Management Discussion and Analysis Quarter 1

Management Discussion and Analysis For the Three months Period Operating Results Ended March 31, 2004 Note: This Management Discussion and Analysis (MD&A) was made to disclose information and 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 and Exchange Commission (SEC). The objectives of this MD&A is to present the information and the explanation of financial status and operating results as of the date hereof. The information provided in this MD&A may change if the aforementioned factors or situation are changed in the future; the investors are, therefore, required to have their own discretion regarding the usage of this information for any purpose. For further detail, please contact Investor Relations Section, Corporate and Investor Relations Division of the Electricity Generating Public Company Limited at Tel: 662-998-5131-2 or Email: ir@egco.com Management Discussion and Analysis 1. Business Expansion Analysis The Electricity Generating Public Company Limited (EGCO), the first Independent Power Producer (IPP) in Thailand, was established in 1992. Our vision is to be the leading Thai integrated electric power company offering comprehensive energy services in Thailand and in the Asean region, with full commitment to environmental protection and social development support. EGCO focuses on growing market share by developing or acquiring power generation plants that provide economies of scale with acceptable risk and return. At the same time, we proactively track, manage, and identify operational improvement opportunities in our generation units in order to create greater operational efficiency across business units. We plan to divest our non-core businesses at appropriate prices under our investment policy. As at the end of March, 2004, Thailand's total generating capacity was reported at 25,325 MW, of which 9.4% of the total capacity was generated by EGCO. In the first quarter of this year, the peak demand of 19,326 MW /1 occurred in March, which was 6.65% higher than the peak demand that occurred in May, 2003.The robust growth of the Thai economy is leading to a rapid growth of electricity demand. Thus, the country requires new capacity from new power plants to come on stream as soon as possible in order to meet the increasing future demand and to ensure the reliability of power supply. /1 this information had been extracted from the Electricity Generating Authority of Thailand (EGAT) Currently, EGCO has 12 operating plants totaling 2,414 equity MW, of which 85% is produced from two gas-fired IPP power plants: the 1,232 MW Rayong Electricity Generating Co., Ltd. (REGCO) plant and the 824 MW Khanom Electricity Generating Co., Ltd. (KEGCO) plant. In addition to our existing assets, we are developing 3 major projects, representing an additional 1,003 equity MW as follows: 1) The expansion project at KEGCO, 385 MW natural gas-fired power plant, will be wholly owned by EGCO. This plant is scheduled to have commercial start up in January 2007 to meet an expected electricity shortfall in southern Thailand. EGCO is presently negotiating a Power Purchase Agreement (PPA) with EGAT and expects to conclude negotiation within 2004. 2) The Khaeng Khoi 2 (KK2) project, 700 MW natural gas-fired power plant in Saraburi province, was previously known as "the Bo Nok project". EGCO holds 50% stake in this project.The project is scheduled to commence commercial operation in March 2008. Due to the change in location and fuel type from coal to natural gas, the project is negotiating a new PPA with EGAT. 3) The Nam Theun 2 project, 1,070 MW hydroelectric power plant, in which EGCO has 25% stake. The PPA was signed in November 2003. This project is targeted for commercial operation in the second half of 2009 with the contracted capacity to EGAT of 995 MW. Presently, this project is in the stage of acquiring financial support from Thai and international banks as well as multilateral agencies . In the absence of unforeseen circumstances, the Company intends to distribute approximately 40% of the net profits after tax. This dividend policy may change in the light of investment opportunities that may become available to the Company or as a result of other economic or financial factors or when a dividend payment may have a significant impact on the normal operation of the company. 2. Report and Analysis of the Operating Results EGCO is structured as a holding company investing in integrated electricity generation business as well as energy service business. The main sources of its income are dividends and the share of revenues and profits from investments in its subsidiaries, joint ventures, and associates. The objective of the holding company structure is to provide flexibility for business expansion and to raise the ability to efficiently manage subsidiaries' projects as well as to finance new projects with non-recourse to existing ones. During 2003, the Group has adopted Thai Accounting Standard no. 51: "Intangible Assets" and has changed two principal accounting policies, Specific Spare Parts Policy and Recording of Development Expense Policy.For the purpose of presenting the interim consolidated and company financial statements for the three-month period ended 31 March 2003, retrospective adjustments, including the cumulative effect, have been accounted for in the interim consolidated and company financial statements for the three-monthperiod ended 31 March 2003. The effect of these changes on the consolidated and company balance sheets as at 31 March 2003 and the related consolidated and company statements of income for the three-month period ended 31 March 2003 are as follows 31 March 2003 Consolidated Company Baht'000 Baht'000 Balance sheets Increase in investments in subsidiaries - 947,498 Decrease in interests in joint ventures, net (506,866) (763,292) Increase in spare parts and supplies, net 6,025 - Increase property, plant and equipment, net 960,801 - Decrease in other non-current assets, net (275,754) - Increase in retained earnings as at 31 March 2003 184,206 184,206 Statements of income Decrease in cost of sales 966,826 - Increase in selling and administrative expenses (105,272) - Increase in impairment charge (170,482) - Increase (decrease) in share of profit from subsidiaries and joint ventures (506,866) 184,206 184,206 184,206 This report contains the analysis of the financial statements of EGCO and its subsidiaries as follows: 2.1 Operational Results EGCO's consolidated net profit for the first quarter of 2004, as of March 31, 2004, was Baht 1,408 million, a decrease of Baht 273 million or 16% compared to the same period of the year 2003. Unit: Million Baht Net Profit for the Net Profit for the first quarter of 2004 first quarter of 2003 Before FX After FX Before FX After FX EGCO 189 190 (44) (44) IPP Group 1,131 1,153 2,316 2,357 Spp Group (9) 2 (164) (157) Overseas 31 23 (464) (481) Others 39 39 5 5 Remarks: - IPP : REGCO, KEGCO - SPP : GEC, AEP, APBP, TLP Cogen, Roi-Et Green - Overseas : Conal, Nam Theun 2 - Others : ESCO, EGCOM TARA The net profit for first quarter of 2004 included an unrealized foreign exchange gain of Baht 27 million whereas the company incurred a foreign exchange gain of Baht 32 million in the same period of 2003.A 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 (March 31, 2004) and the previous period (December 31, 2003). Excluding the effect of foreign currency exchange gain, the net profit was Baht 1,381 million, represented a decrease of Baht 268 million or 16% as compared to the same period of 2003. Without the impact of the new accounting policy, foreign currency exchange gain and tax, the net profit of EGCO Group for the first three-months of 2004 was Baht 1,517 million, an increase of Baht 62 million or 4% compared to the same period of 2003. Important Financial Ratios for the period were as follows; - Gross Profit Ratio was 53%. - Net Profit Ratio (excluding the effect of foreign exchange) was 32%. - Earnings (excluding the effect of foreign exchange) per share (EPS) was Baht 2.63 The net profit margin (excluding the effect of foreign exchange) of 32% was lower than last year's margin of 48%. This is primarily a result of the change in the accounting policy in 2003, which led to an increase of 68% in expenses which is higher than the 26% increase in revenues. 2.2 Income Analysis In 2004, the total revenues of EGCO and its subsidiaries for the first three-months as well as the share of profits from its associates and interest in joint ventures were Baht 4,351 million, an increase of Baht 909 million or 26% compared to same period of 2003. The details are as follows: Total Revenues: Unit: Million Baht 1Q2004 1Q2003 %Changes EGCO 285 75 281% IPP Group 2,555 2,581 (1%) SPP Group 1,163 965 21% Overseas 183 (252) 172% Others 164 74 122% 1) EGCO's Revenues, amounting to Baht 285 million, represented an increase of Baht 210 million or 281% from last year, substantially driven by dividend income from financial investments. In this quarter, EGCO earned Baht 227 million from Krung Thai Dividend Selected Flexible Portfolio Fund (KTSF), representing an increase of Baht 195 million; dividends from marketable securities of Baht 40 million, up by Baht 2 million; and interest income of Baht 15 million, up by Baht 9 million as a result of an increase in bank deposits. 2) Revenues from the IPP Group, consisting of two principal subsidiaries, REGCO and KEGCO, were Baht 2,555 million. The details are as follows: * Sales of electricity was Baht 2,511 million, representing a decrease of Baht 2 million or 0.07% compared to last year. The decrease was a net effect from a fall in REGCO's electricity sales of Baht 161 million caused by a decrease of the Capacity Rate, which was partially offset by an increase of Baht 159 million in KEGCO's electricity sales due to an increased Base Availability Credit. This was in accordance with the capacity payment formula calculated on a "Cost Plus Basis" under the PPAs and in line with the company's projection. Sales of Electricity - IPP Group : Unit: Million Baht 1Q2004 1Q2003 %Changes REGCO 1,336 1,497 (11%) KEGCO 1,175 1,016 16% The PPAs cover the full amount of the projected fixed costs, debt financing charges and major maintenance charges, which are used in calculating the electricity tariffs for each period. Moreover, the calculation of the capacity payment is adjusted to include compensation of the exchange rate effect from debt services and expenses of major maintenance parts denominated 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 vice versa. In the first quarter of 2004, REGCO and KEGCO received compensation for the exchange rate effect of Baht 242 million. * Interest income and others amounted to Baht 44 million, a decrease by Baht 24 million or 36%, mainly from REGCO and KEGCO's lower in interest rates and less deposits at banks and financial institutions as funds were used to pay down loans, which caused a drop in return of Baht 16 million. 3) Revenues from the SPP Group were Baht 1,163 million, an increase of Baht 198 million or 21% compared to 2003. The SPP Group incorporates five companies, Gulf Electric Public Co.,Ltd. (GEC), Amata-EGCO Power Ltd. (AEP), Amata Power Bangpakong Ltd. (APBP), TLP Cogeneration Co.,Ltd. (TLP Cogen) and Roi-Et Green Co.,Ltd. (Roi-Et Green). The details are as follows: * Sales of electricity of the SPP Group were Baht 1,159 million, representing an increase of Baht 215 million or 23% compared to the same period of last year. Sales of Electricity - SPP Group: Unit: Million Baht 1Q2004 1Q2003 %Changes GEC 661 646 2% TLP Cogen 396 235 69% APBP 69 64 8% Roi-Et Green 34 - n/a The major factor,which led to an increase of sales in the SPP group was an increase of electricity sales at TLP Cogen and Roi-Et Green, whose revenues were firstly realized after the completion of their construction in January 28 and May 29, 2003, respectively. Furthermore, a Baht 5 million increase of electricity sales of APBP resulted from an increase of customers in the industrial park. * Interest income and others amounted to Baht 7 million, an increase by Baht 3 million thanks to United Nations Development Program (UNDP)'s financial subsidy to Roi-Et Green. * Share of loss of associates and joint ventures was from AEP totaling Baht 2 million, whereas share of profit from AEP in the first quarter of 2003 amounted to Baht 17 million due to scheduled major maintenance. 4) Revenues from the Overseas Group were Baht 183 million, an increase of Baht 435 million or 172% compared to the same period of 2003. The overseas group refers to the CONAL Holdings Corporation (CONAL) and Nam Theun 2 Power Co., Ltd (NTPC). The details are as follows: * Sales of electricity of the overseas group were Baht 180 million, a decline of Baht 74 million or 29% compared to the same period of last year, resulting from the transfer of 58 MW at Northern Mindanao Power Corporation (NMPC) to National Power Corporation (NPC) in July 2003. * Interest income and others amounted to Baht 12 million, an increase by Baht 1 million or 7%. * Share of expenses of associates and joint ventures totaled Baht 9 million, a decrease of Baht 508 million as compared to the same period of 2003. This resulted from the new accounting policy adjustment which had an impact of Baht 518 million on the share of development expenses of Nam Theun 2 Project in the first quarter of 2003. 5) Revenues from the Other Business Group were Baht 164 million, an increase by Baht 90 million or 122%. The other business group includes two subsidiaries, the EGCO Engineering and Service Co.,Ltd. (ESCO) and the EGCOM TARA Co., Ltd (EGCOM TARA). The details are as follows: Revenues from group of other business - Others: Unit: Million Baht 1Q2004 1Q2003 %Changes Service Income - ESCO 122 40 207% Sales of Water - EGCOM TARA 39 32 24% * Service income from ESCO amounted to Baht 122 million, up by Baht 82 million or 207% substantially resulting from an increase of operation and maintenance (O&M) services to Elgali 2 Power Plant in Sudan. * Sales of water from a subsidiary, EGCOM TARA, was Baht 39 million, up by Baht 8 million, or 24%, thanks to an increase of both water tariff and sales quantity under the Water Purchase Agreement, which were in line with the company's projection. * Interest income and others amounted to Baht 2 million, an increase by Baht 0.32 million or 15%, mainly from ESCO's other revenues. * Share of expense of associates and joint ventures totaled Baht 1 million, an increase by Baht 1 million or 95%, mainly from Amata Power Esco Service Co.,Ltd (Amesco). 2.3 Expenses Analysis Total expenses from EGCO, its subsidiaries and joint ventures in the first quarter of 2004 were Baht 2,913 million, an increase of Baht 1,183 million or 68% from the same period of last year. The details are as follows. Total Expenses: Unit: Million Baht 1Q2004 1Q2003 %Changes EGCO 96 119 (19%) IPP Group 1,424 265 437% SPP Group 1,161 1,127 3% Overseas 113 154 (27%) Others 119 65 83% 1) Total expenses of EGCO were Baht 96 million, a decrease from the same period of last year by Baht 23 million, as a result of lower interest expenses thanks to an interest rate swap and a reduction in the principal of EGCO debenture. The total expenses of EGCO included administration expenses totaling Baht 76 million and interest expenses of Baht 19 million. The administrative expenses was up Baht 0.44 million or 0.57% 2) The IPP Group's expenses were Baht 1,424 million, an increase of Baht 1,160 million, mainly a result of the new accounting policy. The details are as follows: * Cost of sales, with the total of Baht 790 million, an increase by Baht 1,117 million or 341% compared to 2003, mainly from the impact of the new accounting policy on REGCO and KEGCO bringing up the cost of sales of REGCO and KEGCO by Baht 663 million and Baht 455 million, respectively. If excluding the impact of the new accounting policy prior to 2003, the cost of sales of REGCO and KEGCO increased by Baht 134 million and Baht 11 million, respectively, due to major maintenance. Cost of Sales - IPP Group: Unit: Million Baht 1Q2004 1Q2003 %Changes REGCO 484 (178) 372% KEGCO 306 (149) 305% * Administration expenses and other expenses were Baht 170 million, an increase of Baht 122 million or 252%, mainly from REGCO's corporate tax payment amounting to Baht 100 million. From April 20, 2003 onwards, the 50% Corporate Tax Reduction has become effective for the next 5 years, ending on April 19, 2008. The REGCO's BOI Tax Privilege had been effective for 8 years, from the date of the receipt of operating revenues to April 19, 2003. * Interest expenses were Baht 464 million, a decrease of Baht 80 million or 15%, resulting from the decrease in interest expenses at REGCO and KEGCO of Baht 47 million and Baht 33 million, respectively,owing to lower principal amounts. 3) The SPP Group's expenses were Baht 1,161 million, an increase of Baht 34 million or 3%, according to the following reasons: * Cost of Sales were Baht 955 million, an increase of Baht 234 million or 32%, substantially driven by an increase in cost of sales of GEC amounting to Baht 110 million, resulted from major maintenance. TLP Cogen's cost of sales increased by 99 million, which was consistent with their increased sales of electricity. An increase of Roi-Et Green and APBP's cost of sales amounted to Baht 18 million and Baht 5 million, respectively, which was consistent with their increased sales of electricity. Cost of Sales - SPP: Unit: Million Baht 1Q2004 1Q2003 %Changes GEC 593 482 23% TLP Cogen 294 195 51% APBP 50 44 12% Roi-Et Green 18 - n/a * Administration expenses and other expenses were 131 million, a decrease of Baht 190 million or 59%, substantially from GEC that was down by Baht 213 million. The new accounting policy caused an expense write-off at Bo Nok that amounted to Baht 105 million from 2001 to the first quarter of 2003 and there were impairment expenses of Bo Nok's land and goodwill that amounted to Baht 170 million. Excluding the impact of the new accounting policy, GEC's administration and other expenses increased by Baht 62 million, Baht 43 million from goodwill adjustment and Baht 9 million from write-off of development cost in the first quarter of 2004. TLP Cogen's administration and other expenses were up Baht 23 million, in line with an increase in electricity sales firstly acknowledged from January 28, 2003 onwards. * Interest expenses were Baht 75 million, a decrease of Baht 9 million or 10%, mainly driven by the decrease in interest expenses at GEC of Baht 17 million, resulting from lower principal and interest rates thanks to the refinancing of certain loans. For TLP Cogen and Roi-et Geen, owing to an increase of loan drawndown, their interest expenses increased by Baht 6 million and Baht 3 million, respectively, whereas the interest expenses of APBP decreased by Baht 1 million owing to lower principal amount. 4) The Overseas Group's expenses were Baht 113 million, a decrease of Baht 41 million or 27% compared to 2003, owing to the following reasons: (more)