MANAGEMENT DISCUSSION AND ANALYSIS QUARTER 3

Management Discussion and Analysis For the Nine-Month Period Operating Results Ended 30 September 2002 Note: This Management Discussion and Analysis (MD&A) was made with the management's confidence that the information was accurate and completed and shown the vision of the management in order to assist investors to better understand the company's financial status and operation. It also supports the "Good Corporate Governance Project" of the Securities Exchange Commission (SEC). However, the information on the MD&A relied on the existing factors in the present time. Therefore, the forward-looking information on this MD&A may not occur in the future if the aforementioned factors or situation are changed. The investors should have discretion for consideration on the use of the information. For further detail, please contact Investor Relations Section, Finance Division of the Electricity Generating Public Company Limited at Tel: 662-998-5157 or Email: ir@egco.com. Management Discussion and Analysis 1. Report and analysis of the Operating Results Electricity Generating Public Company Limited (EGCO) was established on May 12, 1992 in accordance with the government's policy to allow private investors to participate in the electricity-generating business. Currently, EGCO's shareholding structure comprised the Electricity Generating Authority of Thailand (EGAT) 25.43% , CLP Power Projects (Thailand) Limited 22.44% and General Public 52.13% (with the foreign limit of 45%) EGCO is structured as a holding company for the purpose of owning shares in the companies, which generate and sell the electricity, including operate in other related energy businesses. Source of its income is the dividend received from the company's business group in the form of the shares of profits from investments in its subsidiaries, joint ventures, and associates. The objective of the structure is to enable the flexibility to expand its businesses and to enhance the ability or a quality to efficiently manage its subsidiaries' project as well as the ability to finance the new projects with non-recourse to the existing ones. 1.1 Income Analysis In the nine-month period of the year 2002, the total revenue of the group was Baht 9,301 million, increasing by Baht 464 million or 5.25%, 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 6,976.92 million, representing an increase of Baht 361 million or 5.46% from the previous year. The sales from KEGCO rose by Baht 602 million while the sales from REGCO decreased by Baht 241 million. The sales were received in consistent with the capacity payment formula, which was calculated on a "Cost-Plus Basis" under Power Purchase Agreement (PPA), and were in line with the company's projection. However, the calculation of the capacity payment is adjusted to reflect the compensation from the exchange rate effect, which incurs from USD denominated debt financing charge and Major Maintenance Parts Charge. REGCO and KEGCO receive the compensation monthly for each billing period. The capacity charge will rise if the exchange rate is above Baht 28 per US Dollar, and will decline if the rate is below Baht 28 per US Dollar. The compensation for the nine-month period ended June 30, 2002 amounted to Baht 898 million. 2) Shares of electricity sales from joint ventures were from GEC, CONAL, and APB in the amount of Baht 1,493 million, increasing by Baht 157 million, mostly due to the first year realization of revenue from sales from APB, a new joint venture of EGCO JD. 3) Sales of water from a subsidiary, EGCOM TARA, was Baht 92 million, up Baht 29 million because the sales were recognized for full nine months while last year EGCOM TARA first sold the water in February. 4) Service income totaled Baht 191 million, rising by Baht 85 million due to ESCO's increased Operating and Maintenance (O&M) service to the companies outside the group. 5) Interest income and other income amounting Baht 505 million decreased by Baht 205 million or 29% due to the decrease in the interest rate and the decrease in cash, which was spent for investment and debt repayment. 6) Shares of profits from associates, i.e. AEP and AMESCO, were Baht 43 million, up Baht 37 million from the same period in the previous year because there were shares of losses from associates totaling Baht 6 million, due to the effect of the foreign exchange. 1.2 Expense Analysis Total expenses of the group were Baht 6,476 million, up only Baht 366 million or 6% due to the following main factors; 1) Cost of sales amounting to Baht 3,242 million rose by Baht 380 million or 13.28%, mainly owing to the increase in the cost of sales from REGCO and KEGCO in the amount of Baht 231 million, which was mostly from the Major Maintenance Cost. In addition, the cost of sale of Baht 130 million from APB was first recognized in this year, and the increase cost of sale of Baht 9 million from EGCOM TARA was recognized for 9 full months. In 2002, REGCO and KEGCO are scheduled to have Major Maintenance Expenses higher than last year. The power plant normally shuts down for the maintenance in the second half of the year in longer period than the first half. The demand for the electricity, which relates to the temperature, in the second half of the year is usually lower than the first six months. The major maintenance expense will be recorded when it incurs; therefore, the cost of sales, including the major maintenance expense, is likely to be higher than the first half. 2) Cost of services was Baht 147.5 million, up Baht 86 million in line with the increase of the service income from ESCO. 3) Administrative expenses and other expenses were Baht 633 million, up Baht 10 million or 1.6%, mostly from the increase in the administrative expenses of EGCO. As mentioned in md&a for the second quarter, the main reason was the loss on the forward contract of the foreign currency in the amount of Baht 38 million whereas the expenses of other companies in the group decreased . 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 that time, the economy was not recovered 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 particular project, and the importance of sustaining its shareholder value; therefore, it decided not to increase its stakes in the project. Furthermore, there was a fluctuation of the currency exchange market. 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. 4) Impairment Charge amounted to Baht 342 million from the Bo Nok Power Plant Project, which was recognized as expense on the Profit and Loss Statement in 2Q02 due to the uncertainty and the risk of the development of the Bo Nok Power Plant. In the case that EGAT cancels the project, the project owner is able to ask for the compensation, but it would require some period of time to receive it. EGCO has reviewed the impact of the problem and planed to implement the project with careful and conservative approach as well as realized the importance of the shareholder value. The company considerably recognized the impairment charge of the particular project after it has assessed the recoverability of its investment in this project. The impairment provision is approximately Baht 222 million, which has been recognized in the second quarter of 2002 Furthermore, a provision for impairment of the goodwill arising from the acquisition of Bo Nok Project amounting to Baht 120 million has been also recognized as expenses in this quarter. 5) Interest Expenses totaled Baht 2,111 million, down Baht 452 million or 17.64% because of the decrease in interest expenses of EGCO's debenture, REGCO, KEGCO, GEC, and Conal, in the amount of Baht 122 million, Baht 165 million, Baht 72 million, Baht 35 million, and Baht 71 million, respectively. The main reasons were lower interest rate of EGCO's debenture, lower debt principal amount, and stronger Baht than the last accounting period. However, the interest expense from EGCOM TARA increased because it recognized the expense for the full 9 months, and the interest expense from APB was first recognized in this year. Regarding the EGCO's debenture, EGCO first entered into an interest rate swap agreement to convert a fixed interest at the rate of 8% to a floating interest rate on six-month THBFIX plus a certain margin; thus, the interest expense in October 2001 decreased to 6%. Later, EGCO entered into a new interest rate swap agreement in 2002 to convert the floating interest rate on six-months THBFIX plus a certain margin to a fixed interest rate at 6.95%, which was effective since 21 April 2002. 1.3 Operational Results and Conclusion Net profit for the nine-month period ended September 30, 2002 was Baht 2,802 million, increasing by Baht 495 million or 21.45% yoy owing to the aforementioned reasons and the effect on the foreign currency exchange gain of Baht 158 million whereas there was the foreign currency lost of Baht 262 in the previous year. 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 (September 30, 2002) comparing with the rate at the end of the previous period (December 31, 2001). If excluding the effect on the foreign currency exchange gain of Baht 158 million, the net profit was Baht 2,644 million, Baht 75 million or 2.92% higher than last year. When considering only on the net profit, it may conclude that EGCO had about the same performance as the last year. EGCO's most revenues are from REGCO and KEGCO. Their revenues are determined under the secured 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 analysis of the whole company's operating result should consider the forecast of the subsidiaries, joint ventures, and associates as a supplement. Excluding REGCO and KEGCO, it may simply be concluded that the company's operating result was not significant at the moment compare with the principal subsidiaries. Important Financial Ratios for the period are as follows; - Net Profit (excluding the effect of foreign exchange) margin was 28.43%. - Earning (excluding the effect of foreign exchange) per share (EPS) was Baht 5.03. 1.4 Business Expansion Analysis EGCO's policy is to address the importance to increase its shareholder value so that the company has adjusted the business expansion strategy by focusing only on high quality projects as well as maintained its strong credit standing in order to receive the sustainable and long-term growth. 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 REGCO and KEGCO, which are EGCO's principal subsidiaries and provides most of the total revenues, in some years, their electricity sales may not go in the same direction. It may occur when the capacity rate was determined to cover the expense for major overhaul while the actual expense may not incur. With their efficient management of the maintenance schedule, the expenses that are recorded on the financial statement in accordance with the Thai Accounting Standard may be lower than the amount determined in the PPA or the electricity sales. As of September 27, 2002, Gulf Electric Public Company Limited (GEC), EGCOMP's joint venture in which EGCOMP holds 50% stake, signed Share Sale and Purchase Agreement with Tractebel S.A. in order to purchase 100% stake in both Nong Khae Cogeneration Co.,Ltd.(NKCC) and Samutprakarn Cogeneration Company Limited (SCC) in the amount of 94.3 Million USD. Therefore, our committed installed capacity will be 2,912 MW , up by 125 MW from 2001( As at September 30, 2002, the Share Sale and Purchase was not yet completed) EGCO invests through GEC because it will enhance the synergy by helping to manage cost effectively, such as the utilization of human resources and spare parts, etc. among the power plants. Moreover, the maintenance schedule can be planned to enable the plants to dispatch the electricity to the customer all the time and save the standby charge paid to Provincial Electricity Authority of Thailand (PEA). The company has a dividend policy to pay dividend twice a year and maintain its cash flow to pay the dividend not lower than Baht 2 per share or at least 40% of the net profit without any impact on the capital expenditure required for the existing projects. 2. Report and Analysis of Financial Position 2.1 Asset Analysis As September 30, 2002, total assets of the group amounted to Baht 54,439 million, increased by Baht 1,474 million or 2.78% from the 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 6,205 million or accounted for 11.40% of the total assets, which decreased by Baht 162 million or 2.5% due to - debt repayment in the amount of Baht 2,087 million - cash spent for investment activities, mostly for the construction of the TLP Cogen's power plant and the increase in the investment of Nam Theun 2 Project in the amount of Baht 125 million - dividend payment in the amount of Baht 1,407 million - cash received from operation in the amount of Baht 3,777 million - financing activities, mostly from the loan drawdown of TLP Cogen amounting Baht 1,417 million 2) Short-term and long-term investments used as collateral were Baht 11,265 million or 20.69% of the total assets. They increased by Baht 987 million or 9.6% for the cash reserve of the debt repayment. Some of the investments were denominated in US Dollar. 3) Investment in associates and other companies was Baht 880 million or 1.62% of the total asset, which was Baht 168 million or 23.55% higher than last year owing to the increase of investment in Nam Theun II project amounting to Baht 125 million and received the shares of profits from AEP and AMESCO totaling Baht 43 million. 4) Property, plant, and equipment amounted to Baht 29,235 million or 53.70% of the total assets, which increased by Baht 237 million or 0.82% mainly due to the increases in the assets from the construction of the TLP Cogen Power Plant and Roi-Et-Green totaling Baht 1,868 million and Baht 253 million, respectively and from APB, a joint investment with UNOCAL through EGCO JD. Even though there were the amortization and the depreciation totaling Baht 1,958 million. 5) Other assets were Baht 6,584 million or 12.59% of the total assets. It increased by Baht 245 million or 3.7% mainly owing to the expenses during the increase of trade account receivable and the tax receivable of EGCO. However, there were the amortization of the goodwill of the Bo Nok project. 2.2 Liability Analysis As at September 30, 2002, total liabilities were Baht 33,809 million, up Baht 29 million or 0.08% as a result of the loan drawn down by TLP Cogen and Roi-Et Green The liabilities consisted of the followings; 1) Long-term debt and debenture totaling Baht 30,337 million, and the details are as follows; - USD debt in the amount of 388 million USD - Yen debt in the amount of 211 million Yen - Peso debt in the amount of 117 million Peso - Baht debt in amount of 4,153 million Baht - Debenture in the amount of 10,522 million Baht 2) Other liabilities were Baht 1,954 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 governance. It has, accordingly, set up a reserve fund of 25% of total obligations to its subsidiaries and associates; thus, reducing the risk of default and providing extra return in the form of interest income and increased financial stability. As at September 30, 2002, the reserve fund balance amounted to Baht 300 million where and additional allocation of Baht 67 million is in the process. 2.3 Shareholder's Equity Analysis As at September 30, 2002, the shareholder's equity (excluding minority interest and net of treasury stock), amountied to Baht 19,982 million, rose by Baht 1,438 million. The main factor were the net profit for the 9 month of the year 2002 and unrealized gains on investment in marketable securities even though there was a translation adjustment in the amount of Baht 62 million. To analyze the assets and liabilities, the capital structure was as follows; Shareholders' equity was Baht 20,630 million or accounted for 37.90%. Liabilities were Baht 33,809 million or accounted for 62.10%. Important financial ratios are as follows; - Debt to equity ratio was 1.64 times, lower than the end of last year at 1.76 times - Net debt to equity ratio was 0.79 times, lower than the end of last year at 0.89 times - Book value per share was 39.17 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 the accounting period, and it indicates the ending balance of cash and cash equivalents. As at September 30, 2002, the ending balance of the cash and cash equivalent was Baht 3,324 million, decreasing by Baht 316 million from the beginning period. The details of source of funds and use of funds are as follows; - Net cash receipt from operating activities was Baht 3,777 million from the net profit of the first nin months adjusted with the non-cash items and other non relating operating activities, such as depreciation, unrealized 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 2,257 million. It was spent on the purchase of property , plant, and equipment of the subsidiaries, which mostly were spent for the construction of TLP Cogen by 1,705 million, Roi-Et Green by Baht 231 million, and the increase in the investment of the Nam Theun 2 by Baht 125 million where the dividend income from Conal and EASTW amounted toBaht 143 million, and Baht 32 million ,respectively. - Net cash payment for financing activities was Baht 1,836 million. The main reasons were the short-term and long-term debt repayments of Baht 2,087 million, treasury stock of Baht 52 million, and dividend payment of Baht 1,407 million despite the increase in cash from the loan draw down of TLP Cogen , Roi-Et Green and AEP in the amount of Baht 1,417 million, Baht 188 million, and Baht 10 million respectively. In conclusion, EGCO has a policy to manage its capital by focusing on the short term and long term value to benefit the shareholders. Therefore, the company prioritizes to utilize its capital by carefully invest only in high quality projects as well as to complete the development projects while maintaining adequate cash flows to pay the dividend twice a year, continuously.