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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION







Form 10-K/A


(Amendment No. 3)


(Mark One)


x


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2004


or


o


TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE SECURITIES EXCHANGE ACT OF 1934


For the transition period
from        to


Commission File Number 1-7176


El Paso CGP Company




|                                                                                                      |  |                                                   
|----------------------------------------------------------------------------------------------------- |  | --------------------------------------------------
|Delaware(State or Other Jurisdiction of
    Incorporation or Organization)                            |  | 74-1734212(I.R.S. Employer
    Identification No.)
|El Paso Building
    1001 Louisiana Street
    Houston, Texas(Address of Principal Executive Offices) |  | 77002(Zip Code)                                   

Telephone Number: (713) 420-2600


Securities registered pursuant to Section 12(b) of the
Act: None


Securities registered pursuant to Section 12(g) of the
Act: None


þ o


þ


o þ


State the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the
registrant: None


Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.




EL PASO CGP COMPANY MEETS THE CONDITIONS OF GENERAL
INSTRUCTION I(1)(a) AND (b) TO FORM 10-K AND IS, THEREFORE,
FILING THIS REPORT WITH A REDUCED DISCLOSURE FORMAT AS PERMITTED
BY SUCH INSTRUCTION.


Documents Incorporated by Reference: None










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EXPLANATORY NOTE






ii



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PART IV





ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES.


(a) The following documents are filed as part of this
report:






|                                                                                             |                                                                     |                                                                          |     |  |     | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------------------------------------------ | --- |  | --- | 
|                                                                                             |                                                                     | Page                                                                    
|                                                                                             |                                                                     |                                                                         
|Consolidated Statements of Income                                                            |                                                                     |                                                                          | 45  | 
|Consolidated Balance Sheets                                                                  |                                                                     |                                                                          | 46  | 
|Consolidated Statements of Cash Flows                                                        |                                                                     |                                                                          | 48  | 
|Consolidated Statements of
    Stockholders Equity                                          |                                                                     |                                                                          | 50  | 
|Consolidated Statements of Comprehensive
    Income                                          |                                                                     |                                                                          | 51  | 
|Notes to Consolidated Financial
    Statements                                               |                                                                     |                                                                          | 52  | 
|Report of Independent Registered Public
    Accounting Firm                                  |                                                                     |                                                                          | 94  | 
|                                                                                            
|2. Financial statement schedules and supplementary
    information required to be submitted.
|                                                                                            
|Schedule II  Valuation
    and Qualifying Accounts                                          |                                                                     |                                                                          | 106 | 
|Midland Cogeneration Venture Limited Partnership                                             |                                                                     |                                                                          |     | 
|                                                                                             | As of and for the years ended December 31, 2004, 2003,
    and 2002 |                                                                          |     |  |    
|                                                                                             |                                                                     | Report of Independent Registered Public
    Accounting Firm              |     |  | 111 | 
|                                                                                             |                                                                     | Consolidated Balance Sheets                                              |     |  | 113 | 
|                                                                                             |                                                                     | Consolidated Statements of Operations                                    |     |  | 114 | 
|                                                                                             |                                                                     | Consolidated Statements of Partners
    Equity                          |     |  | 115 | 
|                                                                                             |                                                                     | Consolidated Statements of Cash Flows                                    |     |  | 116 | 
|                                                                                             |                                                                     | Notes to Consolidated Financial
    Statements                           |     |  | 117 | 
|Javelina Company                                                                             |                                                                     |                                                                          |     | 
|                                                                                             | As of and for the years ended December 31, 2004, 2003,
    and 2002 |                                                                          |     |  |    
|                                                                                             |                                                                     | Report of Independent Registered Public
    Accounting Firm              |     |  | 134 | 
|                                                                                             |                                                                     | Balance Sheets                                                           |     |  | 135 | 
|                                                                                             |                                                                     | Statements of Operations                                                 |     |  | 136 | 
|                                                                                             |                                                                     | Statements of Partners Capital                                          |     |  | 137 | 
|                                                                                             |                                                                     | Statements of Cash Flows                                                 |     |  | 138 | 
|                                                                                             |                                                                     | Notes to Financial Statements                                            |     |  | 139 | 
|Great Lakes Gas Transmission Limited Partnership                                             |                                                                     |                                                                          |     | 
|                                                                                             | As of and for the years ended December 31, 2004, 2003,
    and 2002 |                                                                          |     |  |    
|                                                                                             |                                                                     | Report of Independent Registered Public
    Accounting Firm              |     |  | 144 | 
|                                                                                             |                                                                     | Consolidated Statements of Income and
    Partners Capital              |     |  | 145 | 
|                                                                                             |                                                                     | Consolidated Balance Sheets                                              |     |  | 146 | 
|                                                                                             |                                                                     | Consolidated Statements of Cash Flows                                    |     |  | 147 | 
|                                                                                             |                                                                     | Notes to Consolidated Financial
    Statements                           |     |  | 148 | 
|Khulna Power Company
    Limited(1)                                                          |                                                                     |                                                                          |     | 
|                                                                                             | As of and for the years ended December 31, 2004 and
    2003        |                                                                          |     |  |    
|                                                                                             |                                                                     | Auditors Report to the Shareholders
    of Khulna Power Company Limited |     |  | 152 | 
|                                                                                             |                                                                     | Balance Sheet                                                            |     |  | 153 | 
|                                                                                             |                                                                     | Income Statement                                                         |     |  | 154 | 
|                                                                                             |                                                                     | Cash Flow Statement                                                      |     |  | 155 | 
|                                                                                             |                                                                     | Statement of Changes in Equity                                           |     |  | 156 | 
|                                                                                             |                                                                     | Notes to the Financial Statements                                        |     |  | 157 | 




| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The financial statements of Khulna Power Company Limited
    (Khulna) are prepared in accordance with International Financial
    Reporting Standards (IFRS). In 2002, Khulna incurred $641,418 of
    legal and other expenses associated with certain debt financing.
    These costs were expensed in accordance with IFRS; however, such
    costs would have been capitalized under generally accepted
    accounting principles in the United States. There are no other
    material reconciling differences to prepare these statements in
    accordance with generally accepted accounting principles in the
    United States.

109



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|                                                   |                                                                                                                           |                                                                                   |  |  |     | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- |  |  | --- | 
|                                                   |                                                                                                                           | Page                                                                             
|                                                   |                                                                                                                           |                                                                                  
|                                                   | As of and for the year ended December 31, 2002
    (Unaudited)                                                            |                                                                                   |  |  |    
|                                                   |                                                                                                                           | Balance Sheet                                                                     |  |  | 166 | 
|                                                   |                                                                                                                           | Income Statement                                                                  |  |  | 167 | 
|                                                   |                                                                                                                           | Cash Flow Statement                                                               |  |  | 168 | 
|                                                   |                                                                                                                           | Statement of Stockholders Equity                                                 |  |  | 169 | 
|                                                   |                                                                                                                           | Notes to the Financial Statements                                                 |  |  | 170 | 
|Habibullah Coastal Power (Private) Company Limited |                                                                                                                           |                                                                                   |  | 
|                                                   | As of and for the years ended December 31, 2004 and 2003                                                                  |                                                                                   |  |  |    
|                                                   |                                                                                                                           | Report of Independent Auditors                                                    |  |  | 178 | 
|                                                   |                                                                                                                           | Balance Sheets                                                                    |  |  | 179 | 
|                                                   |                                                                                                                           | Statements of Operations                                                          |  |  | 180 | 
|                                                   |                                                                                                                           | Statements of Cash Flows                                                          |  |  | 181 | 
|                                                   |                                                                                                                           | Statements of Changes in Stockholders
    Equity                                 |  |  | 182 | 
|                                                   |                                                                                                                           | Notes to Financial Statements                                                     |  |  | 183 | 
|                                                   | As of and for the year ended December 31, 2002
    (Unaudited)                                                            |                                                                                   |  |  |    
|                                                   |                                                                                                                           | Balance Sheet                                                                     |  |  | 189 | 
|                                                   |                                                                                                                           | Statement of Operations                                                           |  |  | 190 | 
|                                                   |                                                                                                                           | Statement of Changes in Stockholders
    Equity                                  |  |  | 191 | 
|                                                   |                                                                                                                           | Statement of Cash Flows                                                           |  |  | 192 | 
|                                                   |                                                                                                                           | Notes to Financial Statements                                                     |  |  | 193 | 
|Empresa de Generación Eléctrica Fortuna, S.A.      |                                                                                                                           |                                                                                   |  | 
|                                                   | As of and for the years ended December 31, 2004 and 2003                                                                  |                                                                                   |  |  |    
|                                                   |                                                                                                                           | Report of Independent Auditors                                                    |  |  | 199 | 
|                                                   |                                                                                                                           | Balance Sheets                                                                    |  |  | 200 | 
|                                                   |                                                                                                                           | Statements of Income                                                              |  |  | 201 | 
|                                                   |                                                                                                                           | Statements of Changes in Stockholders
    Equity                                 |  |  | 202 | 
|                                                   |                                                                                                                           | Statements of Cash Flows                                                          |  |  | 203 | 
|                                                   |                                                                                                                           | Statements of Comprehensive Income and
    Accumulated Other Comprehensive Income |  |  | 204 | 
|                                                   |                                                                                                                           | Notes to Financial Statements                                                     |  |  | 205 | 
|                                                   | As of and for the year ended December 31, 2002 (Unaudited)                                                                |                                                                                   |  |  |    
|                                                   |                                                                                                                           | Balance Sheet                                                                     |  |  | 217 | 
|                                                   |                                                                                                                           | Statement of Income                                                               |  |  | 218 | 
|                                                   |                                                                                                                           | Statement of Changes in Stockholders
    Equity                                  |  |  | 219 | 
|                                                   |                                                                                                                           | Statement of Cash Flows                                                           |  |  | 220 | 
|                                                   |                                                                                                                           | Statement of Comprehensive Income and
    Accumulated Other Comprehensive Income  |  |  | 221 | 
|                                                   |                                                                                                                           | Notes to Financial Statements                                                     |  |  | 222 | 
|Saba Power Company (Private) Limited               |                                                                                                                           |                                                                                   |  | 
|                                                   | As of and for the years ended December 31, 2004 and 2003                                                                  |                                                                                   |  |  |    
|                                                   |                                                                                                                           | Report of Independent Auditors                                                    |  |  | 233 | 
|                                                   |                                                                                                                           | Balance Sheets                                                                    |  |  | 234 | 
|                                                   |                                                                                                                           | Statements of Operations                                                          |  |  | 235 | 
|                                                   |                                                                                                                           | Statements of Changes in Stockholders
    Equity                                 |  |  | 236 | 
|                                                   |                                                                                                                           | Statement of Cash Flows                                                           |  |  | 237 | 
|                                                   |                                                                                                                           | Notes to Financial Statements                                                     |  |  | 238 | 
|                                                   | As of and for the year ended June 30, 2002 and as of and
    for the six months ended December 31,
    2002(2)(Unaudited) |                                                                                   |  |  |    
|                                                   |                                                                                                                           | Balance Sheets                                                                    |  |  | 247 | 
|                                                   |                                                                                                                           | Statements of Operations                                                          |  |  | 248 | 
|                                                   |                                                                                                                           | Statements of Changes in Stockholders
    Equity                                 |  |  | 249 | 
|                                                   |                                                                                                                           | Statements of Cash Flows                                                          |  |  | 250 | 
|                                                   |                                                                                                                           | Notes to Financial Statements                                                     |  |  | 251 | 
|Certification of CEO pursuant to Section 302      
|Certification of CFO pursuant to Section 302      
|Certification of CEO pursuant to Section 906      
|Certification of CFO pursuant to Section 906      





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Schedules other than those listed above are omitted because they
    are not applicable.

|                |  |  |     |  |  | 
|--------------- |  |  | --- |  |  | 
|3. Exhibit list |  |  | 261 |  |  | 






|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(2) | During 2002, Saba Power Company (Private) Limited (Saba) changed
    its accounting year-end to December 31 from June 30.

110



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PRICEWATERHOUSECOOPERS LLP













Consolidated financial statements






Internal control over financial reporting


Internal Control  Integrated Framework Internal Control 
Integrated Framework


111



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112



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP





CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,


(In Thousands)


|                                              |                                                                                                    |                                     |           |            |           |   |           |           |           | 
|--------------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------------------- | --------- | ---------- | --------- | - | --------- | --------- | --------- | 
|                                              |                                                                                                    | 2004                                |           |            | 2003      |  
|                                              |                                                                                                    |                                     |           |            |           |  
|ASSETS                                       
|CURRENT ASSETS:                               |                                                                                                    |                                     |           |            |           |   |           |          
|                                              | Cash and cash equivalents                                                                          |                                     | $         | 125,781    |           |   | $         | 173,651   |          
|                                              | Accounts and notes receivable  related parties                                                    |                                     |           | 54,368     |           |   |           | 43,805    |          
|                                              | Accounts receivable                                                                                |                                     |           | 42,984     |           |   |           | 38,333    |          
|                                              | Gas inventory                                                                                      |                                     |           | 17,509     |           |   |           | 20,298    |          
|                                              | Unamortized property taxes                                                                         |                                     |           | 18,060     |           |   |           | 17,672    |          
|                                              | Derivative assets                                                                                  |                                     |           | 94,977     |           |   |           | 86,825    |          
|                                              | Broker margin accounts, and prepaid gas costs and expenses                                         |                                     |           | 13,147     |           |   |           | 8,101     |          
|                                              |                                                                                                    |                                     |           |            |           |  
|                                              |                                                                                                    | Total current assets                |           |            | 366,826   |   |           |           | 388,685   | 
|                                              |                                                                                                    |                                     |           |            |           |  
|PROPERTY, PLANT AND EQUIPMENT:                |                                                                                                    |                                     |           |            |           |   |           |          
|                                              | Property, plant and equipment                                                                      |                                     |           | 2,466,944  |           |   |           | 2,463,931 |          
|                                              | Pipeline                                                                                           |                                     |           | 21,432     |           |   |           | 21,432    |          
|                                              |                                                                                                    |                                     |           |            |           |  
|                                              |                                                                                                    | Total property, plant and equipment |           |            | 2,488,376 |   |           |           | 2,485,363 | 
|                                              | Accumulated depreciation                                                                           |                                     |           | (1,062,821 | )         |   |           | (991,556  | )        
|                                              |                                                                                                    |                                     |           |            |           |  
|                                              |                                                                                                    | Net property, plant and equipment   |           |            | 1,425,555 |   |           |           | 1,493,807 | 
|                                              |                                                                                                    |                                     |           |            |           |  
|OTHER ASSETS:                                 |                                                                                                    |                                     |           |            |           |   |           |          
|                                              | Restricted investment securities held-to-maturity                                                  |                                     |           | 139,410    |           |   |           | 139,755   |          
|                                              | Derivative assets non-current                                                                      |                                     |           | 24,337     |           |   |           | 18,100    |          
|                                              | Deferred financing costs, net of accumulated amortization of
    $18,498 and $17,285, respectively |                                     |           | 6,467      |           |   |           | 7,680     |          
|                                              | Prepaid gas costs, spare parts deposit, materials and supplies                                     |                                     |           | 17,782     |           |   |           | 21,623    |          
|                                              |                                                                                                    |                                     |           |            |           |  
|                                              |                                                                                                    | Total other assets                  |           |            | 187,996   |   |           |           | 187,158   | 
|                                              |                                                                                                    |                                     |           |            |           |  
|TOTAL ASSETS                                  |                                                                                                    | $                                   | 1,980,377 |            |           | $ | 2,069,650 |          
|                                              |                                                                                                    |                                     |           |            |           |  
|                                             
|LIABILITIES AND PARTNERS EQUITY             
|CURRENT LIABILITIES:                          |                                                                                                    |                                     |           |            |           |   |           |          
|                                              | Accounts payable and accrued liabilities                                                           |                                     | $         | 82,693     |           |   | $         | 57,368    |          
|                                              | Gas supplier funds on deposit                                                                      |                                     |           | 19,613     |           |   |           | 4,517     |          
|                                              | Interest payable                                                                                   |                                     |           | 47,738     |           |   |           | 53,009    |          
|                                              | Current portion of long-term debt                                                                  |                                     |           | 76,548     |           |   |           | 134,576   |          
|                                              |                                                                                                    |                                     |           |            |           |  
|                                              |                                                                                                    | Total current liabilities           |           |            | 226,592   |   |           |           | 249,470   | 
|                                              |                                                                                                    |                                     |           |            |           |  
|NON-CURRENT LIABILITIES:                      |                                                                                                    |                                     |           |            |           |   |           |          
|                                              | Long-term debt                                                                                     |                                     |           | 942,097    |           |   |           | 1,018,645 |          
|                                              | Other                                                                                              |                                     |           | 1,712      |           |   |           | 2,459     |          
|                                              |                                                                                                    |                                     |           |            |           |  
|                                              |                                                                                                    | Total non-current liabilities       |           |            | 943,809   |   |           |           | 1,021,104 | 
|                                              |                                                                                                    |                                     |           |            |           |  
|COMMITMENTS AND CONTINGENCIES (Notes 7 and 8) |                                                                                                    |                                     |           |            |           |   |           |          
|TOTAL LIABILITIES                             |                                                                                                    |                                     | 1,170,401 |            |           |   | 1,270,574 |          
|                                              |                                                                                                    |                                     |           |            |           |  
|PARTNERS EQUITY                              |                                                                                                    |                                     | 809,976   |            |           |   | 799,076   |          
|                                              |                                                                                                    |                                     |           |            |           |  
|TOTAL LIABILITIES AND PARTNERS EQUITY        |                                                                                                    | $                                   | 1,980,377 |            |           | $ | 2,069,650 |          
|                                              |                                                                                                    |                                     |           |            |           |  



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP





CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE YEARS ENDED DECEMBER 31,


(In Thousands)


|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |          |   |         |          |          |  
|------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | --------------------------------- | ------- | -------- | ------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                                                                                    |                                     | 2004                              |         |          | 2003    |   |         | 2002     |         
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|OPERATING REVENUES:                                                                                                 |                                     |                                   |         |          |         |   |         |          |          |   |         |         
|                                                                                                                    | Capacity                            |                                   | $       | 405,415  |         |   | $       | 404,681  |          |   | $       | 404,713  |         
|                                                                                                                    | Electric                            |                                   |         | 225,154  |         |   |         | 162,093  |          |   |         | 177,569  |         
|                                                                                                                    | Steam                               |                                   |         | 19,090   |         |   |         | 17,638   |          |   |         | 14,537   |         
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|                                                                                                                    |                                     | Total operating revenues          |         |          | 649,659 |   |         |          | 584,412  |   |         |          | 596,819  |  
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|OPERATING EXPENSES:                                                                                                 |                                     |                                   |         |          |         |   |         |          |          |   |         |         
|                                                                                                                    | Fuel costs                          |                                   |         | 413,061  |         |   |         | 254,988  |          |   |         | 255,142  |         
|                                                                                                                    | Depreciation                        |                                   |         | 88,712   |         |   |         | 89,437   |          |   |         | 88,963   |         
|                                                                                                                    | Operations                          |                                   |         | 18,769   |         |   |         | 16,943   |          |   |         | 16,642   |         
|                                                                                                                    | Maintenance                         |                                   |         | 13,508   |         |   |         | 15,107   |          |   |         | 12,666   |         
|                                                                                                                    | Property and single business taxes  |                                   |         | 28,834   |         |   |         | 30,040   |          |   |         | 27,087   |         
|                                                                                                                    | Administrative, selling and general |                                   |         | 11,236   |         |   |         | 9,959    |          |   |         | 8,195    |         
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|                                                                                                                    |                                     | Total operating expenses          |         |          | 574,120 |   |         |          | 416,474  |   |         |          | 408,695  |  
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|OPERATING INCOME                                                                                                    |                                     |                                   | 75,539  |          |         |   | 167,938 |          |          |   | 188,124 |         
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|OTHER INCOME (EXPENSE):                                                                                             |                                     |                                   |         |          |         |   |         |          |          |   |         |         
|                                                                                                                    | Interest and other income           |                                   |         | 5,460    |         |   |         | 5,100    |          |   |         | 5,555    |         
|                                                                                                                    | Interest expense                    |                                   |         | (104,618 | )       |   |         | (113,247 | )        |   |         | (119,783 | )       
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|                                                                                                                    |                                     | Total other income (expense), net |         |          | (99,158 | ) |         |          | (108,147 | ) |         |          | (114,228 | )
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|NET INCOME (LOSS) BEFORE CUMULATIVE
    EFFECT OF ACCOUNTING CHANGE                                                 |                                     |                                   | (23,619 | )        |         |   | 59,791  |          |          |   | 73,896  |         
|Cumulative effect of change in method of accounting for
    derivative option contracts (to April 1, 2002) (Note 2) |                                     |                                   |        |          |         |   |        |          |          |   | 58,131  |         
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         
|NET INCOME (LOSS)                                                                                                   |                                     | $                                 | (23,619 | )        |         | $ | 59,791  |          |          | $ | 132,027 |         
|                                                                                                                    |                                     |                                   |         |          |         |   |         |          |         



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP





CONSOLIDATED STATEMENTS OF PARTNERS EQUITY


FOR THE YEARS ENDED DECEMBER 31,


(In Thousands)


|                           |                            |                                                                 |         |         |          |   |         |        |        |   |         |         |         |  
|-------------------------- | -------------------------- | --------------------------------------------------------------- | ------- | ------- | -------- | - | ------- | ------ | ------ | - | ------- | ------- | ------- | -
|                           |                            | General                                                         |         |         | Limited  |   |         |       
|                           |                            | Partners                                                        |         |         | Partners |   |         | Total  |       
|                           |                            |                                                                 |         |         |          |   |         |        |       
|BALANCE, DECEMBER 31, 2001 |                            | $                                                               | 468,972 |         |          | $ | 82,740  |        |        | $ | 551,712 |        
|Comprehensive Income       |                            |                                                                 |         |         |          |   |         |        |        |   |         |        
|                           | Net Income                 |                                                                 |         | 114,947 |          |   |         | 17,080 |        |   |         | 132,027 |        
|                           | Other Comprehensive Income |                                                                 |         |         |          |   |         |        |        |   |         |         |        
|                           |                            | Unrealized gain on hedging activities since beginning of period |         |         | 33,311   |   |         |        | 4,950  |   |         |         | 38,261  |  
|                           |                            | Reclassification adjustments recognized in net income above     |         |         | 10,717   |   |         |        | 1,593  |   |         |         | 12,310  |  
|                           |                            |                                                                 |         |         |          |   |         |        |       
|                           |                            | Total other comprehensive income                                |         |         | 44,028   |   |         |        | 6,543  |   |         |         | 50,571  |  
|                           |                            |                                                                 |         |         |          |   |         |        |       
|                           | Total Comprehensive Income |                                                                 |         | 158,975 |          |   |         | 23,623 |        |   |         | 182,598 |        
|                           |                            |                                                                 |         |         |          |   |         |        |       
|BALANCE, DECEMBER 31, 2002 |                            | $                                                               | 627,947 |         |          | $ | 106,363 |        |        | $ | 734,310 |        
|Comprehensive Income       |                            |                                                                 |         |         |          |   |         |        |        |   |         |        
|                           | Net Income                 |                                                                 |         | 52,056  |          |   |         | 7,735  |        |   |         | 59,791  |        
|                           | Other Comprehensive Income |                                                                 |         |         |          |   |         |        |        |   |         |         |        
|                           |                            | Unrealized gain on hedging activities since beginning of period |         |         | 34,484   |   |         |        | 5,125  |   |         |         | 39,609  |  
|                           |                            | Reclassification adjustments recognized in net income above     |         |         | (30,153  | ) |         |        | (4,481 | ) |         |         | (34,634 | )
|                           |                            |                                                                 |         |         |          |   |         |        |       
|                           |                            | Total other comprehensive income                                |         |         | 4,331    |   |         |        | 644    |   |         |         | 4,975   |  
|                           |                            |                                                                 |         |         |          |   |         |        |       
|                           | Total Comprehensive Income |                                                                 |         | 56,387  |          |   |         | 8,379  |        |   |         | 64,766  |        
|                           |                            |                                                                 |         |         |          |   |         |        |       
|BALANCE, DECEMBER 31, 2003 |                            | $                                                               | 684,334 |         |          | $ | 114,742 |        |        | $ | 799,076 |        
|Comprehensive Income       |                            |                                                                 |         |         |          |   |         |        |        |   |         |        
|                           | Net Loss                   |                                                                 |         | (20,563 | )        |   |         | (3,056 | )      |   |         | (23,619 | )      
|                           | Other Comprehensive Income |                                                                 |         |         |          |   |         |        |        |   |         |         |        
|                           |                            | Unrealized gain on hedging activities since beginning of period |         |         | 62,292   |   |         |        | 9,256  |   |         |         | 71,548  |  
|                           |                            | Reclassification adjustments recognized in net income above     |         |         | (32,239  | ) |         |        | (4,790 | ) |         |         | (37,029 | )
|                           |                            |                                                                 |         |         |          |   |         |        |       
|                           |                            | Total other comprehensive income                                |         |         | 30,053   |   |         |        | 4,466  |   |         |         | 34,519  |  
|                           |                            |                                                                 |         |         |          |   |         |        |       
|                           | Total Comprehensive Income |                                                                 |         | 9,490   |          |   |         | 1,410  |        |   |         | 10,900  |        
|                           |                            |                                                                 |         |         |          |   |         |        |       
|BALANCE, DECEMBER 31, 2004 |                            | $                                                               | 693,824 |         |          | $ | 116,152 |        |        | $ | 809,976 |        
|                           |                            |                                                                 |         |         |          |   |         |        |       



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP





CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE YEARS ENDED DECEMBER 31,


(In Thousands)


|                                                     |                                                                                      |                                           |         |          |          |   |         |          |         |   |         |          |          |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------- | ------- | -------- | -------- | - | ------- | -------- | ------- | - | ------- | -------- | -------- | -
|                                                     |                                                                                      | 2004                                      |         |          | 2003     |   |         | 2002     |        
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                      |                                           |         |          |          |   |         |          |         |   |         |         
|                                                     | Net income (loss)                                                                    |                                           | $       | (23,619  | )        |   | $       | 59,791   |         |   | $       | 132,027  |         
|                                                     | Adjustments to reconcile net income to net cash provided by
    operating activities |                                           |         |          |          |   |         |          |         |   |         |          |         
|                                                     | Depreciation and amortization                                                        |                                           |         | 89,925   |          |   |         | 90,792   |         |   |         | 90,430   |         
|                                                     | Cumulative effect of change in accounting principle                                  |                                           |         |         |          |   |         |         |         |   |         | (58,131  | )       
|                                                     | (Increase) decrease in accounts receivable                                           |                                           |         | (15,214  | )        |   |         | (1,211   | )       |   |         | 48,343   |         
|                                                     | (Increase) decrease in gas inventory                                                 |                                           |         | 2,789    |          |   |         | (732     | )       |   |         | 133      |         
|                                                     | (Increase) decrease in unamortized property taxes                                    |                                           |         | (388     | )        |   |         | 683      |         |   |         | (1,730   | )       
|                                                     | (Increase) decrease in broker margin accounts and prepaid
    expenses               |                                           |         | (5,046   | )        |   |         | (4,778   | )       |   |         | 31,049   |         
|                                                     | (Increase) decrease in derivative assets                                             |                                           |         | 20,130   |          |   |         | 4,906    |         |   |         | (20,444  | )       
|                                                     | (Increase) decrease in prepaid gas costs, materials and supplies                     |                                           |         | 3,841    |          |   |         | (8,704   | )       |   |         | 1,376    |         
|                                                     | Increase (decrease) in accounts payable and accrued liabilities                      |                                           |         | 25,775   |          |   |         | (712     | )       |   |         | 8,774    |         
|                                                     | Increase in gas supplier funds on deposit                                            |                                           |         | 15,096   |          |   |         | 4,517    |         |   |         |         |         
|                                                     | Decrease in interest payable                                                         |                                           |         | (5,271   | )        |   |         | (3,377   | )       |   |         | (3,948   | )       
|                                                     | Increase (decrease) in other non-current liabilities                                 |                                           |         | (1,197   | )        |   |         | 311      |         |   |         | (24      | )       
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        
|                                                     |                                                                                      | Net cash provided by operating activities |         |          | 106,821  |   |         |          | 141,486 |   |         |          | 227,855  |  
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                      |                                           |         |          |          |   |         |          |         |   |         |         
|                                                     | Plant modifications and purchases of plant equipment                                 |                                           |         | (20,460  | )        |   |         | (33,278  | )       |   |         | (29,529  | )       
|                                                     | Maturity of restricted investment securities held-to-maturity                        |                                           |         | 674,553  |          |   |         | 601,225  |         |   |         | 377,192  |         
|                                                     | Purchase of restricted investment securities held-to-maturity                        |                                           |         | (674,208 | )        |   |         | (602,279 | )       |   |         | (374,426 | )       
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        
|                                                     |                                                                                      | Net cash used in investing activities     |         |          | (20,115  | ) |         |          | (34,332 | ) |         |          | (26,763  | )
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                      |                                           |         |          |          |   |         |          |         |   |         |         
|                                                     | Repayment of financing obligation                                                    |                                           |         | (134,576 | )        |   |         | (93,928  | )       |   |         | (182,084 | )       
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        
|                                                     |                                                                                      | Net cash used in financing activities     |         |          | (134,576 | ) |         |          | (93,928 | ) |         |          | (182,084 | )
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                      |                                           | (47,870 | )        |          |   | 13,226  |          |         |   | 19,008  |         
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                      |                                           | 173,651 |          |          |   | 160,425 |          |         |   | 141,417 |         
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        
|CASH AND EQUIVALENTS AT END OF PERIOD                |                                                                                      | $                                         | 125,781 |          |          | $ | 173,651 |          |         | $ | 160,425 |         
|                                                     |                                                                                      |                                           |         |          |          |   |         |          |        



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|    |                                     
|--- | ------------------------------------
|(1) | The Partnership and Associated Risks













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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|    |                                
|--- | -------------------------------
|(2) | Significant Accounting Policies



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                            
| | ---------------------------
| | Principles of Consolidation





| |                    
| | -------------------
| | Revenue Recognition





| |           
| | ----------
| | Fuel Costs







| |                    
| | -------------------
| | Accounts Receivable



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |          
| | ---------
| | Inventory





| |                       
| | ----------------------
| | Materials and Supplies





| |             
| | ------------
| | Depreciation





| |                   
| | ------------------
| | Federal Income Tax





| |                        
| | -----------------------
| | Statement of Cash Flows





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |                                                                 
| | ----------------------------------------------------------------
| | Accounting for Derivative Instruments and Hedging
    Activities



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                          
| | -------------------------
| | Electric Sales Agreements





| |                             
| | ----------------------------
| | Natural Gas Supply Contracts







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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                       
| | --------------------------------------
| | Natural Gas Supply Futures and Options











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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                        
| | -----------------------
| | New Accounting Standard





|    |                                                  
|--- | -------------------------------------------------
|(3) | Restricted Investment Securities Held-to-Maturity



|                                                                                   |  |      |         |  |      |   |         | 
|---------------------------------------------------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|                                                                                   |  | 2004 |         |  | 2003 |  
|                                                                                   |  |      |         |  |      |  
|Funds restricted for rental payments pursuant to the Overall
    Lease Transaction |  | $    | 138,150 |  |      | $ | 137,296 | 
|Funds restricted for management non-qualified plans                                |  |      | 1,260   |  |      |   | 2,459   | 
|                                                                                   |  |      |         |  |      |  
|Total                                                                              |  | $    | 139,410 |  |      | $ | 139,755 | 
|                                                                                   |  |      |         |  |      |  



|    |                                         
|--- | ----------------------------------------
|(4) | Accounts Payable and Accrued Liabilities



|                                   |                 |      |        |        |      |   |        |        | 
|---------------------------------- | --------------- | ---- | ------ | ------ | ---- | - | ------ | ------ | 
|                                   |                 | 2004 |        |        | 2003 |  
|                                   |                 |      |        |        |      |  
|Accounts payable                   |                 |      |        |        |      |   |        |       
|                                   | Related parties |      | $      | 12,772 |      |   | $      | 7,386  | 
|                                   | Trade creditors |      |        | 53,476 |      |   |        | 34,786 | 
|Property and single business taxes |                 |      | 11,833 |        |      |   | 12,548 |       
|Other                              |                 |      | 4,612  |        |      |   | 2,648  |       
|                                   |                 |      |        |        |      |  
|Total                              |                 | $    | 82,693 |        |      | $ | 57,368 |       
|                                   |                 |      |        |        |      |  



|    |                              
|--- | -----------------------------
|(5) | Gas Supplier Funds on Deposit



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |               
|--- | --------------
|(6) | Long-Term Debt



|                                                                                                                                                                    |  |      |           |   |      |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                                                                                                                    |  | 2004 |           |   | 2003 |  
|                                                                                                                                                                    |  |      |           |   |      |  
|Financing obligation, maturing through 2015, payable in
    semi-annual installments of principal and interest,
    collateralized by property, plant and equipment |  | $    | 1,018,645 |   |      | $ | 1,153,221 |  
|Less current portion                                                                                                                                                |  |      | (76,548   | ) |      |   | (134,576  | )
|                                                                                                                                                                    |  |      |           |   |      |  
|Total long-term debt                                                                                                                                                |  | $    | 942,097   |   |      | $ | 1,018,645 |  
|                                                                                                                                                                    |  |      |           |   |      |  



| |                     
| | --------------------
| | Financing Obligation











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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|     |  |           |         |  |          |   |         |       |  |   |         | 
|---- |  | --------- | ------- |  | -------- | - | ------- | ----- |  | - | ------- | 
|     |  | Principal |         |  | Interest |   |         | Total | 
|     |  |           |         |  |          |   |         |       | 
|2005 |  | $         | 76,548  |  |          | $ | 97,835  |       |  | $ | 174,383 | 
|2006 |  |           | 63,459  |  |          |   | 92,515  |       |  |   | 155,974 | 
|2007 |  |           | 62,916  |  |          |   | 87,988  |       |  |   | 150,904 | 
|2008 |  |           | 67,753  |  |          |   | 83,163  |       |  |   | 150,916 | 
|2009 |  |           | 70,335  |  |          |   | 76,755  |       |  |   | 147,090 | 
|     |  |           |         |  |          |   |         |       | 
|     |  | $         | 341,011 |  |          | $ | 438,256 |       |  | $ | 779,267 | 
|     |  |           |         |  |          |   |         |       | 

Revolving Credit Agreement




Intercreditor Agreement




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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                 
|--- | --------------------------------
|(7) | Commitments and Other Agreements



Power Purchase Agreement




Steam and Electric Power
Agreement






Steam Purchase Agreement


1 3


Gas Supply Agreements




Gas Transportation
Agreements




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##### Table of Contents



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Gas Turbine Service
Agreements




Steam Turbine Service
Agreement




Site Lease






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##### Table of Contents



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |              
|--- | -------------
|(8) | Contingencies



| |               
| | --------------
| | Property Taxes





| |               
| | --------------
| | NOx Allowances





| |                     
| | --------------------
| | Environmental Issues





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##### Table of Contents



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                            
|--- | ---------------------------
|(9) | Voluntary Severance Program





|     |                    
|---- | -------------------
|(10) | Retirement Benefits



| |                                 
| | --------------------------------
| | Postretirement Health Care Plans





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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                               |  |      |          |   |      |   |         |  
|---------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                               |  | 2004 |          |   | 2003 |  
|                                               |  |      |          |   |      |  
|Change in benefit obligation:                  |  |      |          |   |      |   |         |  
|Benefit obligation at beginning of year        |  | $    | 3,276.0  |   |      | $ | 2,741.9 |  
|Service cost                                   |  |      | 232.1    |   |      |   | 212.5   |  
|Interest cost                                  |  |      | 174.8    |   |      |   | 178.2   |  
|Actuarial gain (loss)                          |  |      | 1,298.0  |   |      |   | 147.4   |  
|Benefits paid during year                      |  |      | (8.3     | ) |      |   | (4.0    | )
|                                               |  |      |          |   |      |  
|Benefit obligation at end of year              |  |      | 4,972.6  |   |      |   | 3,276.0 |  
|                                               |  |      |          |   |      |  
|Change in Plan assets:                         |  |      |          |   |      |   |         |  
|Fair value of Plan assets at beginning of year |  |      | 2,826.8  |   |      |   | 2,045.8 |  
|Actual return on Plan assets                   |  |      | 292.7    |   |      |   | 527.5   |  
|Employer contribution                          |  |      | 206.5    |   |      |   | 257.5   |  
|Benefits paid during year                      |  |      | (8.3     | ) |      |   | (4.0    | )
|                                               |  |      |          |   |      |  
|Fair value of Plan assets at end of year       |  |      | 3,317.7  |   |      |   | 2,826.8 |  
|                                               |  |      |          |   |      |  
|Unfunded (funded) status                       |  |      | 1,654.9  |   |      |   | 449.2   |  
|Unrecognized prior service cost                |  |      | (155.9   | ) |      |   | (170.3  | )
|Unrecognized net gain (loss)                   |  |      | (1,499.0 | ) |      |   | (278.9  | )
|                                               |  |      |          |   |      |  
|Accrued benefit cost                           |  | $    |         |   |      | $ |        |  
|                                               |  |      |          |   |      |  



|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                |  | 2004 |        |   | 2003 |   |        | 2002 | 
|                                                |  |      |        |   |      |   |        |      | 
|Components of net periodic benefit cost:        |  |      |        |   |      |   |        |      |  |   |        |  
|Service cost                                    |  | $    | 232.1  |   |      | $ | 212.5  |      |  | $ | 197.3  |  
|Interest cost                                   |  |      | 174.8  |   |      |   | 178.2  |      |  |   | 188.7  |  
|Expected return on Plan assets                  |  |      | (216.1 | ) |      |   | (163.7 | )    |  |   | (167.0 | )
|Amortization of unrecognized net (gain) or loss |  |      | 15.7   |   |      |   | 30.5   |      |  |   | 14.3   |  
|                                                |  |      |        |   |      |   |        |      | 
|Net periodic benefit cost                       |  | $    | 206.5  |   |      | $ | 257.5  |      |  | $ | 233.3  |  
|                                                |  |      |        |   |      |   |        |      | 



|                                                        |  |               |       |  |              |   |       | 
|------------------------------------------------------- |  | ------------- | ----- |  | ------------ | - | ----- | 
|                                                        |  | 1-Percentage- |       |  | 1-Percentage |  
|                                                        |  | Point         |       |  | Point        |  
|                                                        |  | Increase      |       |  | Decrease     |  
|                                                        |  |               |       |  |              |  
|Effect on total of service and interest cost components |  | $             | 51.6  |  |              | $ | 44.7  | 
|Effect on postretirement benefit obligation             |  | $             | 514.8 |  |              | $ | 447.1 | 

130



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##### Table of Contents



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                        |                      |      |       |       |      |  |       |       |  |  |       |       | 
|--------------------------------------- | -------------------- | ---- | ----- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                        |                      | 2004 |       |       | 2003 |  |       | 2002  | 
|                                        |                      |      |       |       |      |  |       |       | 
|Discount rate                           |                      |      | 5.75% |       |      |  | 6.00% |       |  |  | 6.75% |      
|Long-term rate of return on Plan assets |                      |      | 8.00% |       |      |  | 8.00% |       |  |  | 8.00% |      
|Inflation benefit amount                |                      |      |       |       |      |  |       |       |  |  |       |      
|                                        | 1998 through 2004    |      |       | 0.00% |      |  |       | 0.00% |  |  |       | 0.00% | 
|                                        | 2005 and later years |      |       | 5.00% |      |  |       | 4.00% |  |  |       | 4.00% | 



Plan Assets.






|                          |       |      |    |     |      |  |    |     |  
|------------------------- | ----- | ---- | -- | --- | ---- |  | -- | --- | -
|                          |       | 2004 |    |     | 2003 | 
|                          |       |      |    |     |      | 
|Asset Category:           |       |      |    |     |      |  |    |    
|Cash and cash equivalents |       |      | 1  | %   |      |  | 11 | %  
|Fixed income              |       |      | 19 | %   |      |  | 17 | %  
|Equity securities         |       |      | 80 | %   |      |  | 72 | %  
|                          |       |      |    |     |      | 
|                          | Total |      |    | 100 | %    |  |    | 100 | %
|                          |       |      |    |     |      | 

Contributions.


Retirement and Savings Plans




Supplemental Retirement
Benefits






|     |                                                
|---- | -----------------------------------------------
|(11) | Partners Equity and Related Party Transactions



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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |         |        |  |   |         |        |  | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------- | --- | -------- |  | ------ | ----------------------------------------- | ---- | --------------------------------------- | -------------------------------------- | - | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | 
|Beneficial Owner, Equity Partner,           |                                                                                                               | Equity                       |         |     |          |  |        |                                           |      |                                         |                                        |   |        
|Type of Partner and Nature of Related Party |                                                                                                               | Interest                     |         |     | Interest |  |        | Related Party Transactions and Agreements |      | 2004                                    |                                        |   | 2003    |        |  | 2002 |        
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |        
|CMS Energy Company                          |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |         |        |  |   |         |       
|CMS Midland, Inc.                           |                                                                                                               | $                            | 396,888 |     |          |  | 49.0   | %                                         |      | Power purchase agreements               |                                        | $ | 601,535 |        |  | $    | 513,774 |        |  | $ | 557,149 |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |        
|                                            | General Partner; wholly-owned                                                                                 |                              |         |     |          |  |        |                                           |      |                                         | Purchases under gas transportation     |   |         |        |  |      |         |        |  |   |         |        | 
|                                            | subsidiary of Consumers Energy                                                                                |                              |         |     |          |  |        |                                           |      |                                         | agreements                             |   |         | 9,349  |  |      |         | 14,294 |  |   |         | 23,552 | 
|                                            | Company                                                                                                       |                              |         |     |          |  |        |                                           |      |                                         | Purchases under spot gas agreements    |   |         |       |  |      |         | 663    |  |   |         | 3,631  | 
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         | Purchases under gas supply agreements  |   |         |       |  |      |         | 2,330  |  |   |         | 11,306 | 
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Gas storage agreement                   |                                        |   | 2,563   |        |  |      | 2,563   |        |  |   | 2,563   |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Land lease/easement agreements          |                                        |   | 600     |        |  |      | 600     |        |  |   | 600     |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Accounts receivable                     |                                        |   | 50,364  |        |  |      | 40,373  |        |  |   | 44,289  |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Accounts payable                        |                                        |   | 1,031   |        |  |      | 1,025   |        |  |   | 3,502   |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Sales under spot gas agreements         |                                        |   |        |        |  |      | 3,260   |        |  |   | 1,084   |       
|El Paso Corporation                         |                                                                                                               | $                            | 141,397 |     |          |  | 18.1   | %                                         |      |                                         |                                        |   |         |        |  |      |         |        |  |   |         |       
|Source Midland Limited Partnership          |                                                                                                               |                              |         |     |          |  |        |                                           |      | Purchase under gas transportation       |                                        |   |         |        |  |      |         |        |  |   |         |       
|                                            | (SMLP)                                                                                                      |                              |         |     |          |  |        |                                           |      |                                         | agreements                             |   |         | 12,334 |  |      |         | 13,023 |  |   |         | 12,463 | 
|                                            | General Partner; owned by                                                                                     |                              |         |     |          |  |        |                                           |      |                                         | Purchases under spot gas agreement     |   |         |       |  |      |         | 610    |  |   |         | 15,655 | 
|                                            | subsidiaries of El Paso Corporation                                                                           |                              |         |     |          |  |        |                                           |      |                                         | Purchases under gas supply agreement   |   |         | 70,000 |  |      |         | 54,308 |  |   |         | 47,136 | 
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Gas agency agreement                    |                                        |   | 264     |        |  |      | 238     |        |  |   | 365     |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Deferred reservation charges under gas  |                                        |   |         |        |  |      |         |        |  |   |         |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | purchase agreement                      |                                        |   | 3,152   |        |  |      | 4,728   |        |  |   |        |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Accounts receivable                     |                                        |   |        |        |  |      |        |        |  |   | 523     |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Accounts payable                        |                                        |   | 10,997  |        |  |      | 5,751   |        |  |   | 7,706   |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Sales under spot gas agreements         |                                        |   |        |        |  |      | 3,474   |        |  |   | 14,007  |       
|El Paso Midland, Inc. (El Paso Midland)   |                                                                                                               |                              | 84,838  |     |          |  | 10.9   |                                           |      | See related party activity listed under |                                        |   |         |        |  |      |         |        |  |   |         |       
|                                            | General Partner; wholly-owned subsidiary of El Paso
    Corporation                                           |                              |         |     |          |  |        |                                           |      |                                         | SMLP.                                  |   |         |        |  |      |         |        |  |   |         |        | 
|MEI Limited Partnership (MEI)             |                                                                                                               |                              |         |     |          |  |        |                                           |      | See related party activity listed under |                                        |   |         |        |  |      |         |        |  |   |         |       
|                                            | A General and Limited Partner; 50% interest owned by
    El Paso Midland, Inc. and 50% interest owned by SMLP |                              |         |     |          |  |        |                                           |      |                                         | SMLP.                                  |   |         |        |  |      |         |        |  |   |         |        | 
|                                            |                                                                                                               | General Partnership Interest |         |     | 70,701   |  |        |                                           | 9.1  |                                         |                                        |   |         |        |  |      |         |        |  |   |         |        |  | 
|                                            |                                                                                                               | Limited Partnership Interest |         |     | 7,068    |  |        |                                           | .9   |                                         |                                        |   |         |        |  |      |         |        |  |   |         |        |  | 
|Micogen Limited Partnership (MLP)         |                                                                                                               |                              | 35,348  |     |          |  | 4.5    |                                           |      | See related party activity listed under |                                        |   |         |        |  |      |         |        |  |   |         |       
|                                            | Limited Partner, owned subsidiaries of El Paso Corporation                                                    |                              |         |     |          |  |        |                                           |      |                                         | SMLP.                                  |   |         |        |  |      |         |        |  |   |         |        | 
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |        
|                                            |                                                                                                               | Total El Paso Corporation    |         | $   | 339,352  |  |        |                                           | 43.5 | %                                       |                                        |   |         |        |  |      |         |        |  |   |         |        |  | 
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |        
|The Dow Chemical Company                    |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |         |        |  |   |         |       
|The Dow Chemical Company                    |                                                                                                               | $                            | 73,735  |     |          |  | 7.5    | %                                         |      | Steam and electric power agreement      |                                        |   | 39,055  |        |  |      | 36,207  |        |  |   | 29,385  |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |        
|                                            | Limited Partner                                                                                               |                              |         |     |          |  |        |                                           |      |                                         | Steam purchase agreement  Dow Corning |   |         |        |  |      |         |        |  |   |         |        | 
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         | Corp (affiliate)                       |   |         | 4,289  |  |      |         | 4,017  |  |   |         | 3,746  | 
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Purchases under demineralized water     |                                        |   |         |        |  |      |         |        |  |   |         |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | supply agreement                        |                                        |   | 8,142   |        |  |      | 6,396   |        |  |   | 6,605   |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Accounts receivable                     |                                        |   | 4,003   |        |  |      | 3,431   |        |  |   | 3,635   |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Accounts payable                        |                                        |   | 744     |        |  |      | 610     |        |  |   | 1,016   |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Standby and backup fees                 |                                        |   | 766     |        |  |      | 731     |        |  |   | 734     |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      | Sales of gas under tolling agreement    |                                        |   |        |        |  |      |        |        |  |   | 6,442   |       
|Alanna Corporation                          |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |         |        |  |   |         |       
|Alanna Corporation                          |                                                                                                               | $                            | 1       | (1) |          |  | .00001 | %                                         |      | Note receivable                         |                                        |   | 1       |        |  |      | 1       |        |  |   | 1       |       
|                                            |                                                                                                               |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |        
|                                            | Limited Partner; wholly-owned subsidiary of Alanna Holdings
    Corporation                                   |                              |         |     |          |  |        |                                           |      |                                         |                                        |   |         |        |  |      |         |        |  |   |         |        | 

Footnotes to Partners Equity and Related Party
Transactions







|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Alannas capital stock is pledged to secure MCVs
    obligation under the lease and other overall lease transaction
    documents.

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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|     |                             
|---- | ----------------------------
|(12) | SUBSEQUENT EVENT (Unaudited)







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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












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JAVELINA COMPANY





BALANCE SHEETS


|                                       |                                  |                           |                                          |          |        |         |        |          |        |         | 
|-------------------------------------- | -------------------------------- | ------------------------- | ---------------------------------------- | -------- | ------ | ------- | ------ | -------- | ------ | ------- | 
|                                       |                                  | December 31,              |                                         
|                                       |                                  |                           |                                         
|                                       |                                  | 2004                      |                                          |          | 2003   |        
|                                       |                                  |                           |                                          |          |        |        
|                                       |                                  | (In Thousands of Dollars) |                                         
|ASSETS                                
|Current assets                         |                                  |                           |                                          |          |        |         |        |         
|                                       | Cash and cash equivalents        |                           | $                                        | 20,435   |        |         | $      | 8,038    |       
|                                       | Accounts receivable, net         |                           |                                          |          |        |         |        |          |       
|                                       |                                  | Trade                     |                                          |          | 30,778 |         |        |          | 10,613 |        
|                                       |                                  | Affiliates                |                                          |          | 3,281  |         |        |          | 6,770  |        
|                                       | Product inventory                |                           |                                          | 941      |        |         |        |         |       
|                                       | Materials and supplies inventory |                           |                                          | 1,959    |        |         |        | 1,885    |       
|                                       | Prepaid expense                  |                           |                                          | 15       |        |         |        | 15       |       
|                                       |                                  |                           |                                          |          |        |        
|                                       |                                  |                           | Total current assets                     |          |        | 57,409  |        |          |        | 27,321  | 
|                                       |                                  |                           |                                          |          |        |        
|Property, plant and equipment, at cost |                                  |                           |                                          |          |        |         |        |         
|                                       | Land                             |                           |                                          | 4,203    |        |         |        | 4,203    |       
|                                       | Liquids extraction plant         |                           |                                          | 199,425  |        |         |        | 198,316  |       
|                                       | Accumulated depreciation         |                           |                                          | (125,347 | )      |         |        | (116,655 | )     
|                                       |                                  |                           |                                          |          |        |        
|                                       |                                  |                           | Total property, plant and equipment, net |          |        | 78,281  |        |          |        | 85,864  | 
|                                       |                                  |                           |                                          |          |        |        
|                                       |                                  |                           | Total assets                             |          | $      | 135,690 |        |          | $      | 113,185 | 
|                                       |                                  |                           |                                          |          |        |        
|                                      
|LIABILITIES AND PARTNERS CAPITAL     
|Current liabilities                    |                                  |                           |                                          |          |        |         |        |         
|                                       | Accounts payable                 |                           |                                          |          |        |         |        |          |       
|                                       |                                  | Trade                     |                                          | $        | 12,681 |         |        | $        | 7,663  |        
|                                       |                                  | Affiliates                |                                          |          | 12,563 |         |        |          | 9,470  |        
|                                       | Ad valorem taxes payable         |                           |                                          | 1,445    |        |         |        | 1,491    |       
|                                       | Accrued expenses                 |                           |                                          | 1,257    |        |         |        | 1,182    |       
|                                       |                                  |                           |                                          |          |        |        
|                                       |                                  |                           | Total current liabilities                |          |        | 27,946  |        |          |        | 19,806  | 
|Commitments and contingencies          |                                  |                           |                                          |          |        |         |        |         
|Partners capital                      |                                  |                           | 107,744                                  |          |        |         | 93,379 |         
|                                       |                                  |                           |                                          |          |        |        
|                                       |                                  |                           | Total liabilities and partners capital  |          | $      | 135,690 |        |          | $      | 113,185 | 
|                                       |                                  |                           |                                          |          |        |        

The accompanying notes are an integral part of these
financial statements.


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JAVELINA COMPANY





STATEMENTS OF OPERATIONS


|                   |                            |                           |         |         |        |  |         |         |         |   |         |         |     | 
|------------------ | -------------------------- | ------------------------- | ------- | ------- | ------ |  | ------- | ------- | ------- | - | ------- | ------- | --- | 
|                   |                            | Years Ended December 31,  |        
|                   |                            |                           |        
|                   |                            | 2004                      |         |         | 2003   |  |         | 2002    |        
|                   |                            |                           |         |         |        |  |         |         |        
|                   |                            | (In Thousands of Dollars) |        
|Operating revenue  |                            |                           |         |         |        |  |         |         |         |   |         |        
|                   | Product revenue            |                           | $       | 284,049 |        |  | $       | 181,318 |         |   | $       | 135,720 |    
|Other revenue      |                            |                           |         |         |        |  |         |         |         |   |         |        
|                   | Interest income and other  |                           |         | 142     |        |  |         | 105     |         |   |         | 331     |    
|                   |                            |                           |         |         |        |  |         |         |        
|                   |                            |                           | 284,191 |         |        |  | 181,423 |         |         |   | 136,051 |        
|Operating Expenses |                            |                           |         |         |        |  |         |         |         |   |         |        
|                   | Cost of product            |                           |         | 171,913 |        |  |         | 137,726 |         |   |         | 86,675  |    
|                   | Plant operating expenses   |                           |         | 66,792  |        |  |         | 47,239  |         |   |         | 38,039  |    
|                   | General and administrative |                           |         | 484     |        |  |         | 327     |         |   |         | 429     |    
|                   | Depreciation               |                           |         | 8,692   |        |  |         | 8,268   |         |   |         | 8,360   |    
|                   | Ad valorem taxes           |                           |         | 1,445   |        |  |         | 1,491   |         |   |         | 1,511   |    
|                   | Bad debt expense           |                           |         |        |        |  |         |        |         |   |         | 197     |    
|                   |                            |                           |         |         |        |  |         |         |        
|                   |                            |                           | 249,326 |         |        |  | 195,051 |         |         |   | 135,211 |        
|                   |                            |                           |         |         |        |  |         |         |        
|                   |                            | Net income (loss)         |         | $       | 34,865 |  |         | $       | (13,628 | ) |         | $       | 840 | 
|                   |                            |                           |         |         |        |  |         |         |        

The accompanying notes are an integral part of these
financial statements.


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JAVELINA COMPANY





STATEMENTS OF PARTNERS CAPITAL


Years Ended December 31, 2004, 2003 and 2002


|                                                                                      |  |                           |         |         |            |   |        |                |  |        |           |   |  |       |             |               |        |   |         |   |  |   |      |  
|------------------------------------------------------------------------------------- |  | ------------------------- | ------- | ------- | ---------- | - | ------ | -------------- |  | ------ | --------- | - |  | ----- | ----------- | ------------- | ------ | - | ------- | - |  | - | ---- | -
|                                                                                      |  |                           |         | El Paso |            |   |        |                |  |        |           |   | 
|                                                                                      |  | El Paso                   |         |         | Field      |   |        |                |  | Valero |           |   |  |       | Accumulated |              
|                                                                                      |  | Javelina,                 |         |         | Operations |   |        | K-M            |  |        | Javelina, |   |  |       |             | Other         |       
|                                                                                      |  | L.P.                      |         |         | Company    |   |        | Javelina, L.P. |  |        | L.P.      |   |  |       |             | Comprehensive |       
|                                                                                      |  | (40%)                     |         |         | (40%)      |   |        | (40%)          |  |        | (20%)     |   |  | Total |             |               | Income |  
|                                                                                      |  |                           |         |         |            |   |        |                |  |        |           |   |  |       |             |               |        |  
|                                                                                      |  | (In Thousands of Dollars) |        
|Balances at January 1, 2002                                                           |  | $                         | 44,747  |         |            | $ |       |                |  | $      | 44,747    |   |  | $     | 22,375      |               |        | $ | 111,869 |   |  | $ | 702  |  
|Net income                                                                            |  |                           | 336     |         |            |   |       |                |  |        | 336       |   |  |       | 168         |               |        |   | 840     |   |  |   |     |  
|Distributions                                                                         |  |                           | (2,000  | )       |            |   |       |                |  |        | (2,000    | ) |  |       | (1,000      | )             |        |   | (5,000  | ) |  |   |     |  
|Other comprehensive income  realized gain on cash
    flow hedges                    |  |                           | (281    | )       |            |   |       |                |  |        | (281      | ) |  |       | (140        | )             |        |   | (702    | ) |  |   | (702 | )
|                                                                                      |  |                           |         |         |            |   |        |                |  |        |           |   |  |       |             |               |        |  
|Balances at December 31, 2002                                                         |  |                           | 42,802  |         |            |   |       |                |  |        | 42,802    |   |  |       | 21,403      |               |        |   | 107,007 |   |  |   |     |  
|Net loss                                                                              |  |                           | (9,876  | )       |            |   | 4,425  |                |  |        | (5,451    | ) |  |       | (2,726      | )             |        |   | (13,628 | ) |  |   |     |  
|Sale of interests from El Paso Javelina, L.P. to
    El Paso Field Operations Company |  |                           | (32,926 | )       |            |   | 32,926 |                |  |        |          |   |  |       |            |               |        |   |        |   |  |   |     |  
|                                                                                      |  |                           |         |         |            |   |        |                |  |        |           |   |  |       |             |               |        |  
|Balances at December 31, 2003                                                         |  |                           |        |         |            |   | 37,351 |                |  |        | 37,351    |   |  |       | 18,677      |               |        |   | 93,379  |   |  |   |     |  
|Net income                                                                            |  |                           |        |         |            |   | 13,946 |                |  |        | 13,946    |   |  |       | 6,973       |               |        |   | 34,865  |   |  |   |     |  
|Distributions                                                                         |  |                           |        |         |            |   | (8,200 | )              |  |        | (8,200    | ) |  |       | (4,100      | )             |        |   | (20,500 | ) |  |   |     |  
|                                                                                      |  |                           |         |         |            |   |        |                |  |        |           |   |  |       |             |               |        |  
|Balances at December 31, 2004                                                         |  | $                         |        |         |            | $ | 43,097 |                |  | $      | 43,097    |   |  | $     | 21,550      |               |        | $ | 107,744 |   |  | $ |     |  
|                                                                                      |  |                           |         |         |            |   |        |                |  |        |           |   |  |       |             |               |        |  

The accompanying notes are an integral part of these
financial statements.


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JAVELINA COMPANY





STATEMENTS OF CASH FLOWS


|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |        |        |        |       |        |        |  
|----------------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------- | --------------------------------------------------- | ----- | ------- | ------- | ------- | ----- | ------ | ------ | ------ | ----- | ------ | ------ | -
|                                                                                                      |                                                    | Years Ended December 31,         |                                                    
|                                                                                                      |                                                    |                                  |                                                    
|                                                                                                      |                                                    | 2004                             |                                                     |       | 2003    |         |         | 2002  |       
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       
|                                                                                                      |                                                    | (In Thousands of Dollars)        |                                                    
|Cash flows from operating activities                                                                  |                                                    |                                  |                                                     |       |         |         |         |       |        |        |        |      
|Net income (loss)                                                                                     |                                                    | $                                | 34,865                                              |       |         | $       | (13,628 | )     |        | $      | 840    |      
|Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities |                                                    |                                  |                                                     |       |         |         |         |       |        |        |        |      
|                                                                                                      | Depreciation                                       |                                  |                                                     | 8,692 |         |         |         | 8,268 |        |        |        | 8,360 |       
|                                                                                                      | Gain from sales of property, plant and equipment   |                                  |                                                     |      |         |         |         |      |        |        |        | (2    | )     
|                                                                                                      | Market value adjustment for derivative instruments |                                  |                                                     |      |         |         |         |      |        |        |        | (539  | )     
|                                                                                                      | Changes in operating assets and liabilities        |                                  |                                                     |       |         |         |         |       |        |        |        |       |       
|                                                                                                      |                                                    | Accounts receivable              |                                                     |       | (16,676 | )       |         |       | (2,105 | )      |        |       | (3,148 | )     
|                                                                                                      |                                                    | Product inventory                |                                                     |       | (941    | )       |         |       |       |        |        |       | 3,112  |       
|                                                                                                      |                                                    | Materials and supplies inventory |                                                     |       | (74     | )       |         |       | 10     |        |        |       | 38     |       
|                                                                                                      |                                                    | Accounts payable                 |                                                     |       | 8,111   |         |         |       | 3,802  |        |        |       | (2,466 | )     
|                                                                                                      |                                                    | Ad valorem taxes payable         |                                                     |       | (46     | )       |         |       | (20    | )      |        |       | 1,511  |       
|                                                                                                      |                                                    | Accrued expenses                 |                                                     |       | 75      |         |         |       | (678   | )      |        |       | 184    |       
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       
|                                                                                                      |                                                    |                                  | Net cash provided by (used in) operating activities |       |         | 34,006  |         |       |        | (4,351 | )      |       |        | 7,890  |  
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       
|Cash flows from investing activities                                                                  |                                                    |                                  |                                                     |       |         |         |         |       |        |        |        |      
|Purchases of property, plant and equipment                                                            |                                                    |                                  | (1,109                                              | )     |         |         | (1,911  | )     |        |        | (616   | )    
|Proceeds from sale of property, plant and equipment                                                   |                                                    |                                  |                                                    |       |         |         |        |       |        |        | 2      |      
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       
|                                                                                                      |                                                    |                                  | Net cash used in investing activities               |       |         | (1,109  | )       |       |        | (1,911 | )      |       |        | (614   | )
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       
|Cash flows from financing activities                                                                  |                                                    |                                  |                                                     |       |         |         |         |       |        |        |        |      
|Distributions to partners                                                                             |                                                    |                                  | (20,500                                             | )     |         |         |        |       |        |        | (5,000 | )    
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       
|                                                                                                      |                                                    |                                  | Net cash used in financing activities               |       |         | (20,500 | )       |       |        |       |        |       |        | (5,000 | )
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       
|Change in cash and cash equivalents                                                                   |                                                    |                                  | 12,397                                              |       |         |         | (6,262  | )     |        |        | 2,276  |      
|Cash and cash equivalents at beginning of year                                                        |                                                    |                                  | 8,038                                               |       |         |         | 14,300  |       |        |        | 12,024 |      
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       
|Cash and cash equivalents at end of year                                                              |                                                    | $                                | 20,435                                              |       |         | $       | 8,038   |       |        | $      | 14,300 |      
|                                                                                                      |                                                    |                                  |                                                     |       |         |         |         |       |       

The accompanying notes are an integral part of these
financial statements.


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JAVELINA COMPANY





NOTES TO FINANCIAL STATEMENTS




|   |                                    
|-- | -----------------------------------
|1. | Organization and Nature of Business





|   |                                
|-- | -------------------------------
|2. | Significant Accounting Policies

Basis of Presentation




Use of Estimates




Cash and Cash Equivalents




Accounts Receivable




Gas Imbalances




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Inventories




Property, Plant and Equipment




Impairment and Disposal of Long-lived Assets




Fair Value of Financial Instruments




Revenue Recognition


Accounting for Nonmonetary Transactions,


Repair and Maintenance Costs




Federal Income Taxes




Income Allocation and Distributions




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Derivative Instruments and Hedging Activities


Accounting for Derivative
Instruments and Hedging Activities,




|   |                             
|-- | ----------------------------
|3. | Transactions With Affiliates









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|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |        |  
|----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                                          |                                                                                                             | (In Thousands of Dollars) |       
|                                                                                          |                                                                                                             |                           |       
|                                                                                          |                                                                                                             | 2004                      |        |        | 2003 |   |        | 2002   |  
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|Product revenue:                                                                          |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|El Paso Corporation                                                                       |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|                                                                                          | Sales to El Paso NGL Marketing Company, L.P., a wholly
    owned indirect subsidiary of El Paso Corporation |                           | $      | 42,494 |      |   | $      | 41,726 |   |   | $      | 29,046 |  
|                                                                                          | Sales to El Paso Merchant Energy  Petroleum
    Company                                                    |                           |        |       |      |   |        | 237    |   |   |        | 6,891  |  
|Valero Energy Corporation                                                                 |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|                                                                                          | Sales to Valero Refining Company                                                                            |                           |        | 35,002 |      |   |        | 25,304 |   |   |        | 20,492 |  
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|                                                                                          |                                                                                                             | $                         | 77,496 |        |      | $ | 67,267 |        |   | $ | 56,429 |       
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|Cost of product:                                                                          |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|El Paso Corporation                                                                       |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|                                                                                          | Gas purchases from El Paso Industrial Energy, a wholly
    owned indirect subsidiary of El Paso Corporation |                           | $      | 65,912 |      |   | $      | 37,154 |   |   | $      | 6,542  |  
|Valero Energy Corporation                                                                 |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|                                                                                          | Gas imbalance settlements paid to Valero Refining Company                                                   |                           |        | 2,819  |      |   |        | 4,883  |   |   |        | 2,416  |  
|                                                                                          | Gas imbalance settlements paid to (received from) Valero
    Refining and Marketing Company                 |                           |        | 8,336  |      |   |        | (2,161 | ) |   |        | (43    | )
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|                                                                                          |                                                                                                             | $                         | 77,067 |        |      | $ | 39,876 |        |   | $ | 8,915  |       
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|Plant operating expenses:                                                                 |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|El Paso Corporation                                                                       |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|                                                                                          | Management fees paid to El Paso Field on qualifying expenses                                                |                           | $      | 1,347  |      |   | $      | 1,333  |   |   | $      | 1,302  |  
|                                                                                          | Transportation fees paid to Javelina Pipeline Company                                                       |                           |        | 1,852  |      |   |        | 1,672  |   |   |        | 1,656  |  
|                                                                                          | Surface rentals paid to El Paso Merchant Energy-Petroleum
    Company                                       |                           |        | 78     |      |   |        | 75     |   |   |        | 84     |  
|Valero Energy Corporation                                                                 |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|                                                                                          | Processing fees paid to Valero Refining Company                                                             |                           |        | 1,588  |      |   |        | 586    |   |   |        | 316    |  
|                                                                                          | Processing fees paid to Valero Refining and Marketing Company                                               |                           |        | 3,900  |      |   |        | 185    |   |   |        | 164    |  
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|                                                                                          |                                                                                                             | $                         | 8,765  |        |      | $ | 3,851  |        |   | $ | 3,522  |       
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|Accounts receivable  affiliates:                                                         |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|El Paso Corporation                                                                       |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|                                                                                          | Accounts receivable due from El Paso NGL Marketing Company,
    L.P.                                        |                           | $      |       |      |   | $      | 4,308  |   |   |        |        |  
|Valero Energy Corporation                                                                 |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|                                                                                          | Accounts receivable due from Valero Refining Company                                                        |                           |        | 3,281  |      |   |        | 2,462  |   |   |        |        |  
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|                                                                                          |                                                                                                             | $                         | 3,281  |        |      | $ | 6,770  |        |   |   |        |       
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  
|Property, plant and equipment:                                                            |                                                                                                             |                           |        |        |      |   |        |        |   |   |        |       
|Capitalized management fees paid to El Paso Field on plant
    and equipment expenditures |                                                                                                             | $                         | 59     |        |      | $ | 74     |        |   |   |        |       
|                                                                                          |                                                                                                             |                           |        |        |      |   |        |        |  

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|                               |                                                                                                 |                           |        |       |      |   |       |       |  |  |  |  | 
|------------------------------ | ----------------------------------------------------------------------------------------------- | ------------------------- | ------ | ----- | ---- | - | ----- | ----- |  |  |  |  | 
|                               |                                                                                                 | (In Thousands of Dollars) |       
|                               |                                                                                                 |                           |       
|                               |                                                                                                 | 2004                      |        |       | 2003 |   |       | 2002  | 
|                               |                                                                                                 |                           |        |       |      |   |       |       | 
|Accounts payable  affiliates: |                                                                                                 |                           |        |       |      |   |       |       |  |  |  | 
|El Paso Corporation            |                                                                                                 |                           |        |       |      |   |       |       |  |  |  | 
|                               | Accounts payable due to El Paso Industrial Energy for gas
    purchases                         |                           | $      | 5,394 |      |   | $     | 4,608 |  |  |  |  | 
|                               | Accounts payable due to El Paso Field for reimbursable
    items and management fees            |                           |        | 4,574 |      |   |       | 4,155 |  |  |  |  | 
|                               | Accounts payable due to Javelina Pipeline Company for
    transportation fees                   |                           |        | 310   |      |   |       | 255   |  |  |  |  | 
|Valero Energy Corporation      |                                                                                                 |                           |        |       |      |   |       |       |  |  |  | 
|                               | Accounts payable due to Valero Refining Company for gas
    imbalance settlements               |                           |        | 331   |      |   |       | 361   |  |  |  |  | 
|                               | Accounts payable due to Valero Refining and Marketing Company
    for gas imbalance settlements |                           |        | 1,064 |      |   |       | 91    |  |  |  |  | 
|                               | Accounts payable due to Valero Refining and Marketing Company
    for processing fees           |                           |        | 890   |      |   |       |      |  |  |  |  | 
|                               |                                                                                                 |                           |        |       |      |   |       |       | 
|                               |                                                                                                 | $                         | 12,563 |       |      | $ | 9,470 |       |  |  |  | 
|                               |                                                                                                 |                           |        |       |      |   |       |       | 



|   |                                
|-- | -------------------------------
|4. | Sales and Processing Agreements







|   |                              
|-- | -----------------------------
|5. | Commitments and Contingencies





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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















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GREAT LAKES GAS TRANSMISSION LIMITED PARTNERSHIP





CONSOLIDATED STATEMENTS OF


INCOME AND PARTNERS CAPITAL


|                        |                                                              |                         |         |          |      |   |         |          |   |   |         |          |  
|----------------------- | ------------------------------------------------------------ | ----------------------- | ------- | -------- | ---- | - | ------- | -------- | - | - | ------- | -------- | -
|                        |                                                              | Years Ended December 31 |        
|                        |                                                              |                         |        
|                        |                                                              | 2004                    |         |          | 2003 |   |         | 2002     |  
|                        |                                                              |                         |         |          |      |   |         |          |  
|                        |                                                              | (Thousands of Dollars)  |        
|Transportation Revenues |                                                              | $                       | 284,327 |          |      | $ | 279,208 |          |   | $ | 277,515 |         
|Operating Expenses      |                                                              |                         |         |          |      |   |         |          |   |   |         |         
|                        | Operation and Maintenance                                    |                         |         | 34,723   |      |   |         | 43,052   |   |   |         | 37,075   |  
|                        | Depreciation                                                 |                         |         | 57,756   |      |   |         | 57,238   |   |   |         | 56,916   |  
|                        | Income Taxes Payable by Partners                             |                         |         | 47,058   |      |   |         | 40,530   |   |   |         | 45,400   |  
|                        | Property and Other Taxes                                     |                         |         | 23,265   |      |   |         | 24,929   |   |   |         | 14,393   |  
|                        |                                                              |                         |         |          |      |   |         |          |  
|                        |                                                              |                         | 162,802 |          |      |   | 165,749 |          |   |   | 153,784 |         
|                        |                                                              |                         |         |          |      |   |         |          |  
|Operating Income        |                                                              |                         | 121,525 |          |      |   | 113,459 |          |   |   | 123,731 |         
|Other Income (Expense)  |                                                              |                         |         |          |      |   |         |          |   |   |         |         
|                        | Interest on Long Term Debt                                   |                         |         | (37,718  | )    |   |         | (40,239  | ) |   |         | (44,539  | )
|                        | Other, Net                                                   |                         |         | 1,373    |      |   |         | 1,102    |   |   |         | 3,850    |  
|                        |                                                              |                         |         |          |      |   |         |          |  
|                        |                                                              |                         | (36,345 | )        |      |   | (39,137 | )        |   |   | (40,689 | )       
|                        |                                                              |                         |         |          |      |   |         |          |  
|Net Income              |                                                              | $                       | 85,180  |          |      | $ | 74,322  |          |   | $ | 83,042  |         
|                        |                                                              |                         |         |          |      |   |         |          |  
|Partners Capital       |                                                              |                         |         |          |      |   |         |          |   |   |         |         
|                        | Balance at Beginning of Year                                 |                         | $       | 452,007  |      |   |         | 445,512  |   |   |         | 443,640  |  
|                        | Contributions by General Partners                            |                         |         | 29,398   |      |   |         | 22,459   |   |   |         | 25,432   |  
|                        | Net Income                                                   |                         |         | 85,180   |      |   |         | 74,322   |   |   |         | 83,042   |  
|                        | Current Income Taxes Payable by Partners Charged to Earnings |                         |         | 31,536   |      |   |         | 24,238   |   |   |         | 27,801   |  
|                        | Distributions to Partners                                    |                         |         | (177,620 | )    |   |         | (114,524 | ) |   |         | (134,403 | )
|                        |                                                              |                         |         |          |      |   |         |          |  
|                        | Balance at End of Year                                       |                         | $       | 420,501  |      |   | $       | 452,007  |   |   | $       | 445,512  |  
|                        |                                                              |                         |         |          |      |   |         |          |  

The accompanying notes are an integral part of these
statements.


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GREAT LAKES GAS TRANSMISSION LIMITED PARTNERSHIP





CONSOLIDATED BALANCE SHEETS


|                                |                                             |                        |           |           |      |   |           |           | 
|------------------------------- | ------------------------------------------- | ---------------------- | --------- | --------- | ---- | - | --------- | --------- | 
|                                |                                             | As of December 31      |          
|                                |                                             |                        |          
|                                |                                             | 2004                   |           |           | 2003 |  
|                                |                                             |                        |           |           |      |  
|                                |                                             | (Thousands of Dollars) |          
|ASSETS                         
|Current Assets                  |                                             |                        |           |           |      |   |           |          
|                                | Cash and Cash Equivalents                   |                        | $         | 59,034    |      |   | $         | 40,156    | 
|                                | Accounts Receivable                         |                        |           | 44,137    |      |   |           | 34,747    | 
|                                | Materials and Supplies, at Average Cost     |                        |           | 10,043    |      |   |           | 10,020    | 
|                                | Prepayments and Other                       |                        |           | 5,146     |      |   |           | 3,511     | 
|                                |                                             |                        |           |           |      |  
|                                |                                             |                        | 118,360   |           |      |   | 88,434    |          
|Gas Utility Plant               |                                             |                        |           |           |      |   |           |          
|                                | Property, Plant and Equipment               |                        |           | 2,015,202 |      |   |           | 2,011,279 | 
|                                | Less Accumulated Depreciation               |                        |           | 919,287   |      |   |           | 870,356   | 
|                                |                                             |                        |           |           |      |  
|                                |                                             |                        | 1,095,915 |           |      |   | 1,140,923 |          
|                                |                                             |                        |           |           |      |  
|                                |                                             | $                      | 1,214,275 |           |      | $ | 1,229,357 |          
|                                |                                             |                        |           |           |      |  
|LIABILITIES & PARTNERS CAPITAL
|Current Liabilities             |                                             |                        |           |           |      |   |           |          
|                                | Current Maturities of Long Term Debt        |                        | $         | 10,000    |      |   | $         | 10,000    | 
|                                | Accounts Payable                            |                        |           | 27,984    |      |   |           | 14,850    | 
|                                | Property and Other Taxes                    |                        |           | 24,107    |      |   |           | 25,077    | 
|                                | Accrued Interest and Other                  |                        |           | 13,580    |      |   |           | 14,025    | 
|                                |                                             |                        |           |           |      |  
|                                |                                             |                        | 75,671    |           |      |   | 63,952    |          
|Long Term Debt                  |                                             |                        | 460,000   |           |      |   | 470,000   |          
|Other Liabilities               |                                             |                        |           |           |      |   |           |          
|                                | Amounts Equivalent to Deferred Income Taxes |                        |           | 256,959   |      |   |           | 241,281   | 
|                                | Other                                       |                        |           | 1,144     |      |   |           | 2,117     | 
|                                |                                             |                        |           |           |      |  
|                                |                                             |                        | 258,103   |           |      |   | 243,398   |          
|                                |                                             |                        |           |           |      |  
|Partners Capital               |                                             |                        | 420,501   |           |      |   | 452,007   |          
|                                |                                             |                        |           |           |      |  
|                                |                                             | $                      | 1,214,275 |           |      | $ | 1,229,357 |          
|                                |                                             |                        |           |           |      |  

The accompanying notes are an integral part of these
statements.


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GREAT LAKES GAS TRANSMISSION LIMITED PARTNERSHIP





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                            |                                                              |                                                                  |                          |          |        |        |          |          |        |        |          |          |        |        |  
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------------------- | ------------------------ | -------- | ------ | ------ | -------- | -------- | ------ | ------ | -------- | -------- | ------ | ------ | -
|                                                                                            |                                                              | Years Ended December 31                                          |                         
|                                                                                            |                                                              |                                                                  |                         
|                                                                                            |                                                              | 2004                                                             |                          |          | 2003   |        |          | 2002     |       
|                                                                                            |                                                              |                                                                  |                          |          |        |        |          |          |       
|                                                                                            |                                                              | (Thousands of Dollars)                                           |                         
|Cash Flow Increase (Decrease) from:                                                         |                                                              |                                                                  |                          |          |        |        |          |          |        |        |          |         
|Operating Activities                                                                        |                                                              |                                                                  |                          |          |        |        |          |          |        |        |          |         
|                                                                                            | Net Income                                                   |                                                                  | $                        | 85,180   |        |        | $        | 74,322   |        |        | $        | 83,042   |       
|                                                                                            | Adjustments to Reconcile Net Income to Operating Cash Flows: |                                                                  |                          |          |        |        |          |          |        |        |          |          |       
|                                                                                            |                                                              | Depreciation                                                     |                          |          | 57,756 |        |          |          | 57,238 |        |          |          | 56,916 |       
|                                                                                            |                                                              | Amounts Equivalent to Deferred Income Taxes                      |                          |          | 15,678 |        |          |          | 16,983 |        |          |          | 18,241 |       
|                                                                                            |                                                              | Allowance for Funds Used During Construction                     |                          |          | (157   | )      |          |          | (398   | )      |          |          | (500   | )     
|                                                                                            |                                                              | Changes in Current Assets and Liabilities:                       |                          |          |        |        |          |          |        |        |          |          |        |       
|                                                                                            |                                                              |                                                                  | Accounts Receivable      |          |        | (9,390 | )        |          |        | 1,529  |          |          |        | (6,250 | )
|                                                                                            |                                                              |                                                                  | Accounts Payable         |          |        | 13,134 |          |          |        | (1,642 | )        |          |        | 2,148  |  
|                                                                                            |                                                              |                                                                  | Property and Other Taxes |          |        | (970   | )        |          |        | (1,687 | )        |          |        | (1,131 | )
|                                                                                            |                                                              |                                                                  | Other                    |          |        | (3,076 | )        |          |        | (337   | )        |          |        | 678    |  
|                                                                                            |                                                              |                                                                  |                          |          |        |        |          |          |       
|                                                                                            |                                                              |                                                                  | 158,155                  |          |        |        | 146,008  |          |        |        | 153,144  |         
|Investment in Utility Plant                                                                 |                                                              |                                                                  | (12,591                  | )        |        |        | (27,277  | )        |        |        | (34,292  | )       
|Financing Activities                                                                        |                                                              |                                                                  |                          |          |        |        |          |          |        |        |          |         
|                                                                                            | Repayment of Long Term Debt                                  |                                                                  |                          | (10,000  | )      |        |          | (41,500  | )      |        |          | (47,250  | )     
|                                                                                            | Contributions by General Partners                            |                                                                  |                          | 29,398   |        |        |          | 22,459   |        |        |          | 25,432   |       
|                                                                                            | Current Income Taxes Payable by Partners Charged to Earnings |                                                                  |                          | 31,536   |        |        |          | 24,238   |        |        |          | 27,801   |       
|                                                                                            | Distribution to Partners                                     |                                                                  |                          | (177,620 | )      |        |          | (114,524 | )      |        |          | (134,403 | )     
|                                                                                            |                                                              |                                                                  |                          |          |        |        |          |          |       
|                                                                                            |                                                              |                                                                  | (126,686                 | )        |        |        | (109,327 | )        |        |        | (128,420 | )       
|Change in Cash and Cash Equivalents                                                         |                                                              |                                                                  | 18,878                   |          |        |        | 9,404    |          |        |        | (9,568   | )       
|Cash and Cash Equivalents:                                                                  |                                                              |                                                                  |                          |          |        |        |          |          |        |        |          |         
|                                                                                            | Beginning of Year                                            |                                                                  |                          | 40,156   |        |        |          | 30,752   |        |        |          | 40,320   |       
|                                                                                            |                                                              |                                                                  |                          |          |        |        |          |          |       
|                                                                                            | End of Year                                                  |                                                                  | $                        | 59,034   |        |        | $        | 40,156   |        |        | $        | 30,752   |       
|                                                                                            |                                                              |                                                                  |                          |          |        |        |          |          |       
|Supplemental Disclosure of Cash Flow Information
    Cash Paid During the Year for Interest |                                                              |                                                                  |                          |          |        |        |          |          |        |        |          |         
|                                                                                            |                                                              | (Net of Amounts Capitalized of $48, $150 and $214, Respectively) |                          | $        | 37,903 |        |          | $        | 40,576 |        |          | $        | 45,004 |       
|                                                                                            |                                                              |                                                                  |                          |          |        |        |          |          |       

The accompanying notes are an integral part of these
statements.


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GREAT LAKES GAS TRANSMISSION LIMITED PARTNERSHIP





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|  |                            
|- | ---------------------------
|1 | Organization and Management





|                         |                                                                                               |             |  |       |      |  |  |       | 
|------------------------ | --------------------------------------------------------------------------------------------- | ----------- |  | ----- | ---- |  |  | ----- | 
|                         |                                                                                               | Ownership % | 
|                         |                                                                                               |             | 
|Partner (Parent Company) |                                                                                               | 2004        |  |       | 2003 | 
|                         |                                                                                               |             |  |       |      | 
|General Partners:        |                                                                                               |             |  |       |      |  |  |      
|                         | El Paso Great Lakes, Inc. (El Paso Corporation)                                               |             |  | 46.61 |      |  |  | 46.33 | 
|                         | TransCanada GL, Inc. (TransCanada PipeLines Ltd.)                                             |             |  | 46.61 |      |  |  | 46.33 | 
|Limited Partner:         |                                                                                               |             |  |       |      |  |  |      
|                         | Great Lakes Gas Transmission Company (TransCanada PipeLines Ltd.
    and El Paso Corporation) |             |  | 6.78  |      |  |  | 7.34  | 



2     Summary of Significant
Accounting Policies


Principles of Consolidation and Basis of Presentation










Regulation


Accounting for the Effects of
Certain Types of Regulation


Accounts Receivable




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Gas Utility Plant and Depreciation






Asset Retirement Obligations




Income Taxes






3     Affiliated Company
Transactions




|                         |                                           |                |        |         |      |   |        |         |  |   |        |         | 
|------------------------ | ----------------------------------------- | -------------- | ------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------- | 
|                         |                                           | (In Thousands) |       
|                         |                                           |                |       
|                         |                                           | 2004           |        |         | 2003 |   |        | 2002    | 
|                         |                                           |                |        |         |      |   |        |         | 
|Accounts receivable      |                                           | $              | 12,827 |         |      | $ | 16,062 |         |  | $ | 15,989 |        
|Accounts payable         |                                           |                | 1,845  |         |      |   | 1,135  |         |  |   | 622    |        
|Transportation revenues: |                                           |                |        |         |      |   |        |         |  |   |        |        
|                         | TransCanada PipeLines Ltd. and affiliates |                |        | 164,810 |      |   |        | 166,578 |  |   |        | 163,442 | 
|                         | El Paso Corporation and affiliates        |                |        | 20,581  |      |   |        | 23,877  |  |   |        | 24,875  | 





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|                |  |                |          |   |      |   |            |      |  |   |            |  
|--------------- |  | -------------- | -------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                |  | (In Thousands) |         
|                |  |                |         
|                |  | 2004           |          |   | 2003 |   |            | 2002 | 
|                |  |                |          |   |      |   |            |      | 
|Pension         |  | $              | (743,000 | ) |      | $ | (2,600,000 | )    |  | $ | (5,400,000 | )
|Post-Retirement |  |                | 202,000  |   |      |   | 204,000    |      |  |   | 236,000    |  



|  |     
|- | ----
|4 | Debt

|                                                                                  |                                              |                |         |         |      |  |         |         | 
|--------------------------------------------------------------------------------- | -------------------------------------------- | -------------- | ------- | ------- | ---- |  | ------- | ------- | 
|                                                                                  |                                              | (In Thousands) |        
|                                                                                  |                                              |                |        
|                                                                                  |                                              | 2004           |         |         | 2003 | 
|                                                                                  |                                              |                |         |         |      | 
|Senior Notes, unsecured, interest due semiannually, principal
    due as follows: |                                              |                |         |         |      |  |         |        
|                                                                                  | 8.74% series, due 2003 to 2011               |                | $       | 70,000  |      |  | $       | 80,000  | 
|                                                                                  | 9.09% series, due 2012 to 2021               |                |         | 100,000 |      |  |         | 100,000 | 
|                                                                                  | 6.73% series, due 2009 to 2018               |                |         | 90,000  |      |  |         | 90,000  | 
|                                                                                  | 6.95% series, due 2019 to 2028               |                |         | 110,000 |      |  |         | 110,000 | 
|                                                                                  | 8.08% series, due 2021 to 2030               |                |         | 100,000 |      |  |         | 100,000 | 
|                                                                                  |                                              |                |         |         |      | 
|                                                                                  |                                              |                | 470,000 |         |      |  | 480,000 |        
|                                                                                  | Less current maturities                      |                |         | 10,000  |      |  |         | 10,000  | 
|                                                                                  |                                              |                |         |         |      | 
|                                                                                  | Total long term debt less current maturities |                | $       | 460,000 |      |  | $       | 470,000 | 
|                                                                                  |                                              |                |         |         |      | 







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|  |                                 
|- | --------------------------------
|5 | Income Taxes Payable by Partners



|         |         |                |        |        |      |   |        |        |  |   |        |        | 
|-------- | ------- | -------------- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|         |         | (In Thousands) |       
|         |         |                |       
|         |         | 2004           |        |        | 2003 |   |        | 2002   | 
|         |         |                |        |        |      |   |        |        | 
|Current  |         |                |        |        |      |   |        |        |  |   |        |       
|         | Federal |                | $      | 30,187 |      |   | $      | 23,201 |  |   | $      | 26,612 | 
|         | State   |                |        | 1,349  |      |   |        | 1,037  |  |   |        | 1,189  | 
|         |         |                |        |        |      |   |        |        | 
|         |         |                | 31,536 |        |      |   | 24,238 |        |  |   | 27,801 |       
|         |         |                |        |        |      |   |        |        | 
|Deferred |         |                |        |        |      |   |        |        |  |   |        |       
|         | Federal |                |        | 14,833 |      |   |        | 15,556 |  |   |        | 16,808 | 
|         | State   |                |        | 689    |      |   |        | 736    |  |   |        | 791    | 
|         |         |                |        |        |      |   |        |        | 
|         |         |                | 15,522 |        |      |   | 16,292 |        |  |   | 17,599 |       
|         |         |                |        |        |      |   |        |        | 
|         |         | $              | 47,058 |        |      | $ | 40,530 |        |  | $ | 45,400 |       
|         |         |                |        |        |      |   |        |        | 





|                                         |  |                |          |   |      |   |          |  
|---------------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | -
|                                         |  | (In Thousands) |         
|                                         |  |                |         
|                                         |  | 2004           |          |   | 2003 |  
|                                         |  |                |          |   |      |  
|Deferred tax assets  other              |  | $              | 4,889    |   |      | $ | 5,168    |  
|Deferred tax liabilities  utility plant |  |                | (245,786 | ) |      |   | (230,614 | )
|Deferred tax liabilities  other         |  |                | (16,062  | ) |      |   | (15,835  | )
|                                         |  |                |          |   |      |  
|Net deferred tax liability               |  | $              | (256,959 | ) |      | $ | (241,281 | )
|                                         |  |                |          |   |      |  



|  |                
|- | ---------------
|6 | Severance Costs





|  |                
|- | ---------------
|7 | Use Tax Refunds



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Auditors Report


to the Shareholders of


Khulna Power Company Limited












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KHULNA POWER COMPANY LTD.





BALANCE SHEET


|                             |                                             |                                    |    |                        |     |  |            |            |            |  |            |            |            | 
|---------------------------- | ------------------------------------------- | ---------------------------------- | -- | ---------------------- | --- |  | ---------- | ---------- | ---------- |  | ---------- | ---------- | ---------- | 
|                             |                                             |                                    |    | As at 31 December 2004 |    
|                             |                                             |                                    |    |                        |    
|                             |                                             |                                    |    | 2004                   |     |  | 2003       |           
|                             |                                             | Notes                              |    |                        | US$ |  |            | US$        |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|ASSETS                      
|Non-current assets:          |                                             |                                    |    |                        |     |  |            |            |            |  |            |           
|                             | Property, plant and equipment:              |                                    |    | 3                      |     |  |            |            |            |  |            |            |           
|                             |                                             | Power plant                        |    |                        |     |  |            |            | 82,658,421 |  |            |            | 82,657,977 | 
|                             |                                             | Furniture and fixtures             |    |                        |     |  |            |            | 24,799     |  |            |            | 18,648     | 
|                             |                                             | Building and construction          |    |                        |     |  |            |            | 181,354    |  |            |            | 180,561    | 
|                             |                                             | Vehicles                           |    |                        |     |  |            |            | 46,114     |  |            |            | 46,114     | 
|                             |                                             | Office equipment                   |    |                        |     |  |            |            | 108,523    |  |            |            | 100,688    | 
|                             |                                             | Office renovation                  |    |                        |     |  |            |            | 27,256     |  |            |            | 27,256     | 
|                             |                                             |                                    |    |                        |     |  |            |            |           
|                             |                                             |                                    |    |                        |     |  | 83,046,467 |            |            |  | 83,031,244 |           
|                             |                                             | Less: Accumulated depreciation     |    |                        |     |  |            |            | 17,320,521 |  |            |            | 14,529,660 | 
|                             |                                             |                                    |    |                        |     |  |            |            |           
|                             |                                             |                                    |    |                        |     |  | 65,725,946 |            |            |  | 68,501,584 |           
|                             | Project development expenditure             |                                    |    | 4                      |     |  |            | 12,597,244 |            |  |            | 12,597,244 |           
|                             | Less: Accumulated amortisation              |                                    |    |                        |     |  |            | 5,012,606  |            |  |            | 4,106,414  |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|                             |                                             |                                    |    |                        |     |  | 7,584,638  |            |            |  | 8,490,830  |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|                             |                                             |                                    |    |                        |     |  | 73,310,584 |            |            |  | 76,992,414 |           
|Current assets:              |                                             |                                    |    |                        |     |  |            |            |            |  |            |           
|                             |                                             | Inventory                          |    |                        | 5   |  |            |            | 5,416,579  |  |            |            | 7,928,428  | 
|                             |                                             | Trade and other receivables        |    |                        | 6   |  |            |            | 9,986,401  |  |            |            | 10,266,590 | 
|                             |                                             | Advances, deposits and prepayments |    |                        | 7   |  |            |            | 934,876    |  |            |            | 1,011,224  | 
|                             |                                             | Cash and cash equivalents          |    |                        | 8   |  |            |            | 1,080,291  |  |            |            | 285,263    | 
|                             |                                             |                                    |    |                        |     |  |            |            |           
|                             |                                             |                                    |    |                        |     |  | 17,418,147 |            |            |  | 19,491,505 |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|Total assets                 |                                             |                                    |    |                        |     |  | 90,728,731 |            |            |  | 96,483,919 |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|EQUITY AND LIABILITIES      
|Capital and reserves:        |                                             |                                    |    |                        |     |  |            |            |            |  |            |           
|                             | Share capital                               |                                    |    | 9                      |     |  |            | 44,100,000 |            |  |            | 44,100,000 |           
|                             | Retained earnings                           |                                    |    |                        |     |  |            | 6,981,546  |            |  |            | 5,361,298  |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|                             |                                             |                                    |    |                        |     |  | 51,081,546 |            |            |  | 49,461,298 |           
|Non-current liabilities:     |                                             |                                    | 10 |                        |     |  |            |            |            |  |            |           
|                             | Loan from shareholders                      |                                    |    |                        |     |  |            | 2,444,711  |            |  |            | 2,889,204  |           
|                             | IFC loan                                    |                                    |    |                        |     |  |            | 24,463,389 |            |  |            | 28,596,047 |           
|                             | Deferred liability for gratuity             |                                    |    |                        |     |  |            | 53,040     |            |  |            | 27,836     |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|                             |                                             |                                    |    |                        |     |  | 26,961,140 |            |            |  | 31,513,087 |           
|Current liabilities:         |                                             |                                    |    |                        |     |  |            |            |            |  |            |           
|                             | Accounts payable                            |                                    |    | 11                     |     |  |            | 5,541,268  |            |  |            | 5,396,187  |           
|                             | Working capital loan payable                |                                    |    | 12                     |     |  |            | 1,840,236  |            |  |            | 4,930,424  |           
|                             | Accrued expenses and others                 |                                    |    | 13                     |     |  |            | 299,318    |            |  |            | 190,253    |           
|                             | Payable for other financial charges         |                                    |    | 14                     |     |  |            | 90,182     |            |  |            | 18,575     |           
|                             | Payable for project implementation expenses |                                    |    | 15                     |     |  |            | 223,130    |            |  |            | 223,130    |           
|                             | Current portion of shareholders loan       |                                    |    | 10                     |     |  |            | 444,493    |            |  |            | 444,493    |           
|                             | Current portion of IFC loans                |                                    |    | 10                     |     |  |            | 4,132,658  |            |  |            | 4,132,658  |           
|                             | Interest payable                            |                                    |    |                        |     |  |            | 114,760    |            |  |            | 173,814    |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|                             |                                             |                                    |    |                        |     |  | 12,686,045 |            |            |  | 15,509,534 |           
|                             |                                             |                                    |    |                        |     |  |            |            |           
|Total equity and liabilities |                                             |                                    |    |                        |     |  | 90,728,731 |            |            |  | 96,483,919 |           
|                             |                                             |                                    |    |                        |     |  |            |            |           

The annexed notes 1 to 20 form an integral part of these
financial statements.


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KHULNA POWER COMPANY LTD.





INCOME STATEMENT


|                                    |                                  |       |    |                    |     |  |            |            |   |  |            |            |  
|----------------------------------- | -------------------------------- | ----- | -- | ------------------ | --- |  | ---------- | ---------- | - |  | ---------- | ---------- | -
|                                    |                                  |       |    | For the Year Ended |    
|                                    |                                  |       |    | 31 December        |    
|                                    |                                  |       |    |                    |    
|                                    |                                  |       |    | 2004               |     |  | 2003       |           
|                                    |                                  | Notes |    |                    | US$ |  |            | US$        |  
|                                    |                                  |       |    |                    |     |  |            |            |  
|Turnover                            |                                  |       | 16 |                    |     |  | 45,743,612 |            |   |  | 37,666,666 |           
|Cost of sales:                      |                                  |       |    |                    |     |  |            |            |   |  |            |           
|                                    | Fuel                             |       |    | 17                 |     |  |            | 27,738,419 |   |  |            | 20,921,316 |  
|                                    | Plant operations and maintenance |       |    | 18                 |     |  |            | 5,090,754  |   |  |            | 4,973,328  |  
|                                    | Depreciation and amortization    |       |    |                    |     |  |            | 3,663,061  |   |  |            | 3,663,598  |  
|                                    |                                  |       |    |                    |     |  |            |            |  
|                                    |                                  |       |    |                    |     |  | 36,492,234 |            |   |  | 29,558,242 |           
|                                    |                                  |       |    |                    |     |  |            |            |  
|Gross profit                        |                                  |       |    |                    |     |  | 9,251,378  |            |   |  | 8,108,424  |           
|Other operating expenses:           |                                  |       |    |                    |     |  |            |            |   |  |            |           
|                                    | General and administrative       |       |    |                    |     |  |            | (1,358,407 | ) |  |            | (2,070,378 | )
|                                    |                                  |       |    |                    |     |  |            |            |  
|Profit from operations              |                                  |       |    |                    |     |  | 7,892,971  |            |   |  | 6,038,046  |           
|Net financing cost                  |                                  |       |    |                    |     |  | (3,026,408 | )          |   |  | (3,463,457 | )         
|Gain/(Loss) on currency translation |                                  |       |    |                    |     |  | (204,250   | )          |   |  | 3,016      |           
|                                    |                                  |       |    |                    |     |  |            |            |  
|Net profit for the year             |                                  |       |    |                    |     |  | 4,662,313  |            |   |  | 2,577,605  |           
|                                    |                                  |       |    |                    |     |  |            |            |  

The annexed notes 1 to 20 form an integral part of these
financial statements.


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KHULNA POWER COMPANY LTD.





CASH FLOW STATEMENT


| |    |  |  |                                                                                       |  |  |            |   |  |  |            |  
| | -- |  |  | ------------------------------------------------------------------------------------- |  |  | ---------- | - |  |  | ---------- | -
| |    |  |  | For0the Year Ended                                                                    | 
| |    |  |  | US31 DecemberS$                                                                       | 
| |    |  |  |                                                                                       | 
| |    |  |  |                                                                                       | 
| | A) |  |  | Cash flows from operating activities                                                  |  |  |            |   |  |  |            |  
| |    |  |  | Net income                                                                            |  |  | 4,662,313  |   |  |  | 2,577,605  |  
| |    |  |  | Adjustments to reconcile net income to net cash provided by
    operating activities: |  |  |            |   |  |  |            |  
| |    |  |  | Interest expenses                                                                     |  |  | 2,865,661  |   |  |  | 3,298,810  |  
| |    |  |  | Depreciation and amortization                                                         |  |  | 3,697,886  |   |  |  | 3,716,205  |  
| |    |  |  |                                                                                       |  |  |            |   | 
| |    |  |  |                                                                                       |  |  | 11,225,860 |   |  |  | 9,592,620  |  
| |    |  |  | Change in operating assets and liabilities:                                           |  |  |            |   |  |  |            |  
| |    |  |  | Inventory                                                                             |  |  | 2,511,849  |   |  |  | (1,772,428 | )
| |    |  |  | Trade and other receivables                                                           |  |  | 280,189    |   |  |  | (223,017   | )
| |    |  |  | Advances, deposits and prepayments                                                    |  |  | 76,348     |   |  |  | 199,802    |  
| |    |  |  | Interest paid                                                                         |  |  | (2,924,715 | ) |  |  | (3,358,148 | )
| |    |  |  | Accounts payable and accrued expenses                                                 |  |  | (2,739,231 | ) |  |  | 41,777     |  
| |    |  |  | Accumulated depreciation of disposed assets                                           |  |  | (833       | ) |  |  | (2,792     | )
| |    |  |  |                                                                                       |  |  |            |   | 
| |    |  |  |                                                                                       |  |  | (2,796,393 | ) |  |  | (5,114,806 | )
| |    |  |  |                                                                                       |  |  |            |   | 
| |    |  |  | Net cash provided by operating activities                                             |  |  | 8,429,467  |   |  |  | 4,477,814  |  
| |    |  |  |                                                                                       |  |  |            |   | 
| | B) |  |  | Cash flows from investing activities:                                                 |  |  |            |   |  |  |            |  
| |    |  |  | Expenditures for property, plant and equipment                                        |  |  | (18,095    | ) |  |  | (6,894     | )
| |    |  |  | Disposal of assets                                                                    |  |  | 2,872      |   |  |  | 3,002      |  
| |    |  |  |                                                                                       |  |  |            |   | 
| |    |  |  | Net cash used in investing activities                                                 |  |  | (15,223    | ) |  |  | (3,892     | )
| |    |  |  |                                                                                       |  |  |            |   | 
| | C) |  |  | Cash flows from financing activities:                                                 |  |  |            |   |  |  |            |  
| |    |  |  | Net proceeds from borrowings                                                          |  |  | (4,577,151 | ) |  |  | (4,599,377 | )
| |    |  |  | Dividend paid for 2003                                                                |  |  | (2,772,260 | ) |  |  |           |  
| |    |  |  | Dividend distribution tax paid for 2003                                               |  |  | (269,805   | ) |  |  |           |  
| |    |  |  |                                                                                       |  |  |            |   | 
| |    |  |  | Net cash out flow by financing activities                                             |  |  | (7,619,216 | ) |  |  | (4,599,377 | )
| |    |  |  |                                                                                       |  |  |            |   | 
| | D) |  |  | Net increase/(decrease) in cash and cash equivalents
    (A+B+C)                      |  |  | 795,028    |   |  |  | (125,455   | )
| | E) |  |  | Cash and cash equivalents at beginning of year                                        |  |  | 285,263    |   |  |  | 410,718    |  
| |    |  |  |                                                                                       |  |  |            |   | 
| | F) |  |  | Cash and cash equivalents at end of year (D+E)                                        |  |  | 1,080,291  |   |  |  | 285,263    |  
| |    |  |  |                                                                                       |  |  |            |   | 

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KHULNA POWER COMPANY LTD.





STATEMENT OF CHANGES IN EQUITY


As at 31 December 2004


|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       |  |  |           |  |  |  |            | 
|--------------------------------------- |  | -------- | ---------- | --------------- | ------- | ----- | --------- | ----- |  | ------- | ---------- |  |  | ----- | - |  | ------ |  | --- | ----- |  |  | --------- |  |  |  | ---------- | 
|                                        |  |          |            | Ordinary Shares |        
|                                        |  |          |            |                 |        
|                                        |  |          |            |                 |         | Total |          
|                                        |  | Retained |            |                 | Class A |       |           |       |  | Class B |            |  |  |       |   | 
|Particulars                             |  | Earnings |            |                 | Shares  |       |           | Value |  |         | Shares     |  |  | Value |   |  | Shares |  |     | Value | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|                                        |  | US$      |            |                 | No.     |       |           | US$   |  |         | No.        |  |  | US$   |   |  | No.    |  |     | US$   | 
|Balance at 1 January 1999               |  |          | (17,636    | )               |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Net income for 1999                     |  |          | 6,938,422  |                 |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|Balance at 31 December 1999             |  |          | 6,920,786  |                 |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Dividend for 1999                       |  |          | (6,131,541 | )               |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|                                        |  |          | 789,245    |                 |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Net income for 2000                     |  |          | 2,889,622  |                 |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|Balance at 31 December 2000             |  |          | 3,678,867  |                 |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Dividend for 2000                       |  |          | (3,678,867 | )               |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|                                        |  |          |           |                 |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Net income for 2001                     |  |          | 1,150,847  |                 |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|Balance at 31 December 2001             |  |          | 1,150,847  |                 |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Net income for 2002                     |  |          | 1,632,846  |                 |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|Balance at 31 December 2002             |  |          | 2,783,693  |                 |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Net income for 2003                     |  |          | 2,577,605  |                 |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|Balance at 31 December 2003             |  |          | 5,361,298  |                 |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Net income for 2004                     |  |          | 4,662,313  |                 |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|Dividend paid for 2003                  |  |          | (2,772,260 | )               |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|Dividend distribution tax paid for 2003 |  |          | (269,805   | )               |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|Balance at 31 December 2004             |  |          | 6,981,546  |                 |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|                                        |  |          |            |                 |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 

156



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KHULNA POWER COMPANY LTD.





NOTES TO THE FINANCIAL STATEMENTS


For the year ended 31 December 2004




|   |                            
|-- | ---------------------------
|1. | Organisation and background



|    |             
|--- | ------------
|1.1 | Organisation









|    |                      
|--- | ---------------------
|1.2 | Significant contracts

















157



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##### Table of Contents







|   |                                           
|-- | ------------------------------------------
|2. | Summary of significant accounting policies





|    |                      
|--- | ---------------------
|2.1 | Basis of presentation













|    |                              
|--- | -----------------------------
|2.2 | Property, plant and equipment





|    |                     
|--- | --------------------
|2.3 | Capitalised interest





|    |             
|--- | ------------
|2.4 | Income taxes



158



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|    |                 
|--- | ----------------
|2.5 | Use of estimates





|   |                              
|-- | -----------------------------
|3. | Property, plant and equipment

|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |        |   |  |  |            |  |  |  |            | 
|------------------------- |  | ---------- | ---------- | --------- | ------------ |  | ------ | ---------- |  |  | ----------- | - |  | ---------- | ---------- | ------------ | ----------- |  | ---------- | ---------- |  | ---------- | ----------- |  | -------- | ----------- | ------ | - |  |  | ---------- |  |  |  | ---------- | 
|                          |  | Cost       |            |           | Depreciation |  |        |           
|                          |  |            |            |           |              |  |        |           
|                          |  |            |            | Disposal/ |              |  |        |            |  |  | Disposal/   |   |  |            |            | Written Down |            
|                          |  | Balance at |            |           | Additions    |  |        | Adjustment |  |  | Balance at  |   |  | Balance at |            |              |             |  | Adjustment |            |  | Balance at |             |  | Value at |            
|                          |  | 1 January  |            |           | During       |  |        | During the |  |  | 31 December |   |  | 1 January  |            |              | Charged for |  |            | During the |  |            | 31 December |  |          | 31 December |       
|Particulars               |  | 2004       |            |           | the Year     |  |        | Year       |  |  | 2004        |   |  | 2004       |            |              | the Year    |  |            | Year       |  |            | 2004        |  |          | 2004        |       
|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |       
|                          |  | US$        |            |           | US$          |  |        | US$        |  |  | US$         |   |  | US$        |            |              | US$         |  |            | US$        |  |            | US$         |  |          | US$         |       
|Power plant               |  |            | 82,657,977 |           |              |  | 444    |            |  |  |            |   |  |            | 82,658,421 |              |             |  | 14,314,785 |            |  |            | 2,756,869   |  |          |             |       |   |  |  | 17,071,654 |  |  |  | 65,586,767 | 
|Furniture and fixtures    |  |            | 18,648     |           |              |  | 6,151  |            |  |  |            |   |  |            | 24,799     |              |             |  | 15,648     |            |  |            | 308         |  |          |             |       |   |  |  | 15,956     |  |  |  | 8,843      | 
|Building and construction |  |            | 180,561    |           |              |  | 793    |            |  |  |            |   |  |            | 181,354    |              |             |  | 69,752     |            |  |            | 18,081      |  |          |             |       |   |  |  | 87,833     |  |  |  | 93,521     | 
|Vehicles                  |  |            | 46,114     |           |              |  |       |            |  |  |            |   |  |            | 46,114     |              |             |  | 19,962     |            |  |            | 11,532      |  |          |             |       |   |  |  | 31,494     |  |  |  | 14,620     | 
|Office equipment          |  |            | 100,688    |           |              |  | 10,707 |            |  |  | (2,872      | ) |  |            | 108,523    |              |             |  | 84,481     |            |  |            | 4,119       |  |          |             | (833   | ) |  |  | 87,767     |  |  |  | 20,756     | 
|Office renovation         |  |            | 27,256     |           |              |  |       |            |  |  |            |   |  |            | 27,256     |              |             |  | 25,032     |            |  |            | 785         |  |          |             |       |   |  |  | 25,817     |  |  |  | 1,439      | 
|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |       
|Total 2004                |  |            | 83,031,244 |           |              |  | 18,095 |            |  |  | (2,872      | ) |  |            | 83,046,467 |              |             |  | 14,529,660 |            |  |            | 2,791,694   |  |          |             | (833   | ) |  |  | 17,320,521 |  |  |  | 65,725,946 | 
|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |       
|Total 2003                |  |            | 83,027,352 |           |              |  | 6,894  |            |  |  | (3,002      | ) |  |            | 83,031,244 |              |             |  | 11,722,977 |            |  |            | 2,809,475   |  |          |             | (2,792 | ) |  |  | 14,529,660 |  |  |  | 68,501,584 | 
|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |       



|   |                                
|-- | -------------------------------
|4. | Project development expenditure

|                               |                                                   |      |            |           |      |  |            |           |  
|------------------------------ | ------------------------------------------------- | ---- | ---------- | --------- | ---- |  | ---------- | --------- | -
|                               |                                                   | 2004 |            |           | 2003 | 
|                               |                                                   |      |            |           |      | 
|                               |                                                   | US$  |            |           | US$  | 
|Development cost:              |                                                   |      |            |           |      |  |            |          
|                               | Foreign expenses                                  |      |            | 1,306,722 |      |  |            | 1,306,722 |  
|                               | Fees and leasehold rent                           |      |            | 57,661    |      |  |            | 57,661    |  
|                               | Start-up expenses                                 |      |            | 91,475    |      |  |            | 91,475    |  
|                               | Other development expenses                        |      |            | 1,174,820 |      |  |            | 1,174,820 |  
|                               | Development fee with interest                     |      |            | 3,143,013 |      |  |            | 3,143,013 |  
|                               | Legal fees                                        |      |            | 4,397,750 |      |  |            | 4,397,750 |  
|                               | Environmental consulting                          |      |            | 595,394   |      |  |            | 595,394   |  
|                               | Pre-full commercial operation date (FCOD) surplus |      |            | (629,610  | )    |  |            | (629,610  | )
|                               |                                                   |      |            |           |      | 
|                               |                                                   |      | 10,137,225 |           |      |  | 10,137,225 |          
|Fuel reservation fee           |                                                   |      | 1,500,000  |           |      |  | 1,500,000  |          
|Social goodwill                |                                                   |      | 182,086    |           |      |  | 182,086    |          
|Financing cost:                |                                                   |      |            |           |      |  |            |          
|                               | IFC appraisal fees                                |      |            | 250,000   |      |  |            | 250,000   |  
|                               | Independent engineers for lenders                 |      |            | 448,645   |      |  |            | 448,645   |  
|                               | Additional financing fees                         |      |            | 79,288    |      |  |            | 79,288    |  
|                               |                                                   |      |            |           |      | 
|                               |                                                   |      | 777,933    |           |      |  | 777,933    |          
|                               |                                                   |      |            |           |      | 
|                               |                                                   |      | 12,597,244 |           |      |  | 12,597,244 |          
|Less: Accumulated amortisation |                                                   |      | 5,012,606  |           |      |  | 4,106,414  |          
|                               |                                                   |      |            |           |      | 
|                               |                                                   |      | 7,584,638  |           |      |  | 8,490,830  |          
|                               |                                                   |      |            |           |      | 

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|   |          
|-- | ---------
|5. | Inventory

|                                             |  |  |           |  |  |  |           | 
|-------------------------------------------- |  |  | --------- |  |  |  | --------- | 
|Spare parts for plant maintenance (Note 5.1) |  |  | 2,000,000 |  |  |  | 2,000,000 | 
|Fuel (Note 5.2)                              |  |  | 3,416,579 |  |  |  | 5,928,428 | 
|                                             |  |  |           |  |  | 
|                                             |  |  | 5,416,579 |  |  |  | 7,928,428 | 
|                                             |  |  |           |  |  | 







|   |                            
|-- | ---------------------------
|6. | Trade and other receivables

|                                                               |  |  |           |  |  |  |            | 
|-------------------------------------------------------------- |  |  | --------- |  |  |  | ---------- | 
|Operation and maintenance tariff, due from BPDB                |  |  | 4,703,690 |  |  |  | 4,629,405  | 
|Fuel tariff, due from BPDB                                     |  |  | 5,179,104 |  |  |  | 5,523,360  | 
|Coastal Fuji Oil                                               |  |  | 5,609     |  |  |  | 16,840     | 
|Bangladesh Power Development Board  Licence fees of
    BIWTA |  |  | 97,998    |  |  |  | 96,985     | 
|                                                               |  |  |           |  |  | 
|                                                               |  |  | 9,986,401 |  |  |  | 10,266,590 | 
|                                                               |  |  |           |  |  | 



|   |                                   
|-- | ----------------------------------
|7. | Advances, deposits and prepayments





|   |                          
|-- | -------------------------
|8. | Cash and cash equivalents



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|   |              
|-- | -------------
|9. | Share capital



|                                                                                           |  |          |           |  |          |  |   |          |  |  |             |  |      |             |            |  |  |  |            | 
|------------------------------------------------------------------------------------------ |  | -------- | --------- |  | -------- |  | - | -------- |  |  | ----------- |  | ---- | ----------- | ---------- |  |  |  | ---------- | 
|                                                                                           |  | 2004     |           |  |         
|                                                                                           |  |          |           |  |         
|                                                                                           |  | Class A  |           |  | Class B  |  |   | Total    |  |  |             |  | 2003 |            
|                                                                                           |  | ordinary |           |  | ordinary |  |   | ordinary |  |  |             |  |      |            
|Name of shareholder                                                                        |  | share    |           |  | share    |  |   | share    |  |  | Total value |  |      | Total value |           
|                                                                                           |  |          |           |  |          |  |   |          |  |  |             |  |      |             |           
|                                                                                           |  | No.      |           |  | No.      |  |   | No.      |  |  | US$         |  |      | US$         |           
|El Paso Khulna Power ApS (formerly Coastal Khulna Power
    ApS) (incorporated in Denmark) |  |          | 1,541,498 |  |          |  | 2 |          |  |  | 1,541,500   |  |      |             | 32,589,900 |  |  |  | 32,589,900 | 
|Wartsila Development & Financial Services (Asia) Ltd.
    (incorporated in Cayman Islands) |  |          | 127,242   |  |          |  | 2 |          |  |  | 127,244     |  |      |             | 2,690,100  |  |  |  | 2,690,100  | 
|Summit Industrial & Mercantile Corporation (Pvt) Ltd.
    (incorporated in Bangladesh)     |  |          | 208,592   |  |          |  | 1 |          |  |  | 208,593     |  |      |             | 4,410,000  |  |  |  | 4,410,000  | 
|United Enterprises & Company Ltd. (incorporated in
    Bangladesh)                         |  |          | 208,592   |  |          |  | 1 |          |  |  | 208,593     |  |      |             | 4,410,000  |  |  |  | 4,410,000  | 
|                                                                                           |  |          |           |  |          |  |   |          |  |  |             |  |      |             |           
|                                                                                           |  |          | 2,085,924 |  |          |  | 6 |          |  |  | 2,085,930   |  |      |             | 44,100,000 |  |  |  | 44,100,000 | 
|                                                                                           |  |          |           |  |          |  |   |          |  |  |             |  |      |             |           





|    |                        
|--- | -----------------------
|10. | Non-current liabilities

|            |                                                           |          |           |           |           |       |             |            |  |  |            |            | 
|----------- | --------------------------------------------------------- | -------- | --------- | --------- | --------- | ----- | ----------- | ---------- |  |  | ---------- | ---------- | 
|            |                                                           |          |           |           |           | Total |            
|            |                                                           | Current  |           |           |           |       | outstanding |           
|            |                                                           | maturity |           |           | Long term |       |             | at 31 Dec. | 
|            |                                                           | portion  |           |           | portion   |       |             | 2004       | 
|            |                                                           |          |           |           |           |       |             |            | 
|            |                                                           | US$      |           |           | US$       |       |             | US$        | 
|Term loans: |                                                           |          |           |           |           |       |             |            |  |  |            |           
|            | El Paso Power Khulna Holding Ltd.                         |          |           | 377,819   |           |       |             | 2,078,004  |  |  |            | 2,455,823  | 
|            | Wartsila Development & Financial Services
    (Asia) Ltd. |          |           | 66,674    |           |       |             | 366,707    |  |  |            | 433,381    | 
|            |                                                           |          |           |           |           |       |             |            | 
|            |                                                           |          | 444,493   |           |           |       | 2,444,711   |            |  |  | 2,889,204  |           
|            |                                                           |          |           |           |           |       |             |            | 
|IFC loans:  |                                                           |          |           |           |           |       |             |            |  |  |            |           
|            | A loan                                                  |          |           | 1,733,769 |           |       |             | 11,269,500 |  |  |            | 13,003,269 | 
|            | B loan                                                  |          |           | 2,398,889 |           |       |             | 13,193,889 |  |  |            | 15,592,778 | 
|            |                                                           |          |           |           |           |       |             |            | 
|            |                                                           |          | 4,132,658 |           |           |       | 24,463,389  |            |  |  | 28,596,047 |           
|            |                                                           |          |           |           |           |       |             |            | 



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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | An IFC A loan in the amount of US$ 22,539,000 was secured
    on 4 August 1999 with an interest rate of LIBOR plus 0.5% and a
    term of thirteen years. El Paso and Wartsila initially
    guaranteed the loan. On 28 February 2001 the Company met
    the required terms and conditions and the guarantees were
    released. At that time, the interest rate changed to LIBOR plus
    approximately 4% to be computed pursuant to section 1.1
    [A Loan interest rate (ii)] of Article 1 of the
    Investment Agreement. As of 31 December 2004,
    US$ 13,003,269, of which US$ 54,776 in unpaid
    interest, was outstanding.
|
| | b) | An IFC B loan in the amount of US$ 21,590,000 was secured
    on 25 October 2002 with an interest rate of LIBOR plus 3.5% and
    a term of nine years. As of 31 December 2004,
    US$ 15,592,778, of which US$ 42,898 in unpaid
    interest, was outstanding.                                                                                                                                                                                                                                                                                                                                                                            
|
| | c) | A Bridge Loan in the amount of US$ 25,014,650 and
    US$ 4,414,350 was secured from El Paso Power Khulna
    Holding Ltd. and Wartsila respectively. The interest rate is 10%
    and payable in semi-annual installment. Unpaid interest is added
    to the outstanding principal and accrues interest at the stated
    rate. IFC B loan has been fully used for repaying the Bridge
    loan. As of 31 December 2004, US$ 2,889,204 of which
    US$ 12,841 in unpaid interest, was outstanding.                                                                                                                                       



|    |                 
|--- | ----------------
|11. | Accounts payable

|                                              |  |      |           |  |      |  |           | 
|--------------------------------------------- |  | ---- | --------- |  | ---- |  | --------- | 
|                                              |  | 2004 |           |  | 2003 | 
|                                              |  |      |           |  |      | 
|                                              |  | US$  |           |  | US$  | 
|CFO  Handling commission                     |  |      | 786,863   |  |      |  | 1,710,810 | 
|CFO  Fuel cost                               |  |      | 4,134,579 |  |      |  | 3,092,555 | 
|USCOL  Fuel carrying and storage             |  |      | 448,862   |  |      |  | 473,581   | 
|Wartsila  Operating and maintenance expenses |  |      | 170,964   |  |      |  | 119,241   | 
|                                              |  |      |           |  |      | 
|                                              |  |      | 5,541,268 |  |      |  | 5,396,187 | 
|                                              |  |      |           |  |      | 



|    |                             
|--- | ----------------------------
|12. | Working capital loan payable

|                    |  |  |           |  |  |  |           | 
|------------------- |  |  | --------- |  |  |  | --------- | 
|Taka Overdraft      |  |  | 940,236   |  |  |  | 2,831,607 | 
|US Dollar Revolving |  |  | 900,000   |  |  |  | 2,098,817 | 
|                    |  |  |           |  |  | 
|                    |  |  | 1,840,236 |  |  |  | 4,930,424 | 
|                    |  |  |           |  |  | 



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|    |                            
|--- | ---------------------------
|13. | Accrued expenses and others

|                                                                           |  |  |         |  |  |  |         | 
|-------------------------------------------------------------------------- |  |  | ------- |  |  |  | ------- | 
|Electricity, gas and water                                                 |  |  | 243     |  |  |  | 338     | 
|Legal and audit fees  HVC, RRH and others                                 |  |  | 14,878  |  |  |  | 19,066  | 
|Telephone, fax and email                                                   |  |  | 2,024   |  |  |  | 1,860   | 
|Provision for withholding tax/ VAT for legal,
    professional & other fee |  |  | 5       |  |  |  | 46,869  | 
|Wartsila Bangladesh Ltd. (WBL)                                             |  |  |        |  |  |  | 526     | 
|El Paso International                                                      |  |  | 99,364  |  |  |  | 40,661  | 
|Chadbourne and Parke LLP  Legal fees                                      |  |  |        |  |  |  | 5,168   | 
|R W Becker  Independent Engineer for lenders                              |  |  | 5,819   |  |  |  | 3,491   | 
|Late payment interest  Fuel (CFO)                                         |  |  | 62,172  |  |  |  | 36,733  | 
|SBLC charges  Fuel                                                        |  |  | 104,629 |  |  |  | 35,000  | 
|Others                                                                     |  |  | 10,184  |  |  |  | 541     | 
|                                                                           |  |  |         |  |  | 
|                                                                           |  |  | 299,318 |  |  |  | 190,253 | 
|                                                                           |  |  |         |  |  | 



|    |                                    
|--- | -----------------------------------
|14. | Payable for other financial charges

|                                                    |  |  |        |  |  |  |        | 
|--------------------------------------------------- |  |  | ------ |  |  |  | ------ | 
|Bank charge on performance bond (USD 1.5 million)   |  |  | 13,281 |  |  |  |       | 
|Bank charge on performance bond (USD 4.498 million) |  |  | 76,901 |  |  |  | 18,575 | 
|                                                    |  |  |        |  |  | 
|                                                    |  |  | 90,182 |  |  |  | 18,575 | 
|                                                    |  |  |        |  |  | 



|    |                                            
|--- | -------------------------------------------
|15. | Payable for project implementation expenses

|             |  |  |         |  |  |  |         | 
|------------ |  |  | ------- |  |  |  | ------- | 
|VAT on plant |  |  | 223,130 |  |  |  | 223,130 | 
|             |  |  |         |  |  | 
|             |  |  | 223,130 |  |  |  | 223,130 | 
|             |  |  |         |  |  | 



|    |         
|--- | --------
|16. | Turnover

|                                 |  |      |            |  |      |  |            | 
|-------------------------------- |  | ---- | ---------- |  | ---- |  | ---------- | 
|                                 |  | 2004 |            |  | 2003 | 
|                                 |  |      |            |  |      | 
|                                 |  | US$  |            |  | US$  | 
|Operation and maintenance tariff |  |      | 20,892,671 |  |      |  | 18,862,499 | 
|Fuel tariff                      |  |      | 24,850,941 |  |      |  | 18,804,167 | 
|                                 |  |      |            |  |      | 
|                                 |  |      | 45,743,612 |  |      |  | 37,666,666 | 
|                                 |  |      |            |  |      | 



|    |              
|--- | -------------
|17. | Fuel expenses

|                     |  |  |            |  |  |  |            | 
|-------------------- |  |  | ---------- |  |  |  | ---------- | 
|Heavy fuel oil       |  |  | 27,525,186 |  |  |  | 20,700,415 | 
|Light fuel oil       |  |  | 19,365     |  |  |  | 21,368     | 
|Fuel storage charges |  |  | 193,868    |  |  |  | 199,533    | 
|                     |  |  |            |  |  | 
|                     |  |  | 27,738,419 |  |  |  | 20,921,316 | 
|                     |  |  |            |  |  | 

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|    |                                 
|--- | --------------------------------
|18. | Plant operations and maintenance

|                                       |                   |  |           |           |  |  |           |           | 
|-------------------------------------- | ----------------- |  | --------- | --------- |  |  | --------- | --------- | 
|O & M fixed fees:                      |                   |  |           |           |  |  |           |          
|                                       | Fixed fees        |  |           | 1,798,000 |  |  |           | 2,180,220 | 
|                                       | Variable expenses |  |           | 3,009,075 |  |  |           | 2,532,816 | 
|Land lease fee  BPDB                  |                   |  | 51,463    |           |  |  | 81,313    |          
|Plant security                         |                   |  | 37,529    |           |  |  | 38,360    |          
|Performance bond and guarantee charges |                   |  | 175,051   |           |  |  | 123,594   |          
|Environmental compliance               |                   |  | 19,335    |           |  |  | 16,769    |          
|Miscellaneous operating expenses       |                   |  | 301       |           |  |  | 256       |          
|                                       |                   |  |           |           |  | 
|                                       |                   |  | 5,090,754 |           |  |  | 4,973,328 |          
|                                       |                   |  |           |           |  | 



|    |                              
|--- | -----------------------------
|19. | Commitments and contingencies



|     |           
|---- | ----------
|19.1 | Agreements



|       |                         
|------ | ------------------------
|19.1.1 | Implementation agreement







|       |                         
|------ | ------------------------
|19.1.2 | Power purchase agreement











|       |                                     
|------ | ------------------------------------
|19.1.3 | Operations and maintenance agreement



164



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|       |                      
|------ | ---------------------
|19.1.4 | Fuel supply agreement





|       |                         
|------ | ------------------------
|19.1.5 | Gas conversion agreement





|     |                                                    
|---- | ---------------------------------------------------
|19.2 | Guarantees by the sponsors in favour of the Company



|       |                                                                  
|------ | -----------------------------------------------------------------
|19.2.1 | Performance bond to Bangladesh Power Development Board
    (BPDB)





|       |                                                                                                         
|------ | --------------------------------------------------------------------------------------------------------
|19.2.2 | Catastrophic Maintenance Letter of Credit and Debt Service
    Letter of Credit submitted to the Trustee





|       |                         
|------ | ------------------------
|19.2.3 | Working capital facility





|    |        
|--- | -------
|20. | General



|     |                                                                                                                                
|---- | -------------------------------------------------------------------------------------------------------------------------------
|20.1 | Previous years figures have been rearranged, wherever
    considered necessary, to conform to current years
    presentation.
|    
|20.2 | Figures have been rounded off to the nearest US dollar.                                                                        

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KHULNA POWER COMPANY LTD.





BALANCE SHEET


(Unaudited)


|                                                   |                                             |       |    |              |      |  |            |            | 
|-------------------------------------------------- | ------------------------------------------- | ----- | -- | ------------ | ---- |  | ---------- | ---------- | 
|                                                   |                                             |       |    | As at        |     
|                                                   |                                             |       |    | December 31, |     
|                                                   |                                             | Notes |    |              | 2002 | 
|                                                   |                                             |       |    |              |      | 
|                                                   |                                             |       |    | US$          |     
|                                                   |                                             |       |    | (Restated)   |     
|ASSETS                                            
|Non-Current Assets:                                |                                             |       | 3  |              |      |  |            |           
|                                                   | Power plant                                 |       |    |              |      |  |            | 82,657,977 | 
|                                                   | Furniture and fixtures                      |       |    |              |      |  |            | 19,558     | 
|                                                   | Building and construction                   |       |    |              |      |  |            | 178,690    | 
|                                                   | Vehicles                                    |       |    |              |      |  |            | 46,114     | 
|                                                   | Office equipment                            |       |    |              |      |  |            | 97,757     | 
|                                                   | Office renovation                           |       |    |              |      |  |            | 27,256     | 
|                                                   |                                             |       |    |              |      | 
|                                                   |                                             |       |    |              |      |  | 83,027,352 |           
|                                                   | Less: Accumulated depreciation              |       |    |              |      |  |            | 11,722,977 | 
|                                                   |                                             |       |    |              |      | 
|                                                   |                                             |       |    |              |      |  | 71,304,375 |           
|                                                   | Project development expenditure             |       |    | 4            |      |  |            | 12,597,244 | 
|                                                   | Less: Accumulated amortisation              |       |    |              |      |  |            | 3,199,684  | 
|                                                   |                                             |       |    |              |      |  | 9,397,560  |           
|                                                   |                                             |       |    |              |      | 
|                                                   |                                             |       |    |              |      |  | 80,701,935 |           
|Current Assets:                                    |                                             |       |    |              |      |  |            |           
|                                                   | Inventory                                   |       |    | 5            |      |  |            | 6,156,000  | 
|                                                   | Trade and other receivables                 |       |    | 6            |      |  |            | 10,043,573 | 
|                                                   | Advances, deposits and prepayments          |       |    | 7            |      |  |            | 1,211,026  | 
|                                                   | Cash and cash equivalents                   |       |    | 8            |      |  |            | 410,718    | 
|                                                   |                                             |       |    |              |      | 
|                                                   |                                             |       |    |              |      |  | 17,821,317 |           
|                                                   |                                             |       |    |              |      | 
|Total Assets                                       |                                             |       |    |              |      |  | 98,523,252 |           
|                                                   |                                             |       |    |              |      | 
|                                                  
|EQUITY AND LIABILITIES                            
|Capital and Reserves:                              |                                             |       |    |              |      |  |            |           
|                                                   | Share capital                               |       |    | 9            |      |  |            | 44,100,000 | 
|                                                   | Retained profit                             |       |    |              |      |  |            | 2,783,693  | 
|                                                   |                                             |       |    |              |      | 
|                                                   |                                             |       |    |              |      |  | 46,883,693 |           
|Non-Current Liabilities (Net of Current Maturity): |                                             |       | 10 |              |      |  |            |           
|                                                   | Deferred liability for gratuity             |       |    |              |      |  |            | 18,340     | 
|                                                   | Loan from shareholders                      |       |    |              |      |  |            | 3,400,371  | 
|                                                   | IFC loan                                    |       |    |              |      |  |            | 32,728,706 | 
|                                                   |                                             |       |    |              |      | 
|                                                   |                                             |       |    |              |      |  | 36,147,417 |           
|Current Liabilities:                               |                                             |       |    |              |      |  |            |           
|                                                   | Accounts payable                            |       |    | 11           |      |  |            | 4,432,885  | 
|                                                   | Working capital loan payable                |       |    | 12           |      |  |            | 5,857,442  | 
|                                                   | Accrued expenses and others                 |       |    | 13           |      |  |            | 183,746    | 
|                                                   | Payable for other financial charges         |       |    | 14           |      |  |            | 29,085     | 
|                                                   | Payable for project implementation expenses |       |    | 15           |      |  |            | 223,130    | 
|                                                   | Current portion of non-current liabilities  |       |    |              |      |  |            | 4,532,702  | 
|                                                   | Interest payable                            |       |    |              |      |  |            | 233,152    | 
|                                                   |                                             |       |    |              |      | 
|                                                   |                                             |       |    |              |      |  | 15,492,142 |           
|                                                   |                                             |       |    |              |      | 
|Total Equity and Liabilities                       |                                             |       |    |              |      |  | 98,523,252 |           
|                                                   |                                             |       |    |              |      | 



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KHULNA POWER COMPANY LTD.





INCOME STATEMENT


(Unaudited)


|                                |                                 |                       |            |            |  
|------------------------------- | ------------------------------- | --------------------- | ---------- | ---------- | -
|                                |                                 | For the year ended 31 |           
|                                |                                 | December              |           
|                                |                                 | 2002                  |           
|                                |                                 |                       |           
|                                |                                 | US$                   |           
|                                |                                 | (Restated)            |           
|Turnover                        |                                 |                       | 40,245,823 |           
|Cost of sales:                  |                                 |                       |            |           
|                                | Fuel                            |                       |            | 21,418,440 |  
|                                | Plan operations and maintenance |                       |            | 5,301,242  |  
|                                | Depreciation and amortization   |                       |            | 3,662,966  |  
|                                |                                 |                       |           
|                                |                                 |                       | 30,382,648 |           
|                                |                                 |                       |           
|Gross profit                    |                                 |                       | 9,863,175  |           
|Other operating expenses:       |                                 |                       |            |           
|                                | General and administrative      |                       |            | (3,382,467 | )
|                                |                                 |                       |           
|Profit from operations          |                                 |                       | 6,480,708  |           
|Net financing cost              |                                 |                       | (4,792,183 | )         
|Loss on currency translation    |                                 |                       | (55,679    | )         
|                                |                                 |                       |           
|Net profit for the year         |                                 |                       | 1,632,846  |           
|Retained profit brought forward |                                 |                       | 1,150,847  |           
|                                |                                 |                       |           
|Retained profit carried forward |                                 |                       | 2,783,693  |           
|                                |                                 |                       |           



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KHULNA POWER COMPANY LTD.





CASH FLOW STATEMENT


(Unaudited)


|                                                     |                                                                                       |                                             |            |            |            |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------- | ---------- | ---------- | ---------- | -
|                                                     |                                                                                       | For the year ended                          |           
|                                                     |                                                                                       | 31 December                                 |           
|                                                     |                                                                                       | 2002                                        |           
|                                                     |                                                                                       |                                             |           
|                                                     |                                                                                       | US$                                         |           
|                                                     |                                                                                       | (Restated)                                  |           
|A) Operating activities                              |                                                                                       |                                             |            |           
|                                                     | Net income                                                                            |                                             |            | 1,632,846  |           
|                                                     | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                             |            |            |           
|                                                     |                                                                                       | Interest expenses                           |            |            | 4,758,065  |  
|                                                     |                                                                                       | Depreciation and amortization               |            |            | 3,717,823  |  
|                                                     |                                                                                       |                                             |           
|                                                     |                                                                                       |                                             | 10,108,734 |           
|                                                     | Change in operating assets and liabilities:                                           |                                             |            |            |           
|                                                     |                                                                                       | Trade and other receivables                 |            |            | (926,870   | )
|                                                     |                                                                                       | Prepaid expenses and advances               |            |            | (928,019   | )
|                                                     |                                                                                       | Inventory                                   |            |            | (1,557,569 | )
|                                                     |                                                                                       | Interest paid                               |            |            | (5,074,096 | )
|                                                     |                                                                                       | Accounts payable and accrued expenses       |            |            | 875,224    |  
|                                                     |                                                                                       | Accumulated depreciation of disposed assets |            |            | (45,561    | )
|                                                     |                                                                                       |                                             |           
|                                                     |                                                                                       |                                             | (7,656,891 | )         
|                                                     |                                                                                       |                                             |           
|                                                     | Net cash provided by operating activities                                             |                                             |            | 2,451,843  |           
|                                                     |                                                                                       |                                             |           
|B) Investing activities:                             |                                                                                       |                                             |            |           
|                                                     | Expenditures for property, plant and equipment                                        |                                             |            | (54,774    | )         
|                                                     | Disposal of assets                                                                    |                                             |            | 47,539     |           
|                                                     |                                                                                       |                                             |           
|                                                     | Net cash used in investing activities                                                 |                                             |            | (7,235     | )         
|                                                     |                                                                                       |                                             |           
|C) Financing activities:                             |                                                                                       |                                             |            |           
|                                                     | Net proceeds from borrowings                                                          |                                             |            | (4,412,757 | )         
|                                                     |                                                                                       |                                             |           
|                                                     | Net cash provided by financing activities                                             |                                             |            | (4,412,757 | )         
|                                                     |                                                                                       |                                             |           
|D) Net increase in cash and cash equivalents (A+B+C) |                                                                                       |                                             | (1,968,149 | )         
|E) Cash and cash equivalents at beginning of year    |                                                                                       |                                             | 2,378,867  |           
|                                                     |                                                                                       |                                             |           
|F) Cash and cash equivalents at end of year (D+E)    |                                                                                       |                                             | 410,718    |           
|                                                     |                                                                                       |                                             |           

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KHULNA POWER COMPANY LTD.





STATEMENT OF STOCKHOLDERS EQUITY


AS AT 31 DECEMBER 2002


(Unaudited)


|                            |  |            |           |              |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       |  |  |           |  |  |  |            | 
|--------------------------- |  | ---------- | --------- | ------------ | ------- | ----- | --------- | ----- |  | ------- | ---------- |  |  | ----- | - |  | ------ |  | --- | ----- |  |  | --------- |  |  |  | ---------- | 
|                            |  |            |           | Common Stock |        
|                            |  |            |           |              |        
|                            |  |            |           |              |         | Total |          
|                            |  | Retained   |           |              | Class A |       |           |       |  | Class B |            |  |  |       |   | 
|Particulars                 |  | Earnings   |           |              | Shares  |       |           | Value |  |         | Shares     |  |  | Value |   |  | Shares |  |     | Value | 
|                            |  |            |           |              |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|                            |  | US$        |           |              | No.     |       |           | US$   |  |         | No.        |  |  | US$   |   |  | No.    |  |     | US$   | 
|                            |  | (Restated) |           |              |         |       |           |       |  |         |            |  |  |       |  
|Balance at 31 December 2001 |  |            | 1,150,847 |              |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|Net income for 2002         |  |            | 1,632,846 |              |         |       |          |       |  |         |           |  |  |       |  |  |        |  |    |       |  |  |          |  |  |  |           | 
|                            |  |            |           |              |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 
|Balance at December 2002    |  |            | 2,783,693 |              |         |       | 2,085,924 |       |  |         | 44,099,873 |  |  |       | 6 |  |        |  | 127 |       |  |  | 2,085,930 |  |  |  | 44,100,000 | 
|                            |  |            |           |              |         |       |           |       |  |         |            |  |  |       |   |  |        |  |     |       | 



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KHULNA POWER COMPANY LTD.





NOTES TO THE FINANCIAL STATEMENTS


For the year ended 31 December 2002


(Unaudited)


1.     Organisation and
background


1.1     Organisation








1.2     Significant contracts


















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|   |                                           
|-- | ------------------------------------------
|2. | Summary of significant accounting policies





|    |                      
|--- | ---------------------
|2.1 | Basis of presentation











2.1.1     Restatement




|                  |                                      |                    |  |            |             |  |  |            | 
|----------------- | ------------------------------------ | ------------------ |  | ---------- | ----------- |  |  | ---------- | 
|                  |                                      | For the Year Ended | 
|                  |                                      | December 31, 2002  | 
|                  |                                      |                    | 
|                  |                                      | As Reported        |  |            | As Restated | 
|                  |                                      |                    |  |            |             | 
|Income statement: |                                      |                    |  |            |             |  |  |           
|                  | Depreciation and amortization        |                    |  | 3,687,343  |             |  |  | 3,662,966  | 
|                  | General and administrative           |                    |  | 2,741,049  |             |  |  | 3,382,467  | 
|                  | Net profit                           |                    |  | 2,249,887  |             |  |  | 1,632,846  | 
|Balance sheet:    |                                      |                    |  |            |             |  |  |           
|                  | Project development expenditure, net |                    |  | 10,014,601 |             |  |  | 9,397,560  | 
|                  | Retained profit                      |                    |  | 3,400,734  |             |  |  | 2,783,693  | 
|                  | Capital and reserves                 |                    |  | 47,500,734 |             |  |  | 46,883,693 | 

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2.2     Property, plant and
equipment




2.3     Capitalised interest




2.4     Income taxes




2.5     Use of estimates






|   |                   
|-- | ------------------
|3. | Non-current assets

|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |         |   |  |  |            |  |  |  |            | 
|------------------------- |  | ---------- | ---------- | --------- | ------------ |  | ------ | ---------- |  |  | ----------- | - |  | ---------- | ---------- | ------------ | ----------- |  | ---------- | ---------- |  | ---------- | ----------- |  | -------- | ----------- | ------- | - |  |  | ---------- |  |  |  | ---------- | 
|                          |  | Cost       |            |           | Depreciation |  |        |           
|                          |  |            |            |           |              |  |        |           
|                          |  |            |            | Disposal/ |              |  |        |            |  |  | Disposal/   |   |  |            |            | Written Down |            
|                          |  | Balance at |            |           | Additions    |  |        | Adjustment |  |  | Balance at  |   |  | Balance at |            |              |             |  | Adjustment |            |  | Balance at |             |  | Value at |            
|                          |  | 1 January  |            |           | During       |  |        | During the |  |  | 31 December |   |  | 1 January  |            |              | Charged for |  |            | During the |  |            | 31 December |  |          | 31 December |        
|Particulars               |  | 2002       |            |           | the Year     |  |        | Year       |  |  | 2002        |   |  | 2002       |            |              | the Year    |  |            | Year       |  |            | 2002        |  |          | 2002        |        
|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |        
|                          |  | US$        |            |           | US$          |  |        | US$        |  |  | US$         |   |  | US$        |            |              | US$         |  |            | US$        |  |            | US$         |  |          | US$         |        
|Power plant               |  |            | 82,657,977 |           |              |  |       |            |  |  |            |   |  |            | 82,657,977 |              |             |  | 8,801,954  |            |  |            | 2,755,963   |  |          |             |        |   |  |  | 11,557,917 |  |  |  | 71,100,060 | 
|Furniture and fixtures    |  |            | 18,892     |           |              |  | 666    |            |  |  |            |   |  |            | 19,558     |              |             |  | 10,608     |            |  |            | 3,880       |  |          |             |        |   |  |  | 14,488     |  |  |  | 5,070      | 
|Building and construction |  |            | 175,403    |           |              |  | 3,287  |            |  |  |            |   |  |            | 178,690    |              |             |  | 34,160     |            |  |            | 17,630      |  |          |             |        |   |  |  | 51,790     |  |  |  | 126,900    | 
|Vehicles                  |  |            | 42,782     |           |              |  | 46,114 |            |  |  | (42,782     | ) |  |            | 46,114     |              |             |  | 41,044     |            |  |            | 9,065       |  |          |             | (41,993 | ) |  |  | 8,116      |  |  |  | 37,998     | 
|Office equipment          |  |            | 93,050     |           |              |  | 4,707  |            |  |  |            |   |  |            | 97,757     |              |             |  | 48,450     |            |  |            | 18,909      |  |          |             |        |   |  |  | 67,359     |  |  |  | 30,398     | 
|Office renovation         |  |            | 32,013     |           |              |  |       |            |  |  | (4,757      | ) |  |            | 27,256     |              |             |  | 21,503     |            |  |            | 5,372       |  |          |             | (3,568  | ) |  |  | 23,307     |  |  |  | 3,949      | 
|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |        
|At 31 December 2002       |  |            | 83,020,117 |           |              |  | 54,774 |            |  |  | (47,539     | ) |  |            | 83,027,352 |              |             |  | 8,957,719  |            |  |            | 2,810,819   |  |          |             | (45,561 | ) |  |  | 11,722,977 |  |  |  | 71,304,375 | 
|                          |  |            |            |           |              |  |        |            |  |  |             |   |  |            |            |              |             |  |            |            |  |            |             |  |          |             |        

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|   |                             
|-- | ----------------------------
|4. | Project development expenses

|                               |                                                   |      |            |           |  
|------------------------------ | ------------------------------------------------- | ---- | ---------- | --------- | -
|                               |                                                   | 2002 |           
|                               |                                                   |      |           
|                               |                                                   | US$  |           
|Development cost:              |                                                   |      |            |          
|                               | Foreign expenses                                  |      |            | 1,306,722 |  
|                               | Fees and leasehold rent                           |      |            | 57,661    |  
|                               | Start-up expenses                                 |      |            | 91,475    |  
|                               | Other development expenses                        |      |            | 1,174,820 |  
|                               | Development fee with interest                     |      |            | 3,143,013 |  
|                               | Legal fees                                        |      |            | 4,397,750 |  
|                               | Environmental consulting                          |      |            | 595,394   |  
|                               | Pre-full commercial operation date (FCOD) surplus |      |            | (629,610  | )
|                               |                                                   |      |           
|                               |                                                   |      | 10,137,225 |          
|Fuel reservation fee           |                                                   |      | 1,500,000  |          
|Social goodwill                |                                                   |      | 182,086    |          
|Financing cost:                |                                                   |      |            |          
|                               | IFC appraisal fees                                |      |            | 250,000   |  
|                               | Independent engineers for lenders                 |      |            | 448,645   |  
|                               | Additional financing fees                         |      |            | 79,288    |  
|                               |                                                   |      |           
|                               |                                                   |      | 777,933    |          
|                               |                                                   |      |           
|                               |                                                   |      | 12,597,244 |          
|Less: Accumulated amortisation |                                                   |      | 3,199,684  |          
|                               |                                                   |      |           
|                               |                                                   |      | 9,397,560  |          
|                               |                                                   |      |           



|   |          
|-- | ---------
|5. | Inventory

|                                             |  |  |           | 
|-------------------------------------------- |  |  | --------- | 
|Spare parts for plant maintenance (Note 5.1) |  |  | 2,000,000 | 
|Fuel (Note 5.2)                              |  |  | 4,156,000 | 
|                                             |  |  |          
|                                             |  |  | 6,156,000 | 
|                                             |  |  |          







|   |                            
|-- | ---------------------------
|6. | Trade and other receivables

|                                                               |  |  |            | 
|-------------------------------------------------------------- |  |  | ---------- | 
|Operation and maintenance tariff, due from BPDB                |  |  | 4,594,092  | 
|Fuel tariff, due from BPDB                                     |  |  | 5,197,524  | 
|Coastal Fuji Oil                                               |  |  | 87,285     | 
|United Enterprises & Company Ltd.                              |  |  | 2,550      | 
|Bangladesh Inland Water Transport Authority  Licence
    fees |  |  | 162,122    | 
|                                                               |  |  |           
|                                                               |  |  | 10,043,573 | 
|                                                               |  |  |           

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|   |                                   
|-- | ----------------------------------
|7. | Advances, deposits and prepayments





|   |                          
|-- | -------------------------
|8. | Cash and cash equivalents





|   |              
|-- | -------------
|9. | Share capital



|                                                                                           |  |         |           |       |         |  |   |        |  |  |             |  |  |  |            | 
|------------------------------------------------------------------------------------------ |  | ------- | --------- | ----- | ------- |  | - | ------ |  |  | ----------- |  |  |  | ---------- | 
|                                                                                           |  | 2002    |          
|                                                                                           |  |         |          
|                                                                                           |  |         |           | Total |         |  |  
|Name of shareholder                                                                        |  | Class A |           |       | Class B |  |   | shares |  |  | Total value | 
|                                                                                           |  |         |           |       |         |  |   |        |  |  |             | 
|                                                                                           |  | No.     |           |       | No.     |  |   | No.    |  |  | US$         | 
|El Paso Khulna Power ApS (formerly Coastal Khulna Power
    ApS) (incorporated in Denmark) |  |         | 1,541,498 |       |         |  | 2 |        |  |  | 1,541,500   |  |  |  | 32,581,209 | 
|Wartsila Development & Financial Services (Asia) Ltd.
    (incorporated in Cayman Islands) |  |         | 127,242   |       |         |  | 2 |        |  |  | 127,244     |  |  |  | 2,698,263  | 
|Summit Industrial & Mercantile Corporation (Pvt) Ltd.
    (incorporated in Bangladesh)     |  |         | 208,592   |       |         |  | 1 |        |  |  | 208,593     |  |  |  | 4,410,264  | 
|United Enterprises & Company Ltd. (incorporated in
    Bangladesh)                         |  |         | 208,592   |       |         |  | 1 |        |  |  | 208,593     |  |  |  | 4,410,264  | 
|                                                                                           |  |         |           |       |         |  |   |        |  |  |             | 
|                                                                                           |  |         | 2,085,924 |       |         |  | 6 |        |  |  | 2,085,930   |  |  |  | 44,100,000 | 
|                                                                                           |  |         |           |       |         |  |   |        |  |  |             | 





|    |                        
|--- | -----------------------
|10. | Non-current liabilities





| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | An IFC A loan in the amount of US$ 22,539,000 was
    secured on 4 August 1999 with an interest rate of LIBOR
    plus 0.5% and a term of thirteen years. El Paso and Wartsila
    initially guaranteed the loan. On 28 February 2001 the
    Company met the required terms and conditions and the guarantees
    were released. At that time, the interest rate changed to LIBOR
    plus approximately 4% to be computed pursuant to section 1.1
    [A Loan interest rate (ii)] of Article 1
    of the Investment Agreement. As of 31 December 2002,
    US$ 16,470,808, of which US$ 64,758 in unpaid
    interest, was outstanding.
|
| | b) | An IFC B loan in the amount of US$ 21,590,000 was
    secured on 25 October 2002 with an interest rate of LIBOR
    plus 3.5% and a term of nine years. As of 31 December 2002,
    US$ 20,390,556, of which US$ 39,046 in unpaid
    interest, was outstanding.                                                                                                                                                                                                                                                                                                                                                                            

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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) | A Bridge Loan in the amount of US$ 25,014,650 and
    US$ 4,414,350 was secured from El Paso Power Khulna Holding
    Ltd. and Wartsila respectively. The interest rate if 10% and
    payable in semi-annual instalment. Unpaid interest is added to
    the outstanding principal and accrues interest at the stated
    rate. IFC B loan has been fully used for repaying the
    Bridge loan. As of 31 December 2002, US$ 3,800,414 of
    which US $30,397 in unpaid interest, was outstanding.



|    |                 
|--- | ----------------
|11. | Accounts payable

|                                  |  |      |           | 
|--------------------------------- |  | ---- | --------- | 
|                                  |  | 2002 |          
|                                  |  |      |          
|                                  |  | US$  |          
|CFO  Handling commission         |  |      | 1,016,165 | 
|CFO  Fuel cost                   |  |      | 2,979,464 | 
|USCOL  Fuel carrying and storage |  |      | 437,256   | 
|                                  |  |      |          
|                                  |  |      | 4,432,885 | 
|                                  |  |      |          



|    |                             
|--- | ----------------------------
|12. | Working capital loan payable

|                    |  |  |           | 
|------------------- |  |  | --------- | 
|Taka Overdraft      |  |  | 1,860,660 | 
|US Dollar Revolving |  |  | 3,996,782 | 
|                    |  |  |          
|                    |  |  | 5,857,442 | 
|                    |  |  |          





|    |                            
|--- | ---------------------------
|13. | Accrued expenses and others

|                                                                          |  |      |         | 
|------------------------------------------------------------------------- |  | ---- | ------- | 
|                                                                          |  | 2002 |        
|                                                                          |  |      |        
|                                                                          |  | US$  |        
|Electricity, gas and water                                                |  |      | 847     | 
|El Paso Khulna Power ApS                                                  |  |      | 38      | 
|Legal and audit fees  HVC, RRH and others                                |  |      | 23,802  | 
|Wartsila Development & Financial Services (Asia) Ltd.                     |  |      | 5,042   | 
|Telephone, fax and email                                                  |  |      | 2,794   | 
|Provision for withholding tax/VAT for legal, professional &
    other fee |  |      | 6,346   | 
|Wartsila Bangladesh Ltd. (WBL)                                            |  |      | 4,229   | 
|El Paso International                                                     |  |      | 9,043   | 
|Fulbright and Jaworski LLP  Legal fees                                   |  |      | 83,870  | 
|R W Beck  Independent Engineer for lenders                               |  |      | 4,750   | 
|Chadbourne and Parke LLP  Legal fees                                     |  |      | 37,784  | 
|Others                                                                    |  |      | 5,201   | 
|                                                                          |  |      |        
|                                                                          |  |      | 183,746 | 
|                                                                          |  |      |        



|    |                                     
|--- | ------------------------------------
|14. | Payable for other financial expenses

|                                                              |  |  |        | 
|------------------------------------------------------------- |  |  | ------ | 
|Bank charge on performance bond (1.5 million US dollar)       |  |  | 783    | 
|Bank charge on performance bond (5.832 million
    US dollar) |  |  | 28,302 | 
|                                                              |  |  |       
|                                                              |  |  | 29,085 | 
|                                                              |  |  |       

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|    |                                            
|--- | -------------------------------------------
|15. | Payable for project implementation expenses

|             |  |  |         | 
|------------ |  |  | ------- | 
|VAT on plant |  |  | 223,130 | 
|             |  |  |        
|             |  |  | 223,130 | 
|             |  |  |        



|    |                              
|--- | -----------------------------
|16. | Commitments and contingencies



|     |           
|---- | ----------
|16.1 | Agreements



|       |                         
|------ | ------------------------
|16.1.1 | Implementation agreement







|       |                         
|------ | ------------------------
|16.1.2 | Power purchase agreement











|       |                                     
|------ | ------------------------------------
|16.1.3 | Operations and maintenance agreement





|       |                      
|------ | ---------------------
|16.1.4 | Fuel supply agreement



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|       |                         
|------ | ------------------------
|16.1.5 | Gas conversion agreement





|     |                                                    
|---- | ---------------------------------------------------
|16.2 | Guarantees by the sponsors in favour of the Company



|       |                                                                  
|------ | -----------------------------------------------------------------
|16.2.1 | Performance bond to Bangladesh Power Development Board
    (BPDB)





|       |                                                                                                         
|------ | --------------------------------------------------------------------------------------------------------
|16.2.2 | Catastrophic Maintenance Letter of Credit and Debt Service
    Letter of Credit submitted to the Trustee





|       |                         
|------ | ------------------------
|16.2.3 | Working capital facility





|    |        
|--- | -------
|17. | General



|     |                                                                                                                                
|---- | -------------------------------------------------------------------------------------------------------------------------------
|17.1 | Previous years figures have been rearranged, wherever
    considered necessary, to conform to current years
    presentation.



|     |                                                            
|---- | -----------------------------------------------------------
|17.2 | Figures have been rounded off to the nearest
    US dollar.

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REPORT OF INDEPENDENT AUDITORS














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HABIBULLAH COASTAL POWER COMPANY (PRIVATE) LIMITED





BALANCE SHEETS


|                                     |                                                                          |                                            |   |             |             |  |   |             |             | 
|------------------------------------ | ------------------------------------------------------------------------ | ------------------------------------------ | - | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                     |                                                                          | December 31,                               |  
|                                     |                                                                          |                                            |  
|                                     |                                                                          | 2004                                       |   |             | 2003        | 
|                                     |                                                                          |                                            |   |             |             | 
|ASSETS                              
|Current assets:                      |                                                                          |                                            |   |             |             |  |   |            
|                                     | Cash and cash equivalents                                                |                                            | $ | 20,322,632  |             |  | $ | 17,907,942  |            
|                                     | Accounts receivable  trade                                              |                                            |   | 5,724,080   |             |  |   | 5,381,720   |            
|                                     | Accounts receivable  other                                              |                                            |   | 825,695     |             |  |   | 1,026,876   |            
|                                     | Fuel inventory                                                           |                                            |   | 2,338,792   |             |  |   | 2,351,832   |            
|                                     | Supplies inventory                                                       |                                            |   | 2,758,294   |             |  |   | 2,758,294   |            
|                                     | Prepaid and other current assets                                         |                                            |   | 250,796     |             |  |   | 840,503     |            
|                                     |                                                                          |                                            |   |             |             | 
|                                     |                                                                          | Total current assets                       |   |             | 32,220,289  |  |   |             | 30,267,167  | 
|                                     |                                                                          |                                            |   |             |             | 
|Property, plant, and equipment:      |                                                                          |                                            |   |             |             |  |   |            
|                                     | Land                                                                     |                                            |   | 2,700,000   |             |  |   | 2,700,000   |            
|                                     | Plant facility                                                           |                                            |   | 139,628,710 |             |  |   | 139,558,410 |            
|                                     | Equipment                                                                |                                            |   | 541,003     |             |  |   | 590,550     |            
|                                     |                                                                          |                                            |   |             |             | 
|                                     |                                                                          | Subtotal                                   |   |             | 142,869,713 |  |   |             | 142,848,960 | 
|                                     | Less: accumulated depreciation                                           |                                            |   | (24,597,099 | )           |  |   | (19,927,499 | )          
|                                     |                                                                          |                                            |   |             |             | 
|                                     |                                                                          | Total property, plant, and equipment, net  |   |             | 118,272,614 |  |   |             | 122,921,461 | 
|                                     |                                                                          |                                            |   |             |             | 
|Other non-current assets:            |                                                                          |                                            |   |             |             |  |   |            
|                                     | Tax deposits                                                             |                                            |   | 2,120,716   |             |  |   | 1,444,539   |            
|                                     | Long term receivable                                                     |                                            |   | 5,546,238   |             |  |   | 5,758,781   |            
|                                     |                                                                          |                                            |   |             |             | 
|                                     |                                                                          | Total other non-current assets             |   |             | 7,666,954   |  |   |             | 7,203,320   | 
|                                     |                                                                          |                                            |   |             |             | 
|                                     | Total Assets                                                             |                                            | $ | 158,159,857 |             |  | $ | 160,391,948 |            
|                                     |                                                                          |                                            |   |             |             | 
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                                                          |                                            |   |             |             |  |   |            
|                                     | Interest payable                                                         |                                            | $ | 1,948,478   |             |  | $ | 2,179,741   |            
|                                     | Accounts payable  trade                                                 |                                            |   | 5,811,681   |             |  |   | 5,232,858   |            
|                                     | Accounts payable  affiliates                                            |                                            |   | 133,906     |             |  |   | 39,221      |            
|                                     | Current portion of contract payable                                      |                                            |   | 2,579,284   |             |  |   | 13,228,072  |            
|                                     | Current portion of note payable                                          |                                            |   | 10,868,650  |             |  |   | 9,972,154   |            
|                                     |                                                                          |                                            |   |             |             | 
|                                     |                                                                          | Total current liabilities                  |   |             | 21,341,999  |  |   |             | 30,652,046  | 
|                                     |                                                                          |                                            |   |             |             | 
|Long-term debt                       |                                                                          |                                            |   |             |             |  |   |            
|                                     | Deferred contract payable                                                |                                            |   | 8,069,505   |             |  |   |            |            
|                                     | Notes payable                                                            |                                            |   | 68,782,112  |             |  |   | 79,650,762  |            
|                                     |                                                                          |                                            |   |             |             | 
|                                     |                                                                          | Total long-term debt                       |   |             | 76,851,617  |  |   |             | 79,650,762  | 
|                                     |                                                                          |                                            |   |             |             | 
|Stockholders equity:                |                                                                          |                                            |   |             |             |  |   |            
|                                     | Authorized share capital, 10 rupee par value:
    174,000,000 shares     |                                            |   |             |             |  |   |             |            
|                                     | Common stock, 10 rupees par value; 135,731,653 Class A
    shares issued |                                            |   | 31,600,032  |             |  |   | 31,600,032  |            
|                                     | Common stock, 10 rupees par value; 36,080,641 Class B
    shares issued  |                                            |   | 8,400,032   |             |  |   | 8,400,032   |            
|                                     | Retained earnings                                                        |                                            |   | 19,966,177  |             |  |   | 10,089,076  |            
|                                     |                                                                          |                                            |   |             |             | 
|                                     |                                                                          | Total stockholders equity                 |   |             | 59,966,241  |  |   |             | 50,089,140  | 
|                                     |                                                                          |                                            |   |             |             | 
|                                     |                                                                          | Total Liabilities and Stockholders Equity |   | $           | 158,159,857 |  |   | $           | 160,391,948 | 
|                                     |                                                                          |                                            |   |             |             | 

See the accompanying notes to these financial statements.


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HABIBULLAH COASTAL POWER COMPANY (PRIVATE) LIMITED





STATEMENTS OF OPERATIONS


|                         |                              |                                 |            |            |            |   |            |            |            | 
|------------------------ | ---------------------------- | ------------------------------- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | 
|                         |                              | For the Year Ended December 31, |           
|                         |                              |                                 |           
|                         |                              | 2004                            |            |            | 2003       |  
|                         |                              |                                 |            |            |            |  
|Revenue                  |                              |                                 |            |            |            |   |            |           
|                         | Electric capacity            |                                 | $          | 28,710,968 |            |   | $          | 29,219,104 |           
|                         | Electric energy              |                                 |            | 27,145,085 |            |   |            | 25,135,328 |           
|                         |                              |                                 |            |            |            |  
|Total revenue            |                              |                                 | 55,856,053 |            |            |   | 54,354,432 |           
|                         |                              |                                 |            |            |            |  
|Operating expenses       |                              |                                 |            |            |            |   |            |           
|                         | Fuel                         |                                 |            | 24,526,389 |            |   |            | 23,010,876 |           
|                         | Administrative and general   |                                 |            | 2,057,511  |            |   |            | 2,572,673  |           
|                         | Operations and maintenance   |                                 |            | 5,655,520  |            |   |            | 6,655,212  |           
|                         | Depreciation                 |                                 |            | 4,669,600  |            |   |            | 4,668,795  |           
|                         |                              |                                 |            |            |            |  
|                         |                              | Total operating expenses        |            |            | 36,909,020 |   |            |            | 36,907,556 | 
|                         |                              |                                 |            |            |            |  
|Operating income         |                              |                                 | 18,947,033 |            |            |   | 17,446,876 |           
|                         |                              |                                 |            |            |            |  
|Other (income) expense   |                              |                                 |            |            |            |   |            |           
|                         | Interest income              |                                 |            | (520,307   | )          |   |            | (1,219,267 | )         
|                         | Interest expense  affiliate |                                 |            | 7,616,150  |            |   |            | 8,485,833  |           
|                         | Interest expense             |                                 |            | 589,613    |            |   |            | 1,941,521  |           
|                         | Foreign exchange loss        |                                 |            | 1,384,476  |            |   |            | 206,376    |           
|                         |                              |                                 |            |            |            |  
|Total other expense, net |                              |                                 | 9,069,932  |            |            |   | 9,414,463  |           
|                         |                              |                                 |            |            |            |  
|Net income               |                              | $                               | 9,877,101  |            |            | $ | 8,032,413  |           
|                         |                              |                                 |            |            |            |  

See the accompanying notes to these financial statements.


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HABIBULLAH COASTAL POWER COMPANY (PRIVATE) LIMITED





STATEMENTS OF CASH FLOWS


|                                                 |                                                                                      |                                           |            |            |             |   |            |            |             |  
|------------------------------------------------ | ------------------------------------------------------------------------------------ | ----------------------------------------- | ---------- | ---------- | ----------- | - | ---------- | ---------- | ----------- | -
|                                                 |                                                                                      | For the Year Ended December 31,           |           
|                                                 |                                                                                      |                                           |           
|                                                 |                                                                                      | 2004                                      |            |            | 2003        |  
|                                                 |                                                                                      |                                           |            |            |             |  
|Cash flows from operating activities             |                                                                                      |                                           |            |            |             |   |            |           
|                                                 | Net income                                                                           |                                           | $          | 9,877,101  |             |   | $          | 8,032,413  |            
|                                                 | Adjustments to reconcile net income to net cash provided by
    operating activities |                                           |            |            |             |   |            |            |            
|                                                 |                                                                                      | Depreciation                              |            |            | 4,669,600   |   |            |            | 4,668,795   |  
|                                                 | Working capital changes                                                              |                                           |            |            |             |   |            |            |            
|                                                 |                                                                                      | Accounts receivable                       |            |            | (141,179    | ) |            |            | 5,893,316   |  
|                                                 |                                                                                      | Fuel inventory                            |            |            | 13,040      |   |            |            | 136,357     |  
|                                                 |                                                                                      | Supplies inventory                        |            |            |            |   |            |            | (16,647     | )
|                                                 |                                                                                      | Prepaid and other current assets          |            |            | 589,707     |   |            |            | 261,882     |  
|                                                 |                                                                                      | Interest payable                          |            |            | (231,263    | ) |            |            | (1,342,565  | )
|                                                 |                                                                                      | Accounts payable                          |            |            | 673,508     |   |            |            | (121,779    | )
|                                                 | Non-working capital changes                                                          |                                           |            |            |             |   |            |            |            
|                                                 |                                                                                      | Tax deposits                              |            |            | (676,177    | ) |            |            | (559,264    | )
|                                                 |                                                                                      | Long-term receivable                      |            |            | 212,543     |   |            |            | (2,002,725  | )
|                                                 |                                                                                      |                                           |            |            |             |  
|                                                 |                                                                                      | Net cash provided by operating activities |            |            | 14,986,880  |   |            |            | 14,949,783  |  
|                                                 |                                                                                      |                                           |            |            |             |  
|Cash flows from investing activities:            |                                                                                      |                                           |            |            |             |   |            |           
|                                                 | Capital expenditures                                                                 |                                           |            | (20,753    | )           |   |            | (438,161   | )          
|                                                 |                                                                                      |                                           |            |            |             |  
|                                                 |                                                                                      | Net cash used in investing activities     |            |            | (20,753     | ) |            |            | (438,161    | )
|                                                 |                                                                                      |                                           |            |            |             |  
|Cash flows from financing activities:            |                                                                                      |                                           |            |            |             |   |            |           
|                                                 | Payments on deferred contract payable                                                |                                           |            | (2,579,283 | )           |   |            | (3,719,676 | )          
|                                                 | Principal payments on note payable                                                   |                                           |            | (9,972,154 | )           |   |            | (9,149,604 | )          
|                                                 | Dividends paid                                                                       |                                           |            |           |             |   |            | (7,409,322 | )          
|                                                 |                                                                                      |                                           |            |            |             |  
|                                                 |                                                                                      | Net cash used in financing activities     |            |            | (12,551,437 | ) |            |            | (20,278,602 | )
|                                                 |                                                                                      |                                           |            |            |             |  
|Increase (decrease) in cash and cash equivalents |                                                                                      |                                           | 2,414,690  |            |             |   | (5,766,980 | )         
|Cash and cash equivalents at beginning of period |                                                                                      |                                           | 17,907,942 |            |             |   | 23,674,922 |           
|                                                 |                                                                                      |                                           |            |            |             |  
|Cash and cash equivalents at end of period       |                                                                                      | $                                         | 20,322,632 |            |             | $ | 17,907,942 |           
|                                                 |                                                                                      |                                           |            |            |             |  
|Supplemental cash flow data                      |                                                                                      |                                           |            |            |             |   |            |           
|                                                 | Interest paid                                                                        |                                           | $          | 8,323,052  |             |   | $          | 10,649,827 |            
|                                                 |                                                                                      |                                           |            |            |             |  

See the accompanying notes to these financial statements.


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HABIBULLAH COASTAL POWER COMPANY (PRIVATE) LIMITED





STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY


|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |   |            |   |  |   |            |  
|-------------------------- |  | ------------ | ----------- |  | ------ | - | ---------- | ------ |  |  | ---------- | -------- |  | -------- | --------- |  | ----- | - | ---------- | - |  | - | ---------- | -
|                           |  | Common Stock |             |  |        |   |           
|                           |  |              |             |  |        |   |           
|                           |  | Class A      |             |  |        |   | Class B    |        |  |  |            | Retained |  |          |          
|                           |  | Shares       |             |  | Amount |   |            | Shares |  |  | Amount     |          |  | Earnings |           |  | Total |  
|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |  
|Balance, January 1, 2003   |  |              | 135,731,653 |  |        | $ | 31,600,032 |        |  |  | 36,080,641 |          |  | $        | 8,400,032 |  |       | $ | 9,465,985  |   |  | $ | 49,466,049 |  
|Dividends paid             |  |              |            |  |        |   |           |        |  |  |           |          |  |          |          |  |       |   | (7,409,322 | ) |  |   | (7,409,322 | )
|Net income                 |  |              |            |  |        |   |           |        |  |  |           |          |  |          |          |  |       |   | 8,032,413  |   |  |   | 8,032,413  |  
|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |  
|Balance, December 31, 2003 |  |              | 135,731,653 |  |        |   | 31,600,032 |        |  |  | 36,080,641 |          |  |          | 8,400,032 |  |       |   | 10,089,076 |   |  |   | 50,089,140 |  
|Net income                 |  |              |            |  |        |   |           |        |  |  |           |          |  |          |          |  |       |   | 9,877,101  |   |  |   | 9,877,101  |  
|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |  
|Balance, December 31, 2004 |  |              | 135,731,653 |  |        | $ | 31,600,032 |        |  |  | 36,080,641 |          |  | $        | 8,400,032 |  |       | $ | 19,966,177 |   |  | $ | 59,966,241 |  
|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |  

See the accompanying notes to these financial statements.


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HABIBULLAH COASTAL POWER COMPANY (PRIVATE) LIMITED





NOTES TO FINANCIAL STATEMENTS




|   |                            
|-- | ---------------------------
|1. | Organization and Background







|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies

Basis of Presentation




Use of Estimates




Functional Currency




Revenue Recognition




Cash and Cash Equivalents




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Accounts Receivable




Inventory




Property, Plant and Equipment




Accounting for the
Impairment or Disposal of Long-Lived Assets.


Income Taxes






|   |                         
|-- | ------------------------
|3. | Stockholders Agreements





|   |               
|-- | --------------
|4. | Long-Term Debt



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|           |  |                  |            | 
|---------- |  | ---------------- | ---------- | 
|Year       |  | Principal Amount |           
|           |  |                  |           
|2005       |  | $                | 10,868,650 | 
|2006       |  |                  | 11,845,742 | 
|2007       |  |                  | 12,910,674 | 
|2008       |  |                  | 14,071,344 | 
|2009       |  |                  | 10,630,053 | 
|Thereafter |  |                  | 19,324,299 | 
|           |  |                  |           
|Total      |  | $                | 79,650,762 | 
|           |  |                  |           





|   |                           
|-- | --------------------------
|5. | Related Party Transactions

Long-Term Debt




Administrative Services Agreement




Local Advisory Services Agreement






|   |                              
|-- | -----------------------------
|6. | Commitments and Contingencies

EP Contract and Construction Contract




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Implementation Agreement




186



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Power Purchase Agreement














Gas Supply Agreement and Backup Fuel Supply Agreement




187



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O&M Agreement








LTS Agreement




Tax Deposits






|   |                             
|-- | ----------------------------
|7. | Concentration of Credit Risk





|   |                                    
|-- | -----------------------------------
|8. | Fair Value of Financial Instruments



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HABIBULLAH COASTAL POWER (PRIVATE) COMPANY





BALANCE SHEET


(Unaudited)


|                                      |                                                                          |                                            |   |             |             | 
|------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------ | - | ----------- | ----------- | 
|                                      |                                                                          | December 31,                               |  
|                                      |                                                                          | 2002                                       |  
|                                      |                                                                          |                                            |  
|ASSETS                               
|Current Assets:                       |                                                                          |                                            |   |            
|                                      | Cash and cash equivalents                                                |                                            | $ | 23,674,922  |            
|                                      | Accounts receivable                                                      |                                            |   | 12,301,912  |            
|                                      | Fuel inventory                                                           |                                            |   | 2,488,189   |            
|                                      | Supplies inventory                                                       |                                            |   | 2,741,647   |            
|                                      | Prepaid and other current assets                                         |                                            |   | 1,102,385   |            
|                                      |                                                                          |                                            |  
|                                      |                                                                          | Total current assets                       |   |             | 42,309,055  | 
|                                      |                                                                          |                                            |  
|Property, plant, and equipment:       |                                                                          |                                            |   |            
|                                      | Land                                                                     |                                            |   | 2,700,000   |            
|                                      | Plant facility                                                           |                                            |   | 139,169,796 |            
|                                      | Equipment                                                                |                                            |   | 541,003     |            
|                                      |                                                                          |                                            |  
|                                      |                                                                          | Subtotal                                   |   |             | 142,410,799 | 
|                                      | Less: accumulated depreciation                                           |                                            |   | (15,258,704 | )          
|                                      |                                                                          |                                            |  
|                                      |                                                                          | Total property, plant, and equipment       |   |             | 127,152,095 | 
|                                      |                                                                          |                                            |  
|Other non-current assets:             |                                                                          |                                            |   |            
|                                      | Tax deposits                                                             |                                            |   | 885,275     |            
|                                      | Long term receivable                                                     |                                            |   | 3,756,056   |            
|                                      |                                                                          |                                            |  
|                                      |                                                                          | Total other non-current assets             |   |             | 4,641,331   | 
|                                      |                                                                          |                                            |  
|                                      | Total Assets                                                             |                                            | $ | 174,102,481 |            
|                                      |                                                                          |                                            |  
|                                     
|LIABILITIES AND STOCKHOLDERS EQUITY 
|Current liabilities:                  |                                                                          |                                            |   |            
|                                      | Interest payable                                                         |                                            | $ | 2,693,488   |            
|                                      | Accounts payable, trade                                                  |                                            |   | 5,291,199   |            
|                                      | Accounts payable, affiliates                                             |                                            |   | 102,659     |            
|                                      | Current portion of deferred contract  Fiat                              |                                            |   | 17,776,566  |            
|                                      | Current portion of long term debt                                        |                                            |   | 9,149,604   |            
|                                      |                                                                          |                                            |  
|                                      |                                                                          | Total current liabilities                  |   |             | 35,013,516  | 
|                                      |                                                                          |                                            |  
|Long-term debt and other obligations: |                                                                          |                                            |   |            
|                                      | Note payable                                                             |                                            |   | 89,622,916  |            
|                                      |                                                                          |                                            |  
|                                      |                                                                          | Total long-term liabilities                |   |             | 89,622,916  | 
|                                      |                                                                          |                                            |  
|Commitments and contingencies         |                                                                          |                                            |   |            
|Stockholders equity:                 |                                                                          |                                            |   |            
|                                      | Authorized share capital, 10 rupee par value: 174,000,000                |                                            |   |             |            
|                                      | Common stock, 10 rupees par value; 135,731,653 Class A
    shares issued |                                            |   | 31,600,032  |            
|                                      | Common stock, 10 rupees par value; 36,080,641 Class B
    shares issued  |                                            |   | 8,400,032   |            
|                                      | Retained earnings                                                        |                                            |   | 9,465,985   |            
|                                      |                                                                          |                                            |  
|                                      |                                                                          | Total stockholders equity                 |   |             | 49,466,049  | 
|                                      |                                                                          |                                            |  
|                                      |                                                                          | Total Liabilities and Stockholders Equity |   | $           | 174,102,481 | 
|                                      |                                                                          |                                            |  

See the accompanying notes to these financial statements.


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HABIBULLAH COASTAL POWER (PRIVATE) COMPANY





STATEMENT OF OPERATIONS


(Unaudited)


|                       |                          |                          |            |            |            | 
|---------------------- | ------------------------ | ------------------------ | ---------- | ---------- | ---------- | 
|                       |                          | For the Year             |           
|                       |                          | Ended                    |           
|                       |                          | December 31,             |           
|                       |                          | 2002                     |           
|                       |                          |                          |           
|Revenue                |                          |                          |            |           
|                       | Electricity capacity     |                          | $          | 28,774,138 |           
|                       | Electricity energy       |                          |            | 24,250,410 |           
|                       |                          |                          |           
|Total revenue          |                          |                          | 53,024,548 |           
|                       |                          |                          |           
|Operating expenses     |                          |                          |            |           
|                       | Fuel                     |                          |            | 22,209,672 |           
|                       | Administrative & general |                          |            | 6,412,434  |           
|                       | Operating                |                          |            | 9,893,625  |           
|                       | Depreciation             |                          |            | 5,199,203  |           
|                       |                          |                          |           
|                       |                          | Total operating expenses |            |            | 43,714,934 | 
|                       |                          |                          |           
|Operating income       |                          |                          | 9,309,614  |           
|                       |                          |                          |           
|Other (income) expense |                          |                          |            |           
|                       | Interest income          |                          |            | (1,241,831 | )         
|                       | Interest expense         |                          |            | 10,562,916 |           
|                       | Foreign exchange gain    |                          |            | (628,322   | )         
|                       |                          |                          |           
|Total other expense    |                          |                          | 8,692,763  |           
|                       |                          |                          |           
|Net income             |                          | $                        | 616,851    |           
|                       |                          |                          |           

See the accompanying notes to these financial statements.


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HABIBULLAH COASTAL POWER (PRIVATE) COMPANY





STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY


(Unaudited)


|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |   |           |  |  |   |            | 
|-------------------------- |  | ------------ | ----------- |  | ------ | - | ---------- | ------ |  |  | ---------- | -------- |  | -------- | --------- |  | ----- | - | --------- |  |  | - | ---------- | 
|                           |  | Common Stock |             |  |        |   |           
|                           |  |              |             |  |        |   |           
|                           |  | Class A      |             |  |        |   | Class B    |        |  |  |            | Retained |  |          |          
|                           |  | Shares       |             |  | Amount |   |            | Shares |  |  | Amount     |          |  | Earnings |           |  | Total |  
|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |  
|Balance, January 1, 2002   |  |              | 135,731,653 |  |        | $ | 31,600,032 |        |  |  | 36,080,641 |          |  | $        | 8,400,032 |  |       | $ | 8,849,134 |  |  | $ | 48,849,198 | 
|Net Income                 |  |              |            |  |        |   |           |        |  |  |           |          |  |          |          |  |       |   | 616,851   |  |  |   | 616,851    | 
|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |  
|Balance, December 31, 2002 |  |              | 135,731,653 |  |        | $ | 31,600,032 |        |  |  | 36,080,641 |          |  | $        | 8,400,032 |  |       | $ | 9,465,985 |  |  | $ | 49,466,049 | 
|                           |  |              |             |  |        |   |            |        |  |  |            |          |  |          |           |  |       |  

See the accompanying notes to these financial statements.


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HABIBULLAH COASTAL POWER (PRIVATE) COMPANY





STATEMENT OF CASH FLOWS


(Unaudited)


|                                                 |                                                                                      |                                           |             |            |             |  
|------------------------------------------------ | ------------------------------------------------------------------------------------ | ----------------------------------------- | ----------- | ---------- | ----------- | -
|                                                 |                                                                                      | For the                                   |            
|                                                 |                                                                                      | Year Ended                                |            
|                                                 |                                                                                      | December 31,                              |            
|                                                 |                                                                                      | 2002                                      |            
|                                                 |                                                                                      |                                           |            
|Cash flows from operating activities             |                                                                                      |                                           |             |           
|                                                 | Net income                                                                           |                                           | $           | 616,851    |            
|                                                 | Adjustments to reconcile net income to net cash provided by
    operating activities |                                           |             |            |            
|                                                 |                                                                                      | Depreciation and amortization             |             |            | 5,199,203   |  
|                                                 |                                                                                      | Accounts receivable                       |             |            | 1,843,555   |  
|                                                 |                                                                                      | Fuel inventory                            |             |            | 379,807     |  
|                                                 |                                                                                      | Supplies inventory                        |             |            | 66,779      |  
|                                                 |                                                                                      | Prepaid and other current assets          |             |            | 198,069     |  
|                                                 |                                                                                      | Interest payable                          |             |            | (510,566    | )
|                                                 |                                                                                      | Accounts payable  affiliates and other   |             |            | 1,286,485   |  
|                                                 |                                                                                      |                                           |            
|                                                 |                                                                                      | Net cash provided by operating activities |             |            | 9,080,183   |  
|                                                 |                                                                                      |                                           |            
|Cash flows from investing activities:            |                                                                                      |                                           |             |           
|                                                 | Plant facility                                                                       |                                           |             | (2,184,497 | )          
|                                                 | Proceeds from sale of equipment                                                      |                                           |             | 46,673     |            
|                                                 |                                                                                      |                                           |            
|                                                 |                                                                                      | Net cash used in investing activities     |             |            | (2,137,824  | )
|                                                 |                                                                                      |                                           |            
|Cash flows from financing activities:            |                                                                                      |                                           |             |           
|                                                 | Deferred contract payment                                                            |                                           |             | (2,653,908 | )          
|                                                 | Payment of note payable                                                              |                                           |             | (8,394,903 | )          
|                                                 | Dividends paid                                                                       |                                           |             | (8,457,923 | )          
|                                                 |                                                                                      |                                           |            
|                                                 |                                                                                      | Net cash used in financing activities     |             |            | (19,506,734 | )
|                                                 |                                                                                      |                                           |            
|Net decrease in cash and cash equivalents        |                                                                                      |                                           | (12,564,375 | )         
|Cash and cash equivalents at beginning of period |                                                                                      |                                           | 36,239,297  |           
|                                                 |                                                                                      |                                           |            
|Cash and cash equivalents at end of period       |                                                                                      | $                                         | 23,674,922  |           
|                                                 |                                                                                      |                                           |            

See the accompanying notes to these financial statements.


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HABIBULLAH COASTAL POWER COMPANY (PRIVATE) LIMITED





NOTES TO FINANCIAL STATEMENTS


(Unaudited)




|   |                            
|-- | ---------------------------
|1. | Organization and Background







|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies

Basis of Presentation




Use of Estimates




Functional Currency




Revenue Recognition




Cash and Cash Equivalents




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Accounts Receivable




Inventory




Property, Plant and Equipment




Accounting for the
Impairment or Disposal of Long-Lived Assets.


Income Taxes




Recent Accounting Pronouncements


Accounting for Asset
Retirement Obligations


Accounting
for Asset Retirement Obligations.




|   |                         
|-- | ------------------------
|3. | Stockholders Agreements





|   |               
|-- | --------------
|4. | Long-Term Debt



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|           |  |                  |            | 
|---------- |  | ---------------- | ---------- | 
|Year       |  | Principal Amount |           
|           |  |                  |           
|2003       |  | $                | 9,149,604  | 
|2004       |  |                  | 9,972,154  | 
|2005       |  |                  | 10,868,650 | 
|2006       |  |                  | 11,842,742 | 
|2007       |  |                  | 12,910,674 | 
|Thereafter |  |                  | 44,028,696 | 
|           |  |                  |           
|Total      |  | $                | 98,772,520 | 
|           |  |                  |           





|   |                           
|-- | --------------------------
|5. | Related Party Transactions

Long-Term Debt




Administrative Services Agreement




Local Advisory Services Agreement






|   |                              
|-- | -----------------------------
|6. | Commitments and Contingencies

EP Contract and Construction Contract




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Implementation Agreement






Power Purchase Agreement








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Gas Supply Agreement and Backup Fuel Supply Agreement




O&M Agreement








LTS Agreement




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Tax Deposits






|   |                             
|-- | ----------------------------
|7. | Concentration of Credit Risk





|   |                                    
|-- | -----------------------------------
|8. | Fair Value of Financial Instruments



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Report of Independent Auditors




















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Empresa de Generación Eléctrica Fortuna, S.A.





Balance Sheets


As of December 31,


|                                                 |                                                                                       |                                            |              |             |             |  |              |             |             | 
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ------------------------------------------ | ------------ | ----------- | ----------- |  | ------------ | ----------- | ----------- | 
|                                                 |                                                                                       | 2004                                       |              |             | 2003        | 
|                                                 |                                                                                       |                                            |              |             |             | 
|ASSETS                                          
|Current assets                                   |                                                                                       |                                            |              |             |             |  |              |            
|                                                 | Cash and cash equivalents                                                             |                                            | $            | 10,205,923  |             |  | $            | 1,222,755   |            
|                                                 | Non restricted investments                                                            |                                            |              | 7,544,700   |             |  |              | 847,371     |            
|                                                 | Accounts receivable  affiliates                                                      |                                            |              | 14,830,126  |             |  |              | 12,501,293  |            
|                                                 | Accounts receivable  other                                                           |                                            |              | 924,666     |             |  |              | 548,303     |            
|                                                 | Materials and supplies                                                                |                                            |              | 5,270,727   |             |  |              | 5,070,495   |            
|                                                 | Deferred tax asset                                                                    |                                            |              | 354,214     |             |  |              | 287,620     |            
|                                                 | Other prepaid expenses and deposits                                                   |                                            |              | 4,231,684   |             |  |              | 1,892,438   |            
|                                                 |                                                                                       |                                            |              |             |             | 
|                                                 |                                                                                       | Total current assets                       |              |             | 43,362,040  |  |              |             | 22,370,275  | 
|                                                 |                                                                                       |                                            |              |             |             | 
|Note receivable  affiliate                      |                                                                                       |                                            | 12,000,000   |             |             |  | 12,000,000   |            
|Property, plant and equipment                    |                                                                                       |                                            | 687,899,413  |             |             |  | 683,401,151  |            
|Less  accumulated depreciation and amortization |                                                                                       |                                            | (244,370,129 | )           |             |  | (229,696,178 | )          
|                                                 |                                                                                       |                                            |              |             |             | 
|                                                 | Property plant and equipment, net                                                     |                                            |              | 443,529,284 |             |  |              | 453,704,973 |            
|Other assets                                     |                                                                                       |                                            |              |             |             |  |              |            
|                                                 | Restricted investments                                                                |                                            |              | 13,965,312  |             |  |              | 13,828,718  |            
|                                                 | Restricted cash                                                                       |                                            |              | 15,564      |             |  |              | 35,312      |            
|                                                 | Deferred financing costs, net                                                         |                                            |              | 3,571,354   |             |  |              | 3,999,836   |            
|                                                 | Other                                                                                 |                                            |              | 242,208     |             |  |              | 194,177     |            
|                                                 | Assets from risk management activities                                                |                                            |              | 602,981     |             |  |              | 1,447,093   |            
|                                                 |                                                                                       |                                            |              |             |             | 
|                                                 |                                                                                       | Total other assets                         |              |             | 18,397,419  |  |              |             | 19,505,136  | 
|                                                 |                                                                                       |                                            |              |             |             | 
|                                                 |                                                                                       | Total assets                               |              | $           | 517,288,743 |  |              | $           | 507,580,384 | 
|                                                 |                                                                                       |                                            |              |             |             | 
|                                                
|LIABILITIES AND STOCKHOLDERS EQUITY            
|Current liabilities                              |                                                                                       |                                            |              |             |             |  |              |            
|                                                 | Accounts payable  affiliates                                                         |                                            | $            | 9,418,081   |             |  | $            | 6,035,719   |            
|                                                 | Accounts payable  other                                                              |                                            |              | 1,093,374   |             |  |              | 1,419,210   |            
|                                                 | Accrued liabilities                                                                   |                                            |              | 563,358     |             |  |              | 445,922     |            
|                                                 | Current income taxes payable                                                          |                                            |              | 7,137,769   |             |  |              | 30,753      |            
|                                                 | Accrued interest                                                                      |                                            |              | 673,003     |             |  |              | 717,187     |            
|                                                 | Current maturities of long-term debt                                                  |                                            |              | 11,560,578  |             |  |              | 10,473,309  |            
|                                                 |                                                                                       |                                            |              |             |             | 
|                                                 |                                                                                       | Total current liabilities                  |              |             | 30,446,163  |  |              |             | 19,122,100  | 
|                                                 |                                                                                       |                                            |              |             |             | 
|Long-term debt                                   |                                                                                       |                                            | 145,683,596  |             |             |  | 157,228,692  |            
|Deferred income tax liability                    |                                                                                       |                                            | 2,023,885    |             |             |  | 2,113,692    |            
|Liabilities from risk management activities      |                                                                                       |                                            | 2,354,039    |             |             |  | 2,675,717    |            
|Employee future benefit liability                |                                                                                       |                                            | 808,444      |             |             |  | 617,716      |            
|Commitments and contingencies                    |                                                                                       |                                            |              |             |             |  |              |            
|Stockholders equity                             |                                                                                       |                                            |              |             |             |  |              |            
|                                                 | Common stock, no par value; authorized, issued and outstanding
    100,000,000 shares |                                            |              | 309,457,729 |             |  |              | 309,457,729 |            
|                                                 | Retained earnings                                                                     |                                            |              | 28,133,546  |             |  |              | 18,270,580  |            
|                                                 | Accounts receivable  employees                                                       |                                            |              | (1,817,806  | )           |  |              | (1,910,722  | )          
|                                                 | Accumulated other comprehensive income                                                |                                            |              | 199,147     |             |  |              | 4,880       |            
|                                                 |                                                                                       |                                            |              |             |             | 
|                                                 |                                                                                       | Total stockholders equity                 |              |             | 335,972,616 |  |              |             | 325,822,467 | 
|                                                 |                                                                                       |                                            |              |             |             | 
|                                                 |                                                                                       | Total liabilities and stockholders equity |              | $           | 517,288,743 |  |              | $           | 507,580,384 | 
|                                                 |                                                                                       |                                            |              |             |             | 



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Statements of Income


For the years ended December 31,


|                       |                                               |                            |               |             |            |             |             |             |            |            | 
|---------------------- | --------------------------------------------- | -------------------------- | ------------- | ----------- | ---------- | ----------- | ----------- | ----------- | ---------- | ---------- | 
|                       |                                               | 2004                       |               |             | 2003       |            
|                       |                                               |                            |               |             |            |            
|Revenue                |                                               |                            |               |             |            |             |             |            
|                       | Energy revenue  contracted                   |                            | $             | 38,208,575  |            |             | $           | 34,979,628  |           
|                       | Energy revenue  spot                         |                            |               | 47,588,726  |            |             |             | 34,707,293  |           
|                       | Capacity revenue                              |                            |               | 13,638,720  |            |             |             | 10,680,681  |           
|                       | Auxiliary services and other                  |                            |               | 1,534,902   |            |             |             | 3,077,923   |           
|                       |                                               |                            |               |             |            |            
|                       |                                               |                            | Total revenue |             |            | 100,970,923 |             |             |            | 83,445,525 | 
|                       |                                               |                            |               |             |            |            
|Operating Expenses     |                                               |                            |               |             |            |             |             |            
|                       | Transmission fees                             |                            |               | 15,793,052  |            |             |             | 16,142,106  |           
|                       | Depreciation and amortization                 |                            |               | 15,264,798  |            |             |             | 14,907,432  |           
|                       | Energy purchases and associated costs         |                            |               | 3,363,800   |            |             |             | 8,425,239   |           
|                       | General and administrative                    |                            |               | 6,411,614   |            |             |             | 6,262,710   |           
|                       | Operations and maintenance                    |                            |               | 2,526,856   |            |             |             | 2,735,131   |           
|                       | Operating fees                                |                            |               | 2,186,283   |            |             |             | 1,995,334   |           
|                       |                                               |                            |               |             |            |            
|                       |                                               | Total operating expenses   |               |             | 45,546,403 |             |             |             | 50,467,952 |           
|                       |                                               |                            |               |             |            |            
|                       |                                               | Operating income           |               |             | 55,424,520 |             |             |             | 32,977,573 |           
|                       |                                               |                            |               |             |            |            
|Other Income (Expense) |                                               |                            |               |             |            |             |             |            
|                       | Interest income                               |                            |               | 2,009,196   |            |             |             | 1,794,596   |           
|                       | Interest and debt expense                     |                            |               | (17,107,168 | )          |             |             | (18,166,180 | )         
|                       | Income (loss) from risk management activities |                            |               | (442,098    | )          |             |             | 159,103     |           
|                       | Other                                         |                            |               | 183,287     |            |             |             | 503,486     |           
|                       |                                               |                            |               |             |            |            
|                       |                                               |                            | (15,356,783   | )           |            |             | (15,708,995 | )          
|                       |                                               |                            |               |             |            |            
|                       |                                               | Income before income taxes |               |             | 40,067,737 |             |             |             | 17,268,578 |           
|Income Tax Expense     |                                               |                            |               |             |            |             |             |            
|                       | Current                                       |                            |               | (12,090,592 | )          |             |             | (4,952,823  | )         
|                       | Deferred                                      |                            |               | 156,401     |            |             |             | 78,472      |           
|                       |                                               |                            |               |             |            |            
|                       |                                               |                            | (11,934,191   | )           |            |             | (4,874,351  | )          
|                       |                                               |                            |               |             |            |            
|Net income             |                                               | $                          | 28,133,546    |             |            | $           | 12,394,227  |            
|                       |                                               |                            |               |             |            |            



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Statements of Changes in Stockholders Equity


For the years ended December 31, 2004 and 2003


|                                |                                                   |              |             |   |          |   |             |            |  |             |                     |             |   |        |            |            |       |   |         |         |   |   |             |             |  
|------------------------------- | ------------------------------------------------- | ------------ | ----------- | - | -------- | - | ----------- | ---------- |  | ----------- | ------------------- | ----------- | - | ------ | ---------- | ---------- | ----- | - | ------- | ------- | - | - | ----------- | ----------- | -
|                                |                                                   | Common Stock |             |   |          |   | Accounts    |            |  | Accumulated |                     |             |  
|                                |                                                   |              |             |   | Retained |   |             | Receivable |  |             | Other Comprehensive |             |   |       
|                                |                                                   | Shares       |             |   | Dollars  |   |             | Earnings   |  |             | Employees           |             |   | Income |            |            | Total |  
|                                |                                                   |              |             |   |          |   |             |            |  |             |                     |             |   |        |            |            |       |  
|Balance as of December 31, 2002 |                                                   |              | 100,000,000 |   |          | $ | 309,457,729 |            |  | $           | 31,801,353          |             |   | $      |           |            |       | $ | 54,719  |         |   | $ | 341,313,801 |            
|                                | Dividends paid                                    |              |             |  |          |   |             |           |  |             |                     | (25,925,000 | ) |        |            |           |       |   |         |        |   |   |             | (25,925,000 | )
|                                | Other comprehensive loss                          |              |             |  |          |   |             |           |  |             |                     |            |   |        |            |           |       |   |         | (49,839 | ) |   |             | (49,839     | )
|                                | Disbursement for the acquisition of common stocks |              |             |  |          |   |             |           |  |             |                     |            |   |        |            | (1,988,750 | )     |   |         |        |   |   |             | (1,988,750  | )
|                                | Payments received from employees                  |              |             |  |          |   |             |           |  |             |                     |            |   |        |            | 78,028     |       |   |         |        |   |   |             | 78,028      |  
|                                | Net income                                        |              |             |  |          |   |             |           |  |             |                     | 12,394,227  |   |        |            |           |       |   |         |        |   |   |             | 12,394,227  |  
|                                |                                                   |              |             |   |          |   |             |            |  |             |                     |             |   |        |            |            |       |  
|Balance as of December 31, 2003 |                                                   |              | 100,000,000 |   |          |   | 309,457,729 |            |  |             | 18,270,580          |             |   |        | (1,910,722 | )          |       |   | 4,880   |         |   |   | 325,822,467 |            
|                                | Dividends paid                                    |              |             |  |          |   |             |           |  |             |                     | (18,270,580 | ) |        |            |           |       |   |         |        |   |   |             | (18,270,580 | )
|                                | Other comprehensive income                        |              |             |  |          |   |             |           |  |             |                     |            |   |        |            |           |       |   |         | 194,267 |   |   |             | 194,267     |  
|                                | Payments received from employees                  |              |             |  |          |   |             |           |  |             |                     |            |   |        |            | 92,916     |       |   |         |        |   |   |             | 92,916      |  
|                                | Net income                                        |              |             |  |          |   |             |           |  |             |                     | 28,133,546  |   |        |            |           |       |   |         |        |   |   |             | 28,133,546  |  
|                                |                                                   |              |             |   |          |   |             |            |  |             |                     |             |   |        |            |            |       |  
|Balance as of December 31, 2004 |                                                   |              | 100,000,000 |   |          | $ | 309,457,729 |            |  | $           | 28,133,546          |             |   | $      | (1,817,806 | )          |       | $ | 199,147 |         |   | $ | 335,972,616 |            
|                                |                                                   |              |             |   |          |   |             |            |  |             |                     |             |   |        |            |            |       |  



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Statements of Cash Flows


For the years ended December 31,


|                                                 |                                                                                       |                                                      |                                     |                                           |            |            |             |             |            |            |             |  
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------- | ----------------------------------------- | ---------- | ---------- | ----------- | ----------- | ---------- | ---------- | ----------- | -
|                                                 |                                                                                       | 2004                                                 |                                     |                                           | 2003       |           
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|Cash flows from operating activities             |                                                                                       |                                                      |                                     |                                           |            |            |             |            
|                                                 | Net income                                                                            |                                                      | $                                   | 28,133,546                                |            |            | $           | 12,394,227  |           
|                                                 | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                      |                                     |                                           |            |            |             |             |           
|                                                 |                                                                                       | Depreciation and amortization                        |                                     |                                           | 15,264,798 |            |             |             | 14,907,432 |           
|                                                 |                                                                                       | Amortization of discounts on long-term debt          |                                     |                                           | 95,818     |            |             |             | 95,818     |           
|                                                 |                                                                                       | Provision for obsolescence of materials and supplies |                                     |                                           | 144,223    |            |             |             | 91,865     |           
|                                                 |                                                                                       | Deferred income taxes                                |                                     |                                           | (156,401   | )          |             |             | (78,472    | )         
|                                                 |                                                                                       | Employee future benefits                             |                                     |                                           | 190,728    |            |             |             | 189,883    |           
|                                                 |                                                                                       | Net effect of risk management activities             |                                     |                                           | 442,098    |            |             |             | (159,103   | )         
|                                                 |                                                                                       | Changes in working capital:                          |                                     |                                           |            |            |             |             |            |           
|                                                 |                                                                                       |                                                      | Accounts receivable  affiliates    |                                           |            | (2,328,833 | )           |             |            | 5,401,821  |            
|                                                 |                                                                                       |                                                      | Accounts receivable  other         |                                           |            | (376,363   | )           |             |            | (332,640   | )          
|                                                 |                                                                                       |                                                      | Materials and supplies              |                                           |            | (344,455   | )           |             |            | 62,412     |            
|                                                 |                                                                                       |                                                      | Other prepaid expenses and deposits |                                           |            | (2,387,277 | )           |             |            | (1,356,278 | )          
|                                                 |                                                                                       |                                                      | Accounts payable  affiliates       |                                           |            | 3,382,362  |             |             |            | 1,785,291  |            
|                                                 |                                                                                       |                                                      | Accounts payable  other            |                                           |            | (325,836   | )           |             |            | 331,204    |            
|                                                 |                                                                                       |                                                      | Accrued liabilities                 |                                           |            | 117,436    |             |             |            | (540,896   | )          
|                                                 |                                                                                       |                                                      | Income tax payable                  |                                           |            | 7,107,016  |             |             |            | (3,672,525 | )          
|                                                 |                                                                                       |                                                      | Accrued interest                    |                                           |            | (44,184    | )           |             |            |           |            
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|                                                 |                                                                                       |                                                      |                                     | Net cash provided by operating activities |            |            | 48,914,676  |             |            |            | 29,120,039  |  
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|Cash flows from investing activities             |                                                                                       |                                                      |                                     |                                           |            |            |             |            
|                                                 | Expenditures for equipment and work in process                                        |                                                      |                                     | (4,660,627                                | )          |            |             | (5,002,256  | )         
|                                                 | Disposal of assets                                                                    |                                                      |                                     |                                          |            |            |             | 14,935      |           
|                                                 | Increase in restricted investments                                                    |                                                      |                                     | (129,554                                  | )          |            |             | (5,217,588  | )         
|                                                 | Increase in restricted cash                                                           |                                                      |                                     | 19,748                                    |            |            |             | (35,312     | )         
|                                                 | Decrease (increase) in non restricted investments                                     |                                                      |                                     | (6,510,102                                | )          |            |             | 7,757,594   |           
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|                                                 |                                                                                       |                                                      |                                     | Net cash used in investing activities     |            |            | (11,280,535 | )           |            |            | (2,482,627  | )
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|Cash flows from financing activities             |                                                                                       |                                                      |                                     |                                           |            |            |             |            
|                                                 | Payments on debt                                                                      |                                                      |                                     | (10,473,309                               | )          |            |             |            |           
|                                                 | Accounts receivable  employees                                                       |                                                      |                                     | 92,916                                    |            |            |             | (1,910,722  | )         
|                                                 | Deferred financing costs                                                              |                                                      |                                     |                                          |            |            |             | (95,037     | )         
|                                                 | Dividends paid                                                                        |                                                      |                                     | (18,270,580                               | )          |            |             | (25,925,000 | )         
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|                                                 |                                                                                       |                                                      |                                     | Net cash used in financing activities     |            |            | (28,650,973 | )           |            |            | (27,930,759 | )
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|Change in cash and cash equivalents              |                                                                                       |                                                      | 8,983,168                           |                                           |            |            | (1,293,347  | )          
|Cash and cash equivalents at beginning of period |                                                                                       |                                                      | 1,222,755                           |                                           |            |            | 2,516,102   |            
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|Cash and cash equivalents at end of period       |                                                                                       | $                                                    | 10,205,923                          |                                           |            | $          | 1,222,755   |            
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|Supplemental disclosure of cash flow information |                                                                                       |                                                      |                                     |                                           |            |            |             |            
|                                                 | Interest paid                                                                         |                                                      | $                                   | 16,953,939                                |            |            | $           | 17,212,500  |           
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           
|                                                 | Income taxes paid                                                                     |                                                      | $                                   | 4,952,823                                 |            |            | $           | 4,922,070   |           
|                                                 |                                                                                       |                                                      |                                     |                                           |            |           



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Empresa de Generación Eléctrica Fortuna, S.A.





Statements of Comprehensive Income and Accumulated Other
Comprehensive Income


For the years ended December 31,


|                                                  |                                                                                     |      |            |         |      |   |            |         |  
|------------------------------------------------- | ----------------------------------------------------------------------------------- | ---- | ---------- | ------- | ---- | - | ---------- | ------- | -
|                                                  |                                                                                     | 2004 |            |         | 2003 |  
|                                                  |                                                                                     |      |            |         |      |  
|Comprehensive Income                              |                                                                                     |      |            |         |      |   |            |        
|Net income                                        |                                                                                     | $    | 28,133,546 |         |      | $ | 12,394,227 |        
|                                                  | Unrealized gain on available for sale investments                                   |      |            | 199,147 |      |   |            | 4,880   |  
|                                                  | Reclassification adjustment for realized gain on available for
    sale investments |      |            | (4,880  | )    |   |            | (54,719 | )
|                                                  |                                                                                     |      |            |         |      |  
|Comprehensive income                              |                                                                                     | $    | 28,327,813 |         |      | $ | 12,344,388 |        
|                                                  |                                                                                     |      |            |         |      |  
|Accumulated Other Comprehensive Income            |                                                                                     |      |            |         |      |   |            |        
|Unrealized gain on available for sale investments |                                                                                     | $    | 199,147    |         |      | $ | 4,880      |        
|                                                  |                                                                                     |      |            |         |      |  



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Empresa de Generación Eléctrica Fortuna, S.A.





Notes to Financial Statements




|   |                                      
|-- | -------------------------------------
|1. | Organization and Nature of Operations









|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of presentation











| |                 
| | ----------------
| | Use of estimates





| |                    
| | -------------------
| | Functional currency



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




| |                          
| | -------------------------
| | Cash and cash equivalents





| |            
| | -----------
| | Investments







| |                                
| | -------------------------------
| | Allowance for doubtful accounts





| |            
| | -----------
| | Inventories





| |                              
| | -----------------------------
| | Property, plant and equipment







| |                                            
| | -------------------------------------------
| | Accounting for asset retirement obligations



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




| |               
| | --------------
| | Deferred costs





| |             
| | ------------
| | Income taxes





| |                    
| | -------------------
| | Revenue recognition





| |                    
| | -------------------
| | Environmental costs









| |                           
| | --------------------------
| | Risk management activities





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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




|   |            
|-- | -----------
|3. | Investments



|                           |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |   |            |  |  |   |            | 
|-------------------------- | -------------------------------- | --------- | - | ---------- | ----------- |  | - | ---------- | - |  | --------- | ---------- |  | ---------- | - | ---------- |  |  | - | ---------- | 
|                           |                                  | 2004      |   |            | 2003        | 
|                           |                                  |           |   |            |             | 
|                           |                                  | Amortized |   |            | Unrealized  |  |   | Estimated  |   |  | Amortized |            |  | Estimated  |  
|Description                |                                  | Cost      |   |            | Gain (Loss) |  |   | Fair Value |   |  | Cost      |            |  | Fair Value |  
|                           |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |  
|Non restricted investments |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |   |            |  |  |   |           
|                           | Government of Panama Notes       |           | $ | 4,202,044  |             |  | $ | 158,956    |   |  | $         | 4,361,000  |  |            | $ |           |  |  | $ |           | 
|                           | Government of Panama Zero Coupon |           |   | 959,530    |             |  |   | (5,630     | ) |  |           | 953,900    |  |            |   | 847,371    |  |  |   | 847,371    | 
|                           | Corporate securities             |           |   | 2,195,899  |             |  |   | 33,901     |   |  |           | 2,229,800  |  |            |   |           |  |  |   |           | 
|                           |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |  
|                           | Total non restricted investments |           |   | 7,357,473  |             |  |   | 187,227    |   |  |           | 7,544,700  |  |            |   | 847,371    |  |  |   | 847,371    | 
|                           |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |  
|Restricted investments     |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |   |            |  |  |   |           
|                           | Cash and cash equivalents        |           |   | 4,878,878  |             |  |   |           |   |  |           | 4,878,878  |  |            |   | 4,844,215  |  |  |   | 4,844,215  | 
|                           | Short-term corporate instruments |           |   | 4,900,086  |             |  |   |           |   |  |           | 4,900,086  |  |            |   | 4,846,175  |  |  |   | 4,846,175  | 
|                           | U.S. Government Fixed Income     |           |   | 4,174,428  |             |  |   | 11,920     |   |  |           | 4,186,348  |  |            |   | 4,133,448  |  |  |   | 4,138,328  | 
|                           |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |  
|                           | Total restricted investments     |           |   | 13,953,392 |             |  |   | 11,920     |   |  |           | 13,965,312 |  |            |   | 13,823,838 |  |  |   | 13,828,718 | 
|                           |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |  
|                           | Total investments                |           | $ | 21,310,865 |             |  | $ | 199,147    |   |  | $         | 21,510,012 |  |            | $ | 14,671,209 |  |  | $ | 14,676,089 | 
|                           |                                  |           |   |            |             |  |   |            |   |  |           |            |  |            |  





| |                           
| | --------------------------
| | Non restricted investments



|                        |  |           |           |  |            |   |           |           |  |   |            |  |  |   |         | 
|----------------------- |  | --------- | --------- |  | ---------- | - | --------- | --------- |  | - | ---------- |  |  | - | ------- | 
|                        |  | 2004      |           |  | 2003       |  
|                        |  |           |           |  |            |  
|                        |  | Amortized |           |  | Estimated  |   |           | Amortized |  |   | Estimated  | 
|                        |  | Cost      |           |  | Fair Value |   |           | Cost      |  |   | Fair Value | 
|                        |  |           |           |  |            |   |           |           |  |   |            | 
|Due in one year or less |  | $         | 2,036,707 |  |            | $ | 2,036,000 |           |  | $ | 847,371    |  |  | $ | 847,371 | 
|Due in 1-2 years        |  |           | 959,530   |  |            |   | 953,900   |           |  |   |           |  |  |   |        | 
|Due in 2-4 years        |  |           |          |  |            |   |          |           |  |   |           |  |  |   |        | 
|Due after 4 years       |  |           | 4,361,236 |  |            |   | 4,554,800 |           |  |   |           |  |  |   |        | 
|                        |  |           |           |  |            |   |           |           |  |   |            | 
|                        |  | $         | 7,357,473 |  |            | $ | 7,544,700 |           |  | $ | 847,371    |  |  | $ | 847,371 | 
|                        |  |           |           |  |            |   |           |           |  |   |            | 



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




| |                       
| | ----------------------
| | Restricted investments





|                        |  |           |            |  |            |   |            |           |  |   |            |  |  |   |            | 
|----------------------- |  | --------- | ---------- |  | ---------- | - | ---------- | --------- |  | - | ---------- |  |  | - | ---------- | 
|                        |  | 2004      |            |  | 2003       |  
|                        |  |           |            |  |            |  
|                        |  | Amortized |            |  | Estimated  |   |            | Amortized |  |   | Estimated  | 
|                        |  | Cost      |            |  | Fair Value |   |            | Cost      |  |   | Fair Value | 
|                        |  |           |            |  |            |   |            |           |  |   |            | 
|Due in one year or less |  | $         | 13,953,392 |  |            | $ | 13,965,312 |           |  | $ | 13,823,838 |  |  | $ | 13,828,718 | 
|                        |  |           |            |  |            |   |            |           |  |   |            | 





|   |                              
|-- | -----------------------------
|4. | Property, Plant and Equipment



|                                               |  |      |             |  |      |   |             | 
|---------------------------------------------- |  | ---- | ----------- |  | ---- | - | ----------- | 
|                                               |  | 2004 |             |  | 2003 |  
|                                               |  |      |             |  |      |  
|Hydroelectric plant                            |  | $    | 639,834,009 |  |      | $ | 635,939,332 | 
|Electrical equipment                           |  |      | 23,489,588  |  |      |   | 23,214,588  | 
|Substation equipment                           |  |      | 13,594,110  |  |      |   | 9,377,448   | 
|Other                                          |  |      | 6,913,956   |  |      |   | 6,913,956   | 
|                                               |  |      |             |  |      |  
|                                               |  |      | 683,831,663 |  |      |   | 675,445,324 | 
|Less accumulated depreciation and amortization |  |      | 244,370,129 |  |      |   | 229,696,178 | 
|                                               |  |      |             |  |      |  
|                                               |  |      | 439,461,534 |  |      |   | 445,749,146 | 
|Construction in process                        |  |      | 2,744,267   |  |      |   | 6,632,344   | 
|Land                                           |  |      | 1,323,483   |  |      |   | 1,323,483   | 
|                                               |  |      |             |  |      |  
|                                               |  | $    | 443,529,284 |  |      | $ | 453,704,973 | 
|                                               |  |      |             |  |      |  



|   |                                
|-- | -------------------------------
|5. | Employee Stock Purchase Program





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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




|   |                           
|-- | --------------------------
|6. | Risk Management Activities



|                                            |                                                          |      |           |           |      |   |           |           | 
|------------------------------------------- | -------------------------------------------------------- | ---- | --------- | --------- | ---- | - | --------- | --------- | 
|                                            |                                                          | 2004 |           |           | 2003 |  
|                                            |                                                          |      |           |           |      |  
|Assets from risk management activities      |                                                          |      |           |           |      |   |           |          
|                                            | Fair value of derivatives not designated as hedges       |      | $         | 602,981   |      |   | $         | 1,447,093 | 
|                                            |                                                          |      |           |           |      |  
|Liabilities from risk management activities |                                                          |      |           |           |      |   |           |          
|                                            | Fair value of swap designated as hedge                   |      | $         | 1,468,063 |      |   | $         | 1,387,727 | 
|                                            | Fair value of other derivatives not designated as hedges |      |           | 885,976   |      |   |           | 1,287,990 | 
|                                            |                                                          |      |           |           |      |  
|                                            |                                                          | $    | 2,354,039 |           |      | $ | 2,675,717 |          
|                                            |                                                          |      |           |           |      |  









|   |                
|-- | ---------------
|7. | Debt Obligation



| |                      
| | ---------------------
| | Short-term borrowings



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




| |      
| | -----
| | Bonds



1 8


















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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




|                                       |                                               |                                        |           |        |               |         |       |      |  |   |             |             |            |   |             |             |            | 
|-------------------------------------- | --------------------------------------------- | -------------------------------------- | --------- | ------ | ------------- | ------- | ----- | ---- |  | - | ----------- | ----------- | ---------- | - | ----------- | ----------- | ---------- | 
|                                       |                                               |                                        |           |        |               | Balance |      
|                                       |                                               |                                        |           | Annual |               |         |       |     
|                                       |                                               | Maturity                               |           |        | Interest Rate |         |       | 2004 |  |   | 2003        |            
|                                       |                                               |                                        |           |        |               |         |       |      |  |   |             |            
|Bonds                                  |                                               |                                        | Dec. 2013 |        |               |         | 101/8 | %    |  | $ | 159,526,691 |             |            | $ | 170,000,000 |            
|Fair value of swap designated as hedge |                                               |                                        |           |        |               |         |       |      |  |   | (1,468,063  | )           |            |   | (1,387,727  | )          
|                                       |                                               |                                        |           |        |               |         |       |      |  |   |             |            
|                                       | Subtotal                                      |                                        |           |        |               |         |       |      |  |   |             | 158,058,628 |            |   |             | 168,612,273 |           
|                                       | Less:                                         |                                        |           |        |               |         |       |      |  |   |             |             |            |   |             |             |           
|                                       |                                               | Unamortized discount on long-term debt |           |        |               |         |       |      |  |   |             |             | 814,454    |   |             |             | 910,272    | 
|                                       |                                               | Current maturities                     |           |        |               |         |       |      |  |   |             |             | 11,560,578 |   |             |             | 10,473,309 | 
|                                       |                                               |                                        |           |        |               |         |       |      |  |   |             |            
|                                       | Total long-term debt, less current maturities |                                        |           |        |               |         |       |      |  |   | $           | 145,683,596 |            |   | $           | 157,228,692 |           
|                                       |                                               |                                        |           |        |               |         |       |      |  |   |             |            



|           |  |                  |             | 
|---------- |  | ---------------- | ----------- | 
|Year       |  | Principal Amount |            
|           |  |                  |            
|2005       |  | $                | 11,560,578  | 
|2006       |  |                  | 12,760,710  | 
|2007       |  |                  | 14,085,435  | 
|2008       |  |                  | 15,547,690  | 
|2009       |  |                  | 17,161,738  | 
|Thereafter |  |                  | 88,410,540  | 
|           |  |                  |            
|Total      |  | $                | 159,526,691 | 
|           |  |                  |            



|   |                           
|-- | --------------------------
|8. | Related Party Transactions



| |                           
| | --------------------------
| | Energy sales and purchases



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




|                    |  |        |            |      |       |  |     |        |      |   |            |  |  |  |     | 
|------------------- |  | ------ | ---------- | ---- | ----- |  | --- | ------ | ---- | - | ---------- |  |  |  | --- | 
|                    |  | 2004   |            |      | 2003  | 
|                    |  |        |            |      |       | 
|                    |  |        |            | % of |       |  |     |        | % of |  
|Description         |  | Amount |            |      | Total |  |     | Amount |      |   | Total      | 
|                    |  |        |            |      |       |  |     |        |      |   |            | 
|Revenue             |  | $      | 97,587,959 |      |       |  | 97  |        |      | $ | 79,498,608 |  |  |  | 95  | 
|Purchases of energy |  | $      | 1,142,834  |      |       |  | 34  |        |      | $ | 3,066,435  |  |  |  | 36  | 
|Transmission costs  |  | $      | 15,793,052 |      |       |  | 100 |        |      | $ | 16,102,695 |  |  |  | 99  | 
|Moratorium interest |  | $      |           |      |       |  |    |        |      | $ | 6,063      |  |  |  | 99  | 
|Moratorium expenses |  | $      | 276,375    |      |       |  | 100 |        |      | $ | 1,799      |  |  |  | 100 | 



| |            
| | -----------
| | Investments



|                          |  |      |           |  |      |   |   | 
|------------------------- |  | ---- | --------- |  | ---- | - | - | 
|Description               |  | 2004 |           |  | 2003
|                          |  |      |           |  |     
|Non restricted investment |  | $    | 2,000,000 |  |      | $ |  | 
|Interest receivable       |  | $    | 18,106    |  |      | $ |  | 
|Interest income           |  | $    | 81,106    |  |      | $ |  | 

Collateral fee




|                       |  |      |         |  |      |   |           | 
|---------------------- |  | ---- | ------- |  | ---- | - | --------- | 
|Description            |  | 2004 |         |  | 2003 |  
|                       |  |      |         |  |      |  
|Accounts payable       |  | $    | 824,000 |  |      | $ | 1,275,000 | 
|Collateral fee expense |  | $    | 824,000 |  |      | $ | 1,275,000 | 



| |                    
| | -------------------
| | Management services



|                  |  |      |           |  |      |   |           | 
|----------------- |  | ---- | --------- |  | ---- | - | --------- | 
|Description       |  | 2004 |           |  | 2003 |  
|                  |  |      |           |  |      |  
|Other receivables |  | $    | 329,204   |  |      | $ | 153,566   | 
|Accounts payable  |  | $    | 618,758   |  |      | $ | 440,106   | 
|Management fee    |  | $    | 2,186,283 |  |      | $ | 1,995,334 | 

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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




| |                   
| | ------------------
| | Technical services



|                                        |  |      |         |  |      |   |         | 
|--------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | 
|Description                             |  | 2004 |         |  | 2003 |  
|                                        |  |      |         |  |      |  
|Capitalized as construction in progress |  | $    | 93,362  |  |      | $ | 238,983 | 
|Charged to expenses                     |  | $    | 130,074 |  |      | $ | 39,924  | 
|Accounts payable                        |  | $    |        |  |      | $ | 136,637 | 
|Accounts receivable                     |  | $    | 5,464   |  |      | $ | 23,272  | 



| |                
| | ---------------
| | Note receivable



|                |  |      |            |  |      |   |            | 
|--------------- |  | ---- | ---------- |  | ---- | - | ---------- | 
|Description     |  | 2004 |            |  | 2003 |  
|                |  |      |            |  |      |  
|Loan receivable |  | $    | 12,000,000 |  |      | $ | 12,000,000 | 
|Interest income |  | $    | 1,334,970  |  |      | $ | 1,335,030  | 



|   |             
|-- | ------------
|9. | Income Taxes



|                                          |                          |      |            |            |      |   |            |           | 
|----------------------------------------- | ------------------------ | ---- | ---------- | ---------- | ---- | - | ---------- | --------- | 
|                                          |                          | 2004 |            |            | 2003 |  
|                                          |                          |      |            |            |      |  
|Pretax income from continuing operations: |                          | $    | 40,067,737 |            |      | $ | 17,268,578 |          
|                                          |                          |      |            |            |      |  
|Current income tax expense                |                          | $    | 12,090,592 |            |      | $ | 4,952,823  |          
|Deferred income tax benefit               |                          |      | (156,401   | )          |      |   | (78,472    | )        
|                                          |                          |      |            |            |      |  
|                                          | Total income tax expense |      | $          | 11,934,191 |      |   | $          | 4,874,351 | 
|                                          |                          |      |            |            |      |  



|                                                  |                    |      |            |            |      |   |           |           | 
|------------------------------------------------- | ------------------ | ---- | ---------- | ---------- | ---- | - | --------- | --------- | 
|                                                  |                    | 2004 |            |            | 2003 |  
|                                                  |                    |      |            |            |      |  
|Tax expense at statutory rate                     |                    | $    | 12,020,321 |            |      | $ | 5,180,573 |          
|Decrease in non-taxable interest income and other |                    |      | (86,130    | )          |      |   | (306,222  | )        
|                                                  |                    |      |            |            |      |  
|                                                  | Income tax expense |      | $          | 11,934,191 |      |   | $         | 4,874,351 | 
|                                                  |                    |      |            |            |      |  
|Effective tax rate                                |                    |      | 29.8       | %          |      |   | 28.2      | %        
|                                                  |                    |      |            |            |      |  

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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




|                        |                    |      |            |           |      |   |           |        | 
|----------------------- | ------------------ | ---- | ---------- | --------- | ---- | - | --------- | ------ | 
|                        |                    | 2004 |            |           | 2003 |  
|                        |                    |      |            |           |      |  
|Current income taxes    |                    | $    | 12,090,592 |           |      | $ | 4,952,823 |       
|Less prepaid income tax |                    |      | 4,952,823  |           |      |   | 4,922,070 |       
|                        |                    |      |            |           |      |  
|                        | Income tax payable |      | $          | 7,137,769 |      |   | $         | 30,753 | 
|                        |                    |      |            |           |      |  



|                    |                                              |                                             |   |         |         |  |   |         |         | 
|------------------- | -------------------------------------------- | ------------------------------------------- | - | ------- | ------- |  | - | ------- | ------- | 
|                    |                                              | 2004                                        |   |         | 2003    | 
|                    |                                              |                                             |   |         |         | 
|Deferred tax asset: |                                              |                                             |   |         |         |  |   |        
|                    | Provision for inventory obsolescence         |                                             | $ | 171,188 |         |  | $ | 150,000 |        
|                    | Provision for fringe benefits                |                                             |   | 173,090 |         |  |   | 137,237 |        
|                    | Provision for technical assistance and other |                                             |   | 9,936   |         |  |   | 383     |        
|                    |                                              |                                             |   |         |         | 
|                    |                                              | Total current portion of deferred tax asset |   | $       | 354,214 |  |   | $       | 287,620 | 
|                    |                                              |                                             |   |         |         | 

|                        |                               |      |   |           |      |  |   |           | 
|----------------------- | ----------------------------- | ---- | - | --------- | ---- |  | - | --------- | 
|                        |                               | 2004 |   |           | 2003 | 
|                        |                               |      |   |           |      | 
|Deferred tax liability: |                               |      |   |           |      |  |   |          
|                        | Property, plant and equipment |      | $ | 2,023,885 |      |  | $ | 2,113,692 | 
|                        |                               |      |   |           |      | 



|    |                              
|--- | -----------------------------
|10. | Commitments and Contingencies



| |             
| | ------------
| | Labor claims







| |                       
| | ----------------------
| | Power sales agreements



|    |  |      |      | 
|--- |  | ---- | ---- | 
|MW  |  | Year |     
|    |  |      |     
|284 |  |      | 2005 | 
|260 |  |      | 2006 | 
|185 |  |      | 2007 | 
|224 |  |      | 2008 | 



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)






| |                  
| | -----------------
| | Transmission fees

(Régimen Tarifario
de Transmisión)






| |            
| | -----------
| | Service fee





| |                  
| | -----------------
| | Performance bonds





| |                    
| | -------------------
| | Concession contract





|    |                                    
|--- | -----------------------------------
|11. | Fair Value of Financial Instruments



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Empresa de Generación Eléctrica Fortuna, S.A.





Balance Sheet


(Unaudited)


|                                                 |                                                                                       |                                            |              |             |             | 
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ------------------------------------------ | ------------ | ----------- | ----------- | 
|                                                 |                                                                                       | As of                                      |             
|                                                 |                                                                                       | December 31,                               |             
|                                                 |                                                                                       | 2002                                       |             
|                                                 |                                                                                       |                                            |             
|ASSETS                                          
|Current assets:                                  |                                                                                       |                                            |              |            
|                                                 | Cash and cash equivalents                                                             |                                            | $            | 2,516,102   |            
|                                                 | Non restricted investments                                                            |                                            |              | 8,646,287   |            
|                                                 | Accounts receivable  affiliates                                                      |                                            |              | 17,903,114  |            
|                                                 | Accounts receivable  other                                                           |                                            |              | 215,663     |            
|                                                 | Materials and supplies                                                                |                                            |              | 5,224,772   |            
|                                                 | Deferred tax asset                                                                    |                                            |              | 290,727     |            
|                                                 | Other prepaid expenses and deposits                                                   |                                            |              | 730,337     |            
|                                                 |                                                                                       |                                            |             
|                                                 |                                                                                       | Total current assets                       |              |             | 35,527,002  | 
|                                                 |                                                                                       |                                            |             
|Note receivable  affiliate                      |                                                                                       |                                            | 12,000,000   |            
|Property, plant and equipment                    |                                                                                       |                                            | 678,555,350  |            
|Less  accumulated depreciation and amortization |                                                                                       |                                            | (215,360,847 | )          
|                                                 |                                                                                       |                                            |             
|                                                 | Property, plant and equipment, net                                                    |                                            |              | 463,194,503 |            
|Other assets                                     |                                                                                       |                                            |              |            
|                                                 | Restricted investments                                                                |                                            |              | 8,619,647   |            
|                                                 | Deferred financing costs, net                                                         |                                            |              | 5,341,470   |            
|                                                 |                                                                                       |                                            |             
|                                                 |                                                                                       | Total other assets                         |              |             | 13,961,117  | 
|                                                 |                                                                                       |                                            |             
|                                                 |                                                                                       | Total assets                               |              | $           | 524,682,622 | 
|                                                 |                                                                                       |                                            |             
|LIABILITIES AND STOCKHOLDERS EQUITY            
|Current Liabilities                              |                                                                                       |                                            |              |            
|                                                 | Accounts payable  affiliates                                                         |                                            | $            | 4,250,428   |            
|                                                 | Accounts payable  other                                                              |                                            |              | 1,088,006   |            
|                                                 | Accrued liabilities                                                                   |                                            |              | 1,414,651   |            
|                                                 | Current income taxes payable                                                          |                                            |              | 3,703,278   |            
|                                                 | Current portion of deferred income taxes                                              |                                            |              | 100,000     |            
|                                                 | Accrued interest                                                                      |                                            |              | 717,187     |            
|                                                 |                                                                                       |                                            |             
|                                                 |                                                                                       | Total current liabilities                  |              |             | 11,273,550  | 
|                                                 |                                                                                       |                                            |             
|Long-term debt                                   |                                                                                       |                                            | 170,000,000  |            
|Deferred income tax liability                    |                                                                                       |                                            | 2,095,271    |            
|Commitments and contingencies                    |                                                                                       |                                            |              |            
|Stockholders equity                             |                                                                                       |                                            |              |            
|                                                 | Common stock, no par value; authorized, issued and outstanding
    100,000,000 shares |                                            |              | 309,457,729 |            
|                                                 | Accumulated other comprehensive income                                                |                                            |              | 54,719      |            
|                                                 | Retained earnings                                                                     |                                            |              | 31,801,353  |            
|                                                 |                                                                                       |                                            |             
|                                                 |                                                                                       | Total stockholders equity                 |              |             | 341,313,801 | 
|                                                 |                                                                                       |                                            |             
|                                                 |                                                                                       | Total liabilities and stockholders equity |              | $           | 524,682,622 | 
|                                                 |                                                                                       |                                            |             



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Statement of Income


(Unaudited)


|                       |                                       |                            |               |             |            |             | 
|---------------------- | ------------------------------------- | -------------------------- | ------------- | ----------- | ---------- | ----------- | 
|                       |                                       | For the Year Ended         |              
|                       |                                       | December 31,               |              
|                       |                                       | 2002                       |              
|                       |                                       |                            |              
|Revenue                |                                       |                            |               |            
|                       | Energy revenue  contracted           |                            | $             | 55,988,954  |           
|                       | Energy revenue  spot                 |                            |               | 26,470,437  |           
|                       | Capacity revenue                      |                            |               | 17,551,200  |           
|                       | Auxiliary services and other          |                            |               | 838,750     |           
|                       |                                       |                            |              
|                       |                                       |                            | Total revenue |             |            | 100,849,341 | 
|                       |                                       |                            |              
|Operating expenses     |                                       |                            |               |            
|                       | Energy purchases and associated costs |                            |               | 6,357,911   |           
|                       | Transmission fees                     |                            |               | 13,490,258  |           
|                       | Operations and maintenance            |                            |               | 2,450,780   |           
|                       | Operating fees                        |                            |               | 2,900,757   |           
|                       | General and administrative            |                            |               | 6,483,521   |           
|                       | Depreciation and amortization         |                            |               | 14,711,202  |           
|                       |                                       |                            |              
|                       |                                       | Total operating expenses   |               |             | 46,394,429 |            
|                       |                                       |                            |              
|                       |                                       | Operating income           |               |             | 54,454,912 |            
|                       |                                       |                            |              
|Other income (expense) |                                       |                            |               |            
|                       | Interest income                       |                            |               | 1,326,491   |           
|                       | Interest and debt expense             |                            |               | (12,146,124 | )         
|                       | Other                                 |                            |               | 418,581     |           
|                       |                                       |                            |              
|                       |                                       |                            | (10,401,052   | )          
|                       |                                       |                            |              
|                       |                                       | Income before income taxes |               |             | 44,053,860 |            
|Income tax expense     |                                       |                            |               |            
|                       | Current                               |                            |               | (13,291,795 | )         
|                       | Deferred                              |                            |               | 114,288     |           
|                       |                                       |                            |              
|                       |                                       |                            | (13,177,507   | )          
|                       |                                       |                            |              
|Net income             |                                       | $                          | 30,876,353    |            
|                       |                                       |                            |              



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Empresa de Generación Eléctrica Fortuna, S.A.





Statement of Changes in Stockholders Equity


(Unaudited)


|                                |                                            |              |             |   |         |                   |             |              |  |               |            |             |   |        |           |            |       |   |        |        |  |   |             |             |  
|------------------------------- | ------------------------------------------ | ------------ | ----------- | - | ------- | ----------------- | ----------- | ------------ |  | ------------- | ---------- | ----------- | - | ------ | --------- | ---------- | ----- | - | ------ | ------ |  | - | ----------- | ----------- | -
|                                |                                            |              |             |   |         | Retained Earnings |             |              |  |               |           
|                                |                                            |              |             |   |         |                   | Accumulated |              |  |              
|                                |                                            | Common Stock |             |   |         |                   | Other       |              |  |              
|                                |                                            |              |             |   |         |                   | Internally  |              |  | Comprehensive |            |             |  
|                                |                                            | Shares       |             |   | Dollars |                   |             | Unrestricted |  |               | Designated |             |   | Income |           |            | Total |  
|                                |                                            |              |             |   |         |                   |             |              |  |               |            |             |   |        |           |            |       |  
|Balance as of December 31, 2001 |                                            |              | 100,000,000 |   |         | $                 | 309,457,729 |              |  | $             | 22,707,513 |             |   | $      | 4,000,000 |            |       | $ |       |        |  | $ | 336,165,242 |            
|                                | Transfer to unrestricted retained earnings |              |             |  |         |                   |             |             |  |               |            | 4,000,000   |   |        |           | (4,000,000 | )     |   |        |       |  |   |             |            |  
|                                | Dividends paid                             |              |             |  |         |                   |             |             |  |               |            | (25,782,513 | ) |        |           |           |       |   |        |       |  |   |             | (25,782,513 | )
|                                | Other comprehensive income                 |              |             |  |         |                   |             |             |  |               |            |            |   |        |           |           |       |   |        | 54,719 |  |   |             | 54,719      |  
|                                | Net income                                 |              |             |  |         |                   |             |             |  |               |            | 30,876,353  |   |        |           |           |       |   |        |       |  |   |             | 30,876,353  |  
|                                |                                            |              |             |   |         |                   |             |              |  |               |            |             |   |        |           |            |       |  
|Balance as of December 31, 2002 |                                            |              | 100,000,000 |   |         | $                 | 309,457,729 |              |  | $             | 31,801,353 |             |   | $      |          |            |       | $ | 54,719 |        |  | $ | 341,313,801 |            
|                                |                                            |              |             |   |         |                   |             |              |  |               |            |             |   |        |           |            |       |  



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Statement of Cash Flows


(Unaudited)


|                                                 |                                                                                       |                               |                                     |                                           |            |            |             |  
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ----------------------------- | ----------------------------------- | ----------------------------------------- | ---------- | ---------- | ----------- | -
|                                                 |                                                                                       | For the Years Ended           |                                    
|                                                 |                                                                                       | December 31,                  |                                    
|                                                 |                                                                                       | 2002                          |                                    
|                                                 |                                                                                       |                               |                                    
|Cash flows from operating activities             |                                                                                       |                               |                                     |                                          
|                                                 | Net income                                                                            |                               | $                                   | 30,876,353                                |           
|                                                 | Adjustments to reconcile net income to net cash provided by
    operating activities: |                               |                                     |                                           |           
|                                                 |                                                                                       | Depreciation and amortization |                                     |                                           | 14,711,202 |           
|                                                 |                                                                                       | Deferred income taxes         |                                     |                                           | (114,288   | )         
|                                                 |                                                                                       | Changes in working capital:   |                                     |                                           |            |           
|                                                 |                                                                                       |                               | Accounts receivable  affiliates    |                                           |            | (4,898,419 | )          
|                                                 |                                                                                       |                               | Accounts receivable  other         |                                           |            | (28,748    | )          
|                                                 |                                                                                       |                               | Materials and supplies              |                                           |            | (150,191   | )          
|                                                 |                                                                                       |                               | Prepaid taxes                       |                                           |            | 812,547    |            
|                                                 |                                                                                       |                               | Other prepaid expenses and deposits |                                           |            | (225,103   | )          
|                                                 |                                                                                       |                               | Accounts payable  affiliates       |                                           |            | 508,105    |            
|                                                 |                                                                                       |                               | Accounts payable  other            |                                           |            | (5,889,067 | )          
|                                                 |                                                                                       |                               | Accrued liabilities                 |                                           |            | 794,310    |            
|                                                 |                                                                                       |                               | Income tax payable                  |                                           |            | 3,703,278  |            
|                                                 |                                                                                       |                               | Accrued interest                    |                                           |            | (2,198,871 | )          
|                                                 |                                                                                       |                               |                                    
|                                                 |                                                                                       |                               |                                     | Net cash provided by operating activities |            |            | 37,901,108  |  
|                                                 |                                                                                       |                               |                                    
|Cash flows from investing activities             |                                                                                       |                               |                                     |                                          
|                                                 | Expenditures for equipment and work in process                                        |                               |                                     | (3,948,288                                | )         
|                                                 | Note receivable  affiliate                                                           |                               |                                     | (12,000,000                               | )         
|                                                 | Increase in restricted investments                                                    |                               |                                     | (8,606,250                                | )         
|                                                 | Decrease in non restricted investments                                                |                               |                                     | (8,604,965                                | )         
|                                                 |                                                                                       |                               |                                    
|                                                 |                                                                                       |                               |                                     | Net cash used in investing activities     |            |            | (33,159,503 | )
|                                                 |                                                                                       |                               |                                    
|Cash flows from financing activities             |                                                                                       |                               |                                     |                                          
|                                                 | Proceeds from bond issuance                                                           |                               |                                     | 170,000,000                               |           
|                                                 | Payments on debt                                                                      |                               |                                     | (141,319,949                              | )         
|                                                 | Deferred financing costs                                                              |                               |                                     | (5,580,589                                | )         
|                                                 | Dividends paid                                                                        |                               |                                     | (25,782,513                               | )         
|                                                 |                                                                                       |                               |                                    
|                                                 |                                                                                       |                               |                                     | Net cash used in financing activities     |            |            | (2,683,051  | )
|                                                 |                                                                                       |                               |                                    
|Change in cash and cash equivalents              |                                                                                       |                               | 2,058,554                           |                                          
|Cash and cash equivalents at beginning of period |                                                                                       |                               | 457,548                             |                                          
|                                                 |                                                                                       |                               |                                    
|Cash and cash equivalents at end of period       |                                                                                       | $                             | 2,516,102                           |                                          
|                                                 |                                                                                       |                               |                                    
|Supplemental disclosure of cash flow information |                                                                                       |                               |                                     |                                          
|                                                 | Interest paid                                                                         |                               | $                                   | 14,344,995                                |           
|                                                 |                                                                                       |                               |                                    
|                                                 | Income taxes paid                                                                     |                               | $                                   | 8,775,968                                 |           
|                                                 |                                                                                       |                               |                                    



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Empresa de Generación Eléctrica Fortuna, S.A.





Statement of Comprehensive Income and Changes in Accumulated
Other Comprehensive Income


(Unaudited)


|                                                  |                                |                            |            |        |        | 
|------------------------------------------------- | ------------------------------ | -------------------------- | ---------- | ------ | ------ | 
|                                                  |                                | For the Years Ended        |           
|                                                  |                                | December 31,               |           
|                                                  |                                | 2002                       |           
|                                                  |                                |                            |           
|Comprehensive Income                              |                                |                            |            |       
|Net income                                        |                                | $                          | 30,876,353 |       
|                                                  | Unrealized gain on investments |                            |            | 54,719 |       
|                                                  |                                |                            |           
|                                                  |                                | Other comprehensive income |            |        | 54,719 | 
|                                                  |                                |                            |           
|Comprehensive income                              |                                | $                          | 30,931,072 |       
|                                                  |                                |                            |           
|Changes in Accumulated Other Comprehensive Income |                                |                            |            |       
|Balance, January 1                                |                                | $                          |           |       
|                                                  | Other comprehensive income     |                            |            | 54,719 |       
|                                                  |                                |                            |           
|Balance, December 31                              |                                | $                          | 54,719     |       
|                                                  |                                |                            |           



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Empresa de Generación Eléctrica Fortuna, S.A.





Notes to Financial Statements


(Unaudited)




|   |                                      
|-- | -------------------------------------
|1. | Organization and Nature of Operations









|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies

Basis of Presentation




Use of Estimates




Functional Currency






| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |            
| | -----------
| | Investments





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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




| |                                    
| | -----------------------------------
| | Revenue Recognition and Receivables





| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |            
| | -----------
| | Inventories





| |                              
| | -----------------------------
| | Property, Plant and Equipment

Accounting for Asset
Retirement Obligations Recent Accounting Pronouncements






| |               
| | --------------
| | Deferred Costs





| |             
| | ------------
| | Income Taxes





| |                    
| | -------------------
| | Environmental Costs



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)








Recent Accounting Pronouncements


Accounting for Asset
Retirement Obligations


Accounting for Asset Retirement
Obligations


Accounting for Costs
Associated with Exit or Disposal Activities


Accounting
for Costs Associated with Exit or Disposal Activities


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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




|   |            
|-- | -----------
|3. | Investments



|                           |                                  |                                  |   |            |            |  |   |            |        |  |   |           |            | 
|-------------------------- | -------------------------------- | -------------------------------- | - | ---------- | ---------- |  | - | ---------- | ------ |  | - | --------- | ---------- | 
|                           |                                  |                                  |   | Unrealized |            |  |  
|                           |                                  | Amortized                        |   |            | Gain       |  |   | Estimated  |       
|Description                |                                  | Cost                             |   |            | (Loss)     |  |   | Fair Value |       
|                           |                                  |                                  |   |            |            |  |   |            |       
|Non restricted investments |                                  |                                  |   |            |            |  |   |            |        |  |   |          
|                           | Government of Panama Notes       |                                  | $ | 2,415,334  |            |  | $ | 17,666     |        |  | $ | 2,433,000 |           
|                           | Government of Panama Zero Coupon |                                  |   | 3,337,109  |            |  |   | (3,236     | )      |  |   | 3,333,873 |           
|                           | Corporate securities             |                                  |   | 2,852,522  |            |  |   | 26,892     |        |  |   | 2,879,414 |           
|                           |                                  |                                  |   |            |            |  |   |            |       
|                           |                                  | Total non restricted investments |   |            | 8,604,965  |  |   |            | 41,322 |  |   |           | 8,646,287  | 
|                           |                                  |                                  |   |            |            |  |   |            |       
|Restricted investments     |                                  |                                  |   |            |            |  |   |            |        |  |   |          
|                           | Cash and cash equivalents        |                                  |   | 3,271,823  |            |  |   |           |        |  |   | 3,271,823 |           
|                           | Short-term corporate instruments |                                  |   | 3,269,500  |            |  |   | 5,937      |        |  |   | 3,275,437 |           
|                           | U.S. Government Fixed Income     |                                  |   | 2,064,927  |            |  |   | 7,460      |        |  |   | 2,072,387 |           
|                           |                                  |                                  |   |            |            |  |   |            |       
|                           |                                  | Total restricted investments     |   |            | 8,606,250  |  |   |            | 13,397 |  |   |           | 8,619,647  | 
|                           |                                  |                                  |   |            |            |  |   |            |       
|                           |                                  | Total investments                |   | $          | 17,211,215 |  |   | $          | 54,719 |  |   | $         | 17,265,934 | 
|                           |                                  |                                  |   |            |            |  |   |            |       



| |                           
| | --------------------------
| | Non Restricted Investments





|                        |  |           |           |  |            |   |           | 
|----------------------- |  | --------- | --------- |  | ---------- | - | --------- | 
|                        |  | Amortized |           |  | Estimated  |  
|                        |  | Cost      |           |  | Fair Value |  
|                        |  |           |           |  |            |  
|Due in one year or less |  | $         | 3,337,109 |  |            | $ | 3,333,873 | 
|Due in 1-2 years        |  |           |          |  |            |   |          | 
|Due in 2-4 years        |  |           |          |  |            |   |          | 
|Due after 4 years       |  |           | 5,267,856 |  |            |   | 5,312,414 | 
|                        |  |           |           |  |            |  
|                        |  | $         | 8,604,965 |  |            | $ | 8,646,287 | 
|                        |  |           |           |  |            |  



| |                       
| | ----------------------
| | Restricted Investments





|                        |  |           |           |  |            |   |           | 
|----------------------- |  | --------- | --------- |  | ---------- | - | --------- | 
|                        |  | Amortized |           |  | Estimated  |  
|                        |  | Cost      |           |  | Fair Value |  
|                        |  |           |           |  |            |  
|Due in one year or less |  | $         | 8,606,250 |  |            | $ | 8,619,647 | 

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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)


4.     Property, Plant and
Equipment




|                                               |  |   |             | 
|---------------------------------------------- |  | - | ----------- | 
|Hydroelectric plant                            |  | $ | 634,768,265 | 
|Electrical equipment                           |  |   | 22,326,436  | 
|Substation equipment                           |  |   | 9,377,448   | 
|Other                                          |  |   | 6,147,213   | 
|                                               |  |   |            
|                                               |  |   | 672,619,362 | 
|Less accumulated depreciation and amortization |  |   | 215,360,847 | 
|                                               |  |   |            
|                                               |  |   | 457,258,515 | 
|Construction in process                        |  |   | 4,612,505   | 
|Land                                           |  |   | 1,323,483   | 
|                                               |  |   |            
|                                               |  | $ | 463,194,503 | 
|                                               |  |   |            

5.     Debt Obligation


Short-Term Borrowings




Long-Term Debt






1 2




Bonds


1 8




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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)


















|      |  |          |           |        |               |  |       |              |  |   |             | 
|----- |  | -------- | --------- | ------ | ------------- |  | ----- | ------------ |  | - | ----------- | 
|      |  |          |           | Annual |               |  |      
|      |  | Maturity |           |        | Interest Rate |  |       | Balance 2002 | 
|      |  |          |           |        |               |  |       |              | 
|Bonds |  |          | Dec. 2013 |        |               |  | 101/8 | %            |  | $ | 170,000,000 | 
|      |  |          |           |        |               |  |       |              | 



|           |  |           |             | 
|---------- |  | --------- | ----------- | 
|           |  | Principal |            
|Year       |  | Amount    |            
|           |  |           |            
|2003       |  | $         |            | 
|2004       |  |           | 10,473,309  | 
|2005       |  |           | 11,560,578  | 
|2006       |  |           | 12,760,710  | 
|2007       |  |           | 14,085,435  | 
|Thereafter |  |           | 121,119,968 | 
|           |  |           |            
|Total      |  | $         | 170,000,000 | 
|           |  |           |            

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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)


6.     Related Party Transactions


Energy Sales and Purchases






|                    |  |        |             |      |       |  |    | 
|------------------- |  | ------ | ----------- | ---- | ----- |  | -- | 
|                    |  |        |             | % of |      
|Description         |  | Amount |             |      | Total | 
|                    |  |        |             |      |       | 
|Revenue             |  | $      | 100,388,878 |      |       |  | 99 | 
|Purchases of energy |  |        | 3,435,250   |      |       |  | 54 | 
|Transmission costs  |  |        | 13,413,075  |      |       |  | 99 | 

Debt Assignment and Assumption Agreement




Management Services




|                 |  |   |           | 
|---------------- |  | - | --------- | 
|Description      |  |  
|                 |  |  
|Accounts payable |  | $ | 764,924   | 
|Management fee   |  | $ | 2,900,757 | 

Technical Services




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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)


|                                        |  |   |         | 
|--------------------------------------- |  | - | ------- | 
|Description                             |  |  
|                                        |  |  
|Capitalized as construction in progress |  | $ | 269,376 | 
|Charged to expenses                     |  | $ | 43,359  | 
|Accounts payable                        |  | $ | 475,791 | 
|Accounts receivable                     |  | $ | 303     | 

Note Receivable




|                |  |   |            | 
|--------------- |  | - | ---------- | 
|Description     |  |  
|                |  |  
|Loan receivable |  | $ | 12,000,000 | 
|Interest income |  | $ | 665,671    | 



|   |                  
|-- | -----------------
|7. | Retained Earnings







|   |             
|-- | ------------
|8. | Income Taxes



|                                         |                          |   |            |            | 
|---------------------------------------- | ------------------------ | - | ---------- | ---------- | 
|Pretax income from continuing operations |                          | $ | 44,053,860 |           
|Current income tax expense               |                          | $ | 13,291,795 |           
|Deferred income tax benefit              |                          |   | (114,288   | )         
|                                         |                          |   |           
|                                         | Total income tax expense |   | $          | 13,177,507 | 
|                                         |                          |   |           

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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




|                                                  |                    |   |            |            | 
|------------------------------------------------- | ------------------ | - | ---------- | ---------- | 
|Tax expense at statutory rate                     |                    | $ | 13,216,158 |           
|Decrease in non-taxable interest income and other |                    |   | (38,651    | )         
|                                                  |                    |   |           
|                                                  | Income tax expense |   | $          | 13,177,507 | 
|                                                  |                    |   |           
|Effective tax rate                                |                    |   | 29.9%      |           
|                                                  |                    |   |           



|                        |                    |   |            |           | 
|----------------------- | ------------------ | - | ---------- | --------- | 
|Current income taxes    |                    | $ | 13,291,795 |          
|Less prepaid income tax |                    |   | 9,588,517  |          
|                        |                    |   |           
|                        | Income tax payable |   | $          | 3,703,278 | 
|                        |                    |   |           



|                    |                                              |                                             |   |         |         | 
|------------------- | -------------------------------------------- | ------------------------------------------- | - | ------- | ------- | 
|Deferred tax asset: |                                              |                                             |   |        
|                    | Provision for inventory obsolescence         |                                             | $ | 180,000 |        
|                    | Provision for fringe benefits                |                                             |   | 97,704  |        
|                    | Provision for technical assistance and other |                                             |   | 13,023  |        
|                    |                                              |                                             |  
|                    |                                              | Total current portion of deferred tax asset |   | $       | 290,727 | 
|                    |                                              |                                             |  

|                        |                                                   |                                                     |   |           |           | 
|----------------------- | ------------------------------------------------- | --------------------------------------------------- | - | --------- | --------- | 
|Deferred tax liability: |                                                   |                                                     |   |          
|                        | Depreciation expense applicable to future periods |                                                     | $ | 2,195,271 |          
|                        | Less current portion of depreciation expense      |                                                     |   | 100,000   |          
|                        |                                                   |                                                     |  
|                        |                                                   | Total non-current portion of deferred tax liability |   | $         | 2,095,271 | 
|                        |                                                   |                                                     |  



|  |                              
|- | -----------------------------
|9 | Commitments and Contingencies



| |             
| | ------------
| | Labor Claims





| |                          
| | -------------------------
| | Power Purchase Agreements



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




|    |  |            |                   | 
|--- |  | ---------- | ----------------- | 
|    |  | Expiration |                  
|MW  |  |           
|    |  |            |                  
|140 |  |            | December 31, 2003 | 
|24  |  |            | December 31, 2004 | 



Transmission Fees




Service Fee






Discharge Tunnel Repairs








| |                  
| | -----------------
| | Performance Bonds





| |                    
| | -------------------
| | Concession Contract



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Empresa de Generación Eléctrica Fortuna, S.A.


Notes to Financial Statements  (Continued)




| |                     
| | --------------------
| | Substation Expansion





| |                                 
| | --------------------------------
| | Employees stock acquisition plan





|    |                                    
|--- | -----------------------------------
|10. | Fair Value of Financial Instruments



232



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Report of Independent Auditors


















233



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Saba Power Company (Private) Limited





Balance Sheets


|                                       |                                                                                                                              |                                     |   |             |              |  |   |             |             | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | - | ----------- | ------------ |  | - | ----------- | ----------- | 
|                                       |                                                                                                                              | December 31,                        |   |             | December 31, | 
|                                       |                                                                                                                              | 2004                                |   |             | 2003         | 
|                                       |                                                                                                                              |                                     |   |             |              | 
|ASSETS                                
|Current assets:                        |                                                                                                                              |                                     |   |             |              |  |   |            
|                                       | Cash and cash equivalents                                                                                                    |                                     | $ | 45,117,839  |              |  | $ | 36,896,657  |            
|                                       | Accounts receivable                                                                                                          |                                     |   | 9,361,751   |              |  |   | 7,759,415   |            
|                                       | Inventory                                                                                                                    |                                     |   |             |              |  |   |             |            
|                                       |                                                                                                                              | Supplies                            |   |             | 3,824,518    |  |   |             | 3,868,498   | 
|                                       |                                                                                                                              | Fuel                                |   |             | 3,639,558    |  |   |             | 3,655,151   | 
|                                       | Advance for fuel purchases                                                                                                   |                                     |   | 2,436,822   |              |  |   | 1,407,772   |            
|                                       | Prepaid and other current assets                                                                                             |                                     |   | 246,614     |              |  |   | 299,649     |            
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                       |                                                                                                                              | Total Current Assets                |   |             | 64,627,102   |  |   |             | 53,887,142  | 
|                                       |                                                                                                                              |                                     |   |             |              | 
|Property, plant, and equipment:        |                                                                                                                              |                                     |   |             |              |  |   |            
|                                       | Equipment                                                                                                                    |                                     |   | 141,115,237 |              |  |   | 141,068,588 |            
|                                       | Land                                                                                                                         |                                     |   | 422,783     |              |  |   | 422,783     |            
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                       |                                                                                                                              | Subtotal                            |   |             | 141,538,020  |  |   |             | 141,491,371 | 
|                                       | Less: accumulated depreciation                                                                                               |                                     |   | (24,611,573 | )            |  |   | (19,829,413 | )          
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                       |                                                                                                                              | Property, Plant, and Equipment, net |   |             | 116,926,447  |  |   |             | 121,661,958 | 
|                                       |                                                                                                                              |                                     |   |             |              | 
|Other assets:                          |                                                                                                                              |                                     |   |             |              |  |   |            
|                                       | Deferred financing costs, net                                                                                                |                                     |   | 3,427,410   |              |  |   | 4,144,891   |            
|                                       | Other deferred costs, net                                                                                                    |                                     |   |            |              |  |   | 988         |            
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                       |                                                                                                                              | Total Other Assets                  |   |             | 3,427,410    |  |   |             | 4,145,879   | 
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                       | Total assets                                                                                                                 |                                     | $ | 184,980,959 |              |  | $ | 179,694,979 |            
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                      
|LIABILITIES AND STOCKHOLDERS EQUITY  
|Current liabilities:                   |                                                                                                                              |                                     |   |             |              |  |   |            
|                                       | Interest payable                                                                                                             |                                     | $ | 20,160,116  |              |  | $ | 14,280,447  |            
|                                       | Accounts payable                                                                                                             |                                     |   |             |              |  |   |             |            
|                                       |                                                                                                                              | Trade                               |   |             | 4,787,352    |  |   |             | 4,942,223   | 
|                                       |                                                                                                                              | Affiliates                          |   |             | 2,830,452    |  |   |             | 2,929,697   | 
|                                       | Retainage payable                                                                                                            |                                     |   |            |              |  |   | 1,658,179   |            
|                                       | Notes payable                                                                                                                |                                     |   | 88,601,955  |              |  |   | 87,944,437  |            
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                       |                                                                                                                              | Total Current Liabilities           |   |             | 116,379,875  |  |   |             | 111,754,983 | 
|                                       |                                                                                                                              |                                     |   |             |              | 
|Commitments and contingencies (Note 5) |                                                                                                                              |                                     |   |             |              |  |   |            
|Stockholders equity:                  |                                                                                                                              |                                     |   |             |              |  |   |            
|                                       | Common stock, (10 Rupee par value); 240,000,000 ordinary shares
    authorized and 234,279,683 shares issued and outstanding |                                     |   | 54,842,706  |              |  |   | 54,842,706  |            
|                                       | Additional paid-in capital                                                                                                   |                                     |   | 7,442,445   |              |  |   | 7,442,445   |            
|                                       | Retained earnings                                                                                                            |                                     |   | 6,315,933   |              |  |   | 5,654,845   |            
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                       |                                                                                                                              | Total Stockholders Equity          |   |             | 68,601,084   |  |   |             | 67,939,996  | 
|                                       |                                                                                                                              |                                     |   |             |              | 
|                                       | Total liabilities and stockholders equity                                                                                   |                                     | $ | 184,980,959 |              |  | $ | 179,694,979 |            
|                                       |                                                                                                                              |                                     |   |             |              | 



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Saba Power Company (Private) Limited





Statements of Operations


|                       |                              |                          |           |            |              |   |           |            |            | 
|---------------------- | ---------------------------- | ------------------------ | --------- | ---------- | ------------ | - | --------- | ---------- | ---------- | 
|                       |                              | For the Year             |           |            | For the Year |  
|                       |                              | Ended                    |           |            | Ended        |  
|                       |                              | December 31,             |           |            | December 31, |  
|                       |                              | 2004                     |           |            | 2003         |  
|                       |                              |                          |           |            |              |  
|Revenue                |                              |                          |           |            |              |   |           |           
|                       | Electricity capacity         |                          | $         | 22,111,894 |              |   | $         | 23,195,512 |           
|                       | Electricity energy           |                          |           | 31,686,139 |              |   |           | 23,526,025 |           
|                       |                              |                          |           |            |              |  
|                       |                              | Total revenue            |           |            | 53,798,033   |   |           |            | 46,721,537 | 
|                       |                              |                          |           |            |              |  
|Operating expenses     |                              |                          |           |            |              |   |           |           
|                       | Fuel                         |                          |           | 35,527,134 |              |   |           | 26,875,639 |           
|                       | Administrative               |                          |           | 2,844,077  |              |   |           | 5,715,161  |           
|                       | Operating                    |                          |           | 1,752,043  |              |   |           | 1,741,573  |           
|                       | Depreciation                 |                          |           | 4,782,160  |              |   |           | 4,799,699  |           
|                       |                              |                          |           |            |              |  
|                       |                              | Total operating expenses |           |            | 44,905,414   |   |           |            | 39,132,072 | 
|                       |                              |                          |           |            |              |  
|Operating income       |                              |                          | 8,892,619 |            |              |   | 7,589,465 |           
|                       |                              |                          |           |            |              |  
|Other (income) expense |                              |                          |           |            |              |   |           |           
|                       | Interest income              |                          |           | (200,799   | )            |   |           | (544,342   | )         
|                       | Interest expense             |                          |           | 6,597,149  |              |   |           | 6,115,750  |           
|                       | Foreign exchange loss (gain) |                          |           | 1,835,181  |              |   |           | (520,567   | )         
|                       |                              |                          |           |            |              |  
|Total other expense    |                              |                          | 8,231,531 |            |              |   | 5,050,841 |           
|                       |                              |                          |           |            |              |  
|Net income             |                              | $                        | 661,088   |            |              | $ | 2,538,624 |           
|                       |                              |                          |           |            |              |  



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Saba Power Company (Private) Limited





Statements of Changes in Stockholders Equity


|                                                 |  |              |             |  |            |   |            |                 |  |   |           |  |  |       |            |   |  |   |            |  
|------------------------------------------------ |  | ------------ | ----------- |  | ---------- | - | ---------- | --------------- |  | - | --------- |  |  | ----- | ---------- | - |  | - | ---------- | -
|                                                 |  | Common Stock |             |  |            |   |            |                 | 
|                                                 |  |              |             |  | Additional |   |            | Retained        |  |   |          
|                                                 |  | Shares       |             |  | Amount     |   |            | Paid in Capital |  |   | Earnings  |  |  | Total |           
|                                                 |  |              |             |  |            |   |            |                 |  |   |           |  |  |       |           
|Balance, January 1, 2003, as previously reported |  |              | 234,279,683 |  |            | $ | 54,842,706 |                 |  | $ | 7,442,445 |  |  | $     | 6,613,719  |   |  | $ | 68,898,870 |  
|Adjustment (Note 2)                              |  |              |            |  |            |   |           |                 |  |   |          |  |  |       | (3,497,498 | ) |  |   | (3,497,498 | )
|                                                 |  |              |             |  |            |   |            |                 |  |   |           |  |  |       |           
|Balance, January 1, 2003, as restated            |  |              | 234,279,683 |  |            |   | 54,842,706 |                 |  |   | 7,442,445 |  |  |       | 3,116,221  |   |  |   | 65,401,372 |  
|Net income                                       |  |              |            |  |            |   |           |                 |  |   |          |  |  |       | 2,538,624  |   |  |   | 2,538,624  |  
|                                                 |  |              |             |  |            |   |            |                 |  |   |           |  |  |       |           
|Balance, December 31, 2003                       |  |              | 234,279,683 |  |            |   | 54,842,706 |                 |  |   | 7,442,445 |  |  |       | 5,654,845  |   |  |   | 67,939,996 |  
|Net income                                       |  |              |            |  |            |   |           |                 |  |   |          |  |  |       | 661,088    |   |  |   | 661,088    |  
|                                                 |  |              |             |  |            |   |            |                 |  |   |           |  |  |       |           
|Balance, December 31, 2004                       |  |              | 234,279,683 |  |            | $ | 54,842,706 |                 |  | $ | 7,442,445 |  |  | $     | 6,315,933  |   |  | $ | 68,601,084 |  
|                                                 |  |              |             |  |            |   |            |                 |  |   |           |  |  |       |           



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Saba Power Company (Private) Limited





Statements of Cash Flows


|                                                 |                                                                                       |                                           |            |         |              |   |            |           |            |  
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ----------------------------------------- | ---------- | ------- | ------------ | - | ---------- | --------- | ---------- | -
|                                                 |                                                                                       | For the Year                              |            |         | For the Year |  
|                                                 |                                                                                       | Ended                                     |            |         | Ended        |  
|                                                 |                                                                                       | December 31,                              |            |         | December 31, |  
|                                                 |                                                                                       | 2004                                      |            |         | 2003         |  
|                                                 |                                                                                       |                                           |            |         |              |  
|Cash flows from operating activities:            |                                                                                       |                                           |            |         |              |   |            |          
|                                                 | Net income                                                                            |                                           | $          | 661,088 |              |   | $          | 2,538,624 |           
|                                                 | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                           |            |         |              |   |            |           |           
|                                                 |                                                                                       | Depreciation and amortization             |            |         | 5,500,629    |   |            |           | 5,516,977  |  
|                                                 |                                                                                       | Foreign currency exchange (gains)/losses  |            |         | 1,561,747    |   |            |           | (322,077   | )
|                                                 |                                                                                       | Other non-cash income adjustments         |            |         | 657,518      |   |            |           | 1,219,347  |  
|                                                 | Working capital changes:                                                              |                                           |            |         |              |   |            |           |           
|                                                 |                                                                                       | Accounts receivable                       |            |         | (1,602,336   | ) |            |           | 4,686,489  |  
|                                                 |                                                                                       | Advance for fuel purchases                |            |         | (1,029,050   | ) |            |           | 1,647,837  |  
|                                                 |                                                                                       | Fuel inventory                            |            |         | 15,593       |   |            |           | (1,732,143 | )
|                                                 |                                                                                       | Supplies inventory                        |            |         | 43,980       |   |            |           | (145,034   | )
|                                                 |                                                                                       | Prepaid and other current assets          |            |         | 53,035       |   |            |           | (70,484    | )
|                                                 |                                                                                       | Interest payable                          |            |         | 5,879,670    |   |            |           | 5,398,269  |  
|                                                 |                                                                                       | Accounts payable                          |            |         | (154,872     | ) |            |           | (870,297   | )
|                                                 |                                                                                       | Accounts payable, affiliates              |            |         | (99,245      | ) |            |           | 253,891    |  
|                                                 |                                                                                       | Retainage payable                         |            |         | (1,658,179   | ) |            |           |           |  
|                                                 |                                                                                       |                                           |            |         |              |  
|                                                 |                                                                                       | Net cash provided by operating activities |            |         | 9,829,578    |   |            |           | 18,121,399 |  
|                                                 |                                                                                       |                                           |            |         |              |  
|Cash flows from investing activities:            |                                                                                       |                                           |            |         |              |   |            |          
|                                                 | Equipment purchases                                                                   |                                           |            | (46,649 | )            |   |            | (166,030  | )         
|                                                 |                                                                                       |                                           |            |         |              |  
|                                                 |                                                                                       | Net cash used in investing activities     |            |         | (46,649      | ) |            |           | (166,030   | )
|                                                 |                                                                                       |                                           |            |         |              |  
|Effect of exchange rate changes on cash          |                                                                                       |                                           | (1,561,747 | )       |              |   | 322,077    |          
|Net increase in cash and cash equivalents        |                                                                                       |                                           | 8,221,182  |         |              |   | 18,277,446 |          
|Cash and cash equivalents at beginning of period |                                                                                       | $                                         | 36,896,657 |         |              | $ | 18,619,211 |          
|                                                 |                                                                                       |                                           |            |         |              |  
|Cash and cash equivalents at end of period       |                                                                                       | $                                         | 45,117,839 |         |              | $ | 36,896,657 |          
|                                                 |                                                                                       |                                           |            |         |              |  



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Saba Power Company (Private) Limited





Notes to Financial Statements




|   |                            
|-- | ---------------------------
|1. | Organization and Background









|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation



Restatement






| |                 
| | ----------------
| | Use of Estimates



238



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##### Table of Contents



Saba Power Company (Private) Limited


Notes to Financial Statements  (Continued)




| |                    
| | -------------------
| | Functional Currency





| |                    
| | -------------------
| | Revenue Recognition





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                    
| | -------------------
| | Accounts Receivable





| |                           
| | --------------------------
| | Advance for Fuel Purchases





| |          
| | ---------
| | Inventory



239



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##### Table of Contents



Saba Power Company (Private) Limited


Notes to Financial Statements  (Continued)




| |                              
| | -----------------------------
| | Property, Plant and Equipment



|                                  |  |              |             |   |              |   |             |  
|--------------------------------- |  | ------------ | ----------- | - | ------------ | - | ----------- | -
|                                  |  | December 31, |             |   | December 31, |  
|                                  |  | 2004         |             |   | 2003         |  
|                                  |  |              |             |   |              |  
|Generating plant                  |  | $            | 140,318,258 |   |              | $ | 140,272,137 |  
|Land                              |  |              | 422,783     |   |              |   | 422,783     |  
|Office equipment                  |  |              | 52,176      |   |              |   | 52,176      |  
|Furniture and fixtures            |  |              | 98,768      |   |              |   | 98,240      |  
|Telecommunication equipment       |  |              | 614,990     |   |              |   | 614,990     |  
|Vehicles                          |  |              | 31,045      |   |              |   | 31,045      |  
|Less: Accumulated depreciation    |  |              | (24,611,573 | ) |              |   | (19,829,413 | )
|                                  |  |              |             |   |              |  
|Property, plant, & equipment, net |  | $            | 116,926,447 |   |              | $ | 121,661,958 |  
|                                  |  |              |             |   |              |  





| |                         
| | ------------------------
| | Deferred Financing Costs





| |         
| | --------
| | Taxation





|   |                
|-- | ---------------
|3. | Debt Agreements



240



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##### Table of Contents



Saba Power Company (Private) Limited


Notes to Financial Statements  (Continued)












241



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Saba Power Company (Private) Limited


Notes to Financial Statements  (Continued)








|   |                           
|-- | --------------------------
|4. | Related Party Transactions



| |                              
| | -----------------------------
| | Management Services Agreement





| |                                     
| | ------------------------------------
| | Operations and Maintenance Agreement





| |                                             
| | --------------------------------------------
| | Accounts Receivable and Payable  Affiliates





242



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Saba Power Company (Private) Limited


Notes to Financial Statements  (Continued)




|   |                              
|-- | -----------------------------
|5. | Commitments and Contingencies



| |                  
| | -----------------
| | Legal Proceedings

Engineering Procurement and Construction Procurement
Contracts








Withholding Tax




Cogen Suit




243



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##### Table of Contents



Saba Power Company (Private) Limited


Notes to Financial Statements  (Continued)






| |                         
| | ------------------------
| | Power Purchase Agreement







244



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##### Table of Contents



Saba Power Company (Private) Limited


Notes to Financial Statements  (Continued)












| |                      
| | ---------------------
| | Fuel Supply Agreement









| |                         
| | ------------------------
| | Implementation Agreement



245



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##### Table of Contents



Saba Power Company (Private) Limited


Notes to Financial Statements  (Continued)










|   |                                          
|-- | -----------------------------------------
|6. | Concentration of Credit and Business Risk





|   |                                    
|-- | -----------------------------------
|7. | Fair Value of Financial Instruments



246



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Saba Power Company (Private) Limited





Balance Sheets


(Unaudited)


|                                     |                                                                                                                              |                                     |   |             |             |  |   |             |             | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | - | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                     |                                                                                                                              | December 31,                        |   |             | June 30,    | 
|                                     |                                                                                                                              | 2002                                |   |             | 2002        | 
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     |                                                                                                                              | (Restated)                          |   |             | (Restated)  | 
|ASSETS                              
|Current Assets:                      |                                                                                                                              |                                     |   |             |             |  |   |            
|                                     | Cash and cash equivalents                                                                                                    |                                     | $ | 18,619,211  |             |  | $ | 3,673,823   |            
|                                     | Accounts receivable                                                                                                          |                                     |   | 12,445,904  |             |  |   | 17,593,238  |            
|                                     | Inventory:                                                                                                                   |                                     |   |             |             |  |   |             |            
|                                     |                                                                                                                              | Supplies                            |   |             | 3,723,464   |  |   |             | 3,668,051   | 
|                                     |                                                                                                                              | Fuel                                |   |             | 1,923,008   |  |   |             | 2,964,764   | 
|                                     | Advance for fuel purchases                                                                                                   |                                     |   | 3,055,609   |             |  |   | 2,005,497   |            
|                                     | Prepaid and other current assets                                                                                             |                                     |   | 229,165     |             |  |   | 741,434     |            
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     |                                                                                                                              | Total Current Assets                |   |             | 39,996,361  |  |   |             | 30,646,807  | 
|                                     |                                                                                                                              |                                     |   |             |             | 
|Property, Plant, and Equipment:      |                                                                                                                              |                                     |   |             |             |  |   |            
|                                     | Equipment                                                                                                                    |                                     |   | 140,902,558 |             |  |   | 148,371,202 |            
|                                     | Land                                                                                                                         |                                     |   | 422,783     |             |  |   | 422,783     |            
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     |                                                                                                                              | Subtotal                            |   |             | 141,325,341 |  |   |             | 148,793,985 | 
|                                     | Less: accumulated depreciation                                                                                               |                                     |   | (15,029,714 | )           |  |   | (12,520,439 | )          
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     |                                                                                                                              | Property, Plant, and Equipment, net |   |             | 126,295,627 |  |   |             | 136,273,546 | 
|                                     |                                                                                                                              |                                     |   |             |             | 
|Other Assets:                        |                                                                                                                              |                                     |   |             |             |  |   |            
|                                     | Deferred financing costs, net                                                                                                |                                     |   | 4,862,372   |             |  |   | 5,221,112   |            
|                                     | Other deferred costs, net                                                                                                    |                                     |   | 785         |             |  |   | 1,279       |            
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     |                                                                                                                              | Total Other Assets                  |   |             | 4,863,157   |  |   |             | 5,222,391   | 
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     | Total Assets                                                                                                                 |                                     | $ | 171,155,145 |             |  | $ | 172,142,744 |            
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current Liabilities:                 |                                                                                                                              |                                     |   |             |             |  |   |            
|                                     | Interest payable                                                                                                             |                                     | $ | 8,882,178   |             |  | $ | 5,918,857   |            
|                                     | Accounts payable:                                                                                                            |                                     |   |             |             |  |   |             |            
|                                     |                                                                                                                              | Trade                               |   |             | 5,812,520   |  |   |             | 5,155,152   | 
|                                     |                                                                                                                              | Affiliates                          |   |             | 2,675,806   |  |   |             | 2,581,498   | 
|                                     | Retainage payable                                                                                                            |                                     |   | 1,658,179   |             |  |   | 9,126,989   |            
|                                     | Notes payable                                                                                                                |                                     |   | 86,725,090  |             |  |   | 86,725,090  |            
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     |                                                                                                                              | Total Current Liabilities           |   |             | 105,753,773 |  |   |             | 109,507,586 | 
|                                     |                                                                                                                              |                                     |   |             |             | 
|Stockholders Equity:                |                                                                                                                              |                                     |   |             |             |  |   |            
|                                     | Common stock, (10 Rupee par value); 240,000,000 ordinary shares
    authorized and 234,279,683 shares issued and outstanding |                                     |   | 54,842,706  |             |  |   | 54,842,706  |            
|                                     | Additional paid-in capital                                                                                                   |                                     |   | 7,442,445   |             |  |   | 7,265,331   |            
|                                     | Retained earnings                                                                                                            |                                     |   | 3,116,221   |             |  |   | 527,121     |            
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     |                                                                                                                              | Total Stockholders Equity          |   |             | 65,401,372  |  |   |             | 62,635,158  | 
|                                     |                                                                                                                              |                                     |   |             |             | 
|                                     | Total Liabilities and Stockholders Equity                                                                                   |                                     | $ | 171,155,145 |             |  | $ | 172,142,744 |            
|                                     |                                                                                                                              |                                     |   |             |             | 



247



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Saba Power Company (Private) Limited





Statements of Operations


(Unaudited)


|                         |  |              |            |   |               |   |            |  
|------------------------ |  | ------------ | ---------- | - | ------------- | - | ---------- | -
|                         |  | For the Six  |            |   |              
|                         |  | Months Ended |            |   | For the Year  |  
|                         |  | December 31, |            |   | Ended         |  
|                         |  | 2002         |            |   | June 30, 2002 |  
|                         |  |              |            |   |               |  
|                         |  | (Restated)   |            |   | (Restated)    |  
|Revenue                  |  |              |            |   |               |   |            |  
|Electricity capacity     |  | $            | 11,939,635 |   |               | $ | 23,982,568 |  
|Electricity energy       |  |              | 9,707,905  |   |               |   | 22,828,912 |  
|                         |  |              |            |   |               |  
|Total revenue            |  |              | 21,647,540 |   |               |   | 46,811,480 |  
|                         |  |              |            |   |               |  
|Operating expenses       |  |              |            |   |               |   |            |  
|Fuel                     |  |              | 11,110,337 |   |               |   | 24,792,823 |  
|Administrative           |  |              | 2,259,092  |   |               |   | 3,662,357  |  
|Operating                |  |              | 932,166    |   |               |   | 4,272,972  |  
|Depreciation             |  |              | 2,509,275  |   |               |   | 5,019,152  |  
|                         |  |              |            |   |               |  
|Total operating expenses |  |              | 16,810,870 |   |               |   | 37,747,304 |  
|                         |  |              |            |   |               |  
|Operating income         |  |              | 4,836,670  |   |               |   | 9,064,176  |  
|                         |  |              |            |   |               |  
|Other (income) expense   |  |              |            |   |               |   |            |  
|Interest income          |  |              | (427,491   | ) |               |   | (1,171,451 | )
|Interest expense         |  |              | 3,322,061  |   |               |   | 7,069,922  |  
|Foreign exchange gain    |  |              | (647,000   | ) |               |   | (907,338   | )
|                         |  |              |            |   |               |  
|Total other expense      |  |              | 2,247,570  |   |               |   | 4,991,133  |  
|                         |  |              |            |   |               |  
|Net income               |  | $            | 2,589,100  |   |               | $ | 4,073,043  |  
|                         |  |              |            |   |               |  



248



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Saba Power Company (Private) Limited





Statements of Changes in Stockholders Equity


(Unaudited)


|                                              |  |              |             |  |            |          |            |                 |  |   |             |   |  |       |            |   |  |   |            |  
|--------------------------------------------- |  | ------------ | ----------- |  | ---------- | -------- | ---------- | --------------- |  | - | ----------- | - |  | ----- | ---------- | - |  | - | ---------- | -
|                                              |  |              |             |  |            | Retained |            |                 | 
|                                              |  | Common Stock |             |  |            |          | Earnings   |                 |  |  
|                                              |  |              |             |  | Additional |          |            | (Deficit)       |  |   |            
|                                              |  | Shares       |             |  | Amount     |          |            | Paid in Capital |  |   | (Restated)  |   |  | Total |           
|                                              |  |              |             |  |            |          |            |                 |  |   |             |   |  |       |           
|Balance, July 1, 2001, as previously reported |  |              | 175,054,683 |  |            | $        | 43,342,706 |                 |  | $ | 18,765,331  |   |  | $     | (2,409,307 | ) |  | $ | 59,698,730 |  
|Adjustment (Note 2)                           |  |              |            |  |            |          |           |                 |  |   |            |   |  |       | (1,136,615 | ) |  |   | (1,136,615 | )
|                                              |  |              |             |  |            |          |            |                 |  |   |             |   |  |       |           
|Balance, July 1, 2001, as restated            |  |              | 175,054,683 |  |            | $        | 43,342,706 |                 |  | $ | 18,765,331  |   |  | $     | (3,545,922 | ) |  | $ | 58,562,115 |  
|Issuance of shares                            |  |              | 59,225,000  |  |            |          | 11,500,000 |                 |  |   | (11,500,000 | ) |  |       |           |   |  |   |           |  
|Net income                                    |  |              |            |  |            |          |           |                 |  |   |            |   |  |       | 4,073,043  |   |  |   | 4,073,043  |  
|                                              |  |              |             |  |            |          |            |                 |  |   |             |   |  |       |           
|Balance, June 30, 2002                        |  |              | 234,279,683 |  |            |          | 54,842,706 |                 |  |   | 7,265,331   |   |  |       | 527,121    |   |  |   | 62,635,158 |  
|Paid in capital                               |  |              |             |  |            |          |            |                 |  |   | 177,114     |   |  |       |           |   |  |   | 177,114    |  
|Net income                                    |  |              |            |  |            |          |           |                 |  |   |            |   |  |       | 2,589,100  |   |  |   | 2,589,100  |  
|                                              |  |              |             |  |            |          |            |                 |  |   |             |   |  |       |           
|Balance, December 31, 2002                    |  |              | 234,279,683 |  |            | $        | 54,842,706 |                 |  | $ | 7,442,445   |   |  | $     | 3,116,221  |   |  | $ | 65,401,372 |  
|                                              |  |              |             |  |            |          |            |                 |  |   |             |   |  |       |           



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Saba Power Company (Private) Limited





Statements of Cash Flows


(Unaudited)


|                                                     |                                                                                                 |                                                     |            |           |               |   |           |           |            |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------------------------------------- | ---------- | --------- | ------------- | - | --------- | --------- | ---------- | -
|                                                     |                                                                                                 | For the Six                                         |            |           |              
|                                                     |                                                                                                 | Months Ended                                        |            |           | For the Year  |  
|                                                     |                                                                                                 | December 31,                                        |            |           | Ended         |  
|                                                     |                                                                                                 | 2002                                                |            |           | June 30, 2002 |  
|                                                     |                                                                                                 |                                                     |            |           |               |  
|                                                     |                                                                                                 | (Restated)                                          |            |           | (Restated)    |  
|Cash Flows From Operating Activities                 |                                                                                                 |                                                     |            |           |               |   |           |          
|                                                     | Net income                                                                                      |                                                     | $          | 2,589,100 |               |   | $         | 4,073,043 |           
|                                                     | Adjustments to reconcile net income to net cash provided by
    (used in) operating activities: |                                                     |            |           |               |   |           |           |           
|                                                     |                                                                                                 | Depreciation and amortization                       |            |           | 2,868,509     |   |           |           | 5,738,813  |  
|                                                     |                                                                                                 | Foreign currency exchange gains                     |            |           | (470,480      | ) |           |           | (406,949   | )
|                                                     |                                                                                                 | Gain on sale of equipment                           |            |           |              |   |           |           | (6,095     | )
|                                                     | Working capital changes:                                                                        |                                                     |            |           |               |   |           |           |           
|                                                     |                                                                                                 | Accounts receivable                                 |            |           | 5,147,334     |   |           |           | (6,250,166 | )
|                                                     |                                                                                                 | Advance for fuel purchases                          |            |           | (1,050,112    | ) |           |           | (630,747   | )
|                                                     |                                                                                                 | Fuel inventory                                      |            |           | 1,041,756     |   |           |           | (1,157,169 | )
|                                                     |                                                                                                 | Supplies inventory                                  |            |           | (55,413       | ) |           |           | (526,207   | )
|                                                     |                                                                                                 | Prepaid and other current assets                    |            |           | 512,269       |   |           |           | (723,426   | )
|                                                     |                                                                                                 | Interest payable                                    |            |           | 2,963,321     |   |           |           | (797,532   | )
|                                                     |                                                                                                 | Accounts payable                                    |            |           | 657,368       |   |           |           | 2,730,952  |  
|                                                     |                                                                                                 | Accounts payable, affiliates                        |            |           | 94,308        |   |           |           | (2,697,096 | )
|                                                     |                                                                                                 |                                                     |            |           |               |  
|                                                     |                                                                                                 | Net cash provided by (used in) operating activities |            |           | 14,297,960    |   |           |           | (652,579   | )
|                                                     |                                                                                                 |                                                     |            |           |               |  
|Cash Flows From Investing Activities:                |                                                                                                 |                                                     |            |           |               |   |           |          
|                                                     | Equipment purchases                                                                             |                                                     |            | (166      | )             |   |           | (211,345  | )         
|                                                     | Proceeds from sale of equipment                                                                 |                                                     |            |          |               |   |           | 4,406     |           
|                                                     |                                                                                                 |                                                     |            |           |               |  
|                                                     |                                                                                                 | Net cash used in investing activities               |            |           | (166          | ) |           |           | (206,939   | )
|                                                     |                                                                                                 |                                                     |            |           |               |  
|Cash Flows From Financing Activities:                |                                                                                                 |                                                     |            |           |               |   |           |          
|                                                     | Proceeds from additional paid in capital                                                        |                                                     |            | 177,114   |               |   |           |          |           
|                                                     |                                                                                                 |                                                     |            |           |               |  
|                                                     |                                                                                                 | Net cash provided by financing activities           |            |           | 177,114       |   |           |           |           |  
|                                                     |                                                                                                 |                                                     |            |           |               |  
|Effect of Exchange Rate Changes on Cash              |                                                                                                 |                                                     | 470,480    |           |               |   | 406,949   |          
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                                 |                                                     | 14,945,388 |           |               |   | (452,569  | )        
|Cash and Cash Equivalents at Beginning of Period     |                                                                                                 |                                                     | 3,673,823  |           |               |   | 4,126,392 |          
|                                                     |                                                                                                 |                                                     |            |           |               |  
|Cash and Cash Equivalents at End of Period           |                                                                                                 | $                                                   | 18,619,211 |           |               | $ | 3,673,823 |          
|                                                     |                                                                                                 |                                                     |            |           |               |  
|Supplemental Cash Flow Disclosure:                   |                                                                                                 |                                                     |            |           |               |   |           |          
|                                                     |                                                                                                 | Non-cash reduction in retainage payable             |            | $         | 7,468,810     |   |           |           |           |  
|                                                     |                                                                                                 | Interest paid                                       |            |           |              |   |           | $         | 7,150,074  |  



250



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##### Table of Contents



SABA POWER COMPANY (PRIVATE) LIMITED





NOTES TO FINANCIAL STATEMENTS




|   |                            
|-- | ---------------------------
|1. | Organization and Background









|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of Presentation





| |            
| | -----------
| | Restatement



|                  |                        |                          |   |           |                             |  |   |             |  |  |             |           |  |  |  |           | 
|----------------- | ---------------------- | ------------------------ | - | --------- | --------------------------- |  | - | ----------- |  |  | ----------- | --------- |  |  |  | --------- | 
|                  |                        | For the Six Months Ended |   |           | For the Year Ended June 30, | 
|                  |                        | December 31, 2002        |   |           | 2002                        | 
|                  |                        |                          |   |           |                             | 
|                  |                        | As Reported              |   |           | As Restated                 |  |   | As Reported |  |  | As Restated |          
|                  |                        |                          |   |           |                             |  |   |             |  |  |             |          
|Income Statement: |                        |                          |   |           |                             |  |   |             |  |  |             |           |  |  |  |          
|                  | Administrative Expense |                          | $ | 2,142,879 |                             |  | $ | 2,259,092   |  |  |             | N/A       |  |  |  | N/A       | 
|                  | Interest Expense       |                          |   | 2,505,531 |                             |  |   | 3,322,061   |  |  |             | 5,641,782 |  |  |  | 7,069,922 | 
|                  | Net income             |                          |   | 3,521,843 |                             |  |   | 2,589,100   |  |  |             | 5,501,183 |  |  |  | 4,073,043 | 

251



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SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)


|               |                            |                         |   |            |                     |  |   |             |  |  |             |            |  |  |   |            | 
|-------------- | -------------------------- | ----------------------- | - | ---------- | ------------------- |  | - | ----------- |  |  | ----------- | ---------- |  |  | - | ---------- | 
|               |                            | As of December 31, 2002 |   |            | As of June 30, 2002 | 
|               |                            |                         |   |            |                     | 
|               |                            | As Reported             |   |            | As Restated         |  |   | As Reported |  |  | As Restated |           
|               |                            |                         |   |            |                     |  |   |             |  |  |             |           
|Balance Sheet: |                            |                         |   |            |                     |  |   |             |  |  |             |            |  |  |   |           
|               | Interest Payable           |                         | $ | 5,555,135  |                     |  | $ | 8,882,178   |  |  | $           | 3,408,344  |  |  | $ | 5,918,857  | 
|               | Accounts Payable  Trade   |                         |   | 5,642,065  |                     |  |   | 5,812,520   |  |  |             | 5,100,910  |  |  |   | 5,155,152  | 
|               | Retained Earnings          |                         |   | 6,613,719  |                     |  |   | 3,116,221   |  |  |             | 3,091,876  |  |  |   | 527,121    | 
|               | Total Stockholders Equity |                         |   | 68,898,870 |                     |  |   | 65,401,372  |  |  |             | 65,199,913 |  |  |   | 62,635,158 | 





| |                 
| | ----------------
| | Use of Estimates





| |                    
| | -------------------
| | Functional Currency





| |                    
| | -------------------
| | Revenue Recognition





| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                    
| | -------------------
| | Accounts Receivable





| |                       
| | ----------------------
| | Advance Fuel Purchases



252



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SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |          
| | ---------
| | Inventory





| |                               
| | ------------------------------
| | Property. Plant, and Equipment



|                                  |  |                   |             |   |               |   |             |  
|--------------------------------- |  | ----------------- | ----------- | - | ------------- | - | ----------- | -
|                                  |  | December 31, 2002 |             |   | June 30, 2002 |  
|                                  |  |                   |             |   |               |  
|Generating plant                  |  | $                 | 140,106,107 |   |               | $ | 147,574,917 |  
|Land                              |  |                   | 422,783     |   |               |   | 422,783     |  
|Office equipment                  |  |                   | 52,176      |   |               |   | 52,010      |  
|Furniture and fixtures            |  |                   | 98,240      |   |               |   | 98,240      |  
|Telecommunication equipment       |  |                   | 614,990     |   |               |   | 614,990     |  
|Vehicles                          |  |                   | 31,045      |   |               |   | 31,045      |  
|Less: Accumulated depreciation    |  |                   | (15,029,714 | ) |               |   | (12,520,439 | )
|                                  |  |                   |             |   |               |  
|Property, plant, & equipment, net |  | $                 | 126,295,627 |   |               | $ | 136,273,546 |  
|                                  |  |                   |             |   |               |  





| |                         
| | ------------------------
| | Deferred Financing Costs





| |         
| | --------
| | Taxation



253



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##### Table of Contents



SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Accounting for Asset Retirement Obligations






|   |                        
|-- | -----------------------
|3. | Shareholders Agreement







254



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##### Table of Contents



SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                
|-- | ---------------
|4. | Debt Agreements









255



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##### Table of Contents



SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)










|   |                           
|-- | --------------------------
|5. | Related Party Transactions



| |                              
| | -----------------------------
| | Management Services Agreement





| |                                     
| | ------------------------------------
| | Operations and Maintenance Agreement





| |                              
| | -----------------------------
| | Accounts Payable  Affiliates





256



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##### Table of Contents



SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|6. | Commitments and Contingencies



| |                  
| | -----------------
| | Legal Proceedings

Engineering Procurement and Construction Procurement
Contracts








Withholding Tax






| |                         
| | ------------------------
| | Implementation Agreement



257



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##### Table of Contents



SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)








Power Purchase Agreement










| |   |                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Payment of a penalty based on a multiple of the average capacity
    purchase price for outages above a certain allowable limit each
    year. During the six months ended December 31, 2002, and
    the year ended June 30, 2002, we incurred $90,912 and
    $2,281,553, respectively, of liquidated damages related to this
    provision, which is included in our operating expenses.
|
| |  | Payment of a penalty of 0.30 Rupees per kilowatt-hour
    (kWh) for not meeting the dispatch requests of WAPDA
    within acceptable tolerance levels.                                                                                                                                                                                                                                   





| |   |                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A letter of credit for the benefit of WAPDA equal to
    $25 per kilowatt of estimated dependable capacity.                                                                                                   
|
| |  | A reserve fund at a level mutually agreed to by us and WAPDA, to
    be initially funded at an amount equal to approximately three
    months of the annual operating and maintenance budget. Money in
    the

258



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SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |  |                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reserve fund may be drawn by us and used for major maintenance
    items in the event that we lack other available funds for
    operation and maintenance of the plant.







Fuel Supply Agreement






Tariff Renegotiation of IA, PPA, and FSA








|   |                                          
|-- | -----------------------------------------
|7. | Concentration of Credit and Business Risk



259



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##### Table of Contents



SABA POWER COMPANY (PRIVATE) LIMITED


NOTES TO FINANCIAL STATEMENTS  (Continued)






|   |                                    
|-- | -----------------------------------
|8. | Fair Value of Financial Instruments



260



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##### Table of Contents






EXHIBIT LIST


December 31, 2004




|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .A          |  | Amended and Restated Certificate of Incorporation dated
    March 7, 2002 (Exhibit 3.A to our 2001 Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 3  | .B          |  | By-laws dated June 24, 2002 (Exhibit 3.B to our 2002
    Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4  | .A          |  | Indenture dated as of February 15, 1994 and First
    Supplemental Indenture dated as of February 15, 1994.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 4  | .B          |  | Indenture dated as of March 5, 2003 between ANR Pipeline
    Company and The Bank of New York Trust Company, N.A.,
    successor to The Bank of New York, as Trustee (Exhibit 4.1
    to our Form 8-K filed March 5, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .A          |  | Amended and Restated Credit Agreement dated as of
    November 23, 2004, among El Paso Corporation, ANR
    Pipeline Company, Colorado Interstate Gas Company, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, the several
    banks and other financial institutions from time to time parties
    thereto and JPMorgan Chase Bank, N.A., as administrative agent
    and as collateral agent (Exhibit 10.A to our Form 8-K
    filed November 29, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10 | .B          |  | Amended and Restated Security Agreement dated as of
    November 23, 2004, made by among El Paso Corporation, ANR
    Pipeline Company, Colorado Interstate Gas Company, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, the
    Subsidiary Grantors and certain other credit parties thereto and
    JPMorgan Chase Bank, N.A., not in its individual capacity, but
    solely as collateral agent for the Secured Parties and as the
    depository bank (Exhibit 10.B to our Form 8-K filed
    November 29, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10 | .C          |  | $3,000,000,000 Revolving Credit Agreement dated as of
    April 16, 2003 among El Paso Corporation, El Paso Natural
    Gas Company, Tennessee Gas Pipeline Company and ANR Pipeline
    Company, as Borrowers, the Lenders Party thereto, and JPMorgan
    Chase Bank, as Administrative Agent, ABN Amro Bank N.V. and
    Citicorp North America, Inc., as Co-Document Agents, Bank of
    America, N.A. and Credit Suisse First Boston, as Co-Syndication
    Agents, J.P. Morgan Securities Inc. and Citigroup Global Markets
    Inc., as Joint Bookrunners and Co-Lead Arrangers.
    (Exhibit 99.1 to El Paso Corporations Form 8-K
    filed April 18, 2003); First Amendment to the
    $3,000,000,000 Revolving Credit Agreement and Waiver dated
    as of March 15, 2004 among El Paso Corporation, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, ANR
    Pipeline Company and Colorado Interstate Gas Company, as
    Borrowers, the Lenders party thereto and JPMorgan Chase Bank, as
    Administrative Agent, ABN AMRO Bank N.V. and Citicorp North
    America, Inc., as Co-Documentation Agents, Bank of America, N.A.
    and Credit Suisse First Boston, as Co-Syndication Agents
    (Exhibit 10.A.1 to our 2003 First Quarter Form 10-Q);
    Second Waiver to the $3,000,000,000 Revolving Credit
    Agreement dated as of June 15, 2004 among El Paso
    Corporation, El Paso Natural Gas Company, Tennessee Gas Pipeline
    Company, ANR Pipeline Company and Colorado Interstate Gas
    Company, as Borrowers, the Lenders party thereto and JPMorgan
    Chase Bank, as Administrative Agent, ABN AMRO Bank N.V. and
    Citicorp North America, Inc., as Co-Documentation Agents, Bank
    of America, N.A. and Credit Suisse First Boston, as

261



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|        |     |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | --- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |            
|Number  |     | Description
|        |     |            
|        |     |             |  | Co-Syndication Agents (Exhibit 10.A.2 to our 2003 Second
    Quarter Form 10-Q); Second Amendment to the
    $3,000,000,000 Revolving Credit Agreement and Third Waiver
    dated as of August 6, 2004 among El Paso Corporation,
    El Paso Natural Gas Company, Tennessee Gas Pipeline
    Company, ANR Pipeline Company and Colorado Interstate Gas
    Company, as Borrowers, the Lenders party thereto and JPMorgan
    Chase Bank, as Administrative Agent, ABN AMRO Bank N.V. and
    Citicorp North America, Inc., as Co-Documentation Agents, Bank
    of America, N.A. and Credit Suisse First Boston, as
    Co-Syndication Agents. (Exhibit 99.B to our Form 8-K
    filed August 10, 2004).
|        | 21  |             |  | Omitted pursuant to the reduced disclosure format permitted by
    General Instruction I to Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | *31 | .A          |  | Certification of Chief Executive Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | *31 | .B          |  | Certification of Chief Financial Officer pursuant to
    sec. 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | *32 | .A          |  | Certification of Chief Executive Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | *32 | .B          |  | Certification of Chief Financial Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to
    sec. 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Undertaking




262



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##### Table of Contents






SIGNATURES






| |                                      
| | -------------------------------------
| | EL PASO CGP COMPANY                  
|
| | /s/ Douglas L. Foshee                
| |                                      
| | Douglas L. Foshee                    
| | Chairman of the Board,               
| | President and Chief Executive Officer



|                                             |  |                                                                                                                 |  |                  
|-------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | -----------------
|Signature                                    |  | Title                                                                                                           |  | Date             
|                                             |  |                                                                                                                 |  |                  
|/s/ Douglas L. Foshee(Douglas
    L. Foshee) |  | Chairman of the Board and Director,
    President and Chief Executive Officer
    (Principal Executive Officer) |  | November 29, 2005
|                                            
|/s/ D. Mark Leland(D.
    Mark Leland)       |  | Executive Vice President, Chief Financial Officer and
    Director
    (Principal Financial Officer)            |  | November 29, 2005
|                                            
|/s/ Robert W. Baker(Robert
    W. Baker)     |  | Executive Vice President, General Counsel and Director                                                          |  | November 29, 2005

263



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##### Table of Contents



EXHIBIT INDEX


December 31, 2004




|        |    |      |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | -- | ---- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |            
|Number  |    |      | Description
|        |    |      |            
|        | 10 | .A   |             | Amended and Restated Credit Agreement dated as of
    November 23, 2004, among El Paso Corporation, ANR
    Pipeline Company, Colorado Interstate Gas Company, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, the several
    banks and other financial institutions from time to time parties
    thereto and JPMorgan Chase Bank, N.A., as administrative agent
    and as collateral agent (Exhibit 99.B to our Form 8-K filed
    November 29, 2004).                                                                                                                                                                                          
|       
|        | 10 | .A.2 |             | Amended and Restated Security Agreement dated as of
    November 23, 2004, among El Paso Corporation, ANR
    Pipeline Company, Colorado Interstate Gas Company, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company, the
    Subsidiary Grantors and certain other credit parties thereto and
    JPMorgan Chase Bank, N.A., not in its individual capacity, but
    solely as collateral agent for the Secured Parties and as the
    depository bank (Exhibit 99.C to our Form 8-K filed
    November 29, 2004).                                                                                                                                      
|       
|        | 10 | .A.3 |             | Amended and Restated Subsidiary Guarantee Agreement dated as of
    November 23, 2004, made by each of the Subsidiary
    Guarantors, as defined therein, in favor of JPMorgan Chase Bank,
    N.A., as collateral agent (Exhibit 99.D to our Form 8-K
    filed November 29, 2004).                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 10 | .B   |             | $3,000,000,00 Revolving Credit Agreement dated as of
    April 16, 2003 among El Paso Corporation, El Paso
    Natural Gas Company, Tennessee Gas Pipeline Company and ANR
    Pipeline Company, as Borrowers, the Lenders Party thereto, and
    JPMorgan Chase Bank, as Administrative Agent, ABN AMRO Bank N.V.
    and Citicorp North America, Inc., as Co-Document Agents, Bank of
    America, N.A. and Credit Suisse First Boston, as Co-Syndication
    Agents, J.P. Morgan Securities Inc. and Citigroup Global
    Markets Inc., as Joint Bookrunners and Co-Lead Arrangers.
    (Exhibit 99.1 to El Paso Corporations Form 8-K
    filed April 18, 2003).
|       
|        | 10 | .B.1 |             | First Amendment to the $3,000,000,000 Revolving Credit Agreement
    and Waiver dated as of March 15, 2004 among El Paso
    Corporation, El Paso Natural Gas Company, Tennessee Gas
    Pipeline Company, ANR Pipeline Company and Colorado Interstate
    Gas Company, as Borrowers, the Lender and JPMorgan Chase Bank,
    as Administrative Agent, ABN AMRO Bank N.V. and Citicorp North
    America, Inc., as Co-Documentation Agents, Bank of America, N.A.
    and Credit Suisse First Boston, as Co-Syndication Agents
    (Exhibit 10.A.1 to our Form 2003 Form 10-K).                                                                                     
|       
|        | 10 | .B.2 |             | Second Waiver to the $3,000,000,000 Revolving Credit Agreement
    dated as of June 15, 2004 among El Paso Corporation,
    El Paso Natural Gas Company, Tennessee Gas Pipeline
    Company, ANR Pipeline Company and Colorado Interstate Gas
    Company, as Borrowers, the Lenders party thereto and JPMorgan
    Chase Bank, as Administrative Agent, ABN AMRO Bank N.V. and
    Citicorp North America, Inc., as Co-Documentation Agents, Bank
    of America, N.A. and Credit Suisse First Boston, as
    Co-Syndication Agents (Exhibit 10.A.2 to our Form 2003 Form
    10-K).                                                                                
|       
|        | 10 | .B.3 |             | Second Amendment to the $3,000,000,000 Revolving Credit
    Agreement and Third Waiver dated as of August 6, 2004 among
    El Paso Corporation, El Paso Natural Gas Company,
    Tennessee Gas Pipeline Company, ANR Pipeline Company and
    Colorado Interstate Gas Company, as Borrowers, the Lenders party
    thereto and JPMorgan Chase Bank, as Administrative Agent, ABN
    AMRO Bank N.V. and Citicorp North America, Inc., as
    Co-Documentation Agents, Bank of America, N.A. and Credit Suisse
    First Boston, as Co-Syndication Agents (Exhibit 99.B to our
    Form 8-K filed August 10, 2004).                                                  



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##### Table of Contents



|        |     |    |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | --- | -- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |    |            
|Number  |     |    | Description
|        |     |    |            
|       
|        | 10  | .C |             | Master Settlement Agreement dated as of June 24, 2003, by
    and between, on the one hand, El Paso Corporation,
    El Paso Natural Gas Company, and El Paso Merchant
    Energy, L.P.; and, on the other hand, the Attorney General of
    the State of California, the Governor of the State of
    California, the California Public Utilities Commission, the
    California Department of Water Resources, the California Energy
    Oversight Board, the Attorney General of the State of
    Washington, the Attorney General of the State of Oregon, the
    Attorney General of the State of Nevada, Pacific Gas &
    Electric Company, Southern California Edison Company, the City
    of Los Angeles, the City of Long Beach, and classes consisting
    of all individuals and entities in California that purchased
    natural gas and/or electricity for use and not for resale or
    generation of electricity for the purpose of resale, between
    September 1, 1996 and March 20, 2003, inclusive,
    represented by class representatives Continental Forge Company,
    Andrew Berg, Andrea Berg, Gerald J. Marcil, United Church
    Retirement Homes of Long Beach, Inc., doing business as Plymouth
    West, Long Beach Brethren Manor, Robert Lamond, Douglas Welch,
    Valerie Welch, William Patrick Bower, Thomas L. French, Frank
    Stella, Kathleen Stella, John Clement Molony, SierraPine, Ltd.,
    John Frazee and Jennifer Frazee, John W.H.K. Phillip, and Cruz
    Bustamante (Exhibit 10.HH to El Paso
    Corporations 2003 Second Quarter Form 10-Q).
|       
|        | 10  | .D |             | Agreement With Respect to Collateral dated as of June 11,
    2004, by and among El Paso Production Oil &Gas
    USA, L.P., a Delaware limited partnership, Bank of America,
    N.A., acting solely in its capacity as Collateral Agent under
    the Collateral Agency Agreement, and The Office of the Attorney
    General of the State of California, acting solely in its
    capacity as the Designated Representative under the Designated
    Representative Agreement (Exhibit 10.C to our Form 2003
    Form 10-K).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | 21  |    |             | Omitted pursuant to the reduced disclosure format permitted by
    General Instruction I to Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        | *31 | .A |             | Certification of Chief Executive Officer pursuant to sec. 302 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | *31 | .B |             | Certification of Chief Financial Officer pursuant to sec. 302 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | *32 | .A |             | Certification of Chief Executive Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       
|        | *32 | .B |             | Certification of Chief Financial Officer pursuant to
    18 U.S.C. sec. 1350 as adopted pursuant to sec. 906 of the
    Sarbanes-Oxley Act of 2002.