##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 20-F



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(Mark One)



| ̈ |  | Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
|- |  | ------------------------------------------------------------------------------------------------



OR



|x |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- |  | ------------------------------------------------------------------------------------



For the fiscal year ended
December 31, 2002



OR



| ̈ |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- |  | ----------------------------------------------------------------------------------------



For the transition period
fromto



Commission file number: 1-13644



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INTERNATIONAL POWER PLC

(Exact Name of Registrant as Specified in its Charter)



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England and Wales

(Jurisdiction of
Incorporation or Organization)



Senator
House, 85 Queen Victoria Street, London EC4V 4DP, United Kingdom

(Address of Principal Executive Offices)



Securities registered or to be registered
pursuant to Section 12(b) of the Act:



|Title of Each Class                                                     |  | Name of Each Exchange On Which Registered
|----------------------------------------------------------------------- |  | -----------------------------------------
|Ordinary shares of 50p each                                             |  | New York Stock Exchange*                 
|American Depositary Shares each of which represents ten ordinary shares |  | New York Stock Exchange                  

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|* |  | Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange
Commission.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:    None





Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the
annual report.



|Ordinary Shares of 50p each |  | 1,117,561,520
|--------------------------- |  | -------------



Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    x  Yes ̈No



Indicate by check mark which financial statement item the registrant has elected to follow. ̈Item 17    x  Item 18



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##### Table of Contents

TABLE OF CONTENTS



|        
|--------
|Item 1. 
|        
|Item 2. 
|        
|Item 3. 
|        
|Item 4. 
|        
|Item 5. 
|        
|Item 6. 
|        
|Item 7. 
|        
|Item 8. 
|        
|Item 9. 
|        
|Item 10.
|        
|Item 11.
|        
|Item 12.
|        
|Item 13.
|        
|Item 14.
|        
|Item 15.
|        
|Item 16.
|        
|Item 17 
|        
|Item 18.
|        
|Item 19.



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##### Table of Contents



WHERE YOU
CAN FIND MORE INFORMATION



We file annual reports with and
furnish other information to the Securities and Exchange Commission, or SEC, from time to time. You may read and copy any document filed or furnished by us at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. In addition, because the American Depositary Shares representing our ordinary shares, which we refer to as ADSs, are listed on the New York Stock Exchange,
reports and other information concerning us can also be inspected at the office of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Pursuant to the indenture governing our 2% Senior Convertible Notes due 2005, we have agreed
to furnish to the SEC quarterly financial information. Such quarterly information will be furnished to the SEC within 90 days following the end of each of our first three fiscal quarters. We have also agreed to file our annual report on Form 20-F
with the SEC within 120 days following the end of each fiscal year for so long as those Notes remain outstanding. Certain of these documents are also available at the International Power website at www.ipplc.com. The information on our website is
not a part of this annual report.



FORWARD-LOOKING STATEMENTS



This annual
report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to herein as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we
refer to herein as the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us and
the markets within which we operate, including, among other things:



| |  |  | general economic and business conditions;
| | - |  | -----------------------------------------



| |  |  | our managements ability to define appropriate objectives and develop appropriate business strategies;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | changes in those objectives and business strategies;
| | - |  | ----------------------------------------------------



| |  |  | our future capital expenditure and investments;
| | - |  | -----------------------------------------------



| |  |  | the existence of competitors, technological changes and developments in our industry;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | changes in the regulatory environment; and
| | - |  | ------------------------------------------



| |  |  | our ability to hire and retain staff with the requisite qualifications and technical skills.
| | - |  | --------------------------------------------------------------------------------------------



In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this annual report may not occur. No one undertakes any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or other circumstances occurring after the date
of this annual report.



3



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##### Table of Contents



PART I



Item 1. Identity of Directors, Senior Management and Advisors



Not Applicable



Item 2. Offer Statistics and Expected Timetable



Not Applicable



4



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##### Table of Contents



Item 3. Key Information



Selected
Financial Data



The selected financial information set
forth below has been derived from our audited consolidated financial statements and the notes thereto set forth in Item 18. Financial Statements and other financial statements. Prior to 30 September 2000, we were incorporated under the
name National Power PLC. On 30 September 2000, we demerged substantially all of our UK businesses into Innogy Holdings plc, or Innogy and we were incorporated under the name International Power plc with effect from that date. We urge you
to read Item 5. Operating and Financial Review and Prospects, and Item 18. Financial Statements for further information regarding the businesses transferred to Innogy and our ongoing business for such periods. In addition,
during 2000, we changed our financial year end from 31 March to 31 December. Consequently, our first financial period to 31 December is comprised of the nine months ended 31 December 2000. As a result, this period is not comparable with other
periods presented in this annual report.



Our consolidated
financial statements have been prepared in accordance with UK GAAP, which differs in certain significant respects from US GAAP. For a reconciliation of our profit after tax (net income) and shareholders fundsequity under UK GAAP to US
GAAP and a discussion of the principal differences between UK GAAP and US GAAP applicable to us, see note 35 to our consolidated financial statements included elsewhere in this document.



Profit and loss data for our total Group, which includes our continuing and
discontinued activities:



|                                                           |  | Year ended 31 December                 |   |  | 9 months ended 31 December             |   |  | Year ended31 March |  
|---------------------------------------------------------- |  | -------------------------------------- | - |  | -------------------------------------- | - |  | ------------------ | -
|                                                           |  | 2002(1)                                |   |  | 2002                                   |   |  | 2001(2) (Restated) |  
|                                                           |  | ($ in millions, except per share data) |   |  | (£ in millions, except per share data) |  
|UK GAAPGroup                                              |  |                                        |   |  |                                        |   |  |                    |  
|Turnover: Group and share of joint ventures and associates |  | 1,817                                  |   |  | 1,129                                  |   |  | 1,103              |  
|Less: share of joint ventures and associates turnover    |  | (663                                   | ) |  | (412                                   | ) |  | (546               | )
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|Group turnover                                             |  | 1,154                                  |   |  | 717                                    |   |  | 557                |  
|Operating costsordinary                                   |  | (819                                   | ) |  | (509                                   | ) |  | (392               | )
|Operating costsexceptional                                |  | (166                                   | ) |  | (103                                   | ) |  | (2                 | )
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|Excluding exceptional items                                |  | 335                                    |   |  | 208                                    |   |  | 165                |  
|Exceptional items                                          |  | (166                                   | ) |  | (103                                   | ) |  | (2                 | )
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|Operating profit/(loss)                                    |  | 169                                    |   |  | 105                                    |   |  | 163                |  
|Share of operating profit of associates and joint ventures |  | 240                                    |   |  | 149                                    |   |  | 161                |  
|Income from fixed asset investmentsordinary               |  | 50                                     |   |  | 31                                     |   |  |                   |  
|Income from fixed asset investmentsexceptional            |  | 67                                     |   |  | 42                                     |   |  |                   |  
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|Operating profit/(loss) and fixed asset investment income  |  | 526                                    |   |  | 327                                    |   |  | 324                |  
|Non-operating exceptional items                            |  |                                       |   |  |                                       |   |  | 32                 |  
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|Excluding exceptional items                                |  | 625                                    |   |  | 388                                    |   |  | 326                |  
|Exceptional items                                          |  | (99                                    | ) |  | (61                                    | ) |  | 30                 |  
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|Profit on ordinary activities before interest and taxation |  | 526                                    |   |  | 327                                    |   |  | 356                |  
|Net interest payable and similar chargesordinary          |  | (212                                   | ) |  | (132                                   | ) |  | (123               | )
|Net interest payable and similar chargesexceptional       |  |                                       |   |  |                                       |   |  | (29                | )
|                                                           |  |                                        |   |  |                                        |   |  |                    |  
|Profit/(loss) on ordinary activities before taxation       |  | 314                                    |   |  | 195                                    |   |  | 204                |  
|Tax on profit/(loss) on ordinary activities                |  | (122                                   | ) |  | (76                                    | ) |  | (64                | )
|                                                           |  |                                        |   |  |                                        |   |  |                    |  



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|                                                    |  | Year ended 31 December                 |    |  | 9 months ended 31 December             |    |  | Year ended31 March |  
|--------------------------------------------------- |  | -------------------------------------- | -- |  | -------------------------------------- | -- |  | ------------------ | -
|                                                    |  | 2002(1)                                |    |  | 2002                                   |    |  | 2001(2) (Restated) |  
|                                                    |  | ($ in millions, except per share data) |    |  | (£ in millions, except per share data) |   
|Profit/(loss) on ordinary activities after taxation |  | 192                                    |    |  | 119                                    |    |  | 140                |  
|Minority interestsequity                           |  | (10                                    | )  |  | (6                                     | )  |  | (2                 | )
|                                                    |  |                                        |    |  |                                        |    |  |                    |  
|                                                    |  |                                        |    |  |                                        |    |  |                    |  
|Excluding exceptional items                         |  | 278                                    |    |  | 173                                    |    |  | 137                |  
|Exceptional items                                   |  | (96                                    | )  |  | (60                                    | )  |  | 1                  |  
|                                                    |  |                                        |    |  |                                        |    |  |                    |  
|Profit/(loss) for the financial period              |  | 182                                    |    |  | 113                                    |    |  | 138                |  
|Ordinary dividends                                  |  |                                       |    |  |                                       |    |  |                   |  
|Demerger dividend                                   |  |                                       |    |  |                                       |    |  |                   |  
|                                                    |  |                                        |    |  |                                        |    |  |                    |  
|Retained profit/(loss)                              |  | 182                                    |    |  | 113                                    |    |  | 138                |  
|                                                    |  |                                        |    |  |                                        |    |  |                    |  
|Basic earnings/(loss) per share:                    |  |                                        |    |  |                                        |    |  |                    |  
|Basic excluding exceptional items                   |  | 25.0                                   | ¢  |  | 15.5p                                  |    |  | 12.3p              |  
|Attributable to exceptional items                   |  | (8.7                                   | )¢ |  | (5.4                                   | )p |  |                   |  
|Basic including exceptional items                   |  | 16.3                                   | ¢  |  | 10.1p                                  |    |  | 12.3p              |  
|Diluted earnings per share                          |  | 16.3                                   | ¢  |  | 10.1p                                  |    |  | 12.0p              |  
|Dividends per share                                 |  |                                       |    |  |                                       |    |  |                   |  

---

|Note: |  | 
|----- |  | 

|(1) |  | Amounts translated for convenience at the noon-buying rate on 31 December 2002 of £1.00
= $1.6095.
|--- |  | --------------------------------------------------------------------------------------------------

|(2) |  | During the year ended 31 December 2002, we adopted Financial Reporting Standard No.
19Deferred Tax, which resulted in the restatement of our financial statements of prior periods. The following table provides a reconciliation between profit/(loss) for the financial period and basic earnings per share as originally reported
and after adoption of FRS No. 19.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                   |  | Year ended 31 December                 |   |  | 9 months ended 31 December             |   |  | Year ended 31 March |   
|-------------------------------------------------- |  | -------------------------------------- | - |  | -------------------------------------- | - |  | ------------------- | --
|                                                   |  | 2002                                   |   |  | 2002                                   |   |  | 2001 (Restated)     |   
|                                                   |  | ($ in millions, except per share data) |   |  | (£ in millions, except per share data) |  
|Profit/(loss) for the financial period as reported |  | 182                                    |   |  | 113                                    |   |  | 144                 |   
|Adoption of FRS No. 19Deferred Tax                |  |                                       |   |  |                                       |   |  | (6                  | ) 
|                                                   |  |                                        |   |  |                                        |   |  |                     |   
|Profit/(loss) for the financial periodrestated    |  | 182                                    |   |  | 113                                    |   |  | 138                 |   
|                                                   |  |                                        |   |  |                                        |   |  |                     |   
|Basic earnings per share as reported               |  | 16.3                                   | ¢ |  | 10.1                                   | p |  | 12.9                | p 
|Adoption of FRS No. 19Deferred Tax                |  |                                       |   |  |                                       |   |  | (0.6                | )p
|                                                   |  |                                        |   |  |                                        |   |  |                     |   
|Basic earnings per sharerestated                  |  | 16.3                                   | ¢ |  | 10.1                                   | p |  | 12.3                | p 
|                                                   |  |                                        |   |  |                                        |   |  |                     |   



6



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##### Table of Contents



Selected profit and loss
account data for our continuing operations (i.e. excluding Innogy, which was demerged from the Group on 30 September 2000) for all periods presented.



|                                                           |  | Financialyear ended31 December         |    |  | Nine months ended 31 December          |    |  | Financial year ended31 March |  
|---------------------------------------------------------- |  | -------------------------------------- | -- |  | -------------------------------------- | -- |  | ---------------------------- | -
|                                                           |  | 2002(1)                                |    |  | 2002                                   |    |  | 2001 (Restated)              |  
|                                                           |  | ($ in millions, except per share data) |    |  | (£ in millions, except per share data) |   
|UK GAAPContinuing                                         |  |                                        |    |  |                                        |    |  |                              |  
|Turnover: Group and share of joint ventures and associates |  | 1,817                                  |    |  | 1,129                                  |    |  | 1,103                        |  
|Less: share of joint ventures and associates turnover    |  | (663                                   | )  |  | (412                                   | )  |  | (546                         | )
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Group turnover                                             |  | 1,154                                  |    |  | 717                                    |    |  | 557                          |  
|Operating costsordinary                                   |  | (819                                   | )  |  | (509                                   | )  |  | (392                         | )
|Operating costsexceptional                                |  | (166                                   | )  |  | (103                                   | )  |  | (2                           | )
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Excluding exceptional items                                |  | 335                                    |    |  | 208                                    |    |  | 165                          |  
|Exceptional items                                          |  | (166                                   | )  |  | (103                                   | )  |  | (2                           | )
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Operating profit/(loss)                                    |  | 169                                    |    |  | 105                                    |    |  | 163                          |  
|Share of operating profit of associates and joint ventures |  | 240                                    |    |  | 149                                    |    |  | 161                          |  
|Income from fixed asset investmentsordinary               |  | 50                                     |    |  | 31                                     |    |  |                             |  
|Income from fixed asset investmentsexceptional            |  | 67                                     |    |  | 42                                     |    |  |                             |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Operating profit/(loss) and fixed asset investment income  |  | 526                                    |    |  | 327                                    |    |  | 324                          |  
|Non-operating exceptional items                            |  |                                       |    |  |                                       |    |  | 32                           |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Excluding exceptional items                                |  | 625                                    |    |  | 388                                    |    |  | 326                          |  
|Exceptional items                                          |  | (99                                    | )  |  | (61                                    | )  |  | 30                           |  
|Profit on ordinary activities before interest and taxation |  | 526                                    |    |  | 327                                    |    |  | 356                          |  
|Net interest payable and similar chargesordinary          |  | (212                                   | )  |  | (132                                   | )  |  | (123                         | )
|Net interest payable and similar chargesexceptional       |  |                                       |    |  |                                       |    |  | (29                          | )
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Profit/(loss) on ordinary activities before taxation       |  | 314                                    |    |  | 195                                    |    |  | 204                          |  
|Taxation                                                   |  | (122                                   | )  |  | (76                                    | )  |  | (64                          | )
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Profit/(loss) after taxation                               |  | 192                                    |    |  | 119                                    |    |  | 140                          |  
|Minority interests                                         |  | (10                                    | )  |  | (6                                     | )  |  | (2                           | )
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Excluding exceptional items                                |  | 278                                    |    |  | 173                                    |    |  | 137                          |  
|Exceptional items                                          |  | (96                                    | )  |  | (60                                    | )  |  | 1                            |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Profit/(loss) for the financial period                     |  | 182                                    |    |  | 113                                    |    |  | 138                          |  
|Ordinary dividends                                         |  |                                       |    |  |                                       |    |  |                             |  
|Demerger dividend                                          |  |                                       |    |  |                                       |    |  |                             |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Retained profit/(loss)                                     |  | 182                                    |    |  | 113                                    |    |  | 138                          |  
|                                                           |  |                                        |    |  |                                        |    |  |                              |  
|Basic earnings per share:                                  |  |                                        |    |  |                                        |    |  |                              |  
|Basic excluding exceptional items                          |  | 25.0                                   | ¢  |  | 15.5                                   | p  |  | 12.3                         | p
|Attributable to exceptional items                          |  | (8.7                                   | )¢ |  | (5.4                                   | )p |  |                             |  
|Basic including exceptional items                          |  | 16.3                                   | ¢  |  | 10.1                                   | p  |  | 12.3                         | p
|Diluted earnings per share                                 |  | 16.3                                   | ¢  |  | 10.1                                   | p  |  | 12.0                         | p
|Dividends per share                                        |  |                                       |    |  |                                       |    |  |                             |  

---

Note:

|(1) |  | Amounts translated for convenience at the noon-buying rate on 31 December 2002 of £1.00
= $1.6095.
|--- |  | --------------------------------------------------------------------------------------------------



7



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##### Table of Contents



Balance Sheet data for our
total Group, which include the assets and liabilities of Innogy as at 31 March 2000 and 1999:



|                                                                        |  | As at 31 December                  |      |  | As at 31 March                     |     
|----------------------------------------------------------------------- |  | ---------------------------------- | ---- |  | ---------------------------------- | ----
|                                                                        |  | 2002(1)                            |      |  | 2002                               |     
|                                                                        |  | ($ in millions, except share data) |      |  | (£ in millions, except share data) |     
|Balance Sheet Information:                                              |  |                                    |      |  |                                    |     
|UK GAAP DataGroup                                                      |  |                                    |      |  |                                    |     
|Total fixed assets                                                      |  | 4,798                              |      |  | 2,981                              |     
|                                                                        |  |                                    |      |  |                                    |     
|Total current assets                                                    |  | 1,659                              |      |  | 1,031                              |     
|Total current liabilities                                               |  | (2,261                             | )(2) |  | (1,405                             | )(2)
|                                                                        |  |                                    |      |  |                                    |     
|Net current assets/(liabilities)                                        |  | (602                               | )    |  | (374                               | )   
|                                                                        |  |                                    |      |  |                                    |     
|                                                                        |  |                                    |      |  |                                    |     
|Total assets                                                            |  | 6,457                              |      |  | 4,012                              |     
|                                                                        |  |                                    |      |  |                                    |     
|Total assets less current liabilities                                   |  | 4,196                              |      |  | 2,607                              |     
|Total long-term liabilities and provisions                              |  | (1,349                             | )    |  | (838                               | )   
|                                                                        |  |                                    |      |  |                                    |     
|Net assets employed                                                     |  | 2,847                              |      |  | 1,769                              |     
|                                                                        |  |                                    |      |  |                                    |     
|Capital stock (excluding long-term debt and redeemable preferred stock) |  | 900                                |      |  | 559                                |     
|Other capital and reserves                                              |  | 1,901                              |      |  | 1,181                              |     
|                                                                        |  |                                    |      |  |                                    |     
|Shareholders fundsequity                                              |  | 2,801                              |      |  | 1,740                              |     
|Minority interest  equity                                              |  | 46                                 |      |  | 29                                 |     
|                                                                        |  |                                    |      |  |                                    |     
|Total equity                                                            |  | 2,847                              |      |  | 1,769                              |     
|                                                                        |  |                                    |      |  |                                    |     
|Issued and fully paid ordinary shares (millions of shares)              |  | 1,118                              |      |  | 1,118                              |     

---

Note:

|(1) |  | Amounts translated for convenience at the noon-buying rate on 31 December 2002 of £1.00
= $1.6095.
|--- |  | --------------------------------------------------------------------------------------------------

|(2) |  | The substantial increase in current liabilities reflects the fact that, as a result of the
administration of TXU Europe Energy Trading Ltd, or TXUEET, our tolling contract for all of the output of our Rugeley power station with TXUEET has been terminated. This is an event of default under our £160 million non-recourse term loan to
finance the acquisition of Rugeley. In addition, we are in discussions with our bank group in connection with refuted technical events of default under our $1,375 million non-recourse facility to finance American National Power, or ANP. We believe
we have constructive and acceptable plans in place to resolve all issues to the mutual benefit of both the banks and us. However, until we formally resolve and document these issues, we will report the total amount outstanding under these loans as
current non-recourse debt. See Item 5Operating and Financial Review and ProspectsLiquidity for a further discussion of these issues.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



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##### Table of Contents



|                           |  | As at and for the financial year ended 31 December |   |  | As at and for the 9 months ended 31 December(1) |   |  | As at and for thefinancial year ended 31 March(1) |  
|-------------------------- |  | -------------------------------------------------- | - |  | ----------------------------------------------- | - |  | ------------------------------------------------- | -
|                           |  | 2002(2)                                            |   |  | 2002                                            |   |  | 2001(5) (Restated)                                |  
|                           |  | ($ in millions, except per share data)             |   |  | (£ in millions except per share data)           |  
|US GAAP DataGroup(3)      |  |                                                    |   |  |                                                 |   |  |                                                   |  
|Shareholder funds-equity  |  | 2,828                                              |   |  | 1,757                                           |   |  | 1,770                                             |  
|Net income/(loss)(4)(6)    |  | 117                                                |   |  | 73                                              |   |  | 26                                                |  
|Basic earnings per share   |  | 10.5                                               | ¢ |  | 6.5                                             | p |  | 2.3                                               | p
|Diluted earnings per share |  | 10.5                                               | ¢ |  | 6.5                                             | p |  | 2.3                                               | p

---

Note:

|(1) |  | The US GAAP profit and loss account data includes the results of Innogy for all periods
presented through 30 September 2000, the effective date of the demerger.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Amounts translated for convenience at the noon-buying rate on 31 December 2002 of £1.00
= $1.6095.
|--- |  | --------------------------------------------------------------------------------------------------

|(3) |  | The main differences between UK and US GAAP, which are relevant to our consolidated profit
and loss accounts and balance sheets, are described in note 35 of our consolidated financial statements.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Profit attributable to ordinary shareholders is stated after the cumulative effect of
accounting policy changes. Accounting changes gave rise to a profit and loss account charge of £10 million in the financial year 31 March 1999 and £16 million in the financial year 31 March 2000; a £1 million credit in the year
ended 31 December 2001 and a £44 million debit in the year ended 31 December 2002. These are described in note 35 of our consolidated financial statements.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | During the year ended 31 December 2002, we adopted Financial Reporting Standard No.
19Deferred Tax, which resulted in the restatement of our UK GAAP financial statements of prior periods. In addition a further review was undertaken of the deferred tax balances under US GAAP following the adoption of FRS 19. This review
resulted in an increased charge to US GAAP net income of £4 million in the year ended 31 December 2001, an increased charge of £4 million in the nine months to 31 December 2000 and further charges of £5 million that relate to each
of the years ended 31 March 2000 and 1999, respectively. The impact on shareholders fundsequity at 31 December 2001, 31 December 2000, 31 March 2000 and 31 March 1999 is a reduction of £23 million, £19 million, £15
million and £10 million, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | With effect from 1 January 2002, we adopted Statement of Financial Accounting Standards No.
142Goodwill and Other Intangible Assets. As a result, goodwill is no longer subject to amortisation. If goodwill had not been amortised for the other periods presented, net income would have increased by £4 million in the year ended 31
December 2001, £22 million in the nine months ended 31 December 2000 and £42 million and nil in the years ended 31 March 2000 and 1999, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Exchange Rate Information



The tables below provide, for the periods indicated, the period end, average, high and low exchange rates between the pound and the dollar, expressed in
dollars per pound, based on the noon buying rates. The average rates for each period reflect the average of the noon buying rates on the last business day of each month during the relevant period. On 25 April 2003, the noon buying rate was
£1.00 = $1.5915.



|                                   |  | High                |  | Low    |  | Average Rate |  | End of Period
|---------------------------------- |  | ------------------- |  | ------ |  | ------------ |  | -------------
|                                   |  | (dollars per pound)
|Year ended 31 December 2002        |  | 1.6095              |  | 1.4074 |  | 1.4450       |  | 1.6095       
|Year ended 31 December 2001        |  | 1.5045              |  | 1.3730 |  | 1.4382       |  | 1.4543       
|Nine months ended 31 December 2000 |  | 1.5980              |  | 1.4005 |  | 1.4845       |  | 1.4955       
|Year ended 31 March 2000           |  | 1.6765              |  | 1.5515 |  | 1.6084       |  | 1.5922       
|Year ended 31 March 1999           |  | 1.7222              |  | 1.6027 |  | 1.6521       |  | 1.6140       



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The table below sets forth the
high and low exchange rates between the pound and the dollar expressed in dollars per pound, for each of the months in the six month period ended 31 March 2003.



|         |  | High                |  | Low   
|-------- |  | ------------------- |  | ------
|         |  | (dollars per pound)
|2003     |  |                     |  |       
|March    |  | 1.6129              |  | 1.5624
|February |  | 1.6480              |  | 1.5727
|January  |  | 1.6482              |  | 1.5975
|        
|2002     |  |                     |  |       
|December |  | 1.6095              |  | 1.5555
|November |  | 1.5915              |  | 1.5545
|October  |  | 1.5708              |  | 1.5525



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Risk Factors



We set forth below the major risks our business faces.



A significant portion of our projects operate without
long-term PPAs, and are therefore vulnerable to market forces to determine the price and amount of power they sell.



A significant portion of the projects in which we have an interest do not have fixed price long-term offtake agreements (commonly referred to as power
purchase agreements, or PPAs). As merchant plants whose output we do not commit to sell under long-term contracts, these projects are subject to market forces to determine the amount and price of power that they sell. If our plants are
unsuccessful in selling power in amounts or at prices that are sufficient to meet their costs, they may not be able to generate enough cash to service their own debt or to make distributions to us.



Our operations are subject to extensive government regulation, and our
inability to comply with existing regulations and requirements or changes in applicable regulations and requirements may have a negative impact on our business, results of operations or financial condition.



Our operations are subject to extensive regulation in each of the countries
in which we operate. Regulation that specifically applies to our business generally covers three areas: regulation of energy markets, environmental regulation and regulation of health and safety. The degree of regulation to which we are subject
varies according to the country where a particular project is located and may be materially different from one country to another. While we believe our existing projects have the requisite approvals and that we operate our business in compliance
with applicable laws, we remain subject to a varied and complex body of laws and regulations that both public officials and private parties may seek to enforce. We cannot assure you that the introduction of new laws or other future regulatory
developments in countries in which we conduct our business will not have a material adverse effect on our business, results of operations or financial condition.



Generally, changes in the legal or regulatory structure in any country in which we operate could make it more difficult to
enforce our rights under agreements relating to these projects.



Power project development and acquisition activities may not be successful and we may not recover the costs incurred in these activities.



Although we will actively manage the costs involved in the preliminary steps in the development of a project or the
acquisition of assets, the preparation involved in determining whether a project is feasible, economically attractive or capable of financing may require us to expend significant sums.



In connection with the development of a new (greenfield) power generation facility, we must generally obtain governmental
permits and approvals, overcome local opposition (if any), as well as negotiate land purchase or leasing agreements, equipment procurement and construction contracts, operation and maintenance agreements, fuel supply and transportation agreements,
offtake arrangements and obtain sufficient equity capital and debt financing. Similarly, the acquisition of assets may also entail obtaining substantial regulatory approvals, securing the consent of partners, offtakers and other relevant parties,
obtaining the necessary environmental and other permits and financing commitments and performing a significant amount of due diligence.



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However, we cannot assure you
that any particular power development project or acquisition opportunity will be possible, feasible or economically justifiable. If we are unable to complete the contemplated development project or acquisition, we may not be able to recover the cost
we incurred.



We must assess external factors, such as the
regulatory environment and market conditions, many years into the future; these assessments may not be borne out by events.



In order to decide to invest in a new power project or to acquire assets, we must make certain assumptions about the price at which we can sell our output
in order to assess whether we will be able to recover the incurred cost of such activities. It is our current policy, particularly with respect to the development of greenfield power generation facilities, to enter into PPAs to sell the output from
our power generation facilities. However, there may be circumstances where it becomes uneconomic to enter into such agreements or such agreements may be terminated prior to their maturity date. In those circumstances, we sell our output through
merchant sales or shorter term forward sales contracts. Merchant sales are exposed to electricity sales price fluctuations. We cannot assure you that sales prices achieved through PPAs, short-term contracts or merchant sales will be sufficient to
enable us to recover the incurred cost of developing or acquiring power plant.



We own a minority interest in certain of our project investments and we may not, therefore, be able to exercise complete control over their construction or operation in certain circumstances.



Although we seek to exert a degree of influence with respect to the
management and operation of our projects by negotiating to obtain positions on management committees or to share control of the project with our co-venturers, we may not always succeed in achieving or maintaining our position. In those
circumstances, we may be dependent on our co-venturers to construct and operate such projects, who may not always approach projects in the manner we would if we were in control. We may also have to rely on their approval to receive distributions of
funds from projects or to transfer our interest in projects.



Financing may not be available to us on acceptable terms in the future.



We have financed our existing power generation facilities from a variety of sources, including corporate debt and limited recourse project financing (financing without recourse to our resources beyond
our equity commitment to the project). Based on our balance sheet at 31 December 2002, we had £1,654 million of indebtedness. In the event of a default under a financing agreement which we either choose not to cure or cannot cure, the lenders
would generally have rights to the relevant plant and any related assets. In the event of foreclosure after a default, we might not retain any interest in the plant. A bankruptcy of a major subsidiary may also constitute an event of default under
our corporate debt.



While we intend to seek to finance our
activities from corporate debt and limited recourse financing when appropriate, market conditions and other factors may prevent similar financing for future facilities or may limit our ability to refinance existing facilities. In addition, market
conditions may limit the number of financial institutions that are willing to provide financing to companies in our industry either in the form of corporate debt or on a limited recourse basis. Consequently, while we do not believe our existing
levels of indebtedness will significantly affect our ability to borrow funds in the future in order to finance new facilities or refinance existing facilities, it is possible that we may be unable to obtain the financing we require on terms
satisfactory to us.



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Our lenders may also require
us to guarantee the indebtedness under future facilities. This would render our general corporate funds vulnerable in the event of a default by the plant or subsidiary. Additionally, the terms of our financings may restrict our ability to guarantee
future debt, which could adversely affect our ability to fund new projects. The terms of our current financing agreements do not limit the ability of our subsidiaries to incur non-recourse or lease financing for investment in new projects.



We may be required to guarantee the obligations of our
subsidiaries or other affiliates arising in connection with their trading activities.



In certain circumstances, our subsidiaries and other affiliates are required to maintain investment grade credit ratings in order to trade in their respective markets. In the event such subsidiaries or
affiliates were unable to maintain the required credit rating, we might be obliged to guarantee their obligations or otherwise provide credit support to enable them to continue to operate. Accordingly, in such circumstances, we might be required to
finance the obligations of such subsidiaries or other affiliates which may, in turn, have an adverse effect on our financial condition.



Our projects under construction may not commence operation as scheduled.



The commencement of operation of a newly constructed power generation facility involves many risks, including:



| |  |  | environmental, engineering and construction risks relating to cost overruns, delays and performance;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the breakdown or failure of equipment or processes; and
| | - |  | -------------------------------------------------------



| |  |  | start-up problems.
| | - |  | ------------------



These risks may significantly delay the commencement of operations of such projects. Delay in the commencement of operations may adversely affect our
business performance.



If a project achieves performance below
expected levels of output or efficiency, or fails to make specified payments under its financing obligations or to meet certain performance levels, we may forfeit our interest in the project.



New plants have no operating history and may in some cases (for example, in
our recently completed plants in the United States) employ recently developed and technologically complex equipment. We maintain insurance to protect against the risk of equipment failure. In addition, we generally obtain warranties for limited
periods relating to the construction of each project and its equipment in varying degrees, and contractors and equipment suppliers are obligated to meet certain performance levels. The insurance, warranties or performance guarantees may not be
adequate to cover lost revenues or increased expenses, however. As a result, a project may be unable to fund principal and interest payments under its financing obligations and may operate at a loss. A default under such a financing obligation could
result in the loss of our interest in a power generation facility.



In addition, power sales agreements entered into with an offtaker early in the development phase of a project may entitle the offtaker to terminate the agreement, or to receive liquidated damages if a



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project fails to achieve commercial operation or certain operating levels by specified dates, or fails to make specified payments. The
exercise of a termination right may trigger the default provisions in a financing agreement (rendering such debt immediately due and payable). As a result, the project may be rendered insolvent and we may lose our interest in the project.



Our power generation facilities may experience equipment
failures or may otherwise not operate as planned.



The
continued operation of power generation facilities involves many risks, including the failure or performance below expected levels of output or efficiency of our power generation equipment or other equipment, including information technology used to
operate our plants and conduct our trading activities. If we have committed to sell electricity under a contract and we cannot generate that electricity due to mechanical failure, we may suffer a loss, either through loss of revenue or due to
penalties under the contract. We may also be required to purchase electricity at prevailing market rates from other sources or to make capacity payments to our customers. We cannot assure you that equipment failures in the future will not have a
significant adverse effect on our business or results of operations.



Our power generation facilities and our contractors or various development projects are subject to varying degrees of unionisation, which may disrupt operation or delay completion of construction projects.



Our operations are subject to varying degrees of unionisation. Our
relationships with the unions have generally been good, save for unauthorised strikes by some members of the Hazelwood workforce following unrest at other power stations in Victoria, Australia in November 2000. While to date our development projects
have not been adversely affected by disputes by contractors and their employees, we cannot assure you that future industrial action may not significantly disrupt our operations or delay construction of our development projects.



Our projects are subject to risks which may restrict their ability to pay
dividends or make other distributions to us.



Our projects
are subject to risks that have the potential to restrict them from paying dividends or making other distributions to us, including uncertainties associated with the following:



| |  |  | currency exchange rates fluctuations;
| | - |  | -------------------------------------



| |  |  | economic and political instability;
| | - |  | -----------------------------------



| |  |  | our relationship with government controlled offtakers;
| | - |  | ------------------------------------------------------



| |  |  | currency repatriation; and
| | - |  | --------------------------



| |  |  | unexpected changes in regulatory requirements.
| | - |  | ----------------------------------------------



If any of the above events were to occur, this may adversely affect our business performance and we might decide to write down the value of any existing
or future investments that are affected.



We may not be able
to obtain insurance for certain risks under terms acceptable to us.



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We generally seek to insure
our projects against known risks in accordance with common industry practice. However, we may not be able to obtain insurance, particularly against acts of terrorism or expropriation under terms, including amount of premium payable and deductibles,
that are acceptable to us. Furthermore, pursuant to the terms of certain of our debt facilities, our failure to obtain insurance against certain risks, including acts of terrorism, could constitute an event of default. An event of default under one
or more of our debt facilities could have a material adverse effect on our financial condition.



Exchange rate fluctuations could negatively affect our financial condition and results of operations through the amount of our equity contributions to, and distributions from, our international
projects.



We are subject to risks of currency exchange rate
fluctuations. We earn a substantial portion of our revenue in currencies other than the pound sterling. Fluctuations in currency exchange rates can affect, on a pound sterling equivalent basis, the amount of our equity contributions to, and
distributions from, our international projects, and therefore might have an adverse effect on our financial conditions.



Our operations in emerging market countries expose us to economic, political and other risks that could have an adverse effect on our financial
condition and results of operations.



We have projects and
production facilities in emerging market countries, including Turkey, Pakistan, Malaysia and Thailand. We may continue to expand our presence in these and other emerging markets where our operations are subject to risks and uncertainties. Emerging
markets are typically less developed commercially and have significantly different social and political structures from those typically found in the United States or Western Europe. Malaysia, Thailand and other Asian countries where we have
operations experienced severe economic crises from 1997 to 1999, and we cannot assure you that similar circumstances will not recur in the future. Economic deterioration in these countries could adversely affect our financial condition or results of
operations. In addition, military activity and political instability in certain countries in these regions, such as Iraq and Afghanistan, could have a negative impact on the business prospects and results of operations of our production facilities
and development projects, including in Pakistan, Turkey and the Middle East.



Market prices for power in the markets where some of our projects operate have been volatile and depressed in recent years.



In recent years, power markets throughout the world have been characterised by new market entrants, regulatory changes and other factors which have
contributed to market prices for power that are volatile and sometimes uneconomic; we believe the primary cause for these low prices is oversupply. Accordingly, we may experience difficulty charging prices that provide those projects with sufficient
cash to service debt and make distributions to us until such time as that oversupply is rectified. Furthermore, to the extent that market prices continue to be uneconomic, this may have an adverse effect on our business performance in the relevant
markets and may, in certain circumstances, require us to write down the value of our existing and future assets in those markets.



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Some of our gas-fired
projects operate without long-term fuel supply agreements, and we are therefore vulnerable to market forces to obtain fuel.



Some of our gas-fired projects, where we do not have PPAs or shorter term forward sales contracts for our output, do not have long-term fuel supply
agreements. Therefore, if we are not able to purchase fuel or transport it to the project, we are not able to generate electricity or sell output. Additionally, if we have contracted to sell electricity, but we are not able to obtain the necessary
fuel (or obtain it at our expected price) we may suffer a loss of revenue and we may be required to purchase electricity at the prevailing market price from other sources to meet our contractual obligations.



Our reliance on single suppliers and single customers (which could be
government controlled entities) at some of our facilities exposes us to financial risks if either should fail to perform their obligations.



We often rely on a single supplier for the provisions of equipment, materials or fuels required to operate a facility and, at times, we rely on a single
customer (which could be a government controlled entity) or a few customers to purchase all or a significant portion of a facilitys output under PPAs. In addition, we rely on a limited number of suppliers for equipment (including spare parts)
that a significant proportion of the plants in our portfolio commonly use. In particular, our recently completed plants in the United States rely on a single supplier for most of their equipment, warranties and spare parts.



Any interruption or delay in the supply of equipment, materials or fuels, or
our inability to obtain such supplies within a reasonable amount of time, would impair our ability to meet our obligations, cause us to experience delays or incur additional costs. In addition, the failure of any one customer to fulfil its
contractual obligations to the facility could have a material adverse effect on such facilitys financial results and could prevent the facility from continuing its operations.



Our operations in emerging market countries expose us to risks related to unexpected changes in regulatory or legal
regimes.



In certain of the countries in which we operate,
such as Pakistan and Turkey, ownership of power plants by independent companies is permitted by specific exemptions to national law. Our ability to continue operations in these countries or to earn a profit from our operations in these countries
could be negatively affected by changes in laws or regulations, such as the imposition of restrictions on foreign ownership, expropriation or repatriation of earnings. In addition, the countries in which we operate or in which we seek to expand our
operations could impose high tariffs or increase taxes, which would result in increased barriers to entry.



Prior to the demerger, we did not operate as a separate entity and, as a result, our historical consolidated financial statements may not be indicative of our financial condition or future financial
performance.



The consolidated financial statements included
elsewhere in this annual report include our results of operations prior to the demerger in October 2000. At that time, we demerged substantially all our UK generating business into Innogy. Consequently, our consolidated financial statements for the
periods ended prior to the demerger do not reflect our financial condition, results of operations and cash flows as



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they would have been had we operated as a separate entity during the periods prior to demerger. Accordingly, they may not be indicative of
our future financial performance.



In connection with the
demerger, we indemnified Innogy and received indemnities from Innogy in respect of liabilities arising before the demerger.



The demerger was designed to separate our business from Innogys businesses and operations. Pursuant to the demerger agreement between Innogy and us,
Innogy indemnified us on an after-tax basis against certain liabilities, litigation and claims arising out of certain of their operations as well as against certain tax liabilities payable by us. Similarly, we agreed to indemnify Innogy on an
after-tax basis against certain liabilities, litigation and claims arising out of certain of our operations and to indemnify Innogy against certain tax liabilities payable by Innogy. Should Innogy fail to make payments to us that it is required to
make under indemnities it has given to us and, as a result, we have to make such payments in its place, our financial position could be materially adversely affected. Additionally, should we be required to make payments to third parties in respect
of any liabilities for which we are in receipt of an indemnity from Innogy prior to any payment in respect of such indemnities being received from Innogy, our cash flow could be materially adversely affected.



As part of the demerger, Innogy took ownership of certain UK subsidiaries with
a number of open tax issues relating to periods when we owned these subsidiaries. The amount of taxable profits and losses for such periods has not yet been agreed with the Inland Revenue, and we can provide no guarantee as to the availability of
tax losses going forward. To the extent that these issues result in additional tax liabilities, an assessment will be made on us. Liability for these exposures will be allocated between Innogy and us pursuant to the indemnity arrangements described
above. See Item 7. Major Shareholders and Related Party Transactions. We will indemnify Innogy in connection with certain tax liabilities and Innogy will indemnify us against certain other tax liabilities, in each case on an after-tax
basis. We may not be able to deduct any indemnity payments we make for tax purposes. However, certain tax liabilities are not indemnified and other liabilities may have been understated, or unforeseen additional liabilities may exist that will have
an impact on us.



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Item 4. Information on the Company



International Power plc was formerly named National Power PLC, an entity created in March 1990 as part of the privatisation of the UKs Central Electricity Generating Board, or CEGB, under the Electricity Act 1989. We demerged
substantially all our UK businesses into Innogy Holdings plc on 2 October 2000, effective as of 30 September 2000, and retained substantially all our international businesses. Our registered office is at Senator House, 85 Queen Victoria Street,
London EC4V 4DP, United Kingdom, +44 (0)20 7320 8600.



We are an
international wholesale power generator and developer with, as at 31 December 2002, interests in 13 countries. Our operating power plants have capacity totalling 15,735 megawatts (or MW) gross, or 10,890 MW net (one million watts equal one
megawatt). We are currently building Shuweihat S1, a combined water and power plant in Abu Dhabi which, when operational, will increase the capacity of our operational portfolio by approximately 1,500 MW gross (300 MW net). In addition, we recently
announced that we had entered into an agreement to acquire a 20% interest in, and to further develop the Umm Al Nar combined water and power plant in Abu Dhabi. When completed, this project will have an installed capacity of 1,550 MW. Our diverse
portfolio includes plants that are fuelled by natural gas, coal and oil. We are headquartered in London and, for reporting purposes, we organize our business into four groups: North America, Europe and Middle East, Australia and Rest of World. We
operate regional support offices in the United States, Australia, the Czech Republic, Spain, Italy, Japan and UAE.



We commenced our international activities in 1992 when we led a consortium that purchased from Electricidad de Portugal the unfinished 600 MW Pego power
station in Portugal. Since 1992, we have acquired interests in plants in the United States, Australia, Spain, Malaysia, the Czech Republic, Pakistan, the United Kingdom, China, Oman and Kazakhstan and have developed or are developing projects in the
United States, Australia, Turkey, Oman, UAE, Pakistan, Italy, Portugal, Malaysia, the United Kingdom, Abu Dhabi, Thailand and Japan. As at 31 December 2002, our net capacity in operation and under construction was 11,190 MW.



Business Environment



In the United Kingdom and the United States, wholesale power prices are
characterized by weakness, largely due to oversupply. However, we operate an international portfolio of assets, and demand-supply cycles vary across regions. In addition, we sell a significant proportion of the power we generate through long-term
offtake agreements. This diversification reduces our exposure to short-term market cycles. Our strategy to have a geographically diverse asset portfolio is one of our competitive advantages; the benefits were clearly demonstrated in 2002 with strong
performances in areas such as Australia and Pakistan, which offset downward pressure in other regions.



Our Future Strategy



Our future strategy is twofold: firstly, we look to maximise the value of our existing portfolio of investments; secondly, we continue to seek future investment opportunities that meet our project evaluation and financial return
criteria, which are, in essence, to improve our financial return to shareholders while reducing the risk inherent in our business. We will consider entering into alliances with other companies which could involve the joint venturing of assets or the
taking or giving of minority interests, if we believe such alliances will enable us to implement our strategy, whether in relation to



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particular markets or more generally. Our principal regions of focus will be North America, Europe and Middle East and Australia, although we
may consider investment in other regions.



Maximising Value
From Our Portfolio



We own a geographically diverse
portfolio of power plants. Our specific strategies for value enhancement in each country and for each individual asset will be tailored to local requirements, but generally we will seek to achieve the following:



| |  |  | Optimising the operations of our power plants: we intend to optimise the operations of our power plants through several means, including managing all of our
assets to high standards of operating performance; managing our assets on a portfolio basis, particularly with regard to contingency and strategic spare part planning, so as to minimise the loss of generation during forced outages; closely
coordinating plant operation with trading activity to maximise the value of our uncontracted output; standardising management reporting for all investments; and utilising our management experience to successfully prepare certain of our plants for
the introduction of competition in the relevant energy market;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Leveraging our existing assets: we intend to leverage our investments to enhance earnings in several ways, including financing at a variety of corporate,
project and intermediate corporate levels, capturing operational and administrative economies of scale in asset aggregation, capitalising on market knowledge derived through asset ownership and leveraging off the skills, expertise and ideas of the
personnel we and our associates employ; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Trading assets to maximise value: we intend to be a net accumulator of assets and to increase the size of our portfolio over time. However, as part of our
strategy of seeking to maximise the value of our investments, we will sell assets if we expect it to produce a higher return by selling or a comparable return with lower risk.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Future Investments



We will subject new investment opportunities to rigorous evaluation criteria,
with a focus on the following elements:



| |  |  | Economic return: new investments must meet stringent economic return criteria based on the principle that we must reasonably believe any prospective capital
investment will yield, on an after-tax cash flow basis, a return in excess of a target spread (adjusted for risk) over our estimated weighted average cost of capital. As part of this evaluation, we intend to test investment projections to ensure
that they are both reasonable over the life of the investment and balanced in terms of timing of cash flow, based on realistic assumptions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Market suitability: we intend to invest in countries that have a track record of respecting foreign direct investment, that offer a significant opportunity
for future investment and growth and that complement our portfolio of assets; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Degree of control: we do not intend to invest in minority positions where we are not in a position to contribute directly to the realisation of projected
return on investment. We do
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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not intend to make passive investments. We are prepared to share management control of our investments where we have partners that have
complementary or equivalent commercial, technical and operating expertise.



We will seek to minimise our financing costs while maintaining flexibility by utilising a wide range of financing structures and financial instruments, including project level financing, corporate bonds, equity and hybrid debt-equity
securities, including both private placements and public issuances of both equity and debt instruments.



In addition to pursuing the development and acquisition of single assets, we will also seek to acquire portfolios of generation assets if they become available on attractive terms.



Portfolio Asset Management



With respect to both our existing assets and our prospective investments, we
intend to manage our portfolio in a manner which optimises our return potential while mitigating the risks inherent in our business. In particular, we intend to manage on a portfolio basis with regard to the following:



| |  |  | Geopolitical diversity: to manage the political risk inherent in foreign direct investment in a vital industry, we intend to concentrate the majority of our
investments in the developed countries of North America, Europe and Middle East and Australia. In this regard, we will also give careful consideration to the nature of the regulatory risk associated with our investments in the countries in which we
invest;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Resource allocation and industry cycles: we believe the various electricity markets in which we operate will be subject to periodic intervals of supply-demand
imbalance. We intend to use our resources and operate our trading and marketing operations in a manner that seeks to anticipate these periods of surplus and shortfall in supply;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Offtakemerchant versus contracted: we intend to maintain a balance in our portfolio between contracted output and uncontracted output (i.e., merchant
plants); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Technology and fuel type: with due account to the environmental factors which tend to favour gas-fired generation over coal-fired generation in many markets,
we intend to maintain a portfolio of generation assets employing various technologies and primary fuels. In this regard, we have no present intention to buy or operate nuclear power plants or to invest in other power companies which generate power
principally through nuclear power plants.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Facilities



As at 31 December 2002, we
had interests in power generation facilities in operation representing in aggregate 15,735 MW (gross) and 10,890 MW (net). In addition to generating electricity, some of our plants are cogeneration facilities that also produce thermal energy, which
we sell to industrial users and district heating schemes.



We
sell the output either under the provisions of long-term PPAs or through direct sales into competitive markets in those countries where such a market exists.



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The proportion of output from
power stations that we sell into a competitive market is exposed to price fluctuations in such markets. Our various trading operations can limit our exposure to a degree by entering into hedging contracts that fix the price at which we sell output
over the period of the hedging contract.



Fuel for power stations
in which we have invested include natural gas, coal and oil, which are sourced either under long-term supply contracts or via market purchases.



The table below sets out details in relation to our operating power plants and plants under construction as at 31 December 2002.



|Plant                                     |  | Fuel                |  | Gross capacity MW power |  | Net capacityMW power |  | Gross capacity MW heat |  | Net capacity MW heat(4)
|----------------------------------------- |  | ------------------- |  | ----------------------- |  | -------------------- |  | ---------------------- |  | -----------------------
|Operating                                 |  |                     |  |                         |  |                      |  |                        |  |                        
|North America                             |  |                     |  |                         |  |                      |  |                        |  |                        
|Hartwell, Georgia, USA                    |  | Gas (OCGT(1))       |  | 310                     |  | 155                  |  |                        |  |                        
|Oyster Creek, Texas, USA                  |  | Gas (Cogen/CCGT(2)) |  | 425                     |  | 210                  |  | 100                    |  | 50                     
|Hays, Texas, USA(3)                       |  | Gas (CCGT)          |  | 1,100                   |  | 1,100                |  |                        |  |                        
|Midlothian I and II, Texas, USA(3)        |  | Gas (CCGT)          |  | 1,650                   |  | 1,650                |  |                        |  |                        
|Blackstone, Massachusetts, USA(3)         |  | Gas (CCGT)          |  | 570                     |  | 570                  |  |                        |  |                        
|Milford, Massachusetts, USA               |  | Gas (CCGT)          |  | 160                     |  | 160                  |  |                        |  |                        
|Bellingham, Massachusetts, USA(3)         |  | Gas (CCGT)          |  | 570                     |  | 570                  |  |                        |  |                        
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        
|North America total in operation          |  |                     |  | 4,785                   |  | 4,415                |  | 100                    |  | 50                     
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        
|Europe and Middle East                    |  |                     |  |                         |  |                      |  |                        |  |                        
|EOP, the Czech Republic(5)                |  | Coal/Gas            |  | 585                     |  | 580                  |  | 2,040                  |  | 2,020                  
|Deeside, United Kingdom(6)                |  | Gas (CCGT)          |  | 500                     |  | 500                  |  |                        |  |                        
|Rugeley, United Kingdom                   |  | Coal                |  | 1,000                   |  | 1,000                |  |                        |  |                        
|Elcogas, Spain                            |  | Gas (IGCC)          |  | 335                     |  | 15                   |  |                        |  |                        
|Pego, Portugal                            |  | Coal                |  | 600                     |  | 270                  |  |                        |  |                        
|Marmara, Turkey                           |  | Gas (CCGT)          |  | 480                     |  | 160                  |  |                        |  |                        
|Al Kamil, Oman                            |  | Gas (OCGT)          |  | 285                     |  | 285                  |  |                        |  |                        
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        
|Europe and Middle East total in operation |  |                     |  | 3,785                   |  | 2,810                |  | 2,040                  |  | 2,020                  
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        
|Australia                                 |  |                     |  |                         |  |                      |  |                        |  |                        
|Hazelwood, Victoria                       |  | Coal                |  | 1,600                   |  | 1,470                |  |                        |  |                        
|Synergen, South Australia                 |  | Various             |  | 360                     |  | 360                  |  |                        |  |                        
|Pelican Point, South Australia            |  | Gas (CCGT)          |  | 485                     |  | 485                  |  |                        |  |                        
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        
|Australia total in operation              |  |                     |  | 2,445                   |  | 2,315                |  |                       |  |                       
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        
|Rest of World                             |  |                     |  |                         |  |                      |  |                        |  |                        
|Hubco, Pakistan                           |  | Oil                 |  | 1,290                   |  | 330                  |  |                        |  |                        
|Kapco, Pakistan                           |  | Gas/Oil             |  | 1,600                   |  | 575                  |  |                        |  |                        
|Malakoff, Malaysia(3)                     |  | Gas (OC/CCGT)       |  | 1,705                   |  | 325                  |  |                        |  |                        
|Shijiazhuang Yong Tai, PRC                |  | Coal (Cogen)        |  | 15                      |  | 10                   |  | 90                     |  | 65                     
|Pluak Daeng, Thailand                     |  | Gas (Cogen)         |  | 110                     |  | 110                  |  | 20                     |  | 20                     
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        
|Rest of World total in operation          |  |                     |  | 4,720                   |  | 1,355                |  | 110                    |  | 85                     
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        
|Total in operation around the world       |  |                     |  | 15,735                  |  | 10,890               |  | 2,250                  |  | 2,155                  
|                                          |  |                     |  |                         |  |                      |  |                        |  |                        





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|Plant                    |  | Fuel                         |  | Gross capacityMW power |  | Net capacity MW power |  | Gross CapacityMW heat |  | Net capacity MW heat(2)
|------------------------ |  | ---------------------------- |  | ---------------------- |  | --------------------- |  | --------------------- |  | -----------------------
|Under construction       |  |                              |  |                        |  |                       |  |                      
|Europe and Middle East   |  |                              |  |                        |  |                       |  |                       |  |                        
|Shuweihat S1, UAE        |  | Gas (CCGT)/desalination MIGD |  | 1,500                  |  | 300                   |  | 100 MIGD              |  | 20 MIGD                
|SEAGas pipeline          |  |                              |  | n/a                    |  | n/a                   |  | n/a                   |  | n/a                    
|                         |  |                              |  |                        |  |                       |  |                       |  |                        
|TOTAL under construction |  |                              |  | 1,500                  |  | 300                   |  |                      |  |                       
|                         |  |                              |  |                        |  |                       |  |                       |  |                        

---

|(1) |  | Open cycle gas turbine. Turbines, generally fuelled by natural gas or diesel oil, are used to
drive generators to produce electricity.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Combined cycle gas turbine. Turbines, generally fuelled by natural gas, are used to drive
generators to produce electricity. The exhaust gases are then passed through a boiler to produce steam, which in turn drives an additional turbine coupled to a generator.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Capacity shown for these assets is the nameplate capacity.
|--- |  | ----------------------------------------------------------

|(4) |  | Net capacitygroup share of gross capacity.
|--- |  | -------------------------------------------

|(5) |  | Gross capacity amounts shown for EOP and Malakoff represents the actual net interest owned
directly or indirectly by EOP and Malakoff, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Half the generation capacity at Deeside was mothballed in March 2002.
|--- |  | ---------------------------------------------------------------------



Construction and Development



We currently have a range of developments throughout the world. As at 31
December 2002, we had interest in power generation facilities in construction representing in aggregate 1,500 MW (gross) (300 MW (net)). In North America, we have received final regulatory approval from the New York State Siting Board to commence
development of a 540 MW combined-cycle gas turbine power station on a greenfield site in Brookhaven on Long Island. We are currently negotiating commercial contracts to enable the financing of the project and, subject to finalising those contracts
and arranging debt financing, we expect to commence construction during 2003. In Europe and the Middle East, we commenced construction of the Shuweihat S1 power and water plant in Abu Dhabi during May 2002. The plant is expected to commence
commercial operation during the second half of 2004. Once operational, the power and water output from the plant will be sold to the Abu Dhabi Water and Electricity Company under a 20-year offtake agreement. In Italy, we have established a strategic
alliance with Ansaldo Energia to develop a number of projects. In Portugal, Tejo Energia (of which we own 45% and are the largest shareholder) is developing an 800 MW CCGT plant, which would be located adjacent to the existing coal-fired Pego plant
in central Portugal. Although in its early stages, the project is progressing. In Australia, we are constructing the SEAGas pipeline in conjunction with TXU Australia and Origin Energy. To date, we have installed approximately 200 km of the pipeline
that will run between western Victoria and Adelaide, where it will supply our gas fuelled plants at Pelican Point and Synergen in South Australia. We expect the pipeline to become operational during 2004.



On 22 April 2003, we announced that we had entered into an agreement with the
Abu Dhabi Electricity and Water Authority, or ADWEA, to acquire a 40% equity interest in the 850 MW Umm Al Nar water and power plant as part of a consortium including Tokyo Electric Power Company and Mitsui & Co. Limited. We will own 50% of the
consortium investment vehicle and contribute a maximum equity investment of £56 million. We will own 70% of an operating company which will operate and maintain the plant. The consortium has entered into a power and water purchase agreement
with a duration of approximately 23 years to sell 805 MW of the output of the existing plant to the Abu Dhabi Water and Electricity Company (ADWEC). While operating the existing plant, we have also agreed to develop a new power and water plant
adjacent to the existing plant. The new facility will have an installed capacity of 1,550 MW and is currently expected to commence commercial operation in mid-



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2006. Under the terms of the
contract, ADWEC will also purchase the entire output from the new plant when it reaches commercial operation.



Operation and Maintenance



Where appropriate, particularly if we control a project, we manage our own operation and maintenance services for our power plants either by contract through special purpose operation and maintenance subsidiaries or by
establishing the asset-owning company as an owner-operator of the project with our technical expertise and experienced personnel. In addition, we currently carry out the operation and maintenance services for the Marmara power station in Turkey and
the Hub River power station in Pakistan. Additionally, we have a 45% interest in the operating company for the Pego power station.



Trading Activities



We have energy trading activities in the United States, the United Kingdom and in Australia.



Our trading activities principally relate to supporting our merchant generating business, and we act as wholesale marketers
rather than as pure financial traders. We aim to increase the return on our assets while hedging the market risk associated with the output of the plants. In support of this objective, and in order to obtain greater transparency to market pricing,
we buy and sell electricity, gas and coal in those markets where we have merchant assets.



In the short term, the primary focus of our electricity trading activities is to secure a market for a substantial proportion of the output from our plants which have commenced operation or are under construction.



Our fuel strategy is to obtain necessary supplies of gas and
coal at prevailing market prices. This strategy is supported by our gas and coal trading activities. We pursue a mixture of market price indexed supply contracts and transportation agreements from liquid supply points to our plants. Fuel purchasing
and power sales are made on a portfolio basis where economies of scale exist.



We implement comprehensive energy risk management policies, procedures and controls in each country in which we have energy trading activities. The risk framework is designed to facilitate the identification, measurement, monitoring
and reporting of risk. See Internal ControlRisk Identification and Management.



In the United States, we have a small trading team responsible for buying fuel and selling the output of our US operations. In the United Kingdom, we have a small trading team responsible for buying
the gas and coal for and selling the output of our UK stations, Deeside and Rugeley. In Australia we currently have two trading operations: Hazelwoods sales and marketing department and International Power (Australia), both based in Melbourne.
Hazelwoods trading activities relate entirely to the output from the plant and are focused on hedging the revenue from this output. International Power (Australia)s trading activities, which were initially established in 1998 for price
discovery and market information purposes, were boosted by the Synergen acquisition and the commissioning of our facility at Pelican Point in South Australia. International Power (Australia) currently has trading positions in three jurisdictions
participating in the National Electricity Market of Australia: Victoria, New South Wales and



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South Australia. We also
perform limited proprietary trading in the United States and Australia that is subject to clear risk limits.



Employees



The table below sets out the average number of employees of the Group employed for the year ended 31 December 2002.



|                          |  | Approximate number of employees
|------------------------- |  | -------------------------------
|North America             |  | 207                            
|Europe and Middle East    |  | 812                            
|Australia                 |  | 593                            
|Rest of World             |  | 367                            
|Corporate and development |  | 146                            
|                          |  |                                
|Total group employees     |  | 2,125                          
|                          |  |                                



Subsidiaries



Our principal subsidiary undertakings are set forth in note
16 of our consolidated financial statements.



Legal
Proceedings



Save as disclosed below, we are not or have not
been involved in any legal or arbitration proceedings which may have, or have had during the 12 months preceding the date of this document, a significant effect on our financial position or results of operations nor, so far as we are aware, are any
such proceedings pending or threatened.



We are aware of
the following claims and potential claims which involve or could involve legal proceedings against us. We have received an indemnity from Innogy in respect of any liabilities or losses which we may incur in relation to the claims to the extent set
out in the relevant paragraphs below.



| |  |  | In 1994, the National Association of Licensed Opencast Operators (NALOO) and the South Wales Small Miners Association (SWSMA) made separate complaints to the
European Commission against us, PowerGen plc, British Coal Corporation and HM Government. The complaints allege violations of EU Competition law arising out of the coal purchasing arrangements entered into by the Central Electricity Generating
Board, or CEGB, prior to 1 April 1990 and requests the Commission to find that the CEGBs practices violated EU law. NALOO and SWSMA allege that such a finding would be grounds for a claim for damages in the English courts by members of NALOO.
A faction of SWSMA brought an appeal against the Commissions findings which was initially ruled out of time, but an appeal was reinstated. Progress with this claim will be influenced by the outcome of the NALOO appeal. The European Court has
ruled that the Commission is under an obligation to investigate the NALOO complaint. The Company, PowerGen plc, British Coal Corporation and the Commission have appealed against the ruling. Judgement is expected sometime after May 2003. It is not
practicable to estimate legal costs or possible damages
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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at this stage. The Commission ruled on the complaint in 1998 and did not make any findings against us.



Innogy has agreed to indemnify us on an after-tax basis to
the extent of 50% of any liability that we may incur whether directly or indirectly as a consequence of those proceedings.



| |  |  | We are subject to claims and potential claims by or on behalf of current and former employees, including former employees of the CEGB, and contractors in respect of
industrial illness and injury. Innogy has agreed to indemnify us on an after-tax basis to the extent of 50% of any liability that we may incur whether directly or indirectly as a consequence of those proceedings to the extent that such liability is
not insured by Electra Insurance Limited; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We are subject to a number of other potential tax claims relating to our acquisition and disposal of assets in the ordinary course of our business in the UK and
Australia. These include certain tax claims for which we have received an indemnity from Innogy as well as other claims. None of these potential tax claims has yet crystallised and, should any or all of them do so, we intend to vigorously assert our
position with the relevant tax authorities. Potential liability may arise from other tax exposures in a number of other jurisdictions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, we are subject to claims and potential claims from construction counterparties arising in the ordinary course of business. Our Directors are
of the opinion, having regard to legal and other advice they received, that it is unlikely that these matters will, either individually or in the aggregate, have a material effect on our financial position, results of operations or liquidity.



Regulation



Our business is subject to extensive regulation by governmental agencies in
each of the countries in which we operate. Regulation that applies specifically to our business generally covers three areas: regulation of energy markets; environmental regulation; and regulation of health and safety. The degree of regulation to
which we are subject varies according to the country where a particular project is located, and may be materially different from one country to another. In most of the countries where we operate or are seeking to operate projects, national
regulatory authorities regulate us. In some countries, such as the United States and Australia, there are various additional layers of regulation at the state, regional and/or local level. In countries such as these, the degree of state, regional
and/or local regulation may also be materially different for several projects within that particular country if the projects are located in different states and/or localities.



While we believe our existing projects have the requisite approvals and that we operate our business in compliance with
applicable laws, we remain subject to a varied and complex body of laws and regulations that both public officials and private parties may seek to enforce.



Environment, Health and Safety Review



We believe that good environmental performance is critical to all aspects of our business.



We are committed to achieving the best possible environmental performance, and in order to achieve this standard and seek
continuous improvement we intend to:



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| |  |  | comply with all applicable environmental regulations and seek effective working relationships with appropriate agencies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | implement management systems for environmental performance and seek external accreditation to demonstrate compliance wherever we can;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | include action plans and measurable environmental targets in our business plans and in personal incentive arrangements at all location levels;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | seek input from our employees, neighbours, regulators and those who work with us by ensuring that we maintain a transparent mechanism of stakeholder engagement at
various levels;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | use natural resources efficiently and in a more sustainable way through integrating environmental, social and economic factors into business decisions, goals and
objectives; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | report our performance honestly and openly.
| | - |  | -------------------------------------------



In our business of electricity generation, the key environmental issue is emissions to air, water and land. We aim to limit these emissions within
strictly defined levels, ensuring compliance with government regulations in the countries in which we operate.



Environment, health and safety (EH&S) management is wholly integrated within our business management processes. We review our EH&S performance alongside our financial and engineering
performance. We carry out EH&S audits as part of our combined compliance audit process together with financial, technical and other operational reviews.



Risks and management systems



Assessing and minimising environmental risks take place early in our business planning cycleeither during the project development stage or when we
review potential additions to our portfolio of operational plant. When building or upgrading plant, we use modern, low-emission equipment. We operate plants using environmental management systems such as ISO 14001, the international standard for
environmental management systems, to ensure good environmental controls and performance. We also strive to make continual improvements in plant efficiency, thereby reducing emissions for each unit of electricity we generate.



Health and safety is a paramount management priority, although the forms of
management systems and controls vary around the world. Several of our plants have been awarded Royal Society for the Prevention of Accidents Gold Awards, for example, Deeside and Rugeley in the United Kingdom and the Hub Power Company
(Hubco) in Pakistan.



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Item 5. Operating and Financial Review and Prospects



You should read the following discussion and analysis of our financial performance together with our consolidated financial statements and the notes thereto included elsewhere in this annual report.



Overview



We are an international wholesale power generator and developer arising out
of the demerger of Innogy from National Power, which was effective as at 30 September 2000.



Presentation of Financial Information



We prepare our financial statements in accordance with UK GAAP, which differs in certain significant respects from US GAAP. For a reconciliation of our profit after tax (net income) and
shareholders fundsequity under UK GAAP to US GAAP and a more detailed discussion of the principal differences between UK GAAP and US GAAP applicable to us, see note 35 to our consolidated financial statements included elsewhere in this
document.



In the section below entitled Results of
Operations, we discuss our results of operations under UK GAAP for the current period and the two prior periods: the year ended 31 December 2001 and the nine months ended 31 December 2000. The nine months ended 31 December 2000 reflect a
decision by our Board of Directors to change our fiscal year end from 31 March to 31 December when we demerged substantially all our UK business into Innogy Holdings as at 30 September 2000. In addition, we only discuss the results of operations
during the nine month period ended 31 December 2000 with respect to the businesses we retained following the demerger as if the continuing businesses had been operated as a separate entity during the period. Accordingly, period to period comparisons
of our financial statements during the nine months ended 31 December 2000 and the current period may not necessarily provide our investors with a meaningful discussion of our financial condition, changes in financial condition and results of
operations during the current period.



Critical Accounting
Policies and Estimates



We prepare our
consolidated financial statements in accordance with accounting principles generally accepted in the United Kingdom. As such, we are required to make certain estimates, judgements and assumptions that we believe are reasonable based upon the
information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the periods presented and related disclosure
of contingent assets and liabilities.



On an ongoing basis, we
evaluate our estimates using historical experience, consultation with experts and other methods that we consider reasonable in the particular circumstances to ensure full compliance with UK GAAP and best practice. Actual results may differ
significantly from our estimates, the effect of which is recognised in the period in which the facts that give rise to the revision become known.



Our accounting policies are detailed on pages F-11 to F-16. The table below identifies the areas where significant judgements are required normally due to
the uncertainties involved in the application of certain accounting policies.



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|Accounting Policy                                                                   |  | Judgements/uncertainties affecting application                                                                                                                                                                 
|----------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                   
|Consolidation policytrade investments, associates, joint ventures and
subsidiaries |  |     Determination of the extent of influence the group has
over the operations and strategic direction of entities in which it holds an equity stake.                                                         
|                                                                                   
|Liquidated damages                                                                  |  |     Determination of the appropriate accounting treatment
for receipts received from contractors.                                                                                                             
|                                                                                   
|Fixed asset valuation                                                               |  |     Determination of trigger event indicating impairment
and measurement of fair value using projected cash flows, together with risk adjusted discount rates, or other more appropriate methods of valuation.
|                                                                                   
|                                                                                    |  |     Determination of useful lives and residual value of
assets.                                                                                                                                               
|                                                                                   
|Tax provisions                                                                      |  |     Determination of appropriate provisions for taxation,
taking into account anticipated decisions of tax authorities.                                                                                       
|                                                                                   
|                                                                                    |  |     Assessment of our ability to utilise tax benefits
through future earnings.                                                                                                                                



Of the accounting
policies identified in the above table, we believe that the following policies are the most critical in considering the impact of estimates and judgements on our financial position and results of operations.



Consolidation policytrade investments, associates, joint ventures and
subsidiaries



The determination of the level of influence we
have over a business is often a mix of contractually defined and subjective factors that can be critical to determining the appropriate accounting treatment of entities in the consolidated accounts. Generally, in the case of joint ventures and
associates, we achieve influence through board representation and by obtaining rights of veto over significant actions.



We generally treat investments where we hold less than 20% of the entitys equity as trade investments. The balance sheet carries trade investments
at cost less amounts written off and records income earned on the receipt of dividends from the investment.



In those circumstances where we own between 20% and 50% of the entitys equity and have significant influence over its operating and financial policies, we generally treat the entity as an
associated undertaking or joint venture. Equally, where we hold a substantial interest (but less than 20%) in an entity and are able to exert significant influence over its operations, we treat it as an associated undertaking or joint venture.
Conversely, although we generally treat a holding of more than 20% of the equity as an associated undertaking or joint venture, where we are unable to exert significant influence over the operations of the entity, we treat it as a trade investment.
We account for associated undertakings and joint ventures using the equity method of accounting, which involves including our share of operating profit, interest and tax on the respective lines of the profit and loss account, and our share of net
assets within the fixed asset investments caption in the balance sheet. In addition, we provide



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voluntary disclosure of the amount of net debt held by these entities, although in accordance with UK GAAP, we do not include this net debt
in the consolidated balance sheet.



We generally consolidate
entities in which we hold in excess of 50% of the equity and where we exert control over the strategic direction of the entity. However, if we were to hold in excess of 50% of the equity but were unable to exert significant influence over the
strategic direction or operations of the entity, we would account for the entity as an associated undertaking or joint venture.



Liquidated damages



We receive amounts from contractors, including Alstom, in respect of the late commissioning and under performance of new power plants. The receipts that
relate to compensation for lost revenue are treated as revenue when the compensation is due and payable by the contractor. Those receipts that relate to compensation for plants not achieving long-term performance levels specified in the original
contracts are recorded as a reduction in the cost of the assets.



Fixed asset valuation



Tangible fixed assets:



The original cost of
greenfield-developed assets includes relevant borrowing and development costs:



| |  |  | We capitalize interest on borrowings relating to major capital projects with long periods of development during construction and write it off as part of the total
cost over the useful life of the asset.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We capitalize project development costs (including appropriate direct internal costs) once the Board confirms that it is reasonably certain that the project will
proceed to completion.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We charge the depreciation
of plants so as to write down the assets to their residual value over their estimated useful lives.



| |  |  | We depreciate gas turbines and related equipment over 30 years to a 10% residual value, unless the circumstances of the project or life of specific components
indicate a shorter period or a lower residual value.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We consider coal plant on an individual basis.
| | - |  | ----------------------------------------------



The estimated average remaining useful life of our plant, machinery and equipment is approximately 21 years. If the estimated average useful life of our
plant, machinery and equipment decreased by five years, our annual depreciation expense would increase by £33 million.



Tangible fixed assets and fixed asset investments:



Our management regularly considers whether there are any indications of impairments of the carrying values of fixed assets or
investments (e.g. the impact of current adverse market conditions). Impairment reviews are generally based on risk adjusted discounted future cash flow projections that inevitably require estimates of discount rates and future market prices over the
remaining lives of the



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assets. For example, a 1% decrease in the discount rate used with the impairment calculations for the Rugeley and Deeside plants would have
reduced the impairment charge by £39 million.



Factors
Affecting Results of Operations



Seasonality



Our industry is regionally cyclical in nature. Different
countries and geographic regions in which we operate have their own demand-supply cycles and there is no single global cycle. Consequently, while we are at times subject to seasonality on a segmental basis due to the effect of weather and other
conditions on demand for electricity in the specific geographic regions in which we operate, our operations are not materially affected by seasonality on a group level because of the geographic diversity of our operations. Where applicable, effects
of seasonality are described in the section below titled Segment Comparative Performance.



Effect of Market Prices



We sell the output from our power generation facilities under the provisions of fixed price medium-term offtake agreements, long-term PPAs, or through merchant sales at prevailing market rates. Merchant sales are exposed to price
fluctuations. Our trading operations can limit this exposure by entering into options, forward power sale agreements and fuel purchase contracts, known as hedges, that fix the gross margin (Spark Spread) at which we sell output over the contracted
period. In addition, we are able to utilise the peak load flexibility of our new plants, principally in North America, to take advantage of favourable price opportunities as they arise.



During 2002, we sold output from our generation facilities in North America and our Deeside power plant in the United Kingdom
on a merchant basis. In addition, following the administration of TXU Europe Energy Trading Ltd, or TXUEET, in November 2002, and the consequent termination of our tolling contract with TXUEET, we have also sold output from our Rugeley power plant
in the United Kingdom on a merchant basis.



In North America,
wholesale market pricing was weak throughout 2002. Furthermore, the proposed introduction of a new energy trading regime in New England has lead to a contraction in liquidity. These factors have led to a sharp reduction in the amount of new plant
development and construction in the United States. Nevertheless, we believe the pace of recovery will depend on the extent to which existing generators withdraw uneconomic plant. We expect that pricing will remain weak in our markets until at least
2004.



In the United Kingdom, wholesale market prices have fallen
to very low levels. We believe the primary cause for the low prices in general is oversupply. However, at the end of 2002 prices did strengthen for a short period as a result of winter peak demand, coinciding with uncertainty in the market created
by the well-publicised distress of companies such as British Energy plc and TXUEET. Almost one-third of installed capacity in the United Kingdom is either for sale or in the hands of its lenders. We believe the pace of recovery will largely depend
on the resolution of this distressed generation overcapacity, but we believe the market is unlikely to recover in 2003.



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International Operations



The international nature of our business subjects us to
economic, political and business risks that have the potential to restrict the ability of our projects from making dividends or other distributions to us. We may not be fully capable of insuring against or otherwise mitigating these risks, which
include currency exchange rate fluctuations, economic and political instability, currency repatriation, expropriation and unexpected changes in regulatory requirements.



In particular, our operations in emerging markets expose us to economic, political and other risks that could have an adverse
effect on our financial condition and results of operations. Emerging markets are typically less developed commercially and have significantly different social and political structures from those found in the United States or Western Europe. Our
operations in Pakistan have been adversely affected in the past due to a dispute with WAPDA over tariffs for power that our projects produce in that country. See Results of OperationsExceptional Items for a further
description of this dispute. Otherwise, we believe there are currently no economic restrictions on the ability of our subsidiaries to transfer funds to us.



Certain jurisdictions in which we conduct operations, such as Malaysia, have exchange controls. The Malaysian government has adopted foreign currency
exchange controls, including controls on its currency, the ringgit, held outside Malaysia and established fixed exchange rates for the ringgit against the US dollar. These controls have not had a material effect on our ability to conduct operations
in these countries and we do not foresee that they will have a material affect in the near future, although the long-term impact of such controls is not predictable due to dynamic economic conditions that also affect or are affected by other
regional or global economies.



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Results of operations



On 2 October 2000, we demerged substantially all our UK
businesses into Innogy Holdings plc. Also in 2000, our Board of Directors changed our financial year end from 31 March to 31 December, with effect as of 31 December 2000. This change resulted in a financial reporting period comprising the nine
months ended 31 December 2000. The following table shows certain financial data from our consolidated profit and loss account for the current period and the two preceding financial periods. For the nine months ended 31 December 2000 we have
presented the data on the basis of: (1) the businesses we retained following the demerger (International Power); (2) the businesses that were demerged (Innogy); and (3) our business prior to the demerger (National Power Group).



|                                                                  |  | Year ended 31 December 2002(1) |   |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 (Restated)(2) |   |  | Nine months ended 31December 2000 (Restated)(2) |  
|----------------------------------------------------------------- |  | ------------------------------ | - |  | --------------------------- | - |  | ----------------------------------------- | - |  | ----------------------------------------------- | -
|                                                                  |  | International Power            |   |  | International Power         |   |  | International Power                       |   |  | International Power                             |  
|                                                                  |  | ($ millions)                   |   |  | (£ millions)                |  
|Turnover: group and share of joint ventures and associates        |  | 1,817                          |   |  | 1,129                       |   |  | 1,103                                     |   |  | 762                                             |  
|Less: share of joint ventures turnover                           |  | (196                           | ) |  | (122                        | ) |  | (139                                      | ) |  | (96                                             | )
|Less: share of associates turnover                               |  | (467                           | ) |  | (290                        | ) |  | (407                                      | ) |  | (382                                            | )
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Group turnover                                                    |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Group turnover                                                    |  | 1,154                          |   |  | 717                         |   |  | 557                                       |   |  | 284                                             |  
|Operating costsordinary                                          |  | (819                           | ) |  | (509                        | ) |  | (392                                      | ) |  | (225                                            | )
|Operating costsexceptional                                       |  | (166                           | ) |  | (103                        | ) |  | (2                                        | ) |  |                                                |  
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Operating profit/(loss)                                           |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Operating profit/(loss)                                           |  | 169                            |   |  | 105                         |   |  | 163                                       |   |  | 59                                              |  
|Share of operating profit of:                                     |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Joint ventures                                                    |  | 42                             |   |  | 26                          |   |  | 27                                        |   |  | 14                                              |  
|Associates                                                        |  | 198                            |   |  | 123                         |   |  | 134                                       |   |  | 94                                              |  
|Income from fixed asset investmentsordinary                      |  | 50                             |   |  | 31                          |   |  |                                          |   |  |                                                |  
|Income from fixed asset investmentsexceptional                   |  | 67                             |   |  | 42                          |   |  |                                          |   |  |                                                |  
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Operating profit and fixed asset investment income                |  | 526                            |   |  | 327                         |   |  | 324                                       |   |  | 167                                             |  
|Costs of restructuring                                            |  |                               |   |  |                            |   |  |                                          |   |  | (25                                             | )
|Profit/(loss) on sale of operations                               |  |                               |   |  |                            |   |  | 32                                        |   |  | (25                                             | )
|Demerger costs                                                    |  |                               |   |  |                            |   |  |                                          |   |  | (49                                             | )
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Profit/(loss) on ordinary activities before interest and taxation |  | 526                            |   |  | 327                         |   |  | 356                                       |   |  | 68                                              |  
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Interest receivable and similar income                            |  | 39                             |   |  | 24                          |   |  | 24                                        |   |  | 61                                              |  
|Interest payable and similar chargesordinary                     |  | (195                           | ) |  | (121                        | ) |  | (100                                      | ) |  | (98                                             | )
|Interest payable and similar chargesexceptional                  |  |                               |   |  |                            |   |  | (29                                       | ) |  |                                                |  
|Share of net interest of joint ventures and associates            |  | (56                            | ) |  | (35                         | ) |  | (47                                       | ) |  | (44                                             | )
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|                                                                  |  | (212                           | ) |  | (132                        | ) |  | (152                                      | ) |  | (81                                             | )
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Profit/(loss) on ordinary activities before taxation              |  | 314                            |   |  | 195                         |   |  | 204                                       |   |  | (13                                             | )
|Tax on profit/(loss) on ordinary activities                       |  | (122                           | ) |  | (76                         | ) |  | (64                                       | ) |  | (29                                             | )
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Profit/(loss) on ordinary activities after taxation               |  | 192                            |   |  | 119                         |   |  | 140                                       |   |  | (42                                             | )
|Minority interestsequity                                         |  | (10                            | ) |  | (6                          | ) |  | (2                                        | ) |  | (4                                              | )
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  
|Profit/(loss) for the financial period                            |  | 182                            |   |  | 113                         |   |  | 138                                       |   |  | (46                                             | )
|                                                                  |  |                                |   |  |                             |   |  |                                           |   |  |                                                 |  

---

Note:

|(1) |  | Amounts translated for convenience at the noon-buying rate on 31 December 2002 of £1.00
= $1.6095.
|--- |  | --------------------------------------------------------------------------------------------------



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##### Table of Contents

|(2) |  | During the year ended 31 December 2002, we adopted Financial Reporting Standard No. 19Deferred Tax, which resulted in the restatement of our financial
statements of prior periods. The following table provides a reconciliation between profit/(loss) for the financial period and basic earnings per share as we originally reported and after the adoption of FRS No. 19.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                   |  | Year ended 31 December                 |   |  | 9 months ended 31 December             |  |                 | Year ended 31 March
|-------------------------------------------------- |  | -------------------------------------- | - |  | -------------------------------------- |  | --------------- | -------------------
|                                                   |  | 2002                                   |   |  | 2002                                   |  | 2001 (Restated) |                    
|                                                   |  | ($ in millions, except per share data) |   |  | (£ in millions, except per share data)
|Profit/(loss) for the financial period as reported |  | 182                                    |   |  | 113                                    |  | 144             |                    
|Adoption of FRS No. 19Deferred Tax                |  |                                       |   |  |                                       |  | (6              | )                  
|                                                   |  |                                        |   |  |                                        |  |                 |                    
|Profit/(loss) for the financial periodrestated    |  | 182                                    |   |  | 113                                    |  | 138             |                    
|                                                   |  |                                        |   |  |                                        |  |                 |                    
|Basic earnings per share as reported               |  | 16.3                                   | ¢ |  | 10.1p                                  |  | 12.9p           |                    
|Adoption of FRS No. 19Deferred Tax                |  |                                       |   |  |                                       |  | (0.6            | )p                 
|                                                   |  |                                        |   |  |                                        |  |                 |                    
|Basic earnings per sharerestated                  |  | 16.3                                   | ¢ |  | 10.1p                                  |  | 12.3p           |                    
|                                                   |  |                                        |   |  |                                        |  |                 |                    



Segment
Comparative Performance



As a result of the demerger and
change of our financial year end, our results for the year ended 31 December 2001 cannot be compared to the prior financial period in a manner that would provide investors with a meaningful discussion of changes in our results of operations.
Therefore, in order to assist investors, we discuss our results of operations for the year ended 31 December 2001 as compared with the 12 month period ended 31 December 2000 on an unaudited pro forma basis reflecting our results of operations of the
businesses we retained following the demerger during the relevant period. The table below sets forth (1) our results of operations for the current period, (2) our results of operations for the year ended 31 December 2001, (3) a pro forma
presentation of our results of operations for the year ended 31 December 2000, adjusted to reflect only our continuing businesses.



|                                                             |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 (Restated) |   |  | Pro forma year ended 31 December 2000 (Restated) |   |  | Nine months ended 31 December 2000 (Restated) |   |  | Three months ended 31 March 2000 (Restated) |  
|------------------------------------------------------------ |  | --------------------------- | - |  | -------------------------------------- | - |  | ------------------------------------------------ | - |  | --------------------------------------------- | - |  | ------------------------------------------- | -
|                                                             |  | (£ in millions)             |  
|Turnover                                                     |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  
|North America                                                |  | 315                         |   |  | 237                                    |   |  | 150                                              |   |  | 115                                           |   |  | 35                                          |  
|Europe and Middle East                                       |  | 440                         |   |  | 521                                    |   |  | 534                                              |   |  | 405                                           |   |  | 129                                         |  
|Australia                                                    |  | 226                         |   |  | 194                                    |   |  | 133                                              |   |  | 106                                           |   |  | 27                                          |  
|Rest of World                                                |  | 148                         |   |  | 151                                    |   |  | 185                                              |   |  | 136                                           |   |  | 49                                          |  
|                                                             |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  
|Gross turnover                                               |  | 1,129                       |   |  | 1,103                                  |   |  | 1,002                                            |   |  | 762                                           |   |  | 240                                         |  
|Less: turnover of joint ventures                             |  | (122                        | ) |  | (139                                   | ) |  | (110                                             | ) |  | (96                                           | ) |  | (14                                         | )
|Less: turnover of associates                                 |  | (290                        | ) |  | (407                                   | ) |  | (496                                             | ) |  | (382                                          | ) |  | (114                                        | )
|                                                             |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  
|Net turnover                                                 |  | 717                         |   |  | 557                                    |   |  | 396                                              |   |  | 284                                           |   |  | 112                                         |  
|                                                             |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  
|Profit before interest and tax (excluding exceptional items) |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  
|North America                                                |  | 99                          |   |  | 93                                     |   |  | 43                                               |   |  | 34                                            |   |  | 9                                           |  
|Europe and Middle East                                       |  | 109                         |   |  | 141                                    |   |  | 128                                              |   |  | 88                                            |   |  | 40                                          |  
|Australia                                                    |  | 101                         |   |  | 72                                     |   |  | 53                                               |   |  | 46                                            |   |  | 7                                           |  
|Rest of World                                                |  | 108                         |   |  | 48                                     |   |  | 40                                               |   |  | 33                                            |   |  | 7                                           |  
|                                                             |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  
|Segmental operating profit                                   |  | 417                         |   |  | 354                                    |   |  | 264                                              |   |  | 201                                           |   |  | 63                                          |  
|Corporate costs                                              |  | (29                         | ) |  | (28                                    | ) |  | (43                                              | ) |  | (34                                           | ) |  | (9                                          | )
|                                                             |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  



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|                                                             |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 (Restated) |   |  | Pro forma year ended 31 December 2000 (Restated) |   |  | Nine months ended 31 December 2000 (Restated) |   |  | Three months ended 31 March 2000 (Restated) |  
|------------------------------------------------------------ |  | --------------------------- | - |  | -------------------------------------- | - |  | ------------------------------------------------ | - |  | --------------------------------------------- | - |  | ------------------------------------------- | -
|                                                             |  | (£ in millions)             |  
|Profit before interest and tax (excluding exceptional items) |  | 388                         |   |  | 326                                    |   |  | 221                                              |   |  | 167                                           |   |  | 54                                          |  
|Exceptional items                                            |  | (61                         | ) |  | 30                                     |   |  | (170                                             | ) |  | (99                                           | ) |  | (71                                         | )
|                                                             |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  
|Profit before interest and tax                               |  | 327                         |   |  | 356                                    |   |  | 51                                               |   |  | 68                                            |   |  | (17                                         | )
|Interestordinary                                            |  | (132                        | ) |  | (123                                   | ) |  | (104                                             | ) |  | (81                                           | ) |  | (23                                         | )
|Interestexceptional                                         |  |                            |   |  | (29                                    | ) |  |                                                 |   |  |                                              |   |  |                                            |  
|Tax                                                          |  | (76                         | ) |  | (64                                    | ) |  | (37                                              | ) |  | (29                                           | ) |  | (8                                          | )
|Minority interestsequity                                    |  | (6                          | ) |  | (2                                     | ) |  | (6                                               | ) |  | (4                                            | ) |  | (2                                          | )
|                                                             |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  
|Retained profit/(loss)                                       |  | 113                         |   |  | 138                                    |   |  | (96                                              | ) |  | (46                                           | ) |  | (50                                         | )
|                                                             |  |                             |   |  |                                        |   |  |                                                  |   |  |                                               |   |  |                                             |  



Exceptional items before interest and tax are analysed by geographic region as follows:



|                       |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |  | Pro forma year ended 31 December 2000 |   |  | Nine months ended 31 December 2000 |   |  | Three months ended 31 March 2000 |  
|---------------------- |  | --------------------------- | - |  | --------------------------- |  | ------------------------------------- | - |  | ---------------------------------- | - |  | -------------------------------- | -
|                       |  | (£ in millions)             |  
|Exceptional items      |  |                             |   |  |                             |  |                                       |   |  |                                    |   |  |                                  |  
|North America          |  |                            |   |  |                            |  |                                      |   |  |                                   |   |  |                                 |  
|Europe and Middle East |  | (103                        | ) |  | 20                          |  | (8                                    | ) |  |                                   |   |  | (8                               | )
|Australia              |  |                            |   |  |                            |  | (22                                   | ) |  |                                   |   |  | (22                              | )
|Rest of World          |  | 42                          |   |  | 2                           |  | (37                                   | ) |  |                                   |   |  | (37                              | )
|Corporate costs        |  |                            |   |  | 8                           |  | (103                                  | ) |  | (99                                | ) |  | (4                               | )
|                       |  |                             |   |  |                             |  |                                       |   |  |                                    |   |  |                                  |  
|                       |  | (61                         | ) |  | 30                          |  | (170                                  | ) |  | (99                                | ) |  | (71                              | )
|                       |  |                             |   |  |                             |  |                                       |   |  |                                    |   |  |                                  |  



Trading
Performance



Year ended 31 December 2002 as compared
with the year ended 31 December 2001



NORTH AMERICA



Our North American business region consists of plants in
Texas, Massachusetts and Georgia. During the year ended 31 December 2002, we completed our 3,890 MW construction program in the United States when the last two units at Hays, our 1,100 MW plant in Texas, and our 570 MW plant at Bellingham in
Massachusetts, commenced commercial operation. Accordingly, our total net installed capacity in North America increased during the period under review to 4,415 MW. In addition, we received final regulatory approval to commence construction of a 540
MW plant in Brookhaven on Long Island in New York. Subject to finalising commercial contracts and arranging debt financing, we expect to commence construction during 2003. We also conduct energy trading activities in North America, which are
principally focussed on selling the physical output of our plants. However, we also perform limited proprietary trading that is subject to clear risk limits.



Gross turnover in our North American business region increased by 33% from £237 million during the year ended 31 December 2001 to £315 million
in 2002. The increase in gross turnover principally reflects the increase in generating capacity during the period from a maximum capacity of 3,020 MW as at 31 December 2001 to a maximum capacity of 4,415 MW as at 31 December 2002. The increase in
generating capacity was offset, however, by lower wholesale electricity prices in our markets. See Factors Affecting Results of OperationsEffect of Market Conditions. As a result of these lower wholesale electricity prices,
our share of turnover from joint ventures during the year ended 31 December



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2002 was £60 million (19% of gross turnover), a decrease of 22% as compared to the year ended 31 December 2001.



Due to the current trading conditions in the North American market, we have
limited the amount of our output sold pursuant to forward contracts, as we do not wish to lock in prices at this low point of the wholesale electricity price cycle. Where we see opportunities to add value and reduce risk, we forward contract, but we
would need to see an improvement in forward prices before we significantly increase our contracted position.



During the year ended 31 December 2002, we recorded other operating income of £102 million from Alstom relating to compensation payments in respect of income we lost during the year as a result
of construction delays and consequent plant unavailability, as well as compensation for reduced output and efficiency arising out of ongoing technical problems with Alstoms turbines. These payments were in addition to payments of £80
million during the year ended 31 December 2001 and £28 million with respect to the nine months ended 31 December 2000. Alstom is both the manufacturer of the GT24B gas turbines and the principal contractor for the construction of our plants in
Texas and Massachusetts. Although output and efficiencies of the GT24B gas turbines remain below contractual guarantee levels, the plants have demonstrated enhanced output, an improved heat rate and a significant improvement in their responsibility
and flexibility.



Operating costs consist of both fixed operating
costs, such as depreciation, payroll and property taxes, and variable operating costs, such as fuel costs. Our fixed cost base increased in line with the completion of the construction programme and the commencement of commercial operations of our
new units at Hays and our new plant at Bellingham. Variable costs tracked our profile of physical output. Where appropriate, we seek to minimise the impact of fluctuations in fuel supply cost by locking in our fuel supply at the same time that we
sell our output.



Profit before interest and tax in the region
increased by 6% from £93 million during the year ended 31 December 2001 to £99 million during the year ended 31 December 2002. The increase in profit before interest and tax primarily reflects the increased generating capacity, together
with the impact of the continued compensation payments from Alstom.



EUROPE AND MIDDLE EAST



Our European and
Middle Eastern business region consists of plants in the United Kingdom, the Czech Republic, Portugal, Turkey and Oman. During the year ended 31 December 2002, construction of our Al Kamil plant in Oman was completed, bringing our total net
installed capacity in Europe and the Middle East to 2,810 MW, of which we control and operate 2,142 MW. In March 2002, as a result of uneconomic wholesale electricity prices in the England and Wales electricity market, we mothballed half the
generation capacity of our Deeside power station. We will reinstate the stations capacity when market conditions improve to support an appropriate financial return from operations. In November 2002, the boiler house roof collapsed at one of
EOPs combined heat and power plants in the Czech Republic, resulting in a loss of heat supply for eleven days and full power output for four weeks. In November 2002, TXUEET entered administration. We had a tolling agreement with TXUEET which
covered the full capacity of our Rugeley power station through to the end of 2005. As a result of TXUEETs administration, the tolling agreement has been terminated. While we are entitled to an early termination payment and we continue to take
all necessary steps to maximise recovery, Rugeley is now



35



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responsible for the purchase of fuel and sale of power (functions previously undertaken by TXUEET) and is consequently exposed to
fluctuations in wholesale electricity prices.



Gross turnover in
our European and Middle Eastern business region decreased by 16% from £521 million in the year ended 31 December 2001 to £440 million the year ended 31 December 2002. The decrease reflects the impact on the current period of our disposal
of our 25% equity ownership in UFG in Spain during the prior year as well as the impact of mothballing half the generation capacity of our Deeside power station, partially offset by a full years contribution from Rugeley, which we acquired
July 2001. Turnover from joint ventures and associates in the region during 2002 was £228 million (52% of the regions gross turnover), a decrease of 35% as compared to 2001, again reflecting the sale of UFG.



Wholesale electricity prices in the United Kingdom dropped to very low levels
during the period, reflecting generation overcapacity. See Factors Affecting Results of OperationsEffect of Market Conditions and Item 3. Key InformationRisk FactorsMarket prices for power in the markets
where some of our projects operate have been volatile and depressed in recent years. While we continue to seek to sell forward our output from Deeside and Rugeley, we have limited the amount of output we sell pursuant to forward contracts and
the duration of those forward contracts, as we do not wish to lock in prices at this low point of the market cycle. Consequently, output from Deeside and, since the termination of its tolling agreement with TXUEET, Rugeley has been exposed to
fluctuations in market prices. In recognition of the uncertainty on the timing of wholesale electricity price recovery, we have written down the value of our Deeside plant by £45 million and of our Rugeley plant by £58 million. We have
recorded both of these amounts as exceptional items.



Outside the
United Kingdom, the output from our generation facilities is subject to medium-term offtake agreements and long-term PPAs that are not as exposed to direct fluctuations in wholesale electricity prices.



Operating cost consists of both fixed operating costs, such as depreciation,
payroll and property taxes, and variable operating costs, such as fuel costs. Our variable costs during the period increased as a result of the loss of the tolling contract for Rugeley, under which TXUEET was responsible for purchasing all the coal
for Rugeley, and the additional costs associated with the repair of the boiler house roof and boilers at EOP.



Profit before interest and tax, excluding exceptional items, decreased by 23% from £141 million during the year ended 31 December 2001 to £109 million during the year ended 31 December
2002. This decrease primarily reflects reduced turnover as well as increased operating costs discussed above.



AUSTRALIA



Our Australian business region consists of one plant in Victoria (Hazelwood), one plant in South Australia (Pelican Point) and the Synergen peaking units also located in South Australia. We also conduct energy trading activities, and
in line with our business in North America, these are principally focused on selling the physical output of our plants. However, we also perform limited proprietary trading, which again is subject to clear risk limits.



Turnover in Australia increased by 16% from £194 million in the year
ended 31 December 2001 to £226 million in the year ended 31 December 2002. This increase in turnover principally reflects



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improved electricity prices in Victoriathe average price secured in Victoria in 2001 was approximately A$41 per MW hour as compared to
A$40 per MW hour in 2000.We have forward contracts in place for most of the output from our generation facilities in Australia for the remainder of 2003.



Profit before interest and tax increased by 40% from £72 million in the year ended 31 December 2001 to £101
million in the year ended 31 December 2002. This increase principally reflects improved margins as a result of the combined effects of improved wholesale electricity prices and our ownership of Hazelwoods fuel supply, an open pit lignite mine
located adjacent to the plant. Because we own our fuel supply at Hazelwood, increases in spot and forward prices for electricity in Victoria directly affect our profitability. We believe that, when completed, the SEAGas pipeline will enable us to
secure gas supplies for our plants at Pelican Point and Synergen at competitive prices, thereby helping to increase our margins in the future.



REST OF WORLD



Our Rest of World portfolio consists principally of plants in Pakistan, Malaysia and Thailand. During 2002, the capacity of our existing plant in Malaysia
was increased by 14% bringing our total net installed capacity to 1,350 MW. Following the resolution of the tariff dispute between Hubco, Kapco and WAPDA during the current period we began to receive regular dividend payments from Hubco and Kapco
for the first time in over three years. During the period, we received a dividend payment of £73 million from Kapco, of which £42 million related to the settlement of prior year receivables. We treated this £42 million payment as
an exceptional item due to its non-recurring nature.



Gross
turnover decreased by 2% from £151 million in the year ended 31 December 2001 to £148 million in the year ended 31 December 2002. Our share of turnover from associates in this category during the year ended 31 December 2002 was
£122 million, an increase of 4% as compared to the year ended 31 December 2001 of £118 million.



We have long-term PPAs for each of our plants in this region and therefore financial performance is not subject to fluctuations in energy prices. In common with most PPAs, availability is the key
factor in determining profitability and all our plants continue to maintain excellent standards.



Profit before interest and tax, excluding exceptional items, increased by 125% from £48 million during the year ended 31 December 2001 to £108 million in 2002. The increase in operating
profit principally reflects the resumption of dividends from Kapco. According to the settlement agreement between International Power, Kapco and WAPDA (the sole customer for Kapcos output), WAPDA will continue to settle outstanding balances
with Kapco.



Year ended 31 December 2001 as compared with the
pro forma 12 month period ended 31 December 2000



NORTH
AMERICA



Gross turnover in our North American business
region increased by 58% from £150 million during the pro forma 12 month period ended 31 December 2000 to £237 million in 2001. Our share of turnover from joint ventures during the year ended 31 December 2001 was £77 million (32% of
gross turnover), an increase of 3% as compared to the pro forma 12 month period ended 31 December 2000. 2001 was an important transition year for our North American business region, as we brought into operation a



37



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significant amount of new capacity in Massachusetts and Texas. The increase in gross turnover principally reflects this increase in
generating capacitymaximum capacity of 3,019 MW in 2001, compares with 1,074 MW during the pro forma 12 month period ended 31 December 2000.



As a result of our forward sales and purchasing contracts, we were able to hedge the market risk associated with adverse price fluctuations. Consequently,
our plants in Massachusetts and Texas achieved spreads considerably higher than the spot market.



During the year ended 31 December 2001, we recorded other operating income of £80 million in compensation from Alstom for the late commissioning and performance recovery of our new power plants
(£28 million during the pro forma 12 month period ended 31 December 2000).



Profits before interest and tax increased by 116% from £43 million to £93 million. The increase in operating profit primarily reflects the increased turnover, together with the compensation payments for the late
commissioning and performance recovery of our new plants.



EUROPE AND MIDDLE EAST



During the
period, our European and Middle Eastern business region consisted of two plants in the United Kingdom, as well as plants in the Czech Republic, Portugal and Turkey. In July 2001, we sold back our 25% equity ownership in UFG (Spain) to Unión
Electrica Fenósa and acquired the 1,000 MW coal-fired Rugeley plant in the United Kingdom. Our total installed capacity in this region at 31 December 2001 was 2,477 MW, of which we control and operate 2,464 MW.



Gross turnover in our European and Middle Eastern business region decreased by
2% from £534 million in the pro forma 12 month period ended 31 December 2000 to £521 million in the year ended 31 December 2001. The decrease principally relates to the sale of our interest in UFG, partially offset by the acquisition of
Rugeley.



Turnover from joint ventures and associates in the
region during 2001 was £351 million (67% of the regions gross turnover), a decrease of 6% as compared to 2000, again reflecting the sale of UFG.



Profit before interests and tax, excluding exceptional items, increased by 10% from £128 million in the pro forma 12 month period ended 31 December
2000 to £141 million for the year ended 31 December 2001. The increase in operating profit reflects our share of the profitability of UFG prior to its sale in July 2001, and the contribution from Rugeley since its acquisition, also in July
2001.



On 25 July 2001, we sold our 25% stake in UFG to its
parent, UEF for cash consideration of 600 million (£372 million) and recognised a gain of £32 million. At 31 December 2000, UFG was included in our consolidated financial statements as an equity investment with a carrying value of
£360 million. For the year ended 31 March 2000, the nine months ended 31 December 2000 and the year ended 31 December 2001, the net portion of equity income of UFG recorded by us was £13 million, £5 million and £11 million,
respectively.



AUSTRALIA



Turnover in our Australian business region increased by 46% from £133
million in the pro forma 12 month period ended 31 December 2000 to £194 million in 2001. This increase principally reflects



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continued improved electricity prices in Victoriasince the third quarter of 2000, both achieved and forward prices in Victoria
increased, allowing us to forward contract power at improved margins. The average price secured in Victoria in 2001 was approximately A$40 per MW hour as compared to A$35 per MW hour in 2000. In addition, turnover increased as a result of our
Pelican Point plant in South Australia commencing combined cycle commercial operation in March 2001. Our megawatts in operation in Australia increased from 1,828 MW at the end 2000 to 2,315 MW at 31 December 2001, an increase of 27%.



Profit before interest and tax, increased by 36% from £53 million in the
pro forma 12 month period ended 31 December 2000 to £72 million in 2001. Margins in Victoria benefited from the combined effects of improved wholesale electricity prices and our ownership of Hazelwoods fuel supply, an open pit lignite
mine located adjacent to the plant. Pelican Point was successfully commissioned on time and also contributed to this improvement in operating profit.



REST OF WORLD



Our Rest of World portfolio during the period consisted principally of plants in Pakistan, Malaysia and Thailand, representing a total net capacity of
1,340 MW. In addition, the capacity of our existing plant in Malaysia was increased by 50% (a net MW increase of 125 MW).



Gross turnover from assets located outside our three core regions decreased by 18% from £185 million in the pro forma 12 month period ended 31
December 2000 to £151 million in 2001. Our share of turnover from associates in this category during the year ended 31 December 2001 was £118 million, a decrease of 26% as compared to the pro forma 12 month period ended 31 December 2000.
The decrease in gross turnover from generation principally reflects the sale of the majority of the Chinese operations as well as the effect of changing the accounting treatment for our investments in Karaganda (Kazakhstan) and Kapco from the equity
method of accounting to trade investments as at 1 April 2000.



Following the resolution of the long running tariff dispute between Hubco and WAPDA, in November 2001 we received a £5 million interim dividend payment from Hubco relating to their year ended 30 June 2001. This interim dividend
was the first to be paid to Hubco shareholders in over three and a half years.



We have long term power purchase agreements for each of our plants in this region and therefore financial performance is not subject to fluctuations in energy prices. In common with most power purchase agreements, availability is the
key factor in determining profitability and all our plants continue to maintain excellent standards.



Profit before interest and tax, excluding exceptional items, increased by 20% from £40 million during the pro forma 12 month period ended 31 December 2000 to £48 million in 2001. The
increase in operating profit reflects a full year contribution from our Thailand plant that was commissioned in 2000, and from our interest in Hubco, after WAPDA began paying their receivables.



Exceptional Items



Year ended 31 December 2002



During the year ended 31 December 2002, we recorded the following three
exceptional items:



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| |  |  | the write-down of the Deeside plant by £45 million;
| | - |  | ---------------------------------------------------



| |  |  | the write-down of the Rugeley plant by £58 million;
| | - |  | ---------------------------------------------------



| |  |  | the recognition of dividend income of £42 million from the Kot Addu Power Company (Kapco) in Pakistan, which relates to the settlement of prior
year receivables.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



We reviewed the carrying values
of our Deeside and Rugeley plants following the sharp decline in both current and forward electricity prices in the United Kingdom. Deeside has been exposed to market prices since the offtake contract with Innogy terminated at the end of March 2002.
As a response to these uneconomic wholesale prices, we mothballed half of the capacity (namely 250 MW) at that time. Rugeley has been exposed to market prices since November 2002, when the tolling contract with TXUEET, was terminated as a result of
TXUEETs placement in administration. We determined carrying values of the plants by applying a risk-adjusted discount rate of 8% to the post-tax cash flows expected from the plants over their remaining useful lives.



Kapco resumed paying us dividends in 2002. Dividends in 2002 included a
payment of £42 million in respect of receivables relating to earlier periodscollection was a direct result of the settlement of the dispute between Kapco and the Water and Power Development Authority (WAPDA) in 2001. We have
treated this amount as exceptional because of its non-recurring nature.



Year ended 31 December 2001



During the
year ended 31 December 2001, we recorded five exceptional items:



| |  |  | We reassessed an onerous lease provision to take account of the anticipated results of the rent reviews and to reflect the impact of previously vacant space which
was leased during the year. As a result of this reassessment, £8 million of the provision was released.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the period we provided £10 million in respect of a bank guarantee given on behalf of our trade investment, Elcogas. It is probable that the guarantee
will be called to prevent Elcogas from breaching capital structure requirements under the Spanish Commercial Code.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On 25 July 2001, the group sold its investment in Unión Fenósa Generacion S.A., or UFG, realising a profit of £32 million.
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | During the period the China exit provision (created in the nine month period ended 31 December 2000) was reassessed following the disposal of the majority of its
remaining investments in China. As a result of this reassessment, £2 million of the provision was released.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The exceptional interest charge of £29 million represents the cost of cancelling the existing interest rate swaps and amortising capitalised arrangement fees
in connection with the successful refinancing of the non-recourse debt facility for the Hazelwood power plant in Victoria, Australia.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Nine months ended 31
December 2000



In the nine months ended 31 December 2000, we
recorded three exceptional items:



| |  |  | £49 million relating to costs arising out of the demerger of Innogy;
| | - |  | --------------------------------------------------------------------



| |  |  | £25 million of reorganisation costs relating to the restructuring following the demerger; and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | a provision of £25 million made to cover exit costs from the Chinese market.
| | - |  | ----------------------------------------------------------------------------



The £49 million demerger cost provision included professional fees of £33 million, comprising £7 million
for accountants, £8 million for attorneys, £15 million for investment bankers and £3 million for other professionals. Also included were severance costs of £12 million and headquarter relocation of £2 million and other
costs of £2 million.



The £25 million restructuring
provision comprised of severance costs of £16 million, office relocation costs of £7 million and other costs of £2 million.



The provision to cover exit costs from China was made following the decision to sell our interests in the four joint venture investments made previously
by National Power in China and to withdraw from the Chinese market. This provision includes an impairment charge of £13 million on the write-down to net realisable value of assets held for sale, a £7 million loss of a deposit associated
with the initial bid for one of the projects on the call of bid bond and £5 million of disposal costs.



Other Costs



Corporate costs



We operate from a
corporate office in London, and a small engineering office in Swindon, where our corporate and business functions are based to support our worldwide operations. Continued control resulted in a modest increase in the cost of providing these services,
from £28 million for the year ended 31 December 2001 to £29 million for the year ended 31 December 2002.



In addition, we operate regional business support offices in the United States, Australia, the Czech Republic, Spain, Italy, Japan and UAE.



These offices vary in size dependent on the scale of operations in the region,
and apart from the United States and Australia, are primarily focused on business development. We supported our US business from offices in Houston, Texas and Marlborough, Massachusetts until 2002, when we decided to close our Houston office and
combine these activities in Marlborough; we have made significant progress in achieving this consolidation. We incurred the majority of the one-off costs of approximately £3 million associated with this consolidation in 2002, which should give
rise to operational and cost efficiencies in future years.



Net interest



In the periods prior to 30
September 2000, net interest payable was allocated between Innogy and International Power on the basis that the debts assumed by each party at the demerger were attributed to that party during the period, or since the debt arose. Consequently, net
interest charges allocated to the



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businesses we retained following the demerger for the nine month period ended 31 December 2000 do not reflect our capital structure as it
would have been had we operated as an independent entity during the period.



Net interest payable during the year ended 31 December 2002 was £132 million, a decrease of 13.2% as compared with £152 million during the year ended 31 December 2001. Interest payable during the year ended 31 December
2001 included an exceptional interest charge of £29 million. This exceptional interest charge represents the cost of cancelling interest rate swaps and amortising capitalised arrangement fees in connection with the refinancing of the A$1.2
billion non-recourse debt facility for the Hazelwood power plant in Victoria, Australia. Excluding exceptional items, net interest payable increased by 7.3% from £123 million during the year ended 31 December 2001.



During the year ended 31 December 2002, corporate and subsidiary operations
accounted for interest payable of £97 million (comprising gross interest of £126 million, primarily associated with bonds, bank loans and overdrafts, offset by £24 million interest receivable and by capitalised interest of £5
million) as compared with £76 million during the year ended 31 December 2001 (comprising gross interest of £123 million, offset by £24 million interest receivable and by capitalised interest of £23 million), an increase of
27.6%.



During the year ended 31 December 2002, associated
companies and joint ventures had a net interest payable of £35 million, as compared with £47 million during the prior period.



Consolidated interest cover during the year ended 31 December 2002 was 2.9 times, as compared with 2.7 times during the year ended 31 December 2001. As at
31 December 2002, we were within all financial and interest coverage covenants under the terms of our financing agreements.



Taxation



The tax charge for the year was £76 million, compared with £64 million (after the FRS 19 restatement) for the year ended 31 December 2001. The tax charge represents an effective tax rate of
39% compared to 31% in the prior period (following the FRS 19 restatement).



We have continued to benefit from the utilisation of tax losses and the availability of certain overseas tax concessions. These concessions are expected to expire in the medium term.



The allocation of the tax liabilities of National Power in the periods to
September 2000 between the ongoing operations and those subsequently demerged was calculated as if Innogy operated on a stand-alone basis, with the balance of tax charges allocated to International Power. Consequently, tax charges for that period do
not necessarily reflect our business or results of operations as they would have been had we operated as an independent entity during the period.



Liquidity



The following table shows cash flow under UK GAAP for the current period, the year ended 31 December 2001 and the nine months ended 31 December 2000. Cash flow for the nine months ended 31 December
2000 are presented on the basis of: (1) the business we retained following the demerger (International Power); (2) the businesses that were demerged (Innogy); and (3) our business prior to the demerger (Group).



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|                                                                              |  | Year ended 31 December |   |  | Nine months ended 31 December |  
|----------------------------------------------------------------------------- |  | ---------------------- | - |  | ----------------------------- | -
|                                                                              |  | 2002                   |   |  | 2001                          |  
|                                                                              |  | International Power    |   |  | International Power           |  
|Net cash inflow/ (outflow) from operating activities                          |  | 276                    |   |  | 274                           |  
|Dividends received from associates and joint ventures                         |  | 84                     |   |  | 59                            |  
|Dividends received from fixed asset investmentsordinary                      |  | 31                     |   |  |                              |  
|                                                                              |  |                        |   |  |                               |  
|Cashflow from ordinary operating activities                                   |  | 391                    |   |  | 333                           |  
|Dividends received from fixed asset investmentexceptional                    |  | 42                     |   |  |                              |  
|Return on investments and servicing of financeordinary                       |  | (88                    | ) |  | (105                          | )
|Return on investments and servicing of financeexceptional                    |  | (25                    | ) |  |                              |  
|Tax                                                                           |  | (20                    | ) |  | (1                            | )
|Capital expenditures and financial investment                                 |  | (159                   | ) |  | (406                          | )
|Acquisitions and disposals                                                    |  | (144                   | ) |  | 318                           |  
|Equity dividends paid                                                         |  |                       |   |  |                              |  
|                                                                              |  |                        |   |  |                               |  
|Net cash (outflow)/inflow before management of liquid resources and
financing |  | (3                     | ) |  | 139                           |  
|Management of liquid resources                                                |  |                       |   |  | (48                           | )
|Financing activities                                                          |  | 210                    |   |  | 406                           |  
|                                                                              |  |                        |   |  |                               |  
|Increase in cash                                                              |  | 207                    |   |  | 497                           |  
|                                                                              |  |                        |   |  |                               |  



The following discusses
the cash flow of the businesses we retained following the demerger.



Cashflow from ordinary operating activities for the year ended 31 December 2002 increased by 17% to £391 million as compared with £333 million for the year ended 31 December 2001. This increase principally reflects
improved operating profit performance, particularly in Australia and the United States, as well as an increase in dividend receipt from joint ventures and associates, including the resumption of dividends from Kapco and Hubco in Pakistan. Cashflow
from ordinary operating activities during the year ended 31 December 2001 increased to £333 million as compared with £11 million for the nine months ended 31 December 2000. This increase principally reflected strong operating profit
performance for the full year ended 31 December 2001, particularly in Europe and the Middle East and North America, as well as an increase in dividend receipt from joint ventures and associates and a reduction in working capital and provisions.



We received an exceptional dividend from fixed asset investment
during the year ended 31 December 2002 in relation to the payment by Kapco of receivables related to earlier periods. See Exceptional items. Returns on investments and servicing of finance, comprised of interest paid, debt issuance
cost and dividends paid to minority shareholders net of interest and dividends received, was £88 million during the year ended 31 December 2002, a decrease of 16.2% as compared with £105 million during the year ended 31 December 2001.
This decrease reflects a small reduction in average debt levels over the course of the year, together with slightly lower average cost of debt. Returns on investments and servicing of finance during the year ended 31 December 2001 reflects increased
levels of debt in 2001, partially offset by lower average rates of interest. During the year ended 31 December 2002, we recorded an exceptional cash outflow under returns on investment and servicing of finance of £25 million in connection with
costs associated with refinancing and significantly extending the maturity of the A$1.2 billion non-recourse debt facility associated with our power plant at Hazelwood in Australia.



Capital expenditure on projects designed to maintain the operating capacity of our power stations was stable at £48
million during the years ended 31 December 2002 and 2001, reflecting the recurring



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and on-going nature of this expenditure. Capital expenditure to increase our operating capacity during the year ended 31 December 2002 was
£98 million, a substantial reduction as compared with £358 million during the year ended 31 December 2001. This decrease reflects the fact that we have now completed our projects to build new generation capacity in Massachusetts and
Texas, although we are continuing the construction of the Shuweihat S1 power and water plant in Abu Dhabi. We made financial interest payments of £13 million during 2002, which includes the cash we paid in respect of net investment hedges.
Similarly, capital expenditure to increase our operating capacity during the year ended 31 December 2001 was substantially lower than the £504 million capital expenditure during the nine months ended 31 December 2000, reflecting the continued
progress toward completion of the plants in North America.



Acquisitions and disposals during the year ended 31 December 2002 were a payment of £144 million, principally the final payment of £133 million to TXUEET in respect of the acquisition of our Rugeley power station in the
United Kingdom. During the year ended 31 December 2001, acquisitions and disposals included net proceeds of £372 million on the sale of our 25% interest in UFG and an initial payment of £67 million to TXUEET in respect of the acquisition
of Rugeley.



Capital Resources



We are of the opinion that we have sufficient working capital for the
foreseeable future.



The following table shows our net debt
position as at 31 December 2002, 2001 and 2000.



|                            |  | As at 31 December |  
|--------------------------- |  | ----------------- | -
|                            |  | 2002              |  
|Cash and liquid investments |  | 842               |  
|Euro dollar bonds           |  | (37               | )
|Convertible bond            |  | (231              | )
|Other loansrecourse        |  |                  |  
|Loansnon-recourse          |  | (1,386            | )
|                            |  |                   |  
|Net debt                    |  | (812              | )
|                            |  |                   |  



Our net debt excludes
our share of joint ventures and associates debt. These obligations are generally secured by the assets of the respective joint venture or associate borrower and are not guaranteed by International Power plc or any other group company. In
view of the significance of these amounts, we have disclosed them separately.



The non-recourse financing agreements to which certain of our subsidiaries are party contain contractual restrictions which limit the ability of such subsidiaries to distribute freely cash dividends to us while such non-recourse
financing is outstanding. In particular, the terms of our $1,375 million non-recourse facility to finance American National Power, or ANP, the operator of our North American plants, substantially limit the ability of ANP to distribute cash dividends
to us while the facility is outstanding.



Year ended 31
December 2002



Net debt as at 31 December 2002 was
£812 million as compared with £897 million as at 31 December 2001. Our share of joint ventures and associates debt was £503 million as at 31 December 2002 as compared with £487 million as at 31 December 2001.



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The decrease in our net debt
during the period reflects increased operating cash flow and the positive impact of the translation of debt denominated in foreign currencies, which amounted to £98 million over the course of the year. Net debt at 31 December 2002 is shown net
of facilities fees of £27 million, which have been capitalised and offset against the debt in accordance with accounting standard FRS 4. At 31 December 2002, 77% of our borrowing was at fixed rates after taking account of interest rate swaps.
The weighted average interest rate of the fixed rate debt was 6%.



On 31 December 2002, we had aggregated debt financing £1,654 million denominated principally in US dollars, Australian dollars, Sterling, Thai Bahts and Czech Koruna. Of this amount, £1,078 million and £39 million
is due for repayment within one year and two years, respectively, with the majority of the remaining balance due after 2007.



The substantial increase in debt due within one year arises as a result of events in both the United Kingdom and the United States. In the United Kingdom,
TXUEET was placed in administration and our tolling contract has been terminated. The termination of the tolling contract is an event of default under the £160 million non-recourse term loan that we used to finance our acquisition of Rugeley.
Consequently, that debt is reported as current non-recourse debt. We are currently negotiating with our lenders and believe we will be able to resolve this issue. The maturity of the debt will be redesignated when these discussions reach a
successful conclusion.



In the United States, following a number
of refuted technical events of default, we are in discussions with our bank group. These alleged events of default principally relate to the availability of insurance cover for terrorism (which we have now obtained but was not generally available
post-11 September 2001), our alleged failure to elect early completion of performance recovery periods and our alleged failure to achieve an agreed commercial operation date. We believe we have constructive and acceptable plans in place to resolve
all issues to our and the banks mutual benefit. Until we formally resolve and document these issues, we will report the debt as current non-recourse debt in our accounts. We will redesignate the maturity of the debt in our accounts when these
discussions reach successful conclusion.



In November 2003,
investors in our convertible bond have the right to put the bond back to us. As the conversion exercise price is substantially above the present share price, it is likely that the bondholders will exercise this right. We are currently
examining all our options to meet this obligation. We have more than sufficient liquid funds to meet this put, but we may issue a new instrument, amend the existing convertible bond or issue new fixed-rate debt, depending on market
conditions at the time.



In December 2003, the $60 million Euro
dollar bond matures. We intend to meet this obligation through the use of cash resources, drawing down on bank lines or issuing new fixed rate debt, depending on market conditions at the time.



Commitments and contingent liabilities



The following table summarises our principal contractual financial
obligations at 31 December 2002, certain of which are described in the consolidated financial statements and notes. You may review further analysis of these individual obligations by referring to notes 20, 21 and 31 to the financial statements. We
expect to be able to fund such obligations from ongoing operations and our existing or replacement resources and facilities.



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|                                                      |  | Payments due by period
|----------------------------------------------------- |  | ----------------------
|Contractual obligations                               |  | Total                 
|                                                      |  | (£ in millions)       
|Short-term debt                                       |  | 1,078                 
|Long-term debt                                        |  | 576                   
|Property leases                                       |  | 61                    
|Capital commitments                                   |  | 54                    
|Commitments for the supply and transportation of fuel |  | 584                   
|                                                      |  |                       
|Total contractual obligations                         |  | 2,353                 
|                                                      |  |                       



Our contingent
liabilities at 31 December 2002 are described in note 32 to the consolidated financial statements. We monitor all contingent liabilities, including matters relating to the environment, via a process of consultation and evaluation which includes
senior management, internal and external legal advisers and internal and external technical advisers. This process results in conclusions with respect to potential exposure and we make or adjust provisions accordingly by reference to accounting
principles. Management believes that we have adequately provided for contingencies which are likely to become payable in the future. None of these contingencies is material to our financial condition, results of operations or liquidity.



Off-Balance Sheet Arrangements



Our associates are off-balance sheet arrangements. Our share of joint
ventures and associates debt was £503 million as at 31 December 2002 as compared with £487 million as at 31 December 2001.



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Item 6. Directors, Senior Management and Employees



Board of Directors and Executive Officers



We operate under the overall direction of our Board of Directors, which is responsible for policy and strategic matters. The Board of Directors, or the Board, consists of a Chairman, two Executive Directors and four Non-Executive
Directors. Our Articles of Association provide that at each Annual General Meeting (AGM) of shareholders one third of the Directors will retire (on a rotating basis) and are eligible for re-appointment at such meeting. The following table sets forth
the age and function of each of our Directors and executive officers.



|Directors and Executive Officers |  | Age |  | Position held                             
|-------------------------------- |  | --- |  | ------------------------------------------
|Sir Neville Simms                |  | 58  |  | Chairman                                  
|Peter Giller                     |  | 61  |  | Deputy Chairman and Non-Executive Director
|David Crane                      |  | 44  |  | Chief Executive Officer and Director      
|Philip Cox                       |  | 51  |  | Chief Financial Officer and Director      
|Anthony (Tony) Isaac             |  | 61  |  | Non-Executive Director                    
|John (Jack) Taylor               |  | 64  |  | Non-Executive Director                    
|Adri Baan                        |  | 60  |  | Non-Executive Director                    
|Stephen Ramsay                   |  | 41  |  | Company Secretary                         



Sir Neville
Simms became a Non-Executive Director of National Power in August 1998 and was appointed Chairman of International Power in October 2000. He is currently Chairman of Carillion plc, and a member of the Presidents Committee of the CBI.
He was, until 31 May 2002, a member of the Court of the Bank of England.



Peter Giller joined International Power in April 2000 and served as Chief Executive Officer from October 2000 until his appointment as Deputy Chairman on 1 January 2003. He is also Non-Executive Chairman of A&A EIC
Electricity Investment Company, Zurich.



David
Crane joined the Company on 11 March 2000 from Lehman Brothers and became Chief Operating Officer in October 2000. David was appointed Chief Executive Officer of International Power in January 2003. He has responsibility for the overall
management of the business and the implementation of its strategy.



Philip Cox joined the Company on 1 May 2000 from Invensys plc and became an Executive Director in October 2000. His responsibilities include finance, tax and treasury. He is a Non-Executive Director of Wincanton plc.



Anthony (Tony) Isaac became a Non-Executive
Director of the Company in October 2000 and is the Senior Independent Director. He is the Chief Executive of The BOC Group plc and is a Non-Executive Director of Exel and Schlumberger Limited.



John (Jack) Taylor became a Non-Executive Director of the
Company in October 2000. Serving today as a Managing Director of Caisse De Depot Et Placement Du Quebec, Jack has 36 years experience in private equity, project finance and international banking with The Chase and most recently with the Asian
Development Bank as DirectorInfrastructure, Energy and Financial Sectors Department West and Private Sector Group.



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Adri Baanbecame
one of our Non-Executive Directors in June 2002. He was previously CEO of Philips Consumer Electronics, Member of the Board of Management. He is currently on the Boards of ASMI, KVWS, ICI PLC, KASBank NT Trust Office, Wolters Kluwver, Port Authority
of Singapore and Hesse Noord Natie Port of Antwerp.



The Chairman
and all independent Non-Executive Directors (Tony Isaac, Jack Taylor and Adri Baan) are members of the Audit Committee, Remuneration Committee and the Appointments Committee. All Executive Directors are members of the Risk Committee.



Stephen Ramsay became our Company Secretary and Corporate
Counsel in October 2000. He joined the company in 1996 as the Company Secretary and General Counsel of National Wind Power. In 1998 he joined our international legal group where he worked on international projects. As Company Secretary, he is
responsible for our secretariat department and corporate legal issues.



The business address of each of our Directors and executive officers is Senator House, 85 Queen Victoria Street, London EC4V 4DP, United Kingdom.



Management of the Group



Management of our regional businesses is vested in our regional directors, who report directly to executive management, as necessary, with respect to
business development, prospective investments and overall strategic direction. The regional directors work closely with our international portfolio and risk management teams to ensure that our generation assets are optimised and synchronised in
terms of financial controls, operational performance and associated trading and marketing. Our regional directors are supported by legal, technical, financial, asset management and trading personnel. In addition, we provide overall strategic
direction and, as necessary, specialised technical support and funding.



The following table sets forth key members of our senior management.



|Senior Management |  | Age |  | Position held                               
|----------------- |  | --- |  | --------------------------------------------
|Ian Nutt          |  | 50  |  | Chief Executive Officer of ANP              
|Richard Lappin    |  | 49  |  | Regional Director, Europe and Middle East   
|Paul Turney       |  | 51  |  | Regional Director, Europe and Middle East   
|Ranald Spiers     |  | 47  |  | Regional Director, Europe and Middle East   
|Steve Riley       |  | 41  |  | Regional Director, Australia region         
|Peter Barlow      |  | 49  |  | Director of Finance                         
|Tony Concannon    |  | 38  |  | Country Manager, UK                         
|Vince Harris      |  | 51  |  | Chief Executive Officer of Hub Power Company
|Gareth Griffiths  |  | 32  |  | Global Trading Manager                      
|Mark Williamson   |  | 45  |  | Group Financial Controller                  
|Ken Teasdale      |  | 50  |  | Director of Operations and Engineering      
|Penny Chalmers    |  | 36  |  | Global Resource Manager                     
|Sean Neely        |  | 37  |  | Director, Mergers & Acquisitions Group      
|Grant Jones       |  | 37  |  | Director of Communications                  
|Ken Oakley        |  | 40  |  | Group Tax Manager                           



Ian Nutt
is the Chief Executive Officer of ANP. In his last role he was our Head of Global Operations and, in addition, played a critical role in asset management serving on the boards of Hubco, Kapco, Malakoff and Uni-Mar. He has 27 years experience in
development, operation and maintenance of power plants.



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Richard Lappin
is a regional director of our Europe and Middle East region with responsibility for Central and Northern Europe. He has been with us since privatisation and is currently Deputy Chairman of Praská Teplárenská and has been
our Country Manager in the Czech Republic for the last three years.



Paul Turney is a regional director of Europe and Middle East region with responsibility for the Western Mediterranean region. He has over 20 years of experience in project development and, prior to his appointment to
the Western Mediterranean, was our director for South East Asia.



Ranald Spiers is a regional director of our Europe and Middle East region with responsibility for the Eastern Mediterranean region. He has been with us for seven years, having previously worked for BP for twelve years
across a wide spectrum of industries, including petrochemicals, detergents, oil refining, downstream gas, advanced materials and aerospace. He was previously our regional director for the Middle East and Africa.



Steve Riley is currently the regional director of our Australia
region, having joined National Power in 1990. He has held senior positions at two UK power stations and prior to taking up his most recent position was Head of Corporate Strategy and Planning in our UK headquarters.



Peter Barlow is the director of Finance for International Power
and is responsible for funding and bank relationships. Mr Barlow joined us in 1998 and has been especially involved in the Project Finance and Treasury areas since that time.



Tony Concannon is currently the UK Country Manager. He has 20 years experience in the industry and was
previously an international project developer and a senior trader in National Powers energy management team.



Vince Harris is currently CEO of the Hub Power Company in Pakistan and responsible for managing the disposal of our Chinese assets. He is a
chartered engineer and has 33 years experience in the power generation industry.



Gareth Griffiths is the Global Trading Manager with responsibility for our trading operations in the UK, USA and Australia. He has 11 years experience in the industry and was previously Vice President, Marketing
and Trading at ANP.



Mark Williamson is the Group
Financial Controller and is also responsible for our financial reporting. He is a chartered accountant who trained at KPMG and has wide international accounting and business experience.



Ken Teasdale is our director of Operations and Engineering. He is a chartered electrical engineer and a
chartered mechanical engineer. He has over 30 years experience in the industry and was previously CEO of Hazelwood Power Company, a 1600 MW power station at Victoria, Australia.



Penny Chalmers is our Global Resource Manager. She is responsible for group human resources including staffing
and support of development opportunities and the implementation of the investment decision process up to board level.



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Sean Neely is
the director of the Mergers and Acquisitions Group responsible for any acquisition that we pursue. He has 10 years experience in the industry. As well as acquisitions he has previous experience in strategic planning and project finance.



Grant Jones is the director of Communications with
particular responsibility for investor and media relations and internal communications.



Ken Oakley is the Corporate Tax Manager responsible for our tax affairs. He joined us in October 2002, and is a chartered accountant and chartered tax advisor.



Corporate Governance



The Board



The Board met on seven occasions during the year. A balance between Executive
and Non-Executive Directors underpinned the effectiveness of our Board. In addition to the Non-Executive Chairman, the Board consists of two Executive Directors and four Non-Executive Directors.



With the exception of Peter Giller, all of the Non-Executive Directors are
considered to be independent.



In accordance with the Combined
Code and our Articles of Association, all Directors submit themselves for re-election at least every three years and newly appointed Directors are subject to election by shareholders at the first opportunity after their appointment. Newly appointed
Directors receive comprehensive briefing, and training where appropriate, on us and their roles, to ensure that they are fully conversant with their responsibilities.



The Board has responsibility for defining strategy, ensuring the successful implementation of approved plans and for our
financial policies for which it maintains a schedule of all matters requiring specific Board approval. Throughout 2002 this included all strategy decisions and significant capital investment proposals.



The Board receives information on capital expenditure projects and investment
proposals in advance of Board meetings, as well as management reports on the operational and financial performance of the business. Financial performance is monitored on a monthly basis and our overall performance is reviewed against approved
budgets.



All of the Directors have access to the advice and
services of our Company Secretary and have access to independent advice should they so wish.



We have established the following committees: the Audit Committee, the Remuneration Committee, the Appointments Committee and the Risk Committee.



Audit Committee



The Audit Committee reviews and decides on the appointment (subject to
ratification by shareholders) and remuneration of external auditors, reviews the scope of the external audit to satisfy itself as to its adequacy, monitors our relationship with the external auditors (and its related entities) to ensure that the
external auditors retain their independence and objectivity, including the pre-approval of



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non-audit services, reviews the performance of the external auditors and resolves any disputes between the external auditors and executive
management. The Chairman of the Audit Committee is Tony Isaac. He is a fellow of the Chartered Institute of Management Accountants and, before becoming Chief Executive of The BOC Group plc, was its group finance director.



The Audit Committee reviews the financial reports and provides recommendations
on them to the Board, prior to their approval by the Board, taking into account the views of the external auditors. As part of this process, or at any appropriate time during the year, the Audit Committee considers our accounting policies and
recommends changes that it considers appropriate, including major judgemental areas, significant audit issues and adjustments and any departures from accounting standards and best practice.



The Audit Committee also reviews the Directors statement relating to
their responsibility for preparing the annual accounts, the Directors report on the effectiveness of our system of internal control and their report that our business is a going concern.



The Audit Committee also reviews the external auditors evaluation of the
fairness of the presentation in the annual accounts of the financial position and operating results, including the quality and adequacy of the record keeping, and accounting and financial policies and procedures, as well as any other matter arising
from the audit or review brought to its attention by the external auditors.



The Audit Committee monitors our compliance with statutory, regulatory and international stock exchange requirements for financial reporting, and ensures executive management have the appropriate controls over financial reporting,
including the review of any management letter received from the external auditors.



The ultimate responsibility for approval of financial reports, and for overseeing that management discharge their responsibilities relating to the control over our the financial and operational activities, rests with the
entire Board.



The Audit Committee reviews the scope of the
internal audit function (including its annual plan) to satisfy itself of the Internal Audits adequacy, particularly in terms of resources, reporting lines, programme and implementation of recommendations.



The Audit Committee may institute such special projects as it considers
appropriate, and considers from time to time whether any special remit should be referred to our external auditors or to any other external body. The Audit Committee ratifies the appointment of the Head of Internal Audit. The Audit Committee reviews
all of the Risk Committees responses to the Board to ensure that the audit process addresses, and the audit annual plan considers, all relevant risks. The Audit Committee seeks to ensure that we have proper structures in place to review
legislative and regulatory compliance activities, including the development of appropriate procedures. The Audit Committee seeks to ensure whistle blowing procedures are in place for the receipt and treatment of complaints (including
anonymous submissions from employees) regarding questionable accounting and audit matters.



The Audit Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee, and all employees are
directed to co-operate with any Audit Committee request.



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Remuneration Committee



The Remuneration Committee ensures that we maintain
Executive Directors salaries at a level which allows us to compete effectively for high calibre executives, adjusts their pay at appropriate intervals (normally annually) both in relation to performance and to an assessment of market movement
based on data from outside sources and reviews the basis, targets and rewards of both short- and long-term executive incentive schemes (e.g. cash bonuses, stock option plans etc.). The Remuneration Committee provides that we maintain the balance of
pay and benefits on a sensible, comparative and defensible basis, and honour contractual obligations to individual Executive Directors. The Chairman of the Remuneration Committee is Adri Baan.



The Remuneration Committee ensures that the Chief Executive discharges his or
her delegated authority in establishing the basis for terms and conditions of employment (remuneration and other conditions, e.g. notice periods, severance, short- and long-term incentive entitlements) in respect of senior executive appointments
below Board level, in order to consider the cost implications for us and to provide the Chief Executive with appropriate guidance.



The Remuneration Committee ensures that the Committee Chairman and the appointed deputy attends the AGM and is prepared to respond to any shareholder
questions on the Remuneration Committees activities.



Appointments Committee



The Appointments
Committee is comprised of all the independent Non-Executive Directors (including the Chairman), one of whom shall be appointed Chairman of the Appointments Committee. Sir Neville Simms is currently the Chairman of the Appointments Committee. Other
individuals may attend as and when requested by the Appointments Committee. The Board appoints the Appointments Committee Chairman. The Group HR Director is the Secretary of the Appointments Committee.



The Appointments Committee meets formally at least once in each year and
otherwise as and when required. The quorum for meetings of the Appointments Committee is two members. Any member of the Appointments Committee or the Secretary may call a meeting of the Appointments Committee. The chair of the Appointments Committee
reports to the Board after each Appointments Committee meeting.



The Appointments Committee regularly reviews the Board structure, size and composition and makes recommendations to the Board with regard to any changes that it deems desirable.



Without prejudice to the Articles of Association, the Appointments Committee
is responsible for identifying and nominating candidates for the approval of the Board to fill vacancies as and when they arise, and for implementing plans for succession in relation to key posts at and immediately below Board level and ensuring
that such plans are regularly reviewed.



The Appointments
Committee makes recommendations to the Board for the continuation in service or termination of an Executive or Non-Executive Director, recommends Directors who are retiring by rotation to be put forward for re-election, ensures that the Appointments
Committee Chairman or the appointed deputy (who is a member of the Committee) attends the AGM and is prepared to respond to any shareholder questions on the Appointments Committees activities.



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In order to fulfil their
duties, the Audit, Remuneration and Appointments Committees have authority to obtain any external legal or other professional advice, or information, including the advice of independent recruitment and/or HR consultants, at our expense, and to
secure the attendance at meetings of outsiders with relevant experience and expertise if they consider it necessary.



The Risk Committee (comprising the Chief Executive Officer, the Chief Financial Officer and senior managers) has responsibility, on behalf of the Board,
for monitoring the effectiveness of our risk management arrangements. The Committee is also responsible for monitoring our health, safety and environmental performance. The Chairman of the Risk Committee is the Chief Financial Officer.



Relations with shareholders



The Board is accountable to shareholders for our performance and activities.



We ensure that our AGM provides shareholders with an opportunity
to receive comprehensive information on all aspects of our business activities, and to question senior management about business issues and prospects.



All proxy votes are counted and the level of proxy votes lodged for each resolution is reported at the AGM. In line with best practice, we aim to ensure
that the notice of the AGM and the annual report are sent to shareholders at least 20 working days before the AGM.



We also run, within the terms of the regulatory framework, frequent contact programmes with institutional investors and groups of individual shareholders,
to discuss matters of strategy and financial performance. All results presentations and all stock exchange announcements are available to shareholders on our website, www.ipplc.com, in the investor relations section. The information on our website
is not a part of this report.



Accountability and audit



The Board is mindful of its responsibility to present a
balanced and understandable assessment of our financial position and prospects, in all reports, both to investors and regulatory authorities. The annual report and interim results are the principal means of achieving this objective.



An explanation of the respective responsibilities of the Directors and
auditors in connection with the financial statements is set out on page F-2 of our consolidated financial statements.



Internal control



We have systems in place to meet the requirements of the UK Combined Code and the Turnbull Guidance for the review of internal controls, including
financial, operational and compliance controls and risk management.



The Board has responsibility for our systems of internal control and for monitoring their effectiveness. Any system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives.
The systems can only provide reasonable, and not absolute, assurance against material financial misstatement or loss. The principal features of our systems of internal control are:



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Control Environment



The Board encourages a culture of integrity and openness.
We have an organisational structure with clear lines of accountability and authority across our worldwide operations, supported by appropriate reporting procedures. Each of the regional businesses is accountable to the Chief Executive Officer, and
is managed within the strategic guidelines and delegated authorities adopted by the Board.



Control Procedures



We have established control procedures in each of our operations to safeguard our assets from loss or misuse and to ensure appropriate authorisation and recording of financial transactions. We have risk management procedures in place
for our operations, including our energy marketing and trading activities, which are overseen by the Global Risk Manager. The group treasury function operates under defined policies and the Treasury Committee, chaired by the Chief Financial Officer,
monitors its activities. All acquisition and development decisions are subject to disciplined investment appraisal processes.



Performance Reporting and Information



Corporate plan. Executive management submits an annual corporate plan to the Board for approval. The plan for each business unit is the quantified
assessment of its planned operating and financial performance for the next financial year, together with a strategic review of the following four years. Group management reviews the plans with each operational team. The individual plans are based on
key economic and financial assumptions and incorporate an assessment of the risks and sensitivities underlying the projections.



Performance monitoring.Monthly performance and financial reports are produced for each business unit, with comparisons to budget. Reports are
consolidated for overall review by executive management, together with forecasts for the profit and loss account and cash flow. Detailed reports are presented to the Board on a regular basis.



Performance review.Each business unit is subject to a performance
review with group management regularly during the year. Actual results are compared to budget and to financial forecasts. Key operational and financial metrics are reviewed together with the risk profile and business environment of the reporting
unit.



Investment projects.These are subject to formal
review and authorisation procedures with designated levels of authority. Major projects are subject to Board review and approval.



Risk Identification and Management



There is a continuous process for identifying, evaluating and managing the key risks we face. Activities are co-ordinated by the Risk Committee, which has
responsibility for ensuring the adequacy of systems for identifying and assessing significant risks, that appropriate control systems and other mitigating actions are in place, and that residual exposures are consistent with our strategy and
objectives. We conduct assessments for all material entities.



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As part of the annual business
planning process, we identify the key risks associated with achievement of principal objectives and quantify their impact. During the year, significant changes in the risk profile are highlighted through the business performance reports. The
principal risks are reviewed by the Risk Committee, which provides regular reports to the Board.



For each of the businesses that operate in traded energy markets, risk committees have been established to oversee the management of the market, operational and credit risks associated with our energy
marketing and trading activities. These committees comprise Executive Directors, the Global Risk Manager and senior managers.



Monitoring



The Board reviews the effectiveness of established internal controls through the Audit Committee, which receives reports from management, the Risk
Committee, our internal audit function and the external auditors on the systems of internal control and risk management arrangements.



Internal Audit reviews the effectiveness of internal controls and risk management through a work programme based on our objectives and risk profile.
Findings are reported to operational and executive management, with periodic reporting to the Audit Committee.



Annual self-certification statements of compliance with procedures are provided by business unit managers. These statements give assurance that controls are in operation and confirm that programmes are
in place to address any weaknesses in internal control. The certification process embraces all areas of material risk. The internal audit function reviews the statements and reports any significant issues to the Audit Committee.



Compliance with the UK Combined Code on Corporate Governance



On 1 October 2000 Peter Giller became Chief Executive
Officer on a fixed three-year service contract. This contract was terminated on 31 December 2002. During the period of Peter Gillers service as Chief Executive Officer, the Board considered that the service contract was appropriate given the
stage of the Companys development and Peter Gillers experience and knowledge of the market in which the Group operates. His remuneration was paid entirely in shares as described in the remuneration report.



On 1 January 2003, Peter Giller became Deputy Chairman and a Non-Executive
Director. We can terminate this contract on or after 31 December 2003. On termination Peter Giller is entitled to enter into a two-year consultancy contract with us. The Board considers that this arrangement is appropriate as it ensures Peter
Gillers experience and knowledge are still available to us.



In all other respects, we have complied with the provisions of the Combined Code throughout the period of the review.



Future developments



We have reviewed the reports from Derek Higgs on the role and effectiveness of Non-Executive Directors and from the Financial Reporting Council led by Sir
Robert Smith on audit committees, both of which were published recently and after our year end. We believe that our present governance arrangements meet many of the recommendations of the reports and most of the exceptions simply



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require the inclusion of further information within our annual report or would require small changes to achieve compliance.



The compositions and roles of our Board committees meet the requirements of
the Higgs and Smith reports in most respects, although the Chairman currently leads the Appointments Committee and all Non-Executive Directors are members of each of the committees. The Higgs Report recommends that the Appointments Committee should
be chaired by an independent Non-Executive Director and that no one Non-Executive Director should sit on all three principal Board committees. The Higgs Report, however, recognises that practical considerations mean that compliance with certain
recommendations may take time to achieve.



The recommendations of
the Higgs Report are expected to be incorporated in the Combined Code and we will make the necessary disclosures in our next annual report.



Directors and Executive Officers Interests



As of 7 April 2003 (the latest practicable date prior to the publication of this annual report) the Directors and their immediate families had the
beneficial interests in our ordinary shares shown in the table below (including options and awards over), such interests being those: (1) which are required to be notified by each Director to us pursuant to section 324 or 328 of the Companies Act;
or (2) which are required pursuant to section 325 of the Companies Act to be shown by the Register of Directors interests maintained under section 325 of the Companies Act or which are interests of a connected person of a Director which would,
if the connected person were a Director, be required to be disclosed above, and the existence of which is known to or could, with reasonable diligence, be ascertained by that Director.



|Director          |  | International Power Ordinary Shares Number
|----------------- |  | ------------------------------------------
|Sir Neville Simms |  | 100,000                                   
|Peter Giller      |  | 524,568                                   
|David Crane       |  | 44,000                                    
|Philip Cox        |  | 25,000                                    
|Tony Isaac        |  | 5,000                                     
|Jack Taylor       |  | 5,000                                     
|Adri Baan         |  | 15,000                                    



None of the Directors
has any non-beneficial interest in any of our ordinary shares.



Save as set out in the table above, under the section entitled Current Board of Directors and Options to Purchase our Securities, no Director nor any person connected with a Director as aforesaid has at the
date of this document or is expected to have any interest in our share capital.



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Compensation of Directors
and Officers



The table below shows the aggregate
remuneration of our Directors for the year ended to 31 December 2002 and compares it with the figures for the year ended 31 December 2001.



|                  |  | Salary  |  | Fees   |  | Termination payment |  | Performance related bonus |  | Payment in lieu of pension |  | Other benefits |  | Aggregate remuneration year to 31 December 2002 |  | Aggregate remuneration year to 31 December 2001
|----------------- |  | ------- |  | ------ |  | ------------------- |  | ------------------------- |  | -------------------------- |  | -------------- |  | ----------------------------------------------- |  | -----------------------------------------------
|                  |  | £       |  | £      |  | £                   |  | £                         |  | £                          |  | £              |  | £                                               |  | £                                              
|Sir Neville Simms |  | 175,000 |  |       |  |                    |  |                          |  |                           |  |               |  | 175,000                                         |  | 175,000                                        
|P G Cox(2)        |  | 291,500 |  |       |  |                    |  | 116,600                   |  | 87,450                     |  | 14,082         |  | 509,632                                         |  | 460,655                                        
|D W Crane(2)      |  | 291,500 |  |       |  |                    |  | 116,600                   |  | 87,450                     |  | 17,761         |  | 513,311                                         |  | 467,029                                        
|P Giller(3)(4)    |  | 194,094 |  |       |  | 403,799             |  |                          |  |                           |  | 77,950         |  | 675,843                                         |  | 530,998                                        
|J Moore           |  |        |  |       |  |                    |  |                          |  |                           |  |               |  |                                                |  | 18,433                                         
|J D Taylor(1)     |  |        |  | 30,000 |  |                    |  |                          |  |                           |  |               |  | 30,000                                          |  | 25,000                                         
|A R Isaac(1)      |  |        |  | 35,000 |  |                    |  |                          |  |                           |  |               |  | 35,000                                          |  | 30,000                                         
|J M Amusategui    |  |        |  |       |  |                    |  |                          |  |                           |  |               |  |                                                |  | 14,583                                         
|A Baan(1)         |  |        |  | 17,500 |  |                    |  |                          |  |                           |  |               |  | 17,500                                          |  |                                               
|D Hendrix(1)      |  |        |  | 12,500 |  |                    |  |                          |  |                           |  |               |  | 12,500                                          |  | 25,000                                         
|                  |  |         |  |        |  |                     |  |                           |  |                            |  |                |  |                                                 |  |                                                
|Total             |  | 952,094 |  | 95,000 |  | 403,799             |  | 233,200                   |  | 174,900                    |  | 109,793        |  | 1,968,786                                       |  | 1,746,698                                      
|                  |  |         |  |        |  |                     |  |                           |  |                            |  |                |  |                                                 |  |                                                

---

Notes

|(1) |  | The International Power plc Non-Executive Directors fees are split between an annual fee of £15,000 for board membership, for attendance at board
meetings and for general duties as Directors. They each receive a further £15,000 per annum for their membership of board committees. In addition, Tony Isaac receives an additional fee of £5,000 per annum for his role as Senior
Independent Director. Adri Baan joined the Company on 1 June 2002. Dennis Hendrix ceased to be a Director on 23 May 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | David Crane and Philip Cox both received a cash supplement of 30% of base salary in lieu of pension scheme arrangements. They also received a company car allowance
and private medical insurance, both of which are included in other benefits.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | On 2 October 2000, Peter Giller received a one-off conditional award of 677,564 Ordinary Shares in the Company in respect of his three year term of employment
(subject to the rules of the Restricted Share Plan). One third of the Ordinary Shares conditionally awarded to him (225,854) were issued to him on 2 October 2001 and a further third (225,855) was released on 2 October 2002. The final third (225,855)
were issued to him upon termination of his service agreement on 31 December 2002. The salary stated in the table above reflects: 9/12 of the value of his 2002 release, based on the share price at 2 October 2002 of 82.875p per share at the time of
the vesting of the shares; and 3/12 of the remaining third released to him on 31 December 2002 based on a share price of 95.125p per share. In addition, during 2002 he was provided with a weekly cash supplement of £1,100 in respect of housing
costs (which is included in other benefits).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | As part of Peter Gillers termination of his service agreement he received, on 31 December 2002, the balance of his 2003 Restricted Share Plan release and the
full release of his 2002 Performance Share Plan award of 255,102 shares. Both these releases were based on a share price of 95.125p, and are reflected in the termination payment shown in the table above. He also received, as part of termination
arrangements, a relocation allowance of £25,000 (which is included in other benefits).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Summary of emoluments and benefits



|                         |  | Year ended 31 December |  | Year ended 31 December |  | 9 months ended 31 December
|------------------------ |  | ---------------------- |  | ---------------------- |  | --------------------------
|                         |  | 2002                   |  | 2001                   |  | 2000                      
|                         |  | £000                   |  | £000                   |  | £000                      
|Aggregate emoluments     |  | 1,565                  |  | 1,747                  |  | 2,041                     
|Termination payments     |  | 404                    |  |                       |  | 1,805                     
|Performance Share Plan   |  |                       |  |                       |  |                          
|Long-Term Incentive Plan |  |                       |  |                       |  |                          



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Highest paid Director



The aggregate emoluments of the highest paid Director,
Peter Giller, were £675,843 (year ended 31 December 2001: P Giller £530,998; nine months to 31 December 2000: G A Brown £1,368,521).



Current Board of Directors



The intention of the Board is to align the interests of Directors and, through the employee share plans, employees with those of shareholders. In
particular, the Demerger Long Term Incentive Plan in which the Executive Directors participate was designed to unite and incentivise a new team to achieve defined performance conditions over the first three years of our life following the demerger,
the period covered by the operation of the plan. To ensure this alignment continues past the period covered by the plan, executive directors also participate in the 2002 Performance Share Plan (approved by shareholders at the 2002 AGM) and Executive
Share Option Scheme.



As part of our management succession plan,
Peter Gillers service agreement was terminated early on 31 December 2002. Peter Giller, effective from 1 January 2003, moved to the position of Deputy Chairman and Non-Executive Director for an initial period of one year. The other
Non-Executive Directors are appointed on a three year fixed-term, annual fixed-fee basis.



David Cranes and Philip Coxs employment can be terminated by us giving not less than 12 months notice, or automatically on reaching their 60th birthday. We may terminate David Cranes and Philip
Coxs employment immediately without notice, provided we make a lump sum payment equivalent to 125% of prevailing annual salary for the notice period forgone. If we terminate David Cranes or Philip Coxs employment otherwise than for
cause (termination which is not in accordance with the terms of their service agreement) we shall, at the Executive Directors request, pay to him, by way of liquidated damages, a lump sum payment as described above. David Crane and
Philip Cox may terminate employment by giving not less than six months notice. For the period 1 January 2003 to 31 December 2004, if David Cranes and Philip Coxs employment is terminated for Change of Control, the notice and lump
sum arrangements described above are increased to 24 months and 250% respectively. For termination after 31 December 2004, the normal arrangements apply (i.e. 12 months/125%).



David Cranes and Philip Coxs salaries will be reviewed annually by the Board.



In 2002, David Crane and Philip Cox were entitled to participate in annual
bonus arrangements providing 25% of prevailing annual salary for the achievement of pre-set financial and non-financial objectives, rising to a maximum of 50% of basic salary for exceptional performance exceeding the objectives determined by the
Remuneration Committee. In 2003, David Crane and Philip Cox are entitled to participate in annual bonus arrangements providing 25% of prevailing annual salary for the achievement of pre-set financial and non-financial objectives, rising to a maximum
of 60% of basic salary for exceptional performance exceeding the objectives determined by the Remuneration Committee.



Each of the Executive Directors is also entitled to participate in the Long Term Incentive Plans (2002 Performance Share Plan and Executive Share Option
Scheme) and the Save As You Earn Plan, as described below, subject to meeting the eligibility criteria.



Peter Giller is not provided with a motor car or membership of our health care plan and medical screening plan. David Crane and Philip Cox are provided
with a motor car allowance under our existing



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motor car arrangements and membership of our health care plan and medical screening plan. For the period up to 31 December 2002 Peter Giller
received a weekly cash supplement of £1,100 in respect of housing costs incurred.



We have a travel insurance policy which includes personal accident insurance. These arrangements apply to Peter Giller, David Crane and Philip Cox.



Sir Neville Simms was appointed our Chairman on 2 October 2000. Under the terms of his appointment he is paid £175,000
per annum (plus reasonable expenses). He is required to devote approximately 75 days per annum to the performance of his duties. His appointment continues to our AGM held following his 65th birthday, unless terminated by us for good cause or by
either party on giving the other not less than one years notice in writing. The Non-Executive Directors do not have agreements providing for compensation in the event of early termination of their appointment.



The date of expiry of the current terms of appointment for each of the
Non-Executive Directors and their current fees are as follows:



|                        |  | Expected expiry of current terms |  | Total fees and other benefits
|----------------------- |  | -------------------------------- |  | -----------------------------
|                        |  |                                  |  | (£)                          
|Non-Executive Directors |  |                                  |  |                              
|Sir Neville Simms(1)    |  |                                 |  | 175,000                      
|Dennis Hendrix(2)       |  | 23 May 2002                      |  | 12,500                       
|Adri Baan(3)            |  | Until the 2003 AGM               |  | 17,500                       
|Tony Isaac              |  | Until the 2003 AGM               |  | 35,000                       
|Jack Taylor             |  | Until the 2003 AGM               |  | 30,000                       
|Peter Giller            |  | 31 December 2003                 |  | 100,000                      

---

|(1) |  | Sir Neville Simms contract can be terminated on 12 months written notice by
either party, or automatically at the 2010 AGM following his 65th birthday.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Dennis Hendrix served for the first half of 2002.
|--- |  | -------------------------------------------------

|(3) |  | Adri Baan served for the second half of 2002.
|--- |  | ---------------------------------------------



Employee Share Plans



We have a suite of share-based plans under which employees may acquire our
ordinary shares. These plans form an integral part of our strategy to: provide appropriate reward and retention strategies for employees; align employee and shareholders interest through incentive targets based on clear operational and financial
metrics; ensure our ability to recruit; motivate and retain staff; enable all our employees to participate in these programmes, where appropriate.



This suite of share-based plans includes a saving-related share option scheme open to staff in the United Kingdom. Over 85% of eligible staff currently
participate in the scheme, saving between £10 and £250 per month, with the option to purchase shares at a discount at the end of a chosen three or five-year saving period. We also operate, for UK staff, the International Power Approved
and Unapproved Executive Share Option Schemes (ESOS). We are looking to institute a Share Incentive Plan during, or shortly after the end of, the financial year ended December 2003.



We also have in place a Global Executive Share Option Plan (designed for executives who are resident outside of the United
Kingdom), The International Power Global Sharesave Plan (open to employees in certain countries outside of the United Kingdom). The Global Executive Share Option Plan and the Global Sharesave Plan are both in operation.



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At demerger in October 2000 we
established the Demerger Share Plan, which was open to all UK based employees (except Directors) employed at demerger. Awards were made to eligible employees at demerger, the shares required to meet those awards at vesting in October 2003 being held
in trust. No shares have been specifically purchased in respect of awards made under this plan, as we are utilising the balance of shares unallocated from two former employee share plans that ceased operation at demerger.



Additionally at demerger we established the Restricted Share Plan which was
utilised for the purposes of the remuneration arrangements of Peter Giller, our former Chief Executive. In connection with the Restricted Share Plan, a total of 677,564 ordinary shares of the Company were purchased and placed in a trust fund which,
at cost and net of administration expenses of the trust, totalled £1.7 million. One third of the shares vested to Peter Giller on the first anniversary of demerger; one third vested on the second anniversary of demerger and the final third
vested upon his ceasing to be Chief Executive Officer on 31 December 2002. In line with recommended practice the fund balance has been written down to nil over the period of service to which it relates. Consequently the book value of the fund as at
31 December 2002 was nil (31 December 2001: £1.0 million).



Additionally we operate a Performance Share Plan, which shareholders approved at the 2002 AGM and which is open to Executive Directors and certain other employees. During 2002 we purchased and placed in trust a total of 1,273,138
shares in respect of awards made under this Plan, at a total cost of £2.5 million. Of these shares, the Remuneration Committee released 255,102 shares to Peter Giller on 31 December 2002 following the cessation of his term in office.



Finally, a one-off long-term incentive plan (the Demerger LTIP)
was also established at demerger for Executive Directors and a small number of senior managers. To date, no awards have been made in respect of this Plan.



Options to Purchase Our Securities



Summary of Outstanding Options



The table below sets forth options to purchase our ordinary shares outstanding as of 7 April 2003 (the latest practicable date prior to the printing of
this document):



60



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|Plan                        |  | GrantDate         |  | Exercise Dates |  | Issuable Ordinary Shares |  | Exercise Price per Ordinary Share |  
|--------------------------- |  | ----------------- |  | -------------- |  | ------------------------ |  | --------------------------------- | -
|Approved Executive Plan     |  | 3 October 2000    |  | 2003-2010      |  | 396,873                  |  | 311.75                            | p
|                            |  | 22 March 2001     |  | 2004-2011      |  | 555,054                  |  | 235.00                            | p
|                            |  | 19 September 2001 |  | 2004-2011      |  | 49,731                   |  | 217.00                            | p
|                            |  | 24 May 2002       |  | 2005-2012      |  | 743,855                  |  | 196.00                            | p
|                            |  | 10 March 2003     |  | 2006-2013      |  | 1,432,151                |  | 70.00                             | p
|Unapproved Executive Plan   |  | 3 October 2000    |  | 2003-2010      |  | 2,306,652                |  | 311.75                            | p
|                            |  | 22 March 2001     |  | 2004-2011      |  | 1,394,423                |  | 235.00                            | p
|                            |  | 19 September 2001 |  | 2004-2011      |  | 116,047                  |  | 217.00                            | p
|                            |  | 24 May 2002       |  | 2005-2012      |  | 3,312,932                |  | 196.00                            | p
|                            |  | 10 March 2003     |  | 2006-2013      |  | 9,714,156                |  | 70.00                             | p
|Global Executive Share Plan |  | 10 March 2003     |  | 2006-2013      |  | 695,343                  |  | 70.00                             | p
|Executive Share Option Plan |  | 18 December 1992  |  | 1995-2002      |  | 13,838                   |  | 180.40                            | p
|                            |  | 15 December 1993  |  | 1996-2003      |  | 52,935                   |  | 297.94                            | p
|                            |  | 13 November 1994  |  | 1997-2004      |  | 101,858                  |  | 336.21                            | p
|                            |  | 13 December 1995  |  | 1998-2005      |  | 290,736                  |  | 306.14                            | p
|                            |  | 23 December 1996  |  | 1999-2006      |  | 472,639                  |  | 323.22                            | p
|                            |  | 2 December 1997   |  | 2000-2007      |  | 555,541                  |  | 386.09                            | p
|                            |  | 1 December 1998   |  | 2001-2008      |  | 766,660                  |  | 352.61                            | p
|                            |  | 2 June 1999       |  | 2002-2009      |  | 33,206                   |  | 331.42                            | p
|Global Sharesave Plan       |  | 17 January 2003   |  | 2006           |  | 867,110                  |  | 79.00                             | p
|Sharesave Plan              |  | 17 January 2003   |  | 2008           |  | 748,604                  |  | 79.00                             | p
|                            |  | 31 December 1996  |  | 2002           |  | 0                        |  | 246.01                            | p
|                            |  | 24 December 1997  |  | 2001           |  | 0                        |  | 307.51                            | p
|                            |  | 24 December 1997  |  | 2003           |  | 4,486                    |  | 307.51                            | p
|                            |  | 29 December 1998  |  | 2002           |  | 0                        |  | 282.23                            | p
|                            |  | 29 December 1998  |  | 2004           |  | 0                        |  | 282.23                            | p
|                            |  | 27 October 2000   |  | 2003           |  | 775                      |  | 250.00                            | p
|                            |  | 27 October 2000   |  | 2005           |  | 0                        |  | 250.00                            | p
|                            |  | 18 April 2001     |  | 2004           |  | 18,856                   |  | 188.00                            | p
|                            |  | 18 April 2001     |  | 2006           |  | 8,976                    |  | 188.00                            | p
|                            |  | 11 October 2001   |  | 2004           |  | 6,780                    |  | 200.00                            | p
|                            |  | 11 October 2001   |  | 2006           |  | 7,592                    |  | 200.00                            | p
|                            |  | 1 October 2002    |  | 2005           |  | 1,143,870                |  | 90.00                             | p
|                            |  | 1 October 2002    |  | 2007           |  | 2,492,950                |  | 90.00                             | p



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The table below sets forth the
awards we made to certain of our Directors as part of our 2002 Performance Share Plan as of 31 December 2002.



|          |  | No. of shares under award as at 1 January 2002 |  | Conditionalawards madeduring theyear |  | Date ofaward |  | Marketvalue of anOrdinaryShare as atdate
ofaward |  | End ofperformanceperiod |  | No. of shares under award as at 31 December 2002
|--------- |  | ---------------------------------------------- |  | ------------------------------------ |  | ------------ |  | ------------------------------------------------ |  | ----------------------- |  | ------------------------------------------------
|P Giller  |  |                                               |  | 255,102                              |  | 24 May  2002 |  | 196p                                             |  |                        |  |                                                
|D W Crane |  |                                               |  | 148,724                              |  | 24 May 2002  |  | 196p                                             |  | 31 December 2004        |  | 148,724                                         
|P G Cox   |  |                                               |  | 148,724                              |  | 24 May 2002  |  | 196p                                             |  | 31 December 2004        |  | 148,724                                         



In addition to the
awards listed above, we granted conditional awards of 238,693 shares to David Crane and 175,879 shares to Philip Cox. These awards will vest after 31 December 2005. The market value of an ordinary share at the date of the awards was 70p.



Summary of Directors Options under the Executive Share
Options Plans



The table below sets forth the awards we made
to certain of our Directors under both the Approved and Unapproved Executive Share Option Plans as of 31 December 2002.



|              |  | No. of sharesunder optionas at1 January2002 |  | Grantedduring theyear |     |  | Exerciseprice pershare |  | Exerciseperiod start |  | Exercise periodend |  | No. of sharesunder optionas at 31December 2002
|------------- |  | ------------------------------------------- |  | --------------------- | --- |  | ---------------------- |  | -------------------- |  | ------------------ |  | ----------------------------------------------
|P Giller      |  |                                            |  | 15,306                | (1) |  | 196p                   |  | 24 May 2005          |  | 24 January 2006    |  | 15,306                                        
|              |  |                                            |  | 239,796               | (2) |  | 196p                   |  | 24 May 2005          |  | 24 January 2006    |  | 239,796                                       
|              |  |                                             |  |                       |     |  |                        |  |                      |  |                    |  |                                               
|Total Options |  |                                            |  |                       |     |  |                        |  |                      |  |                    |  | 255,102                                       
|              |  |                                             |  |                       |     |  |                        |  |                      |  |                    |  |                                               
|D W Crane     |  |                                            |  | 15,306                | (1) |  | 196p                   |  | 24 May 2005          |  | 24 May 2012        |  | 15,306                                        
|              |  |                                             |  | 133,418               | (2) |  | 196p                   |  | 24 May 2005          |  | 24 May 2012        |  | 133,418                                       
|              |  |                                             |  |                       |     |  |                        |  |                      |  |                    |  |                                               
|Total Options |  |                                             |  |                       |     |  |                        |  |                      |  |                    |  | 148,724                                       
|              |  |                                             |  |                       |     |  |                        |  |                      |  |                    |  |                                               
|P G Cox       |  |                                            |  | 15,306                | (1) |  | 196p                   |  | 24 May 2005          |  | 24 May 2012        |  | 15,306                                        
|              |  |                                             |  | 133,418               | (2) |  | 196p                   |  | 24 May 2005          |  | 24 May 2012        |  | 133,418                                       
|              |  |                                             |  |                       |     |  |                        |  |                      |  |                    |  |                                               
|Total Options |  |                                             |  |                       |     |  |                        |  |                      |  |                    |  | 148,724                                       
|              |  |                                             |  |                       |     |  |                        |  |                      |  |                    |  |                                               

---

|(1) |  | Approved Executive Share Options
|--- |  | --------------------------------

|(2) |  | Unapproved Executive Share Options
|--- |  | ----------------------------------



In addition to the awards listed above, as of the date hereof we awarded an
additional 678,571 shares to David Crane and 500,000 shares to Philip Cox at an exercise price of 70p. These shares are exercisable between 10 March 2006 and 10 March 2013.



Summary of Directors Options under the Sharesave Plan:



As of 7 April 2003 (the latest practicable date prior to the printing of this
annual report), our Directors held options to purchase an aggregate of 36,500 ordinary shares.



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|                      |  | Grant Date     |  | Number of Options |  | Exercise Price (pence per share) |  | Period Exercisable              
|--------------------- |  | -------------- |  | ----------------- |  | -------------------------------- |  | --------------------------------
|David Crane           |  | 1 October 2002 |  | 18,250            |  | 90.0p                            |  | 24 December 2007 - 24 June 2008 
|Philip Cox            |  | 1 October 2002 |  | 18,250            |  | 90.0p                            |  | 24 December 2007 - 24  June 2008
|                      |  |                |  |                   |  |                                  |  |                                 
|Total at 7 April 2003 |  |                |  | 36,500            |  |                                  |  |                                 
|                      |  |                |  |                   |  |                                  |  |                                 



Gains made on
Directors Share Options



In the financial period ended
31 December 2002, no Directors exercised share options, therefore no gains were realised.



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Item 7. Major Shareholders and Related Party Transactions



Major Shareholders



As at 7
April 2003 (the latest practicable date prior to the publication of this document) the following persons had the following interests in 3% or more of our issued share capital:



|                                              |  | Number ofOrdinaryShares |  | Percentage ofIssued ShareCapital |  
|--------------------------------------------- |  | ----------------------- |  | -------------------------------- | -
|Name                                          |  |                         |  |                                  |  
|Merrill Lynch Investment Managers Ltd         |  | 144,043,333             |  | 12.88                            | %
|Franklin Resources, Inc.                      |  | 42,797,512              |  | 3.83                             | %
|AXA S.A.                                      |  | 39,905,357              |  | 3.57                             | %
|Legal & General Investment Management Limited |  | 34,230,622              |  | 3.06                             | %



Our major shareholders
have identical voting rights to the other shareholders.



Save as
disclosed above, so far as is known to the Directors, there is no person who directly or indirectly is or will be interested in 10% or more of our issued share capital. So far as is known to the Directors, there is no person who could, directly or
indirectly, jointly or severally, exercise control over us.



As
of 7 April 2003, the total amount of our voting securities owned by our Directors and executive officers as a group was 718,568 shares, or 0.064% of the issued share capital. For a table showing the amount of our ordinary shares owned by our
Directors and executive officers on an individual basis, see Item 6. Directors Senior Management and EmployeesDirectors and Executive Officers Interests.



Other than as set forth in Current Directors, none of our Directors or executive officers has or have any
non-beneficial interest in any of our ordinary shares.



Related Party Transactions



During the
last three financial years, neither we nor any of our subsidiaries has been, or is now, a party to any material transaction or proposed transaction in which any Director, any other executive officer, any spouse or other relative of any of the
foregoing, or any relative of such spouse, has or was to have a direct or indirect material interest.



Set forth below is a description of transactions during the past three financial years that we have entered into with Innogy or its subsidiaries, any of our shareholders or a shareholder of a
significant subsidiary:



| |  |  | an agreement, or the tax agreement, dated 21 August 2000 between Innogy, Innogy Holdings as guarantor and us, regarding tax indemnities and
administration following the transfer of our UK energy business to Innogy;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an agreement or the pensions agreement dated 21 August 2000 between Innogy Holdings, Innogy and us relating to the transitional period of participation
in relation to the members of the National Power Section of the ESPS;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | a Deed of Indemnity dated 21 August 2000 between Innogy, Innogy Holdings and us extending the scope of certain of the indemnities referred to above and dealing with
certain other demerger related matters;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a Deed of Indemnity dated 17 August 2000 between Innogy Holdings, NPEC and us extending the scope of certain of the indemnities in the agreement referred to above; a
Deed of Indemnity dated 17 August 2000 between Innogy Holdings, Innogy Technology Ventures Limited and us extending the scope of certain of the indemnities in the agreement referred to above;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an agreement dated 17 August 2000 between National Wind Power Limited, known as NWP, which was a subsidiary of Innogy, and American National Power Inc., under which
NWP agreed to purchase the shares in American National Wind Power Inc., which was owned by ANP, our subsidiary, subject to receiving the consent of the Treasury, for the sum of $1,000. Under the agreement, each of NWP and American National Power
Inc. gave certain indemnities to the other party in respect of US taxes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an agreement dated 17 August 2000 between Innogy and us relating to the supply by Innogy to us of the majority of its IT, telecommunications and related support
services was terminated, with effect from January 2002;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an agreement dated 17 August 2000 between Innogy and us relating to certain intellectual property rights and shared records. The agreement provides for licences
between the parties, and imposes certain restrictions on the use and exploitation by the parties of intellectual property owned by us prior to 16 March 2000 and certain intellectual property arising in the period between 16 March 2000 and 17 August
2000. It also provides for the parties to have access to, and rights to copy and use, certain archived records created before 16 March 2000. We further granted a licence to Innogy relating to the use of the NPOWER trade mark until 31 December 2001.
Innogy paid us £2 million and we paid Innogy £7 million for the respective rights granted under the agreement;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Deeside Power Development Company Limited, a wholly owned subsidiary of ours, entered into an agreement for the sale of firm and interruptible gas for the period 1
August 2000 to 1 April 2002 which provides for, inter alia, the provision of daily contract quantities to Deeside that should provide approximately 100% of Deesides gas requirement. Standard industry terms and conditions apply to this
agreement and prices were fixed at different levels for the period to 31 March 2001 and the year to 1 April 2002; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | International Power and Innogy entered into agreements for the assignment of certain proportions of our capacity in respect of the UK/Belgian interconnector and
agreed to pay Innogy an amount equal to certain dividends (if any) it receives.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 8. Financial Information



Consolidated Statements and Other Financial Information



See Item 18. Financial Statements for our audited consolidated financial statements filed as part of this annual report.



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Item 9. The Offer and Listing



Our
shares are listed on the London Stock Exchange. Our registered ADSs are listed on the New York Stock Exchange under the symbol IPR.



Each ADS represented four shares until 18 August 2000. Since 18 August 2000, our ADSs represent ten shares.



The following table sets out for the periods indicated, the highest and lowest
closing middle-market quotations as well as the average daily trading volume, for our ordinary shares, as derived from the London Stock Exchange Daily Official List, and for our ADSs, as reported on the Dow Jones Index and adjusted to reflect an ADS
to ordinary share ratio of one to ten.



|                                 |  | Ordinary Shares |  | ADSs  
|-------------------------------- |  | --------------- |  | ------
|Calendar Year                    |  | High p          |  | Low p 
|2001                             |  |                 |  |       
|First Quarter                    |  | 267.50          |  | 210.00
|Second Quarter                   |  | 326.80          |  | 264.00
|Third Quarter                    |  | 327.30          |  | 193.80
|Fourth Quarter                   |  | 237.00          |  | 189.50
|                                
|2002                             |  |                 |  |       
|First Quarter                    |  | 216.50          |  | 173.25
|Second Quarter                   |  | 221.00          |  | 160.25
|Third Quarter                    |  | 165.00          |  | 84.00 
|Fourth Quarter                   |  | 106.50          |  | 83.50 
|                                
|2003                             |  |                 |  |       
|First Quarter                    |  | 104.50          |  | 70.00 
|                                
|Most Recent 6 months             |  |                 |  |       
|                                
|2002                             |  |                 |  |       
|September                        |  | 132.80          |  | 84.00 
|October                          |  | 106.50          |  | 83.50 
|November                         |  | 106.30          |  | 95.00 
|December                         |  | 105.80          |  | 95.75 
|                                
|2003                             |  |                 |  |       
|January                          |  | 104.50          |  | 87.50 
|February                         |  | 94.50           |  | 86.25 
|March                            |  | 91.00           |  | 70.00 
|                                
|Five Most Recent Financial Years |  |                 |  |       
|                                
|Year ended 31 March 1999         |  | 614.00          |  | 453.50
|Year ended 31 March 2000         |  | 534.50          |  | 297.80
|9 months ended 31 December 2000  |  | 421.00          |  | 236.50
|Year ended 31 December 2001      |  | 327.30          |  | 189.50
|Year ended 31 December 2002      |  | 221.00          |  | 83.50 

---

|(1) |  | On 2 October, the effective date of the demerger, the share price of our registered ADSs opened on the NYSE at $68.50 and the share price of our ordinary shares
opened on the London Stock Exchange at 295 pence.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On 7 April 2003 (the latest practicable date prior to the publication of this document) there were 710 registered holders of 199,948 of our shares with addresses in the United States, and one registered holder of 628,003 of our
registered ADSs (equivalent to 6,280,030 ordinary shares), whose combined holdings constituted approximately 0.562% of our total issued share capital. Some of our shares are held



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by brokers and other nominees
(in the form of our shares), and as a result the above numbers may not be representative of the actual number of beneficial holders or of the number of our shares beneficially held by persons in the United States.



Dividends



We did not pay any dividends on our ordinary shares or ADSs for the financial year ending 31 December 2002, and we do not
intend to pay a dividend in 2003 as our current working capital facility contains significant restrictions on the payment by us of any dividends and certain other distributions (whether in cash or in kind) for the duration of the credit facility.
Our policy with respect to future dividends is constantly under review by the Board of Directors.



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Item 10. Additional Information



Our
ordinary share capital as at the close of business on 31 December 2002 was as follows:



|                                           |  | Authorised    |  | Issued        
|------------------------------------------ |  | ------------- |  | --------------
|                                           |  | Number        |  | Amount (£)    
|Ordinary shares of 50 pence each           |  | 1,700,000,000 |  | 850,000,000.00
|Deferred shares of 1 pence each            |  | 21            |  | 0.21          
|Special rights redeemable preference share |  | 1             |  | 1.00          



Our ordinary share
capital as at the close of business on 7 April 2003 has not changed since the close of business on 31 December 2002.



We have also authorised the allotment of ordinary shares to be issued upon conversion of International Power (Cayman) Limiteds 2% senior convertible
notes and upon exercise of outstanding stock options. See History of the Share Capital for the Last Three Years and Options to Purchase our Securities Outstanding Options.



History of the Share Capital for the Last Three Years



As of 31 March 2000, our authorised share capital was £850,000,001,
consisting of 1,700,000,000 ordinary shares of 50p each (ordinary shares) and a Special Share of £1 held by the Department of Trade and Industry. As of 31 March 2000, our issued share capital was £558,048,376, consisting of 1,116,096,753
ordinary shares of 50 pence each and one Special Share of £1. On 18 August 2000, the Special Share was redeemed at its par value. By special resolution passed on 29 September 2000, our authorised share capital was increased from
£850,000,001 to £850,000,001.21 by the creation of 21 deferred shares of 1 pence each.



The demerger did not affect our authorised or issued ordinary share capital.



The alterations in our share capital in the preceding three years (the latest practicable date prior to the publication of this document) are set out
below:



During the nine-month period ended 31 December 2000
(after the change of our financial year from 31 March to 31 December), a total of 1,364,402 of our ordinary shares were allotted and issued as follows:



| |  |  | 843,169 ordinary shares were allotted under the Share Option Schemes for an aggregate consideration of £3,666,994; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | 458,299 ordinary shares were allotted to the trustee of the Profit Sharing Share Scheme at a price of 344.25 pence per share.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



By resolutions passed on 29 September 2000, a general authority was given to
the Directors to allot relevant securities up to an aggregate nominal amount of £186,153,058. Except to the extent used for the allotment of securities, such authority will expire at the conclusion of our AGM to be held in 2005 or on 29
September 2005. Additionally, by special resolution passed on 29 September 2000, shareholders gave authorisation for the disapplication of the statutory pre-emption provisions of section 89 of the Companies Act in respect of our equity securities
having an aggregate nominal value of £27,902,418.



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Between 1 January 2001 and 31
December 2001, 97,308 shares were allotted under the Share Option Schemes for an aggregate consideration of £236,755.01.



Between 1 January 2002 and 31 December 2002, 3,057 shares were allotted under the Share Option Schemes for an aggregate consideration of £5,746.



By a special resolution passed on 12 June 2001, shareholders
gave authority for the disapplication of the statutory pre-emption provisions of section 89 of the Companies Act in respect of our ordinary shares having an aggregate nominal value of £13,968,264, each authority expiring at the conclusion of
the AGM held on 23 May 2002.



Save as disclosed above since 1
April 2000 to 7 April 2003 (the latest practicable date prior to the publication of this document) there have been no changes in our issued share capital and no material changes in the issued share capital of any of our subsidiaries other than
intra-group issues by wholly-owned subsidiaries, pro rated issues by partly owned subsidiaries or changes in the capital structure of subsidiaries which have remained wholly-owned throughout the period.



Save as referred to in this paragraph and under Employee Share
Plans:



| |  |  | neither we nor any of our subsidiaries have granted any commission, discounts or other special terms in the three years immediately preceding the date of this
document, in connection with the issue or sale of any of our share or loan capital or that of any of our subsidiaries;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | none of our share capital nor that of any of our subsidiaries is under option or is agreed conditionally or unconditionally to be put under option; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | none of our share capital nor that of any of our subsidiaries has, within three years before the date of this document, been issued or agreed to be issued or is now
proposed to be issued fully or partly paid either for cash or for a consideration other than cash to any person not being another member of the Group.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Memorandum and Articles of Association



We are a public limited company, formed under the laws of England and Wales. We are registered as Company No. 2366963 with
The Registrar of Companies for England and Wales.



Our Memorandum
of Association provides that our principal objects are to:



| |  |  | carry on the business of a holding company;
| | - |  | -------------------------------------------



| |  |  | carry on all kinds of commercial, industrial, trading and financial operations and enterprises connected with electricity and other forms of energy; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | carry on any other business or activity of any nature whatsoever which may seem to the Directors to be capable of being conveniently or advantageously carried on in
connection or conjunction with any business of ours or to be expedient with a view directly or indirectly to enhancing the value of or to rendering profitable or more profitable any of our assets or utilising our skills, know-how or expertise.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our objects are set out in
full in Clause 4 of our Memorandum of Association.



Our Articles of Association contain (amongst others) provisions to the following effect:



Dividends



Ordinary Shares



Subject to the rights of
the holder of any future class of shares having priority, the holders of ordinary shares are entitled equally amongst themselves, but in proportion to the amounts paid up on the ordinary shares held by them, to share in the whole of our profits
available for distribution and received to be distributed. No amount paid on a share in advance of calls shall be treated as paid on the share. We may fix the time for payment of dividends but no dividend shall exceed the amount recommended by the
Directors. Except as otherwise provided by the rights attached to shares, we may pay dividends in any currency, including US dollars. If and so far as in the opinion of the Directors our profits justify such payments, the Directors may pay interim
dividends on the ordinary shares of such amounts and on such dates and in respect of such periods as they think fit.



| | (1) |  | No dividend shall be paid otherwise than out of profits available for distribution under the provisions of the Companies Act, and every other statute, statutory
instrument, regulation or order for the time being in force concerning companies and affecting us (the statutes).
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) |  | Any dividend unclaimed after a period of 12 years from the date on which such dividend was declared or became due for payment shall be forfeited and shall revert to
us.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) |  | The Directors, with the prior sanction of an ordinary shareholders resolution, may offer to the holders of ordinary shares the right to receive, in lieu of
dividend (or part thereof), an allotment of new ordinary shares credited as fully paid.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



However, there is a current prohibition on the payment of dividends by us under the terms of our credit facility.



Deferred Shares



Holders of deferred shares are not entitled to receive dividends nor have any other right of participation in the company.



Rights to Share in Profits



Holders of our shares have no rights to share in our profits.



Return of Capital



Ordinary Shares



Subject to the rights of the holder of any future class of ordinary shares
having priority, the liquidator may, with the authority of an extraordinary resolution:



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##### Table of Contents



| | (1) |  | divide amongst the members in specie or in kind the whole or any part of our assets (whether they shall consist of property of the same kind or not) and may, for
such purpose, set such value as he deems fair upon any property to be divided and may determine how such division shall be carried out between the members; and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) |  | vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator shall think fit but no contributory shall be compelled to
accept any shares or other property in respect of which there is a liability.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Deferred Shares



On a return of capital on the winding-up of the company or otherwise, the holder(s) of the deferred shares shall be entitled, subject to the payment to the holders of all other classes of the amount paid upon such shares to a
repayment of the capital paid up on the deferred shares, but shall have no further rights of participation in our assets.



Liability to Further Capital Calls



Holders of our ordinary shares are not subject to calls on capital by us provided that the amounts required to be paid on issue have been paid up in full.
All of our issued ordinary shares are fully paid.



Principal Shareholder Restrictions



There are no provisions in our Memorandum of Association or Articles of Association that discriminate against shareholders as a result of the shareholder owning a substantial or small number of shares.



Shareholders Meetings and Notices



Under English law, there are two types of general meetings of
shareholdersAGMs and extraordinary general meetings. We must hold an AGM in each calendar year not later than 15 months from the previous AGM. At an AGM, shareholders vote on matters including declaring dividends (if recommended by the
Directors), receiving and/or adopting the accounts and the reports of the Directors and auditors, appointing or re-appointing Directors to fill vacancies, appointing or re-appointing auditors and fixing their remuneration, the remuneration report of
the Board of Directors and general authorities relating to the issue of shares. Any other general meeting is an extraordinary general meeting.



Subject to certain provisions of English law, our Board may convene an extraordinary general meeting, and, under English law, must call one on a
requisition by shareholders holding not less than one-tenth of the paid up capital carrying voting rights. An AGM and an extraordinary general meeting called to pass a special resolution must be called upon at least 21 days notice specifying
the place, day and time of the meeting and the general nature of the business of the meeting, otherwise the notice period is 14 days. Shareholders may not transact any business other than the appointment of a chairman at any general meeting unless a
quorum of shareholders is present.



There are no provisions in
our memorandum or Articles of Association that enable shareholders to pass resolutions in writing. In addition, English statutory provisions enabling resolutions to be passed on writing, do not apply to public companies such as us.



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Limitation on Security
Ownership



There are currently no restrictions under
English law or under our memorandum or Articles of Association that limit the right of non-residents or foreign persons to hold or vote our ordinary shares or ADSs, except in relation to those countries against which the United Kingdom or European
Union have imposed sanctions and other limitations that would generally apply to all of the shareholders.



Change in Control



There are currently no provisions in our memorandum or Articles of Association that would have an effect of delaying, deferring or preventing a change in our control and that would operate only with respect to a merger, acquisition
or corporate restructuring involving us or any of our subsidiaries. There is no general prohibition in English law against companies taking measures to prevent or deter a takeover offer. The City Code on Takeovers and Mergers in the United Kingdom
provides that if the board of directors of a company has reason to believe that an offer may be made for its shares they may not take action that might frustrate the offer without approval of its shareholders. In particular, the Board is prohibited
from issuing shares or options in respect of unissued shares, creating or issuing convertible securities, selling, disposing or acquiring material assets or entering into contracts otherwise than in the ordinary course of business without
shareholders consent. The City Code on Takeovers and Mergers is not legally binding, but is generally followed by UK listed companies.



In addition, Directors are subject to fiduciary duties, which means that they must act in the interests of the company. The issue of shares and securities
that convert into shares requires the approval of shareholders.



Voting



Except as set forth below
under Restrictions on Voting, there are no limitations on the rights to own securities, including the rights of non-UK resident shareholders to hold or exercise voting rights imposed by either English law or our articles. Every holder of
ordinary shares who is present in person (which expression shall include a person present as the duly authorised representative of a corporate member acting in that capacity) at any general meeting shall have one vote, and on a poll every such
holder who is present in person or by proxy shall have one vote for every ordinary share of which such person is the holder.



Ordinary Shares



Restrictions on Voting



If any member, or any other person appearing to be interested in shares held by such member, has been duly served with a notice under section 212 of the
Companies Act and is in default for a period of 14 days in supplying to us the information thereby required, then (unless the Directors otherwise determine) the member shall not (for so long as the default continues) nor shall any transferee to
which any such shares are transferred other than pursuant to an approved transfer (as defined in our Articles of Association) be entitled to attend or vote either personally or by proxy at a shareholders meeting or to exercise any other right
conferred by membership in relation to shareholders meetings in respect of the shares in relation to which the default occurred (default shares) or any other shares held by the member.



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Where the default shares
represent 0.25% or more of the issued shares of the class in question, the Directors may in their absolute discretion by notice, or a direction notice or to such member direct that any dividend or other money which would otherwise be
payable in respect of the default shares shall be retained by us without any liability to pay interest and/or that no transfer of any of the shares held by such member shall be registered unless the transfer is an approved transfer (as defined in
our Articles of Association) or the member is not himself in default as regards supplying the information required and the transfer is of only part of the members holding and is accompanied by a certificate given by the member in a form
satisfactory to the Directors to the effect that after due and careful enquiry the member is satisfied that none of the shares which are the subject of the transfer are default shares. Any direction notice shall cease to have effect in relation to
any shares which are transferred by such member by means of an approved transfer.



A member loses his right to vote if any call or other sum presently payable by him in respect of the ordinary shares remains unpaid.



Deferred Shares



Holders of deferred shares have no right to attend or vote at any general meeting.



Transfer of Ordinary Shares



All transfers of shares which are in certificated form may be effected in writing in any common form or in any other form
acceptable to our Directors. The transfer instrument must be signed by or on behalf of the transferor and, except in the case of fully paid shares, by or on behalf of the transferee. The transferor will remain the holder of the shares until the
transferees name is entered in our share register. All transfers of shares that are in uncertificated form may be effected by means of a relevant system.



The Directors may decline to recognise any transfer instrument relating to shares in certificated form unless it is: (1) in respect of only one class of
share; and (2) lodged at the transfer office (as defined in our Articles of Association), duly stamped if required, accompanied by the relevant share certificate(s) and other evidence reasonably required by the Directors to show the
transferors right to make the transfer and, if the transfer instrument is executed by some other person on the transferors behalf, the authority of that person to do so.



Variations of Class Rights



Subject to the Companies Act, whenever our share capital is divided into different classes of shares, the special rights
attached to any class of shares may be varied or abrogated, either with the consent in writing of the holders of three quarters in nominal value of the issued shares of the class or with the sanction of an extraordinary resolution passed at a
separate general meeting of the holders of the shares of the class (but not otherwise).



Our shares are not subject to any sinking fund.



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Alteration of Share
Capital



We may, by ordinary resolution:



| | (i) |  | increase our capital by such sums to be divided into shares of such amounts as the resolution shall prescribe;
| | --- |  | --------------------------------------------------------------------------------------------------------------



| | (ii) |  | consolidate and divide all or any of our share capital into shares of a larger nominal amount than our existing shares;
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------



| | (iii) |  | cancel any shares that, at the date of the resolution, have not been taken, or agreed to be taken, by any person and reduce our share capital by the amount of the
shares so cancelled; and
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) |  | subject to the Companies Act, sub-divide all or any of our shares into shares of a smaller amount and may by the resolutions decide that the shares resulting from
the sub-division have amongst themselves a preference or other advantage or be subject to a restriction.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Subject to the provisions of applicable English law, we may purchase, or may enter into a contract under which we will or may purchase, any of our own
shares of any class, including any redeemable shares.



Subject to
the provisions of the Companies Act and to any rights conferred on the holders of any class of shares, we may, by special resolution, reduce our share capital or any capital redemption reserve, share premium account or other undistributable reserve
in any way.



Board of Directors



Election



In accordance with the Combined Code and our Articles of Association, all Directors submit themselves for re-election at
least every three years, and newly appointed Directors are subject to election by shareholders at the first opportunity after their appointment.



The Directors terms are staggered so that at each AGM of shareholders one third of the Directors, excluding the Chairman, will retire (on a rotating
basis) and are eligible for re-appointment at such meeting. Subject to the Companies Act, the Directors are not required to retire on account of age and can be elected and re-elected at any age. Neither our memorandum nor Articles of Association
require our Directors to be shareholders.



Our Articles of
Association do not provide for cumulative voting with respect to the election of Directors. Although not prohibited, cumulative voting is not common practice for English companies.



Voting



A Director generally may not vote upon any proposal, arrangement or contract before our Board in which he or she has a material interest. Our Articles of
Association generally prohibit a Director from voting on, or being counted in the quorum in relation to, any proposal, arrangement or contract in which



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the Director is materially interested. However, a Director shall be entitled to vote on, and be counted in the quorum in respect of, any
resolution concerning any of the following matters:



| |  |  | the giving of any security or indemnity in respect of money lent or obligations incurred by the Director at our request or for our benefit;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the giving of any security of indemnity to a third party in respect of a debt or obligation for which he himself has assumed responsibility;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any proposal regarding the Directors underwriting of our shares, debentures or other securities;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | any contract concerning any other company in which the Director is interested, directly or indirectly (whether as an officer, shareholder, creditor, or otherwise),
provided that the Director does not hold one percent or more of the equity share capital or voting rights available to members of that company;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any proposal concerning the adoption, modification or operation of a superannuation fund, death or disability scheme, or employees share scheme under which he
may benefit; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | contracts concerning our purchase or maintenance of any insurance policy under which the Director may benefit.
| | - |  | --------------------------------------------------------------------------------------------------------------



The ordinary fees (payable in addition to, or instead of, other remuneration
for Executive Directors, the Chairman and Deputy Chairman) of any of the Directors is determined by the Directors, up to an aggregate annual ordinary amount, unless increased by an ordinary resolution.



Borrowing Powers



The Board of Directors may exercise all its powers to:



| |  |  | borrow money;
| | - |  | -------------



| |  |  | mortgage and/or charge all or any part of our business, property or assets and uncalled capital;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | issue debentures and other securities; and
| | - |  | ------------------------------------------



| |  |  | give security, either outright or as collateral security, for any of our debts, liabilities or obligations, or those of a third party.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



There is a requirement on the Directors, under our articles, to limit the
borrowings of the International Power Group to two and a half times adjusted capital and reserves (as defined in our articles).



Material contracts



On 24 November 2000, International Power (Cayman) Limited, or Cayman, a wholly-owned subsidiary company incorporated in the Cayman Islands, issued $357.6
million 2% convertible notes due



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2005, convertible into preference shares of Cayman at the holders option, exchangeable for our ordinary shares, and unconditionally
guaranteed on a senior unsecured basis by us.



The notes are
convertible into preference shares of Cayman, which are exchangeable for our ordinary shares at a conversion price of £3.00 at any time between 4 January 2001 and 23 November 2005. Each $1,000 principal amount of notes will entitle the holder
to convert such principal amount into paid up value of preference shares of Cayman of $1,000. Investors may elect to receive their ordinary shares in the form of American Depositary Receipts. As at 31 December 2002, none of the notes had been
converted.



The notes may be redeemed at the holders option
at a redemption price of 107.1% of its principal amount, together with accrued and unpaid interest, on 24 November 2003.



If the conversion option is not exercised, the convertible unsecured notes will be redeemed on 24 November 2005 at a redemption price of 112.4% of its
principal amount.



Provision is made for the possible premium on
redemption and included within carrying amount of the bonds. At 31 December 2002, the amount accrued was £13 million. The finance cost charged in the profit and loss account comprises the aggregate of the coupon on the convertible unsecured
notes and the proportion of the premium on redemption that relates to the financial year.



Exchange Controls



There are no
governmental laws, decrees or regulations that restrict or that affect the export or import of capital, including, but not limited to foreign exchange capital restrictions, or that affect the remittance of dividends or other payments to non-resident
holders of our securities, except as otherwise set out under Taxation below.



Taxation



The following is a
summary of the material US federal income tax consequences of the acquisition, ownership and disposition of ordinary shares or ADSs by a US Holder (as defined below) that holds the ordinary shares or ADSs as capital assets. The discussion does not
cover all aspects of US federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of ordinary shares or ADSs by particular investors,
and does not address state, local, foreign or other tax laws. In particular, this summary does not address US federal income tax considerations applicable to investors that own (directly or indirectly) 10% or more of our voting stock, nor does this
summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the US federal income tax laws (such as banks, insurance companies, investors liable for the alternative minimum tax,
individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in securities or currencies, investors that will hold the ordinary shares or ADSs as part of straddles, hedging transactions or conversion transactions
for US federal income tax purposes or investors whose functional currency is not the US dollar). This summary also does not address the US federal income tax treatment of the demerger or of the receipt of Innogy Holdings ordinary shares pursuant to
the demerger.



As used herein, the term US Holder means a
beneficial owner of ordinary shares or ADSs that is, for US federal income tax purposes, (i) a citizen or individual resident of the United States (ii) a



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corporation, or other entity treated as a corporation, created or organised under the laws of the United States or any State thereof, (iii)
an estate the income of which is subject to US federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US
persons have the authority to control all substantial decisions of the trust or if the trust has made a valid election under Treasury Regulations to be treated as a domestic trust. If a partnership holds ordinary shares or ADSs, the tax treatment of
a partner in such partnership generally will depend upon the status of the partner and the activities of the partnership. Therefore, partners of a partnership holding ordinary shares or ADSs should consult their own tax advisors regarding the
application of the US federal income tax consequences of beneficially owning ordinary shares or ADSs through a partnership.



The summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed Treasury Regulations thereunder,
administrative rulings and court decisions, as well as on the income tax treaty between the United States and the United Kingdom, or the Treaty, all in effect as of the date of this annual report and all subject to change at any time, perhaps with
retroactive effect.



The summary of US federal income tax
consequences set out below is for general information only. US Holders should consult their own tax advisors as to the particular tax consequences to them of owning ordinary shares and ADSs, including their eligibility for the benefits of the
Treaty, the applicability and effect of state, local, foreign and other tax laws and possible changes in the tax laws.



US Holders of ADSs



For US federal income tax purposes, a US Holder of ADSs will be treated as the owner of the ordinary shares that such ADSs represent, and references
herein to ordinary shares refer also to ADSs representing the ordinary shares.



Dividends



General. Distributions
paid by International Power plc out of its current or accumulated earnings and profits (as determined for US federal income tax purposes) will generally be taxable to a US Holder as foreign source dividend income and, generally, will not be eligible
for the dividends received deduction allowed to corporations. For this purpose, a distribution by International Power plc will include both the actual amount distributed and the amount of UK tax credit discussed below. Distributions in excess of
current and accumulated earnings and profits of International Power plc will be treated as a non-taxable return of capital to the extent of the US Holders tax basis in the ordinary shares or ADSs and thereafter as capital gain. Generally, a US
Holders tax basis in the ordinary shares or ADSs will equal the amount that the US Holder paid for the shares or ADSs less any distributions from International Power plc other than dividends.



Foreign Currency Dividends. Dividends paid in pounds sterling will be
included in taxable income of a US Holder in a US dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the Depositary (in the case of ADSs) or the US Holder (in the case of ordinary shares),
regardless of whether the pounds sterling are converted into US dollars. If dividends received in pounds sterling are converted into US dollars on the day they are received, the US Holder



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generally will not be required to recognise foreign currency gain or loss in respect of the dividend income. If the amount so received is
converted into US dollars at an exchange rate different from the one used for including such dividends in the gross income of the US Holder, any difference in US dollars between the amount included in the gross income of a US Holder and the actual
amount received by the US Holder will be treated as foreign currency gain or loss, and such gain or loss will be treated as ordinary income or loss.



Effect of UK Tax Credit. Under current law an individual shareholder who is resident in the United Kingdom for UK tax purposes and who receives a
dividend from International Power plc is generally entitled to claim a tax credit in the United Kingdom against the Shareholders UK income tax liability attributable to the dividend. Although a US Holder that receives a dividend from
International Power plc will not be entitled to this UK tax credit, under the Treaty, the US Holder may treat an amount equal to this credit as a withholding tax, tax deemed paid to the UK tax authorities, for which the US Holder may claim a foreign
tax credit in the United States (as discussed below). Without providing further evidence of payment, the US Holder may claim a foreign tax credit for this amount by filing IRS Form 8833 with its income tax return for the relevant year.



Subject to certain limitations, a US Holder who makes the election on Form
8833 described above will generally be entitled to a credit against its US federal income tax liability, or a deduction in computing its US federal taxable income, for the UK tax credit associated with dividends paid by International Power plc.



For the purposes of the foreign tax credit limitation, foreign
source income is classified into one of several baskets, and the credit for foreign taxes on income in any basket is limited to US federal income tax allocable to that income. Dividends paid by International Power plc generally will constitute
foreign source income in the passive income basket or, in the case of certain US Holders, the financial services income basket. In certain circumstances, a US Holder may be unable to claim foreign tax credits (and may instead be allowed deductions)
for foreign taxes imposed on a dividend if the US Holder (i) has not held the ordinary shares or ADSs for at least 16 days in the 30-day period beginning 15 days before the ex-dividend date; (ii) is under an obligation (whether pursuant to a short
sale or otherwise) to make related payments with respect to positions in substantially similar or related property; or (iii) holds the ordinary shares in arrangements in which the US Holders expected profit, after non-US taxes, is
insubstantial. US Holders should consult their tax advisors concerning the foreign tax credit implications of making the election on Form 8833 described above.



New Treaty



The United States and the United Kingdom have recently concluded a new income tax treaty (the New Treaty). In relation to tax credits in respect of
dividends paid by companies which are residents of the United Kingdom, the New Treaty becomes effective 1 May 2003. However, a US Holder may elect to have the provisions of the (previous) Treaty apply in their entirety for a period of 12 months from
the date on which the New Treaty otherwise would have effect, in circumstances where the (previous) Treaty provides the US Holder with greater benefits than the US Holder would be entitled to under the New Treaty. The New Treaty puts in place new
rules that modify the current treatment of US Holders who own ordinary shares or ADSs in International Power plc.



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In particular, the New Treaty
repeals the UK withholding tax deemed imposed under the Treaty (discussed above). Therefore, when the New Treaty becomes effective, a US Holder will no longer be eligible for foreign tax credit or deductions in respect of UK tax. Furthermore, the
amount of dividends to be included in a US Holders gross income will no longer include the amount of any UK tax credit amount described above, and, therefore, the amount of dividends that a US Holder will be treated as receiving from
International Power plc will be the amount of dividends the US Holder actually receives from International Power plc. US Holders should consult their own tax advisors as to how the New Treaty will affect the US Holders ownership of ordinary
shares or ADSs.



Exchange of ADSs for Ordinary Shares



No gain or loss will be recognised upon the exchange of
ADSs for the US Holders proportionate interest in ordinary shares. A US Holders tax basis in the withdrawn ordinary shares will be the same as the US Holders tax basis in the ADSs surrendered, and the holding period of the ordinary
shares will include the holding period of the ADSs.



Sale or
Other Taxable Disposition



Subject to the discussions under
Passive Foreign Investment Company below, upon a sale or other taxable disposition of ADSs (other than an exchange of ADSs for ordinary shares) or ordinary shares, a US Holder generally will recognise capital gain or loss for US federal
income tax purposes equal to the difference, if any, between the amount realised on the sale or other taxable disposition and the US Holders tax basis in the ADSs or ordinary shares at the time of such sale or other taxable disposition. If the
US Holder has held the ordinary shares or ADSs for not more than one year at the time of such sale or other taxable disposition, such gain or loss will be short-term capital gain or loss. Short-term capital gain generally will be taxed at the same
rates as ordinary income. If the US Holder has held the ordinary shares or ADSs for more than one year at the time of such sale or other taxable disposition, such gain or loss will be long-term capital gain or loss. In the case of non-corporate US
Holders, long-term capital gain generally will be taxed at a rate not exceeding 20% of such gain. In the case of corporate US Holders, such gain generally is taxed at the same rate as ordinary income. Losses will be treated as foreign source to the
extent that the US Holder received dividends that were includible in the financial services income basket during the 24-month period prior to the sale.



Passive Foreign Investment Company



Generally, for US federal income tax purposes, International Power plc will be a passive foreign investment company (or a PFIC), for any
taxable year if either (i) 75% or more of its gross income is passive income or (ii) 50% or more of the value of its assets, determined on the basis of a quarterly average, is attributable to assets that produce or are held for the
production of passive income. Passive income generally includes dividends, interest, royalties and rents not arising from the active conduct of a trade or business, and gains from the sale of assets that produce such income. If International Power
plc is a PFIC in any taxable year that a US Holder owns ordinary shares or ADSs, the US Holder may be subject to tax at ordinary income rates, and pay interest, on (a) a portion of any gain recognized on the sale of the ordinary shares or ADSs and
(b) any excess distribution paid on the shares or ADSs (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years).



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Based on its current
activities and assets, International Power plc does not believe that it is a PFIC, and does not expect to become a PFIC in the foreseeable future. International Power plcs belief that it is not a PFIC and its expectation that it will not
become a PFIC in the future are based on its current and planned activities, and may change in the future. The determination of whether International Power plc is a PFIC is made annually. Accordingly, it may be possible that it will be a PFIC in the
current or any future year due to changes in its asset or income composition.



Backup Withholding and Information Reporting



Payments of dividends and other proceeds with respect to ordinary shares or ADSs by a US paying agent or other US intermediary will be reported to the IRS and to the US Holder as may be required under applicable Treasury Regulations.
Backup withholding may apply to these payments if the US Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its US federal income
tax returns, or the IRS otherwise notifies the payer. Certain US Holders (including, among others, corporations) are not subject to backup withholding. US Holders should consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining this exemption.



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Item 11. Quantitative and Qualitative Disclosures About Market Risk



See Pages F-54 to F-60 of our audited consolidated financial pages.



Item 12. Description of Securities Other than Equity Securities



Not applicable



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PART II



Item 13. Defaults, Dividend Arrearages and Delinquencies



Not applicable



Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds



Not applicable



Item 15. Controls and Procedures



Evaluation of Disclosure Controls and Procedures



As recommended by the U.S. Securities and Exchange Commission, or SEC, we have established a Disclosure Controls Committee. The Disclosure Controls Committee reports to our Chief Executive Officer, Chief Financial Officer and to the
Audit Committee. It is chaired by the Company Secretary and Corporate Counsel and the members consist of senior managers from finance, internal audit and investor relations. It has responsibility for considering the materiality of information and on
a timely basis, determination of the disclosure and treatment of material information. The Disclosure Controls Committee also has responsibility for the timely filing of reports with the SEC and the formal review of the contents of our Annual Report
on Form 20-F.



Our Chief Executive Officer and our Chief
Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the Evaluation Date) within 90
days before the filing date of this annual report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that material information relating to us and our consolidated subsidiaries is recorded,
processed, summarised and reported in a timely manner.



There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of such controls and procedures. In addition, we
have limited influence over the controls and procedures of entities in which we hold a minority interest. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.



Changes in Internal Controls



There were no significant changes in our internal controls or, to our
knowledge, in other factors that could significantly affect such controls subsequent to the Evaluation Date.



Item 16. [Reserved]



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PART III



Item 17 Financial Statements



See
Item 18. Financial Statements



Item 18. Financial Statements



See
pages F-1 to F-77.



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Index to the Financial Statements



|                                                                                                                                                                                                                                                |  | Page
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                                                                                                               
|Statement of Directors responsibilities                                                                                                                                                                                                        |  | F-2 
|                                                                                                                                                                                                                                               
|Independent auditors reports                                                                                                                                                                                                                   |  | F-3 
|                                                                                                                                                                                                                                               
|Consolidated profit and loss accounts for the year ended 31 December 2002, the year
ended 31 December 2001 and the nine month period ended 31 December 2000                                                                                     |  | F-6 
|                                                                                                                                                                                                                                               
|Consolidated balance sheets as at 31 December 2002 and 31 December 2001                                                                                                                                                                         |  | F-8 
|                                                                                                                                                                                                                                               
|Consolidated cash flow statements for the year ended 31 December 2002, the year ended 31
December 2001 and the nine month period ended 31 December 2000                                                                                         |  | F-9 
|                                                                                                                                                                                                                                               
|Consolidated statement of total recognised gains and losses and reconciliation of
movements in equity shareholders funds for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000 |  | F-10
|                                                                                                                                                                                                                                               
|Notes to the consolidated financial statements                                                                                                                                                                                                  |  | F-11



F-1



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Statement of
Directors responsibilities



In respect of the
preparation of the financial statements



The following
statement, which should be read in conjunction with the statement of auditors responsibilities included in their reports below, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and
auditors in relation to the financial statements. UK Company law requires the Directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Company and of the Group and of the
profit or loss for that period. In preparing those financial statements, the Directors are required to:



| |  |  | select suitable accounting policies and then apply them consistently;
| | - |  | ---------------------------------------------------------------------



| |  |  | make judgements and estimates that are reasonable and prudent;
| | - |  | --------------------------------------------------------------



| |  |  | state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



The Directors are responsible for keeping proper
accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.



F-2



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Independent Auditors
Report



To the Board of Directors and Shareholders of
International Power plc



We have audited the accompanying
consolidated balance sheets of International Power plc and subsidiaries as at 31 December 2002 and 31 December 2001, the related consolidated profit and loss accounts, consolidated cash flow statements, consolidated statements of total recognised
gains and losses and reconciliation of movements in equity shareholders funds for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of certain consolidated companies, the
statements of which reflect total assets constituting 22% as at 31 December 2002 (2001: 20%) and group turnover constituting 22% in the year ended 31 December 2002 (2001: 25%; 2000: 5%) of the related consolidated totals. These statements were
audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for these companies, is based solely on the reports of the other auditors.



We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.



In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of International Power plc and its subsidiaries as of 31 December 2002 and 31 December 2001, and the results of their operations and their cash flows for each of the year ended 31 December 2002, the year
ended 31 December 2001 and the nine month period ended 31 December 2000 in conformity with generally accepted accounting principles in the United Kingdom.



As more fully described in the Principal accounting policies  Basis of preparation note to the consolidated financial statements,
International Power plc has adopted FRS 19 Deferred Tax in the year ended 31 December 2002. Consequently, International Power plcs consolidated financial statements as at 31 December 2001 and for the year ended 31 December 2001 and the nine
month period ended 31 December 2000 referred to above have been restated.



Generally accepted accounting principles in the United Kingdom vary in certain significant respects from generally accepted accounting principles in the United States of America. Application of generally accepted accounting
principles in the United States of America would have affected net income for the year ended 31 December 2002, year ended 31 December 2001 and the nine month period ended 31 December 2000 and shareholders funds-equity as of 31 December 2002
and 31 December 2001 to the extent summarised in note 35 (as restated) to the consolidated financial statements. As discussed in note 35 to the consolidated financial



F-3



---

##### Table of Contents

statements, effective 1 January 2002, International Power plc fully adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets.



KPMG Audit Plc

|London, England | 8 Salisbury Square
|--------------- | ------------------

|Chartered Accountants | London EC4Y 8BB
|--------------------- | ---------------

Registered Auditor

6 March 2003



F-4



---

##### Table of Contents



Independent Auditors
Report



To the Board of Directors of Hazelwood Power
Partnership



We have audited the balance sheets of Hazelwood
Power Partnership as of 31 December 2002 and 31 December 2001 and the related profit and loss accounts and cash flow statements for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000.
These financial statements are the responsibility of Hazelwood Power Partnerships management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with generally accepted auditing
standards in Australia, the United Kingdom and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hazelwood Power Partnership
as of 31 December 2002 and 31 December 2001, and the results of its operations and its cash flows of the year ended 31 December 2002, the year ended 31 December 31 2001 and the nine month period ended 31 December 2000, in conformity with accounting
principles generally accepted in Australia.



Accounting
principles generally accepted in Australia differ in certain significant respects from accounting principles generally accepted in the United Kingdom. Application of accounting principles generally accepted in the United Kingdom would have affected
results of operations for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000 and net assets as at 31 December 2002 and 31 December 2001 to the extent summarised in notes 30 and 31 to the
financial statements of Hazelwood Power Partnership.



Accounting
principles generally accepted in the United Kingdom differ in certain significant respects from accounting principles generally accepted in the United States of America. Application of accounting principles generally accepted in the United States of
America would have affected results of operations for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000 and net assets as at 31 December 2002 and 31 December 2001 to the extent
summarised in notes 30 and 31 to the financial statements of Hazelwood Power Partnership.



ERNST & YOUNG

Melbourne Australia

11 March 2003



F-5



---

##### Table of Contents



Consolidated profit and
loss accounts



|                                                                  |  |      |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 (Restated)* |   |  | 9 months ended 31 December2000 (Restated)* |  
|----------------------------------------------------------------- |  | ---- |  | --------------------------- | - |  | --------------------------------------- | - |  | ------------------------------------------ | -
|                                                                  |  | Note |  | Group                       |   |  | Group                                   |   |  | Continuing                                 |  
|                                                                  |  |      |  | £m                          |   |  | £m                                      |   |  | £m                                         |  
|Turnover: group and share of joint ventures and associates        |  |      |  | 1,129                       |   |  | 1,103                                   |   |  | 762                                        |  
|Less: share of joint ventures turnover                           |  |      |  | (122                        | ) |  | (139                                    | ) |  | (96                                        | )
|Less: share of associates turnover                               |  |      |  | (290                        | ) |  | (407                                    | ) |  | (382                                       | )
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Group turnover                                                    |  | 2    |  | 717                         |   |  | 557                                     |   |  | 284                                        |  
|Net operating costs  ordinary                                    |  | 3    |  | (509                        | ) |  | (392                                    | ) |  | (225                                       | )
|Net operating costs  exceptional                                 |  | 9    |  | (103                        | ) |  | (2                                      | ) |  |                                           |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Operating profit/(loss)                                           |  |      |  |                             |   |  |                                         |   |  |                                            |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Excluding exceptional items                                       |  |      |  | 208                         |   |  | 165                                     |   |  | 59                                         |  
|Exceptional items                                                 |  |      |  | (103                        | ) |  | (2                                      | ) |  |                                           |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Operating profit/(loss)                                           |  |      |  | 105                         |   |  | 163                                     |   |  | 59                                         |  
|Share of operating profit of:                                     |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Joint ventures                                                    |  |      |  | 26                          |   |  | 27                                      |   |  | 14                                         |  
|Associates                                                        |  |      |  | 123                         |   |  | 134                                     |   |  | 94                                         |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Income from fixed asset investments  ordinary                    |  |      |  | 31                          |   |  |                                        |   |  |                                           |  
|Income from fixed asset investments  exceptional                 |  | 9    |  | 42                          |   |  |                                        |   |  |                                           |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|                                                                  |  |      |  | 73                          |   |  |                                        |   |  |                                           |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Operating profit/(loss) and income from fixed asset investments   |  |      |  | 327                         |   |  | 324                                     |   |  | 167                                        |  
|                                                                 
|Non operating exceptional items                                   |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Costs of restructuring                                            |  | 9    |  |                            |   |  |                                        |   |  | (25                                        | )
|Profit/(loss) on sale of operations                               |  | 9    |  |                            |   |  | 32                                      |   |  | (25                                        | )
|Demerger costs                                                    |  | 9    |  |                            |   |  |                                        |   |  | (49                                        | )
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Profit/(loss) on ordinary activities before interest and taxation |  |      |  |                             |   |  |                                         |   |  |                                            |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Excluding exceptional items                                       |  |      |  | 388                         |   |  | 326                                     |   |  | 167                                        |  
|Exceptional items                                                 |  |      |  | (61                         | ) |  | 30                                      |   |  | (99                                        | )
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Profit/(loss) on ordinary activities before interest and taxation |  | 2    |  | 327                         |   |  | 356                                     |   |  | 68                                         |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Interest receivable and similar income                            |  | 5    |  | 24                          |   |  | 24                                      |   |  | 61                                         |  
|Interest payable and similar charges  ordinary                   |  | 6    |  | (121                        | ) |  | (100                                    | ) |  | (98                                        | )
|Interest payable and similar charges  exceptional                |  | 6    |  |                            |   |  | (29                                     | ) |  |                                           |  
|Share of net interest of joint ventures and associates            |  | 5,6  |  | (35                         | ) |  | (47                                     | ) |  | (44                                        | )
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|                                                                  |  |      |  | (132                        | ) |  | (152                                    | ) |  | (81                                        | )
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Profit/(loss) on ordinary activities before taxation              |  |      |  | 195                         |   |  | 204                                     |   |  | (13                                        | )
|Tax on profit/(loss) on ordinary activities                       |  | 10   |  | (76                         | ) |  | (64                                     | ) |  | (29                                        | )
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Profit/(loss) on ordinary activities after taxation               |  |      |  | 119                         |   |  | 140                                     |   |  | (42                                        | )
|Minority interests  equity                                       |  |      |  | (6                          | ) |  | (2                                      | ) |  | (4                                         | )
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Profit/(loss) for the financial period                            |  |      |  |                             |   |  |                                         |   |  |                                            |  
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  
|Excluding exceptional items                                       |  |      |  | 173                         |   |  | 137                                     |   |  | 53                                         |  
|Exceptional items                                                 |  |      |  | (60                         | ) |  | 1                                       |   |  | (99                                        | )
|                                                                  |  |      |  |                             |   |  |                                         |   |  |                                            |  



F-6



---

##### Table of Contents

|                                                |  |      |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 (Restated)* |  | 9 months ended 31 December2000 (Restated)* |  
|----------------------------------------------- |  | ---- |  | --------------------------- |  | --------------------------------------- |  | ------------------------------------------ | -
|                                                |  | Note |  | Group                       |  | Group                                   |  | Continuing                                 |  
|                                                |  |      |  | £m                          |  | £m                                      |  | £m                                         |  
|Profit/(loss) for the financial period          |  |      |  | 113                         |  | 138                                     |  | (46                                        | )
|Demerger dividend                               |  | 11   |  |                            |  |                                        |  | (392                                       | )
|                                                |  |      |  |                             |  |                                         |  |                                            |  
|Retained profit/(loss) for the financial period |  |      |  | 113                         |  | 138                                     |  | (438                                       | )
|                                                |  |      |  |                             |  |                                         |  |                                            |  

---

|* |  | Restated for the adoption of FRS 19 Deferred Tax (see note 1(i)Basis of preparation of accounts on F-11).
|- |  | ----------------------------------------------------------------------------------------------------------



|                                  |  |      |  | Year ended 31 December 2002 |  | Year ended 31 December 2001(Restated) |  | 9 months ended 31 December2000(Restated)
|--------------------------------- |  | ---- |  | --------------------------- |  | ------------------------------------- |  | ----------------------------------------
|                                  |  | Note |  | Group                       |  | Group                                 |  | Continuing                              
|                                  |  |      |  | £m                          |  | £m                                    |  | £m                                      
|Earnings/(loss) per share         |  | 12   |  |                             |  |                                       |  |                                         
|Basic excluding exceptional items |  |      |  | 15.5p                       |  | 12.3p                                 |  | 4.8p                                    
|Attributable to exceptional items |  |      |  | (5.4)p                      |  |                                      |  | (8.9)p                                  
|Basic including exceptional items |  |      |  | 10.1p                       |  | 12.3p                                 |  | (4.1)p                                  
|Diluted earnings per share        |  |      |  | 10.1p                       |  | 12.0p                                 |  | (4.1)p                                  
|Dividends per share               |  |      |  |                            |  |                                      |  |                                        



The results for the
years ended 31 December 2002 and 2001 derive from continuing operations. There were no material changes in the activities of the entities consolidated in these financial statements and no material acquisitions or disposals.



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



F-7



---

##### Table of Contents



Consolidated balance sheets



|                                                        |  | Note  |  | As at 31 December 2002 |   |  | As at 31 December 2001 (Restated) |  
|------------------------------------------------------- |  | ----- |  | ---------------------- | - |  | --------------------------------- | -
|                                                        |  |       |  | £m                     |   |  | £m                                |  
|Fixed assets                                            |  |       |  |                        |   |  |                                   |  
|Intangible assets                                       |  |       |  |                        |   |  |                                   |  
|Goodwill, net                                           |  |       |  | 8                      |   |  | 7                                 |  
|Negative goodwill, net                                  |  |       |  | (7                     | ) |  | (12                               | )
|                                                        |  |       |  |                        |   |  |                                   |  
|Net goodwill                                            |  | 13    |  | 1                      |   |  | (5                                | )
|Tangible fixed assets                                   |  | 14    |  | 2,473                  |   |  | 2,648                             |  
|Fixed asset investments                                 |  |       |  |                        |   |  |                                   |  
|Joint ventures:                                         |  |       |  |                        |   |  |                                   |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Share of gross assets                                   |  |       |  | 300                    |   |  | 287                               |  
|Share of gross liabilities                              |  |       |  | (198                   | ) |  | (188                              | )
|                                                        |  |       |  |                        |   |  |                                   |  
|                                                       
|Net investment in joint ventures                        |  |       |  | 102                    |   |  | 99                                |  
|Net investment in associates                            |  |       |  | 303                    |   |  | 313                               |  
|Other investments                                       |  |       |  | 102                    |   |  | 97                                |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Total fixed asset investments                           |  | 15    |  | 507                    |   |  | 509                               |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Total fixed assets                                      |  |       |  | 2,981                  |   |  | 3,152                             |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Current assets                                          |  |       |  |                        |   |  |                                   |  
|Stocks                                                  |  |       |  | 55                     |   |  | 25                                |  
|Debtors                                                 |  | 18    |  | 134                    |   |  | 158                               |  
|Investments                                             |  | 19    |  | 43                     |   |  | 47                                |  
|Cash at bank and in hand                                |  |       |  | 799                    |   |  | 596                               |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Total current assets                                    |  |       |  | 1,031                  |   |  | 826                               |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Total assets                                            |  |       |  | 4,012                  |   |  | 3,978                             |  
|                                                        |  |       |  |                        |   |  |                                   |  
|                                                       
|Creditors: amounts falling due within one year          |  | 20    |  |                        |   |  |                                   |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Secured loans without recourse                          |  |       |  | (810                   | ) |  | (112                              | )
|Other current liabilities                               |  |       |  | (595                   | ) |  | (503                              | )
|                                                        |  |       |  |                        |   |  |                                   |  
|                                                        |  |       |  | (1,405                 | ) |  | (615                              | )
|                                                        |  |       |  |                        |   |  |                                   |  
|Net current (liabilities)/ assets                       |  |       |  | (374                   | ) |  | 211                               |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Total assets less current liabilities                   |  |       |  | 2,607                  |   |  | 3,363                             |  
|Creditors: amounts falling due after more than one year |  | 21    |  | (583                   | ) |  | (1,436                            | )
|Provisions for liabilities and charges                  |  | 22    |  | (255                   | ) |  | (230                              | )
|                                                        |  |       |  |                        |   |  |                                   |  
|Net assets employed                                     |  | 2     |  | 1,769                  |   |  | 1,697                             |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Capital and reserves                                    |  |       |  |                        |   |  |                                   |  
|Called up share capital                                 |  | 24/25 |  | 559                    |   |  | 559                               |  
|Share premium account                                   |  | 25    |  | 289                    |   |  | 289                               |  
|Capital redemption reserve                              |  | 25    |  | 140                    |   |  | 140                               |  
|Capital reserve                                         |  | 25    |  | 422                    |   |  | 422                               |  
|Profit and loss account                                 |  | 25    |  | 330                    |   |  | 260                               |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Shareholders funds  equity                            |  | 25    |  | 1,740                  |   |  | 1,670                             |  
|Minority interests  equity                             |  |       |  | 29                     |   |  | 27                                |  
|                                                        |  |       |  |                        |   |  |                                   |  
|Total equity                                            |  |       |  | 1,769                  |   |  | 1,697                             |  
|                                                        |  |       |  |                        |   |  |                                   |  



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



F-8



---

##### Table of Contents



Consolidated cash flow
statements



|                                                                                          |  | Note |  | Yearended31 December 2002 |   |  | Yearended31 December 2001 |   |  | 9 months ended 31 December 2000 |  
|----------------------------------------------------------------------------------------- |  | ---- |  | ------------------------- | - |  | ------------------------- | - |  | ------------------------------- | -
|                                                                                          |  |      |  | £m                        |   |  | £m                        |   |  | £m                              |  
|Net cash inflow/(outflow) from operating activities                                       |  | 26   |  |                           |   |  |                           |   |  |                                 |  
|Continuing                                                                                |  |      |  | 276                       |   |  | 274                       |   |  | (10                             | )
|Discontinued                                                                              |  |      |  |                          |   |  |                          |   |  | (289                            | )
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  
|Net cash inflow/(outflow) from operating activities                                       |  |      |  | 276                       |   |  | 274                       |   |  | (299                            | )
|Dividends received from associates and joint ventures                                     |  | 26   |  | 84                        |   |  | 59                        |   |  | 21                              |  
|Dividends received from fixed asset investments  ordinary                                |  |      |  | 31                        |   |  |                          |   |  |                                |  
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  
|                                                                                          |  |      |  | 391                       |   |  | 333                       |   |  | (278                            | )
|Dividends received from fixed asset investments  exceptional                             |  |      |  | 42                        |   |  |                          |   |  |                                |  
|Returns on investments and servicing of finance  ordinary                                |  | 26   |  | (88                       | ) |  | (105                      | ) |  | (79                             | )
|Returns on investments and servicing of finance  exceptional                             |  | 26   |  | (25                       | ) |  |                          |   |  |                                |  
|Tax                                                                                       |  |      |  | (20                       | ) |  | (1                        | ) |  | (10                             | )
|Capital expenditure and financial investment                                              |  | 26   |  |                           |   |  |                           |   |  |                                 |  
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  
|Continuing                                                                                |  |      |  | (159                      | ) |  | (406                      | ) |  | (576                            | )
|Discontinued                                                                              |  |      |  |                          |   |  |                          |   |  | (114                            | )
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  
|Capital expenditure and financial investment  Group                                      |  |      |  | (159                      | ) |  | (406                      | ) |  | (690                            | )
|Acquisitions and disposals                                                                |  | 26   |  |                           |   |  |                           |   |  |                                 |  
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  
|Continuing                                                                                |  |      |  | (144                      | ) |  | 318                       |   |  | (42                             | )
|Discontinued                                                                              |  |      |  |                          |   |  |                          |   |  | (12                             | )
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  
|Acquisitions and disposals  Group                                                        |  |      |  | (144                      | ) |  | 318                       |   |  | (54                             | )
|Equity dividends paid                                                                     |  |      |  |                          |   |  |                          |   |  | (116                            | )
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  
|Net cash (outflow)/ inflow before management of liquid resources and financing
activities |  |      |  | (3                        | ) |  | 139                       |   |  | (1,227                          | )
|Management of liquid resources                                                            |  |      |  |                           |   |  |                           |   |  |                                 |  
|Movement in short-term investments                                                        |  |      |  |                          |   |  | (48                       | ) |  | 1,155                           |  
|Financing activities                                                                      |  | 26   |  | 210                       |   |  | 406                       |   |  | (50                             | )
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  
|Increase/(decrease) in cash in the period                                                 |  |      |  | 207                       |   |  | 497                       |   |  | (122                            | )
|                                                                                          |  |      |  |                           |   |  |                           |   |  |                                 |  



Consolidated
reconciliation of net cash flow to movement in net debt



|                                                                           |  |    |  | Yearended 31 December 2002 |   |  | Yearended 31 December 2001 |   |  | 9 monthsended31 December 2000 |  
|-------------------------------------------------------------------------- |  | -- |  | -------------------------- | - |  | -------------------------- | - |  | ----------------------------- | -
|                                                                           |  |    |  | £m                         |   |  | £m                         |   |  | £m                            |  
|Increase/(decrease) in cash in the period                                  |  | 29 |  | 207                        |   |  | 497                        |   |  | (122                          | )
|Cash (inflow)/outflow from (increase)/decrease in debt and lease
financing |  | 29 |  | (210                       | ) |  | (406                       | ) |  | 54                            |  
|Cash outflow/(inflow) from increase/(decrease) in liquid resources         |  | 29 |  |                           |   |  | 48                         |   |  | (1,155                        | )
|                                                                           |  |    |  |                            |   |  |                            |   |  |                               |  
|Change in net debt resulting from cash flows                               |  |    |  | (3                         | ) |  | 139                        |   |  | (1,223                        | )
|Translation differences                                                    |  |    |  | 98                         |   |  | 17                         |   |  | (32                           | )
|Net debt transferred to Innogy                                             |  |    |  |                           |   |  |                           |   |  | 679                           |  
|Other non-cash movements                                                   |  |    |  | (10                        | ) |  | 18                         |   |  | (5                            | )
|                                                                           |  |    |  |                            |   |  |                            |   |  |                               |  
|Movement in net debt in the period                                         |  |    |  | 85                         |   |  | 174                        |   |  | (581                          | )
|Net debt at the start of the period                                        |  |    |  | (897                       | ) |  | (1,071                     | ) |  | (490                          | )
|                                                                           |  |    |  |                            |   |  |                            |   |  |                               |  
|Net debt at the end of the period                                          |  | 29 |  | (812                       | ) |  | (897                       | ) |  | (1,071                        | )
|                                                                           |  |    |  |                            |   |  |                            |   |  |                               |  



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



F-9



---

##### Table of Contents



Consolidated statement of
total recognised gains and losses



|                                                                                                                     |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 (Restated) |   |  | 9 months ended 31 December 2000 (Restated) |  
|-------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | - |  | -------------------------------------- | - |  | ------------------------------------------ | -
|                                                                                                                     |  | £m                          |   |  | £m                                     |   |  | £m                                         |  
|Profit/(loss) for the financial period                                                                               |  | 113                         |   |  | 138                                    |   |  | (189                                       | )
|Exchange differences on the retranslation of net investments and related borrowings (net
of £10 million tax in 2002) |  | (42                         | ) |  | (4                                     | ) |  | (31                                        | )
|Share of recognised (loss)/gain of associated undertaking                                                            |  | (1                          | ) |  | 2                                      |   |  |                                           |  
|                                                                                                                     |  |                             |   |  |                                        |   |  |                                            |  
|Total recognised gains and losses relating to the financial
period                                                   |  | 70                          |   |  | 136                                    |   |  | (220                                       | )
|                                                                                                                     |  |                             |   |  |                                        |   |  |                                            |  
|Prior period adjustment*                                                                                             |  | (155                        | ) |  |                                        |   |  |                                            |  
|                                                                                                                     |  |                             |   |  |                                        |   |  |                                            |  
|Total recognised gains and losses since last annual report                                                           |  | (85                         | ) |  |                                        |   |  |                                            |  
|                                                                                                                     |  |                             |   |  |                                        |   |  |                                            |  



Reconciliation of
movements in equity shareholders funds



|                                                       |  |    |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 (Restated) |   |  | 9 months ended 31 December 2000 (Restated) |  
|------------------------------------------------------ |  | -- |  | --------------------------- | - |  | -------------------------------------- | - |  | ------------------------------------------ | -
|                                                       |  |    |  | £m                          |   |  | £m                                     |   |  | £m                                         |  
|Profit/(loss) for the financial period                 |  |    |  | 113                         |   |  | 138                                    |   |  | (189                                       | )
|Demerger dividend                                      |  |    |  |                            |   |  |                                       |   |  | (392                                       | )
|                                                       |  |    |  |                             |   |  |                                        |   |  |                                            |  
|                                                       |  |    |  | 113                         |   |  | 138                                    |   |  | (581                                       | )
|Other recognised gains and losses relating to the year |  | 25 |  | (43                         | ) |  | (2                                     | ) |  | (31                                        | )
|Issue of shares                                        |  | 25 |  |                            |   |  |                                       |   |  | 4                                          |  
|                                                       |  |    |  |                             |   |  |                                        |   |  |                                            |  
|Net additions/(reduction) to shareholders funds       |  |    |  | 70                          |   |  | 136                                    |   |  | (608                                       | )
|                                                       |  |    |  |                             |   |  |                                        |   |  |                                            |  
|Opening shareholders funds as originally stated       |  |    |  | 1,825                       |   |  | 1,683                                  |   |  | 2,283                                      |  
|Prior period adjustment*                               |  |    |  | (155                        | ) |  | (149                                   | ) |  | (141                                       | )
|                                                       |  |    |  |                             |   |  |                                        |   |  |                                            |  
|Opening shareholders funds as restated                |  |    |  | 1,670                       |   |  | 1,534                                  |   |  | 2,142                                      |  
|                                                       |  |    |  |                             |   |  |                                        |   |  |                                            |  
|Balance at end of period                               |  |    |  | 1,740                       |   |  | 1,670                                  |   |  | 1,534                                      |  
|                                                       |  |    |  |                             |   |  |                                        |   |  |                                            |  

---

|* |  | Restated for the adoption of FRS 19 Deferred Tax (see note 1(i)  Basis of preparation of accounts on F-11)
|- |  | -----------------------------------------------------------------------------------------------------------



The accompanying notes are an integral part
of this consolidated financial information.



F-10



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##### Table of Contents



Notes to the consolidated
financial statements



1 Principal accounting policies



The following accounting policies have been applied
consistently in dealing with items which are considered material in relation to the Groups consolidated financial statements.



i Basis of preparation



The financial statements of International Power plc and its subsidiary undertakings (the Group) are prepared under the historical cost convention and in
accordance with UK generally accepted accounting principles (UK GAAP), applying the accounting policies described below. The comparative figures for the year ended 31 December 2001 and the nine month period ended 31 December 2000 have been restated
following the adoption of FRS 19 Deferred Tax. The adoption of FRS 19 has decreased equity shareholders funds at 1 January 2002 by £155 million net, representing an increase of £170 million in deferred tax provisions, additional
provisions of £6 million made against the carrying value of joint ventures and associates, less £21 million reclassified from goodwill. The profit for the year ended 31 December 2001 was decreased by £6 million (nine months to 31
December 2000: £8 million).



UK GAAP varies in certain
respects from US GAAP. Application of US GAAP would have affected shareholders equity and results of operations for each of the periods presented to the extent summarised in note 35 (as restated).



ii Basis of presentation



International Power plc (previously National Power PLC) demerged its UK energy
business (now owned by Innogy Holdings plc) resulting in shareholders owning shares in both International Power plc and Innogy Holdings plc. The demerger became unconditional on 30 September 2000.



For accounting purposes, the demerger is treated as a disposal of the UK
energy business by way of a dividend with effect from this date and consequently the consolidated profit and loss account includes the results of the UK energy business until 30 September 2000. These results have been shown separately (under the
heading discontinued activities) within the profit and loss account, distinguishing for shareholders the results of the ongoing business and those of the business now owned by Innogy Holdings plc. The allocation of interest to the
discontinued business has been carried out on the basis that the indebtedness assumed by it on demerger had been attributed to it for the six months to 30 September 2000, or since the debt arose and that it had otherwise been financed by interest
free intercompany debt. The balance of the charge has been allocated to the continuing business and therefore may not be representative of the future charge to the continuing business.



The Group tax charge has been allocated to the discontinuing business as if the tax charge for that business had been
recomputed on a stand-alone basis. The balance of the Group charge has been allocated to the continuing business and therefore may not be representative of the future charge to the business.



Certain information in respect of the results, cash flows and net assets have
been analysed between the discontinued and the continuing business which has been renamed International



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---

##### Table of Contents

Power plc including, as appropriate, each groups share of the results and net assets of relevant associated undertakings and joint
ventures under the equity accounting method.



iii Basis of
consolidation



The consolidated financial statements
include the financial statements of the Company and all of its subsidiary undertakings up to 31 December 2002. The results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated profit and loss account from
the date of acquisition or up to the date of disposal.



An
associate is an undertaking in which the Group has a long-term participating interest, usually from 20% to 50% of the equity voting rights, and over which it exercises significant influence. A joint venture is an undertaking in which the Group has a
long-term participating interest and over which it exercises joint control. The Groups share of the profits less losses of associates and of joint ventures is included in the consolidated profit and loss account and its interest in their net
assets is included in fixed asset investments in the consolidated balance sheet.



Purchased goodwill (both positive and negative) arising on consolidation in respect of acquisitions before 1 April 1998, when FRS 10 Goodwill and Intangible Assets was adopted, was set off to reserves in the year of acquisition. When
a subsequent disposal occurs any related goodwill previously set off to reserves is taken back through the profit and loss account as part of the profit or loss on disposal.



Purchased goodwill (representing the excess of the fair value of the consideration given over the fair value of the separable
net assets acquired) arising on consolidation in respect of acquisitions since 1 April 1998 is capitalised. Positive goodwill is fully amortised by equal annual instalments over its estimated useful life, currently not more than 20 years.



Negative goodwill arising on consolidation in respect of
acquisitions since 1 April 1998 is included within fixed assets and is released to the profit and loss account in the periods in which the fair values of the non-monetary assets purchased on the same acquisition are recovered, whether through
amortisation or sale.



On the subsequent disposal or termination
of a business acquired since 1 April 1998, the profit or loss on disposal or termination is calculated after charging/(crediting) the unamortised amount of any related goodwill/(negative goodwill).



iv Income recognition



Turnover, from plants subject to power purchase agreements (PPAs), is
recognised in accordance with the contract terms in respect of owned assets or in accordance with note (ix) for leased assets. Turnover from merchant plants is recognised as output is delivered after taking account of related hedging contracts.
Liquidated damages (LDs), in respect of late commissioning, are included in other operating income. Proprietary trading income is recognised on the basis of completed contracts and the mark-to-market value of outstanding contracts at the period end.



v Pension costs



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##### Table of Contents



For defined benefit
arrangements, pension contributions are charged to the profit and loss account so as to spread the cost of pensions over employees working lives. The regular cost is attributed to individual years using the projected unit credit method.
Variations in pension costs, which are identified as a result of actuarial valuations, are amortised over the average expected remaining working lives of employees. Differences between the amounts funded and the amounts charged to the profit and
loss account are treated as either provisions or prepayments in the balance sheet.



For defined contribution arrangements, contributions are charged to the profit and loss account as they fall due.



vi Foreign exchange



The profits or losses of overseas subsidiary undertakings, associates and joint ventures are translated into sterling at average rates of exchange.
Balance sheets of subsidiary undertakings and net investments in associates and joint ventures are translated at closing rates.



Exchange differences arising on the retranslation at closing rates of foreign currency denominated balance sheets and net investments in associates and
joint ventures, together with the adjustment to convert the balance of retained profits to closing rates, are taken directly to reserves.



Transactions denominated in foreign currencies arising in the normal course of business are translated into sterling at the exchange rate ruling on the
date payment takes place unless related or matching forward foreign exchange contracts have been entered into, when the rate specified in the contract is used. Monetary assets and liabilities expressed in foreign currencies that are not covered by
hedging arrangements are translated into sterling at the rates of exchange ruling at the balance sheet date and any difference arising on the retranslation of those amounts is taken to the profit and loss account.



vii Interest



Interest on borrowings relating to major capital projects with long periods of
development is capitalised during their construction and written-off as part of the total cost over the useful life of the asset. All other interest is charged to the profit and loss account as incurred. Included within the interest charge in the
profit and loss account is the unwinding of discounts on long-term provisions.



viii Tangible fixed assets



Tangible fixed assets are stated at original cost less accumulated depreciation and any provision for impairment in value. In the case of assets constructed by the Group, related works, commissioning and borrowing costs as defined
under FRS 15 (Tangible Fixed Assets) are included in cost. Assets in the course of construction are included in tangible fixed assets on the basis of expenditure incurred at the balance sheet date.



Project development costs (including appropriate direct internal costs) are
capitalised from the point that the Board confirms that it is reasonably certain that the project will proceed to completion.



F-13



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Development expenditure is
principally incurred in identifying and developing investment opportunities and typically includes feasibility studies, pre-bid costs, legal, professional and other related advisory costs.



Depreciation is calculated so as to write-down the cost of tangible fixed assets to their residual value evenly over their
estimated useful lives. Estimated useful lives are reviewed periodically, taking into account commercial and technological obsolescence as well as normal wear and tear, provision being made where the carrying value may not be recoverable.



Tangible fixed assets are reviewed for impairment if events or
changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is assessed by reference to the net present value of expected future cash flows of the relevant
income generating unit or disposal value, if higher. If an asset is impaired, a provision is made to reduce its carrying amount to the estimated recoverable amount. The discount rate applied is based upon the groups weighted average cost of
capital with appropriate adjustment for risks associated with the relevant unit.



The depreciation charge is based on the following estimates of useful lives:



|                                                                  |  | Years
|----------------------------------------------------------------- |  | -----
|Power stations                                                    |  | 20-40
|Fixtures, fittings, tools and equipment                           |  | 4-5  
|Computer equipment and software                                   |  | 3-5  
|Hot gas path combined cycle gas turbine (CCGT) blades, on average |  | 2-4  



Freehold land is not
depreciated.



ix Leased assets



As lessee



Assets leased under finance leases are capitalised and depreciated over the shorter of the lease periods and the estimated
operational lives of the assets. The interest element of the finance lease repayments is charged to the profit and loss account in proportion to the balance of the capital repayments outstanding. Rentals payable under operating leases are charged to
the profit and loss account on a straight-line basis.



As
lessor



Rentals receivable under finance leases are
allocated to accounting periods to give a constant periodic rate of return on the net cash investment in the lease in each period. The amounts due from lessees under finance leases are recorded in the balance sheet as a debtor at the amount of the
net investment in the lease after making provision for bad and doubtful debts receivable.



x Fixed asset investments



Fixed asset investments (other than joint ventures and associates which are discussed in note (iii)) are stated at cost less provision for any impairment in value.



xi Current asset investments



Current asset investments are stated at the lower of cost and market value.



F-14



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##### Table of Contents



xii Stocks



Operating stocks consist of fuel and stores and are
valued at the lower of cost and net realisable value. These are included as current assets.



xiii Deferred taxation



Deferred taxation is provided on timing differences, arising from the different treatment for accounts and taxation purposes of transactions and events recognised in the financial statements of the current year and previous
years. Deferred taxation is calculated at the rates at which it is estimated that tax will arise.



xiv Financial instruments



The Group uses a range of derivative instruments, including interest rate swaps, options, energy-based futures contracts and foreign exchange contracts and swaps. Derivative instruments are used for hedging purposes, apart
from energy-based futures contracts, some of which are used for trading purposes. Interest differentials on derivative instruments are charged to the profit and loss account as interest costs in the period to which they relate. Accounting for
foreign currency transactions is described in the foreign exchange policy in note (vi). Changes in the market value of futures trading contracts are reflected in the profit and loss account in the period in which the change occurs.



xv Debt instruments



New borrowings are stated at net proceeds received after deduction of issue
costs. The issue costs of debt instruments are charged to the profit and loss account over the life of the instrument.



xvi Interest rate management



Exposure to movements in interest rates can be managed by the use of debt instruments, swaps, options and forward rate agreements. All financial
instruments are transacted with respect to a known debt or cash position and are accounted for on an accruals basis. Interest differentials on derivative instruments are charged to the profit and loss account as interest costs in the period to which
they relate.



Should derivative instruments be terminated early
as a result of the removal of the underlying debt or cash position, the realised gain or loss that arises will be recognised immediately. If, however, the relevant debt or cash position remains, and there has been no material change in the
allocation of risk between counterparties, the realised gain or loss from terminated instruments will be amortised over the life of that original hedged position.



xvii Foreign exchange management



In accordance with our policy, exposure to movements in foreign exchange rates is managed by the use of debt instruments,
forward contracts, swaps and options. The notional amounts of derivative instruments are revalued at the exchange rates prevailing at the balance sheet date and the exchange gains or losses are taken directly to reserves and included in the
consolidated statement of total recognised gains and losses in accordance with SSAP 20 (Foreign Currency Translation).



F-15



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##### Table of Contents



xviii Use of estimates
in the preparation of financial information



The
preparation of financial information in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial information and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



xix Exceptional items



Under UK GAAP, an item is considered exceptional if it derives from ordinary activities and is considered of such significance that separate disclosure is
needed if the financial statements are to give a true and fair view. All exceptional items, other than those listed below are included under the statutory line-item to which they relate. The following items are required to be separately disclosed
after operating profit on the face of the profit and loss account:



| |  | profits or losses in the sale or termination of an operation;
|- |  | -------------------------------------------------------------



| |  | costs of a fundamental reorganisation or restructuring having a material effect on the nature and focus of the groups operations; and
|- |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  | profits or losses on the disposal of fixed assets.
|- |  | --------------------------------------------------



2 Segmental analysis



We are a global energy group comprising international power generation activities. The UK energy business (other than Deeside) was transferred to Innogy
as part of the demerger of National Power PLC which became effective on 30 September 2000.



The international operations are managed on a geographical basis, reflecting the different characteristics within each geographical market.



F-16



---

##### Table of Contents



(a)    By class of business



|                                                                      |  | Year ended 31 December2002 |   |  | Year ended  31 December2001 |   |  | 9 months ended 31 December2000 |  
|--------------------------------------------------------------------- |  | -------------------------- | - |  | --------------------------- | - |  | ------------------------------ | -
|                                                                      |  | Group                      |   |  | Group                       |   |  | Continuing                     |  
|                                                                      |  | £m                         |   |  | £m                          |   |  | £m                             |  
|Group turnover                                                        |  |                            |   |  |                             |   |  |                                |  
|                                                                     
|Electricity generation                                                |  | 1,129                      |   |  | 1,103                       |   |  | 762                            |  
|Discontinued operations                                               |  |                           |   |  |                            |   |  |                               |  
|Corporate                                                             |  |                           |   |  |                            |   |  |                               |  
|                                                                      |  |                            |   |  |                             |   |  |                                |  
|                                                                      |  | 1,129                      |   |  | 1,103                       |   |  | 762                            |  
|Less: turnover of joint ventures                                      |  | (122                       | ) |  | (139                        | ) |  | (96                            | )
|Less: turnover of associates                                          |  | (290                       | ) |  | (407                        | ) |  | (382                           | )
|                                                                      |  |                            |   |  |                             |   |  |                                |  
|                                                                      |  | 717                        |   |  | 557                         |   |  | 284                            |  
|                                                                      |  |                            |   |  |                             |   |  |                                |  
|                                                                     
|                                                                      |  | Year ended31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December2000 |  
|                                                                      |  | Group                      |   |  | Group                       |   |  | Continuing                     |  
|                                                                      |  | £m                         |   |  | £m                          |   |  | £m                             |  
|Profit before interest and taxation (excluding all exceptional
items) |  |                            |   |  |                             |   |  |                                |  
|Electricity generation                                                |  | 417                        |   |  | 354                         |   |  | 201                            |  
|Discontinued operations                                               |  |                           |   |  |                            |   |  |                               |  
|Corporate costs                                                       |  | (29                        | ) |  | (28                         | ) |  | (34                            | )
|                                                                      |  |                            |   |  |                             |   |  |                                |  
|                                                                      |  | 388                        |   |  | 326                         |   |  | 167                            |  
|                                                                      |  |                            |   |  |                             |   |  |                                |  



(b)    By geographical area



|                                 |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December2000 |  
|-------------------------------- |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------ | -
|                                 |  | Group                       |   |  | Group                       |   |  | Continuing                     |  
|                                 |  | £m                          |   |  | £m                          |   |  | £m                             |  
|Group turnover                   |  |                             |   |  |                             |   |  |                                |  
|North America                    |  | 315                         |   |  | 237                         |   |  | 115                            |  
|Europe and Middle East           |  | 440                         |   |  | 521                         |   |  | 405                            |  
|Australia                        |  | 226                         |   |  | 194                         |   |  | 106                            |  
|Rest of World                    |  | 148                         |   |  | 151                         |   |  | 136                            |  
|                                 |  |                             |   |  |                             |   |  |                                |  
|                                 |  | 1,129                       |   |  | 1,103                       |   |  | 762                            |  
|Less: turnover of joint ventures |  | (122                        | ) |  | (139                        | ) |  | (96                            | )
|Less: turnover of associates     |  | (290                        | ) |  | (407                        | ) |  | (382                           | )
|                                 |  |                             |   |  |                             |   |  |                                |  
|                                 |  | 717                         |   |  | 557                         |   |  | 284                            |  
|                                 |  |                             |   |  |                             |   |  |                                |  



F-17



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##### Table of Contents



|                                                             |  | Year ended 31 December2002 |   |  | Year ended 31 December2001 |   |  | 9 months ended 31 December2000 |  
|------------------------------------------------------------ |  | -------------------------- | - |  | -------------------------- | - |  | ------------------------------ | -
|                                                             |  | Group                      |   |  | Group                      |   |  | Continuing                     |  
|                                                             |  | £m                         |   |  | £m                         |   |  | £m                             |  
|Profit before interest and tax                               |  |                            |   |  |                            |   |  |                                |  
|North America                                                |  | 99                         |   |  | 93                         |   |  | 34                             |  
|Europe and Middle East                                       |  | 109                        |   |  | 141                        |   |  | 88                             |  
|Australia                                                    |  | 101                        |   |  | 72                         |   |  | 46                             |  
|Rest of World                                                |  | 108                        |   |  | 48                         |   |  | 33                             |  
|                                                             |  |                            |   |  |                            |   |  |                                |  
|                                                             |  | 417                        |   |  | 354                        |   |  | 201                            |  
|Corporate costs                                              |  | (29                        | ) |  | (28                        | ) |  | (34                            | )
|                                                             |  |                            |   |  |                            |   |  |                                |  
|Profit before interest and tax (excluding exceptional items) |  | 388                        |   |  | 326                        |   |  | 167                            |  
|Exceptional items                                            |  | (61                        | ) |  | 30                         |   |  | (99                            | )
|                                                             |  |                            |   |  |                            |   |  |                                |  
|Profit/(loss) before interest and tax                        |  | 327                        |   |  | 356                        |   |  | 68                             |  
|                                                             |  |                            |   |  |                            |   |  |                                |  



North America profit
before interest and tax includes other income in respect of the late commissioning and performance recovery of new power plants amounting to £102 million (year ended 31 December 2001: £80 million; nine months ended 31 December 2000:
£28 million).



Sales of electricity generated in each
geographic region are made solely to customers in the same geographic region.



In the year ended 31 December 2002, billings of £16 million (year ended 31 December 2001: £16 million; nine month period to 31 December 2000: £12 million) in respect of operations and maintenance services were
netted against operating costs.



In the year ended 31 December
2002, loss before tax derived from UK operations was £111 million (year ended 31 December 2001: profit of £2 million).



Exceptional items before interest and tax are analysed by geographic region as follows:



|                                          |  | Year ended 31 December2002 |   |  | Year ended 31 December2001 |  | 9 months ended 31 December2000 |  
|----------------------------------------- |  | -------------------------- | - |  | -------------------------- |  | ------------------------------ | -
|                                          |  | Group                      |   |  | Group                      |  | Continuing                     |  
|                                          |  | £m                         |   |  | £m                         |  | £m                             |  
|Exceptional items                         |  |                            |   |  |                            |  |                                |  
|North America                             |  |                           |   |  |                           |  |                               |  
|Europe and Middle East                    |  | (103                       | ) |  | 20                         |  |                               |  
|Australia                                 |  |                           |   |  |                           |  |                               |  
|Rest of World                             |  | 42                         |   |  | 2                          |  |                               |  
|Corporate Costs                           |  |                           |   |  | 8                          |  | (99                            | )
|                                          |  |                            |   |  |                            |  |                                |  
|Exceptional items before interest and tax |  | (61                        | ) |  | 30                         |  | (99                            | )
|                                          |  |                            |   |  |                            |  |                                |  



We also incurred an
exceptional interest charge of £29 million during the year ended 31 December 2001. Further details are given in note 9.



F-18



---

##### Table of Contents



|                       |  | Year ended 31 December2002 |  | Year ended 31 December2001 |  | 9 months ended 31 December2000
|---------------------- |  | -------------------------- |  | -------------------------- |  | ------------------------------
|                       |  | Group                      |  | Group                      |  | Continuing                    
|                       |  | £m                         |  | £m                         |  | £m                            
|Depreciation           |  |                            |  |                            |  |                               
|North America          |  | 53                         |  | 32                         |  | 7                             
|Europe and Middle East |  | 23                         |  | 28                         |  | 9                             
|Australia              |  | 33                         |  | 31                         |  | 20                            
|Rest of World          |  | 2                          |  | 4                          |  | 4                             
|                       |  |                            |  |                            |  |                               
|                       |  | 111                        |  | 95                         |  | 40                            
|                       |  |                            |  |                            |  |                               
|                      
|                       |  | Year ended 31 December2002 |  | Year ended 31 December2001 |  | 9 months ended 31 December2000
|                       |  | Group                      |  | Group                      |  | Continuing                    
|                       |  | £m                         |  | £m                         |  | £m                            
|Capital Expenditure    |  |                            |  |                            |  |                               
|North America          |  | 107                        |  | 295                        |  | 442                           
|Europe and Middle East |  | 48                         |  | 208                        |  | 11                            
|Australia              |  | 24                         |  | 26                         |  | 62                            
|Rest of World          |  | 3                          |  | 67                         |  | 19                            
|                       |  |                            |  |                            |  |                               
|                       |  | 182                        |  | 596                        |  | 534                           
|                       |  |                            |  |                            |  |                               



Capital expenditure is analysed below:



|                                                            |  | Year ended 31 December2002 |  | Year ended 31 December2001 |  | 9 months ended December2000
|----------------------------------------------------------- |  | -------------------------- |  | -------------------------- |  | ---------------------------
|                                                            |  | Group                      |  | Group                      |  | Continuing                 
|                                                            |  | £m                         |  | £m                         |  | £m                         
|Additions to tangible fixed assets                          |  | 175                        |  | 399                        |  | 519                        
|Tangible fixed assets acquired with subsidiary undertakings |  |                           |  | 197                        |  | 15                         
|Additions to fixed asset investments                        |  | 7                          |  |                           |  |                           
|                                                            |  |                            |  |                            |  |                            
|                                                            |  | 182                        |  | 596                        |  | 534                        
|                                                            |  |                            |  |                            |  |                            



(c)Net assets
employed by division



|                                                   |  | Net operating assets |  
|-------------------------------------------------- |  | -------------------- | -
|Geographical analysis by origin                    |  | 31 December 2002     |  
|                                                   |  | £m                   |  
|North America                                      |  | 1,197                |  
|Europe and Middle East                             |  | 611                  |  
|Australia                                          |  | 787                  |  
|Rest of World                                      |  | 303                  |  
|Corporate and development                          |  | (66                  | )
|                                                   |  |                      |  
|Net operating assets                               |  | 2,832                |  
|Borrowings                                         |  | (1,654               | )
|Cash and short-term deposits                       |  | 842                  |  
|Deferred tax                                       |  | (219                 | )
|Taxation                                           |  | (53                  | )
|Goodwillon acquisition of associated undertakings |  | 20                   |  
|Goodwillon acquisition of subsidiary undertakings |  | 1                    |  
|                                                   |  |                      |  
|Net assets per consolidated balance sheet          |  | 1,769                |  
|                                                   |  |                      |  



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##### Table of Contents



3 Net operating costs
before exceptional items



|                       |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December2000 |  
|---------------------- |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------ | -
|                       |  | Group                       |   |  | Group                       |   |  | Continuing                     |  
|                       |  | £m                          |   |  | £m                          |   |  | £m                             |  
|Cost of sales          |  | 558                         |   |  | 383                         |   |  | 205                            |  
|Other operating costs  |  | 85                          |   |  | 105                         |   |  | 60                             |  
|Other operating income |  | (134                        | ) |  | (96                         | ) |  | (40                            | )
|                       |  |                             |   |  |                             |   |  |                                |  
|                       |  | 509                         |   |  | 392                         |   |  | 225                            |  
|                       |  |                             |   |  |                             |   |  |                                |  



Other operating income
includes compensation for the late commissioning of plants, billings in respect of operations and maintenance services and profit on sale of development sites.



The impact of exceptional items on the above line items would be to increase other operating costs by £103 million and £2 million in the years
ended 31 December 2002 and 2001, respectively, and to increase cost of sales and other operating costs by £206 million and £21 million, respectively, in the nine months ended 31 December 2000.



4 Profit on ordinary activities before taxation



Profit on ordinary activities before taxation is stated after
charging/(crediting):



|                                                                                         |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December2000 |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------ | -
|                                                                                         |  | Group                       |   |  | Group                       |   |  | Continuing                     |  
|                                                                                         |  | £m                          |   |  | £m                          |   |  | £m                             |  
|Depreciation of tangible fixed assets                                                    |  | 111                         |   |  | 95                          |   |  | 40                             |  
|Amortisation of intangible fixed assets                                                  |  | (1                          | ) |  | (1                          | ) |  |                               |  
|Other amortisation                                                                       |  | 2                           |   |  |                            |   |  |                               |  
|Development costs net of recoveries and amounts capitalised                              |  | 8                           |   |  | 18                          |   |  | 7                              |  
|Operating exceptional items (Note 9)                                                     |  | 103                         |   |  | 2                           |   |  |                               |  
|Property lease rentals payable (net of recoveries)                                       |  | 2                           |   |  | 3                           |   |  | 5                              |  
|Profit on disposal of fixed assets (excluding exceptional items)                         |  |                            |   |  | (1                          | ) |  |                               |  
|Foreign exchange (gains)/losses                                                          |  | 13                          |   |  | 1                           |   |  | (2                             | )
|Auditors remunerationaudit fees                                                        |  | 0.8                         |   |  | 0.7                         |   |  | 0.7                            |  
|Auditors remunerationother fees paid to the auditors and their associates
for services |  | 0.6                         |   |  | 1.0                         |   |  | 7.3                            |  
|                                                                                         |  |                             |   |  |                             |   |  |                                |  



F-20



---

##### Table of Contents



5 Interest receivable and
similar income



|                                                        |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 |  | 9 months  ended 31 December 2000
|------------------------------------------------------- |  | --------------------------- |  | --------------------------- |  | --------------------------------
|                                                        |  | £m                          |  | £m                          |  | £m                              
|a) Group interest receivable and similar income         |  |                             |  |                             |  |                                 
|Interest receivable and similar income                  |  | 24                          |  | 24                          |  | 83                              
|                                                        |  |                             |  |                             |  |                                 
|Total Group interest receivable and similar income      |  | 24                          |  | 24                          |  | 83                              
|                                                        |  |                             |  |                             |  |                                 
|b) Interest receivable of associates and joint ventures |  |                             |  |                             |  |                                 
|Share of interest receivable of associates              |  |                            |  |                            |  | 3                               
|                                                        |  |                             |  |                             |  |                                 
|                                                        |  |                            |  |                            |  | 3                               
|                                                        |  |                             |  |                             |  |                                 



6 Interest payable
and similar charges



|                                                                                    |  | Yearended31 December 2002 |   |  | Yearended31 December 2001 |   |  | 9 monthsended31 December 2000 |  
|----------------------------------------------------------------------------------- |  | ------------------------- | - |  | ------------------------- | - |  | ----------------------------- | -
|                                                                                    |  | £m                        |   |  | £m                        |   |  | £m                            |  
|a) Group interest payable and similar charges                                       |  |                           |   |  |                           |   |  |                               |  
|Interest on:                                                                        |  |                           |   |  |                           |   |  |                               |  
|Bank loans and overdrafts                                                           |  | 102                       |   |  | 103                       |   |  | 92                            |  
|Other borrowings                                                                    |  | 24                        |   |  | 16                        |   |  | 57                            |  
|                                                                                    |  |                           |   |  |                           |   |  |                               |  
|                                                                                    |  | 126                       |   |  | 119                       |   |  | 149                           |  
|Finance charges payablefinance leases                                              |  |                          |   |  |                          |   |  | 12                            |  
|Finance charges on discounting of deferred consideration                            |  |                          |   |  | 4                         |   |  |                              |  
|                                                                                    |  |                           |   |  |                           |   |  |                               |  
|Interest payable and similar charges before capitalisation and exceptional
interest |  | 126                       |   |  | 123                       |   |  | 161                           |  
|Interest capitalised                                                                |  | (5                        | ) |  | (23                       | ) |  | (12                           | )
|                                                                                    |  |                           |   |  |                           |   |  |                               |  
|Group interest payable and similar charges  ordinary                               |  | 121                       |   |  | 100                       |   |  | 149                           |  
|Exceptional interest (note 9)                                                       |  |                          |   |  | 29                        |   |  |                              |  
|                                                                                    |  |                           |   |  |                           |   |  |                               |  
|Total Group interest payable and similar charges                                    |  | 121                       |   |  | 129                       |   |  | 149                           |  
|                                                                                    |  |                           |   |  |                           |   |  |                               |  
|b) Interest payable of associates and joint ventures                                |  |                           |   |  |                           |   |  |                               |  
|Share of interest payable of joint ventures                                         |  | 12                        |   |  | 14                        |   |  | 11                            |  
|Share of interest payable of associates                                             |  | 23                        |   |  | 33                        |   |  | 37                            |  
|                                                                                    |  |                           |   |  |                           |   |  |                               |  
|                                                                                    |  | 35                        |   |  | 47                        |   |  | 48                            |  
|                                                                                    |  |                           |   |  |                           |   |  |                               |  



F-21



---

##### Table of Contents



7 Directors and
employees remuneration



(a) Directors aggregate remuneration



The table below shows the aggregate remuneration of the International Power plc Directors for the year ended 31 December 2002 and compares it with the figures for the year ended 31 December 2001 and the nine months ended 31 December
2000.



|                                     |  | Salary  |  | Fees   |  | Termina-tionpayment |  | Perform-ance related bonus |  | Paymentin lieu of pension |  | Other benefits |  | Aggregate remunerat-ion year to 31December 2002 |  | Aggregate remunerat-ion year to31December 2001 |  | Aggregate remunerat-ion9 months to31 December 2000
|------------------------------------ |  | ------- |  | ------ |  | ------------------- |  | -------------------------- |  | ------------------------- |  | -------------- |  | ----------------------------------------------- |  | ---------------------------------------------- |  | --------------------------------------------------
|                                     |  | £       |  | £      |  | £                   |  | £                          |  | £                         |  | £              |  | £                                               |  | £                                              |  | £                                                 
|Sir Neville Simms*                   |  | 175,000 |  |       |  |                    |  |                           |  |                          |  |               |  | 175,000                                         |  | 175,000                                        |  | 56,250                                            
|P G Cox(2)(7)                        |  | 291,500 |  |       |  |                    |  | 116,600                    |  | 87,450                    |  | 14,082         |  | 509,632                                         |  | 460,655                                        |  | 104,173                                           
|D W Crane(2)(7)                      |  | 291,500 |  |       |  |                    |  | 116,600                    |  | 87,450                    |  | 17,761         |  | 513,311                                         |  | 467,029                                        |  | 104,880                                           
|P Giller(3)(7)                       |  | 194,094 |  |       |  | 403,799             |  |                           |  |                          |  | 77,950         |  | 675,843                                         |  | 530,998                                        |  | 155,224                                           
|A R Isaac*(1)                        |  |        |  | 35,000 |  |                    |  |                           |  |                          |  |               |  | 35,000                                          |  | 30,000                                         |  | 7,500                                             
|J D Taylor*(1)                       |  |        |  | 30,000 |  |                    |  |                           |  |                          |  |               |  | 30,000                                          |  | 25,000                                         |  | 6,250                                             
|A Baan*(1) (appointed 1.6.2002)      |  |        |  | 17,500 |  |                    |  |                           |  |                          |  |               |  | 17,500                                          |  |                                               |  |                                                  
|J M Amusátegui*                      |  |        |  |       |  |                    |  |                           |  |                          |  |               |  |                                                |  | 14,583                                         |  | 16,250                                            
|J J Moore(5)                         |  |        |  |       |  |                    |  |                           |  |                          |  |               |  |                                                |  | 18,433                                         |  | 1,073,798                                         
|D R Hendrix*(1) (resigned 23.5.2002) |  |        |  | 12,500 |  |                    |  |                           |  |                          |  |               |  | 12,500                                          |  | 25,000                                         |  | 16,250                                            
|Sir John Collins**(6)                |  |        |  |       |  |                    |  |                           |  |                          |  |               |  |                                                |  |                                               |  | 112,500                                           
|G A Brown**(6)                       |  |        |  |       |  |                    |  |                           |  |                          |  |               |  |                                                |  |                                               |  | 1,368,521                                         
|A Carnwath*                          |  |        |  |       |  |                    |  |                           |  |                          |  |               |  |                                                |  |                                               |  | 10,000                                            
|B M Count***                         |  |        |  |       |  |                    |  |                           |  |                          |  |               |  |                                                |  |                                               |  | 145,704                                           
|C B Gough*(***)                      |  |        |  |       |  |                    |  |                           |  |                          |  |               |  |                                                |  |                                               |  | 16,250                                            
|R M Witcomb**(6)                     |  |        |  |       |  |                    |  |                           |  |                          |  |               |  |                                                |  |                                               |  | 652,390                                           
|                                     |  |         |  |        |  |                     |  |                            |  |                           |  |                |  |                                                 |  |                                                |  |                                                   
|Total                                |  | 952,094 |  | 95,000 |  | 403,799             |  | 233,200                    |  | 174,900                   |  | 109,793        |  | 1,968,786                                       |  | 1,746,698                                      |  | 3,845,940                                         
|                                     |  |         |  |        |  |                     |  |                            |  |                           |  |                |  |                                                 |  |                                                |  |                                                   

---

|* |  | Non-Executive
|- |  | -------------

|** |  | Directors of National Power PLC who terminated their appointments on demerger
|-- |  | -----------------------------------------------------------------------------

|*** |  | Directors of National Power PLC who transferred to Innogy Holdings plc.
|--- |  | -----------------------------------------------------------------------



Notes



|(1) |  | The International Power plc Non-Executive Directors fees are split between an annual
fee of £15,000 for Board membership, for attendance at Board meetings and for general duties as Directors. They each receive a further £15,000 per annum for their membership of Board Committees. In addition, Tony Isaac receives an
additional fee of £5,000 per annum for his role as Senior Independent Director. Adri Baan joined the Company on 1 June 2002. Dennis Hendrix ceased to be a Director on 23 May 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | David Crane and Philip Cox both received a cash supplement of 30% of base salary in lieu of
pension scheme arrangements. They also received a company car allowance and private medical insurance, all of which are included in other benefits.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | On 2 October 2000, Peter Giller received a one-off conditional award of 677,564 Ordinary
Shares in the Company in respect of his three year term of employment (subject to the rules of the Restricted Share Plan). One third of the Ordinary Shares conditionally awarded to him (being 225,854) were issued to him on 2 October 2001 and a
further third (225,855) was released on 2 October 2002. The final third (225,855) were issued to him on termination of his service agreement on 31 December 2002. The salary reflected in the table above reflects: 9/12 of the value of his 2002
release, based on the share price at 2 October 2002 of 82.875p per share at the time of the vesting of the shares; and 3/12 of the remaining third released to him on 31 December 2002 based on a share price of 95.125p per share. In addition, during
2002 he was provided with a weekly cash supplement of £1,100 in respect of housing costs (which is included in other benefits).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | As part of Peter Gillers termination of his service agreement he received, on 31
December 2002, the balance of his 2003 Restricted Share Plan release and the full release of his 2002 Performance Share Plan award of 255,102 shares. Both of these releases were based on a share price of 95.125p per share, and are reflected in the
termination payment shown in the table above. He also received, as part of termination arrangements, a relocation allowance of £25,000 (which is included in other benefits).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | The aggregate remuneration for the nine months to 31 December 2000 includes contractual
payments following his resignation.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------



F-22



---

##### Table of Contents

|(6) |  | The aggregate remuneration for the nine months to 31 December 2000 includes their termination
payments.
|--- |  | -------------------------------------------------------------------------------------------------------

|(7) |  | The aggregate remuneration for the nine months to 31 December 2000 for Peter Giller, Philip
Cox and David Crane includes their remuneration for the period October to December 2000 only.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Summary of emoluments and benefits



|                         |  | Yearended31 December 2002 |  | Yearended31 December 2001 |  | 9 months ended 31December 2000
|------------------------ |  | ------------------------- |  | ------------------------- |  | ------------------------------
|                         |  | £000                      |  | £000                      |  | £000                          
|Aggregate emoluments     |  | 1,565                     |  | 1,747                     |  | 2,041                         
|Termination Payments     |  | 404                       |  |                          |  | 1,805                         
|Performance Share Plan   |  |                          |  |                          |  |                              
|Long-Term Incentive Plan |  |                          |  |                          |  |                              
|                         |  |                           |  |                           |  |                               



Highest paid
Director



The aggregate emoluments of the highest paid
Director, Peter Giller, were £675,843 (year ended 31 December 2001: P Giller £530,998; nine months to 31 December 2000: G A Brown £1,368,521).



Directors pension benefits



With regard to the current Executive Directors of International Power plc, there are no pension scheme arrangements in which
they participate. The Executive Directors receive the following cash benefit in lieu of any pension arrangements. Percentage of base salary paid in lieu of pension arrangements.



|          |  | Percentage of base salary paidin lieu
ofpensionarrangements |  | Cash allowancereceived for theyear to
31December 2002 |  | Cash allowance received for theyear to
31December 2001 |  | Cash allowance received for the period October 2000 to
31December 2000
|--------- |  | ----------------------------------------------------------- |  | ----------------------------------------------------- |  | ------------------------------------------------------ |  | ----------------------------------------------------------------------
|          |  | %                                                           |  | (£000)                                                |  | (£000)                                                 |  | (£000)                                                                
|P Giller  |  | n/a                                                         |  | n/a                                                   |  | n/a                                                    |  | n/a                                                                   
|D W Crane |  | 30                                                          |  | 87                                                    |  | 65                                                     |  | 14                                                                    
|P G Cox   |  | 30                                                          |  | 87                                                    |  | 65                                                     |  | 14                                                                    
|          |  |                                                             |  |                                                       |  |                                                        |  |                                                                       



With effect from 1
January 2003 pension arrangements for David Crane and Philip Cox are provided through the Senior Section of the International Power Group of the Electricity Supply Pension Scheme, which is a scheme approved by the Inland Revenue. The scheme provides
for: a normal retirement age of 60; an accrual rate of one thirtieth of pensionable salary; four times salary death-in-service benefits; a widows pension of 2/3executives pension; and executives contribution of 6% of salary up to 15% of Inland Revenue earnings limits.



The benefits provided through the scheme are restricted by Inland Revenue
earnings limits. These arrangements are supplemented by the Company making contributions to personal pensions, life assurance, and a Funded Unapproved Retirement Benefit Scheme, up to a cost to the Company of 30% of salary (which includes the cost
of the benefit provided through the Senior Section of the International Power Group Electricity Supply Pension Scheme).



F-23



---

##### Table of Contents



(b) Executive share options and beneficial interests



The Company operates a Sharesave Scheme and an Approved and Unapproved Executive Share Option Plan. The Sharesave Scheme is savings-related and enables eligible employees to invest up to a maximum permitted level of
£250 per month.



Directors options under the
sharesave plan



|              |  | Number of shares under option as at1 January2002 |  | Granted during the year |  | Exercise price per share (pence) |  | Exercise period from    |  | Exercise period to             |   |  | Number of shares under option as at31 December 2002
|------------- |  | ------------------------------------------------ |  | ----------------------- |  | -------------------------------- |  | ----------------------- |  | ------------------------------ | - |  | ---------------------------------------------------
|P Giller      |  | 8,976                                            |  |   18,250               |  | 188p 90p                         |  | 24 May 2006 24 Dec 2007 |  | Lapsed 1 Oct 2002 24 June 2008 | * |  |  18,250                                           
|              |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  |                                                    
|Total options |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  | 18,250                                             
|              |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  |                                                    
|D W Crane     |  | 8,976                                            |  |  18,250                |  | 188p 90p                         |  | 24 May 2006 24 Dec 2007 |  | Lapsed 1Oct 2002 24 June 2008  |   |  |  18,250                                           
|              |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  |                                                    
|Total options |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  | 18,250                                             
|              |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  |                                                    
|P G Cox       |  | 8,976                                            |  |  18,250                |  | 188p 90p                         |  | 24 May 2006 24 Dec 2007 |  | Lapsed 1Oct 2002 24 June 2008  |   |  | 18,250                                             
|              |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  |                                                    
|Total options |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  | 18,250                                             
|              |  |                                                  |  |                         |  |                                  |  |                         |  |                                |   |  |                                                    

---

|* |  | Lapsed 1 January 2003
|- |  | ---------------------



Summary of Directors unexercised sharesave options



|Grant date |  | Number of options |  | Exercisable price (pence) |  | Date exercisable            
|---------- |  | ----------------- |  | ------------------------- |  | ----------------------------
|1 Oct 2002 |  | 54,750            |  | 90p                       |  | 24 Dec - 2007 - 24 June 2008
|           |  |                   |  |                           |  |                             
|Total      |  | 54,750            |  |                           |  |                             
|           |  |                   |  |                           |  |                             



F-24



---

##### Table of Contents



Directors options
under the executive share option scheme



|              |  | Number of shares underoption as at1 January 2002 |  | Granted during the year |      |  | Exercise price per share(pence) |     |  | Exerciseperiod from     |  | Exerciseperiod to       |  | Number of shares under option as at 31 December 2002
|------------- |  | ------------------------------------------------ |  | ----------------------- | ---- |  | ------------------------------- | --- |  | ----------------------- |  | ----------------------- |  | ----------------------------------------------------
|P Giller      |  |                                                 |  | 15,306 239,796          | * ** |  | 196 196                         | p p |  | 24 May 2005 24 May 2005 |  | 24 Jan 2006 24 Jan 2006 |  | 15,306 239,796                                      
|              |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  |                                                     
|Total options |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  | 255,102                                             
|              |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  |                                                     
|D W Crane     |  |                                                 |  | 15,306 133,418          | * ** |  | 196 196                         | p p |  | 24 May 2005 24 May 2005 |  | 24 May 2012 24 May 2012 |  | 15,306 133,418                                      
|              |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  |                                                     
|Total options |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  | 148,724                                             
|              |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  |                                                     
|P G Cox       |  |                                                 |  | 15,306 133,418          | * ** |  | 196 196                         | p p |  | 24 May 2005 24 May 2005 |  | 24 May 2012 24 May 2012 |  | 15,306 133,418                                      
|              |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  |                                                     
|Total options |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  | 148,724                                             
|              |  |                                                  |  |                         |      |  |                                 |     |  |                         |  |                         |  |                                                     

---

|* |  | Approved Executive Share Options
|- |  | --------------------------------

|** |  | Unapproved Executive Share Options
|-- |  | ----------------------------------



Summary of Directors unexercised executive share options



|Grant date  |  | Number of options |  | Exercisable price (pence) |  | Date exercisable   
|----------- |  | ----------------- |  | ------------------------- |  | -------------------
|24 May 2002 |  | 552,550           |  | 196p                      |  | 24.05.05 - 24.05.12
|            |  |                   |  |                           |  |                    
|Total       |  | 552,550           |  |                           |  |                    
|            |  |                   |  |                           |  |                    



The middle market
quotation for an Ordinary share of the Company on 31 December 2002 was 95.75p and the daily quotations during the period ranged from 221p to 83.5p.



Gains made on Directors share options



In the accounting periods to 31 December 2002, 31 December 2001 and 31 December 2000, no Directors exercised Share Options, therefore no gains were
realised.



Share plans for Executive Directors



In connection with the International Power Restricted Share
Plan, 677,564 shares in the Company were purchased and placed in a trust fund which at cost and net of administration expenses of the trust, totalled £1.7 million at 31 December 2001. The Remuneration Committee vested one third of the shares
to Peter Giller on 2 October 2001 and one third on 2 October 2002. Following the cessation of Peter Gillers term of office as Chief Executive on 31 December 2002, in accordance with the terms of the Plan, the balance of the shares was released
to Peter Giller at that date. In line with recommended practice, the fund balance has been written down to nil over the period of service to which it related. The book value relating to this purchase as at 31 December 2002 was therefore nil (31
December 2001: £1.0 million).



In respect of awards made
under the 2002 Performance Share Plan during 2002, 1,273,138 shares were purchased and placed in a trust fund which, at cost and net of administration expenses of the trust, totalled £2.5 million. Following the cessation of Peter Gillers
term of office as Chief Executive on 31 December 2002, in accordance with the terms of the Plan, the Committee released 225,102 shares to Peter Giller as at that date. Whilst the Directors have an interest in all of the shares held in the Trust, in
respect of awards made to Directors under the



F-25



---

##### Table of Contents

Performance Share Plan as at 31 December 2002, the number of shares that may vest to Directors if full performance of the relevant
performance condition is achieved is 297,448. In line with recommended practice, the fund balance will be written down to £nil over the period of service to which it relates. The book value of the shares placed in trust in respect of this Plan
as at 31 December 2002 was £1 million.



With regard to the
International Power Long-Term Incentive Plan, as at 31 December 2002, there has been no requirement to purchase shares for placement in a trust fund. In line with recommended practice, when the Company is required to purchase shares for a trust
fund, the fund balance will be written down to £nil over the period of service to which it relates.



Beneficial interests



The beneficial interests of the Directors and their immediate families in Ordinary Shares of 50p each of the Company were as follows:



|                  |  | As at 31 December 2002 |  | As at 31 December 2001 
|----------------- |  | ---------------------- |  | -----------------------
|                  |  | Ordinary Shares        |  | Executive Share Options
|P G Cox           |  | 15,000                 |  | 148,724                
|D W Crane         |  | 24,000                 |  | 148,724                
|P G Giller*       |  | 744,568                |  | 255,102                
|A Baan**          |  | 5,000                  |  |                       
|A E Isaac         |  | 5,000                  |  |                       
|Sir Neville Simms |  | 30,000                 |  |                       
|J D Taylor        |  | 5,000                  |  |                       
|                  |  |                        |  |                        

---

|* |  | Upon the cessation of his appointment as Chief Executive on 31 December 2002, Peter Giller withdrew from the Sharesave Plan. Accordingly, his Sharesave Options
lapsed on 1 January 2003.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** |  | Appointed as a director on 1 June 2002.
|-- |  | ---------------------------------------



No Director had, at any time during the financial year, any beneficial interest in the shares of any subsidiary undertaking.



Between 31 December 2002 and the date of approval of this document, the
following additions to Directors beneficial interests have taken place:



|                  |  | Ordinary Shares |  | Executive Share Options |  | PerformanceShare Plan2002
|----------------- |  | --------------- |  | ----------------------- |  | -------------------------
|P G Cox           |  | 10,000          |  | 500,000                 |  | 675,879                  
|D W Crane         |  | 20,000          |  | 678,571                 |  | 917,264                  
|A Baan            |  | 10,000          |  |                        |  |                         
|Sir Neville Simms |  | 70,000          |  |                        |  |                         



In addition, on 7
January 2003 Peter Giller sold 220,000 shares at 103.4p per share.



F-26



---

##### Table of Contents



(c) Employees remuneration



Salaries and other staff costs, including Directors remuneration, were as follows:



|                                                                         |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended31 December 2000
|------------------------------------------------------------------------ |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------
|                                                                         |  | Group                       |   |  | Group                       |   |  | Continuing                    
|                                                                         |  | £m                          |   |  | £m                          |   |  | £m                            
|Wages and salaries                                                       |  | 63                          |   |  | 62                          |   |  | 39                            
|Social security costs                                                    |  | 3                           |   |  | 3                           |   |  | 2                             
|Pension costs (note 8)                                                   |  | 5                           |   |  | 4                           |   |  | 2                             
|                                                                         |  |                             |   |  |                             |   |  |                               
|Total employees remuneration                                            |  | 71                          |   |  | 69                          |   |  | 43                            
|Less: amount capitalised as part of assets in the course of construction |  | (1                          | ) |  | (4                          | ) |  |                              
|                                                                         |  |                             |   |  |                             |   |  |                               
|Total staff costs                                                        |  | 70                          |   |  | 65                          |   |  | 43                            
|                                                                         |  |                             |   |  |                             |   |  |                               



Employee numbers



The average number of employees during the financial
period, analysed by geographic segment was:



|                                                    |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 |  | 9 months ended31 December 2000
|--------------------------------------------------- |  | --------------------------- |  | --------------------------- |  | ------------------------------
|North America                                       |  | 207                         |  | 200                         |  | 142                           
|Europe and Middle East                              |  | 812                         |  | 660                         |  | 600                           
|Australia                                           |  | 593                         |  | 586                         |  | 583                           
|Rest of World                                       |  | 367                         |  | 752                         |  | 1,305                         
|Corporate and development                           |  | 146                         |  | 134                         |  | 199                           
|                                                    |  |                             |  |                             |  |                               
|Average number of employees  continuing business   |  | 2,125                       |  | 2,332                       |  | 2,829                         
|Average number of employees  discontinued business |  |                            |  |                            |  | 2,127                         
|                                                    |  |                             |  |                             |  |                               
|Total average number of employees                   |  | 2,125                       |  | 2,332                       |  | 4,956                         
|                                                    |  |                             |  |                             |  |                               



The total average number
of employees for the discontinued business for the nine months ended 31 December 2000 is a pro-rata share of the nine month average.



8 Pension scheme funding



The majority of pensions for UK employees are funded through the industry-wide scheme, the Electricity Supply Pension Scheme (ESPS), which is a defined
benefit scheme with assets invested in separate trustee administered funds. The ESPS is divided into sections, and the International Power Group of the ESPS was opened to members on 1 April 2002. Prior to this date, International Power staff, who
were former employees of National Power, participated in the Innogy section of the ESPS and the employees taken on in the Rugeley acquisition participated in another section of the ESPS, the Eastern Electricity section.



During the first quarter of 2002, contributions were paid to the Innogy Group
based on the latest actuarial valuation of that Group. The contributions paid during the quarter amounted to £0.15 million. Also during the first quarter of 2002, contributions of £0.12 million were paid to the Eastern Electricity
section based on the terms agreed in that acquisition.



F-27



---

##### Table of Contents



Since 1 April 2002,
International Power has paid contributions to the International Power Group of the ESPS to cover the new benefit accrual, as advised by the actuary. These contributions amounted to £1.7 million.



Transfer payments totalling £19.8 million were received from the Innogy
section of the ESPS in October and November 2002. The total transfer payment related to employees pension benefits built up in the Innogy Group of ESPS prior to 1 April 2002 and was calculated on a share of fund basis as set out in the
actuarys memorandum from the Demerger Agreement.



A further
transfer payment of £10.5 million was received from the Eastern Electricity section of the ESPS. This payment was based on the assumptions agreed as part of the Rugeley acquisition.



The first full valuation of the International Power Group of ESPS will be carried out as at 31 March 2003 at which any
difference between assets and accrued liabilities will be addressed.



Employees at Hazelwood participate in a standard Australian superannuation fund called Equipsuper. This plan provides benefits primarily for employees in the electricity, gas and water industry, and was developed from the scheme
sponsored by the State Electricity Commission of Victoria.



At 31
December 2002, the market value of assets was 101% of accrued liabilities. The assets were £40 million and liabilities were £39 million. The pension cost for 2002 was £1 million.



The principal assumptions are set out below:



|Valuation date         |  | 31 December 2002
|---------------------- |  | ----------------
|Principal assumptions: |  |                 
|Investment return      |  | 7.5% pa         
|Salary increases       |  | 5.0% pa         
|Pensions increases     |  | n/a             



In other countries,
employees are members of local social security schemes and in some cases defined contribution plans.



FRS 17



In accordance with the requirements of FRS 17 (Retirement Benefits), this note discloses the main financial assumptions made in valuing the liabilities of the schemes and the fair value of assets held. However, as permitted by FRS
17, the costs, accruals and prepayments recorded in the financial statements continue to be reported under the requirements of SSAP 24 (Accounting for Pension Costs).



International Power operates defined benefit schemes in the UK and Australia. The most recent actuarial valuations have been
updated by independent qualified actuaries to take account of the FRS 17 reporting requirements for assessing the liabilities of the schemes at 31 December 2002. Scheme assets are stated at their market value at 31 December 2002.



|Financial assumptions |    | 31 December 2002 |           | 31 December 2001
|--------------------- | -- | ---------------- | --------- | ----------------
|                      | UK |                  | Australia |                 
|                      |    | %                |           | %               
|Discount rate         |    | 5.5              |           | 7.0             



F-28



---

##### Table of Contents

|Financial assumptions                          |    | 31 December 2002 |           | 31 December 2001
|---------------------------------------------- | -- | ---------------- | --------- | ----------------
|                                               | UK |                  | Australia |                 
|                                               |    | %                |           | %               
|Rate of increase in salaries                   |    | 3.8              |           | 4.0             
|Inflation rate                                 |    | 2.3              |           | 3.5             
|Increase in deferred benefits during deferment |    | 2.5              |           | n/a             
|Increases to pensions payments                 |    | 2.5              |           | n/a             
|                                               |    |                  |           |                 



The amounts required to
be disclosed by FRS 17 in respect of the performance statements were:



Analysis of amounts that would have been charged to operating profit in respect of defined benefit schemes



|                       |  | Group 2002 |  
|---------------------- |  | ---------- | -
|                       |  | £m         |  
|Current service        |  | (3         | )
|Past service cost      |  | (1         | )
|                       |  |            |  
|Total operating charge |  | (4         | )
|                       |  |            |  



Analysis of amounts
that would have been credited to other finance income



|                                   |  | Group 2002 |  
|---------------------------------- |  | ---------- | -
|                                   |  | £m         |  
|Expected return on schemes assets |  | 5          |  
|Interest on schemes liabilities   |  | (4         | )
|                                   |  |            |  
|Net return                         |  | 1          |  
|                                   |  |            |  



Analysis of amounts
that would have been recognised in the consolidated statement of recognised gains and losses



|                                                                                              |  | Group 2002 |  
|--------------------------------------------------------------------------------------------- |  | ---------- | -
|                                                                                              |  | £m         |  
|Actuarial return less expected return on schemes assets                                      |  | (11        | )
|Experience gains and losses arising on schemes liabilities                                   |  | (1         | )
|Change in assumptions underlying the present value of schemes
liabilities                    |  | (5         | )
|Currency translation adjustment                                                               |  |           |  
|                                                                                              |  |            |  
|Actuarial (loss)/gain recognised in the consolidated statement of recognised gains and
losses |  | (17        | )
|                                                                                              |  |            |  



History of experience
gains and losses



|                                                                                      |  | Group 2002 |  
|------------------------------------------------------------------------------------- |  | ---------- | -
|                                                                                      |  | £m         |  
|Difference between the actual and expected return on scheme assets:                   |  |            |  
|Amount (£m)                                                                           |  | (11        | )
|Percentage of scheme assets                                                           |  | 15         | %
|Experience gains and losses:                                                          |  |            |  
|Amount (£m)                                                                           |  | (1         | )
|Percentage of scheme liabilities                                                      |  | 1          | %
|Total amount recognised in the consolidated statement of recognised gains and
losses: |  |            |  
|Amount (£m)                                                                           |  | (17        | )
|Percentage of scheme liabilities                                                      |  | 22         | %
|                                                                                      |  |            |  



The assets in the
schemes and expected rates of return (weighted averages) were:



|                                                       |  | 31 December 2002 |  | 31 December 2001
|------------------------------------------------------ |  | ---------------- |  | ----------------
|                                                       |  | UK               |  | Australia       
|                                                       |  | %                |  | %               
|Long term rate of return expected at 31 December 2002: |  |                  |  |                 
|Equities                                               |  | 7.0              |  | 7.5             
|Bonds                                                  |  | 4.5              |  | 5.5             
|Other                                                  |  | 4.8              |  | 5.5             
|                                                       |  |                  |  |                 



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##### Table of Contents



|                                       |  | UK |  | Australia |  | Total |  | UK |  | Australia |  | Total
|-------------------------------------- |  | -- |  | --------- |  | ----- |  | -- |  | --------- |  | -----
|                                       |  | £m |  | £m        |  | £m    |  | £m |  | £m        |  | £m   
|Assets in schemes at 31 December 2002: |  |    |  |           |  |       |  |    |  |           |  |      
|Equities                               |  | 27 |  | 24        |  | 51    |  | 19 |  | 23        |  | 42   
|Bonds                                  |  | 4  |  | 12        |  | 16    |  | 16 |  | 12        |  | 28   
|Other                                  |  | 3  |  | 4         |  | 7     |  |   |  | 5         |  | 5    
|                                       |  |    |  |           |  |       |  |    |  |           |  |      
|                                       |  | 34 |  | 40        |  | 74    |  | 35 |  | 40        |  | 75   
|                                       |  |    |  |           |  |       |  |    |  |           |  |      



The following amounts
were measured in accordance with the requirements of FRS17:



|                                       |  | 31 December 2002 |   |  | 31 December 2001 |  
|-------------------------------------- |  | ---------------- | - |  | ---------------- | -
|                                       |  | UK               |   |  | Australia        |  
|                                       |  | £m               |   |  | £m               |  
|Total market value of assets           |  | 34               |   |  | 40               |  
|Present value of scheme liabilities    |  | (43              | ) |  | (36              | )
|                                       |  |                  |   |  |                  |  
|(Deficit)/surplus in the scheme        |  | (9               | ) |  | 4                |  
|Related deferred tax asset/(liability) |  | 3                |   |  | (1               | )
|                                       |  |                  |   |  |                  |  
|Net pension (liability)/asset          |  | (6               | ) |  | 3                |  
|                                       |  |                  |   |  |                  |  



If the above amounts had
been recognised in the financial statements, International Powers net assets would be as follows:



|                                                  |  | 31 December2002 |   |  | 31 December 2001 (Restated)
|------------------------------------------------- |  | --------------- | - |  | ---------------------------
|                                                  |  | £m              |   |  | £m                         
|Net assets                                        |  |                 |   |  |                            
|Net assets excluding pension assets/(liabilities) |  | 1,769           |   |  | 1,697                      
|FRS 17 pension (liability)/asset                  |  | (3              | ) |  | 7                          
|                                                  |  |                 |   |  |                            
|                                                  |  | 1,766           |   |  | 1,704                      
|                                                  |  |                 |   |  |                            



F-30



---

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9 Exceptional items



|                                                                 |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December 2000
|---------------------------------------------------------------- |  | --------------------------- | - |  | --------------------------- | - |  | -------------------------------
|                                                                 |  | £m                          |   |  | £m                          |   |  | £m                             
|Net operating exceptional items charged/(credited):              |  |                             |   |  |                             |   |  |                                
|Continuing                                                       |  |                             |   |  |                             |   |  |                                
|Impairment provisions                                            |  | 103                         |   |  |                            |   |  |                               
|Release of provision in respect of onerous property lease        |  |                            |   |  | (8                          | ) |  |                               
|Bank guarantee charge in respect of a trade investment (note 32) |  |                            |   |  | 10                          |   |  |                               
|                                                                 |  |                             |   |  |                             |   |  |                                
|                                                                 |  | 103                         |   |  | 2                           |   |  |                               
|                                                                 |  |                             |   |  |                             |   |  |                                
|Discontinued                                                     |  |                             |   |  |                             |   |  |                                
|Plant closure provision release                                  |  |                            |   |  |                            |   |  | 21                             
|Buy-out of PPA contract                                          |  |                            |   |  |                            |   |  | 206                            
|                                                                 |  |                             |   |  |                             |   |  |                                
|                                                                 |  |                            |   |  |                            |   |  | 227                            
|                                                                 |  |                             |   |  |                             |   |  |                                
|Group exceptional items charged to operating profit              |  | 103                         |   |  | 2                           |   |  | 227                            
|                                                                 |  |                             |   |  |                             |   |  |                                
|Exceptional income from investments                              |  |                             |   |  |                             |   |  |                                
|Backlog dividend received                                        |  | (42                         | ) |  |                            |   |  |                               
|                                                                 |  |                             |   |  |                             |   |  |                                
|Total operating exceptional item and investment income           |  | 61                          |   |  | 2                           |   |  | 227                            
|                                                                 |  |                             |   |  |                             |   |  |                                
|Non-operating exceptional items (credited)/charged:              |  |                             |   |  |                             |   |  |                                
|Continuing                                                       |  |                             |   |  |                             |   |  |                                
|Profit on disposal of fixed asset investments                    |  |                            |   |  | (30                         | ) |  |                               
|Sale/termination of Chinese operations                           |  |                            |   |  | (2                          | ) |  | 25                             
|Demerger costs                                                   |  |                            |   |  |                            |   |  | 49                             
|Restructuring costs                                              |  |                            |   |  |                            |   |  | 25                             
|                                                                 |  |                             |   |  |                             |   |  |                                
|                                                                 |  |                            |   |  | (32                         | ) |  | 99                             
|                                                                 |  |                             |   |  |                             |   |  |                                
|Discontinued                                                     |  |                             |   |  |                             |   |  |                                
|Demerger costs                                                   |  |                            |   |  |                            |   |  | 4                              
|Restructuring costs                                              |  |                            |   |  |                            |   |  | 2                              
|                                                                 |  |                             |   |  |                             |   |  |                                
|                                                                 |  |                            |   |  |                            |   |  | 6                              
|                                                                 |  |                             |   |  |                             |   |  |                                
|Group non-operating exceptional items                            |  |                            |   |  | (32                         | ) |  | 105                            
|                                                                 |  |                             |   |  |                             |   |  |                                
|Exceptional interest charges:                                    |  |                             |   |  |                             |   |  |                                
|Australian refinancing charges                                   |  |                            |   |  | 29                          |   |  |                               
|                                                                 |  |                             |   |  |                             |   |  |                                
|Exceptional interest payable and similar charges                 |  |                            |   |  | 29                          |   |  |                               
|                                                                 |  |                             |   |  |                             |   |  |                                
|Total exceptional items before attributable tax                  |  | 61                          |   |  | (1                          | ) |  | 332                            
|Tax on exceptional items                                         |  | (1                          | ) |  |                            |   |  |                               
|                                                                 |  |                             |   |  |                             |   |  |                                
|Total exceptional items after attributable tax                   |  | 60                          |   |  | (1                          | ) |  | 332                            
|                                                                 |  |                             |   |  |                             |   |  |                                



Year ended 31
December 2002



During the year ended 31 December 2002, the
Group wrote down the value of its Deeside plant and its Rugeley plant by £45 million and £58 million respectively. The carrying values of our Deeside and Rugeley plants were reviewed following the sharp decline in both current and
forward electricity prices in the UK.



During the year, Kot Addu
Power Company (KAPCO) in Pakistan resumed the payment of dividends (including the settlement of past receivables). A gross dividend of £73 million was received (the first since 1998), of which £42 million that related to the settlement
of past receivables and has accordingly been treated as exceptional because of its non-recurring nature.



F-31



---

##### Table of Contents



Year ended 31 December 2001



The group accounts for the year ended 31 December 2001
record five exceptional items: An onerous lease provision was reassessed in the period to take account of the anticipated results of rent reviews and to reflect the impact of previously vacant space which was leased during the year. As a result of
this reassessment, £8 million of the provision was released.



During the period, the Group provided £10 million in respect of a bank guarantee given on behalf of its trade investment, Elcogas. It is probable that the guarantee will be called to prevent Elcogas from breaching capital
structure requirements under the Spanish Commercial Code.



On 25
July 2001, the group sold its investment in Union Fenosa Generacion SA, realising a profit of £30 million. Further details of the disposal are given in note 28.



During the period the China exit provision (created in the nine month period ended 31 December 2000) was reassessed following
the disposal of the majority of the groups remaining investments in China. As a result of this reassessment, £2 million of the provision was released.



The exceptional interest charge of £29 million represents the cost of cancelling the existing interest rate swaps and
amortising capitalised arrangement fees in connection with the successful refinancing of the non-recourse debt facility for the Hazelwood power plant in Victoria, Australia.



Nine months ended 31 December 2000



Continuing



In the nine months ended 31 December 2000 an accrual of £25 million was made to cover exit costs from China following the decision to sell the
Groups interests in the four Chinese subsidiaries made previously by National Power and to withdraw from the Chinese market. This provision includes an impairment charge of £13 million to write down the carrying value of these assets to
their estimated net realisable value, a £7 million loss on the call of a bid bond and £5 million of disposal costs.



In addition, £49 million of exceptional costs were recorded in relation to costs arising out of the demerger of Innogy. Professional fees totalling
£33 million included accounting fees of £7 million, legal fees of £8 million, investment banking fees of £15 million and other professional fees of £3 million. Also included were severance costs of £12 million and
headquarter relocation and other costs of £4 million.



Other non-operating exceptional costs of £25 million correspond to restructuring costs following the demerger of Innogy. These include severance costs of £16 million, office relocation costs of £7 million and other
exceptional staff costs of £2 million.



Discontinued



Operating exceptional items under Discontinued
activities correspond to the buyout by Innogy of the Teeside power purchase agreement at £206 million and £21 million of costs associated with the closure of the Blyth power station in the UK, which comprise £10 million of
severance costs relating to 130 terminated staff, £9 million of demolition costs and £2 million of other closure costs.



F-32



---

##### Table of Contents



10 Tax on profit on
ordinary activities



(a) Analysis of charge in period



|                                                                                        |  | Year ended 31 December 2002 |   |  | Year ended31 December 2001(Restated) |  | 9 months ended 31 December 2000(Restated) |  
|--------------------------------------------------------------------------------------- |  | --------------------------- | - |  | ------------------------------------ |  | ----------------------------------------- | -
|                                                                                        |  | £m                          |   |  | £m                                   |  | £m                                        |  
|Current taxation                                                                        |  |                             |   |  |                                      |  |                                           |  
|UK Corporation tax at 30% (2001: 30%; 2000: 30%)                                        |  | 25                          |   |  | 1                                    |  | (2                                        | )
|Foreign taxation                                                                        |  | 22                          |   |  | 29                                   |  | 9                                         |  
|Share of joint ventures taxation                                                       |  | 2                           |   |  | 2                                    |  |                                          |  
|Share of associates taxation                                                           |  | 17                          |   |  | 26                                   |  | 14                                        |  
|                                                                                        |  |                             |   |  |                                      |  |                                           |  
|Total current taxation for period                                                       |  | 66                          |   |  | 58                                   |  | 21                                        |  
|                                                                                        |  |                             |   |  |                                      |  |                                           |  
|Deferred taxation                                                                       |  |                             |   |  |                                      |  |                                           |  
|Origination and reversal of timing differences                                          |  | 11                          |   |  | 1                                    |  | 8                                         |  
|Share of associates taxation                                                            |  |                            |   |  | 5                                    |  |                                          |  
|                                                                                        |  |                             |   |  |                                      |  |                                           |  
|Total deferred taxation for period                                                      |  | 11                          |   |  | 6                                    |  | 8                                         |  
|                                                                                        |  |                             |   |  |                                      |  |                                           |  
|Total                                                                                   |  | 77                          |   |  | 64                                   |  | 29                                        |  
|                                                                                        |  |                             |   |  |                                      |  |                                           |  
|Included in the tax on profits are the following amounts relating to exceptional
items: |  |                             |   |  |                                     |  |                                          |  
|Operating exceptional items                                                             |  | (14                         | ) |  |                                     |  |                                          |  
|Exceptional income from investments                                                     |  | 13                          |   |  |                                     |  |                                          |  
|                                                                                        |  |                             |   |  |                                      |  |                                           |  
|Total                                                                                   |  | (1                          | ) |  |                                      |  |                                           |  
|                                                                                        |  |                             |   |  |                                      |  |                                           |  
|Total tax charge for the period                                                         |  | 76                          |   |  | 64                                   |  | 29                                        |  
|                                                                                        |  |                             |   |  |                                      |  |                                           |  



Of the deferred tax
expense of £11 million for the year ended 31 December 2002, a £15 million charge derives from foreign operations.



(b) Reconciliation of current tax rate



|                                                                                                                           |  | Year ended 31 December 2002 |   |  | Year ended31 December 2001(Restated) |   |  | 9 months ended 31 December 2000(Restated) |  
|-------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | - |  | ------------------------------------ | - |  | ----------------------------------------- | -
|                                                                                                                           |  | %                           |   |  | %                                    |   |  | %                                         |  
|The current tax rate for the period on ordinary activities varied from the standard rate
of UK Corporation tax as follows: |  |                             |   |  |                                      |   |  |                                           |  
|UK Corporation tax rate on ordinary activities                                                                             |  | 30                          |   |  | 30                                   |   |  | 30                                        |  
|Non-deductible operating exceptional items                                                                                 |  | 9                           |   |  |                                     |   |  | (43                                       | )
|                                                                                                                           |  |                             |   |  |                                      |   |  |                                           |  
|Expected tax rate at UK Corporation tax rate post-exceptional items                                                        |  | 39                          |   |  | 30                                   |   |  | (13                                       | )
|Non-deductible expenses                                                                                                    |  | 2                           |   |  | 3                                    |   |  | (7                                        | )
|Tax holidays                                                                                                               |  | (5                          | ) |  | (5                                   | ) |  |                                          |  
|Effect on tax rate applied to overseas earnings                                                                            |  | 3                           |   |  | 3                                    |   |  | 2                                         |  
|                                                                                                                           |  |                             |   |  |                                      |   |  |                                           |  
|Current tax rate for period                                                                                                |  | 39                          |   |  | 31                                   |   |  | (18                                       | )
|                                                                                                                           |  |                             |   |  |                                      |   |  |                                           |  



11 Dividends



The dividends declared in the three financial periods to 31
December 2002 are shown below:



|                  |  | Year ended 31 December2002 |  | Year ended 31 December2001 |  | 9 months ended 31 December2000
|----------------- |  | -------------------------- |  | -------------------------- |  | ------------------------------
|                  |  | £m                         |  | £m                         |  | £m                            
|Demerger dividend |  |                           |  |                           |  | 392                           
|                  |  |                            |  |                            |  |                               



F-33



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The Group demerger dividend
represents the book value of the net assets of the UK energy business as at the date of demerger, which were distributed to shareholders in the form of Ordinary Shares of Innogy Holdings plc.



12 Earnings per share (EPS)



|                                                                                             |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 (Restated) |   |  | 9 months ended31 December 2000 (Restated) |  
|-------------------------------------------------------------------------------------------- |  | --------------------------- | - |  | -------------------------------------- | - |  | ----------------------------------------- | -
|                                                                                             |  | Group                       |   |  | Group                                  |   |  | Continuing                                |  
|Earnings per share                                                                           |  | pence                       |   |  | pence                                  |   |  | pence                                     |  
|Basic                                                                                        |  |                             |   |  |                                        |   |  |                                           |  
|Before exceptional items                                                                     |  | 15.5                        |   |  | 12.3                                   |   |  | 4.8                                       |  
|Exceptional items                                                                            |  | (5.4                        | ) |  |                                       |   |  | (8.9                                      | )
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|After exceptional items                                                                      |  | 10.1                        |   |  | 12.3                                   |   |  | (4.1                                      | )
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|Diluted                                                                                      |  |                             |   |  |                                        |   |  |                                           |  
|Before exceptional items                                                                     |  | 15.5                        |   |  | 12.0                                   |   |  | 4.8                                       |  
|Exceptional items                                                                            |  | (5.4                        | ) |  |                                       |   |  | (8.9                                      | )
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|After exceptional items                                                                      |  | 10.1                        |   |  | 12.0                                   |   |  | (4.1                                      | )
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|                                                                                            
|Basic of calculation                                                                         |  | £m                          |   |  | £m                                     |   |  | £m                                        |  
|Earnings                                                                                     |  |                             |   |  |                                        |   |  |                                           |  
|Profit attributable to shareholders before exceptional items                                 |  | 173                         |   |  | 137                                    |   |  | 53                                        |  
|Exceptional items                                                                            |  | (60                         | ) |  | 1                                      |   |  | (99                                       | )
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|Profit attributable to shareholders after exceptional items                                  |  | 113                         |   |  | 138                                    |   |  | (46                                       | )
|Reduction in interest charge assuming conversion of the Convertible US Dollars Bonds
2005    |  |                            |   |  | 7                                      |   |  |                                          |  
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|Earnings after exceptional items and taking into account applicable dilutive
instruments     |  | 113                         |   |  | 145                                    |   |  | (46                                       | )
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|                                                                                            
|Number of ordinary shares                                                                    |  | Million                     |   |  | Million                                |   |  | Million                                   |  
|Weighted average number of issued ordinary shares                                            |  | 1,117.6                     |   |  | 1,117.5                                |   |  | 1,116.9                                   |  
|Weighted average number of shares held by Employee Share Ownership Plans
(ESOPs)             |  | (2.2                        | ) |  | (1.0                                   | ) |  |                                          |  
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|                                                                                             |  | 1,115.4                     |   |  | 1,116.5                                |   |  | 1,116.9                                   |  
|Dilutive potential ordinary shares                                                           |  |                             |   |  |                                        |   |  |                                           |  
|Employee share schemes                                                                       |  | 2.6                         |   |  | 0.3                                    |   |  |                                          |  
|Convertible US Dollar Bonds 2005                                                             |  |                            |   |  | 83.8                                   |   |  |                                          |  
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  
|Weighted average number of ordinary shares taking account of applicable dilutive
instruments |  | 1,118.0                     |   |  | 1,200.6                                |   |  | 1,116.9                                   |  
|                                                                                             |  |                             |   |  |                                        |   |  |                                           |  



It is expected that
investors in our convertible bond will exercise their right to put the bond back to the Group. Accordingly, this contract has not been included in the calculation of diluted earnings per share in 2002, but has been included in 2001 (see
note 20).



13 Intangible assets



|                                       |  | Goodwill |  | Negative goodwill |   |  | Total |  
|-------------------------------------- |  | -------- |  | ----------------- | - |  | ----- | -
|                                       |  | £m       |  | £m                |   |  | £m    |  
|Cost                                   |  |          |  |                   |   |  |       |  
|At 1 January 2002 as originally stated |  | 8        |  | (35               | ) |  | (27   | )
|Prior year adjustment                  |  |         |  | 21                |   |  | 21    |  
|                                       |  |          |  |                   |   |  |       |  
|At 1 January 2002 as restated          |  | 8        |  | (14               | ) |  | (6    | )
|Additions                              |  | 1        |  | 4                 |   |  | 5     |  



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|                          |  | Goodwill |   |  | Negative goodwill |   |  | Total |  
|------------------------- |  | -------- | - |  | ----------------- | - |  | ----- | -
|                          |  | £m       |   |  | £m                |   |  | £m    |  
|Exchange rate differences |  | 1        |   |  |                  |   |  | 1     |  
|                          |  |          |   |  |                   |   |  |       |  
|At 31 December 2002       |  | 10       |   |  | (10               | ) |  |      |  
|                          |  |          |   |  |                   |   |  |       |  
|Amortisation              |  |          |   |  |                   |   |  |       |  
|At 1 January 2002         |  | (1       | ) |  | 2                 |   |  | 1     |  
|Credited in the year      |  |         |   |  | 1                 |   |  | 1     |  
|Exchange rate differences |  | (1       | ) |  |                  |   |  | (1    | )
|                          |  |          |   |  |                   |   |  |       |  
|At 31 December 2002       |  | (2       | ) |  | 3                 |   |  | 1     |  
|                          |  |          |   |  |                   |   |  |       |  
|Net book value            |  |          |   |  |                   |   |  |       |  
|At 31 December 2002       |  | 8        |   |  | (7                | ) |  | 1     |  
|At 31 December 2001       |  | 7        |   |  | (12               | ) |  | (5    | )
|                          |  |          |   |  |                   |   |  |       |  



Goodwill arising on the
acquisition of associated undertakings and joint ventures is set out in note 15  fixed asset investments.



14 Tangible fixed assets



|                                     |  | Freehold land and buildings |  | Plant, machinery and equipment |   |  | Assets in course of construction |   |  | Total |  
|------------------------------------ |  | --------------------------- |  | ------------------------------ | - |  | -------------------------------- | - |  | ----- | -
|                                     |  | £m                          |  | £m                             |   |  | £m                               |   |  | £m    |  
|Cost                                 |  |                             |  |                                |   |  |                                  |   |  |       |  
|At 1 January 2002                    |  | 80                          |  | 2,188                          |   |  | 789                              |   |  | 3,057 |  
|Additions                            |  | 1                           |  | 84                             |   |  | 90                               |   |  | 175   |  
|Reclassifications and transfers      |  |                            |  | 710                            |   |  | (712                             | ) |  | (2    | )
|Disposals                            |  |                            |  | (11                            | ) |  |                                 |   |  | (11   | )
|Exchange rate differences            |  | 1                           |  | (68                            | ) |  | (79                              | ) |  | (146  | )
|                                     |  |                             |  |                                |   |  |                                  |   |  |       |  
|At 31 December 2002                  |  | 82                          |  | 2,903                          |   |  | 88                               |   |  | 3,073 |  
|                                     |  |                             |  |                                |   |  |                                  |   |  |       |  
|Depreciation and diminution in value |  |                             |  |                                |   |  |                                  |   |  |       |  
|At 1 January 2002                    |  | 15                          |  | 390                            |   |  | 4                                |   |  | 409   |  
|Provided during the year             |  | 3                           |  | 108                            |   |  |                                 |   |  | 111   |  
|Reclassifications and transfers      |  |                            |  | 4                              |   |  | (4                               | ) |  |      |  
|Impairment                           |  |                            |  | 103                            |   |  |                                 |   |  | 103   |  
|Disposals                            |  |                            |  | (11                            | ) |  |                                 |   |  | (11   | )
|Exchange rate differences            |  |                            |  | (12                            | ) |  |                                 |   |  | (12   | )
|                                     |  |                             |  |                                |   |  |                                  |   |  |       |  
|At 31 December 2002                  |  | 18                          |  | 582                            |   |  |                                 |   |  | 600   |  
|                                     |  |                             |  |                                |   |  |                                  |   |  |       |  
|Net book value                       |  |                             |  |                                |   |  |                                  |   |  |       |  
|At 31 December 2002                  |  | 64                          |  | 2,321                          |   |  | 88                               |   |  | 2,473 |  
|At 31 December 2001                  |  | 65                          |  | 1,798                          |   |  | 785                              |   |  | 2,648 |  
|                                     |  |                             |  |                                |   |  |                                  |   |  |       |  



Interest capitalised in
the year was £5 million (year ended 31 December 2001: £23 million). On a cumulative basis, the net book value of interest capitalised was £83 million (31 December 2001: £80 million).



The total value of land that is not depreciated included within freehold land
and buildings was £28 million (31 December 2001: £29 million)



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15 Fixed asset investments



|                                       |  | Joint ventures      |   |  | Associated undertakings |   |  | Other investments |   |  | Total |  
|-------------------------------------- |  | ------------------- | - |  | ----------------------- | - |  | ----------------- | - |  | ----- | -
|                                       |  | Share of net assets |   |  | Share of net assets     |   |  | Goodwill          |   |  |      
|                                       |  | £m                  |   |  | £m                      |   |  | £m                |   |  | £m    |  
|At 1 January 2002 as originally stated |  | 101                 |   |  | 293                     |   |  | 24                |   |  | 97    |  
|Prior year adjustment                  |  | (2                  | ) |  | (4                      | ) |  |                  |   |  |      |  
|                                       |  |                     |   |  |                         |   |  |                   |   |  |       |  
|At 1 January 2002 as restated          |  | 99                  |   |  | 289                     |   |  | 24                |   |  | 97    |  
|Share of post-tax profit               |  | 12                  |   |  | 83                      |   |  | (2                | ) |  |      |  
|Additions                              |  |                    |   |  |                        |   |  |                  |   |  | 7     |  
|Distribution and loan repayments       |  | (12                 | ) |  | (72                     | ) |  |                  |   |  |      |  
|Deemed disposals                       |  |                    |   |  | (1                      | ) |  |                  |   |  |      |  
|Disposals                              |  |                    |   |  |                        |   |  |                  |   |  | (2    | )
|Reclassifications and transfers        |  |                    |   |  |                        |   |  |                  |   |  | 4     |  
|Amortisation                           |  |                    |   |  |                        |   |  |                  |   |  | (2    | )
|Exchange rate differences              |  | 3                   |   |  | (16                     | ) |  | (2                | ) |  | (2    | )
|                                       |  |                     |   |  |                         |   |  |                   |   |  |       |  
|At 31 December 2002                    |  | 102                 |   |  | 283                     |   |  | 20                |   |  | 102   |  
|                                       |  |                     |   |  |                         |   |  |                   |   |  |       |  



Included within the
Groups share of net assets of joint ventures and associated undertakings is net debt of £503 million (31 December 2001: £487 million). These obligations are generally secured by the assets of the respective joint venture or
associate borrower and are not guaranteed by International Power or any other Group company.



|Group share of associated undertakings net assets |  | 31 December 2002 |   |  | 31 December 2001 (Restated) |  
|-------------------------------------------------- |  | ---------------- | - |  | --------------------------- | -
|                                                   |  | £m               |   |  | £m                          |  
|Share of fixed and long-term assets                |  | 602              |   |  | 636                         |  
|Share of current assets                            |  | 221              |   |  | 198                         |  
|                                                   |  |                  |   |  |                             |  
|                                                   |  | 823              |   |  | 834                         |  
|                                                   |  |                  |   |  |                             |  
|Share of liabilities due within one year           |  | (157             | ) |  | (117                        | )
|Share of liabilities due after more than one year  |  | (383             | ) |  | (428                        | )
|                                                   |  |                  |   |  |                             |  
|                                                   |  | (540             | ) |  | (545                        | )
|                                                   |  |                  |   |  |                             |  
|Share of net assets                                |  | 283              |   |  | 289                         |  
|                                                   |  |                  |   |  |                             |  



|Group share of results of associated undertakings and joint ventures |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 (Restated) |  | 9 months ended 31 December 2000 (Restated)
|-------------------------------------------------------------------- |  | --------------------------- |  | -------------------------------------- |  | ------------------------------------------
|                                                                     |  | £m                          |  | £m                                     |  | £m                                        
|Share of turnover                                                    |  | 412                         |  | 546                                    |  | 483                                       
|Share of operating profit                                            |  | 149                         |  | 161                                    |  | 110                                       
|Share of income from continuing operations                           |  | 95                          |  | 81                                     |  | 50                                        
|Share of net incomegroup                                            |  | 95                          |  | 81                                     |  | 51                                        
|                                                                     |  |                             |  |                                        |  |                                           



The Group investments
that are listed on a recognised stock market are those in Praska Teplárenská, the Hub Power Company Limited (HUBCO) and Malakoff Berhad. The former is a joint venture, the latter two are associated undertakings.



The Groups share in Praska Teplárenská was valued at
£58 million on the Prague Stock Market at 31 December 2002 (31 December 2001: £34 million) compared with a book value of £69 million (31 December 2001: £65 million).



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The Groups share in
HUBCO was valued at £126 million on the Karachi and Luxembourg Stock Markets at 31 December 2002 (31 December 2001: £54 million) compared with a book value of £70 million (31 December 2001: £71 million).



The Groups share in Malakoff Berhad was valued at £108 million on
the Kuala Lumpur Stock Market at 31 December 2002 (31 December 2001: £99 million) compared with a book value of £121 million (31 December 2001: £131 million).



We continually evaluate our investments for indications of impairment. We take into account our view of future cash flows
from these investments when considering their carrying value. Our evaluation considers the above market prices but also takes into account the factors that affect them. These include restrictions on the ability to buy and sell these shares, the low
volume of shares traded and the market for them.



After
considering all factors, it is the opinion of our Directors that as of 31 December 2002 the value of the above investments has not suffered permanent impairment in relation to their current net book value.



Kot Addu Power Company Limited (KAPCO), in which the Group holds 36% of the
shares, is classified as a trade investment because International Power does not exercise significant influence over the company.



16 Investments in subsidiary undertakings



|Name and nature of business                                                   |  | Country of incorporation and registration |    |  | Type of share     |  | Percentage shareholding |  
|----------------------------------------------------------------------------- |  | ----------------------------------------- | -- |  | ----------------- |  | ----------------------- | -
|Hazelwood Finance Limited Partnership*(Financing company)                     |  | Australia                                 |    |  | Partners Capital |  | 75                      | %
|Hazelwood Power Partnership*(Power generation)                                |  | Australia                                 |    |  | Partners Capital |  | 92                      | %
|Elektrárny Opatovice A.S.*(Power generation)                                  |  | Czech Republic                            |    |  | Ordinary Shares   |  | 99                      | %
|International Power Global Developments Limited(Project
developmentoverseas) |  | England and Wales                         |    |  | Ordinary Shares   |  | 100                     | %
|Pelican Power Point Limited*(Power generation)                                |  | England and Wales                         |   |  | Ordinary Shares   |  | 100                     | %
|Rugeley Power Limited(Power generation)                                       |  | England and Wales                         |    |  | Ordinary Shares   |  | 100                     | %
|Deeside Power Development Company Limited(Power generation)                   |  | England and Wales                         |    |  | Ordinary Shares   |  | 100                     | %
|National Power International Holdings BV*(Investment holding
company)         |  | The Netherlands                           | ** |  | Ordinary Shares   |  | 100                     | %
|Synergen Power Pty Limited*(Power generation)                                 |  | Australia                                 |    |  | Ordinary Shares   |  | 100                     | %
|Thai National Power Company Limited*(Power generation)                        |  | Thailand                                  |    |  | Ordinary Shares   |  | 100                     | %
|Midlothian Energy Limited Partnership*(Power generation)                      |  | US                                        |    |  | Partners Capital |  | 100                     | %
|Milford Power Limited Partnership*(Power generation)                          |  | US                                        |    |  | Partners Capital |  | 100                     | %
|ANP Funding I, LLC*(Financing company)                                        |  | US                                        |    |  | Ordinary Shares   |  | 100                     | %
|International Power (Cayman) Limited(Financing company)                       |  | Cayman Islands                            | ** |  | Ordinary Shares   |  | 100                     | %
|International Power (Europe) Limited                                          |  | England and Wales                         |    |  | Ordinary Shares   |  | 100                     | %



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|Name and nature of business                                      |  | Country ofincorporation andregistration |  | Type of share     |  | Percentage shareholding |  
|---------------------------------------------------------------- |  | --------------------------------------- |  | ----------------- |  | ----------------------- | -
|(Financing company)                                              |  |                                         |  |                   |  |                         |  
|ANP Blackstone Energy Company, LLC*(Power generation)            |  | US                                      |  | Ordinary Shares   |  | 100                     | %
|ANP Bellingham Energy Company, LLC*(Power generation)            |  | US                                      |  | Ordinary Shares   |  | 100                     | %
|Hays Energy Limited Partnership*(Power generation)               |  | US                                      |  | Partners Capital |  | 100                     | %
|International Power Holdings Limited(Investment holding
company) |  | England and Wales                       |  | Ordinary Shares   |  | 100                     | %
|Advanced Turbine Products LLC*(Manufacturer of turbine parts)    |  | US                                      |  | Partners Capital |  | 82                      | %
|Al Kamil Power Company SAOC*(Power generation)                   |  | Oman                                    |  | Ordinary Shares   |  | 100                     | %

---

All subsidiary undertakings operate in
their country of incorporation, except as indicated below.

All subsidiary undertakings have December year ends.

|* |  | Held by an intermediate subsidiary undertaking
|- |  | ----------------------------------------------

| |  | Operates in Australia
|- |  | ---------------------

|** |  | Operates in the UK
|-- |  | ------------------



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17 Investments in
associates and joint ventures



|Name and nature of business                                                        |  | Country of incorporation, registration and operation |  | Accounting period end |  | Type of share     |  | Percentage shareholding |  
|---------------------------------------------------------------------------------- |  | ---------------------------------------------------- |  | --------------------- |  | ----------------- |  | ----------------------- | -
|Associated undertakings                                                            |  |                                                      |  |                       |  |                   |  |                         |  
|Malakoff Berhad*(Power generation)                                                 |  | Malaysia                                             |  | 31 August             |  | Ordinary Shares   |  | 18                      | %
|The Hub Power Company Limited*(Power generation)                                   |  | Pakistan                                             |  | 30 June               |  | Ordinary Shares   |  | 26                      | %
|CarbopegoAbastecimento de Combustiveis, S.A.*(Fuel
supplies)                      |  | Portugal                                             |  | 31 December           |  | Ordinary Shares   |  | 33                      | %
|PegopEnergia Electrica, S.A.*(Power station operations)                           |  | Portugal                                             |  | 31 December           |  | Ordinary Shares   |  | 45                      | %
|Tejo EnergiaProducao e Distribuicao de Energia Electrica, S.A.*(Power
generation) |  | Portugal                                             |  | 31 December           |  | Ordinary Shares   |  | 45                      | %
|Shuweihat CMS International Power Company*(Power
generation)                       |  | UAE                                                  |  | 31 December           |  | Ordinary Shares   |  | 20                      | %
|Uni-Mar Enerji Yatirimlari A.S.*(Power generation)                                 |  | Turkey                                               |  | 31 December           |  | Ordinary Shares   |  | 33                      | %
|Joint ventures                                                                     |  |                                                      |  |                       |  |                   |  |                         |  
|Praska Teplárenská A.S.*(Power
generation)                                        |  | Czech Republic                                       |  | 31 December           |  | Ordinary Shares   |  | 48                      | %
|Hartwell Energy Limited Partnership*(Power generation)                             |  | US                                                   |  | 31 December           |  | Partners Capital |  | 50                      | %
|Oyster Creek Limited Partnership*(Power generation)                                |  | US                                                   |  | 31 December           |  | Partners Capital |  | 50                      | %

---

|* |  | Held by an intermediate subsidiary undertaking
|- |  | ----------------------------------------------



18 Debtors



|                                                            |  | 31 December 2002 |  | 31 December 2001
|----------------------------------------------------------- |  | ---------------- |  | ----------------
|                                                            |  | Group            |  | Group           
|                                                            |  | £m               |  | £m              
|Amounts recoverable within one year:                        |  |                  |  |                 
|Trade debtors (net)                                         |  | 48               |  | 73              
|Other debtors                                               |  | 23               |  | 44              
|Other prepayments and accrued income                        |  | 59               |  | 31              
|                                                            |  |                  |  |                 
|Total amounts recoverable within one year                   |  | 130              |  | 148             
|                                                            |  |                  |  |                 
|Amounts recoverable after more than one year: Other debtors |  | 4                |  | 10              
|Total amounts recoverable after more than one year          |  | 4                |  | 10              
|                                                            |  |                  |  |                 
|Total debtors                                               |  | 134              |  | 158             
|                                                            |  |                  |  |                 



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Provision for doubtful debts
is analysed below:



|                           |  | 31 December 2002 |   |  | 31 December 2001 |   |  | 31 December 2000 |  
|-------------------------- |  | ---------------- | - |  | ---------------- | - |  | ---------------- | -
|                           |  | Group            |   |  | Group            |   |  | Continuing       |  
|                           |  | £m               |   |  | £m               |   |  | £m               |  
|Brought forward            |  | (11              | ) |  | (4               | ) |  | (5               | )
|Charged to profit and loss |  | (6               | ) |  | (7               | ) |  | 1                |  
|Acquired                   |  |                 |   |  |                 |   |  |                 |  
|Transferred out of group   |  |                 |   |  |                 |   |  |                 |  
|                           |  |                  |   |  |                  |   |  |                  |  
|Carried forward            |  | (17              | ) |  | (11              | ) |  | (4               | )
|                           |  |                  |   |  |                  |   |  |                  |  



19 Current asset
investments



|                     |  | 31 December 2002 |  | 31 December 2001
|-------------------- |  | ---------------- |  | ----------------
|                     |  | £m               |  | £m              
|Unlisted investments |  | 43               |  | 47              
|                     |  |                  |  |                 



Current asset
investments are primarily short-term money market deposits used for fund management and treasury purposes.



20 Creditors: amounts falling due within one year



|                                                     |  | 31 December 2002 |  | 31 December 2001
|---------------------------------------------------- |  | ---------------- |  | ----------------
|                                                     |  | £m               |  | £m              
|Trade creditors                                      |  | 106              |  | 65              
|Other creditors                                      |  | 34               |  | 59              
|Other taxation and social security                   |  |                 |  | 6               
|Corporation tax                                      |  | 53               |  | 57              
|Accruals and deferred income                         |  | 134              |  | 316             
|Bank loans (secured)                                 |  | 810              |  | 112             
|                                                     |  |                  |  |                 
|61⁄4% Euro Dollar Bonds 2003                           |  | 37               |  |                
|2% Convertible US Dollar Bonds 2005                  |  | 231              |  |                
|                                                     |  |                  |  |                 
|Total Bonds                                          |  | 268              |  |                
|                                                     |  |                  |  |                 
|Total creditors: amounts falling due within one year |  | 1,405            |  | 615             
|                                                     |  |                  |  |                 



The bank loans are
secured by fixed and floating charges over the assets of certain subsidiary undertakings.



Convertible Notes



On 24
November 2000, International Power (Cayman) Limited, a wholly-owned subsidiary company incorporated in the Cayman Islands, issued US$357 million 2% convertible notes due 2005, convertible into preference shares of International Power (Cayman)
Limited at the holders option, exchangeable for Ordinary Shares of, and fully and unconditionally guaranteed on a senior unsecured basis by International Power plc. International Power (Cayman) Limited is a finance subsidiary with no assets,
operations, revenues or cash flows other than those related to the issuance and repayment of the securities being registered.



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The notes are convertible into
Ordinary Shares of International Power plc at a conversion price of 300p at any time between 4 January 2001 and 23 November 2005. The last reported trading value of the Companys Ordinary Shares prior to the date of issue of the convertible
notes was 246.25p. Each US$1,000 principal amount of notes will entitle the holder to convert into a US$1,000 paid up value of preference shares of International Power (Cayman) Limited. Investors may elect to receive their Ordinary Shares in the
form of American Depositary Receipts. As at 31 December 2001, none of the notes had been converted.



The notes may be redeemed at the holders option at a redemption price of 107.1% of its principal amount, together with accrued and unpaid interest, on 24 November 2003.



If the conversion option is not exercised, the convertible unsecured notes
will be redeemed on 24 November 2005 at a redemption price of 112.4% of its principal amount.



Provision is made for the possible premium on redemption and included within the carrying amount of the bonds. At 31 December 2002, the amount accrued was £13 million (31 December 2001: £6
million). The finance cost charged in the profit and loss account comprises the aggregate of the coupon on the convertible unsecured notes and the proportion of the premium on redemption that relates to the financial year.



As the conversion exercise price is substantially above the present share
price, it is likely that the bondholders will exercise their right. Accordingly, the convertible bond is now shown within short-term liabilities.



Secured loans without recourse



We are in discussions with bank groups in relation to non-recourse debt for Rugeley and the US merchant asset portfolio. Until these issues are resolved
and documented, the debt at Rugeley and ANP is reported as current non-recourse debt in our accounts. Further discussion on these issues can be found within Item 5: Capital Resources. Secured bank loans without recourse are those where the
obligation to repay lies solely with the subsidiary and are secured solely on the assets of the subsidiary concerned.



21 Creditors: amounts falling due after more than one year



|                                                              |  | 31 December 2002 |  | 31 December 2001
|------------------------------------------------------------- |  | ---------------- |  | ----------------
|                                                              |  | £m               |  | £m              
|Accruals and deferred income                                  |  |                 |  | 5               
|Other creditors                                               |  | 7                |  | 3               
|Bank loans (secured):                                         |  |                  |  |                 
|                                                              |  |                  |  |                 
|Between one and five years                                    |  | 138              |  | 801             
|In more than five years                                       |  | 438              |  | 338             
|                                                              |  |                  |  |                 
|Total bank loans                                              |  | 576              |  | 1,139           
|                                                              |  |                  |  |                 
|61⁄4% Euro Dollar Bonds 2003                                    |  |                 |  | 41              
|2% Convertible US Dollar Bonds 2005                           |  |                 |  | 248             
|                                                              |  |                  |  |                 
|Total Bonds                                                   |  |                 |  | 289             
|                                                              |  |                  |  |                 
|Total creditors: amounts falling due after more than one year |  | 583              |  | 1,436           
|                                                              |  |                  |  |                 



The bank loans are
secured by a fixed and floating charge over the assets of certain subsidiary undertakings. Details of debt financing are given in notes 29 and 30.



22 Provisions for liabilities and charges



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|                                       |  | Deferred tax |   |  | Rationalisation and restructuring |  | Other |   |  | Total |  
|-------------------------------------- |  | ------------ | - |  | --------------------------------- |  | ----- | - |  | ----- | -
|                                       |  | £m           |   |  | £m                                |  | £m    |   |  | £m    |  
|At 1 January 2002 as originally stated |  | 27           |   |  | 11                                |  | 22    |   |  | 60    |  
|Prior year adjustment                  |  | 170          |   |  |                                  |  |      |   |  | 170   |  
|                                       |  |              |   |  |                                   |  |       |   |  |       |  
|At 1 January 2002 as restated          |  | 197          |   |  | 11                                |  | 22    |   |  | 230   |  
|Charged to the profit and loss account |  | 28           |   |  |                                  |  | 8     |   |  | 36    |  
|Credited to profit and loss account    |  | (17          | ) |  |                                  |  | (3    | ) |  | (20   | )
|Provision utilised                     |  |             |   |  |                                  |  | (2    | ) |  | (2    | )
|Reclassifications and transfers        |  | 11           |   |  |                                  |  |      |   |  | 11    |  
|                                       |  |              |   |  |                                   |  |       |   |  |       |  
|At 31 December 2002                    |  | 219          |   |  | 11                                |  | 25    |   |  | 255   |  
|                                       |  |              |   |  |                                   |  |       |   |  |       |  



Provisions for
rationalisation and restructuring include an onerous lease provision of £6 million (31 December 2001: £6 million) and a provision for staff relocation of £5 million (31 December 2001: £5 million). The relocation provision was
created at £7 million as part of the exceptional cost of £25 million for restructuring charged to the profit and loss account in the nine month period ended 31 December 2000. The severance provision was for the termination of 113
employees. These employees were a broad cross section of head office staff. During the year, relocation benefits of nil (nine months ended 31 December 2001: £2 million) were paid and charged against the liability. The onerous lease provision
is based on an estimate of the present value of future net cash flows, discounted at an appropriate rate in accordance with FRS12 (Provisions, Contingent Liabilities and Contingent Assets).



The remainder of other provisions primarily relates to site restoration and
long service leave provisions in Australia. These liabilities are not expected to arise in the short-term. The group has a provision of £6 million (31 December 2001: £5 million) for mine site restoration in Australia. The provision is
based on the current Mine Rehabilitation Plan as endorsed by the regulatory authority. These costs have been estimated on the basis of current costs, current legal requirements and current technology. The provision is based on the present value of
these costs. The ultimate amount of the restoration obligations that will be incurred cannot be predicted with certainty due to the impact of changes in environmental legislation, technology and other factors. However, management does not believe
that the ultimate resolution of this matter, after considering the amounts provided, will have a material impact on the consolidated balance sheet or consolidated profit and loss account.



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23 Deferred taxation



Deferred taxation accounted for in the consolidated balance
sheet and the potential amounts of deferred taxation are:



|                                                     |  | As at 31 December 2002 |   |  | As at 31 December 2001(Restated) |  
|---------------------------------------------------- |  | ---------------------- | - |  | -------------------------------- | -
|                                                     |  | £m                     |   |  | £m                               |  
|Full potential deferred tax liabilities:             |  |                        |   |  |                                  |  
|Tangible fixed assets accelerated capital allowances |  | (237                   | ) |  | (171                             | )
|Other timing differences                             |  | (24                    | ) |  | (26                              | )
|Dividends of overseas subsidiary undertakings        |  | (17                    | ) |  | (21                              | )
|                                                     |  |                        |   |  |                                  |  
|Total gross deferred tax liabilities                 |  | (278                   | ) |  | (218                             | )
|Less: deferred tax liabilities not provided          |  |                       |   |  |                                 |  
|                                                     |  |                        |   |  |                                  |  
|Total deferred tax liabilities provided              |  | (278                   | ) |  | (218                             | )
|Full potential deferred tax assets:                  |  |                        |   |  |                                  |  
|Provisions                                           |  | 2                      |   |  | 7                                |  
|Tax losses                                           |  | 45                     |   |  | 4                                |  
|Other timing differences                             |  | 12                     |   |  | 10                               |  
|                                                     |  |                        |   |  |                                  |  
|Total gross deferred tax assets                      |  | 59                     |   |  | 21                               |  
|Less: deferred tax assets not recognised             |  |                       |   |  |                                 |  
|                                                     |  |                        |   |  |                                  |  
|Total deferred tax asset recognised                  |  | 59                     |   |  | 21                               |  
|                                                     |  |                        |   |  |                                  |  
|Net deferred tax liability provided                  |  | (219                   | ) |  | (197                             | )
|                                                     |  |                        |   |  |                                  |  



Of the £45 million
deferred tax asset in respect of tax losses, £39 million can be carried forward for 20 years, the balance can be carried forward indefinitely.



24 Share capital



|                                           |  | Authorised OrdinaryShares of 50p |  | Issued and fully paid OrdinaryShares of 50p
|------------------------------------------ |  | -------------------------------- |  | -------------------------------------------
|                                           |  | Number                           |  | £m                                         
|Balance at 1 January 21, 2002              |  | 1,700,000,000                    |  | 850                                        
|Issue of shares under the Sharesave Scheme |  |                                 |  |                                           
|                                           |  |                                  |  |                                            
|Balance at 31 December 2002                |  | 1,700,000,000                    |  | 850                                        
|                                           |  |                                  |  |                                            



Deferred shares



The Company has 21 Deferred Shares of 1 pence each in
issue. These shares were issued to ensure the demerger was effected as efficiently as possible. The holders of Deferred Shares have no rights to receive dividends or to attend or vote at any general meeting.



Unclassified share



Further to the redemption of the Special Share in August 2000, the
Companys authorised share capital includes one unclassified share of £1.



Employee share schemes



The Sharesave Scheme and Sharesave Plan are based on SAYE savings contracts with options exercisable within a six month period from the conclusion of a three or five year period as



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appropriate from the date of grant. Exercise prices are set at 80 % of the market price as at the date the option was granted.



Options under the Executive Share Option Scheme and Executive Share Option
Plan are exercisable in a period beginning no earlier than three years and ending no later than ten years from the date of the grant. Exercise prices equal the market price at the date the option was granted.



The cost to us for the Executive Share Option Plan and the Sharesave Plan was
nil in the financial year to 31 December 2002, the year ended 31 December 2001 and the nine month period to 31 December 2000.



|                                        |  |      |  | Sharesave Scheme          |   |  | Executive Share Option Scheme   |    
|--------------------------------------- |  | ---- |  | ------------------------- | - |  | ------------------------------- | ---
|                                        |  | Note |  | Number of Ordinary Shares |   |  | Weighted average exercise price |    
|                                        |  |      |  | Million                   |   |  | Pence                           |    
|Options outstanding at 31 March 2000    |  |      |  | 8                         |   |  | 389                             |    
|Granted                                 |  |      |  |                          |   |  |                                |    
|Restated as a result of demerger        |  |      |  | 1                         |   |  | 263                             | (1)
|Exercised/lapsed                        |  | b    |  | (7                        | ) |  | 266                             | (1)
|                                        |  |      |  |                           |   |  |                                 |    
|Outstanding at 31 December 2000         |  | a    |  | 2                         |   |  | 260                             | (1)
|Granted                                 |  |      |  | 2                         |   |  | 194                             |    
|Exercised/lapsed                        |  | b    |  | (2                        | ) |  | 262                             |    
|                                        |  |      |  |                           |   |  |                                 |    
|Options outstanding at 31 December 2001 |  | a    |  | 2                         |   |  | 200                             |    
|Granted                                 |  |      |  | 4                         |   |  |                                 |    
|Exercised/lapsed                        |  | b    |  | (2                        | ) |  |                                 |    
|                                        |  |      |  |                           |   |  |                                 |    
|                                       
|Options outstanding at 31 December 2002 |  | a    |  | 4                         |   |  |                                 |    
|                                        |  |      |  |                           |   |  |                                 |    
|                                       
|Options exercisable at 31 December 2002 |  |      |  |                          |   |  |                                 |    
|Options exercisable at 31 December 2001 |  |      |  |                          |   |  |                                 |    
|Options exercisable at 31 December 2000 |  |      |  |                          |   |  |                                 |    
|                                        |  |      |  |                           |   |  |                                 |    

---

|(1) |  | Post demerger price
|--- |  | -------------------



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(a) Options outstanding



|                                                 |  |              |  | Number of Ordinary Shares
|------------------------------------------------ |  | ------------ |  | -------------------------
|                                                 |  | Option price |  | Date exercisable         
|                                                 |  | pence        |  |                          
|Sharesave schemes                                |  | 246.01       |  | 2002                     
|                                                 |  | 188.00       |  | 2004                     
|                                                 |  | 188.00       |  | 2006                     
|                                                 |  | 200.00       |  | 2004                     
|                                                 |  | 200.00       |  | 2006                     
|                                                 |  | 90.00        |  | 2005                     
|                                                 |  | 90.00        |  | 2007                     
|                                                
|Executive share option schemes                   |  | 297.94       |  | 1996-2003                
|                                                 |  | 336.21       |  | 1997-2004                
|                                                 |  | 306.14       |  | 1998-2005                
|                                                 |  | 323.23       |  | 1999-2006                
|                                                 |  | 386.09       |  | 2000-2007                
|                                                 |  | 352.61       |  | 2001-2008                
|                                                 |  | 311.75       |  | 2003-2010                
|                                                 |  | 235.00       |  | 2004-2011                
|                                                 |  | 217.00       |  | 2004-2011                
|                                                 |  | 196.00       |  | 2005-2012                
|                                                 |  |              |  |                          
|Total options outstanding at the end of the year |  |              |  |                          
|                                                 |  |              |  |                          



The weighted average
remaining contractual life of options outstanding at 31 December 2002 is shown below:



|                                              |  | Weighted average remaining contractual life years
|--------------------------------------------- |  | -------------------------------------------------
|Sharesave Schemes                             |  | 4                                                
|Executive Share Option Schemes                |  | 8                                                
|Total options outstanding at 31 December 2002 |  | 7                                                
|                                              |  |                                                  



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(b) Options exercised



|                                                |  | Option price |  | Number of Options |  | Nominal value |  | Consideration
|----------------------------------------------- |  | ------------ |  | ----------------- |  | ------------- |  | -------------
|                                                |  | pence        |  | millions          |  | £m            |  | £m           
|31 December 2000                                |  |              |  |                   |  |               |  |              
|Sharesave Schemes                               |  | 360.00       |  | 0.3               |  | 0.2           |  | 1.2          
|                                                |  | 450.00       |  |                  |  |              |  | 0.1          
|                                                |  | 413.00       |  |                  |  |              |  |             
|                                                |  | 246.01       |  | 0.1               |  |              |  | 0.1          
|                                                |  | 307.51       |  |                  |  |              |  |             
|                                                |  | 282.23       |  |                  |  |              |  | 0.1          
|Executive Share Option Schemes                  |  | 436.00       |  | 0.1               |  |              |  | 0.2          
|                                                |  | 492.00       |  |                  |  |              |  | 0.1          
|                                                |  | 448.00       |  | 0.3               |  | 0.2           |  | 1.5          
|                                                |  | 473.00       |  | 0.1               |  |              |  | 0.4          
|Total options exercised during the period ended |  |              |  |                   |  |               |  |              
|                                                |  |              |  |                   |  |               |  |              
|31 December 2000                                |  |              |  | 0.9               |  | 0.4           |  | 3.7          
|                                                |  |              |  |                   |  |               |  |              
|31 December 2001                                |  |              |  |                   |  |               |  |              
|Sharesave Schemes                               |  | 246.01       |  | 0.1               |  |              |  | 0.2          
|                                                |  | 307.51       |  |                  |  |              |  |             
|                                                |  | 282.23       |  |                  |  |              |  |             
|Executive Share Option Schemes                  |  | 180.40       |  |                  |  |              |  |             
|Total options exercised during the year ended   |  |              |  |                   |  |               |  |              
|                                                |  |              |  |                   |  |               |  |              
|31 December 2001                                |  |              |  | 0.1               |  |              |  | 0.2          
|                                                |  |              |  |                   |  |               |  |              
|31 December 2002                                |  |              |  |                   |  |               |  |              
|Sharesave Schemes                               |  | 188.00       |  |                  |  |              |  |             
|Executive Share Option Schemes                  |  |              |  |                  |  |              |  |             
|Total options exercised during the year ended   |  |              |  |                   |  |               |  |              
|                                                |  |              |  |                   |  |               |  |              
|31 December 2002-                               |  |              |  |                  |  |              |  |             
|                                                |  |              |  |                   |  |               |  |              



Profit Sharing
Share Scheme



In addition to the above, the Company
operates an Inland Revenue Approved Profit Sharing Scheme. No further appropriations have been made in respect of this Scheme. On 31 December 2002, a total of 454,767 shares in International Power plc were held by the Trustee on behalf of 1,888
present and former employees of the Group.



The cost to us was
£nil (year ended 31 December 2001: £nil; nine months ended 31 December 2000: £1 million).



Restricted Share Plan



At the EGM of the Company held on 29 September 2000, shareholders approved the establishment of the Restricted Share Plan. Participants in the Plan are full-time Executive Directors who are required to devote substantially
the whole of their working time to the duties of the Company and any subsidiaries of the Company (as designated by the Directors). Only Peter Giller participated in this Plan. The Company acquired 677,564 shares in International Power plc for a
consideration of £1.7 million in the nine months ended 31 December 2000. On 2 October 2001, 225,854 shares were released to Peter Giller. During 2002, the following releases of shares to Peter Giller were made: 225,855 shares on 1 October 2002
and 225,855 shares on 31 December 2002, being the balance of shares held in trust in respect of this Plan.



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Demerger Share Plan



At demerger, the Board of the Company established the
Demerger Share Plan to provide an incentive to those employees (other than Executive Directors) who were remaining in continuous full-time employment with the Company. On 3 October 2000, the Board made conditional awards of 288,359 shares to 181
employees of the Company. No specific purchases of shares have been made in respect of this Plan to date as the Company is utilising the balance of shares unallocated from two former employee share plans that ceased operation at demerger (the total
number of unallocated shares at 31 December 2002 was 256,425), to meet the vesting of conditional awards under the Demerger Share Plan. Conditional awards will normally vest to participants on the third anniversary of the demerger. During the year,
a total of 12,691 shares have been released to individuals ceasing employment with the Company in accordance with their entitlement under the rules of the Demerger Share Plan.



Deferred Share Compensation Plan



Following the decision in 1996 to pay a Special Dividend of £1 net per share, a Deferred Share Compensation Plan was
established to compensate all holders of Share Options who would otherwise suffer a potential reduction in the value of the shares they would receive on exercise of those Share Options. 3,421,239 shares at a cost of £14 million were purchased
and placed in trust. During the nine months ended 31 December 2000, 835,013 of these shares were issued (31 March 2000: 49,182), none of which related to Directors (31 March 2000: nil), the balance (227,259 shares) remaining in trust (31 March 2000:
1,062,272). The cost of acquiring the shares was expensed as follows: 31 December 2000 and 31 March 2000: nil.



Following the demerger, the Plan ceased to operate and the balance of shares is being held in trust by the trustee to be used for the benefit of current and former employees of the Company.



Performance Share Plan 2002



At the 2002 AGM, shareholders approved the establishment of the Performance
Share Plan 2002. During 2002 a total of 1,273,138 shares in International Power plc were acquired in respect of awards made under this plan for a consideration of £2.5 million, the shares being placed in an Employee Share Ownership Trust. On
31 December 2002, a total of 225,102 shares were released to Peter Giller in respect of this Plan.



Effect of the Demerger on the Share Option Schemes



At the EGM held on 29 September 2000, shareholders approved amendments to the rules of the Share Option Schemes to allow for the adjustment of the numbers
of shares under option and also to the option prices of shares under option to compensate for the effect of the demerger on the reduction in value in the shares of International Power plc following the demerger. The adjustments were affected by
dividing the average of the market value of the shares of National Power PLC for the last three days of trading before Demerger by the average of the market value of the shares of International Power plc for the first three days of trading after the
demerger. The number of shares granted under each option were then multiplied by the result of this sum to provide the resultant number of shares under the adjusted option. The original option price for each option was then adjusted by dividing the
total option exercise price payable under the original option (i.e. the pre-adjusted option price) by the number of shares



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under the adjusted option, so that the total amount to be paid by a participant upon exercise of an adjusted option would be, as close as is
practicable, equal to the amount that would be paid for an option that had been granted pre-demerger.



25 Reserves



|                                                               |  | Share capital |  | Share premium account |  | Capital redemption reserve |  | Capital reserve |  | Profit and loss account |   |  | Total share-holders funds-equity |  
|-------------------------------------------------------------- |  | ------------- |  | --------------------- |  | -------------------------- |  | --------------- |  | ----------------------- | - |  | --------------------------------- | -
|                                                               |  | £m            |  | £m                    |  | £m                         |  | £m              |  | £m                      |   |  | £m                                |  
|At 1 April 2000 as originally stated                           |  | 558           |  | 286                   |  | 140                        |  | 422             |  | 877                     |   |  | 2,283                             |  
|Prior period adjustment                                        |  |              |  |                      |  |                           |  |                |  | (141                    | ) |  | (141                              | )
|                                                               |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  
|At 1 April 2000 as restated                                    |  | 558           |  | 286                   |  | 140                        |  | 422             |  | 736                     |   |  | 2,142                             |  
|Loss for the financial period                                  |  |              |  |                      |  |                           |  |                |  | (189                    | ) |  | (189                              | )
|Other recognised gains and losses relating to the period (net) |  |              |  |                      |  |                           |  |                |  | (31                     | ) |  | (31                               | )
|Demerger dividend                                              |  |              |  |                      |  |                           |  |                |  | (392                    | ) |  | (392                              | )
|Issue of shares                                                |  | 1             |  | 3                     |  |                           |  |                |  |                        |   |  | 4                                 |  
|                                                               |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  
|At 31 December 2000                                            |  | 559           |  | 289                   |  | 140                        |  | 422             |  | 124                     |   |  | 1,534                             |  
|                                                               |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  



|                                                             |  | Share capital |  | Share premium account |  | Capital redemption reserve |  | Capital reserve |  | Profit and loss account |   |  | Total share-holders funds-equity |  
|------------------------------------------------------------ |  | ------------- |  | --------------------- |  | -------------------------- |  | --------------- |  | ----------------------- | - |  | --------------------------------- | -
|                                                             |  | £m            |  | £m                    |  | £m                         |  | £m              |  | £m                      |   |  | £m                                |  
|At 1 January 2001 as originally stated                       |  | 559           |  | 289                   |  | 140                        |  | 422             |  | 273                     |   |  | 1,683                             |  
|Prior year adjustment                                        |  |              |  |                      |  |                           |  |                |  | (149                    | ) |  | (149                              | )
|                                                             |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  
|At 1 January 2001 as restated                                |  | 559           |  | 289                   |  | 140                        |  | 422             |  | 124                     |   |  | 1,534                             |  
|Profit for the financial year                                |  |              |  |                      |  |                           |  |                |  | 138                     |   |  | 138                               |  
|Other recognised gains and losses relating to the year (net) |  |              |  |                      |  |                           |  |                |  | (2                      | ) |  | (2                                | )
|                                                             |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  
|At 31 December 2001                                          |  | 559           |  | 289                   |  | 140                        |  | 422             |  | 260                     |   |  | 1,670                             |  
|                                                             |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  



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|                                                             |  | Share capital |  | Share premium account |  | Capital redemption reserve |  | Capital reserve |  | Profit and loss account |   |  | Total share-holders funds-equity |  
|------------------------------------------------------------ |  | ------------- |  | --------------------- |  | -------------------------- |  | --------------- |  | ----------------------- | - |  | --------------------------------- | -
|                                                             |  | £m            |  | £m                    |  | £m                         |  | £m              |  | £m                      |   |  | £m                                |  
|At 1 January 2002 as originally stated                       |  | 559           |  | 289                   |  | 140                        |  | 422             |  | 415                     |   |  | 1,825                             |  
|Prior year adjustment                                        |  |              |  |                      |  |                           |  |                |  | (155                    | ) |  | (155                              | )
|                                                             |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  
|At 1 January 2002 as restated                                |  | 559           |  | 289                   |  | 140                        |  | 422             |  | 260                     |   |  | 1,670                             |  
|Profit for the financial year                                |  |              |  |                      |  |                           |  |                |  | 113                     |   |  | 113                               |  
|Other recognised gains and losses relating to the year (net) |  |              |  |                      |  |                           |  |                |  | (43                     | ) |  | (43                               | )
|                                                             |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  
|At 31 December 2002                                          |  | 559           |  | 289                   |  | 140                        |  | 422             |  | 330                     |   |  | 1,740                             |  
|                                                             |  |               |  |                       |  |                            |  |                 |  |                         |   |  |                                   |  



The Group demerger
dividend represents the book value of the net assets of the demerged Innogy business.



The share premium account, capital redemption reserve and capital reserve are not distributable.



The cumulative amount of goodwill set off to reserves prior to the adoption of FRS 10, on acquisition of subsidiary undertakings, is £95 million,
net of exchange differences (31 December 2001: £95 million).



26 Notes to the cash flow statement



(a) Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities



|                                                    |  |      |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December 2000 |  
|--------------------------------------------------- |  | ---- |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------- | -
|                                                    |  | Note |  | Group                       |   |  | Group                       |   |  | Continuing                      |  
|                                                    |  |      |  | £m                          |   |  | £m                          |   |  | £m                              |  
|Operating profit/(loss)                             |  |      |  | 105                         |   |  | 163                         |   |  | 59                              |  
|Impairment                                          |  |      |  | 103                         |   |  |                            |   |  |                                |  
|                                                    |  |      |  |                             |   |  |                             |   |  |                                 |  
|                                                    |  |      |  | 208                         |   |  | 163                         |   |  | 59                              |  
|Depreciation                                        |  | 14   |  | 111                         |   |  | 95                          |   |  | 40                              |  
|Goodwill amortisation                               |  | 13   |  | (1                          | ) |  | (1                          | ) |  |                                |  
|Other amortisation                                  |  |      |  | 2                           |   |  |                            |   |  |                                |  
|Loss on disposal of fixed assets                    |  |      |  |                            |   |  | 1                           |   |  |                                |  
|Other non-cash movements                            |  |      |  |                            |   |  |                            |   |  |                                |  
|Movement in working capital:                        |  |      |  |                             |   |  |                             |   |  |                                 |  
|(Increase)/decrease in stocks                       |  |      |  | (29                         | ) |  | 7                           |   |  | (10                             | )
|(Decrease)/increase in debtors                      |  |      |  | 19                          |   |  | (21                         | ) |  | (36                             | )
|(Decrease)/increase in creditors                    |  |      |  | (37                         | ) |  | 48                          |   |  | (15                             | )
|Movement in provisions                              |  |      |  | 3                           |   |  | (18                         | ) |  | (48                             | )
|                                                    |  |      |  |                             |   |  |                             |   |  |                                 |  
|Net cash inflow/(outflow) from operating activities |  |      |  | 276                         |   |  | 274                         |   |  | (10                             | )
|                                                    |  |      |  |                             |   |  |                             |   |  |                                 |  



(b) Dividends received from joint ventures and associates



|                              |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 |  | 9 months ended 31 December 2000
|----------------------------- |  | --------------------------- |  | --------------------------- |  | -------------------------------
|                              |  | £m                          |  | £m                          |  | £m                             
|Dividends from joint ventures |  | 12                          |  | 7                           |  | 10                             



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|                                                            |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 |  | 9 months ended 31 December 2000
|----------------------------------------------------------- |  | --------------------------- |  | --------------------------- |  | -------------------------------
|                                                            |  | £m                          |  | £m                          |  | £m                             
|Dividends from associates                                   |  | 72                          |  | 52                          |  | 11                             
|                                                            |  |                             |  |                             |  |                                
|Total dividends received from associates and joint ventures |  | 84                          |  | 59                          |  | 21                             
|                                                            |  |                             |  |                             |  |                                



(c) Returns on investments and servicing of finance



|                                                                     |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December 2000 |  
|-------------------------------------------------------------------- |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------- | -
|                                                                     |  | £m                          |   |  | £m                          |   |  | £m                              |  
|Other interest and dividends received                                |  | 24                          |   |  | 24                          |   |  | 75                              |  
|Debt and loan interest paid                                          |  | (102                        | ) |  | (97                         | ) |  | (154                            | )
|Finance lease interest paid                                          |  |                            |   |  |                            |   |  |                                |  
|Debt issue costs paid                                                |  | (8                          | ) |  | (32                         | ) |  |                                |  
|Dividends paid to minority shareholders                              |  | (2                          | ) |  |                            |   |  |                                |  
|                                                                     |  |                             |   |  |                             |   |  |                                 |  
|Returns on investments and servicing of financeordinary             |  | (88                         | ) |  | (105                        | ) |  | (79                             | )
|Other financing costs paidexceptional                               |  |                             |   |  |                             |   |  |                                 |  
|Australian refinancing charges                                       |  | (25                         | ) |  |                            |   |  |                                |  
|                                                                     |  |                             |   |  |                             |   |  |                                 |  
|Net cash outflow from returns on investment and servicing of
finance |  | (113                        | ) |  | (105                        | ) |  | (79                             | )
|                                                                     |  |                             |   |  |                             |   |  |                                 |  



(d) Capital expenditure and financial investment



|                                                                   |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December 2000 |  
|------------------------------------------------------------------ |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------- | -
|                                                                   |  | Group                       |   |  | Group                       |   |  | Continuing                      |  
|                                                                   |  | £m                          |   |  | £m                          |   |  | £m                              |  
|Purchase of tangible fixed assets                                  |  | (144                        | ) |  | (406                        | ) |  | (579                            | )
|Purchase of shares for employee share schemes                      |  | (2                          | ) |  |                            |   |  |                                |  
|Cash paid in respect of net investment hedges                      |  | (13                         | ) |  |                            |   |  |                                |  
|Repayment of subordinated debt by associates and joint ventures    |  |                            |   |  |                            |   |  | 3                               |  
|                                                                   |  |                             |   |  |                             |   |  |                                 |  
|Net cash outflow from capital expenditure and financial
investment |  | (159                        | ) |  | (406                        | ) |  | (576                            | )
|                                                                   |  |                             |   |  |                             |   |  |                                 |  



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##### Table of Contents



(e)Acquisitions
and disposals



|                                                             |  |      |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December 2000 |  
|------------------------------------------------------------ |  | ---- |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------- | -
|                                                             |  | Note |  | Group                       |   |  | Group                       |   |  | Continuing                      |  
|                                                             |  |      |  | £m                          |   |  | £m                          |   |  | £m                              |  
|Purchase of additional shares in Hazelwood Power Partnership |  | 27   |  |                            |   |  |                            |   |  | (33                             | )
|Purchase of subsidiary undertakings                          |  | 27   |  | (144                        | ) |  | (68                         | ) |  | (14                             | )
|Cash proceeds on sale of subsidiary undertakings             |  |      |  |                            |   |  | 14                          |   |  | 5                               |  
|Receipts from sale of investment in associate                |  | 28   |  |                            |   |  | 372                         |   |  |                                |  
|Other fixed asset investments                                |  |      |  |                            |   |  |                            |   |  |                                |  
|                                                             |  |      |  |                             |   |  |                             |   |  |                                 |  
|Net cash (outflow)/inflow from acquisitions and disposals    |  |      |  | (144                        | ) |  | 318                         |   |  | (42                             | )
|                                                             |  |      |  |                             |   |  |                             |   |  |                                 |  



(f)Financing activities



|                                                |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 |  | 9 months ended 31 December 2000 |  
|----------------------------------------------- |  | --------------------------- |  | --------------------------- |  | ------------------------------- | -
|                                                |  | £m                          |  | £m                          |  | £m                              |  
|Gas swap liability and other hedging activities |  |                            |  |                            |  | (178                            | )
|Bond issues                                     |  |                            |  |                            |  | 250                             |  
|Bank loans                                      |  | 210                         |  | 406                         |  | (126                            | )
|Share issues                                    |  |                            |  |                            |  | 4                               |  
|                                                |  |                             |  |                             |  |                                 |  
|Net cash inflow/(outflow) from financing        |  | 210                         |  | 406                         |  | (50                             | )
|                                                |  |                             |  |                             |  |                                 |  



Included within the net
cash inflow/(outflow) from operating activities is an outflow of £1 million (year ended 31 December 2001: £13 million; nine months ended 31 December 2000: £56 million) in respect of exceptional items.



27Acquisitions



During the three accounting periods to 31 December 2002 the group made the
following acquisitions, all of which have been accounted for by the acquisition method of accounting:



Year ended 31 December 2002



On 13 July 2001, the Group acquired Rugeley Power Limited. Deferred consideration of £133 million (including accrued interest) was paid in January 2002 in respect of this acquisition.



In addition, the Group has made minor acquisitions and made
final payments in respect of past acquisitions during 2002. These have had an insignificant impact on the cash flows of the Group.



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Year ended 31 December
2001



On 13 July 2001, the Group acquired Rugeley Power
Limited. The assessment of net assets acquired and the consideration payable are given below:



|                          |  | Book value |   |  | Fair value adjustments |  | Fair value |  
|------------------------- |  | ---------- | - |  | ---------------------- |  | ---------- | -
|                          |  | £m         |   |  | £m                     |  | £m         |  
|Tangible fixed assets     |  | 197        |   |  |                       |  | 197        |  
|Stocks                    |  | 7          |   |  |                       |  | 7          |  
|Debtors                   |  | 5          |   |  |                       |  | 5          |  
|Creditors                 |  | (9         | ) |  |                       |  | (9         | )
|                          |  |            |   |  |                        |  |            |  
|Total net assets acquired |  | 200        |   |  |                       |  | 200        |  
|                          |  |            |   |  |                        |  |            |  
|Negative goodwill         |  |            |   |  |                        |  | (3         | )
|                          |  |            |   |  |                        |  |            |  
|Consideration             |  |            |   |  |                        |  | 197        |  
|                          |  |            |   |  |                        |  |            |  
|Consideration comprises:  |  |            |   |  |                        |  |            |  
|Cash                      |  |            |   |  |                        |  | 68         |  
|Deferred consideration    |  |            |   |  |                        |  | 129        |  
|                          |  |            |   |  |                        |  |            |  
|Total cash consideration  |  |            |   |  |                        |  | 197        |  
|                          |  |            |   |  |                        |  |            |  



This acquisition
contributed £10 million to Group profit before interest and taxation during the year ended 31 December 2001.



Nine months ended 31 December 2000



On 11 May 2000, the Group acquired National Power Synergen Pty Limited. The fair value attributable to this acquisition is as follows:



|                         |  | Book value |   |  | Fair value adjustments |  | Total fair value |  
|------------------------ |  | ---------- | - |  | ---------------------- |  | ---------------- | -
|                         |  | £m         |   |  | £m                     |  | £m               |  
|Tangible fixed assets    |  | 15         |   |  |                       |  | 15               |  
|Debtors                  |  | 2          |   |  |                       |  | 2                |  
|Creditors                |  | (3         | ) |  |                       |  | (3               | )
|                         |  |            |   |  |                        |  |                  |  
|Net assets acquired      |  | 14         |   |  |                       |  | 14               |  
|Goodwill capitalised     |  |           |   |  |                       |  |                 |  
|                         |  |            |   |  |                        |  |                  |  
|Total cash consideration |  | 14         |   |  |                       |  | 14               |  
|                         |  |            |   |  |                        |  |                  |  



This acquisition
contributed £5 million to Group profit before interest and taxation during the period to 31 December 2000.



On 17 November 2000, the Group acquired an additional 19.9% interest in the Hazelwood power station in Victoria. This increased the Groups shareholding in Hazelwood to 91.8%. The results of
Hazelwood were already fully consolidated by the Group. No adjustments were made to the book value of the assets acquired. The increased shareholding reduces the Groups minority interest.



F-52



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##### Table of Contents



The fair value attributable to
this acquisition is as follows:



|                                  |  | £m  |  
|--------------------------------- |  | --- | -
|Net assets acquired (19.9% share) |  | 59  |  
|Negative goodwill recognised      |  | (26 | )
|                                  |  |     |  
|Total cash consideration          |  | 33  |  
|                                  |  |     |  



28 Disposals



On 25 July 2001, the Group sold its 25% equity stake in
Union Fenosa Generacion SA. The net assets disposed of and profit on disposal are detailed below:



|                                           |  | £m   |  
|------------------------------------------ |  | ---- | -
|Cash consideration                         |  | 372  |  
|Less: investment in associated undertaking |  | (342 | )
|                                           |  |      |  
|Profit on disposal                         |  | 30   |  
|                                           |  |      |  



Information in
respect of sale of UFG



On 25 July 2001, the group sold its
25% stake in UFG to its parent, UEF, for cash consideration of 600 million Euros (£372 million). At 31 December 2000, UFG was included in the consolidated financial statements as an equity investment with a carrying value of £360
million. For the year ended 31 March 2000, the nine months ended 31 December 2000 and the year ended 31 December 2001, the net portion of equity income of UFG recorded was £13 million, £5 million and £13 million, respectively.



During the year the Group disposed of the majority of its
remaining investments in China for net consideration of £14 million.



29 Net debt



Analysis of net debt



|                                   |  | 1 January 2001 |   |  | Exchange differences |   |  | Othernon-cash movements |   |  | Cash flow |   |  | 31 December 2001 |  
|---------------------------------- |  | -------------- | - |  | -------------------- | - |  | ----------------------- | - |  | --------- | - |  | ---------------- | -
|                                   |  | £m             |   |  | £m                   |   |  | £m                      |   |  | £m        |   |  | £m               |  
|Cash                               |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Cash at bank and in hand           |  | 107            |   |  | (8                   | ) |  |                        |   |  | 497       |   |  | 596              |  
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Liquid resources                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Current asset investments          |  |               |   |  | (1                   | ) |  |                        |   |  | 48        |   |  | 47               |  
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Debt financing                     |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Loans due within one year          |  | (88            | ) |  |                     |   |  |                        |   |  | (24       | ) |  | (112             | )
|Loans due after more than one year |  | (855           | ) |  | 33                   |   |  | 24                      |   |  | (382      | ) |  | (1,180           | )
|Convertible Bond                   |  | (235           | ) |  | (7                   | ) |  | (6                      | ) |  |          |   |  | (248             | )
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Total debt financing               |  | (1,178         | ) |  | 26                   |   |  | 18                      |   |  | (406      | ) |  | (1,540           | )
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Net debt                           |  | (1,071         | ) |  | 17                   |   |  | 18                      |   |  | 139       |   |  | (897             | )
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  



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|                                   |  | 1 January 2002 |   |  | Exchange differences |   |  | Othernon-cash movements |   |  | Cash flow |   |  | 31 December 2002 |  
|---------------------------------- |  | -------------- | - |  | -------------------- | - |  | ----------------------- | - |  | --------- | - |  | ---------------- | -
|                                   |  | £m             |   |  | £m                   |   |  | £m                      |   |  | £m        |   |  | £m               |  
|Cash                               |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Cash at bank and in hand           |  | 596            |   |  | (4                   | ) |  |                        |   |  | 207       |   |  | 799              |  
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Liquid resources                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Current asset investments          |  | 47             |   |  |                     |   |  | (4                      | ) |  |          |   |  | 43               |  
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Debt financing                     |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Loans due within one year          |  | (112           | ) |  | 9                    |   |  | (715                    | ) |  | (29       | ) |  | (847             | )
|Loans due after more than one year |  | (1,180         | ) |  | 69                   |   |  | 716                     |   |  | (181      | ) |  | (576             | )
|Convertible Bond                   |  | (248           | ) |  | 24                   |   |  | (7                      | ) |  |          |   |  | (231             | )
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Total debt financing               |  | (1,540         | ) |  | 102                  |   |  | (6                      | ) |  | (210      | ) |  | (1,654           | )
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  
|Net debt                           |  | (897           | ) |  | 98                   |   |  | (10                     | ) |  | (3        | ) |  | (812             | )
|                                   |  |                |   |  |                      |   |  |                         |   |  |           |   |  |                  |  



30 Financial
instruments and related disclosures



Policies



Treasury policy seeks to ensure that adequate financial
resources are available for the development of the Groups business whilst managing its currency, interest rate and counterparty credit risks. The Groups treasury policy is not to engage in speculative transactions. Group treasury acts
within clearly defined guidelines that are approved by the Board.



The following disclosures are provided in accordance with FRS 13 (Derivatives and other financial instruments). Financial instruments comprise net debt (see note 29) together with other instruments deemed to be financial instruments
including long-term debtors and creditors and provisions for liabilities and charges.



(a) Short-term debtors and creditors



Short-term debtors and creditors have been excluded from all the following disclosures other than the currency risk disclosures as relevant. The fair value of short-term debtors and creditors approximates to the carrying value
because of their short maturity. In accordance with FRS 13, deferred tax has been excluded from the following disclosures.



(b) Interest rate risk



The Groups policy is to fix interest rates for a significant portion of the debt. Where project finance is utilised, our policy is to align the
maturity of the debt with the contractual terms of the customer off-take agreement. Where appropriate, the Group will fix interest rates using forward rate or interest rate swap agreements. Significant interest rate management programmes and
instruments require the specific approval of the Board. Derivatives are only transacted in relation to existing or known future positions and not in relation to speculative transactions. At 31 December 2002, 77% of our borrowing was at fixed rates
after taking account of interest rate swaps. The weighted average interest rate of fixed rate debt was 6%.



F-54



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##### Table of Contents



Interest rate risk profile
of financial liabilities



The interest rate profile of the
financial liabilities of the Group was as follows:



|                  |  | 31 December 2002                    |  | 31 December 2001                
|----------------- |  | ----------------------------------- |  | --------------------------------
|                  |  | Floating rate financial liabilities |  | Fixed rate financial liabilities
|                  |  | £m                                  |  | £m                              
|Currency          |  |                                     |  |                                 
|Sterling          |  | 59                                  |  | 112                             
|US Dollar         |  | 194                                 |  | 777                             
|Australian Dollar |  | 110                                 |  | 377                             
|Czech Koruna      |  | 34                                  |  | 17                              
|Others            |  | 1                                   |  | 16                              
|                  |  |                                     |  |                                 
|Total             |  | 398                                 |  | 1,299                           
|                  |  |                                     |  |                                 



All the Groups
creditors falling due within one year (other than bank and other borrowings) are excluded from the above tables either due to the exclusion of short-term items or because they do not meet the definition of financial liabilities. There are no
material financial liabilities on which interest is not paid.



The effect of the groups interest swaps at 31 December 2002 was to classify £377 million of floating rate Australian Dollar borrowings as fixed rate, £510 million of floating rate US Dollar borrowings as fixed rate,
£112 million of floating rate sterling borrowings as fixed rate and £16 million of variable rate Czech Koruna borrowings as fixed rate, in the above table.



In addition to the above, the Groups provisions are considered to be floating rate financial liabilities as, in
establishing the provisions, the cash flows have been discounted.



The floating rate financial liabilities comprise bank borrowings bearing interest rates fixed in advance for various time periods up to 12 months by reference to LIBOR for that time period. The figures in the tables below take into
account interest rate and currency swaps used to manage the interest rate and currency profile of financial liabilities and financial assets.



|                  |  | 31 December 2002 Fixed rate financial liabilities |  | 31 December 2001Fixed rate financial liabilities
|----------------- |  | ------------------------------------------------- |  | ------------------------------------------------
|                  |  | Weighted average interest rate                    |  | Weighted average period for which rate is fixed 
|                  |  | %                                                 |  | Years                                           
|Currency          |  |                                                   |  |                                                 
|Sterling          |  | 5.39                                              |  | 6                                               
|US Dollar         |  | 5.08                                              |  | 3                                               
|Australian Dollar |  | 6.48                                              |  | 7                                               
|Czech Koruna      |  | 13.02                                             |  |                                                
|Others            |  | 7.25                                              |  | 4                                               
|                  |  |                                                   |  |                                                 
|Weighted average  |  | 5.64                                              |  | 4                                               
|                  |  |                                                   |  |                                                 



The fixed rate financial
liability for Czech Koruna matured on 24 March 2003.



F-55



---

##### Table of Contents



Interest rate risk of
financial assets



The Group had the following financial
assets as at 31 December 2002:



|                  |  | 31 December 2002               |  | 31 December 2001           
|----------------- |  | ------------------------------ |  | ---------------------------
|                  |  | Floating rate financial assets |  | Fixed rate financial assets
|                  |  | £m                             |  | £m                         
|Currency          |  |                                |  |                            
|Sterling          |  | 158                            |  |                           
|US Dollar         |  | 266                            |  |                           
|Euro              |  | 307                            |  |                           
|Australian Dollar |  | 101                            |  |                           
|Czech Koruna      |  | 6                              |  |                           
|Others            |  | 8                              |  |                           
|                  |  |                                |  |                            
|Total             |  | 846                            |  |                           
|                  |  |                                |  |                            



The cash deposits
comprise deposits placed in money market funds, and a variety of investments with maturities up to three months. All investments are in publicly quoted stocks or treasury instruments. Letters of credit totalling £145 million are supported on a
cash collateral basis at 31 December 2002.



(c) Currency
exposures



Currency translation exposure. In
common with other international companies, the results of the Groups foreign currency denominated operations are translated into sterling at the average exchange rates for the period concerned. The balance sheets of foreign operations are
translated into sterling at the closing exchange rates. This translation has no impact on the cash flow of the Group. In order to hedge the net assets of foreign operations, borrowings are generally in the same currency as the underlying investment.
The Group aims to hedge a reasonable proportion of its non-sterling assets in this way. For major currencies, it is our policy not to hedge currency translation through foreign exchange contracts or currency swaps.



Currency transaction exposure. This arises where a business unit makes
actual sales and purchases in a currency other than its functional currency. Transaction exposure also arises on the remittance from overseas of dividends or surplus funds. The Groups policy is to match transaction exposure where possible, and
hedge remaining transactions as soon as they are committed, by using foreign currency contracts and similar instruments. As at 31 December 2002 and 31 December 2001, these exposures were not considered to be material.



Currency exposures comprise the monetary assets and liabilities of the Group
that are not denominated in the operating (or functional) currency of the operating unit involved, other than certain non-sterling borrowings treated as hedges of net investments in overseas operations. For major currencies it is not
Group policy to hedge currency translation through forward contracts or currency swaps. During 2002, we closed out all Czech Koruna forward contracts and currency swaps, as we now consider the Czech Koruna to be a major currency.



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(d) Maturity of
financial liabilities



The maturity profile of our
financial liabilities, other than short-term creditors and accruals, was as follows:



|                                  |  | 31 December 2002 |  | 31 December 2001
|--------------------------------- |  | ---------------- |  | ----------------
|                                  |  | £m               |  | £m              
|In one year or less, or on demand |  | 1,078            |  | 127             
|From one to two years             |  | 39               |  | 390             
|From two to three years           |  | 27               |  | 48              
|From three to four years          |  | 25               |  | 49              
|From four to five years           |  | 76               |  | 652             
|On more than five years           |  | 452              |  | 353             
|                                  |  |                  |  |                 
|Total                             |  | 1,697            |  | 1,619           
|                                  |  |                  |  |                 



As discussed in note 20,
the Group is in discussions with bank groups in relation to non-recourse debt for Rugeley and the US merchant asset portfolio. Until these issues are resolved and documented, the debt at Rugeley and ANP is reported as current non-recourse debt in
our accounts. We believe we have constructive and acceptable plans to resolve all issues to the mutual benefit of both International Power and the banks such that a substantial portion of £1,078 million disclosed above will be redesignated as
due in more than five years.



(e) Borrowing facilities



The Group has substantial borrowing facilities
available to it. The committed facilities available at 31 December 2002 in respect of which all conditions precedent have been met at that date amount to £1,342 million.



|                                                                         |  | 31 December 2002 |  | 31 December 2002
|------------------------------------------------------------------------ |  | ---------------- |  | ----------------
|                                                                         |  | Facility         |  | Undrawn         
|                                                                         |  | £m               |  | £m              
|US$570 million Corporate revolving credit facility (October 2004)(1)     |  | 354              |  | 279             
|US$1,215 million ANP Funding 1 construction and term loan (June 2006)(2) |  | 755              |  | 110             
|US$120 million ANP Funding 1 revolving credit facility (June 2006)(2)    |  | 74               |  | 66              
|US$40 million ANP Funding 1 bank support facility (June 2006)(2)         |  | 25               |  | 25              
|Czk 1,000 million EOP revolving credit facility (May 2007)               |  | 21               |  | 17              
|US$99 million AC Kamil term facility (April 2017)                        |  | 61               |  | 3               
|£25 million Corporate letter of credit facility(3)                       |  | 25               |  | 1               
|£27 million Subsidiary facilities in various currencies                  |  | 27               |  | 21              
|                                                                         |  |                  |  |                 
|Total                                                                    |  | 1,342            |  | 522             
|                                                                         |  |                  |  |                 

---

|(1) |  | The drawn element of the US$570 million Corporate revolving credit facility relates to
letters of credit issued.
|--- |  | ----------------------------------------------------------------------------------------------------------------

|(2) |  | As disclosed in note 20, the Group is in discussions with bank groups in relation to
non-recourse debt for ANP Funding 1 and Rugeley. The undrawn portion of these facilities has therefore been shown as unavailable in the above table, and will become substantially available when these issues have been formally resolved and
documented.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | These facilities include a £25 million letter of credit facility which becomes
committed for any letters of credit that have been drawn. At 31 December 2002, £24 million of letters of credit had been drawn from this facility.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Uncommitted facilities available at 31 December 2002 and 2001 were:



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---

##### Table of Contents



|                                             |  | 31 December 2002 |  | 31 December 2001
|-------------------------------------------- |  | ---------------- |  | ----------------
|                                             |  | Total            |  | Drawn           
|                                             |  | £m               |  | £m              
|Facility                                     |  |                  |  |                 
|Bank borrowing and overdraft facilities      |  | 37               |  |                
|Thai National Power working capital facility |  | 1                |  |                
|Pelican Point working capital facility       |  | 3                |  |                
|                                             |  |                  |  |                 
|                                             |  | 41               |  |                
|                                             |  |                  |  |                 



The banks normally
reaffirm bank-borrowing facilities annually, although they can theoretically be withdrawn at any time.



(f) Fair values of financial assets and liabilities



Set out below is a comparison by category of book values and fair values of all our financial assets and liabilities as at 31 December 2002:



Primary financial instruments held or issued to finance the International
Power Groups operations



|                                                                  |  | 31 December 2002 |   |  | 31 December 2001 |  
|----------------------------------------------------------------- |  | ---------------- | - |  | ---------------- | -
|                                                                  |  | Book value       |   |  | Fair value       |  
|                                                                  |  | £m               |   |  | £m               |  
|Short-term borrowings and current portion of long-term borrowings |  | (1,078           | ) |  | (1,078           | )
|Long-term borrowings                                              |  | (619             | ) |  | (621             | )
|Cash deposits and current asset investments                       |  | 846              |   |  | 846              |  
|                                                                  |  |                  |   |  |                  |  



Derivative financial
instruments held to manage the interest rate, currency profile and exposure to energy prices



|                                            |  | Year ended 31 December 2002 |  |            | Year ended 31 December 2001 | 
|------------------------------------------- |  | --------------------------- |  | ---------- | --------------------------- | 
|                                            |  | Book value                  |  | Fair value |                             | 
|                                            |  | £m                          |  | £m         |                             | 
|Interest rate swaps and similar instruments |  |                            |  | (71        | )                           | 
|Currency Swaps                              |  |                            |  |           |                             | 
|Forward foreign currency contracts          |  |                            |  |           |                             | 
|Energy derivatives                          |  |                            |  | 30         |                             | 
|                                            |  |                             |  |            |                             | 



In addition to the
above, the Group holds energy derivatives for trading purposes with a book value and fair value of nil (gross gain of £8 million, gross loss of £8 million).



The methods and assumptions used to estimate fair values of financial instruments are as follows:



|(i) |  | For investments of up to three months, trade debtors, other debtors and prepayments, trade creditors, other current liabilities and long-term and short-term
borrowings, the book value approximates to fair value because of their short maturity.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii) |  | The fair value of investments maturing after three months has been estimated using quoted market prices.
|---- |  | --------------------------------------------------------------------------------------------------------



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|(iii) |  | The fair value of long-term borrowings and interest rate swaps has been calculated using market prices, when available, or the net present value of future cash flows
arising.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(iv) |  | The fair value of our forward exchange contracts, foreign currency swaps and foreign currency options has been calculated using the market rates in effect at the
balance sheet dates.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(v) |  | The fair value of energy derivatives is measured using value at risk and other methodologies that provide a consistent measure of risk across diverse energy
products. Within the above fair values, only the financial assets and liabilities have been marked-to-market as defined by the requirements of the accounting standard.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(g) Hedges



As explained above, our policy is to hedge where possible the following exposures:



|(i) |  | Interest rate riskusing interest rate swaps, options and forward rate agreements.
|--- |  | ----------------------------------------------------------------------------------



|(ii) |  | Structural and transactional currency exposuresusing currency borrowings, forward foreign currency contracts, currency options and swaps.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------



|(iii) |  | Currency exposures on future expected salesusing currency swaps, forward foreign currency contracts, currency options and swaps.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------



|(iv) |  | Energy price fluctuationsusing physical hedges through the operation of energy supply and trading activities together with financial products.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------



Gains and losses on instruments used for hedging
are not recognised until the exposure that is being hedged is itself recognised. Unrecognised gains and losses on instruments used for hedging, and the movements therein, are as follows:



|                                                                                                       |  | Debt |   |  | Foreign exchange |   |  | Energy derivatives |  | Total net gain/(loss) |  
|------------------------------------------------------------------------------------------------------ |  | ---- | - |  | ---------------- | - |  | ------------------ |  | --------------------- | -
|                                                                                                       |  | £m   |   |  | £m               |   |  | £m                 |  | £m                    |  
|Unrecognised gains and (losses) on hedges at 1 January 2002                                            |  | (17  | ) |  | (4               | ) |  | 6                  |  | (15                   | )
|Gains and (losses) arising in previous periods that were recognised in the year ended 31
December 2002 |  |     |   |  | (4               | ) |  | 5                  |  | 1                     |  
|Gains and (losses) arising in the year ended 31 December 2002 that were not recognised
in the year     |  | (54  | ) |  | (1               | ) |  | 29                 |  | (26                   | )
|Unrecognised gains and (losses) on hedges at 31 December 2002                                          |  | (71  | ) |  | (1               | ) |  | 30                 |  | (42                   | )
|                                                                                                       |  |      |   |  |                  |   |  |                    |  |                       |  
|Of which:                                                                                              |  |      |   |  |                  |   |  |                    |  |                       |  
|Gains and (losses) expected to be recognised in the year ended 31 December
2003                        |  |     |   |  | (1               | ) |  | 24                 |  | 23                    |  
|Gains and losses expected to be recognised in the year ended 31 December 2004 or
later                 |  | (71  | ) |  |                 |   |  | 6                  |  | (65                   | )
|                                                                                                       |  |      |   |  |                  |   |  |                    |  |                       |  



The hedging of
structural currency exposures associated with foreign currency net investments are recognised in the balance sheet.



(h) Energy derivatives



The principal objective of the Groups energy marketing and trading operations is to maximise the return from selling the physical output of its
plants.



The Group hedges its physical generating capacity by
selling forward its output, and purchasing its input, as and when commercially appropriate and within approved control limits. This is



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accomplished through a range of physical off-take and supply arrangements. Our limited proprietary trading operations use a range of
financial and physical products.



Energy market risk on our asset
and proprietary portfolios is measured using value at risk and other methodologies. Value at risk provides a fair estimate of the net losses or gains, which could be recognised on our portfolios over a certain period and given a certain probability;
it does not provide an indication of actual results. It is routinely checked for accuracy against actual movements in the portfolio value.



In addition to using value at risk measures, we perform scenario analyses to estimate the economic impact of sudden market movements on the value of our
portfolios. This supplements the value at risk methodology and captures additional market risks.



(i) Counterparty credit risk



The Groups policy is to manage its credit exposure to trading and financial counterparties within clearly defined limits. Energy trading activities are strictly monitored and controlled through
delegated authorities and procedures, which include specific criteria for the management of counterparty credit exposures in each of our key regions. Counterparty exposure via customer offtake agreements is monitored and managed by the local asset
team with assistance from Group treasury where appropriate. In addition, Group treasury manages the Group wide counterparty credit exposure on a consolidated basis, with active and close involvement of the Global Risk Manager. Financial counterparty
credit exposure is limited to relationship banks and commercial paper with strong investment grade credit ratings.



We are exposed to credit related losses in the event that counterparties to traded contracts and financial instruments do not perform according to the
terms of the contract or instrument. With regard to financial instruments subject to credit risk, we select counterparties with appropriate ratings for the size, type and duration of the instrument involved. A small proportion of counterparties
trading energy are below investment grade. For those energy market transactions with counterparties below investment grade, and which are not supported by appropriate collateral, reserves are carried against the trading risk. Exposures within this
band are restricted and closely monitored within narrow limits. We do not expect any significant credit loss to result from non-performance of instruments or traded contracts.



The immediate credit exposure of financial instruments is represented by those financial instruments that have a net positive
fair value by counterparty at 31 December 2002. At 31 December 2002, the exposures for interest rate swaps, currency swaps and forward exchange contracts were not considered to be material. Contracts for differences also involve a degree of credit
risk. This risk is controlled by appropriate authorisation and monitoring procedures.



31 Commitments



Lease and
capital commitments



|                                                 |  | Year ended 31 December 2002 |  | Year ended 31 December 2001
|------------------------------------------------ |  | --------------------------- |  | ---------------------------
|                                                 |  | Group                       |  | Group                      
|                                                 |  | £m                          |  | £m                         
|Capital commitments: contracted but not provided |  | 54                          |  | 166                        
|Property leases (annual commitment):             |  |                             |  |                            



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|                                    |  | Year ended 31 December 2002 |  | Year ended 31 December 2001
|----------------------------------- |  | --------------------------- |  | ---------------------------
|                                    |  | Group                       |  | Group                      
|                                    |  | £m                          |  | £m                         
|Expiring within one year            |  | 1                           |  | 1                          
|Expiring between one and five years |  |                            |  | 1                          
|Expiring after five years           |  | 5                           |  | 5                          
|                                    |  |                             |  |                            



Fuel purchase and
transportation commitments



At 31 December 2002, the
estimated minimum commitment for the supply and transportation of fuel from all sources was £0.6 billion (31 December 2001: £0.3 billion). The longest of such contracts extends to the year 2021.



32 Contingent liabilities



(a) Legal proceedings against the Company



The Company is aware of the following matters, which involve or may involve
legal proceedings against the Group:



|(i) |  | Claims and potential claims by or on behalf of current and former employees, including former employees of the Central Electricity Generating Board (CEGB), and
contractors in respect of industrial illness and injury.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Innogy has agreed to indemnify us on an after-tax basis to the extent of 50% of any liability that we may incur whether directly or indirectly as a consequence of those proceedings to the extent such liability is not insured
by Electra Insurance Limited.



|(ii) |  | In June 1994, separate complaints were made by the National Association of Licensed Opencast Operators (NALOO) and the South Wales Small Miners Association (SWSMA)
to the European Commission against the Company, PowerGen plc, British Coal Corporation and HM Government. The complaint alleges violations of EU competition law arising out of the coal purchasing arrangements entered into by the CEGB prior to 1
April 1990 and requests the Commission to find that the CEGBs practices violated EU law. NALOO and SWSMA allege that such a finding would be grounds for a claim for damages in the English courts by members of NALOO. An appeal against the
Commissions findings was brought by a faction of SWSMA, which was initially ruled out of time, but an appeal was reinstated. Progress with this claim will be influenced by the outcome of the NALOO appeal. The European Court has ruled that the
Commission is under an obligation to investigate the complaint by NALOO. The Company, PowerGen plc, British Coal Corporation and the Commission are appealing against the ruling. Judgment is expected sometime after May 2003. It is not practicable to
estimate legal costs or possible damages, at this stage. The Commission ruled on the complaint in 1998 and did not make any findings against the Company.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Innogy has agreed to indemnify us on an after-tax basis to the extent of 50 % of any liability that we may
incur whether directly or indirectly as a consequence of those proceedings.



The Directors are of the opinion, having regard to legal advice received, the Groups insurance arrangements and provisions carried in the consolidated balance sheet, that it is unlikely that the matters referred to above will,
in aggregate, have a material effect on the Groups financial position, results of operations and liquidity.



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(b) Taxation



The Company is aware of a number of issues which are,
or may be, the subject of disputes with the tax authorities in the territories where the Group has operations. The principal exposures where significant amounts of tax could potentially arise are in respect of the following matters:



|(i) |  | There are potential exposures relating to the UK tax losses generated from the acquisition of Australian subsidiaries and related financing arrangements. Discussions
are continuing with the UK Inland Revenue to reach agreement on these issues.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii) |  | The UK Inland Revenue have queried the calculation of capital gains arising from the sale of UK power stations by National Power PLC in the period before demerger in
October 2000. Discussions are continuing with the UK Inland Revenue to determine the amount that is deductible from the consideration received.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Directors are of the opinion, having regard to the professional advice received, that adequate provision has been made for settlement of any taxation
liabilities that might arise.



(c) Bonds and guarantees



Various growth and expansion projects are supported by
bonds and letters of credit issued by the Company totalling £286 million. £10 million of this is in respect of the loan facilities of its Elcogas investment. This facility is repayable by Elcogas in 2003. The guarantee relating to
Elcogas was provided for in the year ended 31 December 2001.



Energy trading activities relating to merchant plant are supported by letters of credit and guarantees totalling £26 million.



(d) Indemnities



We demerged substantially all our UK businesses into Innogy Holdings plc on 30 September 2000. The demerger was designed to separate our business from
Innogys businesses and operations. Pursuant to the demerger agreement between Innogy and us, Innogy indemnified us on an after-tax basis against certain liabilities, litigation and claims arising out of certain events that occurred prior to
demerger. Similarly, we agreed to indemnify Innogy on an after-tax basis against liabilities, litigation and claims arising out of certain events that occurred prior to demerger. In addition we agreed to indemnify Innogy against certain tax
liabilities payable by Innogy that arose prior to demerger.



As
part of the demerger, Innogy took ownership of certain UK subsidiaries with a number of open tax issues relating to periods when these subsidiaries were owned by us. The amount of taxable profits and losses for such periods has not yet been agreed
with the Inland Revenue. To the extent that these issues result in additional tax liabilities, an assessment will be made on us. Liability for these exposures will be allocated between Innogy and us pursuant to the indemnity arrangements. We will
indemnify Innogy in connection with certain tax liabilities and Innogy will indemnify us against certain other tax liabilities, in each case on an after-tax basis.



As disclosed in note (b) above, the Directors are of the opinion that adequate provision has been made for the settlement of
any taxation liabilities that might arise. With respect to the indemnities provided to Innogy, we are not aware of any claims arising which may call on the



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Companys indemnities and on this basis it is impracticable to quantify any potential exposure under these indemnities.



33 Related party transactions



Operations and maintenance contracts



In the course of normal operations, International Power Global Developments
Limited, a wholly owned subsidiary undertaking, has contracted on an arms length basis to provide power station operation and maintenance services to joint ventures and associated undertakings. During the year the Group derived income of £16
million (year ended 31 December 2001: £16 million) in respect of these arrangements, which have been netted off in operating costs in the accounts. Included in creditors is £2 million in relation to these contracts.



Relationship with Innogy



We have previously provided certain administrative services to the Innogy
business demerged during the nine month period ended 31 December 2000. We have entered into agreements with the Innogy Group for the continued provision of certain services or facilities and to fix the respective responsibilities of us and the
Innogy Group following the demerger, which may be summarised as follows:



|(i) |  | On 30 March 2000, we and the Innogy Group concluded an alliance framework agreement relating to the provision of operations and engineering services. The agreement
provides a framework under which contracts can be concluded whereby either us or the Innogy Group can provide the other with operation, maintenance and engineering services. The agreement can be terminated by twelve months notice. Agreements have
also been concluded between us and the Innogy Group under which the Innogy Group will provide certain IT support services following demerger.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii) |  | The Innogy Group agreed to indemnify us against certain liabilities and claims relating to the proposed subsidiaries of the Innogy Group and we will agree to
indemnify the Innogy Group against certain liabilities, litigation and claims arising out of our past and continuing operations. The Innogy Group and we, respectively, also entered into various agreements relating to responsibility for and
indemnities against certain taxation liabilities.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(iii) |  | There were certain continuing temporary arrangements between the Innogy Group and us, relating to pension provision for our employees. Since 1 April 2002, we have
paid contributions to the International Power Group of the ESPS and transfer payments relating to employees pension benefits built up prior to that date have been received from the Innogy section of the ESPS.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(iv) |  | Employees of the Innogy Group will have the benefit of existing rights under our Share Option Schemes for a limited period if they do not surrender these rights in
consideration for option grants under the Innogy Replacement Option Plans.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(v) |  | On 17 August 2000, the following agreements in connection with the supply of gas to Deeside power station were entered into.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | Deeside Power Development Company Limited (DPDCL), a wholly owned subsidiary of ours, entered into an agreement for the sale of firm and interruptible
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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gas for the period 1 August 2000 to 1 April 2002 which provides for, inter alia, the provision of daily contract quantities to Deeside that
should provide approximately 100% of Deesides gas requirement. Standard industry terms and conditions apply to this agreement and prices are fixed at different levels for the period to 31 March 2001 and the year to 1 April 2002.



| |  |  | International Power and Innogy entered into agreements for the assignment of certain proportions of our capacity in respect of the UK/Belgian interconnector and
agreed to pay Innogy an amount equal to certain dividends (if any) it receives.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34 Events subsequent to the date of the auditors reportsunaudited



There were no material post balance sheet events to the date of this report.



35 Financial information prepared under US Generally Accepted Accounting Principles (GAAP)



Our financial information is prepared in accordance with UK GAAP, which
differs in certain significant aspects from US GAAP. The effects of such differences on net income and net assets are set out below.



UK GAAP and US GAAP have different criteria for determining discontinued operations. As a result the operations of Innogy (demerged from the Group on 30
September 2000), which are accounted for as discontinued under UK GAAP, would be included in continuing operations under US GAAP.



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Effect on profit after tax
(net income) of significant differences between UK and US GAAP



|                                                                                          |  |      |   |  | Year ended31 December 2002 |   |  | Year ended31 December 2001     |   |  | 9 months ended 31 December 2000 |  
|----------------------------------------------------------------------------------------- |  | ---- | - |  | -------------------------- | - |  | ------------------------------ | - |  | ------------------------------- | -
|                                                                                          |  | Note |   |  | International Power        |   |  | International Power (Restated) |   |  | International Power (Restated)  |  
|                                                                                          |  |      |   |  | £m                         |   |  | £m                             |   |  | £m                              |  
|Net income                                                                                |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Profit/(loss) attributable to ordinary shareholders under UK GAAP, as previously
reported |  |      |   |  | 113                        |   |  | 144                            |   |  | (38                             | )
|Restatement for the adoption of FRS19-Deferred Tax                                        |  |      |   |  |                           |   |  | (6                             | ) |  | (8                              | )
|                                                                                          |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Profit/(loss) attributable to ordinary shareholders under UK GAAP, as
restated            |  |      |   |  | 113                        |   |  | 138                            |   |  | (46                             | )
|Adjustments:                                                                              |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Pensions                                                                                  |  | (a   | ) |  | 2                          |   |  | 6                              |   |  |                                |  
|Impairment of plant                                                                       |  | (b   | ) |  | 99                         |   |  | (5                             | ) |  | (3                              | )
|Purchase accounting and goodwill:                                                         |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Impairment of goodwill                                                                    |  | (c   | ) |  | (51                        | ) |  |                               |   |  |                                |  
|Fair value and purchase accounting                                                        |  | (c   | ) |  | 2                          |   |  | (1                             | ) |  | (3                              | )
|Development expenditure                                                                   |  | (d   | ) |  | 1                          |   |  | 1                              |   |  | (1                              | )
|Onerous property lease provision                                                          |  | (e   | ) |  |                           |   |  | 9                              |   |  | (3                              | )
|Liquidated damages                                                                        |  | (f   | ) |  | (71                        | ) |  | (57                            | ) |  | (25                             | )
|Restructuring costs                                                                       |  | (g   | ) |  | 3                          |   |  |                               |   |  |                                |  
|Derivatives and hedging activities                                                        |  | (h   | ) |  | 5                          |   |  | (18                            | ) |  |                                |  
|Disposal of a business                                                                    |  | (i   | ) |  |                           |   |  | (27                            | ) |  |                                |  
|Retranslation of foreign currency                                                         |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|denominated subsidiary                                                                    |  | (j   | ) |  | 18                         |   |  |                                |   |  |                                 |  
|Stock compensation schemes                                                                |  | (k   | ) |  |                           |   |  |                               |   |  | (1                              | )
|Retail gas provision                                                                      |  | (1   | ) |  |                           |   |  |                               |   |  |                                |  
|Gas swaps and supply contract                                                             |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|renegotiations                                                                            |  | (m   | ) |  |                           |   |  |                               |   |  | (4                              | )
|Deferred tax                                                                              |  | (n   | ) |  | (16                        | ) |  | (46                            | ) |  | 28                              |  
|Tax effect of US GAAP adjustments                                                         |  |      |   |  | 12                         |   |  | 25                             |   |  | 21                              |  
|                                                                                          |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Net income/(loss) under US GAAP before cumulative effect of accounting policy
changes     |  |      |   |  | 117                        |   |  | 25                             |   |  | (37                             | )
|Cumulative effect of US GAAP accounting policy changes:                                   |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Derivatives and hedging activities                                                        |  | (h   | ) |  |                           |   |  | 1                              |   |  |                                |  
|Impairment of goodwill                                                                    |  | (c   | ) |  | (44                        | ) |  |                               |   |  |                                |  
|Tax effect                                                                                |  |      |   |  |                           |   |  |                               |   |  |                                |  
|                                                                                          |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Net income/(loss) under US GAAP                                                           |  |      |   |  | 73                         |   |  | 26                             |   |  | (37                             | )
|                                                                                          |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Effect of restatement:                                                                    |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Net income under US GAAP, as previously reported                                          |  |      |   |  |                            |   |  | 30                             |   |  | (33                             | )
|Effect of restatement of deferred tax                                                     |  | (n   | ) |  |                            |   |  | (4                             | ) |  | (4                              | )
|                                                                                          |  |      |   |  |                            |   |  |                                |   |  |                                 |  
|Net income under US GAAP, as restated                                                     |  |      |   |  |                            |   |  | 26                             |   |  | (37                             | )
|                                                                                          |  |      |   |  |                            |   |  |                                |   |  |                                 |  



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|                                                                                              |  |      |  | Year ended 31 December 2002 |       | Year ended 31 December 2001    |   |      | 9 months ended 31 December 2000 | 
|--------------------------------------------------------------------------------------------- |  | ---- |  | --------------------------- | ----- | ------------------------------ | - | ---- | ------------------------------- | 
|                                                                                              |  | Note |  | International Power         |       | International Power (Restated) |   |      | International Power (Restated)  | 
|Earnings/(loss) per share:                                                                    |  |      |  |                             |       |                                |   |      |                                 | 
|Earnings/(loss) per share under US GAAP before cumulative effect of accounting policy
changes |  |      |  |                             |       |                                |   |      |                                 | 
|Basic and diluted:                                                                            |  |      |  |                             |       |                                |   |      |                                 | 
|Before the effect of restatement of deferred tax                                              |  |      |  |                             | 10.5p |                                |   | 2.6p |                                 | 
|Effect of restatement of deferred taxes                                                       |  |      |  |                             |      |                                |   | (0.4 | )p                              | 
|                                                                                              |  |      |  |                             |       |                                |   |      |                                 | 
|Total                                                                                         |  |      |  |                             | 10.5p |                                |   | 2.2p |                                 | 
|                                                                                              |  |      |  |                             |       |                                |   |      |                                 | 
|Earnings/(loss) per share under US GAAP after cumulative effect of accounting policy
change   |  |      |  |                             |       |                                |   |      |                                 | 
|Basic and diluted:                                                                            |  |      |  |                             |       |                                |   |      |                                 | 
|Before the effect of restatement of deferred tax                                              |  |      |  |                             | 6.5p  |                                |   | 2.7p |                                 | 
|Effect of restatement of deferred taxes                                                       |  |      |  |                             |      |                                |   | (0.4 | )p                              | 
|                                                                                              |  |      |  |                             |       |                                |   |      |                                 | 
|Total                                                                                         |  |      |  |                             | 6.5p  |                                |   | 2.3p |                                 | 
|                                                                                              |  |      |  |                             |       |                                |   |      |                                 | 
|Earnings/(loss) per ADS:                                                                      |  |      |  |                             |       |                                |   |      |                                 | 
|Earnings/(loss) per ADS before cumulative effect of accounting policy
changes*                |  |      |  |                             |       |                                |   |      |                                 | 
|Basic and diluted                                                                             |  |      |  | £                           | 1.05  |                                | £ | 0.22 |                                 | 
|                                                                                              |  |      |  |                             |       |                                |   |      |                                 | 
|Earnings/(loss) per ADS after cumulative Effect of accounting policy
changes*                 |  |      |  |                             |       |                                |   |      |                                 | 
|Basic and diluted                                                                             |  |      |  | £                           | 0.65  |                                | £ | 0.23 |                                 | 
|                                                                                              |  |      |  |                             |       |                                |   |      |                                 | 

---

|* |  | Calculated using a ratio of ten ordinary shares to one ADS.
|- |  | -----------------------------------------------------------



Effect on shareholders funds of significant differences between UK and US GAAP



|                                                                       |  | Note |   |  | As at 31 December 2002 |   |  | As at 31 December 2001(Restated) |  
|---------------------------------------------------------------------- |  | ---- | - |  | ---------------------- | - |  | -------------------------------- | -
|                                                                       |  |      |   |  | £m                     |   |  | £m                               |  
|Shareholders fundsequity                                             |  |      |   |  |                        |   |  |                                  |  
|Total shareholders fundsequity under UK GAAP, as previously
reported |  |      |   |  | 1,740                  |   |  | 1,825                            |  
|Restatement for the adoption of FRS19Deferred Tax                     |  |      |   |  |                       |   |  | (155                             | )
|                                                                       |  |      |   |  |                        |   |  |                                  |  
|Total shareholders fundsequity under UK GAAP, as restated            |  |      |   |  | 1,740                  |   |  | 1,670                            |  
|Adjustments:                                                           |  |      |   |  |                        |   |  |                                  |  
|Pensions                                                               |  | (a   | ) |  | 9                      |   |  | 6                                |  
|Impairment of plant                                                    |  | (b   | ) |  | 199                    |   |  | 101                              |  
|Purchase accounting and goodwill                                       |  | (c   | ) |  | 9                      |   |  | 102                              |  
|Development expenditure                                                |  | (d   | ) |  | (17                    | ) |  | (20                              | )
|Onerous property lease provision                                       |  | (e   | ) |  | (3                     | ) |  | (3                               | )
|Liquidated damages                                                     |  | (f   | ) |  | (140                   | ) |  | (82                              | )
|Restructuring costs                                                    |  | (g   | ) |  | 3                      |   |  |                                 |  
|Derivatives and hedging activities                                     |  | (h   | ) |  | (41                    | ) |  | 8                                |  
|Stock compensation schemes                                             |  | (k   | ) |  | (1                     | ) |  | (1                               | )
|Employee share trusts                                                  |  | (o   | ) |  | (1                     | ) |  | (2                               | )
|Deferred tax                                                           |  | (n   | ) |  | (49                    | ) |  | (33                              | )
|Cumulative tax effect of US GAAP adjustments                           |  |      |   |  | 49                     |   |  | 24                               |  
|                                                                       |  |      |   |  |                        |   |  |                                  |  
|Total shareholders fundsequity under US GAAP                         |  |      |   |  | 1,757                  |   |  | 1,770                            |  
|                                                                       |  |      |   |  |                        |   |  |                                  |  



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Restatement



The group adopted the UK standard FRS 19  Deferred
Tax in 2002 for UK GAAP purposes. This standard is applied retrospectively which has resulted in a restatement of the UK GAAP charge for the year ended 31 December 2001 and shareholders funds  equity under UK GAAP as at 31 December 2001.
In addition a further review was undertaken of the deferred tax balances under US GAAP following the adoption of FRS 19. This review resulted in an increased charge to net income of £4 million in the year ended 31 December 2001, an increased
charge of £4 million in the nine months to 31 December 2000 and a further charge of £15 million that relates to periods prior to 31 March 2000. Net income under US GAAP for the year ended 31 December 2001 has therefore been reduced by an
additional deferred tax charge of £4 million (nine months to 31 December 2000: £4 million) and shareholders funds  equity has been reduced by £23 million at 31 December 2001 (31 December 2000: £19 million) to
reflect the cumulative effect of these charges.



Significant
differences between UK and US accounting principles



(a) Pension costs



The key
differences between UK (SSAP 24) and US GAAP in relation to defined benefit pension plans are:



| |  | Under UK GAAP the effect of variations in cost can be accumulated at successive valuations and amortised on an aggregate basis. Under US GAAP the amortisation of the
transition asset and the costs of past service benefit improvements are separately tracked: experience gains/losses are dealt with on an aggregate basis but amortised only if outside a 10 per cent corridor.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | UK GAAP allows measurements of plan assets and liabilities to be based on the result of the latest actuarial valuation. US GAAP requires measurement of plan assets
and liabilities to be made at the date of the financial statements or up to three months prior to that date. A valuation was performed as at 31 December 2002 in accordance with SFAS No. 87.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the purposes of disclosure in accordance with US GAAP, the pension costs
of our major defined benefit pension plans have been presented in accordance with the requirements of SFAS 87 and SFAS 132 in the following tables.



The net periodic pension cost under SFAS No. 87 comprised:



|                                                  |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months ended 31 December 2000 |  
|------------------------------------------------- |  | --------------------------- | - |  | --------------------------- | - |  | ------------------------------- | -
|                                                  |  | £m                          |   |  | £m                          |   |  | £m                              |  
|Service cost                                      |  | 3                           |   |  | 3                           |   |  | 9                               |  
|Interest cost                                     |  | 4                           |   |  | 4                           |   |  | 70                              |  
|Expected return on assets                         |  | (5                          | ) |  | (5                          | ) |  | (121                            | )
|Amortisation of:                                  |  |                             |   |  |                             |   |  |                                 |  
|Prior service costs                               |  |                            |   |  |                            |   |  | 4                               |  
|Unrecognised (gains) and losses                   |  |                            |   |  | (7                          | ) |  | (6                              | )
|                                                  |  |                             |   |  |                             |   |  |                                 |  
|Net periodic pension cost/(benefit) under US GAAP |  | 2                           |   |  | (5                          | ) |  | (44                             | )
|                                                  |  |                             |   |  |                             |   |  |                                 |  



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The funded status of our major
defined pension plans under SFAS No. 87 is as follows:



|                                                            |  | As at 31 December 2002 |   |  | As at 31 December 2001 |   |  | As at 31 December 2000 |  
|----------------------------------------------------------- |  | ---------------------- | - |  | ---------------------- | - |  | ---------------------- | -
|                                                            |  | £m                     |   |  | £m                     |   |  | £m                     |  
|Change in benefit obligation                                |  |                        |   |  |                        |   |  |                        |  
|Benefit obligation at start of period                       |  | 64                     |   |  | 2,859                  |   |  | 2,357                  |  
|Benefit obligation of countries added in current year       |  |                       |   |  | 29                     |   |  |                       |  
|Service cost                                                |  | 3                      |   |  | 3                      |   |  | 9                      |  
|Interest cost                                               |  | 4                      |   |  | 4                      |   |  | 70                     |  
|Employee contributions                                      |  | 2                      |   |  | 1                      |   |  | 1                      |  
|Plan amendments                                             |  | 1                      |   |  |                       |   |  |                       |  
|Actuarial (gain)/loss                                       |  | 7                      |   |  | (4                     | ) |  |                       |  
|Curtailments and termination benefits                       |  |                       |   |  |                       |   |  | 502                    |  
|Business combinations                                       |  |                       |   |  | (2,824                 | ) |  |                       |  
|Benefit payments and expenses                               |  | (1                     | ) |  | (2                     | ) |  | (80                    | )
|Exchange rate (gain)/loss                                   |  | (1                     | ) |  | (2                     | ) |  |                       |  
|                                                            |  |                        |   |  |                        |   |  |                        |  
|Benefit obligation at end of period                         |  | 79                     |   |  | 64                     |   |  | 2,859                  |  
|                                                            |  |                        |   |  |                        |   |  |                        |  
|Change in plan assets                                       |  |                        |   |  |                        |   |  |                        |  
|Fair value of plan assets at start of period                |  | 75                     |   |  | 2,969                  |   |  | 3,050                  |  
|Assets of countries added in current year                   |  |                       |   |  | 39                     |   |  |                       |  
|Actual return on plan assets                                |  | (6                     | ) |  | 5                      |   |  | (6                     | )
|Company contributions                                       |  | 4                      |   |  | 1                      |   |  | 4                      |  
|Employee contributions                                      |  | 2                      |   |  | 1                      |   |  | 1                      |  
|Business combinations                                       |  |                       |   |  | (2,937                 | ) |  |                       |  
|Benefit payments and expenses                               |  | (1                     | ) |  | (2                     | ) |  | (80                    | )
|Exchange rate gain/(loss)                                   |  |                       |   |  | (2                     | ) |  |                       |  
|                                                            |  |                        |   |  |                        |   |  |                        |  
|Fair value of plan assets at end of period                  |  | 74                     |   |  | 74                     |   |  | 2,969                  |  
|                                                            |  |                        |   |  |                        |   |  |                        |  
|Reconciliation of funded status and total amount recognised |  |                        |   |  |                        |   |  |                        |  
|Funded status at end of period                              |  | (5                     | ) |  | 10                     |   |  | 110                    |  
|Unrecognised net (gain)/loss                                |  | 13                     |   |  | (4                     | ) |  | (110                   | )
|Unrecognised prior service cost                             |  | 1                      |   |  |                       |   |  |                       |  
|                                                            |  |                        |   |  |                        |   |  |                        |  
|Prepaid/(accrued) pension cost                              |  | 9                      |   |  | 6                      |   |  |                       |  
|                                                            |  |                        |   |  |                        |   |  |                        |  



The weighted average
rates used for SFAS No. 87 purposes were as follows:



|                               |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 |  | 9 months to 31 December 2000
|------------------------------ |  | --------------------------- |  | --------------------------- |  | ----------------------------
|                               |  | % per annum                 |  | % per annum                 |  | % per annum                 
|Discount rate                  |  | 6.18                        |  | 6.38                        |  | 6.00                        
|Expected return on assets      |  | 6.61                        |  | 6.56                        |  | 8.00                        
|Rate of compensation increases |  | 4.00                        |  | 4.00                        |  | 4.75                        
|Pension increases              |  | 2.50                        |  | 2.60                        |  | 2.75                        
|                               |  |                             |  |                             |  |                             



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SFAS No. 88



Additional pension costs, relating to severance exercises,
computed in accordance with SFAS No. 88 are as follows:



|                             |  | Year ended 31 December 2002 |  | Year ended 31 December 2001 |  | 9 months to 31 December 2000
|---------------------------- |  | --------------------------- |  | --------------------------- |  | ----------------------------
|                             |  | £m                          |  | £m                          |  | £m                          
|Cost of termination benefits |  |                            |  |                            |  | 3                           
|                             |  |                             |  |                             |  |                             



(b) Impairment of
plant



Under UK GAAP, an impairment provision is
recognised when the discounted cash flows are less than the carrying amounts of the related assets. Under US GAAP, an impairment provision for assets is made when the undiscounted expected future cash flows fail to recover the carrying amounts of
the related assets. Accordingly, a US GAAP difference arises when the carrying amount of the assets is greater than the discounted future cash flows but less than the undiscounted future cash flows. This difference in the carrying value results in
different levels of depreciation under UK and US GAAP.



(c)
Purchase accounting



Under UK GAAP, goodwill arising on
acquisitions after 1 April 1998, accounted for under the purchase method, is capitalised in the balance sheet and amortised over a period not exceeding 20 years. Prior to that date, such goodwill arising on acquisitions was and remains eliminated
against reserves. Under US GAAP, with effect from 1 January 2002 goodwill is not subject to amortisation but is evaluated for impairment in accordance with applicable accounting literature. An impairment charge of £51 million arose in the year
and a cumulative charge of £44 million arose on adoption of the new US standard SFAS 142  Goodwill and Intangible Assets. If goodwill was not subject to amortisation in the year ended 31 December 2001 and the nine month period ended 31
December 2000 net income under US GAAP would have increased by £4 million and £22 million.



(d) Development expenditure



Under UK GAAP, we capitalise certain development expenditure as described in more detail in note 1. US GAAP requires such costs to be expensed as incurred.



(e) Onerous property lease provision



Under UK GAAP, a provision in respect of an onerous property lease is stated
on a discounted basis. Under US GAAP, this provision is measured on an undiscounted basis. Accordingly, the impact of the discounting is reversed under US GAAP.



(f) Liquidated damages



Under UK GAAP, liquidated damages relating to amounts receivable from contractors in respect of the late commissioning of new
power plants are recorded as income when they represent compensation for lost earnings. This is offset by certain costs, including interest and costs associated with the rectification of the plant, which are expensed in the period in which



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liquidated damages are recorded as revenue. Under US GAAP, this net amount is recorded as a reduction in the cost of the asset, regardless of
the nature of the compensation. These differences in the asset cost result in different levels of depreciation under UK and US GAAP.



Those receipts that relate to compensation for plants not achieving long-term performance levels are recorded as a reduction in the cost of the assets
under both UK and US GAAP.



(g) Restructuring costs



Under UK GAAP, when a decision has been taken to
restructure the business and a constructive obligation has been created to meet the qualifying expenditure, the necessary provision is made. Under US GAAP, the requirements for charging restructuring costs to income are more prescriptive and include
the need for all significant actions arising from the restructuring plan to be determined and the completion dates to be identified by the balance sheet date. Accordingly, the charge for restructuring costs made under UK GAAP has been reversed to
meet US GAAP requirements.



(h) Derivatives and hedging
activities



Under UK GAAP, the group recognises only
derivatives of a speculative nature at fair value on the balance sheet. Gains and losses arising on other derivative instruments are deferred until the hedged transactions actually occur.



Under US GAAP, the group recognises all qualifying derivatives at fair value on the balance sheet. Gains and losses arising
on derivatives that do not meet the US GAAP hedge accounting criteria are recognised in the profit and loss. Gains and losses on the groups derivatives that qualify for cash flow hedge accounting are initially recognised in reserves (to the
extent that the hedge is effective) and subsequently reclassified to profit and loss as the hedged item impacts earnings. Any ineffective element of these hedges is immediately recognised in earnings.



Under US GAAP, movements in the fair value of the cash settlement option
embedded within the convertible bond prior to cancellation resulted in a charge to income. This option was cancelled in 2001 and US GAAP required that the cumulative adjustment of £23 million be retained in shareholders funds rather than
being released to earnings.



(i) Disposal of a business



Applying the accounting differences between UK and US
GAAP can result in differences in the carrying values of net assets under UK and US GAAP. For example, when a foreign asset is sold, under US GAAP the cumulative translation adjustment is taken into the profit and loss account as part of the gain or
loss on sale, whereas under UK GAAP this would remain in reserves. As a consequence of this, different gains or losses may result on the subsequent disposal of the asset.



(j) Retranslation of foreign currency denominated subsidiary



During 2001, the group disposed of its interest in UFG and retained
approximately Euro 450 million of these funds in a Euro-denominated foreign enterprise with the intention of reinvesting the proceeds into Euro-denominated generating assets. Under UK GAAP, this foreign enterprise retained its Euro functional
currency, with exchange gains and losses being recorded in



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reserves. Under US GAAP, its functional currency is that of its parent and, as such, gains and losses on translation of these funds are
recognised through the income statement.



(k) Stock
compensation schemes



Under UK GAAP, no compensation
expense is recorded for the Sharesave Scheme under the exemption granted under UITF 17. For other stock compensation schemes, the intrinsic value, being the difference between the book value of the shares before granting the options and the option
price, is charged over the period of performance to which the award relates (the vesting period).



Under US GAAP, the compensation expense for both schemes is measured as the difference between the market value of the shares at the date of grant and the option price and is spread over the same
vesting period.



We have adopted the disclosures of SFAS 123,
Accounting for Stock-Based Compensation, but we continue to measure our stock-based compensation cost in accordance with APB 25 and its related interpretations. If we had measured our compensation expense based on the fair value method of FAS-123,
the net profit would have been the illustrative amounts shown below:



|                                                                                                                                                    |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001(Restated) |   |  | Nine months 31 December 2000(Restated) |   
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | - |  | ------------------------------------- | - |  | -------------------------------------- | --
|                                                                                                                                                    |  | £m                          |   |  | £m                                    |   |  | £m                                     |   
|Net income under US GAAP                                                                                                                            |  |                             |   |  |                                       |   |  |                                        |   
|As reported                                                                                                                                         |  | 73                          |   |  | 26                                    |   |  | (190                                   | ) 
|Deduct: Total stock-based employee compensation expense determined under the fair value
based method for all awards, net of the related tax effects |  | (3                          | ) |  | (4                                    | ) |  | (3                                     | ) 
|                                                                                                                                                    |  |                             |   |  |                                       |   |  |                                        |   
|Illustrative                                                                                                                                        |  | 70                          |   |  | 22                                    |   |  | (193                                   | ) 
|                                                                                                                                                    |  |                             |   |  |                                       |   |  |                                        |   
|Basic earnings per share                                                                                                                            |  |                             |   |  |                                       |   |  |                                        |   
|As reported                                                                                                                                         |  | 6.5                         | p |  | 2.3                                   | p |  | (17.0                                  | )p
|Illustrative                                                                                                                                        |  | 6.2                         | p |  | 1.9                                   | p |  | (17.2                                  | )p
|Diluted earnings per share                                                                                                                          |  |                             |   |  |                                       |   |  |                                        |   
|As reported                                                                                                                                         |  | 6.5                         | p |  | 2.3                                   | p |  | (17.0                                  | )p
|Illustrative                                                                                                                                        |  | 6.2                         | p |  | 1.9                                   | p |  | (17.2                                  | )p
|                                                                                                                                                    |  |                             |   |  |                                       |   |  |                                        |   



The weighted average
fair value of Executive Share Options granted to employees during the year ended 31 December 2002 was £1.16 (year ended 31 December 2001: £1.28).



The weighted average fair value of Sharesave Scheme Options granted to employees during the year ended 31 December 2002 was £0.36 (year ended 31
December 2001: £1.47).



The fair value of grants during the
year have been estimated using the Black-Scholes option pricing model. The key assumptions used by us are summarised below:



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|                                                                      |  | Risk-free Interest |  | Expected Life |  | Volatility |  | Dividend yield
|--------------------------------------------------------------------- |  | ------------------ |  | ------------- |  | ---------- |  | --------------
|                                                                      |  | %                  |  | Years         |  | %          |  | %             
|Share Option Scheme                                                   |  |                    |  |               |  |            |  |               
|1996 Executive share option scheme                                    |  | 8.09               |  | 3-10          |  | 24.50      |  | 4.60          
|1997 Executive share option scheme                                    |  | 8.22               |  | 3-10          |  | 24.50      |  | 6.20          
|1997 Sharesave scheme5 year period before exercise                   |  | 7.80               |  | 5-5.5         |  | 24.50      |  | 6.10          
|1998 Executive share option scheme                                    |  | 6.89               |  | 3-10          |  | 32.50      |  | 4.90          
|1998 Sharesave scheme5 year period before exercise                   |  | 6.90               |  | 5-5-.5        |  | 32.50      |  | 4.70          
|1999 Executive share option scheme                                    |  | 5.48               |  | 3-10          |  | 37.50      |  | 5.32          
|1999 Sharesave scheme5 year period before exercise                   |  | 5.40               |  | 5-5.5         |  | 37.50      |  | 5.27          
|1999 Sharesave scheme3 year period before exercise                   |  | 5.45               |  | 3-3.5         |  | 37.50      |  | 5.27          
|2000 Executive share option plans (approved and unapproved)           |  | 5.21               |  | 3-10          |  | 39.00      |  | Nil           
|2000 Sharesave scheme5 year period before exercise                   |  | 5.50               |  | 4-5           |  | 42.00      |  | Nil           
|2000 Sharesave scheme3 year period before exercise                   |  | 5.61               |  | 2-3           |  | 47.00      |  | Nil           
|2001 Executive share option scheme (22 March 2001)                    |  | 4.59               |  | 3-10          |  | 40.61      |  | Nil           
|2001 Executive share option scheme (19 September 2001)                |  | 4.96               |  | 3-10          |  | 42.26      |  | Nil           
|2001 Sharesave scheme (18 April 2001)5 year period before exercise   |  | 4.97               |  | 5.2-5.7       |  | 53.20      |  | Nil           
|2001 Sharesave scheme (18 April 2001)3 year period before 
exercise  |  | 4.88               |  | 3.2-3.7       |  | 61.09      |  | Nil           
|2001 Sharesave scheme (11 October 2001)5 year period before
exercise |  | 5.15               |  | 5.1-5.6       |  | 45.80      |  | Nil           
|2001 Sharesave scheme (11 October 2001)3 year period before
exercise |  | 5.12               |  | 3.1-3.6       |  | 50.45      |  | Nil           
|2002 Executive share option scheme (24 May 2002)                      |  | 5.26               |  | 3-10          |  | 43.49      |  | Nil           
|2002 Sharesave scheme (1 October 2002)5 year period before
exercise  |  | 4.32               |  | 5.2-5.7       |  | 44.32      |  | Nil           
|2002 Sharesave Scheme (1 October 2002)3 year period before
exercise  |  | 4.09               |  | 3.2-3.7       |  | 47.92      |  | Nil           



(l) Retail Gas
provision



Under UK GAAP, we recorded an onerous
contract provision for losses anticipated to be incurred in our retail gas supply business (part of the demerged Innogy business) as a result of a commitment to purchase gas at unfavourable prices. The onerous contract provision is adjusted for
subsequent changes in gas prices. Under US GAAP, a permanent impairment on a long-term supply contract can only be recorded to the extent that the gas has no utility to us as a whole.



(m) Gas swaps and supply contract renegotiations



We entered into swap agreements on certain long term gas supply contracts and renegotiated another gas supply contract in
order to manage our price risk. Under UK GAAP, the transaction premium paid is charged directly to profit and loss as there has been a substantial alteration of the risks associated with the gas purchases. Under US GAAP, the swaps are accounted for
as a hedge and therefore the cost of the swaps is deferred and amortised over the related contract life. Under US GAAP, the payments made in advance to renegotiate the gas supply contract are treated as prepayments and also amortised over the
related contract life.



(n) Deferred taxation



The group has restated its UK GAAP tax charge for the
year ended 31 December 2001 and the nine month period ended 31 December 2000, and its deferred tax, intangible assets and investment in associates and joint ventures balances as at 31 December 2001 and 31 December 2000 to comply with the new UK
accounting standard FRS 19  Deferred Tax. This standard eliminates a number of differences between UK and US GAAP. However, under UK GAAP a deferred tax asset or liability is not recognised on the difference between the tax and book values of
an asset or liability that existed at the date of a business combination. Under US GAAP, deferred tax is recognised on this difference.



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During 2002, under US GAAP
deferred tax adjustments of £18 million (2001: £41 million) were made as a result of new information arising in the period. Under UK GAAP, these deferred tax adjustments were recognised as part of the prior year adjustment arising on the
adoption of FRS 19.



(o) Employee Share Trust Arrangements



Under UK GAAP, Ordinary Shares in the Company held by
the employee share trusts are included at historical book value. Under US GAAP, such shares are classified as treasury stock and presented at their historical cost as a deduction to shareholders equity.



(p) Statement of cash flows: basis of preparation



Our statement of cash flows is prepared in accordance with FRS 1 Cash Flow
Statements, the objectives and principles of which are substantially consistent with SFAS 95 Statement of Cash Flows under US GAAP. The principal differences between FRS 1 and SFAS 95 relate to classification.



The format of the UK statement employs nine headings compared with three in
SFAS 95. The cash flows within the UK headings of Net cash inflow from operating activities, Dividends received from associates and joint ventures, Returns on investments and servicing of finance and
Tax would all be included as operating activities under SFAS 95. Cash flows from capital expenditure and financial investment, acquisitions and disposals and management of liquid resources would be
included as investing activities under SFAS 95. Equity dividends paid and Financing would be included as financing activities under SFAS 95.



In addition, under FRS 1, cash represents cash at bank and deposits repayable on demand less bank overdrafts. Under SFAS 95
the definition of cash excludes overdrafts but is widened to include cash equivalents, comprising short-term highly liquid investments.



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Set out below is a summary
consolidated statement of cash flows



|                                                                                         |  | Year ended 31 December 2002 |   |  | Year ended 31 December 2001 |   |  | 9 months to 31 December 2000 |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | - |  | --------------------------- | - |  | ---------------------------- | -
|                                                                                         |  | £m                          |   |  | £m                          |   |  | £m                           |  
|Net cash provided by/(used in) operating activities                                      |  | 300                         |   |  | 227                         |   |  | (367                         | )
|Net cash (used in)/provided by investing activities                                      |  | (303                        | ) |  | (88                         | ) |  | (767                         | )
|Net cash provided by/(used in) financing activities                                      |  | 210                         |   |  | 406                         |   |  | (170                         | )
|Effect of exchange rate changes on cash                                                  |  | (4                          | ) |  | (9                          | ) |  |                             |  
|Reclassification to fixed asset investments                                              |  | (4                          | ) |  |                            |   |  |                             |  
|Net cash transferred to Innogy                                                           |  |                            |   |  |                            |   |  | (622                         | )
|                                                                                         |  |                             |   |  |                             |   |  |                              |  
|Net increase/(decrease) in cash and cash equivalents                                     |  | 199                         |   |  | 536                         |   |  | (1,926                       | )
|Cash and cash equivalents at beginning of period                                         |  | 643                         |   |  | 107                         |   |  | 2,033                        |  
|                                                                                         |  |                             |   |  |                             |   |  |                              |  
|Cash and cash equivalents at end of period                                               |  | 842                         |   |  | 643                         |   |  | 107                          |  
|                                                                                         |  |                             |   |  |                             |   |  |                              |  
|Cash and cash equivalents                                                                |  |                             |   |  |                             |   |  |                              |  
|Cash                                                                                     |  | 799                         |   |  | 596                         |   |  | 107                          |  
|Investments and short-term deposits which were within 3 months of maturity when
acquired |  | 43                          |   |  | 47                          |   |  |                             |  
|                                                                                         |  |                             |   |  |                             |   |  |                              |  
|                                                                                         |  | 842                         |   |  | 643                         |   |  | 107                          |  
|                                                                                         |  |                             |   |  |                             |   |  |                              |  



(q) Classification
Differences



Consolidated profit and loss accounts



|(i) |  | Under UK GAAP, Turnover: group and share of joint ventures and associates includes turnover from joint ventures and associates, accounted for using the
equity method of £412 million, £546 million and £483 million for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000, respectively. Under US GAAP, these amounts would be
shown as a single amount after operating profit/(loss) for all periods presented.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(ii) |  | Under UK GAAP, Net interest payable and similar charges includes the Groups proportionate share of interest expense of joint ventures and
associates accounted for using the equity method of £35 million, £47 million and £45 million for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000, respectively. Under
US GAAP, these amounts would be shown as a single amount after operating profit/(loss) for all periods presented.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(iii) |  | Under UK GAAP, Tax on profit/(loss) on ordinary activities includes the Groups proportionate share of income taxes of joint ventures and associates
accounted for using the equity method of £19 million, £33 million and £14 million for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000, respectively. Under US GAAP,
these amounts would be shown as a single amount after operating profit/(loss) for all periods presented.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(iv) |  | Under UK GAAP, certain items are separately identified and described as exceptional items and earnings per share is presented before and after
exceptional items. Under US GAAP, there is no presentation and separate identification of exceptional items and earnings per share is not presented before and after exceptional items. Net operating
costs-exceptional of £103 million, £2 million and £227 million for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000, respectively, would be classified as
operating expenses and not
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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presented as extraordinary items under US GAAP. Income from investments  exceptional of £42 million for
the year ended 31 December 2002 would be classified income from investments and not presented as an extraordinary item under US GAAP. Non-operating exceptional items of nil and £32 million income and costs of £105
million for the year ended 31 December 2002, the year ended 31 December 2001 and the nine month period ended 31 December 2000, respectively, would not be presented as extraordinary items under US GAAP. Interest payable and similar
charges-exceptional of £29 million in the year ended 31 December 2001 would not be presented as an extraordinary item under US GAAP.



|(v) |  | Under UK GAAP, billings of £16 million (year ended 31 December 2001: £16 million; nine month period ended 31 December 2000: £12 million) in respect
of operating and maintenance services are recorded net of charges from suppliers and classified as other income, which is netted against other operations expenses. Under US GAAP, the gross amount of these billings would be
reported as revenue.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Balance sheet



Under UK GAAP, negative goodwill of £7 million at 31
December 2002 (31 December 2000: £33 million), is presented as a separately identified deduction from positive goodwill. Under US GAAP, these amounts would be allocated to tangible fixed assets.



Issue costs of £27 million (31 December 2001: £29 million) have
been offset against the carrying amount of the debt under UK GAAP. Under US GAAP, the issue costs would be similarly deferred in the balance sheet but presented as an other asset.



Under UK GAAP, net deferred tax liabilities are classified as provisions for liabilities and charges. Under US GAAP, deferred
tax liabilities and assets are classified as current or non-current and offset based on the classification of the related asset or liability for financial reporting. Deferred tax assets related to carryforwards are classified according to the
expected reversal date of the carryforward.



(r) Recently
issued accounting pronouncements (US GAAP)



SFAS 143,
Accounting for Asset Retirement Obligations



In June 2001,
the US Financial Accounting Standards Board issued SFAS 143. This standard requires that the fair value of a liability for an asset retirement obligation be recognised in the period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalised as part of the carrying amount of the long-lived asset. The Company is required to adopt SFAS No.143 on January 1, 2003. At this time, management is still assessing the impact of
adopting this standard.



SFAS 145, Recession of FASB
Statements No.4, 44 and 64, Amendment of FASB Statement No.13 and Technical Corrections



In April 2002, the US Financial Accounting Standards Board issued SFAS 145. This statement amends several existing authoritative pronouncements to make various technical corrections, clarify meanings,
or describe their applicability under changed conditions. The statement is applicable for fiscal years beginning after 15 May 2002, although certain sections are effective for transactions occurring after 15 May 2002.



F-75



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SFAS 146, Accounting for
Costs Associated with Exit or Disposal Activities



In June
2002, the US Financial Accounting Standards Board issued SFAS 146. This statement addresses financial reporting and accounting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with
an exit or disposal activity be recognised when the liability is incurred, at the fair value of the liability. This Statement is effective for exit or disposal activities that are initiated after 31 December 2002.



SFAS 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an amendment of FASB Statement No. 123



In
December 2002, the US Financial Accounting Standards Board issued SFAS 148. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value
method of accounting for stock-based employee compensation. The Company continues to apply the provisions of APB 25. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and
interim financial statements. The disclosures required by SFAS 148 are set forth in Note 35(k).



FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a
rescission of FASB Interpretation No. 34



In November 2002,
the US Financial Accounting Standards Board issued FIN 45. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognise, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees
issued or modified after 31 December 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after 15 December 2002. The disclosures required by FIN 45 are set forth in Note 32 to the consolidated
financial statements.



EITF 00-21, Revenue Arrangements with
Multiple Deliverables



In November 2002, the US Emerging
Issues Task Force issued its consensus on EITF 00-21. According to the EITF in an arrangement with multiple deliverables, the delivered item should be considered a separate unit of accounting if all of the following criteria are met: (1) The
delivered item has value to the customer on a standalone basis, (2) There is objective and reliable evidence of the fair value of the undelivered item, (3) If the arrangement includes a general right of return, delivery or performance of the
undelivered item is considered probable and substantially in the control of the vendor. If all the conditions are met and there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement
consideration should be allocated to the separate units of accounting based on their relative fair values. However, there may be cases in which there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but
no such evidence for one or more of the delivered items. In those cases, the residual method should be used to allocate the arrangement consideration. The guidance in this Issue is effective for revenue arrangements entered into in fiscal periods
beginning after 15 June 2003. Alternatively, entities may elect to report the change in accounting as a cumulative effect adjustment in accordance with Opinion 20. If so elected, disclosure should be made in periods subsequent to the date of initial
application of this consensus of the amount of recognised revenue that was previously included in the cumulative



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effect adjustment. At this time, management is still assessing the impact of adopting the EITFs consenus.



F-77



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Item 19. Exhibits



|EXHIBIT NUMBER |  | DESCRIPTION OF EXHIBIT                                                                                                                                                                   
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              
|1.2            |  | Memorandum and Articles of Association of International Power
plc                                                                                                                        
|              
|4.4*           |  | Deed of Novation to be executed by European Investment Bank, the Company, National
Power International Holdings Limited, Innogy Holdings and Innogy                                      
|              
|4.27*          |  | Deed of Change of Principal Employer and Change of Name for the Electricity Supply
Pension Scheme to be executed by Innogy and the Company                                               
|              
|4.28*          |  | Deed of Change of Principal Employer and Change of Name for the Company Senior Staff
Pension Scheme to be executed by Innogy and the Company                                             
|              
|4.29*          |  | Deed of Change of Principal Employer and Change of Name for the Company Group Pension
Scheme to be executed by Innogy, the National Power Pension Scheme Trustees Limited and the Company
|              
|8.0            |  | Subsidiaries                                                                                                                                                                             
|              
|99.1           |  | Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002                                                                                         
|              
|99.2           |  | Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002                                                                                         

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|* |  | Incorporated by reference to International Power plc and National Power PLCs Form 20-Fs filed in prior years.
|- |  | --------------------------------------------------------------------------------------------------------------



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##### Table of Contents



SIGNATURES



The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this annual report on its behalf.



INTERNATIONAL POWER PLCBy:

/s/    Philip CoxPhilip CoxChief Financial Officer and Director




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##### Table of Contents



Certification Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934



I, David Crane, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of International Power plc;
|-- |  | ---------------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|/s/    David Crane                  |  | Date: April 29, 2003
|----------------------------------- |  | --------------------
|David Crane Chief Executive Officer |  |                     



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##### Table of Contents



Certification Pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934



I, Philip Cox, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of International Power plc;
|-- |  | ---------------------------------------------------------------------------



|2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                                   
|---------------------------------------------------
|/s/    Philip CoxPhilip Cox Chief Financial Officer