MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis For the three-month period Operating Results ended 31 March 2002 Note: This Management Discussion and Analysis (MD&A) was made from the existing and available information in order to assist investors to better understand the vision of the management and the company's financial s tatus and operation. It also supports the "Good Corporate Governance Program" of the Securities Exchange Commission (SEC). However, since this MD&A is based upon the available information at the present time, and the upcoming factors and events mentioned in this MD&A are forecasted by using the assumption, which the management expected . Therefore, such information may be changed by any other future circumstance. In this regard, the due consideration of the investors upon any information stipulated herein is hereby required. Should the investors have any question, please do not hesitate to contact Investor Relations Section, Finance Division of the Electricity Generating Public Company Limited at Tel: 662-998-5157-8 or Email: ir@egco.com. Management Discussion and Analysis 1. Report and Analysis of the Operating Results On May 12, 2002, it was the 10th Anniversary of the Electricity Generating Public Company Limited (EGCO). It was established in accordance with the government's policy to allow private investors to participate in the electricity-generating business in order to decrease the government's burden due to the fact that the electricity-generating business requires huge capital investment. With limited budget, the government also had to allocate its fund to develop other industry and economic sectors as well. Moreover, the economy was growing at a leap rate; thus, the demand for the electricity of the country was at high level, and it was likely that its install capacity at the time was not sufficient for the future demand. EGCO is structured as a holding company for the purpose of owning shares in the businesses, which generate and sell the electricity and in other related energy businesses. Source of income is dividend received fro m the company's business group in the form of shares of profits from investments in its subsidiaries, joint ventures, and associates. The objective of the structure is to provide a flexibility to expand its busine sses and manage its subsidiaries' projects as well as an ability to finance the new projects with nonrecourse to the existing ones. 1.1 Income Analysis In the first quarter of the year 2002, the total revenue of the group was Baht 3,248 million, increasing by Baht 395 million or 13.85%, compared to the same period of the year 2001. The details are as follows; 1) Sales of electricity from the principal subsidiaries, REGCO and KEGCO, amounted to Baht 2,376 million, representing an increase of Baht 220 million or 10.19% from the first quarter of last year. The sales from KEGCO rose by Baht 299 million while the sales from REGCO decreased by Baht 82 million. The sales were calculated by using the capacity payment formula with the concept of the "Cost-Plus" as determined in Power Pu rchase Agreement (PPA), and were in line with the company's projection. Under the PPA, the electricity sale was determined for each year to cover main expenses, i.e. debt financing charge and major maintenance charge. However, in some period, the electricity sales may not relate in th e same direction as the expenses shown on the financial statement. In accordance with the Thai Accounting Standard, the expense has to be recorded when it incurs. In addition, the maintenance schedule may be adju sted if appropriate. 2) Shares of electricity sales from joint ventures were from GEC in the amount of Baht 199 million, increasing by Baht 3 million and Conal in the amount of Baht 241 million, increasing by Baht 9 million according t o the PPA. Moreover, in this quarter, EGCO first recorded the share of electricity sales from APB in the amount of Baht 57 million. From the joint investment with UNOCAL at the end of 2001, EGCO had a new project , APB, which is a new joint venture of EGCO JD. 3) Sales of water from a subsidiary, EGCOM TARA, was Baht 30 million, up Baht 24 million because the sales were recognized for full three months but last year EGCOM TARA first sold the water in February. 4) Service income totaled Baht 73 million, increasing by Baht 24 million due to ESCO's increased Operating and Maintenance (O&M) services to the companies outside the group. 5) Interest income and other income amounting Baht 253 million decreased Baht 30 million or 11% owing to the following main reasons; - Interest income from financial institutions decreased by Baht 47 million since cash was spent for investment and debt repayment. - Dividend incomes rose by Baht 34 million, which were received from EASTW and Krung Thai Selected Flexible Portfolio Fund (KTSF) in the amount of Baht 7 million and 27 million, respectively. - Other incomes In the first quarter of 2001, EGCO had an extraordinary income from selling its shares in TLP Cogen for Baht 17 million while there was not such transaction in this quarter. 6) Shares of profits from associates was Baht 18 million, up Baht 62 million from the same period of the previous year because there were shares of loss from associates totaling Baht 44 million, due to the effect o f the foreign exchange. 7) Effect of the foreign exchange resulted in a gain of Baht 157 million, (Baht appreciated approximately Baht 0.74 per 1 US dollar, compared to last accounting period) while EGCO had a loss of Baht 283 million in the same period of last year (Baht depreciated approximately 1.48 Baht per 1 US dollar). Thus, the effect of the foreign exchange caused a difference in the high amount of Baht 440 million. The currency exchange gain or loss is an accounting number in accordance with the Thai Accounting Standard. It incurs from the difference of the translation of the net debt denominated in foreign currency to Thai Baht using the foreign exchange rate at the end of this accounting period (31 March 2002) comparing with the rate at the end of the previous period (31 December 2002). However, the capacity payment is adjusted to receive the compensation from the exchange rate effect, which incurs from debt financing charge denominated in US dollar and imported Major Maintenance Parts Charge paid in US Dollar. REGCO and KEGCO receive the compensation monthly for each billing period. They receive higher capacity charge if the exchange rate is above Baht 28 per US Dollar, and lower capacity charge if the r ate is below Baht 28 per US Dollar. The compensation for the 3-months period ended March 31, 2002 amounted to Baht 340 million. 1.2 Expense Analysis Total expenses of the group were Baht 2,076 million, up only Baht 1 million due to the following main factors; 1) Cost of sales amounting to Baht 1,076 million rose by Baht 148 million or 15.88%. The increase was mainly the cost of sales from REGCO and KEGCO in the amount of Baht 58 million and Baht 41 million, respectivel y, which was mostly because of the Major Maintenance Cost. In addition, the cost of sale of Baht 41 million from APB was first recognized in the quarter, and the cost of sale from EGCOM TARA also increased by Baht 8 million since it recognized its expenses for 3 full months. 2) Cost of services was Baht 42 million, up Baht 25 million in accordance with the increase of the service income from ESCO. 3) Interest Expenses totaled Baht 726 million, down Baht 142 million or 16.36% because of the decrease of interest expenses from EGCO, REGCO, KEGCO, GEC, and Conal, in the amount of Baht 41 million, Baht 52 million , Baht 24 million, Baht 12 million, and Baht 23 million, respectively. The main reasons were lower interest rate, lower debt principal amount, and stronger Baht against the foreign currency than last accounting pe riod. In contrary, the interest expenses from EGCOM TARA and APB rose by Baht 6 million and Baht 4 million, respectively. 4) Administrative expenses and other expenses was Baht 232 million, down Baht 29 million or 11.25%. The details are as follows; - TLP COGEN: the administrative expenses was down Baht 41 million, when compared the same quarter of last year, because TLP COGEN had a financing fee in the amount of Baht 47 million. However, this amount was recl assified as Assets in the second quarter of the year 2001, and it will be amortized over the useful life. - Other subsidiaries and joint ventures: these administrative expenses decreased by Baht 14 million. - EGCO: the administrative expenses rose by Baht 26 million due to the loss on the forward contract of the foreign currency in the amount of Baht 38 million whereas other administrative expenses decreased by Baht 1 2 million. EGCO had the forward contract to prepare for the payment of the share purchase under its investment plan to increase its stakes in GEC, which invests in Bo Nok Power Plant. At the time, the economy was not recover ed as forecasted, and the situation of the electricity industry was not favorable to pursue the plan. EGCO highly concerned about higher risks, which were used to compare with the project return from the particula r project, and the importance to sustain its shareholder value; therefore, it decided not to increase its stakes in the project. Furthermore, there was a fluctuation of the currency exchange. To minimize the loss , EGCO decided to close the position of the forward contract. However, EGCO thinks that the loss was not significantly material. Presently, EGCO is working on the improvement of its risk management process for the whole group. 1.3 Business Expansion Analysis With the company's policy to address the importance to increase its shareholder value, it has a conservative business expansion strategy as well as a concern to maintain its strong credit standing. Therefore, EGCO did not invest in any new project in the first quarter of 2002, and waits for the opportunity to generate satisfactory return with low risk from high quality projects, such as the participation in EGAT's privatize d assets including the Repowering projects. Even though the government had a resolution to instruct EGAT to negotiate with the project owners to postpone the coal-fired power plants in Prachuab Kirikhan. The Bo Nok Power Plant, which EGCO has 30% stakes thr ough GEC, is one of the projects. The delay of the project would affect the company's cash flow projection under the assumption that the Commercial Operation Date (COD) of the Bo Nok Power Plant will be in October 2004. However, if the delay does not exceed 2 years, EGCO thinks that the impact is not significantly material to the return on the investment. In case of the economic revival, the demand for the electricity wil l increase, and EGCO also sees the opportunity to expand the capacity at its existing projects or develop new green-field project in the future. Moreover, EGCO aims to complete all the developing projects. In 2003, EGCO will start recognizing the revenues from TLP Cogen and Roi-Et Green, which have COD in January and April, respectively. For the case of R EGCO and KEGCO, which are EGCO's principal subsidiaries and provide most of the total revenues, in some years, their expenses recorded on the financial statement in accordance with the Thai Accounting Standard may be lower than the amount determined in the PPA or the capacity rate. It may occur when the capacity rate was determined to cover the expense for major overhaul while the actual expense may not incur because of the ir efficient management of the maintenance schedule. As at the end of the first quarter of 2002, EGCO still has the committed equity install capacity of 2,785 MW, equal to the MW at the end of last year. The company remains its objective to increase its installed ca pacity to 5,000 MW by 2005. The Shareholders' Annual General Meeting No. 1/2002 held on April 22, 2002 passed the resolution to pay the dividend from the second 6-month operation of the year 2001 at Baht 1.25 per share. When summing up with the interim dividend paid from the first 6-month operation, EGCO paid the dividend from the operation of the year 2001 in the total amount of Baht 2.25 per share, in accordance with the company's policy to maintain its cash flow to pay the dividend not lower than Baht 2 per share. However, it must not have any impact on the capital expenditure required for the existing projects and treasury stock program, which has the obj ective to manage its available cash efficiently and to reflect the real value of the company. 1.4 Operational Results and Conclusion Net profit for the first quarter of 2002 was Baht 1,249 million, increasing by Baht 806 million or 82.36% from the same period of the previous year owing to the aforementioned reasons. If excluding the effect of the foreign exchange of Baht 157 million (unrealized foreign currency gain was Baht 159 million), the net profit was Baht 1,092 million, Baht 366 million or 50.42% higher than last year. When considering only on the net profit, it may conclude that EGCO had a better operating result than last year. However, EGCO's most revenues are from REGCO and KEGCO (approximately 77% of the total revenues). T heir revenues are under the long-term agreement with EGAT to cover all the cost and return on equity at the rate of 20% and 19% over the life of the projects for REGCO and KEGCO, respectively. Therefore, the analy sis of the company's operating result should consider the forecast as a supplement. Nevertheless, the net profit for this quarter of the year 2002 was in line with the company's forecast. The dividend received from EGCO's subsidiaries, joint ventures, and associates has been managed and invested to increase its returns. In the future, the proportion of the revenues from REGCO and KEGCO, comparing t o the total revenues, tends to decrease after EGCO receives the more revenues from the treasury management and return on investment from the new projects. Important Financial Ratios for the period are as follows; - Net Profit (excluding the effect of foreign exchange) margin was 33.62%. - Return (excluding the effect of foreign exchange) on shareholders' equity was 5.52%. - Return (excluding the effect of foreign exchange) on assets was 1.99%. - Earning (excluding the effect of foreign exchange) per share (EPS) was Baht 2.38. 2. Report and Analysis of Financial Position 2.1 Asset Analysis As at 31 March 2002, total assets of the group in the amount of Baht 54,940 million, rose by Baht 1,975 million or 3.73% from last period ended December 31, 2001. The important details are as follows; 1) Cash, deposit at banks and financial institution, and marketable securities in short term and long term were Baht 6,297 million or accounted for 11.46% of the total assets, which increased by Baht 488 million or 8.41% due to - cash receipt from the operation totaling Baht 666 million - financing activities amounting to Baht 362 million, mostly from the loan drawdown of TLP Cogen (Baht 483 million) and APB (Baht 11 million). - dividends received from EASTW and KTSF, and sales of the securities totaling Baht 118 million - debt repayment made by GEC and Conal - cash spent for investment activities, mostly for the construction of the TLP Cogen's power plant 2) Short-term and long-term investments used as collateral were Baht 11,464 million or accounted for 20.87% of the total assets. They increased by Baht 1,186 million or 11.54% for use as the cash reserve of the de bt repayment. Some of the investments were denominated in US Dollar. 3) Investment in associates and other companies were Baht 1,334 million or accounted for 2.43% of the total asset, which were Baht 62 million or 4.87% higher than last year owing to the increase of investment in Na m Theun II project amounting to Baht 44 million and the shares of profits received from AEP, APB, and AMESCO totaling Baht 18 million. 4) Property, plant, and equipment amounted to Baht 29,067 million or were accounted for 53% of the total assets, which rose by Baht 112 million or 0.39% mainly due to the construction of the TLP Cogen Power Plant t otaling Baht 566 million, assets from APB from the joint investment with UNOCAL through EGCO JD, and the increased assets of the other subsidiaries and associates. However, there were amortization of the depreciat ion in the amount of Baht 508 million and other assets in the amount of Baht 3 million and the translation adjustment of the assets in foreign countries in the amount of Baht 20 million. 5) Other assets were Baht 6,778 million or accounted for 12.34% of the total assets. It increased by Baht 126 million or 1.90% mainly owing to - Trade account receivable increasing by Baht 257 million - Loans to related companies up Baht 8 million - Interest receivable declining Baht 83 million - Spare parts and supplies decreasing Baht 37 million - Goodwill down Baht 19 million Moreover, the major component of the other assets was the project development costs and advances to the subsidiaries of GEC, i.e. Gulf Power, in the amount of Baht 304 million. This project has been postponed by t he government's resolution, and EGAT would negotiate with the project owners regarding the impact of the delay. However, EGCO is confident that such impact would not significant to the return on the investment and the shareholder value under the aforementioned assumptions. Other components included the expenses during the construction that belonged to TLP Cogen and Roi-ET Green in the amount of Baht 135 million were capitalized as other long-term assets and tax receivable of EGCO in the amount of Baht 102 million. 2.2 Liability Analysis As at 31 March 2002, total liabilities were Baht 34,611 million, up Baht 831 million or 2.4% mainly as a result of the debt drawdown from TLP Cogen and the recognized liability from APB. The liabilities consisted of 1) Long-term debt and debenture totaling Baht 32,699 million, and the details are as follows; - USD debt in the amount of 424 million USD - Yen debt in the amount of 69 million Yen - Peso debt in the amount of 139 million Peso - Baht debt in amount of 2,151 million Baht - Debenture in the amount of 11,226 million Baht 2) Other liabilities were Baht 1,912 million, i.e. interest payable, bank overdrafts, trade account receivable, value added tax payable, dividend payable, and others. As a credible, high-quality company, the company is committed to administering its obligation in compliance with good corporate government. It has, accordingly, reserve accounts at 25% of the total EGCO's obligati ons in accordance with its sponsor supports or contingent liabilities to the subsidiaries and associates in order to reduce the risk of default and provide extra return in form of the interest income as well as fin ancial stability. As at 31 March 2002, the total reserve accounts amounted to Baht 147 million. 2.3 Shareholder's Equity Analysis As at 31 March 2002, Shareholder's equity (excluding minority interest and net of treasury stock) amounting to Baht 19,802 million, rose by Baht 1,258 million. The main factor was the net profit for the first quar ter of the year 2002. To analyze the assets and liabilities, the capital structure was as follows; Shareholders' equity was Baht 20,329 million or accounted for 37%. Liabilities were Baht 34,611 million or accounted for 63%. Important financial ratios are as follows; - Debt to equity ratio was 1.70 times, lower than the end of last year at 1.76 times - Net debt to equity ratio was 0.80 times, lower than the end of last year at 0.87 times - Book value per share was 37.65 Baht per share, higher than the end of last year at 35.26 Baht per share 3. Report and Analysis of Cash Flows Position Cash Flows Statement shows the change in cash flows from operating activities, investing activities, and financing activities at the end of account period, and it indicates the ending balance of cash and cash equiv alents. As at 31 March 2002, the ending balance of the cash and cash equivalent was Baht 4,106 million, and the net cash increased from the beginning period in the amount of Baht 467 million. The details of sourc e of funds and use of funds are as follows; - Net cash receipt from operating activities was Baht 666 million from the net profit for the period and adjusted with the non-cash items and not related to the operating activities, such as depreciation, unrealiz ed foreign currency exchange gain, gain on disposal of marketable securities, minority interest, etc., and changes in operating assets and liabilities. - Net cash payment for investing activities was Baht 561 million. It was spent on the purchase of property plant, and equipment of the subsidiaries, and mostly was spent for TLP Cogen, which was under the constru ction. - Net cash receipts from financing activities was Baht 362 million. There were short-term and long-term debt repayments of Baht 168 million, treasury stock of Baht 4 million, and dividend payment of Baht 2 millio n while TLP Cogen had debt drawdown, and the company recognized the debts from APB in the total amount of Baht 493 million. In conclusion, as at 31 March 2002, EGCO had net cash receipt from operating and financing activities higher than the net cash payment for the investment activities. Therefore, the ending balance increased from th e beginning period. Moreover, EGCO has an ability to effectively manage its available cash and fund to be sufficient for the investment in the existing projects, treasury stock, debt repayment, and dividend paymen t to its shareholders. The dividend payout has to be complied with its policy on the dividend payment, policy on conservative investment, and policy on maintaining its cash flows enough to pay the dividend at leas t 2 Baht per share if the financial statement shows the net profits for the year 2002.