MANAGEMENT DISCUSSION AND ANALYSIS QUARTER 1

Date : 16/05/2003 08:36 EGCOMP : MANAGEMENT DISCUSSION AND ANALYSIS QUARTER 1 Management Discussion and Analysis For the three-month period Operating Results Ended 31 March 2003 Note: This Management Discussion and Analysis (MD&A) was made from the analysis of reliable information, disclosing 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 will have their own discretion regarding the usage of this information for any purpose. 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) 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 businesse s. 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. This report contains the analysis of the financial statements of EGCO and its subsidiaries as follows: 1.1 Income Analysis In the first quarter of 2003, the total revenues of EGCO, its subsidiaries and joint ventures as well as the shares of profit from its associates and joint ventures were Baht 3,949 million, increasing by Baht 701 million or 22% as compared to the same period of the year 2002. The details are as follows: 1) Sales of electricity from the principal subsidiaries, REGCO and KEGCO, amounted to Baht 2,513 million, represented an increase of Baht 137 million or 6%. This increase was derived by the sales from REGCO of Baht 358 million while sales from KEGCO decreased by Baht 221 million. Electricity sales from the two principal subsidiaries 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 vice versa. In the first quarter of 2003, the company received compensation of the exchange rate effect of Baht 282 million. 2) Shares of electricity sales from subsidiaries and joint ventures amounted to Baht 1,197 million, up Baht 700 million or 141% from the first quarter of 2002. This amount was mainly due to the increase in electricity sales from GEC of Baht 645 million, Conal of Baht 254 million, TLP Cogen of Baht 235 million, and APB of Baht 63 million. The major factors which led to this sharp increase were from the electricity sales of NKCC and SCC, the subsidiaries of GEC, since the revenues from these two companies were firstly realized in November 2002 as well as the shares of electricity sales from TLP Cogen, which was firstly realized after the completion of its construction in January of this year. 3) Sales of water from a subsidiary, EGCOM TARA totaled of Baht 32 million, up Baht 2 million. 4) Service income from ESCO amounted to Baht 40 million, down Baht 39 million or 49%. The large drop in ESCO's service income was mainly because the company recorded revenues for the services that were delivered extra than what had been originally stated in the contract. These services were performed in the fourth quarter of 2001, however, the revenues were realized in the first quarter of 2002. Moreover, according to the schedule of Operation and Maintenance (O&M) services, the company was assigned to deliver less service to the customers during the first quarter of this year as compared to the same period of last year. 5) Interest income and other income amounted to Baht 160 million, down Baht 93 million or 37%, due to the reduction in interest rate and deposits at banks and financial institutions, in which the funds were used to repay loans of REGCO and KEGCO. 6) Shares of loss of associates and joint ventures totaled to Baht 7 million, down Baht 11 million or 61% because the company recorded expenses for the development of Nam Theun Project (Nam Theun 2 Electricity Consortium or NTEC) in the first quarter of this year. 1.2 Expense Analysis Total expenses from EGCO, its subsidiaries and joint ventures in the first quarter of 2003 were in the amount of Baht 2,420 million, up Baht 343 million or 17% due to the following reasons: 1) Cost of sales totaled of Baht1,450 million, up Baht 374 million or 35%, mainly due to the increase in cost of sales from GEC of Baht 357 million as NKCC and SCC had not yet recognized its cost in the first quarter of last year. The figure was consistent with the increase in sales of electricity form these two companies as mentioned earlier. Moreover, the cost of sales from TLP Cogen, APB, and Conal increased by Baht 209 million while the cost of sales from REGCO and KEGCO was down by Baht 140 million and Baht 54 million, respectively. 2) Cost of services of Baht 34 million, down Baht 8 million or 19%. The primary reason was because in the first quarter of this year, O&M services of ESCO were performed less than in the first quarter of last year. The other reason was because salaries paid to ESCO's O&M staff, one of the major factors represented in the company's total cost of services, were mostly fixed. In addition, the company recorded the cost of services in the fourth quarter of 2001 for the services performed in the same quarter while the income was recorded in the first quarter of 2002, as the result all of the above factors led to the change in the cost of services that did not proportionally match with the change in its service income. 3) Administrative expenses and other expenses were Baht 241 million, up Baht 8 million or 3%, mostly from the increase in administrative expenses of EGCO's subsidiaries and joint ventures of Baht 50 million. On the other hand, the administration expenses of EGCO was down Baht 41 million because during the first quarter of last year EGCO recorded loss on the forward contract of the foreign currency in the amount of Baht 38 million. 4) Interest Expenses were Baht 695 million, down Baht 30 million or 4% resulting from the decrease in interest expenses of EGCO, REGCO, KEGCO, CONAL, and EGCOM Tara of Baht 17 million, Baht 33 million, Baht 24 million, Baht 11 million, and Baht 4 million, respectively. The main reasons were from the lower loan principal amount and lower interest rate of EGCO's debentures. However, the interest expenses from TLP Cogen and GEC were up Baht 18 million and Baht 42 million, respectively. Regarding EGCO's debentures, in 2002 EGCO entered into a new interest rate swap agreement to convert the floating interest rate on THBFIX (6 months) plus a certain margin to a fixed interest rate at 6.95% per annum, which was effective since April 21, 2002. In January of 2003, since the market interest rate was lower than last year, the company decided again to convert the fixed interest rate to floating rate at LIBOR (6 months) plus 4.85% per annum. According to this new interest rate swap agreement, the fixed interest rate of 6.30% was applied to the first interest expenses which were due on April 21, 2003 thereafter the floating rate will then be applied. 1.3 Operational Results and Conclusion Net profit for the first quarter of 2003 was Baht 1,497 million, increasing by Baht 248 million or 20% owing to the aforementioned reasons and the effect on unrealised foreign currency exchange gain of Baht 32 million whereas the company incurred exchange gain of Baht 157 million in the same period of last 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 (March 31, 2003) and the previous period (December 31, 2002). If excluding the effect of foreign currency exchange gain, the net profit was Baht 1,465 million, up Baht 373 million or 34%. This resulted from the higher sales of electricity from REGCO, GEC, and TLP Cogen as already mentioned. In conclusion, the revenue structure of EGCO's business group in the first quarter of 2003 has been different comparing to its structure at the same period of last year. In the first quarter of 2002, the company's primary revenues were derived from its two principal subsidiaries, REGCO and KEGCO, which accounted for 73% of total revenues. On contrary, the revenues in the first quarter of this year were distributed among other newly operated electricity generating firms. As a result, REGCO and KEGCO's sales were reduced to 64% while another 16% of total revenue came from NKCC and SCC, which have started their first operation in November, 2002. Moreover, the company also realized revenues from TLP Cogen, accounted to 6% of total revenues, as the company had its first operation in January, 2003. Important Financial Ratios for the period were as follows; - Gross Profit per total revenues was 61%. - Net Profit (excluding the effect of foreign exchange) margin was 37%. - Earning (excluding the effect of foreign exchange) per share (EPS) was Baht 2.79. 1.4 Business Expansion Analysis EGCO's corporate objective has been to increase long term shareholder value through an investment in projects, which generate and sell electricity as its major businesses. Therefore, the company has intended to divest non-core assets, which are not electricity related. The funds received from such assets will be used for the investment in other high quality projects, especially in the expansion of existing IPPs and in new IPPs, of which its tariffs are secured under long term agreements or PPA with EGAT both in Thailand and in the neighboring countries. Moreover, the company has been interested to invest in new projects, which located especially in ASEAN region in order to comply with our corporate vision as to be the leading, Thai owned and integrated electric power company in ASEAN region. Hence, the company has carefully studied these projects in order to ensure that the shareholder value is maximized. In addition, EGCO has committed to develop the existing projects so that they can generate returns to its shareholders at the earliest. In 2003, EGCO submitted the proposal on Khanom Power Plant Repowering Project to EGAT in which the project can increase the installed capacity at KEGCO Power Plant by approximately 385.8 MW from its existing capacity of 824 MW. This project will help support the growth in power demand during 2003-2007 as well as for the long-term resolution. Khanom Power Plant Repowering Project has therefore been included in EGAT's Power Development Plan 2003-2016 (PDP 2003) which is being reviewed by the Ministry of Energy. In regard to EGCO's dividend policy, the company has intended to pay dividend twice a year at approximately 40% of its net profit while taking into account the operating results in the year before. 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. 2. Report and Analysis of Financial Position 2.1 Asset Analysis As at March 31, 2003, total assets of EGCO, its subsidiaries, associates and joint ventures amounted to Baht 58,628 million, increasing by Baht 2,756 million or 5% from December 31, 2002. The important details are as follows: 1) Cash, deposit at banks and financial institutions, and short term and long term marketable securities were Baht 6,068 million or 10% of the total assets, which increased by Baht 566 million or 10%. The increase was mainly due to the financing activities from the drawdown loan of TLP Cogen, and Roi-Et Green and from refinancing loan of NKCC and SCC. 2) Short-term and long-term investments used as collateral were Baht 11,688 million or 20% of the total assets. The investments were up by Baht 1,277 million or 12% for the cash reserve of debt repayment in US Dollar for the amount of USD 135 million. 3) Investment in subsidiaries and associates and shares of profits in joint ventures amounted to Baht 831 million or 1% of the total assets, up by Baht 8 million or 1%. The reason of such increase was because the company received shares of profits from AEP and AMESCO. 4) Property, plant, and equipment totaled of Baht 31,854 million or 54% of total assets. They were down Baht 180 million or 1% because of the depreciation of assets of EGCO and group companies for the 3-month period of Baht 574 million and Baht 40 million was for the sales of assets of EGCO, REGCO, and KEGCO. On the other hand, assets were up from the construction of TLP Cogen and Roi-Et Green for Baht 326 million and Baht 74 million, respectively. 5) Other assets were Baht 8,187 million or 14% of the total assets, up Baht 1,083 million or 15% mainly from the increase of trade accounts receivable of Baht 101 million, trade accounts receivable from related companies (mainly from EGAT) of Baht 655 million and spare parts and supplies of Baht 115 million. 2.2 Liability Analysis As at March 31, 2002, the company's total liabilities were Baht 36,303 million, up Baht 1,378 million or 4% as a result of the debt in GEC (NKCC and SCC), and the additional loan drawdown for the construction of TLP Cogen and Roi-Et Green. The liabilities consisted of the followings: 1) Long-term loans and debentures totaled Baht 33,121 million, or 56% of total assets, up Baht 677 million. The details are as follows; - USD loans in the amount of USD 464 million - Yen loans in the amount of Yen 778 million - Philippines Peso loans in the amount of Peso 126 million - Baht loans in amount of Baht 4,193 million - Debentures in the amount of Baht 9,681 million During the first quarter of 2003, the amount of loans denominated in Yen were up Baht 133 million, which was due to the loan drawdown for the construction of Roi-Et Green and TLP Cogen. On the other hand, GEC refinanced its Baht loans of NKCC and SCC, which resulted in lower Baht loan and higher USD loans as compared to the end of last year. 2) Other liabilities amounted to Baht 3,182 million, mostly resulted from interest payable, bank overdrafts and short-term loan, trade accounts payable, value added tax payable, dividend payable, and long-term loans from other shareholder of GEC. 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 March 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 90 million is in the process. 2.3 Shareholder's Equity Analysis As at March 31, 2003, Shareholder's Equity (excluding minority interest and treasury stock) amounted to Baht 21,709 million, which was 1,485 million higher than December 31, 2002. This was due mainly to the profits from operation during the first quarter of 2003. From the analysis of the above assets and liabilities, the company's capital structure was as follows: Shareholders' equity was Baht 22,325 million or 38%. Liabilities were Baht 36,303 million or 62%. Important financial ratios were as follows; - Debt to equity ratio was 1.63 times, lower than 1.67 times at the end of last year. - Book value per share was Baht 42.49, higher than Baht 39.87 in at the end of last year. 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 March 31, 2003, the ending balance of the cash and the cash equivalent was Baht 2,588 million, up by Baht 313 million from the end of 2002. The details of source of funds and use of funds are as follows; -Net cash receipt from operating activities totaled Baht 37 million from the net profit for the first quarter of 2003 adjusted with non-cash items and other non-relating operating activities. Cash flows from operation were Baht 2,074 million before the change in operating assets and liabilities of Baht 2,111 million. Most of the changes was due to the increase in short-term and long-term investments used as collateral of Baht 1,334 million and trade accounts receivable and trade receivable from related party of Baht 741 million (from electricity sales of REGCO, KEGCO and TLP Cogen, whose major customer was EGAT). -Net cash payment for investing activities was Baht 402 million. Baht 238 million was for the net purchase of short-term and long-term investments. Some was spent on the construction of TLP Cogen and Roi-Et Green of Baht 144 million and Baht 67 million, respectively and from the purchase of other assets of Baht 28 million. The company also received dividends from Eastern Water Resources Development and Management Public Company Limited (EASTW) and Krung Thai Selected Flexible Portfolio Funds of Baht 36 million and Baht 32 million, respectively. - Net cash payment for financing activities was Baht 752 million, mainly because the increase in loan drawdown from TLP Cogen of Baht 202 million and Roi-Et Green of Baht 48 million and the refinancing of loans from GEC for NKCC and SCC which led to the net increase in loans of Baht 515 million.