FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of April, 2004
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F __X__ Form 40-F _____
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934. )
Yes ____ No __X__
(If "Yes" is marked, indicate below the file number assigned to
registrant in connection with Rule 12g3-2(b): 82-__________. )
N/A
Huaneng Power International, Inc.
West Wing, Building C, Tianyin Mansion
No. 2C Fuxingmennan Street
Xicheng District
Beijing, 100031 PRC
This Form 6-K consists of:
A circular made on April 29, 2004, in English by Huaneng Power
International Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
under-signed, thereunto duly authorized.
HUANENG POWER INTERNATIONAL, INC.
By /s/ Wang Xiaosong
Name: Wang Xiaosong
Title: Vice Chairman
Date: April 29, 2004
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THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ACTION
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If you are in any doubt as to any aspect of this circular or as to the action
to be taken, you should consult your stockbroker, bank manager, solicitor,
professional accountant or other professional adviser.
If you have sold or transferred all your shares in Huaneng Power
International, Inc., you should at once hand this circular and the
accompanying form of proxy to the purchaser or transferee or to the bank,
stockbroker or other agent through whom the sale or transfer was effected for
transmission to the purchaser or transferee.
The Stock Exchange of Hong Kong Limited takes no responsibility for the
contents of this circular, makes no representation as to its accuracy or
completeness and expressly disclaims any liability whatsoever for any loss
howsoever arising from or in reliance upon the whole or any part of the
contents of this circular.
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[GRAPHIC OMITTED] HUANENG POWER INTERNATIONAL, INC.
(A Sino-foreign joint stock limited company incorporated in the People's
Republic of China)
(Stock Code: 902)
MAJOR AND CONNECTED TRANSACTION
Financial Adviser to Huaneng Power International, Inc.
[GRAPHIC OMITTED] J.P. Morgan Securities (Asia Pacific) Limited
Independent Financial Adviser to the Independent Directors and
Independent Shareholders
[GRAPHIC OMITTED]ROTHSCHILD
N M Rothschild & Sons (Hong Kong) Limited
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A letter from the Board of Huaneng Power International, Inc. (the "Company")
is set out on pages 4 to 20 of this circular. A letter from the Independent
Directors is set out on page 21 of this circular. A letter from N M Rothschild
& Sons (Hong Kong) Limited to the Independent Directors and Independent
Shareholders is set out on pages 22 to 34 of this circular.
A notice convening an Extraordinary General Meeting of the Company to be held
at 9 a.m. on 15th June, 2004 at Beijing International Convention Centre at No.
8 Beichen East Road, Chaoyang District, Beijing, the People's Republic of
China is set out on pages 197 to 202 of this circular. Whether or not you are
able to attend the meeting, you are requested to complete and return the
enclosed reply slip and form of proxy in accordance with the instructions
printed thereon as soon as possible and in any event the form of proxy should
be returned not less than 24 hours before the time appointed for holding such
meeting.
Completion and return of the form of proxy shall not preclude you from
attending and voting in person at the meeting or at any adjourned meeting
should you so wish.
29th April, 2004
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CONTENTS
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Page
Definitions....................................................................1
Letter from the Board
1. Introduction.............................................................4
2. Transfer Agreements......................................................6
3. Reasons for the Acquisition and Pricing Factors.........................10
4. Information Regarding the Target Power Plants...........................11
5. Selected Financial Information of the Target Power Plants...............18
6. Connected Transactions under Shanghai Listing Rules.....................19
7. The EGM.................................................................19
8. Recommendation..........................................................20
9 Other Information.......................................................20
10 Letter from the Independent Directors...................................21
11 Letter from Rothschild..................................................22
Appendix I - Accountants' Report of Hanfeng Power Plant.....................35
Appendix II - Accountants' Report of Jinggangshan Power Plant................58
Appendix III - Accountants' Report of Yueyang Power Plant.....................81
Appendix IV - Accountants' Report of Luohuang Power Plant...................102
Appendix V - Accountants' Report of Yingkou Power Plant....................124
Appendix VI - Financial Information of the Company and its subsidiaries.....143
Appendix VII - Financial Information of the Company and its subsidiaries
(including the Target Power Plants)...........................151
Appendix VIII -Property Valuation Report.....................................161
Appendix IX - Plant and Machinery Valuation..................................174
Appendix X - General Information............................................186
Notice of Extraordinary General Meeting......................................197
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DEFINITIONS
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In this document, unless the context otherwise requires, the following
expressions have the following meanings:
"Acquisition" the purchase by the Company of the Huaneng Group
Interest and HIPDC Interest;
"Agreement for Transfer of the transfer agreement dated 16th April, 2004
HIPDC Interest" entered into between the Company and HIPDC relating
to the purchase of HIPDC Interest by the Company;
"Agreement for Transfer of the transfer agreement dated 16th April, 2004
Huaneng Group Interest" entered into between the Company and Huaneng Group
relating to the purchase of Huaneng Group Interest
by the Company;
"Associate" the meaning ascribed to it in the Hong Kong Listing
Rules;
"Closing" the closing of the Acquisition;
"Company" Huaneng Power International, Inc.;
"Directors" the directors of the Company;
"EGM" an extraordinary general meeting of the Company to
be held for shareholders of the Company to consider
and approve the Acquisition;
"GDP" Gross Domestic Product
"Hanfeng Power Plant" Hebei Hanfeng Power Generation Limited Liability
Company, a company with limited liability
incorporated in the PRC in October 1996 with an
existing registered capital of RMB1.975 billion, in
which Huaneng Group holds 40% equity interest;
"HIPDC" Huaneng International Power Development
Corporation;
"HIPDC Interest" the equity interest of 55% equity interest in
Yueyang Power Plant, 60% equity interest in
Luohuang Power Plant and all assets and liabilities
of Yingkou Power Plant which are owned by HIPDC and
to be sold to the Company;
"Hong Kong Listing Rules" the Rules Governing the Listing of Securities on
the Hong Kong Stock Exchange;
"Huaneng Group" China Huaneng Group;
"Huaneng Group Interest" the equity interest of 40% equity interest in
Hanfeng Power Plant and 90% equity interest in
Jinggangshan Power Plant, which are owned by
Huaneng Group and to be sold to the Company;
"Independent Directors" the independent directors of the Company, who are
invited to advise the Independent Shareholders in
connection with the Acquisition;
"Independent Shareholders" shareholders of the Company other than Huaneng
Group, HIPDC and their respective Associates;
"Jinggangshan Power Plant" Jinggangshan Huaneng Power Generation Limited
Liability Company, a company with limited liability
incorporated in the PRC in March 1996 with an
existing registered capital of RMB53.319 million,
in which Huaneng Group holds 90% equity interest;
"JP Morgan" J.P. Morgan Securities (Asia Pacific) Limited,
which is licensed by the Securities and Futures
Commission for Types 1, 4, 6 and 7 regulated
activities under the SFO, being the financial
adviser to the Company in respect of the
Acquisition;
"Latest Practicable Date" 23rd April, 2004, being the latest practicable date
prior to the publication of this circular for
ascertaining certain information referred to in
this circular;
"Luohuang Power Plant" Huaneng Chongqing Luohuang Power Generation Limited
Liability Company, a company with limited liability
incorporated in the PRC in December 2003 with an
existing registered capital of RMB900 million, in
which HIPDC holds 60% equity interest;
"PRC" the People's Republic of China;
"RMB" the lawful currency of the PRC;
"Rothschild" N M Rothschild & Sons (Hong Kong) Limited, which
was previously registered with the Securities and
Futures Commission as an investment adviser and is
deemed to be currently licensed to carry out Types
1, 4, 6 and 9 regulated activities under the SFO,
being the independent financial adviser appointed
by the Company to advise the Independent Directors
and Independent Shareholders as to whether the
terms of the Acquisition are fair and reasonable
and whether the Acquisition is in the interest of
the Company and the shareholders as a whole and to
advise the Company's shareholders on how to vote in
respect of the Acquisition;
"SFO" Securities and Futures Ordinance (Chapter 571 of
the Laws of Hong Kong);
"Shanghai Listing Rules" The Listing Rules of Shanghai Stock Exchange
"Stock Exchange" The Stock Exchange of Hong Kong Limited;
"Target Power Plants" Hanfeng Power Plant, Jinggangshan Power Plant, Yueyang
Power Plant, Luohuang Power Plant and Yingkou Power Plant;
"Transfer Agreements" Agreement for Transfer of Huaneng Group Interest and
Agreement for Transfer of HIPDC Interest;
"Yingkou Power Plant" Huaneng International Power Development Corporation
Yingkou Branch Company, in which HIPDC owns all the assets and liabilities;
"Yueyang Power Plant" Huaneng Hunan Yueyang Power Generation Limited Liability
Company, a company with limited liability incorporated in the PRC in December
2003 with an existing registered capital of RMB560 million, in which HIPDC
holds 55% equity interest;
"Zhongchenghua" Beijing Zhongchenghua Assets Appraisal Limited Company, a
assets appraisal firm in China, which is qualified in practising securities
related matters.
"%" per cent.
For the purposes of this circular, unless otherwise indicated, Renminbi
amounts have been translated into Hong Kong dollars using the rate of HK$1:
RMB1.06.
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LETTER FROM THE BOARD
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HUANENG POWER INTERNATIONAL, INC.
(A Sino-foreign joint stock limited company incorporated in the
People's Republic of China)
Directors: Legal Address:
Li Xiaopeng West Wing, Building C,
Wang Xiaosong Tianyin Mansion,
Ye Daji No. 2C Fuxingmennan Street,
Huang Jinkai Xicheng District,
Liu Jinlong Beijing 100031,
Shan Qunying People's Republic of China.
Yang Shengming
Xu Zujian
Independent Directors:
Gao Zongze
Zheng Jianchao
Qian Zhongwei
Xia Donglin 29th April, 2004
To the Shareholders
%Dear Sir or Madam,
MAJOR AND CONNECTED TRANSACTION
1. INTRODUCTION
On 16th April, 2004, the Company announced that the Company entered into
the Agreement for Transfer of Huaneng Group Interest with Huaneng Group,
pursuant to which the Company agreed to acquire from Huaneng Group its 40%
equity interest in Hanfeng Power Plant and 90% equity interest in Jinggangshan
Power Plant. The purchase price for acquiring the Huaneng Group Interest is
RMB1,949 million.
On the same day, the Company also entered into the Agreement for Transfer
of HIPDC Interest with HIPDC, pursuant to which the Company agreed to acquire
from HIPDC its equity interest in the following plants: 55% equity interest in
Yueyang Power Plant, 60% equity interest in Luohuang Power Plant and the entire
assets and liabilities of Yingkou Power Plant. The purchase price for acquiring
HIPDC Interest is RMB2,564 million.
Half of the total purchase price will be funded by the Company's
cash-on-hand and half by bank loans. The purchase price was determined on arm's
length terms.
The Company and its subsidiaries develop, construct, operate and manage
large-scale coal-fired power plants throughout China. The Company is one of the
largest independent power producers in China which owns a total generation
capacity of 15,736 MW on an equity basis.
Huaneng Group is principally engaged in operation and management of
industrial investment; development, investment, construction, operation and
management of power sources; organising the generation and sale of power
(thermal); development, investment, construction, production and sale of
products in relation to information, transportation, new energy and
environmental protection industries. HIPDC, as a subsidiary of Huaneng Group, is
principally engaged in construction and operation of the power plants and the
related projects, including raising domestic and foreign funds, import of full
set and auxiliary equipment and machinery and providing the industrial materials
and fuels for the construction and operation of power plants.
The relationship between the Company, Huaneng Group and HIPDC is as
follows:
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| Huaneng Group |
| |
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|
| 51.98%
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| HIPDC |
| |
-------------
| 42.39%
|
-------------
| the Company |
| |
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Huaneng Group is an indirect controlling shareholder of the Company,
holding a 51.98% interest in HIPDC. As of the Latest Practicable Date, HIPDC
held 42.39% of the total issued share capital of the Company. The transactions
as contemplated by the Transfer Agreements constitute major and connected
transactions to the Company, which are subject to Independent Shareholders'
approval pursuant to Rule 14.44 and Rule 14A.18 respectively of the Hong Kong
Listing Rules.
The Company and the Independent Directors have reviewed the Acquisition.
The Company has appointed JP Morgan as the financial adviser in connection with
the Acquisition. The Company has also appointed Rothschild as the independent
financial adviser to advise the Independent Directors and the Independent
Shareholders as to whether the terms of the Acquisition are fair and reasonable
and whether the Acquisition is in the interest of the Company and its
shareholders as a whole and to advise the Company's shareholders on how to vote
in respect of the Acquisition.
The purpose of this circular is to provide you with further information in
relation to the Acquisition and the Transfer Agreements, and to set out the
recommendation of the Independent Directors and the Notice of the EGM.
2. TRANSFER AGREEMENTS
(1) Agreement for Transfer of Huaneng Group Interest
The Agreement for Transfer of Huaneng Group Interest was approved by the
Directors at the board meeting on 16th April, 2004 and signed by Huaneng Group
and the Company on that day.
Date: 16th April, 2004
Parties: Seller: Huaneng Group
Purchaser: the Company
Huaneng Group
Interest
to be acquired: (i) equity interest representing 40% of the registered capital
of Hanfeng Power Plant; and
(ii) equity interest representing 90% of the registered capital
of Jinggangshan Power Plant.
Consideration: The consideration for the purchase of Huaneng Group Interest is
RMB1,949 million payable in cash on the Closing date. The
purchase price was determined with reference to, inter alia,
the asset appraisal report prepared by Zhongchenghua and on the
basis of normal commercial terms and arm's length negotiation
between the parties thereto, and the agreement was entered into
in the ordinary and usual course of business of the Company.
Conditions: Closing is subject to the satisfaction or waiver of the
following conditions:
(1) Conditions which need to be satisfied or waived by both
parties:
o Rothschild, the independent financial adviser to the
Independent Directors and Independent Shareholders,
has advised the Independent Directors and Independent
Shareholders that the terms and conditions of the
transaction contemplated by the Agreement for
Transfer of Huaneng Group Interest are fair and
reasonable so far as the Independent Shareholders are
concerned;
o the Independent Directors recommended that the
shareholders vote in favour of the transfer of
Huaneng Group Interest and the Agreement for Transfer
of Huaneng Group Interest;
o the transfer of Huaneng Group Interest and the
Agreement for Transfer of Huaneng Group Interest have
been approved and adopted by the the Independent
Shareholders;
o the relevant PRC government agencies have no
objection to the transfer of the Huaneng Group
Interest;
o the Company has obtained all necessary government
approvals on the Agreement for Transfer of Huaneng
Group Interest and the transfer of Huaneng Group
Interest; and
o the simultaneous closing or closing of the Agreement
for Transfer of HIPDC Interest.
(2) Conditions which the Company may waive under the Agreement
for Transfer of Huaneng Group Interest:
o representations and warranties of Huaneng Group in
the Agreement for Transfer of Huaneng Group Interest
are true and complete in all material respects; and
o Huaneng Group has fulfilled in all material respects
its obligations under the Agreement for Transfer of
Huaneng Group Interest.
(3) Conditions which Huaneng Group may waive under the
Agreement for Transfer of Huaneng Group Interest:
o representations and warranties of the Company in the
Agreement for Transfer of Huaneng Group Interest are
true and complete in all material respects; and o the
Company has fulfilled in all material respects its
obligations under the Agreement for Transfer of
Huaneng Group Interest.
In the case that any conditions for closing are waived, further announcement
will be made by the Company accordingly.
Completion: Closing shall take place on the day agreed upon by both
parties, within 30 days after the conditions have been
satisfied or waived.
(2) Agreement for Transfer of HIPDC Interest
The Agreement for Transfer of HIPDC Interest was approved by the Directors
at the board meeting on 16th April, 2004 and signed by HIPDC and the Company on
that day.
Date: 16th April, 2004
Parties: Seller: HIPDC
Purchaser: the Company
HIPDC Interest (i) equity interest representing 55% of the registered capital
to be acquired: of Yueyang Power Plant;
(ii) equity interest representing 60% of the registered capital
of Luohuang Power Plant; and
(iii) the entire assets and liabilities in Yingkou Power Plant.
Consideration: The consideration for the purchase of HIPDC Interest is
RMB2,564 million payable in cash on the Closing date.
In view of the fact of that the accounts receivable balances
of Yueyang Power Plant and Luohuang Power Plant consist of a
significant amount of overdue receivables (i.e. over 30 days
but less than one year which is analysed on a
first-in-first-out basis) for power sold and taking into
account the uncertainity on the collectibility of such
overdue receivable balances in full, a provision of RMB59.27
million for Yueyang Power Plant and RMB319.74 million for
Luohuang Power Plant has been made as at 31st December 2003.
The net overdue receivable balance of Yueyang Power Plant
was RMB140.41 million and Luohuang Power Plant was RMB398.09
million as at 31st December 2003. Therefore, HIPDC and the
Company have agreed the following arrangements as the basis
for adjustment of the acquisition price: The net overdue
receivable balances will be fixed by taking into account the
provisions for the bad debts in the accounts of the power
plants. In case of the occurance of the events as stipulated
by the transfer agreement which cause the net overdue
receivable balances not being collected in full, HIPDC is
required to pay the difference to the Company in proportion
to its shareholding interests in Yueyang Power Plant and
Luohuang Power Plant respectively. If, by 31st December
2006, the net overdue receivable balances cannot be
collected in full, and if HIPDC has not made any payment to
the Company in this regard, HIPDC should pay the difference
to the Company in proportion to its shareholding interests
in Yueyang Power Plant and Luohuang Power Plant
respectively. If the net overdue receivable balances have
been collected in full or if payment has been made by HIPDC,
the amount received over the net overdue receivable balances
should be reimbursed to HIPDC based on the shareholding
interests of HIPDC in proportion to its shareholding in
Yueyang Power Plant and Luohuang Power Plant respectively.
The purchase price was determined with reference to, inter
alia, the asset appraisal report prepared by Zhongchenghua
and on the basis of normal commercial terms and arm's length
negotiation between the parties thereto, and the agreement
was entered into in the ordinary and usual course of
business of the Company.
Conditions: Closing is subject to the satisfaction or waiver of the
following conditions:
(1) Conditions which need to be satisfied or waived by both
parties:
o Rothschild, the independent financial advisor to the
Independent Directors and Independent Shareholders,
has advised the Independent Directors and Independent
Shareholders that the terms and conditions of the
transactions contemplated by the Agreement for
Transfer of HIPDC Interest are fair and reasonable so
far as the Independent Shareholders are concerned;
o the Independent Directors recommended that the
shareholders vote in favour of the transfer of HIPDC
Interest and the Agreement for Transfer of HIPDC
Interest;
o the transfer of HIPDC Interest and the Agreement for
Transfer of HIPDC Interest have been approved and
adopted by the Independent Shareholders;
o the relevant PRC government agencies have no
objection to the transfer of HIPDC Interest;
o the Company has obtained all necessary government
approvals on the Agreement for Transfer of HIPDC
Interest and the transfer of HIPDC Interest; and
o the simultaneous closing or closing of the Agreement
for Transfer of Huaneng Group Interest.
(2) Conditions which the Company may waive under the Agreement
for Transfer of HIPDC Interest:
o representations and warranties of HIPDC in the
Agreement for Transfer of HIPDC Interest are true and
complete in all material respects; and
o HIPDC has fulfilled in all material respects its
obligations under the Agreement for Transfer of HIPDC
Interest.
(3) Conditions which HIPDC may waive under the Agreement for
Transfer of HIPDC Interest:
o representations and warranties of the Company in the
Agreement for Transfer of HIPDC Interest are true and
complete in all material respects; and
o the Company has fulfilled in all material respects
its obligations under the Agreement for Transfer of
HIPDC Interest.
In the case that any conditions for closing are wavied, further
announcement will be made by the Company accordingly.
Completion: Closing shall take place on the day agreed upon by both
parties, within 30 days after the conditions have been
satisfied or waived.
3. REASONS FOR THE ACQUISITION AND PRICING FACTORS
The Acquisition follows the Company's business and development strategy of
placing equal emphasis on acquisition of existing power plants and development
of new power plants, and is an important strategic move under the backdrop of
deepening power reforms in China whereby competition is to be gradually
introduced to the PRC power generation sector and it will therefore be essential
for a power generation company in the PRC to increase its market share so as to
maintain its competitive position. With favourable market conditions of strong
power demand, which is brought about by the rapid and stable economic
development of the PRC, the Company believes that to enlarge its operational
scale by way of acquisition of power assets, thus increasing its market shares,
is conducive to enhancing the competitiveness of the Company and increasing
shareholders' return.
After the completion of the Acquisition, the generation capacity on an
equity basis of the Company will increase by 3,036 MW while the total generation
capacity on an equity basis will increase from 15,736 MW to 18,772 MW,
representing an increase of 19.3%. Upon the completion of the Acquisition and
the acquisition of the 10% interest in Jinggangshan Power Plant from Jiangxi
Province Investment Corporation, the generation capacity on an equity basis of
the Company will increase by 3,096 MW while the total generation capacity on an
equity basis will increase from 15,736 MW to 18,832 MW, representing an increase
of 19.7%. The Company will gain 1,050 MW of additional capacity under
construction (on an equity basis).
Further, the Acquisition helps the Company to strengthen its leading
position in Liaoning Province and Hebei Province, which are with rapid economic
growth and strong power demand. The Company's generation capacity on an equity
basis in Liaoning will increase from 2,100 MW to 2,740 MW, representing an
increase of 30.5%. In Hebei Province, by completion of the Acquisition, the
Company's generation capacity on an equity basis will increase from 1,300 MW to
1,828 MW, representing an increase of 40.6%.
The Acquisition also enables the Company for the first time to enter into
the central-south region of China and the provinces with rapid growth in power
demand, namely Jiangxi Province, Hunan Province and Chongqing municipality. This
is consistent with the Company's marketing strategy of "consolidating its
position in coastal regions and exploring the market in Central China".
The Company understands that the State is considering to introduce a pilot
scheme on tariffs reform in the northeast region. However the detail of the
pilot scheme is still under the formulation process. The Company therefore is
unable to ascertain the impact on the operating results of Yingkou Power Plant,
which is located in the northeast region of China, of the implementation of the
proposed tariff reform scheme. As such, the Company has not taken account of
such factor in the evaluation and consideration of the impact of the Acquisition
on the Company's future financial position and operating results.
The Acquisition price has been determined through arm's length negotiations
between the parties and their respective financial advisers, taking into account
various factors, including the market environments, the technical and operating
conditions of the Power Plants, the Power Plants' earnings potentials and their
abilities to generate cash flow. The Company has also considered the appraisal
report provided by Zhongchenghua which values the Huaneng Group Interest at
RMB1.507 billion and HIPDC Interest at RMB2.721 billion as of 31st December,
2003 using the replacement cost approach. The total purchase price implies a
blended 8.7 times of 2003 earnings of attributed interest of the five Target
Power Plants and a blended 5.7 times firm value/2003 EBITDA (including an amount
of approximately RMB1.26 billion repayble to HIPDC by Yingkou Power Plant).
According to International Financial Reporting Standards, the total net profit
of the Target Power Plants in 2003 was approximately RMB1.009 billion, of which
RMB516 million (before taking into consideration of any adjustments relating to
the Acquisition) would be attributable to the acquired interests (not including
the profit contributed by the acquisition of the 10% interest in Jinggangshan
Power Plant held by Jiangxi Province Investment Corporation). The pro forma net
assets for the Company and its subsidiaries (including the Target Power Plants)
would be approximately RMB33,955 million as at 31st December, 2003, the same as
the audited net assets reported by the Company and its subsidiaries (without
taking into account the Acquisition) at the same date. The pro forma total debt
of the Company and its subsidiaries (including the Target Power Plants, also
including RMB1,265 million due to HIPDC from Yingkuo Power Plant) would be
approximately RMB23,096 million as at 31st December, 2003, compared to the total
debt of approximately RMB13,796 million reported by the Company and its
subsidiaries (without taking into account the Acquisition) at the same date. The
Company believes that with the growth of the power markets in which the Target
Power Plants operate and through further strengthening management, the
Acquisition will bring satisfactory returns to the Company.
The board of Directors believes that the Acquisition price and terms are
fair and reasonable to the Company and its shareholders. This transaction is
consistent with the Company's long-term business strategy and will benefit the
Company and its shareholders.
4. INFORMATION REGARDING THE Target POWER PLANTS
Hanfeng Power Plant
Hanfeng Power Plant is situated in Handan Municipality of Hebei Province.
According to the information available on the State Statistics Bureau's website
(http://www.stats.gov.cn) and China State Grid Corporation's website
(http://www.sgcc.com.cn), Hebei Province is situated in the northern part of
Huabei Plateau and extends over Inner Mongolia Highland, and is adjacent to the
capital Beijing and Tianjin which is an important commercial port in the
northern region. Hebei Province is endowed with rich energy resources with an
accumulated proven coal reserve amounting to 16.72 billion tonnes. Two large
coalmines, Kailuan and Feng Feng, and Huabei Oilfield are situated within Hebei
Province. The area of Hebei Province is 187,700 square kilometres. At the end of
2003, the population was approximately 67,690,000. In 2003, the GDP of the
province amounted to RMB709.5 billion, representing an increase of 11.6% over
the previous year (the average annual growth rate of the whole nation is 9.1%)
and is the highest growth rate since 1998. Hebei power grids are divided into
the northern part (mainly supplying the Jingjintang region) and the southern
part (mainly supplying six administrative regions including Shijiazhuang,
Handan, Xingtai, Baoding, Hengshui and Cangzhou, with a total population of
43,660,000). At the end of 2003, the generation capacity of Hebei South Grid
amounted to approximately 10,150 MW. In 2003, the power consumption of Hebei
South Grid was approximately 60.8 billion kWh, representing an increase of 8.0%
when compared with the same period in 2002.
The planned generation capacity of Hanfeng Power Plant is 2,400MW. The
construction work of the 2 x 660 MW imported coal-fired generating units in its
first phase commenced in June 1997 and the commercial operation of these two
generating units started in March and September 2001 respectively. The estimated
depreciation period of Hanfeng Power Plant's generating units is approximately
20 years. Currently, the generating units operate properly. In 2003, the annual
power generation of two generating units was 8.04 billion kWh with a house
consumption rate of 5.91%. Power tariffs are determined according to the rate
prescribed by the relevant pricing bureau.
Hanfeng Power Plant's net operating revenue increased by 5.16% to RMB2.24
billion in 2003 from RMB2.13 billion in 2002. The average collected tariff was
RMB345.70 per MWh in 2003, which decreased by 3.37% from RMB357.78 per MWh of
last year. The power output of Hanfeng Power Plant reached 8.04 billion kWh in
2003, increased by 3.50% compared to last year. The increase of the net
operating revenue of Hanfeng Power Plant was mainly due to the increase of power
output, which was driven by the increase of power demand of Hebei province.
Upon Closing, the Company will guarantee the loans owed by the power plant,
to an extent which is proportional to the Company's interest in the power plant,
upon normal commercial terms. The bank loans to be guaranteed by the Company as
at 31st March 2004 were RMB1,484.3 million.
Upon Closing, the Company will hold 40% interest in Hanfeng Power Plant .
The other shareholders of Hanfeng Power Plant are Hebei Province Construction
and Investment Corporation, Siemens Power Development Hanfeng Limited Liability
Company and Hamburg Power Investment Hanfeng Limited Liability Company, which
are holding 20%, 24% and 16% interest, respectively.
The following table sets out certain operating data of Hanfeng Power Plant
for 2003:
Generation capacity (MW) 1,320
Power generation (billion kWh) 8.040
Utilisation hours (hours) 6,091
Availability factor (%) 90.53
House consumption rate (%) 5.91
Average on-grid power rate (RMB/MWh, VAT included) 345.70
Coal consumption rate for power sold (grams/kWh) 327.14
Unit fuel cost for power sold (RMB/MWh) 76.56
Jinggangshan Power Plant
Jinggangshan Power Plant is situated in Jian Municipality of Jiangxi
Province. According to the information available on the State Statistics
Bureau's website (http://www.stats.gov.cn) and China State Grid Corporation's
website (http://www.sgcc.com.cn), Jiangxi Province is situated in the southeast
part of China, along the southern part of the middle and lower reaches of
Changjiang. The area of the province is 166,900 square kilometres. At the end of
2002, the population was approximately 42,220,000. In 2002, the GDP of the
province amounted to RMB245 billion, representing an increase of 10.5% over the
previous year (the average growth rate of the whole nation in 2002 is 8.0%),
which is the fastest growth rate since 1998 (Note: The aforementioned website
does not contain the relevant figures of 2003 for Jiangxi Province). Jiangxi
Province forms an important part of the power grids of the four provinces in
Central China (Jiangxi, Henan, Hubei and Hunan) with its power consumption load
growing at a high speed during the recent years. At the end of 2003, the
generation capacity of Jiangxi Province amounted to approximately 6,087 MW. In
2003, the power consumption of Jiangxi Province was approximately 29.843 billion
kWh, representing an increase of 21.0% when compared with the same period in
2002.
The planned generation capacity of Jinggangshan Power Plant is 1,200MW. The
main construction work of the 2 x 300 MW domestic made coal-fired generating
units in its first phase commenced in November 1998 and the commercial operation
of these two generating units started in December 2000 and August 2001
respectively. The estimated depreciation period of Jinggangshan's generating
units is approximately 14 years. Currently, the generating units operate
properly. In 2003, the annual power generation of two generating units was 3.194
billion kWh with a house consumption rate of 5.65%. Power tariffs are determined
according to the rate prescribed by the relevant pricing bureau.
Jinggangshan Power Plant's net operating revenue increased by 39.81% to
RMB820.15 million in 2003 from RMB586.60 million in 2002. The average collected
tariff was RMB318.89 per MWh, which decreased by 5.80% from RMB338.53 per MWh of
last year. The power output of Jinggangshan Power Plant reached 3.19 billion
KWh, increased by 48.08% compared to last year. The increase of the net
operating revenue of Jinggangshan Power Plant was mainly due to the increase of
power output, which was driven by the significant increase of power demand of
Jiangxi province.
Upon Closing, the Company will hold a 90% interest in Jinggangshan Power
Plant. The other shareholder is Jiangxi Province Investment Corporation. On 16th
April 2004, the Company has entered into a transfer agreement with Jiangxi
Province Investment Corporation, pursuant to which Jiangxi Province Investment
Corporation agreed to transfer its 10% interest in Jinggangshan Power Plant to
the Company at RMB62 million, where the price was determined consistent with the
pricing principle of the Acquisition. Half of the purchase price will be funded
by the Company's cash-on-hand and half by bank loans. Upon the closing of the
Acquisition, together with the completion of the acquisition of such 10%
interest, Jinggangshan Power Plant will be wholly owned by the Company.
The Company will guarantee the bank loans owned by the power plant. As at
31st March 2004, the outstanding guarantee amount was RMB1,245.25 million.
The following table sets out certain operating data of Jinggangshan Power
Plant for 2003:
Generation capacity (MW) 600
Power generation (billion kWh) 3.194
Utilisation hours (hours) 5,324
Availability factor (%) 88.79
House consumption rate (%) 5.65
Average on-grid power rate (RMB/MWh, VAT included) 318.89
Coal consumption rate for power sold (grams/kWh) 348.21
Unit fuel cost for power sold (RMB/MWh) 128.74
Yueyang Power Plant
Yueyang Power Plant is situated in Yueyang Municipality of Hunan Province.
According to the information available on the State Statistics Bureau's website
(http://www.stats.gov.cn) and China State Grid Corporation's website
(http://www.sgcc.com.cn), Hunan Province is situated in the southern part of
Dongtinghu along the middle and lower reaches of Changjiang. It is situated in
the southeast hinterland linking the coastal provinces in the east and the
inland provinces in the west. Hunan Province is a province with a relatively
high coal production output in the southern part of China, with proven coal
reserves amounting to 3.4 billion tonnes, and its coal reserves occupy the top
position amongst the nine provinces (regions) in Jiangnan. The area of the
province is 211,800 square kilometres. At the end of 2003, the population was
approximately 66,630,000. In 2003, the GDP of the province amounted to RMB463.4
billion, representing an increase of 9.6% over the previous year (the average
growth rate of the whole nation is 9.1%), which is the fastest growth rate since
1998. At the end of 2003, the generation capacity of Hunan Province amounted to
approximately 12,940 MW, and the ratio between hydropower and thermal power
capacity was 50: 50. Among the power source construction in progress in Hunan
province, thermal power is a beneficial supplement to hydroelectric power.
Particularly during the dry season, thermal power becomes a supporting power
source for stable power supply. In 2003, the power consumption of Hunan Province
was approximately 54.774 billion kWh, representing an increase of 14.7% when
compared with the same period in 2002.
The first phase of Yueyang Power Plant consists of two 362.5 MW
sub-critical coal-fired generating units. Their construction work began in
August 1988 and the commercial operation of these two generating units commenced
in September and December 1991 respectively. The estimated depreciation period
of Yueyang Power Plant's generating units is approximately 13 years. Currently,
the generating units operate properly. In 2003, the annual power generation of
two generating units was 4.411 billion kWh with a house consumption rate of
8.15%. Power tariffs are determined according to the rate prescribed by the
relevant pricing bureau.
The preparation work for the commencement of the construction work of
Yueyang Power Plant's second phase, which consists of 2 x 300 MW coal-fired
generating units, has been commenced in April 2003.
Yueyang Power Plant's net operating revenue increased by 32.06% to RMB1.05
billion in 2003 from RMB795.06 million in 2002. The average collected tariff was
RMB301.86 per MWh, which decreased by 8.13% from RMB328.60 MWh of last year. The
power output of Yueyang Power plant reached RMB4.41 billion Kwh. The increase of
the net operating revenue of Yueyang Power Plant was mainly due to that the
increase in the power output offset the impact of decrease of the average
collected tariff.
Upon Closing, the Company will hold a 55% interest in Yueyang Power Plant.
The remaining 45% interest is held by Hunan Province Local Power Asset
Management Limited Company.
The following table sets out certain operating data of Yueyang Power Plant
for 2003:
Generation capacity (MW) 725
Power generation (billion kWh) 4.411
Utilisation hours (hours) 6,085
Availability factor (%) 92.86
House consumption rate (%) 8.15
Average on-grid power rate (RMB/MWh, VAT included) 301.86
Coal consumption rate for power sold (grams/kWh) 341.13
Unit fuel cost for power sold (RMB/MWh) 112.87
Luohuang Power Plant
Luohuang Power Plant is situated in Chongqing Municipality. According to
the information available on the State Statistics Bureau's website
(http://www.stats.gov.cn) and the China State Grid Corporation's website
(http://www.sgcc.com.cn), Chongqing Municipality is an economic centre at the
upper reaches of Changjiang, and is the largest multi-functional modern
industrial and commercial city in the western part of China. Dominant natural
resources products are coal and natural gas etc. Proven coal reserves amount to
3.3 billion tonnes and proven natural gas reserves amount to 320 billion cubic
metres. It is an important production base for coal and natural gas in the
southern part of China. The area of the city is 82,400 square kilometres. At the
end of 2003, the population was approximately 31,300,000. In 2003, the GDP of
the city amounted to RMB225 billion, representing an increase of 11.4% over the
previous year (the average growth rate of the whole nation is 9.1%), which is
the fastest growth rate since the establishment of the municipality directly
under the Central Government. Chongqing municipality is one of the load centres
of the power grids in the western part of China with high outputs of coal and
natural gas and high protection levels for energy supply. At the end of 2003,
the generation capacity of Chongqing Municipality amounted to approximately
4,356 MW. In 2003, the power consumption of Chongqing Municipality was
approximately 27.034 billion kWh, representing an increase of 9.0% when compared
with the same period in 2002.
Luohuang Power Plants consists of two operating plants, namely Jiangjin
Luohuang Power Plant and Jiangbei Combined-cycle Power Plant. Each of the first
and second phases of Jiangjin Luohuang Power Plant consists of 2 x 360 MW
coal-fired generating units. The construction works of those two phases
commenced in September 1988 and December 1996 respectively. The two generating
units in its first phase commenced operation in September 1991 and February 1992
respectively while the two generating units in the second phase were put into
commercial operation in December 1998. The construction work of the 108 MW
Combined-cycle generating unit of Jiangbei Combined-cycle Power Plant started in
1988 with commercial operation beginning from 1991. The estimated depreciation
period of Luohuang's generating units is approximately 13 years. Currently, the
generation units operate properly. In 2003, the annual power generation of the
generating units of Jiangjin Luohuang Power Plant was 7.351 billion kWh with a
house consumption rate of 10.40% (the house consumption rate of Jiangjin
Luohuang Power Plant was relatively high mainly because it is an environmentally
friendly thermal power plant with installation of the first desulphurization
system in China, which results in an increase of about 3% in the house
consumption rate) while the annual output of the power generation of Jiangbei
Combined-cycle Power Plant was 0.147 billion kWh with a house consumption rate
of 7.69%. Power tariffs are determined according to the rate prescribed by the
relevant pricing bureau.
Jiangjin Power Plant is planning to undergo its third phase expansion work,
which will consist of 2 X 600 MW domestically built sub-critical coal-fired
generating units with simultaneous installation of desulphurization system. The
project proposal has been approved by the State Development and Reform Committee
and the State Council. Currently, the power plant is preparing the feasibility
report.
Luohuang Power Plant's net operating revenue increased by 14.08% to RMB1.62
billion in 2003 from RMB1.42 billion in 2002. The average collected tariff
reached RMB281.36 per MWh in 2003, decreased by 1.40% from RMB285.34 MWh of last
year. The power output of Luohuang Power Plant reached 7.50 billion kWh,
increased by 15.33% compared to last year. The increase of power generation was
mainly due to the significant increase of power demand of the Central China.
Upon Closing, the Company will hold a 60% interest in Luohuang Power Plant.
The remaining 40% interest is held by Chongqing Municipal Construction and
Investment Corporation.
The following table sets out certain operating data of Luohuang Power Plant
for 2003:
Jiangjin Jiangbei
Luohuang Combined-cycle
Power Plant Power Plant
Generation capacity (MW) 1,440 108
Power generation (billion kWh) 7.351 .147
Utilisation hours (hours) 5,105 1,358
Availability factor (%) 88.54 94.68
House consumption rate (%) 10.40 7.69
Average on-grid power rate (RMB/MWh, VAT included) 281.24 282.90
Coal consumption rate for power sold (grams/kWh) 340.90 --
Unit fuel cost for power sold (RMB/ MWh) 72.82 207.84
Yingkou Power Plant
Yingkou Power Plant is an enterprise directly under HIPDC and is not a
legal person.
Yingkou Power Plant is situated in Yingkou Municipality of Liaoning
Province. According to the information available on the State Statistics
Bureau's website (http://www.stats.gov.cn) and China State Grid Corporation's
website (http://www.sgcc.com.cn), Liaoning Province is a coastal region in the
southern part of Northeast China. It is an important connecting part for the
economic regions in Northeast China and the economic regions surrounding Bohai,
and is an important passageway for foreign trade and international communication
in Northeast China. Liaohe Oilfield within the province is the third largest gas
and oil field in China with petroleum and natural gas reserves accounting for
15% and 10% of the PRC respectively. The area of the province is 145,900 square
kilometres. At the end of 2003, the population was approximately 42,100,000. In
2003, the GDP of the province amounted to RMB600.3 billion, representing an
increase of 11.5% over the previous year (the average growth rate of the whole
nation is 9.1%). Liaoning Province occupies a decisive position in the northeast
power grids of the PRC and its power load has been growing rapidly during the
recent years. At the end of 2003, the generation capacity of Liaoning Province
amounted to approximately 15,099 MW. In 2003, the power consumption of Liaoning
Province was approximately 90.791 billion kWh, representing an increase of 12.2%
when compared with the same period in 2002.
The planned generation capacity of Yingkou Power Plant is 1,200MW. Its
first phase consists of 2 X 320 MW supercritical coal-fired generating units,
which commenced operation in January and December 1996 respectively. The
estimated depreciation period of Yingkou Power Plant's generating units is
approximately 13 years. Currently, the generating units operate properly. In
2003, the annual power generation of two generating units was 3.986 billion kWh
with a house consumption rate of 5.53%. Power tariffs are determined according
to the rate prescribed by relevant pricing bureau.
According to Yingkou Power Plant's balance sheet as at 31st December 2003
audited by KPMG, Yingkou Power Plant owed to HIPDC a short term payable of
RMB1,264,651,910 and a long term loan of RMB614,275,497. According to the
Agreement for Transfer of HIPDC Interest, upon completion, the Company should
repay the short term payable of RMB1,264,651,910 in full (without interest) to
HIPDC within two years from the closing of the acquisition of the HIPDC
Interest; while in relation to the RMB614,275,497 long-term loan owed by Yingkou
Power Plant to HIPDC, the Company should arrange an entrusted loan arrangement
with HIPDC through China Huaneng Finance Company, with a term of 5 years payable
by equal instalments annually at an annual interest rate as quoted by The
People's Bank of China from time to time.
Yingkou Plant's net operating revenue increased by 16.26% to RMB944.80
million in 2003 from RMB812.69 million in 2002. The average collected tariff was
RMB293.57 per MWh, which decreased by 4.61% from RMB307.74 MWh of last year. The
power output of Yingkou Power Plant reached 3.97 billion kWh, increased by
21.71% compared to last year. The increase of the power output was due to that
the power demand in the Northeast China, exceeded the power supply in 2003,
which resulted in the significant increase of the net operating revenue and net
profit.
Upon Closing, Yingkou Power Plant will be wholly owned by the Company.
The following table sets out certain operating data of Yingkou Power Plant
for 2003:
Generation capacity (MW) 640
Power generation (billion kWh) 3.986
Utilisation hours (hours) 6,228
Availability factor (%) 88.42
House consumption rate (%) 5.53
Average on-grid power rate (RMB/MWh, VAT included) 293.57
Coal consumption rate for power sold (grams/kWh) 339.00
Unit fuel cost for power sold (RMB/MWh) 106.15
5. SELECTED FINANCIAL INFORMATION OF THE TARGET POWER PLANTS
The following is a summary of financial information of certain balance
sheet items as at 31st December 2001, 2002 and 2003 and certain income statement
items for the three years ended 31st December 2003 of the Target Power Plants,
prepared in accordance with International Financial Reporting Standards
("IFRS"). The financial information is extracted from the accountants' reports
set out in Appendices I to V.
(RMB in thousands)
Hanfeng Power Plant Jinggangshan Power Plant
2001 2002 2003 2001 2002 2003
Total assets 8,123,691 7,919,688 7,348,051 2,575,462 2,312,261 2,179,205
Total liabilities 6,330,399 5,681,741 4,916,132 2,147,810 1,951,504 1,765,845
Accounts receivable 150,433 426,262 415,538 55,760 89,440 142,294
Net assets 1,793,292 2,237,947 2,431,919 427,652 360,757 413,360
Revenue from principal
business 744,543 2,133,187 2,235,503 269,022 586,599 820,152
Operating profit/(loss) 134,598 961,460 995,726 (3,918) 29,508 187,559
Profit/(loss) before taxation (86,864) 617,376 702,010 (83,471) (73,901) 94,163
Net profit/(loss) after tax (79,850) 604,553 701,111 (58,086) (70,235) 60,855
(RMB in thousands)
Yueyang Power Plant Luohuang Power Plant Yingkou Power Plant
2001 2002 2003 2001 2002 2003 2001 2002 2003
Total assets 1,575,502 1,667,390 1,326,935 4,850,729 4,588,837 4,037,810 2,806,621 2,594,671 2,449,555
Total liabilities 1,840,009 1,986,225 1,004,900 4,149,961 4,035,694 3,043,954 2,379,627 2,160,626 1,924,034
Accounts receivable 228,810 386,427 278,294 697,830 719,460 588,235 57,433 157,122 204,287
Net assets/
(liabilities) (264,507) (318,835) 322,035 700,768 553,143 993,856 426,994 434,045 525,521
Revenue from principal
business 868,120 795,059 1,045,273 1,196,111 1,419,574 1,616,536 722,873 812,694 944,803
Operating profit 196,720 123,885 227,558 251,817 317,141 435,228 64,351 104,874 137,138
Profit/(loss) before
taxation 120,943 (60,789) 109,344 58,170 7,418 86,832 (25,367) 7,051 91,476
Net profit/(loss)
after tax 120,943 60,789) 78,424 58,170 7,418 76,648 (25,367) 7,051 91,476
The Target Power Plants (save for Hanfeng Power Plant) were originally
state-owned and the land occupied by them was allocated by the PRC government at
nil consideration and cannot be transferred. Due to the change of the
shareholdings of the Target Power Plants as result of the Acquisition, the
nature of such land shall be changed from administrative allocated land to
granted land. Therefore, the Target Power Plants (save for Hanfeng Power Plant)
are required to pay to their respective local government authorities land use
rights fees totalling RMB203 million.
6. CONNECTED TRANSACTIONS UNDER SHANGHAI LISTING RULES
As the domestic public shares of the Company are listed on the Shanghai
Stock Exchange, the Company is required, in addition to the Hong Kong Listing
Rules, to comply with the Shanghai Listing Rules.
After Closing, certain transactions in relation to the Target Power Plants,
including the guarantees to be provided by the Company to the banks in respect
of the Target Power Plants' bank loans and the loans obtained from Huaneng Group
and its associate, China Huaneng Finance Company, both being connected persons
of the Company, by the Target Power Plants in the ordinary and usual course of
the Target Power Plants' business, which are subject to compliance with the
relevant requirements of the Hong Kong Listing Rules, will constitute connected
transactions under the Shanghai Listing Rules ("Shanghai Connected
Transactions"), which shall be subject to the approval of the Company's
shareholders. The connected persons (as defined under the Shanghai Listing
Rules) shall abstain from voting on resolutions related to Shanghai Connected
Transactions. Details of the Shanghai Connected Transactions will be set out in
the notice of EGM to be issued to the Company's shareholders.
In accordance with Rule 7.3.11(9) of the Shanghai Listing Rules, the
Company has appointed Guotai Junan as the PRC independent financial adviser in
respect of the Acquisition.
Upon careful and necessary enquiry, Guotai Junan is of the view that the
Acquisition and the Shanghai Connected Transactions met the relevant legal
requirements under the Company Law of the PRC, the Securities Law of the PRC and
the Shanghai Listing Rules (as amended in 2001) and the requirements of the
articles of association of the Company, reflecting the principles of equality,
justice and reasonableness; and that the Acquisition will not in any way affect
the interests of either the Company or the non-connected shareholders.
The Independent Directors are of the view that (1) the board of Directors
has met the relevant requirements of Shanghai Listing Rules and the articles of
association of the Company regarding approval of the relevant resolutions of the
Acquisition and the Shanghai Connected Transactions; and (2) the Acquisition and
the Shanghai Connected Transactions are fair to the Company's shareholders.
7. THE EGM
The transactions as contemplated by the Transfer Agreements constitute
major and connected transactions to the Company. The Company will convene an EGM
on 15th June, 2004 to consider the approval of the Acquisition (including the
Transfer Agreements), and Shanghai Connected Transactions. The voting at such
meeting will be taken on a poll and the Company will make an announcement of the
poll result.
Huaneng Group, HIPDC and their respective Associates will abstain from
voting in the EGM in respect of the ordinary resolutions to approve the
Acquisition (including the Transfer Agreements). Notice of the EGM is set out on
pages 197 to 202 in this circular.
A reply slip and a form of proxy for use by the Independent Shareholders at
the Extraordinary General Meeting are enclosed with this circular. Whether or
not you intend to attend the meeting in person, you are requested to complete
and return the reply slip in accordance with the instructions printed thereon to
the registered office of the Company at West Wing, Building C, Tianyin Mansion,
2C, Fuxingmennan Street, Xichang District, Beijing, PRC as soon as possible but
in any event by 25th May, 2003. The enclosed form of proxy should be completed
and returned to the Company's H Share Registrar, Hong Kong Registrars Limited,
at Room 1901-5, 19/F, Hopewell Centre, 183 Queen's Road East, Hong Kong or the
registered office of the Company in accordance with the instructions printed
thereon as soon as practicable and in any event by not later than 24 hours
before the time appointed for the holding of the EGM. Completion and return of
the form of proxy will not preclude you from attending and voting in person at
the meeting should you so wish.
8. RECOMMENDATION
According to the requirements of the Hong Kong Listing Rules, the
Independent Directors will advise the Independent Shareholders in connection
with the Acquisition (including the Transfer Agreements). Rothschild has been
appointed as an independent financial adviser to advise the Independent
Directors and the Independent Shareholders with respect to the fairness and
reasonableness of the Acquisition (including the Transfer Agreements).
The Independent Directors, having taken into account the advice of
Rothschild, consider the terms of the Transfer Agreements to be fair and
reasonable insofar as the Shareholders are concerned and consider the
transaction contemplated by the Transfer Agreements to be in the interests of
the Company and its shareholders.
Accordingly, the Independent Directors recommend that the Independent
Shareholders vote in favour of the resolutions to approve the Acquisition and
the Transfer Agreements at the Extraordinary General Meeting.
9. OTHER INFORMATION
Your attention is also drawn to the letter from the Independent Directors
and the letter from Rothschild, which sets out its advice to the Independent
Directors, and the additional information set out in the appendices of this
circular.
Yours faithfully,
For and on behalf of
Huaneng Power International, Inc.
Wang Xiaosong
Vice Chairman
--------------------------------------------------------------------------------
LETTER FROM THE INDEPENDENT DIRECTORS
--------------------------------------------------------------------------------
HUANENG POWER INTERNATIONAL, INC.
(A Sino-foreign joint stock limited company incorporated in
the People's Republic of China)
Registered office:
West Wing, Building C
Tianyin Mansion
2C Fuxingmennan Street
Xicheng District
Beijing 100031
The People's Republic of China
29th April, 2004
To the Independent Shareholders
Dear Sir or Madam,
MAJOR CONNECTED TRANSACTION
We, the Independent Directors of Huaneng Power International, Inc., are
advising the Independent Shareholders in connection with the Acquisition,
details of which are set out in the letter from the Board contained in the
circular ("Circular") of the Company to the Shareholders dated 29th April, 2004,
of which this letter forms a part. Terms defined in the Circular shall have the
same meanings when used herein unless the context otherwise requires.
Under the Hong Kong Listing Rules, the Acquisition constitutes both a major
and a connected transaction for the Company. Accordingly, the Acquisition will
require the approval of the Independent Shareholders at the EGM.
We wish to draw your attention to the letter of advice from Rothschild set
out on pages 22 to 34 of the Circular. We have discussed the letter and the
opinion contained in it with Rothschild.
Having considered, inter alia, the factors and reasons considered by, and
the opinion of, Rothschild, as stated in its aforementioned letter, we consider
the Acquisition to be fair and reasonable so far as the Independent Shareholders
are concerned. Accordingly, we recommend that the Independent Shareholders vote
in favour of the ordinary resolutions in the Notice of EGM set out at the end of
the Circular to be proposed at the EGM to be held on 15th June, 2004 and thereby
approve the Acquisition and the Transfer Agreements.
Yours faithfully,
Gao Zongze Zheng Jianchao Qian Zhongwei Xia Donglin
Independent Directors
--------------------------------------------------------------------------------
LETTER FROM ROTHSCHILD
--------------------------------------------------------------------------------
[ROTHSCHILD logo omitted]
29 April 2004
To the Independent Directors and
Independent Shareholders
Dear Sir or Madam,
MAJOR AND CONNECTED TRANSACTION
We refer to our engagement to advise the Independent Directors and
Independent Shareholders with respect to the Acquisition, details of which are
contained in the circular of the Company dated 29 April 2004 to its shareholders
(the "Circular") of which this letter forms a part. Rothschild has been
appointed as the independent financial adviser to advise the Independent
Directors and Independent Shareholders as to: (a) whether or not the Transfer
Agreements are on normal commercial terms (as defined under the Hong Kong
Listing Rules) and the terms of the Transfer Agreements are fair and reasonable
so far as the Independent Shareholders are concerned; (b) whether or not
entering into the Transfer Agreements is in the interest of the Company and its
shareholders as a whole; and (c) how the Independent Shareholders should vote at
the EGM in respect of the Acquisition.
The terms used in this letter shall have the same meanings as defined
elsewhere in the Circular unless the context otherwise requires.
As at the Latest Practicable Date, Huaneng Group owned approximately 51.98%
of HIPDC, which in turn owned approximately 42.39% of the issued share capital
of the Company. Pursuant to the Hong Kong Listing Rules, the Transfer Agreements
constitute a major and connected transaction for the Company, which will be
subject to, inter alia, the Independent Shareholders' approval at the EGM.
For the avoidance of doubt, we are not engaged to advise the Independent
Directors in respect of the Shanghai Connected Transactions, details of which
are set out under the section headed "6. Connected transactions under Shanghai
Listing Rules" in the "Letter from the Board" of the Circular. The opinion of
the Independent Directors thereof and the basis of their opinion are set out in
the "Letter from the Independent Directors" contained in the Circular.
In formulating our recommendation, we have relied on the information and
facts supplied to us by the Company and/or its advisers and have assumed that
any representations made to us are true, accurate and complete in all material
respects as at the date hereof and that they may be relied upon. We have also
assumed that all information, representations and opinions contained or referred
to in the Circular are fair and reasonable and have relied on them.
N. M. Rothschild & Sons (Hong Kong) Limited Telephone (852) 2525-5333
16th Floor, Alexandra House Fax (852) 2868-1728
16-20 Chater Road, Central (852) 2810-6997
Hong Kong SAR
We have been advised by the Directors that no material facts have been
omitted and we are not aware of any facts or circumstances which would render
the information provided and the representations made to us untrue, inaccurate
or misleading. We have no reason to doubt the truth, accuracy and completeness
of the information and representations provided to us by the Company and/or its
advisers. The Directors have collectively and individually accepted full
responsibility for the accuracy of the information contained in the Circular and
have confirmed, having made all reasonable enquiries, that to the best of their
knowledge and belief, there are no other facts the omission of which would make
any statement in the Circular misleading. We consider that we have reviewed
sufficient information to reach an informed view in order to provide a
reasonable basis for our advice. We have not, however, conducted any independent
in-depth investigation into the business and affairs of the Company, the Target
Power Plants or any of their respective subsidiaries and associated companies.
PRINCIPAL FACTORS AND REASONS
In arriving at our opinion, we have taken into consideration the following
principal factors and reasons:
1. Background and rationale
The principal activities of the Company and its subsidiaries are to
develop, construct, operate and manage large-scale coal-fired power plants in
the PRC. The Board is of the view that the Acquisition is consistent with the
Company's long-term business strategy and will benefit the Company and its
shareholders, and follows the Company's business and development strategy of
placing equal emphasis on acquisition of existing power plants and development
of new power plants. It also believes that the Acquisition is an important
strategic move for the Company given the backdrop of deepening power reforms in
the PRC, whereby competition is to be gradually introduced to the PRC power
generation sector and it will therefore be essential for a power generation
company in the PRC to increase its market share so as to maintain its
competitive position.
The Board is confident in the prospects for the PRC power sector in view of
the favourable market conditions of strong power demand as a result of rapid and
stable economic development in the PRC. The Acquisition, together with the
acquisition of the 10% interest in Jingganshan Power Plant from Jiangxi Province
Investment Corporation, would enlarge the operational scale and market share of
the Company in the PRC, with an addition of 3,096 megawatts ("MW") of installed
generation capacity on an equity basis, an increase in its total installed
generating capacity from 15,736 MW to 18,832 MW on an equity basis, representing
a percentage increase of approximately 19.7%. The Company will also gain 1,050
MW of additional capacity under construction on an equity basis. The Board is of
the view that the enlarged operational scale of the Company upon completion is
conducive to enhancing the competitiveness of the Company and increasing its
shareholders' returns.
As also noted under the section headed "3. Reasons for the Acquisition and
pricing factors" in the "Letter from the Board" of the Circular, the Acquisition
would enable the Company to strengthen its leading position in Liaoning Province
and Hebei Province, which are provinces with rapid economic growth and strong
power demand. Upon Closing, the Company will increase its net installed capacity
on an equity basis from 2,100 MW to 2,740 MW and from 1,300 MW to 1,828 MW in
Liaoning Province and Hebei Province respectively.
In addition, the Acquisition would enable the Company to enter into the
central-south region of China for the first time, which has provinces and cities
with rapid growth in power demand such as Jiangxi Province, Hunan Province and
Chongqing Municipality, which is consistent with the Company's marketing
strategy of "consolidating its position in coastal regions and exploring the
market in Central China".
2. The Acquisition
(a) Assets to be acquired
On 16 April 2004, the Company entered into the Transfer Agreements,
pursuant to which the Company has conditionally agreed to acquire from
Huaneng Group a 40% equity interest in Hanfeng Power Plant and a 90% equity
interest in Jinggangshan Power Plant and acquire from HIPDC a 55% equity
interest in Yueyang Power Plant, a 60% equity interest in Luohuang Power
Plant, and the entire assets and liabilities of Yingkou Power Plant for an
aggregate consideration of RMB4,513 million (equivalent to approximately
HK$4,258 million) (the "Consideration").
Upon Closing, the Company will as agreed under the Transfer Agreements
also guarantee certain loans owed by certain of the Target Power Plants, to
an extent which is proportional to the Company's interest in these power
plants, further details of which are set out under the sections headed "4.
Information regarding the Target Power Plants" and "5. Selected financial
information of the Target Power Plants" in the "Letter from the Board" of
the Circular.
Set out below is a summary of certain financial and operational
information relating to the Target Power Plants. The financial information
is extracted from the accountants' reports for the Target Power Plants as
set out in Appendices I to V to the Circular.
Installed
capacity
on an
Installed Equity Net Asset
capacity Basis Sales Net profit/loss Value
Location (MW) (MW) (RMB million) (RMB million) (RMB million)
For the Financial For the financial
As at 31 As at 31 year ended year ended As at 31
December December 31 December 31 December December
2003 2003 2001 2002 2003 2001 2002 2003 2003
Hanfeng Power Plant Hebei Province 1,320 528 745 2,133 2,236 (80) 605 701 2,432
Jinggangshan Power Plant Jiangxi Province 600 540 269 587 820 (58) (70) 61 413
Yueyang Power Plant Hunan Province 725 399 868 795 1,045 121 (61) 78 322
Luohuang Power Plant Chongqing Municipality 1,548 929 1,196 1,420 1,617 58 7 77 994
Yingkou Power Plant Liaoning Province 640 640 723 813 945 (25) 7 92 526
------ ------ ------ ------ ------ ------ ------ ------ ------
Total 4,833 3,036 3,801 5,748 6,663 16 488 1,009 4,687
====== ====== ====== ====== ====== ====== ====== ====== ======
From our discussions with the management of the Company, we understand that
the Target Power Plants have experienced a positive growth trend in sales
although a certain level of volatility was noted at the net profit level for the
three financial years ended 31 December 2003. In particular, we note that
Hanfeng Power Plant reported a net loss in 2001, which was primarily due to the
fact that 2001 was its first year of commercial operation and the on-grid
electricity volume and tariff were relatively low as compared with 2002 and
2003. With respect to Jinggangshan Power Plant, it reported net losses in 2001
and 2002, which were mainly due to commencement of operation of its second
generation unit in August 2001 and the on-grid electricity volume for 2001 and
2002 being much lower than that of 2003. Yueyang Power Plant also reported a net
loss in 2002, which was mainly attributable to the significant exchange loss
suffered from its foreign currency denominated loans while the net loss reported
by Yingkou Power Plant in 2001 was primarily due to high financing costs. The
decrease in net profit for Luohuang Power Plant in 2002 as compared to 2001 was
mainly attributable to exchange loss suffered from its foreign currency
denominated loans, while the significant increase in net profit in 2003 as
compared to 2002 was due to higher on-grid electricity volume.
Further details relating to the operational and financial information of
the Target Power Plants are set out under the section headed "4. Information
regarding the Target Power Plants" in the "Letter from the Board" of the
Circular and Appendices I to V to the Circular.
(b) Basis of the Consideration
The Transfer Agreements were entered into after arm's length negotiation
among the Company, Huaneng Group and their respective financial advisers, and
among the Company, HIPDC and their respective financial advisers, based on
normal commercial terms. The total Consideration, which will be satisfied as to
50% by cash-on-hand and 50% by bank loans, was determined with reference to,
inter alia, the asset appraisal report prepared by Zhongchenghua and after
having considered various factors such as the market environments, the technical
and operating conditions of the Target Power Plants, the earnings potential of
the Target Power Plants and their ability to generate cash flow. However, given
that Zhongchenghua is a qualified asset appraisal firm in the PRC which does not
carry on such business in Hong Kong, we have not relied on its valuation in
arriving at our opinion. In addition, we note that the Company has entered into
a transfer agreement with Jiangxi Province Investment Corporation, which is not
a connected person (as defined under the Hong Kong Listing Rules) of the
Company, on 16 April 2004 pursuant to which the Company has agreed to acquire
from Jiangxi Province Investment Corporation its 10% interest in Jinggangshan
Power Plant whereby the consideration was determined in a manner consistent with
the pricing principle of the Acquisition. Further details of the transfer
agreement between the Company and Jiangxi Province Investment Corporation are
set out under the sub-section headed "Jinggangshan Power Plant" in the "Letter
from the Board" of the Circular.
As noted under the sub-section headed "(2) Agreement for Transfer of HIPDC
Interest" in the "Letter from the Board" of the Circular, Yueyang Power Plant
and Luohuang Power Plant have significant amounts of overdue accounts
receivable. In view of the uncertainty over the collectability of such
receivables in full, a provision for doubtful debt has been made for
approximately RMB379.0 million of such receivables in the accounts of Yueyang
Power Plant and Luohuang Power Plant as at 31 December 2003. The net aggregate
overdue receivable balance of Yueyang Power Plant and Luohuang Power Plant was
approximately RMB538.5 million as at 31 December 2003. The Company and HIPDC
have agreed on certain compensating arrangements whereby the consideration under
the Agreement for Transfer of HIPDC Interest will be reduced by an amount
equivalent to the un-collectable portion of such receivables (net of the
provision already made) attributable to the interests in the relevant power
plants to be acquired by the Company under the Agreement for Transfer of HIPDC
Interest. Further details of these compensating arrangements are set out under
the sub-section headed "(2) Agreement for Transfer of HIPDC Interest" in the
"Letter from the Board" of the Circular.
As also noted under the section headed "3. Reasons for the Acquisition and
pricing factors" in the "Letter from the Board" of the Circular, the State is
considering the introduction of a pilot scheme on tariff reform in the northeast
region for which details are still under formulation. Accordingly, the Company
is unable to ascertain the impact of the reform on the operating results of
Yingkou Power Plant nor is it able to evaluate in this respect the impact of the
Acquisition on the Company's future financial position and operating results.
(c) Valuation of the Target Power Plants
Based on the total Consideration for the Acquisition of RMB4,513 million
(equivalent to approximately HK$4,258 million), together with the aggregate net
debt of the Target Power Plants attributable to Huaneng Group Interest and HIPDC
Interest as at 31 December 2003 (including an amount of approximately RMB1,265
million repayable to HIPDC by Yingkou Power Plant), the enterprise value ("EV")
of the Target Power Plants attributable to Huaneng Group Interest and HIPDC
Interest would be approximately RMB11,573 million, being the equity value (the
total Consideration paid in this case) plus net debt of the Target Power Plants
attributable to Huaneng Group Interest and HIPDC Interest of approximately
RMB7,060 million. The source of financial information applied in conducting the
ratio analysis is based on the data contained in the accountants' reports for
the Target Power Plants as set out in Appendices I to V to the Circular.
We list below the multiples for the Acquisition based on the total
Consideration under the Transfer Agreements:
o an EV/earnings before interest, tax, depreciation and amortisation
("EBITDA") multiple of approximately 5.7 times, based on the EBITDA
attributable to Huaneng Group Interest and HIPDC Interest for the
financial year ended 31 December 2003 of approximately RMB2,029
million;
o an EV/MW of approximately RMB3.813 million, based on the equity
installed capacity of 3,036MW attributable to Huaneng Group Interest
and HIPDC Interest;
o an earnings multiple of approximately 8.7 times, based on the net
profit of the Target Power Plants attributable to Huaneng Group
Interest and HIPDC Interest for the financial year ended 31 December
2003 of approximately RMB516 million; and
o a price to net asset value ratio of approximately 1.7 times, based on
the aggregate net asset value ("NAV") of the Target Power Plants
attributable to Huaneng Group Interest and HIPDC Interest as at 31
December 2003 of approximately RMB2,644 million.
We have analysed the total Consideration by reviewing: (a) the trading
multiples of listed companies comparable to the Target Power Plants; and (b) the
transaction multiples of recent acquisitions of electricity power generation
companies in the PRC.
In assessing the fairness of the total Consideration, we are of the view
that the analysis of the EV/EBITDA multiple versus those of comparable listed
companies and comparable transactions is the most important and appropriate
valuation benchmark. Due to its common use as a valuation benchmark in the
electric power generation industry, we have also compared the EV/MW multiple of
the Acquisition with those of comparable listed companies and comparable
transactions. In addition, we have reviewed the price/earnings ratio and the
price/NAV ratio of the Acquisition versus those of comparable listed companies
and comparable transactions, for supplemental cross checking purposes.
(i) Comparable company analysis
Since the revenue of the Target Power Plants is derived from their
electric power generation business in the PRC, the comparable companies we
have chosen are listed power companies which are primarily focused on
electric power generation in the PRC. The companies which we have
identified under the above selection criteria are PRC power generation
companies primarily listed on the Stock Exchange, the Shanghai Stock
Exchange and the Shenzhen Stock Exchange, some of which are listed on more
than one stock exchange. It should be noted that the Shanghai Stock
Exchange and the Shenzhen Stock Exchange are divided into the A-share and
B-share markets, which are two separate markets with different regulations
and restrictions. The shares traded on the A-share market can only be
invested in by domestic investors and qualified foreign institutional
investors (with certain trading and ownership restrictions) whereas shares
traded on the B-share market are open for investment by both international
and domestic investors. We consider that the trading multiples of companies
traded solely on an A-share market in the PRC are not an appropriate
benchmark for the Acquisition given that trading in the PRC A-share markets
is highly restricted. It should also be noted that trading in the PRC
B-share markets is relatively inactive and the total market capitalisation
is small. Accordingly, we consider the trading multiples of the B-share
electric power generation companies less comparable for our valuation
purpose.
Based on the above selection criteria, we set out in the following table
the relevant ratios of the selected comparable listed companies based on their
respective share prices as at the Latest Practicable Date and their latest
published audited full year financial statements.
Company name EV(1)/ EV(1)/ Price(2)/ Price(2)/
NAV(6) EBITDA(3) MW(4) earnings(5) NAV(6)
(RMB
(Times) (million) (Times) (Times)
Primary comparables
HK-listed Comparable Companies(7)
Beijing Datang Power Generation
Co. Ltd. 10.0 6.894 20.4 2.4
Huadian Power International
Corp. Ltd. 6.8 3.316 13.4 1.5
The Company 9.9 7.064 18.5 3.0
China Resources Power Holdings
Co. Ltd. ("CR Power" )(8) 19.3 11.842 28.7 1.9
Average 11.5 7.279 20.3 2.2
Average (excluding CR Power)(8) 8.9 5.758 17.5 2.3
Secondary comparables
B-share companies
Guangdong Electric Power Development
Co. Ltd 6.9 7.292 15.1 2.2
Heilongjiang Electric Power Co. Ltd 12.9 4.431 29.2 1.8
Shenzhen Nanshan Power Station
Co. Ltd 8.8 6.994 12.3 3.9
Zhejiang Southeast Electric Power
Co. Ltd 8.1 6.760 22.1 2.2
Average 9.2 6.369 19.7 2.5
The Acquisition 5.7 3.813 8.7 1.7
Sources: Bloomberg and latest published audited full year financial
statements of the relevant companies available on the Latest
Practicable Date
Notes:
(1) EV of a company refers to the sum of its market capitalisation as at the
Latest Practicable Date and its net indebtedness as per its latest
published audited full year financial statements available on the Latest
Practicable Date.
(2) Price refers to the market capitalisation based on the closing price of a
Hong Kong listed power company with main operations in the PRC as quoted on
the Stock Exchange or the closing price of the B-shares of the relevant
company on the Latest Practicable Date and the total number of shares in
issue according to the relevant company's latest published annual report or
interim report or announcement. For companies which also have an A-share
listing, their A-share stock prices were not used in the above calculation
of market capitalisations.
(3) EBITDA refers to the earnings before interest, tax, amortisation and
depreciation expenses as per the latest published audited full year
financial statements of the relevant company available on the Latest
Practicable Date.
(4) MW refers to the net installed capacity in megawatts of the respective
companies as per their latest public available information on the Latest
Practicable Date.
(5) Earnings refer to net profit excluding extraordinary items as per the
latest published audited full year financial statements of the relevant
company available on the Latest Practicable Date.
(6) NAV refers to net asset value as per the latest published audited full year
financial statements of the relevant company available on the Latest
Practicable Date.
(7) HK-listed Comparable Companies refers to Hong Kong listed power companies
with main operations in the PRC.
(8) CR Power is considered less comparable to the Target Power Plants than the
H-share power generation companies as it is trading at significantly higher
multiples, in terms of EV/EBITDA, EV/MW and price/earnings, due to the fact
that CR Power has a much smaller asset base and is expected to have a much
higher growth ratio after its power generation assets under construction
and development have become operational in the future.
As illustrated above, the EV/EBITDA multiple of approximately 5.7 times and
price/earnings multiple of approximately 8.7 times for the Acquisition are lower
than the trading multiples of all of the HK-listed Comparable Companies,
representing a substantial discount to the respective averages of the HK-listed
Comparable Companies (excluding CR Power). In terms of EV/MW and price/NAV, the
multiples for the Acquisition are within the respective ranges of trading
multiples of the HK-listed Comparable Companies and are moderately lower than
the respective averages of the HK-listed Comparable Companies (excluding CR
Power).
In addition, we have compared the aforementioned acquisition multiples
under the Transfer Agreements with the trading multiples of the B-share
comparable companies for supplemental comparison purposes. We note that the
acquisition multiples for the Acquisition are substantially lower than the
respective average trading multiples of the B-share comparable companies.
(ii) Comparable transaction analysis
Our analysis also includes research into acquisition transactions in the
Chinese electric power generation sector which have taken place since the recent
power industry reform started in the PRC in early 2002. In selecting the
comparable transactions, we have focused on material transactions and have taken
into account the availability of reliable transaction information and
comparability of the power plants acquired with the Target Power Plants. The
following table sets out our findings:
Comparable transaction analysis
Net
Installed EV(1)/ EV(1)/ Price(2)/ Price(2)/
Date Seller Buyer capacity Fuel EBITDA(3) MW earnings(3) NAV
(RMB)
(MW) (Times) million) (Times) (Times)
05/06/2003(4) Huaneng Group The Company 570 Coal 6.8 2.890 9.7 4.8
09/05/2003(5) China Shandong 480 Coal 9.1 4.279 18.4 1.0
Huadian International
Corporation Power
Development
Co. Ltd.
16/11/2002(6) Huaneng The Company 390 Coal 4.2 1.775 7.2 3.2
Group
09/05/2002(7) Huaneng The Company 1,687 Coal 4.5 2.273 8.1 2.0
Group
Average 6.1 2.804 10.9 2.7
The Acquisition 5.7 3.813 8.7 1.7
Source: Companies' public filings available on the Latest Practicable Date
Notes:
(1) EV refers to the sum of the equity purchase consideration paid in an
acquisition and the proportional net indebtedness of the target power
plant(s) as at the latest audited financial year end date prior to the
acquisition.
(2) Price refers to the equity purchase consideration paid in an acquisition.
(3) EBITDA and earnings are based on the latest full year audited financials of
the relevant target power plants before the acquisition took place.
(4) The Company acquired 100% of China Huaneng Group Xindian Power Plant in
Shandong Province, 60% of Shanxi Huaneng Yushe Power Limited Liability
Company in Shanxi Province, and 55% of Henan Huaneng Qinbei Power
Generation Limited Liability Company in Henan Province.
(5) Shandong International Power Development Company Limited acquired 80% of
Sichuan Guangan Power Generation Company Limited in Sichuan Province.
(6) The Company acquired 30% of Shanghai Shidongkou Power Limited Company in
Shanghai and 5% of Suzhou Industrial Park Huaneng Power Limited Liability
Company in Jiangsu Province.
(7) The Company acquired 70% of Shanghai Shidongkou Power Limited Company in
Shanghai, 70% of Suzhou Industrial Park Huaneng Power Limited Liability
Company in Jiangsu Province, 44.16% of Jiangsu Huaneng Huaiyin Power
Limited Company in Jiangsu Province, and 100% of China Huaneng Group
Company Zhejiang Changxing Power Plant in Zhejiang Province.
Our review of the acquisition multiples of the above precedent transactions
indicates that the EV/EBITDA, EV/MW, price/earnings and price/NAV multiples for
the Acquisition are within the respective ranges of the precedent transactions.
In addition, we note that the EV/EBITDA, price/earnings and price/NAV multiples
for the Acquisition are lower than the respective averages of the precedent
transactions. We also note that the EV/MW multiple for the Acquisition is higher
than the average of the precedent transactions. We attribute the differential in
the EV/MW multiple to the prevailing economic environment and conditions for
each transaction, as well as plant specific operational factors such as the
average life of the target power plants for each transaction. Having considered
the above factors, we consider the Consideration is within an acceptable range
when compared with the acquisition multiples of the precedent transactions.
On the above basis, we consider the Consideration under the Transfer
Agreements is fair and reasonable so far as the Independent Shareholders are
concerned.
(d) Conditions of the Acquisition
Completion of the Transfer Agreements is conditional upon fulfillment of
various conditions including the approval of the Acquisition by the Independent
Shareholders at the EGM. Further details of the other conditions precedent to
the completion of the Acquisition are set out under the section headed "2.
Transfer Agreements" in the "Letter from the Board" of the Circular.
3. Potential financial effects on the Company and its subsidiaries
This section sets out various analyses on the potential financial effects
of the transactions, which include the Acquisition and the acquisition of the
10% interest in Jinggangshan Power Plant from Jiangxi Province Investment
Corporation (the "Transactions"), on the Company, which were prepared based on
the audited financials of the Company and its subsidiaries for the financial
year ended 31 December 2003, the accountants' reports for the Target Power
Plants and the unaudited pro forma net asset statement of the Company and its
subsidiaries (including the Target Power Plants) (the "Combined Company and
Subsidiaries") as at 31 December 2003, further details of which are set out in
Appendices I to VII to the Circular, and the information provided under the
section headed "3. Reasons for the Acquisition and pricing factors" in the
"Letter from the Board" of the Circular. It should be noted that the unaudited
pro forma net asset statement of the Company and its subsidiaries (including the
Target Power Plants) as at 31 December 2003 was prepared based on certain
assumptions, further details of which are set out in Appendix VII to the
Circular and, accordingly, all the figures and financial effects shown in this
section are for illustrative purposes only.
(a) Net income
Based on the net income of the Target Power Plants for the financial
year ended 31 December 2003, further details of which are set out in
Appendices I to V to the Circular, the Company is acquiring interests in
the Target Power Plants for which the attributable net income of such
interests for the financial year ended 31 December 2003 was approximately
RMB522 million (before taking into consideration any adjustments relating
to the Transactions).
(b) Net assets
The pro forma net assets of the Combined Company and Subsidiaries would be
approximately RMB33,955 million as at 31 December 2003, the same as the audited
net assets reported by the Company and its subsidiaries (without taking into
account the Transactions) as at the same date. As a result of the Transactions,
the Combined Company and Subsidiaries will record positive goodwill of
approximately RMB949 million, representing the excess of the total Consideration
of RMB4,575 million over the estimated fair value of the underlying net assets
of the Target Power Plants of approximately RMB3,626 million as at 31 December
2003. Further details relating to the pro forma net assets of the Combined
Company and Subsidiaries are set out in Appendix VII to the Circular.
(c) Gearing
Based on the unaudited pro forma net asset statement of the Company and its
subsidiaries (including the Target Power Plants) as at 31 December 2003 as set
out in Appendix VII to the Circular, the total debt of the Combined Company and
Subsidiaries (without the debt of Hanfeng Power Plant, which would not be
consolidated into the Company's balance sheet as it will become an associated
company of the Company upon Closing) would be approximately RMB23,096 million as
at 31 December 2003, compared to the total debt of approximately RMB13,796
million reported by the Company and its subsidiaries (without taking into
account the Transactions) as at the same date. Net debt of the Combined Company
and Subsidiaries would be approximately RMB20,934 million, compared to the net
debt position of approximately RMB9,522 million of the Company and its
subsidiaries (without taking into account the Transactions) as at 31 December
2003. The net gearing of the Combined Company and Subsidiaries, defined as net
debt divided by net debt plus net assets plus minority interests, would be
approximately 36.6% as at 31 December 2003, compared to the net gearing of
approximately 21.3% for the Company and its subsidiaries (without taking into
account the Transactions) as at the same date.
We consider that the net gearing of the Combined Company and Subsidiaries
is still within reasonable range when compared with other H-share power
companies listed in Hong Kong, the net gearing of which ranged between
approximately 36.1% and 48.5% as at 31 December 2003.
SUMMARY
Having considered the above principal factors and reasons, we draw your
attention to the following in arriving at our conclusion:
(i) the Acquisition would enlarge the operational scale and market share
of the Company in the PRC and is an important strategic move of the
Company given the backdrop of deepening power reforms in the PRC;
(ii) the multiples for the Acquisition are reasonable considering the
trading multiples of companies comparable to the Target Power Plants;
(iii) the multiples for the Acquisition are within a reasonable range of
relevant and comparable precedent transactions, having considered the
prevailing economic environment and conditions for each transaction,
as well as plant specific operational factors; and
(iv) as set out in more detail under the sub-section headed "Net income"
above, the Company is acquiring interests in the Target Power Plants
for which the attributable net income of such interests for the
financial year ended 31 December 2003 was approximately RMB522 million
(before taking into consideration any adjustments relating to the
Transactions), and the gearing ratio of the Combined Company and
Subsidiaries, after completion of the Transactions, is still within a
reasonable range.
RECOMMENDATION
Having considered all the above principal factors and reasons, we consider
that (a) the Transfer Agreements are on normal commercial terms (as defined
under the Hong Kong Listing Rules) and the terms of the Transfer Agreements are
fair and reasonable so far as the Independent Shareholders are concerned; and
(b) entering into the Transfer Agreements is in the interest of the Company and
its shareholders as a whole. Accordingly, we advise the Independent Directors to
recommend the Independent Shareholders to vote in favour of the ordinary
resolutions to approve the Acquisition as detailed in the notice of the EGM
which is set out on pages 197 to 202 in the Circular.
Yours very truly,
For and on behalf of
N M Rothschild & Sons (Hong Kong) Limited
Liu Xiaofeng
Director
--------------------------------------------------------------------------------
APPENDIX I ACCOUNTANTS' REPORT OF HANFENG POWER PLANT
--------------------------------------------------------------------------------
The following is the text of a report, prepared for the purpose of
inclusion in this circular, received from the independent reporting accountants,
KPMG, Certified Public Accountants, Hong Kong. As described in the section
headed "Documents for inspection" in Appendix X, a copy of the following
accountants' report is available for inspection.
KPMG logo omitted 8th Floor
Prince's Building
10 Chater Road
Hong Kong
The Directors
Huaneng Power International, Inc.
29 April 2004
Dear Sirs,
INTRODUCTION
We set out below our report on the financial information relating to Hebei
Hanfeng Power Generation Limited Liability Company ("Hanfeng Power Plant") in
Sections I to VI below (the "Financial Information"), including the balance
sheets of Hanfeng Power Plant as at 31 December 2001, 2002 and 2003, the
statements of income, owners' equity and cash flows of Hanfeng Power Plant for
each of the years in the three-year period ended 31 December 2003 (the "relevant
period"), for inclusion in the shareholders' circular of Huaneng Power
International, Inc. ("the Company") dated 29 April 2004 (the "Circular").
Hanfeng Power Plant is an equity sino-foreign joint venture company
established on 28 October 1996 in Hebei Province, the People's Republic of China
(the "PRC") by China Huabei Power Group Company ("Huabei Power"), Hebei
Construction and Investment Company ("Hebei Investment"), Hebei Power Company
("Hebei Power") and Siemens Power Development Hanfeng GmbH ("Siemens Power").
The equity interest of Hanfeng Power Plant was 30% owned by Huabei Power, 20%
owned by Hebei Investment, 10% owned by Hebei Power and 40% owned by Siemens
Power on the date of establishment. On 18 November 1998, Siemens Power
transferred 16% equity interest in Hanfeng Power Plant to HEW Power Venture
Hanfeng GmbH. In January 2003, pursuant to the restructuring of the power
industry in the PRC, the 30% equity interest owned by Huabei Power and 10%
equity interest owned by Hebei Power were allocated to China Huaneng Group
("Huaneng Group"), the ultimate holding company of the Company. The operating
period of Hanfeng Power Plant is 25 years commencing from the date of
establishment. It owns and operates two coal-fired generating units with
installed capacity of 660 MW each. The two generating units commenced commercial
operation in March and September 2001 respectively.
The statutory financial statements of Hanfeng Power Plant were prepared in
accordance with the applicable PRC accounting rules and regulations which have
been audited by KPMG Huazhen Certified Public Accountants for the year ended 31
December 2001 and by Deloitte Touche Tohmatsu Certified Public Accountants Ltd.
for the years ended 31 December 2002 and 2003.
Pursuant to the transfer agreement entered into between the Company and
Huaneng Group on 16 April 2004, as described more fully in the section headed
"Transfer Agreements" in the letter from the Board contained in the Circular,
the Company will acquire from Huaneng Group of its 40% equity interest in
Hanfeng Power Plant.
BASIS OF PREPARATION
The Financial Information has been prepared by the management of Hanfeng
Power Plant based on the statutory financial statements of Hanfeng Power Plant
to conform with International Financial Reporting Standards ("IFRS") promulgated
by the International Accounting Standards Board. IFRS includes International
Accounting Standards and interpretations.
RESPONSIBILITY
The preparation of the Financial Information, which gives a true and fair
view, is the responsibility of Hanfeng Power Plant's management. In preparing
the Financial Information which gives a true and fair view, it is fundamental
that appropriate accounting policies are selected and applied consistently, that
judgements and estimates are made which are prudent and reasonable and that the
reasons for any significant departure from applicable accounting standards are
stated.
It is our responsibility to form an independent opinion, based on our
audit, on the Financial Information.
BASIS OF OPINION
For the purpose of this report, we have audited the Financial Information
of Hanfeng Power Plant for the relevant period and carried out such procedures
as we considered necessary in accordance with the Auditing Guideline
"Prospectuses and the Reporting Accountant" issued by the Hong Kong Society of
Accountants ("HKSA"). We have not audited any financial statements of Hanfeng
Power Plant in respect of any period subsequent to 31 December 2003.
We conducted our audit in accordance with Statements of Auditing Standards
issued by HKSA. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the Financial Information. It also
includes an assessment of the significant estimates and judgements made by
management in the preparation of the Financial Information, and of whether the
accounting policies are appropriate to Hanfang Power Plant's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the Financial
Information is free from material misstatement. In forming our opinion, we
also evaluated the overall adequacy of the presentation of the Financial
Information. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion, the Financial Information, for the purpose of this report and
on the basis stated above, gives a true and fair view of the state of affairs
of Hanfeng Power Plant as at 31 December 2001, 2002 and 2003 and of the
results and cash flows of Hanfeng Power Plant for each of the years in the
three-year period ended 31 December 2003 and has been properly prepared in
accordance with IFRS.
I STATEMENTS OF INCOME
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Revenue 2 744,543 2,133,187 2,235,503
--------- ---------- -----------
Operating expenses
- Fuel (242,332) (537,758) (579,157)
- Repairs and maintenance (13,785) (20,730) (36,896)
- Depreciation and amortisation (242,280) (409,906) (414,923)
- Personnel expenses (51,779) (79,639) (127,021)
- Other operating expenses (59,769) (123,694) (81,780)
--------- ---------- -----------
Total operating expenses (609,945) (1,171,727) (1,239,777)
Operating profit 3 134,598 961,460 995,726
Net financing costs 4 (221,462) (344,084) (293,716)
--------- ---------- -----------
(Loss)/profit before taxation (86,864) 617,376 702,010
Taxation 5 7,014 (12,823) (899)
--------- ---------- -----------
Net (loss)/profit (79,850) 604,553 701,111
========= ========== ===========
II BALANCE SHEETS
31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Non-current assets
Property, plant and equipment, net 7 7,371,449 6,924,024 6,530,080
Long-term lease prepayments 8 179,747 170,207 160,667
Deferred tax assets 9 7,014 10,139 16,064
----------- ------------ ------------
7,558,210 7,104,370 6,706,811
----------- ------------ ------------
Current assets
Inventories 10 35,859 39,991 57,291
Trade receivables 11 150,433 426,262 415,538
Other receivables and prepayments 13,132 37,176 830
Cash and cash equivalents 12 366,057 311,889 167,581
----------- ------------ ------------
565,481 815,318 641,240
----------- ------------ ------------
Current liabilities
Accounts payables and
other liabilities 13 586,530 285,654 160,495
Taxes payable 5(c) 13,343 86,875 64,554
Staff welfare and bonus payable 4,092 2,218 6,492
Short-term loans 14(a) 52,000 52,000 52,000
Current portion of long-term
bank loans 14(b) 532,209 562,234 582,213
----------- ------------ ------------
1,188,174 988,981 865,754
----------- ------------ ------------
Net current liabilities (622,693) (173,663) (224,514)
----------- ------------ ------------
Total assets less current liabilities 6,935,517 6,930,707 6,482,297
----------- ------------ ------------
Non-current liabilities
Long-term bank loans 14(b) 4,677,305 4,227,840 3,645,458
Other long-term loans 14(c) 464,920 464,920 404,920
----------- ------------ ------------
5,142,225 4,692,760 4,050,378
----------- ------------ ------------
Net assets 1,793,292 2,237,947 2,431,919
=========== ============ ============
Owners' equity 1,793,292 2,237,947 2,431,919
=========== ============ ============
III STATEMENTS OF OWNERS' EQUITY
Total owners' equity
RMB'000
Balance as at 1 January 2001 1,838,941
Net loss for the year (79,850)
Contributions from owners 56,701
Transfer to long-term debts (note) (22,500)
-----------
Balance as at 31 December 2001 1,793,292
Net profit for the year 604,553
Contributions from owners 102
Dividends paid (160,000)
-----------
Balance as at 31 December 2002 2,237,947
Net profit for the year 701,111
Dividends paid (507,139)
-----------
Balance as at 31 December 2003 2,431,919
===========
Note: Pursuant to the approval obtained from the relevant government
authority, the registered capital of Hanfeng Power Plant was reduced
and an amount of RMB22,500,000 was transferred to long-term debts from
owners.
IV STATEMENTS OF CASH FLOWS
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash flows from operating activities (a) 53,358 820,617 1,135,016
Cash flows from investing activities
Capital expenditure (281,421) (302,974) (149,951)
Lease prepayments (186,027) -- --
Proceeds from disposal of property,
plant and equipment (note) -- 7,749 --
---------- ---------- ----------
Net cash used in investing activities (467,448) (295,225) (149,951)
---------- ---------- ----------
Cash flows from financing activities
Proceeds from loans and borrowings 689,869 52,000 52,000
---------- ---------- ----------
Repayments of loans and borrowings (20,000) (471,662) (674,234)
Payment of dividends -- (160,000) (507,139)
Cash contributions from owners 56,701 102 --
---------- ---------- ----------
Net cash from/(used in) financing activities 726,570 (579,560) (1,129,373)
========== ========== ==========
Net increase/(decrease) in cash
and cash equivalents 312,480 (54,168) (144,308)
Cash and cash equivalents at beginning of year 53,577 366,057 311,889
---------- ---------- ----------
Cash and cash equivalents at
end of year 366,057 311,889 167,581
========== ========== ==========
Note: Disposal of buildings in 2002 with a carrying amount of RMB57,510,000
represented disposal of staff quarters at cost. Deposit of RMB12,612,000 of
which was received before 2000, RMB7,749,000 of which was received in 2002.
In 2003, salaries and wages payable of RMB37,149,000 was withheld to settle
the remaining balance of the consideration of RMB37,149,000 due from staff.
(a) Reconciliation of (loss)/profit before taxation to cash flows
from operating activities
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
(Loss)/profit before taxation (86,864) 617,376 702,010
Adjustments for:
Depreciation 236,000 400,366 405,383
Amortisation of long-term lease prepayments 6,280 9,540 9,540
Interest income (988) (2,207) (2,462)
Interest expenses 221,642 343,502 293,579
Unrealised exchange (gains)/losses (508) 222 (169)
Losses on disposal of property, plant and equipment 101 7,960 1,094
Increase in inventories (35,859) (4,132) (17,300)
(Increase)/decrease in trade receivables (150,433) (275,829) 10,724
(Increase)/decrease in other receivables and prepayments (11,251) 13,105 36,346
Increase in accounts payables and other liabilities 37,395 13,289 19,990
Increase/(decrease) in taxes payable 13,343 57,584 (29,145)
Increase/(decrease) in staff welfare and bonus payable 4,092 (1,874) 4,274
---------- ---------- ----------
Cash generated from operations 232,950 1,178,902 1,433,864
Interest received 988 2,207 2,462
Interest paid (180,580) (360,492) (301,310)
---------- ---------- ----------
Cash flows from operating activities 53,358 820,617 1,135,016
========== ========== ==========
V NOTES TO THE FINANCIAL INFORMATION
1 Principal accounting policies
(a) Statement of compliance
The Financial Information has been prepared in accordance with IFRS
promulgated by the International Accounting Standards Board and the disclosure
requirements of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited.
IFRS includes International Accounting Standards ("IAS") and
Interpretations.
The measurement basis used in the preparation of the Financial Information
is historical cost.
The preparation of the Financial Information in accordance with IFRS
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accounting policies described below have been consistently applied by
Hanfeng Power Plant during the relevant period.
(b) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses (see note 1(d)). The cost of property, plant
and equipment constructed by Hanfeng Power Plant includes the cost of materials,
direct labour, directly attributable costs of bringing the asset to working
condition and location for its intended use, and the cost of borrowed funds used
during construction.
Subsequent expenditure is capitalised only when it increases the future
economic benefits embodied in the item of property, plant and equipment. All
other expenditure is recognised in the income statement as an expense as
incurred.
Depreciation is provided to write off the cost of property, plant and
equipment on a straight line basis over their respective estimated useful lives
of the assets. The rates of depreciation used are based on the following
estimated useful lives:
Buildings 8-20 years
Generators and related machinery and equipment 6-20 years
Motor vehicles, furniture, fixtures, equipment and others 4-18 years
(c) Construction in progress
Construction in progress is stated at cost less impairment losses (see note
1(d)). Cost comprises construction expenditure, including interest costs
incurred during the construction period, the cost of related equipment, direct
labour and other directly attributable costs.
Capitalisation of these costs ceases and the construction in progress is
transferred to property, plant and equipment when the asset is substantially
ready for its intended use. In respect of a generating unit, it is considered to
be substantially ready for its intended use when the trial run period ends.
(d) Impairment
The carrying amounts of property, plant and equipment, and construction in
progress are reviewed at each balance sheet date to determine whether there is
any indication of impairment. If any such indication exists, the asset's
recoverable amount is estimated. An impairment loss is recognised whenever the
carrying amount of an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income statement.
(i) Calculation of recoverable amount
The recoverable amount of an asset is the greater of its net selling
price and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money
and the risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined for
the cash-generating unit to which the asset belongs.
(ii) Reversal of impairment
An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation, if no impairment loss had been recognised.
(e) Long-term lease prepayments
Long-term lease prepayments represent fees for land use rights paid to the
PRC land bureau. Land use rights are carried at cost and amortised on a
straight-line basis over Hanfeng Power Plant's operating period of 25 years.
(f) Inventories
Inventories, comprising coal, fuel oil, materials, components and spare
parts for consumption by Hanfeng Power Plant, are stated at cost, less provision
for obsolescence. Cost includes cost of purchase and, where applicable,
transportation cost and handling fee. The cost of inventories is calculated on
the weighted average basis.
(g) Trade and other receivables
Trade and other receivables are stated at their cost less allowance for any
amounts expected to be irrecoverable. An allowance is provided for based upon
the evaluation of the recoverability of these accounts at the balance sheet
date.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, demand
deposits with banks and other financial institutions, and short term, highly
liquid investments that are readily convertible into known amounts of cash,
which are subject to an insignificant risk of changes in value, and maturing
within three months at acquisition.
(i) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at cost, less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over
the period of the borrowings on an effective interest basis.
(j) Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing or amount
when Hanfeng Power Plant has a legal or constructive obligation arising as a
result of a past event, it is probable that an outflow of economic benefits will
be required to settle the obligation and a reliable estimate can be made. Where
the time value of money is material, provisions are stated at the present value
of the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be
required, or the amount cannot be estimated reliably, the obligation is
disclosed as a contingent liability, unless the probability of outflow of
economic benefits is remote. Possible obligations, whose existence will only be
confirmed by the occurrence or non-occurrence of one or more future events are
also disclosed as contingent liabilities unless the probability of outflow of
economic benefits is remote.
(k) Revenue recognition
Electricity income is recognised when electricity is supplied to the
provincial power grid company.
(l) Major overhauls, repairs and maintenance
Expenditure on major overhauls, repairs and maintenance is charged to the
income statement as it is incurred.
(m) Borrowing costs
Borrowing costs are expensed in the period in which they are incurred,
except to the extent that they are capitalised as being directly attributable to
the construction of an asset which necessarily takes a substantial period of
time to get ready for its intended use.
(n) Translation of foreign currencies
Foreign currency transactions are translated into Renminbi yuan at the
rates of exchange ruling at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies are translated into Renminbi yuan
at the rates ruling at the balance sheet date. Foreign currency translation
differences relating to the funds borrowed to finance construction in progress,
to the extent that they are regarded as an adjustment to interest costs, are
capitalised during the construction period. All other exchange differences are
dealt with in the income statement.
(o) Taxation
Income tax on the profit or loss comprises current and deferred tax. Income
tax is recognised in the income statement except to the extent that it relates
to items recognised directly in equity, in which case it is recognised in
equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantially enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided, using the balance sheet liability method, in
respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation
purposes. The temporary differences arising from the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit are not
provided. The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
(p) Retirement plan
Hanfeng Power Plant is required to make contributions to a retirement plan
operated by the State at a rate of 20% of the staff salaries during the relevant
period. A member of the plan is entitled to receive from the State a pension
equal to a fixed proportion of his or her salary prevailing at the retirement
date. In addition, Hanfeng Power Plant participates in a defined contribution
retirement plan, which is also operated by the State, and makes contributions to
this plan at RMB6/per month/per staff times the number of years of service with
Hanfeng Power Plant to supplement the above-mentioned plan. Hanfeng Power Plant
has no obligation to make payments in respect of pension benefits associated
with these plans other than the annual contributions described above.
(q) Related parties
For the purposes of the Financial Information, parties are considered to be
related to Hanfeng Power Plant if Hanfeng Power Plant has the ability, directly
or indirectly, to control the party or exercise significant influence over the
party in making financial and operating decisions, or vice versa, or where
Hanfeng Power Plant and the party are subject to common control or common
significant influence.
(r) Dividends
Dividends are recognised as a liability in the period in which they are
declared.
(s) Segment reporting
A business segment is a distinguishable component of Hanfeng Power Plant
that is engaged in providing products or services and is subject to risks and
rewards that are different from those of other segments. For the periods
presented, Hanfeng Power Plant has one operating segment, which is the
generation and sale of electricity. All the operating activities of Hanfeng
Power Plant are carried out in the PRC.
2 Revenue
Revenue represents the sale of electricity by Hanfeng Power Plant to
provincial power grid company, Hebei Power, net of value added tax ("VAT").
3
Operating profit
Operating profit is arrived at after charging:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Depreciation of property, plant and equipment 236,000 400,366 405,383
Amortisation of long-term lease prepayments 6,280 9,540 9,540
Cost of inventories 280,091 594,571 644,840
Contribution to retirement plans 6,819 10,699 11,713
Auditors' remuneration 340 277 387
========= ======== ========
4 Net financing costs
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Interest on bank loans and other borrowings
repayable within five years 321,757 312,373 264,523
Interest on other loans 30,879 31,129 29,056
Less: Interest expenses capitalised (130,994) -- --
-------- -------- --------
Net interest expense 221,642 343,502 293,579
Interest income (988) (2,207) (2,462)
Exchange losses 135 727 506
Others 673 2,062 2,093
-------- -------- --------
221,462 344,084 293,716
======== ======== ========
Interest rate per annum at which borrowing costs
were capitalised for construction in progress 6.34% -- --
======== ======== ========
5 Taxation
(a) Taxation in the statements of income comprises:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Provision for PRC income tax -- (15,948) (22,772)
Deferred taxation (note 9) 7,014 3,125 5,925
------- ------- -------
7,014 (12,823) (16,847)
Tax exempted in relation to PRC income tax
provided in prior year -- -- 15,948
------- ------- -------
Tax credit/(expense) 7,014 (12,823) (899)
======= ======= =======
According to the notice Guo Shui Han [2001] 171 issued by the State
Administration of Taxation, the applicable PRC income tax rate applicable to
Hanfeng Power Plant is 15%. Further, according to the approval obtained from the
state tax bureau of Hebei Province, Hanfeng Power Plant is exempted from PRC
income tax for two years starting from the first profit-making year, after
deduction of accumulated tax losses brought forward, followed by a 50% reduction
of the applicable tax rate for the next three years. The first profit-making
year of Hanfeng Power Plant is 2002.
In addition, Hanfeng Power Plant is subject to local income tax at a rate
of 3%.
No provision for PRC income tax in 2001 has been made as there was no
assessable profits in that year. In 2002 and 2003, the provision for PRC income
tax has been made at a rate of 3%. According to the approval obtained from the
state and local tax bureaux of Hebei Province on 19 June 2003, the local income
tax of 2002 was exempted, which was adjusted in 2003 accordingly. It is
uncertain whether such exemption will be available for 2003 or subsequent years.
(b) Reconciliation of effective tax rate:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
(Loss)/profit before taxation (86,864) 617,376 702,010
------- ------- -------
Expected PRC income tax expense at applicable tax rates -- (18,522) (21,060)
Effect of tax losses 3,025 (3,025) --
Others 3,989 8,724 4,213
------- ------- -------
7,014 (12,823) (16,847)
======= ======= =======
(c) Taxes payable in the balance sheets represents:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Provision for PRC income tax for the year -- 15,948 22,772
------ ------ ------
Taxes payable other than PRC income tax 13,343 70,927 41,782
13,343 86,875 64,554
====== ====== ======
Taxes payable other than PRC income tax
mainly represent VAT payable.
6 Emoluments of directors and senior management
(a) Directors' emoluments
Details of emoluments paid to directors are as follows:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Salaries, allowances and benefits in kind 400 1,334 876
Retirement benefits 63 81 70
----- ----- -----
463 1,415 946
===== ===== =====
(b) Senior management's emoluments
Details of emoluments paid to the five highest paid individuals are as
follows:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Salaries, allowances and benefits in kind 621 2,032 1,601
Retirement benefits 109 175 157
----- ----- -----
730 2,207 1,758
===== ===== =====
An analysis of emoluments paid to the five highest paid individuals by
number of individuals and emoluments range is as follows:
Years ended 31 December
2001 2002 2003
RMB Nil -- RMB1,000,000 5 5 5
====== ====== ======
There was no arrangement under which an employee waived any remuneration
during the relevant period.
7 Property, plant and equipment, net
motors
Generators vehicles,
and related furnitures,
Machinery fixtures
and equipment Construction
Buildings Equipment and others in progress Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Cost:
Balance at 1 January 2001 -- -- 2,825 7,060,531 7,063,356
Additions -- 710 6,834 536,650 544,194
Transferred from construction
in progress 1,812,907 5,725,769 58,505 (7,597,181) --
Disposals -- -- (101) -- (101)
---------- ---------- ---------- ---------- ----------
Balance at 31 December 2001 1,812,907 5,726,479 68,063 -- 7,607,449
---------- ---------- ---------- ---------- ----------
Accumulated depreciation:
Charge for the year (63,706) (6,084) -- (236,000)
---------- ---------- ---------- ---------- ----------
Balance at 31 December 2001 (63,706) (166,210) (6,084) -- (236,000)
---------- ---------- ---------- ---------- ----------
Net book value at
31 December 2001 1,749,201 5,560,269 61,979 -- 7,371,449
========== ========== ========== ========== ==========
motors
Generators vehicles,
and related furnitures,
Machinery fixtures
and equipment
Buildings Equipment and others Total
RMB'000 RMB'000 RMB'000 RMB'000
Cost:
Balance at 1 January 2002 1,812,907 5,726,479 68,063 7,607,449
Additions -- 11,217 7,194 18,411
Disposals (57,510) -- (7,960) (65,470)
---------- ---------- ---------- ----------
Balance at 31 December 2002 1,755,397 5,737,696 67,297 7,560,390
---------- ---------- ---------- ----------
Accumulated depreciation:
Balance at 1 January 2002 (63,706) (166,210) (6,084) (236,000)
Charge for the year (88,490) (303,262) (8,614) (400,366)
---------- ---------- ---------- ----------
Balance at 31 December 2002 (152,196) (469,472) (14,698) (636,366)
---------- ---------- ---------- ----------
Net book value at 31 December 2002 1,603,201 5,268,224 52,599 6,924,024
========== ========== ========== ==========
Cost:
Balance at 1 January 2003 1,755,397 5,737,696 67,297 7,560,390
---------- ---------- ---------- ----------
Additions -- 6,643 5,890 12,533
Disposals -- -- (1,957) (1,957)
---------- ---------- ---------- ----------
Balance at 31 December 2003 1,755,397 5,744,339 71,230 7,570,966
---------- ---------- ---------- ----------
Accumulated depreciation:
Balance at 1 January 2003 (152,196) (469,472) (14,698) (636,366)
Charge for the year (88,490) (307,280) (9,613) (405,383)
Reversal upon disposal -- -- 863 863
---------- ---------- ---------- ----------
Balance at 31 December 2003 (240,686) (776,752) (23,448) (1,040,886)
---------- ---------- ---------- ----------
Net book value at 31 December 2003 1,514,711 4,967,587 47,782 6,530,080
========== ========== ========== ==========
All of Henfeng Power Plant's buildings are located in the PRC.
8 Long-term lease prepayments
Long-term lease prepayments represent fees for land use rights paid to the
PRC land bureau. It is amortised over Hanfeng Power Plant's operating period of
25 years.
Long-term lease prepayments with carrying amount of RMB91 million, RMB86
million and RMB81 million as at 31 December 2001, 2002 and 2003, respectively
was pledged to secure certain bank loans (note 14).
9 Deferred tax assets
Deferred tax assets are attributable to the items set out below:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Training fee and pre-operating expenses 3,989 3,989 3,989
Property, plant and equipment -- 6,150 12,075
Tax losses 3,025 -- --
------ ------ ------
Deferred tax assets 7,014 10,139 16,064
====== ====== ======
Movements in temporary differences for the three years ended 31 December 2001,
2002 and 2003 are as follows:
Balance at Recognised in Balance at
1 January statement of 31 December
2001 income 2001
RMB'000 RMB'000 RMB'000
Training fee and pre-operating expenses -- 3,989 3,989
Tax losses -- 3,025 3,025
-------- ------- ------
Deferred tax assets -- 7,014 7,014
======== ======= ======
note 5(a))
Balance at Recognised in Balance at
1 January statement of 31 December
2002 income 2002
RMB'000 RMB'000 RMB'000
Training fee and pre-operating expenses 3,989 -- 3,989
Property, plant and equipment -- 6,150 6,150
Tax losses 3,025 (3,025) --
-------- -------- -------
Deferred tax assets 7,014 3,125 10,139
======== ======== =======
(note 5(a))
Balance at Recognised in Balance at
1 January statement of 31 December
2003 income 2003
RMB'000 RMB'000 RMB'000
Training fee and pre-operating expenses 3,989 -- 3,989
Property, plant and equipment 6,150 5,925 12,075
-------- -------- -------
Deferred tax assets 10,139 5,925 16,064
======== ======== =======
(note 5(a))
10 Inventories
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Coal 14,713 15,525 23,131
Fuel oil 9,407 5,787 3,669
Materials, components
and spare parts 11,739 18,679 30,491
-------- -------- -------
35,859 39,991 57,291
======== ======== =======
11 Trade receivables
The balance of trade receivables as at 31 December 2001, 2002 and 2003
was due from Hebei Power and was current. Hanfeng Power Plant usually grants
one month credit period to Hebei Power from the end of the month in which the
sales are made.
12 Cash and cash equivalents
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash at bank and in hand 250,185 311,889 167,581
Time deposits with maturity within 3 months 115,872 -- --
-------- -------- --------
366,057 311,889 167,581
======== ======== =======
13 Accounts payables and other liabilities
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Accounts payables 42,525 40,532 58,540
Payables for construction projects 463,915 179,352 41,934
Other payables 80,090 65,770 60,021
-------- -------- --------
586,530 285,654 160,495
======== ======== =======
Ageing analysis of accounts payables is as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Due within 1 month or on demand 36,299 35,865 55,610
Due after 1 month but within 3 months 6,226 4,667 2,930
-------- -------- --------
42,525 40,532 58,540
======== ======== =======
14 Interest bearing loans and borrowings
The following provides information about the contractual terms of Hanfeng
Power Plant's interest bearing loans and borrowings:
(a) Short-term loans
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Loan from Hebei Investment 20,000 20,000 20,000
Loan from Hebei Power 32,000 32,000 32,000
-------- -------- --------
Total 52,000 52,000 52,000
======== ======== =======
The weighted average interest rate of the short-term debts was 5.85%,
5.31% and 4.78% as at 31 December 2001, 2002 and 2003, respectively.
(b) Long-term bank loans
31 December
Interest rate and final maturity 2001 2002 2003
RMB'000 RMB'000 RMB'000
Bank loans - Renminbi denominated Floating interest rate at 5.18% per
annum as at 31 December 2003 with
maturities through 2012 2,409,000 2,169,000 1,899,000
Bank loans: US dollars denominated Fixed interest rate at 7.30% per
annum with maturities through 2013 2,121,672 1,993,150 1,793,467
Bank loans: US dollars denominated Floating interest rate at 2.47% per
annum as at 31 December 2003 with
maturities through 2009 678,842 627,924 535,204
Total long-term bank loans 5,209,514 4,790,074 4,227,671
Less: current portion (532,209) (562,234) (582,213)
--------- --------- ---------
Non-current portion 4,677,305 4,227,840 3,645,458
========= ========= =========
Certain long-term bank loans were secured over Hanfeng Power Plant's
long-term lease prepayments with a carrying amount of RMB91 million, RMB86
million and RMB81 million as at 31 December 2001, 2002 and 2003, respectively.
(c) Other long-term loans
31 December
Interest rate and final maturity 2001 2002 2003
RMB'000 RMB'000 RMB'000
Hebei Investment Floating interest rate at 5.76% per
annum as at 31 December 2003 with
maturities through 2010 449,920 449,920 389,920
Hebei Power Floating interest rate at 5.76% per
annum as at 31 December 2003 with
maturity through 2005 15,000 15,000 15,000
--------- --------- ---------
464,920 464,920 404,920
========= ========= =========
The aggregate maturities of Hanfeng Power Plant's long-term bank loans
and other long-term loans subsequent to 31 December 2003 are as follows:
RMB'000
2004 582,213
2005 617,213
2006 613,713
2007 652,213
2008 659,813
Thereafter 1,507,426
---------
Total 4,632,591
=========
15 Concentration of risks
(a) Credit and concentration risk
The carrying amounts of cash and cash equivalents, trade receivables,
other receivables and prepayments represent Hanfeng Power Plant's maximum
exposure to credit risk in relation to financial assets. Hanfeng Power Plant
sells the electricity generated to its sole customer, Heibei Power.
Substantially all of Hanfeng Power Plant's cash and cash equivalents
are deposited with the four largest state-owned banks of the PRC.
Hanfeng Power Plant does not have concentrations of available
sources of labour, services, franchises, licenses or other rights that could,
if suddenly eliminated, severely impact their operations.
(b) Interest rate risk
The interest rates and terms of repayment of the outstanding loans
and borrowings of Hanfeng Power Plant are disclosed in note 14.
(c) Currency risk
Hanfeng Power Plant has foreign currency risk as a portion of its
interest-bearing loans and borrowings are denominated in foreign currency,
principally in US dollars, as described in note 14. Fluctuation of exchange
rates of Renminbi against US dollars could affect Hanfeng Power Plant's results
of operations.
16 Related party transactions
The principal related party transactions with related parties, which
were carried out in the ordinary course of business, are as follows:
Years ended 31 December
Transaction Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Interests on loans a 30,879 31,129 26,649
Sale of electricity b 744,543 2,133,187 --
Notes:
(a) This represents interest incurred on loans from Hebei Investment
and Hebei Power. Details of loans from Hebei Investment and
Hebei Power are disclosed in note 14.
(b) This represents sale of electricity by Hanfeng Power Plant to
Hebei Power. Pursuant to the restructuring of the power industry
in the PRC, Hebei Power transferred all its equity interest in
Hanfeng Power Plant to Huaneng Group in January 2003, and
therefore, Hebei Power is no longer a related party of Hanfeng
Power Plant from January 2003.
17 Fair values of financial instruments
Financial assets of Hanfeng Power Plant include cash and cash
equivalents, trade receivables, and other receivables and prepayments.
Financial liabilities of Hanfeng Power Plant include interest-bearing loans and
borrowings, accounts payables and other liabilities, taxes payable and staff
welfare and bonus payables. Hanfeng Power Plant does not hold nor issue
financial instruments for trading purposes.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of IAS 32 and IAS 39.
Fair value estimates, methods and assumptions, set forth below for Hanfeng
Power Plant's financial instruments, are made to comply with the requirements
of IAS 32 and IAS 39, and should be read in conjunction with the Financial
Information. The estimated fair value amounts have been determined by Hanfeng
Power Plant using market information and valuation methodologies considered
appropriate. However, considerable judgment is required to interpret market
data to develop the estimates of fair values. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts Hanfeng Power
Plant could realise in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The following summarises the major methods and assumptions used in
estimating the fair values of Hangfeng Power Plant's financial instruments.
The carrying amounts of cash and cash equivalents, trade receivables,
other receivables and prepayments, short-term interest-bearing loans and
borrowings, accounts payables and other liabilities, taxes payable and staff
welfare and bonus payable approximate to fair value due to the short-term
maturity of these instruments.
The estimated fair value of long-term debts, including current portion of
long-term debts, was RMB2,591 million, RMB2,384 million and RMB2,170 million as
at 31 December 2001, 2002 and 2003, respectively. The fair value of long-term
debt is determined by discounting the stream of future payments of interest and
principal at the interest rates available to Hanfeng Power Plant for similar
indebtedness. The book value of these long-term debts was RMB2,121 million,
RMB1,993 million and RMB1,793 million as at 31 December 2001, 2002 and 2003,
respectively.
18 Distributable reserve
The distributable reserve of Hanfeng Power Plant as at 31 December 2003
was RMB446 million, before taking into account 2003 final dividend (note 19),
which was determined under the applicable PRC accounting rules and regulations.
19 Post balance sheet event
Pursuant to a resolution passed at the directors' meeting held on 20
April 2004, a final dividend of RMB445,966,265 will be payable to owners in
accordance with their respective percentage of equity interest in Hanfeng Power
Plant.
VI SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Hanfeng Power Plant
in respect of any period subsequent to 31 December 2003.
Yours faithfully
KPMG
Certified Public Accountants
Hong Kong, China
-------------------------------------------------------------------------------
APPENDIX II ACCOUNTANTS' REPORT OF JINGGANGSHAN POWER PLANT
-------------------------------------------------------------------------------
The following is the text of a report, prepared for the purpose of
inclusion in this circular, received from the independent reporting
accountants, KPMG, Certified Public Accountants, Hong Kong. As described in the
section headed "Documents for inspection" in Appendix X, a copy of the
following accountants' report is available for inspection.
KPMG LOGO omitted 8th Floor
Prince's Building
10 Chater Road
Hong Kong
The Directors
Huaneng Power International, Inc.
29 April 2004
Dear Sirs,
INTRODUCTION
We set out below our report on the financial information relating to
Jinggangshan Huaneng Power Generation Limited Liability Company ("Jinggangshan
Power Plant") in Sections I to VII below (the "Financial Information"),
including the balance sheets of Jinggangshan Power Plant as at 31 December
2001, 2002 and 2003, the statements of income, owners' equity and cash flows of
Jinggangshan Power Plant for each of the years in the three-year period ended
31 December 2003 (the "relevant period"), for inclusion in the shareholders'
circular of Huaneng Power International, Inc. ("the Company") dated 29 April
2004 (the "Circular").
Jinggangshan Power Plant was established by China Huaneng Group ("Huaneng
Group"), Huazhong Power Group Company ("Huazhong Power"), Jiangxi Province
Power Company ("Jiangxi Power") and Jiangxi Province Investment Corporation
("Jiangxi Investment") in Jiangxi Province, the People's Republic of China (the
"PRC") as a limited liability company in March 1996. The equity interest of
Jinggangshan Power Plant was 45% owned by Huaneng Group, 35% owned by Huazhong
Power, 5% owned by Jiangxi Power and 15% owned by Jiangxi Investment on the
date of establishment. After a series of equity interest transfers,
Jinggangshan Power Plant was 60% owned by Huaneng Group, 30% owned by Jiangxi
Power and 10% owned by Jiangxi Investment in December 1998. Pursuant to the
restructuring plan of the power industry in the PRC, the 30% equity interest in
Jinggangshan Power Plant owned by Jiangxi Power was allocated to Huaneng Group
in January 2003. Jinggangshan Power Plant owns and operates two coal-fired
generating units with installed capacity of 300 MW each. The two generating
units commenced commercial operation in December 2000 and August 2001
respectively.
The statutory financial statements of Jinggangshan Power Plant were
prepared in accordance with the applicable PRC accounting rules and regulations
which have been audited by Huajian Certified Public Accountants Company Limited
("") during the relevant period.
Pursuant to the transfer agreement entered into between the Company and
Huaneng Group on 16 April 2004, as described more fully in the section headed
"Transfer Agreements" in the letter from the Board contained in the Circular,
the Company will acquire from Huaneng Group of its 90% equity interest in
Jinggangshan Power Plant. In addition, the Company will acquire from Jiangxi
Investment of its 10% equity interest in Jinggangshan Power Plant.
BASIS OF PREPARATION
The Financial Information has been prepared by the management of
Jinggangshan Power Plant based on the statutory financial statements of
Jinggangshan Power Plant to conform with International Financial Reporting
Standards ("IFRS") promulgated by the International Accounting Standards Board.
IFRS includes International Accounting Standards and interpretations.
RESPONSIBILITY
The preparation of the Financial Information, which gives a true and fair
view, is the responsibility of Jinggangshan Power Plant's management. In
preparing the Financial Information which gives a true and fair view, it is
fundamental that appropriate accounting policies are selected and applied
consistently, that judgements and estimates are made which are prudent and
reasonable and that the reasons for any significant departure from applicable
accounting standards are stated.
It is our responsibility to form an independent opinion, based on our
audit, on the Financial Information.
BASIS OF OPINION
For the purpose of this report we have audited the Financial Information
of Jinggangshan Power Plant for the relevant period and carried out such
procedures as we considered necessary in accordance with the Auditing Guideline
"Prospectuses and the Reporting Accountant" issued by the Hong Kong Society of
Accountants ("HKSA"). We have not audited any financial statements of
Jinggangshan Power Plant in respect of any period subsequent to 31 December
2003.
We conducted our audit in accordance with Statements of Auditing
Standards issued by HKSA. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the Financial Information.
It also includes an assessment of the significant estimates and judgements made
by management in the preparation of the Financial Information, and of whether
the accounting policies are appropriate to Jinggangshan Power Plant's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the Financial
Information is free from material misstatement. In forming our opinion, we also
evaluated the overall adequacy of the presentation of the Financial
Information. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion, the Financial Information, for the purpose of this report
and on the basis stated above, gives a true and fair view of the state of
affairs of Jinggangshan Power Plant as at 31 December 2001, 2002 and 2003 and
of the results and cash flows of Jinggangshan Power Plant for each of the years
in the three-year period ended 31 December 2003 and has been properly prepared
in accordance with IFRS.
I STATEMENTS OF INCOME
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Revenue 2 269,022 586,599 820,152
....... ....... ........
Operating expenses
- Fuel (121,785) (267,651) (383,744)
- Repairs and maintenance (4,315) (16,347) (24,148)
- Depreciation (112,177) (157,004) (157,968)
- Personnel expenses (10,145) (13,754) (18,450)
- Losses on disposal of assets 3 -- (61,972) --
- Other operating expenses (24,518) (40,363) (48,283)
-------- -------- --------
Total operating expenses (272,940) (557,091) (632,593)
........ ........ ........
-------- -------- --------
Operating (loss)/profit 4 (3,918) 29,508 187,559
Net financing costs 5 (79,553) (103,409) (93,396)
(Loss)/profit before taxation (83,471) (73,901) 94,163
Taxation 6 25,385 3,666 (33,308)
-------- -------- --------
Net (loss)/profit (58,086) (70,235) 60,855
======== ======== ========
II BALANCE SHEETS
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Non-current assets
Property, plant and equipment, net 8 2,233,287 2,074,093 1,923,456
Long-term investment 500 500 500
Deferred tax assets 9 35,876 39,542 --
--------- --------- ---------
2,269,663 2,114,135 1,923,956
......... ......... .........
Current assets
Inventories 10 22,326 41,167 38,015
Trade receivables 11 55,760 89,440 142,294
Other receivables and prepayments 9,151 16,777 16,819
Cash and cash equivalents 12 218,562 50,742 58,121
--------- --------- ---------
305,799 198,126 255,249
......... ......... .........
Current liabilities
Accounts payables and
other liabilities 13 311,096 125,399 40,591
Taxes payable 6(c) 10,978 32,747 55,774
Amount due to Huaneng Group 14 -- -- 6,000
Staff welfare and bonus payable 52,683 53,070 55,505
Short-term loans 15(a) -- 300,000 320,000
Current portion of long-term
loans from Huaneng Group 15(b) 400,000 -- --
Current portion of long-term
bank loans 15(c) 132,053 154,288 164,975
--------- --------- ---------
906,810 665,504 642,845
......... ......... .........
--------- --------- ---------
Net current liabilities (601,011) (467,378) (387,596)
......... ......... .........
--------- --------- ---------
Total assets less current liabilities 1,668,652 1,646,757 1,536,360
--------- --------- ---------
Non-current liabilities
Long-term bank loans 15(c) 1,241,000 1,286,000 1,123,000
......... ......... .........
--------- --------- ---------
Net assets 427,652 360,757 413,360
========= ========= =========
Owners' equity 427,652 360,757 413,360
========= ========= =========
III STATEMENTS OF OWNERS' EQUITY
Total owners'equity
Note RMB'000
Balance as at 1 January 2001 449,038
Net loss for the year (58,086)
Contributions from owners 36,700
Balance as at 31 December 2001 427,652
Net loss for the year (70,235)
Contributions from owners 3,340
--------
Balance as at 31 December 2002 360,757
Net profit for the year 60,855
Deferred tax assets eliminated 9 (8,252)
--------
Balance as at 31 December 2003 413,360
========
IV STATEMENTS OF CASH FLOWS
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash flows from operating activities (a) (51,884) 130,751 211,663
......... ........ ........
Cash flows from investing activities
Capital expenditure (294,588) (273,976) (72,189)
Proceeds from disposal of property,
plant and equipment -- 4,830 218
--------- -------- --------
Net cash used in investing activities (294,588) (269,146) (71,971)
......... ........ ........
Cash flows from financing activities
Proceeds from capital contribution 36,700 3,340 --
Proceeds from loans and borrowings 174,053 502,288 321,975
Repayments of loans and borrowings (102,931) (535,053) (454,288)
--------- -------- --------
Net cash from/(used in)
financing activities 107,822 (29,425) (132,313)
......... ........ ........
--------- -------- --------
Net (decrease)/increase in cash
and cash equivalents (238,650) (167,820) 7,379
Cash and cash equivalents at
beginning of year 457,212 218,562 50,742
--------- -------- --------
Cash and cash equivalents at
end of year 218,562 50,742 58,121
========= ======== ========
(a) Reconciliation of (loss)/profit before taxation to cash flows from
operating activities
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
(Loss)/profit before taxation (83,471) (73,901) 94,163
Adjustments for:
Depreciation 112,177 157,004 157,968
Interest income (4,408) (1,199) (562)
Interest expenses 83,961 104,604 93,920
Losses on disposal of property,
plant and equipment -- 61,972 609
(Increase)/decrease in inventories (22,197) (18,841) 3,152
Increase in trade receivables (50,535) (33,680) (52,854)
Decrease/(increase) in other
receivables and prepayments 49,640 (7,626) (42)
(Decrease)/increase in accounts
payables and other liabilities (83,027) 23,667 (20,777)
Increase in taxes payable 11,078 21,769 21,009
Increase in amount due to Huaneng Group -- -- 6,000
Increase in staff welfare and
bonus payable 52,127 387 2,435
-------- -------- -------
Cash generated from operations 65,345 234,156 305,021
Interest received 4,408 1,199 562
Interest paid (121,637) (104,604) (93,920)
-------- -------- -------
Cash flows from operating activities (51,884) 130,751 211,663
======== ======== =======
V NOTES TO THE FINANCIAL INFORMATION
1 Principal accounting policies
(a) Statement of compliance
The Financial Information has been prepared in accordance with
IFRS promulgated by the International Accounting Standards Board and
the disclosure requirements of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited.
IFRS includes International Accounting Standards ("IAS") and
Interpretations.
The measurement basis used in the preparation of the Financial
Information is historical cost.
The preparation of the Financial Information in accordance with
IFRS requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
The accounting policies described below have been consistently
applied by Jinggangshan Power Plant during the relevant period.
(b) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses (see note 1(d)). The
cost of property, plant and equipment constructed by Jinggangshan
Power Plant includes the cost of materials, direct labour, directly
attributable costs of bringing the asset to working condition and
location for its intended use, and the cost of borrowed funds used
during construction.
Subsequent expenditure is capitalised only when it increases the
future economic benefits embodied in the item of property, plant and
equipment. All other expenditure is recognised in the income statement
as an expense as incurred.
Depreciation is provided to write off the cost of property,
plant and equipment on a straight line basis over their respective
estimated useful lives of the assets. The rates of depreciation used
are based on the following estimated useful lives:
Buildings 22-28 years
Generators and related machinery and equipment 8-14 years
Motor vehicles, furniture, fixtures, equipment
and others 5-8 years
(c) Construction in progress
Construction in progress is stated at cost less impairment
losses (see note 1(d)). Cost comprises construction expenditure,
including interest costs incurred during the construction period, the
cost of related equipment, direct labour and other directly
attributable costs.
Capitalisation of these costs ceases and the construction in
progress is transferred to property, plant and equipment when the
asset is substantially ready for its intended use. In respect of a
generating unit, it is considered to be substantially ready for its
intended use when the trial run period ends.
(d) Impairment
The carrying amounts of property, plant and equipment, and
construction in progress are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such
indication exists, the asset's recoverable amount is estimated. An
impairment loss is recognised whenever the carrying amount of an asset
or its cash-generating unit exceeds its recoverable amount. Impairment
losses are recognised in the income statement.
(i) Calculation of recoverable amount
The recoverable amount of an asset is the greater of its net
selling price and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. For an
asset that does not generate largely independent cash inflows, the
recoverable amount is determined for the cash-generating unit to which
the asset belongs.
(ii) Reversal of impairment
An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation, if no impairment
loss had been recognised.
(e) Inventories
Inventories, comprising coal, fuel oil, materials,
components and spare parts for consumption by Jinggangshan Power
Plant, are stated at cost, less provision for obsolescence. Cost
includes cost of purchase and, where applicable, transportation
cost and handling fee. The cost of inventories is calculated on
the weighted average basis.
(f) Trade and other receivables
Trade and other receivables are stated at their cost less
allowance for any amounts expected to be irrecoverable. An
allowance is provided for based upon the evaluation of the
recoverability of these accounts at the balance sheet date.
(g) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand,
demand deposits with banks and other financial institutions, and
short term, highly liquid investments that are readily convertible
into known amounts of cash, which are subject to an insignificant
risk of changes in value, and maturing within three months at
acquisition.
(h) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at
cost, less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost with any difference between cost and redemption value being
recognised in the income statement over the period of the
borrowings on an effective interest basis.
(i) Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain
timing or amount when Jinggangshan Power Plant has a legal or
constructive obligation arising as a result of a past event, it is
probable that an outflow of economic benefits will be required to
settle the obligation and a reliable estimate can be made. Where
the time value of money is material, provisions are stated at the
present value of the expenditures expected to settle the
obligation.
Where it is not probable that an outflow of economic
benefits will be required, or the amount cannot be estimated
reliably, the obligation is disclosed as a contingent liability,
unless the probability of outflow of economic benefits is remote.
Possible obligations, whose existence will only be confirmed by
the occurrence or non-occurrence of one or more future events are
also disclosed as contingent liabilities unless the probability of
outflow of economic benefits is remote.
(j) Revenue recognition
Electricity income is recognised when electricity is
supplied to the provincial power grid company.
(k) Major overhauls, repairs and maintenance
Expenditure on major overhauls, repairs and maintenance is
charged to the income statement as it is incurred.
(l) Borrowing costs
Borrowing costs are expensed in the period in which they are
incurred, except to the extent that they are capitalised as being
directly attributable to the construction of an asset which
necessarily takes a substantial period of time to get ready for
its intended use.
(m) Taxation
Income tax on the profit or loss comprises current and
deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or substantially
enacted at the balance sheet date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is provided, using the balance sheet liability
method, in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The temporary
differences arising from the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit are
not provided. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or
substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that
it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets are
reduced to the extent that it is no longer probable that the
related tax benefit will be realised.
(n) Retirement plan
Jinggangshan Power Plant is required to make contributions
to a retirement plan operated by the State at a rate of 21% of the
staff salaries during the relevant period. A member of the plan is
entitled to receive from the State a pension equal to a fixed
proportion of his or her salary prevailing at the retirement date.
In addition, Jinggangshan Power Plant participates in a defined
contribution retirement plan, which is also operated by the State,
and makes contributions to this plan at a rate of 10% of previous
year's staff salaries, to supplement the above-mentioned plan.
Jinggangshan Power Plant has no obligation to make payments in
respect of pension benefits associated with these plans other than
the annual contributions described above.
(o) Related parties
For the purposes of the Financial Information, parties are
considered to be related to Jinggangshan Power Plant if
Jinggangshan Power Plant has the ability, directly or indirectly,
to control the party or exercise significant influence over the
party in making financial and operating decisions, or vice versa,
or where Jinggangshan Power Plant and the party are subject to
common control or common significant influence.
(p) Dividends
Dividends are recognised as a liability in the period in
which they are declared.
(q) Segment reporting
A business segment is a distinguishable component of
Jinggangshan Power Plant that is engaged in providing products or
services and is subject to risks and rewards that are different
from those of other segments. For the periods presented,
Jinggangshan Power Plant has one operating segment, which is the
generation and sale of electricity. All the operating activities
of Jinggangshan Power Plant are carried out in the PRC.
2 Revenue
Revenue represents the sale of electricity by Jinggangshan Power Plant
to Jiangxi Power, net of value added tax ("VAT").
3 Losses on disposal of assets
Losses on disposal of assets represent loss on allocation of quarters
to the staff at nominal consideration amounting to RMB19,839,000 and loss
on disposal of construction in progress amounting to RMB42,133,000 in
relation to donation of a property to the local government at nil
consideration.
4 Operating (loss)/profit
Operating (loss)/profit is arrived at after charging:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Depreciation of property, plant and equipment 112,177 157,004 157,968
Cost of inventories 129,602 278,806 402,026
Contribution to retirement plans 636 1,344 1,657
Auditors' remuneration 100 100 80
======= ======= =======
5 Net financing costs
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Interest on bank loans and other
borrowings repayable within five years 93,692 96,310 93,920
Interest on other loans 27,945 8,294 --
Less: Interest expenses capitalised (37,676) -- --
--------- -------- --------
Net interest expense 83,961 104,604 93,920
Interest income (4,408) (1,199) (562)
Others d -- 4 38
--------- -------- --------
79,553 103,409 93,396
========= ======== ========
Interest rate per annum at which borrowing
costs were capitalised for construction
in progress 6.16% -- --
========= ======== ========
6 Taxation
(a) Taxation in the statements of income comprises:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Provision for PRC income tax -- -- (2,018)
Deferred taxation (note 9) 25,385 3,666 (31,290)
- ------ ----- -------
Tax credit/(expense) 25,385 3,666 (33,308)
====== ===== =======
The applicable statutory PRC income tax rate of Jinggangshan Power
Plant is 33%.
The provision for PRC income tax in 2003 is calculated based on the
estimated assessable profits at the applicable tax rate for the year
determined in accordance with relevant income tax rules and regulations in
the PRC. No provision for PRC income tax has been made in 2001 and 2002 as
there were no tax assessable profits in these years.
(b) Reconciliation of effective tax rate:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
(Loss)/profit before taxation (83,471) (73,901) 94,163
------- ------- ------
Expected PRC income tax credit/
(expense)at statutory tax rate of 33% 27,545 24,387 (31,074)
Non-deductible expenses (2,160) (20,721) (2,234)
------ ------- ------
Income tax credit/(expense) 25,385 3,666 (33,308)
====== ===== =======
(c) Taxes payable in the balance sheets represents:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Provision for PRC income tax for
the year -- -- 2,018
Taxes payable other than PRC income tax 10,978 32,747 53,756
------ ------ ------
10,978 32,747 55,774
====== ====== ======
Taxes payable other than PRC income tax mainly represents VAT payable.
7 Emoluments of directors and senior management
(a) Directors' emoluments
No directors' emoluments were paid during the relevant period.
(b) Senior management's emoluments
Details of emoluments paid to the five highest paid individuals are as
follows:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Salaries, allowances and benefits in kind 429 520 589
Retirement benefits 29 23 33
------ ------ ------
458 543 622
====== ====== ======
An analysis of emoluments paid to the five highest paid individuals by
number of individuals and emoluments range is as follows:
Years ended 31 December
2001 2002 2003
RMB Nil -- RMB1,000,000 5 5 5
====== ====== ======
There was no arrangement under which an employee waived any remuneration
during the relevant period.
8 Property, plant and equipment, net
Motor
Generators vehicles,
and furniture,
related fixtures,
machinery equipment
and and Construction
Buildings equipment others in progress Total
RMB'000 RMB'000 sRMB'000 RMB'000 RMB'000
Cost:
Balance at 1 January 2001 682,773 1,015,750 12,509 268,735 1,979,767
Additions 28,051 112,181 8,772 220,573 369,577
Transferred from construction
in progress 64,127 425,181 -- (489,308) --
-------- --------- --------- ---------- -----------
Balance at 31 December 2001 774,951 1,553,112 21,281 -- 2,349,344
........ ......... ......... .......... ...........
Accumulated depreciation
Balance at 1 January 2001 (918) (2,962) -- -- (3,880)
Charge for the year (23,833) (86,135) (2,209) -- (112,177)
-------- --------- --------- ---------- -----------
Balance at 31 December 2001 (24,751) (89,097) (2,209) -- (116,057)
........ ......... ......... .......... ...........
-------- --------- --------- ---------- -----------
Net book value at
31 December 2001 750,200 1,464,015 19,072 -- 2,233,287
======== ========= ======== ======== =========
Cost:
Balance at 1 January 2002 774,951 1,553,112 21,281 -- 2,349,344
Additions 5,132 1,048 3,998 54,434 64,612
Transferred from construction
in progress 5,662 -- -- (5,662) --
Disposals (24,669) -- (139) (42,133) (66,941)
-------- --------- --------- ---------- -----------
Balance at 31 December 2002 761,076 1,554,160 25,140 6,639 2,347,015
........ ......... ......... .......... ...........
Accumulated depreciation:
Balance at 1 January 2002 (24,751) (89,097) (2,209) -- (116,057)
Charge for the year (28,357) (125,241) (3,406) -- (157,004)
Reversal upon disposal -- -- 139 -- 139
-------- --------- --------- ---------- -----------
Balance at 31 December 2002 (53,108) (214,338) (5,476) -- (272,922)
........ ......... ......... .......... ...........
-------- --------- --------- ---------- -----------
Net book value at
31 December 2002 707,968 1,339,822 19,664 6,639 2,074,093
======== ========= ======== ======== =========
Cost:
Balance at 1 January 2003 761,076 1,554,160 25,140 6,639 2,347,015
Additions 5,604 431 2,123 -- 8,158
Transferred from construction
in progress -- 4,356 -- (4,356) --
Disposals -- -- (1,444) -- (1,444)
-------- --------- --------- ---------- -----------
Balance at 31 December 2003 766,680 1,558,947 25,819 2,283 2,353,729
........ ......... ......... .......... ...........
Accumulated depreciation:
Balance at 1 January 2003 (53,108) (214,338) (5,476) -- (272,922)
Charge for the year (28,462) (125,863) (3,643) -- (157,968)
Reversal upon disposal -- -- 617 -- 617
-------- --------- --------- ---------- -----------
Balance at 31 December 2003 (81,570) (340,201) (8,502) -- (430,273)
........ ......... ......... .......... ...........
-------- --------- --------- ---------- -----------
Net book value at
31 December 2003 685,110 1,218,746 17,317 2,283 1,923,456
======== ========= ======== ======== =========
All of Jinggangshan Power Plant's buildings are located in the PRC.
As at 31 December 2003, all land occupied by Jinggangshan Power Plant was
allocated by the PRC government at nil consideration and cannot be
transferred, leased nor mortgaged.
9 Deferred tax assets
Deferred tax assets and deferred tax liabilities are attributable to
the items set out below:
Assets Liabilities Net balance
2001 2002 2003 2001 2002 2003 2001 2002 2003
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Provision for receivables -- 1,795 -- -- -- -- -- 1,795 --
Training fee and pre-operating expenses 6,802 5,102 -- -- -- -- 6,802 5,102 --
Property, plant and equipment -- 673 -- (1,352) -- -- (1,352) 673 --
Tax losses 30,426 31,972 -- -- -- -- 30,426 31,972 --
------ ------ ----- ------ ----- ----- ------ ------ -----
Deferred tax assets/ (liabilities) 37,228 39,542 -- (1,352) -- -- 35,876 39,542 --
====== ====== ===== ====== ===== ===== ====== ====== =====
Movements in temporary differences for the three years ended 31 December 2001,
2002 and 2003 are as follows:
Balance at Recognised Balance at
1 January in statement 31 December
2001 of income 2001
RMB'000 RMB'000 RMB'000
(note 6 (a))
Training and pre-operating expenses 7,909 (1,107) 6,802
Property, plant and equipment -- (1,352) (1,352)
Tax losses 2,582 27,844 30,426
------ ------ ------
Net deferred tax assets 10,491 25,385 35,876
====== ====== ======
Balance at Recognised Balance at
1 January in statement 31 December
2002 of income 2002
RMB'000 RMB'000 RMB'000
(note 6 (a))
Provision for receivables -- 1,795 1,795
Training and pre-operating expenses 6,802 (1,700) 5,102
Property, plant and equipment (1,352) 2,025 673
Tax losses 30,426 1,546 31,972
------ ----- ------
Net deferred tax assets 35,876 3,666 39,542
====== ===== ======
Balance at Recognised Recognised Balance at
1 January in statement in owners' 31 December
2003 of income equity 2003
RMB'000 RMB'000 RMB'000 RMB'000
(note 6 (a))
Provision for receivables 1,795 -- (1,795) --
Training and pre-operating expenses 5,102 (1,701) (3,401) --
Property, plant and equipment 673 2,383 (3,056) --
Tax losses 31,972 (31,972) -- --
------ ------- ------- -------
Net deferred tax assets 39,542 (31,290) (8,252) --
====== ======= ======= =======
In connection with the acquisition of 100% equity interest of
Jinggangshan Power Plant by the Company, the tax basis of Jinggangshan
Power Plant's assets and liabilities that gave rise to the temporary
differences above have been adjusted to conform to the related financial
carrying amounts. As a result, the timing differences that gave rise to the
deferred tax assets relating to the items above were eliminated. The
reduction in deferred tax assets of RMB8,252,000 as at 31 December 2003 was
reflected as a debit to owners' equity.
10 Inventories
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Coal 16,377 21,293 20,750
Fuel oil 2,425 1,080 1,273
Materials, components and spare parts 3,524 18,794 15,992
--------- ---------- ---------
22,326 41,167 38,015
========= ========== =========
11 Trade receivables
Jinggangshan Power Plant usually grants one month credit period to the
provincial power gird company from the end of the month in which the sales
are made.
Ageing analysis of trade receivables is as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Current, within 1 month 55,760 89,440 117,316
Overdue - - 24,978
--------- ---------- ---------
Total 55,760 89,440 142,294
========= ========== =========
12 Cash and cash equivalents
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash at bank and in hand 182,562 20,812 1,436
Cash deposited with a related party (note) 16,000 29,930 56,685
Time deposits with maturity within 3 months 20,000 - -
--------- ---------- ---------
218,562 50,742 58,121
========= ========== =========
Note: It represents cash deposited with China Huaneng Finance Company
("Huaneng Finance"), a subsidiary company of Huaneng Group.
13 Accounts payables and other liabilities
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Accounts payable 13,016 16,055 12,514
Payables for construction projects 296,513 87,149 23,118
Other payables 1,567 22,195 4,959
--------- ---------- ---------
311,096 125,399 40,591
========= ========== =========
The accounts payable as at 31 December 2001, 2002 and 2003 was due within one
month or on demand.
14 Amount due to Huaneng Group
The amount due to Huaneng Group was interest free, unsecured and
repayable on demand.
15 Interest bearing loans and borrowings
The following provides information about the contractual terms of
Jinggangshan Power Plant's interest bearing loans and borrowings:
(a) Short-term loans
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Bank loans - - 300,000
Loan from Huaneng Finance - 300,000 20,000
--------- --------- --------
Total - 300,000 320,000
========= ========= ========
The weighted average interest rates of the short-term debts was 5.04%
and 4.78% as at 31 December 2002 and 2003, respectively.
(b) Long-term loans from Huaneng Group
31 December
Interest rate and final maturity 2001 2002 2003
RMB'000 RMB'000 RMB'000
Loans from Huaneng Group Floating interest rate of 6.21% per
- Renminbi denominated annum as at 31 December 2001 400,000 - -
Less: current portion (400,000) - -
---------- --------- --------
Non-current portion - - -
========== ========= ========
(c) Long-term bank loans
31 December
Interest rate and final maturity 2001 2002 2003
RMB'000 RMB'000 RMB'000
Bank loans Floating interest rates ranging from
- Renminbi denominated 4.78% to 6.21% per annum as at 31
December 2003 with maturities through
2010 1,373,053 1,440,288 1,287,975
Less: current portion (132,053) (154,288) (164,975)
---------- --------- ----------
Non-current portion 1,241,000 1,286,000 1,123,000
========== ========= ==========
All bank loans were guaranteed by Huaneng Group during the relevant
period.
The aggregate maturities of Jinggangshan Power Plant's long-term bank
loans subsequent to 31 December 2003 are as follows:
RMB'000
2004 164,975
2005 185,000
2006 185,000
2007 185,000
2008 185,000
Thereafter 383,000
-------------
Total 1,287,975
=============
16 Capital commitments
As at 31 December 2001, 2002 and 2003, Jinggangshan Power Plant had
capital commitments mainly in relation to the enhancement projects of its
power generating units as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Authorised but not contracted for - 4,460 5,640
========= ========= ========
17 Concentration of risks
(a) Credit and concentration risk
The carry-ing amounts of cash and cash equivalents, trade
receivables, other receivables and prepayments represent Jinggangshan
Power Plant's maximum exposure to credit risk in relation to financial
assets. Jinggangshan Power Plant sells the electricity generated to
its sole customer, Jiangxi Power.
Substantially all of Jinggangshan Power Plant's cash and cash
equivalents are deposited with the four largest state-owned banks of
the PRC and Huaneng Finance.
Jinggangshan Power Plant does not have concentrations of available
sources of labour, services, franchises, licenses or other rights that
could, if suddenly eliminated, severely impact their operations.
(b) Interest rate risk
The interest rates and terms of repayment of the outstanding loans
and borrowings of Jinggangshan Power Plant are disclosed in note 15.
(c) Currency risk
Jinggangshan Power Plant is not exposed to foreign currency risk
as it has no financial assets and liabilities denominated in foreign
currencies during the relevant period.
18 Related party transactions
The principal related party transactions with related parties,
which were carried out in the ordinary course of business, are as follows:
Years ended 31 December
Transaction Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Sale of electricity a 269,022 586,599 -
Management fees b - - 6,000
Interest expenses c 31,188 20,300 14,090
Interest income d 1,051 491 285
========= ========= =========
Notes:
(a) This represents sale of electricity by Jinggangshan Power Plant to
Jiangxi Power. Pursuant to the restructuring plan of power industry
in the PRC as mentioned above, Jiangxi Power transferred all its
equity interest in Jinggangshan Power Plant to Huaneng Group in
January 2003. Accordingly, Jiangxi Power is no longer a related party
of Jinggangshan Power Plant from January 2003.
(b) Pursuant to an arrangement between Huaneng Group and Jinggangshan
Power Plant starting from 1 January 2003, Huaneng Group provides
centain management support services to Jinggangshan Power Plant for
return of a fee which is determined on a yearly basis.
(c) This represents interest incurred on loans from Huaneng Group and
Huaneng Finance. Details of loans from Huaneng Group and Huaneng
Finance are disclosed in note 15.
(d) This represents interest income derived from cash deposited with
Huaneng Finance. Details of cash deposited with Huaneng Finance are
disclosed in note 12.
Details of bank loans guaranteed by Huaneng Group is disclosed in note 15.
19 Fair values of financial instruments
Financial assets of Jinggangshan Power Plant include cash and cash
equivalents, long-term investments, trade receivables, other receivables
and prepayments. Financial liabilities of Jinggangshan Power Plant include
interest-bearing loans and borrowings, accounts payable and other
liabilities, taxes payable, amount due to Huaneng Group and staff welfare
and bonus payable. Jinggangshan Power Plant does not hold nor issue
financial instruments for trading purposes.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of IAS 32 and IAS
39. Fair value estimates, methods and assumptions, set forth below for
Jinggangshan Power Plant's financial instruments, are made to comply with
the requirements of IAS 32 and IAS 39, and should be read in conjunction
with the Financial Information. The estimated fair value amounts have been
determined by Jinggangshan Power Plant using market information and
valuation methodologies considered appropriate. However, considerable
judgment is required to interpret market data to develop the estimates of
fair values. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts Jinggangshan Power Plant could
realise in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
The following summarises the major methods and assumptions used in
estimating the fair values of Jinggangshan Power Plant's financial
instruments.
The carrying amounts of cash and cash equivalents, trade receivables,
other receivables and prepayments, short-term interest-bearing loans and
borrowings, accounts payable and other liabilities, taxes payable, amount
due to Huaneng Group and staff welfare and bonus payable approximate to
fair value due to the short-term maturity of these instruments.
Long-term investment is unlisted equity interests and there are no
quoted market prices for such interests in the PRC. Accordingly, a
reasonable estimate of fair value could not be made without incurring
excessive costs.
The carrying amounts of Jinggangshan Power Plant's non-current
interest-bearing loans and borrowings approximate to their fair values
based on a discounted cash flow approach using interest rates available to
Jinggangshan Power Plant for similar indebtedness.
20 Distributable reserve
The distributable reserve of Jinggangshan Power Plant as at 31
December 2003 was RMB4,095,000 which was determined under the applicable
PRC accounting rules and regulations.
VI ULTIMATE HOLDING COMPANY
The management of Jinggangshan Power Plant consider the ultimate
holding company of Jinggangshan Power Plant to be Huaneng Group.
VII SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Jinggangshan
Power Plant in respect of any period subsequent to 31 December 2003.
Yours faithfully
KPMG
Certified Public Accountants
Hong Kong, China
-------------------------------------------------------------------------------
APPENDIX III ACCOUNTANTS' REPORT OF YUEYANG POWER PLANT
-------------------------------------------------------------------------------
The following is the text of a report, prepared for the purpose of
inclusion in this circular, received from the independent reporting
accountants, KPMG, Certified Public Accountants, Hong Kong. As described in the
section headed "Documents for inspection" in Appendix X, a copy of the
following accountants' report is available for inspection.
[graphic omitted] 8th Floor
Prince's Building
10 Chater Road
Hong Kong
The Directors
Huaneng Power International, Inc.
29 April 2004
Dear Sirs,
INTRODUCTION
We set out below our report on the financial information relating to
Huaneng Hunan Yueyang Power Generation Limited Liability Company ("Yueyang
Power Plant") in Sections I to VII below (the "Financial Information"),
including the balance sheets of Yueyang Power Plant as at 31 December 2001,
2002 and 2003, the statements of income, owners' equity and cash flows of
Yueyang Power Plant for each of the years in the three-year period ended 31
December 2003 (the "relevant period"), for inclusion in the shareholders'
circular of Huaneng Power International, Inc. ("the Company") dated 29 April
2004 (the "Circular").
The businesses, assets and liabilities of Yueyang Power Plant were
originally owned and operated by Huaneng International Power Development
Corporation, Yueyang Branch ("Yueyang Branch"). Pursuant to an agreement
entered into between Huaneng International Power Development Corporation
("HIPDC"), the immediate holding company of the Company, and Hunan Local Power
Assets Operation Company Limited ("Hunan Local Power"), Yueyang Branch was
transformed to Yueyang Power Plant, a limited liability company established in
the People's Republic of China (the "PRC"), on 16 December 2003 and the
businesses, assets and liabilities were then transferred to Yueyang Power
Plant. Yueyang Power Plant is 55% owned by HIPDC and 45% owned by Hunan Local
Power. Yueyang Power Plant owns and operates two coal-fired generating units
with installed capacity of 362.5 MW each. The generating units commenced
commercial operation in September and December 1991, respectively. In addition,
Yueyang Power Plant is developing phase II project of two coal-fired generating
units with installed capacity of 300 MW each ("Phase II Project").
The financial statements of Yueyang Power Plant were not audited by any
independent auditors during the relevant period.
Pursuant to the transfer agreement entered into between the Company and
HIPDC on 16 April 2004, as described more fully in the section headed "Transfer
Agreements" in the letter from the Board contained in the Circular, the Company
will acquire from HIPDC of its 55% equity interest in Yueyang Power Plant.
BASIS OF PREPARATION
The Financial Information has been prepared by the management of Yueyang
Power Plant based on the management accounts of Yueyang Power Plant and Yueyang
Branch to conform with International Financial Reporting Standards ("IFRS")
promulgated by the International Accounting Standards Board and on the basis as
if Yueyang Power Plant owns and operates the businesses, assets and liabilities
of Yueyang Branch throughout the period presented. IFRS includes International
Accounting Standards and interpretations.
RESPONSIBILITY
The preparation of the Financial Information, which gives a true and fair
view, is the responsibility of Yuegang Power Plant's management. In preparing
the Financial Information which gives a true and fair view, it is fundamental
that appropriate accounting policies are selected and applied consistently,
that judgements and estimates are made which are prudent and reasonable and
that the reasons for any significant departure from applicable accounting
standards are stated.
It is our responsibility to form an independent opinion, based on our
audit, on the Financial Information.
BASIS OF OPINION
For the purpose of this report, we have audited the financial statements
of Yueyang Power Plant for the relevant period and carried out such procedures
as we considered necessary in accordance with the Auditing Guideline
"Prospectuses and the Reporting Accountant" issued by the Hong Kong Society of
Accountants ("HKSA"). We have not audited any financial statements of Yueyang
Power Plant in respect of any period subsequent to 31 December 2003.
We conducted our audit in accordance with Statements of Auditing Standards
issued by HKSA. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the Financial Information. It also
includes an assessment of the significant estimates and judgements made by
management in the preparation of the Financial Information, and of whether the
accounting policies are appropriate to Yueyang Power Plant's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the Financial
Information is free from material misstatement. In forming our opinion, we also
evaluated the overall adequacy of the presentation of the Financial
Information. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion, the Financial Information, for the purpose of this report
and on the basis stated above, gives a true and fair view of the state of
affairs of Yueyang Power Plant as at 31 December 2001, 2002 and 2003 and of the
results and cash flows of Yueyang Power Plant for each of the years in the
three-year period ended 31 December 2003 and has been properly prepared in
accordance with IFRS.
I STATEMENTS OF INCOME
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Revenue 2 868,120 795,059 1,045,273
Operating expenses
- Fuel (308,526) (306,061) (446,041)
- Repairs and maintenance (33,487) (34,687) (34,007)
- Depreciation (201,441) (202,631) (202,994)
- Personnel expenses (80,507) (81,359) (83,901)
- Other operating expenses (47,439) (46,436) (50,772)
Total operating expenses (671,400) (671,174) (817,715)
Operating profit 3 196,720 123,885 227,558
Net financing costs 4 (75,777) (184,674) (118,214)
Profit/(loss) before taxation 120,943 (60,789) 109,344
Taxation 5(a) -- -- (30,920)
Net profit/(loss) 120,943 (60,789) 78,424
II BALANCE SHEETS
31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Non-current assets
guide
Net financing costs 4 (75,777) (184,674) (118,214)
Net profit/(loss) 120,943 (60,789) 78,424
guide
Property, plant and equipment, net 7 940,361 761,887 673,913
Long-term lease prepayments 8 48,500 48,500 49,500
Deferred tax assets 9 4,419 4,419 --
993,280 814,806 723,413
Current assets
Inventories 10 57,212 60,804 74,481
Bills receivable 11 66,406 19,534 222,327
Trade receivables 12 222,810 386,427 278,294
Other receivables and prepayments 13 35,193 14,539 14,676
Amount due from HIPDC 14 155,212 332,492 --
Cash and cash equivalents 15 45,389 38,788 13,744
582,222 852,584 603,522
Current liabilities
Accounts payables
and other liabilities 16 127,610 123,733 106,365
Taxes payable 5(b) 109,138 110,907 94,422
Amount due to HIPDC 14 -- -- 62,333
Staff welfare
and bonus payable 12,557 7,471 7,601
Short-term loans 17(a) 565,968 785,617 707,678
Current portion of long-term
loans from HIPDC 17(b) 157,590 174,296 --
972,863 1,202,024 978,399
Net current liabilities (390,641) (349,440) (374,877)
Total assets less
current liabilities 602,639 465,366 348,536
Non-current liabilities
Long-term loans from HIPDC 17(b) 867,146 784,201 --
Deferred tax liabilities 9 -- -- 26,501
867,146 784,201 26,501
Net (liabilities)/assets (264,507) (318,835) 322,035
Owners' equity (264,507) (318,835) 322,035
III STATEMENTS OF OWNERS' EQUITY
Total
owners'
equity
RMB'000
Balance as at 1 January 2001 (392,692)
Net profit for the year 120,943
Net contributions 7,242
Balance as at 31 December 2001 (264,507)
Net loss for the year (60,789)
Net contributions 6,461
Balance as at 31 December 2002 (318,835)
Net profit for the year 78,424
Net contributions 562,446
Balance as at 31 December 2003 322,035
IV STATEMENTS OF CASH FLOWS
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash flows from
operating activities (a) 330,488 128,296 170,883
Cash flows from
investing activities
Capital expenditure (12,838) (26,223) (115,762)
Increase in long-term lease prepayments -- -- (1,000)
Proceeds from disposal of
property, plant and equipment 65 148 --
Net cash used in investing activities (12,773) (26,075) (116,762)
Cash flows from financing activities
Proceeds from bank loans -- 100,000 70,000
Repayments of bank loans -- -- (100,000)
Repayments of HIPDC loans (19,036) (38,003) (446,436)
Net funds received from HIPDC -- -- 397,271
Net funds submitted to HIPDC (291,636) (170,819) --
Net cash used in financing activities (310,672) (108,822) (79,165)
Net increase/(decrease) in
cash and cash equivalents 7,043 (6,601) (25,044)
Cash and cash equivalents
at beginning of year 38,346 45,389 38,788
Cash and cash equivalents at
end of year 45,389 38,788 13,744
Significant non-cash transaction
In 2003, in connection with the transformation of Yueyang Branch to Yueyang
Power Plant, loans from HIPDC of RMB560,000,000 was capitalised as equity,
loans from HIPDC of RMB120,000,000 was transferred to loan from Hunan Local
Power.
(a) Reconciliation of profit/(loss) before taxation to cash flows
from operating activities
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash flows from
operating activities 330,488 128,296 170,883
Profit/(loss) before taxation 120,943 (60,789) 109,344
Adjustments for:
Depreciation 201,441 202,631 202,994
Interest income (1,481) (623) (698)
Interest expenses 109,581 86,878 85,071
Unrealised exchange (gains)/losses (29,986) 91,413 --
Losses/(gains) from disposal of
property, plant and equipment 858 (143) 73
Decrease/(increase) in inventories 10,761 (3,592) (13,677)
Decrease/(increase) in bills receivable 14,134 46,872 (202,793)
Decrease/(increase) in trade receivables 24,141 (163,617) 108,133
(Increase)/decrease in other
receivables and prepayments (20,884) 20,654 (137)
Decrease in accounts payables
and other liabilities (28,773) (1,816) (16,699)
Increase/(decrease) in taxes payable 39,930 1,769 (16,485)
(Decrease)/increase in staff
welfare and bonus payable (2,077) (5,086) 130
Cash generated from operations 438,588 214,551 255,256
Interest received 1,481 623 698
Interest paid (109,581) (86,878) (85,071)
Cash flows from operating activities 330,488 128,296 170,883
V NOTES TO THE FINANCIAL INFORMATION
1 Principal accounting policies
(a)Statement of compliance
The Financial Information has been prepared in accordance with IFRS
promulgated by the International Accounting Standards Board and the disclosure
requirements of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited.
IFRS includes International Accounting Standards ("IAS") and
Interpretations.
The measurement basis used in the preparation of the Financial Information
is historical cost.
The preparation of the Financial Information in accordance with IFRS
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accounting policies described below have been consistently applied by
Yueyang Power Plant during the relevant period.
(b) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses (see note 1(d)). The cost of property, plant
and equipment constructed by Yueyang Power Plant includes the cost of
materials, direct labour, directly attributable costs of bringing the asset to
working condition and location for its intended use, and the cost of borrowed
funds used during construction.
Subsequent expenditure is capitalised only when it increases the future
economic benefits embodied in the item of property, plant and equipment. All
other expenditure is recognised in the income statement as an expense as
incurred.
Depreciation is provided to write off the cost of property, plant and
equipment on a straight line basis over their respective estimated useful lives
of the assets. The rates of depreciation used are based on the following
estimated useful lives:
Buildings 22-30 years
Generators and related machinery and equipment 8-27 years
Motor vehicles, furniture, fixtures, equipment and others 6-13 years
(c) Construction in progress
Construction in progress is stated at cost less impairment losses (see
note 1(d)). Cost comprises construction expenditure, including interest costs
incurred during the construction period, the cost of related equipment, direct
labour and other directly attributable costs.
Capitalisation of these costs ceases and the construction in progress is
transferred to property, plant and equipment when the asset is substantially
ready for its intended use. In respect of a generating unit, it is considered
to be substantially ready for its intended use when the trial run period ends.
(d) Impairment
The carrying amounts of property, plant and equipment, and construction in
progress are reviewed at each balance sheet date to determine whether there is
any indication of impairment. If any such indication exists, the asset's
recoverable amount is estimated. An impairment loss is recognised whenever the
carrying amount of an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income statement.
(i) Calculation of recoverable amount
The recoverable amount of an asset is the greater of its net selling price
and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate largely independent
cash inflows, the recoverable amount is determined for the cash-generating unit
to which the asset belongs.
(ii) Reversal of impairment
An impairment loss is reversed if there has been a change in the estimates
used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation, if no impairment loss had been recognised.
(e) Long-term lease prepayments
Long-term lease prepayments represent land use rights fees paid to the PRC
land bureau. Land use rights are carried at cost and amortised on a
straight-line basis over the respective periods of the rights.
(f) Inventories
Inventories, comprising coal, fuel oil, materials, components and spare
parts for consumption by Yueyang Power Plant, are stated at cost, less
provision for obsolescence. Cost includes cost of purchase and, where
applicable, transportation cost and handling fee. The cost of inventories is
calculated on the weighted average basis.
(g) Trade and other receivables
Trade and other receivables are stated at their cost less allowance for
any amounts expected to be irrecoverable. An allowance is provided for based
upon the evaluation of the recoverability of these accounts at the balance
sheet date.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, demand
deposits with banks and other financial institutions, and short term, highly
liquid investments that are readily convertible into known amounts of cash,
which are subject to an insignificant risk of changes in value, and maturing
within three months at acquisition.
(i) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at cost, less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over
the period of the borrowings on an effective interest basis.
(j) Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing or amount
when Yueyang Power Plant has a legal or constructive obligation arising as a
result of a past event, it is probable that an outflow of economic benefits
will be required to settle the obligation and a reliable estimate can be made.
Where the time value of money is material, provisions are stated at the present
value of the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be
required, or the amount cannot be estimated reliably, the obligation is
disclosed as a contingent liability, unless the probability of outflow of
economic benefits is remote. Possible obligations, whose existence will only be
confirmed by the occurrence or non-occurrence of one or more future events are
also disclosed as contingent liabilities unless the probability of outflow of
economic benefits is remote.
(k) Revenue recognition
Electricity income is recognised when electricity is supplied to the
provincial power grid company.
(l) Major overhauls, repairs and maintenance
Expenditure on major overhauls, repairs and maintenance is charged to the
income statement as it is incurred.
(m) Borrowing costs
Borrowing costs are expensed in the period in which they are incurred,
except to the extent that they are capitalised as being directly attributable
to the construction of an asset which necessarily takes a substantial period of
time to get ready for its intended use.
(n) Translation of foreign currencies
Foreign currency transactions are translated into Renminbi yuan at the
rates of exchange ruling at the transaction dates. Monetary assets and
liabilities denominated in foreign currencies are translated into Renminbi yuan
at the rates ruling at the balance sheet date. Foreign currency translation
differences relating to the funds borrowed to finance construction in progress,
to the extent that they are regarded as an adjustment to interest costs, are
capitalised during the construction period. All other exchange differences are
dealt with in the income statement.
(o) Taxation
Income tax on the profit or loss comprises current and deferred tax.
Income tax is recognised in the income statement except to the extent that it
relates to items recognised directly in equity, in which case it is recognised
in equity.
Current tax is the expected tax payable on the taxable income for the
year, using tax rates enacted or substantially enacted at the balance sheet
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided, using the balance sheet liability method, in
respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation
purposes. The temporary differences arising from the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit are not
provided. The amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
(p) Retirement plan
Yueyang Power Plant is required to make contributions to a retirement plan
operated by the State at a rate of 20% of the staff salaries during the
relevant period. A member of the plan is entitled to receive from the State a
pension equal to a fixed proportion of his or her salary prevailing at the
retirement date. Yueyang Power Plant has no obligation to make payments in
respect of pension benefits associated with the plan other than the annual
contributions described above.
(q) Related parties
For the purposes of the Financial Information, parties are considered to
be related to Yueyang Power Plant if Yueyang Power Plant has the ability,
directly or indirectly, to control the party or exercise significant influence
over the party in making financial and operating decisions, or vice versa, or
where Yueyang Power Plant and the party are subject to common control or common
significant influence.
(r) Segment reporting
A business segment is a distinguishable component of Yueyang Power Plant
that is engaged in providing products or services and is subject to risks and
rewards that are different from those of other segments. For the periods
presented, Yueyang Power Plant has one operating segment, which is the
generation and sale of electricity. All the operating activities of Yueyang
Power Plant are carried out in the PRC.
2 Revenue
Revenue represents the sale of electricity to the provincial power grid
company, net of value added tax ("VAT").
3 Operating profit
Operating profit is arrived at after charging:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Depreciation of property,
plant and equipment 201,441 202,631 202,994
Cost of inventories 324,629 320,623 460,648
Contribution to retirement plan 7,377 8,156 10,025
Auditors' remuneration -- -- --
4 Net financing costs
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash flows from
operating activities 330,488 128,296 170,883
Interest on bank loans and
other borrowings repayable
within five years 12,831 6,114 10,173
Interest on other loans 96,750 80,764 74,898
Total interest expense 109,581 86,878 85,071
Interest income (1,481) (623) (698)
Exchange (gains)/losses (33,840) 97,029 32,580
Others 1,517 1,390 1,261
75,777 184,674 118,214
No interest expense was capitalised during the relevant period.
5 Taxation
(a) Taxation in the statements of income comprises:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Deferred taxation (note 9) -- -- (30,920)
Effective from 1 January 1999, in accordance with the PRC income tax rules
and regulations applicable to Sino-foreign investment enterprises investing in
energy business, the reduced income tax rate of 15% is applicable to such
enterprises. Yueyang Power Plant originally operated as a branch of HIPDC, a
Sino-foreign investment enterprise investing in energy business, was entitled
to this tax privilege.
Yueyang Power Plant, originally operated as a branch of HIPDC, was
exempted from PRC income tax for two years starting from the first
profit-making year after deducting all the brought forward tax losses, and
followed by a 50% reduction of the applicable tax rate for the next three
years. The first profit-making year of Yueyang Power Plant is 2003.
Accordingly, no provision for PRC income tax has been made during the relevant
period.
Following the establishment of Yueyang Power Plant on 16 December 2003,
its applicable statutory PRC income tax rate is 33%.
No deferred tax assets in respect of tax losses have been recognised
during the relevant period as the applicable tax rate in the years in which the
tax losses expected to be realised is zero percent.
The deferred tax charge in 2003 was due to the increase in effective tax
rate.
(b) Taxes payable in the balance sheets represents:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Taxes payable other than PRC income tax 109,138 110,907 94,422
Taxes payable other than PRC income tax mainly represents VAT payable.
6 Emoluments of directors and senior management
(a) Directors' emoluments
No directors' emoluments were paid during the relevant period.
(b) Senior management's emoluments
Details of emoluments paid to the five highest paid individuals are as
follows:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Salaries, allowances and benefits in kind 435 458 500
Retirement benefits 70 45 58
505 503 558
An analysis of emoluments paid to the five highest paid individuals by
number of individuals and emoluments range is as follows:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
RMB Nil - RMB 1,000,000 5 5 5
There was no arrangement under which an employee waived any remuneration
during the relevant period.
7 Property, plant and equipment, net
Motor vehicles,
furniture,
Generators and fixtures,
related machinery equipment Construction
Buildings and equipment and others in progress Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Cost:
Balance at 1 January 2001 487,852 2,472,207 116,880 37,638 3,114,577
Additions -- -- 17 12,825 12,842
Transferred from
construction in progress 595 3,970 4,550 (9,115) --
Disposals (1,127) -- (179) -- (1,306)
Balance at 31 December 2001 487,320 2,476,177 121,268 41,348 3,126,113
Accumulated depreciation:
Balance at 1 January 2001 (197,795) (1,717,793) (69,106) -- (1,984,694)
Charge for the year (18,950) (172,903) (9,588) -- (201,441)
Reversal upon disposal 214 -- 169 -- 383
Balance at 31 December 2001 (216,531) (1,890,696) (78,525) -- (2,185,752)
Net book value at 31 December 2001 270,789 585,481 42,743 41,348 940,361
Cost:
Balance at 1 January 2002 487,320 2,476,177 121,268 41,348 3,126,113
Additions -- -- -- 24,162 24,162
Transferred from construction
in progress 8,564 8,683 4,780 (22,027) --
Disposals -- -- (1,138) -- (1,138)
Balance at 31 December 2002 495,884 2,484,860 124,910 43,483 3,149,137
Accumulated depreciation:
Balance at 1 January 2002 (216,531) (1,890,696) (78,525) -- (2,185,752)
Charge for the year (18,905) (173,186) (10,540) -- (202,631)
Reversal upon disposal -- -- 1,133 -- 1,133
Balance at 31 December 2002 (235,436) (2,063,882) (87,932) -- (2,387,250)
Net book value at 31 December 2002 260,448 420,978 36,978 43,483 761,887
Cost:
Balance at 1 January 2003 495,884 2,484,860 124,910 43,483 3,149,137
Additions 1,566 -- 13 113,514 115,093
Transferred from construction
in progress 5,110 9,548 9,680 (24,338) --
Disposals (259) -- -- -- (259)
Balance at 31 December 2003 502,301 2,494,408 134,603 132,659 3,263,971
Accumulated depreciation:
Balance at 1 January 2003 (235,436) (2,063,882) (87,932) -- (2,387,250)
Charge for the year (19,378) (173,576) (10,040) -- (202,994)
Reversal upon disposal 186 -- -- -- 186
Balance at 31 December 2003 (254,628) (2,237,458) (97,972) -- (2,590,058)
Net book value at
31 December 2003 247,673 256,950 36,631 132,659 673,913
All of Yueyang Power Plant's buildings are located in the PRC.
The construction in progress as at 31 December 2003 mainly represents costs
incurred for the Phase II Project.
8 Long-term lease prepayments
Long-term lease prepayments represent fees for land use rights paid to the
PRC land bureau. The land is to be occupied for the development of Phase II
Project. Other than this piece of land, other pieces of land occupied by
Yueyang Power Plant were allocated by the PRC government at nil consideration
and cannot be transferred, leased nor mortgaged.
9 Deferred tax assets
Deferred tax assets and deferred tax liabilities are attributable to the
items set out below:
Assets Liabilities Net balance
2001 2002 2003 2001 2002 2003 2001 2002 2003
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Provision for trade receivables 8,890 8,890 19,558 -- -- -- 8,890 8,890 19,558
Provision for other receivables 560 560 2,298 -- -- -- 560 560 2,298
Provision for inventories 698 698 1,482 -- -- -- 698 698 1,482
Property, plant and equipment -- -- -- (5,729) (5,729) (49,839) (5,729) (5,729) (49,839)
Deferred tax assets/ (liabilities) 10,148 10,148 23,338 (5,729) (5,729) (49,839) 4,419 4,419 (26,501)
There was no movement in temporary differences in 2001 and 2002. The movements in temporary differences in 2003 are as follows:
Recognised Balance at
Balance at in statement 31 December
1 January 2003 of income 2003
RMB'000 RMB'000 RMB'000
Provision for receivables 9,450 12,406 21,856
Provision for inventories 698 784 1,482
Property, plant and equipment (5,729) (44,110) (49,839)
Net deferred tax assets/(liabilities) 4,419 (30,920) (26,501)
(Note 5(a))
10 Inventories
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Coal 13,549 18,443 33,353
Fuel oil 1,165 470 286
Materials, components and spare parts 42,498 41,891 40,842
57,212 60,804 74,481
The carrying amount of materials, components and spare parts is net of a provision for obsolescence amounting to approximately
RMB4,654,000, RMB4,654,000 and RMB4,493,000 as at 31 December 2001, 2002 and 2003, respectively.
11 Bills receivable
The balances of bills receivable as at 31 December 2001, 2002 and 2003
were not yet due for settlement.
12 Trade receivables
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Trade receivables 282,075 445,692 337,559
Less: Allowance for doubtful accounts (59,265) (59,265) (59,265)
222,810 386,427 278,294
Yueyang Power Plant usually grants one month credit period to the provincial power grid company from the end of the month
in which the sales are made.
Ageing analysis of trade receivables is as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Current, within one month 106,527 135,333 137,885
Overdue 116,283 251,094 140,409
222,810 386,427 278,294
13 Other receivables and prepayments
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Prepayments for coals 20,999 2,072 5,745
Prepayments for materials 2,548 2,946 703
Prepaid expenses 1,113 1,474 1,830
Others 10,533 8,047 6,398
35,193 14,539 14,676
14 Amount due from/to HIPDC
The amount due from/to HIPDC was interest free, unsecured and receivable /
repayable on demand.
15 Cash and cash equivalents
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash at bank and in hand 45,389 38,788 13,744
16 Accounts payables and other liabilities
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Accounts payable 98,463 97,948 80,026
Payables for construction projects 14,791 12,730 12,061
Other payables 14,356 13,055 14,278
127,610 123,733 106,365
Ageing analysis of accounts payables is as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Due within 1 month or on demand 78,204 80,325 76,346
Due after 1 month but within 3 months 20,259 17,623 3,680
98,463 97,948 80,026
17 Interest bearing loans and borrowings
The following provides information about the contractual terms of Yueyang
Power Plant's interest bearing loans and borrowings:
(a) Short-term loans
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Bank loans -- 100,000 70,000
Loan from HIPDC 565,968 685,617 517,678
Loan from Hunan Local Power -- -- 120,000
Total 565,968 785,617 707,678
The weighted average interest rate of the short-term debts was 5.95%, 5.42% and 5.23% as at 31 December 2001, 2002 and 2003,
respectively.
(b) Long-term loans from HIPDC
31 December
Interest rate and final maturity 2001 2002 2003
RMB'000 RMB'000 RMB'000
Loan from HIPDC (note)
- Pound Sterling denominated Fixed interest rate at 5% per annum
as at 31 December 2002 1,024,736 958,497 --
Less: current portion (157,590) (174,296) --
Non-current portion 867,146 784,201 --
Note: Foreign currency denominated loan from HIPDC were originated from loan borrowed by HIPDC from overseas lender.
HIPDC on-lent this loan to Yueyang Power Plant at cost. In 2003, in connection with the transformation of Yueyang
Branch to Yueyang Power Plant, loans from HIPDC of RMB560,000,000 was capitalised as equity, loans from HIPDC of
RMB120,000,000 was transferred to loan from Hunan Local Power.
18 Capital commitments
Yueyang Power Plant had capital commitments as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Authorised and contracted for 10,500 7,000 99,000
Authorised but not contracted for -- -- 2,289,040
10,500 7,000 2,388,040
Capital commitments as at 31 December 2003 mainly related to the Phase II Project.
19 Concentration of risks
(a) Credit and concentration risk
The carrying amounts of cash and cash equivalents, bills and trade
receivables, other receivables and prepayments represent Yueyang Power Plant's
maximum exposure to credit risk in relation to financial assets. Yueyang Power
Plant sells the electricity generated to its sole customer, the provincial
power grid company. Yueyang Power Plant maintains an allowance for doubtful
accounts in respect of those overdue debts after evaluation of the
recoverability of these accounts at the balance sheet date.
Substantially all of Yueyang Power Plant's cash and cash equivalents are
deposited with the four largest state-owned banks of the PRC.
Yueyang Power Plant does not have concentrations of available sources of
labour, services, franchises, licenses or other rights that could, if suddenly
eliminated, severely impact their operations.
(b) Interest rate risk
The interest rates and terms of repayment of the outstanding loans and
borrowings of Yueyang Power Plant are disclosed in note 17.
(c) Currency risk
Yueyang Power Plant has foreign currency risk as at 31 December 2001 and
2002 as a portion of their long-term loans were denominated in sterling pound
as described in note 17. Such loans were either converted to Renminbi
denominated loans or capitalised as equity in 2003, and Yueyang Power Plant no
longer exposed to currency risk as at 31 December 2003.
20 Related party transactions
The principal related party transactions with related parties, which were
carried out in the ordinary course of business, are as follows:
Years ended 31 December
Transaction Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Interests on loans a 73,519 80,763 74,899
Management fee b 6,154 5,562 8,103
Fees on discounted bills c -- -- 1,414
Notes:
(a) This represents interest incurred in relation to loans from HIPDC.
Details of loans from HIPDC are disclosed in note 17.
(b) This represents fees paid to HIPDC in connection with the provision of
management services to Yueyang Power Plant. The fee is charged based
on the volume of electricity generated.
(c) This represents fees paid for bills receivables with face value of RMB
211,009,000 discounted to Huaneng Finance at discounted rates ranging
from 3.0% to 3.3% per annum.
21 Fair values of financial instruments
Financial assets of Yueyang Power Plant include cash and cash equivalents,
bills and trade receivables, amount due from HIPDC and other receivables and
prepayments. Financial liabilities of Yueyang Power Plant include
interest-bearing loans and borrowings, accounts payables and other liabilities,
taxes payable, amount due to HIPDC and staff welfare and bonus payable. Yueyang
Power Plant does not hold nor issue financial instruments for trading purposes.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of IAS 32 and IAS 39.
Fair value estimates, methods and assumptions, set forth below for Yueyang
Power Plant's financial instruments, are made to comply with the requirements
of IAS 32 and IAS 39, and should be read in conjunction with the Financial
Information. The estimated fair value amounts have been determined by Yueyang
Power Plant using market information and valuation methodologies considered
appropriate. However, considerable judgment is required to interpret market
data to develop the estimates of fair values. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts Yueyang Power
Plant could realise in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The following summarises the major methods and assumptions used in
estimating the fair values of Yueyang Power Plant's financial instruments.
The carrying amounts of cash and cash equivalents, bills and trade
receivables, other receivables and prepayments, short-term interest-bearing
loans and borrowings, accounts payables and other liabilities, taxes payable,
amount due from / to HIPDC and staff welfare and bonus payable approximate to
fair value due to the short-term maturity of these instruments.
The carrying amounts of Yueyang Power Plant's non-current interest-bearing
loans and borrowings approximate to their fair values based on a discounted
cash flow approach using interest rates available to Yueyang Power Plant for
similar indebtedness.
22 Distributable reserves
Yueyang Power Plant had no distributable reserve as at 31 December 2003.
VI ULTIMATE HOLDING COMPANY
The management of Yueyang Power Plant considered the ultimate holding
company of Yueyang Power Plant to be Huaneng Group.
VII SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Yueyang Power Plant
in respect of any period subsequent to 31 December 2003.
Yours faithfully
KPMG
Certified Public Accountants
Hong Kong, China
-------------------------------------------------------------------------------
APPENDIX IV ACCOUNTANTS' REPORT OF LUOHUANG POWER PLANT
-------------------------------------------------------------------------------
The following is the text of a report, prepared for the purpose of
inclusion in this circular, received from the independent reporting
accountants, KPMG, Certified Public Accountants, Hong Kong. As described in the
section headed "Documents for inspection" in Appendix X, a copy of the
following accountants' report is available for inspection.
[KPMG logo graphic omitted] 8th Floor
Prince's Building
10 Chater Road
Hong Kong
29 April 2004
The Directors
Huaneng Power International, Inc.
Dear Sirs,
INTRODUCTION
We set out below our report on the financial information relating to
Huaneng Chongqing Luohuang Power Generation Limited Liability Company
("Luohuang Power Plant"), in Sections I to VII below (the "Financial
Information"), including the balance sheets of Luohuang Power Plant as at 31
December 2001, 2002 and 2003, the statements of income, owners' equity and cash
flows of Luohuang Power Plant for each of the years in the three-year period
ended 31 December 2003 (the "relevant period"), for inclusion in the
shareholders' circular of Huaneng Power International, Inc. ("the Company")
dated 29 April 2004 (the "Circular").
The businesses, assets and liabilities of Luohuang Power Plant were
originally owned and operated by Huaneng International Power Development
Corporation, Chongqing Branch ("Chongqing Branch"). Pursuant to an agreement
entered into between Huaneng International Power Development Corporation
("HIPDC"), the immediate holding company of the Company, and Chongqing
Construction and Investment Corporation ("Chongqing Investment"), Chongqing
Branch was transformed to Luohuang Power Plant, a limited liability company
established in the People's Republic of China (the "PRC"), on 16 December 2003
and the businesses, assets and liabilities were then transferred to Luohuang
Power Plant. Luohuang Power Plant is 60% owned by HIPDC and 40% owned by
Chongqing Investment. Luohuang Power Plant owns and operates four coal-fired
generating units with installed capacity of 360 MW each and two gas-fired
generating units with installed capacity of 54 MW each. The first phase of two
coal-fired generating units commenced commercial operation in September 1991
and February 1992, respectively, and the second phase of two coal-fired
generating units commenced commercial operation in December 1998. In addition,
Luohuang Power Plant is developing phase III project of two coal-fired
generating units with installed capacity of 600 MW each ("Phase III Project").
The financial statements of Luohuang Power Plant were not audited by any
independent auditors during the relevant period.
Pursuant to the transfer agreement entered into between the Company and
HIPDC on 16 April 2004, as described more fully in the section headed "Transfer
Agreements" in the letter from the Board contained in the Circular, the Company
will acquire from HIPDC of its 60% equity interest in Luohuang Power Plant.
BASIS OF PREPARATION
The Financial Information has been prepared by the management of Luohuang
Power Plant based on the management accounts of Luohuang Power Plant and
Chongqing Branch to conform with International Financial Reporting Standards
("IFRS") promulgated by the International Accounting Standards Board and on the
basis as if Luohuang Power Plant owns and operates the businesses, assets and
liabilities of Chongqing Branch throughout the period presented. IFRS includes
International Accounting Standards and interpretations.
RESPONSIBILITY
The preparation of the Financial Information, which gives a true and fair
view, is the responsibility of Luohuang Power Plant's management. In preparing
the Financial Information which gives a true and fair view, it is fundamental
that appropriate accounting policies are selected and applied consistently,
that judgements and estimates are made which are prudent and reasonable and
that the reasons for any significant departure from applicable accounting
standards are stated.
It is our responsibility to form an independent opinion, based on our
audit, on the Financial Information.
BASIS OF OPINION
For the purpose of this report, we have audited the Financial Information
of Luohuang Power Plant for the relevant period and carried out such procedures
as we considered necessary in accordance with the Auditing Guideline
"Prospectuses and the Reporting Accountant" issued by the Hong Kong Society of
Accountants ("HKSA"). We have not audited any financial statements of Luohuang
Power Plant in respect of any period subsequent to 31 December 2003.
We conducted our audit in accordance with Statements of Auditing Standards
issued by HKSA. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the Financial Information. It also
includes an assessment of the significant estimates and judgements made by
management in the preparation of the Financial Information, and of whether the
accounting policies are appropriate to Luohuang Power Plant's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the Financial
Information is free from material misstatement. In forming our opinion, we also
evaluated the overall adequacy of the presentation of the Financial
Information. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion, the Financial Information, for the purpose of this report
and on the basis stated above, gives a true and fair view of the state of
affairs of Luohuang Power Plant as at 31 December 2001, 2002 and 2003 and of
the results and cash flows of Luohuang Power Plant for each of the years in the
three-year period ended 31 December 2003 and has been properly prepared in
accordance with IFRS.
I STATEMENTS OF INCOME
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
------- ------- -------
Revenue 2 1,196,111 1,419,574 1,616,536
------- ------- -------
Operating expenses
- Fuel (332,241) (442,438) (507,721)
- Repairs and maintenance (68,857) (94,675) (96,341)
- Depreciation (413,713) (414,787) (416,931)
- Personnel expenses (53,614) (61,185) (70,115)
- Other operating expenses (75,869) (89,348) (90,200)
------- ------- -------
Total operating expenses (944,294) (1,102,433) (1,181,308)
======= ======= =======
Operating profit 3 251,817 317,141 435,228
Net financing costs 4 (193,647) (309,723) (348,396)
------- ------- -------
Profit before taxation 58,170 7,418 86,832
Taxation 5(a) -- -- (10,184)
------- ------- -------
Net profit 58,170 7,418 76,648
======= ======= =======
II BALANCE SHEETS
31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
------- ------- -------
Revenue 2 1,196,111 1,419,574 1,616,536
Non-current assets
Property, plant and equipment, net 7 3,756,537 3,387,296 3,122,773
Deferred tax assets 8 42,737 42,737 32,553
------- ------- -------
3,799,274 3,430,033 3,155,326
------- ------- -------
Current assets
Inventories 9 97,428 90,444 85,669
Trade receivables 10 697,830 719,460 588,235
Other receivables and prepayments 11 34,901 39,179 24,809
Amount due from HIPDC 12 -- -- 154,845
Cash and cash equivalents 13 221,296 309,721 28,926
------- ------- -------
1,051,455 1,158,804 882,484
------- ------- -------
Current liabilities
Accounts payables and
other liabilities 14 48,480 52,770 57,019
Taxes payable 5(b) 139,824 173,634 106,016
Amount due to HIPDC 12 444,779 264,047 --
Staff welfare and bonus payable 68,384 63,662 62,372
Short-term bank loans 15(a) 513,148 768,982 312,584
Current portion of
long-term loans from HIPDC 15(b) 338,419 345,770 262,617
------- ------- -------
1,553,034 1,668,865 800,608
======= ======= =======
Net current (liabilities)/assets (501,579) (510,061) 81,876
======= ======= =======
Total assets less current liabilities 3,297,695 2,919,972 3,237,202
Non-current liabilities
Long-term loans from HIPDC 15(b) 2,596,927 2,366,829 2,243,346
======= ======= =======
Net assets 700,768 553,143 993,856
======= ======= =======
Owners' equity 700,768 553,143 993,856
======= ======= =======
III STATEMENTS OF OWNERS' EQUITY
Total owners' equity
RMB'000
Balance as at 1 January 2001 586,697
Net profit for the year 58,170
Net contributions 55,901
Balance as at 31 December 2001 700,768
Net profit for the year 7,418
Net distributions (155,043)
Balance as at 31 December 2002 553,143
Net profit for the year 76,648
Net contributions 364,065
Balance as at 31 December 2003 993,856
IV STATEMENTS OF CASH FLOWS
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
------- ------- -------
Cash flows from operating activities (a) 512,240 545,017 700,073
------- ------- -------
Cash flows from investing activities
Capital expenditure (61,031) (43,878) (145,198)
Proceeds from disposal of property,
plant and equipment 4,434 -- --
------- ------- -------
Net cash used in investing activities (56,597) (43,878) (145,198)
------- ------- -------
Cash flows from financing activities
Proceeds from bank loans -- -- 75,000
Proceeds from HIPDC loans 239,330 255,834 --
Repayments of HIPDC loans (654,081) (332,773) (515,259)
Net funds received from HIPDC 38,333 -- --
Net funds submitted to HIPDC -- (335,775) (395,411)
------- ------- -------
Net cash used in financing activities (376,418) (412,714) (835,670)
======= ======= =======
Net increase/(decrease) in
cash and cash equivalents 79,225 88,425 (280,795)
Cash and cash equivalents at beginning of year 142,071 221,296 309,721
------- ------- -------
Cash and cash equivalents at
end of year 221,296 309,721 28,926
======= ======= =======
Significant non-cash transaction
In 2003, in connection with the transformation of Chongqing Branch to
Luohuang Power Plant, loans from HIPDC of RMB340,584,000 was capitalised as
equity, loans from HIPDC of RMB237,584,000 was transferred to loan from
Chongqing Investment.
(a) Reconciliation of profit before taxation to cash flows from
operating activities
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Profit before taxation 58,170 7,418 86,832
Adjustments for:
Depreciation 413,713 414,787 416,931
Interest income (3,014) (5,535) (1,775)
Interest expense 207,437 183,818 203,530
Unrealised exchange (gains)/losses (32,747) 110,026 117,809
(Gains)/losses on disposal of property, plant and equipment (2,620) 828 6
Decrease in inventories 12,929 6,984 4,775
Decrease/(increase) in trade receivables 15,351 (21,630) 131,225
Decrease/(increase) in other receivables and prepayments 25,647 (4,278) 14,370
Increase/(decrease) in accounts payables and other liabilities 8,034 1,794 (2,967)
Increase/(decrease) in taxes payable 15,776 33,810 (67,618)
Decrease in staff welfare and bonus payable (2,013) (4,722) (1,290)
--------- --------- ---------
Cash generated from operations 716,663 723,300 901,828
Interest received 3,014 5,535 1,775
Interest paid (207,437) (183,818) (203,530)
--------- --------- ---------
Cash flows from operating activities 512,240 545,017 700,073
========= ========= =========
V NOTES TO THE FINANCIAL INFORMATION
1 Principal accounting policies
(a) Statement of compliance
The Financial Information has been prepared in accordance
with IFRS promulgated by the International Accounting Standards
Board and the disclosure requirements of the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited.
IFRS includes International Accounting Standards ("IAS") and
Interpretations.
The measurement basis used in the preparation of the
Financial Information is historical cost.
The preparation of the Financial Information in accordance
with IFRS requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accounting policies described below have been
consistently applied by Luohuang Power Plant during the relevant
period.
(b) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses (see note 1(d)). The
cost of property, plant and equipment constructed by Luohuang Power
Plant includes the cost of materials, direct labour, directly
attributable costs of bringing the asset to working condition and
location for its intended use, and the cost of borrowed funds used
during construction.
Subsequent expenditure is capitalised only when it increases
the future economic benefits embodied in the item of property,
plant and equipment. All other expenditure is recognised in the
income statement as an expense as incurred.
Depreciation is provided to write off the cost of property,
plant and equipment on a straight line basis over their respective
estimated useful lives of the assets. The rates of depreciation
used are based on the following estimated useful lives:
Buildings 22-30 years
Generators and related machinery and equipment 8-13 years
Motor vehicles, furniture, fixtures, equipment and others 6-13 years
(c) Construction in progress
Construction in progress is stated at cost less impairment
losses (see note 1(d)). Cost comprises construction expenditure,
including interest costs incurred during the construction period,
the cost of related equipment, direct labour and other directly
attributable costs.
Capitalisation of these costs ceases and the construction in
progress is transferred to property, plant and equipment when the
asset is substantially ready for its intended use. In respect of a
generating unit, it is considered to be substantially ready for its
intended use when the trial run period ends.
(d) Impairment
The carrying amounts of Luohuang Power Plant's property,
plant and equipment, and construction in progress are reviewed at
each balance sheet date to determine whether there is any
indication of impairment. If any such indication exists, the
asset's recoverable amount is estimated. An impairment loss is
recognised whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment
losses are recognised in the income statement.
(i) Calculation of recoverable amount
The recoverable amount of an asset is the greater of
its net selling price and value in use. In assessing value in
use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the
risks specific to the asset. For an asset that does not
generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which
the asset belongs.
(ii) Reversal of impairment
An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable
amount.
An impairment loss is reversed only to the extent that
the asset's carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation,
if no impairment loss had been recognised.
(e) Inventories
Inventories, comprising coal, fuel oil, materials, components
and spare parts for consumption by Luohuang Power Plant, are stated
at cost, less provision for obsolescence. Cost includes cost of
purchase and, where applicable, transportation cost and handling
fee. The cost of inventories is calculated on the weighted average
basis.
(f) Trade and other receivables
Trade and other receivables are stated at their cost less
allowance for any amounts expected to be irrecoverable. An
allowance is provided for based upon the evaluation of the
recoverability of these accounts at the balance sheet date.
(g) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand,
demand deposits with banks and other financial institutions, and
short term, highly liquid investments that are readily convertible
into known amounts of cash, which are subject to an insignificant
risk of changes in value, and maturing within three months at
acquisition.
(h) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at cost,
less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost with any difference between cost and redemption value being
recognised in the income statement over the period of the
borrowings on an effective interest basis.
(i) Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing
or amount when Luohuang Power Plant has a legal or constructive
obligation arising as a result of a past event, it is probable that
an outflow of economic benefits will be required to settle the
obligation and a reliable estimate can be made. Where the time
value of money is material, provisions are stated at the present
value of the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits
will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the
probability of outflow of economic benefits is remote. Possible
obligations, whose existence will only be confirmed by the
occurrence or non-occurrence of one or more future events are also
disclosed as contingent liabilities unless the probability of
outflow of economic benefits is remote.
(j) Revenue recognition
Electricity income is recognised when electricity is supplied
to the municipal power grid company.
(k) Major overhauls, repairs and maintenance
Expenditure on major overhauls, repairs and maintenance is
charged to the income statement as it is incurred.
(l) Borrowing costs
Borrowing costs are expensed in the period in which they are
incurred, except to the extent that they are capitalised as being
directly attributable to the construction of an asset which
necessarily takes a substantial period of time to get ready for its
intended use.
(m) Translation of foreign currencies
Foreign currency transactions are translated into Renminbi
yuan at the rates of exchange ruling at the transaction dates.
Monetary assets and liabilities denominated in foreign currencies
are translated into Renminbi yuan at the rates ruling at the
balance sheet date. Foreign currency translation differences
relating to the funds borrowed to finance construction in progress,
to the extent that they are regarded as an adjustment to interest
costs, are capitalised during the construction period. All other
exchange differences are dealt with in the combined income
statement.
(n) Taxation
Income tax on the profit or loss comprises current and
deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantially enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided, using the balance sheet liability
method, in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The temporary
differences arising from the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit are
not provided. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantially
enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it
is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax
benefit will be realised.
(o) Retirement plan
Luohuang Power Plant is required to make contributions to a
retirement plan operated by the State at rates of 19%, 19% and 20%
of the staff salaries for the years ended 31 December 2001, 2002
and 2003, respectively. A member of the plan is entitled to receive
from the State a pension equal to a fixed proportion of his or her
salary prevailing at the retirement date. In addition, Luohuang
Power Plant participates in a defined contribution retirement plan,
which is also operated by the State, and makes contributions to
this plan at 15% of previous year's staff salaries, to supplement
the above-mentioned plan. Luohuang Power Plant has no obligation to
make payments in respect of pension benefits associated with these
plans other than the annual contributions described above.
(p) Related parties
For the purposes of the Financial Information, parties are
considered to be related to Luohuang Power Plant if Luohuang Power
Plant has the ability, directly or indirectly, to control the party
or exercise significant influence over the party in making
financial and operating decisions, or vice versa, or where Luohuang
Power Plant and the party are subject to common control or common
significant influence.
(q) Segment reporting
A business segment is a distinguishable component of Luohuang
Power Plant that is engaged in providing products or services and
is subject to risks and rewards that are different from those of
other segments. For the periods presented, Luohuang Power Plant has
one operating segment, which is the generation and sale of
electricity. All the operating activities of Luohuang Power Plant
are carried out in the PRC.
2 Revenue
Revenue represents the sale of electricity to municipal power grid
company, net of value added tax ("VAT").
3 Operating profit
Operating profit is arrived at after charging:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Depreciation of property, plant and equipment 413,713 414,787 416,931
Cost of inventories 412,577 497,467 583,199
Contribution to retirement plans 9,405 10,453 12,054
Auditors' remuneration - - -
======== ======== ========
4 Net financing costs
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Interest on bank loans and other borrowings repayable within 37,977 36,925 68,591
five years
Interest on other loans 169,460 146,893 134,939
--------- --------- ---------
Total interest expense 207,437 183,818 203,530
Interest income (3,014) (5,535) (1,775)
Exchange (gains)/losses (20,680) 122,662 139,034
Others 9,904 8,778 7,607
--------- --------- ---------
193,647 309,723 348,396
========= ========= ==========
No interest expense was capitalised during the relevant period.
5 Taxation
(a) Taxation in the statements of income comprises:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Deferred taxation (note 8) - - (10,184)
========= ========= ==========
Effective from 1 January 1999, in accordance with the PRC income
tax rules and regulations applicable to Sino-foreign investment
enterprises investing in energy business, the reduced income tax rate of
15% is applicable to such enterprises. Luohuang Power Plant originally
operated as a branch of HIPDC, a Sino-foreign investment enterprises
investing in energy business, was entitled to this tax privilege.
Luohuang Power Plant, originally operated as a branch of HIPDC, was
exempted from PRC income tax for two years starting from the first
profit-making year after deducting all the brought forward tax losses,
and followed by a 50% reduction of the applicable tax rate for the next
three years ("tax holiday"). The first profit-making year of Luohuang
Power Plant is 2003. Accordingly, no provision for PRC income tax has
been made during the relevant period.
Following the transformation to a limited liability company,
Luohuang Power Plant's PRC income tax rate is 15% as it is located in the
western region of the PRC, and is now no longer entitled to the tax
holiday as mentioned in the preceding paragraph.
No deferred tax assets in respect of tax losses have been
recognised during the relevant period as the applicable tax rate in the
years in which the tax losses expected to be realised is zero percent.
The deferred tax charge in 2003 is due to the effect of increase in
effective tax rate.
(b) Taxes payable in the balance sheets represents:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Taxes payable other than PRC income tax 139,824 173,634 106,016
========= ========= ==========
Taxes payable other than PRC income tax mainly represents VAT
payable.
6 Emoluments of directors and senior management
(a) Directors' emoluments
No directors' emoluments were paid during the relevant period.
(b) Senior management's emoluments
Details of emoluments paid to the five highest paid
individuals are as follows:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Salaries, allowances and benefits in kind 563 598 734
Retirement benefits 88 103 122
--------- --------- ----------
651 701 856
========= ========= ==========
An analysis of emoluments paid to the five highest paid
individuals by number of individuals and emoluments range is as
follows:
Years ended 31 December
2001 2002 2003
RMB Nil - RMB 1,000,000 5 5 5
========= ========= ==========
There was no arrangement under which an employee waived any
remuneration during the relevant period.
7 Property, plant and equipment, net
Generators Motor
and vehicles,
related furniture,
machinery fixtures,
and equipment Construction
Buildings equipment and others in progress Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Cost:
Balance at 1 January 2001 441,225 6,071,182 23,970 8,465 6,544,842
Additions 4,851 22,799 3,450 29,931 61,031
Transferred from construction in progress - 15,760 - (15,760) -
Disposals (4,157) (32) (3,815) - (8,004)
--------- --------- --------- -------- ----------
Balance at 31 December 2001 441,919 6,109,709 23,605 22,636 6,597,869
--------- --------- --------- -------- ----------
Accumulated depreciation:
Balance at 1 January 2001 (160,714) (2,252,310) (20,785) - (2,433,809)
Charge for the year (16,632) (396,127) (954) - (413,713)
Reversal upon disposal 2,343 32 3,815 - 6,190
--------- --------- --------- -------- ----------
Balance at 31 December 2001 (175,003) (2,648,405) (17,924) - (2,841,332)
========= ========= ========= ======== ==========
Net book value at 31 December 2001 266,916 3,461,304 5,681 22,636 3,756,537
========= ========= ========= ======== ==========
Cost:
Balance at 1 January 2002 441,919 6,109,709 23,605 22,636 6,597,869
Additions - 20,941 6,767 18,666 46,374
Transferred from construction in progress - 15,650 - (15,650) -
Disposals (1,302) (434) (3,286) - (5,022)
--------- --------- --------- -------- ----------
Balance at 31 December 2002 440,617 6,145,866 27,086 25,652 6,639,221
--------- --------- --------- -------- ----------
Accumulated depreciation:
Balance at 1 January 2002 (175,003) (2,648,405) (17,924) - (2,841,332)
Charge for the year (16,433) (396,651) (1,703) - (414,787)
Reversal upon disposal 637 364 3,193 - 4,194
--------- --------- --------- -------- ----------
Balance at 31 December 2002 (190,799) (3,044,692) (16,434) - (3,251,925)
========= ========= ========= ======== ==========
Net book value at 31 December 2002 249,818 3,101,174 10,652 25,652 3,387,296
========= ========= ========= ======== ==========
Cost:
Balance at 1 January 2003 440,617 6,145,866 27,086 25,652 6,639,221
Additions 671 5,046 3,990 142,707 152,414
Transferred from construction in progress - 53,794 - (53,794) -
Disposals - (412) - - (412)
--------- --------- --------- -------- ----------
Balance at 31 December 2003 441,288 6,204,294 31,076 114,565 6,791,223
========= ========= ========= ======== ==========
Accumulated depreciation:
Balance at 1 January 2003 (190,799) (3,044,692) (16,434) - (3,251,925)
Charge for the year (16,402) (398,861) (1,668) - (416,931)
Reversal upon disposal - 406 - - 406
--------- --------- --------- -------- ----------
Balance at 31 December 2003 (207,201) (3,443,147) (18,102) - (3,668,450)
========= ========= ========= ======== ==========
Net book value at 31 December 2003 234,087 2,761,147 12,974 114,565 3,122,773
========= ========= ========= ======== ==========
All of Luohuang Power Plant's buildings are located in the PRC.
The land occupied by Luohuang Power Plant was allocated by the PRC
government at nil consideration and cannot be transferred, leased nor
mortgaged.
The construction in progress as at 31 December 2003 mainly
represents costs incurred for the Phase III Project.
8 Deferred tax assets
Deferred tax assets and deferred tax liabilities are attributable
to the items set out below:
Assets Liabilities Net balance
2001 2002 2003 2001 2002 2003 2001 2002 2003
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Provision for
receivables 48,548 48,548 49,021 - - - 48,548 48,548 49,021
Provision for
inventories 1,076 1,076 1,076 - - - 1,076 1,076 1,076
Property, plant and
equipment - - - (6,887) (6,887) (17,544) (6,887) (6,887) (17,544)
------ ------ ------ ------ ------ ------- ------ ------ -------
Deferred tax assets/
(liabilities) 49,624 49,624 50,097 (6,887) (6,887) (17,544) 42,737 42,737 32,553
====== ====== ====== ====== ====== ======= ====== ====== =======
There was no movement in temporary differences in 2001 and 2002.
The movements in temporary differences in 2003 are as follows:
Balance at Recognised in Balance at
1 January statement of 31 December
2003 income 2003
RMB'000 RMB'000 RMB'000
Provision for receivables 48,548 473 49,021
Provision for inventories 1,076 - 1,076
Property, plant and equipment (6,887) (10,657) (17,544)
-------- -------- -------
Net deferred tax assets/(liabilities) 42,737 (10,184) 32,553
======== ======== =======
(note 5(a))
9 Inventories
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Coal 8,670 14,747 14,045
Fuel oil 6,560 2,598 3,822
Materials, components and spare parts 82,198 73,099 67,802
-------- -------- -------
97,428 90,444 85,669
======== ======== =======
The carrying amount of materials, components and spare parts is net
of a provision for obsolescence amounting to approximately RMB9,133,000,
RMB8,197,000 and RMB7,171,000 as at 31 December 2001, 2002 and 2003,
respectively.
10 Trade receivables, net
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Trade receivables 1,074,465 1,069,682 907,979
Less: Allowance for doubtful accounts (376,635) (350,222) (319,744)
--------- --------- --------
697,830 719,460 588,235
========= ========= ========
The following table summarises the changes in the allowance for
doubtful accounts for each of the years in the three-year period ended 31
December 2003:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Balance at 1 January 376,635 376,635 350,222
Trade receivables written off - (26,413) (30,478)
-------- -------- -------
Balance at 31 December 376,635 350,222 319,744
======== ======== =======
Luohuang Power Plant usually grants one month credit period to the
municipal power grid company from the end of the month in which the sales
are made.
Ageing analysis of trade receivables is as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Current, within one month 139,523 193,830 190,144
Overdue 558,307 525,630 398,091
-------- -------- -------
697,830 719,460 588,235
======== ======== =======
11 Other receivables and prepayments
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Prepayments for coals 10,647 5,952 822
Prepayments for materials 2,972 6,373 894
Others 21,282 26,854 23,093
-------- -------- -------
34,901 39,179 24,809
======== ======== =======
12 Amount due from/to HIPDC
The amount due from/to HIPDC is interest free, unsecured and
receivable/repayable on demand.
13 Cash and cash equivalents
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash at bank and in hand 80,628 63,473 28,926
Cash deposited with a related party (note) 140,668 246,248 -
-------- -------- -------
221,296 309,721 28,926
======== ======== =======
Note: It represents cash deposited with China Huaneng Finance Company
("Huaneng Finance"), a subsidiary company of China Huaneng
Group, the ultimate holding company of the Company.
14 Accounts payables and other liabilities
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Accounts payables 27,108 36,025 24,540
Payables for construction projects 5,140 7,636 14,852
Other payables 16,232 9,109 17,627
-------- -------- -------
48,480 52,770 57,019
======== ======== =======
The accounts payables as at 31 December 2001, 2002 and 2003 was due
within one month or on demand.
15 Interest bearing loans and borrowings
The following provides information about the contractual terms of
Luohuang Power Plant's interest bearing loans and borrowings:
(a) Short-term bank loans
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Bank loan - - 75,000
Loan from HIPDC 513,148 768,982 -
Loan from Chongqing Investment - - 237,584
-------- -------- -------
Total 513,148 768,982 312,584
======== ======== =======
The interest rate of the short-term bank loan was 4.54% per annum
as at 31 December 2003. The interest rate of the loan from HIPDC was
5.76% per annum as at 31 December 2001 and 2002. The interest rate of the
loan from Chongqing Investment was 5.31% per annum as at 31 December
2003.
(b) Long-term loans from HIPDC
31 December
Interest rate and final maturity 2001 2002 2003
RMB'000 RMB'000 RMB'000
Loans from HIPDC
(note 1):
-US dollars Fixed interest rates ranging from
denominated 5.95% to 6.97% per annum with
maturities through 2011 2,079,882 1,870,212 1,660,244
-US dollars Floating interest rate at 2.3% per
denominated annum as at 31 December 2002 183,741 91,878 -
-France Francs/Euro Fixed interest rate at 2% per annum
dollars with maturities through 2024 671,723 750,509 845,719
denominated
(note 2)
--------- --------- ---------
2,935,346 2,712,599 2,505,963
Less: current portion (338,419) (345,770) (262,617)
--------- --------- ---------
Non-current portion 2,596,927 2,366,829 2,243,346
========= ========= =========
Note 1: Foreign currency denominated loans from HIPDC is
originated from loans borrowed by HIPDC from overseas
banks. HIPDC on-lent these loans to Luohuang Power Plant
at cost.
Note 2: The loan denominated in France Francs was converted to
Euro dollar denominated loan on 1 January 2002.
The aggregate maturities of Luohuang Power Plant's long-term loans
subsequent to 31 December 2003 are as follows:
RMB'000
2004 262,617
2005 262,641
2006 264,853
2007 264,853
2008 264,853
Thereafter 1,186,146
-------------
Total 2,505,963
=============
In 2003, in connection with the transformation of Chongqing Branch
to Luohuang Power Plant, loans from HIPDC of RMB340,584,000 was
capitalised as equity, loans from HIPDC of RMB237,584,000 was transferred
to loan from Chongqing Investment.
16 Capital commitments
Luohuang Power Plant had capital commitments as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Authorised and contracted for 2,475 3,036 905,179
Authorised but not contracted for 437 562 3,696,655
------ ----- ---------
2,912 3,598 4,601,834
====== ===== =========
Capital commitments as at 31 December 2003 mainly relate to the
Phase III Project.
17 Concentration of risks
(a) Credit and concentration risk
The carrying amounts of cash and cash equivalents, trade
receivables, amount due from HIPDC, other receivables and
prepayments represent Luohuang Power Plant's maximum exposure to
credit risk in relation to financial assets. Luohuang Power Plant
sells the electricity generated to its sole customer, the municipal
power grid company. Luohuang Power Plant maintains an allowance for
doubtful accounts in respect of those overdue debts after
evaluation of the recoverability of the receivable at the balance
sheet date.
Substantially all of Luohuang Power Plant's cash and cash
equivalents are deposited with the four largest state-owned banks
of the PRC.
Luohuang Power Plant does not have concentrations of
available sources of labour, services, franchises, licenses or
other rights that could, if suddenly eliminated, severely impact
their operations.
(b) Interest rate risk
The interest rates and terms of repayment of the outstanding
loans and borrowings of Luohuang Power Plant is disclosed in note
15.
(c) Currency risk
Luohuang Power Plant has foreign currency risk as a portion
of its long-term loans are denominated in foreign currency,
principally in US dollars and Euro dollar as described in note 15.
Fluctuation of exchange rates of Renminbi against foreign
currencies could affect Luohuang Power Plant's results of
operations.
18 Related party transactions
The principal related party transactions with related parties,
which were carried out in the ordinary course of business, are as
follows:
Years ended 31 December
Transaction Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Interests on loans a 207,437 183,818 203,530
Management fee b 9,093 11,636 13,172
Interest income on deposits c 63 2,053 1,012
Purchase of raw materials d 27,331 32,732 34,114
Notes:
(a) This represents interest incurred in relation to loans borrowed
from HIPDC. Details of loans borrowed from HIPDC are disclosed
in note 15.
(b) This represents fees paid to HIPDC in connection with the
provision of management services to Luohuang Power Plant. The
fee is charged based on the volume of electricity generation.
(c) This represents interest income derived from cash deposited
with Huaneng Finance. Details of cash deposited with Huaneng
Finance are disclosed in note 13.
(d) This represents production materials purchased from an
associated company of HIPDC. The transaction was entered into
in the normal commercial terms.
19 Fair values of financial instruments
Financial assets of Luohuang Power Plant include cash and cash
equivalents, trade receivables, amount due from HIPDC and other
receivables and prepayments. Financial liabilities of Luohuang Power
Plant include interest-bearing loans and borrowings, accounts payables
and other liabilities, taxes payable, amount due to HIPDC and staff
welfare and bonus payable. Luohuang Power Plant does not hold nor issue
financial instruments for trading purposes.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of IAS 32 and IAS
39. Fair value estimates, methods and assumptions, set forth below for
Luohuang Power Plant's financial instruments, are made to comply with the
requirements of IAS 32 and IAS 39, and should be read in conjunction with
the Financial Information. The estimated fair value amounts have been
determined by Luohuang Power Plant using market information and valuation
methodologies considered appropriate. However, considerable judgment is
required to interpret market data to develop the estimates of fair
values. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts Luohuang Power Plant could realise in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The following summarises the major methods and assumptions used in
estimating the fair values of Luohuang Power Plant's financial
instruments.
The carrying amounts of cash and cash equivalents, trade
receivables, other receivables and prepayments, short-term
interest-bearing loans and borrowings, accounts payables and other
liabilities, taxes payables, amount due from/to HIPDC and staff welfare
and bonus payable approximate to fair value due to the short-term
maturity of these instruments.
The estimated fair value of long-term debt, including current
maturities, was RMB2,322 million, RMB2,108 million and RMB1,892 million
as at 31 December 2001, 2002 and 2003, respectively. The fair value of
long-term debt is determined by discounting the stream of future payments
of interest and principal at the interest rates available to Luohuang
Power Plant for similar indebtedness. The book value of these long-term
debts was RMB2,080 million, RMB1,870 million and RMB1,660 million as at
31 December 2001, 2002 and 2003, respectively.
20 Distributable reserves
Luohuang Power Plant had no distributable reserve as at 31 December
2003.
VI ULTIMATE HOLDING COMPANY
The management of Luohuang Power Plant considers the ultimate
holding company to be Huaneng Group.
VII SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Luohuang
Power Plant in respect of any period subsequent to 31 December 2003.
Yours faithfully
KPMG
Certified Public Accountants
Hong Kong, China
--------------------------------------------------------------------------------
APPENDIX V ACCOUNTANTS' REPORT OF YINGKOU POWER PLANT
--------------------------------------------------------------------------------
The following is the text of a report, prepared for the purpose of
inclusion in this circular, received from the independent reporting
accountants, KPMG, Certified Public Accountants, Hong Kong. As described in
the section headed "Documents for inspection" in Appendix X, a copy of
the following accountants' report is available for inspection.
[GRAPHIC OMITTED] 8th Floor
Prince's Building
10 Chater Road
Hong Kong
29 April 2004
The Directors
Huaneng Power International, Inc.
Dear Sirs,
INTRODUCTION
We set out below our report on the financial information relating to
Huaneng International Power Development Corporation, Yingkou Branch Company
("Yingkou Power Plant"), in Sections I to VI below (the "Financial
Information"), including the balance sheets of Yingkou Power Plant as at 31
December 2001, 2002 and 2003, the statements of income, head office account and
cash flows of Yingkou Power Plant for each of the years in the three-year
period ended 31 December 2003 (the "relevant period"), for inclusion in the
shareholders' circular of Huaneng Power International, Inc. ("the Company")
dated 29 April 2004 (the "Circular").
Yingkou Power Plant is a branch of Huaneng International Power
Development Corporation ("HIPDC"), the immediate holding company of the
Company, established in March 1987 in Liaoning Province, the People's Republic
of China ("the PRC"). It owns and operates two coal-fired generating units with
installed capacity of 320 MW each. The generating units commenced commercial
operation in January and December 1996 respectively.
The financial statements of Yingkou Power Plant were not audited by any
independent auditors during the relevant period.
Pursuant to the transfer agreement entered into between the Company and
HIPDC on 16 April 2004, as described more fully in the section headed "Transfer
Agreements" in the letter from the Board contained in the Circular, the Company
will acquire from HIPDC all of Yingkou Power Plant's assets and assumption of
all its liabilities.
BASIS OF PREPARATION
The Financial Information has been prepared by the management of Yingkou
Power Plant based on the management accounts of Yingkou Power Plant to conform
with International Financial Reporting Standards ("IFRS") promulgated by the
International Accounting Standards Board. IFRS includes International
Accounting Standards and interpretations.
RESPONSIBILITY
The preparation of the Financial Information, which gives a true and fair
view, is the responsibility of Yingkou Power Plant's management. In preparing
the Financial Information which gives a true and fair view, it is fundamental
that appropriate accounting policies are selected and applied consistently,
that judgements and estimates are made which are prudent and reasonable and
that the reasons for any significant departure from applicable accounting
standards are stated.
It is our responsibility to form an independent opinion, based on our
audit, on the Financial Information.
BASIS OF OPINION
For the purpose of this report, we have audited the Financial Information
of Yingkou Power Plant for the relevant period and carried out such procedures
as we considered necessary in accordance with the Auditing Guideline
"Prospectuses and the Reporting Accountant" issued by the Hong Kong Society of
Accountants ("HKSA"). We have not audited any financial statements of Yingkou
Power Plant in respect of any period subsequent to 31 December 2003.
We conducted our audit in accordance with Statements of Auditing
Standards issued by HKSA. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the Financial Information.
It also includes an assessment of the significant estimates and judgements made
by management in the preparation of the Financial Information, and of whether
the accounting policies are appropriate to Yingkou Power Plant's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the Financial
Information is free from material misstatement. In forming our opinion, we also
evaluated the overall adequacy of the presentation of the Financial
Information. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion, the Financial Information, for the purpose of this report
and on the basis stated above, gives a true and fair view of the state of
affairs of Yingkou Power Plant as at 31 December 2001, 2002 and 2003 and of the
results and cash flows of Yingkou Power Plant for each of the years in the
three-year period ended 31 December 2003 and has been properly prepared in
accordance with IFRS.
I STATEMENTS OF INCOME
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Revenue 2 722,873 812,694 944,803
------------ ------------ ------------
Operating expenses
- Fuel (270,094) (319,969) (399,778)
- Repairs and maintenance (22,010) (19,607) (30,047)
- Depreciation (265,355) (267,523) (268,289)
- Personnel expenses (52,408) (59,941) (60,480)
- Other operating expenses (48,655) (40,780) (49,071)
------------ ------------ ------------
Total operating expenses (658,522) (707,820) (807,665)
------------ ------------ ------------
Operating profit 3 64,351 104,874 137,138
Net financing costs 4 (89,718) (97,823) (45,662)
------------ ------------ ------------
(Loss)/profit before taxation (25,367) 7,051 91,476
Taxation 5(a) - - -
------------ ------------ ------------
Net (loss)/profit (25,367) 7,051 91,476
============ ============ ============
II BALANCE SHEETS
31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Non-current assets
Property, plant and equipment, net 7 2,576,884 2,356,726 2,136,512
------------ ------------ ------------
Current assets
Inventories 8 30,490 34,280 21,043
Trade receivables 9 57,433 157,122 204,287
Other receivables and prepayments 6,846 8,352 12,013
Cash and cash equivalents 10 134,968 38,191 75,700
------------ ------------ ------------
229,737 237,945 313,043
------------ ------------ ------------
Current liabilities
Accounts payables and other liabilities 11 32,547 76,770 27,393
Taxes payable 5(b) 16,166 10,689 17,713
Amount due to HIPDC 12 915,084 1,354,009 1,264,653
------------ ------------ ------------
963,797 1,441,468 1,309,759
------------ ------------ ------------
Net current liabilities (734,060) (1,203,523) (996,716)
------------ ------------ ------------
Total assets less current liabilities 1,842,824 1,153,203 1,139,796
------------ ------------ ------------
Non-current liabilities
Long-term loans from HIPDC 13(a) 1,086,830 590,158 614,275
Long-term bank loans 13(b) 329,000 129,000 -
------------ ------------ ------------
1,415,830 719,158 614,275
------------ ------------ ------------
Net assets 426,994 434,045 525,521
============ ============ ============
Head office account 426,994 434,045 525,521
============ ============ ============
III STATEMENTS OF HEAD OFFICE ACCOUNT
Total head
office account
RMB'000
Balance as at 1 January 2001 452,361
Net loss for the year (25,367)
--------
Balance as at 31 December 2001 426,994
Net profit for the year 7,051
--------
Balance as at 31 December 2002 434,045
Net profit for the year 91,476
--------
Balance as at 31 December 2003 525,521
========
IV STATEMENTS OF CASH FLOWS
Years ended 31 December
Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash flows from operating activities (a) 298,309 241,946 287,217
------------ ------------ ------------
Cash flows from investing activities
Capital expenditure (28,288) (50,384) (55,469)
Proceeds from disposal of property, plant and equipment 467 2,168 -
------------ ------------ ------------
Net cash used in investing activities (27,821) (48,216) (55,469)
------------ ------------ ------------
Cash flows from financing activities
Repayments of bank loans (97,490) (200,000) (129,000)
Proceeds from HIPDC loans 199,662 - 24,117
Repayments of HIPDC loans - (529,432) -
Net funds received from HIPDC - 438,925 -
Net funds submitted to HIPDC (260,396) - (89,356)
------------ ------------ ------------
Net cash used in financing activities (158,224) (290,507) (194,239)
------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents 112,264 (96,777) 37,509
Cash and cash equivalents at beginning of year 22,704 134,968 38,191
------------ ------------ ------------
Cash and cash equivalents at end of year 134,968 38,191 75,700
============= ============= =============
(a) Reconciliation of (loss)/profit before taxation to cash flows from
operating activities
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
(Loss)/profit before taxation (25,367) 7,051 91,476
Adjustments for:
Depreciation 265,355 267,523 268,289
Interest income (499) (293) (250)
Interest expenses 78,937 61,488 38,403
Unrealised exchange (gains)/losses (11,383) 32,760 -
(Gains)/losses from disposal of property, plant and equipment (40) 98 258
Decrease/(increase) in inventories 7,747 (3,790) 13,237
Decrease/(increase) in trade receivables 98,858 (99,689) (47,165)
Decrease/(increase) in other receivables and prepayments 2,022 (1,506) (3,661)
(Decrease)/increase in accounts payables and other liabilities (26,320) 44,976 (42,241)
(Decrease)/increase in taxes payable (12,563) (5,477) 7,024
-------- -------- ---------
Cash generated from operations 376,747 303,141 325,370
Interest received 499 293 250
Interest paid (78,937) (61,488) (38,403)
-------- -------- ---------
Cash flows from operating activities 298,309 241,946 287,217
======== ======== =========
V NOTES TO THE FINANCIAL INFORMATION
1 Principal accounting policies
(a) Statement of compliance
The Financial Information has been prepared in accordance
with International Financial Reporting Standards ("IFRS")
promulgated by the International Accounting Standards Board and the
disclosure requirements of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited.
IFRS includes International Accounting Standards ("IAS") and
Interpretations.
The measurement basis used in the preparation of the
Financial Information is historical cost.
The preparation of the Financial Information in accordance
with IFRS requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accounting policies described below have been
consistently applied by Yingkou Power Plant during the relevant
period.
(b) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses (see note 1(d)). The
cost of property, plant and equipment constructed by Yingkou Power
Plant includes the cost of materials, direct labour, directly
attributable costs of bringing the asset to working condition and
location for its intended use, and the cost of borrowed funds used
during construction.
Subsequent expenditure is capitalised only when it increases
the future economic benefits embodied in the item of property,
plant and equipment. All other expenditure is recognised in the
income statement as an expense as incurred.
Depreciation is provided to write off the cost of property,
plant and equipment on a straight line basis over their respective
estimated useful lives of the assets. The rates of depreciation
used are based on the following estimated useful lives:
Buildings 22-30 years
Generators and related machinery and equipment 8-13 years
Motor vehicles, furniture, fixtures, equipment and others 6-8 years
(c) Construction in progress
Construction in progress is stated at cost less impairment
losses (see note 1(d)). Cost comprises construction expenditure,
including interest costs incurred during the construction period,
the cost of related equipment, direct labour and other directly
attributable costs.
Capitalisation of these costs ceases and the construction in
progress is transferred to property, plant and equipment when the
asset is substantially ready for its intended use. In respect of a
generating unit, it is considered to be substantially ready for its
intended use when the trial run period ends.
(d) Impairment
The carrying amounts of Yingkou Power Plant's property, plant
and equipment, and construction in progress are reviewed at each
balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset's recoverable
amount is estimated. An impairment loss is recognised whenever the
carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised in the income
statement.
(i) Calculation of recoverable amount
The recoverable amount of an asset is the greater of
its net selling price and value in use. In assessing value in
use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the
risks specific to the asset. For an asset that does not
generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which
the asset belongs.
(ii) Reversal of impairment
An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable
amount.
An impairment loss is reversed only to the extent that
the asset's carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation,
if no impairment loss had been recognised.
(e) Inventories
Inventories, comprising coal, fuel oil, materials, components
and spare parts for consumption by Yingkou Power Plant, are stated
at cost, less provision for obsolescence. Cost includes cost of
purchase and, where applicable, transportation cost and handling
fee. The cost of inventories is calculated on the weighted average
basis.
(f) Trade and other receivables
Trade and other receivables are stated at their cost less
allowance for any amounts expected to be irrecoverable. An
allowance is provided for based upon the evaluation of the
recoverability of these accounts at the balance sheet date.
(g) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand,
demand deposits with banks and other financial institutions, and
short term, highly liquid investments that are readily convertible
into known amounts of cash, which are subject to an insignificant
risk of changes in value, and maturing within three months at
acquisition.
(h) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at cost,
less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost with any difference between cost and redemption value being
recognised in the income statement over the period of the
borrowings on an effective interest basis.
(i) Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing
or amount when Yingkou Power Plant has a legal or constructive
obligation arising as a result of a past event, it is probable that
an outflow of economic benefits will be required to settle the
obligation and a reliable estimate can be made. Where the time
value of money is material, provisions are stated at the present
value of the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits
will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the
probability of outflow of economic benefits is remote. Possible
obligations, whose existence will only be confirmed by the
occurrence or non-occurrence of one or more future events are also
disclosed as contingent liabilities unless the probability of
outflow of economic benefits is remote.
(j) Revenue recognition
Electricity income is recognised when electricity is supplied
to the provincial power grid company.
(k) Major overhauls, repairs and maintenance
Expenditure on major overhauls, repairs and maintenance is
charged to the income statement as it is incurred.
(l) Borrowing costs
Borrowing costs are expensed in the period in which they are
incurred, except to the extent that they are capitalised as being
directly attributable to the construction of an asset which
necessarily takes a substantial period of time to get ready for its
intended use.
(m) Translation of foreign currencies
Foreign currency transactions are translated into Renminbi
yuan at the rates of exchange ruling at the transaction dates.
Monetary assets and liabilities denominated in foreign currencies
are translated into Renminbi yuan at the rates ruling at the
balance sheet date. Foreign currency translation differences
relating to the funds borrowed to finance construction in progress,
to the extent that they are regarded as an adjustment to interest
costs, are capitalised during the construction period. All other
exchange differences are dealt with in the income statement.
(n) Taxation
Income tax on the profit or loss comprises current and
deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantially enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided, using the balance sheet liability
method, in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The temporary
differences arising from the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit are
not provided. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantially
enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it
is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax
benefit will be realised.
(o) Retirement plan
Yingkou Power Plant is required to make contributions to a
retirement plan operated by the State at rates of 19%, 20% and 20%
of the staff salaries for the years ended 31 December 2001, 2002
and 2003 respectively. A member of the plan is entitled to receive
from the State a pension equal to a fixed proportion of his or her
salary prevailing at the retirement date. In addition, Yingkou
Power Plant participates in a defined contribution retirement plan,
which is also operated by the State, and makes contributions to
this plan at 15% of previous year's staff salaries, to supplement
the above-mentioned plan. Yingkou Power Plant has no obligation to
make payments in respect of pension benefits associated with these
plans other than the annual contributions described above.
(p) Related parties
For the purposes of the Financial Information, parties are
considered to be related to Yingkou Power Plant if Yingkou Power
Plant has the ability, directly or indirectly, to control the party
or exercise significant influence over the party in making
financial and operating decisions, or vice versa, or where Yingkou
Power Plant and the party are subject to common control or common
significant influence.
(q) Segment reporting
A business segment is a distinguishable component of Yingkou
Power Plant that is engaged in providing products or services and
is subject to risks and rewards that are different from those of
other segments. For the periods presented, Yingkou Power Plant has
one operating segment, which is the generation and sale of
electricity. All the operating activities of Yingkou Power Plant
are carried out in the PRC.
2 Revenue
Revenue represents the sale of electricity to provincial power grid
company, net of value added tax ("VAT").
3 Operating profit
Operating profit is arrived at after charging:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Depreciation of property, plant and equipment 265,355 267,523 268,289
Cost of inventories 284,553 331,751 411,976
Contribution to retirement plans 5,652 11,598 11,686
Auditors' remuneration - - -
========= ========= =========
4 Net financing costs
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Interest on bank loans and other borrowings repayable within 22,458 10,376 1,996
five years
Interest on other loans 56,479 51,112 36,407
--------- --------- ---------
Total interest expense 78,937 61,488 38,403
Interest income (499) (293) (250)
Exchange losses 9,917 36,348 7,097
Others 1,363 280 412
--------- --------- ---------
89,718 97,823 45,662
========= ========= =========
No interest expense was capitalised during the relevant period.
5 Taxation
(a) Effective from 1 January 1999, in accordance with the PRC
income tax rules and regulations applicable to
Sino-foreign investment enterprises investing in energy
business, the reduced income tax rate of 15% is
applicable to such enterprises. Yingkou Power Plant,
operated as a branch of HIPDC, a Sino-foreign investment
enterprise investing in energy business, is entitled to
this tax privilege.
Yingkou Power Plant, originally operated as a branch of
HIPDC, was exempted from PRC income tax for two years
starting from the first profit-making year after
deducting all the brought forward tax losses, and
followed by a 50% reduction of the applicable tax rate
for the next three years. Up to 31 December 2003, the
brought forward tax losses have not been fully covered,
and accordingly, no provision for PRC income tax has been
made during the relevant period.
No deferred tax assets in respect of tax losses have been
recognised as the applicable tax rate in the years in
which the tax losses expected to be realised is zero
percent.
(b) Taxes payable as at 31 December 2001, 2002 and 2003 mainly
represent VAT payable.
6 Emoluments of senior management
(i) Directors' emoluments
No board of directors or similar corporate governance body was
established by Yingkou Power Plant during the relevant period.
(ii) Details of emoluments paid to the five highest paid
individuals are as follows:
Years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Salaries, allowances and benefits in kind 435 458 500
Retirement benefits 70 45 58
--------- -------- -------
505 503 558
========= ======== =======
An analysis of emoluments paid to the five highest paid
individuals by number of individuals and emoluments ranges is
as follows:
Years ended 31 December
2001 2002 2003
RMB Nil - RMB100,000 5 5 5
========= ======== =======
There was no arrangement under which an employee waived any
remuneration during the relevant period.
7 Property, plant and equipment, net
Generators Motor
and vehicles,
related furniture,
machinery fixtures,
and equipment Construction
Buildings equipment and others in progress Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Cost:
Balance at 1 January 2001 1,092,674 2,851,369 34,283 18,869 3,997,195
Additions - 2,140 1,332 25,057 28,529
Transferred from construction in progress 4,622 18,497 4,390 (27,509) -
Disposals - - (1,882) - (1,882)
---------- --------- -------- -------- ---------
Balance at 31 December 2001 1,097,296 2,872,006 38,123 16,417 4,023,842
---------- --------- -------- -------- ---------
Accumulated depreciation:
Balance at 1 January 2001 (183,277) (987,160) (12,621) - (1,183,058)
Charge for the year (41,439) (221,096) (2,820) - (265,355)
Reversal upon disposal - - 1,455 - 1,455
---------- --------- -------- -------- ---------
Balance at 31 December 2001 (224,716) (1,208,256) (13,986) - (1,446,958)
========== ========= ======== ======== ==========
Net book value at 31 December 2001 872,580 1,663,750 24,137 16,417 2,576,884
========== ========= ======== ======== ==========
Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Cost:
Balance at 1 January 2002 1,097,296 2,872,006 38,123 16,417 4,023,842
Additions - 1,672 221 47,738 49,631
Transferred from construction in progress 11,627 16,086 429 (28,142) -
Disposals (3,387) - - - (3,387)
---------- --------- -------- -------- ---------
Balance at 31 December 2002 1,105,536 2,889,764 38,773 36,013 4,070,086
========== ========= ======== ======== ==========
Accumulated depreciation:
Balance at 1 January 2002 (224,716) (1,208,256) (13,986) - (1,446,958)
Charge for the year (41,580) (222,835) (3,108) - (267,523)
Reversal upon disposal 1,121 - - - 1,121
---------- --------- -------- -------- ---------
Balance at 31 December 2002 (265,175) (1,431,091) (17,094) - (1,713,360)
========== ========= ======== ======== ==========
Net book value at 31 December 2002 840,361 1,458,673 21,679 36,013 2,356,726
========== ========= ======== ======== ==========
Cost:
Balance at 1 January 2003 1,105,536 2,889,764 38,773 36,013 4,070,086
Additions - - 1,142 47,191 48,333
Transferred from construction in progress 10,140 60,763 373 (71,276) -
Disposals (427) - - - (427)
---------- --------- -------- -------- ---------
Balance at 31 December 2003 1,115,249 2,950,527 40,288 11,928 4,117,992
========== ========= ======== ======== ==========
Accumulated depreciation:
Balance at 1 January 2003 (265,175) (1,431,091) (17,094) - (1,713,360)
Charge for the year (42,045) (224,233) (2,011) - (268,289)
Reversal upon disposal 169 - - - 169
---------- --------- -------- -------- ---------
Balance at 31 December 2003 (307,051) (1,655,324) (19,105) - (1,981,480)
========== ========= ======== ======== ==========
Net book value at 31 December 2003 808,198 1,295,203 21,183 11,928 2,136,512
========== ========= ======== ======== ==========
All of Yingkou Power Plant's buildings are located in the PRC.
The land occupied by Yingk ou Power Plant was allocated by the PRC
government at nil consideration and cannot be transferred, leased nor
mortgaged.
8 Inventories
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Coal 10,961 17,655 6,617
Fuel oil 2,324 2,269 2,395
Materials, components and spare parts 17,205 14,356 12,031
-------- ------- --------
30,490 34,280 21,043
======== ======= ========
The carrying amount of materials, components and spare parts is net
of a provision for obsolescence amounting to approximately RMB 1,883,000,
RMB 1,595,000 and RMB 1,336,000 as at 31 December 2001, 2002 and 2003,
respectively.
9 Trade receivables
The balance of trade receivables as at 31 December 2001, 2002 and
2003 was due from the provincial power grid company and was current.
Yingkou Power Plant usually grants one month credit period to the
provincial power grid company from the end of the month in which the
sales are made.
10 Cash and cash equivalents
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Cash at bank and in hand 134,968 38,191 75,700
========= ========= =========
11 Accounts payables and other liabilities
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Accounts payables 13,173 54,258 19,750
Payables for construction projects 12,464 11,711 4,575
Other payables 6,910 10,801 3,068
------- ------- -------
32,547 76,770 27,393
======= ======= =======
The accounts payables as at 31 December 2001, 2002 and 2003 was due
within one month or on demand.
12 Amount due to HIPDC
The amount due to HIPDC was interest free, unsecured and repayable
on demand.
13 Interest-bearing loans and borrowings
The following provides information about the contractual terms of
Yingkou Power Plant's interest bearing loans and borrowings:
(a) Long-term loans from HIPDC
31 December
Interest rate and final maturity 2001 2002 2003
RMB'000 RMB'000 RMB'000
Loans from HIPDC
- Renminbi denominated Floating interest rate at 5.18% per 606,623 398,604 614,275
annum as at 31 December 2003 with
maturities through 2009
- Swiss Francs Floating interest rate at 6.21% per 480,207 191,554 -
denominated annum as at 31 December 2002
---------- -------- ---------
1,086,830 590,158 614,275
========== ======== =========
Foreign currency denominated loans from HIPDC originated from
loans borrowed by HIPDC from overseas banks. HIPDC on-lent the
loans to Yingkou Power Plant at cost.
In 2003, the loan denominated in Swiss Francs was converted
into Renminbi denominated loan.
The balance of loan from HIPDC as at 31 December 2003 is
repayable in five equal instalments annually commencing 2005.
(b) Long-term bank loans
31 December
Interest rate and final maturity 2001 2002 2003
RMB'000 RMB'000 RMB'000
Bank loans Floating interest rate at 5.76% per 329,000 129,000 -
- Renminbi denominated annum as at 31 December 2002
======== ======== ========
The repayment of the bank loans was guaranteed by HIPDC.
14 Capital commitments
As at 31 December 2001, 2002 and 2003, Yingkou Power Plant had
capital commitments mainly in relation to enhancement projects of
generating units as follows:
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Authorised and contracted for - - 3,092
Authorised but not contracted for 4,703 1,551 916
--------- ------- -------
4,703 1,551 4,008
========= ======= =======
15 Concentration of risks
(a) Credit and concentration risk
The carrying amounts of cash and cash equivalents, trade
receivables, other receivables and prepayments represent Yingkou
Power Plant's maximum exposure to credit risk in relation to
financial assets. Yingkou Power Plant sells the electricity
generated to its sole customer, the provincial power grid company.
Substantially all of Yingkou Power Plant's cash and cash
equivalents are deposited with the four largest state-owned banks
of the PRC.
Yingkou Power Plant does not have concentrations of available
sources of labour, services, franchises, licenses or other rights
that could, if suddenly eliminated, severely impact its operations.
(b) Interest rate risk
The interest rates and terms of repayment of the outstanding
loans and borrowings of Yingkou Power Plant are disclosed in note
13.
(c) Currency risk
Yingkou Power Plant has foreign currency risk as at 31
December 2001 and 2002 as a portion of their long-term loans were
denominated in Swiss Francs as described in note 13. Such loans
were converted to Renminbi denominated loans in 2003, and Yingkou
Power Plant no longer exposed to currency risk as at 31 December
2003.
16 Related party transactions
The principal related party transactions with related
parties, which were carried out in the ordinary course of business,
are as follows:
Years ended 31 December
Transaction Note 2001 2002 2003
RMB'000 RMB'000 RMB'000
Interests on loans a 56,479 51,112 36,407
Management fee b 5,096 6,180 7,530
Notes:
(a) This represents interest incurred in relation to loans
from HIPDC. Details of loans from and guaranteed by HIPDC
are disclosed in note 13.
(b) This represents fees paid to HIPDC in connection with the
provision of management services to Yingkou Power Plant.
The fee is charged based on the volume of electricity
generated.
17 Fair values of financial instruments
Financial assets of Yingkou Power Plant include cash and cash
equivalents, trade receivables, and other receivables and prepayments.
Financial liabilities of Yingkou Power Plant include interest-bearing
loans and borrowings, accounts payables and other liabilities, taxes
payable and amount due to HIPDC. Yingkou Power Plant does not hold nor
issue financial instruments for trading purposes.
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of IAS 32 and IAS
39. Fair value estimates, methods and assumptions, set forth below for
Yingkou Power Plant's financial instruments, are made to comply with the
requirements of IAS 32 and IAS 39, and should be read in conjunction with
the Financial Information. The estimated fair value amounts have been
determined by Yingkou Power Plant using market information and valuation
methodologies considered appropriate. However, considerable judgment is
required to interpret market data to develop the estimates of fair
values. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts Yingkou Power Plant could realise in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The following summarises the major methods and assumptions used in
estimating the fair values of Yingkou Power Plant's financial
instruments.
The carrying amounts of cash and cash equivalents, trade
receivables, other receivables and prepayments, accounts payables and
other liabilities, taxes payable and amount due to HIPDC, approximate to
fair value due to the short-term maturity of these instruments.
The carrying amounts of Yingkou Power Plant's interest-bearing
loans and borrowings approximate to their fair values based on a
discounted cash flow approach using interest rates available to Yingkou
Power Plant for similar indebtedness.
18 Distributable reserve
Yingkou Power Plant had no distributable reserve as at 31 December
2003.
VI SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by Yingkou Power Plant
in respect of any period subsequent to 31 December 2003.
Yours faithfully
KPMG
Certified Public Accountants
Hong Kong, China
-------------------------------------------------------------------------------
APPENDIX VI FINANCIAL INFORMATION OF
THE COMPANY AND ITS SUBSIDIARIES
-------------------------------------------------------------------------------
The following consolidated balance sheets of Huaneng Power International,
Inc. (together with its subsidiaries are referred to as the "Company and
its subsidiaries") as at 31 December 2001, 2002 and 2003 and the
consolidated statements of income, shareholders' equity, and cash flows for
the years ended 31 December 2001, 2002 and 2003 are derived from the
audited financial statements of the Company and its subsidiaries prepared
under IFRS. All such financial information should be read in conjunction
with the audited consolidated financial statements and accompanying notes,
which are included in the Company's annual reports mailed to you or
otherwise available on request from Huaneng Power International, Inc.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
Operating revenue, net 15,791,362 18,474,469 23,388,237
------------ ----------- -----------
Operating expenses
Fuel (5,147,364) (6,916,038) (9,025,013)
Maintenance (765,712) (607,951) (921,561)
Depreciation (3,261,001) (3,533,609) (4,117,478)
Labor (807,136) (1,035,740) (1,439,673)
Service fees to HIPDC (307,322) (263,716) (214,723)
Others (488,793) (539,401) (596,627)
------------ ----------- -----------
Total operating expenses (10,777,328) (12,896,455) (16,315,075)
------------ ----------- -----------
Profit from operations 5,014,034 5,578,014 7,073,162
------------ ----------- -----------
Interest income 113,081 83,015 53,044
Interest expense (867,538) (561,875) (569,148)
Bank charges and exchange losses, net (41,758) (31,405) (28,181)
------------ ----------- -----------
Total financial expenses (796,215) (510,265) (544,285)
------------ ----------- -----------
Share of (loss)/profit of associates (5,381) (11,145) 212,091
Gain from disposal of investments 24,671 1,288 10,705
Other income, net - - 12,070
------------ ----------- -----------
Profit before tax 4,237,109 5,057,892 6,763,743
Income tax expense (715,220) (980,854) (1,149,441)
------------ ----------- -----------
Profit before minority interests 3,521,889 4,077,038 5,614,302
Minority interests (71,231) (156,034) (183,894)
------------ ----------- -----------
Net profit attributable to shareholders 3,450,658 3,921,004 5,430,408
============ =========== ===========
Proposed dividend
============ =========== ===========
Proposed dividend per share (Rmb) 0.30 0.34 0.50
============ =========== ===========
Basic earnings per share (Rmb) 0.61 0.65 0.90
============ =========== ===========
Diluted earnings per share (Rmb) 0.60 0.65 0.90
============ =========== ===========
Consolidated Balance Sheet
31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
ASSETS
Non-current assets
Property, plant and equipment, net 37,557,114 41,103,468 42,658,365
Investment in associates 226,488 200,960 2,766,031
Available-for-sale investments - 254,990 254,990
Land use rights and other assets 970,759 1,067,838 1,037,859
Deferred tax assets - - 21,311
Goodwill - 126,560 298,876
Less: Negative goodwill (2,225,505) (1,978,227) (1,730,949)
------------ ----------- -----------
Total non-current assets 36,528,856 40,775,589 45,306,483
------------ ----------- -----------
Current assets
Inventories, net 718,997 923,341 800,281
Other receivables and assets, net 240,545 242,905 259,421
Accounts receivable 1,407,171 2,361,833 2,804,026
Due from related parties - - 5,862
Restricted cash - 13,259 159,961
Temporary cash investments 6,224,070 1,141,502 144,996
Cash and cash equivalents 2,173,136 3,002,601 4,128,648
------------ ----------- -----------
Total current assets 10,763,919 7,685,441 8,303,195
------------ ----------- -----------
Total assets 47,292,775 48,461,030 53,609,678
============ =========== ===========
EQUITY AND LIABILITIES
Shareholders' equity
4,250,000,000 PRC Domestic Shares,
Par value Rmb1.00 each, in
form of legal person shares 4,250,000 4,250,000 4,250,000
250,000,000 A shares, Par value Rmb1.00 each 250,000 250,000 250,000
1,527,671,200 (2001 and 2002: 1,500,273,960) Overseas Listed 1,500,000 1,500,274 1,527,671
Foreign Shares, par value Rmb 1.00 each
Additional paid-in capital 10,137,732 10,604,843 10,780,133
Dedicated capital 2,659,012 3,373,423 4,328,423
Equity component of convertible notes 510,506 44,647 255
Retained earnings 8,986,280 10,392,873 12,818,873
------------ ----------- -----------
Total shareholders' equity 28,293,530 30,416,060 33,955,355
------------ ----------- -----------
Minority interests 486,261 910,704 1,155,197
------------ ----------- -----------
Non-current liabilities
Liability component of convertible notes - 155,999 -
Long-term loans from shareholders 777,717 388,891 -
Long-term bank loans 8,691,246 8,464,521 8,305,320
Other long-term loans 106,799 331,389 848,284
Other financial liabilities 14,875 19,397 -
Deferred tax liabilities - 121,853 103,114
------------ ----------- -----------
Total non-current liabilities 9,590,637 9,482,050 9,256,718
------------ ----------- -----------
Current liabilities
Accounts payable and other liabilities 2,657,223 3,734,350 3,342,517
Taxes payable 521,193 620,189 917,362
Due to HIPDC 36,584 100,475 87,508
Due to other related parties 3,225 - 27,338
Staff welfare and bonus payable 376,193 233,566 220,896
Short-term loans 40,000 550,000 1,600,000
Current portion of long-term loans from shareholders 15,565 388,891 388,875
Current portion of long-term bank loans 2,630,008 1,928,732 2,409,240
Current portion of other long-term loans 283,273 96,013 243,386
Liability component of convertible notes 1,703,443 - 935
Other financial liabilities 655,640 - 4,351
------------ ----------- -----------
Total current liabilities 8,922,347 7,652,216 9,242,408
------------ ----------- -----------
Total equity and liabilities 47,292,775 48,461,030 53,609,678
============ =========== ===========
Consolidated StatementS of Shareholders' Equity
Dedicated Capital
Statutory and Statutory Equity
Additional discretionary public Component of
Share Paid-in surplus welfare Convertible Retained
Capital Capital reserve fund fund Sub-total Notes Earnings Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Balance at 1 January
2001 5,650,000 7,717,674 1,532,664 490,037 2,022,701 510,506 7,878,854 23,779,735
Effect of adoption
of IAS 39 - - - - - - (463,921) (463,921)
Dividend relating to
2000 - - - - - - (1,243,000) (1,243,000)
Net profit for the
year ended 31
December 2001 - - - - - - 3,450,658 3,450,658
Transfer to
dedicated capital - - 363,606 272,705 636,311 - (636,311) -
Issuance and sale of
350,000,000 new
Domestic Shares,
net of direct
issuance costs 350,000 2,420,058 - - - - - 2,770,058
---------- ---------- ---------- --------- ---------- --------- ----------- ----------
Balance at 31
December 2001 6,000,000 10,137,732 1,896,270 762,742 2,659,012 510,506 8,986,280 28,293,530
Dividend relating to
2001 - - - - - - (1,800,000) (1,800,000)
Net profit for the
year ended 31
December 2002 - - - - - - 3,921,004 3,921,004
Conversion of
convertible notes
to share capital 274 1,696 - - - (444) - 1,526
Redemption of
convertible notes - 465,415 - - - (465,415) - -
Transfer from
statutory public
welfare fund to
discretionary
surplus reserve
fund - - 15,398 (15,398) - - - -
Transfer to
dedicated capital - - 408,235 306,176 714,411 - (714,411) -
---------- ---------- ---------- --------- ---------- --------- ----------- ----------
Balance at 31
December 2002 6,000,274 10,604,843 2,319,903 1,053,520 3,373,423 44,647 10,392,873 30,416,060
Dividend relating to
2002 - - - - - - (2,049,408) (2,049,408)
Net profit for the
year ended 31
December 2003 - - - - - - 5,430,408 5,430,408
Conversion of
convertible notes
to share capital 27,397 175,290 - - - (44,392) - 158,295
Transfer from
statutory public
welfare fund to
discretionary
surplus reserve
fund - - 2,104 (2,104) - - - -
Transfer to
dedicated capital - - 545,714 409,286 955,000 - (955,000) -
---------- ---------- ---------- --------- ---------- --------- ----------- ----------
Balance at 31
December 2003 6,027,671 10,780,133 2,867,721 1,460,702 4,328,423 255 12,818,873 33,955,355
========== ========== ========== ========== ========== ========= =========== ==========
Consolidated Statements of Cash Flow
For the years ended 31 December
2001 2002 2003
RMB'000 RMB'000 RMB'000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 4,237,109 5,057,892 6,763,743
Adjustments to reconcile profit before tax to net cash provided by
operating activities:
Depreciation 3,261,001 3,533,609 4,117,478
Amortization of prepaid land use rights 14,359 16,847 19,136
Amortization of goodwill and negative goodwill (247,279) (246,128) (222,108)
Amortization of other long-term assets 19,600 24,112 41,566
Provision for bad debts 1,030 15,826 12,567
Reversal of provision for inventory obsolescence 2,576 (945) (751)
Gain from disposal of investments (24,671) (1,288) (10,705)
Loss on disposals of fixed assets 36,592 31,980 138,726
Unrealized exchange (gain)/loss (1,429) 4,846 1,094
Unrealised loss on put option of convertible notes 46,562 - -
Gain on interest rate swaps 14,875 (2,179) (11,771)
Share of loss/(profit) of associates 5,381 11,145 (212,091)
Interest income (113,081) (83,015) (53,044)
Interest expenses 867,538 561,875 569,148
Changes in working capital:
Restricted cash - (13,259) (146,702)
Accounts receivable (28,510) (496,559) (353,637)
Due from other related parties - - (5,862)
Inventories (62,063) (39,272) 159,419
Other receivables and assets 20,228 92,579 (65,900)
Accounts payable and other liabilities (370,300) 279,019 226,584
Taxes payable (57,289) 44,070 131,281
Due to HIPDC (93,574) 65,891 (12,967)
Due to Huaneng Group - - (13,968)
Due to other related parties (49,118) (3,225) 27,338
Staff welfare and bonus payable (199,973) (152,033) (12,670)
Interest paid (715,846) (733,600) (617,162)
Income tax paid (799,669) (984,047) (989,635)
Interest received 154,847 95,577 54,182
Net cash provided by operating activities 5,918,896 7,079,718 9,533,289
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (2,870,858) (1,594,210) (3,606,704)
Proceeds from disposals of fixed assets 32,904 41,567 7,679
Decrease/(increase) in other long-term assets 81,646 3,412 (29,355)
(Increase)/decrease in temporary cash investments (4,665,290) 5,082,568 1,066,629
Proceeds from disposal of investments 384,569 2,390 80,704
Cash consideration paid for available-for-sale investment - (254,990) -
Repayment of payable to Nanjing investment (141,641) - -
Cash consideration paid for acquisitions - (2,759,435) (2,940,000)
Direct costs paid for acquisitions - (17,042) (19,618)
Cash inflow from the acquired power plants - 569,841 215,585
Net cash inflow from the Acquisition of Shandong Huaneng 2,635,695 - -
Expenditures for Shandong Huaneng acquisition (21,561) - -
Net cash (used in)/provided by investing activities (4,564,536) 1,074,101 (5,225,080)
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of short-term loans 1,300,000 120,000 769,000
Repayment of short-term loans (2,560,000) (190,000) (450,000)
Repayment of long-term loans from shareholders (208,538) (15,565) (388,988)
Drawdown of long-term bank loans 1,604,100 173,379 1,016,230
Repayment of long-term bank loans (2,233,721) (2,954,748) (2,322,348)
Drawdown of other long-term bank loans - 350,000
Repayment of other long-term loans (575,179) (283,683) (36,060)
Capital injection from minority shareholders of the subsidiaries - 77,632
Dividend paid to shareholders of the Company (1,266,317) (1,800,000) (2,049,408)
Dividend paid to minority shareholders of the subsidiaries - (138,947) (148,220)
Redemption of convertible notes - (2,234,790) -
Net proceeds from issuance of Domestic shares 2,770,058 - -
Net cash used in financing activities (1,169,597) (7,324,354) (3,182,162)
NET INCREASE IN CASH AND CASH EQUIVALENTS 184,763 829,465 1,126,047
Cash and cash equivalents, beginning of year 1,988,373 2,173,136 3,002,601
CASH AND CASH EQUIVALENTS, END OF YEAR 2,173,136 3,002,601 4,128,648
============= ============= =============
--------------------------------------------------------------------------------
APPENDIX VII FINANCIAL INFORMATION OF THE COMBINED COMPANY
AND SUBSIDIARIES (INCLUDING THE TARGET POWER PLANTS)
--------------------------------------------------------------------------------
(A) UNAUDITED PRO FORMA NET ASSETS STATEMENT OF THE COMBINED COMPANY AND
SUBSIDIARIES
The following is the text of a report, prepared for the sole purpose of
inclusion in this circular, received from the independent reporting
accountants, KPMG, Certified Public Accountants, Hong Kong. As described in the
section headed "Documents for inspection" in Appendix X, a copy of the
following report is available for inspection.
[GRAPHIC OMITTED] 8th Floor
Prince's Building
10 Chater Road
Hong Kong
29 April 2004
Board of Directors
Huaneng Power International, Inc.
Dear Sirs
We report on the unaudited pro forma net assets statement set out in
Section A of Appendix VII to the shareholders' circular of Huaneng Power
International, Inc. (the "Company") dated 29 April 2004 (the "Pro Forma Net
Assets Statement"), which has been prepared by the Company solely for
illustrative purposes to provide information about how the proposed acquisition
of 100% equity interest in Jinggangshan Huaneng Power Generation Company
Limited, 60% equity interest in Huaneng Chongqing Luohuang Power Generation
Company Limited, 55% equity interest in Huaneng Hunan Yueyang Power Generation
Company Limited, 40% equity interest in Hebei Hanfeng Power Generation Company
Limited and all the assets of Huaneng International Power Development
Corporation, Yingkou Branch Company ("Yingkou Power Plant") and assumption of
all the liabilities of Yingkou Power Plant, might have affected the
consolidated net assets of the Company and its subsidiaries as at 31 December
2003. The basis of preparation of the Pro Forma Net Assets Statement is set out
in the accompanying introduction thereto.
Responsibilities
It is the responsibility solely of the directors of the Company to
prepare the Pro Forma Net Assets Statement in accordance with Paragraph 29 of
Chapter 4 of the Rules Governing the Listing of Securities on the Stock
Exchange of Hong Kong Limited (the "Listing Rules").
It is our responsibility to form an opinion, as required by the Listing
Rules, on the Pro Forma Net Assets Statement and to report our opinion to you.
We do not accept any responsibility for any reports previously given by us on
any financial information used in the compilation of the Pro Forma Net Assets
Statement beyond that owed to those to whom those reports were addressed by us
at the dates of their issue.
Basis of opinion
We conducted our work in accordance with the Statements of Investment
Circular Reporting Standards and Bulletin 1998/8 "Reporting on pro forma
financial information pursuant to the Listing Rules" issued by the Auditing
Practices Board in the United Kingdom, where applicable. Our work consisted
primarily of comparing the historical financial information contained therein
with the source documents, considering the evidence supporting the adjustments
and discussing the Pro Forma Net Assets Statement with the directors of the
Company.
Our work did not constitute an audit or review made in accordance with
Statements of Auditing Standards issued by the Hong Kong Society of
Accountants, and accordingly, we do not express any such audit or review
assurance on the Pro Forma Net Assets Statement.
The Pro Forma Net Assets Statement is for illustrative purposes only,
based on the directors' judgements and assumptions, and because of its nature,
it does not provide any assurance or indication that any event will take place
in the future and may not be indicative of the financial position of:
o the Company and its subsidiaries had the acquisition actually
occurred on 31 December 2003; or
o the Company and its subsidiaries at any future date.
Opinion
In our opinion:
a) the unaudited Pro Forma Net Assets Statement has been properly
compiled on the basis stated;
b) such basis is consistent with the principal accounting policies
of the Company, and
c) the adjustments are appropriate for the purposes of the Pro
Forma Net Assets Statement as disclosed pursuant to Paragraph
29(1) of Chapter 4 of the Listing Rules.
Yours faithfully
KPMG
Certified Public Accountants
Hong Kong, China
Introduction to unaudited pro forma net assets statement of the Combined
Company and Subsidiaries
The accompanying unaudited pro forma net assets statement of the Combined
Company and Subsidiaries, as defined below, has been prepared giving effect to
Huaneng Power International, Inc's proposed acquisition of the following
entities (the "Acquisition"):
Name of entities Percentage of
interest to be
acquired
Jingganshan Huaneng Power Generation Company Limited
("Jingganshan Power Plant") 100%
Huaneng Chongqing Luohuang Power Generation Company Limited 60%
("Luohuang Power Plant")
Huaneng Hunan Yueyang Power Generation Company Limited
("Yueyang Power Plant") 55%
Hebei Hanfeng Power Generation Company Limited
("Hanfeng Power Plant") 40%
Huaneng International Power Development Corporation,
Yingkou Branch Company ("Yingkou Power Plant") 100%
(note)
Note: Yingkou Power Plant is a branch of Huaneng International Power
Development Corporation ("HIPDC"), all the assets and liabilities of
Yingkou Power Plant will be acquired and assumed.
The above entities, excluding Hanfeng Power Plant, are collectively
referred to as the "Target Power Plants". Huaneng Power International, Inc.
(the "Company") together with its subsidiaries are referred to as the "Company
and Subsidiaries". The total purchase price of the Acquisition is RMB4,575
million, including RMB2,564 million payable to HIPDC for the acquisition of 55%
equity interest in Yueyang Power Plant, 60% equity interest in Luohuang Power
Plant and all the assets and liabilities of Yingkou Power Plant, RMB1,949
million payable to China Huaneng Group for the acquisition of 40% equity
interest in Hanfeng Power Plant and 90% equity interest in Jinggangshan Power
Plant, RMB62 million payable to Jiangxi Province Investment Corporation for the
acquisition of 10% equity interest in Jingganshan Power Plant. The purchase
price will be satisfied by a cash payment of RMB4,575 million on the completion
date. RMB2,288 million of which will be financed by internal resources, and all
the remaining balance of RMB2,287 million will be financed by bank loans.
The accompanying unaudited pro forma net assets statement of the Target
Power Plants and the Company and Subsidiaries (collectively referred to as the
"Combined Company and Subsidiaries") and Hanfeng Power Plant as at 31 December
2003 gives effect to the Acquisition as if the Acquisition had been completed
on 31 December 2003.
The unaudited pro forma net assets statement of the Combined Company and
Subsidiaries is based upon the audited financial statements of the Target Power
Plants and Hanfeng Power Plant and the audited consolidated financial
statements of the Company and Subsidiaries after giving effect to the pro forma
adjustments described in the accompanying notes. A narrative description of the
pro forma adjustments of the Acquisition that are (i) directly attributable to
the transactions; (ii) expected to have a continuing impact on the Company and
Subsidiaries, the Target Power Plants and Hanfeng Power Plant; and (iii)
factually supportable, are summarised in the accompanying notes.
The unaudited pro forma net assets statement of the Combined Company and
Subsidiaries is based on a number of assumptions, estimates, uncertainties and
currently available information. As a result of these assumptions, estimates
and uncertainties, the accompanying unaudited pro forma net assets statement of
the Combined Company and Subsidiaries does not purport to describe the actual
financial position of the Combined Company and Subsidiaries that would have
been attained had the Acquisition been completed on 31 December 2003. Further,
the accompanying unaudited pro forma net assets statement of the Combined
Company and Subsidiaries do not purport to predict the Combined Company and
Subsidiaries' future financial position.
The unaudited pro forma net assets statement of the Combined Company and
Subsidiaries should be read in conjunction with the audited financial
information of the Target Power Plants as set out in Appendices II to V, the
audited financial information of the Company and Subsidiaries as set out in
Appendix VI and other financial information included elsewhere in this
circular.
Unaudited pro forma net assets statement of the Combined Company and
Subsidiaries as at 31 December 2003
Target Pro Forma
The Company Power Combined Company
and Plants Pro Forma Pro Forma and Subsidiaries
Subsidiaries combined combined adjustments combined
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Note)
ASSETS
Non-current assets
Property, plant and equipment, net 42,658,365 7,856,654 50,515,019 1,772,476 (2) 52,287,495
Investment in associates 2,766,031 - 2,766,031 1,138,281 (4) 3,904,312
Available-for-sale investments 254,990 500 255,490 - 255,490
Land use rights and other assets 1,037,859 49,500 1,087,359 - 1,087,359
Deferred tax assets 21,311 32,553 53,864 - 53,864
Goodwill 298,876 - 298,876 949,121 (5) 1,247,997
Less: Negative goodwill (1,730,949) - (1,730,949) - (1,730,949)
----------- ---------- ----------- ---------- -----------
Total non-current assets 45,306,483 7,939,207 53,245,690 3,859,878 57,105,568
----------- ---------- ----------- ---------- -----------
Current assets
Inventories, net 800,281 219,208 1,019,489 - 1,019,489
Other receivables and assets, net 259,421 68,317 327,738 - 327,738
Bills receivable - 222,327 222,327 - 222,327
Accounts receivable 2,804,026 1,213,110 4,017,136 - 4,017,136
Due from related parties 5,862 154,845 160,707 - 160,707
Restricted cash 159,961 - 159,961 - 159,961
Temporary cash investments 144,996 - 144,996 - 144,996
Cash and cash equivalents 4,128,648 176,491 4,305,139 (2,288,000) (1) 2,017,139
----------- ---------- ----------- ---------- -----------
Total current assets 8,303,195 2,054,298 10,357,493 (2,288,000) 8,069,493
=========== ========== =========== ========== ===========
Total assets 53,609,678 9,993,505 63,603,183 1,571,878 65,175,061
=========== ========== =========== ========== ===========
Non-current liabilities
Long-term loans from shareholders - 2,857,621 2,857,621 - 2,857,621
Long-term bank loans 8,305,320 1,123,000 9,428,320 2,287,000 (1) 11,715,320
Other long-term loans 848,284 - 848,284 - 848,284
Deferred tax liabilities 103,114 26,501 129,615 409,290 (3) 538,905
----------- ---------- ----------- ---------- -----------
Total non-current liabilities 9,256,718 4,007,122 13,263,840 2,696,290 15,960,130
----------- ---------- ----------- ---------- -----------
Current liabilities
Accounts payable and other liabilities 3,342,517 231,368 3,573,885 - 3,573,885
Taxes payable 917,362 273,925 1,191,287 - 1,191,287
Due to HIPDC 87,508 1,326,986 1,414,494 - 1,414,494
Due to other related parties 27,338 6,000 33,338 - 33,338
Staff welfare and bonus payable 220,896 125,478 346,374 - 346,374
Short-term loans 1,600,000 1,340,262 2,940,262 - 2,940,262
Current portion of long-term loans from 388,875 262,617 651,492 - 651,492
shareholders
Current portion of long-term bank loans 2,409,240 164,975 2,574,215 - 2,574,215
Current portion of other long-term loans 243,386 - 243,386 - 243,386
Liability component of convertible notes 935 - 935 - 935
Other financial liabilities 4,351 - 4,351 - 4,351
----------- ---------- ----------- ---------- -----------
Total current liabilities 9,242,408 3,731,611 12,974,019 - 12,974,019
=========== ========== =========== ========== ===========
Total liabilities 18,499,126 7,738,733 26,237,859 2,696,290 28,934,149
=========== ========== =========== ========== ===========
Minority interests 1,155,197 - 1,155,197 1,130,360 (6) 2,285,557
=========== ========== =========== ========== ===========
Net assets 33,955,355 2,254,772 36,210,127 (2,254,772) 33,955,355
=========== ========== =========== ========== ===========
Note: See historical net assets statement of the Target Power Plants on pages 157 and 158.
See accompanying notes to unaudited pro forma net assets statement of the
Combined Company and Subsidiaries.
Historical net assets statement of the Target Power Plants
as at 31 December 2003
Target
Luohuang Yueyang Yingkou Power
Jingganshan Power Power Power Plants
Power Plant Plant Plant Plant combined
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
ASSETS
Non-current assets
Property, plant and equipment, net 1,923,456 3,122,773 673,913 2,136,512 7,856,654
Investment in associates - - - - -
Available-for-sale investments 500 - - - 500
Land use rights and other assets - - 49,500 - 49,500
Deferred tax assets - 32,553 - - 32,553
Goodwill - - - - -
Less: Negative goodwill - - - -
---------- ---------- --------- ---------- ----------
Total non-current assets 1,923,956 3,155,326 723,413 2,136,512 7,939,207
---------- ---------- --------- ---------- ----------
Current assets
Inventories, net 38,015 85,669 74,481 21,043 219,208
Other receivables and assets, net 16,819 24,809 14,676 12,013 68,317
Bills receivable - - 222,327 - 222,327
Accounts receivable 142,294 588,235 278,294 204,287 1,213,110
Due from related parties - 154,845 - - 154,845
Restricted cash - - - - -
Temporary cash investments - - - - -
Cash and cash equivalents 58,121 28,926 13,744 75,700 176,491
---------- ---------- --------- ---------- ----------
Total current assets 255,249 882,484 603,522 313,043 2,054,298
========== ========== ========= ========== ==========
Total assets 2,179,205 4,037,810 1,326,935 2,449,555 9,993,505
========== ========== ========= ========== ==========
Non-current liabilities
Long-term loans from shareholders - 2,243,346 - 614,275 2,857,621
Long-term bank loans 1,123,000 - - - 1,123,000
Other long-term loans - - - - -
Deferred tax liabilities - - 26,501 - 26,501
---------- ---------- --------- ---------- ----------
Total non-current liabilities 1,123,000 2,243,346 26,501 614,275 4,007,122
---------- ---------- --------- ---------- ----------
Current liabilities
Accounts payable and other liabilities 40,591 57,019 106,365 27,393 231,368
Taxes payable 55,774 106,016 94,422 17,713 273,925
Due to HIPDC - - 62,333 1,264,653 1,326,986
Due to other related parties 6,000 - - - 6,000
Staff welfare and bonus payable 55,505 62,372 7,601 - 125,478
Short-term loans 320,000 312,584 707,678 - 1,340,262
Current portion of long-term loans from shareholders - 262,617 - - 262,617
Current portion of long-term bank loans 164,975 - - - 164,975
Current portion of other long-term loans - - - - -
Liability component of convertible notes - - - - -
Other financial liabilities - - - - -
Total current liabilities 642,845 800,608 978,399 1,309,759 3,731,611
---------- ---------- --------- ---------- ----------
Total liabilities 1,765,845 3,043,954 1,004,900 1,924,034 7,738,733
========== ========== ========= ========== ==========
Minority interests - - - - -
========== ========== ========= ========== ==========
Net assets 413,360 993,856 322,035 525,521 2,254,772
========== ========== ========= ========== ==========
Notes to unaudited pro forma net assets statement of the Combined Company
and Subsidiaries
(1) In connection with the Acquisition, a cash consideration of RMB4,575
million will be paid by the Company on the completion date. RMB2,288
out of the purchase price will be financed by internal resources, and
all the remaining balance of RMB2,287 will be financed by bank loans.
The pro forma net assets statement adjustment reflects the decrease
in cash and increase in bank loans as a result of the payment for the
consideration as if the payment for the consideration had taken place
on 31 December 2003.
(2) Following completion of the Acquisition, the assets and liabilities
of the Target Power Plants will be accounted for in the consolidated
financial statements of the Company at their fair value under
purchase method of accounting. According to the Directors'
assessment, with reference to a valuation performed by a registered
professional valuer in the PRC on the Target Power Plants' assets and
liabilities as at 31 December 2003, the fair value of the Power
Plants' property, plant and equipment was higher than their net book
value by RMB1,772 million. The pro forma net assets statement
adjustment reflects the increase in value of property, plant and
equipment compared with their respective historical net book value as
if the Acquisition had taken place on 31 December 2003.
(3) As described in note (2) above, following completion of the
Acquisition, the assets and liabilities of the Target Power Plants
will be accounted for in the consolidated financial statements of the
Company at their fair value. According to the relevant PRC rules and
regulations, the original book value of Luohuang Power Plant and
Yueyang Power Plant's property, plant and equipment will continue to
serve as the tax base for future years as the acquisition of the
equity interest in Luohuang Power Plant and Yueyang Power Plant is
less than 100%. Accordingly, the pro forma net assets statement
adjustment reflects the increase in deferred tax liabilities of
RMB409 million as a result of the upward fair value adjustment on the
property, plant and equipment of Luohuang Power Plant and Yueyang
Power Plant as if the Acquisition had taken place on 31 December
2003. The tax rates applied for the calculation of the deferred tax
liabilities are 15% and 33% for Luohuang Power Plant and Yueyang
Power Plant, respectively.
(4) Following completion of the Acquisition, Hanfeng Power Plant will
become a 40% owned associated company of the Company, which will be
accounted for under equity method of accounting. According to the
Directors' assessment, with reference to a valuation performed by a
registered professional valuer in the PRC on Hanfeng Power Plant's
assets and liabilities as at 31 December 2003, the 40% share of the
assets and laibilities of Hanfeng Power Plant at their fair value as
at 31 December 2003 is estimated to be RMB1,138 million. The pro
forma net assets statement adjustment reflects the increase in
investment in associates as a result of equity account for the 40%
interest in Hanfeng Power Plant as if the Acquisition had taken place
on 31 December 2003.
(5) Positive goodwill represents the excess of the total purchase
consideration of RMB4,575 million and the estimated fair value of the
underlying net assets of the Target Power Plants and Hanfeng Power
Plant as of 31 December 2003. The pro forma net assets statement
adjustment reflects the recording of positive goodwill as a result of
the acquisition of the Target Power Plants and Hanfeng Power Plant as
if the Acquisition had taken place on 31 December 2003.
(6) Following completion of the Acquisition, Luohuang Power Plant and
Yueyang Power Plant will become 60% and 55% owned subsidiaries of the
Company, respectively. The pro forma net assets statement adjustment
reflects the minority owners' share of these companies' net assets as
if the Acquisition had taken place on 31 December 2003.
(B) Working Capital
The Directors are of the opinion that the Combined Company and
Subsidiaries will, following the completion of the Acquisition, have sufficient
working capital for its present requirements.
(C) Indebtedness
At the close of business on 31 March 2004, being the latest practicable
date for the purpose of this indebtedness statement, the Combined Company and
Subsidiaries had outstanding borrowings of approximately Rmb19,816 million in
aggregate. These borrowings comprise unsecured bank loans of approximately
Rmb12,803 million, unsecured loans of approximately Rmb2,916 million from China
Huaneng Finance Company, unsecured loans of approximately Rmb3,077 million from
Huaneng International Power Development Corporation, other unsecured loans of
approximately Rmb1,019 million and unsecured convertible notes of Rmb1 million.
In respect of the above borrowings, approximately Rmb740 million of the
unsecured bank loans are guaranteed by certain minority owners of the Company's
subsidiaries, approximately Rmb3,044 million of unsecured banks loans are
guaranteed by China Huaneng Group, approximately Rmb4,428 million of unsecured
bank loans are guaranteed by Huaneng International Power Development
Corporation and approximately Rmb315 million of other unsecured loans are
guaranteed by third parties.
As at 31 March 2004, the Company had provided guarantee in respect of a
bank loan of approximately RMB 331 million granted to an associate of the
Company. Upon completion date of the Acquisition, the Company will guarantee
certain bank loans borrowed by Hanfeng Power Plant, to an extent which is
proportional to the Company's interest in the power plant. The bank loans to be
guaranteed by the Company as at 31 March 2004 were RMB1,484 million.
Save as aforesaid and apart from intra-group liabilities, none of the
companies in the Combined Company and Subsidiaries had outstanding at the close
of business on 31 March 2004 any mortgages, charges or debentures, loan
capital, bank overdrafts, loans and other similar indebtedness, hire purchase
commitments, liabilities under acceptances, guarantees or other material
contingent liabilities.
-------------------------------------------------------------------------------
APPENDIX VIII PROPERTY VALUATION REPORT
-------------------------------------------------------------------------------
[GRAPHIC OMITTED][GRAPHIC OMITTED]
29 April, 2004
The Directors
Huaneng Power International, Inc.
West Wing, Building C,
Tianyin Mansion,
2C Fuxingmennan Street,
Xicheng District,
Beijing 100031,
The People's Republic of China
Dear Sirs,
In accordance with your instructions for us to value the property
interests to be acquired by Huaneng Power International, Inc. (the "Company")
in the People's Republic of China ("the PRC"), we confirm that we have carried
out inspections, made relevant enquiries and obtained such further information
as we consider necessary for the purpose of providing you with our opinion of
the open market value of such property interests as at 31 December, 2003.
Our valuation is our opinion of the open market value which we would
define as intended to mean - "the best price at which the sale of an interest
in property might reasonably be expected to have been completed unconditionally
for cash consideration on the date of valuation assuming:-
(a) a willing seller;
(b) that, prior to the date of valuation, there had been a
reasonable period (having regard to the nature of the property
and the state of the market) for the proper marketing of the
interest, for the agreement of price and terms and for the
completion of the sale;
(c) that the state of the market, level of values and other
circumstances were, on any earlier assumed date of exchange of
contracts, the same as on the date of valuation;
(d) that no account is taken of any additional bid by a special
purchaser with a special interest; and
(e) that both parties to the transaction had acted knowledgeably,
prudently and without compulsion."
In valuing the property in the PRC, we have adopted a combination of the
market and depreciated replacement cost approaches in assessing the land
portions of the property and the buildings and structures standing on the land
respectively. Hence, the sum of the two results represents the market value of
the property as a whole. In the valuation of the land portions, reference has
been made to the standard land price and the sales evidence as available to us
in the locality. Due to the nature of the buildings and structures cannot be
valued on the basis of open market value, they have therefore been valued on
the basis of their depreciated replacement cost. The depreciated replacement
cost approach considers the cost to reproduce or replace in new condition the
property appraised in accordance with current construction costs for similar
property in the locality, with allowance for accrued depreciation as evidenced
by observed condition or obsolescence present, whether arising from physical,
functional or economic causes. The depreciated replacement cost approach
generally furnishes the most reliable indication of value for property in the
absence of a known market based on comparable sales.
Our valuation has been made on the assumption that the owner sells the
property interests on the open market in its existing state without the benefit
of a deferred terms contract, leaseback, joint venture, management agreement or
any similar arrangement which would serve to increase the value of the property
interests.
We have not provided with extracts from title documents relating to such
property interest. We have not, however, searched the original documents to
verify ownership or to verify existence of any lease amendment which do not
appear on the copies handed to us. All documents and leases have been used for
reference only. All dimensions measurements and areas are approximations.
We have inspected the exterior and, where possible, the interior of the
properties. However, we have not carried out a structural survey nor have we
inspected woodwork or other parts of the structures which are covered,
unexposed or inaccessible and we are therefore unable to report that any such
parts of the property interests are free from defect.
We have relied to a considerable extent on information provided by you
and have accepted advise given to us by you on such matters as planning
approvals or statutory notices, easements, tenure, occupation, lettings, site
and floor areas and in the identification of those property interests in which
the Group has a valid interest.
No allowance has been made in our valuation for any charges, mortgages or
amounts owing on the property nor for any expenses or taxation which may be
incurred in effecting a sale. Unless otherwise stated, it is assumed that the
property interests are free from encumbrances restrictions and outgoings of an
onerous nature which could affect their values.
Unless otherwise stated, all money amounts stated are in Renminbi. The
exchange rate used in valuing the property interests in the PRC on at 31
December, 2003 was HK$1=RMB1.06. There has been no significant fluctuation in
exchange rate between that date and the date of this letter.
We enclose herewith a summary of our valuation and the valuation
certificate.
Yours faithfully,
For and on behalf of
VIGERS APPRAISAL & CONSULTING LTD
Raymond Ho Kai Kwong,
Registered Professional Surveyor
MRICS, MHKIS MSc(e-com)
Executive Director
Note: Raymond K.K. Ho, Chartered Surveyor, MRICS, MHKIS, MSc(e-com) has
extensive experience in undertaking valuations of properties in Hong
Kong and Macau and has over ten years' experience in the valuation of
properties in the PRC.
SUMMARY OF VALUATION
Property Capital value in
existing state as at
31 December, 2003
1. Lands, various buildings and structures of Yingkou Power Plant, Liaoning Province, RMB 260,000
The PRC
2. Lands, various buildings and structures of Yueyang Power Plant, Hunan Province, The RMB 122,010,000
PRC
3. Lands, various buildings and structures of Hanfeng Power Plant, Hebei Province, The RMB 1,764,850,000
PRC
4. Lands, various buildings and structures of Jinggangshan Power Plant, Jiangxi No commercial value
Province, The PRC
5. Lands, various buildings and structures of Luohuang Power Plant,
Chongqing, The PRC RMB 33,800,000
------------------
Total: RMB 1,920,920,000
==================
VALUATION CERTIFICATE
Capital value in
existing state
Particulars of as at
Property Description occupancy 31 December, 2003
1. Lands, various The property comprises 14 parcels of land with a The property is RMB260,000
buildings and total site area of approximately 1,853,324 sq.m. and at present
structures of a number buildings and structures erected thereon. occupied as a
Yingkou Power power plant.
Plant, Liaoning The buildings and structures of the property has a
Province, total gross floor area of approximately 91,552 sq.m.
The PRC Major buildings and structures erected
on the site include power station building,
chimneys, coal storage facilities and
transformer station.
These buildings and structures of the property
was completed between 1996 to 2003.
Notes:
1. Pursuant to the State-owned Land Use Rights Certificates (document
no.:
[GRAPHIC OMITTED]
the land use rights of the property is vested to Huaneng International
Power Development Corporation Yingkou Branch Company ([GRAPHIC
OMITTED][GRAPHIC OMITTED]).
2. Pursuant to the Building Ownership Certificates (document nos.:
[GRAPHIC OMITTED]
the building ownership of the property is vested in Huaneng
International Power Development Corporation Yingkou Branch Company
([GRAPHIC OMITTED][GRAPHIC OMITTED]).
3. A portion of land of the property is administratively allocated
land in nature. Huaneng International Power Development
Corporation Yingkou Branch Company is in process of applying
for the change of the nature of this land portion from
"administratively allocated land" to "granted land". As the
property at present cannot be freely transferred in the open
market, in valuing this portion of the property and buildings
and structures erected thereon, we have attributed no
commercial value to it.
4. In valuing the granted land portion and the buildings and
structures erected thereon of the property, we have assumed
that the aforesaid portion of the property can be freely
transferred in the open market.
5. The depreciated replacement cost of the buildings and structures
portion of the property as at 31 December, 2003 was RMB
873,630,000 and the incurred construction cost in respect of
construction in progress as at 31 December, 2003 was RMB
2,980,000.
6. Based on the assumption that the land portion of the property
can be freely transferred in the open market, the capital
value of the land portion of the property as at 31 December,
2003 was as follows:
Nature Capital
Value
(RMB)
Administratively allocated land 159,760,000
Granted Land 260,000
Total: 160,020,000
T
Capital value in
existing state as
Particulars of at
Property Description occupancy 31 December, 2003
2. Lands, various The property comprises 21 parcels of land The property is at RMB122,010,000
buildings and with a total site area of approximately present occupied as
structures of 3,473,002 sq.m. and a number buildings and power plant.
Yueyang Power structures erected thereon.
Plant, Hunan
Province, The PRC The buildings and structures of the
property has a total gross floor area of
approximately 95,587 sq.m. Major buildings
and structures erected on the site include
power station building, chimneys, coal
storage facilities and transformer
station.
These buildings and structures of the
property was completed between 1985-1996.
Notes:
1. Pursuant to the State-owned Land Use Rights Certificates
(document no.:
[GRAPHIC OMITTED])
the land use rights of the property is vested to Huaneng Hunan
Yueyang Power Generation Limited Liability Company
GRAPHIC OMITTED]).
2. Pursuant to the Building Ownership Certificates (document nos.:
[GRAPHIC OMITTED]
the building ownership of the property is vested in Huaneng Hunan
Yueyang Power Generation Limited Liability Company ([GRAPHIC
OMITTED][GRAPHIC OMITTED]).
3. A portion of land of the property is administratively allocated
land in nature. Huaneng Hunan Yueyang Power Generation Limited
Liability Company is in process of applying for the change of
nature of this land portion from "administratively allocated
land" to "granted land". As the property at present cannot be
freely transferred in the open market, in valuing this portion
of the property and buildings and structures erected thereon,
we have attributed no commercial value to it.
4. In valuing the granted land portion and the buildings and
structures erected thereon of the property, we have assumed
that the aforesaid portion of the property can be freely
transferred in the open market.
5. The depreciated replacement cost of the buildings and structures
portion of the property as at 31 December, 2003 was RMB
308,170,000 and the incurred construction cost in respect of
construction in progress as at 31 December, 2003 was RMB
52,770,000.
6. Based on the assumption that the land portion of the property
can be freely transferred in the open market , the capital
value of the land portion of the property as at 31 December,
2003 was as follows:
Nature Capital
Value
(RMB)
Administratively allocated land 390,540,000
Granted Land 122,010,000
Total: 512,550,000
Capital value in
existing state
as at
Particulars of 31 December,
Property Description occupancy 2003
2. Lands, various The property comprises 36 parcels of land The property is at RMB1,764,850,000
buildings and with a total site area of approximately present occupied as
structures of 1,315,015 sq.m. and a number buildings and power plant.
Hanfeng Power structures erected thereon.
Plant, Hebei
Province, The PRC The buildings and structures of the
property has a total gross floor area of
approximately 61,126 sq.m. Major buildings
and structures erected on the site include
power station building, chimneys, coal
storage facilities and transformer
station.
These buildings and structures of the
property was completed between 2000 and 2001.
1. Pursuant to the State-owned Land Use Rights Certificates (document
no.:
[GRAPHIC OMITTED]
the land use rights of the property is vested to Hebei Hanfeng Power
Generation Limited Liability Company ([GRAPHIC OMITTED][GRAPHIC
OMITTED]).
2. Pursuant to the Building Ownership Certificates (document nos.:
[GRAPHIC OMITTED]
the building ownership of the property is vested in Hebei Hanfeng
Power Generation Limited Liability Company [GRAPHIC OMITTED]
3. In valuing the property, we have assumed that the property can
be freely transferred in the open market without any extra land
premium
4. The depreciated replacement cost of the buildings and structures
portion of the property as at 31 December, 2003 was RMB
1,589,040,000.
5. As the land portion of the property can be freely transferred in
the open market, the capital value of the land portion of the
property as at 31 December, 2003 was as follows:
Nature Capital
Value
(RMB)
Administratively allocated land -
Granted Land 175,810,000
Total: 175,810,000
Capital value in
existing state
as at
Particulars of 31 December,
Property Description occupancy 2003
2. Lands, various The property comprises 6 parcels of land The property is at No Commercial Value
buildings and with a total site area of approximately present occupied as
structures of 2,464,129 sq.m. and a number buildings and power plant.
Jinggangshan Power structures erected thereon.
Plant, Jiangxi
Province, The PRC The buildings and structures of the
property has a total gross floor area of
approximately 93,236 sq.m. Major buildings
and structures erected on the site include
power station building, chimneys, coal
storage facilities and transformer
station.
These buildings and structures of the
property was completed between 1994 and 2003.
Notes:
1. Pursuant to the State-owned Land Use Rights Certificates (document
no.: [GRAPHIC OMITTED]
the land use rights of the property is vested to Jianggangshan
Huaneng Power Generation Limited Liability Company
([GRAPHIC OMITTED].
2. Jinggangshan Huaneng Power Generation Limited Liability Company
is in process of obtaining the building ownership certificate
for the buildings of the property..
3. The land portion of the property is administratively allocated
land in nature. Jinggangshan Huaneng Power Generation Limited
Liability Company is in process of applying the change of the
nature of this land portion from "administratively allocated
land" to "granted land". As the property at present cannot be
freely transferred in the open market, in valuing this portion
of the property and buildings and structures erected thereon,
we have attributed no commercial value to it.
4. The depreciated replacement cost of the buildings and
structures portion of the property as at 31 December, 2003 was
RMB 625,710,000 and the incurred construction cost in respect
of construction in progress as at 31 December, 2003 was RMB
1,630,000.
5. Based on the assumption that the land portion of the property
can be freely transferred in the open market , the capital
value of the land portion of the property as at 31 December,
2003 was as follows:
Nature Capital
Value
(RMB)
Administratively allocated land 150,690,000
Granted Land -
Total: 150,690,000
Capital value in
existing state
Particulars of as at 31
Property Description occupancy December, 2003
5. Lands, various The property comprises 40 parcels of land The property is RMB33,800,000
buildings and with a total site area of approximately 2,316,727 at present occupied
structures of sq.m. and a number buildings and structures erected as power plant.
Luohuang Power thereon.
Plant,
Chongqing, The buildings and structures of the property has a
The PRC total gross floor area of approximately 153,303
sq.m. Major buildings and structures erected on the
site include power station building, chimneys, coal
storage facilities and transformer station.
These buildings and structures of the property was
completed between 1989 to 1999.
Notes:
1. Pursuant to the State-owned Land Use Rights Certificates (document no.:
[GRAPHIC OMITTED]
, the land use rights of the property is vested to Huaneng Chongqing
Luohuang Power Generation Limited Liability Company ([GRAPHIC
OMITTED][GRAPHIC OMITTED]).
2. Pursuant to the Building Ownership Certificates (document nos.:
[GRAPHIC OMITTED]
, the building ownership of the property is vested in Huaneng
Chongqing Luohuang Power Generation Limited Liability Company
([GRAPHIC OMITTED][GRAPHIC OMITTED]).
3. The portion of land of the property is administratively allocated
land in nature. Huaneng Chongqing Luohuang Power Generation
Limited Company is in process of applying for the change of nature
of this land portion from "administratively allocated land" to
"granted land". As the property at present cannot be freely
transferred in the open market, in valuing this portion the
property and buildings and structures erected thereon, we have
attributed no commercial value to it.
4. In valuing the granted land portion and the buildings and
structures erected thereon of the property, we have assumed that
the aforesaid portion of the property can be freely transferred in
the open market.
5. The depreciated replacement cost of the buildings and structures
portion of the property as at 31 December, 2003 was RMB
873,530,000.
6. Based on the assumption that the land portion of the property can
be freely transferred in the open market , the capital value of
the land portion of the property as at 31 December, 2003 was as
follows:
Nature Capital Value
(RMB)
Administratively allocated land 303,700,000
Granted Land 33,800,000
Total: 337,500,000
--------------------------------------------------------------------------------
APPENDIX IX PLANT AND MACHINERY VALUATION
-------------------------------------------------------------------------------
Vigers Appraisal & Consulting Limited
International Assets Appraisal Consultants
10th Floor, The Grande Building
398 Kwun Tong Road
Kwun Tong
Kowloon
Hong Kong
29 April, 2004
The Directors
Huaneng Power International, Inc.
West Wing, Building C,
Tianyin Mansion
2C Fuxingmennan Street,
Xicheng District,
Beijing 100031,
The People's Republic of China
Dear Sirs,
In accordance with your instructions for us to value the plant machinery
and equipment (collectively referred to as the "Machinery") exhibited to us as
being owned by various power generation plants (the "Plants") and to be
acquired by Huaneng Power International, Inc. (the "Company") we confirm that
we have carried out inspections, made relevant enquiries and obtained such
further information as we consider necessary for the purpose of providing you
with our opinion of the fair market value in continued use of the Machinery as
at 31 December, 2003.
Basis of Valuation
We have valued the Machinery on the basis of its fair market value in
continued use which is defined as the estimated amount at which the subject
assets in their continued use might be expected to be purchased and sold
between a willing buyer and a willing seller, neither being under compulsion,
each having a reasonable knowledge of all relevant facts and with equity to
both, and contemplating the retention of the assets in their present existing
use as part of an on-going business.
The opinion of fair market value is not necessarily intended to represent
the amount that might be realized from piecemeal disposition of the subject
Machinery in the open market or from alternative use of the Machinery.
In forming our opinion of the fair market value in continued use, we have
assumed that the Machinery will continue in its present existing use in the
business of the Company for which it was designed, built and erected, subject
to potential profitability of the business.
Assets Appraised
The fixed assets subject of this appraisal, as per list provided to us,
consist of machinery and equipment, motor vehicles and transport equipment,
and electronics equipment utilized by the following plants in electric power
generation.
Yingkou Power Plant
The power plant with a total rated output of 640 MW, which was operated
in 1996, was designed by various companies from the former Soviet Union. These
companies also supplied the major equipment. It consists of two-(2) 320 MW
coal-fired steam-electric generating facilities. The boilers which are each
rated at 1,000 tons per hour are outdoor type with rain proof, wind proof,
corrosion proof and lighting provisions. The steam turbines with a rating of
320 MW each are multi-stage impulse type with single shaft directly coupled
with the generators. The generators' stator core, rotor and windings are
water-hydrogen cooled. Further particulars of each equipment are as follows:
Steam Boilers (2-units)
Model : Knn-1000-25-545KT
Steam Flow : 1,000 T/H
Steam Pressure : 25.0 Mpa
Steam Temperature : 545oC
Reheat Steam Condition : 824 T/H
Steam Turbines (2-units)
Model : K-320-23.5-4
Rated Output : 320 MW
Steam Pressure Inlet : 23.5 Mpa
Steam Temperature Inlet : 540(0)C
Reheat Steam Pressure : 3.69 Mpa
Reheat Steam Temperature : 540(0)C
HP Exhaust Pressure : 4.08 Mpa
HP Exhaust Temperature : 294(0)C
Speed : 3000 rpm
AC Generators (2-units)
Model : TBB-320-3EV2
Rated Power : 320 MW
Rated Voltage : 20 KV
Rated Current : 10,870 A
Power Factor : 0.85
Frequency : 50 hz
Number of Phases : 3
Speed : 3000 rpm
Yueyang Power Plant
The power plant, which operated in 1991, was designed and equipped by GEC
Turbine Generators Limited of UK. The plant's total rated output is 725 MW. It
consists of 2 x 362.5 MW coal-fired steam-electric generating facilities. The
boilers which are each rated at 1,160 tons per hour are outdoor type, natural
circulation, sub-critical, single reheat, single furnace, drum type, balanced
draft coal-fired with rain proof, wind proof, corrosion proof and lighting
provisions. The steam turbines with a rating of 362.5 MW each are multi-stage,
impulse, single reheat, three cylinders, condensing type with single shaft
directly coupled with the generators. The generator's stator core and rotor is
cooled by closed circulation of hydrogen using a single-stage axial flow fan.
An internal circulation of deionized water cools the stator windings.
Excitation system is of brushless type. Further particulars of each equipment
are as follows:
Steam Boilers (2-units)
Maker : Babcock Energy Ltd.
Type : Furnace Coal Fired
Steam Flow : 1,160 T/H
Steam Pressure Outlet : 175 bar
Steam Temperature Outlet : 543(0)C
Reheat Steam Flow : 992.2 T/H
Reheat Steam Temperature : 541(0)C
Steam Turbines (2-units)
Maker : GEC Turbine Generators Ltd.
Rated Output : 362.5 MW
Steam Pressure Inlet : 172.8 kg/cm2 (a)
Steam Temperature Inlet : 540(0)C
Reheat Steam Temperature : 540(0)C
Speed : 3000 rpm
No. of Extraction Stages : 8
AC Generators (2-units)
Maker : GEC Turbine Generators Ltd.
Rated Power : 362.5 MW
Rated Voltage : 18 KV
Rated Current : 13679 A
Power Factor : 0.85
Frequency : 50 hz
Number of Phases : 3
Speed : 3000 rpm
AC Exciters (2-units)
Maker : GEC Turbine Generators Ltd.
Type : Brushless Rotating Diodes
Rated Output : 2097 kw AC; 2025 kw DC
Rated Voltage : 400 V AC; 505 V DC
Rated Current : 3170 A AC; 4010 A DC
Speed : 3000 rpm
Hanfeng Power Plant
The power plant, which was operated in 2001, has a total rated output of
1,320 MW. It consists of 2 x 660 MW coal-fired steam-electric generating
facilities. Foster Wheeler of USA supplied the boilers and auxiliaries. The
boilers each rated at 2026 tons per hour are outdoor type natural circulation,
drum type, arch-fired arranged, wall-fired mono-wall all welded finned tube
construction. The steam turbines, generators and electrical equipment were
supplied by Siemens of Germany. The steam turbines with a rating of 660 MW
each are multi-stage, impulse, single reheat, condensing type with single
shaft directly coupled with the generators. The generators which are rated at
765 MVA (660 MW) each are two-pole, hydrogen-cooled with a direct water
cooling system for the stator winding, a direct hydrogen cooled rotor winding,
with a static excitation system with two-channel digital voltage regulator and
requisite supply system. Further particulars of each equipment are as follows:
Steam Boilers (2-units)
Maker : Foster Wheeler
Type : Furnace, Mono-Wall, Coal Fired
Steam Flow : 2026 T/H (563 kgs/sec)
Steam Pressure Outlet : 175 bar
Steam Temperature Outlet : 540.8(0)C
Reheat Steam Condition : 1865 T/H at 41 bar & 540.8 Oc
Steam Turbines (2-units)
Maker : Siemens AG
Rated Output : 660 MW
Steam Pressure Inlet : 16.089 MPa
Steam Temperature Inlet : 538(0)C
Reheat Steam Temperature : 538(0)C
Rated Exhaust Pressure : 3.97/5.42 Kpa (abs)
Speed : 3000 rpm
Number of Extractions : 7
AC Generators (2-units)
Maker : Siemens AG
Type : THDF115/676
Rated Power : 765 MVA (660 MW)
Rated Terminal Voltage : 21 KV
Rated Phase Current : 21.032 kA
Power Factor : 0.90
Frequency : 50 hz
Number of Phases : 3
Speed : 3000 rpm
AC Exciters (2- units)
Make : Siemens AG
Type : 750/5000
Rated Excitation Current : 5085 A
Maximum Continuous Current : 5594 A
AC Input Voltage : 650 V
Surge Voltage : 780 V
Speed : 3000 rpm
Jinggangshan Power Plant
The power plant, which was operated in 2000 and 2001, has a total rated
output of 600 MW. It consists of 2 x 300 MW coal-fired steam-electric
generating facilities Various companies from the People's Republic of China
supplied the machinery and equipment and auxiliaries. The boilers each rated
at 1,025 tons per hour are outdoor type natural circulation with rain proof,
wind proof, corrosion proof and lighting provisions. The steam turbines with a
rating of 300 MW each are multi-stage, impulse, single reheat, condensing type
with single shaft directly coupled with the generators. The generators which
are rated at 300 MW each are hydrogen-cooled with a direct water cooling
system for the stator winding, a direct hydrogen cooled rotor winding, with a
static excitation system. Further particulars of each equipment are as
follows:
Steam Boilers (2-units)
Origin : People's Republic of China
Model : SG-1025/18.2-M848
Type : Furnace Coal Fired
Steam Flow : 1,025 T/H
Steam Pressure Outlet : 17.3 MPa
Steam Temperature Outlet : 541(0)C
Reheat Steam Condition : 834.45 T/H
Steam Turbines (2-units)
Origin : People's Republic of China
Model : N300-16.7/538/538
Rated Output : 300 MW
Steam Pressure Inlet : 16.7 MPa
Steam Temperature Inlet : 538(0)C
Reheat Steam Temperature : 538(0)C
Speed : 3000 rpm
AC Generators (2-units)
Origin : People's Republic of China
Model : QFSN-300-2
Rated Power : 300 MW
Rated Terminal Voltage : 18 KV
Rated Phase Current : 11,320 A
Power Factor : 0.85
Frequency : 50 hz
Number of Phases : 3
Speed : 3000 rpm
Luohuang Power Plant
Jiangjin Luohuang Power Plant
The power plant, with a total rated output of 1,440 MW, was designed by
GEC Alsthom of France. The same company supplied the major equipment. It
consists of four-(4) 360 MW coal-fired steam-electric generating facilities.
Generating sets 1 and 2 were commercially operated in 1991 and 1992,
respectively. While generating sets 3 and 4 were put into stream in 1998. The
boilers which are each rated at 1,099.3 tons per hour are outdoor type, double
arch furnace water-wall with rain proof, wind proof, corrosion proof and
lighting provisions. The steam turbines with a rating of 360 MW each are
multi-stage, impulse, single reheat, condensing type with single shaft
directly coupled with the generators. The generator's stator core and rotor is
cooled by closed circulation of hydrogen using two (2) shaft-mounted fans. An
internal circulation of deionized water cools the stator windings. Excitation
system is of brushless type. Further particulars of each equipment are as
follows:
Steam Boilers (4-units)
Maker : Stein Industrie (Alsthom Groupe)
Type : Furnace Coal Fired
Steam Flow : 1,099.3 T/H
Steam Pressure Outlet : 184 bar
Steam Temperature Outlet : 541(0)C
Reheat Steam Inlet : 989.0 T/H
Reheat Steam Pressure : 43.8 bar
Reheat Steam Temperature : 336(0)C
Radiant Heat Surface : 4,573 m2
Steam Turbines (4-units)
Maker : GEC Alsthom
Rated Output : 360 MW
Steam Pressure Inlet : 23.5 Mpa
Steam Temperature Inlet : 538(0)C
Reheat Steam Pressure : 37.95 bar
Reheat Steam Temperature : 538(0)C
HP Exhaust Pressure : 41.7 bar
HP Exhaust Temperature : 326(0)C
Speed : 3000 rpm
AC Generators (4-units)
Maker : GEC Alsthom
Rated Power : 360 MW
Rated Voltage : 24 KV
Rated Current : 10,189 A
Power Factor : 0.85
Frequency : 50 hz
Number of Phases : 3
Speed : 3000 rpm
AC Exciters (4 units)
Maker : GEC Alsthom
Type : Brushless Rotating Diodes
Model : TKJ 91-35
Rated Output : 1882 Kw
Rated Voltage (DC) : 643 V
Rated Current (DC) : 2927 A
Speed : 3000 rpm
Jiangbei Combined-cycle Power Plant
The plant with a rated capacity of approximately 108 MW is a gas and
steam combined cycle electric generating power plant commercially operated in
1990. It consists of two-(2) 37.5 MW compact, self contained combustion gas
turbine generating stations and one-(1) 37.5 MW steam turbine generating
station. The generator package houses the generator, which is water-cooled,
generator load gearbox, excitation equipment and ancillary equipment. The gas
turbines are single shaft each consisting of axial-flow compressor and fuel
and combustion system. The steam turbine is a single cylinder, single flow,
axial exhaust condensing impulse type. Further particulars of each equipment
are as follows:
Power Plant Station Nos. 1 & 2
Gas Turbines (2-units)
Manufacturer : John Brown Engineering Ltd, England
Model Number : PG6541-B
Series Number : MS6001-B
Rated Power : 36,750 kw
Gas Flow : 11,833 Nm3/hr
Working Temperature : 15(0)C
AC Generators (2-units)
Manufacturer : Brush Electric
Model : RDAX-7-265ERH
Maximum Output : 37.5 MW
Rated Voltage : 10,500 V
Rated Current : 2,400 A
Frequency : 50 hz
Number of Phases : 3
Speed : 3000 rpm
Waste Reheat Thermal Boilers
(2-units)
Manufacturer : Standard Kasel
Model : 65.75-40/455
Design Flue Gas Quantity : 133 kg/s
Design Flue Gas Temperature : 542(0)C
Design HP Steam Outlet : 42.8 kg/cm2
Power Plant Station No. 3
Steam Turbine (1-unit)
Manufacturer : Mitsubishi Heavy Industries, Japan
Model Number : 10CL-16
Rated Power : 37,500 kw
Inlet Pressure : 4,020 Kpaa
Inlet Temperature : 450(0)C
Exhaust Pressure : 6.57 Kpaa
Number of Stages : 16
Rated Speed : 3000 rpm
AC Generator (1-unit)
Manufacturer : Brush Electric
Model : RDAX-7-265ERH
Maximum Output : 37.5 MW
Rated Voltage : 10,500 V
Rated Current : 2,400 A
Frequency : 50 hz
Number of Phases : 3
Speed : 3000 rpm
Surface Condenser (1-unit)
Manufacturer : Mitsubishi Heavy Industries, Japan
Surface Area : 2,950 m2
Shell Design Pressure : 49 Kpag
Shell Design Temperature : 120(0)C
Tube Design Pressure : 353 Kpag
Tube Design Temperature : 70(0)C
Other major and ancillary equipment include electrostatic precipitators,
ball mills, condensing plant, coal and ash handling equipment, blowers, air
pre-heaters, classifiers, coal feeders, hydrogen production system,
chemical water treatment plant, water supply and discharge plant, overhead
traveling cranes, compressed air system, heating and ventilating and
air-conditioning system, instrumentation and controls, transformers,
switchyard, electrical cables and raceway system, piping system and fire
protection system.
Construction-In-Progress are assets that are not fully constructed or
installed. The value indicated is based on the recorded costs as reported
to us as of the appraisal date.
At the time of our inspection, the Machinery was observed to be generally
in good working condition. It is our opinion that it is capable of
performing the function for which it was designed, built and erected. The
Machinery undergoes periodic maintenance in accordance with the
manufacturer's schedule and system.
The Machinery was inspected at the Company's operating facilities at
various locations in the People's Republic of China.
Valuation Methodology
In arriving at our opinion of value, we have considered the two generally
accepted approaches to values; namely:
Cost Approach - considers the cost to reproduce or replace in new condition
the assets appraised in accordance with current market prices for similar
assets, with allowance for accrued depreciation arising from condition,
utility, age, wear and tear, or obsolescence present, taking into
consideration past and present maintenance policy and rebuilding history.
Physical depreciation is the loss in value due to physical deterioration
resulting from wear and tear in operation and exposure to elements.
Deterioration due to age and deterioration due to usage are the main
factors that affect physical condition. Physical condition due to wear and
tear is proportional to use rather than age. Use is the best indicator to
estimate physical deterioration.
Market Data or Comparative Sales Approach - considers prices recently paid
for similar assets, with adjustments made to the indicated market prices to
reflect condition and utility of the appraised assets relative to the
market comparative. Asset for which there is an established secondhand
market comparable is best appraised by this approach.
Scope of Investigation and Considerations
Before arriving at our opinion of value, we have personally conducted a
physical inventory and inspection of the subject Machinery, investigated
market condition, interviewed personnel, and examined documents and
specifications provided to us.
During our inspection we observed the various Machinery. Any deferred
maintenance, physical wear and tear, operating malfunctions, lack of
utility, or any observable conditions distinguishing the appraised
machinery from assets of like kind in new conditions were noted and made
part of our judgement in arriving at the values.
In arriving at our opinion of the defined value using the cost approach, we
have considered the cost of reproduction new of the subject assets, defined
as the estimated amount of money needed to acquire in like kind and in new
condition an asset or group of assets, taking into consideration current
prices of materials, labor, manufactured equipment, contractor's overhead,
profit and fees, and all other attendant costs associated with its
acquisition and installation in place, without provision for overtime or
bonuses for labor, and premiums for materials.
Consideration has been given to accrued depreciation that was based on the
observed condition and present and prospective serviceability in comparison
with new units of like kind.
We have assumed that the Machinery will be used in its present existing
state with the benefit of continuity of the tenure of land and buildings
during the foreseeable future.
We have relied to a considerable extent on information such records,
listings and specifications provided to us by the Plants. We have made no
investigation of and assume no responsibility for titles to or liabilities
against the Machinery appraised.
We have not made any deduction in respect of any grant either available or
received, neither has any adjustment been made for any outstanding amounts
owing under financing agreements.
Our investigation was restricted to a detailed inventory and appraisal of
the subject Machinery and does not attempt to arrive at any conclusion of
values of the Plants as a total business entity.
Opinion of Value
Based on the foregoing and as supported by the accompanying summary, we are
of the opinion that as at 31 Dcember, 2003, the fair market value in
continued use of the Machinery, as part of a going-concern, is fairly
represented in the amount of Rmb12,228,135,000 (Renminbi Twelve Billion Two
Hundred Twenty Eight Million One Hundred Thirty Five Thousand), broken down
as follows:
Rmb
Yingkou Power Plant 1,142,033,000
Yueyang Power Plant 1,058,715,000
Hanfeng Power Plant 5,354,825,000
Jinggangshan Power Plant 1,369,835,000
Luohuang Power Plant:
(i) Jiangjin Luohuang Power Plant 3,265,565,000
(ii) Jiangbei Combined-cycle Power Plant 37,162,000
Total 12,228,135,000
We hereby certify that we have neither present nor prospective interest in
the Plants and the Company or the appraised Machinery or the value
reported.
Yours faithfully,
For and on behalf of
Vigers Appraisal & Consulting Limited
Raymond Ho Kai Kwong Maximo I. Montes Jr.
Registered Professional Surveyor PME BSME
MRICS MHKIS MSc(e-com) Associate Director
Executive Director Plant and Machinery Valuation
Note: Maximo I. Montes Jr. is a Professional Mechanical Engineer who has
34 years experience in industrial plant valuation. He has 24 years
experience in the valuation of plant machinery and equipment in Hong
Kong, the PRC and Asia Pacific Rim.
SUMMARY OF VALUES
Fair Market Value in
continued use as at 31
Company December, 2003
Rmb
Yingkou Power Plant
Machinery and Equipment 1,123,707,000
Motor Vehicles & Transportation Equipment 5,443,000
Electronics Equipment 5,275,000
Construction-In-Progress 7,608,049
----------------------
Sub-total 1,142,033,049
Rounded to 1,142,033,000
Yueyang Power Plant
Machinery and Equipment 950,653,000
Motor Vehicles & Transportation Equipment 11,471,000
Electronics Equipment 32,045,000
Construction-In-Progress 64,546,305
----------------------
Sub-total 1,058,715,305
Rounded to 1,058,715,000
Hanfeng Power Plant
Machinery and Equipment 5,333,884,000
Motor Vehicles & Transportation Equipment 14,244,000
Electronics Equipment 6,697,000
----------------------
Sub-total 5,354,825,000
Jinggangshan Power Plant
Machinery and Equipment 1,351,330,000
Motor Vehicles & Transportation Equipment 9,576,000
Electronics Equipment 8,267,000
Construction-In-Progress 662,303
----------------------
Sub-total 1,369,835,303
Rounded to 1,369,835,000
Luohuang Power Plant
Jiangjin Luohuang Power Plant
Machinery and Equipment 3,128,530,000
Motor Vehicles & Transportation Equipment 17,277,000
Electronics Equipment 5,944,000
Construction-In-Progress 113,814,386
----------------------
Sub-total 3,265,565,386
Rounded to 3,265,565,000
Jiangbei Combined-cycle Power Plant
Machinery and Equipment 33,526,000
Motor Vehicles & Transportation Equipment 1,852,000
Electronics Equipment 1,784,000
----------------------
Sub-total 37,162,000
Grand Total 12,228,135,000
======================
1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Hong Kong
Listing Rules for the purpose of giving information with regard to the
Company. The Directors collectively and individually accept full
responsibility for the accuracy of the information contained in this
circular and confirm, having made all reasonable enquiries, that to the
best of their knowledge and belief there are no other facts the omission of
which would make any statement herein misleading.
2. DISCLOSURE OF INTERESTS
(a) As at the Latest Practicable Date, none of the Directors, chief
executive officer or Supervisors of the Company had any interest
or short position in the shares, underlying shares and/or
debentures (as the case may be) of the Company or any of its
associated corporations (within the meaning of Part XV of the SFO)
which was required to be notified to the Company and the Hong Kong
Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO
(including interest and short position which any such Director,
chief executive or supervisor is taken or deemed to have under
such provisions of the SFO) or which was required to be entered in
the register required to be kept by the Company pursuant to
Section 352 of the SFO or which was otherwise required to be
notified to the Company and the Hong Kong Stock Exchange pursuant
to the Model Code for Securities Transactions by Directors of
Listed Companies as contained in Appendix 10 to the Listing Rules.
(b) As at the Latest Practicable Date, so far as the Directors, chief
executive officer and Supervisors of the Company are aware, each
of the following persons, not being a Director, chief executive or
Supervisor of the Company, had an interest in the Company's shares
which falls to be disclosed to the Company and the Hong Kong Stock
Exchange under the provisions of Divisions 2 and 3 of Part XV of
the SFO:
Shares held/Approximate shareholding percentage
Name of shareholder Short
Interest position
Approximate Approximate
percentage of Approximate percentage of
share holding percentage of shareholding
in the shareholding in in the
Company's the Company's Company's
Number of total issued total issued total issued
Shares shares held share capital domestic shares H shares
HIPDC (Note) domestic 2,554,840,000 42.39% 56.77% - -
shares
Hebei Provincial Construction domestic 452,250,000 7.50% 10.05% - -
Investment Company shares
Fujian International Trust & domestic 334,850,000 5.56% 7.44% - -
Investment Company shares
Jiangsu Province domestic 312,375,000 5.18% 6.93% - -
International Trust & shares
Investment Company
Liaoning Energy Investment domestic 229,685,000 3.80% 5.11% - -
(Group) Limited Liability shares
Company
Note: As at the Latest Practicable Date, China Huaneng Group holds 51.98% of
the equity interest in HIPDC.
Save as disclosed above and so far as the Directors, chief executive
officer and Supervisors of the Company are aware, as at the Latest
Practicable Date, no other person had an interest or short position in the
Company's shares or underlying shares (as the case may be) which would fall
to be disclosed to the Company and the Hong Kong Stock Exchange under the
provisions of Divisions 2 and 3 Part XV of the SFO, or was otherwise a
substantial shareholder (as such term is defined in the Listing Rules) of
the Company.
(c) None of the Directors or Supervisors is materially interested in any
contract or arrangement subsisting at the date of this circular which
is significant in relation to the business of the Company.
(d) As at the Latest Practicable Date, none of the Directors or
Supervisors had entered, or proposed to enter, into a service
contract with the Company which is not determinable by the Company
within one year without payment of compensation, other than statutory
compensation.
(e) As at the Latest Practicable Date, none of JP Morgan, Rothschild,
KPMG nor Vigers had any shareholding in the Company or any right
(whether legally enforceable or not) to subscribe for or to nominate
persons to subscribe for securities in the Company.
(f) As at the Latest Practicable Date, none of the Directors,
Supervisors, JP Morgan, Rothschild, KPMG nor Vigers had any direct or
indirect interest in any asset which had been acquired, or disposed
of by, or leased to the Company, or was proposed to be acquired, or
disposed of by, or leased to the Company, since 31st December, 2003,
the date to which the latest published financial statements of the
Company and its subsidiaries were made up.
3. MATERIAL ADVERSE CHANGE
The Directors are not aware of any material adverse change in the
financial or trading position of the Company since 31st December, 2003, the
date to which the latest published audited financial statements of the Company
and of its subsidiaries were made up.
4. LITIGATION
None of the Company, nor its subsidiaries is engaged in any litigation or
arbitration of material importance and there is no litigation or claim of
material importance known to the Directors to be pending or threatened by or
against the Company or its subsidiaries.
5. QUALIFICATIONS OF EXPERTS
The following are the qualifications of the professional advisers who
have given opinions or advice contained in this circular:
Names Qualifications
JP Morgan licensed by the Securities and Futures
Commission for Types 1, 4, 6 and 7
regulated activities under the
Securities and Futures Ordinance
Rothschild previously registered with the
Securities and Futures Commission as
an investment adviser and is deemed to
be currently licensed to carry out
Types 1, 4, 6 and 9 regulated
activities under the Securities and
Futures Ordinance
KPMG Certified Public Accountants
Vigers Appraisal & Chartered surveyor
Consulting Limited
("Vigers")
6. Directors, Supervisors and Senior Management
The Directors, Supervisors and senior management of the Company remain
unchanged after the Closing. The following table sets out the name and
business address of each of the Directors, Supervisors and members of senior
management:
Position Name Address
Chairman Li Xiaopeng Nanshagou, Xicheng District, Beijing, PRC
Vice Chairman Wang Xiaosong No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Director and President Ye Daji No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Director Huang Jinkai Donghuashi North Road west, Chongwen District, Beijing, PRC
Liu Jinlong No. 4, Cuiwei Road, Haidian District, Beijing, PRC
Shan Qunying No. 13, Changfeng Road, Shijiazhuang City, Heibei Province,
PRC
Yang Shengming No. 19, Xinyang Branch, Fuxin Road, Fuzhou City, Fujian
Province, PRC
Xu Zujian No. 11, Nantai Road, Nanjing City, Jiangsu Province, PRC
Independent Director Gao Zongze Taipingqiao East Road, Fengtai District, Beijing, PRC
Zheng Jianchao Guocheng Garden, Baihuayi Road, Futian District, Shenzhen
City, PRC
Qian Zhongwei No. 1225, Changle Road, Shanghai, PRC
Xia Donglin Lanqiying Uptown, Haidian District, Beijing, PRC
Chairman of the Supervisory Committee Wei Yunpeng Jinhuijiayuan, Haidian District, Beijing, PRC
Vice Chairman of the Supervisory Liu Shuyuan No. 106, Qingnian Avenue, Shenhe District, Shenyang City, PRC
Committee
Supervisor Pan Jianmin Building 3, Baizhifangdong Avenue, Xuanwu District, Beijing,
PRC
Li Yonglin Zhenhua Avenue, Shahekou District, Dalian City, PRC
Shen Weibing Jinxinyuan, Nantong City, PRC
Shen Zongmin Lirizhuang East, Zhujiangzhong Road, Shantou City, Guangdong,
PRC
Zhao Xisheng Zone 2, Yutaoyuan, Xizhimennei, Beijing, PRC
Senior Management Ye Daji No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Na Xizhi Building 3, Baizhifangdong Street, Xuanwu District, Beijing,
PRC
Zhang Hong Building 3, Baizhifangdong Street, Xuanwu District, Beijing,
PRC
Chen Baoliang No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Huang Long No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Hu Jianmin No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Wu Dawei No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Liu Guoyue No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Li Shiqi No. 58, Xizhimenbei Avenue, Haidian District, Beijing, PRC
Huang Jian Zone 2, Yutaoyuan, Xicheng District, Beijing, PRC
The following are the brief biographical details in respect of the
Directors, Supervisors and the members of the senior management of the
Company:
Directors
Li Xiaopeng Mr. Li is Chairman of the Company, Chairman and President of
HIPDC, as well as President of China Huaneng Group. Starting from June 1994,
Mr. Li was Vice President, President and Vice Chairman of the Company as well
as Vice President, President and Vice Chairman of HIPDC, Chairman of China
Huaneng Group and Vice President of State Power Corporation. Before joining
HIPDC, he had successively served as Engineer of the Power System Research
Division, as Deputy Division Chief of the Planning and Operations Division,
and as General Manager of the Power Technology and Economic Research Division,
Electric Power Research Institute. Mr. Li is a senior engineer and graduated
from the North China Institute of Electric Power specializing in power plants
and power systems.
Wang Xiaosong Mr. Wang is Vice Chairman of the Company, Director and
Vice President of HIPDC, and Vice President of China Huaneng Group. Beginning
from June 1994, he was General Manager of the Capital Market Department of the
Company, Vice President of the Company, Vice President of HIPDC and Director
of China Huaneng Group. Before joining the Company, he had served as Deputy
General Manager of Fushun Power Plant, General Manager of Yuanbaoshan Power
Plant and Chief of the Labour and Wages Division of Northeast Power
Administration. Mr. Wang is a senior engineer and graduated from Beijing
Institute of Electric Power specializing in thermal power engineering.
Ye Daji Mr. Ye is Director and President of the Company. After joining
the Company, he has been Deputy General Manager of Huaneng Shanghai Branch and
General Manager of Huaneng Shanghai Shidongkou Second Power Plant. From
December 1995, he was Vice President of the Company, Vice President of HIPDC
and Director of China Huaneng Group. Before joining the Company, he had served
as Deputy Chief Engineer of Huaneng Shanghai Shidongkou Second Power Plant.
Mr. Ye is a senior engineer and graduated from Shanghai Jiaotong University
specializing in mechanical engineering.
Huang Jinkai Mr. Huang is the Director of the Company. He served as
Director (General Manager) of the Northeast Power Administration Group
Company, Chairman of the Company, Chairman of HIPDC, General Manager
(Director) of North China Power Group Corporation (Power Administration) and
Vice Chairman of China Huaneng Group. He is a senior engineer and graduated
from Shenyang Agricultural Institute, specialising in agricultural
electrization.
Liu Jinlong Mr. Liu is the Director of the Company. He served as General
Manager of Central China Power Group Corporation and Director of Central China
Power Administration, Chairman, General Manager, and Vice Chairman of China
Huaneng Group. Mr. Liu is a senior engineer and graduated from Wuhan
Hydroelectric Institute, specialising in power generation.
Shan Qunying Mr. Shan is the Director of the Company and Vice President
of Hebei Provincial Construction Investment Company. He had been the Division
Chief of Hebei Provincial Construction Investment Company. Mr. Shan is a
senior engineer and graduated from Beijing Steel Institute specializing in
automation.
Yang Shengming Mr. Yang is Director of the Company, Vice President of
Fujian International Trust and Investment Company Limited and Chairman of
Fujian International Leasing Company. Mr. Yang is a senior economist and
graduated from Beijing Light Industries Institute.
Xu Zujian Mr. Xu is Director of the Company and Chairman of Jiangsu
Investment Management Co. Ltd. He was Vice President of Jiangsu International
Trust and Investment Company Limited, President of Jiangsu Province Investment
Management Co. Ltd., Director and Vice President of Jiangsu Province Guoxin
Asset Management Group Limited Company. Mr. Xu is a senior economist. He
graduated from Liaoning Finance Institute majoring in infrastructure finance.
Gao Zongze Mr. Gao is an Independent Director of the Company and Senior
Partner at C&I Partners. He is an approved arbitrator of China International
Economic and Trade Arbitration Commission and China Marine Affairs Arbitration
Commission and President of All China Lawyers Association. Mr. Gao graduated
from Dalian Marine Institute and received a masterOs degree in law from the
Law Department of the Graduate School of the Institute of China Academy of
Social Sciences.
Zheng Jianchao Mr. Zheng is an Independent Director of the Company and
Honorary President of China Electric Power Research Institute in China and
Vice Chairman of its Academic Committee. He was elected Fellow of Chinese
Academy of Engineering in 1995. He is Vice President of China Electrical
Engineering Institute, editor-in-chief of the Journal of Chinese Electrical
Engineering and chief of the Science and Technology Committee of China
Guangdong Nuclear Power Group Corporation. Mr. Zheng graduated from Qinghua
University majoring in electrical engineering and graduated from its Graduate
School.
Qian Zhongwei Mr. Qian is an Independent Director of the Company and
Vice President of the United Association of China Electric Enterprises. He has
been the Deputy Chief Engineer, Chief Engineer and Deputy Chief of the Eastern
China Power Industry Management Bureau, Director of Shanghai Electricity
Bureau and President of Eastern China Power Group Company. Mr. Qian is a
senior engineer and graduated from the electrical engineering department of
Qinghua University.
Xia Donglin Mr. Xia is an Independent Director of the Company, a
professor and Ph.D. tutor of the Economic and Management School of Qinghua
University. He is also the Advisory Specialist of the Accounting Standard
Committee of the PRC Ministry of Finance, committee member of the China
Accounting Society, and Independent Director of Zhejiang Zhongda companies and
other companies. He was the head of Accounting Department of Economic and
Management School of Qinghua University. Mr. Xia is a certified public
accountant (non-practising member). He graduated from the Finance and
Administration Science Research Institute of Ministry of Finance, specialising
in accounting and was awarded a Ph.D. degree of Economics.
Supervisors
Wei Yunpeng Mr. Wei is Chairman of the Supervisory Committee of the
Company, Chief Accountant of China Huaneng Group, Chief Accountant of HIPDC
and Chairman of China Huaneng Finance Limited Liability Company. He served as
Chief Accountant of the Company. He is a senior accountant. He graduated from
Hunan Institute of Electric Power, specialising in Finance and Accounting.
Liu Shuyuan Mr. Liu is Vice Chairman of the Supervisory Committee,
President of Liaoning Energy Investment (Group) Limited Liability Company and
Liaoning Energy Corporation. He has been the General Manager of Liaoning
Tieling Steel Plant, Director of Tieling Municipal Construction Commission and
Assistant to the Mayor. Mr. Liu is a senior economist and a postgraduate
specializing in economic management.
Pan Jianmin Mr. Pan is a member of the Supervisory Committee of the
Company and General Manager of the Finance Department of China Huaneng Group.
He has served as Deputy Division Chief of the Finance Department and Deputy
General Manager of the Supervising and Auditing Department of China Huaneng
Group, and Deputy General Manager of Beijing Huaneng Real Estate Development
Company. Mr. Pan is a senior accountant and graduated from Liaoning Economic
and Finance Institute specializing in infrastructure finance and credit.
Li Yonglin Mr. Li is a member of the Supervisory Committee and Director
of the Power Department of Dalian Municipal Construction Investment Company.
He was a departmental grade researcher of the Energy and Transportation
Department of Dalian Municipal Planning Committee. Mr. Li graduated from
Changchun Hydro-electric School of Ministry of Water Resources and Electric
Power, specializing in power plants, power grids and power system.
Shen Weibing Mr. Shen is Supervisor of the Company and Chief Officer of
Nantong Investment Management Center. He worked in Nantong Planning Commission
He was the Vice President and President of Nantong Municipal Oil Company, Vice
President and legal representative of Nantong Municipal Construction
Investment Company, and Deputy Chief Officer of Nantong Investment Management
Centre. Mr. Shen graduated from the Department of Materials Management of
Beijing Materials Management Institute with a bachelor degree in engineering .
In 2002, he studied the MBA course in Nanjing University and obtained a Master
of Business Administration degree. Mr. Shen is a senior economist.
Shen Zongmin Mr. Shen is Supervisor of the Company and President of
Shantou Electric Power Development Company. Previously, he was the President
of Shantou Light Industry Mechanical (Group) Company and Chairman of Shantou
Power Development Joint Stock Company Limited.
Zhao Xisheng Mr. Zhao is Supervisor and Senior Consultant of the
Company. He has served as Deputy General Manager of the Finance Department,
General Manager of the Management Department of the Company and the General
Manager of the CompanyOs Supervising and Auditing Department. Before joining
the Company, he served as Section Chief, Deputy Chief Accountant and Deputy
General Manager of Beijing Shijingshan Power Plant. Mr. Zhao is a senior
accountant and graduated from the PeopleOs University of China specializing in
industrial economics.
Senior Management
Ye Daji (Mr), aged 58, is Director and President of the Company. After
joining the Company, he has been Deputy General Manager of Huaneng Shanghai
Branch and General Manager of Huaneng Shanghai Shidongkou Second Power Plant.
From December 1995 to December 2002, he was Vice President of the Company,
Vice President of HIPDC and Director of China Huaneng Group. Before joining
the Company, he had served as Deputy Chief Engineer of Huaneng Shanghai
Shidongkou Power Plant. Mr. Ye is a senior engineer and graduated from
Shanghai Jiaotong University specializing in mechanical engineering.
Na Xizhi (Mr), aged 50, is Vice President of the Company and Adjunct
Deputy Chief Engineer of China Huaneng Group. Before he joined the Company, he
served in China Huaneng Group as Deputy Manager of the Power Generation
Department, General Manager of the Operation Department, General Manager of
the Power Safety and Production Department, and Deputy Chief Engineer of China
Huaneng Group. Previously, Mr Na was the Vice General Manager of Fuxin Power
Plant, Deputy Officer of the Planning Department of Suizhong Power Plant,
Deputy Chief and Chief of the Bio-technology Department of Northeast Power
Administration Bureau, and General Manager of Shenyang Shenhai Thermal Power
Plant. Mr Na is a senior engineer. He graduated from Wuhan Hydro-electric
University, specializing in thermal power with a master degree in engineering.
Zhang Hong (Mr), aged 57, is the Vice President of the Company and
Deputy Chief Engineer of China Huaneng Group. Mr. Zhang served as the General
Manager of Dandong Branch of the Company, General Manager of Yingkou Branch of
HIPDC, General Manager of Power Construction Department and Planning
Department of China Huaneng Group, and Deputy Chief Engineer of China Huaneng
Group. Previously, Mr. Zhang was the Manager of the Fourth Engineering Company
of Northeast Power Administration Group. He is a senior engineer and graduated
from Northeast Power Institute specializing in Management Engineering.
Chen Baoliang (Mr), aged 49, is Vice President of the Company. He joined
the Company in 1996 and has worked as General Manager of Huaneng Dalian Branch
and Superintendent of Dalian Power Plant. Before joining the Company, he had
been Deputy Chief Engineer of Liaoning Qinghe Power Plant, Deputy Chief of the
Planning Department and Deputy General Manager of the Construction Department
of Tieling Power Plant, and Superintendent of Yuan Bao Shan Power Plant. Mr.
Chen is a senior engineer and graduated with a M.S. degree from North China
Electric Power University specializing in thermal power engineering.
Huang Long (Mr), aged 50, is Vice President of the Company as well as
Secretary of the Board of Directors. After joining the Company, he served as
Deputy General Manager and General Manager of the International Co-operation
Department of the Company. Mr. Huang is a senior engineer and graduated with a
M.S. degree from North Carolina State University in the U.S. specializing in
communications and auto-control.
Hu Jianmin (Mr), aged 49, is Vice President of the Company. From April
1998 to January 2001, he worked as Chief Engineer of Shandong Electric Power
Group Corp. Before joining the Company, he had been Chairman of Shandong
Rizhao Power Company Limited, General Manager of Shandong Liaocheng Power
Plant, Shiheng Power Plant and Zouxian Power Plant respectively. Mr. Hu is a
senior engineer and graduated from Shandong Industrial Institute specializing
in relay protection.
Wu Dawei (Mr), aged 50, is Vice President of the Company. He joined the
Company in 1988 and has served as Deputy General Manager of Huaneng Shanghai
Shidongkou Second Power Plant, Deputy Manager of Shanghai branch of the
Company, and the General Manager of Huaneng Shanghai Shidongkou Second Power
Plant. Mr. Wu is a senior engineer. He has obtained a Master of Business
Administration degree from the Central Europe International Business School.
Liu Guoyue (Mr), aged 40, is Vice President of the Company. He joined
the Company in 1987 and served as the Deputy General Manager (Vice President)
and General Manager (President) of Shijiazhuang branch (power plant) of the
Company as well as the President of Huaneng Dezhou Power Plant. Mr. Liu is a
senior engineer, graduated from Northern China Electric Power University with
a bachelor degree in engineering and a bachelor degree in business management.
Li Shiqi (Mr), aged 47, is the Chief Economic Engineer of the Company.
During the period from 1996 to 2002, he served as Chief Accountant of Beijing
Branch Company of HIPDC, Deputy General Manager and General Manager of the
Finance Department of the Company, and General Manager of the Marketing
Department of China Huaneng Group. Before these, Mr. Li worked in Power
Science Institute as Deputy Manager, Deputy Chief, Chief and Deputy Chief
Accountant, and in Beijing Power Research and Hi-Tech Business Corporation as
Chief Accountant. Mr. Li is a senior accountant and graduated from Renmin
University of China, specializing in finance.
Huang Jian (Mr), aged 41, is the Chief Accountant of the Company. He
served as Deputy Chief, Chief of the Finance Department of the Company, Chief
Accountant of the Beijing Branch Company of HIPDC, Deputy General Manager of
the Finance Department of the Company, Deputy Chief Accountant of the Company.
Mr. Huang is a senior accountant and graduated from Finance and Administration
Research Institute of the Ministry of Finance, specializing in accounting,
with a master degree in economics.
7. CONSENT
Each of JP Morgan, Rothschild, KPMG and Vigers has given and has not
withdrawn its written consent to the issue of this circular with the inclusion
of and references to its name and letter or report (as the case may be), in
the form and context in which they appear.
8. PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS
Pursuant to the articles of association of the Company, a general voting
shall be made at the shareholders meeting by a show of hands. However, (i)
chairman of the meeting, (ii) at least two shareholders or proxies of such
shareholders with voting rights, and (iii) one or more shareholders including
proxy or proxies of such shareholders accounting individually or jointly 10%
or more of the Company shares with voting right(s), shall have the right to
request for a voting by poll before or after a voting by show of hands.
Issues concerning election of the chairman or suspension of a meeting
shall be voted by poll. Other issues shall be voted by poll at the time to be
decided by the chairman, and the meeting can go on with discussion of other
matters. The result of such voting shall also be regarded as the resolution
adopted at the meeting. A person who has made a request for voting by poll can
withdraw it.
9. MATERIAL CONTRACTS
The following contracts (including contracts not entered into in the
ordinary course of business) have been entered into by the Company and its
subsidiaries (including the Target Power Plants) within the two years
immediately preceding the date of this circular, and are or may be material:
(a) An agreement regarding the acquisition of interest in four
power plants by the Company from Huaneng Group on 9th May,
2002, details of which were set out in the Company's circular
dated 13th May, 2002;
(b) An agreement regarding the acquisition of the interest in three
power plants by the Company from Huaneng Group on 5th June,
2002, details of which were set out in the Company's circular
dated 12th June, 2003;
(c) Agreement for Transfer of Huaneng Group Interest; and
(d) Agreement for Transfer of HIPDC Interest.
10. MISCELLANEOUS
(1) The legal address of the Company is at West Wing, Building C,
Tianyin Mansion, 2C Fuxingmennan Street, Xicheng District,
Beijing, The People's Republic of China.
(2) The share registrar of the Company in Hong Kong is Hong Kong
Registrars Limited at Room 1901-5, 19/F, Hopewell Centre,
183 Queen's Road East, Hong Kong.
(3) The secretary of the Company is Mr. Huang Long.
11. DOCUMENTS FOR INSPECTION
Copies of the following documents will be available for inspection at
the offices of Herbert Smith at 23rd Floor, Gloucester Tower, 11 Pedder
Street, Hong Kong during normal business hours on any day (except public
holidays) up to and including 15th June, 2004:
(1) the Transfer Agreements;
(2) the letter from the Independent Directors as set out in this
circular;
(3) the letter from Rothschild as set out in this circular;
(4) the written consent referred to in paragraph 7 of this appendix;
(5) the material contracts referred to in paragraph 9 of this appendix;
(6) the annual report of the Company for the year ended 31st
December, 2003;
(7) the accountants' reports from KPMG on the financial information
for each of the Target Power Plants dated 29th April, 2004, the
text of which are set out in Appendix I to Appendix V;
(8) the report from KPMG on the pro forma net assets statement of
the Combined Company and Subsidiaries dated 29th April, 2004,
the text of which is set out in Appendix VII;
(9) the property valuation report and the plant and machinery valuation
report set out in Appendix VIII and Appendix IX; and
(10) the articles of association of the Company.
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NOTICE OF EXTRAORDINARY GENERAL MEETING
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[GRAPHIC OMITTED]
(A Sino-foreign joint stock limited company
incorporated in the People's Republic of China)
Notice is hereby given that an extraordinary general meeting of Huaneng
Power International, Inc. (the "Company") will be held at 9 a.m. on 15th June,
2004 (Tuesday) at Beijing International Convention Centre at No. 8 Beichen
East Road, Chaoyang District, Beijing, The People's Republic of China, for the
purpose of considering and, if thought fit, passing the following ordinary
resolutions:
Ordinary resolutions:
1. To approve the acquisition of 40% interest in Hebei Hanfeng Power
Generation Limited Liability Company and 90% interest in Jinggangshan
Huaneng Power Generation Limited Liability Company held by China
Huaneng Group by the Company and the Agreement for Transfer of
Huaneng Group Interest.
2. To approve the acqusition of 55% interest in Huaneng Hunan Yueyang
Power Generation Limited Liability Company, 60% interest in Huaneng
Chongqing Luohuang Power Generation Limited Liability Company and the
entire assets and liabilities of Huaneng International Power
Development Corporation Yingkou Branch Company and the Agreement for
Transfer of HIPDC Interest.
3. To approve the guarantee arrangments and agreements between Hebei
Hanfeng Power Generation Limited Liability Company, Jinggangshan
Huaneng Power Generation Limited Liability Company and China Huaneng
Group, and subject to the completion of the Acquisition and the
transfer of 10% interest in Jinggangshan Huaneng Power Generation
Limited Liability Company held by Jiangxi Province Investment
Corporation to the Company, the Company's taking up of the existing
guarantee of Jinggangshan Huaneng Power Generation Limited Liability
Company originally provided by China Huaneng Group. (Note 1)
4. To approve the entrusted loan arrangement between Huaneng Hunan
Yueyang Power Generation Limited Liability Company, Huaneng
International Power Development Corporation and China Huaneng Finance
Company; To approve the entrusted loan arrangement in respect of
Yingkou Power Plant between the Company, Huaneng International Power
Development Corporation and China Huaneng Finance Company; To approve
the arrangement between the Conmpany and Huaneng International Power
Development Corporation regarding the account payables of Yingkou
Power Plant; and To approve the arrangement regarding the foreign
loan between Huaneng International Power Development Corporation and
Huaneng Chongqing Luohuang Power Generation Limited Liability
Company.
(Note 2)
5. To approve the the loan and deposit arramgement between Jinggangshan
Huaneng Power Generation Limited Liability Company and China Huaneng
Finance Company; To approve, subject to the completion of the
Acquisition and the transfer of 10% interest in Jinggangshan Huaneng
Power Generation Limited Liability Company held by Jiangxi Province
Investment Corporation to the Company, the Company's taking up of the
aforesaid rights and obligations of Jinggangshan Huaneng Power
Generation Limited Liability Company; To approve the deposit
arrangement between Huaneng Chongqing Luohuang Power Generation
Limited Liability Company, Huaneng Hunan Yueyang Power Generation
Limited Liability Company and China Huaneng Group. (Note 3)
By Order of the Board
Huang Long
Company Secretary
29th April, 2004
Registered address of the Company:
West Wing, Building C,
Tianyin Mansion,
2C Fuxingmennan Street,
Xicheng District,
Beijing 100031,
The People's Republic of China
Notes:
1. (The terms used hereinafter shall have the same meaning as stated in
the announcement made by the Company dated 16th April, 2004)
(i) Pursuant to the four (loan) guarantee agreements (numbered [98]01,
[98]02, [98]03, [99]02 respectively), Hebei Province Power Company
provided joint liability guarantee for the loans of an aggregate
amount of RMB1,684 million that Hanfeng Power Plant borrowed from
China Construction Bank Handan Hanfeng Power Plant Branch between
1996 and 1999. According to the guarantee agreement dated 30th
September, 2000 and the amendment agreement dated 10th October,
2002 between Hebei Province Power Company and the State
Development Bank, Hebei Province Power Company provided joint
liability guarantee for 42% of the RMB745 million loan that
Hanfeng Power Plant borrowed from the State Development Bank (i.e.
RMB312.9 million). On 27th November, 2003, China Huaneng Group
entered into the Agreement. According to the Approval regarding
reorganization and division of power generating assets of China
Power Corporation (Jijichu [2002]2704) issued by the former State
Development and Planning Commission and other relevant documents,
40% of the interest in the registered capital of Hanfeng Power
Plant held by Hebei Province Power Company was transferred to
China Huaneng Group. On 27th November, 2003, China Huaneng Group
entered into an agreement in relation to the transfer and delivery
of Hanfeng Project as part of power system reform with Hebei
Province Power Company, pursuant to which, inter alia, the five
commercial bank loan guarantee provided by Hebei Province Power
Company to Hanfeng Power Plant, with an aggregate guarantee amount
of RMB1736.9 million, were to be taken over by China Huaneng
Group. As at 31st March, the total outstanding amount of the
aforesaid guarantee was RMB1.48430 billion.
(ii) Pursuant to the (loan) guarantee agreement dated 24th October,
2000 between China Huaneng Group and China Construction Bank
Jian City Branch, China Huaneng Group provided joint liability
guarantee for the RMB1,560 million loan borrowed by
Jinggangshan Power Plant from China Construction Bank Jian City
Branch pursuant to the loan agreement numbered GDZCDK -
2000-519. The outstanding amount of the above guarantee was
RMB1.24525 billion as at 31st March, 2004.
As at 31st March 2004, the outstanding amount of the above guarantee
transactions in total was RMB2.72955 billion.
2. (The terms used hereinafter shall have the same meaning as stated in
the announcement made by the Company dated 16th April, 2004)
(i) Pursuant to the contract for incorporation of Huaneng Yueyang
Power Generation Limited Liability Company entered into between
HIPDC and Hunan Provincial Local Power Assets Management
Limited Company in September 2003, the investment of RMB546.97
million originally made by HIPDC into Yueyang Power Plant would
be treated as a debt owned by Yueyung Power Plant to HIPDC by
entering into entrusted loan arrangement at the time when the
conversion of Yueyang Power Plant into a limited liability
company from HIPDC's branch company took place. The entrusted
loan agreement would be for a term from 30th September, 2003 to
30th September, 2004 at the interest rate of 5.31% per annum.
As at 31st March, 2004, the amount involved was RMB510.86
million.
(ii) Pursuant to the loan transfer agreement regarding the mixed
term loan by Credit Mutuel Confederation Nationale and Credit
Agricole (Chongqing Luohuang Power Plant Project) dated 2nd
June, 1988 between HIPDC and the Bank of China, the Bank of
China transferred to HIPDC loans with the aggregate amount not
exceeding 1,477,085,485 francs (of which approximately 45%
being government loan, approximately 54% as purchaser credit
and approximately 1% being purchaser credit insurance fee
loan). The term of the loan was 30 years. The interest rate for
the government loan was 2% per annum, the purchaser credit
interest rate was 7.4% per annum, the rate of the loan transfer
fee for the government loan was 0.15% per annum and the rate of
the loan transfer fee for the purchaser credit is 0.1%. As at
31st March, 2004, the outstanding amount of the above loans is
Euro 80,979,180 and RMB816.8 million.
(iii) Pursuant to the loan transfer agreement regarding the French
purchaser credit loan for the project of Huaneng Luohuang Power
Plant Phase II dated 28th November, 1995 between HIPDC and the
Bank of China, the Bank of China transferred to HIPDC loans
with an aggregate amount of USD297,746,666. The term of the
loan was 16 years. The first repayment date was 21st March,
2000, and there should be 24 instalments of payment in 12
years, with the same amount of repayment being made each half
year. The interest rate was 5.95% per annum, the rate of the
transfer handling fee was 0.35% per annum. As at 31st March
2004, the outstanding amount of the above loans was
US180,896,874 (i.e. RMB1.46730 billion).
(iv) According to Yingkou Power Plant's balance sheet as at 31st
December 2003 audited by KPMG, Yingkou Power Plant owed to
HIPDC a short term payable of RMB1,264,651,910 and a long term
loan of RMB614,275,497. According to the Agreement for Transfer
of HIPDC Interest, upon completion, the Company should repay
the short term payable of RMB1,264,651,910 in full (without
interest) to HIPDC within two years from the closing of the
acquisition of the HIPDC Interest; while in relation to the
RMB614,275,497 long-term loan owed by Yingkou Power Plant to
HIPDC, the Company should arrange an entrusted loan arrangement
with HIPDC through China Huaneng Finance Company, with a term
of 5 years payable by equal instalments annually at an annual
interest rate as quoted by The People's Bank of China from time
to time.
3. (The terms used hereinafter shall have the same meaning as stated in
the announcement made by the Company dated 16th April, 2004)
(i) According to the RMB loan agreement entered into between
Jinggangshn Power Plant and China Huaneng Finance Company in
July 2003, Jinggangshan obtained a loan of RMB20 million from
China Huaneng Finance Company for a term from 27th June, 2003
to 27th June, 2004 at a monthly interest rate of 3.9825%, which
at the time of siging the agreement, lower than the leading
rate of The People's Bank of China. As at 31st March, 2004, the
outstanding loan amount was RMB20 million.
(ii) As at 31st March, 2004, the deposit of Jinggangshan Power Plant
in China Huaneng Finance Company was RMB97.64 million. The
interest rate of the above deposit was not lower than the then
prevailing bank deposit interest rate.
(iii) As at 31st March, 2004, the deposit of Yueyang Power Plant in
China Huaneng Finance Company was RMB30.41million. The interest
rate of the above deposit was not lower than the then
prevailing bank deposit interest rate.
(iv) As at 31st March, 2004, the remaining deposit of Luohuang Power
Plant in China Huaneng Finance Company was RMB215.02million.
The interest rate of the above deposit is not lower than the
then prevailing bank deposit interest rate.
(v) An entrusted loan agreement to be entered into between HIPDC,
China Huaneng Finance Company and Yueyang Power Plant, pursuant
to which the entrusted term loan would be for a term from 30th
September, 2003 to 30th September, 2004 at the interest rate of
5.31% per annum. As at 31st March, 2004, the outstanding amount
was RMB510.86 million.
(vi) An entrusted loan agreement to be entered into between China
Huaneng Finance Company, and the Company's Yingkou Power Plant
for a term of 5 year (same amount on equal instalment) at a
rate same as the heading rate quoted by The People's Bank of
China from time to time.
4. Eligibility for attending the Extraordinary General Meeting
Holders of the Company's foreign Shares whose names appear on the HK$
Dividend foreign Shares Register and/or the US$ Dividend foreign Shares
Register maintained by Hong Kong Registrars Limited and holders of domestic
shares whose names appear on the domestic shares register maintained by the
Company at the close of business on 14th May, 2004 are eligible to attend the
Extraordinary General Meeting.
5. Proxy
(i) A member eligible to attend and vote at the Extraordinary
General Meeting is entitled to appoint, in written form, one or
more proxies to attend and vote on behalf of him. A proxy needs
not be a shareholder.
(ii) A proxy should be appointed by a written instrument signed by
the appointor or its attorney duly authorised in writing. If
the form of proxy is signed by the attorney of the appointor,
the power of attorney authorising that attorney to sign or
other authorisation document(s) shall be notarised.
(iii) To be valid, the power of attorney or other authorisation
document(s) which have been notarised together with the
completed form of proxy must be delivered, in the case of
holders of domestic shares, to the Company and, in the case of
holders of foreign Shares, to Hong Kong Registrars Limited, not
less than 24 hours before the time designated for holding of
the Extraordinary General Meeting.
(iv) A proxy may exercise the right to vote by a show of hands or by
poll. However, if more than one proxy is appointed by a
shareholder, such proxies shall only exercise the right to vote
by poll.
6. Registration procedures for attending the Extraordinary General Meeting
(i) A shareholder or his proxy shall produce proof of identity when
attending the meeting. If a shareholder is a legal person, its
legal representative or other persons authorised by the board
of directors or other governing body of such shareholder may
attend the Extraordinary General Meeting by producing a copy of
the resolution of the board of directors or other governing
body of such shareholder appointing such persons to attend the
meeting.
(ii) Holders of foreign Shares and domestic shares intending to
attend the Extraordinary General Meeting should return the
reply slip for attending the Extraordinary General Meeting to
the Company on or before 25th May, 2004.
(iii) Shareholders may send the above reply slip to the Company in
person, by post or by fax (Attn: The Secretary office of the
Board).
7. Closure of Register of Members
The register of members of the Company will be closed from 14th May,
2004 to 14th June, 2004 (both days inclusive).
8. Other Businesses
(i) The Extraordinary General Meeting will not last for more than
half day. Shareholders who attend shall bear their own
travelling and accommodation expenses.
(ii) The address of the share registrar for Foreign Shares of the
Company, Hong Kong Registrars Limited is at:
1901-5
19/F., Hopewell Centre
183 Queen's Road East,
Hong Kong
(iii) The registered address of the Company is at:
West Wing, Building C,
Tianyin Mansion,
2C Fuxingmennan Street,
Xicheng District,
Beijing 100031,
The People's Republic of China
Telephone No.: (+86)-10-66491999
Facsimile No.: (+86)-10-66491860
[GRAPHIC OMITTED]
(a Sino-foreign joint stock limited company
incorporated in the People's Republic of China)
Proxy Form for Extraordinary General Meeting
I/(We)(Note 2) ______________________________________________________________________________________________________
of __________________________________________________________________________________________________________________
Shareholders' Account: _____________________________________and I.D. No.: __________________________________________,
being the holder(s) of ______________________________H Share(s)/Domestic Share(s)* (Note 1) of Huaneng Power International,
Inc. (the "Company") now appoint(Note 3) ___________________________________________________________________________,
I.D. No.: _________________(of ______________________________________________________________________________________
___________________________________________________________________________________________________________________),
or failing him the Chairman of the meeting as my(our) proxy to attend and vote for me(us) on the following resolution
in accordance with the instruction(s) below and on my(our) behalf at the Extraordinary General Meeting to be held at
9:00 a.m. on Tuesday, 15th June, 2004 at Beijing International Convention Centre at No. 8 Beichen East Road, Chaoyang
District, Beijing, the People's Republic of China for the purpose of considering and, if thought fit, passing the
ordinary resolution as set out in the notice convening the said meeting. In the absence of any indication, the proxy
may vote for or against the resolution at his own discretion.(Note 6)
_____________________________________________________________________________________________________________________
Against
Ordinary Resolutions For(Note 4) (Note 4)
_____________________________________________________________________________________________________________________
1. To approve the acquisition of 40% interest in Hebei Hanfeng Power
Generation Limited Liability Company and 90% interest in Jinggangshan
Huaneng Power Generation Limited Liability Company held by China
Huaneng Group by the Company and the Agreement for Transfer of
Huaneng Group Interest.
_____________________________________________________________________________________________________________________
2. To approve the acqusition of 55% interest in Huaneng Hunan Yueyang
Power Generation Limited Liability Company, 60% interest in Huaneng
Chongqing Luohuang Power Generation Limited Liability Company and the
entire assets and liabilities of Huaneng International Power
Development Corporation Yingkou Branch Company and the Agreement for
Transfer of HIPDC Interest.
_____________________________________________________________________________________________________________________
3. To approve the guarantee arrangments and agreements between Hebei
Hanfeng Power Generation Limited Liability Company, Jinggangshan
Huaneng Power Generation Limited Liability Company and China Huaneng
Group, and subject to the completion of the Acquisition and the
transfer of 10% interest in Jinggangshan Huaneng Power Generation
Limited Liability Company held by Jiangxi Province Investment
Corporation to the Company, the Company's taking up of the existing
guarantee of Jinggangshan Huaneng Power Generation Limited Liability
Company originally provided by China Huaneng Group.
_____________________________________________________________________________________________________________________
4. To approve the entrusted loan arrangement between Huaneng Hunan Yueyang Power
Generation Limited Liability Company, Huaneng International Power Development
Corporation and China Huaneng Finance Company; To approve the entrusted loan
arrangement in respect of Yingkou Power Plant between the Company, Huaneng
International Power Development Corporation and China Huaneng Finance Company; To
approve the arrangement between the Conmpany and Huaneng International Power
Development Corporation regarding the account payables of Yingkou Power Plant; and To
approve the arrangement regarding the foreign loan between Huaneng International Power
Development Corporation and Huaneng Chongqing Luohuang Power Generation Limited
Liability Company.
_____________________________________________________________________________________________________________________
5. To approve the the loan and deposit arrangement between Jinggangshan Huaneng Power
Generation Limited Liability Company and China Huaneng Finance Company; To approve,
subject to the completion of the Acquisition and the transfer of 10% interest in
Jinggangshan Huaneng Power Generation Limited Liability Company held by Jiangxi
Province Investment Corporation to the Company, the Company's taking up of the
aforesaid rights and obligations of Jinggangshan Huaneng Power Generation Limited
Liability Company; To approve the deposit arrangement between Huaneng Chongqing
Luohuang Power Generation Limited Liability Company, Huaneng Hunan Yueyang Power
Generation Limited Liability Company and China Huaneng Group.
_____________________________________________________________________________________________________________________
Date: _________________________________2004 Signature: _______________________________ (Note 5)
Notes:
1. Please insert the number of Share(s) registered in your name(s)
relating to this form of proxy. If no number is inserted, this form
of proxy will be deemed to relate to all of the shares in the capital
of the Company registered in your name(s).
2. Please insert full name(s) and address(es) in BLOCK LETTERS.
3. Please insert the name and address of your proxy. If this is left
blank, the chairman of the Extraordinary General Meeting will act as
your proxy. One or more proxies, who may not be member(s) of the
Company, may be appointed to attend and vote in the meeting provided
that such proxies must attend the meeting in person on your behalf.
Any alteration made to this proxy form must be signed by the
signatory.
4. Attention: If you wish to vote FOR any resolution, please indicate
with a "6" in the appropriate space under "For". If you wish to vote
AGAINST any resolution, please indicate with a "6" in the appropriate
space under "Against". In the absence of any such indication, the
proxy will vote or abstain at his discretion.
5. This form of proxy must be signed underhand by you or your attorney
duly authorised in that behalf. If the appointer is a corporation,
this form must be signed under its common seal or under hand by any
directors or agents duly appointed by such corporation.
6. This form of proxy together with the power of attorney or other
authorisation document(s) which have been notarised, must be
delivered, in the case of a holder of Domestic Share(s), to the
Company and in the case of a holder of H Share(s), to Hong Kong
Registrars Limited, at least 24 hours before the time designated for
the holding of the Extraordinsary General Meeting.
* Please delete as appropriate.
[GRAPHIC OMITTED]
(a Sino-foreign joint stock limited company
incorporated in the People's Republic of China)
Reply Slip for Extraordinary General Meeting
I/(We)
________________________________________________________________________________
of
________________________________________________________________________________
Telephone number: _________________________________ and Fax
number:__________________________________________________, being the
holder(s) of _______________________________________ H Share(s)/Domestic
Share(s)* of Huaneng Power International, Inc. (the "Company") hereby reply
that I/(We) wish to attend or appoint a proxy to attend (on my/(our)
behalf) the extraordinary general meeting (the "EGM") to be held at 9:00
a.m. on Tuesday, 15th June, 2004 at Beijing International Convention Centre
at No. 8 Beichen East Road, Chaoyang District, Beijing, the People's
Republic of China.
Signature: _____________________________
Date: _______________________________
Note: Eligible shareholders who wish to attend the EGM are advised to
complete and return this reply slip to the Company at West Wing,
Building C, Tianyin Mansion, 2C, Fuxingmennan Street, Xicheng
District, Beijing 100031, the PRC by post or by facsimile (Fax no.:
(+86)-10-66491888). Failure to sign and return this reply slip,
however, will not preclude an eligible shareholder from attending the
EGM.
* Please delete as appropriate.