粤电力Ａ(000539)粤电力Ｂ2005年年度报告（英文）

广东电力发展股份有限公司 GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. 2005 ANNUAL REPORT March 29, 2006 Important Notice The Board of Directors , Supervisory Committee ,Directors, Supervisors and Senior Executives of the Company hereby guarantees that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. Directors Hong Rongkun and Li Zhuoxian and Lao Qiongjuan and Wang Jun did not attend the meeting. Both Deloitte Touch e Toh matu s Certified Public Accountants Co., Ltd. and PricewaterhouseCooperZhongTian CPAs Co., Ltd,(“PricewaterhouseCoopers”)have issued auditors’s report with unqualified opinion for Company. Chairman of the Board of Directors Pan Li, General Manager Liu Luoshou and Finance Department Manager Liu Xuemao repres 2 Contents I. Brief Introduction of the Company 4 II. Highlights of Accounting Data and Business Data 6 III. Particulars about Changes in Share Capital and Shareholders. 9 IV. Directors, Supervisors, Senior Executives and Employees 14 V. Corporate Governance Structure 22 VI. Brief Introduction of Shareholders' General Meeting 24 VII. Report of the Board of Directors 27 VIII.Report of the Supervisory Committee 45 IX. Important Events 47 X. Financial Report 53 Auditor's report issued by Deloitte Touche Tohmatus Certified Public Accountants Co., Ltd. and financial statements XI. Provision for impairment loss XII. List of Documents Available for Inspection 3 I. Brief Introduction of the Company (I) Statutory Chinese name of the Company：广东电力发展股份有限公司 Statutory English name of the Company: GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. [Abbreviation of English name: GED] (II) Legal representative of the Company: Mr. Pan Li (III)General manager: Mr. Liu Luoshou (IV) Secretary to the Board of Directors: Ms. Li Xiaoqing Contact Tel: (020)87570276 E-mail: lixq@ged.com.cn Securities affair representative: Mr.Liang Jiang Yong Contact address: 26/F, South Tower, Yuedian Plaza, No.2 Tianhe Road East, Guangzhou, Contact Tel: (020)87570251 Fax:(020)85138084 E-mail: ljy@ged.com.cn Contact address: 26/F, South Tower, Yuedian Plaza, No.2 Tianhe Road East, Guangzhou, Zip code:510630 (V) Registered address of Company ： 23-26/F Yuedian Plaza, No.2 Tianhe Road East , Guangzhou,Guangdong Province Business address of Company ： 23-26/F Yuedian Plaza, No.2 Tianhe Road East , Guangzhou,Guangdong Province Zip code:510630 E-mail: ged@ged.com.cn Website：www.ged.com.cn (VI) Name of newspapers selected by the Company for information disclosure: China Securities Daily, Securities Times, Shanghai Securities Daily and Hong Kong Commercial Daily (overseas newspaper for both Chinese and English version). 4 Internet website for publishing the annual report of the Company: http：//www.cninfo.com.cn The place for preparing and placing the annual report of the Company: Administration Dept. of the board of directors of the Company (VII) The exchange for listing the stocks of the Company, stock abbreviation and stock code The exchange for listing the stocks of the Company: Shenzhen Stock Exchange Stock abbreviation: G Yue Dian Li and Yue Dian Li B Stock code: 000539 and 200539 (VIII) Other information 1. The date of first registration of the Company: November 3, 1992 Registered address: 10/F, Baili Commercial Center, Guangfa Garden, 498 Huanshi Road East, Guangzhou 2. Date of change in registration of the Company: June 28, 2005 Registered address after change: 26/F, South Tower, Yuedian Plaza, No.2 Tianhe Road East, Guangzhou, Guangdong Province 3. Industrial and commercial registration number: Qi He Yue Zong Zi No. 002753: 4. Tax registration number: Guo Shui Sui Wai Zi 440101617419493 Di Shui Sui Wai Zi 440100617419493 5. Certified public accountants of the Company: (1) Deloitte Touche Tohmatus Certified Public Accountants Co., Ltd. Office address: 8/F, West No.2 Office Building, Oriental Economy and Trade City, Oriental Plaza, 1 Changan Street, Beijing. (2) PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. Office Address: 12/F, Ruian Plaza, 333 Huaihai Road Central, Shanghai 6. The legal adviser of the Company: Guangdong Xinyang Law Office Office address: Room 1209-1212, Daxin Building, 538 Dezheng Road North, 5 Guangzhou II. Highlights of Accounting Data and Business Data (I) Main accounting data and indicators for the report year Monetary unit: RMB’000 Income from sales of electricity 8,277,999 Cost of sale electricity 6,814,553 Operating profit 1,489,987 Other income, net 26,541 Profit before taxation 1,378,630 Net profit 776,367 Net cash flows from operating 2,621,999 activities Note 1: Items and amount of non-recurring gains and loss deducted: Loss on the disposal of fixed assets: RMB 1,076,893.05; Income from entrusted investment: RMB-3,380,778.00; Other non-operating income: RMB - 2,512,530.95; Other non-operating expenses: RMB 4,050,853.18; Writeback of provision for impairment already made for previous year: RMB - 507,885.00. Note 2: Notes to the difference between audit of net profit for the report year by domestic and foreign certified public accountants: The influence of the adjustment made by Pricewaterhouse Coopers according to international financial report standards on consolidated profit shared by shareholders is as follows: Profit for the year Net assets RMB’000 RMB’000 As per the statutory financial statements(audited by certified public accountants in the PRC) 720,222 8,377,991 Impact of IFRS adjustment 6 Amortisation of deferred staff costs (10,218) 40,873 Amortisation of land use right (3,171) 62,799 Utilisation of early retirement obligation 16,342 (65,066) Provision of Statutory public welfare fund (8,951) - Deferred revenue - (40,081) Amortization of difference between investment cost and share of net assets 13,623 13,623 Difference ofinterest capitalisation 105,600 105,600 Amortization of pre-operating expense (80,575) (80,575) Deferred tax 26,763 58,934 Others (3,268) (10,449) As restated after IFRS adjustment 776,367 8,463,649 Note：The attachment of profit statement Profit in the report period（RMB’000） Return on equity % Earnings per share (RMB) Fully diluted Weighted Fully diluted Weighted average average Profit from main 1,463,446 17.3% 17.3% 0.55 0.55 operations Operating profit 1,489,987 17.6% 17.6% 0.56 0.56 Net profit 776,367 9.2% 9.2% 0.29 0.29 Net profit after 794,070 9.4% 9.4% 0.30 0.30 deducting non-recurring gains and losses 7 (II) Highlights of accounting data and financial indicators in the latest three years Unit：RMB’000 2003（after 2003（before Item 2005 2004 adjustment ） adjustment ） 8,277,999 7,115,567 5,996,285 5,996,285 1.Income from key business 776,367 936,730 1,127,362 1,163,667 2. Net profit 3. Earnings per share 0.29 0.35 0.42 0.44 Earnings per share（Fully diluted） N/A N/A N/A N/A Earnings per share （Weighted average） 0.29 0.35 0.42 0.44 Earnings per share after deducting non-recurring gains and losses 4. Return on net assets（%） 9.2 11 14 15 Return on equity calculated on basis of net profit after deducting non-operating gains and losses(%） 5. Net cash flow from 0.99 0.6 0.76 0.76 operating activities 31 December December 31, 2003 December December 31, 2003 2005 31, 2004 （after (before adjustment) adjustment ） 17,192,625 13,543,308 12,547,943 12,590,293 1. Total assets 8,463,649 8,165,975 7,894,096 7,397,470 2. Shareholders' equity 3.18 3.07 2.97 3.01 3. Net assets per share 3.18 3.07 2.97 3.01 4. Net assets per share after adjustment (III) Change in shareholders' equity in the report period and the reason for change: ’000 Attributable to equity holders of the Minority Total Company interest equity Share Other Retained Note capital reserves earnings Balances at 31 December 2004 2,659,404 4,506,156 1,000,415 1,996,548 10,162,523 Balances at 1 January 2005 2,659,404 4,506,156 1,000,415 1,996,548 10,162,523 8 Dividends relating to 2004 - - (478,693) (146,905) (625,598) Profit for the year - - 776,367 135,986 912,353 Contribution from minority interest - - - 98,000 98,000 Appropriation from retained earnings 17 - 342,951 (342,951) - - Balances at 31 December 2005 2,659,404 4,849,107 955,138 2,083,629 10,547,278 III. Particulars about Changes in Share Capital and Shareholders (1) The changes in share capital 1.Statement of changes in shares Unit: shares Increase or decrease this Before this change After this change time (+/-) Quantity Proportion (%) Subtotal Quantity Proportion (%) I. Non-negotiable shares 1,602,587,942 60.26% 1,602,587,942 60.26% 1. Promoter's shares 1,553,175,000 58.40% 1,553,175,000 58.40% Of which: State-owned1,333,800,000 50.15% 1,333,800,000 50.15% shares Domestic corporate shares 219,375,000 8.25% 219,375,000 8.25% Overseas corporate shares Others 2. Raised corporate shares 49,412,942 1.86% 49,412,942 1.86% 3. Staff shares 4. Preferred shares or others II. Negotiable shares 1,056,816,058 39.74% 1,056,816,058 39.74% 1. RMB common shares 391,462,980 14.72% 391,462,980 14.72% 2. Domestically listed665,340,000 25.02% 65,340,000 25.02% foreign-capital shares 3. Overseas listed foreign-capital shares 4. Others III Total shares 2,659,404,000 100.00% 2,659,404,000 100.00% 2. Statement of changes in shares after implementation of the plan for share holding structure reform (Unit: share) Increase or decrease this time Before this change After this change (+/-) Proporti Proportio Quantity Bonus shares Subtotal Quantity on n I. Shares subject to sale 1,602,587,942 60.26% -121,340,445 -121,340,445 1,481,247,497 55.70% restriction 9 1. State shares 1,333,800,000 50.15% -102,146,998 -102,146,998 1,231,653,002 46.31% 2. State-owned corporate 175,359,600 6.60% -6,442,949 -6,442,949 162,080,321 6.10% shares 3. Other domestic investment 93,428,342 3.51% -96,208,500 -96,208,500 87,497,042 3.29% shares Including: Domestic corporate shares 93,428,342 3.51% -96,208,500 -96,208,500 87,497,042 3.29% Domestic natural person shares 4. Foreign investment shares Including: Overseas corporate shares Overseas natural person shares II. Shares not subject to sale 1,056,802,980 39.74% 2,051,253,941 2,051,253,941 1,178,156,503 44.30% restriction 1. RMB common shares 391,462,980 14.72% 121,353,523 121,353,523 512,816,503 19.28% 2. Domestically listed 665,340,000 25.02% 665,340,000 25.02% foreign investment shares 3. Overseas listed foreign investment shares 4. Others III. Total number of shares 2,659,404,000 100.00% 2,659,404,000 100.00% 3.Share issuance and listing The Company did not issue new shares and derived securities in the previous three years by the end of the report period. In the report period, the Company implemented the plan for share holding structure reform. The shareholders holding negotiable A shares obtained 3.1 shares paid by shareholders holding non-negotiable shares for every 10 negotiable A shares as consideration. After the payment of 121,357,577 shares in total by shareholders holding non-negotiable shares to shareholders holding negotiable A shares as consideration, the share structure of the Company changed while total shares remained unchanged. The Company has no existing staff shares. (II) Introduction to shareholders (1) As of December 31, 2005, the Company had 115,131 shareholders in total including 69,506 shareholders of A shares and 45,625 shareholders of B shares. (2) Introduction to the Company's top ten shareholders (As of December 31, 2005) 10 Nature of Increase Type of share Quantity of shareholder or Number of Name of shareholder Proportio (Negotiable or pledged or ( state-owned decrease shares held at (full name) n (%) non-negotiable frozen shareholder or in the the end of year ) shares foreign year shareholder) Guangdong Yuedian State-owned 0 1,333,800,000 50.15 Non-negotiabl 0 Group Co., Ltd. shareholder China Xinda Asset State-owned Management 0 87,750,000 3.30 Non-negotiabl 0 shareholder Company Guangdong Electric State-owned Power Development 0 85,082,400 3.20 Non-negotiabl 0 shareholder Company CMBLSA RE FTIF TEMPLETON 23,538,53 Foreign 47,957,024 1.80 Negotiable Unknown ASIAN GRW FD GTI 0 shareholder 5496 Guangdong Guangkong Group 0 43,875,000 1.65 Non-negotiabl 0 Co., Ltd. Naito Securities Co., Foreign 4,669,061 25,547,597 0.96 Negotiable Unknown Ltd. shareholder TOYO SECURITIES Foreign ASIA LIMITED-A/C 3,117,327 19,250,088 0.72 Negotiable Unknown shareholder CLIENT TEMPLETON Foreign 0 16,090,315 0.61 Negotiable Unknown WORLD FUND,INC. shareholder 102 Portfolio of 13,679,64 National Social 14,974,756 0.56 Negotiable 0 1 Security Fund AIZAWA Foreign SECURITIES CO., 2,732,616 14,083,575 0.53 Negotiable Unknown shareholder LTD Guangdong Electric Power Development Co., Ltd.the third of the top The relationship and consistent of 10 shareholders, is a subsidiary of Yuedian Group, Which is the above shareholders No.1 shareholder; its is unknown whether relationship exists between other shareholders. 3.Information of holding Company Yuedian Group Co., Ltd. Holding 50.15 shares of the Company and is the major shareholder of the Company.Pursuant to the Business License issued by the Guangdong Commercial Bureau, Yuedian Group is a wholly state-owned limited Company. Its 11 registered capital is RMB 120,000,000,000 and its registered address is 33-36/F Yuedian Plaza, No.2 Tianhe Road East , Guangzhou,Guangdong Province.Its legal representative is Mr. Pan Li. Its is mainly engaged in management of power plants and power generation assets; construction of power plants; sales of electricity; repair and maintenance of electricity equipments; technology service on electricity industry; electricity investment; investment planning and consulting ; information consulting service; sales of production materials(Except for gold, silver, vehicle and dangerous chemistry materials). The following chart is the shareholding relationship between the Company and its Related control parties. Guangdong Yuedian Group Co., Ltd. Guangdong Yudean Group 100% 50.15% Guangdong electric power Development Co., Ltd. 3.20% The Company 4.No other legal person shareholders who hold more than 105 9inclusive)of the Company’s shares. 5. Particulars about the shareholding of the top ten shareholders holding negotiable shares Name of shareholder Quantity of negotiable shares held Type of share CMBLSA RE FTIF TEMPLETON 47,957,024 B股 ASIAN GRW FD GTI 5496 Naito Securities Co., Ltd. 25,547,597 B股 TOYO SECURITIES ASIA 19,250,088 B股 LIMITED-A/C CLIENT TEMPLETON WORLD FUND,INC. 16,090,315 B股 102 Portfolio of National Social 14,974,756 A股 Security Fund AIZAWA SECURITIES CO.,LTD 14,083,575 B股 Yulong Secturities Investment 13,172,194 A股 Fund 12 JPMBLSA RE FTIF TEMPLETON 12,829,676 B股 CHINA FUND GTI 5497 102 Portfolio of National Social 11,658,178 A股 Security Fund TEMPLETON DRAGON 11,270,600 B股 FUND,INC. Notes to the related relationship Unknown between the shareholders 13 IV. Directors, Supervisors, Senior Executives and Employees （I）Basic information about directors, supervisors and senior executives 1. Basic information During whether the their reported remunera period, tion was the total received No of remunera from No of shares tion of in-service shares Reasons Name Title Sex Age Term of office held at the directors the held at theof change beginning was company end of year of year approxim of the ately(after sharehold tax er or rmb’0000 other related parties Chairman of 0 0 From April 29,2005 to Pan Li the Board of Male 51 0.00Yes now Directors Deputy 0 0 Liu From April 29,2005 to chairman of Male 51 0.00Yes Qian now the Board Hong From April 29,2005 to 0 0 Director Male 48 0.00Yes Rongkun now Li 0 0 From April 29,2005 to Zhuoxia Director Male 43 0.00Yes now n DirectorGe 0 0 Liu From April 29,2005 to neral Male 54 31.00No Luoshou now Manager Gao 0 0 From April 29,2005 to Shiqian Director Male 48 0.00Yes now g Yang 0 0 From April 29,2005 to Xuanxin Director Male 40 0.00Yes now g Yao From April 29,2005 to 0 0 Director Male 41 26.00No Jiheng now 14 Lao 0 0 Fema From April 29,2005 to Qiongju Director 51 0.00Yes le now an Zhou 0 0 From April 29,2005 to Xiaopin Director Male 41 0.00Yes now g Wang Independen From April 29,2005 to 0 0 Male 47 6.40No Jun t director now Song 2,750 2,750 Independen From April 29,2005 to Xianzho Male 42 6.40No t director now ng Cheng Independen Fema From April 29,2005 to 0 0 52 6.40No Xinxin t director le now Zhu Independen From April 29,2005 to 0 0 Male 43 6.40No Baohe et director now Sha Independen From April 29,2005 to 0 0 Male 45 6.40No Qilin t director now Chairman of 0 0 Tian the From April 29,2005 to Male 50 0.00Yes Yanjun Supervisory now Committee Zhang Fema From April 29,2005 to 0 0 Supervisor 36 0.00Yes Hongmei le now Independen 0 0 Yang From April 29,2005 to t Male 43 2.40No Songcai now supervisor Independen 0 0 Liang From April 29,2005 to t Male 38 2.40No Ruyue now Supervisor Employee 3,000 3,000 Lin From April 29,2005 to Supervis Male 37 13.80No Weifeng now or Chen Employee From April 29,2005 to 0 0 Male 46 13.00No Chuyang Supervisor now Xu Vice-Gener From April 29,2005 to 0 0 Male 50 25.30No Peijin al Manager now Luo Vice-Gener From April 29,2005 to 1,128 1,128 Male 38 21.50No Zhiheng al Manager now Li 0 0 Board Fema From April 29,2005 to Xiaoqin 34 16.80No secretary le now g Liu Finance Fema From April 29,2005 to 0 0 50 17.00No Xuemao manager le now Total - - - - 6878 6878 201.20 - 15 2. The main job experience of current directors, supervisors and senior executives and the posts or concurrent posts held by them at the units other than corporate shareholders Mr. Pan Li, Started his career at 1972. during his employment, Mr. Pan has served as the technician staff, vice-section chief of the technique and production section; Vice-director general of the Guangzhou Power supply Bureau, Vice-General Manager of the Guangdong Yuedian Group Co., Ltd,and currently taking the position as the Chairman in the Guangdong Yuedian Group Co., Ltd. And the Guangdong Electric Power Development Co.,Ltd. Mr. Liu Qian: He started to work in 1970. He once served as deputy chief of Production Technology Section and manager assistant of Running Dept. of Huangpu Power Plant, deputy general manager of Huaneng Guangdong Power Generation Company and general manager of Guangdong Development Co., Ltd. He now serves as vice board chairman and deputy general manager of Guangdong Yuedian Group Co., Ltd. and vice board chairman of Guangdong Electric Power Development Co., Ltd. Mr. Hong Rongkun, started to work at 1978. During his employment, Mr.Hong has served as the Party Branch Secretary for boiler department and Vice-factory director of the Maoming Thermal Power Co., Ltd., he also worked for the Power industry Bureau of Guangdong Province as the Deputy director General of the technique and production department, Vice-General Engineer. Mr.Hong is currently taking the position as the director, Vice-General Manager in the Guangdong Yuedian Group Co., Ltd. And director of the Guangdong Electric Development Co., Ltd. Mr.Li Zhuoxian, Started to work at 1983. Mr.Li has took the position as the technicianstaff of the Chemical department, Vice-department director, department director, Vice-Section Chief of the technique and production section, Vice-General Engineer, and Vice-factory director in the shaoguan Electric Power Co Mr.Li currently taking position of director, Vice-General Manager in the Guandong Yuedian Group Co., Ltd. And is one of the director of the Guangdong Electric Power Development Co., Ltd. Mr.Liu Luoshou, started to work at 1976. Mr. Liu took the position as director of the pneumatic machine department, Vice-director of the arrangement department factory director of the Zhangjiang Electric Power Co., General Manager of the Zhanjiang 16 Electricity Co., General Manager of the Tian Shengqiao First Degree Water and Electricity Development Co.,Ltd.He is now taking the position of the director and General Manager of the Guangdong Electric Power Development Co., Ltd.He is also taking the position as the Chairman of the Guangdong Shaoguan Yuejiang electric power co., Ltd. Mr. Gao Shiqiang: He started to work in October 1974. He once served as deputy manager and deputy director general of Lianping County Power Supply Company, deputy director and director of Engineering Dept. and deputy director general of Heyuan Power Industry Bureau, director general of Shanwei Power Industry Bureau, head of preparation team of Shanwei Power Plant and head of Cadre Division of Guangdong Electric Power Group Company. He now serves as director, deputy chief engineer and manager of Strategic Development Dept. of Guangdong Yuedian Group Co., Ltd. and concurrently serves as general manager of Yuedian Environmental Protection Engineering Management Company. He now also serves as director of Guangdong Electric Power Development Co., Ltd. Mr.Yang Xuanxing, started to work at 1987, Mr Yang has took the position as Vice-Chief auditor of auditing department, Deputy director general of Guangdong Power Bureau. He is currently taking position as audit and inspection Minister of Guangdong Yuedian Group Co., Ltd, Chairman of the Supervisor Committee of Guangdong Electric Power Development Co., Ltd. He is now taking the position of the Financial Manager of the Guangdong Yuedian Group Co., Ltd and director of Guangdong Electric Power Development Co., Ltd. Mr. Yao Jiheng , started to work at 1987, Mr. Yao was the person in charge being responsible for pneumatic machine of the constructive preparation department, he also took the position as Vice-director of the of the overhauling plant , director of the pneumatic machine plant ,Vice-factory director of the Yun Fu Electric Power Co., Assistant to factory director, Vice-factory director of the Huang Pu Electric Power Co., he is currently taking the position as the director of the Guangdong Eclectic Power Development Co., Ltd. and the factory director and Party committee secretary of the 17 Shajiao Power Plant A. Ms Lao Qiongjuan: She started to work in 1970. He once served as vice president of Lanzhou Electric Power Sub-branch of Construction Bank, head Credit Division and vice president of Construction Bank Guangdong Branch, member of the 8th and 9th CPPCC of Guangdong Province and part-time professor of Nanjing Normal University and director of Guangzhou Representative Office of China Xinda Asset Management Company. She now serves as inspector of Guangzhou Representative Office of China Xinda Asset Management Company and director of Guangdong Electric Power Development Co., Ltd. Mr. Zou Xiaoping, started to began to work at 1988, Mr. Zou was the lecturer of Wu Han Hua Zhong University of Science Technology, and he has also taken the position as Vice-General Manager of the Guang dong Guang Fa Industry Investment Group. He is currently taking position as Chairman of Guangdong Guangkong Group and he is one of the directors of Guangdong Eclectic Power Development Co., Ltd. Mr. Wang Jun, started to work at 1985, Mr. Wang was the assistant to the president, Vice-president, president of economic graduate school of Zhong Shan University, he is now the assistant to the president of Zhong Shan University, the president of management college of Zhong Shan University, he enjoys the special allowance granted by State Department of China, he is on of the independent directors of Guang dong Eclectic Power Development Co., Ltd. He is also member of the China Youth Scientist Association and Administrative Vice Chairman of the Guangdong Economics Association. Mr. Song Xianzhong, started to work at 1983, Mr. Song lectured at Industry economics department of Hu Nan Financial and Economics College, Accounting department of Politics Institute as well as Accounting department of Jinan University. He is currently taking position as Vice-president of management School of Jinan University, director of the Accounting department. He is one of the independent directors of Guang dong Eclectic Power Development Co., Ltd. He also takes the position as Administrative director cum Deputy Secretary-General of the Guang dong Accounting-Society and Vice-Chairman of Guang zhou Auditing-Society. Ms Cheng Xinxin, started to work at 1968, Ms. Cheng took the position at Budget 18 department of the Guang dong Financial Bureau, she also served as Vice-General Manager of Hong Kong Fei Long Co., Ltd, Vice-General Manager of the Planning and Management department , Financial department , as well as Assets Management department Hong Kong Yue Hai Group.and Executor of Guang dong zhong nong xing Co., Guang dong representative office he is currently taking position as director and CEO of Wan Fang Xing Tai Consultancy Co., Ltd. she is also one of the independent directors of the Guang dong Electic Power Development Co., Ltd. Mr. Sha Qilin: He studied at Wuhan Engineering College (now named as Wuhan Science and Engineering University) from 1978 to 1993. He once served as associate professor of Automobile Engineering Dept. of Wuhan Engineering College and person in charge of Investment and Development Dept., deputy chief engineer and head of overseas listing leading team of China Huandao Group Company. He now serves as the lawyer of Guohao Lawyer Group (Guangzhou) Office and independent director of Guangdong Electric Power Development Co., Ltd. Mr. Tian Yanjun: He started to work in 1970. He once served as secretary of Political Division and Cadre Division，deputy section chief，deputy chief and chief of Cadre Division of Guangdong Power Industry Bureau and deputy secretary of Party committee of Guangdong Electric Power Group Company. He now serves as director，deputy secretary of Party committee， secretary of discipline committee and chairman of labor union of Guangdong Yuedian Group Co.， Ltd. and chairman of the supervisory committee of Guangdong Electric Power Development Co.， Ltd. Ms Zhang Hongmei: She started to work in 1993. She once served as clerk and deputy section chief of International Business Dept. of Construction Bank of China Guangzhou Branch, manager of Comprehensive Management Dept., senior deputy manager of Planning & Finance Dept. and senior deputy manager of Entity Management Dept. of Guangzhou Representative Office of China Xinda Asset Management Company. She now serves as senior deputy manager of Planning & Finance Dept. of Guangzhou Representative Office of China Xinda Asset Management Company and supervisor of Guangdong Electric Power Development Co., Ltd. 19 Mr. Lin Weifeng: He once worked at Xinfengjiang Hydroelectric Power Plant and Shanjiao Power Plant and served as audit director of Shajiao General Power Plant and director of finance department of Shajiao A Power Plant. He now serves as employee supervisor of Guangdong Electric Power Development Co., Ltd. and deputy chief economic engineer of Shajiao A Power Plant. Mr Chen Chuyang, started to work at 1977, Mr. Chen has took the position as Manager of Monetary and Securities department, he is currently taking the position as Employee supervisor and the person in charge of General Affairs of Board of Directors of Guangdong Electric Power Development Co., Ltd. Mr. Yang Songcai, He once taught at Dongkou County No. 1 Middle School, Hunan, took charge of legal affairs at Hunan Material Department and Hunan Metral Material Corporation and served as lawyer and partner of Hunan Tiandiren Law Office, lecturer of Law Department of Hunan Economics and Finance College and associate professor of law school of Hunan University. He now serves as deputy director and associate research fellow of Human Rights Research Center of Guangzhou University, associate professor of law school of Guangzhou University and independent supervisor of Guangdong Electric Power Development Co., Ltd. Mr. Liang Ruyu: He once worked at Guangdong Midea Group Co., Ltd. and served as general manager of Shunde Huayu Trade Co., Ltd. He now serves as manager of Comprehensive Dept. of Shunde Trading Branch of Guangdong Shunde Xingye Securites and independent supervisor of Guangdong Electric Power Development Co., Ltd. Mr. Xu Peijin: He started to work in 1974. He once served as watch man, shift head, deputy director and director of electric workshop, deputy plant director and plant director of Maoming Thermal Power Plant. He now serves as deputy general manager of Guangdong Electric Power Development Co., Ltd. and concurrently serves as vice board chairman of Maoming Ruineng Thermal Power Co., Ltd. Mr. Luo Zhiheng: He started to work in 1988. He once served as merchandiser of Guanghua Indudstrial Import and Export Company and manager of Enterprise Planning Dept. of Guangdong Electric Power Development Co., Ltd. He now serves as deputy 20 general manager of Guangdong Electric Power Development Co., Ltd. and concurrently serves as director of Zhanjiang Electric Power Co., Ltd. Ms Li Xiaoqing, started to work at 1996, Ms. Li has took the position as the office Secretary ,person in charge being responsible to the General Manager of Guangdong Electric Power Development Co., Ltd, she is currently taking the position as Secretary to the Board of Directors, and in charge manager for Board of Directors’ Affairs ,and she is also the director of Shenzhen Guang qian electricity Co., Ltd. Ms Liu Xuemao, started to work at 1972, Ms. Liu has worked in Shaoguan Electric Power Co, Huang Pu Electric Co, Guang dong Power Testing Institute,she is currently taking the position as the person in charge of financial affairs , in charge manage of financial department of Guangdong Electric Power Development Co., Ltd, and concurrently serves as director of Guangdong Yueding Fengneng Development Power Co., Ltd. 3.Remunerations of directors, supervisors and senior management of the Company The salary and welfare of directors, supervisors and senior management of the Company are determined by their position in the Company and are in accordance with the Company’s principle on staff payroll and welfare. No additional salary and welfare are paid. Allowance of independent directors, independent supervisors are paid according to the standard approved by the General Shareholders’ Meeting. 4. Termination of office, appointment and election of directors, supervisors and senior executives in the report period In the report period, the Company reelected the members of the board of directors, the supervisory committee and other senior executives. The members of the fifth board of directors, the fifth supervisory committee and other senior executives were elected. In the report period, Cao Techao no longer acted as member of the fifth board of directors of the Company and Yuan Sujie no longer acted as deputy general manager of the Company due to work change. The first provisional shareholders' general meeting of the Company in 2005 held on September 28, 2005 elected Yang Xuanxing as director. (2) Particulars of employees At the end of 2005, the Company had 1,652 employees, including 385 technicians, 987 21 production workers, 30 finance staffs, 250 administrative and management staffs and 286 retired staffs. Current employees consisted of 572 college graduates or above, 949 technical secondary school or high school graduates and 131 junior high school graduates or below. Except for few staff working in headquarters of the Company(accounts for 2.4%), most of the staff work in Shajiao A Power Plant. V. Corporate Governance Structure (I) The status quo of corporate governance structure In the report period, The Company continuously improves its corporate governance structure according to the requirement of Corporation Ordinance, the Securities Law, the Guideline of Listed Company Corporate Governance and other principles.On April 29, 2005, 2004 annual shareholders' general meeting of the Company adopted the Proposal for Amending the Articles of Association of the Company. According to the provisions of Stock Listing Rules of Shenzhen Stock Exchange (revision in 2004), the Company amended the articles of the original articles of association in respect of online voting and the decision-making authority of the shareholders' meeting and the board of directors and added articles in this respect. The current corporate governance structure of the Company runs effectively, all the shareholders’ meeting, board of directors’ meeting, supervisor committee’s meeting as well as the five expert subsidiary committees can be held regularly based on the Company’s Article of Associations, the Standing Orders of the Shareholders’ Convention, the Standing Orders of the Boards and the Standing Orders of the Supervisor Committee, all the above function can deliberate affairs according to their respective responsibilities, exerting decision-making and supervising function of independent directors and supervisors. (II).Duty performance of independent directors and independent supervisors In the report period, the fourth board of directors of the Company held one meeting in total. Five independent directors attended the meeting in person or entrusted other directors to attend the meeting and exercise voting right on their behalf. None of them made objection to the matters examined by the board of directors. After reelection, the fifth board of 22 directors held five meetings in total. Five independent directors attended the meeting in person or entrusted other directors to attend the meeting and exercise voting right on their behalf. None of them made objection to the matters examined by the board of directors. The fourth supervisory committee of the Company held one meeting in total. Two independent supervisors attended the meeting in person or entrusted other supervisors to attend the meeting and exercise voting right on their behalf. None of them made objection to the matters examined by the supervisory committee. After reelection, the fifth supervisory committee held one meeting in total. Two independent supervisors attended the meeting in person or entrusted other supervisors to attend the meeting and exercise voting right on their behalf. None of them made objection to the matters examined by the supervisory committee. According to the relevant rules and Articles of Association of the Company, the independent directors and supervisors carried out their responsibility and rights seriously and pay special concerns on the operation and production of the Company. They attended the board meetings, supervisory meetings and shareholders meetings actively, and expressed opinions on the Company’s operation and related party transactions to improve governance of the Company and to protect the interests of shareholders. (III).Separation of operation with the holding company (a) Separation of human resource: the General Manager and all his subordinates, Secretary to the Board of Directors, Financial Manager are paid by the Company and take no position in the holding company. (b) Separation of assets: the Company has independent production system, supporting system and other facilities. The Company owns its intangible assets such as intellectual property rights, trademarks and non-patent technology, except that the procedures to apply land use right certificate of Shajiao A Power Plant are still in progress. (c) Financial independence: the Company has an independent financial department and has established independent accounting system and financial management system. It opened independent bank accounts for its own operation. (d) Separation of organization: the Company has established integrated operating 23 institution of its own. (e) Separation of operation: the Company is principally engaged in the electricity generation and sales to Guangdong Electric Power Holding Co.(“GPHC”) directly. The Company has subcontracted the subsidiary of Yudean, the holding company, to purchase the fuels, which is solely for the purpose of better utilization of large-scale purchase and cost control. (IV). The implementation of the Company’s evaluation and incentive system of senior management The Company is in the process of establishing a fair, visible performance evaluation scheme and incentive system for directors, supervisors and management. The management is appointed openly and fairly to be compliant with laws and regulations. VI. Brief Introduction of Shareholders' General Meeting (I) 2004 annual shareholders' general meeting of the Company 1. The meeting examined and adopted the Work Report of Independent Directors for 2004; 2. The meeting examined and adopted the Proposal for Amending the Articles of Association of the Company; 3. The meeting examined the Proposal for Disposing of Losses on Assets in Previous Years; On 29 March 2005, notice on convening the meeting was published on China Securities, Shanghai Securities, Securities Times and Hong Kong Commercial. The Company convened its 2004 Annual General Shareholders’ Meeting in the morning of 29 April 2005 at the Conference Room on the 25th Floor of Yudean Plaza, Tian He Road East, Guangzhou, Guangdong Province .16 shareholders (or proxy of shareholders) attended the meeting, representing 1654,640,752 shares, which is equivalent to 62.22% of the total 2,659,404,000 shares. Among the shareholders, there were 4 A share shareholders, 24 representing 1,550,507,400 shares and 12 B shareholders, representing 104,133,352 shares. Convening of the meeting complied with the Corporation Ordinance and Articles of Association of the Company. Following resolutions were voted and passed at the meeting: 1.The meeting examined and adopted the 2004 Work Report of the Board of directors; 2. The meeting examined and adopted the 2004 Work Report of the General Manager; 3.The meeting examined and adopted the 2004 Financial Repoet; 4 The meeting examined and adopted the Work Report of Independent Directors for 2004; 5.The meeting examined and adopted the Work Report of Supervisory Committee for 2003; 6. The meeting examined and adopted the 2003 Proposal of Profit Appropriation and Dividend; 7. The meeting examined and adopted the 2003 Annual Report; 8. The meeting examined and adopted the Proposal for Amending the Articles of Association of the Company; 9. The meeting examined the Proposal for Disposing of Losses on Assets in Previous Years; 10. The meeting examined the Proposal for Writing Off Accounts Receivable from Baohua Company; 11. The meeting examined and adopted the Proposal for Engaging Domestic and Foreign Certified Public Accountants; 12. The meeting examined and adopted the Proposal for Engaging Domestic and Foreign Certified Public Accountants; 13. The meeting examined the Proposal for Participating in Establishing Yuedian Shipping Co., Ltd.; 14.The meeting examined the Proposal Concerning Daily Related Transactions of the Company and Controlled Subsidiaries; 15.The meeting examined the Proposal for Electing the Members of the Fifth Board of Directors; 16.The meeting examined the Proposal for Electing the Independent Directors of the 25 Fifth Board of Directors; 17.The meeting examined the Proposal for Electing the Members of the Fifth Supervisory Committee; 18.The meeting examined the Proposal for Electing the Independent Supervisors of the Fifth Supervisory Committee. （II）The first provisional shareholders' general meeting of the Company in 2005 1. The meeting examined and adopted the Proposal for Electing Comrade Yang Xuanxing as Director of the Company; The Company published the announcement for convening this meeting in the Securities Times, China Securities, Shanghai Securities and Hong Kong Commercial on 23 August 2005. The Company convened its first Extraordinary General Shareholders’ Meeting for 2005 in the morning of 28 September 2005 at the Conference Room on the 25th Floor of Yudean Plaza, Tian He Road East, Guangzhou, Guangdong Province . 13 shareholders (or proxy of shareholders) attended the meeting, representing 1,655,866,287 shares, which is equivalent to 62.26% of the total 2,659,404,000 shares. Among the shareholders, there were 7 A share shareholders, representing 1,552,390,007 shares and 6 B shareholders, representing 103,476,280 shares. Convening of the meeting comply with the Corporation Ordinance and Articles of Association of the Company. Following resolutions were passed at the meeting: (1).The meeting examined and adopted the Proposal for Electing Comrade Yang Xuanxing as Director of the Company; (2). The meeting examined and adopted the Proposal for Applying to Yuedian Group Company for Increase of Limit of Entrusted Loan. (3) The shareholders' meeting concerning A shares of the Company The Company published the announcement of holding this shareholders' meeting made by the board of directors on Securities Times, China Securities Daily, Shanghai Securities Daily and Securities Daily on November 7, 2005. The shareholders' meeting concerning A shares of the Company was held in the 26 meeting room on 7/F of Yuedian Plaza, Tianhe Road East, Guangzhou in the afternoon of December 9, 2005. 1,761 shareholders (or shareholders' representatives) attended the meeting, holding and representing 1,720,036,251 shares which account for 86.26% of total quantity of A shares of the Company. 5 shareholders holding non-negotiable shares attended the meeting, representing 1,550,858,400 shares. 1,757 shareholders holding negotiable A shares attended the meeting, representing 169,177,851 shares. The holding of this meeting complied with the relevant provisions of the Company Law and the Articles of Association of the Company. After examination, the meeting voted through the following resolution by registered ballot: 1. The meeting examined the Proposal Concerning the Plan of Guangdong Electric Power Development Co., Ltd. for Share Holding Structure Reform. The announcement of the resolutions of the Company's 2004 annual shareholders' general meeting and the first provisional shareholders' general meeting in 2005 was respectively published on China Securities Daily, Shanghai Securities Daily, Securities Times and Hong Kong Commercial Daily on April 30, 2005 and September 29, 2005. The announcement of the resolution of the shareholders' meeting concerning A shares of the Company was published on China Securities Daily, Shanghai Securities Daily, Securities Times and Securities Daily on December 12, 2005. VII. Report of the Board of Directors (I) Operating status of the Company in the report period In 2005, the economy of Guangdong enjoyed continuous and rapid growth and power was in continuous short supply so that the Company's task of power generation was hard. The planned electric power output of the year was 24.527 billion kwh, an increase of 14% year on year. The average time of power generation was about 7000 hours in the year. Meanwhile, some coal mines in the province were closed down. Coal resource and 27 transport capacity were in shortage. The quality of coal was unsteady and coal price was still on the high level. All these brought great difficulties to the operation and management of the Company. Facing difficult situation, the Company accurately analyzed the situation and strengthened management with rich experience in production management and according to the actual production condition of subsidiary power plants, stood trial and realized the steady growth of power generation through a series of effective measures including strengthening fuel purchase management and unit overhaul and maintenance and promoting safety management innovation and technical renovation. In 2005, the accumulative power output and on-grid electricity volume of the Company was 24.374 billion kwh and 22.763 billion kwh respectively, a respective year-on-year increase of 11.36% and 11.28%. On equity basis, the accumulative power output and on-grid electricity volume of the Company was 19.419 billion kwh and 18.159 billion kwh respectively, a respective year-on-year increase of 8.6% and 8.52%. In 2005, the price of coal and transportation was kept on high level. The average unit price of standard coal transported to the Company rose by 15% year on year. The profit margin of the Company further reduced. Facing the above-mentioned operation pressure, the Company strengthened cost control through realization of overall budget management, realized steady and efficient power generation through enhancing the generating efficiency of existing units, made all-out efforts to promote the progress of projects under construction and tried to realize early start of production and early profit making. Through efforts, the Company obtained the operating results including generally good financial position, asset value preservation and increase and continuous growth of income from main operation. As of the end of 2005, the total assets and net assets of the Company were RMB 16.993 billion and RMB 8.378 billion, a respective increase of 24.99% and 3.37% year on year. The income from main operation and net profit of the Company were RMB 83.17 billion and RMB 7.2 billion respectively, a respective increase of % 16.05 and -24.05 % year on year. The earnings per share calculated based on total share capital of 2659.404 million shares were RMB 0.271 . As of the end of 2005, the Company owned 8 projects that started production with 28 controllable installed capacity of 3.595 million kw, 9 projects under construction with controllable installed capacity of 3.46 million kw and 8 projects under development with controllable installed capacity of 5.79 million kw. The capacity of projects under construction and development is 2.57 times of that of the projects in production. The projects under construction and reserved projects with big scale, large capacity, high parameters and high efficiency laid solid foundation for the continuous development of the Company. The Company focused on power source structure adjustment, optimized the development of efficient thermal power, vigorously developed hydropower and actively developed various new energies including wind power, natural gas, oil shale and Ori oil. At present, the construction of two LNG power plants under construction (Huizhou and Shenzhen Front Bay) and previously developed projects including Zhanjiang wind power, Nanao wind power and Yunnan hydropower is being accelerated. The development and utilization of a wide variety of energy contributes to risk spreading and improvement of economic results. Meanwhile, the Company has seized critical opportunities when power generation with new energy is in the initial stage in China. The great space of market growth will provide good development opportunities to the Company. Focusing on electric power and based on energy, the Company steadily developed relevant industries. The result of coal-power joint operation and mine-power joint operation through cooperative development was remarkable. Yuedian Shipping Co., Ltd. and Shanxi Energy Co., Ltd. were successfully established. The risk-resisting ability and competitiveness of the Company were further enhanced. The Company is one of the eighth group of listed companies participating in share holding structure reform. Under the strong support of shareholders, the Company found accurate positioning, resolutely made decisions, elaborately made arrangement and spared no efforts to complete share holding structure reform. After four stages, i.e., mobilization and preparation, design and formulation of plan, extensive communication with investors and holding shareholders' meeting concerning A shares for examination and voting, the Company's plan for share holding structure reform was voted through. Meanwhile, the 29 Company strengthened the communication with investors, further established trust-based and smooth communication channels, improved investors' understanding of the Company and further bettered its corporate image by seizing the opportunity brought by share holding structure reform. With the implementation of the plan for share holding structure reform, the governance structure of the Company will be further improved. With the gradual settlement of system defects of capital market, good external development space will be provided to the Company. In 2006, the situation of electric power shortage will still exist and the task of safe production will be hard. It will still be difficult to change high price of fuel and transportation and cost pressure will still be heavy. For this reason, we will continue to regard giving handsome return to shareholders as our duty, make efforts to overcome the influence of many unfavorable factors including continuous short supply and high price of coal for power generation, ensure good profitability of key business, establish persistently effective mechanism for economization and intensive management, strengthen cost control and project development and continue to keep the good situation of sustainable development of key business under which a group of projects are put into production while another group of projects are under construction or development. We will also make full use of the capital operation platform of the Company, widen field of cooperation, innovate development mode, make redoubled efforts to innovate company mechanism, gradually establish equity stimulation system for the management of the Company and excite the internal motive force for the development of the Company after share holding structure reform. The scope and review of the Company’s operations The Company is a large power generation company principally engaged in operation and construction of power plants and electric power transmission project. At the end of reporting period, the Group’s installed generation capacity was 3,595 MW, and installed generation capacity attributable to the Company was 2,830.5 MW. The total generation volume of the Group amounted to 24.3747 billion KWH, and on-grid volume totaled 22.763 billion KWH, increased by 11.36% and 11.28% respectively as compared to those of last year. The total generation volume of the Group accounted for 30 10.7% of that in Guangdong Province; while its market share slightly increased as compared to last year. Guangdong Shaoguan Yuejiang Power Generation Co., Ltd. ("Yuejiang Electric Power") of which the Company holds 65% equity has registered capital of RMB 450 million and is mainly engaged in power generation. It earned net profit of RMB 0.024 billion in the report year. The power output and on-grid electricity volume of #10 and #11 unit of subsidiary Shaoguan Power Plant (#11 unit was officially put into commercial operation at the end of July 2005) were 3.047 billion kwh and 2.804 billion kwh, a respective decrease of 69.28% and 70.87 % year on year. Following is the operating income of 2005: Unit:RMB’000 Increase Gross Increase Increase /decrease Operating Operating Profit /decrease of /decrease of Industry Area of Gross Income cost Ratio(% operating operating profit ) income（％） cost（％） ratio（％） Electric Guangdong 8,277,999 6,814,553 17.68 increase16.3 increase24.3 decrease1 Power Province 3 6 7.12 Of which : 0.00 0.00 --- 0.00 0.00 0.00 Related Transacti on During reporting period no significant change occurred on the Group’s operating activities and construction. However, the Group’s profitability of operating activities decreased in result of the rising price of fuel and freight charge. 2) The Company's wholly-owned plant and subsidiaries Shajiao A Power Plant, the Company's wholly-owned plant, achieved electricity generation volume of 8,815 million KWH and on-grid electricity generation volume of 8,281 million KWH, descend by 0.46% and 0.51% respectively as compared to those of last year. Zhanjiang Electric Power Co., Ltd. (“Zhanjiang Electric”), a 76% held subsidiary with a registered capital of RMB 2.875 billion, is mainly engaged in power generation and 31 construction of power plant and it has contributed a net profit of RMB 0.37 million. The Zhanjiang Power Plant owned by Zhanjiang Electric has achieved power generation of 8,186 million KWH and on-grid electricity of 7,772 million KWH, increased by 3.1% and 3.27% respectively compared to those of last year. Guangdong Yuejia Electric Power Co., Ltd. (“Yuejia Electric”), a 58% held subsidiary, with a registered capital of RMB 1.2 billion, is mainly engaged in power generation and contributed a net profit of RMB0.066 billion. The Meixian B Power Plant owned by Yuejia Electric has achieved power generation of 2,793 million KWH and on-grid electricity volume of 2,531 million KWH, increased by 36.11 % and 35.57% respectively compared to those of last year. Guangdong Shaoguan Yuejiang Power Generation Co., Ltd. ("Yuejiang Electric Power") of which the Company holds 65% equity has registered capital of RMB 450 million and is mainly engaged in power generation. It earned net profit of RMB 0.024 billion in the report year. The power output and on-grid electricity volume of #10 and #11 unit of subsidiary Shaoguan Power Plant (#11 unit was officially put into commercial operation at the end of July 2005) were 3.047 billion kwh and 2.804 billion kwh, a respective decrease of 69.28% and 70.87 % year on year. Guangdong Maoming Ruineng Thermal Power Co., Ltd. (“Maoming Ruineng”), a 51% held subsidiary with a registered capital of RMB 217 million, was mainly engaged in power generation. It contributed a net profit of RMB million. The No.5 generator managed by Maoming Thermal Power Plant achieved electricity generation volume of 1,533 million KWH and on-grid electricity volume of 1,417 million KWH, increased by 23.83% and 24.08 % respectively as compared with those of last year. 3.Major suppliers and customer In 2005, all the electricity of the Group was sold to GPHC and 86.35% fuels were purchased from top five suppliers. 4. Problems and difficulties occurred in operation and their solutions In the report period, the power plants under the Company met the problems including shortage of fuel, high price of fuel and transportation, disorderly kind of coal, decline of coal quality, increase of unit coal consumption, lowering of unit efficiency and long-time 32 and high-load operation of units. The equipment stood severe test. The average time of utilization of subsidiary power plants reached 6798 hours (7120 hours in case of deducting new capacity). The health level of generating equipment was kept and somewhat enhanced through the Company's strengthening technical renovation of equipment and investment in technological projects and operation management, overhaul and maintenance of equipment carried out by power plants. The power generation task for the year was basically fulfilled. Meanwhile, the Company actively quickened the development of the projects under construction and those planned to be constructed, enlarged scale to ensure sustainable development ability, made efforts to ensure profit level, diversified power source structure to enhance risk resistance ability, extended to upstream and downstream industrial chains based on its key business, controlled upstream and downstream resources and laid foundation for the great development of its key business. (II) Investment of the Company in the report period The investment made during the reporting period was RMB 1561 million, which increased by 138 million at 10.4 % compared with that of 2004. 1)There is no usage of the proceeds raised during the reporting period. There are no proceeds raised but not used up by the Company, either; 2) Investment with non-raised funds and its progress and income In the report period, #11 unit (300MW) of Shaoguan Power Plant under Shaoguan Yuejiang Power Generation Co., Ltd. of which the Company holds 65% equity was officially put into commercial operation on July 22, 2005. #6 unit (150MW) of Mei County Power Plant under Guangdong Yuejia Electric Power Co., Ltd. of which the Company holds 58% equity has passed trial run. The installation of steel structure of boilers of #6 unit (300MW) of Maoming Thermal Power Plant constructed by Maoming Zhenneng Thermal Power Co., Ltd. of which the Company holds 51% equity was completed. The installation of air preheater was completed by 50%. The unit is expected to be put into production in 2006. In 2005, the Company invested RMB 704.88 million in Guangdong Yuedian Jinghai Power Generation Co., Ltd. of which the Company holds 51% equity. The overall progress of Huilai Power Plant (2×600MW) project was 26.07%. 33 In 2005, the Company invested RMB 70.31 million in the desulfuration project for #1-#4 units of wholly-owned Shajiao A Power Plant. Civil work was completed by 80% and installation work was completed by 45%. The desulfuration projects of the power plants under the controlled subsidiaries of the Company made smooth progress. In 2005, the Company invested RMB 72.6783 million in the project (3×350MW) of Huizhou LNG Power Plant under Huizhou Natural Gas Power Generation Co., Ltd. of which the Company holds 32% equity. The investment plan for the year was completed by 91.11%. #1 and #2 unit of this project are expected to be put into production in 2006. In 2005, the Company invested RMB 167.6726 million in the project (3×350MW) of Front Bay LNG Power Plant under Shenzhen Guangqian Electric Power Co., Ltd. of which the Company holds 40% equity. The investment plan for the year was completed by 109.02%. #1 and #2 unit of this project are expected to be put into production in 2006. In 2005, the Company invested RMB 118.9703 million in the project (2×600MW) of Zhanjiang Ori Oil Power Plant under Zhanjiang Zhongyue Energy Co., Ltd. of which the Company holds 39% equity. The investment plan for the year was completed by 87.96%. #1 and #2 unit of this project are expected to be put into production in 2006. In 2005, the Company invested RMB 45.4038 million in Guangdong Yuedian Holding West Co., Ltd. of which the Company holds 26% equity. The investment plan for the year was completed by 105.83%. #1 and #2 unit of Guizhou Pannan power plant project constructed by the company according to the investment proportion of 55% are expected to be put into production in 2006. In 2005, the Company invested RMB 56.4013 million in the project (2×600MW) of Shanwei Power Plant under Guangdong Red Sea Bay Power Generation Co., Ltd. of which the Company holds 25% equity. The investment plan for the year was completed by 105.83%. #1 unit of this project is expected to be put into production in 2006. Shibei Mountain wind power project of Guangdong Yuedian Shibei Mountain Wind Energy Development Co., Ltd. of which the Company holds 30% equity is expected to be put into production in 2006. Guangdong Yuedian Shipping Co., Ltd. of which the Company originally held 30% equity has purchased a secondhand ship which has been put into operation. The proportion 34 of the Company's equity participation was enhanced to 35% through equity acquisition. RMB 64.9675 million was invested in 2005. The investment plan for the year was completed by 108.28%. The establishment of 13 branches of Sunshine Property Insurance Co., Ltd. of which the Company holds 18.18% equity was approved. Of which, 8 branches were approved to open. The establishment of 54 agencies of level-3 and level-4 was approved. 19 agencies were approved to open. The Company invested RMB 206 million in 2005. Lincang Yuntou Yuedian Hydroelectric Development Co., Ltd. of which the Company holds 49% equity has started the development and acquisition of middle and small water power plants in Yunnan Province. In 2005, the Company invested RMB 25.48 million. The investment plan for the year was completed by 520% mainly due to the increase of the Company’s investment in the project company. In 2005, the Company paid initial-stage expenses of RMB 27.99 million for the projects in initial stage. The investment plan for the year was completed by 147.32%. (IV) Analysis of the financial position and operating results of the Company in the report period 1.Financial highlights and operation result Unit:RMB’000 Item December 31,2005 December 31,2004 Increase/decrease （＋－） 17,192,625 13,543,508 +3,649,117 Total Assets 2,112,505 1,569,860 +552,645 Long-term Liabilities 8,463,649 8,165,975 +297,674 Shareholder Equity Item Jan-December Jan-December Increase/decrease 2005 2004 （＋－） 1,489,987 1,718,625 -228,638 Profit form Key Operating 776,367 936,729 -160,362 Net Porofit 870,950 807,645 63,305 Net increase in 35 cash and cash equivalents Explanations of the movements of the above and other outstanding items： (1) Total assets increased mainly because the profits for the report year were not distributed and liabilities increased. (2) Long-term liabilities increased mainly due to the increase of some loans by subsidiaries; (3) Shareholders' equity increased due to profit making and inward transfer of appropriation for desulfuration; (4) Profit from main operation and net profit decreased mainly because increase rate of cost exceeded that of income; (5) Net inflow of cash and cash equivalents increased mainly due to the basic balance of cash receipts and payments in the report year. (V) Influence of material changes in business environment, macro policies, laws and regulations on the Company According to Article 1 of the Circular of State Taxation Administration about Issues Concerning Taxation Laws Applicable to Pilot Joint Stock Enterprises and Provisional Regulations on Issues Concerning Taxation Applicable to Pilot Joint Stock Enterprises, an enterprise issuing B shares shall not enjoy tax preference applicable to foreign-invested enterprises. According to Guo Shui Han (2005) No. 7 Document of Dongshan District, the Company shall be subject to taxation administration as a domestic enterprise and pay income tax at the rate of 33% from January 1, 2005. According to the Circular of Temporary Desulfuration Electricity Rate of #5 Unit of Shajiao A Power Plant issued by Guangdong Price Bureau (YJ (2005) No. 42 Document), the temporary desulfuration electricity rate of 5# unit of Shajiao A Power Plant, a subsidiary of the Company, is RMB 15.00 megawatt hour (including tax). Adjustment and liquidation will be made after National Development and Reform Commission gives official written reply to the policy of Guangdong on desulfuration electricity rate. Accordingly, the on-grid electricity rate of 5# unit of Shajiao A Power Plant was temporarily adjusted from RMB 36 385.06/megawatt hour (including tax) to RMB 400.06/megawatt hour (including tax). This electricity rate applied from the date when desulfuration equipment was put into commercial operation, i.e., March 16, 2004. The net profit of about RMB 15.35 million for 2004 increased due to the said adjustment of electricity rate has been accounted for as part of the net profit of the Company for 2005. According to Fa Gai Price (2005) No. 664 Document issued by State Development and Reform Commission and Yue Jia (2005) No. 109 Document issued by Guangdong Price Bureau, the on-grid electricity rate of the power plants under the Company was enhanced to RMB 19.1 megawatt hour (including tax) from May 1, 2005 based on the mechanism of linkage of coal price and power price. The rise in on-grid electricity rate helped relieve the Company from the cost pressure formed by the rise in coal price but could not completely digest the adverse influence of rise in coal price on the Company's profitability. (VI) Prospect of the Company in 2006 1. Power generation plan: The planned power output of the power plants under the Company for 2006 is 32.207 billion kwh, which increases by 31.31% over the planned power output for 2005 and by 32.14% over the actual power output in the previous year. On equity basis, the planned power output for 2006 is 21.488 billion kwh, which increases by 10.76% over the planned power output for 2005 and by 10.65% over the actual power output in the previous year. 2. To continue to strengthen the safe production management of subsidiary power plants, ensure the fulfillment of the power generation plan for the year, strengthen financial management, analysis of economic activities and budget execution and control cost and expenditure in all aspects to improve the economic results of the Company. 3. Investment plan: The Company plans to make external investment of RMB 470.23 million in 2006. The investment plan for the projects under construction held by the Company has been fulfilled. No funds will be invested in such projects this year. RMB 90.25 million will be invested in the projects under construction partly held by the Company. Initial-stage expenses of RMB 37,998 million will be paid for preparatory projects. 4. To actively follow the progress and construction management of projects under 37 construction and ensure construction projects will be put into production and make profit. To particularly follow the progress of the construction of #6 unit of Maoming Zhenneng, lose no time in settling relevant procedure for #6 unit of Mei County Power Plant and strive to put it into production in 2006. To quicken the construction of the project of Huilai Power Plant, cooperate with Yuedian Group in following the construction of desulfuration projects of subsidiary power plants, actively follow the progress of the projects partly held including Huizhou LNG, Front Bay LNG, Zhanjiang Ori Oil Power Plant and Shanwei Power Plant and accelerate the initial-stage work for the projects including Maoming Bohe Port Power Plant. 6. To continue to extend to upstream and downstream industrial chain, actively expand development space outside Guangdong and promote the Company's sustainable development. To quicken the initial-stage work for Zhanjiang wind power project, Maoming oil shale project, Yunnan Lincang hydropower project and Yunnan Weixin project. 7. To seize the opportunity brought by share holding structure reform, actively promote corporate system and mechanism reform, further improve corporate governance structure, create an image of honest, reputable and high-quality listed company and comprehensively enhance the investment value of the Company. (VII) Routine work of the board of directors 1. Board meetings and resolutions in the report period 6 board meetings were held in 2005, i.e., the 19th meeting of the fourth board of directors held on March 25 and the 1st - the 5th meeting of the fifth board of directors respectively held on April 29, August 22, September 28, October 28 and December 21. The 19th meeting of the fourth board of directors was held in Zhuhai on March 25, 2005. Board chairman Pan Li presided over the meeting. 15 directors (including 5 independent directors) were supposed to attend the meeting and 13 directors (including 5 independent directors) were actually present. Two directors did not attend the meeting due to sickness or business. Neither of them authorized other directors to attend the meeting and exercise voting right on their behalf. The secretary to the board of directors attended this meeting. The supervisors and other senior executives of the Company attended this meeting 38 as non-voting delegates. The meeting examined and adopted the following proposals: (1) Work Report of the General Manager and Business Report of the General Manager for 2004; (2) Financial Report for 2004; (3) Preplan for Profit and Dividend Distribution for 2004; (4) Work Report of the Board of Directors for 2004; (5) Work Report of Independent Directors for 2004; (6) Annual Report 2004 and Summary of Annual Report 2004; (7) The Proposal for Amending the Articles of Association of the Company; (8) The Proposal for Authorizing Preparatory Work for the Development of Maoming Oil Shale Project; (9) The Proposal for Authorizing Preparatory Work for the Development of Zhanjiang Wind Power Project; (10) The Proposal for Adding Development Cost of the Initial Stage of Maoming Bohe Port; (11) The Proposal for Disposing of Losses on Assets in Previous Years; (12) The Proposal for Writing Off Accounts Receivable from Baohua Company; (13) The Proposal for Engaging Domestic and Foreign Certified Public Accountants; (14) The Proposal for Applying for Bank Loans; (15) The Proposal Concerning Daily Related Transactions of the Company and Controlled Subsidiaries; (16) The Proposal for Engaging the Company's Legal Adviser; (17) The Proposal for Nominating Candidates for Members of the Fifth Board Of Directors; (18) The Proposal for Nominating Candidates for Independent Directors of the Fifth Board Of Directors; (19) The Proposal for Holding 2004 Annual Shareholders' General Meeting. The 1st meeting of the fifth board of directors was held in Guangzhou on April 29, 2005. Vice board chairman Liu Qian presided over the meeting. 14 directors (including 5 39 independent directors) were supposed to attend the meeting and 14 directors (including 5 independent directors) were actually present. Two directors did not attend the meeting in person due to business. They authorized other directors to attend the meeting and exercise voting right on their behalf. One director neither attended the meeting nor authorized another director to attend the meeting and exercise voting right on his behalf. The secretary to the board of directors attended this meeting. The supervisors and other senior executives of the Company attended this meeting as non-voting delegates. The meeting examined and unanimously adopted the following proposals: (1) The Proposal for Electing the Chairman of the Board of Directors of the Company; (2) The Proposal for Electing the Vice Chairman of the Board of Directors of the Company; (3)The Proposal for Establishing Special Committees of the Fifth Board of Directors; (4)The Proposal for Appointing the General Manager of the Company; (5) The Proposal for Appointing Deputy General Managers of the Company; (6) The Proposal for Appointing Secretary to the Board of Directors of the Company; (7) The Proposal for Appointing the Person in Charge of Finance of the Company; (8) The Proposal for Appointing the Securities Affair Representative of the Company; (9) The Work Report of the General Manager for the First Quarter of 2005; (10) The Financial Report for the First Quarter of 2005; (11) The Report for the First Quarter of 2005. The 2nd meeting of the fifth board of directors was held in Dongguan on August 22, 2005. Board chairman Pan Li presided over the meeting. 14 directors (including 5 independent directors) were supposed to attend the meeting and 14 directors (including 5 independent directors) were actually present. Four directors did not attend the meeting in person due to business. They authorized other directors to attend the meeting and exercise voting right on their behalf. The secretary to the board of directors attended this meeting. The supervisors and other senior executives of the Company attended this meeting as non-voting delegates. The meeting examined and unanimously adopted the following proposals: 40 (1) The Semiannual Work Report of the General Manager for 2005; (2) The Semiannual Financial Report for 2005; (3) 2005 Semiannual Report and Summary of 2005 Semiannual Report of the Company; (4) The Proposal for Nominating Comrade Yang Xuanxing as Candidate for Director of the Company; (5) The Proposal for Applying to Yuedian Group Company for Increase of Limit of Entrusted Loan; (6) The Proposal for Holding the First Provisional Shareholders' General Meeting in 2005. The 3rd meeting of the fifth board of directors was held in Guangzhou on September 28, 2005. Vice board chairman Liu Qian presided over the meeting. 14 directors (including 5 independent directors) were supposed to attend the meeting and 15 directors (including 5 independent directors) were actually present. Four directors did not attend the meeting in person due to business. They authorized other directors to attend the meeting and exercise voting right on their behalf. The secretary to the board of directors attended this meeting. The supervisors and other senior executives of the Company attended this meeting as non-voting delegates. The meeting examined and unanimously adopted the following proposals: (1) The Proposal for Adjusting Members of Special Committees of the Fifth Board of Directors; (2) The Proposal for Establishing Maoming Yuedian Oil Shale Mine and Power Joint Operation Co., Ltd. The 4th meeting of the fifth board of directors was held in Guangzhou on October 28, 2005. Vice board chairman Liu Qian presided over the meeting. 14 directors (including 5 independent directors) were supposed to attend the meeting and 13 directors (including 4 independent directors) were actually present. Four directors did not attend the meeting in person due to business. They authorized other directors to attend the meeting and exercise voting right on their behalf. Two directors neither attended the meeting nor authorized 41 another director to attend the meeting and exercise voting right on his behalf. The secretary to the board of directors attended this meeting. The supervisors and other senior executives of the Company attended this meeting as non-voting delegates. The meeting examined and unanimously adopted the following proposals: (1) The Work Report of the General Manager for the Third Quarter of 2005; (2) The Financial Report for the Third Quarter of 2005; (1) The Report for the Third Quarter of 2005; (4) The Proposal for Investing in Huaneng Nan'ao East Wind Power Generation Project; (5) The Proposal for Changing the Company's Domestic Certified Public Accountants. The 5th meeting of the fifth board of directors was held in Guangzhou on December 21, 2005. Board chairman Pan Li presided over the meeting. 15 directors (including 5 independent directors) were supposed to attend the meeting and 15 directors (including 5 independent directors) were actually present. Six directors did not attend the meeting in person due to business. They authorized other directors to attend the meeting and exercise voting right on their behalf. The secretary to the board of directors attended this meeting. The supervisors and other senior executives of the Company attended this meeting as non-voting delegates. The meeting examined and unanimously adopted the following proposals: (1) The Proposal for Establishing Yuedian Shanxi Energy Co., Ltd.; (2) The Proposal for Acquiring 5% Equity of Guangdong Yuedian Shipping Co., Ltd.; (3) The Proposal for Increasing Capital of Lincang Yuntou Yuedian Hydroelectric Development Co., Ltd.; (4) The Proposal for Increasing Capital of Shenzhen Guangqian Electric Power Co., Ltd.; (5) The Proposal for Appointing the Securities Affair Representative of the Company. 2. Implementation by the board of directors of the resolutions of the shareholders' general meeting 2004 annual shareholders' general meeting held on April 29, 2005 examined and 42 adopted the Company's Plan for Profit and Dividend Distribution for 2004. The resolution concerning dividend distribution plan is as follows: RMB 1.8 is to be paid for every 10 A shares (After tax deduction, RMB 1.44 is actually to be paid to individual shareholders and investment funds holding A shares for every 10 shares). RMB 1.8 is to be paid for every 10 B shares (No tax deduction for B shares). The above-mentioned dividend distribution was completed in June 2005. The stock right registration date for dividend distribution for A shares is June 15, 2005. The last trading day for B shares is June 15, 2005. Ex-dividend date is June 16, 2005. The shareholders' meeting concerning A shares of the Company held on December 9, 2005 examined and adopted the Proposal Concerning the Plan for Share Holding Structure Reform. The plan is as follows: The shareholders holding negotiable A shares registered on the stock right registration date for plan implementation are to obtain 3.1 shares paid by shareholders holding non-negotiable shares for every 10 negotiable A shares held as consideration. The shareholders holding non-negotiable shares are to pay 121,357,560 shares in total to shareholders holding negotiable A shares as consideration. The implementation of the said plan was completed on January 19, 2006. Refer to the foregoing (II) The Company's investment in the report period for the details of the status of implementation by the board of directors of the resolutions of the shareholders' general meeting concerning investment. (VIII) The preplan for profit distribution and capitalization of capital surplus for 2005 According to the auditor's report issued by Deloitte Touche Tohmatus Certified Public Accountants, the net profit of the Company for 2005 is RMB 720.22 million. The profit distribution plan is as follows: The net profit for the year is RMB 720.22 million. 10% of net profit, i.e., RMB 72.02 million, is to be allocated for statutory surplus reserve and 5% thereof, i.e., RMB 36.01 million, is to be allocated for statutory public welfare fund. With the undistributed profit of RMB306.58 million carried forward from the previous year being added, the total profit available for distribution to investors for the year is RMB 918.77 million. It is suggested to allocate 25% of net profit, i.e., RMB 180.06million, for 43 discretionary surplus reserve fund. The preplan for dividend distribution made by the board of directors is as follows: Dividend of RMB (including tax) is to be distributed for every 10 A shares. RMB 1.8 yuan is to be distributed for every 10 B shares. (It is on the same level as compared with 2004) (IX) Other matters 1. The special statement and independent opinions of independent directors on the guarantees provided by the Company on accumulative basis and in current period and its implementation of the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies issued by CSRC (Zheng Jia Fa (2003) No. 56 Document) According to the Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies (Zheng Jia Fa (2003) No. 56 Document), independent directors examined and verified the status of the fund transfer between the Company and its related parties and the guarantees provided by the Company. In their opinion, the Company neither provided funds to related parties in violation of regulations as of the end of the report period nor provided guarantee to its controlling shareholder, other related parties of which the Company holds less than 50% equity, any unincorporated entity and individual nor provided any guarantee in violation of regulations. Pan Li Chairman of the board of directors: Pan Li VIII. Report of the Supervisory Committee (I) Work of the supervisory committee in 2005 In 2005, the members of the supervisory committee attended 6 board meetings as non-voting delegates, attended 3 shareholders' general meetings,, i.e., 2005 annual 44 shareholders' general meeting, provisional shareholders' general meeting and shareholders' meeting concerning A shares, and held 2 meetings of the supervisory committee. The particulars of the meetings of the supervisory committee are as follows: The 1st meeting was held in Zhuhai on March 25, 2005. The meeting examined and adopted Work Report of the Supervisory Committee for 2004, Annual Report 2004 and Summary of Annual Report 2004, the Proposal for Amending the Articles of Association of the Company, the Proposal for Disposing of Losses on Assets in Previous Years, the Proposal for Writing Off Accounts Receivable from Baohua Company, the Proposal Concerning Daily Related Transactions of the Company and Controlled Subsidiaries, the Proposal for Nominating Candidates for Supervisors of the Fifth Supervisory Committee, the Proposal for Nominating Candidates for Independent Supervisors of the Fifth Supervisory Committee. The 2nd meeting was held in Dongguan on August 22, 2005. The meeting examined and adopted 2005 Semiannual Report and Summary of 2005 Semiannual Report of the Company. At the above meetings, the members of the supervisory committee seriously deliberated and supervised the status of operation of the Company according to law and held the opinion that the deliberation system of the Company was effective and the operating activities of the Company were steady and legal. In addition, the supervisory committee combined supervision with internal audit, strengthened daily supervision and management, improved internal control system and promoted the further improvement of financial work. (II) The independent opinions of the supervisory committee on the following matters 1. The supervisory committee effectively supervised the holding procedure and resolutions of board meetings and shareholders' general meetings, the status of implementation of the resolutions of shareholders' general meetings by the board of directors, the duty performance of senior executives of the Company and the management system of the Company according to relevant laws and regulations and Articles of 45 Association of the Company. In its opinion, the Company followed the principle of honest and standardized operation, operated according to law, made decisions according to legal procedure and established sound internal control system in the report period. No act of directors and managers of the Company that violated laws and regulations and the Articles of Association of the Company or harmed the interests of the Company and shareholders was found when they performed their duties. 2. In the opinion of the supervisory committee, the financial affairs of the Company were handled strictly according to the financial management and internal control system of the Company. The standard unqualified audit opinions on the Company issued by Deloitte Touche Tohmatus Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. were objective and fair and the financial report truly reflected the Company's financial position and operating results. 3. In the three years by the end of 2005, the Company did not raise funds through issuing shares or derivative securities. 4. The Company neither acquired nor disposed of assets in the report period. 5. In the opinion of the supervisory committee, the related transactions occurred in 2005 were fair and reasonable, the decision making and information disclosure procedure was standardized and no act harmed the interests of the Company. (III) Appraisal of the operating status and financial position of the Company In 2005, the power output of the Company was 24.374 billion kwh, which is 99.38% of the planned power output for the year, i.e., 24.527 billion, and increased by 11.36% over 2004 (21.887 billion kwh). According to the Auditor's Report issued by Deloitte Touche Tohmatus Certified Public Accountants Co., Ltd., the total assets, sales income, net profit and earnings per share in the consolidated statements of the Company for 2005 are RMB 16.993 billion, RMB 8.317 billion, RMB 0.72 billion and RMB 0.271 respectively. Under the grim situation of shortage of electric capacity and electricity quantity, continuous short supply of fuel and continuously high price of fuel and transportation, the Company improved fuel management, ensured the satisfaction of coal demand, innovated safety management, strengthened unit equipment renovation, overhaul and maintenance, guaranteed the safe and 46 steady operation of unit and attained the goal of continuous growth of power generation. Meanwhile, the Company quickened the basic construction of the projects held by it, closely followed the construction of power source projects under construction partly held by it and actively organized and coordinated the development of projecs in initial stage. It actively developed clean energy and new energy so as to realize constant optimization of power source structure and steadily developed relevant industrial chain so as to further enhance its risk-resisting ability. The Company's plan for share holding structure reform was smoothly passed. Its corporate governance and corporate image were further improved. Chairman of the Supervisory Tian Yanjun Committee ： IX. Important Events I.The Company has no significant lawsuits or arbitrations during the reporting period. II.The Company has no significant acquisition or sales of assets in the reporting period. III Important related transactions 1. The Company, Guangdong Yuedian Group Co., Ltd., Guangdong Electric Power Development Company and Guangdong Tianneng Investment Co., Ltd. jointly signed the Contract for Establishing Guangdong Yuedian Shipping Co., Ltd. and jointly sponsored and established Guangdong Yuedian Shipping Co., Ltd. with registered capital of RMB 200 million according to the proportion of 30: 35: 20: 15. This company is mainly engaged in meeting the Company's demand of transportation of coal for power generation and also in sea transportation of domestic and foreign bulk cargo. The amount of capital contribution made by the Company is RMB 60 million. The amount of capital contribution made by related parties, i.e., Guangdong Yuedian Group Co., Ltd., Guangdong Electric Power Development Company and Guangdong Tianneng Investment Co., Ltd., is RMB 70 million, RMB 40 million and RMB 30 million respectively. 47 2.In order to meet the Company's fund demand and save financing cost, the Company applied to related party Guangdong Yuedian Group Co., Ltd. for entrusted loan within the limit of RMB 800 million with the term being 1 year and the interest rate being not higher than the basic interest rate of bank loan in the same period discounted at 10%. The Company has applied to Guangdong Yuedian Group Co., Ltd. for loan of RMB 700 million. 3. The Company and Guangdong Yuedian Group Co., Ltd. jointly signed the Contract for Establishing Shanxi Yuedian Energy Co., Ltd. and jointly sponsored and established Shanxi Yuedian Energy Co., Ltd. with registered capital of RMB 200 million according to the proportion of 40:60. This company will mainly invest in and develop rich coal resources of Shanxi Province and surrounding areas. It plans to invest in the projects including Shanxi Huoerxinzi Coal Mine and strengthen the investment in and development of coal resources of Shanxi Province and surrounding areas on this basis. The amount of capital contribution made by the Company is RMB 80 million. The amount of capital contribution made by related party Guangdong Yuedian Group Co., Ltd. is RMB 120 million. 4. The Company signed Equity Assignment Agreement with related party Guangdong Tianneng Investment Co., Ltd. to acquire 5% equity of Guangdong Yuedian Shipping Co., Ltd. held by Guangdong Tianneng Investment Co., Ltd. The assignment price was determined according to the product of the audited net assets value of Guangdong Yuedian Shipping Co., Ltd. appraised and confirmed as of October 31, 2005 multiplied by the proportion of the equity assigned to all registered capital of Guangdong Yuedian Shipping Co., Ltd., i.e., 5%. The final assignment price is RMB 9,934,886.93. 5. The total investment in Shenzhen Guangqian Electric Power Co., Ltd. jointly established by the Company and Guangdong Yuedian Group Co., Ltd. according to the proportion of 40: 60 increased by RMB 221.17 billion over the original investment amount according to the actual demand of project construction and the final state approval of the total investment in this project. The registered capital of Shenzhen Guangqian Electric Power Co., Ltd. is required to be increased to RMB 1030.2925 million accordingly. The Company and related party Guangdong Yuedian Group Co., Ltd. are required to jointly increase investment. 48 According to equity proportion of 40%, the Company is required to increase investment by RMB 12.117 million. 6. According to Fuel Purchase and Sale Agreement signed with Yuedian Group Company, Shajiao A Power Plant under the Company purchased fuel from Yuedian Group Company in total amount of RMB 1,497,429,923 in 2005. The purchase amount in 2006 is estimated to be about RMB 1.8 billion. 7. According to the Fuel Purchase and Sale Agreement signed between Ruineng Company of which the Company holds 51% equity and Yuedian Group Company, Ruineng Company purchased fuel from Yuedian Group in total amount of RMB 376,545,703 in 2005. The purchase amount in 2006 is estimated to be about RMB 344 million. 8. According to the Agreement for Contracted Management of #5 Unit signed between Ruineng Company and Maoming Thermal Power Plant, Ruineng Company settled entrusted management fee and overhaul and maintenance cost of RMB27,334,368 with Maoming Thermal Power Plant in 2005. The settled amount in 2006 is estimated to be about RMB 25.80 million. 9. According to the Fuel Purchase and Sale Agreement signed between Zhanjiang Electric Power of which the Company holds 76% equity and Yuedian Group Company, Zhanjiang Electric Power purchased fuel from Yuedian Group in total amount of RMB 1,605,822,457 in 2005. The purchase amount in 2006 is estimated to be about RMB 1.7 billion. 10. Yuejiang Electric Power of which the Company holds 65% equity signed the Agreement for Sharing Public Production Expenses of Shaoguan Power Plant with Shaoguan Power Plant, Shaoguan Power Generation D Factory Co., Ltd., Guangdong Shaoguan #9 Generating Unit Joint Venture Co., Ltd. which are affiliated enterprises of Yuedian Group. The transaction amount in 2005 is RMB 772,689,672, including RMB 739,608,109 for fuel and materials. The transaction amount in 2006 is estimated to be about RMB 943 million, including RMB 853 million for fuel and materials. 11. Yuejiang Electric Power of which the Company holds 65% equity signed the Contract for Operating Lease of Longhuangchong Ash Field of Guangdong Shaoguan Yuejiang Power Generation Co., Ltd. with Shaoguan Power Plant, Shaoguan Power Generation D 49 Factory Co., Ltd., Guangdong Shaoguan #9 Generating Unit Joint Venture Co., Ltd. which are affiliated enterprises of Yuedian Group. In 2005, Yuejiang Company collected rent of RMB 8.6257 million from the said three parties. The rent collected in 2006 is estimated to be RMB 0. 12、The Company, and Guangdong Yudean Real estate investment Ltd. Co (“Real estate”), intended to sign “Agreement on Rental of Yudean Plaza”. In 2005, the Company paid RMB 4.1731 million to Real estate. The rent paid in 2006 is estimated to be RMB 4.1731 million. IV.Significant contracts and implementation (1) The Company is not involved in trustee, sub-contract or lease with other companies in the reporting period. (2) Significant guarantee: During the reporting period, no guarantee related to the “Notice on Standardization of Listed Companies in Capital Transaction with Related Parties and Guaranty offering (ZJF(2003)No.56)”issue by CSRC was provided by the Company The Company provided guarantee to its subsidiary, Zhanjiang Electric from 2002 to August 2006. It is due to the Company’s take-up of guarantee from Yuedian in 2002. Yuedian Transferred the guarantee for bank loan of the Zhanjiang Electric for its power plant’s construction, to the Company. As at December 31, 2005, the guaranteed borrowing balance was RMB 113 million. the net Assets of the Company for 1.35%. 3.The Company is not involved in financing consigning with other companies in the reporting period. For details of entrusted loan on investment projects, please refer to “Chapter 10, Financial Report, Notes to the account, 8. Long-term investment”. V. The commitments of the Company or shareholders holding over 5% equity of the Company in the report period Maoming Ruineng , a subsidiary of the Company, entered into a long-term loan contract with Shanghai Pudong Development Bank Guangzhou Branch for an amount of RMB 650 million at March 1, 2002. The Company issued a supporting letter for the loan 50 and committed as follows: (1) Unless written consent by the creditor, the Company shall maintain its 51% equity interest in Maoming Runeng. Before the rescission day, the disposition of the relevant equity interests should obtain the written consent by the creditor; (2) The Company was forbidder from any mortgage, pledge, retain or other guarantee on the direct or indirect equity interests held in Maoming Ruineng; (3) Except for requirement by law or regulation, the Company was forbidden form modifying the Articles of Association of Maoming Runeng without written consent by the creditor. The balance of borrowings in RMB 388 million AS AT 31 December 2005. 2. Guangdong Yuedian Group Co., Ltd., the controlling shareholder of the Company, made the following commitments in the Company's Plan for Share Holding Structure Reform: (1) The shares of the Company held by it will not be listed, traded or assigned within 3 years from the date of obtaining the right of listing and negotiation. The shares purchasd by Yuedian Group when implementing the plan for share purchase will not be restricted by this commitment. (2) To make the following proposal for dividend distribution to the shareholders' general meeting of the Company: Not lower than 50% of the distributable profit for the current year will be distributed as cash dividends in 2005 - 2007. It also guarantees to cast affirmative vote to this proposal at the time of voting at the shareholders' general meeting. (3) Under the premise of obtaining the exemption of tender offer obligation given by CSRC, if the P/E of the Company (market price divided by the audited earnings per share for the previous year) is not higher than 13 times, it will have the right to purchase the A shares of the Company with the cash dividends distributed by the Company to Yuedian Group in 2005 to 2007 within 3 months after cash dividends are available for use each year (the balance of funds after purchase will be carried forward for use). The total quantity of A 51 shares thus purchased will not exceed 10% of the total shares of the Company. Within 6 months after the completion of share purchase plan each time, Yuedian Group will not sell the shares purchased and will perform relevant information disclosure obligation. (4) It will bear all expenses relating to this share holding structure reform. (5) To advance the consideration to be paid for obtaining the right of listing and negotiation of the non-negotiable shares held by the shareholders holding non-negotiable shares who do not expressly agree to participate in this share holding structure reform one day before the holding of relevant shareholders' meeting for this share holding structure reform and those who are unable to make the arrangement of consideration payment due to dispute over title, pledge or freezing of equity. (6) To actively promote equity stimulation to the management according to relevant policies and regulations and subject to the approval by relevant department after the completion of this share holding structure reform. As the Company's plan for share holding structure reform was implemented in January 19, 2006, Yuedian Group did not fulfill its commitments in the report period. VI Engagement and removal of certified public accountants' firm In the report period, the Company engaged Deloitte Touche Tohmatus Certified Public Accountants Co., Ltd. (i.e. former Tianjian Certified Public Accountants Co., Ltd. which merged with Deloitte Touche Tohmatus Certified Public Accountants Co., Ltd. on June 1, 2005) and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. to respectively conduct the Company's auditing business at home and abroad. In 2005, the Company paid domestic and foreign audit fee of RMB 0.83 billion and RMB 1.4 million respectively. Up to the present, Deloitte Touche Tohmatus Certified Public Accountants has provided audit services to the Company for 5 consecutive years. Pricewaterhouse Coopers Zhongtian Certified Public Accountants has provided audit services to the Company for 5 consecutive years. 52 X. Financial Report Auditor's report issued by Deloitte To uche To hmatus Certified Public Accountants Co., Ltd. and fina ncial statements 53 GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. REPORT OF THE AUDITORS AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 1 GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. REPORT OF THE AUDITORS AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 CONTENTS PAGES Report of the auditors................................................................................................................................ 1 Consolidated balance sheet...................................................................................................................... 2 Consolidated income statement ............................................................................................................... 3 Consolidated statement of changes in equity .......................................................................................... 4 Consolidated cash flow statement............................................................................................................ 5 Notes to the consolidated financial statements...............................................................................6 to 46 PricewaterhouseCoopers Zhong Tian CPAs Limited Company 11/F PricewaterhouseCoopers Center 202 Hu Bin Road Shanghai 200021 People's Republic of China Telephone +86 (21) 6123 8888 REPORT OF THE AUDITORS Facsimile +86 (21) 6123 8800 2006/SH-063/CSC/HJH TO THE SHAREHOLDERS OF GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. (Incorporated as a joint stock limited company in the People's Republic of China) We have audited the accompanying consolidated balance sheet of Guangdong Electric Power Development Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2005 and the related consolidated statements of income, cash flows and changes in equity for the year then ended. These financial statements set out on pages 2 to 46 are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2005, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Limited Company 24 March 2006 GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2005 Note 2005 2004 Rmb‘000 Rmb‘000 ASSETS (Note 32) Non-current assets Property, plant and equipment 6 10,834,475 8,407,240 Leasehold land payments 7 331,487 310,793 Intangible assets 8 264,460 303,053 Investments in associates 9 1,752,183 1,240,671 Loans and receivables 10,30 15,559 38,800 Available-for-sale investments 11 281,502 75,502 Prepayments for investment in subsidiaries 12 4,150 108,120 Deferred tax assets 13 68,656 32,171 Deferred staff costs 14 40,873 51,091 Long-term prepayments for coal purchases 30 365,000 345,000 13,958,345 10,912,441 Current assets Materials and supplies 15 602,251 417,792 Loans and receivables 10,30 1,485,079 1,135,630 Short-term bank deposits 230,000 270,000 Cash and bank 28(b) 916,950 807,645 3,234,280 2,631,067 Total assets 17,192,625 13,543,508 EQUITY Capital and reserves attributable to equity holders of the Company Share capital 16 2,659,404 2,659,404 Other reserves 17 4,849,107 4,506,156 Retained earnings 955,138 1,000,415 8,463,649 8,165,975 Minority interest 2,083,629 1,996,548 Total equity 10,547,278 10,162,523 LIABILITIES Non-current liabilities Borrowings 18 2,024,060 1,504,740 Early retirement obligation 19 48,643 65,120 -3- Deferred tax liabilities 13 9,722 - Deferred revenue 20 40,081 - 2,122,506 1,569,860 Current liabilities Trade payables 30 812,305 658,280 Taxes payable 337,178 306,101 Other payables and accruals 30 1,659,678 307,704 Borrowings 18 1,713,680 539,040 4,522,841 1,811,125 Total liabilities 6,645,347 3,380,985 Total equity and liabilities 17,192,625 13,543,508 The notes on pages 6 to 46 form an integral part of this consolidated financial statement. Director: Director: -4- GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Note 2005 2004 Rmb’000 Rmb’000 (Note 32) Operating revenue 21 8,277,999 7,115,657 Operating costs Fuel (4,782,995) (3,712,016) Repair and maintenance (301,629) (329,764) Depreciation and amortisation (773,013) (717,610) Staff costs 23 (587,729) (379,535) Administrative expenses (271,665) (206,249) Others (97,522) (108,491) Total operating costs (6,814,553) (5,453,665) Other operating income, net 26,541 56,633 Operating profit 22 1,489,987 1,718,625 Finance costs 24 (102,792) (102,486) Share of results of associates 9 (8,566) 135 Profit before income tax 1,378,629 1,616,274 Income tax expense 25 (466,276) (465,805) Profit for the year 912,353 1,150,469 Attributable to: Equity holders of the Company 776,367 936,730 Minority interest 135,986 213,739 912,353 1,150,649 Earnings per share for profit attributable to the equity holders of the Company during the year - Basic 26 Rmb0.29 Rmb0.35 - Diluted 26 N/A N/A Dividends 27 478,693 664,851 The notes on pages 6 to 46 form an integral part of this consolidated financial statement. Director: Director: -5- GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005 Attributable to equity holders of the Minority Total Company interest equity Share Other Retained Note capital reserves earnings Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 (Note 32) (Note 32) Balances at 1 January 2004 2,659,404 4,051,393 1,183,299 1,805,044 9,699,140 Dividends relating to 2003 - - (664,851) (232,235) (897,086) Profit for the year - - 936,730 213,739 1,150,469 Contribution from minority interest - - - 210,000 210,000 Appropriation from retained earnings 17 - 454,763 (454,763) - - Balances at 31 December 2004 2,659,404 4,506,156 1,000,415 1,996,548 10,162,523 Balances at 1 January 2005 2,659,404 4,506,156 1,000,415 1,996,548 10,162,523 Dividends relating to 2004 - - (478,693) (146,905) (625,598) Profit for the year - - 776,367 135,986 912,353 Contribution from minority interest - - - 98,000 98,000 Appropriation from retained earnings 17 - 342,951 (342,951) - - Balances at 31 December 2005 2,659,404 4,849,107 955,138 2,083,629 10,547,278 The notes on pages 6 to 46 form an integral part of this consolidated financial statement. Director: Director: -6- GUANGDONG ELECTRIC POWER DEVELOPMENT CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Note 2005 2004 Rmb’000 Rmb’000 Cash flows from operating activities Cash generated from operations 28(a) 3,126,901 2,195,007 Interest paid (101,842) (102,486) Income tax paid (403,060) (481,713) Net cash generated from operating activities 2,621,999 1,610,808 Cash flows from investing activities Purchases of property, plant and equipment (2,924,535) (1,510,084) Proceeds from disposal of property, plant and equipment 57 574 Purchases of intangible assets (1,233) (5,488) Additional leasehold lands payment (29,825) (3,189) Additional investments in associates (520,558) (985,650) Additional available-for-sale investments (206,000) - Prepayments for investments in subsidiaries (4,150) (108,120) Interest received 9,469 32,360 Dividends received from associates 3,139 2,215 Dividends received from available-for-sale investments 3,222 4,966 Loans granted (45,404) (37,447) Loan repayments received 2,940 74,762 Net cash used in investing activities (3,712,878) (2,535,101) Cash flows from financing activities Proceeds from borrowings 1,693,960 286,640 Dividends paid to Company’s shareholders (478,693) (664,851) Dividends paid to minority interests (159,083) (200,505) Capital contribution from minority shareholders 98,000 116,000 Net cash generated from/(used in) financing activities 1,154,184 (462,716) Net increase/(decrease) in cash and cash equivalents 63,305 (1,387,009) Cash and cash equivalents at beginning of year 807,645 2,194,654 Cash and cash equivalents at end of year 28(b) 870,950 807,645 The notes on pages 6 to 46 form an integral part of this consolidated financial statement. Director: Director: -7- 1 General Information Guangdong Electric Power Development Co., Ltd. (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (the “PRC”) on 3 November 1992. The Company’s Renminbi (“Rmb”) Denominated Domestic Shares (“A Shares”) and Domestically Listed Foreign Shares (“B Shares”) were listed on the Shenzhen Stock Exchange on 26 November 1993 and 28 June 1995 respectively. In 2001, pursuant to the Approval on the Implementation Plan of Guangdong Province’s Reform of Power Industry Structure Relating to Restructuring of Generation and Transmission Assets, a document issued by Guangdong Provincial Government and referred to as Yue Fu Han [2001] No. 252, Guangdong Electric Power Holding Co. (“GPHC”), the former major shareholder of the Company, was split into two separate companies, namely, Guangdong Power Grid Corporation (“GPGC”, formerly Guangdong Guangdian Group Co., Ltd.) and Guangdong Yudean Group Co., Ltd. (“Yudean”, formerly Guangdong Yuedian Assets Management Co., Ltd.). After restructuring, the electricity transmission and distribution in Guangdong Province, the PRC, were controlled and managed by GPGC, while Yudean concentrated in the investment and management of power plants. According to the Reply to Issues in the Restructuring of Provincial Power Companies Assets with a document number of Yue Cai Qi [2001] No. 247, the Company’s 50.15% equity interest formerly held by GPHC was transferred to Yudean on 1 August 2001. As such, the directors of the Company considered Yudean (the “Parent Company”) as the immediate and ultimate parent company. The Company and its subsidiaries (the “Group”) are principally engaged in the business of developing electric power plants in Guangdong Province, the PRC. The Company’s registered address is 23th to 26th floor, Yuedian Plaza , 2 Tianhe East Road, Guangzhou City. As of 31 December 2005, the Company had the following subsidiaries, which were incorporated in the PRC as limited liability companies: Attributable Date of equity interest Paid-in capital Principal Name of entity incorporation 2005 2004 (Rmb) activities Zhanjiang Electric Power Co., Ltd. 21 November 1995 76% 76% 2,875,440,000 Electricity generation (“Zhanjiang Electric”) Guangdong Yuejia Electric Power 25 January 1996 58% 58% 1,200,000,000 Electricity generation Co., Ltd. (“Yuejia Electric”) Guangdong Shaoguan Yuejiang 16 September 1997 65% 65% 770,000,000 Electricity generation Electric Power Co., Ltd. (“Yuejiang Electric”) Maoming Ruineng Thermal Power 1 January 2001 51% 51% 217,157,500 Electricity generation Co., Ltd. (“Maoming Ruineng”) Maoming Zhenneng 27 August 2004 51% 51% 200,000,000 Electricity generation Thermoelectric Power Co., Ltd. (under construction) (“Maoming Zhenneng”) Guangdong Yuedian Jinghai 25 March 2005 51% - 200,000,000 Electricity generation Electric Power Development (under construction) Co., Ltd. (“Jinghai Electric”) * * Jinghai Electric was newly established in 2005. (The English names of all companies listed above are direct translations of their registered name in Chinese.) -8- 1 General Information (continued) These consolidated financial statements have been approved for issue by the Board of Directors on 24 March 2006. 2 Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This basis of accounting differs from that used in the preparation of the statutory financial statements of the Group which are prepared in accordance with generally accepted accounting principles and relevant financial regulations applicable to enterprises in the PRC (“PRC GAAP”). Appropriate adjustments have been made to these consolidated financial statements to conform to IFRS, but such adjustments are not incorporated in the Group’s statutory financial statements. As of 31 December 2005, the Group had net current liabilities of approximately RMB1,288,561,000. Notwithstanding the foregoing, the consolidated financial statements have been prepared on a going concern basis as the directors, having considered the current operation and business plan of the Group as well as any available banking facilities, are of the opinion that the Group will have sufficient working capital to enable it to operate as a going concern. The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale investment financial assets. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. In 2005, the Group adopted the IFRS below, which are relevant to its operations. The 2004 comparatives have been amended as required, in accordance with the relevant requirements. -9- 2 Summary of significant accounting policies (continued) 2.1 Basis of preparation (continued) IAS 1 (revised 2003) Presentation of Financial Statements IAS 2 (revised 2003) Inventories IAS 8 (revised 2003) Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 (revised 2003) Events after the Balance Sheet Date IAS 16 (revised 2003) Property, plant and equipment IAS 17 (revised 2003) Leases IAS 21 (revised 2003) The Effects of Changes in Foreign Exchange Rates IAS 24 (revised 2003) Related Party Disclosures IAS 27 (revised 2003) Consolidated and Separate Financial Statements IAS 28 (revised 2003) Investments in Associates IAS 32 (revised 2003) Financial Instruments: Disclosure and Presentation IAS 33 (revised 2003) Earnings per Share IAS 36 (revised 2004) Impairment of Assets IAS 38 (revised 2004) Intangible Assets IAS 39 (revised 2004) Financial Instruments: Recognition and Measurement IFRS 2 (issued 2004) Share-based Payments IFRS 3 (issued 2004) Business Combinations SIC 12 (revised 2004) Consolidation - Special Purpose Entities The adoption of IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 32 and 33, IFRS 2 and SIC 12 did not result in substantial changes to the Group’s accounting policies. In summary: z IAS 1 has affected the presentation of minority interest and other disclosures. IAS 1 has also affected the presentation of share of results of associates in the consolidated income statement that it is presented as the share of results after tax in the revised standard. z IAS 2, 8, 10, 16, 17, 27, 28, 32 and 33, IFRS 2 and SIC 12 had no material effect on the Group’s policies. z IAS 21 had no material effect on the Group’s policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard. All the Group entities have the same functional currency as their measurable currency. z IAS 24 has affected the identification of related parties and some other related party disclosures. The adoption of IAS 39 has resulted in a change in the accounting policy relating to the classification of financial assets at fair value through profit or loss. The adoption of IFRS 3, IAS 36 and IAS 38 resulted in a change in the accounting policy for goodwill. Until 31 December 2004, goodwill was: z Amortised on a straight line basis over the estimated useful life of 10 years; and z Assessed for an indication of impairment at each balance sheet date. - 10 - 2 Summary of significant accounting policies (continued) 2.1 Basis of preparation (continued) In accordance with the provision of IFRS 3 (Note 2.7): z The Group ceased amortisation of goodwill from 1 January 2005; z Accumulated amortisation as at 31 December 2004 has been eliminated with a corresponding decrease in the cost of goodwill; z From the year ended 31 December 2005 onward, goodwill is tested annually for impairment, as well as when there are indications of impairment. The Group has reassessed the useful lives of its other intangible assets in accordance with the provisions of IAS 38. No adjustment resulted from the reassessment. The adoption of IAS 1 has resulted in a reclassification in the presentation of share of results of associates in the 2004 consolidated income statement. All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards. 2.2 Consolidation (a) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement (see Note 2.7). Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries - 11 - have been changed where necessary to ensure consistency with the policies adopted by the Group. 2 Summary of significant accounting policies (continued) 2.2 Consolidation (continued) (b) Transactions and minority interests The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. (c) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (see Note 2.7). The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. 2.3 Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services - 12 - within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. - 13 - 2 Summary of significant accounting policies (continued) 2.4 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each entity in the Group are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Renminbi (“Rmb”), which is the functional and presentation currency of the Company. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Transaction difference on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity. - 14 - 2 Summary of significant accounting policies (continued) 2.5 Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over their estimated useful lives as follows: Buildings 30 to 50 years Electric utility plants in service 8 to 20 years Motor vehicles and other non-generation equipment 8 to 20 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.8). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. Construction-in-progress represents plants and properties under construction and machinery pending installation or testing. Construction in progress is stated at cost which includes all expenditures and other direct costs, site restoration costs, prepayments and deposits attributable to the installation and interest charges arising from borrowings used to finance the installation during the installation period. Construction-in-progress is not depreciated until such time as the assets are completed and ready for their intended use. 2.6 Leasehold land payments Leasehold land payments are up-front payments to acquire a long-term interest in land. These payments are stated at cost and amortised over their respective lease terms on a straight-line basis, net of accumulated impairment charge. - 15 - 2 Summary of significant accounting policies (continued) 2.7 Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in “intangible assets”. Goodwill on acquisitions of associates is included in “investments in associates”. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. (b) Other intangible assets Other intangible assets are measured initially at cost and are recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise, and the cost of the asset can be measured reliably. After initial recognition, other intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Other intangible assets are amortised on a straight-line basis over their estimated useful lives (5 to18 years). The amortisation period and the amortisation method are reviewed annually at each financial year end. 2.8 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. - 16 - 2 Summary of significant accounting policies (continued) 2.9 Financial assets The Group classifies its financial assets in the following categories: loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. (a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. (b) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Regular purchases and sales of investments are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available for-sale financial assets are subsequently carried at fair value except for equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Change in the fair value of available-for-sales financial assets are recognised in equity. Loans and receivables are carried at amortised cost using the effective interest method. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as “gains and losses from investment securities”. Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement. Dividends on available-for-sale equity instruments are recognised in the income statement when the Group’s right to receive payments is established. - 17 - 2 Summary of significant accounting policies (continued) 2.9 Financial assets (continued) The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little s possible on entity-specific inputs. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Impairment testing of trade and other receivables is described in Note 2.11. 2.10 Materials and supplies Materials and supplies are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. Materials and supplies are expensed to fuel cost and repair and maintenance when used, or capitalised to fixed assets when installed, as appropriate. Net realisable value is the estimated selling price in the ordinary course of business, less applicable selling expenses. 2.11 Trade and other receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial re-organisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. - 18 - 2 Summary of significant accounting policies (continued) 2.12 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less. 2.13 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 2.14 Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. 2.15 Employee benefits (a) Defined contribution plan The Group pays contributions to defined contribution schemes (the “Schemes”) operated by the local government for employee benefits in respect of pension and housing, etc. The Group has no further payment obligations once the contributions have been paid. The contributions to the Schemes are recognised as staff costs when they are due. - 19 - 2 Summary of significant accounting policies (continued) 2.15 Employee benefits (continued) (b) Early retirement benefits Early retirement benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises early retirement benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide early retirement benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value. 2.16 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 2.17 Revenue recognition (a) Operating revenue Operating revenue mainly represents amounts billed for electricity generated and sold, net of value added tax. It is recognised upon transmission of electricity. (b) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. - 20 - 2 Summary of significant accounting policies (continued) 2.17 Revenue recognition (continued) (c) Dividend income Dividend income is recognized when the right to receive payment is established. (d) Rental income Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. 2.18 Government grant Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to the purchase of property, plant and equipment are included in noncurrent liabilities as deferred government grants and are credited to the income statement on a straight line basis over the expected lives of the related assets. 2.19 Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. 2.20 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. - 21 - 3 Financial risk management The Group’s activities expose it to a variety of financial risks: currency risk, price risk, interest rate risk, credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. (a) Currency risk The Group operates in the PRC with almost all of the transactions settled in RMB. In the opinion of the directors, the Group does not have significant currency risk. (b) Price risk The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet as available-for-sale. In the opinion of directors, the Group is not exposed to significant commodity price risk. (c) Interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises mainly from long-term borrowings. The interest rates and terms of repayment of borrowings of the Group are disclosed in Note 18. As of 31 December 2005, the directors are of the opinion that changes in interest rates would not have material impact on the Group’s operating results and operating cash flows. (d) Credit risk The carrying amount of cash and cash equivalents, short-term bank deposits and loans and receivables, represents the Group’s maximum exposure to credit risk in relation to financial assets. Bank balances of the Group are deposited with reputable banks in the PRC. The majority of the Group’s trade receivables relate to sales of electricity to GPGC. Due to the monopoly position of GPGC and its strong financial position, the directors are of the opinion that the related credit risk is minimal. No other financial assets carry a significant exposure to credit risk. - 22 - 3 Financial risk management (continued) (e) Liquidity risk The Group reported net current liabilities of approximately RMB1,288,561,000 as of 31 December 2005 (included approximately Rmb1,073,040,000 of the amount due to Yudean by Jinghai Electric, which will be transferred as paid-in capital of Jinghai Electric upon completion of capital verification). It is mainly due to the fact that certain portion of capital expenditures like property, plant and equipment are financed by short-term borrowings. The Group has not experienced any difficulties in renewing the borrowings when they fell due. Besides, according to the assessment of the directors in respect of future cash flows in the coming year, the Group could obtain sufficient cash flows from its operating activities and financing activities to meet its short-term cash demands. As a result, the directors are of the opinion that liquidity risk is not material as of 31 December 2005. 4 Critical accounting estimates and judgments Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 4.1 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Useful lives of property, plant and equipment The estimate of useful lives of property, plant and equipment was made by the directors with reference to the established industry practices, technical assessments made on the durability of the asset, as well as the historical magnitude and trend of repair and maintenance expenses incurred by the Group. The useful lives are reviewed and adjusted if appropriate, at each balance sheet date. (b) Estimated impairment of non-financial assets The Group tests annually whether non-financial assets, mainly including property, plant and equipment, leasehold land payment and goodwill, have suffered any impairment, in accordance with the accounting policy stated in Note 2.8. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. - 23 - 4 Critical accounting estimates and judgments (continued) 4.1 Critical accounting estimates and assumptions (continued) (c) Fair value of financial instruments The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. Available-for-sale financial assets that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. 5 Segment information No segment information is presented as the Group operates substantially in the business of developing electric power plants in the PRC, which accounted for substantially all of the consolidated revenue and results of the Group. No geographical segment information is presented as its revenues are all generated in the Guangdong Province, the PRC, and its assets are located in the Guangdong Province, the PRC. - 24 - 6 Property, plant and equipment Motor vehicles Electric utility and other non plants in -generation Construction-i Buildings service equipment n-progress Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 At 1 January 2004 Cost 189,509 10,646,475 122,750 571,705 11,530,439 Impairment (533) (25,827) (531) - (26,891) Accumulated depreciation (37,930) (3,830,354) (59,199) - (3,927,483) Net book amount 151,046 6,790,294 63,020 571,705 7,576,065 Year ended 31 December 2004 Opening net book amount 151,046 6,790,294 63,020 571,705 7,576,065 Additions - 11,009 7,731 1,538,018 1,556,758 Transfer 14,695 848,345 12,211 (875,251) - Disposals - (7,802) (171) - (7,973) Depreciation charge (5,767) (697,335) (14,508) - (717,610) Closing net book amount 159,974 6,944,511 68,283 1,234,472 8,407,240 At 31 December 2004 Cost 203,516 11,377,592 138,868 1,234,472 12,954,448 Accumulated depreciation (43,542) (4,433,081) (70,585) - (4,547,208) Net book amount 159,974 6,944,511 68,283 1,234,472 8,407,240 Year ended 31 December 2005 Opening net book amount 159,974 6,944,511 68,283 1,234,472 8,407,240 Additions - 18,763 17,111 3,167,276 3,203,150 Transfer 38,441 1,058,400 23,235 (1,120,076) - Disposals - (2,776) (126) - (2,902) Depreciation charge (6,799) (750,609) (15,605) - (773,013) Closing net book amount 191,616 7,268,289 92,898 3,281,672 10,834,475 At 31 December 2005 Cost 241,957 12,402,951 176,080 3,281,672 16,102,660 Accumulated depreciation (50,341) (5,134,662) (83,182) - (5,268,185) Net book amount 191,616 7,268,289 92,898 3,281,672 10,834,475 Electric utility plants in service with a net book amount of approximately Rmb691,200,000 (2004: Rmb731,356,000) have been pledged to secure certain bank borrowings of the Group (Note 18). For the year ended 31 December 2005, borrowing costs of approximately Rmb125,765,000 (2004: approximately Rmb5,914,000) were capitalised as construction-in-progress. A capitalisation rate of 5.46% (2004: 5.18%) per annum was used to determine the amount of borrowing costs eligible for capitalisation. - 25 - 7 Leasehold land payments 2005 2004 Rmb’000 Rmb’000 At 1 January Cost 388,697 385,508 Accumulated amortisation (77,904) (68,944) Net book amount 310,793 316,564 Year ended 31 December Opening net book amount 310,793 316,564 Additions 29,825 3,189 Amortisation charge (9,131) (8,960) Closing net book amount 331,487 310,793 At 31 December Cost 418,522 388,697 Accumulated amortisation (87,035) (77,904) Net book amount 331,487 310,793 Leasehold land payments with a net book amount of approximately Rmb17,983,000 (2004: Rmb19,009,000) have been pledged to secure certain bank borrowings of Yuejia Electric (Note 18). 8 Intangible assets Other Goodwill intangible assets Total Rmb’000 Rmb’000 Rmb’000 At 1 January 2004 Cost 104,309 460,230 564,539 Accumulated amortisation (29,592) (187,353) (216,945) Net book amount 74,717 272,877 347,594 Year ended 31 December 2004 Opening net book amount 74,717 272,877 347,594 Additions - 5,488 5,488 Amortisation charge (10,096) (39,933) (50,029) Closing net book amount 64,621 238,432 303,053 At 31 December 2004 Cost 104,309 465,718 570,027 Accumulated amortisation (39,688) (227,286) (266,974) Net book amount 64,621 238,432 303,053 Year ended 31 December 2005 Opening net book amount 64,621 238,432 303,053 Additions - 1,232 1,232 Amortisation charge - (39,825) (39,825) Closing net book amount 64,621 199,839 264,460 At 31 December 2005 Cost 64,621 466,950 531,571 Accumulated amortisation - (267,111) (267,111) Net book amount 64,621 199,839 264,460 - 26 - 8 Intangible assets (continued) (a) Goodwill On 5 July 2000, the Company acquired 65% of the equity interest of Yuejiang Electric from GPHC at a cash consideration of Rmb365,285,000. The excess of the purchase price over the Company’s share of the fair value of net identifiable assets acquired of approximately Rmb72,785,000 has been recorded as goodwill. On 1 January 2002, the Company acquired additional 9% and 16% equity interests of Zhanjiang Electric from Yudean and Guangdong Electric Power Development Company (“GEPD”), the third largest shareholder of the Company, for cash considerations of Rmb316,456,000 and Rmb562,588,000 respectively. On 1 January 2002, the Company acquired an additional 17% equity interest of Yuejia Electric from GEPD for a cash consideration of Rmb193,524,000. The excess of the purchase price over the Company’s share of the fair value of net identifiable assets acquired of approximately Rmb31,524,000 has been recorded as goodwill. The directors of the Company performed impairment test for goodwill in accordance with the accounting policy and estimate disclosed in Note 2.8 and 4.1(b), and considered that the goodwill as of 31 December 2005 was not impaired. (b) Other intangible assets According to the respective joint venture contracts of Zhanjiang Electric and Yuejia Electric and with reference to prevailing government regulations and practices, certain of the electricity transmission facilities constructed by Zhanjiang Electric and Yuejia Electric were transferred to GPHC upon the completion of these facilities in 1999 at no cost. The costs of constructing these facilities incurred by Zhanjiang Electric and Yuejia Electric were capitalized as intangible assets and amortized on a straight line basis starting from 1999 over their expected useful lives of 10 years and 18 years respectively for Zhanjiang Electric and Yuejia Electric. In addition, according to the agreements signed between Yuejiang Electric, Yangcheng Railway Company and Transportation Bureau of Qujiang County, the railway and highway constructed by Yuejiang Electric were transferred to Yangcheng Railway Company and Transportation Bureau of Qujiang County respectively upon their completion in 2001 at no cost. The cost of the railway and highway incurred by Yuejiang Electric was capitalized as an intangible asset and amortized on a straight line basis starting from 2001 over their expected useful lives of 5 years. The directors of the Company consider it is probable that the future economic benefits attributable to the above intangible assets will flow to the Group over their respective expected useful lives. - 27 - 9 Investments in associates 2005 2004 Rmb’000 Rmb’000 Beginning of year 1,240,671 257,101 Additions in investment costs 520,558 985,650 Share of (loss)/profit after tax (8,566) 135 Dividends received (480) (2,215) End of year 1,752,183 1,240,671 Investments in associates at 31 December 2005 include goodwill of Rmb3,457,000 (2004: Rmb 3,457,000) resulting from the acquisition of Shenzhen Guang Qian Power Limited Company. The principal associates, all of which are unlisted, are as below: Percentage of Country of equity interest held Name incorporation Principal activities 2005 2004 Yangshan Jiangkeng Hydroelectric Station PRC Electricity generation 25% 25% (“Jiangkeng”) Yangshan Zhongxinkeng Electric Power Co., Ltd. PRC Electricity generation 40% 40% (“Zhongxinkeng”) Guangdong Yudean Holding Western Investment PRC Investment in electricity 26% 26% Co., Ltd. (“Yudean Western”) power plant Shenzhen Guang Qian Power Limited Company PRC Construction and operation 40% 27% (“Shenzhen Guang Qian”) of electricity power plant Zhanjiang Zhongyue Energy Co., Ltd. PRC Electricity generation 39% 39% Guangdong Huizhou LNG Power Co., Ltd. PRC Electricity generation 32% 32% (“Huizhou LNG”) Guangdong Yudean Shibeishan Wind Power Co., PRC Electricity generation 30% 30% Ltd. (“Shibeishan”) Guangdong Red Gulf Electric Power Co., Ltd. PRC Electricity generation 25% 25% (“Red Gulf”) Lincang Yuntou Yudean Water Power Co., Ltd. PRC Electricity generation 49% - (“Lincang Yuntou”) * Guangdong Yudean Shipping Co., Ltd. PRC Transportation 30% - (“Yudean Shipping”) * Weixin Yuntou Yudean Zhaxi Energy Co., Ltd. * PRC Electricity generation 40% - (The English names of all companies listed above are direct translations of their registered names in Chinese.) * These three associates were newly established in 2005. - 28 - 9 Investments in associates (continued) The Group’s share of the results of its associates in operation, and its share of the assets (including goodwill and liabilities) are as follows: Assets Liabilities Revenues Profit / (Loss) Rmb’000 Rmb’000 Rmb’000 Rmb’000 2004 Jiangkeng 29,021 6,183 5,996 61 Zhongxinkeng 33,357 15,484 4,930 74 62,378 21,667 10,926 135 2005 Jiangkeng 29,409 6,570 5,948 367 Zhongxinkong 31,480 13,667 5,848 364 Yudean Western 5,495,649 4,806,511 - (8,908) Shibeishan 575,548 342,724 2,181 337 Lincang Yuntou 51,235 144,327 - (445) Yudean Shipping 219,421 20,360 - (281) 6,402,742 5,334,159 13,977 (8,566) 10 Loans and receivables 2005 2004 Rmb’000 Rmb’000 (Note 32) Current portion Trade receivables 1,357,537 1,069,747 Less: provision for impairment of receivables (6,037) (5,349) Trade receivables – net 1,351,500 1,064,398 Other receivables 125,000 64,064 Less: provision for impairment of receivables (3,135) (444) Other receivables – net 121,865 63,620 Prepayments 10,431 3,729 Deferred expense 1,283 1,224 Dividend receivable - 2,659 1,485,079 1,135,630 Non-current portion Loan to Zhongxinkeng (Note 30(c)) 3,441 4,731 Loan to Yudean Western (Note 30(c)) 12,118 32,419 Loan to a company held as available-for-sale investment - 1,650 15,559 38,800 Total 1,500,638 1,174,430 - 29 - 11 Available-for-sale investments 2005 2004 Rmb’000 Rmb’000 Beginning of year 75,502 76,982 Addition 206,000 - Disposal - (1,480) End of year 281,502 75,502 Available-for-sale investments comprise the following: 2005 2004 Rmb’000 Rmb’000 Investments in unlisted companies 266,004 60,004 Investment in legal person shares of a listed company, at carrying value 15,498 15,498 281,502 75,502 The directors of the Company are of the opinion that no quoted market price in an active market is available for the above investments. In addition, fair value cannot be reliably measured by alternative valuation methods. In accordance with IFRS, the above available-for-sale investments are carried at cost subject to review for impairment loss. 12 Prepayments for investment in subsidiaries Prepayments for investment in 2005 represented the prepaid capital injection to Guangdong Zhanjian Wind Power Co., Ltd. (“Zhanjiang Wind Power”) of approximately Rmb1,000,000 and Maoming Bohe Energy Co., Ltd. (“Maoming Bohe”) of approximately Rmb3,150,000. The incorporation of Zhangjiang Wind Power and Maoming Bohe were in progress. The prepayment would be transferred to investment in subsidiaries after the completion of incorporation procedures. Prepayments for investment in 2004 represented the prepaid capital injection to Jinghai Electric, which has been transferred to investments in subsidiaries in 2005. The financial statements of Jinghai Electric were consolidated in 2005. - 30 - 13 Deferred income tax 2005 2004 Rmb’000 Rmb’000 Deferred tax assets: - Deferred tax asset to be recovered after more than 12 months 49,109 27,067 - Deferred tax asset to be recovered within 12 months 19,547 5,104 68,656 32,171 Deferred tax liabilities: - Deferred tax liability to be recovered after more than 12 months (9,722) - The movements in deferred tax assets and liabilities during the year are as follows: Difference in Provision for amortisation Timing Write-off of Provision early of leasehold Provision difference in pre-operatin for doubtful retirement land for deferred payroll g expenses debts obligation payments revenue deduction Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Deferred tax assets: At 1 January 2004 2,409 6,170 26,715 678 - - 35,972 (Charged)/Credited to the income statement (545) (682) (3,248) 674 - - (3,801) - At 31 December 2004 1,864 5,488 23,467 1,352 - 32,171 - - At 1 January 2005 1,864 5,488 23,467 1,352 - - 32,171 Credited/(charged) to the income statement 10,010 1,220 (2,882) 1,915 13,227 12,995 36,485 At 31 December 2005 11,874 6,708 20,585 3,267 13,227 12,995 68,656 Deferred tax liabilities: Capitalisation of Tax rate differential interest for an associate Total Rmb’000 Rmb’000 Rmb’000 At 1 January 2005 - - - Charged to the income (8,190) (1,532) (9,722) - 31 - statement At 31 December 2005 (8,190) (1,532) (9,722) - 32 - 14 Deferred staff costs 2005 2004 Rmb’000 Rmb’000 At 1 January Cost 97,274 97,274 Accumulated amortization (46,183) (35,964) Net book amount 51,091 61,310 Year ended 31 December Opening net book amount 51,091 61,310 Amortization (10,218) (10,219) Closing net book amount 40,873 51,091 At 31 December Cost 97,274 97,274 Accumulated amortization (56,401) (46,183) Net book amount 40,873 51,091 Deferred staff costs represent housing losses incurred as a result of selling staff quarters to employees at preferential prices. The losses are recorded as deferred staff costs and are amortised over the estimated remaining average service life of the employees. At each balance sheet date, the Group assesses whether there is any indication of impairment, considering the remaining service life of the employees and other qualitative factors. If such indications exist, an analysis is performed to assess whether the carrying amount of the deferred staff costs are fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. 15 Materials and supplies 2005 2004 Rmb’000 Rmb’000 Coal 398,695 242,943 Oil 27,138 18,860 Spare parts and chemicals 176,418 155,989 602,251 417,792 As of 31 December 2005, there were no inventories stated at net realisable value. - 33 - 16 Share capital As of 31 December 2005, the authorised share capital of the Company was Rmb2,659,404,000 (2004: Rmb2,659,404,000) at Rmb1 per share and included both A Shares and B Shares. The B Shares ranked pari passu in all respects with the A Shares except that A Shares can only be owned and traded by investors in the Mainland China; while B Shares can be owned and traded in foreign currency by both domestic and foreign investors. Number of shares Share capital 2005 2004 2005 2004 ’000 ’000 Rmb’000 Rmb’000 Authorized, issued and fully paid: Yudean (Note 1) 1,333,800 1,333,800 1,333,800 1,333,800 Legal persons 268,788 268,788 268,788 268,788 A Shares 391,476 391,476 391,476 391,476 B Shares 665,340 665,340 665,340 665,340 2,659,404 2,659,404 2,659,404 2,659,404 17 Other reserves Statutory Statutory Discretionary Capital surplus public surplus reserve reserve welfare fund reserve Total Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Balances at 1 January 2004 1,383,187 856,987 349,166 1,462,053 4,051,393 Appropriation from retained earnings - 93,967 46,984 313,812 454,763 Balances at 31 December 2004 1,383,187 950,954 396,150 1,775,865 4,506,156 Balances at 1 January 2005 1,383,187 950,954 396,150 1,775,865 4,506,156 Appropriation from retained earnings - 72,022 36,011 234,918 342,951 Balances at 31 December 2005 1,383,187 1,022,976 432,161 2,010,783 4,849,107 Capital reserve includes share premium on the issuance of A Shares and B Shares. - 34 - 17 Other reserves (continued) For the year ended 31 December 2005, the directors proposed the following appropriations to reserves: 2005 2004 Rmb’000 Rmb’000 Statutory surplus reserve 72,022 93,967 Statutory public welfare fund 36,011 46,984 Discretionary surplus reserve 234,918 313,812 342,951 454,763 Pursuant to the relevant PRC regulation, profit available for distribution to shareholders shall be the lower of the accumulated distributable profits as stated in the PRC statutory financial statements and the accumulated distributable profits adjusted according to IFRS. As of 31 December 2005, the profit of the Company available for distribution determined in accordance with PRC accounting standards and IFRS were approximately Rmb918,769,000 (2004: Rmb1,029,142,000) and Rmb955,138,000 (2004: Rmb1,000,415,000), respectively. 18 Borrowings 2005 2004 Rmb’000 Rmb’000 Bank borrowings - Current 1,713,680 539,040 - Non-current 2,024,060 1,504,740 3,737,740 2,043,780 - 35 - 18 Borrowings (continued) The borrowings consist of following: 2005 2004 Rmb’000 Rmb’000 Secured bank borrowings (i) 2,254,740 1,730,780 Guaranteed bank borrowings (ii) 113,000 263,000 Unsecured bank borrowings (iii) 1,220,000 50,000 Discounted bills 150,000 - 3,737,740 2,043,780 (i) Details of the secured bank borrowings are as follows: 2005 2004 Rmb’000 Rmb’000 Secured over the future revenue from power generation and trade receivables of Yuejiang Electric 1,436,740 1,102,780 Secured over certain electric utility plants, future revenue from the power generation and other interests of Maoming Riuneng (Note a) 388,000 483,000 Secured over certain electric utility plants and leasehold land payments of Yuejia Electric (Note b) 430,000 145,000 2,254,740 1,730,780 Note a: The Company issued a letter of undertaking to a bank in relation of this bank borrowing of Maoming Ruineng, pursuant to which: (1) the Company should maintain 51% equity interest in Maoming Ruineng. All transfer of the relevant equity interest should obtain a written consent by the bank; 2) the Company was prohibited from any mortgage, pledge or other guarantee on its equity interest in Maoming Ruineng directly or indirectly held; (3) the Company and other investors are prohibited from modifying the articles of association of Maoming Ruineng unless it is required by laws or with a written consent by the bank. At 31 December 2005, the related bank borrowing amounted to Rmb388,000,000, which are also secured over certain electric utility plants amounting to approximately Rmb403,283,000 (2004: Rmb430,179,000) (Note 6) and the future revenue from the power generation and other interests of Maoming Ruineng. Note b: The borrowings are secured over certain electric utility plants amounting to approximately Rmb287,917,000 (2004: Rmb301,177,000) (Note 6) and certain leasehold land payments amounting to approximately Rmb17,983,000 (2004: Rmb19,009,000) (Note 7) of Yuejia Electric. - 36 - 18 Borrowings (continued) (ii) As of 31 December 2005, the guaranteed bank borrowing of Rmb113,000,000 (2004: Rmb263,000,000) of Zhanjiang Electric are guaranteed by the Company. (iii) Included in the unsecured bank borrowings is an entrusted loan amounting to Rmb700,000,000 granted by Yuedian to the Group through a bank (see Note 30(c)). Maturity of the non-current borrowings is as follows: 2005 2004 Rmb’000 Rmb’000 Between 1 and 2 years 375,680 220,680 Between 2 and 5 years 443,680 785,040 Over 5 years 1,204,700 499,020 2,024,060 1,504,740 The interest rate exposure of the borrowings of the Group is as follows: 2005 2004 Rmb’000 Rmb’000 At fixed rates 2,038,000 195,000 At floating rates 1,699,740 1,848,780 3,737,740 2,043,780 The effective interest rates of the bank borrowings as of 31 December 2005 were from 4.7% to 5.6% (2004: from 4.3% to 5.5%) The carrying amounts of the Group’s borrowings approximate their fair values. The Group has the following undrawn committed borrowing facilities: 2005 2004 Rmb’000 Rmb’000 Floating rate - Expiring within 1 year - 487,900 - Expiring beyond 1 year 785,000 358,200 785,000 846,100 The facilities have been arranged to finance the capital expenditures of the Group. - 37 - 19 Early retirement obligation 2005 2004 Rmb’000 Rmb’000 At 1 January 81,408 94,181 Utilisation (16,342) (12,773) At 31 December 65,066 81,408 2005 2004 Rmb’000 Rmb’000 Early retirement obligation 65,066 81,408 Less: current portion included in other payables and accruals (16,423) (16,288) 48,643 65,120 Certain employees of the Group were directed to retire early during 2003. Employee early retirement benefits are recognized in the income statement in 2003 which the Group entered into an agreement specifying the terms of redundancy, or after the individual employee has been advised of the specific terms. These specific terms vary among the early retired employees depending on various factors including position, length of service and district of the employee concerned. Where the obligation do not fall due within twelve months, the obligation payable are discounted using the discount rate determined by reference to market yields at the balance sheet date on high quality investments. 20 Deferred revenue Deferred revenue represented the government subsidy granted for the desulfurization project of the Company in current year. It will be amortised over the useful life of related assets when the completion of the project. 21 Operating revenue 2005 2004 Rmb’000 Rmb’000 Sales of electricity 8,263,245 7,110,887 Sales of stream 14,754 4,770 8,277,999 7,115,657 - 38 - 21 Operating revenue (continued) The electricity transmission and distribution in Guangdong Province, the PRC, were controlled and managed by GPHC, the former parent company of the Company before August 2001. After the restructuring of GPHC as described in Note 1 (the “Restructuring”), the electricity transmission and distribution in Guangdong Province were controlled and managed by GPGC. GPGC has a monopoly over the supply and distribution of electricity to end users in the Guangdong Province. As such, GPGC is the sole customer of the electricity generated by the Group. The Group companies entered into power purchase agreements with GPHC prior to the Restructuring in August 2001. After the Restructuring, GPGC has continued to execute the agreements under their present terms with the Company and Yuejiang Electric. Maoming Ruineng has entered into a new agreement with GPGC in 2003; Zhanjiang Electric and Yuejia Electric have entered into new agreements with GPGC in 2004. Key provisions, amongst others, of these power purchase agreements for the Group companies are as follows: - The Company GPGC (formerly GPHC) has agreed to purchase not less than 3,100 million KWH of electricity generated by the Shajiao Power Plant A of the Company per annum from 1 January 2001 to 31 December 2009. Electricity fees are to be paid before the 20th of the following month. A penalty of 0.05% per day of the amount overdue will be charged for late payments. - Zhanjiang Electric and Yuejia Electric GPGC is to purchase all the electricity transmitted by Zhanjiang Electric and Yuejia Electric. Electricity fees are to be paid in 30 working days after receipt of invoices. - Yuejiang Electric GPGC (formerly GPHC) is to purchase all the electricity transmitted by Yuejiang Electric. Electricity fees are to be paid in 25 days and 30 days after issuance of invoices for No.10 generator and No.11 generator, respectively. - Maoming Ruineng GPGC is to purchase all the electricity transmitted by Maoming Ruineng. 70% of the electricity fees are to be paid in 20 days after receipt of invoices and the remaining is to be paid in 40 days after receipt of invoices. - Maoming Zhenneng and Jinghai Electric As at 31 December 2005, the power plants of Maoming Zhenneng and Jinghai Electric were under construction and no power purchase agreement has been reached with GPGC. The electricity tariffs for the power plants of the Group companies are subject to the approval of the Price Bureau of Guangdong Province. - 39 - 21 Operating revenue (continued) For the year ended 31 December 2005, the amount of the electricity purchased by GPGC from the power plants of the Group companies and the corresponding unit selling prices were as follows: Electricity amount Million KWH Unit electricity prices Rmb per MWH Before After 2005 2004 1 May 2005 1 May 2005 2004 The Company – Shajiao Power Plant A - No.1 to No.4 Generators 6,173 6,211 329.11 345.43 329.11 - No.5 Generator 2,065 2,070 341.93 358.25 341.93 Zhanjiang Electric 7,772 7,526 362.81 379.13 362.81 Yuejia Electric - No. 3 and No. 4 Generators 1,655 1,740 366.11 382.43 366.11 - No. 5 Generator * 877 126 358.97 375.32 358.97 Yuejiang Electric - No. 10 Generator 1,869 1,641 391.11 407.43 391.11 - No. 11 Generator ** 935 - - 362.39 - Maoming Ruineng 1,417 1,142 346.15 362.47 346.15 * No. 5 Generator of Yuejia Electric started operation since October 2004. The on-grid electricity price approved by the Price Bureau of Guangdong Province was Rmb358.97 per MWH before 1 May 2005 and 375.32 per MWH after 1 May 2005. ** No. 11 Generator of Yuejiang Electric started operation since August 2005. The on-grid electricity price approved by the Price Bureau of Guangdong Province was Rmb362.39 per MWH. 22 Expenses by nature 2005 2004 Rmb’000 Rmb’000 Depreciation of property, plant and equipment (Note 6) 773,013 717,610 Loss on disposal of property, plant and equipment 2,845 7,399 Repairs and maintenance expenditure on property, plant and equipment 301,629 329,764 Amortisation of leasehold land payments (Note 7) 9,131 8,960 Amortisation of intangible assets (Note 8) - Goodwill - 10,096 - Other intangible assets 39,825 39,933 Costs of inventories recognised as expense 4,939,031 3,851,226 Provisions for doubtful receivables (Note 10) 3,379 1,493 Staff costs (Note 23) 587,729 379,535 - 40 - 23 Staff costs 2005 2004 Rmb’000 Rmb’000 Wages and salaries 441,221 263,920 Contribution to defined contribution pension scheme (a) 58,634 45,347 Contribution to the housing scheme (b) 52,068 35,514 Amortisation of deferred staff costs (Note 14) 10,218 10,219 Other social security costs 16,636 15,742 Appropriation for staff and workers’ bonus and welfare fund 8,952 8,793 587,729 379,535 The average number of employees in 2005 was approximately 3,841 (2004: 3,455). (a) Pension scheme All staffs of the Group are entitled to a pension equal to their basic salaries beginning at their retirement dates until death from a statutory pension scheme. A government agent is responsible for the pension liabilities relating to such retired staff. The Group’s responsibility is limited to the monthly contributions to the statutory pension scheme computed at 18% of the standard salary set by the provincial government. The Group has no further obligation to the pension cost beyond its monthly contribution. (b) Housing scheme In accordance with the PRC housing reform regulations, the Company and its subsidiaries are required to make contributions to the State-sponsored Housing Fund at 8% to 20% of the specific salaries of the employees. At the same time, the employees are also required to make a contribution at 8% to 20% of the specific salaries out of their payroll. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. The Company and its subsidiaries have no further obligation for housing benefits beyond the above contributions made. 24 Finance costs 2005 2004 Rmb’000 Rmb’000 Interest expenses on borrowings 228,557 108,400 Less: interest capitalized in construction-in-progress (Note 6) (125,765) (5,914) 102,792 102,486 - 41 - 25 Income tax expense 2005 2004 Rmb’000 Rmb’000 Current tax 493,039 462,004 Deferred tax (Note 13) (26,763) 3,801 466,276 465,805 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: 2005 2004 Rmb’000 Rmb’000 Profit before tax 1,378,629 1,616,274 Tax calculated at a statutory rate of 33% (2004: 27%) 454,948 436,394 Effect of different tax rate of subsidiaries - 23,909 Expense not deductible for tax purposes 11,328 5,502 Tax charge 466,276 465,805 The income tax rates applicable to the Group companies are as follows: 2005 2004 The Company (Note a) 33% 27% Yuejia Electric 15% 15% Zhanjiang Electric, Yuejiang Electric, Maoming Ruineng, Maoming Zhenneng and Jinghai Electric 33% 33% Note a: The Company issued B shares in 1995. Pursuant to the circular Wai Jin Mao Zi Er Han [1995]No. 626 issued by the Ministry of Foreign Trade and Economic Cooperation, the Company was regarded as a foreign investment joint stock limited company. Pursuant to the approval document No. 010457 issued by the international tax center of Guangdong State Tax Bureau, the applicable tax law of the Company was the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises ("Income Tax Law for FIE") . The applicable enterprise income tax rate was 24% and the local tax rate was 3%, resulting in an aggregate tax rate of 27%. In 2005, State Tax Bureau in Dongshan District of Guangzhou City issued the document Dong Guo Shui [2005] No. 7, pursuant to which the Company was approved to proceed the 2004 tax filing under the Income Tax Law for FIE. Starting 2005, the Company is regarded as a domestic company for tax filing purpose. The applicable enterprise income tax rate of the Company in 2005 is 33%. - 42 - 26 Earnings per share The calculation of basic earnings per share is based on the net profit for the year attributable to equity holders of approximately Rmb776,367,000 (2004: approximately Rmb936,730,000), divided by the weighted average number of ordinary shares in issue during the year of 2,659,404,000 shares (2004: 2,659,404,000 shares). No diluted earnings per share were presented as there were no dilutive potential ordinary shares as of year end. 27 Profit distribution The dividends paid by the Company in 2005 and 2004 were Rmb478,692,720 (Rmb0.18 per share) and Rmb664,851,001 (Rmb0.25 per share) respectively. In a board meeting held on 24 March 2006, an appropriation to discretionary surplus reserve of Rmb180,056,000 and a dividend of Rmb478,692,720 (0.18 per share) in respect of the year ended 31 December 2005 were proposed. These financial statements do not reflect this appropriation and dividend declaration, which will be reflected in consolidated financial statements for the year ending 31 December 2006. 28 Cash generated from operations (a) Reconciliation from profit for the year to cash generated from operations: 2005 2004 Rmb’000 Rmb’000 Profit for the year 912,353 1,150,469 Adjustments for: Income tax expense(Note 25) 466,276 465,805 Depreciation of property, plant and equipment (Note 6) 773,013 717,610 Amortisation for leasehold land payments (Note 7) 9,131 8,960 Amortisation of intangible assets (Note 8) 39,825 50,029 Amortisation of deferred staff costs (Note 14) 10,218 10,219 Loss on disposal of property, plant and equipment (Note 22) 2,845 7,399 Provision for doubtful receivables (Note 10) 3,379 1,493 Interest income (15,072) (32,883) Dividend income (3,222) (4,966) Interest expenses (Note 24) 102,792 102,486 Share of results of associates 8,566 (135) Changes in working capital: Increase in inventories (184,459) (198,641) Decrease in short-term bank deposits 40,000 44,845 Increase in pledged deposits (46,000) - Increase in trade and other receivables (304,179) (410,009) Increase in trade payables 173,579 327,343 (Decrease)/increase in taxes payable (60,327) 23,528 Increase/(decrease) in other payables and accruals 1,214,660 (56,634) Decrease in early retirement obligation (16,477) (11,911) Cash generated from operations 3,126,901 2,195,007 - 43 - 28 Cash generated from operations (continued) (b) Analysis of the balance of cash and cash equivalents: 2005 2004 Rmb’000 Rmb’000 Cash at bank and in hand 916,950 807,645 Less: Pledged deposits (46,000) - 870,950 807,645 Pledged deposits of Rmb46,000,000 was placed to a bank as security deposits for the issuance of the Group’s bank acceptance. 29 Capital commitments Capital expenditures contracted for at the balance sheet date but not recognised in the consolidated financial statements are as follows: 2005 2004 Rmb’000 Rmb’000 Investment in subsidiaries 5,100 682,380 Investment in associates 179,282 474,008 Acquisition of property, plant and equipment 3,317,471 1,039,837 3,501,853 2,196,225 30 Related party transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The Company is controlled by the Parent Company, and is ultimate controlled by the PRC government, which also controls a significant portion of the productive assets and entities in the PRC. In accordance with IAS 24, stated-owned enterprises and their subsidiaries (“other state-owned companies”), other than the Parent Company and its fellow subsidiaries and associates, are also defined as related parties of the Company. - 44 - 30 Related party transactions (continued) (a) The Group had the following material related parties: I. Parent company and fellow subsidiaries Name of related parties Relationship with the Company Guangdong Yudean Group Co., Ltd. Parent company Guangdong Electric Material Supply Co., Ltd. Controlled by the parent company Maoming Thermal Power Plant Controlled by the parent company Shaoguan Electric Power Plant Controlled by the parent company Meizhou Jiacheng Power Co., Ltd. Controlled by the parent company Shaoguan Power Plant D Co., Ltd. Controlled by the parent company Shajiao Power Plant C Controlled by the parent company Shaoguan No.9 Generator Co., ltd. Controlled by the parent company II. Associates The associates of the Group are listed in Note 9 to the consolidated financial statements. III. Other state-owned companies For the purpose of related party transactions disclosure, the Group has identified, to the extent practicable, those corporate customers and suppliers which are state-owned enterprises based on their immediate ownership structure. It should be noted, however, that substantially all of the Group’s business activities are conducted in the PRC and the influence of the PRC government in the Chinese economy is pervasive. In this regard, the PRC government indirectly holds interests in many companies. Many state-owned enterprises have multi-layered corporate structure and the ownership structures change over time as a result of transfers and privatization programs. Some of these interests may, in themselves or when combined with other indirect interest, be controlling interests. Such interests, however, would not be known to the Group and are not reflected in the disclosures below. The Group believes that meaningful information relating to related party disclosures has been adequately disclosed. - 45 - 30 Related party transactions (continued) (b) Other than the information as disclosed elsewhere in the notes to the consolidated financial statements, the Group had carried out the following material related party transactions: (i) Sales to related parties 2005 2004 Rmb’000 Rmb’000 Sales of electricity to GPGC (Note 21) 8,263,245 7,110,887 Sales of stream to Maoming Thermal Power Plant (Note 21) 2,494 - Sales of stream to other state-owned companies (Note 21) 12,260 4,770 (ii) Rental income Yuejiang Electric received rental income from the following related parties: 2005 2004 Rmb’000 Rmb’000 Shaoguan Power Plant D Co., Ltd. 3,844 9,430 Shaoguan No. 9 Generator Co., Ltd 4,782 5,640 Shaoguan Electric Power Plant - 1,137 8,626 16,207 (iii) Rental expense Yuejiang Electric paid rental expense to the following related party: 2005 2004 Rmb’000 Rmb’000 Shaoguan Power Plant D Co., Ltd. 987 - (iv) Interest income 2005 2004 Rmb’000 Rmb’000 Zhongxinkeng (Note 30(c)) 307 358 Yudean Western (Note 30(c)) 2,945 2,136 - 46 - 30 Related party transactions (continued) (v) Purchases of coal, oil and other raw materials from related parties 2005 2004 Rmb’000 Rmb’000 Guangdong Electric Material Supply Co., Ltd. (a) 3,479,798 3,196,256 Shaoguan Electric Power Plant (b) 739,608 297,274 (a) The Company, Zhanjiang Electric and Maoming Ruineng purchase coal and oil from Guangdong Electric Materials Supply Co., Ltd. (b) Yuejiang Electric purchases coal, fuel and other materials from Shaoguan Electric Power Plant. (vi) Purchases and construction of property, plant and equipment During the year, the Group had the following transactions with other state-owned companies: 2005 2004 Rmb’000 Rmb’000 Purchases of electricity generation equipment 951,487 388,708 Construction of power plant and other equipment 1,028,453 144,092 Provision of power plant design services 59,941 22,923 (vii) Common expense allocation According to a mutual agreement, Yuejiang Electric and Shaoguan Electric Power Plant agreed to allocate certain administrative expenses based on the proportion of their respective generators’ capacity. For the year ended 31 December 2005, the expenses paid to Shaoguan Electric Power Plant amounted to approximately Rmb33,082,000 (2004: Rmb28,473,000). Shaojiao Power Plant A of the Company and Shajiao Power Plant C agreed to allocate certain common expenses according to an actual incurred basis or 50% basis. For the year ended 31 December 2005, the expense reimbursement received from Shaojiao Power Plant C amounted to approximately Rmb2,858,000 (2004: Rmb2,415,000). According to a mutual agreement, Yuejia Electric and Meizhou Jiacheng Electricity Co., Ltd. agreed to allocate certain administrative expenses based on the proportion of the number of employees and their respective generators’ capacity. For the year ended 31 December 2005, the expense reimbursement received from Meizhou Jiacheng Electricity Co., Ltd. amounted to approximately Rmb172,000 (2004: Rmb2,527,000). - 47 - 30 Related party transactions (continued) (viii) Generator management fee According to a written agreement, the management of No. 5 Generator in Maoming Ruineng was conducted by Maoming Thermal Power Plant. The management fee charged was agreed as a fixed sum of Rmb20,360,000 plus other variable charge calculated at Rmb5/MWH based on the on-grid electricity volume. For the year ended 31 December 2005, the total management fee charged amounted to approximately Rmb27,334,368 (2004: Rmb26,069,000). (ix) Interest expense 2005 2004 Rmb’000 Rmb’000 Interest expenses paid by the Company on entrusted loans granted by the Parent Company (Note 18) 13,377 - Interest expenses paid by Jinghai Electric on amount due to Parent Company (Note 30(c)) 53,149 - The Company borrowed an entrusted loan from Yudean amounting to Rmb700,000,000 in 2005. Interest rate for the entrusted loan was 5.022%. For the year ended 31 December 2005, the interest expense amounted to Rmb13,377,000 (2004: nil). (x) Directors’ remuneration In 2005, the total remuneration of directors was approximately Rmb1,170,000 (2004: Rmb1,180,000). (xi) Investments made by the Parent Company As of 31 December 2005, the Parent Company is one of the investors of the following subsidiaries and associates of the Group: Attributable equity Company interest owned by the Parent Company (%) Jinghai Electric 49% Yudean Western 35% Shenzhen Guang Qian 60% Huizhou LNG 33% Shibeishan 40% Red Gulf 40% Yudean Shipping 35% - 48 - 30 Related party transactions (continued) (c) As of 31 December 2005, the Group had the following material balances with related parties: 2005 2004 Rmb’000 Rmb’000 Due from related companies Included in loan and receivables – Non-current - Loan to Zhongxinkeng (a) 3,441 4,731 - Loan to Yudean Western (b) 12,118 32,419 15,559 37,150 Included in long-term prepayments for coal purchases - Prepayment to the Parent Company (d) 365,000 345,000 Included in loan and receivables – Current - Due from GPGC 1,357,537 1,069,747 - Due from subsidiaries of the Parent Company 3,210 32,662 - Due from associates 5,604 - - Loan to Yudean Western (b) 65,705 - - Due from other state-owned companies 3,093 - 1,435,149 1,102,409 Due to related companies Included in borrowing - entrusted loan from Parent Company (Note 18) 700,000 - Included in trade payable - Due to Parent Company 759,598 598,928 Included in other payables and accruals - Due to Parent Company (c) 1,126,189 - - Due to subsidiaries of Parent Company 60,652 70,806 - Due to other state-owned companies 126,270 28,836 1,313,111 99,642 (a) Loan to Zhongxinkeng is unsecured, bears interest at 7.56% (2004: 7.56%) per annum and will mature in 2008. (b) Loans to Yudean Western are unsecured, bears interest from 4.941% to 5.184% (2004: 4.941%) per annum and will mature from 2006 to 2008. (c) Amount due to Parent Company amounting to Rmb1,073,040,000 (2004: nil) by Jinghai Electric is unsecured, and bear interest at 5.76% per annum. During the year end 31 December 2005, interest expense paid by Jinghai Electric to the Parent Company amounted to Rmb53,149,000 (2004: Nil). The amount will be transferred to paid-in capital of Jinghai Electric after completion of capital vertification. (d) The long-term prepayments for coal purchases represented prepayments placed with the Parent Company to purchase and store fossil fuel on behalf of Shajiao Power Plant A of the Company, Zhanjiang Electric and Maoming Ruineng. The prepayments are unsecured, non-interest bearing and long-term in nature. The directors consider that the prepayment is necessary for maintaining the proper operation of Shajiao Power Plant A, Zhanjiang Electric and Maoming Ruineng. Except for loans disclosed as above, the balances with other related parties are unsecured, interest-free and have no fixed terms of repayment. - 49 - 31 Share Reform The Share Reform scheme of the Company has been approved at the shareholders meeting on 9 December 2005 and the related resolution was announced on 17 January 2006. Pursuant to the resolution, all shareholders of A Shares on 18 January 2005 would be compensated by 3.1 shares for each 10 A Shares held. On 19 January 2006, the transfer of shares has been completed. 32 Comparative Certain comparative figures have been reclassified to conform with changes in presentation in the current year. 12703/FZE - 50 - XI. Provision for impairment loss Current year reductions Opening Current year Ending Item Current year Other balance charges Total balance reversals reductions I. Provision for Bad 5,815,456.49 3,865,639.25 507,885.00 507,885.00 9,173,210.74 debts Including: Provision for Trade 5,348,732.90 1,174,073.54 485,119.66 485,119.66 6,037,686.78 receivables Provision for Other 466,723.59 2,691,565.71 22,765.34 22,765.34 3,135,523.96 receivables II. Impairment provision for short-term investments Including: Investment in stock Investment in other debentures III. Provision for declines in the value of inventories Including： Finished goods Raw materials IV. Impairment provision for long-term investments Including： long-term equity investments Long-term debt investments V. Impairment provision for fixed assets Including： Buildings Machinery and equipment - 51 - VI. Impairment provision for intangible assets Including： Patents Trademark VII. Impairment provision for -372,247.20 -372,247.20 construction in progress VIII. Impairment provision for entrusted loan IX. Total 5,443,209.29 3,865,639.25 507,885.00 507,885.00 8,800,963.54 - 52 - XI. List of Documents Available for Inspection 1.Financial statements bearing the seal and signature of legal representative, financial controller and the person in charge of the accounting organ. 2. Original of the Auditors Report carrying the seal of Certified Public Accountants and the personal signatures of the CPA. 3.All original copies of official documents and notices, which were disclosed in Securities Times, China Secunities, Shanghai Securities and Hong Kong Commercial Daily (Both English and Chinese version). 4.Annual reports in English and Chinese version. The documents mentioned above are kept in office, and are ready for reference at any time (except public holidays, Saturday and Sunday). The Board of Directors of Guangdong Electric Power Development Co., Ltd. Chairman of the board of directors: Pan Li March 29, 2006 - 53 -