F/S OF EGCOMP 1998

Notes to the financial statements and consolidated financial statements - December 31, 1998 Principal accounting policies 1 A summary of significant accounting policies of the company which is consistently applied is set out below. Basis of preparation The financial statements are prepared in accordance with and comply with accounting principles generally accepted in Thailand. Basis of consolidation The consolidated financial statements include the financial statements of the following subsidiaries : 1998 1997 Percentage Percentage of holding of holding Rayong Electricity Generating Company Limited 99.99 99.99 Khanom Electricity Generating Company Limited 99.99 99.99 EGCO Engineering & Service Company Limited 99.99 99.99 EGCO Joint Ventures & Development Company Limited 99.99 99.99 EGCO Mining Company Limited 69.99 40.00 Intercompany transactions have been eliminated in the consolidated financial statements. Short-term investments Investments in marketable securities are stated at the lower of aggregate cost or market value. Spare parts and supplies Spare parts and supplies are stated at cost less provision for obsolete stock. Cost is calculated on the moving average basis. Electricity Generating Public Company Limited and its subsidiaries Page 10 Notes to the financial statements and consolidated financial statements - December 31, 1998 continued The inventories are categorised as "specific spare parts" which are used for specific plant equipment and "common spare parts" which are for general use. The provision for specific spare parts is calculated by dividing the balances of specific spare parts and supplies on hand at the year end by the number of years remaining under the Power Purchase Agreements with the Electricity Generating Authority of Thailand. The provision for common spare parts is generally provided, based on aging analysis. Depreciation Property, plant and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the estimated useful economic lives of the assets concerned as follows : Years Power plant 15 and 20 Building and structure 20 Transmission system 20 Operating and maintenance equipment 5 Office equipment, furniture and computer 5 and 10 Vehicle 5 Major repairs and maintenance Major repairs and maintenance relating to power plants are expensed when incurred. Spare parts are charged to repairs and maintenance expenses when they are issued from stocks. Investments in subsidiary, associated and other companies Investments in subsidiary and associated companies are accounted for under the equity method. Investments in other companies are accounted for under the cost method. Electricity Generating Public Company Limited and its subsidiaries Page 11 Notes to the financial statements and consolidated financial statements - December 31, 1998 continued Deferred expenses Pre-operating expenses, organisation expenses and other deferred charges are amortised on a straight-line basis, over a period of 5 - 10 years. Foreign currencies Trading transactions denominated in foreign currencies are translated into Thai Baht at the exchange rates ruling when the transactions were entered into. Monetary assets and liabilities denominated in foreign currencies are translated into Thai Baht at the exchange rates ruling at the balance sheet date. Exchange gains or losses are included in the statements of income (loss) and consolidated statements of income (loss). Earnings (loss) per share Earnings (loss) per share is calculated, based on the weighted average number of shares issued during the year. Statement of cash flows 2. Cash equivalents consist of cash in hand and at banks and deposits at banks and financial institutions which are promissory notes matured within 3 months. Electricity Generating Public Company Limited and its subsidiaries Page 12 Notes to the financial statements and consolidated financial statements - December 31, 1998 continued Related party transactions 3. A summary of significant transactions with related companies is as follows : The company only Consolidation 1998 1997 1998 1997 (Million (Million (Million (Million Baht) Baht) Baht) Baht) Transactions during the year Electricity revenues - - 8,764 7,676 Major maintenance service expenses - - 497 404 Balance as at December 31 Short-terms loan and Advances receivable 30 5 - - Long-term loan to a Subsidiary 25 - - - Account receivable-trade is due from the Electricity Generating Authority of Thailand (EGAT), one of the major shareholders, being in respect of sales of electricity. The two subsidiaries have entered into the Power Purchase Agreements (PPAs) with EGAT. The agreements shall be effective for periods of 15 and 20 years. According to the resolutions of the Cabinet's meetings dated February 15, 1994 and January 23, 1996, the electricity revenues from such agreements are calculated, based on "Cost plus basis". There is a limitation of sales of electricity to third parties as specified in the agreements. These agreements have been pledged as collateral with the lenders under the Master Agreements. Under the PPAs with EGAT, the subsidiaries are eligible to take into consideration the exchange rate effects to adjust the formulae for calculation of electricity power sold to EGAT in each month pertaining to "The First Amendment to Power Purchase Agreement" dated on January 30, 1998 over the period of the PPAs. The compensations for the years ended December 31, 1998 and 1997 amount to Baht 917 million and 341 million respectively. Electricity Generating Public Company Limited and its subsidiaries Page 13 Notes to the financial statements and consolidated financial statements - December 31, 1998 continued Under the PPAs, EGAT has to bear the natural gas cost until the subsidiaries enter into a natural gas purchase agreement with the Petroleum Authority of Thailand. Therefore, the calculation of revenues from the portion of energy sales of electricity does not include a calculation of the natural gas cost. On July 20, 1998 EGAT informed the subsidiaries to negotiate with the Petroleum Authority of Thailand in order to enter into a natural gas purchase agreement. However on August 10, 1998, the subsidiaries informed EGAT to continuously bear the natural gas cost and EGAT has agreed with the subsidiaries' request on August 25, 1998. The two subsidiaries have entered into the Major Maintenance Agreements with EGAT for the latter to provide major maintenance services, repair services, administrative services and additional services related to the subsidiaries' power plants. The compensation for such services is calculated, based on "Cost plus basis" and will be adjusted annually according to Consumer Price Index. The agreements can be extended for an additional period of six years. These agreements have been pledged as collateral with the lenders under the Master Agreements. Cash in hand and at banks 4. These mainly represent saving accounts, bearing interest at the rate of 5.5 % per annum. Deposits at banks and financial institutions 5. These mainly represent deposits at banks and promissory notes issued by local financial institutions, bearing interest at the rate of 6 % - 8.75 % per annum. As at December 31, 1998, deposits at banks included fixed deposits which have been pledged as security in respect of electricity supply and per formance bond for a subsidiary amounting to Baht 0.6 million and Baht 53 million respectively. In addition, a subsidiary pledged fixed deposits as security in respect of electricity supply and performance bond for its joint venture amounting to Baht 2.7 million and Baht 7.2 million respectively. Electricity Generating Public Company Limited and its subsidiaries Page 14 Notes to the financial statements and consolidated financial statements - December 31, 1998 continued Marketable securities, net 6. Marketable securities and others consist of the following : The company only 1998 1997 COST MARKET COST MARKET (Baht) (Baht) (Baht) (Baht) Listed securities - Ordinary shares and Share warrants 76,474,284 90,712,600 198,916,556 221,592,046 Other securities - Debentures 118,107,080 174,308,878 - - Unit trust 54,756,532 41,908,120 79,231,486 79,231,486 Less: Provision for the decline in value of securities - - (14,945,741) - 54,756,532 41,908,120 64,285,745 79,231,486 249,337,896 263,202,301 Consolidation 1998 1997 COST MARKET COST MARKET (Baht) (Baht) (Baht) (Baht) Listed securities - Ordinary shares and Share warrants 76,474,284 90,712,600 198,916,556 221,592,046 Other securities - Debentures 10,837,800 2,679,334 - - Unit trust 54,756,532 41,908,120 79,231,486 79,231,486 Less: Provision for the decline in value of securities - - (14,945,741) - 54,756,532 41,908,120 64,285,745 79,231,486 142,068,616 263,202,301 Electricity Generating Public Company Limited and its subsidiaries Page 15 Notes to the financial statements and consolidated financial statements - December 31, 1998 continued Deposits at banks and financial institutions used as collateral 7. Deposits at banks and financial institutions of the two subsidiaries used as collateral are cash reserves to be maintained under the loan agreements referred to in notes 13 and 14, for the purpose of repayment of principal and interest due within one year and a reserve to minimise the exchange risk. These cash reserves are provided from the proceeds from sales of electricity. As at December 31, 1998 and 1997, the cash reserves which are for the purpose of repayment of principal and interest due within one year amount to Baht 3,431.35 million and 3,394.09 million, respectively. The remaining balances of Baht 3,001.76 million and Baht 1,805.89 million as at December 31, 1998 and 1997, mainly represent holding accounts which are required to be maintained in accordance with the loan agreements. The cash reserve for minimising the exchange risk represents deposits in US Dollars. The two subsidiaries have to provide the reserve until such account equals the lower of 25% of the aggregate outstanding unhedged loans or an amount of US Dollars 103 million. As at December 31, 1998, the US Dollar deposits total US Dollars 77.3 million. As at December 31, 1998, the deposits under these reserves bear interest at the rate of 4.75% - 5.21% per annum for the foreign currency deposits and 4.50% - 8.50% per annum for the Thai Baht deposits. Electricity Generating Public Company Limited and its subsidiaries Page 16 Notes to the financial statements and consolidated financial statements - December 31, 1998 continued Spare parts and supplies, net (More)