, among
which the original nine Power Plants and our headquarter were RMB2,666.0
million. The depreciation expense related to the former Shandong Huaneng owned
Dezhou Power Plant, Jining Power Plant, Weihai Power Plant and the management
branch located in Jinan totaled RMB595.0 million.
Labor costs Our labor costs in 2001 was RMB807.1 million, among which
former Shandong Huaneng owned Dezhou Power Plant, Jining Power Plant, Weihai
Power Plant and the management branch located in Jinan totaled RMB246.5
million. The total labor costs of the original nine Power Plants and our
headquarters were RMB560.6 million, which declined 16.32% from RMB669.9
million in 2000 as a result of our cost control measures implemented.
Transmission fees Our transmission fees in 2001 were RMB36.9 million,
including handling fees levied on a per MWh basis for transmission services
and an reimbursement for transmission fees incurred by the former Shandong
Huaneng owned Dezhou Power Plant, Jining Power Plant and Weihai Power Plant,
which had increased over the previous year.
The Service fee paid to HIPDC The service fee paid to HIPDC refers to
a fee for the use of its transmission facilities (including grid connection
facilities) based on reimbursement of cost plus an agreed-upon profit.
Pursuant to the Service Agreement dated June 30, 1994 between us and HIPDC
(the "Service Agreement"), HIPDC has agreed, among other things, to allow us
to use its transmission and transformer facilities. The service fee payable to
HIPDC for the use of transmission and transformer facilities is calculated on
the basis of 10% of the current net fixed asset value of the transmission
facilities. We entered into another service agreement in relation to the power
transmission and transformer equipment of our new power plants on December 4,
1997 (as amended by a supplemental letter dated December 5, 1997)
(collectively known as the "T&T Service Agreement") with HIPDC. According to
this agreement, HIPDC agreed to allow our new power plants, expanded power
plants or power plants acquired after January 1, 1997 to use its transmission
and transformer facilities for a fixed fee payable to HIPDC equal to 12% of
the original book value of the assets of HIPDC's transmission and transformer
facilities. Former Shandong Huaneng owned Dezhou Power Plant, Jining Power
Plant and Weihai Power Plant are not required to pay such fees.
In 1998, HIPDC transferred the ownership of the relevant transmission
and transformer facilities in connection with Dalian, Dandong, Nantong and
Nanjing Power Plants to Northwest Electric Power Group and Jiangsu Provincial
Electric Power Corporation. These affected power plants were no longer
required to pay service fees to HIPDC. Fuzhou Power Plant Phase II was not
required to pay service fees to HIPDC because the transmission and transformer
facility was directly invested by Fujian Provincial Electric Power
Corporation. Fuzhou Power Plant Phase I, Shangan Power Plant, Shantou
Oil-Fired Plant (HIPDC has transferred the ownership of transmission and
transformation facilities in Shantou Oil-Fired Plant to Shantou Municipal
Power Corporation in 2001. Thus, commencing from June 1, 2001, Shantou
Oil-Fired Plant was not required to pay services fees to HIPDC), Shantou Power
Plant and Shidongkou II were still required to pay the service fees. The
service fees paid to HIPDC was RMB307.3 million in 2001, approximate RMB310.7
million in 2000.
Other expenses Our other expenses 2001 were RMB451.9 million, among
which former Shandong Huaneng owned Dezhou Power Plant, Jining Power Plant and
Weihai Power Plant and the management
40
located in Jinan totaled RMB246.9 million. The original nine Power Plants and
our headquarters totaled RMB205 million, which represented a decline of 57.51%
from RMB482.5 million in 2000. This was due primarily to the RMB247.3 million
amortization of negative goodwill as a result of acquisition of Shandong
Huaneng, and the effectiveness of cost control. Other expenses include rent
paid by us to HIPDC. Pursuant to the lease agreement dated December 26, 2000
between us and HIPDC, HIPDC agrees to lease the new office building to us for
five years and the annual rent is RMB25 million. This Lease Agreement became
effective as of January 1, 2000.
Profit from operation The profit from our operation and those of our
subsidiaries increased 28.34% to RMB5,014.0 million in 2001 from RMB3,906.9
million in 2000.
Financial expenses Our consolidated financial expenses in 2001
declined 18.74% to RMB796 million from RMB980 million in 2000. The interest
expenses declined 15.33% to RMB868 million from RMB1,025.0 million in 2000,
primarily due to the decrease of the loan balance of the original nine Power
Plants. The interest income increased 41.84% to RMB113 million from RMB80
million in 2000, primarily due to the plentiful surplus fund of Shandong
Huaneng, which resulted in an increase in deposit interest income. The
exchange loss in 2001 was RMB42 million, which was slightly higher than RMB35
million in 2000.
Income tax expense Pursuant to the relevant tax regulations, we are
treated as a foreign invested joint venture, and enjoy the relevant tax waiver
and reduction, which means our income tax is exempted from PRC income tax for
2 years starting from the first profit-making year (after covering any
accumulated deficits) followed by a 50% reduction of the applicable tax rate
for the next 3 years. In addition, approved by the State Taxation Bureau, the
original nine Power Plants pay their respective income tax to the local tax
authorities. The total income tax paid by the former nine Power Plants and our
headquarters was RMB451.5 million. After the acquisition of Shandong Huaneng,
the management branch located in Jinan and Dezhou Power Plant located in
Dezhou, Shandong may enjoy the preferential policies as a foreign investment
company. After the approval by the tax authority, their income tax rate has
been reduced to 17% from 33% in previous years. The foregoing two tax payable
bodies' income tax in 2001 was RMB166.8 million, which was approximately
RMB157 million decrease. Jining Power Plant's income tax in 2001 was RMB18.9
million, while Weihai Power Plant's income tax in 2001 was RMB78 million.
Net profit Our consolidated net profit increased 37.16% to RMB3,450.7
million in 2001 from RMB2,515.8 million in 2000. The increase was primarily
due to the new profit sources provided by the acquisition of Shandong Huaneng,
negative goodwill amortization by the acquisition and the decrease of the net
financial expenses, which resulted that the increase level of net profit
exceeds that of output sale and net sales income.
However, due to lack of power output, Dandong Power Plant's net loss
increased 13.86% to RMB201.5 million in 2001 from RMB177 million in 2000.
Shantou Fuel-Fire Plant's net loss decreased 13.98% to RMB29 million from that
of 2000.
Impact of Differences between IFRS and US GAAP
In addition to the above management discussion and analysis of our
results of the operation under IFRS between the years ended December 31, 2002
and 2001, in connection with the preparation and reconciliation of our
financial statements in accordance with US GAAP, we believe the following
significant accounting differences between IFRS and US GAAP would have a
significant impact on our management discussion and analysis of the results of
our operation between the years ended December 31, 2001 and 2000 under US
GAAP. See also Note 42 to the financial statements for a complete summary of
all significant accounting differences between IFRS and US GAAP that are
relevant to us.
Under IFRS, we have adopted the acquisition method to account for our
acquisitions of Shidongkou I, Taicang Power Plant and Changxing Power Plant.
Accordingly, the results of operations under IFRS include the results of these
power plants only from the respective dates of acquisition. In contrast, under
US GAAP, our acquisitions of these power plants are considered as combinations
of entities under common control which are accounted for at historical cost
and reflected retroactively to include the results of operations for each of
the years ended December 31, 2002 as if the acquisitions of these power plants
had taken place since the beginning of the earliest period presented.
41
Huaneng Group is the controlling parent company of HIPDC, which in
turn is our controlling parent. Huaneng Group used to be one of the
substantial shareholders of Shandong Huaneng, holding 33.09% equity interest
in it before our acquisition of Shandong Huaneng . Under IFRS, upon the
completion of the acquisition of Shandong Huaneng in 2001, the entire net
assets of Shandong Huaneng are recorded at fair value. The excess of the fair
value of the entire net assets acquired over the total cost of the acquisition
is recorded as a negative goodwill. Under US GAAP, upon completion of the
acquisition of Shandong Huaneng, Huaneng Group's proportionate share of 33.09%
in the net assets of Shandong Huaneng being transferred to us was recorded at
the historical carrying value. The excess of the proportionate share in the
book value of the net assets acquired over the relevant portion of the cash
consideration was recorded as capital contribution to us. The book value of
the remaining 66.91% of the net assets continues to be part of the recoverable
rate base under the cost recovery formula of the tariff setting mechanism. The
difference between these net asset values and the cash consideration is
recorded as a negative goodwill.
The amount of negative goodwill determined under IFRS was recognized
as income on a systematic basis over the remaining weighted average useful
life of the acquired depreciable or amortizable assets. The amounts of
negative goodwill under US GAAP determined on the basis as described above was
offset against the fixed assets of the respective power plants as a purchase
allocation adjustment. As the amount of negative goodwill under IFRS is
different from the amount of the purchase allocation adjustment determined
under US GAAP due to the 33.09% portion of the net assets previously owned by
Huaneng Group as described above, the net impact on income is also different.
Other than the above, there are no material difference between IFRS
and US GAAP that would have significant impact on our above management
discussion and analysis of our results of the operation between the years
ended December 31, 2001 and 2000.
B. Liquidity and Capital Resources
During the year ended December 31, 2002, net cash provided by
operating activities was approximately RMB7,080 million. The major
contributors, after adding back the RMB3,534 million major non-cash item of
depreciation and deducting the RMB246 million non-cash item of amortization of
goodwill and negative goodwill, were an increase in profit before taxation to
RMB5,058 million added by an increase of RMB279 million in accounts payable
and accrued liabilities, offset in part by an increase of RMB497 million in
accounts receivable and a decrease of RMB152 million in staff welfare and
bonus payable. During the year ended December 31, 2002, net cash provided by
investing activities, primarily representing cash inflow from the decrease in
temporary cash investments of RMB5,083 million, cash inflow from the acquired
power plants of RMB570 million offset in part by cash used in purchase of
property, plant and equipment of RMB1,594 million, cash consideration paid for
the acquisitions and additional acquisition of Changxing Power Plant,
Shidongkou I, Taicang Power Plant and Huaiyin Power Plant of RMB2,650 million,
and cash consideration paid for the acquisition of minority interest of the
Jining Power Plant of RMB109 million, was RMB1,074 million. Net cash used in
financing activities, primarily representing the repayment of long-term bank
loans and short-term loan of RMB2,955 million and RMB190 million, dividend
paid of RMB1,800 million, cash paid for redemption of convertible notes of
RMB2,235 million, was RMB7,324 million. As a result, the cash and cash
equivalents increased by RMB829 million, resulting in a balance of cash and
cash equivalents on December 31, 2002 of RMB3,003 million.
During the year ended December 31, 2001, net cash provided by
operating activities was approximately RMB5,919 million. The major
contributors, after adding back the RMB3,261 million major non-cash item of
depreciation and deducting the RMB247 million non-cash item of amortization of
negative goodwill, were an increase in profit before taxation to RMB4,237
million offset in part by a decrease of RMB370 million in accounts payable and
accrued liabilities and a decrease of RMB200 million in staff welfare and
bonus payable. During the year ended December 31, 2001, net cash used in
investing activities, primarily representing cash used in addition to
property, plant and equipment of RMB2,871 million, cash used in repayment of
payable to Nanjing Investment of RMB142 million, cash used in increasing
temporary cash investments of RMB4,665 million offset in part by cash inflow
from acquisition of Shandong Huaneng of RMB2,636 million, was RMB4,565
million. Net cash used in financing activities, primarily representing the
repayment of long-term bank loans, loans from shareholders and short-term loan
of RMB2,234 million, RMB209 million and RMB2,560 million, dividend paid of
RMB1,266 million less drawdown of short-term bank loans of RMB1,300 million
and net proceeds from issuance of domestic
42
shares of RMB2,770 million, was RMB1,170 million. As a result, the cash and
cash equivalents increased by RMB185 million, resulting in a balance of cash
and cash equivalents on December 31, 2001 of RMB2,173 million.
During the year ended December 31, 2000, net cash provided by
operating activities was approximately RMB5,643 million. The major
contributors, after adding back the RMB2,667 million major non-cash item of
depreciation and amortization were an increase in profit before taxation to
2,927 million and a decrease of RMB207 million in accounts receivable, offset
in part by a decrease of RMB359 million in accounts payable and accrued
liabilities. During the year ended December 31, 2000, net cash used in
investing activities, primarily representing cash used in prepayment of
consideration for the acquisition of Shandong Huaneng of RMB5,768 million,
cash used in capital expenditure of RMB352 million, cash used in repayment of
payable to Nanjing Investment of RMB100 million and cash provided by a
decrease in temporary cash investments of RMB956 million, was RMB5,318
million. Net cash used in financing activities, primarily representing the
repayment of long-term bank loans and loans from shareholders of RMB942
million and RMB737 million, as well as dividend paid of RMB509 million less
drawdown of short-term bank loans of RMB1,511 million, was RMB831 million. As
a results, the cash and cash equivalents decreased by RMB505 million,
resulting in a balance of cash and cash equivalents on December 31, 2000 of
RMB1,988 million.
Capital expenditures in 2002 were RMB1,594 million (US$193 million),
primarily for the construction of Dezhou Power Plant Phase III.
Capital expenditures in 2001 were RMB2,871 million (US$347 million),
primarily for the construction of Dezhou Power Plant Phase III.
Capital expenditures in 2000 were RMB352 million (US$43 million),
primarily for the construction of some complementary facilities of Fuzhou
Power Plant Phase II and Nantong Power Plant Phase II.
Capital expenditures have been financed by long-term borrowings and
cash from operations. Our anticipated capital expenditures will be financed by
cash in hand, cash from operations and future debt and equity offerings.
The terms of our existing bank and Local Government loans do not
restrict our ability to pay dividends in respect of our shares. In accordance
with the US$16 million Tax Spared Term Loan Agreement dated November 11,1996
(the "MCB Loan") between us and the Dai-ichi Kanyo Bank, Limited (reorganized
as the Mizuko Corporate Bank, Limited, Hong Kong ("MCB") in 2002), absent MCB
approval, we may not incur additional pari passu or subordinated debt other
than in ordinary course of business. MCB has agreed to waive this requirement
for the purposes of the Shidongkou II Acquisition, the Offering and Nanjing
Power Plant Acquisition. On December 31, 2002, US$5 million was outstanding
under the MCB Loan. Our other existing bank loan and Local Government loans do
not restrict its ability to incur additional pari passu or subordinated debt.
None of our loan is secured.
In connection with the Shidongkou II Acquisition, we assumed
approximately RMB1,386 million of foreign denominated loans and approximately
RMB490 million of HIPDC and bank loans denominated in RMB that were used to
finance the construction of the Shidongkou II. In connection with Shidongkou
II Acquisition, we had made four cash payments to HIPDC; RMB550 million paid
on December 31, 1997, (ii) RMB1,000 million paid on January 1, 1998, (iii)
RMB550 million paid on March 30, 1998 and (iv) RMB690 million paid on June 30,
1998.
In connection with the Nanjing Power Plant Acquisition, we assumed
approximately RMB252 million of foreign denominated loans and approximately
RMB444 million and RMB349 million of loans denominated in RMB on lent by HIPDC
and Nanjing Investment respectively. In connection with the Nanjing Power
Plant Acquisition, as of December 31, 2002 we had made a cash payment to HIPDC
amounted to approximately RMB1,111 million and a cash payment of RMB242
million to Nanjing Investment.
As of December 31, 2002, approximately RMB11,754 million of total
long-term debt, including long-term loans (including current portion),
convertible notes and accrued put premium was outstanding, of which
approximately RMB9,284 million was denominated in foreign currencies. Because
of the number of
43
different provinces in which we operate, we believe that operational failure
at any Power Plant would not affect our ability to make principal and interest
payments under our financing obligations.
Comparison of key financial ratios
---------------------------------------------------------------------
The Company and its subsidiaries
---------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------
Current ratio 1.00 1.21
---------------------------------------------------------------------
Quick ratio 0.88 1.13
---------------------------------------------------------------------
Debt to equity ratio 0.56 0.65
---------------------------------------------------------------------
Multiples of interest earned 8.28 5.35
---------------------------------------------------------------------
In 2002, we had utilized our internal cash resources to carry out the
acquisitions as described in "Item 4. Information on the Company-History and
Development of the Company", repay our borrowings and redeem our convertible
notes. Accordingly, both our current ratio and quick ratio decreased in 2002
when compared to those in 2001. In addition, as we had repaid our borrowings
during the year, which also resulted in a decrease in interest expenses, and
because of our increased net profit, our debt to equity ratio decreased but
our multiples of interest earned increased.
After the acquisition of Shidongkou I, Taicang Power Plant, Huaiyin
Power Plant and Changxing Power Plant, we still maintained our strong debt
repayment ability.
As of December 31, 2002, our loans denominated in foreign currencies
amounted to approximately US$1,122.0 million (including US$20 million
liability component of convertible notes), of which US$262 million was
repayable within one year. We will closely monitor the fluctuation in the
foreign exchange market and cautiously assess the exchange rate risk.
Most of our long-term loans were fixed-rate loans. As of December 31,
2002, our balance of the floating-rate loans and those of our subsidiaries
amounted to approximately US$433 million according to the loan agreements. We
made use of interest rate swap contracts, when appropriate, to manage the risk
of interest rate fluctuations.
Calculation formula of the financial ratio:
Debt to equity ratio = balance of liabilities at the
end of the year/ balance of
shareholders' equity at the end
of the year
Current ratio = balance of current assets at the
end of the year/balance of
current liabilities at the end
of the year
Quick ratio = (balance of current assets at
the end of the year -net amount
of inventory at the end of the
year)/ balance of current
liabilities at the end of the
year
Multiples of interest earned = (profit before taxation +
interest expenses)/ interest
expenditure (including
capitalized interest)
44
C. Tabular Disclosure of Contractual Obligations and Commercial Commitments
A summary of payments due by period of our contractual obligations and
commercial commitments as of December 31, 2002 is shown in the tables below. A
more complete description of these obligations and commitments is included in
the Notes to the Financial Statements as referenced below.
Contractual Cash Obligations
(RMB millions)
2003 2004-2005 2006-2007 Thereafter Total
---------------- ---------------- --------------- ----------------- ------------------
Long-term Debt (1) 2,414 3,718 1,671 3,795 11,598
Convertible Notes (2) - 156 - - 156
Operating Lease - Head office, Nanjing
Power Plant and Shidongkou II (3) 32 32 7 307 378
Operating Lease - Dezhou Power Plant
(3) 30 59 60 493 642
Interest Rate Swap (4) - 19 - - 19
---------------- ---------------- --------------- ----------------- ------------------
2,476 3,984 1,738 4,595 12,793
================ ================ =============== ================= ==================
Other Commercial Commitments
(RMB millions)
2003 2004-2005 2006-2007 Thereafter Total
-------------------- ----------------- --------------- ----------------- ------------------
Guarantee (5) 64 229
106 - 399
Commitment(3) 2,656 - - - 2,656
-------------------- ----------------- --------------- ----------------- ------------------
2,720 106 - 229 3,055
==================== ================= =============== ================= ==================
___________________
(1) See financial statements Note 23, "Long-term Loans from Shareholders",
Note 24, "Long-term Bank Loans" and Note 25, "Other Long-term Loans".
(2) See financial statements Note 22, "Convertible Notes".
(3) See financial statements Note 36, "Obligations and Commitments".
(4) See financial statements Note 38, "Interest Rate Swap". The amounts
due for the interest swap agreements are based on market valuation as
of December 31, 2002. Actual payment, if any, may differ at settlement
date.
(5) See financial statements Note 37, "Contingent Liabilities".
Sources of Fund for Future Acquisitions
Sources of fund for future acquisitions include internal surplus cash
and funds available through either equity financing or debt financing. As of
December 31, 2002, we had RMB3,000 million cash and cash equivalents, RMB1,142
million temporary cash investments and RMB12,204 million of undrawn borrowing
facilities from banks.
Impact of Inflation
China has experienced slight deflation during the period of 1999 to
2002, with the exception of year 2001, and therefore inflation has not had a
significant impact on our profitability or financial position in the same
period.
45
ITEM 6. Directors, Senior Management and Employees
A. Directors, members of the supervisory committee and senior management
As required by the Company Law, the Special Regulations of the State
Council for Overseas Stock Offerings and Listings by Joint Stock Limited
Companies and other implementing regulations (collectively, the "Company Law")
and the Articles of Association, we have formed the Supervisory Committee,
whose primary duty is the supervision of our senior management, including the
Chairman of the Board of Directors, the Board of Directors, the President and
other senior officers. The function of the Supervisory Committee is to ensure
that our senior management acts in the interest of us, our shareholders and
employees and does not abuse its power. The Supervisory Committee reports to
the shareholders in general meeting. The Articles of Association provide the
Supervisory Committee with the right to investigate the business and the
financial affairs of us and to request shareholders' meetings from time to
time.
The table below sets forth certain information concerning the
Directors and executive officers and members of the supervisory committee of
us (the "Supervisory Committee"). All Directors will serve a term of three
years or until the election of their respective successors. The term of the
current board will expire in December 2005.
Name Age Position with us
---- --- ----------------
Li Xiaopeng.................................................... 43 Chairman
Wang Xiaosong.................................................. 56 Vice Chairman
Ye Daji........................................................ 57 Director and President
Huang Jinkai................................................... 60 Director
Liu Jinlong.................................................... 61 Director
Na Xizhi....................................................... 49 Vice President
Chen Baoliang.................................................. 48 Vice President
Huang Long..................................................... 49 Vice President and Company Secretary
Hu Jianmin..................................................... 48 Vice President
Wu Dawei....................................................... 49 Vice President
Liu Guoyue..................................................... 39 Vice President
Li Shiqi....................................................... 46 Chief Economic Engineer
Huang Jian..................................................... 40 Chief Accountant
Shan Qunying................................................... 49 Director
Yang Shengming................................................. 59 Director
Xu Zujian...................................................... 48 Director
Gao Zongze..................................................... 63 Independent Director
Zheng Jianchao................................................. 63 Independent Director
Qian Zhongwei.................................................. 64 Independent Director
Xia Donglin.................................................... 41 Independent Director
Wei Yunpeng.................................................... 60 Chairman of the Supervisory Committee
Liu Shuyuan.................................................... 52 Vice Chairman of the Supervisory Committee
Zhao Xisheng................................................... 59 Member of the Supervisory Committee
Pan Jianmin.................................................... 47 Member of the Supervisory Committee
Li Yonglin..................................................... 57 Member of the Supervisory Committee
Shen Weibing................................................... 35 Member of the Supervisory Committee
Shen Zongmin................................................... 48 Member of the Supervisory Committee
Li Xiaopeng is Chairman of the Company, Chairman and President of
HIPDC, as well as President of China Huaneng Group. From June 1994 to December
2002, Mr. Li was Vice President, President and Vice Chairman of the Company as
well as Vice President, President and Vice Chairman of HIPDC and Chairman of
Huaneng Group. Before joining HIPDC, he had successively served as Engineer of
the Power System Research Division, as Deputy Division Chief of the Planning
and Operations Division, and as General Manager of the Power Technology and
Economic Research Division, Electric Power Research Institute. Mr. Li is a
senior engineer and graduated from the North China Institute of Electric Power
specializing in power plants and power systems.
46
Wang Xiaosong is Vice Chairman of the Company, Director and Vice
President of HIPDC, and Vice President of Huaneng Group. From June 1994 to
December 2002, he was General Manager of the Capital Market Department of the
Company, Vice President of the Company, Vice President of HIPDC and Director
of Huaneng Group. Before joining the Company, he had served as Deputy General
Manager of Fushun Power Plant, General Manager of Yuanbaoshan Power Plant and
Chief of the Labor and Wages Division of Northeast Power Administration. Mr.
Wang is a senior engineer and graduated from Beijing Institute of Electric
Power specializing in thermal power engineering.
Ye Daji is Director and President of the Company. After joining the
Company, he has been Deputy General Manager of Huaneng Shanghai Branch and
General Manager of Huaneng Shanghai Shidongkou Second Power Plant. From
December 1995, he was Vice President of the Company, Vice President of HIPDC
and Director of Huaneng Group. Before joining the Company, he had served as
Deputy Chief Engineer of Shidongkou I. Mr. Ye is a senior engineer and
graduated from Shanghai Jiaotong University specializing in mechanical
engineering.
Huang Jinkai is the Director of the Company. He served as Director
(General Manager) of the Northeast Power Administration, Chairman of the
Company, Chairman of HIPDC, General Manager (Director) of North China Power
Group Corporation (Power Administration) and Vice Chairman of Huaneng Group.
He is a senior engineer and graduated from Shenyang Agricultural Institute,
specializing in agricultural electrization.
Liu Jinlong is the Director of the Company. He served as General
Manager of Central China Power Group Corporation and Director of Central China
Power Administration, Chairman, General Manager, Vice Chairman of Huaneng
Group. Mr. Liu is a senior engineer and graduated from Wuhan Hydroelectric
Institute, specializing in power generation.
Na Xizhi is Vice President of the Company and Adjunct Deputy Chief
Engineer of Huaneng Group. Before he joined the Company, he served in Huaneng
Group as Deputy Manager of the Power Generation Department, General Manager of
the Operation Department, the Power Safety and Production Department, and
Deputy Chief Engineer of Huaneng Group. Previously, Mr. Na was the Vice
General Manager of Fuxin Power Plant, Deputy Officer of the Planning
Department of Suizhong Power Plant, Deputy Chief and Chief of the
Bio-technology Department of Northeast Power Administration Bureau, and
General Manager of Shenyang Zhenhai Thermal Power Plant. Mr Na is a senior
engineer. He graduated from Wuhan Hydro-electric University, specializing in
thermal power with a master of science degree.
Chen Baoliang is Vice President of the Company. He joined the Company
in 1996 and has worked as General Manager of Huaneng Dalian Branch and
Superintendent of Dalian Power Plant. Before joining the Company, he had been
Deputy Chief Engineer of Liaoning Qinghe Power Plant, Deputy Chief of the
Preparation Department and Deputy General Manager of the Construction of
Tieling Power Plant and Superintendent of Yuan Bao Shan Power Plant. Mr. Chen
is a senior engineer and graduated with an M.S. degree from North China
Electric Power University specializing in thermal power engineering.
Huang Long is Vice President of the Company as well as Secretary of
the Board of Directors. After joining the Company, he has served as Deputy
General Manager and General Manager of the International Co-operation
Department of the Company. Mr. Huang is a senior engineer and graduated with
an M.S. degree from North Carolina State University in the U.S. specializing
in communications and control.
Hu Jianmin is Vice President of the Company. From April 1998 to
January 2001, he worked as Chief Engineer of Shandong Electric Power Group
Corp. Before joining the Company, he had been Chairman of Shandong Rizhao
Power Company Limited, General Manager of Shandong Liaocheng Power Plant,
Shiheng Power Plant and Zouxian Power Plant respectively. Mr. Hu is a senior
engineer and graduated from Shandong Industrial Institute specializing in
relay protection.
Wu Dawei is Vice President of the Company. He joined the Company in
1988 and has served as Deputy General Manager of Huaneng Shanghai Shidongkou
Second Power Plant, Deputy Manager of Shanghai branch of the Company, and the
General Manager of Huaneng Shanghai Shidongkou Second Power Plant. Mr. Wu is a
senior engineer. He has obtained a Master of Business Administration degree
from the Central Europe International Business School.
47
Liu Guoyue is Vice President of the Company. He joined the Company in
1987 and has served as the Deputy General Manager, Vice President and
President of Shijiazhuang as well as the President of Huaneng Dezhou Power
Plant. Mr. Liu is a senior engineer, graduated from Northern China Electric
Power University with a bachelor degree in science and a bachelor degree in
business management.
Li Shiqi is the Chief Economic Engineer of the Company. During the
period from 1996 to 2002, he served as Chief Accountant of Beijing Branch
Company of HIPDC, Deputy General Manager and General Manager of the Finance
Department of the Company, and General Manager of the Marketing Department of
China Huaneng Group. Before these, Mr. Li worked in Power Science Institute as
Vice Supervisor, Deputy Chief, Chief and Deputy Chief Accountant and in
Beijing Power Research and Hi-Tech Business Corporation as Chief Accountant.
Mr. Li is a senior accountant and graduated from Renmin University of China,
specializing in finance.
Huang Jian is the Chief Accountant of the Company. He previously
served as Deputy Chief, Chief of the Finance Department of the Company, Chief
Accountant of the Beijing Branch Company of HIPDC, Deputy General Manager of
the Finance Department of the Company, Deputy Chief Accountant of the Company.
Mr. Huang is a senior accountant and graduated from Finance and Administration
Research Institute of the Ministry of Finance, specializing in accounting,
with a master degree.
Shan Qunying is Director of the Company and Vice President of Hebei
Provincial Construction Investment Company. He had been the Division Chief of
Hebei Provincial Construction Investment Company. Mr. Shan is a senior
engineer and graduated from the former Beijing Steel Institute specializing in
automation.
Yang Shengming is Director of the Company, Vice President of Fujian
International Trust and Investment Company Limited and Chairman of Fujian
International Leasing Company. Mr. Yang is a senior economist and graduated
from Beijing Light Industries Institute.
Xu Zujian is Director of the Company and Chairman of Jiangsu
Investment Management Co. Ltd. He was Vice President of Jiangsu International
Trust and Investment Company Limited, President of Jiangsu Province Investment
Management Co. Ltd., Director and Vice President of Jiangsu Province Guoxin
Asset Management Group Limited Company. Mr. Xu is a senior economist. He
graduated from Liaoning Finance Institute majoring in infrastructure finance.
Gao Zongze is an independent Director of the Company and Senior
Partner at C&I Partners. He is an approved arbitrator of China International
Economic and Trade Arbitration Commission and China Marine Affairs Arbitration
Commission and President of All China Lawyers Association. Mr. Gao graduated
from Dalian Marine Institute and received a master's degree in law from the
Law Department of the Graduate School of the Institute of China Academy of
Social Sciences.
Zheng Jianchao is an independent Director of the Company and Honorary
President of Electric Power Research Institute in China and Vice Chairman of
its Academic Committee. He was elected Fellow of Chinese Academy of
Engineering in 1995. He is Vice President of China Electrical Engineering
Institute, editor-in-chief of the Journal of Chinese Electrical Engineering
and chief of the Science and Technology Committee of China Guangdong Nuclear
Power Group Corporation. Mr. Zheng graduated from Qinghua University majoring
in electrical engineering and graduated from its Graduate School.
Qian Zhongwei is an independent Director of the Company and Vice
President of the United Association of China Electric Enterprises. He has been
the Deputy Chief Engineer, Chief Engineer and Deputy Chief of the Eastern
China Power Industry Management Bureau, Director of Shanghai Electricity
Bureau and President of Eastern China Power Group Company. Mr. Qian is a
senior engineer and graduated from the electrical engineering department of
Qinghua University.
Xia Donglin is an independent Director of the Company, a professor and
Ph.D. tutor of the Economic and Management School of Qinghua University. He is
also the Advisory Specialist of the Accounting Standard Committee of the PRC
Ministry of Finance, committee member of the China Accounting Society, and
independent director of Zhejiang Zhongda companies and other companies. He was
the head of Accounting Department of Economic and Management School of Qinghua
University. Mr. Xia is a certified public accountant (non-practicing member).
He graduated from the Finance and Administration
48
Science Research Institute of Ministry of Finance, specializing in accounting
and was awarded a Ph.D. degree of Economics.
Wei Yunpeng is Chairman of the Supervisory Committee of the Company,
Chief Accountant of Huaneng Group, Chief Accountant of HIPDC and Chairman of
China Huaneng Finance Limited Liability Company. He served as Chief Accountant
of the Company. He is a senior accountant. He graduated from Hunan Institute
of Electric Power, specializing in Finance and Accounting.
Liu Shuyuan is Vice Chairman of the Supervisory Committee of the
Company, President of Liaoning Enterprises Group Company and Liaoning Energy
Corporation. He has been the General Manager of Liaoning Tieling Steel Plant,
Director of Tieling Municipal Construction Commission and Assistant to the
Mayor. Mr. Liu is a senior economist and a postgraduate specializing in
economic management.
Zhao Xisheng is a member of the Supervisory Committee and Senior
Consultant of the Company. He has served as Deputy General Manager of the
Finance Department, General Manager of the Management Department of the
Company and the General Manager of the Company's Supervising and Auditing
Department. Before joining the Company, he served as Section Chief, Deputy
Chief Accountant and Deputy General Manager of Beijing Shijingshan Power
Plant. Mr. Zhao is a senior accountant and graduated from the People's
University of China specializing in industrial economics.
Pan Jianmin is a member of the Supervisory Committee of the Company
and General Manager of the Finance Department of China Huaneng Group. He has
served as Deputy Division Chief of the Finance Department and Deputy General
Manager of the Supervising and Auditing Department of China Huaneng Group and
Deputy General Manager of Beijing Huaneng Real Estate Development Company. Mr.
Pan is a senior accountant and graduated from Liaoning Economic and Finance
Institute specializing in infrastructure finance and credit.
Li Yonglin is a member of the Supervisory Committee of the Company and
Director of the Power Department of Dalian Municipal Construction Investment
Company. He was a departmental grade researcher of the Energy and
Transportation Department of Dalian Municipal Planning Committee. Mr. Li
graduated from Changchun Hydro-electric School of Ministry of Water Resources
and Electric Power, specializing in power plants and power system.
Shen Weibing is a member of the Supervisory Committee of the Company
and Chief Officer of Nantong Investment Management Center. He was the Vice
President and President of Nantong Municipal Oil Company, Vice President and
legal representative of Nantong Municipal Construction Investment Company, and
Deputy Chief Officer of Nantong Investment Management Centre. Mr. Shen
graduated from the Department of Materials Management of Beijing Materials
Management Institute. In 2002, he studied the MBA course in Nanjing University
and obtained a master degree in business administration. Mr. Shen is a senior
economist.
Shen Zongmin is a member of the Supervisory Committee of the Company
and President of Shantou Electric Power Development Company and Chairman of
Shantou Power Development Joint Stock Company Limited. Previously, he was the
President of Shantou Light Industry Mechanical (Group) Company.
B. Compensation of Directors and Officers
We paid RMB3,703,250 to our Directors members of Supervisory Committee
and senior management as aggregate cash compensation (including deferred
compensation such as contributions to pension funds and housing funds) for the
year ended December 31, 2002 for services performed as Directors, Supervisors
and officers or employees of us. In addition, Directors and Supervisors who
are also officers or employees of us receive certain other benefits-in-kind,
such as subsidized or free health care services, housing and transportation,
which are customarily provided by large enterprises in the PRC to their
employees. We do not have any service contract with any director that provides
for benefits upon termination of employment.
49
C. Board Practice
At the end of 2002, we, in accordance with the resolutions passed at a
shareholders' general meeting, set up four special committees, namely, the
Audit Committee, the Strategy Committee, the Nomination Committee, and the
Remuneration and Appraisal Committee, and formulated the working regulations
for such committees in accordance with the relevant rules and regulations. All
committees will operate in accordance with the working rules and utilize their
members' specific background, experience and industry expertise to provide
advice to us, so as to enhance our operation efficiency and to make the
decision-making process more rationalized.
The main duties of the Audit Committee are to provide proposal in
relation to the appointment or change of external auditors, to oversee the
internal audit system and its implementation, to co-ordinate the communication
between the internal audit department and external auditors, to examine the
financial information and its disclosure; and to oversee the internal control
system.
The main duties of the Strategy Committee are to advise on, and
conduct research in relation to, its long term development strategies and
decisions regarding significant investments.
The main duties of the Nomination Committee are to conduct study and
provide advice in relation to the requirements for selection of directors and
managers and the relevant procedures; to search for the qualified candidates
of directors and managers, and to examine the candidates of directors and
managers and advise matters in relation thereto.
The main duties of the Remuneration and Appraisal Committee are to
conduct research on the appraisal guidelines for directors and managers, to
carry out performance appraisals and provide advice accordingly, and to
conduct research on the remuneration policy and proposal regarding the
directors and senior management.
The members of Audit Committee are Mr Xia Donglin (Chairman), Mr Wang
Xiaosong, Mr Shan Qunying, Mr Zheng Jianchao, Mr Qian Zhongwei.
The members of Strategy Committee are Mr Li Xiaopeng (Chairman), Mr
Zheng Jianchao (Vice-chairman), Mr Wang Xiaosong, Mr Ye Daji, Mr Huang Jinkai,
Mr Liu Jinlong, Mr Qian Zhongwei.
The members of Nomination Committee are Mr Qian Zhongwei (Chairman),
Mr Huang Jinkai, Mr Yang Shengming, Mr Gao Zongze and Mr Zheng Jianchao.
The members of Remuneration and Appraisal Committee are Mr Gao Zongze
(Chairman), Mr. Liu Jinlong, Mr Xu Zujian, Mr Zheng Jianchao and Mr Xia Donglin
D. Employees
As of December 31, 2002, we employed 15,222 persons. Of these, 2,031
are headquarters management staff and power plant level management personnel,
8,061 are power plant personnel directly involved in the operation of the
power plants and the remainder are maintenance personnel, ancillary service
workers and others. Approximately 32% of our work force graduated from
university or technical college.
We conduct continuing education programs for our employees at the head
office and at each Power Plant. We provide training in language, computer,
accounting and other areas to our professionals and technicians in their
relevant fields. Employees are trained in accordance with the different
requirements for professional and managerial positions.
We have reformed the labor system by introducing individual labor
contracts. Currently, all employees are employed under employment contracts
which specify the employee's position, responsibilities, remuneration and
grounds for termination. Short-term employment contracts have fixed terms of
typically one to five years, at the end of which they may be renewed with the
agreement of both us and the employee. The remaining personnel are employed
for an indefinite term.
50
The contract system imposes discipline, provides incentives to adopt
better work methods and provides us with a greater degree of management
control over its work force. We believe that, by linking remuneration to
productivity, the contract system has also improved employee morale.
Each of our power plants also has a trade union and the employees of
our headquarters are also members of a trade union. These trade unions protect
employee's rights, aim to fulfill our economic objectives, encourage employees
to participate in management decisions and mediate disputes between us and
union members. We have not been subject to any strikes or other labor
disturbances interfering with our operations, and we believe that our
relations with our employees are good.
Total remuneration of our employees includes salary, bonuses and
allowances. The employees also receive certain benefits in the form of
housing, education and health services subsidized by us and other
miscellaneous subsidies.
In compliance with the relevant regulations, we and our employees
participate in the electric power industry pension plan under which all the
employees are entitled to upon retirement the pensions payments. See Note 8 to
the Financial Statements. Other pension payments to our retiring employees are
not required under applicable PRC laws and regulations.
We do not carry workmen's compensation or other similar insurance.
However, all employees (both contract and non-contract employees) who are
unable to work due to illness or disability, whether or not such illness or
disability is job-related, will continue, based on seniority, to receive some
or all of their base salary and certain subsidies throughout the period of
their absence, subject to certain PRC Government specified time limitations.
Employees who are unable to work due to job-related illnesses or disabilities
will receive certain compensation from us, depending on the severity of the
illness or disability. The present workmen's insurance reforms being
implemented by the central and local governments and our own implementation of
the joint stock limited company accounting and financial principles may result
in certain adjustments of the funding, management and payment methods for
these types of workmen's compensation arrangements.
E. Share Ownership
None of the people listed under "Directors, members of the
supervisory committee and senior management" owns any of our shares.
51
ITEM 7. Major Shareholders and Related Transactions
A. Major shareholders
Our outstanding ordinary shares consist of A Shares and H Shares, each
with a par value of RMB1.00 per share. The following table set forth certain
information regarding the ownership of the outstanding shares of us as of
December 31, 2002 with respect to (i) each person known by us to own
beneficially more than 5% of any class of the outstanding shares of us, (ii)
our directors and officers and (iii) local government investment companies.
Number of A Shares Number of H Shares Percentage of Total
Number of Shares
Outstanding
------------------- ------------------- -----------------------
(in thousands) (in thousands)
HIPDC............................................................. 2,554,840 -- 42.58%
Hebei Provincial Construction Investment Company.................. 452,250 -- 7.54%
Fujian International Trust & Investment Company Limited........... 334,850 -- 5.58%
Jiangsu Province International Trust and Investment Company
Limited........................................................ 312,375 -- 5.20%
Liaoning Energy Corporation....................................... 229,685 -- 3.83%
Dalian Municipal Construction & Investment Company................ 226,125 -- 3.77%
Nantong Investment Management Center.............................. 67,875 -- 1.13%
Shantou Electric Power Development Company........................ 46,500 -- 0.77%
Shantou Power Development Joint Stock Company Limited............. 19,000 -- 0.32%
Dandong Energy Investment Development Center...................... 6,500 -- 0. 11%
Officers and Directors............................................ -- -- 0.00%
TOTAL ....................................................... 4,250,000 -- 70.83%
When we were established on June 30, 1994, the assets, liabilities and
businesses of the Dalian, Fuzhou, Nantong and Shangan Power Plants (excluding
Shangan Power Plant Phase II) and Shantou Oil-Fired Plant were acquired by us
from HIPDC and, in return, HIPDC received a then 53.64% equity interest in us.
The local governments of the respective provinces or municipalities in which
the Dalian, Fuzhou, Nantong and Shangan Power Plants and Shantou Oil-Fired
Plant are located had previously extended long-term loans to these Power
Plants to finance their construction. Such loans were subsequently assigned to
the local government investment companies. In accordance with the Promoters'
Agreement dated February 28, 1994 (the "Promoters' Agreement") between HIPDC
and the local government investment companies (excluding Shantou Power
Development Joint Stock Company and Dandong Energy Investment Development
Center) and an understanding between HIPDC and these local government
investment companies, these local government investment companies agreed to
retire approximately RMB435 million of the loans extended to Dalian, Fuzhou,
Nantong and Shangan Power Plants and Shantou Oil-Fired Plant and to forfeit
certain rights to participate in profits of these five Power Plants in
exchange for a then aggregate of 46.36% of the equity in us.
HIPDC and the local government investment companies (excluding Shantou
Power Development Joint Stock Company and Dandong Energy Investment
Development Center) have entered into the Shareholders Agreement dated May 31,
1994 (the "Shareholders Agreement") which, among other things, grants to HIPDC
the right to vote all the shares owned by each of the other seven signatories
to the Shareholders Agreement so as to enable HIPDC to have majority voting
rights in general meetings for so long as we are in existence. The
Shareholders Agreement also provides that Directors designated by HIPDC will
have majority representation on our board of directors (the "Board of
Directors") and each of the other signatories to the Shareholders Agreement
will have one representative designated by it appointed as a member of the
Board of Directors. The Shareholders Agreement also provides that for so long
as we are in existence (i) HIPDC and the other signatories to the Shareholders
Agreement will maintain their combined shareholdings to ensure their
collective majority control of us, (ii) HIPDC has certain priority rights to
purchase the shares held by the other signatories to the Shareholders
Agreement and (iii) if HIPDC does not exercise its priority rights to purchase
such shares, each of the signatories to the Shareholders Agreement other than
HIPDC has a priority right to purchase such shares on a pro rata basis and
(iv) no shares may be sold or transferred unless their transferees agree to
abide by the terms of the Shareholders Agreement.
52
At the completion of the initial public offering in October 1994,
HIPDC and the local government investment companies (excluding Shantou Power
Development Joint Stock Company and Dandong Energy Investment Development
Center) have owned, respectively, 40.23% and 34.77% of the total number of our
outstanding shares.
On February 26, 1998, we placed 250 million H Shares at the price of
HK$4.40 per H Share or US$22.73 per ADS. Simultaneously with the H Share
placement, we issued 400 million A Shares to our controlling shareholder HIPDC
as part of the consideration paid for the acquisition of the Shidongkou II,
pursuant to the Shanghai Acquisition Agreement. After the completion of the H
Share Placement. HIPDC and the local government investment companies
(excluding Shantou Power Development Joint Stock Company and Dandong Energy
Investment Development Center) each has held 42.17% and 31.28% equity
interest, respectively.
On November 15 and 16, 2001, we issued successfully a total of
350,000,000 A shares in the PRC, of which 100,000,000 state-owned legal person
shares were placed to HIPDC at the same price. After the completion of the A
share issuance, the total share capital of the Company is 6,000,000,000
shares, HIPDC and the local government investment companies (excluding Shantou
Power Development Joint Stock Company and Dandong Energy Investment
Development Center) each held 42.58%, and 27.82% equity interest,
respectively.
As a result of the Shareholders Agreement, HIPDC currently has 70.4%
of the total voting rights of the outstanding shares. As a result, HIPDC will
continue to control us and will continue to have the power, subject to the
Shareholders Agreement, to control the election of all of our Directors and to
direct our management and policies.
In January 2000, Huaneng Group underwent a restructuring, in which
State Power Corporation transferred its 17.22% interest in HIPDC to Huaneng
Group. Huaneng Group became a 51.98% shareholder of HIPDC. At the same time,
Huaneng Group has granted us a preferential right to purchase interest in
existing power plants owned by Huaneng Group and the preferential right on all
future power development projects of Huaneng Group that we may realistically
develop.
B. Related party transactions
Guarantees
As of December 31, 2002, we had long-term loans of approximately
RMB5,544 million, RMB1,140 million and RMB280 million which were guaranteed by
HIPDC, Huaneng Group and WPDB, respectively.
Service Agreement
Pursuant to the Service Agreement, dated June 30, 1994 entered into
between HIPDC and us (the "Service Agreement") HIPDC has agreed to provide
certain services to us. The service fee payable by us to HIPDC for the use of
transmission and transformer facilities is calculated on the basis of overhaul
and maintenance expenses, financing charges, insurance premiums and taxes
payable by HIPDC relating to the transmission facilities and reasonable
profits to HIPDC (calculated on the basis of 10% of the current net fixed
asset value of the transmission facilities) and depreciation expenses (10% of
the original net fixed asset value of such transmission facilities on a
straight line basis) until depreciation is no longer calculated. HIPDC is
responsible for the repair and maintenance of such transmission facilities and
related costs. Other services and fees include: (i) the renting of office and
headquarters space by HIPDC to us at a yearly rental of RMB500,000; (ii) the
shared use of the satellite telecommunications facilities owned by HIPDC at a
yearly fee of RMB300,000; (iii) the training by HIPDC of our personnel for a
nominal fee plus reimbursement of HIPDC's actual out-of-pocket expenses if
both parties agree; and (iv) the provision of other consulting services
relating to production, operation and management of us, subject to payment of
service fees equal to at least HIPDC's actual costs to be mutually agreed. The
Service Agreement has a term of 10 years, excluding (i) and (ii) above which
expired on December 31,1999.
53
Lease Agreement
Pursuant to a leasing agreement between us and HIPDC signed on
December 26, 2000, HIPDC agreed to lease Tianyin Mansion with an area of
27,800 square meters to us for 5 years, and the annual rent is RMB25 million.
The Leasing Agreement was effective retroactive as of January 1, 2000.
T&T Service Agreement
Pursuant to the T&T Service Agreement we agreed to pay service fees to
HIPDC in relation to the provision of transmission and transformer facilities
for our newly constructed power plants, power plants under expansion and
acquired power plants which commence commercial operations after January 1,
1997 for a fixed fee equal to 12% of the original book value of the
transmission and transformer facilities as set forth in the financial
statements of HIPDC. The terms of the T&T Service Agreement are to be reviewed
after a period of 10 years.
Acquisitions from Huaneng Group in 2002
We made the following acquisitions from Huaneng Group in 2002, each of
which have been disclosed to our shareholders in more details in the
respective circulars distributed to them regarding each acquisition and each
has been approved by the independent shareholders.
Acquisitions of 70% of the equity interest in the registered capital
of Shidongkou I, 70% of the equity interest in the registered capital of
Taicang Power Plant, 44.16% of the interest in the registered capital of
Huaiyin Power Plant and the net assets of Changxing Power Plant formerly owned
by Huaneng Group. The acquisition increased our attributable generation
capacity by 1,687 MW. The consideration was RMB2,050 million.
Acquisition of the remaining 30% equity interest in the registered
capital of Shidongkou I and the additional 5% equity interest in the
registered capital of Taicang Power Plant formerly owned by Huaneng Group. The
acquisition increased our attributable generation capacity by 390 MW. The
consideration was RMB415 million.
Entrusted Management Agreement with Huaneng Group and HIPDC
In 2002, we entered into an Entrusted Management Agreement with
Huaneng Group and HIPDC in relation to the management of their thermal power
plants. Our services include, comprehensive planned management, annual planned
management, power operation and sale management, production management of
power plants, fuel management, construction management, financial management,
human resources and labor wages management, comprehensive affairs management,
shareholding management and reporting/co-ordination management. The Entrusted
Management Agreement has a term of 5 years. Upon the expiry of the Entrusted
Management Agreement, unless any party intends otherwise, it will continue to
be operational. The Entrusted Management Agreement may also be terminated by,
inter alia, (i) Huaneng Group and/or HIPDC giving 30 days notice to us or (ii)
we giving 90 days notice to Huaneng Group and/or HIPDC. The entrusted power
plants include 17 power plants currently managed by Huaneng Group with a total
net installed capacity of 10,799 MW and 5 power plants currently managed by
HIPDC with a total net installed capacity of 3,644 MW.
By entering into the Entrusted Management Agreement, we will further
accumulate management experience as a result of the expansion of our operation
scale and set a precedent for large-scale and multi-entities entrusted
management in the PRC. The Entrusted Management will also enable us to obtain
direct knowledge of the development status of more power markets, thereby
exploring new development opportunities.
The service fee payable by Huaneng Group and HIPDC comprises the
following three components:
(i) costs (including set-up, operational and other recurrent
items to be incurred by the Company in managing the Entrusted
Power Plants), namely RMB46 million per annum;
54
(ii) a premium to cover estimation risks which represents 10% of
the costs, namely RMB4.6 million per annum; and
(iii) an incentive / penalty component which is calculated based on
the confirmed results of the Entrusted Management and shall
not exceed 15% of the costs in (i), namely either an
incentive or a penalty of not more than RMB6.9 million per
annum.
The costs in (i) will be adjusted annually in accordance with the
Entrusted Management Agreement, which will be by reference to the inflation
rate of the previous year as published by the State Statistic Department and
the salary component of the service fee will be adjusted by the percentage
increase approved by our board.
The Entrusted Management Agreement has been disclosed to our
shareholders in more details in the circular distributed to them and has been
approved by the independent shareholders.
C. Interests of experts and counsel
N/A
ITEM 8. Financial Information
A. Consolidated Statements and Other Financial Information
See page F-1 to F-67.
Matters relating to our accountants
On March 28, 2002, our Board of Directors decided to no longer engage
Arthur Andersen & Co. and its PRC partner ("Arthur Andersen" or "AA") as our
independent public accountants and engaged PricewaterhouseCoopers and its PRC
partner ("PWC") to serve as our independent public accountants for the fiscal
year 2002. The appointment of PWC was approved by our shareholders at our 2001
Annual Meeting of Shareholders on May 15, 2002.
Arthur Andersen's reports on our financial statements for each of the
years ended 2001, 2000 and 1999 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.During the years ended December 31, 2001,
2000 and 1999 and through the date hereof, there were no disagreements with
Arthur Andersen on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
AA's satisfaction, would have caused them to make reference to the subject
matter in connection with their report on our financial statements for such
years.
Legal proceedings
We are not a defendant in any material litigation or arbitration and
no litigation or claim of material importance is known to us or any member of
the Board of Directors of us to be pending or threatened against us.
Dividend Distribution Policy
Our board of directors will determine the payment of dividends, if
any, with respect to our shares on a per share basis. Any final dividend for a
financial year shall be subject to shareholders' approval. The board may
declare interim and special dividends at any time under general authorization
by a shareholders' ordinary resolution. A decision to declare or to pay any
dividends in the future, and the amount of any dividends, will depend on our
results of operations, cash flows, financial condition, future prospects and
other factors which our directors may determine are important.
55
For holders of our H shares, cash dividend payments, if any, shall be
declared by our board of directors in Renminbi and paid in HK dollars. The
depositary will convert the HK dollar dividend payments and distribute them to
holders of ADSs in US dollars, less expenses of conversion.
Dividends may be paid only out of our distributable profits (less
allocations to the statutory funds which generally range from 15% to 20% of
our net income determined in accordance with PRC GAAP) and may be subject to
PRC withholding tax. Our Articles of Association limit our distributable
profits to the lower of the amount determined in accordance with PRC GAAP,
IFRS and US GAAP. Subject to the above, we expect to carry a positive,
balanced and stable dividend distribution policy.
On March 12, 2003, the Board of Directors proposed a dividend of
RMB0.34 per ordinary share, totaling approximately RMB2.040 billion for the
year ended December 31, 2002. The proposed dividend distribution was approved
at our 2002 Annual Meeting of Shareholders on May 28, 2003.
B. Significant Changes
None.
ITEM 9. The Offer and Listing
Offer and listing details and markets
The ADSs have been listed on the New York Stock Exchange since October
6, 1994. The table below sets forth, for the periods indicated, the high and
low closing prices of the ADSs on the New York Stock Exchange.
Closing Price Per ADS
-------------------------------------------------
High Low
------------------------ ------------------------
(US$) (US$)
1998.......................................................................... 26.06 6.5
1999.......................................................................... 17.44 8.38
2000.......................................................................... 18.94 7
2001.......................................................................... 24.91 16.75
2002.......................................................................... 35.82 23.06
2001 First Quarter........................................................ 21.26 16.75
Second Quarter....................................................... 26.23 20.80
Third Quarter........................................................ 24.16 19.20
Fourth Quarter....................................................... 24.91 20.85
2002 First Quarter........................................................ 28.97 23.06
Second Quarter....................................................... 35.82 26.60
Third Quarter........................................................ 34.90 27.67
Fourth Quarter....................................................... 33.27 25.50
2003 First Quarter........................................................ 38.43 31.36
2002 December............................................................. 33.27 31.01
2003 January.............................................................. 34.99 31.36
February............................................................. 36.84 33.00
March................................................................ 38.43 32.68
April................................................................ 39.80 34.75
May.................................................................. 42.35 37.14
____________________
Source: Reuters
Each ADS represents 40 Overseas Listed Foreign Shares. As of December
31, 2002, there were 72 registered holders of American Depositary Receipts
evidencing ADS.
56
On January 21, 1998, we listed our H shares on the Hong Kong Stock
Exchange. On February 26, 1998, we placed 250 million H Shares Placement at
the price of HK$4.40 per H share or US$22.73 per ADS. The table below sets
forth, for the periods indicated, the high and low closing prices of H shares
on the Hong Kong Stock Exchange.
Closing Price Per H shares
-------------------------------------------------
High Low
------------------------ ------------------------
(HK$) (HK$)
1998.......................................................................... 5.1 1.26
1999.......................................................................... 3.3 1.72
2000.......................................................................... 3.77 1.27
2001.......................................................................... 4.2 3.4
2002.......................................................................... 6.95 4.53
2001 First Quarter........................................................ 4.2 3.4
Second Quarter....................................................... 5.2 4.1
Third Quarter........................................................ 4.675 3.8
Fourth Quarter....................................................... 4.95 4.05
2002 First Quarter........................................................ 5.7 4.53
Second Quarter....................................................... 6.95 5.05
Third Quarter........................................................ 6.9 5.5
Fourth Quarter....................................................... 6.55 5.2
2003 First Quarter........................................................ 7.5 6.05
2002 December............................................................. 6.55 6.1
2003 January.............................................................. 6.8 6.05
February............................................................. 7.05 6.7
March................................................................ 7.5 6.4
April................................................................ 7.7 6.6
May.................................................................. 8.3 7.1
__________________
Source: Reuters
As of December 31, 2002, there were 75 registered holders of H Shares.
ITEM 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and articles of association
The information under the heading "Description of Capital Stock" in
the Registration Statement on Form F-3 filed with SEC on December 25, 1997 is
incorporated herewith by reference.
C. Material Contracts
D. Exchange controls
The existing foreign exchange regulations have significantly reduced
government foreign exchange controls for transactions under the current
account, including trade and service related foreign exchange transactions and
payment of dividends. We may undertake current account foreign exchange
transactions without prior approval from the State Administration of Foreign
Exchange by producing commercial documents evidencing such transactions,
provided that they are processed through Chinese banks licensed to engage in
foreign exchange transactions. The PRC government has stated publicly that it
intends to make the Renminbi freely convertible in the future. However, we
cannot predict whether the PRC government
57
will continue its existing foreign exchange policy and when the PRC government
will allow free conversion of Renminbi to foreign currency.
Foreign exchange transactions under the capital account, including
principal payments in respect of foreign currency-denominated obligations,
continue to be subject to significant foreign exchange controls and require
the approval of the State Administration of Foreign Exchange. These
limitations could affect our ability to obtain foreign exchange through debt
or equity financing, or to obtain foreign exchange for capital expenditures.
Since 1994, the conversion of Renminbi into Hong Kong and United
States dollars has been based on rates set by the People's Bank of China,
which are set daily based on the previous day's PRC interbank foreign exchange
market rate and current exchange rates on the world financial markets.
Although the Renminbi to US dollar exchange rate has been relatively stable
since 1994, we cannot predict nor give any assurance of its future stability.
Fluctuations in exchange rates may adversely affect the value, translated or
converted into US dollars or Hong Kong dollars, of our net assets, earnings
and any declared dividends. We cannot give any assurance that any future
movements in the exchange rate of the Renminbi against the US dollar and other
foreign currencies will not adversely affect our results of operations and
financial condition.
The following table sets forth the noon buying rates in New York for
cable transfers payable in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") for
the periods indicated:
Noon Buying Rate
-------------------------------
Period Period End Average(1) High Low
------ ---------- ---------- ---- ---
(expressed in RMB per US$)
1998.................................................... 8.2789 8.2968 8.3180 8.2774
1999.................................................... 8.2795 8.2785 8.2800 8.2770
2000.................................................... 8.2774 8.2784 8.2799 8.2768
2001.................................................... 8.2766 8.2770 8.2786 8.2676
2002.................................................... 8.2800 8.2772 8.2780 8.2759
2002 December....................................... 8.2800 ____ 8.2800 8.2768
2003 January....................................... 8.2768 ____ 8.2800 8.2768
February...................................... 8.2775 ____ 8.2800 8.2768
March......................................... 8.2774 ____ 8.2776 8.2770
April......................................... 8.2771 ____ 8.2774 8.2769
May 2003...................................... 8.2768 ____ 8.2771 8.2768
___________________
Source: Datastream
Note:
(1) Determined by averaging the rates on the last business day of each
month during the respective period.
E. Taxation
The following is a summary of (i) certain tax consequences from
acquiring, owning and disposing the H Shares and ADSs based on tax laws of the
PRC, the United States and Hong Kong SAR and the Income Tax Treaty between the
PRC and the United States (the "Tax Treaty") as in effect as of April 20,
2000, and is subject to changes in PRC or United States law, including changes
that could have retroactive effect, and (ii) the principal PRC taxes to which
we are subject. The following summary does not take into account or discuss
the tax laws of any country or region other than the PRC, the United States
and Hong Kong, nor does it take into account the individual circumstances of
an investor. This summary does not purport to be a complete technical analysis
or examination of all potential tax effects relevant to an investment in the H
Shares or ADSs and current and prospective investors in all jurisdictions of
the H Shares or ADSs are advised to consult their tax advisors as to PRC,
United States or other tax consequences of the purchase, ownership and
disposition of the H Shares or ADSs. This summary also does not purport to be
a complete technical analysis or examination of all potential PRC taxes that
may be levied upon us.
58
The People's Republic of China
Tax on Dividends
Individual Investors. According to the Provisional Regulations of
China Concerning Questions of Taxation on Enterprises Experimenting with the
Share System (the "Provisional Regulations"), dividends paid by PRC companies
are ordinarily subject to a PRC withholding tax levied at a flat rate of 20%.
However, the PRC State Tax Bureau issued, on July 21, 1993, a Notice
Concerning the Taxation of Gains on Transfer and Dividends from Shares
(Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and
Foreign Individuals ("Tax Notice") which states that dividends paid by a PRC
company to individuals with respect to shares listed on an overseas stock
exchange, such as H Shares (including H Shares represented by ADSs), would not
be subject to PRC withholding tax.
The Amendments to the Individual Income Tax Law of the PRC (the
"Amendments") were promulgated on October 31, 1993 and became effective on
January 1, 1994. The Amendments state that they shall supersede the provisions
of any contradictory prior administrative regulations concerning individual
income tax. The Amendments and the amended Individual Income Tax Law can be
interpreted as providing that foreign individuals are subject to withholding
tax on dividends paid by a PRC company at a rate of 20% unless specifically
exempted by the financial authority of the State Council. However, in a letter
dated July 26, 1994 to the SCRES, the State Securities Commission and the
China Securities Regulatory Commission, the PRC State Administration of
Taxation (the "SAT", the PRC central government tax authority which succeeded
the State Tax Bureau) reiterated the temporary tax exemption stated in the Tax
Notice for dividends received from a PRC company listed overseas. In the event
that this letter is withdrawn, a 20% tax may be withheld on dividends in
accordance with the Provisional Regulations, the Amendments and the Individual
Income Tax Law. Such withholding tax may be reduced pursuant to an applicable
double taxation treaty.
Under the Tax Treaty, China may tax a dividend paid by us to an
eligible US Holder up to a maximum of 10% of the gross amount of such
dividends.
Enterprises. According to the Income Tax Law of the PRC Concerning
Foreign Investment Enterprises and Foreign Enterprises, dividends paid by PRC
companies to enterprises are ordinarily subject to a PRC withholding tax
levied at a flat rate of 20%. However, according to the Tax Notice, a foreign
enterprise with no permanent establishment in China receiving dividends paid
with respect to a PRC company's H Shares will temporarily not be subject to
the 20% withholding tax. If such withholding tax becomes applicable in the
future, the rate could be reduced pursuant to an applicable double taxation
treaty.
Capital Gains Tax on Sales of Shares
There is no provision in the Share System Tax Regulations of the PRC
that capital gains realized on the sales or dispositions of shares by
shareholders are subject to capital gains tax. Furthermore, a ruling issued by
the State Tax Bureau on July 21, 1993 (the "July 21, 1993 Notice") provides
that a foreign enterprise selling or disposing of shares of a PRC corporation
listed overseas not having its own establishment in the PRC will be exempt
from PRC income tax on such capital gains. With respect to shareholders who
are foreign individuals, whether or not resident in the PRC, the PRC's
Individual Income Tax Law, which superseded the July 21, 1993 Notice with
respect to this particular matter, provides that such capital gains realized
by individuals will be taxable and authorizes the State Tax Bureau to
promulgate implementing regulations. However, in April 1994 the State Tax
Bureau expressed its intention not to impose the tax for two years. In March
1996, the Ministry of Finance and the State Tax Bureau jointly issued a notice
stating that personal income tax shall not be collected on capital gains
realized on the sales or dispositions of shares in 1996. Under a notice issued
by the State Taxation Bureau in 1993, foreign enterprises are temporarily
exempted from capital gains tax on sales or disposition of ADSs or H Shares,
and a notice issued by the PRC Ministry of Finance and the PRC State Tax
Bureau in 1996 temporarily exempting individuals from capital gains tax on the
sale or disposition of ADSs or H Shares has expired. There can be no assurance
that such exemption will be available. In the event that capital gains tax is
imposed on gains from the sale or disposition of H Shares or ADSs, foreign
holders would be subject to a 20% tax unless reduced by an applicable
double-taxation treaty. Pursuant to the terms of the Tax Treaty, gains derived
from the alienation of H Shares or ADSs by a Foreign Holder that is a resident
of the United States for purposes of the Tax Treaty should not be subject to
PRC tax; provided that such foreign holder
59
owns H Shares or ADSs which represent a participation of less than 25% in us.
The PRC has not, however, promulgated any rules or regulations that address
the procedures that a Foreign Holder must follow in order to claim the
benefits of the Tax Treaty. Accordingly, it is currently unclear how a Foreign
Holder may claim the benefits of the Tax Treaty.
Tax Treaties
Non-PRC Investors. Foreign Holders resident in countries which have
entered into double-taxation treaties with the PRC may be entitled to a
reduction of the withholding tax imposed on the payment of dividends to such
Foreign Holders of us. The PRC currently has double-taxation treaties with a
number of other countries, which include Australia, Canada, France, Germany,
Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United
States.
Stamp Tax
Under the Provisional Regulations of The People's Republic of China
Concerning Stamp Tax, PRC stamp tax is not imposed on the transfer of shares
of PRC publicly traded companies (including H Shares or ADSs) effected outside
China.
Taxation of the Company
Income tax Pursuant to the Income Tax Law of the People's Republic of
China concerning Foreign Invested Enterprises and Foreign Enterprises (the
"EIT Law"), Sino-foreign joint stock companies are subject to a 30% national
income tax plus 3% local income tax. In certain special zones, however, such
tax rate may be reduced. In addition, manufacturing FIEs with an operating
period of more than ten years enjoy a tax holiday of a two-year exemption and
a three-year 50% reduction starting from the first profit-making year.
We are a Sino-foreign joint stock company and enjoys the tax holiday
described above. Pursuant to Document 327 (1989) of the PRC State Tax Bureau,
the Dalian, Fuzhou, Nantong and Shangan Power Plants (excluding Shangan Power
Plant Phase II) and Shantou Oil-Fired Plant, which previously belonged to
HIPDC, were subject to income tax supervision by the local tax bureaus and
were entitled to calculate each of their tax holidays separately. Following
the Reorganization, we have continued to pay tax pursuant to the EIT Law, so
these five Power Plants enjoyed the tax holidays available to them prior to
the Reorganization. The tax holiday for each of these five Power Plants has
expired. For new projects, including the Shantou Power Plant, each new plant
will enjoy its own tax holiday to be calculated separately.
All of our power plants, except for Shidongkou I, Weihai Power Plant,
Taicang Power Plant and Huaiyin Power Plant, are subject to a 15% national
income tax, without considering the tax holiday described above.
Value-added Tax Since January 1, 1994, the government has implemented
a turnover tax system applicable to FIEs. Under the turnover tax provisions,
we have to collect from our electricity customers and pay to the PRC tax
authorities a value-added tax ("VAT") on our sales. The tax rate on sales of
electricity by us 17% of total sales. The amount of VAT payable by us is this
VAT on sales reduced by the VAT paid by us on our purchases of coal, fuel and
other inputs.
F. Dividends and paying agents
Not applicable.
G. Statement by experts
Not applicable.
H. Documents on display
60
We are subject to the information reporting requirements of the
Securities Exchange Act and, in accordance with the Act, file certain reports
and other information with the SEC. You may read and copy and report,
statement or other information filed by us at the SEC's public reference rooms
in Washington, D.C., New York and Chicago, Illinois. Please call the SEC at
1-800-0330 for further information on the public reference rooms.
I. Subsidiary Information
Not applicable.
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in foreign currency
exchange rates, interest rates and fuel prices.
Foreign currency exchange rate risk exists with respect to (i) our
indebtedness denominated in currencies other than Renminbi and (ii) its
equipment purchase commitments. Fluctuations in exchange rates may lead to
significant fluctuations in the exposure of our foreign currency denominated
liabilities.
We are subject to market rate risks due to fluctuations in interest
rates, principally as a result of our indebtedness that bears interests at
variable rates. To mitigate our exposure to interest rate risks, we entered
into certain interest rate swap agreements for the total notional amount of
US$52 million with a weighted average rate of 6.43% per annum. We use such
interest rate swap transactions solely for risk hedging purposes. As of
December 31, 2002, the notional amount of interest rate swap agreements which
we were exposed to was approximately US$52 million.
We are also exposed to market rate risk due to fluctuations in fuel
prices, mainly coal prices. For the year ended December 31, 2002, our total
fuel costs were RMB6,916 million and the weighted average unit fuel cost was
RMB101.20 per MWh.
The following table provides information, by maturity date, regarding
our foreign currency sensitive financial instruments, which consist of cash
and cash equivalent, temporary cash investments, long-term debt obligations,
convertible notes and capital commitments as of December 31, 2002.
61
As of December 31, 2002
-----------------------------------------------------------------------------------------
Expected maturity date Total
recorded
value Fair value
-----------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter
-----------------------------------------------------------------------------------------
(RMB expressed in million, except interest rate)
On-balance sheet financial
instruments
Cash and cash equivalents:
in US$ 187 - - - - - 187 187
in RMB 2,816 - - - - - 2,816 2,816
Temporary cash investments:
in US$ 360 - - - - - 360 360
in RMB 782 - - - - - 782 782
Debts:
Fixed rate banks and other loans
(US$) 566 588 588 588 588 2,616 5,534 5,966
Average interest rate 6.27% 6.27% 6.27% 6.28% 6.28% 6.28%
Convertible notes (US$) - 156 - - - - 156 191
Average interest rate - 1.75% - - - -
Variable rate banks and other
loans (US$) 1,607 1,350 81 86 71 389 3,584 3,472
Average interest rate(1) 2.25% 2.19% 1.63% 1.57% 1.46% 1.38%
Capital commitments (in US$) 245 - - - - - 245 245
___________________
(1) The interest rates for variable rate banks and other loans are
calculated based on the year end indice.
62
The following table provides information, by maturity date, regarding
our interest rate sensitive financial instruments, which consist of fixed and
variable rate short-term and long-term debt obligations, as of December 31,
2002.
As of December 31, 2002
-----------------------------------------------------------------------------------------
Expected maturity date Total
recorded
value Fair value
-----------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter
-----------------------------------------------------------------------------------------
(RMB expressed in million, except interest rate)
Debts
Fixed rate banks and other
loans 807 1,324 963 708 806 3,406 8,014 8,271
Average interest rate 6.16% 6.16% 6.15% 6.17% 6.16% 6.16%
Convertible notes - 156 - - - - 156 191
Average interest rate - 1.75% - - - -
Variable rate banks and other
loan 1,607 1,350 81 86 71 389 3,584 3,472
Average interest rate(1) 2.25% 2.19% 1.63% 1.57% 1.46% 1.38%
___________________
(1) The interest rates for variable rate banks and other loans are
calculated based on the year end indice.
ITEM 12. Description of Securities Other than Equity Securities
Not applicable.
PART II
ITEM 13. Defaults, Dividend Arrearages and Delinquencies
None.
ITEM 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
None.
ITEM 15. Controls and Procedures
Our principal executive officer and principal financial officer have
evaluated the effectiveness of our disclosure controls and procedures (as
defined in the Exchange Act Rules 13a-14 and 15d-14) as of May 18, 2003 ("the
"Evaluation Date"), and they have concluded that, based on their evaluation,
our disclosure controls and procedures are effective as to ensure that
material information required to be in this annual report is made known to
them by others on a timely basis. There has been no significant change in our
internal controls or in other factors that could significantly affect these
controls subsequent to the Evaluation Date.
PART III
ITEM 17. Financial Statements
See pages F-1 through F-67 incorporated by reference.
63
Item 18. Financial Statements
Not applicable.
Item 19. Exhibits
1.1 Amended Articles of Association of Huaneng Power International,
Inc., incorporated by reference to Exhibit 1.1 of the Annual
Report on Form 20-F for the year ended December 31, 2001 filed
with the SEC.
3.1 Shareholders Agreement dated May 31, 1994, incorporated by
reference to Exhibit 9.1 of our Registration Statement on Form
F-1, filed with the SEC on August 24, 1994.
10.1 Section 906 Certifications, furnished.
64
this page is intentionally left blank
65
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF HUANENG POWER INTERNATIONAL, INC.
(Incorporated in the People's Republic of China with limited liability)
We have audited the accompanying consolidated balance sheets of Huaneng Power
International, Inc. (the "Company") and its subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of income, of cash
flows and of changes in shareholders' equity for each of the three years in
the period ended December 31, 2002. These financial statements are the
responsibility of the management of the Company and its subsidiaries. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Huaneng
Power International, Inc. and its subsidiaries as of December 31, 2002 and
2001 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with
International Financial Reporting Standards, as published by the International
Accounting Standards Board.
International Financial Reporting Standards vary in certain significant
respect from the accounting principles generally accepted in the United States
of America. The application of the latter would have affected the
determination of consolidated net income for each of the three years in the
period ended December 31, 2002 and the determination of consolidated
shareholders' equity at December 31, 2002 and 2001 to the extent summarized in
Note 42 to the consolidated financial statements.
PricewaterhouseCoopers
Hong Kong
March 12, 2003
F-1
HUANENG POWER INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(Amounts expressed in thousands of RMB, except per share data)
The Company and its Subsidiaries The Company
------------------------------------------------------ -------------
Note 2002 2001 2000
---------- --------------------------------- ----------------- -------------
RMB US$ RMB RMB
Operating revenue, net 5 18,474,469 2,231,944 15,791,362 12,553,254
-------------- --------------- --------------- ---------------
Operating expenses
Fuel (6,916,038) (835,543) (5,147,364) (3,840,690)
Maintenance (607,951) (73,448) (765,712) (670,994)
Depreciation (3,533,609) (426,904) (3,261,001) (2,654,413)
Labor (1,035,740) (125,130) (807,136) (669,916)
Transmission fees (35,754) (4,320) (36,925) (17,094)
Service fees to HIPDC 7(a) (263,716) (31,860) (307,322) (310,742)
Others 14 (503,647) (60,847) (451,868) (482,507)
-------------- --------------- --------------- ---------------
Total operating expenses (12,896,455) (1,558,052) (10,777,328) (8,646,356)
-------------- --------------- --------------- ---------------
Profit from operations 5,578,014 673,892 5,014,034 3,906,898
-------------- --------------- --------------- ---------------
Interest income 83,015 10,029 113,081 79,723
Interest expense (561,875) (67,881) (867,538) (1,024,653)
Bank charges and exchange losses, net (31,405) (3,794) (41,758) (34,936)
-------------- --------------- --------------- ---------------
Total financial expenses (510,265) (61,646) (796,215) (979,866)
-------------- --------------- --------------- ---------------
Gain from disposal of investments 1,288 156 24,671 -
Share of loss of associates 11 (11,145) (1,346) (5,381) -
-------------- --------------- --------------- ---------------
Profit before tax 6 5,057,892 611,056 4,237,109 2,927,032
Income tax expense 32 (980,854) (118,499) (715,220) (411,202)
-------------- --------------- --------------- ---------------
Profit before minority interests 4,077,038 492,557 3,521,889 2,515,830
Minority interests 33 (156,034) (18,851) (71,231) -
-------------- --------------- --------------- ---------------
Net profit attributable to shareholders 3,921,004 473,706 3,450,658 2,515,830
============== =============== =============== ===============
Proposed dividend 21 2,040,093 246,468 1,800,000 1,243,000
============== =============== =============== ===============
Proposed dividend per share 21 0.34 0.04 0.30 0.22
============== =============== =============== ===============
Basic earnings per share 34 0.65 0.08 0.61 0.45
============== =============== =============== ===============
Diluted earnings per share 34 0.65 0.08 0.60 0.44
============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
F-2
HUANENG POWER INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2001
(Amounts expressed in thousands of RMB)
Note 2002 2001
----------------------------------------------------------------------------------
RMB US$ RMB
ASSETS
Non-current assets
Property, plant and equipment, net 10 41,103,468 4,965,806 37,557,114
Investment in an associate 11 200,960 24,278 226,488
Available-for-sale investments 13 254,990 30,806 -
Other long-term assets 1,067,838 129,008 970,759
Goodwill 14 126,560 15,290 -
Less: Negative goodwill 14 (1,978,227) (238,994) (2,225,505)
----------------------------------------------------------------------
Total non-current assets 40,775,589 4,926,194 36,528,856
----------------------------------------------------------------------
Current assets
Inventories, net 15 923,341 111,551 718,997
Other receivables and assets, net 16 242,905 29,346 240,545
Accounts receivable 17 2,361,833 285,339 1,407,171
Restricted cash 13,259 1,602 -
Temporary cash investments 18 1,141,502 137,908 6,224,070
Cash and cash equivalents 35(a) 3,002,601 362,751 2,173,136
----------------------------------------------------------------------
Total current assets 7,685,441 928,497 10,763,919
----------------------------------------------------------------------
Total assets 48,461,030 5,854,691 47,292,775
======================================================================
EQUITY AND LIABILITIES
Shareholders' equity
4,250,000,000 PRC Domestic Shares, par value
RMB1.00 each, in form of legal person shares 19 4,250,000 513,452 4,250,000
250,000,000 A shares, par value RMB1.00 each 19 250,000 30,203 250,000
1,500,273,960 Overseas Listed Foreign Shares,
par value RMB1.00 each 19 1,500,274 181,252 1,500,000
Additional paid-in capital 10,604,843 1,281,196 10,137,732
Dedicated capital 20 3,373,423 407,551 2,659,012
Equity component of convertible notes 22 44,647 5,394 510,506
Retained earnings 10,392,873 1,255,587 8,986,280
----------------------------------------------------------------------
Total shareholders' equity 30,416,060 3,674,635 28,293,530
----------------------------------------------------------------------
Minority interests 33 910,704 110,024 486,261
----------------------------------------------------------------------
Non-current liabilities
Liability component of convertible notes 22 155,999 18,847 -
Long-term loans from shareholders 23 388,891 46,983 777,717
Long-term bank loans 24 8,464,521 1,022,619 8,691,246
Other long-term loans 25 331,389 40,036 106,799
Other financial liabilities 38 19,397 2,343 14,875
Deferred tax liabilities 29 121,853 14,721 -
----------------------------------------------------------------------
Total non-current liabilities 9,482,050 1,145,549 9,590,637
----------------------------------------------------------------------
Current liabilities
Accounts payable and other liabilities 26 3,734,350 451,156 2,657,223
Taxes payable 27 620,189 74,926 521,193
Due to HIPDC 7 i 100,475 12,139 36,584
Due to other related parties - - 3,225
Staff welfare and bonus payable 233,566 28,217 376,193
Short-term loans 28 550,000 66,447 40,000
Current portion of long-term loans from
shareholders 23 388,891 46,983 15,565
Current portion of long-term bank loans 24 1,928,732 233,015 2,630,008
Current portion of other long-term loans 25 96,013 11,600 283,273
Liability component of convertible notes 22 - - 1,703,443
Put option of convertible notes 22 - - 655,640
----------------------------------------------------------------------
Total current liabilities 7,652,216 924,483 8,922,347
----------------------------------------------------------------------
Total equity and liabilities 48,461,030 5,854,691 47,292,775
======================================================================
The accompanying notes are an integral part of these financial statements.
F-3
HUANENG POWER INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(Amounts expressed in thousands of RMB)
The Company and its Subsidiaries The Company
------------------------------------- ----------
Note 2002 2001 2000
-------- ------------------------ ---------- ----------
RMB US$ RMB RMB
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 5,057,892 611,056 4,237,109 2,927,032
Adjustments to reconcile profit before tax to net cash
provided by operating activities:
Depreciation 3,533,609 426,904 3,261,001 2,654,413
Amortization of prepaid land use rights 16,847 2,035 14,359 12,536
Amortisation of goodwill and negative goodwill (246,128) (29,735) (247,279) -
Amortisation of other long-term assets 24,112 2,913 19,600 15,657
Provision for bad debts 15,826 1,912 1,030 4,588
(Reversal of provision)/provision for inventory
obsolescence (945) (114) 2,57 10,608
Gain from disposal of available-for-sale investments (1,288) (156) (24,671) -
Loss on disposals of fixed assets 31,980 3,864 36,592 50,879
Unrealised exchange gain 4,846 585 (1,429) (2,709)
Unrealised loss on put option of convertible notes 22 - - 46,562 -
Unrealised (gain)/loss on interest rate swaps (2,179) (263) 14,875 -
Share of loss of associates 11,145 1,346 5,381 -
Interest income (83,015) (10,029) (113,081) (79,723)
Interest expenses 561,875 67,881 867,538 1,024,653
Changes in working capital:
Restricted cash (13,259) (1,602) - -
Accounts receivable (496,559) (59,990) (28,510) 207,299
Inventories (39,272) (4,745) (62,063) (30,928)
Other receivables and assets 92,579 11,185 20,228 (112,103)
Due from HIPDC - - - 28,583
Accounts payable and other liabilities 279,019 33,709 (370,300) (359,046)
Taxes payable 44,070 5,324 (57,289) 36,087
Due to hipdc 65,891 7,960 (93,574) 130,158
Due to other related parties (3,225) (390) (49,118) -
Staff welfare and bonus payable (152,033) (18,367) (199,973) 123,622
Interest paid (733,600) (88,628) (715,846) (649,193)
Income tax paid (984,047) (118,885) (799,669) (428,693)
Interest received 95,577 11,547 154,847 79,641
------------ ---------- ----------- ----------
Net cash provided by operating activities 7,079,718 855,317 5,918,896 5,643,361
------------ ---------- ----------- ----------
(To be Continued)
F-4
HUANENG POWER INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS (CONT'D)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(Amounts expressed in thousands of RMB)
The company and its Subsidiaries The Company
-------------------------------------- ------------
Note 2002 2001 2000
-------- ------------------------ ---------- ------------
RMB US$ RMB RMB
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,594,210) (192,600) (2,870,858) (351,966)
Proceeds from disposals of fixed assets 41,567 5,022 32,904 17,872
Decrease in other long-term assets 3,412 412 81,646 (1,050)
Decrease (increase) in temporary cash investments 5,082,568 614,037 (4,665,290) 955,619
Proceeds from disposal of investments 2,390 289 384,569 (60,000)
Cash consideration paid for available-for-sale investment 13 (254,990) (30,806) - -
Repayment of payable to Nanjing Investment - - (141,641) (100,000)
Cash consideration paid for the Acquisition of Four Power
Plants 3(b) (2,050,000) (247,665) - -
Direct costs of the Acquisition of Four Power Plants paid 3(b) (17,042) (2,059) - -
Cash consideration paid for the acquisition of minority interest
of the Jining Power Plant 3(c) (109,435) (13,221) - -
Cash consideration paid for the Acquisition of additional
interest of three power plants 3(d) (600,000) (72,487) - -
Cash inflow from the acquired power plants 569,841 68,843 - -
Net cash inflow from the Acquisition of Shandong Huaneng 3(a) - - 2,635,695 -
Prepayment of consideration for Shandong Huaneng acquisition - - - (5,767,898)
Expenditures for Shandong Huaneng acquisition 3(a) - - (21,561) (10,096)
------------- --------- ------------ ------------
Net cash provided by (used in) investing activities 1,074,101 129,765 (4,564,536) (5,317,519)
------------- --------- ------------ ------------
cash flows from financing activities
Drawdown of short-term loans 120,000 14,497 1,300,000 1,511,000
Repayment of short-term loans (190,000) (22,955) (2,560,000) (261,000)
Repayment of long-term loans from shareholders (15,565) (1,880) (208,538) (737,270)
Drawdown of long-term bank loans 173,379 20,946 1,604,100 165,215
Repayment of long-term bank loans (2,954,748) (356,970) (2,233,721) (941,989)
Repayment of other long-term loans (283,683) (34,272) (575,179) (58,123)
Dividend paid to shareholders of the Company (1,800,000) (217,462) (1,266,317) (508,500)
Dividend paid to minority shareholders of the subsidiaries (138,947) (16,787) - -
Redemption of convertible notes (2,234,790) (269,990) - -
Net proceeds from issuance of Domestic Shares 19 - - 2,770,058 -
------------- --------- ------------ ------------
Net cash used in financing activities (7,324,354) (884,873) (1,169,597) (830,667)
------------- --------- ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 829,465 100,209 184,763 (504,825)
Cash and cash equivalents, beginning of year 2,173,136 262,542 1,988,373 2,493,198
------------- --------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR 35(a) 3,002,601 362,751 2,173,136 1,988,373
============= ========= ============ ============
The accompanying notes are an integral part of these financial statements.
F-5
HUANENG POWER INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(Amounts expressed in thousands of RMB)
Equity
Additioal Component of
Share Paid-in Convertible
Capital Capital Notes Retained
(Note19) (Note19) Dedicated Capital (Note 20) (Note 22 Earnings Total
-------------------------------------------------------------------------------------- -------
Statutory and
discretionary Statutory
surplus reserve public
fund welfare fund Sub-total
-------------------------------------
Balance at January 1, 2000 5,650,000 7,717,674 1,268,241 291,720 1,559,961 510,506 6,334,264 21,772,405
Dividend declared - - - - - - (508,500) (508,500)
Net profit for the year ended
December 31, 2000 - - - - - - 2,515,830 2,515,830
Transfer to dedicated capital - - 264,423 198,317 462,740 - (462,740) -
------------------------------------------------------------------------------------- -----------
Balance at December 31, 2000 5,650,000 7,717,674 1,532,664 490,037 2,022,701 510,506 7,878,854 23,779,735
Effect of adoption of IAS 39 (Note
22) - - - - - - (463,921) (463,921)
Dividend relating to 2000 - - - - - - (1,243,000) (1,243,000)
Net profit for the year ended
December 31, 2001 - - - - - - 3,450,658 3,450,658
Transfer to dedicated capital - - 363,606 272,705 636,311 - (636,311) -
Issuance and sale of 350,000,000
new Domestic Shares, net of
direct issuance costs (Note 19) 350,000 2,420,058 - - - - - 2,770,058
------------------------------------------------------------------------------------- -----------
Balance at December 31, 2001 6,000,000 10,137,732 1,896,270 762,742 2,659,012 510,506 8,986,280 28,293,530
Dividend relating to 2001 - - - - - - (1,800,000) (1,800,000)
Net profit for the year ended
December 31, 2002 - - - - - - 3,921,004 3,921,004
Conversion of convertible notes to
share capital (Note 22) 274 1,696 - - - (444) - 1,526
Redemption of convertible notes
(Note 22) - 465,415 - - - (465,415) - -
Transfer from statutory public
welfare fund to discretionary
surplus reserve fund - - 15,398 (15,398) - - - -
Transfer to dedicated capital - - 408,235 306,176 714,411 - (714,411) -
------------------------------------------------------------------------------------- -----------
Balance at December 31, 2002 6,000,274 10,604,843 2,319,903 1,053,520 3,373,423 44,647 10,392,873 30,416,060
===================================================================================== ===========
The accompanying notes are an integral part of these financial statements.
F-6
HUANENG POWER INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(Amounts expressed in RMB unless otherwise stated)
1. Company Organization and Principal Activities
Huaneng Power International, Inc. (the "Company") was incorporated in the
People's Republic of China (the "PRC") as a Sino-foreign joint stock
limited company on June 30, 1994. As of December 31, 2002, the Company and
its subsidiaries had 15,222 employees (2001: 9,350 employees; 2000: 5,602
employees).
The Company and its subsidiaries are principally engaged in the generation
and sale of electric power to the respective regional or provincial power
companies.
Particulars of the Company's, its subsidiaries' and its associate's power
plants are as follows:
Operating Plants Total installed
capacity of the
Company, its Equity portion of Province/
subsidiaries and total capacity of Municipality
associate (MW) the Company (MW) located
-------------------------------------------------------------------------------- ------------------ --------------------------------
Wholly owned power plants Five original operating plants:
Huaneng Dalian Power Plant (the "Dalian Power Plant") 700 700 Liaoning
Huaneng Shangan Power Plant (the "Shangan Power Plant") 700 700 Hebei
Huaneng Nantong Power Plant (the "Nantong Power Plant") 700 700 Jiangsu
Huaneng Fuzhou Power Plant (the "Fuzhou Power Plant") 700 700 Fujian
Huaneng Shantou Oil-Fired Plant (the "Shantou Oil-Fired Power Plant") 100 100 Guangdong
New operating plants:
Huaneng Shantou Coal-Fired Power Plant (the "Shantou Power Plant") 600 600 Guangdong
Huaneng Shangan Power Plant Phase II ( the "Shangan Phase II") 600 600 Hebei
Huaneng Shanghai Shidongkou Second Power Plant (the "Shanghai Power Plant") 1,200 1,200 Shanghai
Huaneng Dalian Power Plant Phase II (the "Dalian Phase II") 700 700 Liaoning
Huaneng Dandong Power Plant (the "Dandong Power Plant") 700 700 Liaoning
Huaneng Nantong Power Plant Phase II (the "Nantong Phase II") 700 700 Jiangsu
Huaneng Fuzhou Power Plant Phase II (the "Fuzhou Phase II") 700 700 Fujian
Huaneng Nanjing Power Plant (the "Nanjing Power Plant") 600 600 Jiangsu
Huaneng Dezhou Power Plant (the "Dezhou Power Plant") 2,520 2,520 Shandong
Huaneng Jining Power Plant (the "Jining Power Plant") (Note 3(c)) 300 300 Shandong
Huaneng Changxing Power Plant (the "Changxing Power Plant) (Note 3(b)) 250 250 Zhejiang
Shanghai Shidongkou Power Limited Company (the "Shidongkou First Power
Plant") (Note 3(b)(d)) 1,200 1,200 Shanghai
Subsidiaries:
Huaneng Weihai Power Plant (the "Weihai Power Plant") 850 510 Shandong
Suzhou Industrial Park Huaneng Power Limited Liability Company (the
"Taicang Power Company") (Note 3(b)(d)) 600 450 Jiangsu
Jiangsu Huaneng Huaiyin Power Limited Company (the "Huaiyin Power
Company") (Note 3(b)(d)) 400 255 Jiangsu
Associate:
Shandong Rizhao Power Company Ltd. (the "Rizhao Power Company") 700 178 Shandong
----------------- -----------------
Total 15,520 14,363
================= =================
The parent company and ultimate parent company of the Company are Huaneng
International Power Development Corporation ("HIPDC") and China Huaneng Group
Corporation ("Huaneng Group") respectively. Both companies are incorporated in
the PRC.
F-7
2. Accounting Policies
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below:
(a) Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") effective as of December 31, 2002 under the
historical cost convention. This basis of accounting differs
from that used in the preparation of the statutory financial
statements of the Company and its subsidiaries ("PRC
statutory financial statements"). The PRC statutory
financial statements of the Company and its subsidiaries
comprising the financial statements have been prepared in
accordance with the relevant accounting principles and
regulations applicable to the Company and its subsidiaries,
as appropriate in the PRC. Appropriate adjustments have been
made to the PRC statutory financial statements to conform
with IFRS. Differences arising from the restatement have not
been incorporated in the statutory accounting records of the
Company and its subsidiaries.
The consolidated financial statements are expressed in
Renminbi ("RMB''), the national currency of the PRC. Solely
for the convenience of the reader, the December 31, 2002
financial statements have been translated into United States
dollars (US$) at the rate of US$1.00=Rmb8.2773 announced by
the People's Bank of China on December 31, 2002. No
representation is made that Renminbi amounts could have
been, or could be, converted into United Stated dollars at
that rate on December 31, 2002, or at any other certain
rate.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Although these estimates are
based on management's best knowledge of current events and
actions, actual results ultimately may differ from those
estimates.
The Company and its subsidiaries adopted IAS 39 Financial
Instruments: Recognition and Measurement in 2001 (see Note
2(u) and Note 22). The financial effects of adopting these
standards were reported in the 2001 year's consolidated
financial statements.
F-8
(b) Principles of consolidation
(i) Subsidiaries
Subsidiaries, which are those entities in which the Company
has an interest of more than one half of the voting rights
or otherwise has power to govern the financial and operating
policies are consolidated.
Subsidiaries are consolidated from the date on which control
is transferred to the Company and are no longer consolidated
from the date that control ceases. The purchase method of
accounting is used to account for the acquisition of
subsidiaries. The cost of an acquisition is measured as the
fair value of the assets given up, shares issued or
liabilities undertaken at the date of acquisition plus costs
directly attributable to the acquisition. The excess of the
cost of acquisition over the fair value of the net assets of
the subsidiary acquired is recorded as goodwill. See Note
2(f) for the accounting policy on goodwill. Intercompany
transactions, balances and unrealized gains on transactions
between group companies are eliminated; unrealized losses
are also eliminated unless cost cannot be recovered. Where
necessary, accounting policies of subsidiaries have been
changed to ensure consistency with the policies adopted by
the Company.
Details of the Company's subsidiaries are set out in Note 12.
F-9
2. Accounting Policies (Cont'd)
(b) Principles of consolidation (cont'd)
(ii) Associates
----------------
Associates are entities over which the Company generally has
between 20% and 50% of the voting rights, or over which the
Company has significant influence, but which it does not
control. Investments in associates are accounted for by the
equity method of accounting. Under this method the company's
share of the post-acquisition profits or losses of
associates is recognized in the income statement and its
share of post-acquisition movements in reserves is
recognized in reserves. The cumulative post-acquisition
movements are adjusted against the cost of the investment.
Unrealized gains on transactions between the Company and its
associates are eliminated to the extent of the Company's
interest in the associates; unrealized losses are also
eliminated unless the transaction provides evidence of an
impairment of the asset transferred. When the Company's
share of losses in an associate equals or exceeds its
interest in the associates, the Company does not recognize
further losses, unless the Company has incurred obligations
or made payments on behalf of the associates.
Details of the Company's associate are set out in Note 11.
(c) Foreign currency translation
(i) Measurement currency
-------------------------
Items included in the financial statements of each entity in
the Company and its subsidiaries are measured using the
currency that best reflects the economic substance of the
underlying events and circumstances relevant to that entity
("the measurement currency").The consolidated financial
statements are presented in Renminbi ("RMB"), which is the
measurement currency of the Company and its subsidiaries.
(ii) Transactions and balances
-------------------------------
Foreign currency transactions are translated into the
measurement currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions
and from the translation of monetary assets and liabilities
denominated in foreign currencies, are recognized in the
income statement.
Translation differences on debt securities and other
monetary financial assets measured at fair value are
included in foreign exchange gains and losses.
F-10
2. Accounting Policies (Cont'd)
(d) Property, plant and equipment
Property, plant and equipment are stated at historical cost
less accumulated depreciation and accumulated impairment
loss. When assets are sold or retired, their cost and
accumulated depreciation and accumulated impairment loss are
eliminated from the accounts and any gain or loss resulting
from their disposal is included in the income statement.
The initial cost of property, plant and equipment comprises
its purchase price, including import duties and
non-refundable purchase taxes and any directly attributable
costs of bringing the asset to its working condition and
location for its intended use.
Expenditures incurred after the property, plant and
equipment have been put into operation, such as repairs and
maintenance and overhaul costs, are normally charged to
income statement in the period the costs are incurred. In
situations where it can be clearly demonstrated that the
expenditures have resulted in an increase in the future
economic benefits expected to be obtained from the use of an
item of property, plant and equipment beyond its originally
assessed standard of performance, the expenditures are
capitalized as an additional cost of property, plant and
equipment.
Depreciation is calculated on a straight-line basis to write
off the cost, after taking into account the estimated
residual value, of each asset over its estimated useful
life. The estimated useful lives are as follows:
Buildings 22 years
Electric utility plant in service 8-27 years
Transportation facilities 13-27 years
Others 6-13 years
The useful life and depreciation method are reviewed
periodically to ensure that the method and period of
depreciation are consistent with the expected pattern of
economic benefits from items of property, plant and
equipment.
Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately
to its recoverable amount.
Construction-in-progress represents plant and properties
under construction and is stated at cost. This includes the
costs of construction, plant and machinery and other direct
costs. Construction-in-progress is not depreciated until
such time as the relevant asset is completed and ready for
its intended use.
F-11
2. Accounting Policies (Cont'd)
(e) Investments
The Company and its subsidiaries adopted IAS 39, Financial
instruments: Recognition and Measement on January 1, 2001.
Accordingly, investments in debt and equity securities are
classified into the following categories: trading,
held-to-maturity and available-for-sale. The classification
is dependent on the purpose for which the investments were
acquired. Management determines the classification of its
investments at the time of the purchase and re-evaluates
such designation on a regular basis. Investments that are
acquired principally for the purpose of generating a profit
from short-term fluctuations in price are classified as
trading investments and included in current assets; for the
purpose of these financial statements short term is defined
as 3 months. Investments with a fixed maturity that
management has the intent and ability to hold to maturity
are classified as held-to-maturity and are included in
non-current assets, except for maturities within 12 months
from the balance sheet date which are classified as current
assets. Investments intended to be held for an indefinite
period of time, which may be sold in response to needs for
liquidity or changes in interest rates, are classified as
available-for-sale; and are included in non-current assets
unless management has the express intention of holding the
investment for less than 12 months from the balance sheet
date or unless they will need to be sold to raise operating
capital, in which case they are included in current assets.
Purchases and sales of investments are recognized on the
trade date, which is the date that the Company and its
subsidiaries commits to purchase or sell the asset. Cost of
purchase includes transaction costs. Trading and
available-for-sale investments are subsequently carried at
fair value. Held-to-maturity investments are carried at
amortised cost, which is the amount at which the investment
was measured at initial recognition less principal
repayments, plus or minus the amortization of any difference
between that initial amount and maturity amount by using the
effective yield method. Realized and unrealized gains and
losses arising from changes in the fair value of trading
investments are included in the income statement in the
period in which they arise. Unrealized gains and losses
arising from changes in the fair value of securities
classified as available-for-sale are recognized in equity.
The fair values of investments are based on quoted bid
prices or amounts derived from cash flow models. Fair values
for unlisted equity securities are estimated using
applicable price/earnings or price/cash flow ratios refined
to reflect the specific circumstances of the issuer. Equity
securities for which fair values cannot be measured reliably
are recognized at cost less impairment. When securities
classified as available-for-sale are sold or impaired, the
accumulated fair value adjustments are included in the
income statement as gains and losses from investment
securities.
F-12
2. Accounting Policies (Cont'd)
(f) Goodwill and negative goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Company's share of the net assets
of the acquired subsidiary/associate at the date of
acquisition, and negative goodwill represents the excess of
the fair value of the Company's share of the net assets of
the acquired subsidiary/associate over the cost of an
acquisition at the date of acquisition.
Goodwill and negative goodwill are amortized using the
straight-line method over its estimated useful life and
recognized in the income statement as other operating
expenses. Management determines the estimated useful life of
goodwill and negative goodwill based on the remaining
weighted average useful life of the identifiable acquired
depreciable/amortizable assets of the respective power plant
at the time of the acquisition.
At each balance sheet date the Company assesses whether
there is any indication of impairment. If such indications
exist, an analysis is performed to assess whether the
carrying amount of goodwill is fully recoverable. A write
down is made if the carrying amount exceeds the recoverable
amount.
(g) Impairment of long-lived assets
Property, plant and equipment and other non-current assets,
including goodwill and intangible assets are reviewed for
impairment losses whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized for the amount
by which the carrying amount of the asset exceeds its
recoverable amount which is the higher of an asset's net
selling price and value in use. The net selling price is the
amount obtainable from the sale of an asset in an arm's
length transaction less the cost of disposal while value in
use is the present value of estimated future cash flow
expected arise from the continuing use of an asset and from
its disposal at the end of its useful life. For the purposes
of assessing impairment, assets are grouped at the lowest
level for which there are separately identifiable cash
flows.
(h) Inventories
Inventories consist of fuel, materials and supplies. They
are stated at the lower of weighted average costs or net
realizable values after provision for obsolete items, and
are expensed to fuel costs or repairs and maintenance when
used, or capitalized to fixed assets when installed, as
appropriate. Cost of inventories includes direct material
cost and transportation expenses incurred in bringing the
inventories to the working locations.
F-13
2. Accounting Policies (Cont'd)
(i) Receivables
Receivables are carried at original invoice amount less
provision made for impairment of these receivables. A
provision for impairment of receivables is established when
there is an objective evidence that the Company and its
subsidiaries will not be able to collect all amounts due
according to the original terms of receivables. The amount
of the provision is the difference between the carrying
amount and the recoverable amount, being the present value
of expected cash flows, discounted at the market rate of
interest for similar borrowers.
(j) Temporary cash investments
Temporary cash investments are cash invested in fixed-term
deposits with original maturities ranging from more than 3
months to one year. Temporary cash investments are
classified as held-to-maturity investments and are carried
at amortized cost (see Note 2(e)).
(k) Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet
at cost. For the purposes of the cash flow statement, cash
and cash equivalents comprise cash on hand, deposits held at
call with banks, other short-term highly liquid investments
with original maturities of 3 months or less.
(l) Borrowings and convertible notes
Borrowings are recognized initially at the proceeds
received, net of transaction costs incurred. Borrowings are
subsequently stated at amortized cost using the effective
yield method; any difference between proceeds (net of
transaction costs) and the redemption value is recognized in
the income statement over the period of the borrowings.
The proceeds received on the issue of the convertible notes
were allocated into liability and equity components. Upon
initial recognition, the liability component represents the
present value, at the issuance date, of the contractually
determined stream of cash flows discounted at the market
interest rate for instruments of comparable credit status
providing substantially the same cash flows, on the same
terms, but without the conversion option. The equity
component is then determined by deducting the liability
component from the proceeds received on the issue of the
notes. After the initial recognition, the liability
component is measured at amortized cost.
As further discussed in Note 22, the convertible notes were
issued at par with a put option allowing the investors to
redeem the notes at a premium for cash at 128.575% of the
par value on May 21, 2002. The put option is accounted for
as an embedded derivative and separated from the host
contract. This embedded derivative is carried at fair value,
with changes in fair value included in the income statement
(See Note 2(u)).
F-14
2. Accounting Policies (Cont'd)
(l) Borrowings and convertible notes (cont'd)
The accounting treatments of the convertible notes prior to
the adoption of IAS 39 on January 1, 2001 is set out in
Note 22.
(m) Provisions
Provisions are recognized when the Company and its
subsidiaries have a present legal or constructive obligation
as a result of past events, it is probable that an outflow
of resources will be required to settle the obligation, and
a reliable estimate of the amount can be made. Where the
Company and its subsidiaries expect a provision to be
reimbursed, for example under an insurance contract, the
reimbursement is recognized as a separate asset but only
when the reimbursement is virtually certain.
(n) Equity transaction costs
Incremental external costs directly attributable to the
issue of new shares, other than in connection with business
combinations, are shown in equity as a deduction, net of
tax, from the proceeds. Share issue costs incurred, if any,
directly in connection with a business combination are
included in the cost of acquisition.
(o) Revenue and income recognition
Revenue and income are recognized when it is probable that
the economic benefits associated with the transaction will
flow to the Company and its subsidiaries and the amount of
the revenue and income can be measured reliably.
(i) Operating revenue, net
----------------------------
Net operating revenue represents amounts earned for
electricity generated and transmitted to the respective
regional or provincial power companies (net of value added
tax ("VAT") and deferred revenue). Revenues are earned and
recognized upon transmission of electricity to the power
grid controlled and owned by the respective power companies.
Under the tariff setting mechanism applicable to the Company
and its subsidiaries (except for the power plants acquired
in 2001 and 2002 (Note3)), major repairs and maintenance
determined on the basis of 1% of the fixed asset cost is
recovered through the current power rates. The Company
estimates that, over the useful life of its power plants,
this basis would approximate the total expenses for major
repair and maintenance actually incurred. In a particular
year, to the extent that the actual repair and maintenance
expenses incurred are less than the amount determined on the
above basis, the difference represents revenue collected in
excess of actual expenses incurred. Such difference is
recorded as deferred revenue (Note 26). For the power plants
acquired in 2001 and 2002, as there is no similar provision
in their tariff setting formula, no deferred revenue is
recorded.
F-15
2. Accounting Policies (Cont'd)
(o) Revenue and Income Recognition(cont'd)
(ii) Interest income
---------------------
Interest income from deposits in banks or other financial
institutions is recognized on a time proportion basis that
reflects the effective yield on the assets.
(p) Borrowing costs
Borrowing costs generally are expensed as incurred.
Borrowing costs are capitalized as part of the cost of
property, plant and equipment, if they are directly
attributable to the acquisition, construction or production
of a qualifying asset. Capitalization of borrowing costs
commences when the activities to prepare the asset are in
progress and expenditures and borrowing costs are being
incurred. Borrowing costs are capitalized until the assets
are substantially ready for their intended use. Borrowing
costs include interest charges and other costs incurred in
connection with the borrowing of funds, including exchange
differences arising from foreign currency borrowings used to
finance these projects to the extent that they are regarded
as an adjustment to interest costs.
(q) Operating leases
Leases where a significant portion of the risks and rewards
of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net
of any incentives received from the lessor) are charged to
the income statement on a straight-line basis over the
period of the lease.
(r) Taxation
(i) VAT
---------
Under the relevant PRC tax laws, the Company and its
subsidiaries are subject to VAT. The Company and its
subsidiaries are subject to output VAT levied at 17% of the
Company's and its subsidiaries' operating revenue. The input
VAT can be used to offset the output VAT levied on operating
revenue to determine the net VAT payable. Because the VAT is
a tax on the customer and the Company and its subsidiaries
collect such tax from the customers and pay such tax to the
suppliers on behalf of the tax authority, the VAT has not
been included in operating revenues or operating expenses.
F-16
2. Accounting Policies (Cont'd)
(r) Taxation(cont'd)
(ii) Income Tax
----------------
Effective from January 1, 1999, in accordance with the
practice notes on the PRC income tax laws applicable to
Sino-foreign enterprises investing in energy and
transportation infrastructure businesses, the reduced income
tax rate of 15% (after the approval of State Tax Bureau) are
applicable across the country.
Except for power plants acquired in 2001 and 2002 and
Shangan Phase II project, all the other power plants of the
Company are exempted from PRC income tax for two years
starting from the first profit-making year (after covering
any accumulated deficits) followed by a 50% reduction of the
applicable tax rate for the next three years ("tax
holiday").
The tax holiday of the five original operating plants, the
Shantou Coal-Fired Plant, the Shanghai Power Plant and the
Nanjing Power Plant had already expired prior to 2002. The
tax holiday of the remaining operating plants will expire in
2003.
F-17
2. Accounting Policies (Cont'd)
(r) Taxation (cont'd)
(ii) Income Tax (cont'd)
-------------------------
The statutory income tax is assessed on an individual power
plant basis, based on each of their results of operations.
The commencement dates of tax holiday of each power plant
are individually determined. The statutory income tax rates
applicable to the head office and the individual power
plants, after taking the effect of tax holidays into
consideration, are summarized below:
2002 2001 2000
------------ ------------------ -------------------
Head Office 15.0% 15.0% 15.0%
Dalian Power Plant (including Dalian Phase II) 18.0% 15.0% 15.0%
Shangan Power Plant 18.0% 16.5% 16.5%
Shangan Phase II * 9.0% 9.0% Exempted
Nantong Power Plant (including Nantong Phase II) 15.0% 15.0% 15.0%
Fuzhou Power Plant (including Fuzhou Phase II) 15.0% 15.0% 15.0%
Shantou Oil-Fired Plant 15.0% 15.0% 15.0%
Shantou Power Plant 7.5% 7.5% 7.5%
Shanghai Power Plant 16.5% 16.5% 16.5%
Nanjing Power Plant 15.0% 7.5% 7.5%
Dandong Power Plant - - -
Shandong Branch ** 17.0% 17.0% Not applicable
Dezhou Power Plant ** 17.0% 17.0% Not applicable
Jining Power Plant ** 15.0% 33.0% Not applicable
Changxing Power Plant ** 16.5% Not applicable Not applicable
Shidongkou First Power Plant ** 33.0% Not applicable Not applicable
Weihai Power Plant ** 33.0% 33.0% Not applicable
Taicang Power Company ** 33.0% Not applicable Not applicable
Huaiyin Power Company ** 33.0% Not applicable Not applicable
* In accordance with Guo Shui Han [2000] No. 194, the
tax holiday of the Shangan Phase II is determined
separately from the Shangan Power Plant. The Shangan
Phase II is entitled to a tax holiday starting from
the first profit making year (after covering any
accumulated deficits). The excess income tax paid by
Shangan Phase II for the year ended December 31, 1999
was refunded to the Company in 2000.
** Not applicable as they were not subsidiaries or
branches of the Company in 2001 and/or 2000.
The income tax charge is based on profit for the year
and after considering deferred taxation.
Deferred income tax is provided in full, using the
liability method, on temporary differences arising
between the tax bases of assets and liabilities and
their carrying amounts in the financial statements.
Currently enacted tax rates are used in the
determination of deferred income tax. Deferred tax
assets are recognized to the extent that it is
probable that future taxable profit will be available
against which the temporary differences can be
utilised. Deferred income tax is provided on temporary
differences arising on investments in subsidiaries and
associates, except where the timing of the reversal of
the temporary difference can be controlled and it is
probable that the temporary difference will not
reverse in the foreseeable future.
F-18
2. Accounting Policies (Cont'd)
(s) Employee benefits
Pension obligations
The Company and its subsidiaries have various defined
contribution plans in accordance with the local conditions
and practices in the provinces in which they operate. A
defined contribution plan is a pension plan under which the
Company and its subsidiaries pay fixed contributions into a
separate entity (a fund) and will have no legal or
constructive obligations to pay further contributions if the
fund does not hold sufficient assets to pay all employees
benefits relating to employee service in the current and
prior periods.
For defined contribution plans, the Company and its
subsidiaries pay contributions to publicly administered
pension insurance plans on a mandatory, contractual or
voluntary basis. Once the contributions have been paid, the
Company and subsidiaries have no further payment
obligations. The regular contributions constitute net
periodic costs for the year in which they are due and as
such are included in staff costs.
(t) Related parties
Parties are considered to be related if one party has the
ability, directly or indirectly, to control the other party
or exercise significant influence over the other party in
making financial and operating decisions. Parties are also
considered to be related if they are subject to common
control or common significant influence.
(u) Financial instruments
Financial instruments are classified as liabilities or
equity in accordance with the substance of the contractual
arrangement. Interest, dividends, gains and losses relating
to a financial instrument classified as a liability, are
reported as expense or income. Distributions to holders of
financial instruments classified as equity are charged
directly to equity. When the rights and obligations
regarding the manner of settlement of financial instruments
depend on the occurrence or non-occurrence of uncertain
future events or on the outcome of uncertain circumstances
that are beyond the control of both the issuer and the
holder, the financial instrument is classified as a
liability unless the possibility of the issuer being
required to settle in cash or another financial asset is
remote at the time of issuance, in which case the instrument
is classified as equity.
Financial instruments are reviewed for impairment at each
balance sheet date. For financial assets carried at
amortized cost, whenever it is probable that the Company and
its subsidiaries will not collect all amounts due according
to the contractual terms of loans, receivables or
held-to-maturity investments, an impairment or bad debt loss
is recognized in the income statement. Reversal of
impairment losses previously recognized is recorded when the
decrease in impairment loss can be objectively related to an
event occurring after the write-down. Such reversal is
recorded in income. However, the increased carrying amount
is only recognized to the extent it does not exceed what
amortized cost would have been had the impairment not been
recognized.
F-19
2. Accounting Policies (Cont'd)
(v) Contingencies
Contingent liabilities are not recognized in the financial
statements. They are disclosed unless the possibility of an
outflow of resources embodying economic benefits is remote.
A contingent asset is not recognized in the financial
statements but disclosed when an inflow of economic benefits
is probable.
(w) Dividends
Dividends are recorded in the financial statements of the
Company and its subsidiaries in the period in which they are
approved by the shareholders of the Company.
(x) Comparatives
When necessary, comparative figures have been reclassified
to conform with changes in the presentation in the current
year.
F-20
3. ACQUISITIONS
(a) Acquisition of Shandong Huaneng
-----------------------------------
On July 18, 2000, the Company and Shandong Huaneng Power Development
Co., Ltd ("Shandong Huaneng") entered into an agreement under which the
Company acquired the net assets of Shandong Huaneng. The shareholders of
Shandong Huaneng were entitled to RMB1.34 per ordinary A share or
US$0.1618 per ordinary N share (the "Acquisition of Shandong Huaneng").
The total consideration of the Acquisition was approximately RMB5,768
million paid in cash. Direct costs relating to the acquisition amounted
to approximately RMB32 million.
Before the Acquisition of Shandong Huaneng, Shandong Huaneng owned and
operated the net assets of Dezhou Power Plant and held 60%, 75% and
25.5% equity interests in Weihai Power Plant, Jining Power Plant and
Rizhao Power Company, respectively. These power plants own coal-fired
power generating facilities in the Shandong province and sell all the
power generated to Shandong Electricity Power Group Corporation
("SEPCO"). After obtaining all the necessary government approvals on the
Acquisition of Shandong Huaneng, the Company took over the control of
the net assets and operation of Shandong Huaneng from January 1, 2001.
The purchase method of accounting is used for the Acquisition of
Shandong Huaneng. The acquired identifiable assets and liabilities are
recorded based on their respective fair values on January 1, 2001. The
Company estimated that the fair value of the net identifiable assets and
liabilities of Shandong Huaneng on that date was approximately RMB8,272
million. Such estimation was made by the Company based on the
recoverability and realizability of each asset and liability. On the
above basis, the resulting negative goodwill amounted to approximately
RMB2,473 million (Notes 14), which is amortized over the remaining
weighted average useful life of the identifiable acquired
depreciable/amortizable assets (ie.10 years) on the straight-line basis,
starting from January 1, 2001.
F-21
3. ACQUISITIONs (Cont'd)
(a) Acquisition of Shandong Huaneng (Cont'd)
--------------------------------------------
RMB'000
------------------------------
Property, plant and equipment, net 6,427,841
Land use rights 170,807
Investment in an associate 231,869
Other long-term assets 99,210
Inventories 95,769
Other current assets 238,414
Short-term investments 301,000
Accounts receivable 182,589
Temporary cash investment 1,263,855
Cash and cash equivalents 2,635,695
Minority interest (240,083)
Long-term loans (1,808,458)
Current liabilities (1,326,169)
------------------------------
8,272,339
Less: Negative goodwill (2,472,784)
Less: Direct costs of acquisition (31,657)
------------------------------
Total consideration 5,767,898
==============================
Net cash inflow in 2001 from the acquisition of Shandong Huaneng 2,635,695
==============================
(b) Acquisition of the Four Power Plants
----------------------------------------
On May 9, 2002, the Company entered into an agreement with Huaneng Group
under which the Company agreed to acquire from Huaneng Group 70% equity
interest in Shidongkou First Power Plant, 70% equity interest in Taicang
Power Company, 44.16% equity interest in Huaiyin Power Company and all
of the assets and liabilities of Changxing Power Plant (the "Acquisition
of the Four Power Plants"). The total consideration for the Acquisition
of the Four Power Plants was RMB2,050 million paid in cash. Direct costs
relating to the acquisition amounted to approximately RMB18 million.
The Acquisition of the Four Power Plants became effective on July 1,
2002 when the Company obtained the ownership and control over the
relevant assets, after obtaining the necessary government approvals on
the acquisition and making payment of the purchase consideration on that
date.
F-22
3. ACQUISITIONS(Cont'd)
(b) Acquisition of Four Power Plants (Cont'd)
---------------------------------------------
The purchase method of accounting is used for the Acquisition of the
Four Power Plants. The acquired identifiable assets and liabilities are
recorded based on their respective fair values on July 1, 2002. The
proportionate share of the fair value of the net identifiable assets and
liabilities of the Four Power Plants on that date, before the subsequent
acquisition of additional interests of some of the power plants as
described in Note 3(d), was approximately RMB2,047 million. The
resulting goodwill on acquisition amounts to approximately RMB21
million, which is amortized over the remaining weighted average useful
life of the identifiable acquired depreciable/amortizable assets on the
straight-line basis, starting from July 1, 2002.
RMB'000
---------------------------------
Property, plant and equipment, net 4,295,712
Investment in an associate 271,598
Other long-term assets 109,504
Inventories 115,944
Other current assets 22,166
Accounts receivable 386,721
Cash and cash equivalents 431,257
Minority interest (582,731)
Long-term loans (2,009,735)
Deferred tax liabilities (81,107)
Current liabilities (911,835)
---------------------------------
2,047,494
Add: Goodwill 20,916
Less: Direct costs of acquisition (18,410)
---------------------------------
Total Consideration paid in 2002 2,050,000
Add: Direct costs of acquisition paid in 2002 17,042
Less: Cash inflow from the acquired power plants (431,257)
---------------------------------
Net cash outflow in 2002 from the acquisition of Four Power Plants
1,635,785
=================================
(c) Acquisition of minority interest of Jining Power Plant
----------------------------------------------------------
After obtaining all necessary approvals from relevant authorities, on
June 18, 2002, the Company acquired 25% equity interest from the
third-party minority shareholder in Jining Power Plant for a
consideration of approximately RMB109 million in cash. Purchase method
of accounting is used for this acquisition. As of the acquisition date,
the proportionate share of the fair value of the net identifiable assets
and liabilities of Jining Power Plant acquired was approximately RMB106
million. The resulting goodwill amounted to approximately RMB3 million.
F-23
3. ACQUISITIONs (Cont'd)
(d) Acquisition of additional interests of the three power plants
-----------------------------------------------------------------
On November 15, 2002, the Company entered into an agreement with Huaneng
Group under which the Company agreed to acquire from Huaneng Group the
remaining 30% equity interest in Shidongkou First Power Plant and
additional 5% equity interest in Taicang Power Company. Purchase method
of accounting is used for this acquisition. The total consideration and
direct cost of the acquisition was RMB419 million paid in cash. The
proportionate share of the fair value of the net identifiable assets and
liabilities of Shidongkou First Power Plant and Taicang Power Company as
of acquisition date was approximately RMB376 million. The resulting
goodwill amounted to approximately RMB43 million.
On December 26, 2002, the Company entered into an agreement with a third
party, Jiangsu Huaiyin Investment Company ("JHIC"), under which the
Company agreed to acquire 19.48% equity interest in Huaiyin Power
Company from JHIC. Purchase method of accounting is used for this
acquisition. The total consideration was RMB185 million paid in cash.
The proportionate share of the fair value of the net identifiable assets
and liabilities of Huaiyin Power Company as of acquisition date was
approximately RMB124 million. The resulting goodwill amounted to
approximately RMB61 million. Together with the goodwill arising from the
previous acquisition of 44.16% equity interests of Huaiyin Power
Company, the total goodwill arising from the acquisitions of Huaiyin
Power Company amounted to RMB82 million.
The acquisitions became effective on December 31, 2002 when the Company
obtained all necessary government approvals on the transaction and paid
the purchase consideration on that date.
After the completion of the Acquisition of the Four Power Plants and the
acquisition of additional interests of the three power plants, the
Company fully owns and operates the assets of Changxing Power Plant and
Shidongkou First Power Plant, and holds 75% equity interests in Taicang
Power Company and 63.64% equity interests in Huaiyin Power Company.
F-24
4. Financial risk management
(1) Financial risk factors
The Company and its subsidiaries' activities expose them to a
variety of financial risks, including the effects of changes in
debt and equity market prices, foreign currency exchange rates and
interest rates. The Company and its subsidiaries' overall risk
management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the
financial performance of the Company and its subsidiaries. The
Company and its subsidiaries use derivative financial instruments
such as interest rate swaps to hedge certain exposures.
(a) Interest rate risk
The Company's floating rate bank loans expose the Company
to interest rate risk. The Company uses derivative
instruments when considered appropriate, to manage
exposures arising from changes in interest rates by
entering into interest rate swap agreements with local
banks to convert certain floating rate bank loans into
fixed rate debts of the same principal amounts and for the
same maturities to hedge against cash flow interest rate
risk.
The interest rates and terms of repayment of the
convertible notes, shareholders loans, bank loans and
other loans of the Company and its subsidiaries are
disclosed in Notes 22, 23, 24, 25 and 28.
(b) Foreign currency risk
The Company and its subsidiaries have foreign currency
risk as the convertible notes and a significant portion of
its long-term bank loans and shareholder loans are
denominated in foreign currencies, principally US dollars,
as described in Note 23 and 24(b). Fluctuation of exchange
rates of Renminbi against foreign currencies could affect
the Company and its subsidiaries' results of operation.
(c) Credit risks
Significant portion of the Company and its subsidiaries'
cash and cash equivalents and temporary cash investments
maturing over 3 months are deposited with the four largest
state-owned banks of the PRC and a non-bank financial
institution in the PRC, which is a related party of the
Company.
Each power plant of the Company and its subsidiaries sells
the electricity generated to its sole customer (the
provincial or regional power company) in the province or
region where the power plant is situated.
F-25
4. Financial risk management (cont'd)
(2) Fair value estimation
The fair value of publicly traded derivatives and trading and
available-for-sale securities is based on quoted market prices at
the balance sheet date.
In assessing the fair value of non-traded derivatives and other
financial instruments, the Company and its subsidiaries use a
variety of methods and makes assumptions that are based on market
conditions existing at each balance sheet date. Quoted market
prices or dealer quotes for the specific or similar instruments
are used for long-term debt. Other techniques, such as option
pricing models and estimated discounted value of future cash
flows, are used to determine fair value for the remaining
financial instruments.
The face values less any estimated credit adjustments for
financial assets and liabilities with a maturity of less than one
year are assumed to approximate their fair values. The fair value
of financial liabilities for disclosure purposes is estimated by
discounting the future contractual cash flows at the current
market interest rate available to the Company and its subsidiaries
for similar financial instruments.
5. Sales of Electric Power
The Company and its subsidiaries have contractual arrangements for the
sale of electric power with the regional or provincial power companies.
The majority portion of the power output is sold at rates designed to
cover all operating and debt service costs, taxes and any exchange
losses incurred, plus a reasonable return on the Company's and its
subsidiaries' rate base.
For the years ended December 31, 2002, 2001 and 2000, all operating
revenues were billed at the on-grid wholesale rates to the local power
companies, except for the Shantou Oil-Fired Power Plant, the operating
revenues of which were billed at the retail rate and charged to the
ultimate consumers before June 1, 2001.
Upon the approval from local authorities, operating revenues of Shantou
Oil-Fired Power Plant have been billed at the on-grid wholesale rates to
the local power companies since June 1, 2001.
Before June 1, 2001, under the retail rate arrangement, the local power
company collected revenue from the ultimate consumers and remitted it to
the Shantou Oil-Fired Power Plant after deducting the cost of
transmission and an agreed amount of handling fees. The Shantou
Oil-Fired Power Plant recognized the gross amount received as revenue
with the reimbursement of transmission costs and payment of handling
fees to the local power company being separately recorded as
transmission fees under operating expense. For Shantou Oil-Fired Power
Plant after June 1, 2001 and other power plants subject to on-grid
wholesale rates, since such rates excluded the transmission costs
incurred by the local power companies, no transmission fees were
recorded.
F-26
6. Profit Before Tax
Profit before taxation was determined after charging and (crediting) the
following:
2002 2001 2000
------------------ ------------------- ----------------
`000 `000 `000
Interest expenses on convertible notes 47,904 108,581 146,762
Interest expenses on:
- bank loans repayable within 5 years 155,987 236,832 135,835
- bank loans repayable beyond 5 years 415,181 492,079 572,040
Interest expenses on:
- shareholders loans wholly repayable within 5 years 29,622 73,524 153,044
Interest expenses on other long-term loans wholly repayable
within 5 years 29,619 43,726 16,972
------------------ ------------------- ----------------
678,313 954,742 1,024,653
Less: Amount capitalized in property, plant and equipment (116,438) (87,204) -
------------------ ------------------- ----------------
Total interest expenses 561,875 867,538 1,024,653
Interest income (83,015) (113,081) (79,723)
Bank charges and exchange losses, net 31,405 41,758 34,936
Change in fair value on financial instruments:
- (Gain)/loss of interest rate swaps (2,179) 14,875 -
- Fair value change of put option - 46,562 -
Auditors' remuneration 10,750 12,747 7,119
Loss on disposals of fixed assets 31,980 36,592 50,879
Operating leases
- Buildings 27,566 25,000 25,000
- Land use rights 59,140 51,567 19,870
Depreciation of property, plant and equipment 3,533,609 3,261,001 2,654,413
Amortization of prepaid land use rights 16,847 14,359 12,536
Amortization of goodwill 1,150 - -
Amortization of other long-term assets 24,112 19,600 15,657
Amortization of negative goodwill (247,278) (247,279) -
Cost of inventories 7,100,336 5,337,630 4,001,614
Provision for doubtful accounts 15,826 1,030 4,588
Provision for inventory obsolescence - 2,576 10,608
Gain from disposal of available-for-sale investments (1,288) (24,671) -
Staff cost
- Wages and staff welfare 698,862 588,552 503,573
- Retirement benefits 142,734 107,301 80,608
- Staff housing benefits 78,612 56,406 36,473
- Other staff costs 115,532 54,877 49,262
F-27
7. Related Party Transactions
The related parties of the Company and its subsidiaries are as follows:
Name of related parties Nature of relationship
--------------------------------------------------------------------------- -------------------------------------
HIPDC Parent
Huaneng Group Ultimate parent
China Huaneng Finance Company ("Huaneng Finance") A subsidiary of Huaneng Group
Weihai Power Development Bureau ("WPDB") Minority shareholder of Weihai Power
Plant
China Huaneng International Trade Economics Corporation ("CHITEC") A subsidiary of Huaneng Group
a. Pursuant to the relevant service agreements, HIPDC provides
transmission and transformer facilities to some of the power
plants of the Company and receives service fees. Such service fees
represent recoverable costs for rate setting purposes. The total
service fees paid to HIPDC for the year ended December 31, 2002
was approximately RMB264 million (2001: RMB307 million, 2000:
RMB311 million).
b. At the time of the formation of the Company, HIPDC transferred the
land use rights pertaining to existing sites occupied by the five
original operating plants for a period of 50 years in return for
an amount of approximately RMB148 million. Payments to HIPDC for
the land use rights are being made in 10 equal, non-interest
bearing, annual installments starting in 1994.
c. In accordance with the leasing agreement entered into between the
Company and HIPDC, the land use rights of the Shanghai Power Plant
is leased to the Company for a period of 50 years at an annual
rental payment of RMB6 million.
d. Pursuant to a leasing agreement entered into amongst the Company,
HIPDC and Nanjing Investment Company ("Nanjin Investment"), the
land use right of the Nanjing Power Plant is leased to the
Company for 50 years with an annual rental payment of
approximately RMB1.3 million, starting from the year ended
December 31, 1999.
F-28
7. Related Party Transactions (CONT'D)
e. As of December 31, 2002, current deposits of approximately
RMB2,376 million (2001: RMB64 million) and fixed deposits of
approximately RMB570 million (2001: RMB3,689 million) were placed
with a non-bank PRC financial institution, Huaneng Finance, which
is a subsidiary of Huaneng Group (See Note 18).
f. Pursuant to the leasing agreement between the Company and HIPDC
signed on February 13, 2000, HIPDC agreed to lease its building
to the Company as office for 5 years at an annual rental of RMB25
million effective from January 1, 2000.
g. As described in Note 23 and Note 25, certain loans of the Company
and its subsidiaries were on-lent from HIPDC or borrowed from
WPDB and Huaneng Finance.
h. As of December 31, 2002, short-term loans amounting to RMB200
million were borrowed from Huaneng Finance (2001: RMB40 million)
(See Note 28).
i. As of December 31, 2002, the balances with HIPDC amounted to
RMB100 million(2001: RMB37 million) are unsecured, non-interest
bearing and repayable within one year.
j. As of December 31, 2002, long-term bank loans of approximately
RMB5,544 million, RMB1,140 million and RMB280 million (2001:
RMB8,868 million, RMB1,666 million and RMB300 million) were
guaranteed by HIPDC, Huaneng Group and WPDB, respectively.
k. On July 18, 2000, the Company and Shandong Huaneng entered into
an agreement under which the Company acquired the net assets of
Shandong Huaneng in which Huaneng Group held 33.09% equity
interest. The shareholders of Shandong Huaneng were entitled to
RMB1.34 per ordinary A share or US$0.1618 per ordinary N share.
The total consideration of the acquisition is approximately
RMB5,768 million, among which, approximately RMB1,909 million was
paid to Huaneng Group (see Note 3(a) ).
l. On May 9, 2002, the Company entered into an agreement with
Huaneng Group under which the Company agreed to acquire from
Huaneng Group 70% equity interest in Shidongkou First Power
Plant, 70% equity interest in Taicang Power Company, 44.16%
equity interest in Huaiyin Power Company and all of the assets
and liabilities of Changxing Power Plant . The total
consideration for the Acquisition of the Four Power Plants was
RMB2,050 million paid in cash (see Note 3(b)).
m. On November 15, 2002, the Company entered into an agreement with
Huaneng Group under which the Company agreed to acquire from
Huaneng Group the remaining 30% equity interest in Shidongkou
First Power Plant and an additional 5% equity interest in Taicang
Power Company. The total consideration of additional interest of
two power plants was RMB415 million paid in cash (see Note 3(d)).
F-29
7. Related Party Transactions (CONT'D)
n. In accordance with an equipment import agency service agreement
entered into between Shandong Huaneng and CHITEC, the Company is
required to pay an agency fee at 0.5% of the value of imported
equipment in return for the agency service provided by CHITEC.
For the year ended December 31, 2002, the Company paid an agency
fee to CHITEC amounted to RMB3 million (2001: RMB32 million,
2000: nil) for equipment transportation and insurance service
received.
o. On November 6, 2002, the Company has entered into a management
service agreement with Huaneng Group and HIPDC. Under the
management service agreement, the Company will assist in managing
certain power plants owned by Huaneng Group and HIPDC for a
service fee. As of December 31, 2002, the Company had not yet
commenced its management service and therefore no management
service income was recognized for the year.
F-30
8. Retirement Plan and Post-retirement Benefits
All PRC employees of the Company and its subsidiaries are entitled to a
monthly pension at their retirement dates. The PRC government is
responsible for the pension liability to these retired employees. The
Company and its subsidiaries are required to make contributions to the
state-sponsored retirement plan at a specified rate, currently set at
18% to 20%, of the basic salary of the PRC employees. The retirement
plan contributions paid by the Company and its subsidiaries for the year
ended December 31, 2002 was approximately RMB89 million (2001: RMB66
million, 2000: RMB42 million).
In addition, the Company and its subsidiaries have implemented a
supplementary defined contribution retirement scheme. Under this scheme,
the employees are required to make a specified contribution based on the
number of years of service with the Company and its subsidiaries, and
the Company and its subsidiaries are required to make a contribution
equal to two to three times the employees' contributions. The employees
will receive the total contributions upon their retirement. The
contributions paid by the Company and its subsidiaries for the year
ended December 31, 2002 was approximately RMB80 million (2001: RMB60
million, 2000: RMB39 million).
The Company and its subsidiaries have no further obligation for
post-retirement benefits beyond the above annual contributions made.
F-31
9. Directors', senior executives' and supervisors' emoluments
2002 2001 2000
--------------------- ------------------ --------------------
`000 `000 `000
Fees for executive directors - - -
Fees for non-executive directors - - -
Fees for supervisors - - -
Other emoluments for executive directors
- basic salaries and allowances 445 522 396
- bonus 1,027 1,128 544
- retirement benefits 263 148 134
Other emoluments for non-executive directors 1,118 - -
Other emoluments for supervisors 576 589 237
No director had waived or agreed to waive any emoluments during the year.
The annual emoluments paid during the year to each of the directors and
supervisors (including the five highest paid employees) fell within the band
from RMBnil to RMB1 million.
Details of emoluments paid to the five highest paid employees were:
2002 2001 2000
--------------------- ------------------ --------------------
`000 `000 `000
Basic salaries and allowances 477 404 223
Bonus 1,034 815 369
Retirement benefits 282 112 86
During the year, no emolument was paid to the five highest paid
individuals as an inducement to join or upon joining the Company or as
compensation for loss of office.
F-32
10. Property, Plant and Equipment, NET
Property, plant and equipment, net comprised:
2002 2001
---------------------------------------------------------------------------------------------------------
Electric
Utility Plant Transportation Construction-
Buildings in Service Facilities Others in-progress Total Total
-------------- --------------- --------------- ------------- --------------- ------------- --------------
`000 `000 `000 `000 `000 `000 `000
Cost
Beginning of year 1,712,190 42,729,399 580,791 858,872 4,133,597 50,014,849 40,912,177
Acquisition (Note 3) 265,873 4,441,536 8,079 91,608 116,394 4,923,490 6,427,841
Addition 86,943 8,831 113 43,931 2,117,565 2,257,383 2,816,240
Transfer from CIP 71,288 5,455,581 48,237 106,692 (5,681,798) - -
Disposals (39,063) (67,689) (2,350) (33,886) - (142,988) (141,409)
-------------- --------------- --------------- ------------- --------------- ------------- --------------
End of year 2,097,231 52,567,658 634,870 1,067,217 685,758 57,052,734 50,014,849
-------------- --------------- --------------- ------------- --------------- ------------- --------------
Accumulated Depreciation
Beginning of year 362,284 11,716,664 103,914 274,873 - 12,457,735 9,268,647
Charge for the year 58,564 3,218,755 23,218 233,072 - 3,533,609 3,261,001
Written back on disposals (1,800) (22,023) - (18,255) - (42,078) (71,913)
-------------- --------------- --------------- ------------- --------------- ------------- --------------
End of year 419,048 14,913,396 127,132 489,690 - 15,949,266 12,457,735
-------------- --------------- --------------- ------------- --------------- ------------- --------------
Net Book Value
End of year 1,678,183 37,654,262 507,738 577,527 685,758 41,103,468 37,557,114
============== =============== =============== ============= =============== ============= ==============
Beginning of year 1,349,906 31,012,735 476,877 583,999 4,133,597 37,557,114 31,643,530
============== =============== =============== ============= =============== ============= ==============
The generator units number 5 and 6 of the expansion project of Dezhou Phase
III were put into commercial operation on June 29, 2002 and October 13, 2002,
respectively.
Borrowing costs capitalized to construction-in-progress for the year ended
December 31, 2002 was approximately RMB116 million (2001: RMB87 million). The
capitalization rate used to determine the amount of borrowing costs eligible
for capitalization was 5.25% per annum for the year ended December 31, 2002
(2001: 5.75%).
There was no write-down of any property, plant and equipment during the year.
F-33
11. INVESTMENT IN an ASSOCIATE
2002 2001
----------------- ------------------
'000 '000
Beginning of year 226,488 -
Acquisition of 25.5% equity interest of Rizhao Power Company - 231,869
Acquisition of 44.16% equity interest of Huaiyin Power Company (Note 3(b)) 271,598 -
Share of results before tax (11,145) (5,381)
Share of tax (Note 32) (5,059) -
Transfer to investment in subsidiary as a result of acquisition of additional
interest (Note 3(d)) (280,922) -
----------------- ------------------
End of year 200,960 226,488
================= ==================
As of December 31, 2002, the following are details of the Company's
investment in an associate:
Name Country and date of Percentage of equity Issued and fully paid Principal activities
incorporation interest held capital
------------------------ ------------------------ ------------------------ ---------------------------- ----------------------
Rizhao Power Company PRC 25.5% US$150,000,000 Power generation
March 20, 1996
12. INVESTMENT IN SUBSIDIARIES
As of December 31, 2002, the Company had equity interests in the
following subsidiaries:
Country and date of Percentage of equity Issued and fully paid
Name of subsidiaries incorporation interest held capital Principal activities
-------------------------- ---------------------------- -------------------------- ----------------------- ---------------------
Weihai Power Plant PRC 60% RMB761,832,800 Power generation
November 22, 1993
Taicang Power Company PRC 75% RMB632,840,000 Power generation
June 19, 1997
Huaiyin Power Company PRC 63.64% RMB265,000,000 Power generation
January 26, 1995
F-34
12. INVESTMENT IN SUBSIDIARIES (CONT'D)
Summarized financial information of the two subsidiaries acquired in
2002, including Taicang Power Company and Huaiyin Power Company, was as
follows:
As of December 31, 2002
----------------------------
'000
Balance sheet
Current assets 576,600
Long-term assets 2,993,917
----------------------------
Total assets 3,570,517
============================
Current liabilities 462,326
Long-term liabilities 1,497,529
----------------------------
Total liabilities 1,959,855
============================
For the year ended
December 31, 2002
----------------------------
'000
Income statement
Revenue 1,559,287
Expenses (1,334,383)
----------------------------
Net profit 224,904
============================
13. AVAILABLE-FOR-SALE INVESTMENT
Available-for sale investment represents a 3% equity interest (unlisted)
in a newly established power generation company in the PRC.
The investment does not have a quoted market price in an active market.
There is no appropriate method to reliably measure its fair values.
Accordingly, the investment is stated at cost and subject to review for
impairment loss.
F-35
14. GOODWILL AND NEGATIVE GOODWILL
Goodwill and negative goodwill arose from acquisitions. Goodwill and
negative goodwill are recognized in the income statement as other
operating expenses and other operating income respectively on a
systematic basis over the remaining weighted average useful lives of the
identifiable acquired depreciable/ amortisable assets (see Note 3). The
movement of the carrying amount of goodwill and negative goodwill during
the year was as follows:
Goodwill Negative goodwill Total
------------------------- ------------------------- -------------------------
'000 '000 '000
Year ended December 31, 2001:
Beginning of year - - -
Addition from acquisitions (Note 3) - (2,472,784) (2,472,784)
Amortization for the year - 247,279 247,279
------------------------- ------------------------- -------------------------
End of year - (2,225,505) (2,225,505)
========================= ========================= =========================
As of December 31, 2001
Cost - (2,472,784) (2,472,784)
Accumulated amortization - 247,279 247,279
------------------------- ------------------------- -------------------------
Net book value - (2,225,505) (2,225,505)
========================= ========================= =========================
Year ended December 31, 2002:
Beginning of year - (2,225,505) (2,225,505)
Addition from acquisitions (Note 3) 127,710 - 127,710
Amortization for the year (1,150) 247,278 246,128
------------------------- ------------------------- -------------------------
End of year 126,560 (1,978,227) (1,851,667)
========================= ========================= =========================
As of December 31, 2002
Cost 127,710 (2,472,784) (2,345,074)
Accumulated amortization (1,150) 494,557 493,407
------------------------- ------------------------- -------------------------
Net book value 126,560 (1,978,227) (1,851,667)
========================= ========================= =========================
F-36
15. Inventories, NET
Inventories comprised:
2002 2001
-------------------------------- ------------------------------
`000 `000
Fuel (coal and oil) for power generation 434,726 224,131
Material and other supplies 500,854 508,050
-------------------------------- ------------------------------
935,580 732,181
Less: provision for obsolescence (12,239) (13,184)
-------------------------------- ------------------------------
923,341 718,997
================================ ==============================
As of December 31, 2002, approximately RMB396 million of the total
carrying amount of inventories are carried at net realizable value (2001:
RMB439 million).
16. Other Receivables and Assets, NET
Other receivables and assets comprised:
2002 2001
---------------------------- ----------------------------
`000 `000
Prepayments for inventories 6,113 94,954
Prepayments for contractors 20,356 16,900
Interest receivable on temporary cash investments 3,792 16,355
Current portion of long-term entrusted loan to Weihai
Power Plant - -
Receivable from Shantou Coal Port Group Company 70,000 -
Others 164,088 117,954
---------------------------- ----------------------------
264,349 246,163
Less: Provision for doubtful accounts (21,444) (5,618)
---------------------------- ----------------------------
242,905 240,545
============================ ============================
F-37
17. Accounts receivable
Accounts receivable comprised:
2002 2001
-------------------------------- ------------------------------
`000 `000
Accounts receivable (i) 1,889,083 1,254,941
Notes receivable (ii) 472,750 152,230
-------------------------------- ------------------------------
2,361,833 1,407,171
================================ ==============================
(i) The Company and its subsidiaries usually grant one month credit
period to all the local power companies from the end of the month in which the
sales are made.
As of December 31, 2002 the aging analysis of accounts receivable
was as follows:
2002 2001
--------------------------------- ------------------------------
`000 `000
Within one year 2,357,213 1,407,171
Between one to two
years 4,620 -
--------------------------------- ------------------------------
2,361,833 1,407,171
================================= ==============================
(ii) As of December 31, 2002, the maturity period of the notes
receivable ranged from one month to six months.
18. Temporary Cash Investments
Temporary cash investments consist of fixed-term deposits denominated in
Renminbi and US dollars with original maturities ranging from more than
three months to one year.
As of December 31, 2002, temporary cash investment included deposits of
approximately RMB570 million (2001: RMB3,689 million) placed with a
non-bank financial institution, Huaneng Finance, which is a subsidiary
of Huaneng Group (see Note 7(e)). The annual interest rate and interest
earned from Huaneng Finance were as follows:
2002 2001 2000
--------------------------- ------------------------- ---------------------------
Interest rate 1.71% 1.43%-2.44% 1.89%-2.25%
Interest earned 52 million 20 million 25 million
F-38
19. CapitaliZation
Authorized Share Capital
As of December 31, 2002, the authorized share capital of the Company was
RMB6,000,273,960, divided into 6,000,273,960 shares of RMB1.00 each. In
addition, the issued and fully paid share capital of the Company as of
December 31, 2002 was RMB6,000,273,960 (2001: RMB6,000,000,000)
comprising of 4,500,000,000 Domestic Shares and 1,500,273,960 Overseas
Listed Foreign Shares. The holders of Overseas Listed Foreign Shares and
Domestic Shares, with minor exceptions, are entitled to the same
economic and voting rights.
Public Offering in the PRC
On November 15 and November 16, 2001, 250,000,000 new ordinary shares
par value RMB1.00 each, in the form of A shares, were issued to the
public in a public offering on the Shanghai Stock Exchange at RMB7.95
per A share. The 250,000,000 A shares were listed on the Shanghai Stock
Exchange on December 6, 2001. Net issuing cost of RMB12.4 million were
incurred to sell the A shares and reduced the net proceeds. In addition,
on November 15, 2001, 100,000,000 new Domestic Shares of RMB1.00 each
were issued to HIPDC at RMB7.95 each.
Conversion of Convertible Notes to Share Capital
The noteholders converted the convertible notes with principal of
US$200,000 to 6,849 American Depositary Shares ("ADS") (273,960 H shares
equivalent) during the year ended December 31, 2002 (see Note 22).
20. APPROPRIATION AND DISTRIBUTION OF PROFIT
The Board of Directors decides on an annual basis the percentages of the
profit after tax, as determined under the PRC accounting standards and
regulations, to be appropriated to the statutory surplus reserve fund,
the statutory public welfare fund and, on an optional basis, the
discretionary surplus reserve fund. When the balance of the statutory
surplus reserve fund reaches 50% of the Company's share capital, any
further appropriation will be optional. The statutory surplus reserve
fund can be used to offset prior years' losses, if any, and may be
converted into share capital by the issue of new shares to shareholders
in proportion to their existing shareholding or by increasing the par
value of the shares currently held by them, provided that the balance
after such issue is not less than 25% of registered capital. The
statutory public welfare fund can only be utilized on capital items for
the collective benefits of the Company's employees. Titles of these
capital items will remain with the Company. This fund is
non-distributable other than in liquidation. The discretionary surplus
reserve fund can be provided and used in accordance with the resolutions
of the shareholders.
For the year ended December 31, 2002, the Board of Directors resolved
the following on March 12, 2003:
(i) to appropriate 10% and 7.5% (2001: 10% and 7.5%, 2000: 10% and
7.5%), respectively, of the profit after taxation as determined
under the PRC accounting standards and regulations to the
statutory surplus reserve fund and the statutory public welfare
fund, amounting to approximately RMB714 million (2001: RMB636
million, 2000: RMB463 million) in total;
(ii) to make no appropriation to the discretionary surplus reserve
fund.
F-39
20. APPROPRIATION AND DISTRIBUTION OF PROFIT (CONT'D)
In accordance with the Articles of Association, earnings available for
distribution by the Company will be based on the lowest of the amounts
determined in accordance with (a) the PRC accounting standards and
regulations, (b) IFRS and (c) US GAAP. The amounts of distributable
profit resulting from the current year operation after appropriation to
dedicated capital for the year ended December 31, 2002 was approximately
RMB3.18 billion (2001: RMB2.70 billion, 2000: RMB2.03 billion). The
cumulative balance of distributable profit as of December 31, 2002 was
approximately RMB9.13 billion (2001: RMB9.31 billion, 2000: RMB7.85
billion).
21. DIvidends
On March 12, 2003, the Board of Directors proposed a dividend of RMB0.34
(2001: RMB0.30, 2000: RMB0.22) per share, totaling approximately
RMB2,040 million (2001: RMB1,800 million, 2000: RMB1,243 million) for
the year ended December 31, 2002. The proposed dividend distribution is
subject to shareholders' approval in their next general meeting. These
financial statements do not reflect this dividend payable, which will be
accounted for in shareholders' equity as an appropriation of retained
earnings in the year ending December 31, 2003.
22. Convertible notes
In May 1997, the Company issued at par value convertible notes with an
aggregate principal amount of US$230 million at 1.75% due 2004. These
notes are listed on the New York Stock Exchange and the Luxemburg Stock
Exchange. The notes mature on May 21, 2004, unless previously redeemed
or converted.
The notes are convertible, at the option of the noteholders, at any time
from and including August 21, 1997 up to and including the date of
maturity, unless previously redeemed, at an initial conversion price of
US$29.20 per ADS, each of which represents 40 Overseas Listed Foreign
Shares, subject to adjustment in certain circumstances.
The notes were redeemable, at the option of the noteholders, in whole or
in part, on May 21, 2002 at 128.575% of the principal amount of the
notes together with accrued interest, if any.
F-40
22. Convertible notes (CONT'D)
The notes may be redeemed, at the option of the Company, at any time on
or after May 21, 2000, but prior to maturity, in whole or in part, at a
redemption price equal to 100% of the principal amount of the notes,
together with accrued interest, if any, if the closing price of the ADSs
for a period of 30 consecutive trading days is at least 130% of the
conversion price in effect on each such trading day.
The proceeds received were allocated for accounting purposes into a
liability component of approximately US$168 million (equivalent to
RMB1,393 million) and an equity component of approximately US$62 million
(equivalent to RMB511 million) at the issuance date.
Before May 21, 2002, the put option for the noteholders to redeem the
notes at 128.575% of the principal amount of the notes was accounted for
as an embedded derivative. It is separated from the host contract of the
convertible notes and measured at its fair value with changes in fair
value included in net profit or loss. The liability component is
measured at amortized cost.
The fair value of the put option was determined on the following basis:
(i) No fair value was attributed to the share conversion option.
Management believes that the probability of the noteholders
exercising the conversion option is very low because the
prevailing share price of the Company was significantly below
128.575% of the principal amount of the notes.
(ii) The fair value of the liability component was determined by
discounting the stream of future payments of interest and
principal at the prevailing market rate for a similar liability
(instrument of comparable credit status and providing
substantially the same cash flows, on the same terms, but without
the conversion option).
(iii) Given (i) and (ii) above, the fair value of the put option was
then determined by deducting the fair value of the liability
component from the prevailing market price of the convertible
notes.
At the beginning of 2001 in which IAS 39 was initially applied, the
Company recognized the put option of the convertible notes, which allows
the noteholders to redeem the convertible notes at a premium, as an
embedded derivative and measured it at fair value. The difference
between the previous carrying amount and the current fair value amounted
to approximately RMB229 million, which was recognized as an adjustment
to the opening retained earnings as of January 1, 2001.
In addition, in accordance with IAS 39, the liability component is
measured at amortized cost. The difference of approximately RMB235
million compared with the previous carrying amount was recognized as an
adjustment to the opening retained earnings as of January 1, 2001.
During the year ended December 31, 2001, the Company recorded a loss
amounting to approximately RMB47 million arising from the changes in the
fair value of the put option during the year.
F-41
22. Convertible notes (CONT'D)
On May 21, 2002, the noteholders, by exercising their put option rights,
redeemed a substantial portion of the convertible notes with an
aggregate principal amount of US$209,685,000,at 128.575% of the
principal amount together with accrued interest. Upon the redemption,
the equity component attributable to the redeemed portion of the
convertible notes amounting to approximately RMB465 million was
transferred to additional paid-in capital as of May 21, 2002. The net
shortfall of approximately RMB42 million between (a) the sum of the
relevant principal amount plus accrued interest and the 28.575% put
premium settled upon redemption and (b) the sum of the amortized cost of
the liability component attributable to the redeemed portion of the
convertible notes and the total carrying amount of the put option value
as of May 21, 2002, was charged to the income statement as interest
expense.
The noteholders converted the convertible notes with principal of
US$200,000 to 6,849 ADS (273,960 H shares equivalent) during the year
ended December 31, 2002 (2001: nil, 2000: nil). Upon the conversion, the
equity component attributable to the converted portion of the
convertible notes amounting to RMB0.44 million was transferred to
additional paid-in capital.
F-42
23. Long-term Loans from Shareholders
Long-term loans from shareholders comprised:
2002 2001
---------------------------- -------------------------
`000 `000
Foreign currency bank loans on-lent by HIPDC 777,782 793,282
============================ =========================
The foreign currency bank loans on lent by HIPDC bear interest at the
prevailing lending rates (both fixed and floating) prescribed by the
contracts, which ranged from 4.01% to 7.40% per annum for the year ended
December 31, 2002 (2001: 4.25% to 7.40%, 2000: 4.25% to 7.40%), and are
repayable in accordance with the repayment schedules set by the banks.
The amounts outstanding comprised:
2002 2001
-------------------------------------------------- ---------------------
Original Currency
`000 RMB'000 RMB'000
Amounts denominated in
United States Dollar ("US$") 93,966 777,782 778,429
Amounts denominated in Swiss Francs ("SFRC") - - 14,853
-------------------- ---------------------
777,782 793,282
==================== =====================
The shareholders' loans are repayable as follows:
2002 2001
-------------------------- ---------------------------
`000 `000
Within one year 388,891 15,565
Between one to two years 388,891 388,835
Between two to five years - 388,882
-------------------------- ---------------------------
777,782 793,282
Less: Amount due within one year included under current liabilities (388,891) (15,565)
-------------------------- ---------------------------
388,891 777,717
========================== ===========================
F-43
24. Long-term Bank Loans
Long-term bank loans comprised:
2002 2001
------------------------------------ ---------------
US$'000 RMB'000 RMB'000
Renminbi bank loans (a) - 2,053,000 1,430,213
United States dollar bank loans (b) 1,007,606 8,340,253 9,891,041
----------------- ---------------
10,393,253 11,321,254
================= ===============
a. Renminbi bank loans were borrowed from local banks to finance the
construction of the power plants of the Company and its
subsidiaries. These loans bore fixed interest rates from 5.76% to
6.21% per annum for the year ended December 31, 2002 (2001: 6.21%,
2000: 6.21%) and are repayable in accordance with the agreed
repayment schedules set by the banks.
b. United States dollar bank loans were borrowed to finance the
construction of the power plants of the Company and its
subsidiaries. These loans bore interest at lending rates (both
fixed and floating) ranging from 2.00% to 6.60% per annum for the
year ended December 31, 2002 (2001: 5.89% to 6.60%, 2000: 5.95% to
6.60%), and are repayable in accordance with the agreed repayment
schedules set by the banks. The Company had entered into interest
rate swap agreements with local banks to convert certain floating
rate bank loans into fixed rate debts to hedge against the
interest rate risk (See Note 38).
The long-term bank loans are repayable as follows:
2002 2001
---------------------------- -------------------------
`000 `000
Within one year 1,928,732 2,630,008
Between one to two years 2,179,281 1,777,844
Between two to five years 2,490,335 3,215,678
Over five years 3,794,905 3,697,724
---------------------------- -------------------------
10,393,253 11,321,254
Less: Amount due within one year included under current
liabilities (1,928,732) (2,630,008)
---------------------------- -------------------------
8,464,521 8,691,246
============================ =========================
F-44
25. OTHER Long-term LoanS
2002 2001
-------------------------- ---------------------------
`000 `000
Long-term loan from Nanjing Investment - 174,368
Long-term loan from WPDB (Note 7(g)) 106,389 215,704
Long-term loan from Huaneng Finance 225,000 -
Long-term loan from Jiangsu International Trust and Investment
Corporation 43,245 -
Long-term loan from Jiangsu Huaiyin Investment Company 25,050 -
Long-term loan from Jiangsu Electric Power Development Co., Ltd. 27,718 -
-------------------------- ---------------------------
427,402 390,072
========================== ===========================
The other long-term loans bear fixed interest rates prescribed by the
contracts, which ranged from 5.64% to 6.21% per annum for the year ended
December 31, 2002 (2001: 6.21%, 2000: 6.21%), and are repayable in
accordance with the repayment schedules set by the contracts.
Other long-term loans are repayable as follows:
2002 2001
------------------------ -----------------------------
`000 `000
Within one year 96,013 283,273
Between one to two years 106,389 -
Between two to five years 225,000 106,799
------------------------
427,402 390,072
Less: Amounts due within one year included under current liabilities (96,013) (283,273)
------------------------ -----------------------------
331,389 106,799
======================== =============================
F-45
26. Accounts Payable and OTHER Liabilities
Accounts payable and other liabilities comprised:
2002 2001
------------------------------ ----------------------------
`000 `000
Accounts payable 471,609 387,814
Deferred revenue (see Note 2(o)) 939,564 726,808
Payable to contractors for construction 1,333,448 716,956
Other payable to contractors 140,328 120,559
Accrued interest 115,861 200,978
Others 733,540 504,108
------------------------------ ----------------------------
3,734,350 2,657,223
============================== ============================
As of December 31, 2002, the aging analysis of accounts payable was as
follows:
2002 2001
----------------------------- -----------------------------
`000 `000
Within one year 465,624 373,270
Between one to two years 3,395 9,494
Over two years 2,590 5,050
----------------------------- -----------------------------
471,609 387,814
============================= =============================
F-46
27. Taxes Payable
Taxes payable comprised:
2002 2001
------------------------------ -----------------------------
`000 `000
VAT payable 291,456 209,020
Income tax payable 311,436 292,615
Others 17,297 19,558
------------------------------ -----------------------------
620,189 521,193
============================== =============================
28. Short-term LoanS
Short-term loans are denominated in Renminbi and bear interest at the
prevailing interest rates in the PRC, which ranged from 4.7790% to
5.5575% per annum for the year ended December 31, 2002 (2001: 5.30%,
2000: 5.02%), and are repayable within one year.
As of December 31, 2002, short-term loans amounting to RMB200 million
(2001: RMB40 million) were drawn from Huaneng Finance, which bore
interest at 5.5575% per annum for the year ended December 31, 2002
(2001: 5.30%)(see Note 7(h)).
29. DEFERRED INCOME TAXES
Deferred income taxes are calculated in full on temporary differences
under the liability method using the applicable tax rates for the
respective operating units.
The movement in deferred tax liabilities, which arose mainly from the
temporary differences of property, plants and equipments, during the
year ended December 31, 2002 is as follows:
The Company and
its subsidiaries
------------------------------
`000
As of January 1, 2002 -
Acquisitions (Note 3) 109,568
Income statement charge (Note 32) 12,285
------------------------------
As of December 31, 2002 121,853
==============================
The Company and its subsidiary recognized deferred tax liabilities
arising from the acquisitions of the Shidongkou First Power Plant,
Changxing Power Plant, Taicang Power Company and Huaiyin Power Company
in 2002. The initial recognition of the identifiable assets and
liabilities acquired was based on valuations performed by valuers. The
result of the valuation surplus is not a tax deductible credit. Deferred
tax liability of approximately RMB107 million relating to this temporary
difference was recorded in 2002.
F-47
30. ADDITIONAL FINANCIAL INFORMATION ON BALANCE SHEET
As of December 31, 2002, the net current assets of the Company and its
subsidiaries amounted to approximately RMB33 million (2001: RMB1,842
million). On the same date, the total assets less current liabilities
was approximately RMB40,809 million (2001: RMB38,370 million).
31. HOUSING SCHEME
In accordance with the PRC housing reform regulations, the Company and
its subsidiaries are required to make contributions to the
State-sponsored housing fund at 7%-11% of the specified salary amount of
the PRC employees. At the same time, the employees are required to make
a contribution equal to the Company's and its subsidiaries' contribution
out of their payroll. The employees are entitled to claim the entire sum
of the fund under certain specified withdrawal circumstances. For the
year ended December 31, 2002, the Company and its subsidiaries
contributed approximately RMB71 million (2001: RMB31 million, 2000:
RMB27 million) to the fund.
In addition, the Company and its subsidiaries provided housing benefits
to certain employees to enable them to purchase living quarters from the
Company and its subsidiaries at a substantial discount. Such housing
benefits represent the difference between the cost of the staff quarters
sold to and the net proceeds collected from the employees. The provision
of housing benefits is expected to benefit the Company and its
subsidiaries over the estimated remaining average service life of the
relevant employees.
For the year ended December 31, 2002, the housing benefits provided by
the Company and its subsidiaries to the employees amounted to
approximately RMB18 million (2001: RMB16 million, 2000: RMB87 million)
which is recorded as a long-term deferred asset and amortized over the
remaining average service life of the relevant employees which is
estimated to be 10 years.
The Company and its subsidiaries have no further obligation for housing
benefits.
F-48
32. INCOME TAX EXPENSE
Income tax expense comprised:
2002 2001 2000
-------------------- ------------------ -------------------
`000 `000 `000
Current tax expense 963,510 715,220 445,244
Deferred tax 12,285 - -
Share of tax of associates (Note 11) 5,059 - -
Adjustment for current tax of prior year of
Shangan Phase II (See Note 2(r)(ii)) - - (31,824)
Others - - (2,218)
-------------------- ------------------ -------------------
980,854 715,220 411,202
==================== ================== ===================
The reconciliation of the effective income tax rate to the statutory
income tax rate in the PRC is as follows:
2002 2001 2000
-------------------- ------------------ -------------------
Average statutory tax rate 18% 17% 16%
Effect of tax holiday (1%) (2%) (4%)
Others 2% 2% 2%
-------------------- ------------------ -------------------
Effective tax rate 19% 17% 14%
==================== ================== ===================
The aggregate effect of the tax holiday was approximately RMB58 million
for the year ended December 31, 2002 (2001: RMB79 million, 2000: RMB112
million).
The average statutory tax rate for the year ended December 31, 2002
represented the weighted average tax rate of the head office and the
individual power plants calculated on the basis of the relative amounts
of net profit before tax and the applicable statutory tax rates.
33. MINORITY INTERESTS
2002 2001
-------------------------- ---------------------------
`000 `000
As of January 1 486,261 -
Acquisitions (Note 3) 330,993 415,030
Minority shares of net profit of subsidiaries 156,034 71,231
Dividend paid (62,584) -
-------------------------- ---------------------------
As of December 31 910,704 486,261
========================== ===========================
F-49
34. Earnings per share
2002 2001
--------------------------------------- ---------------------------------------
Weighted Weighted
Average Per Share Average Per Share
Net Profit Shares Amount Net Profit Shares Amount
------------- ----------- ----------- ------------- ------------- ----------
`000 `000 `000 `000
Earnings per Share
Net profit
attributable to
shareholders 3,921,004 6,000,099 0.65 3,450,658 5,693,750 0.61
Finance costs in
relation to
convertible notes
and the relevant
put option (net
off tax effect) 41,368 - 128,955 -
Effect of assumed
conversion - 139,754 - 315,068
------------- ----------- ------------- -------------
Diluted Earnings per
Share
Net profit
attributable to
shareholders plus
effect of assumed
conversion 3,962,372 6,139,853 0.65 3,579,613 6,008,818 0.60
============= =========== ============= =============
(Chart Continued)
2000
----------------------------------------
Weighted
Average Per Share
Net Profit Shares Amount
------------ -------------- -----------
`000 `000
Earnings per Share
Net profit
attributable to
shareholders 2,515,830 5,650,000 0.45
Finance costs in
relation to
convertible notes
and the relevant
put option (net
off tax effect) 122,546 -
Effect of assumed
conversion - 315,068
------------ --------------
Diluted Earnings per
Share
Net profit
attributable to
shareholders plus
effect of assumed
conversion 2,638,376 5,965,068 0.44
============ ==============
Basic earnings per share was computed by dividing the net profit for the year
by the weighted average number of ordinary shares outstanding during the year.
On a diluted basis, both net profit and the weighted average number of
ordinary shares outstanding were adjusted on the assumption that the
convertible notes (see Note 22) had been fully converted at the beginning of
the year.
F-50
35. Notes to Cash Flow STATEMENT
a. Analysis of cash and cash equivalents
As of December 31, 2002, cash and cash equivalents consisted of:
2002 2001 2000
------------------------------- ------------------------- ---------------------------
`000 `000 `000
Cash in RMB 266 381 212
Current deposits
RMB 2,815,473 2,123,393 1,973,977
US$ denominated 186,862 49,362 14,180
Others - - 4
------------------------------- ------------------------- ---------------------------
Total cash and cash equivalents 3,002,601 2,173,136 1,988,373
=============================== ========================= ===========================
b. Undrawn borrowing facilities
As of December 31, 2002, the undrawn borrowing facilities
authorized by Bank of China and Citibank available to finance the
Company's and its subsidiaries' capital commitments for its
various power plant construction projects amounted to
approximately RMB211 million (2001: RMB483 million). Such
borrowing facilities would be drawn down in accordance with the
financial requirements of the projects. Based on current plans,
such borrowing facilities will be utilized as follows:
2002 2001 2000
---------------------- ------------------ --------------------
`000 `000 `000
Amount to be drawn down:
Within one year 107,496 197,347 587,738
Between two to five years 103,466 285,802 919,358
---------------------- ------------------ --------------------
210,962 483,149 1,507,096
====================== ================== ====================
In addition, the Company has also obtained other unsecured
borrowing facilities from banks amounted to RMB12 billion (2001:
nil, 2000: nil) to finance its funding requirements for a period
of three years. As of December 31, 2002, the unutilized borrowing
facilities amounted to RMB11,993 million. Such borrowing
facilities would be drawn down in accordance with the level of
working capital and planned capital expenditure of the Company and
its subsidiaries.
F-51
36. Obligations and Commitments
a. Capital Commitments
Commitments mainly relate to the construction of the Dezhou Phase
III, Jining Phase III, some complementary facilities and
renovation projects for existing power plants and the purchase of
coal. Commitments outstanding as of December 31, 2002 not provided
for in the balance sheet were as follows:
2002 2001
----------------- -----------------
`000 `000
Authorized and contracted for 2,655,514 7,633,206
================= =================
b. Operating lease commitments
The Company has various operating lease arrangements with HIPDC
for land and buildings (see Note 7). Some of the leases contain
renewal options. Most of the leases contain escalation clauses.
Lease terms do not contain restriction on the Company's activities
concerning dividends, additional debts or further leasing.
Total future minimum lease payments under non-cancelable operating
leases in respect of land and buildings of the Head Office, the
Nanjing Power Plant and the Shanghai Power Plant are as follows:
2002 2001
------------------- --------------------
`000 `000
Land and buildings
- not later than one year 32,334 32,334
- later than one year and not later than two years 32,334 32,334
- later than two years and not later than five years 7,334 47,002
- later than five years 306,362 299,028
------------------- --------------------
378,364 410,698
=================== ====================
In accordance with the land use operating lease agreement signed
by the Dezhou Power Plant and the relevant land management
authorities for the land occupied by Dezhou Phase I and Phase II,
annual rental is approximately RMB30 million effective June 1994
and is subject to revision five years after the said date.
Thereafter, the annual rental is subject to revision once every
three years. The increment for each rental revision is restricted
to no more than 30 percent of the previous annual rental amount.
For the year ended December 31, 2002, the annual rental is
approximately RMB30 million.
F-52
37. contingent liabilities
2002 2001
------------------ -----------------
`000 `000
Guarantee for loan facilities granted to an associate and subsidiaries 399,250 399,250
Notes receivable discounted with recourse - 110,000
Notes receivable endorsed to coal suppliers - 30,628
------------------ -----------------
399,250 539,878
================== =================
38. interest rate swaps
As of December 31, 2002, the notional amount of the outstanding interest
rate swap agreements was approximately US$52 million (2001: US$83
million). Such agreements will mature between May 20, 2003 and September
18, 2004. For the year ended December 31, 2002, there was a gain
amounting to approximately RMB2.2 million arising from changes in the
fair value of the interest rate swaps subsequent to initial recognition.
Since the hedging relationship does not meet all of the conditions
required for special hedge accounting as set out in IAS 39, the gain was
credited to earnings in current year.
F-53
39. FAIR VALUE OF FINANCIAL INSTRUMENT
The Company and its subsidiaries' financial instruments not carried at
fair value are cash and cash equivalents, temporary cash investments,
accounts receivables, other current assets, other non-current assets,
accounts and other payables, short-term borrowings, long-term borrowings
and available-for-sale investments.
The carrying amounts of the Company and its subsidiaries' cash and cash
equivalents, temporary cash investments, short-term borrowings and other
current financial assets and liabilities approximated their fair value
due to the short-term maturity of these instruments.
Similarly, the historical cost carrying amounts of receivables and
payables which are all subject to normal trade credit terms approximate
their fair values.
Available-for-sale investments are measured at cost as there is no
quoted market price in an active market and whose fair value cannot be
reliably measured.
The estimated fair value of long-term debt including current maturities
was RMB11.93 billion as of December 31, 2002 (2001: RMB12.67 billion).
The fair value of long-term debt is determined by discounting the stream
of future payments of interest and principal at the prevailing market
interest rates for comparable instruments. The book value of these
liabilities was RMB11.75 billion as of December 31, 2002 (2001: RMB12.50
billion).
40. Business Risk
The Company and its subsidiaries conduct their operations in the PRC and
accordingly investing in the shares of the Company and its subsidiaries
are subject to the risks of, among others, the PRC's political, economic
and legal environment, restructuring of the PRC electric power industry
and regulatory reform, new regulation pertaining to setting of power
tariff and availability of fuel supply at stable price.
Six largest customers represented approximately 90% (2001: 90%, 2000:
99%) of the operating revenue of the Company and its subsidiaries for
the year ended December 31, 2002.
41. SUBSEQUENT EVENT
On January 28, 2003, the Company entered into an Investment Agreement
with Shenzhen Investment Holding Corporation ("SIH") and Shenzhen Energy
Group Co., Ltd. ("SEG") pursuant to which the Company agreed to acquire
25% equity interest of SEG's enlarged share capital at a total
consideration of RMB2,390 million.
F-54
42. US GAAP INFORMATION
The consolidated financial statements of the Company and its
subsidiaries prepared under IFRS differ in certain respects from those
prepared under generally accepted accounting principles in the United
States of America ("US GAAP"). Significant differences between IFRS and
US GAAP, which affect the equity and net profit of the Company and its
subsidiaries, are summarized below:
(a) Effect of the Acquisition of Entities under Common Control
Under IFRS, the Company and its subsidiaries adopted the
acquisition method to account for the acquisition of 70% equity
interest in Shanghai Shidongkou First Power Plant, 70% equity
interest in Taicang Power Company and all of the assets and
liabilities of Changxing Power Plant in July 2002. Under the
acquisition method, the acquired results are included in the
results of operations of the Company and its subsidiaries from the
date of the acquisition. The difference between the purchase
consideration and the fair value of the underlying net assets
acquired is treated as goodwill and amortized on a systematic
basis to income statement over the remaining weighted average
useful life of the acquired depreciable or amortizable assets.
As the Company and its subsidiaries, Shanghai Shidongkou First
Power Plant, Taicang Power Company, and Changxing Power Plant were
under common control of Huaneng Group prior to the acquisition,
under US GAAP, the acquisition is considered to be a transfer of
businesses under common control and the acquired assets and
liabilities are accounted at historical cost in a manner similar
to pooling of interests method. Accordingly, the consolidated
financial statements for all periods presented have been
retroactively restated as if the current structure and operations
had been in existence since inception. The cash consideration paid
by the Company is treated as an equity transaction in the year of
the acquisition for US GAAP purpose.
(b) Effect of Acquisition of 30% Additional Equity Interests in
Shanghai Shidongkou First Power Plant, 5% Additional Equity
Interests in Taicang Power Company and 44.16% Equity Interests in
Huaiyin Power Company
On July 1, 2002, the Company acquired 44.16% equity interests of
Huaiyin Power Company from Huaneng Group. On December 31, 2002,
the Company acquired 30% additional equity interests of Shanghai
Shidongkou First Power Plant and 5% equity interests of Taicang
Power Company from Huaneng Group.
Under IFRS, upon the completion of the above acquisitions, the
relevant equity interests of net assets of Shanghai Shidongkou
First Power Plant, Taicang Power Company and Huaiyin Power Company
are recorded at fair value. The excess of the total cost of the
acquisition over the fair value of the relevant portion of the net
assets of power plants acquired is recorded as goodwill. Such
goodwill is amortized on a systematic basis to income statement
over the remaining weighted average useful life of the acquired
depreciable or amortizable assets. Under US GAAP, upon completion
of the above acquisitions, Huaneng Group's proportionate share in
the net assets of Shanghai Shidongkou Firts Power Plant, Taicang
Power Company and Huaiyin Power Company being sold to the Company
was recorded at the historical carrying value. The excess of the
total cost of acquisition over the net assets acquired was
recorded as a deemed distribution. Accordingly, the resulting
impact of depreciation and amortization expenses on income is also
different.
F-55
(c) Housing Benefits Provided by HIPDC
HIPDC sold to certain qualified employees of the Company living
quarters owned by HIPDC at preferential prices. The difference
between the cost of living quarters and the sales proceeds
received from the employees is considered to be a housing benefit.
Under IFRS, such housing benefits provided by HIPDC are not
reflected in the financial statements of the Company. Under US
GAAP, the amount of housing benefits provided by HIPDC to the
employees of the Company are recognized as the Company's operating
expenses on a straight-line basis over the estimated remaining
average service life of the employees. The corresponding amount is
recorded as an addition of capital contribution from HIPDC.
(d) Amount of Negative Goodwill Upon Acquisition of Shandong Huaneng
Huaneng Group is the controlling parent company of HIPDC, which in
turn is the controlling parent of the Company. Huaneng Group used
to be one of the substantial shareholders of Shandong Huaneng,
holding 33.09% equity interest in it before the Company's
acquisition of Shandong Huaneng ("Acquisition of Shandong Huaneng
"). Under IFRS, upon the completion of the acquisition of Shandong
Huaneng, the entire net assets of Shandong Huaneng are recorded at
fair value. The excess of the fair value of the entire net assets
acquired over the total cost of the acquisition is recorded as
negative goodwill. Under US GAAP, upon completion of the
acquisition of Shandong Huaneng, Huaneng Group's proportionate
share of 33.09% in the net assets of Shandong Huaneng being
transferred to the Company was recorded at the historical carrying
value. The excess of the proportionate share in the book value of
the net assets acquired over the relevant portion of the cash
consideration was recorded as capital contribution to the Company.
The book value of the remaining 66.91% of the net assets continues
to be part of the recoverable rate base under the cost recovery
formula of the tariff setting mechanism. The difference between
these net asset values and the cash consideration is recorded as a
negative goodwill.
The amount of negative goodwill determined under IFRS was
recognized as income on a systematic basis over the remaining
weighted average useful life of the acquired depreciable or
amortizable assets. The amounts of negative goodwill under US GAAP
determined on the basis as described above was offset against the
fixed assets of the respective power plants as a purchase
allocation adjustment. As the amount of negative goodwill under
IFRS is different from the amount of the purchase allocation
adjustment determined under US GAAP due to the 33.09% portion of
the net assets previously owned by Huaneng Group as described
above, the net impact on income is also different.
F-56
(e) Accounting Treatment of Convertible Notes
Under IFRS, the proceeds received on the issue of the convertible
notes were allocated into liability and equity components. Upon
initial recognition, the liability component represented the
present value, at the issuance date, of the contractually
determined stream of cash flows discounted at the market interest
rate for instruments of comparable credit status providing
substantially the same cash flows, on the same terms, but without
the conversion option. The equity component was then determined by
deducting the liability component from the proceeds received on
the issue of the notes. Under US GAAP, the entire proceeds of the
issue of convertible notes were recorded as long-term liabilities
without distinguishing between the equity and liability
components.
In accordance with IAS 39, which was effective on January 1, 2001,
the put option of the convertible notes, which allowed the
noteholders to redeem the convertible notes at a premium, was
separated from the host contract and accounted for as an embedded
derivative. This put option was recorded as a liability and
measured at its fair value. When IAS 39 was initially applied in
2001, the difference between the previous carrying amount and the
fair value of the put option was recognized as an adjustment to
the opening retained earnings as of January 1, 2001. In addition,
the liability component was measured at amortized cost and the
resulting difference with the previous carrying amount was
recognized as an adjustment to the opening retained earnings as of
January 1, 2001. After initial recognition, subsequent changes in
the value of the put option and the amortized cost of the
liability component were charged or credited to income statements.
Under US GAAP, it is permitted not to measure the put option
separately at its fair value, as it represents a derivative
embedded in pre-1998 hybrid instrument. The Company continued to
accrue for the put premium liability together with the interest
payable on the notes using effective interest rate of 6.66% up to
the redemption date of May 21, 2002. On May 21, 2002, a portion of
the convertible notes was not redeemed by the noteholders. Under
US GAAP, the relevant portion of the accrued put premium
attributable to the remaining convertible notes not redeemed was
amortized as a yield adjustment over the remaining term of the
convertible notes because the put price exceeded the market value
of the ordinary shares of the Company at the time of the
redemption.
(f) Capitalization of Borrowing Costs
In accordance with IAS 23, the Company capitalized interests on
general borrowings used for the purpose of obtaining a qualifying
asset in addition to the capitalization of interests on specific
borrowings.
Under US regulatory accounting requirements, interests on funds
borrowed generally and used for the purpose of obtaining a
qualifying assets were not capitalized if such interests were not
taken into consideration when determining the recoverable rate
base for tariff setting purposes.
(g) Deferred Tax Impact
This represents deferred tax effect on the above GAAP differences
where applicable.
F-57
(h) US Regulatory Accounting
Under US GAAP, Statement of Financial Accounting Standard Number
71 "Accounting for the Effects of Certain Types of Regulation"
("SFAS 71") is applicable to utilities in the United States whose
regulators have the power to approve and/or regulate rates that
may be charged to customers. SFAS 71 recognizes that the
regulatory process produces economic effects which should be
reflected in the financial statements. Because revenues are based
on costs, SFAS 71 governs the period in which various costs are
included in the income statements with the objective of matching
costs with revenues. Provided that, through the rate setting
process, the utility is substantially assured of recovering its
allowable costs by the collection of revenue from its customers,
such costs not yet recovered are deferred as regulatory assets.
The regulatory process may also impose a liability on a
rate-regulated enterprise, usually representing obligations to the
enterprise's customers, which should be recognized as regulatory
liability.
In order to apply SFAS 71, three criteria must be met. These
criteria require that a) the power rates for regulated services or
products provided to customers be established by or are subject to
approval by an independent, third-party regulator or by an
entity's own governing board empowered by statute or contract to
establish power rates that bind customers; b) the regulated power
rates are designed to recover the costs of providing the regulated
services or products; and c) in view of the demand for the
regulated services or products and the level of competition,
direct and indirect, it is reasonable to assume that power rates
set at levels that will recover costs can be charged to and
collected from customers; this criterion requires consideration of
anticipated changes in levels of demand or competition during the
recovery period for any capitalized costs.
The Company and its subsidiaries believe that all of their power
plants meet these specific criteria of SFAS 71 with the exception
of the Shidongkou First Power Plant, the Taicang Power Company,
the Huaiyin Power Company and the Changxing Power Plant ("Four New
Power Plants") acquired during the year ended December 31, 2002.
Firstly, the power rates are established by an independent
regulator, the provincial or local price bureau. Further, the
pricing policy applicable to the power plants (with the exception
of the Four New Power Plants) provides for rate-setting based on
the specific costs of the power plants. This process has operated
historically and will continue under the pricing policy. Finally,
based on the significant demand for electricity in its service
territory, it is reasonable to assume that the authorized power
rates will be collected from customers.
With respect to the Four New Power Plants acquired during the
year, the criteria mentioned above are not met and, therefore,
SFAS71 cannot be applied. Consequently, the Four New Power Plants
have adopted US GAAP without specific reference to the regulatory
basis of accounting provided for under SFAS71.
Under IFRS, as there is no equivalent regulatory accounting
standard, the Company's and its subsidiaries' policy is to
recognize regulatory assets established under SFAS71 only when
they comprise rights or other access to future economic benefits
as a result of past events; or to recognize regulatory liabilities
only when they comprise a present obligation the settlement of
which is expected to result in an outflow of resources embodying
economic benefits.
For the year ended December 31, 2002, there was no material
difference in the recognition of both regulatory and
non-regulatory assets and liabilities between IFRS and US GAAP.
F-58
(i) Impairment of Long-lived Assets
The carrying amount of fixed assets under IFRS is reviewed
periodically in order to assess whether the recoverable amount has
declined below the carrying amount. When such a decline occurs,
the carrying amount is reduced to the recoverable amount based on
the expected future cash flows generated by the asset discounted
to their present value or the asset's net selling price. A
subsequent increase in the recoverable amount is written back to
the income statement when circumstances and events that led to the
write-down cease to exist.
Under US GAAP, long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is evaluated by a comparison of the
carrying amount of assets to future undiscounted net cash flows
expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets
exceed the fair value of the assets. Subsequent reversal of
impairment is not permitted. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less cost to
sell.
For the year ended December 31, 2002, no differences arose in
respect of the timing and the amount of impairment in long-lived
assets recognized.
F-59
Differences between IFRS and US GAAP which affect the equity and net
income of the Company and its subsidiaries are summarized below:
Equity
------------------------------------------
Note As of December 31, As of December 31,
2002 2001
---------------------------------- ------------------
RMB`000 RMB`000
Equity under IFRS 30,416,060 28,293,530
Impact of US GAAP adjustments Note i:
Effect of acquisition of Shanghai Shidongkou First Power Plant,
Taicang Power Company and Changxing Power Plant (a) (998,752) 740,065
Effect of acquisition of 30% additional equity interests in
Shanghai Shidongkou First Power Plant, 5% additional equity
interests in Taicang Power Company and 44.16% equity interests
in Huaiyin Power Company (b) (313,859) -
Recording of capital contribution arising from acquisition of
Shandong Huaneng (d) 862,922 862,922
Difference in amortization of negative goodwill (d) (174,182) (87,091)
Adjustments on convertible notes
- Reversal of equity component of the convertible notes (e) (510,506) (510,506)
- Reversal of adjustment relating to the convertible notes
arising form the initial adoption of IAS 39 (e) 463,921 463,921
- Difference in accounting treatment of convertible notes (e) 5,246 -
Difference in capitalization of borrowing costs (f) (88,412) -
Applicable deferred tax impact of the above GAAP differences (g) 252,124 62,943
-------------------------------------------
Equity under US GAAP Note i 29,914,562 29,825,784
===========================================
F-60
Net income
-------------------------------------------
For the year ended December 31,
-------------------------------------------
Note 2002 2001 2000
------ ------------ -------------- --------------
RMB`000 RMB`000 RMB`000
Net income under IFRS 3,921,004 3,450,658 2,515,830
Impact of US GAAP adjustments Note i:
Effect of acquisition of Shanghai Shidongkou First
Power Plant, Taicang Power Company and
Changxing Power Plant (a) 126,498 234,127 149,711
Effect of acquisition of 30% additional equity interests in Shanghai
Shidongkou First Power Plant, 5% additional equity interests in
Taicang Power Company and 44.16% equity interests in Huaiyin
Power Company (b) 10,556 - -
Recording housing benefits provided by HIPDC (c) (26,152) (26,152) (26,152)
Difference in amortization of negative goodwill (d) (87,091) (87,091) -
Difference in accounting treatment of convertible notes (e) 5,116 - -
Difference in capitalization of borrowing costs (f) (88,412) - -
Applicable deferred tax impact of the above GAAP differences (g) 33,674 - -
------------ -------------- --------------
Net income under US GAAP Note i 3,895,193 3,571,542 2,639,389
============ ============== ==============
Basic earnings per ordinary share under US GAAP (RMB) Note ii 0.65 0.63 0.47
============ ============== ==============
Basic earnings per ADS under US GAAP (RMB) Note ii 25.97 25.09 18.69
============ ============== ==============
Diluted earnings per ordinary share under US GAAP (RMB) Note ii 0.64 0.62 0.46
============ ============== ==============
Diluted earnings per ADS under US GAAP (RMB) Note ii 25.62 24.63 18.52
============ ============== ==============
(Note i) Consistent with applying the accounting treatment
under US GAAP as described in Note (a) above, the
consolidated financial statements under US GAAP for
prior periods presented have been retroactively
restated as if the current structure and operations
resulted from the acquisition of the three new power
plants had been in existence since the beginning of
the earliest period presented.
(Note ii) Earning per ordinary shares and per equivalent ADS
were calculated by dividing the net income for the
financial year under US GAAP by the weighted average
number of ordinary shares and ADS in issue during the
financial year. On a diluted basis, both net income
for the financial year and the weighted average number
of ordinary shares and ADS outstanding for the
financial year were adjusted on the assumption that
the convertible notes had been fully converted at the
beginning of the year.
In preparing the summary of difference between IFRS and US GAAP,
management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Accounting estimates
have been employed in these financial statements to determine
reported amounts, including realizability, useful lives of assets
and other areas. Actual results could differ from those estimates.
F-61
The following are condensed consolidated balance sheets of the
Company and its subsidiaries as of December 31, 2001 and 2002, and
the related condensed consolidated statements of income, change in
shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2002, restated to reflect for
the effect of the acquisition of entities under common control
which is accounted at historical cost in a manner similar to the
pooling of interests method under US GAAP and other differences
between IFRS and US GAAP.
Condensed Consolidated Balance Sheets
As of December 31,
-----------------------------------------------------------------------
2002 2001
------------------------------------------------- --------------------
RMB'000 US$'000 RMB'000
ASSETS
Non-current assets
Property, plant and equipment, net 38,434,682 4,643,384 39,270,064
Investment in an associate 200,960 24,278 226,488
Deferred tax assets 240,781 29,089 62,943
Goodwill 63,754 7,702 -
Other long-term assets 1,322,828 159,814 1,043,748
------------------------ ----------------- --------------------
Total non-current assets 40,263,005 4,864,267 40,603,243
------------------------ ----------------- --------------------
Current assets
Inventories, net 923,341 111,551 789,731
Other receivables and assets, net 242,905 29,346 313,165
Accounts receivable 2,361,833 285,339 1,780,694
Restricted cash 13,259 1,602 -
Temporary cash investments 1,141,502 137,908 6,224,070
Cash and cash equivalents 3,002,601 362,751 2,414,448
------------------------ ----------------- --------------------
Total current assets 7,685,441 928,497 11,522,108
------------------------ ----------------- --------------------
Total assets 47,948,446 5,792,764 52,125,351
======================== ================= ====================
F-62
As of December 31,
-------------------------------------------------------------------------
2002 2001
--------------------------------------------------- --------------------
RMB'000 US$'000 RMB'000
EQUITY AND LIABILITIES
Shareholders' equity 29,914,562 3,614,048 29,825,784
------------------------ ----------------- --------------------
Minority interests 869,621 105,061 815,179
------------------------ ----------------- --------------------
Non-current liabilities
Convertible notes 166,498 20,115 -
Accrued put premium -
on convertible notes 30,841 3,726
Long-term loans from 1
shareholders 388,891 46,983 940,93
Long-term bank loans 8,464,521 1,022,619 10,213,298
Other long-term loans 331,389 40,036 106,799
Other financial liabilities 19,397 2,343 14,875
Deferred tax liabilities 110,510 13,351 -
------------------------ ----------------- --------------------
Total non-current liabilities 9,512,047 1,149,173 11,275,903
------------------------ ----------------- --------------------
Current liabilities
Accounts payable and accrued liabilities 3,734,350 451,156 2,840,125
Taxes payable 620,189 74,926 549,880
Due to HIPDC 100,475 12,139 36,584
Due to other related parties - - 26,123
Staff welfare and bonus payable 233,566 28,218 381,402
Short-term loans 550,000 66,447 440,000
Current portion of long-term loans from 5
shareholders 388,891 46,983 36,63
Current portion of long-term 5
bank loans 1,928,732 233,015 3,208,79
Current portion of other long-term loans 96,013 11,600 283,273
Convertible notes - - 1,903,618
Accrued put premium for
convertible notes - - 502,050
------------------------ ----------------- --------------------
Total current liabilities 7,652,216 924,484 10,208,485
------------------------ ----------------- --------------------
Total liabilities and equity 47,948,446 5,792,766 52,125,351
======================== ================= ====================
F-63
Condensed Consolidated Statements of Income
Year ended December 31,
------------------------------------------------------------------------------
2002 2001 2000
------------------------------------- ------------------- ------------------
RMB'000 US$'000 RMB'000 RMB'000
Operating revenue, net 19,845,599 2,397,593 18,692,529 15,073,428
------------------ ----------------- ------------------- -----------------
Operating expenses:
Fuel (7,583,013) (916,122) (6,434,453) (4,956,405)
Maintenance (698,598) (84,399) (934,612) (829,961)
Depreciation (3,501,363) (423,008) (3,466,411) (3,013,962)
Labor (1,162,506) (140,445) (1,043,248) (912,737)
Transmission fees (35,754) (4,320) (36,925) (17,094)
Service fees to HIPDC (263,716) (31,860) (307,322) (310,742)
Income tax (1,001,683) (121,016) (888,916) (542,805)
Others (822,900) (99,416) (820,446) (652,703)
------------------ ----------------- ------------------- -----------------
Total operating expenses (15,069,533) (1,820,586) (13,932,333) (11,236,409)
------------------ ----------------- ------------------- -----------------
Income before financial expenses 4,776,066 577,007 4,760,196 3,837,019
------------------ ----------------- ------------------- -----------------
Interest income 84,735 10,237 115,918 82,047
Interest expense (724,397) (87,516) (1,087,443) (1,204,619)
Bank charges and exchange losses, net (31,418) (3,796) (41,794) (34,932)
------------------ ----------------- ------------------- -----------------
Total financial expenses (671,080) (81,075) (1,013,319) (1,157,504)
------------------ ----------------- ------------------- -----------------
Share of loss of associates (1,634) (197) (5,381) -
Minority interests (208,159) (25,148) (169,954) (40,126)
------------------ ----------------- ------------------- -----------------
Net income attributable to
the shareholders 3,895,193 470,587 3,571,542 2,639,389
================== ================= =================== =================
F-64
Condensed Consolidated Statements of Changes in Shareholders' Equity
RMB'000 US$'000
------------- ------------
Balance as of January 1, 2000 21,885,465
Dividends relating to 1999 (508,500)
Net profit attributable to shareholders for the year ended December 31,
2000 2,639,389
Capital contribution from HIPDC on housing benefits 26,152
Distribution to Huaneng Group (58,734)
-------------
Balance as of December 31, 2000 23,983,772
Dividends relating to 2000 (1,243,000)
Net profit attributable to shareholders for the year ended December 31,
2001 3,571,542
Capital contribution arising from acquisition of Shandong Huaneng
862,922
Capital contribution from HIPDC on housing benefits 26,152
Issuance and sale of 350,000,000 new Domestic Shares, net of direct issuance cost
2,770,058
Distribution to Huaneng Group (145,662)
-------------
Balance as of December 31, 2001 29,825,784 3,603,323
Dividends relating to 2001 (1,800,000) (217,462)
Net profit attributable to shareholders for the year ended December 31,
2002 3,895,193 470,587
Conversion of convertible notes to new ordinary shares 1,655 200
Netdeemed capital distribution to Huaneng Group arising from the acquisition
of the equity interests of the four power plants and additional interests
in Shanghai Shidongkou First Power Plant and
Taicang Power Company (2,034,222) (245,759)
Capital contribution from HIPDC on housing benefits 26,152 3,159
------------- ------------
Balance as of December 31, 2002 29,914,562 3,614,048
============= ============
F-65
Condensed Consolidated Statements of Cash Flows
Year ended December 31,
--------------------------------------------------------------
2002 2001 2000
------------------------------- ------------ --------------
RMB'000 US$'000 RMB'000 RMB'000
Net cash provided by operating activities 7,469,213 902,373 6,598,191 6,093,354
Net cash provided by (used in) investing activities 2,620,931 316,641 (4,720,026) (5,880,521)
Net cash used in financing activities (9,501,991) (1,147,958) (1,567,272) (820,433)
-------------- --------------- ------------ --------------
Net increase (decrease) in cash and cash equivalents 588,153 71,056 310,893 (607,600)
Cash and cash equivalents, beginning of year 2,414,448 291,695 2,103,555 2,711,155
-------------- --------------- ------------ --------------
Cash and cash equivalents, end of year 3,002,601 362,751 2,414,448 2,103,555
============== =============== ============ ==============
Statement of Comprehensive Income
Under US GAAP, certain items shown as components of common equity must
be more prominently reported in a separate statement as components of
comprehensive income. However, for each of the year in the three-year
period ended December 31, 2002, apart from the net income, there was no
other comprehensive income which should be included in the statement of
comprehensive income.
New Accounting Pronouncements
The Financial Accounting Standards Board ("FSAB") issued Statement of
Financial Accounting Standards No. 143, Accounting for Assets Retirement
Obligations ("SFAS 143"), Statement of Financial Accounting Standards
No. 145, Recession of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections ("SFAS 145"), Statement
of Financial Accounting Standards No. 146, Accounting for Costs
Associated With Exit or Disposal Activities ("SFAS 146"), Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure ("SFAS 148"), FASB Interpretation
No.45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, An
Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of
FASB Interpretation No. 34 ("FIN 45") and FASB Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46").
SFAS 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated assets retirement costs.
SFAS 145 rescinds Statement of Financial Accounting Standards No. 4,
Reporting Gains and Losses from Extinguishment of Debt ("SFAS 4"), and
an amendment of SFAS 4, Statement of Financial Accounting Standards No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
It also rescinds Statement of Financial Accounting Standards No. 44,
Accounting for Intangible Assets of Motor Carriers. It amends Statement
of Financial Accounting Standards No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for
sale-leaseback
F-66
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. It also amends other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe
their applicability under changed conditions.
SFAS 146 addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies Emerging
Issues Task Force Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)."
SFAS 148 amends Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
In addition, it amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
FIN 45 elaborates on the disclosure to be made by a guarantor about its
obligations under certain guarantees that it has issued. It also
clarifies that a guarantor is required to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation undertaken
in issuing the guarantee. The initial recognition and initial
measurement provisions under FIN 45 are applicable prospectively to
guarantees issued or modified after December 31, 2002. The adoption of
disclosure requirements that are effective for the year ended December
31, 2002, did not have a material effect on the consolidated financial
statements of the Company and its subsidiaries.
FIN 46 provides guidance on the identification of and financial
reporting for entities over which control is achieved through means
other than voting rights. This interpretation requires existing
unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse risks
among parties involved.
SFAS 143, SFAS 145, SFAS 146, SFAS 148, FIN 45 and FIN 46 are effective
for fiscal years beginning after December 15, 2002 or later. The Company
has not completed its assessment of the effects of adoption these new
accounting pronouncements.
F-67
SIGNATURE
The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
Huaneng Power International, Inc.
By /s/ Wang Xiao Song
Name: Wang Xiao Song
Title: Vice Chairman
Date: June 16, 2003
CERTIFICATIONS
I, Li Xiaopeng, certify that:
1. I have reviewed this annual report on Form 20-F of Huaneng Power
International, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation , to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrants' other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weakness.
Date: June 16, 2003
By /s/ Li Xiaopeng
----------------------
Li Xiaopeng, Chairman
I, Huang Jian, certify that:
1. I have reviewed this annual report on Form 20-F of Huaneng Power
International, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation , to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrants' other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weakness.
Date: June 16, 2003
By /s/ Huang Jian
----------------------------
Huang Jian, Chief Accountant
Exhibit 10.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 20-F of HUANENG POWER
INTERNATIONAL, INC. (the "Company") for the year ended December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Li Xiaopeng, as Chairman of the Company, and Huang Jian, as Chief
Accountant of the Company, each hereby certifies, pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that,
to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Li Xiaopeng
Name: Li Xiaopeng
Title: Chairman
Date: June 16, 2003
/s/ Huang Jian
Name: Huang Jian
Title: Chief Accountant
Date: June 16, 2003
This certification accompanies the Report pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by
the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
ss.18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section
906 has been provided to Huaneng Power International, Inc. and will be
retained by Huaneng Power International, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.