F/S Q1-1999 EGCOMP

Electricity Generating Public Company Limi Page 7 Notes to the financial statements and consolidated financial statements - March 31, 1999 continued Basis of preparation of the interim financial statements 1. The financial statements on pages 2 to 6 and the notes to the financial statements and the consolidated financial statements are unaudited and have been prepared from the accounting records of the company and its subsidiaries. In the opinion of Management, these interim financial statements present fairly the financial position and the results of its operations and changes in shareholders' equity of the company and its subsidiaries in conformity with generally accepted accounting principles. These interim financial statements should be read in conjunction with the financial statements and the consolidated financial statements for the year ended December 31, 1998. Principal accounting policies 2. A summary of significant accounting policies of the company, which have been applied consistently, is set out below. Basis of preparation The financial statements and the consolidated 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 : 1999 1998 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 69.99 Intercompany transactions have been eliminated in the consolidated financial statements. Unaudited Reviewed Electricity Generating Public Company Limited Page 8 Notes to the financial statements and consolidated financial statements - March 31, 1999 continued Investments in marketable securities Investments in marketable securities, which are available for sale, are stated at fair market value. Gains or losses on revaluation of the securities are charged directly to shareholders' equity and recognised as income or expense in the statements of income when such securities are sold. Fair market value being the closing price at the Stock Exchange of Thailand at the closing price ruling at the balance sheet date. In the absence of such prices, fair values are determined by applying such net present value by appropriate return rate and risk premium. Spare parts and supplies Spare parts and supplies are stated at cost less provision for obsolete stock. Cost is calculated based on the moving average basis. 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 an aging analysis. Investments in subsidiaries, associated companies and other companies Investments in subsidiaries and associated companies are accounted for under the equity method. Investments in other companies are accounted for under the cost method. Unaudited Reviewed Electricity Generating Public Company Limited Page 9 Notes to the financial statements and consolidated financial statements - March 31, 1999 continued Depreciation Property, plant and equipment are stated at cost. Depreciation is calculated on a straight-line basis over the expected useful economic lives of the assets concerned as follows : Years Power plant 15 and 20 Buildings and structures 20 Transmission system 20 Operating and maintenance equipment 5 Office equipment, furniture and computers 5 and 10 Vehicles 5 Deferred expenses Pre-operating expenses, organisation expenses and other deferred charges are amortised, based on a straight-line method, 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 and the consolidated statements of income. Earnings per share Earnings per share is calculated, based on the weighted average number of shares issued during the period. Unaudited Reviewed Electricity Generating Public Company Limited Page 10 Notes to the financial statements and consolidated financial statements - March 31, 1999 continued Change in accounting principle 3. The company has changed its accounting policy in respect of investment in marketable securities, from the lower of aggregate cost or market value to fair market value commencing from January 1, 1999. This practice complies with the accounting standard No. 40, which is effective from January 1, 1999. According to this standard, the retro-active adjustment is not required. Statements of cash flows 4. 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. Related party transactions 5. A summary of significant transactions with related companies is as follows : The company only 1999 1998 (Million Baht) (Million Baht) Transactions during the period Sales - - Maintenance service expenses - - Balance as at March 31, Investment in debentures of a subsidiary 79 112 Consolidation 1999 1998 (Million Baht)(Million Baht) Transactions during the period Sales 2,152 2,537 Maintenance service expenses 65 89 Balance as at March 31, Investment in debentures of a subsidiary - - Account receivable - trade is due from the Electricity Generating Authority of Thailand (EGAT), one of the major shareholders of the company, being in respect of sales of electricity. Unaudited Reviewed Electricity Generating Public Company Limited Page 11 Notes to the financial statements and consolidated financial statements - March 31, 1999 continued The two subsidiaries have entered into the Power Purchase Agreements (PPAs) with EGAT. The agreements are 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 the calculation of revenues from the portion of capacity payment charged to EGAT each month, pertaining to "The First Amendment to Power Purchase Agreements", dated January 30, 1999, over the period of the PPAs. The compensation amounts for the three-month periods ended March 31, 1999 and 1998 totalled Baht 167 million and Baht 342 million, respectively. 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 payment does not include a calculation of the natural gas cost. On July 20, 1998, EGAT informed the subsidiaries that they should negotiate with the Petroleum Authority of Thailand in order to enter into a natural gas purchase agreement. However, on August 10, 1998, the subsidiaries requested EGAT to continuously bear the natural gas cost and EGAT agreed with these requests on August 25, 1998. The two subsidiaries have entered into a 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 is adjusted annually according to the Consumer Price Index. The agreements is effective for a period of six years, commencing on October 3, 1994 and May 14, 1996, and can be extended for an additional period of six years. These agreements have been pledged as collateral with the lenders under the Master Agreements. Unaudited Reviewed Electricity Generating Public Company Limited Page 12 Notes to the financial statements and consolidated financial statements - March 31, 1999 continued Deposits at banks and financial institutions used as collateral 6.Deposits at banks and financial institutions used as collateral of the two subsidiaries are mainly cash reserves to be maintained under the loan agreements referred to in notes 8 and 9, 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 of sales of electricity. As at March 31, 1999 and 1998, the cash reserves, which are for the purpose of repayment of principal and interest due within one year, amounted to Baht 3,260 million and 4,031 million, respectively. The remaining balances of Baht 3,600 million and Baht 1,572 million as at March 31, 1999 and 1998, mainly represent Holding accounts which must be maintained in accordance with the loan agreements. The cash reserve for minimising the exchange risk represents deposits in US Dollar. The two subsidiaries have to provide this reserve until such account equals the lower of 25% of the aggregate outstanding unhedged US Dollar loans or an amount of US Dollars 103 million. As at March 31, 1999, the reserve fully complies with the above. Unaudited Reviewed Electricity Generating Public Company Limited Page 13 Notes to the financial statements and consolidated financial statements - March 31, 1999 continued Investments in and loan to subsidiaries, associated and other companies. 7. 7.1 Investments in and loan to subsidiaries, associated and other companies for the company's financial statements are as follows : Type of business Subsidiaries companies Rayong Electricity Generating Company Limited Electricity Generating Khanom Electricity Generating Company Limited Electricity Generating EGCO Engineering and Services Provide maintenance Company Limited service to power plants EGCO Joint Venture and Make business investment Development Company Limited in electricity industry EGCO Mining Company Limited Mining industry Associated companies AMATA EGCO Power Company Limited Electricity Generating Bangchak Power Company Limited Electricity Generating AM ESCO Company Limited Providing services to (formerly named as CM ESCO) power plants ESCO Wood Company Limited Provide maintenance service to power plants Paid-up share % of capital Interest Subsidiaries companies Rayong Electricity Generating Company Limited 4,700,000 99.99 Khanom Electricity Generating Company Limited 4,850,000 99.99 EGCO Engineering and Services Company Limited 210,000 99.99 EGCO Joint Venture and Development Company Limited 447,720 99.99 EGCO Mining Company Limited 176,000 69.99 Associated companies AMATA EGCO Power Company Limited 1,350,000 29.70 Bangchak Power Company Limited 40,000 30.00 AM ESCO Company Limited 2,000 50.00 (formerly named as CM ESCO) ESCO Wood Company Limited 20,000 45.00 Other companies Thai LNG Power Company Limited 10.00 PMI International Company Limited 10.00 1999 Investments Cost Method Equity method Subsidiaries companies (Baht'000) (Baht'000) Rayong Electricity Generating Company Limited 4,700,000 5,345,394 Khanom Electricity Generating Company Limited 4,850,000 5,119,297 EGCO Engineering and Services Company Limited 210,000 123,526 EGCO Joint Venture and Development Company Limited 447,720 21,011 EGCO Mining Company Limited 124,800 108,858 Associated companies AMATA EGCO Power Company Limited 400,950 442,524 Bangchak Power Company Limited 12,000 11,840 AM ESCO Company Limited 1,000 20,437 (formerly named as CM ESCO) ESCO Wood Company Limited 9,000 - Total investments in subsidiaries and associated companies 10,755,470 11,192,887 Cost or Fair market value Other companies (Baht'000) Thai LNG Power Company Limited 37,499 PMI International Company Limited 300 Investment in Open-End Fixed Income Fund 594,540 Total investments in other companies 632,339 Loan to a subsidiary 25,200 1998 Investments Cost Method Equity method Subsidiaries companies (Baht'000) (Baht'000) Rayong Electricity Generating Company Limited 4,700,000 3,721,926 Khanom Electricity Generating Company Limited 4,850,000 5,134,129 EGCO Engineering and Services Company Limited 170,000 144,313 EGCO Joint Venture and Development Company Limited 252,070 19,255 EGCO Mining Company Limited 63,600 75,155 Associated companies AMATA EGCO Power Company Limited 229,053 - Bangchak Power Company Limited 12,000 - AM ESCO Company Limited 1,000 - (formerly named as CM ESCO) ESCO Wood Company Limited 9,000 - Total investments in subsidiaries and associated companies 10,286,723 9,094,778 Cost value Other companies (Baht'000) Thai LNG Power Company Limited 37,499 PMI International Company Limited 300 Investment in Open-End Fixed Income Fund - Total investments in other companies 37,799 Loan to a subsidiary - The financial statements for the three-month periods ended March 31, 1999 include shares of net loss totalling Baht 21 million from the four associates (The three-month period ended March 31, 1998 : nil). The financial statements for such period of these associates have not been reviewed by these companies'auditors. Unaudited Reviewed Electricity Generating Public Company Limited Page 14 Notes to the financial statements and consolidated financial statements - March 31, 1999 continued 7.2 Investments in and loan to associated and other companies in the consolidated financial statements are as follows : Type of business Associated companies AMATA EGCO Power Company Limited Electricity Generating Bangchak Power Company Limited Electricity Generating AM ESCO Company Limited Providing services to (formerly named as CM ESCO) power plants ESCO Wood Company Limited Provide maintenance service to power plants Consolidation 1999 Paid-up share % of capital holding (Baht'000) Associated companies AMATA EGCO Power Company Limited 1,350,000 29.70 Bangchak Power Company Limited 40,000 30.00 AM ESCO Company Limited 2,000 50.00 (formerly named as CM ESCO) ESCO Wood Company Limited 20,000 45.00 Other companies Thai LNG Power Company Limited - 10.00 PMI International Company Limited - 10.00 Consolidation 1999 Cost method Equity method (Baht'000) (Baht'000) Associated companies AMATA EGCO Power Company Limited 400,950 442,524 Bangchak Power Company Limited 12,000 11,840 AM ESCO Company Limited 1,000 20,437 (formerly named as CM ESCO) ESCO Wood Company Limited 9,000 - Total investment in associated companies 422,950 474,801 Cost or Fair market value Other companies (Baht'000) Thai LNG Power Company Limited 37,499 PMI International Company Limited 300 Investment in Open-End Fixed Income Fund 631,541 Total investments in other companies 669,340 Loan to an associated company 25,200 (more)