MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL

Management Discussion and Analysis For the Year 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 situati on 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: 662-998-5157-8 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) 25.41%, CLP Power Projects (Thailand) Limited 22.42%, and General Public 52.17% (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 trade electricity, and in other related energy businesses. Source of its income is dividends received from the company's business group in form of 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' projects as well as the ability to finance the new projects with non-recourse to the existing ones. 1.1 Income Analysis In 2002, the total revenues of EGCO, its subsidiaries, and joint ventures were Baht 12,060 million, increasing by Baht 411 million or 4% as compared to 2001. The details are as follows; 1) Sales of electricity from the principal subsidiaries, REGCO and KEGCO, amounted to Baht 8,963 million, representing an increase of Baht 326 million or 3%. Sales from KEGCO rose by Baht 621 million while sales from REGCO decreased by Baht 295 million. The sales were determined in accordance to the capacity payment formula, 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 receive compensation of the exchange rate effect from debt burden dominated in US Dollar and expenses of major maintenance parts. 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 exchange rate is below Baht 28 per US Dollar. The compensation of the exchange rate effect for 2002 amounted to Baht 1,153 million. 2) Shares of electricity sales from joint ventures were from GEC, CONAL, and APB in total of Baht 2,139 million, up Baht 343 million, mostly due to the first year realization of revenues from APB, a new joint venture of EGCO JD. 3) Sales of water from a subsidiary, Egcom TARA, was Baht 123 million, up Baht 31 million since its revenues were recognized for full-year 2002 while its last year's revenues had been recorded since February. In a ddition, the increase in sales of water was derived from increasing demand for water consumption in 2002. 4) Service income totaled Baht 237 million, rising by Baht 29 million due to an increased income from ESCO which provided Operating and Maintenance (O&M) services to the companies outside the group. 5) Interest income and other income amounting to Baht 669 million, down Baht 210 million or 23%, due to the reduction in interest rate and deposits at banks and financial institutions, in which the funds were used for investment and debt repayment. 6) Shares of loss of subsidiaries, joint ventures, and associates from APE, AMESCO, and Nam Theun 2 Project amounted to Baht 72 million, down Baht 108 million. Most were the results of Nam Theun 2 Project's development expenses of Baht 125 million whereas EGCO recognized shares of profits form its associates, APE and AMESCO, in total of Baht 17 million. 1.2 Expense Analysis Total expenses from EGCO, its subsidiaries and joint ventures in 2002 were in the amount of Baht 9,039 million, up Baht 771 million or 9% due to the following reasons; 1) Cost of sales in total of 4,719 million, up Baht 867 million or 22%, mainly as a result of increased major maintenance costs from KEGCO. Besides, cost of sales from APB of Baht 175 million was first recognized this year, and cost of sales from Egcom TARA of Baht 55 million up Baht 8 million due to its full-year recording. 2) Cost of services amounted to Baht 208 million, up Baht 27 million, which was in line with the increase in service income. 3) Administrative expenses and other expenses were Baht 963 million, up Baht 27 million or 2%, mostly from the increase in administrative expenses of EGCO. As mentioned in MD&A for the second quarter of 2002, 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 payments of the share purchases 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. By comparing higher risk to the return from the particular project and the concerning of importance to sustain its shareholder value; therefore, it decided not to increase its stakes in such project. Furthermore, there was still some 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 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 developing 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 and a provision for impairment of the goodwill arising from the acquisition of Bo Nok Project of Baht 120 million, totaling for the impairment charge in 2002 of Baht 342 million. 5) Interest Expenses was Baht 2,807 million, down Baht 492 million or 15% resulting from the decrease in interest expenses of EGCO, REGCO, KEGCO, GEC, and CONAL, in the amount of Baht 97 million, Baht 208 million, Baht 89 million, Baht 23 million, and Baht 87 million, respectively. The main reasons were from lower debt principal amount, stronger Baht than previous accounting period, and lower interest rate of EGCO's debentures. However, the interest expense from APB of Baht 14 million was first recognized in this year. Regarding the EGCO's debenture, the company first entered into an interest rate swap agreement to convert a fixed rate at the rate of 8% per annum to a floating rate based on six-month THBFIX plus a certain margin; thus, the interest expense in October 2001 was reduced to 6% per annum. 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 April 21, 2002. 1.3 Operational Results and Conclusion Net profit for the year 2002 was Baht 2,958 million, increasing by Baht 19 million owing to the aforementioned reasons and the effect on unrealised foreign currency exchange gain of Baht 174 million whereas the company incurred exchange loss of Baht 236 million in the previous year. The foreign 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 equivalent amount using the foreign exchange rate at the end of this accounting period (December 31, 2002) and the previous period (December 31, 2001). If excluding the effect of foreign currency exchange gain, the net profit for the year 2002 was Baht 2,784 million, down Baht 391 million or 12% lower than last year. The main reasons were from the impairment charge and shares of loss of subsidiaries, joint ventures, and associates as mentioned earlier. Overall, EGCO's major revenues are still from REGCO and KEGCO, which 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 comparing to its principal subsidiaries while the returns from its new projects have not yet been realised due to the constructing phase. Important Financial Ratios for the period were as follows; - Earning (excluding the effect of foreign exchange) per total revenues was 57%. - Net Profit (excluding the effect of foreign exchange) margin was 23%. - Earning (excluding the effect of foreign exchange) per share (EPS) was Baht 5.29. 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 maintaining its strong credit standing in order to receive the sustainable and long-term growth. Moreover, EGCO also 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. As of September 27, 2002, Gulf Electric Public Company Limited (GEC), EGCO's joint venture in which EGCO 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 USD 94.3 Million. Therefore, our committed installed capacity will amount to 2,913 MW, up 126 MW from 2001. 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 well planned which enables the plants to dispatch the electricity to the customer all the time and save the standby energy charge paid to Provincial Electricity Authority of Thailand (PEA). The company has a dividend policy to pay dividend twice a year and to maintain sufficient cash flow to pay the dividend not lower than Baht 2 per share or at least 40% of its net profit without any impact on the ca pital expenditure required for the existing projects. 2. Report and Analysis of Financial Position 2.1 Asset Analysis As at December 31, 2002, total assets of EGCO, its subsidiaries, and joint ventures amounted to Baht 55,873 million, increasing by Baht 2,908 million or 5%. The important details are as follows; 1) Cash, deposit at banks and financial institutions, and short term and long term marketable securities were Baht 5,501 million or 9% of the total assets, which decreased by Baht 866 million or 13%. The reduction in 2002 was mainly from dividend payment, and investment activities, and debt repayment. 2) Short-term and long-term investments used as collateral were Baht 10,411 million or 18% of the total assets. They increased by Baht 133 million or 1% for the cash reserve of the debt repayment. Some of the investments were denominated in US Dollar. 3) Investment in associates and other companies amounted to Baht 822 million or 1% of the total assets, which was Baht 111 million or 15% higher than last year owing to the increase of investment in Nam Theun 2 Project of Baht 183 million, of which Baht 125 million was partially recognized. The company also received shares of profit from AEP and AMESCO totaling of Baht 53 million. 4) Property, plant, and equipment amounted to Baht 32,034 million or 57% of the total assets, up Baht 3,035 million or 10% mainly due to the increases in the assets from NKCC and SCC and the construction of TLP Cogen and Roi-Et-Green 5) Other assets were Baht 7,104 million or 12% of the total assets, up Baht 496 million or 7% mainly from the increase of trade accounts receivable, spare parts and supplies, and the amortization of the goodwill of the Bo Nok Project. 2.2 Liability Analysis As at December 31, 2002, the company's total liabilities were Baht 34,925 million, up Baht 1,145 million or 3% as a result of the debt in GEC, NKCC, SCC and the drawndown loan by TLP Cogen and Roi-Et Green. The liabilities consisted of the followings; 1) Long-term loans and debentures totaled Baht 32,444 million. The details are as follows; - USD loans in the amount of USD 439 million - Yen loans in the amount of Yen 645 million - Philippines Peso loans in the amount of Peso 126 million - Baht loans in amount of Baht 4,576 million - Debentures in the amount of Baht 9,681 million 2) Other liabilities amounted to Baht 2,481 million, mostly resulted from interest payable, bank overdrafts, trade accounts payable value added tax payable, and dividend payable. 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 December 31, 2002, the company had a reserve fund of Baht 400 million, amounting to 25% of its aforementioned total obligation and an additional allocation of Baht 54 million is in the process. 2.3 Shareholder's Equity Analysis As at December31, 2002, Shareholder's Equity (excluding minority interest and net of treasury stock), amounted to Baht 20,276 million, which was 1,732 million higher than the previous year. The main reasons were the profits from operation and unrealised gains on investments in marketable securities From the analysis of the above assets and liabilities, the company's capital structure was as follows; Shareholders' equity was Baht 20,948 million or 37%. Liabilities were Baht 34,925 million or 63%. Important financial ratios were as follows; - Debt to equity ratio was 1.67 times, lower than 1.76 times in 2001 - Book value per share was Baht 39.81, higher than Baht 35.26 in 2001 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 the cash and the cash equivalents. As at December 31, 2002, the ending balance of the cash and the cash equivalent was Baht 2,275 million, down by Baht 1,158 million from last year. The details of source of funds and use of funds are as follows; -Net cash receipt from operating activities of 6,155 million from the net profit for the year adjusted with the non-cash items and other non relating operating activities, such as depreciation, unrealised foreign currency exchange gains, gains on disposal of marketable securities, minority interest and changes in operating assets and liabilities. -Net cash payment for investing activities was Baht 4,760 million, which was spent mostly on the construction of NKCC, SCC, TPL Cogen, and Roi-Et Green and the investment in the Nam Theun 2 Project of Baht 183 million whereas the dividends from investing in CONAL and EASTW amounted to Baht 179 million, and Baht 32 million, respectively. - Net cash payment for financing activities was Baht 2,553 million, mainly because there was higher short-term and long-term debt repayments, treasury stock, and dividend payment of Baht 4,190 million, Baht 52 million, and Baht 1,412 million, respectively. The company also recorded the increase in cash from drawndown loan of TLP Cogen, Roi-Et Green and AEP in the amount of Baht 1,699 million, Baht 204 million, and Baht 1,100 million, respectively and the increase in minority interest from TLP COGEN and Roi-Et Green in total of Baht 98 million. In conclusion, EGCO has a policy to manage its capital by focusing on the short-term and long-term value to benefit its shareholders. Therefore, the company carefully prioritizes to utilize its capital by investing only in high quality projects as well as managing adequate funds for investment in existing projects and for paying dividend to its shareholders twice a year, continuously.