##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 20-F


|           |  |                                                                                                     
|---------- |  | ----------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                     
|o          |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|OR        
|          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934            
|           |  | For the fiscal year ended December 31, 2005                                                         
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934        
|           |  | For the transition period
    from          to                                                      
|OR        
|          
|o          |  | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934     
|          
|           |  | Date of event requiring this shell company report                                                   

Commission file number: 1-13644





INTERNATIONAL POWER PLC


(Exact Name of Registrant as Specified in its Charter)


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                  



|  |                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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.




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




|                            |  |              
|--------------------------- |  | -------------
|Ordinary Shares of 50p each |  | 1,474,736,637

þ o


o þ


þ o


12b-2


þ o o


þ o


12b-2 o þ










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##### 










TABLE OF CONTENTS


|             |  |                                                                                  |  |  |    |  |  | 
|------------ |  | -------------------------------------------------------------------------------- |  |  | -- |  |  | 
|Item 1.      |  | Identity of Directors, Senior Management
    and Advisors                        |  |  | 2  | 
|Item 2.      |  | Offer Statistics and Expected Timetable                                          |  |  | 2  | 
|Item 3.      |  | Key Information                                                                  |  |  | 2  | 
|Item 4.      |  | Information on the Company                                                       |  |  | 12 | 
|Item 5.      |  | Operating and Financial Review and
    Prospects                                 |  |  | 22 | 
|Item 6.      |  | Directors, Senior Management and
    Employees                                   |  |  | 43 | 
|Item 7.      |  | Major Shareholders and Related Party
    Transactions                            |  |  | 61 | 
|Item 8.      |  | Financial Information                                                            |  |  | 61 | 
|Item 9.      |  | The Offer and Listing                                                            |  |  | 62 | 
|Item 10.     |  | Additional Information                                                           |  |  | 63 | 
|Item 11.     |  | Quantitative and Qualitative Disclosures
    About Market Risk                   |  |  | 68 | 
|Item 12.     |  | Description of Securities Other than Equity
    Securities                       |  |  | 68 | 
|Item 13.     |  | Defaults, Dividend Arrearages and
    Delinquencies                              |  |  | 68 | 
|Item 14.     |  | Material Modifications to the Rights of
    Security Holders and Use of Proceeds |  |  | 68 | 
|Item 15.     |  | Controls and Procedures                                                          |  |  | 68 | 
|Item 16.     |  | [Reserved]                                                                       |  |  | 68 | 
|Item 16A.    |  | Audit Committee Financial Expert                                                 |  |  | 68 | 
|Item 16B.    |  | Code of Ethics                                                                   |  |  | 69 | 
|Item 16C.    |  | Principal Accountant Fees and Services                                           |  |  | 69 | 
|Item 16D.    |  | Exemptions from the Listing Standards for
    Audit Committees                   |  |  | 69 | 
|Item 16E.    |  | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers       |  |  | 69 | 
|Item 17.     |  | Financial Statements                                                             |  |  | 70 | 
|Item 18.     |  | Financial Statements                                                             |  |  | 70 | 
|Item 19.     |  | Exhibits                                                                         |  |  | 70 | 
|Exhibit 1.1 
|Exhibit 4.1 
|Exhibit 4.2 
|Exhibit 8   
|Exhibit 12.1
|Exhibit 12.2
|Exhibit 13.1
|Exhibit 13.2



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##### Table of Contents



WHERE YOU CAN FIND MORE INFORMATION


1-800-SEC-0330


FORWARD-LOOKING STATEMENTS






| |   |                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our lack of long-term power purchase agreements with respect to
    a significant portion of our projects;                                                                                                                            
|
| |  | our ability to integrate recent acquisitions, as well as future
    acquisitions, with our existing operations.                                                                                                                       
|
| |  | our exposure to counterparty credit risk;                                                                                                                                                                                             
|
| |  | market prices for power in the markets where some of our
    projects operate are volatile and could be depressed for years;                                                                                                          
|
| |  | some of our projects operate without long-term fuel supply
    agreements, and we are therefore vulnerable to market forces to
    obtain fuel;                                                                                       
|
| |  | our reliance on single suppliers and single customers at some of
    our facilities;                                                                                                                                                  
|
| |  | our being subject to extensive government regulation and the
    potential that we may not be able to comply with existing
    regulations and requirements or changes in such regulations or
    requirements;                       
|
| |  | our potential inability to recover costs incurred during
    unsuccessful power project development and acquisition
    activities;                                                                                                   
|
| |  | assessments of external factors, such as the regulatory
    environment and market conditions, many years into the future
    that may not be borne out by events;                                                                    
|
| |  | our minority interest in certain of our project companies that
    might limit our ability to exercise complete control over their
    construction and operation in certain circumstances;                                           
|
| |  | the potential unavailability of financing on acceptable terms in
    the future;                                                                                                                                                      
|
| |  | our potential obligation to guarantee the obligations of our
    subsidiaries and other affiliates in connection with their
    trading activities;                                                                                   
|
| |  | the possibility that our projects under construction may not
    commence operation as scheduled;                                                                                                                                     
|
| |  | the possibility that new plants that employ advanced technology
    may not achieve the levels of operating performance expected by
    the manufacturers of the facilities;                                                          
|
| |  | the potential that we may forfeit our interest in certain
    projects if such project achieves performance below expected
    levels of output or efficiency or fails to make specified
    payments under its financing obligations;
|
| |  | our power generation facilities may experience equipment
    failures or otherwise not operate as planned;                                                                                                                            
|
| |  | the disruption of operation or delay of completion of
    construction of projects due to the activities of unions;                                                                                                                   

1



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##### Table of Contents





| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our reliance on information technology for trading and corporate
    business;                                                                                                                                          
|
| |  | our projects are subject to risks which may restrict their
    ability to pay dividends or make other distributions to us;                                                                                              
|
| |  | our post-tax earnings are subject to uncertainties due to the
    changing and increasingly complex nature of tax legislation;                                                                                          
|
| |  | our potential inability to obtain insurance for certain risks
    under terms acceptable to us;                                                                                                                         
|
| |  | exchange rate fluctuations could negatively affect our financial
    conditions and results of operations through the amount of our
    equity contributions to, and distributions from, our
    international projects;
|
| |  | our operations in emerging market countries could expose us to
    economic, political and other risks, including unexpected
    changes in regulatory and legal regimes;                                               
|
| |  | in connection with our demerger from Innogy (now called RWE
    npower), we indemnified RWE npower and received indemnities from
    RWE npower in respect of liabilities arising before the
    demerger; and          
|
| |  | limits to the due diligence we are able to conduct in connection
    with acquisitions.                                                                                                                                 



PART I







|        |                                                          
|------- | ---------------------------------------------------------
|Item 1. | Identity of Directors, Senior Management and
    Advisors








|        |                                        
|------- | ---------------------------------------
|Item 2. | Offer Statistics and Expected Timetable








|        |                
|------- | ---------------
|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 17. Financial
Statements and other financial statements. The results for
the year ended 31 December 2004 are not directly comparable
to the results for the year ended 31 December 2005 due to
the acquisition of the EME assets in December 2004 and Saltend
in July 2005 and our decision not to restate the comparatives to
take into account the requirements of the accounting standards
applicable to financial instruments (IAS 32 and IAS 39), in
accordance with the exemptions available under IFRS 1.


Our consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards
Board as adopted by the European Union (Adopted IFRS), which
differ in certain significant respects from US GAAP. Information
relating to the nature and effect of such differences as they
relate to us is summarised in note 44 to our consolidated
financial statements included elsewhere in this document. IFRSs
as adopted by the EU differ in certain respects from IFRSs as
issued by the International Accounting Standards Board (IASB).
However, the Group financial statements for the years presented
would be no different had the Group applied IFRSs as issued by
the IASB.


Under EU legislation, we were required to report our
consolidated results under Adopted IFRS for accounting periods
commencing on or after 1 January 2005. As a result of the
need to present comparatives as well as current year numbers
under Adopted IFRS, our date of transition to Adopted IFRS is
1 January 2004. Therefore, we have only presented
information in the tables below with respect to our two most
recent financial years, in accordance with instruction G to
Form 20-F.


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|                                                          |                             |                        |        |     |                  |  |        |      |  |  |       |     | 
|--------------------------------------------------------- | --------------------------- | ---------------------- | ------ | --- | ---------------- |  | ------ | ---- |  |  | ----- | --- | 
|                                                          |                             | Year Ended 31 December |       
|                                                          |                             |                        |       
|                                                          |                             | 2005(1)                |        |     | 2005             |  |        | 2004 | 
|                                                          |                             |                        |        |     |                  |  |        |      | 
|                                                          |                             | ($ in                  |        |     |                 
|                                                          |                             | millions,              |        |     | (£ in millions,  | 
|                                                          |                             | except per             |        |     | except per share | 
|                                                          |                             | share data)            |        |     | data)            | 
|Adopted IFRS  Group                                      |                             |                        |        |     |                  |  |        |      |  |  |       |    
|Revenue: Group and share of joint ventures and associates |                             |                        | 5,046  |     |                  |  | 2,936  |      |  |  | 1,267 |    
|Less: share of joint ventures revenue                    |                             |                        | (531   | )   |                  |  | (309   | )    |  |  | (144  | )  
|Less: share of associates revenue                        |                             |                        | (1,193 | )   |                  |  | (694   | )    |  |  | (355  | )  
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Group revenue                                             |                             |                        | 3,322  |     |                  |  | 1,933  |      |  |  | 768   |    
|Cost of sales  ordinary                                  |                             |                        | (2,690 | )   |                  |  | (1,565 | )    |  |  | (637  | )  
|Cost of sales  exceptional                               |                             |                        | 89     |     |                  |  | 52     |      |  |  |      |    
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Cost of sales                                             |                             |                        | (2,601 | )   |                  |  | (1,513 | )    |  |  | (637  | )  
|                                                          |                             |                        |        |     |                  |  |        |      | 
|                                                          | Excluding exceptional items |                        |        | 632 |                  |  |        | 368  |  |  |       | 131 | 
|                                                          | Exceptional items           |                        |        | 89  |                  |  |        | 52   |  |  |       |    | 
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Gross profit                                              |                             |                        | 721    |     |                  |  | 420    |      |  |  | 131   |    
|Other operating income  ordinary                         |                             |                        | 110    |     |                  |  | 64     |      |  |  | 56    |    
|Other operating income  exceptional                      |                             |                        | 100    |     |                  |  | 58     |      |  |  |      |    
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Other operating income                                    |                             |                        | 210    |     |                  |  | 122    |      |  |  | 56    |    
|Other operating expenses  ordinary                       |                             |                        | (221   | )   |                  |  | (129   | )    |  |  | (78   | )  
|Other operating expenses  exceptional                    |                             |                        |       |     |                  |  |       |      |  |  | 11    |    
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Other operating expenses                                  |                             |                        | (221   | )   |                  |  | (129   | )    |  |  | (67   | )  
|Share of results of joint ventures and associates         |                             |                        | 340    |     |                  |  | 198    |      |  |  | 113   |    
|                                                          |                             |                        |        |     |                  |  |        |      | 
|                                                          | Excluding exceptional items |                        |        | 861 |                  |  |        | 501  |  |  |       | 222 | 
|                                                          | Exceptional items           |                        |        | 189 |                  |  |        | 110  |  |  |       | 11  | 
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Profit from operations                                    |                             |                        | 1,050  |     |                  |  | 611    |      |  |  | 233   |    
|Disposal of investments  exceptional                     |                             |                        | 17     |     |                  |  | 10     |      |  |  | 4     |    
|Finance income                                            |                             |                        | 91     |     |                  |  | 53     |      |  |  | 30    |    
|Finance expenses  ordinary                               |                             |                        | (438   | )   |                  |  | (255   | )    |  |  | (107  | )  
|Finance expenses  exceptional                            |                             |                        |       |     |                  |  |       |      |  |  | (31   | )  
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Finance expenses                                          |                             |                        | (438   | )   |                  |  | (255   | )    |  |  | (138  | )  
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Profit before tax                                         |                             |                        | 720    |     |                  |  | 419    |      |  |  | 129   |    
|Income tax expense  ordinary                             |                             |                        | (95    | )   |                  |  | (55    | )    |  |  | (25   | )  
|Income tax expense  exceptional                          |                             |                        | (58    | )   |                  |  | (34    | )    |  |  |      |    
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Income tax expense                                        |                             |                        | (153   | )   |                  |  | (89    | )    |  |  | (25   | )  
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Profit for the year                                       |                             |                        | 567    |     |                  |  | 330    |      |  |  | 104   |    
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Attributable to:                                          |                             |                        |        |     |                  |  |        |      |  |  |       |    
|Minority interests  ordinary                             |                             |                        | 77     |     |                  |  | 45     |      |  |  | 8     |    
|Minority interests  exceptional                          |                             |                        |       |     |                  |  |       |      |  |  | (2    | )  
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Minority interests                                        |                             |                        | 77     |     |                  |  | 45     |      |  |  | 6     |    
|Equity holders of the parent  ordinary                   |                             |                        | 342    |     |                  |  | 199    |      |  |  | 112   |    
|Equity holders of the parent  exceptional                |                             |                        | 148    |     |                  |  | 86     |      |  |  | (14   | )  
|                                                          |                             |                        |        |     |                  |  |        |      | 
|Equity holders of the parent                              |                             |                        | 490    |     |                  |  | 285    |      |  |  | 98    |    

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|                    |                                     |                        |           |            |                  |  |      |       |  |  |   |      | 
|------------------- | ----------------------------------- | ---------------------- | --------- | ---------- | ---------------- |  | ---- | ----- |  |  | - | ---- | 
|                    |                                     | Year Ended 31 December |          
|                    |                                     |                        |          
|                    |                                     | 2005(1)                |           |            | 2005             |  |      | 2004  | 
|                    |                                     |                        |           |            |                  |  |      |       | 
|                    |                                     | ($ in                  |           |            |                 
|                    |                                     | millions,              |           |            | (£ in millions,  | 
|                    |                                     | except per             |           |            | except per share | 
|                    |                                     | share data)            |           |            | data)            | 
|Earnings per share: |                                     |                        |           |            |                  |  |      |       |  |  |   |     
|                    | Basic excluding exceptional items   |                        |           | 23.2 cents |                  |  |      | 13.5p |  |  |   | 8.6p | 
|                    | Basic including exceptional items   |                        |           | 33.3 cents |                  |  |      | 19.4p |  |  |   | 7.5p | 
|                    | Diluted excluding exceptional items |                        |           | 22.3 cents |                  |  |      | 13.0p |  |  |   | 8.5p | 
|                    | Diluted including exceptional items |                        |           | 31.8 cents |                  |  |      | 18.5p |  |  |   | 7.4p | 
|Dividends per share |                                     |                        | 4.3 cents |            |                  |  | 2.5p |       |  |  |  |     



|                                                                            |  |                   |        |                 |      |  |        |      |  |  |        |  
|--------------------------------------------------------------------------- |  | ----------------- | ------ | --------------- | ---- |  | ------ | ---- |  |  | ------ | -
|                                                                            |  | As at 31 December |       
|                                                                            |  |                   |       
|                                                                            |  | 2005(1)           |        |                 | 2005 |  |        | 2004 | 
|                                                                            |  |                   |        |                 |      |  |        |      | 
|                                                                            |  | ($ in millions)   |        |                 |     
|                                                                            |  |                   |        | (£ in millions) |     
|Balance Sheet Information:                                                  |  |                   |        |                 |      |  |        |      |  |  |        |  
|Adopted IFRS  Group                                                        |  |                   |        |                 |      |  |        |      |  |  |        |  
|Total non-current assets                                                    |  |                   | 11,330 |                 |      |  | 6,592  |      |  |  | 5,667  |  
|Total current assets                                                        |  |                   | 2,506  |                 |      |  | 1,458  |      |  |  | 941    |  
|                                                                            |  |                   |        |                 |      |  |        |      | 
|Total assets                                                                |  |                   | 13,836 |                 |      |  | 8,050  |      |  |  | 6,608  |  
|                                                                            |  |                   |        |                 |      |  |        |      | 
|Total current liabilities                                                   |  |                   | (2,234 | )               |      |  | (1,300 | )    |  |  | (545   | )
|Total non-current liabilities                                               |  |                   | (7,520 | )               |      |  | (4,375 | )    |  |  | (4,005 | )
|                                                                            |  |                   |        |                 |      |  |        |      | 
|Total liabilities                                                           |  |                   | (9,754 | )               |      |  | (5,675 | )    |  |  | (4,550 | )
|                                                                            |  |                   |        |                 |      |  |        |      | 
|Net assets                                                                  |  |                   | 4,082  |                 |      |  | 2,375  |      |  |  | 2,058  |  
|                                                                            |  |                   |        |                 |      |  |        |      | 
|Capital Stock (excluding long-term debt and redeemable preferred
    stock) |  |                   | 1,267  |                 |      |  | 737    |      |  |  | 737    |  
|Other capital and reserves                                                  |  |                   | 2,329  |                 |      |  | 1,355  |      |  |  | 1,096  |  
|                                                                            |  |                   |        |                 |      |  |        |      | 
|Total equity attributable to equity holders of the parent                   |  |                   | 3,596  |                 |      |  | 2,092  |      |  |  | 1,833  |  
|Minority interests                                                          |  |                   | 486    |                 |      |  | 283    |      |  |  | 225    |  
|                                                                            |  |                   |        |                 |      |  |        |      | 
|Total equity                                                                |  |                   | 4,082  |                 |      |  | 2,375  |      |  |  | 2,058  |  
|                                                                            |  |                   |        |                 |      |  |        |      | 
|Issued and fully paid ordinary shares (million of shares)                   |  |                   | 1,475  |                 |      |  | 1,475  |      |  |  | 1,473  |  

|                                            |  |                                                    |            |  |                                        |  |       |      |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       | 
|------------------------------------------- |  | -------------------------------------------------- | ---------- |  | -------------------------------------- |  | ----- | ---- |  |  | ----- |  |  | ---- | ----- |  | ---- |  | ----- |  |  |  | ----- | 
|                                            |  | As at and for the Financial Year Ended 31 December |           
|                                            |  |                                                    |           
|                                            |  | 2005(1)                                            |            |  | 2005                                   |  |       | 2004 |  |  | 2003  |  |  | 2002 |       |  | 2001 | 
|                                            |  |                                                    |            |  |                                        |  |       |      |  |  |       |  |  |      |       |  |      | 
|                                            |  | ($ in                                              |            |  |                                        |  |       |      |  |  |       |  | 
|                                            |  | millions,                                          |            |  | (£ in millions, except per share data) | 
|                                            |  | except per                                         |            |  |                                       
|                                            |  | share                                              |            |  |                                       
|                                            |  | data)                                              |            |  |                                       
|US GAAP Data  Group                        |  |                                                    |            |  |                                        |  |       |      |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       | 
|Total equity attributable to equity holders |  |                                                    | 3,881      |  |                                        |  | 2,258 |      |  |  | 2,054 |  |  |      | 1,767 |  |      |  | 1,746 |  |  |  | 1,795 | 
|Net income                                  |  |                                                    | 411        |  |                                        |  | 239   |      |  |  | 61    |  |  |      | 15    |  |      |  | 28    |  |  |  | 28    | 
|Basic earnings per share                    |  |                                                    | 28.0 cents |  |                                        |  | 16.3p |      |  |  | 4.7p  |  |  |      | 1.2p  |  |      |  | 2.2p  |  |  |  | 2.2p  | 
|Diluted earnings per share                  |  |                                                    | 26.8 cents |  |                                        |  | 15.6p |      |  |  | 4.6p  |  |  |      | 1.2p  |  |      |  | 2.2p  |  |  |  | 2.1p  | 








|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | Amounts translated for convenience at the noon-buying rate on
    31 December 2005 of £1.00 = $1.7188.

4



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Exchange Rate Information




|                            |  |                     |        |  |     |  |        |              |  |  |               |  |  |  |        | 
|--------------------------- |  | ------------------- | ------ |  | --- |  | ------ | ------------ |  |  | ------------- |  |  |  | ------ | 
|                            |  | High                |        |  | Low |  |        | Average Rate |  |  | End of Period | 
|                            |  |                     |        |  |     |  |        |              |  |  |               | 
|                            |  | (Dollars per pound) |       
|Year ended 31 December 2005 |  |                     | 1.9292 |  |     |  | 1.7138 |              |  |  | 1.8204        |  |  |  | 1.7188 | 
|Year ended 31 December 2004 |  |                     | 1.9482 |  |     |  | 1.7544 |              |  |  | 1.8333        |  |  |  | 1.9160 | 
|Year ended 31 December 2003 |  |                     | 1.7842 |  |     |  | 1.5500 |              |  |  | 1.6448        |  |  |  | 1.7842 | 
|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 | 



|         |  |                     |        |  |     |  |        | 
|-------- |  | ------------------- | ------ |  | --- |  | ------ | 
|         |  | High                |        |  | Low | 
|         |  |                     |        |  |     | 
|         |  | (Dollars per pound) |       
|2006     |  |                     |        |  |     |  |        | 
|May      |  |                     | 1.8911 |  |     |  | 1.8286 | 
|April    |  |                     | 1.8220 |  |     |  | 1.7389 | 
|March    |  |                     | 1.7567 |  |     |  | 1.7256 | 
|February |  |                     | 1.7807 |  |     |  | 1.7343 | 
|January  |  |                     | 1.7885 |  |     |  | 1.7404 | 
|2005     |  |                     |        |  |     |  |        | 
|December |  |                     | 1.7740 |  |     |  | 1.7188 | 

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Risk Factors






| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A significant number of the projects in which we have an
    interest operate without long-term PPAs, and are therefore
    vulnerable to market forces to determine the price and amount of
    power they sell.





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | We may have difficulty integrating and operating recent
    acquisitions, as well as any future acquisitions, with our
    existing operations.







| |   |                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Difficulty in integrating the acquired businesses in a
    cost-effective manner, including the establishment of effective
    management information and financial control systems;
|
| |  | Unforeseen legal, regulatory, contractual, labour or other
    issues arising out of the acquisitions;                                                                              
|
| |  | Significant unexpected liabilities or contingencies arising from
    the acquisitions, for which we are not fully indemnified;                                                      
|
| |  | Potential disruptions to our ongoing business caused by senior
    managements focus on the acquired companies; and                                                                
|
| |  | Performance of acquired assets may not meet our expectations or
    plans.                                                                                                          





| |                                                                                      
| | -------------------------------------------------------------------------------------
| | We are subject to counterparty credit risk from the
    vendors of acquired companies





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | Market prices for power in the markets where some of our
    projects operate are volatile and could be depressed for
    years.



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





| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.







| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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









| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We must assess external factors, such as the regulatory
    environment, and market conditions, including distortions due to
    government initiatives, particularly in relation to climate
    change, many years into the future; these assessments may not be
    borne out by events.





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





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



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





| |                                                                             
| | ----------------------------------------------------------------------------
| | Our projects under construction may not commence operation
    as scheduled.





| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | environmental, engineering and construction risks relating to
    cost overruns, delays and performance;
|
| |  | the breakdown or failure of equipment or processes; and                                                 
|
| |  | start-up problems.                                                                                      





| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | New plants that employ advanced technology may not achieve
    the levels of operating performance expected by the
    manufacturers of the facilities.





| |                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



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





| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | Our energy trading and corporate businesses are heavily
    reliant on our information technology
    (IT) infrastructure.





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





| |   |                                                       
| | - | ------------------------------------------------------
| |  | economic and political instability;                   
|
| |  | our relationship with government controlled offtakers;
|
| |  | potential restrictions on currency repatriation;      

10



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| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | changes in regulatory requirements;                                                                                      
|
| |  | changes to tax legislation                                                                                               
|
| |  | catastrophic events such as terrorist activities, earthquakes,
    landslides, fire, floods, explosion or similar events.





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Our post-tax earnings are subject to uncertainties due to
    the changing and increasingly complex nature of tax
    legislation.





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





| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





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



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





| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with the demerger, we indemnified RWE npower
    (formerly called Innogy) and received indemnities from RWE
    npower in respect of liabilities arising before the
    demerger.










|        |                           
|------- | --------------------------
|Item 4. | Information on the Company





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Business Environment












Recent Acquisitions




13



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##### Table of Contents





22-year









Our Strategy






| |                                    
| | -----------------------------------
| | Maximising Value From Our Portfolio





| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Optimise 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 parts

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | planning, so as to minimise the loss of generation during
    planned and 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 prepare successfully
    certain of our plants for the introduction of competition in the
    relevant energy market;                                                                 
|
| |  | Leverage 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, trading, 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;               
|
| |  | Trade assets to maximise value: we expect 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 an asset if this generates a higher return, or if we
    can obtain a comparable return with lower risk
    elsewhere; and                                                                                                                                                                        
|
| |  | Seek effective routes to market: we intend to seek to
    improve our access and routes to the market in those geographic
    areas where it is appropriate. In July 2005, for example, we
    formed a partnership with EnergyAustralia to supply power and
    gas to customers, predominately in South Australia and Victoria,
    and in May 2006, we acquired a 30% equity interest in Opus
    Energy, an independent supplier of electricity in the UK that
    focuses on the small business sector.



| |                   
| | ------------------
| | Future Investments





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Financial return: new investments must meet stringent
    financial return criteria. We use a range of financial criteria
    in our project evaluations, but the fundamental principle is
    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 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, have strong market fundamentals in terms of
    demand/supply balance 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 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.                                                                                                                                                                                                                                      







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| |                           
| | --------------------------
| | Portfolio Asset Management





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Geopolitical diversity: to manage the political risk
    inherent in foreign direct investment in a strategic industry,
    we intend to concentrate the majority of our portfolio in the
    developed countries of North America, Europe, 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 may 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 arrangements  merchant versus
    contracted: we intend to maintain a balance in our portfolio
    between long-term contracted assets (i.e. principally under
    PPAs) and merchant plant (either short term contracted, or
    uncontracted); 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. We believe a blend of fuel types
    and technology both strengthens our portfolio and improves the
    security of supply in our markets.                   

Developing Closely Linked Businesses




Facilities










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|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         |  |              |     |  |  |              | 
|------------------------------------------------------- |  | --------- | ----------------------- | -------- | -- |  | ------ | ----------- | -------- | -------------- | --- | --------------- | -------------- | ------- | ------------ | -------------- | ------- |  | ------------ | --- |  |  | ------------ | 
|                                                        |  |           |                         |          |    |  |        |             |          | Gross Capacity |     |                 | Net Capacity   |        
|                                                        |  |           |                         | Gross    |    |  |        |             | Net      |                |     | Heat (MWth(1))  |                |         | Heat (MWth)  |               
|                                                        |  |           |                         | Capacity |    |  |        |             | Capacity |                |     | Desal (MIGD(2)) |                |         | Desal (MIGD) |               
|                                                        |  |           |                         | Power    |    |  | IPR    |             |          | Power          |     |                 | Steam (million |         |              | Steam (million |        
|Assets in Operation                                     |  | Fuel/Type |                         |          | MW |  |        | Ownership % |          |                | MW  |                 |                | lbs/hr) |              |                | lbs/hr) | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|North America                                           |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         |  |              |     |  |  |              | 
|Hartwell, Georgia                                       |  |           | Gas (OCGT)              |          |    |  | 310    |             |          |                | 50  |                 |                |         | 155          |                |         |  |              |     |  |  |              | 
|Hays,
    Texas(3)                                      |  |           | Gas (CCGT)              |          |    |  | 1,100  |             |          |                | 100 |                 |                |         | 1,100        |                |         |  |              |     |  |  |              | 
|Midlothian,
    Texas(3)                                |  |           | Gas (CCGT)              |          |    |  | 1,650  |             |          |                | 100 |                 |                |         | 1,650        |                |         |  |              |     |  |  |              | 
|Oyster Creek, Texas                                     |  |           | Gas (Cogen/CCGT)        |          |    |  | 425    |             |          |                | 50  |                 |                |         | 213          |                |         |  | 100 MWth     |     |  |  | 50 MWth      | 
|Bellingham,
    Massachusetts(3)                        |  |           | Gas (CCGT)              |          |    |  | 570    |             |          |                | 100 |                 |                |         | 570          |                |         |  |              |     |  |  |              | 
|Blackstone,
    Massachusetts(3)                        |  |           | Gas (CCGT)              |          |    |  | 570    |             |          |                | 100 |                 |                |         | 570          |                |         |  |              |     |  |  |              | 
|Milford, Massachusetts                                  |  |           | Gas (CCGT)              |          |    |  | 160    |             |          |                | 100 |                 |                |         | 160          |                |         |  |              |     |  |  |              | 
|EcoEléctrica, Puerto Rico                               |  |           | LNG (CCGT)              |          |    |  | 524    |             |          |                | 35  |                 |                |         | 183          |                |         |  |              |     |  |  |              | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|North America total in operation                        |  |           |                         |          |    |  | 5,309  |             |          |                |     |                 |                |         | 4,601        |                |         |  | 100 MWth     |     |  |  | 50 MWth      | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Europe                                                  |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         |  |              |     |  |  |              | 
|International Power Opatovice, Czech
    Republic(4)(5) |  |           | Coal/gas (Cogen)        |          |    |  | 585    |             |          |                | 99  |                 |                |         | 580          |                |         |  | 1,945 MWth   |     |  |  | 1,925 MWth   | 
|ISAB, Italy                                             |  |           | Gas (IGCC)              |          |    |  | 528    |             |          |                | 34  |                 |                |         | 181          |                |         |  |              |     |  |  |              | 
|Tejo Energia (Pego), Portugal                           |  |           | Coal                    |          |    |  | 600    |             |          |                | 50  |                 |                |         | 300          |                |         |  |              |     |  |  |              | 
|Turbogás, Portugal                                      |  |           | Gas (CCGT)              |          |    |  | 990    |             |          |                | 60  |                 |                |         | 594          |                |         |  |              |     |  |  |              | 
|Spanish Hydro, Spain                                    |  |           | Hydro                   |          |    |  | 84     |             |          |                | 67  |                 |                |         | 57           |                |         |  |              |     |  |  |              | 
|Uni-Mar (Marmara), Turkey                               |  |           | Gas (CCGT)              |          |    |  | 480    |             |          |                | 33  |                 |                |         | 160          |                |         |  |              |     |  |  |              | 
|Deeside, United Kingdom                                 |  |           | Gas (CCGT)              |          |    |  | 500    |             |          |                | 100 |                 |                |         | 500          |                |         |  |              |     |  |  |              | 
|Derwent, United Kingdom                                 |  |           | Gas (CCGT)              |          |    |  | 214    |             |          |                | 23  |                 |                |         | 50           |                |         |  |              |     |  |  |              | 
|First Hydro, United Kingdom                             |  |           | Pumped Storage          |          |    |  | 2,088  |             |          |                | 70  |                 |                |         | 1,462        |                |         |  |              |     |  |  |              | 
|Rugeley, United Kingdom                                 |  |           | Coal/50 MW of OCGT      |          |    |  | 1,050  |             |          |                | 100 |                 |                |         | 1,050        |                |         |  |              |     |  |  |              | 
|Saltend, United Kingdom                                 |  |           | Gas (CCGT/Cogen)        |          |    |  | 1,200  |             |          |                | 70  |                 |                |         | 840          |                |         |  | 0.30m lbs/hr |     |  |  | 0.21m lbs/hr | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Europe total in operation                               |  |           |                         |          |    |  | 8,319  |             |          |                |     |                 |                |         | 5,774        |                |         |  |              |     |  |  |              | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Middle East                                             |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         |  |              |     |  |  |              | 
|Al Hidd,
    Bahrain(6)                                 |  |           | Gas (CCGT)/desalination |          |    |  | 910    |             |          |                | 40  |                 |                |         | 364          |                |         |  | 30 MIGD      |     |  |  | 12 MIGD      | 
|Al Kamil, Oman                                          |  |           | Gas (OCGT)              |          |    |  | 285    |             |          |                | 65  |                 |                |         | 185          |                |         |  |              |     |  |  |              | 
|Shuweihat S1, UAE                                       |  |           | Gas (CCGT)/desalination |          |    |  | 1,500  |             |          |                | 20  |                 |                |         | 300          |                |         |  | 100 MIGD     |     |  |  | 20 MIGD      | 
|Umm Al Nar, UAE                                         |  |           | Gas (CCGT)/desalination |          |    |  | 870    |             |          |                | 20  |                 |                |         | 174          |                |         |  | 162 MIGD     |     |  |  | 32 MIGD      | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Middle East total in operation                          |  |           |                         |          |    |  | 3,565  |             |          |                |     |                 |                |         | 1,023        |                |         |  | 292 MIGD     |     |  |  | 64 MIGD      | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Australia                                               |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         |  |              |     |  |  |              | 
|Hazelwood, Victoria                                     |  |           | Coal                    |          |    |  | 1,635  |             |          |                | 92  |                 |                |         | 1,500        |                |         |  |              |     |  |  |              | 
|Synergen, South Australia                               |  |           | Gas/distillate          |          |    |  | 360    |             |          |                | 100 |                 |                |         | 360          |                |         |  |              |     |  |  |              | 
|Pelican Point, South Australia                          |  |           | Gas (CCGT)              |          |    |  | 485    |             |          |                | 100 |                 |                |         | 485          |                |         |  |              |     |  |  |              | 
|SEA Gas pipeline,
    Victoria(7)                       |  |           | N/A                     |          |    |  | N/A    |             |          |                | 33  |                 |                |         | N/A          |                |         |  |              |     |  |  |              | 
|Canunda, South Australia                                |  |           | Wind/renewable          |          |    |  | 46     |             |          |                | 100 |                 |                |         | 46           |                |         |  |              |     |  |  |              | 
|Loy Yang B, Victoria                                    |  |           | Coal                    |          |    |  | 1,000  |             |          |                | 70  |                 |                |         | 700          |                |         |  |              |     |  |  |              | 
|EnergyAustralia(8)                                      |  |           | N/A                     |          |    |  | N/A    |             |          |                | 50  |                 |                |         | N/A          |                |         |  |              |     |  |  |              | 
|Kwinana, Western Australia                              |  |           | Gas (CCGT)              |          |    |  | 118    |             |          |                | 49  |                 |                |         | 58           |                |         |  |              |     |  |  |              | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Australia total in operation                            |  |           |                         |          |    |  | 3,644  |             |          |                |     |                 |                |         | 3,149        |                |         |  |              |     |  |  |              | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Asia                                                    |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         |  |              |     |  |  |              | 
|Paiton, Indonesia                                       |  |           | Coal                    |          |    |  | 1,230  |             |          |                | 31  |                 |                |         | 385          |                |         |  |              |     |  |  |              | 
|Malakoff,
    Malaysia(5)                               |  |           | Gas (OCGT/CCGT)         |          |    |  | 3,130  |             |          |                | 18  |                 |                |         | 567          |                |         |  |              |     |  |  |              | 
|HUBCO, Pakistan                                         |  |           | Oil                     |          |    |  | 1,290  |             |          |                | 17  |                 |                |         | 214          |                |         |  |              |     |  |  |              | 
|KAPCO, Pakistan                                         |  |           | Gas/oil (CCGT)          |          |    |  | 1,600  |             |          |                | 36  |                 |                |         | 575          |                |         |  |              |     |  |  |              | 
|Uch, Pakistan                                           |  |           | Gas/oil (CCGT)          |          |    |  | 586    |             |          |                | 40  |                 |                |         | 234          |                |         |  |              |     |  |  |              | 
|TNP (Pluak Daeng), Thailand                             |  |           | Gas (Cogen)             |          |    |  | 120    |             |          |                | 100 |                 |                |         | 120          |                |         |  | 7.7 MWth     | (9) |  |  | 7.7 MWth     | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Asia total in operation                                 |  |           |                         |          |    |  | 7,956  |             |          |                |     |                 |                |         | 2,095        |                |         |  | 7.7 MWth     |     |  |  | 7.7 MWth     | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 
|Total in operation around the world                     |  |           |                         |          |    |  | 28,793 |             |          |                |     |                 |                |         | 16,642       |                |         |  |              |     |  |  |              | 
|                                                        |  |           |                         |          |    |  |        |             |          |                |     |                 |                |         |              |                |         | 

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|                                          |  |           |                         |          |    |  |       |             |          |                |     |                 |                |         |              |                |         |  |             |  |  |  |             | 
|----------------------------------------- |  | --------- | ----------------------- | -------- | -- |  | ----- | ----------- | -------- | -------------- | --- | --------------- | -------------- | ------- | ------------ | -------------- | ------- |  | ----------- |  |  |  | ----------- | 
|                                          |  |           |                         |          |    |  |       |             |          | Gross Capacity |     |                 | Net Capacity   |        
|                                          |  |           |                         | Gross    |    |  |       |             | Net      |                |     | Heat (MWth(1))  |                |         | Heat (MWth)  |               
|                                          |  |           |                         | Capacity |    |  |       |             | Capacity |                |     | Desal (MIGD(2)) |                |         | Desal (MIGD) |               
|                                          |  |           |                         | Power    |    |  | IPR   |             |          | Power          |     |                 | Steam (million |         |              | Steam (million |        
|Assets Under Construction                 |  | Fuel/Type |                         |          | MW |  |       | Ownership % |          |                | MW  |                 |                | lbs/hr) |              |                | lbs/hr) | 
|                                          |  |           |                         |          |    |  |       |             |          |                |     |                 |                |         |              |                |         | 
|Al Hidd, Bahrain                          |  |           | Desalination            |          |    |  |      |             |          |                | 40  |                 |                |         |             |                |         |  | 60 MIGD     |  |  |  | 24 MIGD     | 
|Malakoff,
    Malaysia(5)                 |  |           | Coal                    |          |    |  | 1,890 |             |          |                | 18  |                 |                |         | 342          |                |         |  |             |  |  |  |             | 
|Ras Laffan B, Qatar                       |  |           | Gas (CCGT)/desalination |          |    |  | 1,025 |             |          |                | 40  |                 |                |         | 410          |                |         |  | 60 MIGD     |  |  |  | 24 MIGD     | 
|Tihama, Saudi Arabia                      |  |           | Gas (Cogen)             |          |    |  | 1,074 |             |          |                | 60  |                 |                |         | 644          |                |         |  | 4.5m lbs/hr |  |  |  | 2.7m lbs/hr | 
|TNP (Pluak Daeng), Thailand               |  |           | Gas (Cogen)             |          |    |  | 23    |             |          |                | 100 |                 |                |         | 23           |                |         |  |             |  |  |  |             | 
|Umm Al Nar Expansion, UAE                 |  |           | Gas (CCGT)/desalination |          |    |  | 1,550 |             |          |                | 20  |                 |                |         | 310          |                |         |  | 25 MIGD     |  |  |  | 5 MIGD      | 
|                                          |  |           |                         |          |    |  |       |             |          |                |     |                 |                |         |              |                |         | 
|Total under construction around the world |  |           |                         |          |    |  | 5,562 |             |          |                |     |                 |                |         | 1,729        |                |         |  |             |  |  |  |             | 
|                                          |  |           |                         |          |    |  |       |             |          |                |     |                 |                |         |              |                |         | 






|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | MWth = One megawatt of thermal power.                                                                                                                                                                              
|   
|(2) | MIGD = millions of imperial gallons per day.                                                                                                                                                                       
|   
|(3) | Capacity shown for these assets is the nameplate capacity.                                                                                                                                                         
|   
|(4) | In October 2005, Elektrárny Opatovice (EOP) changed
    its name to International Power Opatovice.                                                                                                                 
|   
|(5) | Gross capacity amount shown for International Power Opatovice
    and Malakoff represents the actual net interest owned directly
    or indirectly by International Power Opatovice and Malakoff,
    respectively.
|   
|(6) | Hidd acquisition is expected to complete in July 2006.                                                                                                                                                             
|   
|(7) | 687 km gas pipeline (33% owned by International Power) from
    Victoria to South Australia.                                                                                                                       
|   
|(8) | EnergyAustralia (50% owned by International Power) services
    circa 275,000 electricity and gas retail accounts in Victoria
    and South Australia.                                                             
|   
|(9) | District cooling system capacity.                                                                                                                                                                                  

Construction and Development






23-year


20-year


18



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22-year






Operations and Maintenance




Trading Activities










19



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Employees




|                          |  |                    |       | 
|------------------------- |  | ------------------ | ----- | 
|                          |  | Approximate Number |      
|                          |  | of Employees       |      
|                          |  |                    |      
|North America             |  |                    | 220   | 
|Europe                    |  |                    | 1,136 | 
|Middle East               |  |                    | 615   | 
|Australia                 |  |                    | 742   | 
|Asia                      |  |                    | 633   | 
|Corporate and development |  |                    | 233   | 
|                          |  |                    |      
|Total group employees     |  |                    | 3,579 | 
|                          |  |                    |      

Subsidiaries




Legal Proceedings












20



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Regulation








2


2




21



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##### Table of Contents





2




Environment, Health and Safety Review



















|        |                                             
|------- | --------------------------------------------
|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.


22



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| |         
| | --------
| | Overview







| |                                      
| | -------------------------------------
| | Presentation of Financial Information

20-F






| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | a reconciliation of equity reported under UK GAAP to equity
    under Adopted IFRS as at 1 January 2004 and
    31 December 2004;       
|
| |  | a reconciliation of the profit reported under UK GAAP for the
    year ended 31 December 2004 to profit reported under
    Adopted IFRS.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Business combinations prior to 1 January 2004 have not been
    restated (in accordance with IFRS 3 Business Combinations). As a
    result, the carrying amount of goodwill under UK GAAP at
    31 December 2003 is the deemed cost of goodwill at
    1 January 2004 for Adopted IFRS purposes. The impact of
    this election (not restating business combinations prior to
    1 January 2004 in accordance with IFRS 3 Business
    Combinations) is that the allocation of fair values between
    tangible assets, intangible assets, goodwill and other assets
    and liabilities may have been different and thus the subsequent
    amortisation charges may also have been impacted.
|
| |  | The Group elected to measure its property, plant and equipment
    of its US merchant fleet, owned by American National Power, at
    the date of transition to Adopted IFRS at its fair value and use
    that fair value as its deemed cost at that date. The US merchant
    fleet is still subject to impairment testing following
    indications of impairment but, following this election, an
    impairment reversal will not arise from the recoverable amount
    of the assets exceeding their carrying values as it is not group
    policy to revalue                                                                                                                               

23



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | property, plant and equipment. The subsequent depreciation
    charge is also affected by the extent to which an impairment
    reversal is or is not required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Cumulative foreign exchange differences in reserves have been
    deemed to be zero at 1 January 2004. Because the cumulative
    amount of exchange differences arising on the retranslation of
    foreign operations are recorded in equity rather than the income
    statement, and because the cumulative exchange difference is
    recycled to the income statement on disposal of such a foreign
    operation, the profit or loss on disposal of a foreign operation
    will differ to the extent foreign exchange differences have or
    have not been recognised on the transition to Adopted IFRS at
    1 January 2004.                                                                                                                                                               
|
| |  | The Group has recognised the pension schemes surpluses and
    deficits in full as at 1 January 2004, with a corresponding
    adjustment to reserves. The Group has used the
    corridor method to recognise actuarial gains and
    losses arising after the date of transition. If the Group had
    not recognised all the cumulative actuarial gains and losses at
    the date of transition to Adopted IFRS but instead only
    recognised those actuarial gains and losses consistent with the
    on-going application of the corridor method, then
    gains and losses recorded in the income statement (recognised
    and amortised on a straight line basis over the average
    remaining service life of the employees) during 2004 and
    thereafter may have been different.







| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | the cessation of goodwill amortisation;                                                                                                       
|
| |  | differences in accounting for deferred tax, principally with
    respect to fair value adjustments on acquisition;                            
|
| |  | dividends declared and not approved at the balance sheet
    date  these are not included as liabilities in the
    financial statements;    
|
| |  | the present value of net pension scheme obligations recognised
    on balance sheet (excluding actuarial gains and losses not
    recognised);
|
| |  | the recognition of a charge to the income statement for
    share-based payments;                                                             
|
| |  | split accounting of convertible debt in order to recognise both
    debt and equity components;                                               
|
| |  | recognition on the balance sheet at fair value of all qualifying
    derivatives;                                                             
|
| |  | deferral of fair value mark to market gains and losses within
    hedging reserves for qualifying cash flow hedges.                           





| |                                           
| | ------------------------------------------
| | Critical Accounting Policies and Estimates



24



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|                                                                                       |  |                                                                                                                                                                                                                       
|-------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Income recognition                                                                     |  |  correct revenue recognition policy based on the
    contractual arrangements in place and the allocation of the
    risks and rewards of ownership of the plant                                                     
|                                                                                      
|                                                                                       |  |  appropriate accounting treatment of receipts from
    contractors                                                                                                                                                   
|                                                                                      
|Recoverable amount of property, plant and equipment                                    |  |  indications of impairment and the measurement of
    fair value using projected cash flows, together with risk
    adjusted discount rates, or other more appropriate methods of
    valuation                      
|                                                                                      
|Fair values on acquisition                                                             |  |  useful economic life and residual value of certain
    assets                                                                                                                                                       
|                                                                                      
|                                                                                       |  |  fair values of assets and liabilities acquired and
    hence how much of the purchase price is attributed to goodwill
    arising on acquisition of a business                                                      
|                                                                                      
|Consolidation policy  amount of influence                                             |  |  extent of influence the Group is in a position to
    exercise over the operations, strategic direction and financial
    policies of entities in which it holds an equity stake                                    
|                                                                                      
|Items of income and expense that require separate
    disclosure  exceptional items |  |  items of income or expense, which are material by
    virtue of their nature and amount, which require separate
    disclosure. The Directors consider these items most
    appropriately disclosed as exceptional
|                                                                                      
|Taxation                                                                               |  |  appropriate provisions for taxation taking into
    account anticipated decisions of tax authorities                                                                                                                
|                                                                                      
|                                                                                       |  |  assessment of the ability to utilise tax benefits
    through future earnings                                                                                                                                       

Income recognition




25



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Recoverable amount of property, plant and equipment






| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interest on borrowings relating to major capital projects with
    long periods of development is capitalised during construction
    and then amortised over the useful life of the asset.          
|
| |  | Project development costs (including appropriate direct internal
    costs) are capitalised when it is virtually certain that the
    project will proceed to completion and income will be realised.





| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Gas turbines and related equipment are depreciated 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.
|
| |  | Coal and hydro plant is considered on an individual basis.                                                                                                                                                                       



Fair values on acquisition




Consolidation policy  amount of influence




26



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Exceptional items






Taxation






Factors Affecting Results of Operations


Cyclical Nature of Electricity Industry




Seasonality




Effect of Market Prices




International Operations




27



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| |                    
| | -------------------
| | Recent Developments











28



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##### Table of Contents





| |                      
| | ---------------------
| | Results of operations



|                                                          |                                     |                        |           |            |                  |  |        |       |  |  |       |      | 
|--------------------------------------------------------- | ----------------------------------- | ---------------------- | --------- | ---------- | ---------------- |  | ------ | ----- |  |  | ----- | ---- | 
|                                                          |                                     | Year Ended 31 December |          
|                                                          |                                     |                        |          
|                                                          |                                     | 2005(1)                |           |            | 2005             |  |        | 2004  | 
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|                                                          |                                     | ($ in                  |           |            |                 
|                                                          |                                     | millions,              |           |            | (£ in millions,  | 
|                                                          |                                     | except per             |           |            | except per share | 
|                                                          |                                     | share data)            |           |            | data)            | 
|Adopted IFRS  Group                                      |                                     |                        |           |            |                  |  |        |       |  |  |       |     
|Revenue: Group and share of joint ventures and associates |                                     |                        | 5,046     |            |                  |  | 2,936  |       |  |  | 1,267 |     
|Less: share of joint ventures revenue                    |                                     |                        | (531      | )          |                  |  | (309   | )     |  |  | (144  | )   
|Less: share of associates revenue                        |                                     |                        | (1,193    | )          |                  |  | (694   | )     |  |  | (355  | )   
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Group revenue                                             |                                     |                        | 3,322     |            |                  |  | 1,933  |       |  |  | 768   |     
|Cost of sales  ordinary                                  |                                     |                        | (2,690    | )          |                  |  | (1,565 | )     |  |  | (637  | )   
|Cost of sales  exceptional                               |                                     |                        | 89        |            |                  |  | 52     |       |  |  |      |     
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Cost of sales                                             |                                     |                        | (2,601    | )          |                  |  | (1,513 | )     |  |  | (637  | )   
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|                                                          | Excluding exceptional items         |                        |           | 632        |                  |  |        | 368   |  |  |       | 131  | 
|                                                          | Exceptional items                   |                        |           | 89         |                  |  |        | 52    |  |  |       |     | 
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Gross profit                                              |                                     |                        | 721       |            |                  |  | 420    |       |  |  | 131   |     
|Other operating income  ordinary                         |                                     |                        | 110       |            |                  |  | 64     |       |  |  | 56    |     
|Other operating income  exceptional                      |                                     |                        | 100       |            |                  |  | 58     |       |  |  |      |     
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Other operating income                                    |                                     |                        | 210       |            |                  |  | 122    |       |  |  | 56    |     
|Other operating expenses  ordinary                       |                                     |                        | (221      | )          |                  |  | (129   | )     |  |  | (78   | )   
|Other operating expenses  exceptional                    |                                     |                        |          |            |                  |  |       |       |  |  | 11    |     
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Other operating expenses                                  |                                     |                        | (221      | )          |                  |  | (129   | )     |  |  | (67   | )   
|Share of results of joint ventures and associates         |                                     |                        | 340       |            |                  |  | 198    |       |  |  | 113   |     
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|                                                          | Excluding exceptional items         |                        |           | 861        |                  |  |        | 501   |  |  |       | 222  | 
|                                                          | Exceptional items                   |                        |           | 189        |                  |  |        | 110   |  |  |       | 11   | 
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Profit from operations                                    |                                     |                        | 1,050     |            |                  |  | 611    |       |  |  | 233   |     
|Disposal of investments  exceptional                     |                                     |                        | 17        |            |                  |  | 10     |       |  |  | 4     |     
|Finance income                                            |                                     |                        | 91        |            |                  |  | 53     |       |  |  | 30    |     
|Finance expenses  ordinary                               |                                     |                        | (438      | )          |                  |  | (255   | )     |  |  | (107  | )   
|Finance expenses  exceptional                            |                                     |                        |          |            |                  |  |       |       |  |  | (31   | )   
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Finance expenses                                          |                                     |                        | (438      | )          |                  |  | (255   | )     |  |  | (138  | )   
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Profit before tax                                         |                                     |                        | 720       |            |                  |  | 419    |       |  |  | 129   |     
|Income tax expense  ordinary                             |                                     |                        | (95       | )          |                  |  | (55    | )     |  |  | (25   | )   
|Income tax expense  exceptional                          |                                     |                        | (58       | )          |                  |  | (34    | )     |  |  |      |     
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Income tax expense                                        |                                     |                        | (153      | )          |                  |  | (89    | )     |  |  | (25   | )   
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Profit for the year                                       |                                     |                        | 567       |            |                  |  | 330    |       |  |  | 104   |     
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Attributable to:                                          |                                     |                        |           |            |                  |  |        |       |  |  |       |     
|Minority interests  ordinary                             |                                     |                        | 77        |            |                  |  | 45     |       |  |  | 8     |     
|Minority interests  exceptional                          |                                     |                        |          |            |                  |  |       |       |  |  | (2    | )   
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Minority interests                                        |                                     |                        | 77        |            |                  |  | 45     |       |  |  | 6     |     
|Equity holders of the parent  ordinary                   |                                     |                        | 342       |            |                  |  | 199    |       |  |  | 112   |     
|Equity holders of the parent  exceptional                |                                     |                        | 148       |            |                  |  | 86     |       |  |  | (14   | )   
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Equity holders of the parent                              |                                     |                        | 490       |            |                  |  | 285    |       |  |  | 98    |     
|                                                          |                                     |                        |           |            |                  |  |        |       | 
|Earnings per share:                                       |                                     |                        |           |            |                  |  |        |       |  |  |       |     
|                                                          | Basic excluding exceptional items   |                        |           | 23.2 cents |                  |  |        | 13.5p |  |  |       | 8.6p | 
|                                                          | Basic including exceptional items   |                        |           | 33.3 cents |                  |  |        | 19.4p |  |  |       | 7.5p | 
|                                                          | Diluted excluding exceptional items |                        |           | 22.3 cents |                  |  |        | 13.0p |  |  |       | 8.5p | 
|                                                          | Diluted including exceptional items |                        |           | 31.8 cents |                  |  |        | 18.5p |  |  |       | 7.4p | 
|Dividends per share:                                      |                                     |                        | 4.3 cents |            |                  |  | 2.5p   |       |  |  |      |     



29



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| |                                
| | -------------------------------
| | Segment Comparative Performance



|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  |       |   |  |  |       |  
|--------------------------------------------------------------- |  | --------------- | ----- | -------------- | -------------- | -------- | --- | ----------- |  |  | ----- |  |  | ---- | --- |  | ---- |  | ----- | - |  |  | ----- | -
|                                                                |  |                 |       |                |                | Share of |     |             |  |  |      
|                                                                |  |                 |       | Joint Ventures |                |          |    
|                                                                |  | Subsidiaries    |       |                | and Associates |          |     | Total       | 
|                                                                |  |                 |       |                |                |          |     |             | 
|                                                                |  | Year Ended      |       |                | Year Ended     |          |     | Year Ended  | 
|                                                                |  | 31 December     |       |                | 31 December    |          |     | 31 December | 
|                                                                |  |                 |       |                |                |          |     |             | 
|                                                                |  | 2005            |       |                | 2004           |          |     | 2005        |  |  | 2004  |  |  | 2005 |     |  | 2004 | 
|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      | 
|                                                                |  | (£ in millions) |      
|Revenue                                                         |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  |       |   |  |  |       |  
|North America                                                   |  |                 | 523   |                |                |          | 188 |             |  |  | 171   |  |  |      | 72  |  |      |  | 694   |   |  |  | 260   |  
|Europe                                                          |  |                 | 990   |                |                |          | 308 |             |  |  | 397   |  |  |      | 212 |  |      |  | 1,387 |   |  |  | 520   |  
|Middle East                                                     |  |                 | 24    |                |                |          | 24  |             |  |  | 43    |  |  |      | 30  |  |      |  | 67    |   |  |  | 54    |  
|Australia                                                       |  |                 | 369   |                |                |          | 223 |             |  |  | 51    |  |  |      | 8   |  |      |  | 420   |   |  |  | 231   |  
|Asia                                                            |  |                 | 27    |                |                |          | 25  |             |  |  | 341   |  |  |      | 177 |  |      |  | 368   |   |  |  | 202   |  
|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      | 
|                                                                |  |                 | 1,933 |                |                |          | 768 |             |  |  | 1,003 |  |  |      | 499 |  |      |  | 2,936 |   |  |  | 1,267 |  
|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      | 
|Profit/(loss) from operations (excluding exceptional
    items) |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  |       |   |  |  |       |  
|North America                                                   |  |                 | 20    |                |                |          | (29 | )           |  |  | 29    |  |  |      | 8   |  |      |  | 49    |   |  |  | (21   | )
|Europe                                                          |  |                 | 205   |                |                |          | 52  |             |  |  | 55    |  |  |      | 45  |  |      |  | 260   |   |  |  | 97    |  
|Middle East                                                     |  |                 | 12    |                |                |          | 13  |             |  |  | 12    |  |  |      | 7   |  |      |  | 24    |   |  |  | 20    |  
|Australia                                                       |  |                 | 119   |                |                |          | 96  |             |  |  | 6     |  |  |      | 2   |  |      |  | 125   |   |  |  | 98    |  
|Asia                                                            |  |                 | 6     |                |                |          | 9   |             |  |  | 96    |  |  |      | 51  |  |      |  | 102   |   |  |  | 60    |  
|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      | 
|Segmental profit from operations                                |  |                 | 362   |                |                |          | 141 |             |  |  | 198   |  |  |      | 113 |  |      |  | 560   |   |  |  | 254   |  
|Corporate costs                                                 |  |                 | (59   | )              |                |          | (32 | )           |  |  |      |  |  |      |    |  |      |  | (59   | ) |  |  | (32   | )
|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      | 
|Profit from operations (excluding exceptional items)            |  |                 | 303   |                |                |          | 109 |             |  |  | 198   |  |  |      | 113 |  |      |  | 501   |   |  |  | 222   |  
|Operating exceptional items                                     |  |                 | 110   |                |                |          | 11  |             |  |  |      |  |  |      |    |  |      |  | 110   |   |  |  | 11    |  
|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      | 
|Profit from operations (including operating exceptional items)  |  |                 | 413   |                |                |          | 120 |             |  |  | 198   |  |  |      | 113 |  |      |  | 611   |   |  |  | 233   |  
|Disposal of investments  exceptional                           |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  | 10    |   |  |  | 4     |  
|Financing costs  ordinary                                      |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  | (202  | ) |  |  | (77   | )
|Financing costs  exceptional                                   |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  |      |   |  |  | (31   | )
|Income tax expense  ordinary                                   |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  | (55   | ) |  |  | (25   | )
|Income tax expense  exceptional                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  | (34   | ) |  |  |      |  
|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      | 
|Profit for the financial year                                   |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      |  | 330   |   |  |  | 104   |  
|                                                                |  |                 |       |                |                |          |     |             |  |  |       |  |  |      |     |  |      | 

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|                                                      |  |                 |     |  |             |  |    | 
|----------------------------------------------------- |  | --------------- | --- |  | ----------- |  | -- | 
|                                                      |  | Year Ended      |     |  | Year Ended  | 
|                                                      |  | 31 December     |     |  | 31 December | 
|                                                      |  | 2005            |     |  | 2004        | 
|                                                      |  |                 |     |  |             | 
|                                                      |  | (£ in millions) |    
|Exceptional items included in profit from operations  |  |                 |     |  |             |  |    | 
|Europe                                                |  |                 | 110 |  |             |  | 11 | 
|                                                      |  |                 |     |  |             | 
|Exceptional items included in profit from operations  |  |                 | 110 |  |             |  | 11 | 
|                                                      |  |                 |     |  |             | 
|Exceptional items included in disposal of investments |  |                 |     |  |             |  |    | 
|Corporate                                             |  |                 | 3   |  |             |  |   | 
|Asia                                                  |  |                 | 7   |  |             |  | 4  | 
|                                                      |  |                 |     |  |             | 
|Exceptional items included in disposal of investments |  |                 | 10  |  |             |  | 4  | 
|                                                      |  |                 |     |  |             | 





| |                    
| | -------------------
| | Trading Performance



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Year ended 31 December 2005 is compared with the year
    ended 31 December 2004



| |              
| | -------------
| | NORTH AMERICA

|                                                      |  |                 |     |  |             |  |     |  
|----------------------------------------------------- |  | --------------- | --- |  | ----------- |  | --- | -
|                                                      |  | Year Ended      |     |  | Year Ended  | 
|                                                      |  | 31 December     |     |  | 31 December | 
|                                                      |  | 2005            |     |  | 2004        | 
|                                                      |  |                 |     |  |             | 
|                                                      |  | (£ in millions) |    
|Revenue                                               |  |                 | 694 |  |             |  | 260 |  
|                                                      |  |                 |     |  |             | 
|Profit/(loss) from operations (pre-exceptional items) |  |                 | 49  |  |             |  | (21 | )
|Exceptional items                                     |  |                 |    |  |             |  |    |  
|                                                      |  |                 |     |  |             | 
|Profit/(loss) from operations                         |  |                 | 49  |  |             |  | (21 | )
|                                                      |  |                 |     |  |             | 









31



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##### Table of Contents













| |       
| | ------
| | EUROPE

|                                               |  |                 |       |  |             |  |     | 
|---------------------------------------------- |  | --------------- | ----- |  | ----------- |  | --- | 
|                                               |  | Year Ended      |       |  | Year Ended  | 
|                                               |  | 31 December     |       |  | 31 December | 
|                                               |  | 2005            |       |  | 2004        | 
|                                               |  |                 |       |  |             | 
|                                               |  | (£ in millions) |      
|Revenue                                        |  |                 | 1,387 |  |             |  | 520 | 
|                                               |  |                 |       |  |             | 
|Profit from operations (pre-exceptional items) |  |                 | 260   |  |             |  | 97  | 
|Exceptional items                              |  |                 | 110   |  |             |  | 11  | 
|                                               |  |                 |       |  |             | 
|Profit from operations                         |  |                 | 370   |  |             |  | 108 | 
|                                               |  |                 |       |  |             | 











32



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2












| |            
| | -----------
| | MIDDLE EAST

|                                               |  |                 |    |  |             |  |    | 
|---------------------------------------------- |  | --------------- | -- |  | ----------- |  | -- | 
|                                               |  | Year Ended      |    |  | Year Ended  | 
|                                               |  | 31 December     |    |  | 31 December | 
|                                               |  | 2005            |    |  | 2004        | 
|                                               |  |                 |    |  |             | 
|                                               |  | (£ in millions) |   
|Revenue                                        |  |                 | 67 |  |             |  | 54 | 
|                                               |  |                 |    |  |             | 
|Profit from operations (pre-exceptional items) |  |                 | 24 |  |             |  | 20 | 
|Exceptional items                              |  |                 |   |  |             |  |   | 
|                                               |  |                 |    |  |             | 
|Profit from operations                         |  |                 | 24 |  |             |  | 20 | 
|                                               |  |                 |    |  |             | 



33



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25-year






| |          
| | ---------
| | AUSTRALIA

|                                               |  |                 |     |  |             |  |     | 
|---------------------------------------------- |  | --------------- | --- |  | ----------- |  | --- | 
|                                               |  | Year Ended      |     |  | Year Ended  | 
|                                               |  | 31 December     |     |  | 31 December | 
|                                               |  | 2005            |     |  | 2004        | 
|                                               |  |                 |     |  |             | 
|                                               |  | (£ in millions) |    
|Revenue                                        |  |                 | 420 |  |             |  | 231 | 
|                                               |  |                 |     |  |             | 
|Profit from operations (pre-exceptional items) |  |                 | 125 |  |             |  | 98  | 
|Exceptional items                              |  |                 |    |  |             |  |    | 
|                                               |  |                 |     |  |             | 
|Profit from operations                         |  |                 | 125 |  |             |  | 98  | 
|                                               |  |                 |     |  |             | 







34



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##### Table of Contents









2






| |     
| | ----
| | ASIA

|                                               |  |                 |     |  |             |  |     | 
|---------------------------------------------- |  | --------------- | --- |  | ----------- |  | --- | 
|                                               |  | Year Ended      |     |  | Year Ended  | 
|                                               |  | 31 December     |     |  | 31 December | 
|                                               |  | 2005            |     |  | 2004        | 
|                                               |  |                 |     |  |             | 
|                                               |  | (£ in millions) |    
|Revenue                                        |  |                 | 368 |  |             |  | 202 | 
|                                               |  |                 |     |  |             | 
|Profit from operations (pre-exceptional items) |  |                 | 102 |  |             |  | 60  | 
|Exceptional items                              |  |                 |    |  |             |  |    | 
|                                               |  |                 |     |  |             | 
|Profit from operations                         |  |                 | 102 |  |             |  | 60  | 
|                                               |  |                 |     |  |             | 









35



---



##### Table of Contents







| |                  
| | -----------------
| | Exceptional Items





| |                            
| | ---------------------------
| | Year ended 31 December 2005





| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | £58 million compensation in respect of the tolling
    agreement with TXU;
|
| |  | £52 million on the impairment reversal of Rugeley
    plant;              
|
| |  | £4 million profit on disposal of Tri Energy;                              
|
| |  | £3 million profit on sale of land in Thailand; and                        
|
| |  | £3 million profit on sale of shares in Interconnector
    UK.             





| |                            
| | ---------------------------
| | Year ended 31 December 2004





| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | £11 million release of a provision relating to a
    guarantee following the sale of an investment in Elcogas;                                       
|
| |  | £4 million profit on the disposal of a further 4%
    share in HUBCO;                                                                                
|
| |  | £15 million charge to finance costs from the cessation
    of the interest rates swaps as part of the restructuring of the
    ANP debt facility; and
|
| |  | £16 million charge to finance costs associated with
    debt raising and debt restructuring.                                                         





| |            
| | -----------
| | Other Costs

Corporate costs






36



---



##### Table of Contents



Additional segmental information




|                                                                                                                                                      |  |                             |     |                |                             |  |     |       |  |  |                |   |  |            |     |   |       |  |     |  |  |  |     |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | --- | -------------- | --------------------------- |  | --- | ----- |  |  | -------------- | - |  | ---------- | --- | - | ----- |  | --- |  |  |  | --- | -
|                                                                                                                                                      |  | Year Ended 31 December 2005 |     |                | Year Ended 31 December 2004 | 
|                                                                                                                                                      |  |                             |     |                |                             | 
|                                                                                                                                                      |  |                             |     | Share of Joint |                             |  |     |       |  |  | Share of Joint |   |  |           
|                                                                                                                                                      |  |                             |     | Ventures and   |                             |  |     |       |  |  | Ventures and   |   |  |           
|                                                                                                                                                      |  | Subsidiaries                |     |                | Associates                  |  |     | Total |  |  | Subsidiaries   |   |  | Associates |     |   | Total | 
|                                                                                                                                                      |  |                             |     |                |                             |  |     |       |  |  |                |   |  |            |     |   |       | 
|                                                                                                                                                      |  | £ (in millions)             |    
|Profit from operations (including results from JVs and
    associates before interest, tax and minority interest and
    excluding exceptional items) |  |                             |     |                |                             |  |     |       |  |  |                |   |  |            |     |   |       |  |     |  |  |  |     |  
|North America                                                                                                                                         |  |                             | 20  |                |                             |  | 43  |       |  |  | 63             |   |  |            | (29 | ) |       |  | 16  |  |  |  | (13 | )
|Europe                                                                                                                                                |  |                             | 205 |                |                             |  | 96  |       |  |  | 301            |   |  |            | 52  |   |       |  | 61  |  |  |  | 113 |  
|Middle East                                                                                                                                           |  |                             | 12  |                |                             |  | 27  |       |  |  | 39             |   |  |            | 13  |   |       |  | 16  |  |  |  | 29  |  
|Australia                                                                                                                                             |  |                             | 119 |                |                             |  | 10  |       |  |  | 129            |   |  |            | 96  |   |       |  | 6   |  |  |  | 102 |  
|Asia                                                                                                                                                  |  |                             | 6   |                |                             |  | 169 |       |  |  | 175            |   |  |            | 9   |   |       |  | 80  |  |  |  | 89  |  
|                                                                                                                                                      |  |                             |     |                |                             |  |     |       |  |  |                |   |  |            |     |   |       | 
|                                                                                                                                                      |  |                             | 362 |                |                             |  | 345 |       |  |  | 707            |   |  |            | 141 |   |       |  | 179 |  |  |  | 320 |  
|Corporate costs                                                                                                                                       |  |                             | (59 | )              |                             |  |    |       |  |  | (59            | ) |  |            | (32 | ) |       |  |    |  |  |  | (32 | )
|                                                                                                                                                      |  |                             |     |                |                             |  |     |       |  |  |                |   |  |            |     |   |       | 
|                                                                                                                                                      |  |                             | 303 |                |                             |  | 345 |       |  |  | 648            |   |  |            | 109 |   |       |  | 179 |  |  |  | 288 |  
|                                                                                                                                                      |  |                             |     |                |                             |  |     |       |  |  |                |   |  |            |     |   |       | 

Reconciliation of segment result between IFRS and alternative
presentational format




|                                                                                                                  |  |                 |     |  |             |  |     | 
|----------------------------------------------------------------------------------------------------------------- |  | --------------- | --- |  | ----------- |  | --- | 
|                                                                                                                  |  | Year Ended      |     |  | Year Ended  | 
|                                                                                                                  |  | 31 December     |     |  | 31 December | 
|                                                                                                                  |  | 2005            |     |  | 2004        | 
|                                                                                                                  |  |                 |     |  |             | 
|                                                                                                                  |  | £ (in millions) |    
|Profit from operations (excluding exceptional items)                                                              |  |                 | 501 |  |             |  | 222 | 
|Add back:                                                                                                         |  |                 |     |  |             |  |     | 
|Share of JVs and associates interest                                                                            |  |                 | 90  |  |             |  | 46  | 
|Share of JVs and associates taxation                                                                            |  |                 | 56  |  |             |  | 17  | 
|Share of JVs and associates minority interest                                                                   |  |                 | 1   |  |             |  | 3   | 
|                                                                                                                  |  |                 |     |  |             | 
|Profit from operations (including results from JVs and
    associates before interest, tax and minority interest) |  |                 | 648 |  |             |  | 288 | 
|                                                                                                                  |  |                 |     |  |             | 

37



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##### Table of Contents



Effective tax rate and interest cover ratio (pre-exceptional
items)




|                                                                            |  |                 |      |   |             |  |      |  
|--------------------------------------------------------------------------- |  | --------------- | ---- | - | ----------- |  | ---- | -
|                                                                            |  | Year Ended      |      |   | Year Ended  | 
|                                                                            |  | 31 December     |      |   | 31 December | 
|                                                                            |  | 2005            |      |   | 2004        | 
|                                                                            |  |                 |      |   |             | 
|                                                                            |  | £ (in millions) |     
|Profit from operations (excluding exceptional items)                        |  |                 | 501  |   |             |  | 222  |  
|Add back:                                                                   |  |                 |      |   |             |  |      |  
|Share of JVs and associates interest                                      |  |                 | 90   |   |             |  | 46   |  
|Share of JVs and associates taxation                                      |  |                 | 56   |   |             |  | 17   |  
|Share of JVs and associates minority interest                             |  |                 | 1    |   |             |  | 3    |  
|                                                                            |  |                 |      |   |             | 
|Profit before total interest and tax expense                                |  |                 | 648  |   |             |  | 288  |  
|Total net interest expense (including share of JVs and
    associates)      |  |                 | (292 | ) |             |  | (123 | )
|                                                                            |  |                 |      |   |             | 
|Profit before total tax expense                                             |  |                 | 356  |   |             |  | 165  |  
|Total income tax expense (including share of JVs and associates)            |  |                 | (111 | ) |             |  | (42  | )
|                                                                            |  |                 |      |   |             | 
|Profit after tax                                                            |  |                 | 245  |   |             |  | 123  |  
|Total minority interest (including share of JVs and associates)             |  |                 | (46  | ) |             |  | (11  | )
|                                                                            |  |                 |      |   |             | 
|Profit attributable to the equity holders (excluding
    exceptional items) |  |                 | 199  |   |             |  | 112  |  
|                                                                            |  |                 |      |   |             | 
|Effective tax rate                                                          |  |                 | 31   | % |             |  | 25   | %
|Interest cover ratio                                                        |  |                 | 2.2  | x |             |  | 2.3  | x

Net interest








38



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##### Table of Contents



Taxation




Liquidity




|                                                                               |  |              |        |   |      |  |        |  
|------------------------------------------------------------------------------ |  | ------------ | ------ | - | ---- |  | ------ | -
|                                                                               |  | Year Ended   |       
|                                                                               |  | 31 December  |       
|                                                                               |  |              |       
|                                                                               |  | 2005         |        |   | 2004 | 
|                                                                               |  |              |        |   |      | 
|                                                                               |  | (£ millions) |       
|Profit for the year (post exceptionals)                                        |  |              | 330    |   |      |  | 104    |  
|Adjustment for non-cash items (see note below)(1)                              |  |              | 180    |   |      |  | 91     |  
|Dividends received from joint ventures and associates                          |  |              | 92     |   |      |  | 69     |  
|Movements in working capital                                                   |  |              | (21    | ) |      |  | 3      |  
|Capital expenditure  maintenance                                              |  |              | (72    | ) |      |  | (59    | )
|Other cash movements                                                           |  |              | 3      |   |      |  |       |  
|Tax and interest paid                                                          |  |              | (227   | ) |      |  | (104   | )
|                                                                               |  |              |        |   |      | 
|Free cash flow                                                                 |  |              | 285    |   |      |  | 104    |  
|Finance costs  exceptional                                                    |  |              | (5     | ) |      |  | (26    | )
|Refinancing costs capitalised on acquisition debt                              |  |              | (7     | ) |      |  | (22    | )
|Capital expenditure for growth projects                                        |  |              | (188   | ) |      |  | (158   | )
|Returns from investments/capital expenditure  other
    financial investments |  |              | 48     |   |      |  | (61    | )
|Acquisitions                                                                   |  |              | (571   | ) |      |  | (1,195 | )
|Disposals                                                                      |  |              | 211    |   |      |  | 17     |  
|Receipt from TXU administrators  exceptional                                  |  |              | 58     |   |      |  |       |  
|Dividends paid                                                                 |  |              | (37    | ) |      |  |       |  
|Proceeds from share/rights issue                                               |  |              | 2      |   |      |  | 286    |  
|Funding from minorities                                                        |  |              | 80     |   |      |  | 165    |  
|Foreign exchange and other                                                     |  |              | (181   | ) |      |  | 62     |  
|                                                                               |  |              |        |   |      | 
|Increase in net debt                                                           |  |              | (305   | ) |      |  | (828   | )
|Opening net debt                                                               |  |              | (2,745 | ) |      |  | (692   | )
|Transitional adjustment on first time adoption of IAS 39                       |  |              | 44     |   |      |  |       |  
|Net cash/(debt) on acquisition of subsidiaries                                 |  |              | 27     |   |      |  | (1,225 | )
|                                                                               |  |              |        |   |      | 
|Closing net debt                                                               |  |              | (2,979 | ) |      |  | (2,745 | )
|                                                                               |  |              |        |   |      | 






|    |                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Non-cash items include income statement charges for interest,
    tax, depreciation, the share of profit of joint ventures and
    associates, the exceptional profit on the TXU settlement and the
    reversal of Rugeley impairment.



39



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##### Table of Contents













Capital Resources






|                                        |  |              |        |   |      |  |        |  
|--------------------------------------- |  | ------------ | ------ | - | ---- |  | ------ | -
|                                        |  | 2005         |        |   | 2004 | 
|                                        |  |              |        |   |      | 
|                                        |  | (£ millions) |       
|Cash and cash equivalents               |  |              | 620    |   |      |  | 565    |  
|Assets held for trading                 |  |              | 52     |   |      |  | 47     |  
|Convertible bonds                       |  |              | (125   | ) |      |  | (158   | )
|Other bonds                             |  |              | (445   | ) |      |  | (449   | )
|Secured bank loans and preferred equity |  |              | (3,081 | ) |      |  | (2,750 | )
|                                        |  |              |        |   |      | 
|Net debt                                |  |              | (2,979 | ) |      |  | (2,745 | )
|                                        |  |              |        |   |      | 



| |                            
| | ---------------------------
| | Year ended 31 December 2005







40



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##### Table of Contents





| |                            
| | ---------------------------
| | Year ended 31 December 2004

year-on




| |                             
| | ----------------------------
| | Secured non-recourse finance









| |                         
| | ------------------------
| | Corporate and Group debt





41



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##### Table of Contents



Commitments and contingent liabilities




|                                                      |  |                        |       |           |        |  |     |       |  |     |       |  |           |         |     |  |  |  |       | 
|----------------------------------------------------- |  | ---------------------- | ----- | --------- | ------ |  | --- | ----- |  | --- | ----- |  | --------- | ------- | --- |  |  |  | ----- | 
|                                                      |  | Payments Due by Period |      
|                                                      |  |                        |      
|                                                      |  |                        |       | Less Than |        |  | 1-3 |       |  | 3-5 |       |  | More Than |        
|Contractual Obligations                               |  | Total                  |       |           | 1 Year |  |     | Years |  |     | Years |  |           | 5 Years |    
|                                                      |  |                        |       |           |        |  |     |       |  |     |       |  |           |         |    
|                                                      |  | (£ in millions)        |      
|Short-term debt                                       |  |                        | 187   |           |        |  | 187 |       |  |     |      |  |           |         |    |  |  |  |      | 
|Long-term debt                                        |  |                        | 3,291 |           |        |  |    |       |  |     | 320   |  |           |         | 783 |  |  |  | 2,188 | 
|Preferred equity facility                             |  |                        | 173   |           |        |  |    |       |  |     | 173   |  |           |         |    |  |  |  |      | 
|Property leases                                       |  |                        | 54    |           |        |  | 6   |       |  |     | 6     |  |           |         | 15  |  |  |  | 27    | 
|Capital commitments                                   |  |                        | 82    |           |        |  | 61  |       |  |     | 15    |  |           |         | 2   |  |  |  | 4     | 
|Commitments for the supply and transportation of fuel |  |                        | 604   |           |        |  | 96  |       |  |     | 85    |  |           |         | 97  |  |  |  | 326   | 
|                                                      |  |                        |       |           |        |  |     |       |  |     |       |  |           |         |    
|Total contractual obligations                         |  |                        | 4,391 |           |        |  | 350 |       |  |     | 599   |  |           |         | 897 |  |  |  | 2,545 | 
|                                                      |  |                        |       |           |        |  |     |       |  |     |       |  |           |         |    



Currency translation exposure






Currency transaction exposure




Interest rate risk




42



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##### Table of Contents



Off Balance Sheet Arrangements









|        |                                           
|------- | ------------------------------------------
|Item 6. | Directors, Senior Management and Employees

Board of Directors and Executive Officers




|                                 |  |     |    |  |               |                                               
|-------------------------------- |  | --- | -- |  | ------------- | ----------------------------------------------
|Directors and Executive Officers |  | Age |    |  | Position Held
|                                 |  |     |    |  |              
|Sir Neville Simms                |  |     | 61 |  |               | Chairman                                      
|Philip Cox                       |  |     | 54 |  |               | Chief Executive Officer and Director          
|Mark Williamson                  |  |     | 48 |  |               | Chief Financial Officer and Director          
|Bruce Levy                       |  |     | 50 |  |               | Executive Director, North America and Director
|Stephen (Steve) Riley            |  |     | 44 |  |               | Executive Director, Europe and Director       
|Anthony (Tony) Concannon         |  |     | 42 |  |               | Executive Director, Australia and Director    
|Adri Baan                        |  |     | 63 |  |               | Non-Executive Director                        
|Anthony (Tony) Isaac             |  |     | 64 |  |               | Non-Executive Director                        
|Struan Robertson                 |  |     | 56 |  |               | Non-Executive Director                        
|John Roberts                     |  |     | 60 |  |               | Non-Executive Director                        
|Stephen Ramsay                   |  |     | 44 |  |               | Company Secretary and General Counsel         

Sir Neville Simms


Philip Cox


Mark Williamson


Bruce Levy


Stephen (Steve) Riley


43



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##### Table of Contents



Anthony (Tony) Concannon


Adri Baan


Anthony (Tony) Isaac


Struan Robertson 25-year


John Roberts


Stephen Ramsay




Management of the Group






|                  |  |     |    |  |               |                               
|----------------- |  | --- | -- |  | ------------- | ------------------------------
|Senior Management |  | Age |    |  | Position Held
|                  |  |     |    |  |              
|Ranald Spiers     |  |     | 51 |  |               | Regional Director, Middle East
|Peter Barlow      |  |     | 52 |  |               | Head of Corporate Finance     
|Vince Harris      |  |     | 55 |  |               | Regional Director, Asia       
|Gareth Griffiths  |  |     | 35 |  |               | Head of Global Trading        
|Penny Chalmers    |  |     | 40 |  |               | Head of Corporate Services    
|Sean Neely        |  |     | 41 |  |               | Head of Mergers & Acquisitions
|Ken Oakley        |  |     | 43 |  |               | Group Tax Manager             

Ranald Spiers


44



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##### Table of Contents



Peter Barlow


Vince Harris


Gareth Griffiths


Penny Chalmers


Sean Neely


Ken Oakley




Corporate Governance








45



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##### Table of Contents





|                  |  |              |   |  |                     |              |     |                 |              |  |                |  |  |  |     | 
|----------------- |  | ------------ | - |  | ------------------- | ------------ | --- | --------------- | ------------ |  | -------------- |  |  |  | --- | 
|                  |  |              |   |  |                     | Remuneration |     |                 | Appointments | 
|                  |  | Board (Seven |   |  | Audit Committee     |              |     | Committee (Four |              |  | Committee (One | 
|                  |  | Meetings)    |   |  | (Eight Meetings)(1) |              |     | Meetings)       |              |  | Meeting)       | 
|                  |  |              |   |  |                     |              |     |                 |              |  |                | 
|Sir Neville Simms |  |              | 7 |  |                     |              | 6   |                 |              |  | 4              |  |  |  | 1   | 
|Philip Cox        |  |              | 7 |  |                     |              | N/A |                 |              |  | N/A            |  |  |  | N/A | 
|Adri Baan         |  |              | 7 |  |                     |              | 5   |                 |              |  | 4              |  |  |  | 1   | 
|Tony Concannon    |  |              | 7 |  |                     |              | N/A |                 |              |  | N/A            |  |  |  | N/A | 
|Tony Isaac        |  |              | 7 |  |                     |              | 8   |                 |              |  | 4              |  |  |  | 1   | 
|Bruce
    Levy(2) |  |              | 4 |  |                     |              | N/A |                 |              |  | N/A            |  |  |  | N/A | 
|Steve Riley       |  |              | 7 |  |                     |              | N/A |                 |              |  | N/A            |  |  |  | N/A | 
|Struan Robertson  |  |              | 7 |  |                     |              | 7   |                 |              |  | 4              |  |  |  | 1   | 
|Jack Taylor       |  |              | 7 |  |                     |              | 8   |                 |              |  | 4              |  |  |  | 1   | 
|Mark Williamson   |  |              | 7 |  |                     |              | N/A |                 |              |  | N/A            |  |  |  | N/A | 






|    |                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Audit Committee held three main meetings relating to the
    preliminary statement, the interim statement and audit planning.
    All members of the Committee attended these meetings. The
    remainder of the meetings related to quarterly results and
    U.S. reporting issues.
|   
|(2) | Bruce Levy joined the Board of Directors on 1 June 2005 and
    attended all Board meetings held since his appointment.                                                                                                                                                                  





| |                 
| | ----------------
| | Board Membership







| |               
| | --------------
| | Board Training



46



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##### Table of Contents







| |          
| | ---------
| | Insurance





| |                       
| | ----------------------
| | Operation of the Board









| |                                     
| | ------------------------------------
| | Chairman and Chief Executive Officer







| |                                           
| | ------------------------------------------
| | Non-Executive Directors and their Function



47



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##### Table of Contents







| |                 
| | ----------------
| | Board Committees





| |                
| | ---------------
| | Audit Committee









| |                       
| | ----------------------
| | Remuneration Committee







| |                       
| | ----------------------
| | Appointments Committee





| |                            
| | ---------------------------
| | Relations with Shareholders





48



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##### Table of Contents







| |                         
| | ------------------------
| | Accountability and Audit









| |                 
| | ----------------
| | Internal Control









| |                    
| | -------------------
| | Control Environment





| |                   
| | ------------------
| | Control Procedures



49



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##### Table of Contents







| |                                      
| | -------------------------------------
| | Performance reporting and information

Corporate plan:


Performance monitoring:


Performance review:


Investment projects:


Corporate reporting:




| |                                   
| | ----------------------------------
| | Risk identification and management









| |                             
| | ----------------------------
| | Energy marketing and trading





50



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##### Table of Contents









| |           
| | ----------
| | Monitoring









| |                                  
| | ---------------------------------
| | Compliance with the Combined Code











| |                                   
| | ----------------------------------
| | US corporate governance compliance



51



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##### Table of Contents





Directors and Executive Officers Interests




|                                   |  |                     |         | 
|---------------------------------- |  | ------------------- | ------- | 
|                                   |  | International Power |        
|                                   |  | Ordinary Shares     |        
|Director                           |  | Number              |        
|                                   |  |                     |        
|Sir Neville Simms                  |  |                     | 178,220 | 
|Philip Cox                         |  |                     | 728,133 | 
|Mark Williamson                    |  |                     | 239,218 | 
|Bruce Levy                         |  |                     | 90,364  | 
|Steve Riley                        |  |                     | 205,161 | 
|Tony Concannon                     |  |                     | 163,394 | 
|Adri Baan                          |  |                     | 38,801  | 
|Tony Isaac                         |  |                     | 25,501  | 
|Struan Robertson                   |  |                     | 3,163   | 
|John Roberts                       |  |                     |        | 
|Stephen Ramsay (Executive Officer) |  |                     | 30,000  | 





52



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##### Table of Contents



Compensation of Directors and Officers




2005 Directors remuneration and interests




| |                                  
| | ---------------------------------
| | Directors aggregate remuneration



|                         |  |        |           |  |      |                 |         |      |                 |  |         |            |  |           |           |  |              |            |         |               |            |  |               |  |  |  |           |  |  |  |           | 
|------------------------ |  | ------ | --------- |  | ---- | --------------- | ------- | ---- | --------------- |  | ------- | ---------- |  | --------- | --------- |  | ------------ | ---------- | ------- | ------------- | ---------- |  | ------------- |  |  |  | --------- |  |  |  | --------- | 
|                         |  |        |           |  |      |                 |         |      |                 |  |         |            |  | Aggregate |           |  | Aggregate    |           
|                         |  |        |           |  |      | Performance     |         |      | Performance     |  |         | Payment in |  |           |           |  | Remuneration |            |         | Remuneration  |           
|                         |  |        |           |  |      | Related Bonus  |         |      | Related Bonus  |  |         | Lieu of    |  |           | Other     |  |              | Year to 31 |         |               | Year to 31 | 
|                         |  | Salary |           |  | Fees |                 |         | Cash |                 |  | Shares  |            |  | Pension   |           |  | Benefits     |            |         | December 2005 |            |  | December 2004 | 
|                         |  |        |           |  |      |                 |         |      |                 |  |         |            |  |           |           |  |              |            |         |               |            |  |               | 
|                         |  | £      |           |  | £    |                 |         | £    |                 |  | £       |            |  | £         |           |  | £            |            |         | £             |            |  | £             | 
|Sir Neville
    Simms(2) |  |        |          |  |      |                 | 210,000 |      |                 |  |        |            |  |           |          |  |              |            |        |               |            |  |              |  |  |  | 210,000   |  |  |  | 210,000   | 
|Philip
    Cox(3)        |  |        | 525,000   |  |      |                 |        |      |                 |  | 181,125 |            |  |           | 518,923   |  |              |            | 101,325 |               |            |  | 16,024        |  |  |  | 1,342,397 |  |  |  | 979,401   | 
|Mark
    Williamson(4)   |  |        | 310,000   |  |      |                 |        |      |                 |  | 106,950 |            |  |           | 306,412   |  |              |            | 64,480  |               |            |  | 13,331        |  |  |  | 801,173   |  |  |  | 526,859   | 
|Tony
    Concannon(5)    |  |        | 285,000   |  |      |                 |        |      |                 |  | 86,925  |            |  |           | 249,040   |  |              |            |        |               |            |  | 107,183       |  |  |  | 728,148   |  |  |  | 520,586   | 
|Steve
    Riley(6)       |  |        | 285,000   |  |      |                 |        |      |                 |  | 98,325  |            |  |           | 281,701   |  |              |            |        |               |            |  | 100,035       |  |  |  | 765,061   |  |  |  | 556,179   | 
|Bruce
    Levy(7)        |  |        | 164,838   |  |      |                 |        |      |                 |  | 56,869  |            |  |           | 162,930   |  |              |            | 49,451  |               |            |  | 19,817        |  |  |  | 453,905   |  |  |  |          | 
|Tony
    Isaac(1)        |  |        |          |  |      |                 | 50,000  |      |                 |  |        |            |  |           |          |  |              |            |        |               |            |  |              |  |  |  | 50,000    |  |  |  | 50,000    | 
|Adri
    Baan(1)         |  |        |          |  |      |                 | 45,000  |      |                 |  |        |            |  |           |          |  |              |            |        |               |            |  |              |  |  |  | 45,000    |  |  |  | 45,000    | 
|Jack
    Taylor(1)       |  |        |          |  |      |                 | 40,000  |      |                 |  |        |            |  |           |          |  |              |            |        |               |            |  |              |  |  |  | 40,000    |  |  |  | 40,000    | 
|Struan
    Robertson(1)  |  |        |          |  |      |                 | 40,000  |      |                 |  |        |            |  |           |          |  |              |            |        |               |            |  |              |  |  |  | 40,000    |  |  |  | 10,000    | 
|                         |  |        |           |  |      |                 |         |      |                 |  |         |            |  |           |           |  |              |            |         |               |            |  |               | 
|Total                    |  |        | 1,569,838 |  |      |                 | 385,000 |      |                 |  | 530,194 |            |  |           | 1,519,006 |  |              |            | 215,256 |               |            |  | 256,390       |  |  |  | 4,475,684 |  |  |  | 2,938,025 | 
|                         |  |        |           |  |      |                 |         |      |                 |  |         |            |  |           |           |  |              |            |         |               |            |  |               | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The International Power plc Non-Executive Directors basic
    fee, which covers Board membership (i.e. attendance at
    Board meetings, general duties as Directors, and their
    membership of Board Committees) was £40,000. In addition,
    Tony Isaac received an additional fee of £5,000 per
    annum for his role as Senior Independent Director. Tony Isaac
    also received £5,000 per annum for his role as
    Chairman of the Audit Committee, and Adri Baan received an
    additional fee of £5,000 per annum for his role as
    Chairman of the Remuneration Committee. Struan Robertson joined
    the Company on 1 October 2004.                                                                
|   
|(2) | Sir Neville Simms fee for 2005 was £210,000 per
    annum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | For Philip Cox, the payment in lieu of pension detailed in the
    above table sets out the contributions made to his
    death-in-service
    insurance premium and Funded Unapproved Retirement Benefits
    Scheme. He also received a company car allowance and private
    medical insurance, both of which are included in Other
    benefits. The value of the performance related bonus
    shares in the above table has been calculated using a share
    price of 286.50p (being the closing price for 3 March 2006).                                                                                                                                                                                      
|   
|(4) | For Mark Williamson, the payment in lieu of pension detailed in
    the above table sets out the contributions made to his
    death-in-service
    insurance premium and Funded Unapproved Retirement Benefits
    Scheme. He also received a company car allowance and private
    medical insurance, both of which are included in Other
    benefits. The value of the performance related bonus
    shares in the above table has been calculated using a share
    price of 286.50p (being the closing price for 3 March 2006).                                                                                                                                                                                 
|   
|(5) | Tony Concannon was appointed an Executive Director on
    1 January 2004. He received a company car allowance and
    private medical insurance, both of which are included in
    Other benefits. Also included in Other
    benefits is the value of his relocation and expatriate
    support. The value of the performance related bonus shares in
    the above table has been calculated using a share price of
    286.50p (being the closing price on 3 March 2006). In
    addition, International Power Australia Pty Ltd incurs local
    charges regarding taxation of remuneration. For 2005, this cost
    is £318,028 (2004: £167,213). Tony Concannon funded
    57.9% (2004: 64.9%) of these costs.

53



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Steve Riley was appointed an Executive Director on
    1 January 2004. He received a company car allowance and
    private medical insurance, both of which are included in
    Other benefits. Also included in Other
    benefits is the value of his relocation and repatriation
    support. The value of the performance related bonus shares in
    the above table has been calculated using a share price of
    286.50p (being the closing price for 3 March 2006).                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(7) | Bruce Levy was appointed an Executive Director on 1 June
    2005. His salary from that date is included in the above table.
    The payment in lieu of pension detailed in the above table sets
    out the contributions made to Bruce Levys 401k Savings
    Plan, a Retirement Plan and a Supplemental Retirement Plan. He
    also received a company car allowance and private medical
    insurance, both of which are included in Other
    benefits. Also included in Other benefits is
    the value of his relocation support. The value of the
    performance related bonus-shares in the above table has been
    calculated using a share price of 286.50p (being the closing
    price on 3 March 2006). The values shown in the above table have
    been converted from US dollar to sterling using the average
    annual exchange rate of 1.82.



| |                                   
| | ----------------------------------
| | Summary of emoluments and benefits

|                         |  |                        |       |  |      |  |       |      |  |  |       |  |  |      |       |  |  |  |       | 
|------------------------ |  | ---------------------- | ----- |  | ---- |  | ----- | ---- |  |  | ----- |  |  | ---- | ----- |  |  |  | ----- | 
|                         |  | Year Ended 31 December |      
|                         |  |                        |      
|                         |  | 2005                   |       |  | 2004 |  |       | 2003 |  |  | 2002  |  |  | 2001 |      
|                         |  |                        |       |  |      |  |       |      |  |  |       |  |  |      |      
|                         |  | £000                   |      
|Aggregate emoluments     |  |                        | 4,476 |  |      |  | 2,938 |      |  |  | 1,621 |  |  |      | 1,565 |  |  |  | 1,747 | 
|Termination payments     |  |                        |      |  |      |  |      |      |  |  |      |  |  |      | 404   |  |  |  |      | 
|Performance Share Plan   |  |                        |      |  |      |  |      |      |  |  |      |  |  |      |      |  |  |  |      | 
|Long-Term Incentive Plan |  |                        |      |  |      |  |      |      |  |  |      |  |  |      |      |  |  |  |      | 



| |                      
| | ---------------------
| | Highest paid Director





| |                           
| | --------------------------
| | Current Board of Directors



12-month




12-months 12-months


54



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##### Table of Contents



















|                         |  |                    |                    | 
|------------------------ |  | ------------------ | ------------------ | 
|                         |  | Expected Expiry of |                   
|                         |  | Current Terms      |                   
|                         |  |                    |                   
|Non-Executive Directors  |  |                    |                    | 
|Sir Neville
    Simms(1) |  |                    |                   | 
|Adri Baan                |  |                    | Until the 2007 AGM | 
|Tony Isaac               |  |                    | Until the 2009 AGM | 
|Struan Robertson         |  |                    | Until the 2008 AGM | 
|John Roberts             |  |                    | Until the 2009 AGM | 






|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

Employee Share Plans




55



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##### Table of Contents







| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | the 2002 Performance Share Plan (an annual plan open to
    Executive Directors and a small number of senior managers)  
|
| |  | the International Power Approved Executive Share Option Scheme
    (a discretionary plan open to selected employees)    
|
| |  | the International Power Unapproved Executive Share Option Plan
    (a discretionary plan open to selected employees)    
|
| |  | the Global Executive Share Option Plan (a discretionary plan
    open to selected executives resident outside of the UK)
|
| |  | the International Power Sharesave Plan (open to all UK resident
    employees)                                          
|
| |  | the International Power Global Sharesave Plan (open to employees
    in certain jurisdictions outside of the UK).       











56



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##### Table of Contents



Options to Purchase Our Securities


Summary of Outstanding Options




|                            |  |       |                   |  |          |          |           |          |                |  |              |  |  |  |        | 
|--------------------------- |  | ----- | ----------------- |  | -------- | -------- | --------- | -------- | -------------- |  | ------------ |  |  |  | ------ | 
|                            |  |       |                   |  |          | Issuable |           |          | Exercise Price | 
|                            |  | Grant |                   |  | Exercise |          |           | Ordinary |                |  | per Ordinary | 
|Plan                        |  | Date  |                   |  | Dates    |          |           | Shares   |                |  | Share (p)    | 
|                            |  |       |                   |  |          |          |           |          |                |  |              | 
|Approved Executive Plan     |  |       | 3 October 2000    |  |          |          | 2003-2010 |          |                |  | 343,480      |  |  |  | 277.55 | 
|                            |  |       | 22 March 2001     |  |          |          | 2004-2011 |          |                |  | 308,541      |  |  |  | 209.22 | 
|                            |  |       | 19 September 2001 |  |          |          | 2004-2011 |          |                |  | 24,710       |  |  |  | 193.19 | 
|                            |  |       | 24 May 2002       |  |          |          | 2005-2012 |          |                |  | 678,108      |  |  |  | 174.50 | 
|                            |  |       | 10 March 2003     |  |          |          | 2006-2013 |          |                |  | 246,502      |  |  |  | 62.32  | 
|                            |  |       | 2 March 2004      |  |          |          | 2007-2014 |          |                |  | 594,232      |  |  |  | 123.53 | 
|                            |  |       | 11 March 2005     |  |          |          | 2008-2015 |          |                |  | 499,306      |  |  |  | 179.25 | 
|                            |  |       | 8 March 2006      |  |          |          | 2009-2016 |          |                |  | 323,854      |  |  |  | 281.00 | 
|Unapproved Executive Plan   |  |       | 3 October 2000    |  |          |          | 2003-2010 |          |                |  | 1,988,936    |  |  |  | 277.55 | 
|                            |  |       | 22 March 2001     |  |          |          | 2004-2011 |          |                |  | 717,863      |  |  |  | 209.22 | 
|                            |  |       | 19 September 2001 |  |          |          | 2004-2011 |          |                |  | 49,057       |  |  |  | 193.19 | 
|                            |  |       | 24 May 2002       |  |          |          | 2005-2012 |          |                |  | 2,765,762    |  |  |  | 174.50 | 
|                            |  |       | 10 March 2003     |  |          |          | 2006-2013 |          |                |  | 2,276,907    |  |  |  | 62.32  | 
|                            |  |       | 2 March 2004      |  |          |          | 2007-2014 |          |                |  | 5,595,663    |  |  |  | 123.53 | 
|                            |  |       | 11 March 2005     |  |          |          | 2008-2015 |          |                |  | 4,553,846    |  |  |  | 179.25 | 
|                            |  |       | 8 March 2006      |  |          |          | 2009-2016 |          |                |  | 2,216,393    |  |  |  | 281.00 | 
|Global Executive Share Plan |  |       | 10 March 2003     |  |          |          | 2006-2013 |          |                |  | 62,388       |  |  |  | 62.32  | 
|                            |  |       | 2 March 2004      |  |          |          | 2007-2014 |          |                |  | 221,448      |  |  |  | 123.53 | 
|                            |  |       | 11 March 2005     |  |          |          | 2008-2015 |          |                |  | 285,242      |  |  |  | 179.25 | 
|                            |  |       | 8 March 2006      |  |          |          | 2008-2016 |          |                |  | 122,931      |  |  |  | 281.00 | 
|Executive Share Option Plan |  |       | 23 December 1996  |  |          |          | 1999-2006 |          |                |  | 390,665      |  |  |  | 287.76 | 
|                            |  |       | 2 December 1997   |  |          |          | 2000-2007 |          |                |  | 485,041      |  |  |  | 343.73 | 
|                            |  |       | 1 December 1998   |  |          |          | 2001-2008 |          |                |  | 696,158      |  |  |  | 313.92 | 
|Global Sharesave Plan       |  |       | 17 January 2003   |  |          |          | 2006      |          |                |  | 278,453      |  |  |  | 70.33  | 
|                            |  |       | 17 January 2003   |  |          |          | 2008      |          |                |  | 582,969      |  |  |  | 70.33  | 
|                            |  |       | 3 October 2003    |  |          |          | 2006      |          |                |  | 107,329      |  |  |  | 97.93  | 
|                            |  |       | 3 October 2003    |  |          |          | 2008      |          |                |  | 104,477      |  |  |  | 97.93  | 
|                            |  |       | 4 January 2006    |  |          |          | 2009      |          |                |  | 384,114      |  |  |  | 200.00 | 
|                            |  |       | 4 January 2006    |  |          |          | 2011      |          |                |  | 229,643      |  |  |  | 200.00 | 
|Sharesave Plan              |  |       | 11 October 2001   |  |          |          | 2006      |          |                |  | 6,631        |  |  |  | 178.06 | 
|                            |  |       | 1 October 2002    |  |          |          | 2007      |          |                |  | 2,632,053    |  |  |  | 80.12  | 
|                            |  |       | 3 October 2003    |  |          |          | 2006      |          |                |  | 104,158      |  |  |  | 97.93  | 
|                            |  |       | 3 October 2003    |  |          |          | 2008      |          |                |  | 69,582       |  |  |  | 97.93  | 
|                            |  |       | 4 January 2006    |  |          |          | 2009      |          |                |  | 975,386      |  |  |  | 200.00 | 
|                            |  |       | 4 January 2006    |  |          |          | 2011      |          |                |  | 868,112      |  |  |  | 200.00 | 
|Performance Share Plan      |  |       | 28 March 2003     |  |          |          | 2006      |          |                |  | 1,230,108    |  |  |  | 74.79  | 

57



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##### Table of Contents



Summary of Directors 2002 Performance Share Plan
Awards




|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      |  |                  |  |  |  |           | 
|--------------- |  | --------- | --------- |  | ----------- |  | -------- | ------------- | -------- | ----------- | ------------- |  | ----------- | ------ | ------ | ----------- | ---- |  | ---------------- |  |  |  | --------- | 
|                |  |           |           |  |             |  |          | Market        |          |             |               |  |            
|                |  | No. of    |           |  |             |  |          |               | Value of |             |               |  |             |       
|                |  | Shares    |           |  | Conditional |  |          |               |          | an          |               |  |             |        | No. of |            
|                |  | Under     |           |  | Awards      |  |          |               |          | Ordinary    |               |  |             |        | Shares |            
|                |  | Award as  |           |  | Made/       |  |          |               |          | Share as at |               |  |             |        | Under  |            
|                |  | at        |           |  | (Lapsed)    |  |          |               |          | Date of     |               |  | End of      |        |        | Award as at |     
|                |  | 1 January |           |  | During the  |  |          |               |          | Award       |               |  | Performance |        |        | 31 December |     
|                |  | 2005      |           |  | Year        |  |          | Date of Award |          |             | (Pence)       |  |             | Period |        |             | 2005 | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Philip Cox      |  |           | 167,051   |  |             |  | (167,051 | )             |          |             | 24 May 2002   |  |             |        | 174.50 |             |      |  | 31 December 2004 |  |  |  |          | 
|                |  |           | 759,169   |  |             |  |         |               |          |             | 10 March 2003 |  |             |        | 62.32  |             |      |  | 31 December 2005 |  |  |  | 759,169   | 
|                |  |           | 384,529   |  |             |  |         |               |          |             | 2 March 2004  |  |             |        | 123.53 |             |      |  | 31 December 2006 |  |  |  | 384,529   | 
|                |  |           |          |  |             |  | 292,887  |               |          |             | 11 March 2005 |  |             |        | 179.25 |             |      |  | 31 December 2007 |  |  |  | 292,887   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Total awards    |  |           | 1,310,749 |  |             |  | 125,836  |               |          |             |               |  |             |        |        |             |      |  |                  |  |  |  | 1,436,585 | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Mark Williamson |  |           | 35,415    |  |             |  | (35,415  | )             |          |             | 24 May 2002   |  |             |        | 174.50 |             |      |  | 31 December 2004 |  |  |  |          | 
|                |  |           | 99,164    |  |             |  |         |               |          |             | 10 March 2003 |  |             |        | 62.32  |             |      |  | 31 December 2005 |  |  |  | 99,164    | 
|                |  |           | 202,384   |  |             |  |         |               |          |             | 2 March 2004  |  |             |        | 123.53 |             |      |  | 31 December 2006 |  |  |  | 202,384   | 
|                |  |           |          |  |             |  | 172,942  |               |          |             | 11 March 2005 |  |             |        | 179.25 |             |      |  | 31 December 2007 |  |  |  | 172,942   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Total awards    |  |           | 336,963   |  |             |  | 137,527  |               |          |             |               |  |             |        |        |             |      |  |                  |  |  |  | 474,490   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Tony Concannon  |  |           | 24,282    |  |             |  | (24,282  | )             |          |             | 24 May 2002   |  |             |        | 174.50 |             |      |  | 31 December 2004 |  |  |  |          | 
|                |  |           | 67,994    |  |             |  |         |               |          |             | 10 March 2003 |  |             |        | 62.32  |             |      |  | 31 December 2005 |  |  |  | 67,994    | 
|                |  |           | 190,240   |  |             |  |         |               |          |             | 2 March 2004  |  |             |        | 123.53 |             |      |  | 31 December 2006 |  |  |  | 190,240   | 
|                |  |           |          |  |             |  | 158,995  |               |          |             | 11 March 2005 |  |             |        | 179.25 |             |      |  | 31 December 2007 |  |  |  | 158,995   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Total awards    |  |           | 282,516   |  |             |  | 134,713  |               |          |             |               |  |             |        |        |             |      |  |                  |  |  |  | 417,229   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Bruce Levy(1)   |  |           |          |  |             |  | 158,995  |               |          |             | 11 March 2005 |  |             |        | 179.25 |             |      |  | 31 December 2007 |  |  |  | 158,995   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Total awards    |  |           |          |  |             |  | 158,995  |               |          |             |               |  |             |        |        |             |      |  |                  |  |  |  | 158,995   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Steve Riley     |  |           | 31,608    |  |             |  | (31,608  | )             |          |             | 24 May 2002   |  |             |        | 174.50 |             |      |  | 31 December 2004 |  |  |  |          | 
|                |  |           | 88,505    |  |             |  |         |               |          |             | 10 March 2003 |  |             |        | 62.32  |             |      |  | 31 December 2005 |  |  |  | 88,505    | 
|                |  |           | 190,240   |  |             |  |         |               |          |             | 2 March 2004  |  |             |        | 123.53 |             |      |  | 31 December 2006 |  |  |  | 190,240   | 
|                |  |           |          |  |             |  | 158,995  |               |          |             | 11 March 2005 |  |             |        | 179.25 |             |      |  | 31 December 2007 |  |  |  | 158,995   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 
|Total awards    |  |           | 310,353   |  |             |  | 127,387  |               |          |             |               |  |             |        |        |             |      |  |                  |  |  |  | 437,740   | 
|                |  |           |           |  |             |  |          |               |          |             |               |  |             |        |        |             |      | 






|    |                                         
|--- | ----------------------------------------
|(1) | On appointment as a Director 1 June 2005



|                |  |                    |         |                    |                    |  |     |                           |  |  |                  | 
|--------------- |  | ------------------ | ------- | ------------------ | ------------------ |  | --- | ------------------------- |  |  | ---------------- | 
|                |  |                    |         | Market Value of an |                    |  |    
|                |  | Conditional Awards |         |                    | Ordinary Shares as |  |     |                          
|                |  | Made 8 March       |         |                    | at Date of Award   |  |     |                          
|                |  | 2006               |         |                    | (Pence)            |  |     | End of Performance Period | 
|                |  |                    |         |                    |                    |  |     |                           | 
|Philip Cox      |  |                    | 434,163 |                    |                    |  | 281 |                           |  |  | 31 December 2008 | 
|Mark Williamson |  |                    | 192,170 |                    |                    |  | 281 |                           |  |  | 31 December 2008 | 
|Steve Riley     |  |                    | 176,156 |                    |                    |  | 281 |                           |  |  | 31 December 2008 | 
|Tony Concannon  |  |                    | 176,156 |                    |                    |  | 281 |                           |  |  | 31 December 2008 | 
|Bruce Levy      |  |                    | 184,432 |                    |                    |  | 281 |                           |  |  | 31 December 2008 | 

58



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##### Table of Contents



Summary of Directors Options under the Executive Share
Options Plans




|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             |  |            |  |  |  |           | 
|--------------- |  | ------------- | --------- | --- | -------- |  | --------- | ------- |  |  | ----------- |  | ------------- | ------------ | ---------- |  | ----------- |  | ---------- |  |  |  | --------- | 
|                |  | No. of Shares |           |     |          |  |           |         |  |  |             |  | No. of Shares |             
|                |  | Under         |           |     |          |  | Exercise  |         |  |  |             |  |               | Under        |           
|                |  | Option as at  |           |     |          |  | Price per |         |  |  |             |  |               | Option as at |           
|                |  | 1 January     |           |     | Granted/ |  |           | Share   |  |  | Exercise    |  |               | Exercise     |            |  | 31 December | 
|                |  | 2005          |           |     | (Lapsed) |  |           | (Pence) |  |  | Period from |  |               | Period to    |            |  | 2005        | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Philip Cox      |  |               | 17,191    | (1) |          |  |           |         |  |  | 174.50      |  |               |              | 24.05.2005 |  |             |  | 24.05.2012 |  |  |  | 17,191    | 
|                |  |               | 149,859   | (2) |          |  |           |         |  |  | 174.50      |  |               |              | 24.05.2005 |  |             |  | 24.05.2012 |  |  |  | 149,859   | 
|                |  |               | 561,616   | (2) |          |  |           |         |  |  | 62.32       |  |               |              | 10.03.2006 |  |             |  | 10.03.2013 |  |  |  | 561,616   | 
|                |  |               | 384,529   | (2) |          |  |           |         |  |  | 123.53      |  |               |              | 02.03.2007 |  |             |  | 02.03.2014 |  |  |  | 384,529   | 
|                |  |               |           |     |          |  | 292,887   | (2)     |  |  | 179.25      |  |               |              | 11.03.2008 |  |             |  | 11.03.2015 |  |  |  | 292,887   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Total options   |  |               | 1,113,195 |     |          |  | 292,887   |         |  |  |             |  |               |              |            |  |             |  |            |  |  |  | 1,406,082 | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Mark Williamson |  |               | 5,403     | (1) |          |  |           |         |  |  | 277.55      |  |               |              | 02.10.2003 |  |             |  | 02.10.2010 |  |  |  | 5,403     | 
|                |  |               | 30,624    | (2) |          |  |           |         |  |  | 277.55      |  |               |              | 02.10.2003 |  |             |  | 02.10.2010 |  |  |  | 30,624    | 
|                |  |               | 7,168     | (1) |          |  |           |         |  |  | 209.22      |  |               |              | 22.03.2004 |  |             |  | 22.03.2011 |  |  |  | 7,168     | 
|                |  |               | 16,728    | (2) |          |  |           |         |  |  | 209.22      |  |               |              | 22.03.2004 |  |             |  | 22.03.2011 |  |  |  | 16,728    | 
|                |  |               | 35,415    | (2) |          |  |           |         |  |  | 174.50      |  |               |              | 24.05.2005 |  |             |  | 24.05.2012 |  |  |  | 35,415    | 
|                |  |               | 99,164    | (2) |          |  |           |         |  |  | 62.32       |  |               |              | 10.03.2006 |  |             |  | 10.03.2013 |  |  |  | 99,164    | 
|                |  |               | 202,384   | (2) |          |  |           |         |  |  | 123.53      |  |               |              | 02.03.2007 |  |             |  | 02.03.2014 |  |  |  | 202,384   | 
|                |  |               |           |     |          |  | 172,942   | (2)     |  |  | 179.25      |  |               |              | 11.03.2008 |  |             |  | 11.03.2015 |  |  |  | 172,942   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Total options   |  |               | 396,886   |     |          |  | 172,942   |         |  |  |             |  |               |              |            |  |             |  |            |  |  |  | 569,828   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Tony Concannon  |  |               | 7,189     | (3) |          |  |           |         |  |  | 287.76      |  |               |              | 23.12.1999 |  |             |  | 23.12.2006 |  |  |  | 7,189     | 
|                |  |               | 6,950     | (3) |          |  |           |         |  |  | 343.73      |  |               |              | 02.12.2000 |  |             |  | 02.12.2007 |  |  |  | 6,950     | 
|                |  |               | 7,873     | (3) |          |  |           |         |  |  | 313.92      |  |               |              | 01.12.2001 |  |             |  | 01.12.2008 |  |  |  | 7,873     | 
|                |  |               | 3,377     | (1) |          |  |           |         |  |  | 277.55      |  |               |              | 02.10.2003 |  |             |  | 02.10.2010 |  |  |  | 3,377     | 
|                |  |               | 19,139    | (2) |          |  |           |         |  |  | 277.55      |  |               |              | 02.10.2003 |  |             |  | 02.10.2010 |  |  |  | 19,139    | 
|                |  |               | 4,480     | (1) |          |  |           |         |  |  | 209.22      |  |               |              | 22.03.2004 |  |             |  | 22.03.2011 |  |  |  | 4,480     | 
|                |  |               | 10,455    | (2) |          |  |           |         |  |  | 209.22      |  |               |              | 22.03.2004 |  |             |  | 22.03.2011 |  |  |  | 10,455    | 
|                |  |               | 6,447     | (1) |          |  |           |         |  |  | 174.50      |  |               |              | 24.05.2005 |  |             |  | 24.05.2012 |  |  |  | 6,447     | 
|                |  |               | 17,835    | (2) |          |  |           |         |  |  | 174.50      |  |               |              | 24.05.2005 |  |             |  | 24.05.2012 |  |  |  | 17,835    | 
|                |  |               | 67,994    | (2) |          |  |           |         |  |  | 62.32       |  |               |              | 10.03.2006 |  |             |  | 10.03.2013 |  |  |  | 67,994    | 
|                |  |               | 190,240   | (2) |          |  |           |         |  |  | 123.53      |  |               |              | 02.03.2007 |  |             |  | 02.03.2014 |  |  |  | 190,240   | 
|                |  |               |           |     |          |  | 158,995   | (2)     |  |  | 179.25      |  |               |              | 11.03.2008 |  |             |  | 11.03.2015 |  |  |  | 158,995   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Total options   |  |               | 341,979   |     |          |  | 158,995   |         |  |  |             |  |               |              |            |  |             |  |            |  |  |  | 500,974   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Bruce Levy      |  |               |           |     |          |  | 158,995   | (4)(5)  |  |  | 179.25      |  |               |              | 11.03.2008 |  |             |  | 11.03.2015 |  |  |  | 158,995   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Total options   |  |               |           |     |          |  | 158,995   |         |  |  |             |  |               |              |            |  |             |  |            |  |  |  | 158,995   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Steve Riley     |  |               | 12,722    | (3) |          |  | (12,722   | )       |  |  | 272.55      |  |               |              | 13.12.1998 |  |             |  | 13.12.2005 |  |  |  |          | 
|                |  |               | 12,302    | (3) |          |  |           |         |  |  | 287.76      |  |               |              | 23.12.1999 |  |             |  | 23.12.2006 |  |  |  | 12,302    | 
|                |  |               | 12,001    | (3) |          |  |           |         |  |  | 343.73      |  |               |              | 02.12.2000 |  |             |  | 02.12.2007 |  |  |  | 12,001    | 
|                |  |               | 13,904    | (3) |          |  |           |         |  |  | 313.92      |  |               |              | 01.12.2001 |  |             |  | 01.12.2008 |  |  |  | 13,904    | 
|                |  |               | 5,674     | (1) |          |  |           |         |  |  | 277.55      |  |               |              | 02.10.2003 |  |             |  | 02.10.2010 |  |  |  | 5,674     | 
|                |  |               | 32,155    | (2) |          |  |           |         |  |  | 277.55      |  |               |              | 02.10.2003 |  |             |  | 02.10.2010 |  |  |  | 32,155    | 
|                |  |               | 6,810     | (1) |          |  |           |         |  |  | 209.22      |  |               |              | 22.03.2004 |  |             |  | 22.03.2011 |  |  |  | 6,810     | 
|                |  |               | 18,282    | (2) |          |  |           |         |  |  | 209.22      |  |               |              | 22.03.2004 |  |             |  | 22.03.2011 |  |  |  | 18,282    | 
|                |  |               | 31,608    | (2) |          |  |           |         |  |  | 174.50      |  |               |              | 24.05.2005 |  |             |  | 24.05.2012 |  |  |  | 31,608    | 
|                |  |               | 88,505    | (2) |          |  |           |         |  |  | 62.32       |  |               |              | 10.03.2006 |  |             |  | 10.03.2013 |  |  |  | 88,505    | 
|                |  |               | 190,240   | (2) |          |  |           |         |  |  | 123.53      |  |               |              | 02.03.2007 |  |             |  | 02.03.2014 |  |  |  | 190,240   | 
|                |  |               |           |     |          |  | 158,995   | (2)     |  |  | 179.25      |  |               |              | 11.03.2008 |  |             |  | 11.03.2015 |  |  |  | 158,995   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 
|Total options   |  |               | 424,203   |     |          |  | 146,273   |         |  |  |             |  |               |              |            |  |             |  |            |  |  |  | 570,476   | 
|                |  |               |           |     |          |  |           |         |  |  |             |  |               |              |            |  |             | 

59



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##### Table of Contents








|    |                                                               
|--- | --------------------------------------------------------------
|(1) | International Power Approved Executive Share Options          
|   
|(2) | International Power Unapproved Executive Share Options        
|   
|(3) | National Power Legacy Unapproved Executive Share
    Options
|   
|(4) | International Power Global Executive Share Options            
|   
|(5) | On appointment as a Director 1 June 2005                      

Summary of Directors Options under the Sharesave
Plan




|                |  |            |                |               |        |  |           |       |  |          |             |  |          |           |                  |  |  |  |              | 
|--------------- |  | ---------- | -------------- | ------------- | ------ |  | --------- | ----- |  | -------- | ----------- |  | -------- | --------- | ---------------- |  |  |  | ------------ | 
|                |  |            |                | No. of Shares |        |  | Exercise  |       |  |          |             | 
|                |  |            |                | Under         |        |  | Price per |       |  | Exercise |             |  | Exercise |          
|                |  | Grant Date |                |               | Option |  |           | Share |  |          | Period from |  |          | Period to |                 
|                |  |            |                |               |        |  |           |       |  |          |             |  |          |           |                 
|Philip Cox      |  |            | 1 October 2002 |               |        |  | 20,499    |       |  |          | 80.12p      |  |          |           | 24 December 2007 |  |  |  | 24 June 2008 | 
|Mark Williamson |  |            | 1 October 2002 |               |        |  | 11,793    |       |  |          | 80.12p      |  |          |           | 24 December 2005 |  |  |  | 24 June 2006 | 
|                |  |            |                |               |        |  |           |       |  |          |             |  |          |           |                 
|Total           |  |            |                |               |        |  | 32,292    |       |  |          |             |  |          |           |                  |  |  |  |              | 
|                |  |            |                |               |        |  |           |       |  |          |             |  |          |           |                 



|                  |  |            |                |               |        |  |           |       |  |          |             |  |          |           |              |  |  |  |                | 
|----------------- |  | ---------- | -------------- | ------------- | ------ |  | --------- | ----- |  | -------- | ----------- |  | -------- | --------- | ------------ |  |  |  | -------------- | 
|                  |  |            |                | No. of Shares |        |  | Exercise  |       |  |          |             | 
|                  |  |            |                | Under         |        |  | Price per |       |  | Exercise |             |  | Exercise |          
|                  |  | Grant Date |                |               | Option |  |           | Share |  |          | Period from |  |          | Period to |             
|                  |  |            |                |               |        |  |           |       |  |          |             |  |          |           |             
|Mark Williamson   |  |            | 4 January 2006 |               |        |  | 8,050     |       |  |          | 200.00p     |  |          |           | 1 March 2011 |  |  |  | 31 August 2011 | 
|Steve Riley       |  |            | 4 January 2006 |               |        |  | 4,675     |       |  |          | 200.00p     |  |          |           | 1 March 2009 |  |  |  | 31 August 2009 | 
|Tony Concannon    |  |            | 4 January 2006 |               |        |  | 8,050     |       |  |          | 200.00p     |  |          |           | 1 March 2011 |  |  |  | 31 August 2011 | 
|Bruce
    Levy(1) |  |            | 4 January 2006 |               |        |  | 8,050     |       |  |          | 200.00p     |  |          |           | 1 March 2011 |  |  |  | 31 August 2011 | 
|                  |  |            |                |               |        |  |           |       |  |          |             |  |          |           |             
|Total             |  |            |                |               |        |  | 28,825    |       |  |          |             |  |          |           |              |  |  |  |                | 
|                  |  |            |                |               |        |  |           |       |  |          |             |  |          |           |             






|    |                                                          
|--- | ---------------------------------------------------------
|(1) | Options granted under the Companys global sharesave plan

Gains made on Directors Share Options




|               |  |           |        |  |                  |  |                  |           |  |                 |                  |  |  |  |         | 
|-------------- |  | --------- | ------ |  | ---------------- |  | ---------------- | --------- |  | --------------- | ---------------- |  |  |  | ------- | 
|               |  | No. of    |        |  |                  |  |                  |           | 
|               |  | Shares    |        |  |                  |  | Exercise Price   |           |  | Market Value on |                 
|               |  | Exercised |        |  | Date of Exercise |  |                  | per Share |  |                 | Date of Exercise | 
|               |  |           |        |  |                  |  |                  |           |  |                 |                  | 
|Steve Riley    |  |           | 11,793 |  |                  |  | 28 December 2005 |           |  |                 | 80.12p           |  |  |  | 242.25p | 
|Tony Concannon |  |           | 9,435  |  |                  |  | 28 December 2005 |           |  |                 | 80.12p           |  |  |  | 242.25p | 
|               |  |           |        |  |                  |  |                  |           |  |                 |                  | 
|Total          |  |           | 21,228 |  |                  |  |                  |           |  |                 |                  |  |  |  |         | 
|               |  |           |        |  |                  |  |                  |           |  |                 |                  | 



60



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##### Table of Contents








|        |                                                  
|------- | -------------------------------------------------
|Item 7. | Major Shareholders and Related Party Transactions

Major Shareholders




|                                                |  |           |            |            |           |  |      |     
|----------------------------------------------- |  | --------- | ---------- | ---------- | --------- |  | ---- | ----
|                                                |  |           |            | Percentage |          
|                                                |  | Number of |            |            | of Issued | 
|                                                |  | Ordinary  |            |            | Share     | 
|Name                                            |  | Shares    |            |            | Capital   | 
|                                                |  |           |            |            |           | 
|Legal and General Investment Management Limited |  |           | 58,779,494 |            |           |  | 3.96 | %   
|Standard Life Investments Limited               |  |           | 58,397,077 |            |           |  | 3.93 | %   
|AXA S.A.                                        |  |           | 74,899,385 | (1)        |           |  | 5.03 | %(2)






|    |                                                                        
|--- | -----------------------------------------------------------------------
|(1) | Announced Pre Rights Issue.                                            
|   
|(2) | Percentage figure relates to issued share capital Pre Rights
    Issue.









Number of US Holders




Related Party Transactions











|        |                      
|------- | ---------------------
|Item 8. | Financial Information

Consolidated Statements and Other Financial Information




61



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##### Table of Contents








|        |                      
|------- | ---------------------
|Item 9. | The Offer and Listing







|                                 |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        |  |       |  |  |  |        | 
|-------------------------------- |  | --------------- | ------ | ------- | ----- |  | ------ | ------ | ------- | --- | ---------- |  | ------- | - | ----- |  | ------ |  | ----- |  |  |  | ------ | 
|                                 |  | Ordinary Shares |        |         | ADSs  | 
|                                 |  |                 |        |         |       | 
|                                 |  |                 |        | Average |       |  |        |        | Average |    
|                                 |  |                 |        | Daily   |       |  |        |        | Daily   |    
|                                 |  |                 |        | Trading |       |  | High   |        |         | Low |            |  | Trading |  
|Calendar Year                    |  | High p          |        |         | Low p |  |        | Volume |         |     | $          |  |         | $ |       |  | Volume | 
|                                 |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        | 
|2003                             |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        |  |       |  |  |  |        | 
|First Quarter                    |  |                 | 104.50 |         |       |  | 70.00  |        |         |     | 7,246,030  |  |         |   | 16.77 |  |        |  | 11.10 |  |  |  | 2,803  | 
|Second Quarter                   |  |                 | 131.50 |         |       |  | 84.75  |        |         |     | 9,336,725  |  |         |   | 21.97 |  |        |  | 13.21 |  |  |  | 2,060  | 
|Third Quarter                    |  |                 | 160.00 |         |       |  | 127.50 |        |         |     | 12,451,129 |  |         |   | 25.57 |  |        |  | 20.59 |  |  |  | 4,161  | 
|Fourth Quarter                   |  |                 | 140.00 |         |       |  | 113.25 |        |         |     | 10,565,594 |  |         |   | 23.43 |  |        |  | 19.40 |  |  |  | 1,081  | 
|2004                             |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        |  |       |  |  |  |        | 
|First Quarter                    |  |                 | 147.00 |         |       |  | 122.25 |        |         |     | 11,725,602 |  |         |   | 27.05 |  |        |  | 21.66 |  |  |  | 2,716  | 
|Second Quarter                   |  |                 | 154.00 |         |       |  | 137.75 |        |         |     | 9,104,300  |  |         |   | 28.60 |  |        |  | 24.65 |  |  |  | 2,300  | 
|Third Quarter                    |  |                 | 147.25 |         |       |  | 129.75 |        |         |     | 13,915,100 |  |         |   | 27.60 |  |        |  | 24.80 |  |  |  | 3,300  | 
|Fourth Quarter                   |  |                 | 160.75 |         |       |  | 148.50 |        |         |     | 12,352,000 |  |         |   | 30.85 |  |        |  | 26.70 |  |  |  | 5,700  | 
|2005                             |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        |  |       |  |  |  |        | 
|First Quarter                    |  |                 | 186.00 |         |       |  | 153.59 |        |         |     | 15,719,200 |  |         |   | 36.45 |  |        |  | 29.48 |  |  |  | 8,300  | 
|Second Quarter                   |  |                 | 206.00 |         |       |  | 178.00 |        |         |     | 9,289,500  |  |         |   | 37.49 |  |        |  | 33.80 |  |  |  | 6,800  | 
|Third Quarter                    |  |                 | 250.25 |         |       |  | 204.50 |        |         |     | 12,337,800 |  |         |   | 45.44 |  |        |  | 36.12 |  |  |  | 5,900  | 
|Fourth Quarter                   |  |                 | 252.25 |         |       |  | 218.00 |        |         |     | 9,375,300  |  |         |   | 45.18 |  |        |  | 39.10 |  |  |  | 6,400  | 
|Most Recent 6 months             |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        |  |       |  |  |  |        | 
|2005                             |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        |  |       |  |  |  |        | 
|December                         |  |                 | 250.00 |         |       |  | 239.50 |        |         |     | 7,764,200  |  |         |   | 44.65 |  |        |  | 42.01 |  |  |  | 6,000  | 
|2006                             |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        |  |       |  |  |  |        | 
|January                          |  |                 | 276.00 |         |       |  | 243.00 |        |         |     | 14,292,500 |  |         |   | 50.00 |  |        |  | 43.01 |  |  |  | 8,600  | 
|February                         |  |                 | 295.75 |         |       |  | 270.25 |        |         |     | 13,340,000 |  |         |   | 51.89 |  |        |  | 48.00 |  |  |  | 10,300 | 
|March                            |  |                 | 288.25 |         |       |  | 268.50 |        |         |     | 13,135,300 |  |         |   | 51.30 |  |        |  | 47.79 |  |  |  | 6,100  | 
|April                            |  |                 | 308.25 |         |       |  | 281.50 |        |         |     | 11,894,300 |  |         |   | 55.40 |  |        |  | 49.64 |  |  |  | 5,100  | 
|May                              |  |                 | 308.00 |         |       |  | 265.75 |        |         |     | 14,664,300 |  |         |   | 58.25 |  |        |  | 50.55 |  |  |  | 21,900 | 
|Five Most Recent Financial Years |  |                 |        |         |       |  |        |        |         |     |            |  |         |   |       |  |        |  |       |  |  |  |        | 
|Year ended 31 December 2001      |  |                 | 327.30 |         |       |  | 189.50 |        |         |     | 8,440,012  |  |         |   | 46.55 |  |        |  | 27.10 |  |  |  | 9,913  | 
|Year ended 31 December 2002      |  |                 | 221.00 |         |       |  | 83.50  |        |         |     | 9,114,647  |  |         |   | 31.76 |  |        |  | 13.10 |  |  |  | 4,239  | 
|Year ended 31 December 2003      |  |                 | 160.00 |         |       |  | 70.00  |        |         |     | 9,944,841  |  |         |   | 25.57 |  |        |  | 11.10 |  |  |  | 2,506  | 
|Year ended 31 December 2004      |  |                 | 160.75 |         |       |  | 122.25 |        |         |     | 11,428,900 |  |         |   | 30.85 |  |        |  | 21.66 |  |  |  | 3,600  | 
|Year ended 31 December 2005      |  |                 | 252.25 |         |       |  | 153.59 |        |         |     | 11,651,900 |  |         |   | 45.44 |  |        |  | 29.48 |  |  |  | 6,900  | 

62



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Dividends


year-on









|         |                       
|-------- | ----------------------
|Item 10. | Additional Information



|                                           |  |            |               |  |            |  |               |        |  |  |               |  |  |  |             | 
|------------------------------------------ |  | ---------- | ------------- |  | ---------- |  | ------------- | ------ |  |  | ------------- |  |  |  | ----------- | 
|                                           |  | Authorised |               |  | Issued     | 
|                                           |  |            |               |  |            | 
|                                           |  | Number     |               |  | Amount (£) |  |               | Number |  |  | Amount (£)    | 
|                                           |  |            |               |  |            |  |               |        |  |  |               | 
|Ordinary shares of 50 pence each           |  |            | 2,266,000,000 |  |            |  | 1,133,000,000 |        |  |  | 1,474,736,637 |  |  |  | 737,368,319 | 
|Deferred shares of 1 pence each            |  |            | 21            |  |            |  | 0.21          |        |  |  | 21            |  |  |  | 0.21        | 
|Special rights redeemable preference share |  |            | 1             |  |            |  | 1.00          |        |  |  | 0             |  |  |  | 0           | 





History of the Share Capital for the Last Three Years
















63



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##### Table of Contents















| |   |                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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


20-F 20-F.


Material contracts




| |                                         
| | ----------------------------------------
| | Coleto Creek Purchase and Sale Agreement





64



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| |                                    
| | -----------------------------------
| | Saltend Purchase and Sale Agreement







| |                                        
| | ---------------------------------------
| | The Rights Issue Underwriting Agreement







Exchange Controls




Taxation




65



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##### Table of Contents



mark-to






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 the
applicability and effect of state, local, foreign and other tax
laws and possible changes in the tax laws.




| |                   
| | ------------------
| | US Holders of ADSs





| |          
| | ---------
| | Dividends

General.




66



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##### Table of Contents





| |                                     
| | ------------------------------------
| | Exchange of ADSs for Ordinary Shares





| |                                  
| | ---------------------------------
| | Sale or Other Taxable Disposition





| |                                   
| | ----------------------------------
| | Passive Foreign Investment Company







| |                                             
| | --------------------------------------------
| | Backup Withholding and Information Reporting



67



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##### Table of Contents








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 11. | Quantitative and Qualitative Disclosures About Market
    Risk








|         |                                                           
|-------- | ----------------------------------------------------------
|Item 12. | Description of Securities Other than Equity
    Securities



PART II







|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Defaults, Dividend Arrearages and Delinquencies








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








|         |                        
|-------- | -----------------------
|Item 15. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures


20-F.


13a-14(c) 15d-14(c))




Changes in Internal Controls











|         |           
|-------- | ----------
|Item 16. | [Reserved]






|          |                                 
|--------- | --------------------------------
|Item 16A. | Audit Committee Financial Expert



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|          |               
|--------- | --------------
|Item 16B. | Code of Ethics








|          |                                       
|--------- | --------------------------------------
|Item 16C. | Principal Accountant Fees and Services



|                   |  |                  |     |  |                  |  |     | 
|------------------ |  | ---------------- | --- |  | ---------------- |  | --- | 
|                   |  | Year Ended       |     |  | Year Ended       | 
|                   |  | 31 December 2005 |     |  | 31 December 2004 | 
|                   |  |                  |     |  |                  | 
|                   |  | (£ in millions)  |    
|Audit fees         |  |                  | 1.6 |  |                  |  | 1.2 | 
|Audit-related fees |  |                  | 0.4 |  |                  |  | 0.4 | 
|Other fees         |  |                  | 0.6 |  |                  |  | 1.5 | 
|                   |  |                  |     |  |                  | 
|Total Fees         |  |                  | 2.6 |  |                  |  | 3.1 | 
|                   |  |                  |     |  |                  | 








|          |                                                               
|--------- | --------------------------------------------------------------
|Item 16D. | Exemptions from the Listing Standards for Audit
    Committees








|          |                                                                           
|--------- | --------------------------------------------------------------------------
|Item 16E. | Purchases of Equity Securities by the Issuer and
    Affiliated Purchasers



69



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PART III







|         |                     
|-------- | --------------------
|Item 17. | Financial Statements








|         |                     
|-------- | --------------------
|Item 18. | Financial Statements








|         |         
|-------- | --------
|Item 19. | Exhibits

|        |    |                        |  |                                                                                                                                 
|------- | -- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 1  | .1                     |  | Memorandum and Articles of Association of International Power plc                                                               
|       
|        | 4  | .1                     |  | Coleto Creek Purchase and Sale Agreement                                                                                        
|       
|        | 4  | .2                     |  | Saltend Purchase and Sale Agreement                                                                                             
|       
|        | 8  | .0                     |  | Subsidiaries                                                                                                                    
|       
|        | 12 | .1                     |  | Certificate of Chief Executive Officer pursuant to
    Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act
    of 1934  
|       
|        | 12 | .2                     |  | Certification of Chief Financial Officer pursuant to
    Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act
    of 1934
|       
|        | 13 | .1                     |  | Certificate of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                            
|       
|        | 13 | .2                     |  | Certificate of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                            

70



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SIGNATURES


20-F




| |                        
| | -----------------------
| | INTERNATIONAL POWER PLC



| |     |                    
| | --- | -------------------
| | By: | /s/ Mark Williamson

| |                                     
| | ------------------------------------
| |                                     
| | Mark Williamson                     
| | Chief Financial Officer and Director

71



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Index to the Financial Statements


|                                                                                                              |  |      |     | 
|------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                              |  | Page |    
|                                                                                                              |  |      |    
|Statement of Directors responsibilities                                                                      |  |      | F-2 | 
|Report of the independent registered public
    accounting firm                                               |  |      | F-3 | 
|Consolidated income statement for the years
    ended 31 December 2005 and 31 December 2004                   |  |      | F-4 | 
|Consolidated balance sheet as at
    31 December 2005 and 31 December 2004                                    |  |      | F-5 | 
|Consolidated statement of changes in equity
    for the years ended 31 December 2005 and 31 December
    2004 |  |      | F-6 | 
|Consolidated cash flow statement for the
    years ended 31 December 2005 and 31 December 2004                |  |      | F-7 | 
|Notes to the consolidated financial
    statements                                                            |  |      | F-8 | 

F-1



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##### Table of Contents



Statement of Directors responsibilities


In respect of the annual report and the financial
statements


Annual Report












| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | select suitable accounting policies and then apply them
    consistently;                                                                                                                                                           
|
| |  | make judgements and estimates that are reasonable and prudent;                                                                                                                                                                      
|
| |  | for the Group financial statements, state whether they have been
    prepared in accordance with IFRSs as adopted by the EU;                                                                                                        
|
| |  | for the parent company financial statements, state whether
    applicable UK Accounting Standards have been followed, subject
    to any material departures disclosed and explained in the parent
    company financial statements;
|
| |  | prepare the financial statements on the going concern basis
    unless it is inappropriate to presume that the Group and the
    parent company will continue in business.                                                          







F-2



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##### Table of Contents






Report of independent registered public accounting firm


To the Board and Members of International Power plc












|                      |  |                   
|--------------------- |  | ------------------
|KPMG Audit Plc        |  |                   
|London, England       |  | 8 Salisbury Square
|Chartered Accountants |  | London EC4Y 8BB   

6 March 2006


Except as to notes 41 and 44, as to which the date is
30 June 2006


F-3



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##### Table of Contents






CONSOLIDATED INCOME STATEMENT


|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |   |  |     |   |  |  |       |     |  
|--------------------------------------------------------- | ------- | ---- | ---- | --------------------------- | ----- |  | --------------------------- | ----- | --------- | ----------- | ----- | --------- | ----------- | ----- | ------ | ----------- | --------- |  | ----------- | ----- | - |  | --- | - |  |  | ----- | --- | -
|                                                          |         |      |      | Year Ended 31 December 2005 |       |  | Year Ended 31 December 2004 |      
|                                                          |         |      |      |                             |       |  |                             |      
|                                                          |         |      |      | Excluding                   |       |  |                             |       | Including |             |       | Excluding |             |       |        |             | Including | 
|                                                          |         |      |      | Exceptional                 |       |  | Exceptional                 |       |           | Exceptional |       |           | Exceptional |       |        | Exceptional |           |  | Exceptional |      
|                                                          |         | Note |      |                             | Items |  |                             | Items |           |             | Items |           |             | Items |        |             | Items     |  |             | Items |  
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|                                                          |         |      |      | £m                          |       |  | £m                          |       |           | £m          |       |           | £m          |       |        | £m          |           |  | £m          |      
|Revenue: Group and share of joint ventures and associates |         |      | 2    |                             |       |  | 2,936                       |       |           |             |      |           |             |       | 2,936  |             |           |  | 1,267       |       |   |  |    |   |  |  | 1,267 |    
|Less: share of joint ventures revenue                    |         |      | 15   |                             |       |  | (309                        | )     |           |             |      |           |             |       | (309   | )           |           |  | (144        | )     |   |  |    |   |  |  | (144  | )  
|Less: share of associates revenue                        |         |      | 15   |                             |       |  | (694                        | )     |           |             |      |           |             |       | (694   | )           |           |  | (355        | )     |   |  |    |   |  |  | (355  | )  
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|Group revenue                                             |         |      | 2    |                             |       |  | 1,933                       |       |           |             |      |           |             |       | 1,933  |             |           |  | 768         |       |   |  |    |   |  |  | 768   |    
|Cost of sales                                             |         |      | 8    |                             |       |  | (1,565                      | )     |           |             | 52    |           |             |       | (1,513 | )           |           |  | (637        | )     |   |  |    |   |  |  | (637  | )  
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|Gross profit                                              |         |      |      |                             |       |  | 368                         |       |           |             | 52    |           |             |       | 420    |             |           |  | 131         |       |   |  |    |   |  |  | 131   |    
|Other operating income                                    |         |      | 8    |                             |       |  | 64                          |       |           |             | 58    |           |             |       | 122    |             |           |  | 56          |       |   |  |    |   |  |  | 56    |    
|Other operating expenses                                  |         |      | 8    |                             |       |  | (129                        | )     |           |             |      |           |             |       | (129   | )           |           |  | (78         | )     |   |  | 11  |   |  |  | (67   | )  
|Share of results of joint ventures and associates         |         |      | 2/15 |                             |       |  | 198                         |       |           |             |      |           |             |       | 198    |             |           |  | 113         |       |   |  |    |   |  |  | 113   |    
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|Profit from operations                                    |         |      |      |                             |       |  | 501                         |       |           |             | 110   |           |             |       | 611    |             |           |  | 222         |       |   |  | 11  |   |  |  | 233   |    
|Disposal of investments                                   |         |      | 8    |                             |       |  |                            |       |           |             | 10    |           |             |       | 10     |             |           |  |            |       |   |  | 4   |   |  |  | 4     |    
|Finance income                                            |         |      | 4    |                             |       |  | 53                          |       |           |             |      |           |             |       | 53     |             |           |  | 30          |       |   |  |    |   |  |  | 30    |    
|Finance expenses                                          |         |      | 5/8  |                             |       |  | (255                        | )     |           |             |      |           |             |       | (255   | )           |           |  | (107        | )     |   |  | (31 | ) |  |  | (138  | )  
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|Net financing costs                                       |         |      |      |                             |       |  | (202                        | )     |           |             |      |           |             |       | (202   | )           |           |  | (77         | )     |   |  | (31 | ) |  |  | (108  | )  
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|Profit before tax                                         |         |      |      |                             |       |  | 299                         |       |           |             | 120   |           |             |       | 419    |             |           |  | 145         |       |   |  | (16 | ) |  |  | 129   |    
|Income tax expense                                        |         |      | 8/9  |                             |       |  | (55                         | )     |           |             | (34   | )         |             |       | (89    | )           |           |  | (25         | )     |   |  |    |   |  |  | (25   | )  
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|Profit for the year                                       |         |      | 3    |                             |       |  | 244                         |       |           |             | 86    |           |             |       | 330    |             |           |  | 120         |       |   |  | (16 | ) |  |  | 104   |    
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|Attributable to:                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |   |  |     |   |  |  |       |    
|Minority interests                                        |         |      |      |                             |       |  | 45                          |       |           |             |      |           |             |       | 45     |             |           |  | 8           |       |   |  | (2  | ) |  |  | 6     |    
|Equity holders of the parent                              |         |      |      |                             |       |  | 199                         |       |           |             | 86    |           |             |       | 285    |             |           |  | 112         |       |   |  | (14 | ) |  |  | 98    |    
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  
|Earnings per share:                                       |         |      | 11   |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |   |  |     |   |  |  |       |    
|                                                          | Basic   |      |      |                             |       |  |                             | 13.5  | p         |             |       |           |             |       |        | 19.4        | p         |  |             | 8.6   | p |  |     |   |  |  |       | 7.5 | p
|                                                          | Diluted |      |      |                             |       |  |                             | 13.0  | p         |             |       |           |             |       |        | 18.5        | p         |  |             | 8.5   | p |  |     |   |  |  |       | 7.4 | p
|Dividends per share                                       |         |      |      |                             |       |  | 2.5                         | p     |           |             |       |           |             |       | 2.5    | p           |           |  |            |       |   |  |     |   |  |  |      |    
|                                                          |         |      |      |                             |       |  |                             |       |           |             |       |           |             |       |        |             |           |  |             |       |  





F-4



---



##### Table of Contents






CONSOLIDATED BALANCE SHEET


|                                                          |  |      |       |             |      |  |             |      |  |  |       |  
|--------------------------------------------------------- |  | ---- | ----- | ----------- | ---- |  | ----------- | ---- |  |  | ----- | -
|                                                          |  |      |       | 31 December |      |  | 31 December |     
|                                                          |  | Note |       |             | 2005 |  |             | 2004 | 
|                                                          |  |      |       |             |      |  |             |      | 
|                                                          |  |      |       | £m          |      |  | £m          |     
|Non-current assets                                        |  |      |       |             |      |  |             |      |  |  |       |  
|Goodwill                                                  |  |      | 12    |             |      |  | 189         |      |  |  | 197   |  
|Other intangible assets                                   |  |      | 13    |             |      |  | 194         |      |  |  | 9     |  
|Property, plant and equipment                             |  |      | 14    |             |      |  | 4,207       |      |  |  | 3,542 |  
|Investment in joint ventures and associates               |  |      | 15    |             |      |  | 1,375       |      |  |  | 1,169 |  
|Other investments                                         |  |      | 16    |             |      |  | 4           |      |  |  | 86    |  
|Finance lease receivables                                 |  |      | 19    |             |      |  | 448         |      |  |  | 484   |  
|Other long-term receivables                               |  |      | 20    |             |      |  | 97          |      |  |  | 101   |  
|Deferred tax assets                                       |  |      | 22    |             |      |  | 78          |      |  |  | 79    |  
|                                                          |  |      |       |             |      |  |             |      | 
|Total non-current assets                                  |  |      |       |             |      |  | 6,592       |      |  |  | 5,667 |  
|                                                          |  |      |       |             |      |  |             |      | 
|Current assets                                            |  |      |       |             |      |  |             |      |  |  |       |  
|Inventories                                               |  |      | 23    |             |      |  | 110         |      |  |  | 91    |  
|Trade and other receivables                               |  |      | 24    |             |      |  | 396         |      |  |  | 227   |  
|Finance lease receivables                                 |  |      | 19    |             |      |  | 12          |      |  |  | 11    |  
|Derivative financial instruments                          |  |      | 25    |             |      |  | 268         |      |  |  |      |  
|Assets held for trading                                   |  |      |       |             |      |  | 52          |      |  |  | 47    |  
|Cash and cash equivalents                                 |  |      | 26    |             |      |  | 620         |      |  |  | 565   |  
|                                                          |  |      |       |             |      |  |             |      | 
|Total current assets                                      |  |      |       |             |      |  | 1,458       |      |  |  | 941   |  
|                                                          |  |      |       |             |      |  |             |      | 
|Total assets                                              |  |      |       |             |      |  | 8,050       |      |  |  | 6,608 |  
|                                                          |  |      |       |             |      |  |             |      | 
|Current liabilities                                       |  |      |       |             |      |  |             |      |  |  |       |  
|Loans and bonds                                           |  |      | 27    |             |      |  | 187         |      |  |  | 100   |  
|Derivative financial instruments                          |  |      | 25    |             |      |  | 496         |      |  |  |      |  
|Trade and other payables                                  |  |      | 28    |             |      |  | 511         |      |  |  | 362   |  
|Current tax liabilities                                   |  |      |       |             |      |  | 106         |      |  |  | 83    |  
|                                                          |  |      |       |             |      |  |             |      | 
|Total current liabilities                                 |  |      |       |             |      |  | 1,300       |      |  |  | 545   |  
|                                                          |  |      |       |             |      |  |             |      | 
|Non-current liabilities                                   |  |      |       |             |      |  |             |      |  |  |       |  
|Loans and bonds                                           |  |      | 27    |             |      |  | 3,464       |      |  |  | 3,257 |  
|Derivative financial instruments                          |  |      | 25    |             |      |  | 191         |      |  |  |      |  
|Trade and other payables                                  |  |      | 29    |             |      |  | 95          |      |  |  | 170   |  
|Retirement benefit obligations                            |  |      | 30    |             |      |  | 27          |      |  |  | 29    |  
|Provisions                                                |  |      | 30    |             |      |  | 41          |      |  |  | 35    |  
|Deferred tax liabilities                                  |  |      | 22    |             |      |  | 557         |      |  |  | 514   |  
|                                                          |  |      |       |             |      |  |             |      | 
|Total non-current liabilities                             |  |      |       |             |      |  | 4,375       |      |  |  | 4,005 |  
|                                                          |  |      |       |             |      |  |             |      | 
|Total liabilities                                         |  |      |       |             |      |  | 5,675       |      |  |  | 4,550 |  
|                                                          |  |      |       |             |      |  |             |      | 
|Net assets                                                |  |      |       |             |      |  | 2,375       |      |  |  | 2,058 |  
|                                                          |  |      |       |             |      |  |             |      | 
|Equity                                                    |  |      |       |             |      |  |             |      |  |  |       |  
|Share capital                                             |  |      | 31/32 |             |      |  | 737         |      |  |  | 737   |  
|Share premium reserve                                     |  |      | 32    |             |      |  | 394         |      |  |  | 392   |  
|Capital redemption reserve                                |  |      | 32    |             |      |  | 145         |      |  |  | 145   |  
|Capital reserve                                           |  |      | 32    |             |      |  | 422         |      |  |  | 422   |  
|Hedging and translation reserve                           |  |      | 32    |             |      |  | (69         | )    |  |  | (39   | )
|Retained earnings                                         |  |      | 32    |             |      |  | 463         |      |  |  | 176   |  
|                                                          |  |      |       |             |      |  |             |      | 
|Total equity attributable to equity holders of the parent |  |      |       |             |      |  | 2,092       |      |  |  | 1,833 |  
|Minority interests                                        |  |      |       |             |      |  | 283         |      |  |  | 225   |  
|                                                          |  |      |       |             |      |  |             |      | 
|Total equity                                              |  |      |       |             |      |  | 2,375       |      |  |  | 2,058 |  
|                                                          |  |      |       |             |      |  |             |      | 



F-5



---



##### Table of Contents






CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       |  |       |   |  |  |     |   |  |  |       |  
|----------------------------------------------------------------------- |  | ------- | --- | ----- | ------- |  | ------- | ---------- |  |  | ------- |  |  | ------- | --- | ------------ | ----------- | --------- | ---- | -------- |  |  | ---------- | - |  | --------- | --- | - | ----- |  | ----- | - |  |  | --- | - |  |  | ----- | -
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     | Attributable |             |           |      |          | 
|                                                                        |  |         |     | Share |         |  | Capital |            |  |  |         |  |  |         |     |              |             | to Equity |      |          |  |  |           
|                                                                        |  | Share   |     |       | Premium |  |         | Redemption |  |  | Capital |  |  | Hedging |     |              | Translation |           |      | Retained |  |  | Holders of |   |  | Minority  |     |   |      
|                                                                        |  | Capital |     |       | Reserve |  |         | Reserve    |  |  | Reserve |  |  | Reserve |     |              | Reserve     |           |      | Earnings |  |  | the Parent |   |  | Interests |     |   | Total | 
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|                                                                        |  | £m      |     |       | £m      |  |         | £m         |  |  | £m      |  |  | £m      |     |              | £m          |           |      | £m       |  |  | £m         |   |  | £m        |     |   | £m    | 
|At 1 January 2004                                                       |  |         | 554 |       |         |  | 289     |            |  |  | 145     |  |  |         | 422 |              |             |           |     |          |  |  |           |   |  |           | 76  |   |       |  | 1,486 |   |  |  | 39  |   |  |  | 1,525 |  
|Exchange difference arising on translation of foreign operations        |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  | (39        | ) |  |           |    |   |       |  | (39   | ) |  |  | (1  | ) |  |  | (40   | )
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|Net loss recognised directly in equity                                  |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  | (39        | ) |  |           |    |   |       |  | (39   | ) |  |  | (1  | ) |  |  | (40   | )
|Profit for the year                                                     |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           | 98  |   |       |  | 98    |   |  |  | 6   |   |  |  | 104   |  
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|Total recognised income and expense for the year                        |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  | (39        | ) |  |           | 98  |   |       |  | 59    |   |  |  | 5   |   |  |  | 64    |  
|Rights issue                                                            |  |         | 183 |       |         |  | 103     |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           |    |   |       |  | 286   |   |  |  |    |   |  |  | 286   |  
|Minority interests in acquisitions and disposals                        |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           |    |   |       |  |      |   |  |  | 30  |   |  |  | 30    |  
|Equity funding from minority interests                                  |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           |    |   |       |  |      |   |  |  | 154 |   |  |  | 154   |  
|Dividends                                                               |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           |    |   |       |  |      |   |  |  | (3  | ) |  |  | (3    | )
|Other movements                                                         |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           | 2   |   |       |  | 2     |   |  |  |    |   |  |  | 2     |  
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|At 31 December 2004                                                     |  |         | 737 |       |         |  | 392     |            |  |  | 145     |  |  |         | 422 |              |             |           |     |          |  |  | (39        | ) |  |           | 176 |   |       |  | 1,833 |   |  |  | 225 |   |  |  | 2,058 |  
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|Restatement on adoption of IAS 32 and IAS 39                            |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           | (12  | )        |  |  |           |   |  |           | (20 | ) |       |  | (32   | ) |  |  | (3  | ) |  |  | (35   | )
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|As restated at 1 January 2005                                           |  |         | 737 |       |         |  | 392     |            |  |  | 145     |  |  |         | 422 |              |             |           | (12  | )        |  |  | (39        | ) |  |           | 156 |   |       |  | 1,801 |   |  |  | 222 |   |  |  | 2,023 |  
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|Losses on cash flow hedges                                              |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           | (101 | )        |  |  |           |   |  |           |    |   |       |  | (101  | ) |  |  | 3   |   |  |  | (98   | )
|Exchange difference arising on translation of foreign operations        |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           | (5   | )        |  |  | 88         |   |  |           |    |   |       |  | 83    |   |  |  | 5   |   |  |  | 88    |  
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|Net (loss)/income recognised directly in equity                         |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           | (106 | )        |  |  | 88         |   |  |           |    |   |       |  | (18   | ) |  |  | 8   |   |  |  | (10   | )
|Profit for the year                                                     |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           | 285 |   |       |  | 285   |   |  |  | 45  |   |  |  | 330   |  
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|Total recognised income and expense for the year                        |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           | (106 | )        |  |  | 88         |   |  |           | 285 |   |       |  | 267   |   |  |  | 53  |   |  |  | 320   |  
|Recognition of equity component in 3.75% convertible US
    dollar bond |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           | 50  |   |       |  | 50    |   |  |  |    |   |  |  | 50    |  
|Issue of shares                                                         |  |         |    |       |         |  | 2       |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           |    |   |       |  | 2     |   |  |  |    |   |  |  | 2     |  
|Minority interests in acquisitions and disposals                        |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           |    |   |       |  |      |   |  |  | 16  |   |  |  | 16    |  
|Equity funding from minority interests                                  |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           |    |   |       |  |      |   |  |  | 6   |   |  |  | 6     |  
|Dividends                                                               |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           | (37 | ) |       |  | (37   | ) |  |  | (14 | ) |  |  | (51   | )
|Other movements                                                         |  |         |    |       |         |  |        |            |  |  |        |  |  |         |    |              |             |           |     |          |  |  |           |   |  |           | 9   |   |       |  | 9     |   |  |  |    |   |  |  | 9     |  
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 
|At 31 December 2005                                                     |  |         | 737 |       |         |  | 394     |            |  |  | 145     |  |  |         | 422 |              |             |           | (118 | )        |  |  | 49         |   |  |           | 463 |   |       |  | 2,092 |   |  |  | 283 |   |  |  | 2,375 |  
|                                                                        |  |         |     |       |         |  |         |            |  |  |         |  |  |         |     |              |             |           |      |          |  |  |            |   |  |           |     |   |       | 



F-6



---



##### Table of Contents






CONSOLIDATED CASH FLOW STATEMENT


|                                                                           |                                                                                   |      |    |             |      |  |             |      |   |  |        |      |  
|-------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---- | -- | ----------- | ---- |  | ----------- | ---- | - |  | ------ | ---- | -
|                                                                           |                                                                                   |      |    | Year Ended  |      |  | Year Ended  |     
|                                                                           |                                                                                   |      |    | 31 December |      |  | 31 December |     
|                                                                           |                                                                                   | Note |    |             | 2005 |  |             | 2004 |  
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|                                                                           |                                                                                   |      |    | £m          |      |  | £m          |     
|Cash flows from operating activities                                       |                                                                                   |      |    |             |      |  |             |      |   |  |        |     
|Profit for the year                                                        |                                                                                   |      |    |             |      |  | 330         |      |   |  | 104    |     
|Adjustments for:                                                           |                                                                                   |      |    |             |      |  |             |      |   |  |        |     
|                                                                           | Depreciation of property, plant and equipment and amortisation
    of intangibles |      |    |             |      |  |             | 188  |   |  |        | 85   |  
|                                                                           | Share of results of joint ventures and associates                                 |      |    |             |      |  |             | (198 | ) |  |        | (113 | )
|                                                                           | Net finance costs                                                                 |      |    |             |      |  |             | 202  |   |  |        | 108  |  
|                                                                           | Income tax expense                                                                |      |    |             |      |  |             | 89   |   |  |        | 25   |  
|                                                                           | Decrease in finance lease receivables                                             |      |    |             |      |  |             | 10   |   |  |        | 2    |  
|                                                                           | Profit on disposal of investments                                                 |      |    |             |      |  |             | (10  | ) |  |        | (4   | )
|                                                                           | Exceptional impairment reversal                                                   |      |    |             |      |  |             | (52  | ) |  |        |     |  
|                                                                           | Exceptional profit on receipt from TXU administrators                             |      |    |             |      |  |             | (58  | ) |  |        |     |  
|                                                                           | Release of a guarantee on sale of Elcogas                                         |      |    |             |      |  |             |     |   |  |        | (11  | )
|                                                                           | Other non-cash movements                                                          |      |    |             |      |  |             | 6    |   |  |        |     |  
|                                                                           | Increase/(decrease) in provisions                                                 |      |    |             |      |  |             | 3    |   |  |        | (1   | )
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Adjustments for non-cash items                                             |                                                                                   |      |    |             |      |  | 180         |      |   |  | 91     |     
|Dividends received from joint ventures and associates                      |                                                                                   |      |    |             |      |  | 92          |      |   |  | 69     |     
|Purchase of property, plant and equipment  maintenance                    |                                                                                   |      |    |             |      |  | (72         | )    |   |  | (59    | )   
|Proceeds from sale of property, plant and equipment                        |                                                                                   |      |    |             |      |  | 3           |      |   |  |       |     
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Operating cash flows before movements in working capital                   |                                                                                   |      |    |             |      |  | 533         |      |   |  | 205    |     
|Increase in inventories                                                    |                                                                                   |      |    |             |      |  | (13         | )    |   |  | (6     | )   
|(Increase)/decrease in trade and other receivables                         |                                                                                   |      |    |             |      |  | (154        | )    |   |  | 8      |     
|Increase in trade and other payables                                       |                                                                                   |      |    |             |      |  | 146         |      |   |  | 1      |     
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Cash generated from operations                                             |                                                                                   |      |    |             |      |  | 512         |      |   |  | 208    |     
|Income taxes paid                                                          |                                                                                   |      |    |             |      |  | (31         | )    |   |  | (20    | )   
|Interest paid                                                              |                                                                                   |      |    |             |      |  | (231        | )    |   |  | (113   | )   
|Interest received                                                          |                                                                                   |      |    |             |      |  | 35          |      |   |  | 29     |     
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|                                                                           |                                                                                   |      |    |             |      |  | 285         |      |   |  | 104    |     
|Exceptional finance costs                                                  |                                                                                   |      |    |             |      |  | (5          | )    |   |  | (26    | )   
|Refinancing costs capitalised on acquisition debt                          |                                                                                   |      |    |             |      |  | (7          | )    |   |  | (22    | )   
|Exceptional receipt from TXU administrators                                |                                                                                   |      |    |             |      |  | 58          |      |   |  |       |     
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Net cash inflow from operating activities                                  |                                                                                   |      |    |             |      |  | 331         |      |   |  | 56     |     
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Cash flows from investing activities                                       |                                                                                   |      |    |             |      |  |             |      |   |  |        |     
|Purchase of property, plant and equipment  growth                         |                                                                                   |      |    |             |      |  | (188        | )    |   |  | (158   | )   
|Compensation for long-term contractual performance shortfalls              |                                                                                   |      |    |             |      |  |            |      |   |  | 5      |     
|Proceeds from disposal of a subsidiary                                     |                                                                                   |      | 33 | (g)         |      |  | 73          |      |   |  |       |     
|Acquisitions of subsidiaries net of cash and cash equivalents
    acquired |                                                                                   |      | 33 | (i)         |      |  | (494        | )    |   |  | (1,045 | )   
|Acquisitions of investments in joint ventures and associates               |                                                                                   |      | 33 | (j)         |      |  | (50         | )    |   |  |       |     
|Proceeds from disposal of investments                                      |                                                                                   |      | 33 | (k)         |      |  | 138         |      |   |  | 17     |     
|Returns from/(investments in) joint ventures and associates                |                                                                                   |      |    |             |      |  | 48          |      |   |  | (60    | )   
|Other financial investments                                                |                                                                                   |      |    |             |      |  |            |      |   |  | (1     | )   
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Net cash used in investing activities                                      |                                                                                   |      |    |             |      |  | (473        | )    |   |  | (1,242 | )   
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Cash flows from financing activities                                       |                                                                                   |      |    |             |      |  |             |      |   |  |        |     
|Dividends paid                                                             |                                                                                   |      |    |             |      |  | (37         | )    |   |  |       |     
|Proceeds from share issue                                                  |                                                                                   |      |    |             |      |  | 2           |      |   |  | 286    |     
|Advances from banks                                                        |                                                                                   |      |    |             |      |  | 563         |      |   |  | 746    |     
|Repayments to banks                                                        |                                                                                   |      |    |             |      |  | (415        | )    |   |  | (129   | )   
|Funding from minority interests                                            |                                                                                   |      |    |             |      |  | 80          |      |   |  | 165    |     
|Dividends paid to minority interests                                       |                                                                                   |      |    |             |      |  | (14         | )    |   |  | (3     | )   
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Net cash from financing activities                                         |                                                                                   |      |    |             |      |  | 179         |      |   |  | 1,065  |     
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Net increase/(decrease) in cash and cash equivalents                       |                                                                                   |      |    |             |      |  | 37          |      |   |  | (121   | )   
|Cash and cash equivalents at beginning of the year                         |                                                                                   |      |    |             |      |  | 565         |      |   |  | 696    |     
|Effect of foreign exchange rate changes thereon                            |                                                                                   |      |    |             |      |  | 18          |      |   |  | (10    | )   
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  
|Cash and cash equivalents at end of the year                               |                                                                                   |      | 26 |             |      |  | 620         |      |   |  | 565    |     
|                                                                           |                                                                                   |      |    |             |      |  |             |      |  



F-7



---



##### Table of Contents






NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


For the year ended 31 December 2005




|  |                    
|- | -------------------
|1 | Accounting policies



| |                           
| | --------------------------
| | a)     General information





| |                                   
| | ----------------------------------
| | b)     Statement of
    compliance





| |                                     
| | ------------------------------------
| | c)     Transitional
    arrangements





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) The Group has elected to apply the IFRS 1 exemption, in
    relation to business combinations, to apply IFRS 3 (Business
    Combinations) prospectively from 1 January 2004. As a
    result, the carrying amount of goodwill under UK GAAP at
    31 December 2003 is the deemed cost of goodwill at
    1 January 2004 for Adopted IFRS purposes.                                                                                                                                                                                                                                                                    
|
| | (ii) The Group has elected to adopt the IFRS 1 option which
    permits the cumulative foreign currency translation reserve to
    be deemed zero at 1 January 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (iii) With respect to pension schemes the Group has elected
    to recognise the schemes surpluses and deficits in full as
    at 1 January 2004, with a corresponding adjustment to
    reserves.                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (iv) The Group has elected to apply IFRS 2 (Share-based
    Payments) to equity instruments that were granted on or after 7
    November 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (v) The Group has elected to measure the property, plant
    and equipment of its US operations at the date of transition to
    IFRSs at its fair value and use that fair value as its deemed
    cost at that date.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (vi) The Group has taken the exemption from the requirement
    to restate comparative information for IAS 32 (Financial
    Instruments: Disclosure and Presentation) and IAS 39 (Financial
    Instruments: Recognition and Measurement) in accordance with
    IFRS 1 and has applied these standards prospectively from
    1 January 2005 with no restatement of comparatives. As a
    consequence, the Group has continued to apply UK GAAP in respect
    of financial instruments for the comparative period presented.
    The impact of adopting IAS 32 and IAS 39 at 1 January 2005
    is disclosed in note 43.



| |                                        
| | ---------------------------------------
| | d)     Adopted IFRS not yet
    applied



F-8



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |                                
| | -------------------------------
| | e)     Basis of
    preparation













| |                                  
| | ---------------------------------
| | f)     Basis of
    consolidation



F-9



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |                           
| | --------------------------
| | g)     Revenue recognition











| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) finance income (in accordance with note 1(p))
    where the PPA is considered to be or to contain a finance lease;                                                  
|
| | (ii) as operating lease rentals, on a straight-line basis
    (in accordance with note 1(p)) where the PPA is considered
    to be or to contain an operating lease; or 
|
| | (iii) as revenue in accordance with the contractual terms,
    to the extent that the capacity has been made available to the
    contracted offtaker during the period.



F-10



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                          
| | -------------------------
| | h)     Foreign currencies











| |                
| | ---------------
| | i)     Goodwill











| |                                   
| | ----------------------------------
| | j)     Other intangible
    assets

Emission allowances


F-11



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Commodity contracts




| |                                         
| | ----------------------------------------
| | k)     Property, plant and
    equipment







|                                                                     |  |       |               | 
|-------------------------------------------------------------------- |  | ----- | ------------- | 
|                                                                     |  | Years |              
|                                                                     |  |       |              
|Civil works                                                          |  |       | 25-80         | 
|Power stations                                                       |  |       | 20-60         | 
|Fixtures, fittings, tools and equipment                              |  |       | 3-10          | 
|Computer equipment and software                                      |  |       | 3-5           | 
|Combined cycle gas turbine (CCGT) hot gas path parts, on
    average |  |       | 2-4           | 
|Leasehold improvements                                               |  |       | Life of lease | 





F-12



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                        
| | -------------------------------------------------------
| | l)     Investments in joint
    ventures and associates













| |                         
| | ------------------------
| | m)     Other investments





| |                                                   
| | --------------------------------------------------
| | n)     Impairment of assets
    excluding goodwill









F-13



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                               
| | ------------------------------------------------------------------------------
| | o)     Derivative financial
    instruments* (for year ended 31 December 2005)









Cash flow hedges








Fair value hedges


Hedge of a net investment in a foreign operation


Embedded derivatives




F-14



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Derivative financial instruments** (for year ended
31 December 2004)








| |               
| | --------------
| | p)     Leasing





| |                                 
| | --------------------------------
| | Finance leases  Group as lessor









| |                                   
| | ----------------------------------
| | Operating leases  Group as lessor









| |                                   
| | ----------------------------------
| | Operating leases  Group as lessee



F-15



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                   
| | ------------------
| | q)     Inventories





| |                                     
| | ------------------------------------
| | r)     Cash and cash
    equivalents





| |                       
| | ----------------------
| | s)     Loans and bonds





| |                         
| | ------------------------
| | t)     Convertible bonds









| |                       
| | ----------------------
| | u)     Borrowing costs







| |                  
| | -----------------
| | v)     Provisions



F-16



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                 
| | --------------------------------
| | w)     Decommissioning
    costs





| |                                     
| | ------------------------------------
| | x)     Environmental
    liabilities





| |           
| | ----------
| | y)     Tax













F-17



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                       
| | ----------------------
| | z)     Pension schemes











| |                                 
| | --------------------------------
| | aa)     Share-based
    payments







| |                          
| | -------------------------
| | ab)     Exceptional items





|  |                  
|- | -----------------
|2 | Segment reporting



F-18



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|              |  |                             |       |              |                             |  |       |       |  |  |              |  |  |            |     |  |       |  |     |  |  |  |       | 
|------------- |  | --------------------------- | ----- | ------------ | --------------------------- |  | ----- | ----- |  |  | ------------ |  |  | ---------- | --- |  | ----- |  | --- |  |  |  | ----- | 
|              |  | Year Ended 31 December 2005 |       |              | Year Ended 31 December 2004 | 
|              |  |                             |       |              |                             | 
|              |  |                             |       | Share of     |                             |  |       |       |  |  | Share of     |  |  |           
|              |  |                             |       | Joint        |                             |  |       |       |  |  | Joint        |  |  |           
|              |  |                             |       | Ventures and |                             |  |       |       |  |  | Ventures and |  |  |           
|              |  | Subsidiaries                |       |              | Associates                  |  |       | Total |  |  | Subsidiaries |  |  | Associates |     |  | Total | 
|              |  |                             |       |              |                             |  |       |       |  |  |              |  |  |            |     |  |       | 
|              |  | £m                          |       |              | £m                          |  |       | £m    |  |  | £m           |  |  | £m         |     |  | £m    | 
|a) Revenue    |  |                             |       |              |                             |  |       |       |  |  |              |  |  |            |     |  |       |  |     |  |  |  |       | 
|North America |  |                             | 523   |              |                             |  | 171   |       |  |  | 694          |  |  |            | 188 |  |       |  | 72  |  |  |  | 260   | 
|Europe        |  |                             | 990   |              |                             |  | 397   |       |  |  | 1,387        |  |  |            | 308 |  |       |  | 212 |  |  |  | 520   | 
|Middle East   |  |                             | 24    |              |                             |  | 43    |       |  |  | 67           |  |  |            | 24  |  |       |  | 30  |  |  |  | 54    | 
|Australia     |  |                             | 369   |              |                             |  | 51    |       |  |  | 420          |  |  |            | 223 |  |       |  | 8   |  |  |  | 231   | 
|Asia          |  |                             | 27    |              |                             |  | 341   |       |  |  | 368          |  |  |            | 25  |  |       |  | 177 |  |  |  | 202   | 
|              |  |                             |       |              |                             |  |       |       |  |  |              |  |  |            |     |  |       | 
|              |  |                             | 1,933 |              |                             |  | 1,003 |       |  |  | 2,936        |  |  |            | 768 |  |       |  | 499 |  |  |  | 1,267 | 
|              |  |                             |       |              |                             |  |       |       |  |  |              |  |  |            |     |  |       | 

|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       |  |     |  |  |  |      |  
|------------------------------------------------------------------ |  | --------------------------- | --- | ------------ | --------------------------- |  | --- | ----- |  |  | ------------ | - |  | ---------- | --- | - | ----- |  | --- |  |  |  | ---- | -
|                                                                   |  | Year Ended 31 December 2005 |     |              | Year Ended 31 December 2004 | 
|                                                                   |  |                             |     |              |                             | 
|                                                                   |  |                             |     | Share of     |                             |  |     |       |  |  | Share of     |   |  |           
|                                                                   |  |                             |     | Joint        |                             |  |     |       |  |  | Joint        |   |  |           
|                                                                   |  |                             |     | Ventures and |                             |  |     |       |  |  | Ventures and |   |  |           
|                                                                   |  | Subsidiaries                |     |              | Associates                  |  |     | Total |  |  | Subsidiaries |   |  | Associates |     |   | Total | 
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 
|                                                                   |  | £m                          |     |              | £m                          |  |     | £m    |  |  | £m           |   |  | £m         |     |   | £m    | 
|b) Profit/(loss) from operations (excluding exceptional
    items) |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       |  |     |  |  |  |      |  
|North America                                                      |  |                             | 20  |              |                             |  | 29  |       |  |  | 49           |   |  |            | (29 | ) |       |  | 8   |  |  |  | (21  | )
|Europe                                                             |  |                             | 205 |              |                             |  | 55  |       |  |  | 260          |   |  |            | 52  |   |       |  | 45  |  |  |  | 97   |  
|Middle East                                                        |  |                             | 12  |              |                             |  | 12  |       |  |  | 24           |   |  |            | 13  |   |       |  | 7   |  |  |  | 20   |  
|Australia                                                          |  |                             | 119 |              |                             |  | 6   |       |  |  | 125          |   |  |            | 96  |   |       |  | 2   |  |  |  | 98   |  
|Asia                                                               |  |                             | 6   |              |                             |  | 96  |       |  |  | 102          |   |  |            | 9   |   |       |  | 51  |  |  |  | 60   |  
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 
|                                                                   |  |                             | 362 |              |                             |  | 198 |       |  |  | 560          |   |  |            | 141 |   |       |  | 113 |  |  |  | 254  |  
|Corporate costs                                                    |  |                             | (59 | )            |                             |  |    |       |  |  | (59          | ) |  |            | (32 | ) |       |  |    |  |  |  | (32  | )
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 
|                                                                   |  |                             | 303 |              |                             |  | 198 |       |  |  | 501          |   |  |            | 109 |   |       |  | 113 |  |  |  | 222  |  
|Operating exceptional items                                        |  |                             |     |              |                             |  |     |       |  |  | 110          |   |  |            |     |   |       |  |     |  |  |  | 11   |  
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 
|Profit from operations (including operating exceptional
    items) |  |                             |     |              |                             |  |     |       |  |  | 611          |   |  |            |     |   |       |  |     |  |  |  | 233  |  
|Disposal of investments  exceptional                              |  |                             |     |              |                             |  |     |       |  |  | 10           |   |  |            |     |   |       |  |     |  |  |  | 4    |  
|Financing costs  operating                                        |  |                             |     |              |                             |  |     |       |  |  | (202         | ) |  |            |     |   |       |  |     |  |  |  | (77  | )
|Financing costs  exceptional                                      |  |                             |     |              |                             |  |     |       |  |  |             |   |  |            |     |   |       |  |     |  |  |  | (31  | )
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 
|Financing costs                                                    |  |                             |     |              |                             |  |     |       |  |  | (202         | ) |  |            |     |   |       |  |     |  |  |  | (108 | )
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 
|Profit before tax                                                  |  |                             |     |              |                             |  |     |       |  |  | 419          |   |  |            |     |   |       |  |     |  |  |  | 129  |  
|Income tax expense  operating                                     |  |                             |     |              |                             |  |     |       |  |  | (55          | ) |  |            |     |   |       |  |     |  |  |  | (25  | )
|Income tax expense  exceptional                                   |  |                             |     |              |                             |  |     |       |  |  | (34          | ) |  |            |     |   |       |  |     |  |  |  |     |  
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 
|Income tax expense                                                 |  |                             |     |              |                             |  |     |       |  |  | (89          | ) |  |            |     |   |       |  |     |  |  |  | (25  | )
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 
|Profit for the year                                                |  |                             |     |              |                             |  |     |       |  |  | 330          |   |  |            |     |   |       |  |     |  |  |  | 104  |  
|                                                                   |  |                             |     |              |                             |  |     |       |  |  |              |   |  |            |     |   |       | 



F-19



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                          |  |             |     |  |             |  |    | 
|----------------------------------------- |  | ----------- | --- |  | ----------- |  | -- | 
|                                          |  | Year Ended  |     |  | Year Ended  | 
|                                          |  | 31 December |     |  | 31 December | 
|                                          |  | 2005        |     |  | 2004        | 
|                                          |  |             |     |  |             | 
|                                          |  | £m          |     |  | £m          | 
|c) Depreciation and amortisation expenses |  |             |     |  |             |  |    | 
|North America                             |  |             | 35  |  |             |  | 21 | 
|Europe                                    |  |             | 84  |  |             |  | 22 | 
|Middle East                               |  |             | 3   |  |             |  | 3  | 
|Australia                                 |  |             | 62  |  |             |  | 36 | 
|Asia                                      |  |             | 2   |  |             |  | 2  | 
|                                          |  |             |     |  |             | 
|                                          |  |             | 186 |  |             |  | 84 | 
|Corporate costs                           |  |             | 2   |  |             |  | 1  | 
|                                          |  |             |     |  |             | 
|                                          |  |             | 188 |  |             |  | 85 | 
|                                          |  |             |     |  |             | 



|                                              |  |             |     |  |             |  |     | 
|--------------------------------------------- |  | ----------- | --- |  | ----------- |  | --- | 
|                                              |  | Year Ended  |     |  | Year Ended  | 
|                                              |  | 31 December |     |  | 31 December | 
|                                              |  | 2005        |     |  | 2004        | 
|                                              |  |             |     |  |             | 
|                                              |  | £m          |     |  | £m          | 
|d) Additions to property, plant and equipment |  |             |     |  |             |  |     | 
|North America                                 |  |             | 26  |  |             |  | 20  | 
|Europe                                        |  |             | 24  |  |             |  | 26  | 
|Middle East                                   |  |             | 159 |  |             |  | 108 | 
|Australia                                     |  |             | 53  |  |             |  | 81  | 
|Asia                                          |  |             | 4   |  |             |  | 2   | 
|                                              |  |             |     |  |             | 
|                                              |  |             | 266 |  |             |  | 237 | 
|Corporate costs                               |  |             | 1   |  |             |  | 2   | 
|                                              |  |             |     |  |             | 
|                                              |  |             | 267 |  |             |  | 239 | 
|                                              |  |             |     |  |             | 

|                                                       |  |                             |   |           |                             |  |          |            |  |  |          |           |  |           |          |  |            |  |   |  |  |  |   | 
|------------------------------------------------------ |  | --------------------------- | - | --------- | --------------------------- |  | -------- | ---------- |  |  | -------- | --------- |  | --------- | -------- |  | ---------- |  | - |  |  |  | - | 
|                                                       |  | Year Ended 31 December 2005 |   |           | Year Ended 31 December 2004 | 
|                                                       |  |                             |   |           |                             | 
|                                                       |  |                             |   | Commodity |                             |  | Emission |            |  |  |          | Commodity |  |           | Emission | 
|                                                       |  | Goodwill                    |   |           | Contracts                   |  |          | Allowances |  |  | Goodwill |           |  | Contracts |          |  | Allowances | 
|                                                       |  |                             |   |           |                             |  |          |            |  |  |          |           |  |           |          |  |            | 
|                                                       |  | £m                          |   |           | £m                          |  |          | £m         |  |  | £m       |           |  | £m        |          |  | £m         | 
|e) Expenditure on goodwill and other intangible assets |  |                             |   |           |                             |  |          |            |  |  |          |           |  |           |          |  |            |  |   |  |  |  |   | 
|Europe                                                 |  |                             | 2 |           |                             |  | 234      |            |  |  | 25       |           |  |           | 190      |  |            |  | 9 |  |  |  |  | 
|                                                       |  |                             |   |           |                             |  |          |            |  |  |          |           |  |           |          |  |            | 



F-20



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                  |  |                             |       |                |                             |  |       |       |  |         |                |  |     |            |       |  |       |  |       |  |  |  |       | 
|----------------- |  | --------------------------- | ----- | -------------- | --------------------------- |  | ----- | ----- |  | ------- | -------------- |  | --- | ---------- | ----- |  | ----- |  | ----- |  |  |  | ----- | 
|                  |  | Year Ended 31 December 2005 |       |                | Year Ended 31 December 2004 | 
|                  |  |                             |       |                |                             | 
|                  |  |                             |       | Investments in |                             |  |       |       |  |         | Investments in |  |     |           
|                  |  |                             |       | Joint Ventures |                             |  |       |       |  |         | Joint Ventures |  |     |           
|                  |  | Segment                     |       |                | and                         |  |       |       |  | Segment |                |  | and |            |       | 
|                  |  | Assets                      |       |                | Associates                  |  |       | Total |  |         | Assets         |  |     | Associates |       |  | Total | 
|                  |  |                             |       |                |                             |  |       |       |  |         |                |  |     |            |       |  |       | 
|                  |  | £m                          |       |                | £m                          |  |       | £m    |  |         | £m             |  |     | £m         |       |  | £m    | 
|f) Segment assets |  |                             |       |                |                             |  |       |       |  |         |                |  |     |            |       |  |       |  |       |  |  |  |       | 
|North America     |  |                             | 773   |                |                             |  | 199   |       |  |         | 972            |  |     |            | 632   |  |       |  | 182   |  |  |  | 814   | 
|Europe            |  |                             | 2,972 |                |                             |  | 341   |       |  |         | 3,313          |  |     |            | 2,118 |  |       |  | 325   |  |  |  | 2,443 | 
|Middle East       |  |                             | 383   |                |                             |  | 71    |       |  |         | 454            |  |     |            | 163   |  |       |  | 45    |  |  |  | 208   | 
|Australia         |  |                             | 2,196 |                |                             |  | 39    |       |  |         | 2,235          |  |     |            | 2,127 |  |       |  | 33    |  |  |  | 2,160 | 
|Asia              |  |                             | 93    |                |                             |  | 725   |       |  |         | 818            |  |     |            | 92    |  |       |  | 584   |  |  |  | 676   | 
|                  |  |                             |       |                |                             |  |       |       |  |         |                |  |     |            |       |  |       | 
|                  |  |                             | 6,417 |                |                             |  | 1,375 |       |  |         | 7,792          |  |     |            | 5,132 |  |       |  | 1,169 |  |  |  | 6,301 | 
|Corporate         |  |                             | 258   |                |                             |  |      |       |  |         | 258            |  |     |            | 307   |  |       |  |      |  |  |  | 307   | 
|                  |  |                             |       |                |                             |  |       |       |  |         |                |  |     |            |       |  |       | 
|Total assets      |  |                             | 6,675 |                |                             |  | 1,375 |       |  |         | 8,050          |  |     |            | 5,439 |  |       |  | 1,169 |  |  |  | 6,608 | 
|                  |  |                             |       |                |                             |  |       |       |  |         |                |  |     |            |       |  |       | 

|                       |  |                             |       |                |                             |  |   |       |  |         |                |  |     |            |       |  |       |  |   |  |  |  |       | 
|---------------------- |  | --------------------------- | ----- | -------------- | --------------------------- |  | - | ----- |  | ------- | -------------- |  | --- | ---------- | ----- |  | ----- |  | - |  |  |  | ----- | 
|                       |  | Year Ended 31 December 2005 |       |                | Year Ended 31 December 2004 | 
|                       |  |                             |       |                |                             | 
|                       |  |                             |       | Investments in |                             |  |   |       |  |         | Investments in |  |     |           
|                       |  |                             |       | Joint Ventures |                             |  |   |       |  |         | Joint Ventures |  |     |           
|                       |  | Segment                     |       |                | and                         |  |   |       |  | Segment |                |  | and |            |       | 
|                       |  | Liabilities                 |       |                | Associates                  |  |   | Total |  |         | Liabilities    |  |     | Associates |       |  | Total | 
|                       |  |                             |       |                |                             |  |   |       |  |         |                |  |     |            |       |  |       | 
|                       |  | £m                          |       |                | £m                          |  |   | £m    |  |         | £m             |  |     | £m         |       |  | £m    | 
|g) Segment liabilities |  |                             |       |                |                             |  |   |       |  |         |                |  |     |            |       |  |       |  |   |  |  |  |       | 
|North America          |  |                             | 588   |                |                             |  |  |       |  |         | 588            |  |     |            | 494   |  |       |  |  |  |  |  | 494   | 
|Europe                 |  |                             | 2,102 |                |                             |  |  |       |  |         | 2,102          |  |     |            | 1,415 |  |       |  |  |  |  |  | 1,415 | 
|Middle East            |  |                             | 335   |                |                             |  |  |       |  |         | 335            |  |     |            | 153   |  |       |  |  |  |  |  | 153   | 
|Australia              |  |                             | 1,676 |                |                             |  |  |       |  |         | 1,676          |  |     |            | 1,557 |  |       |  |  |  |  |  | 1,557 | 
|Asia                   |  |                             | 95    |                |                             |  |  |       |  |         | 95             |  |     |            | 78    |  |       |  |  |  |  |  | 78    | 
|                       |  |                             |       |                |                             |  |   |       |  |         |                |  |     |            |       |  |       | 
|                       |  |                             | 4,796 |                |                             |  |  |       |  |         | 4,796          |  |     |            | 3,697 |  |       |  |  |  |  |  | 3,697 | 
|Corporate              |  |                             | 879   |                |                             |  |  |       |  |         | 879            |  |     |            | 853   |  |       |  |  |  |  |  | 853   | 
|                       |  |                             |       |                |                             |  |   |       |  |         |                |  |     |            |       |  |       | 
|Total liabilities      |  |                             | 5,675 |                |                             |  |  |       |  |         | 5,675          |  |     |            | 4,550 |  |       |  |  |  |  |  | 4,550 | 
|                       |  |                             |       |                |                             |  |   |       |  |         |                |  |     |            |       |  |       | 

|                                                      |  |             |     |  |             |  |    | 
|----------------------------------------------------- |  | ----------- | --- |  | ----------- |  | -- | 
|                                                      |  | Year Ended  |     |  | Year Ended  | 
|                                                      |  | 31 December |     |  | 31 December | 
|                                                      |  | 2005        |     |  | 2004        | 
|                                                      |  |             |     |  |             | 
|                                                      |  | £m          |     |  | £m          | 
|h) Exceptional items                                  |  |             |     |  |             |  |    | 
|Exceptional items included in profit from operations  |  |             |     |  |             |  |    | 
|Europe                                                |  |             | 110 |  |             |  | 11 | 
|                                                      |  |             |     |  |             | 
|Exceptional items included in profit from operations  |  |             | 110 |  |             |  | 11 | 
|                                                      |  |             |     |  |             | 
|Exceptional items included in disposal of investments |  |             |     |  |             |  |    | 
|Corporate                                             |  |             | 3   |  |             |  |   | 
|Asia                                                  |  |             | 7   |  |             |  | 4  | 
|                                                      |  |             |     |  |             | 
|Exceptional items included in disposal of investments |  |             | 10  |  |             |  | 4  | 
|                                                      |  |             |     |  |             | 



F-21



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|  |                    
|- | -------------------
|3 | Profit for the year





|                                                                                                                             |                                             |             |      |     |             |  |     |     | 
|---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ----------- | ---- | --- | ----------- |  | --- | --- | 
|                                                                                                                             |                                             | Year Ended  |      |     | Year Ended  | 
|                                                                                                                             |                                             | 31 December |      |     | 31 December | 
|                                                                                                                             |                                             | 2005        |      |     | 2004        | 
|                                                                                                                             |                                             |             |      |     |             | 
|                                                                                                                             |                                             | £m          |      |     | £m          | 
|Amortisation of intangible assets                                                                                            |                                             |             | 40   |     |             |  |    |    
|Depreciation of property, plant and equipment                                                                                |                                             |             | 148  |     |             |  | 85  |    
|Development costs net of recoveries and amounts capitalised                                                                  |                                             |             | 3    |     |             |  | 3   |    
|Operating exceptional items before tax (Note 8)                                                                              |                                             |             | (110 | )   |             |  | (11 | )  
|Property lease rentals payable (net of recoveries)                                                                           |                                             |             | 3    |     |             |  | 2   |    
|                                                                                                                             |                                             |             |      |     |             | 
|Auditors remuneration  statutory audit:                                                                                    |                                             |             |      |     |             |  |     |    
|                                                                                                                             | Fees due to the lead auditor KPMG Audit Plc |             |      | 1.6 |             |  |     | 1.2 | 
|                                                                                                                             | Fees due to other auditors                  |             |      | 0.2 |             |  |     | 0.6 | 
|                                                                                                                             |                                             |             |      |     |             | 
|                                                                                                                             |                                             |             | 1.8  |     |             |  | 1.8 |    
|                                                                                                                             |                                             |             |      |     |             | 
|Auditors remuneration  other fees paid to the
    lead auditors and their associates for services (Group and
    Company): |                                             |             |      |     |             |  |     |    
|                                                                                                                             | Audit related regulatory reporting services |             |      | 0.4 |             |  |     | 0.4 | 
|                                                                                                                             | Further assurance services                  |             |      | 0.5 |             |  |     | 0.2 | 
|                                                                                                                             |                                             |             |      |     |             | 











F-22



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|  |               
|- | --------------
|4 | Finance income

|                                                     |  |             |    |  |             |  |    | 
|---------------------------------------------------- |  | ----------- | -- |  | ----------- |  | -- | 
|                                                     |  | Year Ended  |    |  | Year Ended  | 
|                                                     |  | 31 December |    |  | 31 December | 
|                                                     |  | 2005        |    |  | 2004        | 
|                                                     |  |             |    |  |             | 
|                                                     |  | £m          |    |  | £m          | 
|Group finance income                                 |  |             |    |  |             |  |    | 
|Interest income                                      |  |             | 50 |  |             |  | 30 | 
|Net gain on remeasurement of assets held for trading |  |             | 3  |  |             |  |   | 
|                                                     |  |             |    |  |             | 
|Total Group finance income                           |  |             | 53 |  |             |  | 30 | 
|                                                     |  |             |    |  |             | 



|  |                 
|- | ----------------
|5 | Finance expenses

|                                                        |                           |             |     |     |             |  |     |     | 
|------------------------------------------------------- | ------------------------- | ----------- | --- | --- | ----------- |  | --- | --- | 
|                                                        |                           | Year Ended  |     |     | Year Ended  | 
|                                                        |                           | 31 December |     |     | 31 December | 
|                                                        |                           | 2005        |     |     | 2004        | 
|                                                        |                           |             |     |     |             | 
|                                                        |                           | £m          |     |     | £m          | 
|Group finance expenses                                  |                           |             |     |     |             |  |     |    
|Interest on:                                            |                           |             |     |     |             |  |     |    
|                                                        | Bank loans and overdrafts |             |     | 212 |             |  |     | 103 | 
|                                                        | Other loans and bonds     |             |     | 57  |             |  |     | 12  | 
|                                                        |                           |             |     |     |             | 
|                                                        |                           |             | 269 |     |             |  | 115 |    
|Less: amounts included in the cost of qualifying assets |                           |             | (14 | )   |             |  | (8  | )  
|                                                        |                           |             |     |     |             | 
|Group finance costs  ordinary                          |                           |             | 255 |     |             |  | 107 |    
|Exceptional finance costs (note 8)                      |                           |             |    |     |             |  | 31  |    
|                                                        |                           |             |     |     |             | 
|Total Group finance costs                               |                           |             | 255 |     |             |  | 138 |    
|                                                        |                           |             |     |     |             | 



|  |                                            
|- | -------------------------------------------
|6 | Employee benefit costs and employee numbers

|                                                                                |  |             |     |   |             |  |    | 
|------------------------------------------------------------------------------- |  | ----------- | --- | - | ----------- |  | -- | 
|                                                                                |  | Year Ended  |     |   | Year Ended  | 
|                                                                                |  | 31 December |     |   | 31 December | 
|                                                                                |  | 2005        |     |   | 2004        | 
|                                                                                |  |             |     |   |             | 
|                                                                                |  | £m          |     |   | £m          | 
|Employee benefit costs, including Directors
    remuneration, were as follows: |  |             |     |   |             |  |    | 
|Wages and salaries                                                              |  |             | 121 |   |             |  | 83 | 
|Share-based payments                                                            |  |             | 6   |   |             |  | 1  | 
|Social security costs                                                           |  |             | 10  |   |             |  | 4  | 
|Contributions to defined contribution plans                                     |  |             | 3   |   |             |  | 1  | 
|Increase in liability for defined benefit plans (note 7)                        |  |             | 7   |   |             |  | 5  | 
|                                                                                |  |             |     |   |             | 
|Subtotal                                                                        |  |             | 147 |   |             |  | 94 | 
|Less: amount capitalised as part of property, plant and equipment               |  |             | (2  | ) |             |  |   | 
|                                                                                |  |             |     |   |             | 
|Total employee benefit costs                                                    |  |             | 145 |   |             |  | 94 | 
|                                                                                |  |             |     |   |             | 

F-23



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Employee numbers


|                                                                                               |  |             |       |  |             |  |       | 
|---------------------------------------------------------------------------------------------- |  | ----------- | ----- |  | ----------- |  | ----- | 
|                                                                                               |  | Year Ended  |       |  | Year Ended  | 
|                                                                                               |  | 31 December |       |  | 31 December | 
|                                                                                               |  | 2005        |       |  | 2004        | 
|                                                                                               |  |             |       |  |             | 
|                                                                                               |  | Number      |       |  | Number      | 
|Average number of employees during the financial year,
    analysed by geographic segment was: |  |             |       |  |             |  |       | 
|North America                                                                                  |  |             | 220   |  |             |  | 201   | 
|Europe                                                                                         |  |             | 1,136 |  |             |  | 804   | 
|Middle East                                                                                    |  |             | 615   |  |             |  | 639   | 
|Australia                                                                                      |  |             | 742   |  |             |  | 570   | 
|Asia                                                                                           |  |             | 633   |  |             |  | 349   | 
|Corporate and development                                                                      |  |             | 233   |  |             |  | 187   | 
|                                                                                               |  |             |       |  |             | 
|Average number of employees                                                                    |  |             | 3,579 |  |             |  | 2,750 | 
|                                                                                               |  |             |       |  |             | 



|  |                
|- | ---------------
|7 | Pension schemes





UK:






AUSTRALIA:








F-24



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                               |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           |  |     |  |  |  |     | 
|---------------------------------------------- |  | ----------- | --- |  | ----------- |  | --- | ----------- |  |  | --------- |  |  | -- | --- |  | --------- |  | --- |  |  |  | --- | 
|                                               |  | 31 December |     |  | 31 December |  |     | 31 December | 
|                                               |  | 2005        |     |  | 2004        |  |     | 2003        | 
|                                               |  |             |     |  |             |  |     |             | 
|                                               |  | UK          |     |  | Australia   |  |     | UK          |  |  | Australia |  |  | UK |     |  | Australia | 
|                                               |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           | 
|                                               |  | %           |     |  | %           |  |     | %           |  |  | %         |  |  | %  |     |  | %         | 
|Financial assumptions                          |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           |  |     |  |  |  |     | 
|Discount rate                                  |  |             | 4.7 |  |             |  | 4.6 |             |  |  | 5.3       |  |  |    | 4.5 |  |           |  | 5.4 |  |  |  | 7.5 | 
|Rate of increase in salaries                   |  |             | 4.4 |  |             |  | 4.0 |             |  |  | 4.4       |  |  |    | 4.0 |  |           |  | 4.3 |  |  |  | 4.0 | 
|Inflation rate                                 |  |             | 2.9 |  |             |  | 3.0 |             |  |  | 2.9       |  |  |    | 3.0 |  |           |  | 2.8 |  |  |  | 3.0 | 
|Increase to deferred benefits during deferment |  |             | 2.9 |  |             |  | n/a |             |  |  | 3.0       |  |  |    | n/a |  |           |  | 2.9 |  |  |  | n/a | 
|Increases to pensions payments                 |  |             | 2.9 |  |             |  | n/a |             |  |  | 2.9       |  |  |    | n/a |  |           |  | 2.9 |  |  |  | n/a | 
|                                               |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           | 



|                                          |  |             |    |   |             |  |    |  
|----------------------------------------- |  | ----------- | -- | - | ----------- |  | -- | -
|                                          |  | Year Ended  |    |   | Year Ended  | 
|                                          |  | 31 December |    |   | 31 December | 
|                                          |  | 2005        |    |   | 2004        | 
|                                          |  |             |    |   |             | 
|                                          |  | £m          |    |   | £m          | 
|Amounts charged to profit from operations |  |             |    |   |             |  |    |  
|Current service cost                      |  |             | (9 | ) |             |  | (5 | )
|Expected return on schemes assets        |  |             | 11 |   |             |  | 7  |  
|Interest on schemes liabilities          |  |             | (9 | ) |             |  | (6 | )
|Curtailment cost                          |  |             |   |   |             |  | (1 | )
|                                          |  |             |    |   |             | 
|Total operating charge                    |  |             | (7 | ) |             |  | (5 | )
|                                          |  |             |    |   |             | 



|                                        |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           |  |     |  |  |  |     | 
|--------------------------------------- |  | ----------- | --- |  | ----------- |  | --- | ----------- |  |  | --------- |  |  | -- | --- |  | --------- |  | --- |  |  |  | --- | 
|                                        |  | 31 December |     |  | 31 December |  |     | 31 December | 
|                                        |  | 2005        |     |  | 2004        |  |     | 2003        | 
|                                        |  |             |     |  |             |  |     |             | 
|                                        |  | UK          |     |  | Australia   |  |     | UK          |  |  | Australia |  |  | UK |     |  | Australia | 
|                                        |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           | 
|                                        |  | %           |     |  | %           |  |     | %           |  |  | %         |  |  | %  |     |  | %         | 
|Long-term rate of return expected:      |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           |  |     |  |  |  |     | 
|Equities                                |  |             | 7.1 |  |             |  | 7.5 |             |  |  | 7.5       |  |  |    | 7.3 |  |           |  | 7.8 |  |  |  | 7.6 | 
|Bonds                                   |  |             | 4.4 |  |             |  | 5.0 |             |  |  | 4.9       |  |  |    | 4.8 |  |           |  | 5.1 |  |  |  | 4.8 | 
|Other                                   |  |             | 6.0 |  |             |  | 5.9 |             |  |  | 6.0       |  |  |    | 5.5 |  |           |  | 6.6 |  |  |  | 6.1 | 
|                                        |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           | 
|Total long-term rate of return expected |  |             | 6.6 |  |             |  | 6.7 |             |  |  | 7.0       |  |  |    | 6.5 |  |           |  | 7.4 |  |  |  | 6.7 | 
|                                        |  |             |     |  |             |  |     |             |  |  |           |  |  |    |     |  |           | 



|                             |  |                  |     |  |                  |  |    |                  |  |  |     |  |  |           |    |  |       |  |    |    |  |  |           |  |  |       |    |  |  |  |    |  |  |  |    | 
|---------------------------- |  | ---------------- | --- |  | ---------------- |  | -- | ---------------- |  |  | --- |  |  | --------- | -- |  | ----- |  | -- | -- |  |  | --------- |  |  | ----- | -- |  |  |  | -- |  |  |  | -- | 
|                             |  | 31 December 2005 |     |  | 31 December 2004 |  |    | 31 December 2003 | 
|                             |  |                  |     |  |                  |  |    |                  | 
|                             |  | UK               |     |  | Australia        |  |    | Total            |  |  | UK  |  |  | Australia |    |  | Total |  |    | UK |  |  | Australia |  |  | Total |   
|                             |  |                  |     |  |                  |  |    |                  |  |  |     |  |  |           |    |  |       |  |    |    |  |  |           |  |  |       |   
|                             |  | £m               |     |  | £m               |  |    | £m               |  |  | £m  |  |  | £m        |    |  | £m    |  |    | £m |  |  | £m        |  |  | £m    |   
|Assets in schemes:           |  |                  |     |  |                  |  |    |                  |  |  |     |  |  |           |    |  |       |  |    |    |  |  |           |  |  |       |    |  |  |  |    |  |  |  |    | 
|Equities                     |  |                  | 84  |  |                  |  | 52 |                  |  |  | 136 |  |  |           | 66 |  |       |  | 44 |    |  |  | 110       |  |  |       | 36 |  |  |  | 35 |  |  |  | 71 | 
|Bonds                        |  |                  | 14  |  |                  |  | 17 |                  |  |  | 31  |  |  |           | 11 |  |       |  | 16 |    |  |  | 27        |  |  |       | 5  |  |  |  | 14 |  |  |  | 19 | 
|Other                        |  |                  | 16  |  |                  |  | 15 |                  |  |  | 31  |  |  |           | 12 |  |       |  | 10 |    |  |  | 22        |  |  |       | 4  |  |  |  | 5  |  |  |  | 9  | 
|                             |  |                  |     |  |                  |  |    |                  |  |  |     |  |  |           |    |  |       |  |    |    |  |  |           |  |  |       |   
|Total market value of assets |  |                  | 114 |  |                  |  | 84 |                  |  |  | 198 |  |  |           | 89 |  |       |  | 70 |    |  |  | 159       |  |  |       | 45 |  |  |  | 54 |  |  |  | 99 | 
|                             |  |                  |     |  |                  |  |    |                  |  |  |     |  |  |           |    |  |       |  |    |    |  |  |           |  |  |       |   

F-25



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                     |  |                  |      |   |                  |  |     |                  |  |  |      |   |  |           |      |   |       |  |     |    |  |  |           |   |  |       |     |   |  |  |     |   |  |  |      |  
|---------------------------------------------------- |  | ---------------- | ---- | - | ---------------- |  | --- | ---------------- |  |  | ---- | - |  | --------- | ---- | - | ----- |  | --- | -- |  |  | --------- | - |  | ----- | --- | - |  |  | --- | - |  |  | ---- | -
|                                                     |  | 31 December 2005 |      |   | 31 December 2004 |  |     | 31 December 2003 | 
|                                                     |  |                  |      |   |                  |  |     |                  | 
|                                                     |  | UK               |      |   | Australia        |  |     | Total            |  |  | UK   |   |  | Australia |      |   | Total |  |     | UK |  |  | Australia |   |  | Total |    
|                                                     |  |                  |      |   |                  |  |     |                  |  |  |      |   |  |           |      |   |       |  |     |    |  |  |           |   |  |       |    
|                                                     |  | £m               |      |   | £m               |  |     | £m               |  |  | £m   |   |  | £m        |      |   | £m    |  |     | £m |  |  | £m        |   |  | £m    |    
|Total market value of assets                         |  |                  | 114  |   |                  |  | 84  |                  |  |  | 198  |   |  |           | 89   |   |       |  | 70  |    |  |  | 159       |   |  |       | 45  |   |  |  | 54  |   |  |  | 99   |  
|Present value of scheme liabilities                  |  |                  | (161 | ) |                  |  | (79 | )                |  |  | (240 | ) |  |           | (114 | ) |       |  | (70 | )  |  |  | (184      | ) |  |       | (58 | ) |  |  | (58 | ) |  |  | (116 | )
|                                                     |  |                  |      |   |                  |  |     |                  |  |  |      |   |  |           |      |   |       |  |     |    |  |  |           |   |  |       |    
|(Deficit)/surplus in the scheme                      |  |                  | (47  | ) |                  |  | 5   |                  |  |  | (42  | ) |  |           | (25  | ) |       |  |    |    |  |  | (25       | ) |  |       | (13 | ) |  |  | (4  | ) |  |  | (17  | )
|Unrecognised actuarial losses/(gains)                |  |                  | 22   |   |                  |  | (7  | )                |  |  | 15   |   |  |           |     |   |       |  | (4  | )  |  |  | (4        | ) |  |       |    |   |  |  |    |   |  |  |     |  
|                                                     |  |                  |      |   |                  |  |     |                  |  |  |      |   |  |           |      |   |       |  |     |    |  |  |           |   |  |       |    
|Unrecognised asset due to limit in IAS 19 para 58(b) |  |                  |     |   |                  |  |    |                  |  |  |     |   |  |           |     |   |       |  |    |    |  |  |          |   |  |       |    |   |  |  |    |   |  |  |     |  
|                                                     |  |                  |      |   |                  |  |     |                  |  |  |      |   |  |           |      |   |       |  |     |    |  |  |           |   |  |       |    
|Pension liability before deferred tax                |  |                  | (25  | ) |                  |  | (2  | )                |  |  | (27  | ) |  |           | (25  | ) |       |  | (4  | )  |  |  | (29       | ) |  |       | (13 | ) |  |  | (4  | ) |  |  | (17  | )
|                                                     |  |                  |      |   |                  |  |     |                  |  |  |      |   |  |           |      |   |       |  |     |    |  |  |           |   |  |       |    

|                                            |  |      |     |   |      |  |     |  
|------------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                            |  | 2005 |     |   | 2004 | 
|                                            |  |      |     |   |      | 
|                                            |  | £m   |     |   | £m   | 
|Movements in fair value of assets:          |  |      |     |   |      |  |     |  
|At 1 January                                |  |      | 159 |   |      |  | 99  |  
|Expected return on assets                   |  |      | 11  |   |      |  | 7   |  
|Actuarial gains                             |  |      | 16  |   |      |  | 9   |  
|Employer contributions                      |  |      | 9   |   |      |  | 6   |  
|Scheme participants contributions          |  |      | 3   |   |      |  | 2   |  
|Benefits paid                               |  |      | (2  | ) |      |  | (2  | )
|Expenses, taxes and premiums paid           |  |      | (1  | ) |      |  | (1  | )
|Acquisitions, divestitures and combinations |  |      |    |   |      |  | 41  |  
|Exchange differences                        |  |      | 3   |   |      |  | (2  | )
|                                            |  |      |     |   |      | 
|At 31 December                              |  |      | 198 |   |      |  | 159 |  
|                                            |  |      |     |   |      | 

|                                            |  |      |     |   |      |  |     |  
|------------------------------------------- |  | ---- | --- | - | ---- |  | --- | -
|                                            |  | 2005 |     |   | 2004 | 
|                                            |  |      |     |   |      | 
|                                            |  | £m   |     |   | £m   | 
|Movements in defined benefit obligations:   |  |      |     |   |      |  |     |  
|At 1 January                                |  |      | 184 |   |      |  | 116 |  
|Service cost                                |  |      | 9   |   |      |  | 5   |  
|Interest cost                               |  |      | 9   |   |      |  | 6   |  
|Actuarial losses                            |  |      | 35  |   |      |  | 4   |  
|Scheme participants contributions          |  |      | 3   |   |      |  | 2   |  
|Benefits paid                               |  |      | (2  | ) |      |  | (2  | )
|Expenses, taxes and premiums paid           |  |      | (1  | ) |      |  | (1  | )
|Acquisitions, divestitures and combinations |  |      |    |   |      |  | 55  |  
|Settlement and curtailments                 |  |      |    |   |      |  | 1   |  
|Exchange differences                        |  |      | 3   |   |      |  | (2  | )
|                                            |  |      |     |   |      | 
|At 31 December                              |  |      | 240 |   |      |  | 184 |  
|                                            |  |      |     |   |      | 



F-26



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                             
| | --------------------------------------------
| | History of asset experience gains and losses

|                                                                          |                                                         |             |  |    |             |  |  |   |  
|------------------------------------------------------------------------- | ------------------------------------------------------- | ----------- |  | -- | ----------- |  |  | - | -
|                                                                          |                                                         | Year Ended  |  |    | Year Ended  | 
|                                                                          |                                                         | 31 December |  |    | 31 December | 
|                                                                          |                                                         | 2005        |  |    | 2004        | 
|                                                                          |                                                         |             |  |    |             | 
|Difference between the actual and expected return on
    schemes assets: |                                                         |             |  |    |             |  |  |  
|                                                                          | Amount (£m)                                             |             |  | 16 |             |  |  | 9 |  
|                                                                          | Percentage of schemes assets                           |             |  | 8  | %           |  |  | 6 | %
|Experience gains and losses on schemes liabilities*:                     |                                                         |             |  |    |             |  |  |  
|                                                                          | Amount (£m)                                             |             |  | 11 |             |  |  | 7 |  
|                                                                          | Percentage of the present value of schemes liabilities |             |  | 5  | %           |  |  | 4 | %






|  |                                                       
|- | ------------------------------------------------------
|* | Does not include the effect of changes in assumptions.



| |                      
| | ---------------------
| | Contributions in 2006



F-27



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|  |                  
|- | -----------------
|8 | Exceptional items



|                                                         |                                                                                             |             |     |     |             |  |     |     |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ----------- | --- | --- | ----------- |  | --- | --- | -
|                                                         |                                                                                             | Year Ended  |     |     | Year Ended  | 
|                                                         |                                                                                             | 31 December |     |     | 31 December | 
|                                                         |                                                                                             | 2005        |     |     | 2004        | 
|                                                         |                                                                                             |             |     |     |             | 
|                                                         |                                                                                             | £m          |     |     | £m          | 
|Cost of sales credited:                                  |                                                                                             |             |     |     |             |  |     |    
|                                                         | Impairment reversal of Rugeley plant                                                        |             |     | 52  |             |  |     |    |  
|                                                         |                                                                                             |             |     |     |             | 
|Exceptional items recognised in cost of sales            |                                                                                             |             | 52  |     |             |  |    |    
|                                                         |                                                                                             |             |     |     |             | 
|Other operating income credited:                         |                                                                                             |             |     |     |             |  |     |    
|                                                         | Compensation in respect of the tolling agreement with TXU                                   |             |     | 58  |             |  |     |    |  
|                                                         |                                                                                             |             |     |     |             | 
|Exceptional items recognised in other operating income   |                                                                                             |             | 58  |     |             |  |    |    
|                                                         |                                                                                             |             |     |     |             | 
|Other operating expense credited:                        |                                                                                             |             |     |     |             |  |     |    
|                                                         | Release of a guarantee on sale of Elcogas                                                   |             |     |    |             |  |     | 11  |  
|                                                         |                                                                                             |             |     |     |             | 
|Exceptional items recognised in other operating expenses |                                                                                             |             |    |     |             |  | 11  |    
|                                                         |                                                                                             |             |     |     |             | 
|Disposal of investments:                                 |                                                                                             |             |     |     |             |  |     |    
|                                                         | Profit on disposal of Tri Energy                                                            |             |     | 4   |             |  |     |    |  
|                                                         | Profit on disposal of shares in Interconnector UK                                           |             |     | 3   |             |  |     |    |  
|                                                         | Profit on disposal of land in Thailand                                                      |             |     | 3   |             |  |     |    |  
|                                                         | Profit on partial disposal of a holding in HUBCO                                            |             |     |    |             |  |     | 4   |  
|                                                         |                                                                                             |             |     |     |             | 
|Exceptional items recognised in disposal of investments  |                                                                                             |             | 10  |     |             |  | 4   |    
|                                                         |                                                                                             |             |     |     |             | 
|Finance costs:                                           |                                                                                             |             |     |     |             |  |     |    
|                                                         | US swap termination costs                                                                   |             |     |    |             |  |     | (15 | )
|                                                         | Other refinancing costs                                                                     |             |     |    |             |  |     | (16 | )
|                                                         |                                                                                             |             |     |     |             | 
|Exceptional items recognised in finance costs            |                                                                                             |             |    |     |             |  | (31 | )  
|                                                         |                                                                                             |             |     |     |             | 
|Attributable taxation                                    |                                                                                             |             |     |     |             |  |     |    
|                                                         | Taxation on Rugeley plant impairment reversal                                               |             |     | (16 | )           |  |     |    |  
|                                                         | Taxation on compensation in respect of the tolling agreement
    with TXU                   |             |     | (17 | )           |  |     |    |  
|                                                         | Taxation on disposal of shares in Interconnector UK and on
    disposal of land in Thailand |             |     | (1  | )           |  |     |    |  
|                                                         |                                                                                             |             |     |     |             | 
|Taxation on exceptional items                            |                                                                                             |             | (34 | )   |             |  |    |    
|                                                         |                                                                                             |             |     |     |             | 
|Total exceptional items after attributable taxation      |                                                                                             |             | 86  |     |             |  | (16 | )  
|                                                         |                                                                                             |             |     |     |             | 



F-28



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                            
| | ---------------------------
| | Year ended 31 December 2004







|  |    
|- | ---
|9 | Tax

|                                                  |                  |             |    |     |             |  |    |    |  
|------------------------------------------------- | ---------------- | ----------- | -- | --- | ----------- |  | -- | -- | -
|                                                  |                  | Year Ended  |    |     | Year Ended  | 
|                                                  |                  | 31 December |    |     | 31 December | 
|                                                  |                  | 2005        |    |     | 2004        | 
|                                                  |                  |             |    |     |             | 
|                                                  |                  | £m          |    |     | £m          | 
|a) Income tax expense for the year                |                  |             |    |     |             |  |    |   
|Current tax                                       |                  |             |    |     |             |  |    |   
|UK Corporation tax charge                         |                  |             | 25 |     |             |  | 1  |   
|Foreign tax                                       |                  |             | 27 |     |             |  | 18 |   
|Adjustments for prior years                       |                  |             | 2  |     |             |  | (3 | ) 
|                                                  |                  |             |    |     |             | 
|Total current tax charge for the year             |                  |             | 54 |     |             |  | 16 |   
|                                                  |                  |             |    |     |             | 
|Deferred tax charge                               |                  |             |    |     |             |  |    |   
|Origination and reversal of temporary differences |                  |             | 43 |     |             |  | 9  |   
|Benefits of tax losses recognised                 |                  |             | (8 | )   |             |  |   |   
|                                                  |                  |             |    |     |             | 
|Total deferred tax charge for the year            |                  |             | 35 |     |             |  | 9  |   
|                                                  |                  |             |    |     |             | 
|Total income tax expense for the year             |                  |             | 89 |     |             |  | 25 |   
|                                                  |                  |             |    |     |             | 
|Income tax charged to:                            |                  |             |    |     |             |  |    |   
|                                                  | Income statement |             |    | 89  |             |  |    | 25 |  
|                                                  | Equity           |             |    | (46 | )           |  |    | (2 | )
|                                                  |                  |             |    |     |             | 
|                                                  |                  |             | 43 |     |             |  | 23 |   
|                                                  |                  |             |    |     |             | 



|                                                                                                |  |             |    |  |             |  |   | 
|----------------------------------------------------------------------------------------------- |  | ----------- | -- |  | ----------- |  | - | 
|                                                                                                |  | Year Ended  |    |  | Year Ended  | 
|                                                                                                |  | 31 December |    |  | 31 December | 
|                                                                                                |  | 2005        |    |  | 2004        | 
|                                                                                                |  |             |    |  |             | 
|                                                                                                |  | £m          |    |  | £m          | 
|Included in the income tax expense are the following amounts
    relating to exceptional items: |  |             |    |  |             |  |   | 
|Cost of sales exceptional items (deferred tax)                                                  |  |             | 16 |  |             |  |  | 
|Operating income exceptional items (current tax)                                                |  |             | 17 |  |             |  |  | 
|Disposal of investments exceptional items (current tax)                                         |  |             | 1  |  |             |  |  | 
|                                                                                                |  |             |    |  |             | 
|Tax charge on exceptional items                                                                 |  |             | 34 |  |             |  |  | 
|                                                                                                |  |             |    |  |             | 

F-29



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                         |  |             |     |   |             |  |     |  
|------------------------------------------------------------------------ |  | ----------- | --- | - | ----------- |  | --- | -
|                                                                         |  | Year Ended  |     |   | Year Ended  | 
|                                                                         |  | 31 December |     |   | 31 December | 
|                                                                         |  | 2005        |     |   | 2004        | 
|                                                                         |  |             |     |   |             | 
|                                                                         |  | £m          |     |   | £m          | 
|b) Reconciliation of income tax expense to accounting
    profit         |  |             |     |   |             |  |     |  
|Profit before tax (before exceptional items)                             |  |             | 299 |   |             |  | 145 |  
|                                                                         |  |             |     |   |             | 
|Tax at domestic income tax rate at 30% (2004: 30%)                       |  |             | 90  |   |             |  | 44  |  
|Tax effect of:                                                           |  |             |     |   |             |  |     |  
|Different tax rates of subsidiaries operating in other
    jurisdictions |  |             | 23  |   |             |  | (7  | )
|Share of results of joint ventures and associates                        |  |             | (39 | ) |             |  | (12 | )
|Tax holidays                                                             |  |             | (12 | ) |             |  | (12 | )
|Expenses that are not deductible in determining taxable profits          |  |             | 15  |   |             |  | 15  |  
|Utilisation of tax losses not previously recognised                      |  |             | (24 | ) |             |  |    |  
|Over/ (under) provided in prior years                                    |  |             | 2   |   |             |  | (3  | )
|                                                                         |  |             |     |   |             | 
|Income tax expense for the year before exceptional items                 |  |             | 55  |   |             |  | 25  |  
|Income tax expense for the year on exceptional items                     |  |             | 34  |   |             |  |    |  
|                                                                         |  |             |     |   |             | 
|Income tax expense for the year                                          |  |             | 89  |   |             |  | 25  |  
|                                                                         |  |             |     |   |             | 





|   |          
|-- | ---------
|10 | Dividends







F-30



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                         
|-- | ------------------------
|11 | Earnings per share (EPS)

|                                                                                     |                        |             |         |      |             |  |         |      | 
|------------------------------------------------------------------------------------ | ---------------------- | ----------- | ------- | ---- | ----------- |  | ------- | ---- | 
|                                                                                     |                        | Year Ended  |         |      | Year Ended  | 
|                                                                                     |                        | 31 December |         |      | 31 December | 
|                                                                                     |                        | 2005        |         |      | 2004        | 
|                                                                                     |                        |             |         |      |             | 
|                                                                                     |                        | Pence       |         |      | Pence       | 
|a) Earnings per share (basic)                                                        |                        |             |         |      |             |  |         |     
|Before exceptional items                                                             |                        |             | 13.5    |      |             |  | 8.6     |     
|After exceptional items                                                              |                        |             | 19.4    |      |             |  | 7.5     |     
|                                                                                     |                        |             |         |      |             | 
|b) Earnings per share (diluted)                                                      |                        |             |         |      |             |  |         |     
|Before exceptional items                                                             |                        |             | 13.0    |      |             |  | 8.5     |     
|After exceptional items                                                              |                        |             | 18.5    |      |             |  | 7.4     |     
|                                                                                     |                        |             |         |      |             | 
|c) Basis of calculation (basic) earnings                                             |                        |             | £m      |      |             |  | £m      |     
|                                                                                    
|Profit attributable to equity holders of the parent before
    exceptional items     |                        |             | 199     |      |             |  | 112     |     
|Exceptional items                                                                    |                        |             | 86      |      |             |  | (14     | )   
|                                                                                     |                        |             |         |      |             | 
|Profit attributable to equity holders of the parent after
    exceptional items      |                        |             | 285     |      |             |  | 98      |     
|                                                                                     |                        |             |         |      |             | 
|d) Basis of calculation (diluted) earnings                                           |                        |             |         |      |             |  |         |     
|Profit attributable to equity holders of the parent before
    exceptional items     |                        |             | 199     |      |             |  | 112     |     
|After tax effect of interest on convertible bond                                     |                        |             | 7       |      |             |  |        |     
|                                                                                     |                        |             |         |      |             | 
|Profit attributable to equity holders of the parent before
    exceptional items     |                        |             | 206     |      |             |  | 112     |     
|Exceptional items                                                                    |                        |             | 86      |      |             |  | (14     | )   
|                                                                                     |                        |             |         |      |             | 
|Profit attributable to equity holders of the parent after
    exceptional items      |                        |             | 292     |      |             |  | 98      |     
|                                                                                     |                        |             |         |      |             | 
|e) Basis of calculation (basic) number of Ordinary
    Shares                        |                        |             | Million |      |             |  | Million |     
|                                                                                    
|Weighted average number of issued Ordinary Shares for the
    purposes of basic EPS  |                        |             | 1,473.5 |      |             |  | 1,308.3 |     
|Weighted average number of shares held by Employee Share
    Ownership Plans (ESOPs) |                        |             | (2.8    | )    |             |  | (2.8    | )   
|                                                                                     |                        |             |         |      |             | 
|Weighted average number of shares                                                    |                        |             | 1,470.7 |      |             |  | 1,305.5 |     
|                                                                                     |                        |             |         |      |             | 
|f) Basis of calculation (diluted) number of Ordinary
    Shares                      |                        |             |         |      |             |  |         |     
|Weighted average number of shares  total                                            |                        |             | 1,470.7 |      |             |  | 1,305.5 |     
|Dilutive potential Ordinary Shares:                                                  |                        |             |         |      |             |  |         |     
|                                                                                     | Employee share schemes |             |         | 19.8 |             |  |         | 10.9 | 
|                                                                                     | Convertible bond       |             |         | 89.1 |             |  |         | 3.0  | 
|                                                                                     |                        |             |         |      |             | 
|Weighted average number of Ordinary Shares for the purposes of
    diluted EPS       |                        |             | 1,579.6 |      |             |  | 1,319.4 |     
|                                                                                     |                        |             |         |      |             | 

F-31



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |         
|-- | --------
|12 | Goodwill

|                                               |  |             |     |   |             |  |     | 
|---------------------------------------------- |  | ----------- | --- | - | ----------- |  | --- | 
|                                               |  | 31 December |     |   | 31 December | 
|                                               |  | 2005        |     |   | 2004        | 
|                                               |  |             |     |   |             | 
|                                               |  | £m          |     |   | £m          | 
|Cost                                           |  |             |     |   |             |  |     | 
|At 1 January                                   |  |             | 197 |   |             |  | 7   | 
|Acquired through business combinations         |  |             | 2   |   |             |  | 190 | 
|Eliminated on partial disposal of a subsidiary |  |             | (9  | ) |             |  |    | 
|Exchange differences                           |  |             | (1  | ) |             |  |    | 
|                                               |  |             |     |   |             | 
|At 31 December                                 |  |             | 189 |   |             |  | 197 | 
|                                               |  |             |     |   |             | 





|                     |  |             |     |  |             |  |     | 
|-------------------- |  | ----------- | --- |  | ----------- |  | --- | 
|                     |  | 31 December |     |  | 31 December | 
|                     |  | 2005        |     |  | 2004        | 
|                     |  |             |     |  |             | 
|                     |  | £m          |     |  | £m          | 
|First Hydro (UK)     |  |             | 153 |  |             |  | 153 | 
|Turbogás (Portugal)  |  |             | 27  |  |             |  | 35  | 
|IPO (Czech Republic) |  |             | 7   |  |             |  | 7   | 
|Others               |  |             | 2   |  |             |  | 2   | 
|                     |  |             |     |  |             | 
|At 31 December       |  |             | 189 |  |             |  | 197 | 
|                     |  |             |     |  |             | 





|   |                        
|-- | -----------------------
|13 | Other intangible assets

|                               |  |             |     |  |             |  |   | 
|------------------------------ |  | ----------- | --- |  | ----------- |  | - | 
|                               |  | 31 December |     |  | 31 December | 
|                               |  | 2005        |     |  | 2004        | 
|                               |  |             |     |  |             | 
|                               |  | £m          |     |  | £m          | 
|Intangible assets              |  |             |     |  |             |  |   | 
|Commodity contracts            |  |             | 194 |  |             |  | 9 | 
|Emission allowances            |  |             |    |  |             |  |  | 
|                               |  |             |     |  |             | 
|Carrying amount at 31 December |  |             | 194 |  |             |  | 9 | 
|                               |  |             |     |  |             | 

F-32



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                       |  |             |     |   |             |  |   | 
|------------------------------------------------------ |  | ----------- | --- | - | ----------- |  | - | 
|                                                       |  | 31 December |     |   | 31 December | 
|                                                       |  | 2005        |     |   | 2004        | 
|                                                       |  |             |     |   |             | 
|                                                       |  | £m          |     |   | £m          | 
|Intangible assets  commodity contracts                |  |             |     |   |             |  |   | 
|Cost                                                   |  |             |     |   |             |  |   | 
|At 1 January                                           |  |             | 9   |   |             |  |  | 
|On adoption of IAS 32 and IAS 39                       |  |             | (9  | ) |             |  |  | 
|                                                       |  |             |     |   |             | 
|At 1 January                                           |  |             |    |   |             |  |  | 
|On acquisition of subsidiaries                         |  |             | 234 |   |             |  | 9 | 
|                                                       |  |             |     |   |             | 
|At 31 December                                         |  |             | 234 |   |             |  | 9 | 
|                                                       |  |             |     |   |             | 
|Accumulated amortisation                               |  |             |     |   |             |  |   | 
|At 1 January                                           |  |             |    |   |             |  |  | 
|Charge for the year                                    |  |             | 40  |   |             |  |  | 
|                                                       |  |             |     |   |             | 
|At 31 December                                         |  |             | 40  |   |             |  |  | 
|                                                       |  |             |     |   |             | 
|Carrying amount                                        |  |             |     |   |             |  |   | 
|At 1 January (following adoption of IAS 32 and IAS 39) |  |             |    |   |             |  |  | 
|At 31 December                                         |  |             | 194 |   |             |  | 9 | 
|                                                       |  |             |     |   |             | 
|Intangible assets  emission allowances                |  |             |     |   |             |  |   | 
|Carrying amount                                        |  |             |     |   |             |  |   | 
|At 1 January                                           |  |             |    |   |             |  |  | 
|Additions                                              |  |             | 25  |   |             |  |  | 
|Disposals                                              |  |             | (25 | ) |             |  |  | 
|                                                       |  |             |     |   |             | 
|At 31 December                                         |  |             |    |   |             |  |  | 
|                                                       |  |             |     |   |             | 







F-33



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|14 | Property, plant and equipment

|                                             |  |               |     |   |                  |  |       |                     |  |  |       |   |  |  |       |  
|-------------------------------------------- |  | ------------- | --- | - | ---------------- |  | ----- | ------------------- |  |  | ----- | - |  |  | ----- | -
|                                             |  | Freehold Land |     |   | Plant, Machinery |  |       | Assets in Course of |  |  |      
|                                             |  | and Buildings |     |   | and Equipment    |  |       | Construction        |  |  | Total |  
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  
|                                             |  | £m            |     |   | £m               |  |       | £m                  |  |  | £m    |  
|Cost                                         |  |               |     |   |                  |  |       |                     |  |  |       |   |  |  |       |  
|At 1 January 2004                            |  |               | 89  |   |                  |  | 2,547 |                     |  |  | 23    |   |  |  | 2,659 |  
|Additions                                    |  |               | 7   |   |                  |  | 44    |                     |  |  | 188   |   |  |  | 239   |  
|On acquisition of subsidiaries               |  |               | 80  |   |                  |  | 1,304 |                     |  |  |      |   |  |  | 1,384 |  
|Reclassifications and transfers              |  |               |    |   |                  |  | 43    |                     |  |  | (46   | ) |  |  | (3    | )
|Disposals                                    |  |               |    |   |                  |  | (2    | )                   |  |  |      |   |  |  | (2    | )
|Exchange differences                         |  |               | (2  | ) |                  |  | (71   | )                   |  |  | (4    | ) |  |  | (77   | )
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  
|At 31 December 2004                          |  |               | 174 |   |                  |  | 3,865 |                     |  |  | 161   |   |  |  | 4,200 |  
|Additions                                    |  |               | 5   |   |                  |  | 78    |                     |  |  | 184   |   |  |  | 267   |  
|On acquisition of subsidiaries               |  |               |    |   |                  |  | 365   |                     |  |  |      |   |  |  | 365   |  
|Reclassifications and transfers              |  |               |    |   |                  |  | 54    |                     |  |  | (54   | ) |  |  |      |  
|Disposals                                    |  |               | (2  | ) |                  |  | (9    | )                   |  |  |      |   |  |  | (11   | )
|Disposal of subsidiaries                     |  |               |    |   |                  |  | (54   | )                   |  |  |      |   |  |  | (54   | )
|Exchange differences                         |  |               | 3   |   |                  |  | 241   |                     |  |  | 25    |   |  |  | 269   |  
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  
|At 31 December 2005                          |  |               | 180 |   |                  |  | 4,540 |                     |  |  | 316   |   |  |  | 5,036 |  
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  
|Accumulated depreciation and impairment loss |  |               |     |   |                  |  |       |                     |  |  |       |   |  |  |       |  
|At 1 January 2004                            |  |               | 22  |   |                  |  | 589   |                     |  |  |      |   |  |  | 611   |  
|Depreciation charge for the year             |  |               | 3   |   |                  |  | 82    |                     |  |  |      |   |  |  | 85    |  
|Eliminated on disposals                      |  |               |    |   |                  |  | (2    | )                   |  |  |      |   |  |  | (2    | )
|Exchange differences                         |  |               |    |   |                  |  | (36   | )                   |  |  |      |   |  |  | (36   | )
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  
|At 31 December 2004                          |  |               | 25  |   |                  |  | 633   |                     |  |  |      |   |  |  | 658   |  
|Depreciation charge for the year             |  |               | 11  |   |                  |  | 137   |                     |  |  |      |   |  |  | 148   |  
|Disposals                                    |  |               | (2  | ) |                  |  | (9    | )                   |  |  |      |   |  |  | (11   | )
|Disposal of subsidiaries                     |  |               |    |   |                  |  | (3    | )                   |  |  |      |   |  |  | (3    | )
|Impairment reversal                          |  |               |    |   |                  |  | (52   | )                   |  |  |      |   |  |  | (52   | )
|Exchange differences                         |  |               |    |   |                  |  | 89    |                     |  |  |      |   |  |  | 89    |  
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  
|At 31 December 2005                          |  |               | 34  |   |                  |  | 795   |                     |  |  |      |   |  |  | 829   |  
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  
|Carrying amount                              |  |               |     |   |                  |  |       |                     |  |  |       |   |  |  |       |  
|At 31 December 2005                          |  |               | 146 |   |                  |  | 3,745 |                     |  |  | 316   |   |  |  | 4,207 |  
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  
|At 31 December 2004                          |  |               | 149 |   |                  |  | 3,232 |                     |  |  | 161   |   |  |  | 3,542 |  
|                                             |  |               |     |   |                  |  |       |                     |  |  |       |  



F-34



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|   |                                             
|-- | --------------------------------------------
|15 | Investments in joint ventures and associates



|                                                   |  |             |       |   |             |  |       |  
|-------------------------------------------------- |  | ----------- | ----- | - | ----------- |  | ----- | -
|                                                   |  | 31 December |       |   | 31 December | 
|                                                   |  | 2005        |       |   | 2004        | 
|                                                   |  |             |       |   |             | 
|                                                   |  | £m          |       |   | £m          | 
|a) Joint ventures net assets (including goodwill) |  |             |       |   |             |  |       |  
|Non-current assets                                 |  |             | 1,362 |   |             |  | 1,184 |  
|Current assets                                     |  |             | 280   |   |             |  | 179   |  
|                                                   |  |             |       |   |             | 
|Total assets                                       |  |             | 1,642 |   |             |  | 1,363 |  
|                                                   |  |             |       |   |             | 
|Current liabilities                                |  |             | (188  | ) |             |  | (104  | )
|Non-current liabilities                            |  |             | (743  | ) |             |  | (594  | )
|                                                   |  |             |       |   |             | 
|Total liabilities                                  |  |             | (931  | ) |             |  | (698  | )
|                                                   |  |             |       |   |             | 
|Net assets                                         |  |             | 711   |   |             |  | 665   |  
|                                                   |  |             |       |   |             | 
|Groups share of joint ventures net assets        |  |             | 349   |   |             |  | 312   |  
|                                                   |  |             |       |   |             | 

|                                               |  |             |        |   |             |  |        |  
|---------------------------------------------- |  | ----------- | ------ | - | ----------- |  | ------ | -
|                                               |  | 31 December |        |   | 31 December | 
|                                               |  | 2005        |        |   | 2004        | 
|                                               |  |             |        |   |             | 
|                                               |  | £m          |        |   | £m          | 
|b) Associates net assets (including goodwill) |  |             |        |   |             |  |        |  
|Non-current assets                             |  |             | 7,690  |   |             |  | 6,167  |  
|Current assets                                 |  |             | 1,755  |   |             |  | 1,522  |  
|                                               |  |             |        |   |             | 
|Total assets                                   |  |             | 9,445  |   |             |  | 7,689  |  
|                                               |  |             |        |   |             | 
|Current liabilities                            |  |             | (840   | ) |             |  | (799   | )
|Non-current liabilities                        |  |             | (5,468 | ) |             |  | (4,254 | )
|                                               |  |             |        |   |             | 
|Total liabilities                              |  |             | (6,308 | ) |             |  | (5,053 | )
|                                               |  |             |        |   |             | 
|Net assets                                     |  |             | 3,137  |   |             |  | 2,636  |  
|                                               |  |             |        |   |             | 
|Groups share of associates net assets        |  |             | 1,026  |   |             |  | 857    |  
|                                               |  |             |        |   |             | 

F-35



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                           |  |             |     |  |             |  |     | 
|------------------------------------------ |  | ----------- | --- |  | ----------- |  | --- | 
|                                           |  | 31 December |     |  | 31 December | 
|                                           |  | 2005        |     |  | 2004        | 
|                                           |  |             |     |  |             | 
|                                           |  | £m          |     |  | £m          | 
|c) Results of joint ventures               |  |             |     |  |             |  |     | 
|Revenue                                    |  |             | 631 |  |             |  | 299 | 
|Profit for the year                        |  |             | 104 |  |             |  | 47  | 
|                                           |  |             |     |  |             | 
|Groups share of results of joint ventures |  |             |     |  |             |  |     | 
|Share of revenue                           |  |             | 309 |  |             |  | 144 | 
|Share of profit for the year               |  |             | 50  |  |             |  | 24  | 
|                                           |  |             |     |  |             | 

|                                       |  |             |       |  |             |  |       | 
|-------------------------------------- |  | ----------- | ----- |  | ----------- |  | ----- | 
|                                       |  | 31 December |       |  | 31 December | 
|                                       |  | 2005        |       |  | 2004        | 
|                                       |  |             |       |  |             | 
|                                       |  | £m          |       |  | £m          | 
|d) Results of associates               |  |             |       |  |             |  |       | 
|Revenue                                |  |             | 2,024 |  |             |  | 1,266 | 
|Profit for the year                    |  |             | 449   |  |             |  | 330   | 
|                                       |  |             |       |  |             | 
|Groups share of results of associates |  |             |       |  |             |  |       | 
|Share of revenue                       |  |             | 694   |  |             |  | 355   | 
|Share of profit for the year           |  |             | 148   |  |             |  | 89    | 
|                                       |  |             |       |  |             | 











F-36



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                  
|-- | -----------------
|16 | Other investments

|                                                     |  |             |   |  |             |  |    | 
|---------------------------------------------------- |  | ----------- | - |  | ----------- |  | -- | 
|                                                     |  | 31 December |   |  | 31 December | 
|                                                     |  | 2005        |   |  | 2004        | 
|                                                     |  |             |   |  |             | 
|                                                     |  | £m          |   |  | £m          | 
|Non-current                                          |  |             |   |  |             |  |    | 
|Investments available for sale carried at fair value |  |             |  |  |             |  | 79 | 
|Other investments                                    |  |             | 4 |  |             |  | 7  | 
|                                                     |  |             |   |  |             | 
|                                                     |  |             | 4 |  |             |  | 86 | 
|                                                     |  |             |   |  |             | 





|   |             
|-- | ------------
|17 | Subsidiaries



|                                          |                              |                   |                    |  |               |  |                   |              |  |  |     |   | 
|----------------------------------------- | ---------------------------- | ----------------- | ------------------ |  | ------------- |  | ----------------- | ------------ |  |  | --- | - | 
|                                          |                              | Country of        |                    |  |               |  |                  
|                                          |                              | Incorporation and |                    |  |               |  | Group Effective   |             
|Name and Nature of Business               |                              | Registration      |                    |  | Type of Share |  |                   | Shareholding | 
|                                          |                              |                   |                    |  |               |  |                   |              | 
|Canunda Power Pty Limited*                |                              |                   | Australia          |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Gippsland Power Pty Limited*              |                              |                   | Australia          |  |               |  | Ordinary Shares   |              |  |  | 70  | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Hazelwood Power Partnership*              |                              |                   | Australia          |  |               |  | Partners Capital |              |  |  | 92  | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Latrobe Power Partnership*                |                              |                   | Australia          |  |               |  | Partners Capital |              |  |  | 70  | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Perth Power Partnership*                  |                              |                   | Australia          |  |               |  | Partners Capital |              |  |  | 49  | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Synergen Power Pty Limited*               |                              |                   | Australia          |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|International Power Opatovice A.S.*       |                              |                   | Czech Republic     |  |               |  | Ordinary Shares   |              |  |  | 99  | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Deeside Power Development Company Limited |                              |                   | England and Wales  |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|First Hydro Company*                      |                              |                   | England and Wales  |  |               |  | Ordinary Shares   |              |  |  | 70  | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|First Hydro Finance plc*                  |                              |                   | England and Wales  |  |               |  | Ordinary Shares   |              |  |  | 70  | %
|                                          | (Financing company)          |                   |                    |  |               |  |                   |              |  |  |     |   | 
|IPM Eagle LLP*                            |                              |                   | England and Wales  |  |               |  | Partners Capital |              |  |  | 70  | %
|                                          | (Investment holding company) |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Normanglade 4 LLP*                        |                              |                   | England and Wales  |  |               |  | Partners Capital |              |  |  | 70  | %
|                                          | (Financing company)          |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Pelican Point Power Limited*              |                              |                   | England and Wales |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 
|Rugeley Power Limited                     |                              |                   | England and Wales  |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                          | (Power generation)           |                   |                    |  |               |  |                   |              |  |  |     |   | 

F-37



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                         |                     |                    |                   |  |               |  |                   |              |  |  |     |   |  | 
|---------------------------------------- | ------------------- | ------------------ | ----------------- |  | ------------- |  | ----------------- | ------------ |  |  | --- | - |  | 
|                                         |                     | Country of         |                   |  |               |  |                  
|                                         |                     | Incorporation and  |                   |  |               |  | Group Effective   |             
|Name and Nature of Business              |                     | Registration       |                   |  | Type of Share |  |                   | Shareholding | 
|                                         |                     |                    |                   |  |               |  |                   |              | 
|Saltend Cogeneration Company Limited*    |                     |                    | England and Wales |  |               |  | Ordinary Shares   |              |  |  | 70  | %
|                                         |                     | (Power generation) |                   |  |               |  |                   |              |  |  |     |   |  | 
|IPR Insurance Company Limited*           |                     |                    | Guernsey          |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                         | (Insurance captive) |                    |                   |  |               |  |                   |              |  |  |     |   | 
|International Power (Jersey) Limited     |                     |                    | Jersey**          |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                         | (Financing company) |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Al Kamil Power Company SAOG*             |                     |                    | Oman              |  |               |  | Ordinary Shares   |              |  |  | 65  | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Turbogás  Produtora Enérgetica S.A*     |                     |                    | Portugal          |  |               |  | Ordinary Shares   |              |  |  | 60  | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Tihama Power Generation Company Limited* |                     |                    | Saudi Arabia      |  |               |  | Ordinary Shares   |              |  |  | 60  | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Electro Metalurgica del Ebro SL*         |                     |                    | Spain             |  |               |  | Ordinary Shares   |              |  |  | 64  | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Ibérica de Enérgías SL*                  |                     |                    | Spain             |  |               |  | Ordinary Shares   |              |  |  | 70  | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Thai National Power Company Limited*     |                     |                    | Thailand          |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|ANP Bellingham Energy Company, LLC*      |                     |                    | US                |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|ANP Blackstone Energy Company, LLC*      |                     |                    | US                |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|ANP Funding I, LLC*                      |                     |                    | US                |  |               |  | Ordinary Shares   |              |  |  | 100 | %
|                                         | (Financing company) |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Hays Energy Limited Partnership*         |                     |                    | US                |  |               |  | Partners Capital |              |  |  | 100 | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Midlothian Energy Limited Partnership*   |                     |                    | US                |  |               |  | Partners Capital |              |  |  | 100 | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 
|Milford Power Limited Partnership*       |                     |                    | US                |  |               |  | Partners Capital |              |  |  | 100 | %
|                                         | (Power generation)  |                    |                   |  |               |  |                   |              |  |  |     |   | 








| |   |                                   
| | - | ----------------------------------
| | * | Held by an intermediate subsidiary



|   |                   
|-- | ------------------
|** | Operates in the UK



| |   |                      
| | - | ---------------------
| |  | Operates in Australia

F-38



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|18 | Joint ventures and associates



|                                                                |                            |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   |  | 
|--------------------------------------------------------------- | -------------------------- | ------------------ | ----------------- |  | ----------------- |  | ----------- | ------------- |  | --------------- | ----------------- |  |  |  | -- | - |  | 
|                                                                |                            | Country of         |                   |  |                   |  |             |               | 
|                                                                |                            | Incorporation,     |                   |  |                   |  |             |               | 
|                                                                |                            | Registration and   |                   |  | Accounting Period |  |             |               |  | Group Effective |                  
|Name and Nature of Business                                     |                            | Operation          |                   |  | End               |  |             | Type of Share |  |                 | Shareholding      | 
|                                                                |                            |                    |                   |  |                   |  |             |               |  |                 |                   | 
|Joint ventures                                                  |                            |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |  
|EA  IPR Retail Partnership*                                    |                            |                    | Australia         |  |                   |  | 31 December |               |  |                 | Partners Capital |  |  |  | 50 | %
|South East Australia Gas Pty Limited*                           |                            |                    | Australia         |  |                   |  | 30 June     |               |  |                 | Ordinary Shares   |  |  |  | 33 | %
|                                                                | (Gas pipeline)             |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|EcoEléctrica LP*                                                |                            |                    | Bermuda**         |  |                   |  | 31 December |               |  |                 | Partners Capital |  |  |  | 35 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Prazska Teplárenská A.S.*                                       |                            |                    | Czech Republic    |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 49 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Hartwell Energy Limited Partnership*                            |                            |                    | US                |  |                   |  | 31 December |               |  |                 | Partners Capital |  |  |  | 50 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Oyster Creek Limited Partnership*                               |                            |                    | US                |  |                   |  | 31 December |               |  |                 | Partners Capital |  |  |  | 50 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Associates                                                      |                            |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |  
|Derwent Cogeneration Limited*                                   |                            |                    | England and Wales |  |                   |  | 31 March    |               |  |                 | Ordinary Shares   |  |  |  | 23 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|PT Paiton Energy*                                               |                            |                    | Indonesia         |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 31 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|ISAB Energy Srl*                                                |                            |                    | Italy             |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 34 | %
|                                                                |                            | (Power generation) |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   |  | 
|Malakoff Berhad*                                                |                            |                    | Malaysia          |  |                   |  | 31 August   |               |  |                 | Ordinary Shares   |  |  |  | 18 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Kot Addu Power Company Limited*                                 |                            |                    | Pakistan          |  |                   |  | 30 June     |               |  |                 | Ordinary Shares   |  |  |  | 36 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Uch Power Limited*                                              |                            |                    | Pakistan          |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 40 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|The Hub Power Company Limited*                                  |                            |                    | Pakistan          |  |                   |  | 30 June     |               |  |                 | Ordinary Shares   |  |  |  | 17 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Carbopego Abastecimento de Combustiveis, S.A.*                  |                            |                    | Portugal          |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 50 | %
|                                                                | (Fuel supplies)            |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Pegop Energia Electrica, S.A.*                                  |                            |                    | Portugal          |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 50 | %
|                                                                | (Power station operations) |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Tejo Energia Producao e Distribuicao de Energia Electrica, S.A* |                            |                    | Portugal          |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 50 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 
|Q Power QSC*                                                    |                            |                    | Qatar             |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 40 | %
|Uni-Mar Enerji Yatirimlari A.S.*                                |                            |                    | Turkey            |  |                   |  | 31 December |               |  |                 | Ordinary Shares   |  |  |  | 33 | %
|                                                                | (Power generation)         |                    |                   |  |                   |  |             |               |  |                 |                   |  |  |  |    |   | 

F-39



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                |                    |                  |     |  |                   |  |             |               |  |                 |                 |  |  |  |    |   | 
|----------------------------------------------- | ------------------ | ---------------- | --- |  | ----------------- |  | ----------- | ------------- |  | --------------- | --------------- |  |  |  | -- | - | 
|                                                |                    | Country of       |     |  |                   |  |             |               | 
|                                                |                    | Incorporation,   |     |  |                   |  |             |               | 
|                                                |                    | Registration and |     |  | Accounting Period |  |             |               |  | Group Effective |                
|Name and Nature of Business                     |                    | Operation        |     |  | End               |  |             | Type of Share |  |                 | Shareholding    | 
|                                                |                    |                  |     |  |                   |  |             |               |  |                 |                 | 
|Arabian Power Company PJSC*                     |                    |                  | UAE |  |                   |  | 31 December |               |  |                 | Ordinary Shares |  |  |  | 20 | %
|                                                | (Power generation) |                  |     |  |                   |  |             |               |  |                 |                 |  |  |  |    |   | 
|Shuweihat CMS International Power Company PJSC* |                    |                  | UAE |  |                   |  | 31 December |               |  |                 | Ordinary Shares |  |  |  | 20 | %
|                                                | (Power generation) |                  |     |  |                   |  |             |               |  |                 |                 |  |  |  |    |   | 








| |   |                                   
| | - | ----------------------------------
| | * | Held by an intermediate subsidiary



|   |                        
|-- | -----------------------
|** | Operates in Puerto Rico



|   |                          
|-- | -------------------------
|19 | Finance lease receivables

|                                                                        |  |                        |      |                          |                |  |      |             |  |  |             |  |  |  |     | 
|----------------------------------------------------------------------- |  | ---------------------- | ---- | ------------------------ | -------------- |  | ---- | ----------- |  |  | ----------- |  |  |  | --- | 
|                                                                        |  |                        |      | Present Value of Minimum |               
|                                                                        |  | Minimum Lease Payments |      |                          | Lease Payments | 
|                                                                        |  |                        |      |                          |                | 
|                                                                        |  | 31 December            |      |                          | 31 December    |  |      | 31 December |  |  | 31 December | 
|                                                                        |  | 2005                   |      |                          | 2004           |  |      | 2005        |  |  | 2004        | 
|                                                                        |  |                        |      |                          |                |  |      |             |  |  |             | 
|                                                                        |  | £m                     |      |                          | £m             |  |      | £m          |  |  | £m          | 
|Amounts receivable under finance leases:                                |  |                        |      |                          |                |  |      |             |  |  |             |  |  |  |     | 
|Within one year                                                         |  |                        | 48   |                          |                |  | 50   |             |  |  | 12          |  |  |  | 11  | 
|Later than one year and not later than five years                       |  |                        | 192  |                          |                |  | 211  |             |  |  | 57          |  |  |  | 65  | 
|After five years                                                        |  |                        | 649  |                          |                |  | 717  |             |  |  | 391         |  |  |  | 419 | 
|                                                                        |  |                        |      |                          |                |  |      |             |  |  |             | 
|                                                                        |  |                        | 889  |                          |                |  | 978  |             |  |  | 460         |  |  |  | 495 | 
|                                                                        |  |                        |      |                          |                |  |      |             |  |  |             | 
|Less: unearned finance income                                           |  |                        | (429 | )                        |                |  | (483 | )           |  |  |             |  |  |  |     | 
|                                                                        |  |                        |      |                          |                |  |      |             |  |  |             | 
|Present value of minimum lease payments receivable                      |  |                        | 460  |                          |                |  | 495  |             |  |  |             |  |  |  |     | 
|                                                                        |  |                        |      |                          |                |  |      |             |  |  |             | 
|Analysed as:                                                            |  |                        |      |                          |                |  |      |             |  |  |             |  |  |  |     | 
|Non-current finance lease receivables (recoverable after
    12 months) |  |                        |      |                          |                |  |      |             |  |  | 448         |  |  |  | 484 | 
|Current finance lease receivables (recoverable within
    12 months)    |  |                        |      |                          |                |  |      |             |  |  | 12          |  |  |  | 11  | 
|                                                                        |  |                        |      |                          |                |  |      |             |  |  |             | 
|                                                                        |  |                        |      |                          |                |  |      |             |  |  | 460         |  |  |  | 495 | 
|                                                                        |  |                        |      |                          |                |  |      |             |  |  |             | 







F-40



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                            
|-- | ---------------------------
|20 | Other long-term receivables

|                                                     |  |             |    |  |             |  |     | 
|---------------------------------------------------- |  | ----------- | -- |  | ----------- |  | --- | 
|                                                     |  | 31 December |    |  | 31 December | 
|                                                     |  | 2005        |    |  | 2004        | 
|                                                     |  |             |    |  |             | 
|                                                     |  | £m          |    |  | £m          | 
|Other receivables                                    |  |             | 67 |  |             |  | 74  | 
|Other receivables from joint ventures and associates |  |             | 30 |  |             |  | 27  | 
|                                                     |  |             |    |  |             | 
|Total other long-term receivables                    |  |             | 97 |  |             |  | 101 | 
|                                                     |  |             |    |  |             | 



|   |                             
|-- | ----------------------------
|21 | Provision for doubtful debts



|                                 |  |             |    |   |             |  |    |  
|-------------------------------- |  | ----------- | -- | - | ----------- |  | -- | -
|                                 |  | 31 December |    |   | 31 December | 
|                                 |  | 2005        |    |   | 2004        | 
|                                 |  |             |    |   |             | 
|                                 |  | £m          |    |   | £m          | 
|At 1 January                     |  |             | (6 | ) |             |  | (6 | )
|Credited to the income statement |  |             | 4  |   |             |  |   |  
|                                 |  |             |    |   |             | 
|At 31 December                   |  |             | (2 | ) |             |  | (6 | )
|                                 |  |             |    |   |             | 



|   |             
|-- | ------------
|22 | Deferred tax



|                                                             |  |             |      |   |             |  |      |  
|------------------------------------------------------------ |  | ----------- | ---- | - | ----------- |  | ---- | -
|                                                             |  | 31 December |      |   | 31 December | 
|                                                             |  | 2005        |      |   | 2004        | 
|                                                             |  |             |      |   |             | 
|                                                             |  | £m          |      |   | £m          | 
|Deferred tax liabilities:                                    |  |             |      |   |             |  |      |  
|Property, plant and equipment accelerated capital allowances |  |             | (552 | ) |             |  | (439 | )
|Other temporary differences                                  |  |             | (238 | ) |             |  | (104 | )
|Dividends of overseas subsidiaries                           |  |             | (40  | ) |             |  | (16  | )
|                                                             |  |             |      |   |             | 
|Total deferred tax liabilities                               |  |             | (830 | ) |             |  | (559 | )
|                                                             |  |             |      |   |             | 
|Deferred tax assets:                                         |  |             |      |   |             |  |      |  
|Provisions                                                   |  |             | 42   |   |             |  | 8    |  
|Tax losses                                                   |  |             | 161  |   |             |  | 166  |  
|Other temporary differences                                  |  |             | 299  |   |             |  | 77   |  
|                                                             |  |             |      |   |             | 
|Total gross deferred tax assets                              |  |             | 502  |   |             |  | 251  |  
|Less: deferred tax assets not recognised                     |  |             | (151 | ) |             |  | (127 | )
|                                                             |  |             |      |   |             | 
|Total deferred tax assets                                    |  |             | 351  |   |             |  | 124  |  
|                                                             |  |             |      |   |             | 
|Net deferred tax liabilities                                 |  |             | (479 | ) |             |  | (435 | )
|                                                             |  |             |      |   |             | 





F-41



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                         |  |             |      |   |             |  |      |  
|------------------------ |  | ----------- | ---- | - | ----------- |  | ---- | -
|                         |  | 31 December |      |   | 31 December | 
|                         |  | 2005        |      |   | 2004        | 
|                         |  |             |      |   |             | 
|                         |  | £m          |      |   | £m          | 
|Deferred tax liabilities |  |             | (557 | ) |             |  | (514 | )
|Deferred tax assets      |  |             | 78   |   |             |  | 79   |  
|                         |  |             |      |   |             | 
|                         |  |             | (479 | ) |             |  | (435 | )
|                         |  |             |      |   |             | 

|                                                                  |  |             |     |           |        |  |    |           |  |  |            |  |  |               |     |              |            |  |   |              |  |  |             |   |  |  |    |  |  |  |     | 
|----------------------------------------------------------------- |  | ----------- | --- | --------- | ------ |  | -- | --------- |  |  | ---------- |  |  | ------------- | --- | ------------ | ---------- |  | - | ------------ |  |  | ----------- | - |  |  | -- |  |  |  | --- | 
|                                                                  |  |             |     | On        |        |  |    |           |  |  |            |  |  |               |     |              |           
|                                                                  |  |             |     | Adoption  |        |  |    |           |  |  |            |  |  |               |     |              |           
|                                                                  |  |             |     | of IAS 32 |        |  |    |           |  |  | Other      |  |  |               |     | Acquisition/ |            |  |  
|                                                                  |  | 31 December |     |           | and    |  |    | 1 January |  |  | Recognised |  |  | Balance Sheet |     |              | Recognised |  |   | Disposal of  |  |  | 31 December |  
|                                                                  |  | 2004        |     |           | IAS 39 |  |    | 2005      |  |  | in Income  |  |  | Movements     |     |              | in Equity  |  |   | Subsidiaries |  |  | 2005        |  
|                                                                  |  |             |     |           |        |  |    |           |  |  |            |  |  |               |     |              |            |  |   |              |  |  |             |  
|                                                                  |  | £m          |     |           | £m     |  |    | £m        |  |  | £m         |  |  | £m            |     |              | £m         |  |   | £m           |  |  | £m          |  
|Movement in temporary differences during the year                 |  |             |     |           |        |  |    |           |  |  |            |  |  |               |     |              |            |  |   |              |  |  |             |   |  |  |    |  |  |  |     | 
|Property, plant and equipment                                     |  |             | 316 |           |        |  |   |           |  |  | 316        |  |  |               | (10 | )            |            |  |  |              |  |  |            |   |  |  |   |  |  |  | 306 | 
|Dividends of overseas subsidiaries, associates and joint ventures |  |             | 16  |           |        |  |   |           |  |  | 16         |  |  |               | 24  |              |            |  |  |              |  |  |            |   |  |  |   |  |  |  | 40  | 
|Other temporary differences                                       |  |             | 103 |           |        |  | (3 | )         |  |  | 100        |  |  |               | 21  |              |            |  | 7 |              |  |  | (46         | ) |  |  | 51 |  |  |  | 133 | 
|                                                                  |  |             |     |           |        |  |    |           |  |  |            |  |  |               |     |              |            |  |   |              |  |  |             |  
|                                                                  |  |             | 435 |           |        |  | (3 | )         |  |  | 432        |  |  |               | 35  |              |            |  | 7 |              |  |  | (46         | ) |  |  | 51 |  |  |  | 479 | 
|                                                                  |  |             |     |           |        |  |    |           |  |  |            |  |  |               |     |              |            |  |   |              |  |  |             |  

F-42



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                  |  |           |     |  |            |       |   |               |  |  |               |   |  |                |    |   |             |  |     |  |  |  |     | 
|----------------------------------------------------------------- |  | --------- | --- |  | ---------- | ----- | - | ------------- |  |  | ------------- | - |  | -------------- | -- | - | ----------- |  | --- |  |  |  | --- | 
|                                                                  |  |           |     |  |            | Other |   |               |  |  |               |   | 
|                                                                  |  | 1 January |     |  | Recognised |       |   | Balance Sheet |  |  | Recognised in |   |  | Acquisition of |    |   | 31 December | 
|                                                                  |  | 2004      |     |  | in Income  |       |   | Movements     |  |  | Equity        |   |  | Subsidiaries   |    |   | 2004        | 
|                                                                  |  |           |     |  |            |       |   |               |  |  |               |   |  |                |    |   |             | 
|                                                                  |  | £m        |     |  | £m         |       |   | £m            |  |  | £m            |   |  | £m             |    |   | £m          | 
|Movement in temporary differences during the year                 |  |           |     |  |            |       |   |               |  |  |               |   |  |                |    |   |             |  |     |  |  |  |     | 
|Property, plant and equipment                                     |  |           | 194 |  |            |       | 9 |               |  |  | 8             |   |  |                |   |   |             |  | 105 |  |  |  | 316 | 
|Dividends of overseas subsidiaries, associates and joint ventures |  |           | 16  |  |            |       |  |               |  |  |              |   |  |                |   |   |             |  |    |  |  |  | 16  | 
|Other temporary differences                                       |  |           | 21  |  |            |       |  |               |  |  | (1            | ) |  |                | (1 | ) |             |  | 84  |  |  |  | 103 | 
|                                                                  |  |           |     |  |            |       |   |               |  |  |               |   |  |                |    |   |             | 
|                                                                  |  |           | 231 |  |            |       | 9 |               |  |  | 7             |   |  |                | (1 | ) |             |  | 189 |  |  |  | 435 | 
|                                                                  |  |           |     |  |            |       |   |               |  |  |               |   |  |                |    |   |             | 

F-42.1



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |            
|-- | -----------
|23 | Inventories

|                  |  |             |     |  |             |  |    | 
|----------------- |  | ----------- | --- |  | ----------- |  | -- | 
|                  |  | 31 December |     |  | 31 December | 
|                  |  | 2005        |     |  | 2004        | 
|                  |  |             |     |  |             | 
|                  |  | £m          |     |  | £m          | 
|Plant spares      |  |             | 22  |  |             |  | 17 | 
|Fuel inventories  |  |             | 37  |  |             |  | 40 | 
|Consumables       |  |             | 51  |  |             |  | 34 | 
|                  |  |             |     |  |             | 
|Total inventories |  |             | 110 |  |             |  | 91 | 
|                  |  |             |     |  |             | 





|   |                            
|-- | ---------------------------
|24 | Trade and other receivables

|                                                                            |  |             |     |  |             |  |     | 
|--------------------------------------------------------------------------- |  | ----------- | --- |  | ----------- |  | --- | 
|                                                                            |  | 31 December |     |  | 31 December | 
|                                                                            |  | 2005        |     |  | 2004        | 
|                                                                            |  |             |     |  |             | 
|                                                                            |  | £m          |     |  | £m          | 
|Trade and other receivables net of allowances for
    irrecoverable amounts |  |             |     |  |             |  |     | 
|Trade receivables                                                           |  |             | 163 |  |             |  | 106 | 
|Other receivables                                                           |  |             | 108 |  |             |  | 69  | 
|Prepayments and accrued income                                              |  |             | 125 |  |             |  | 52  | 
|                                                                            |  |             |     |  |             | 
|Total amounts falling due within one year                                   |  |             | 396 |  |             |  | 227 | 
|                                                                            |  |             |     |  |             | 





|   |                                 
|-- | --------------------------------
|25 | Derivative financial instruments

|                    |  |                  |     |  |             |  |     | 
|------------------- |  | ---------------- | --- |  | ----------- |  | --- | 
|                    |  | 31 December 2005 |    
|                    |  |                  |    
|                    |  | Assets           |     |  | Liabilities | 
|                    |  |                  |     |  |             | 
|                    |  | £m               |     |  | £m          | 
|Interest rate swaps |  |                  | 1   |  |             |  | 26  | 
|Energy derivatives  |  |                  | 267 |  |             |  | 661 | 
|                    |  |                  |     |  |             | 
|                    |  |                  | 268 |  |             |  | 687 | 
|                    |  |                  |     |  |             | 
|Current             |  |                  | 268 |  |             |  | 496 | 
|Non-current         |  |                  |    |  |             |  | 191 | 
|                    |  |                  |     |  |             | 
|                    |  |                  | 268 |  |             |  | 687 | 
|                    |  |                  |     |  |             | 





F-43



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                          
|-- | -------------------------
|26 | Cash and cash equivalents



|                                                     |  |             |     |  |             |  |     | 
|---------------------------------------------------- |  | ----------- | --- |  | ----------- |  | --- | 
|                                                     |  | 31 December |     |  | 31 December | 
|                                                     |  | 2005        |     |  | 2004        | 
|                                                     |  |             |     |  |             | 
|                                                     |  | £m          |     |  | £m          | 
|Bank balances                                        |  |             | 245 |  |             |  | 154 | 
|Call deposits                                        |  |             | 375 |  |             |  | 411 | 
|                                                     |  |             |     |  |             | 
|Cash and cash equivalents in the cash flow statement |  |             | 620 |  |             |  | 565 | 
|                                                     |  |             |     |  |             | 





|   |                
|-- | ---------------
|27 | Loans and bonds

|                                                  |  |             |       |  |             |  |       | 
|------------------------------------------------- |  | ----------- | ----- |  | ----------- |  | ----- | 
|                                                  |  | 31 December |       |  | 31 December | 
|                                                  |  | 2005        |       |  | 2004        | 
|                                                  |  |             |       |  |             | 
|                                                  |  | £m          |       |  | £m          | 
|a) Interest-bearing loans and bonds (current)     |  |             |       |  |             |  |       | 
|Current portion of secured bank loans             |  |             | 187   |  |             |  | 71    | 
|2% Convertible US dollar bonds 2005               |  |             |      |  |             |  | 29    | 
|                                                  |  |             |       |  |             | 
|Total interest-bearing loans and bonds            |  |             | 187   |  |             |  | 100   | 
|                                                  |  |             |       |  |             | 
|b) Interest-bearing loans and bonds (non-current) |  |             |       |  |             |  |       | 
|Secured bank loans                                |  |             | 2,721 |  |             |  | 2,525 | 
|Secured bonds                                     |  |             | 445   |  |             |  | 449   | 
|Preferred equity facility                         |  |             | 173   |  |             |  | 154   | 
|3.75% Convertible US dollar bonds 2023            |  |             | 125   |  |             |  | 129   | 
|                                                  |  |             |       |  |             | 
|Total interest-bearing loans and bonds            |  |             | 3,464 |  |             |  | 3,257 | 
|                                                  |  |             |       |  |             | 

Secured bank loans and secured bonds




Preferred equity facility






F-44



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








3.75% Convertible US dollar bonds 2023




paid-up




|                                                    |  |             |     |   |             |  |     | 
|--------------------------------------------------- |  | ----------- | --- | - | ----------- |  | --- | 
|                                                    |  | 31 December |     |   | 31 December | 
|                                                    |  | 2005        |     |   | 2004        | 
|                                                    |  |             |     |   |             | 
|                                                    |  | £m          |     |   | £m          | 
|Nominal value of convertible US dollar bonds issued |  |             | 144 |   |             |  | 129 | 
|Embedded derivative component                       |  |             | (30 | ) |             |  |    | 
|                                                    |  |             |     |   |             | 
|Liability component at date of issue                |  |             | 114 |   |             |  | 129 | 
|Interest charged                                    |  |             | 11  |   |             |  |    | 
|                                                    |  |             |     |   |             | 
|Liability component at 31 December                  |  |             | 125 |   |             |  | 129 | 
|                                                    |  |             |     |   |             | 







F-45



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                   
|-- | ----------------------------------
|28 | Trade and other payables (current)

|                               |  |             |     |  |             |  |     | 
|------------------------------ |  | ----------- | --- |  | ----------- |  | --- | 
|                               |  | 31 December |     |  | 31 December | 
|                               |  | 2005        |     |  | 2004        | 
|                               |  |             |     |  |             | 
|                               |  | £m          |     |  | £m          | 
|Trade payables                 |  |             | 118 |  |             |  | 114 | 
|Other payables                 |  |             | 153 |  |             |  | 105 | 
|Accruals and deferred income   |  |             | 240 |  |             |  | 143 | 
|                               |  |             |     |  |             | 
|Total trade and other payables |  |             | 511 |  |             |  | 362 | 
|                               |  |             |     |  |             | 





|   |                                       
|-- | --------------------------------------
|29 | Trade and other payables (non-current)

|                               |  |             |    |  |             |  |     | 
|------------------------------ |  | ----------- | -- |  | ----------- |  | --- | 
|                               |  | 31 December |    |  | 31 December | 
|                               |  | 2005        |    |  | 2004        | 
|                               |  |             |    |  |             | 
|                               |  | £m          |    |  | £m          | 
|Other payables                 |  |             | 14 |  |             |  | 163 | 
|Loans from minority interests  |  |             | 81 |  |             |  | 7   | 
|                               |  |             |    |  |             | 
|Total trade and other payables |  |             | 95 |  |             |  | 170 | 
|                               |  |             |    |  |             | 



|   |           
|-- | ----------
|30 | Provisions

|                                |  |                    |    |   |                     |  |    |       |  |  |       |   |  |  |    |  
|------------------------------- |  | ------------------ | -- | - | ------------------- |  | -- | ----- |  |  | ----- | - |  |  | -- | -
|                                |  | Retirement Benefit |    |   | Rationalisation and |  |    |       |  | 
|                                |  | Obligations        |    |   | Restructuring       |  |    | Other |  |  | Total |  
|                                |  |                    |    |   |                     |  |    |       |  |  |       |  
|                                |  | £m                 |    |   | £m                  |  |    | £m    |  |  | £m    |  
|At 1 January 2005               |  |                    | 29 |   |                     |  | 8  |       |  |  | 27    |   |  |  | 64 |  
|Provisions made during the year |  |                    |   |   |                     |  |   |       |  |  | 11    |   |  |  | 11 |  
|Provisions used during the year |  |                    | (2 | ) |                     |  | (3 | )     |  |  | (3    | ) |  |  | (8 | )
|Exchange differences            |  |                    |   |   |                     |  |   |       |  |  | 1     |   |  |  | 1  |  
|                                |  |                    |    |   |                     |  |    |       |  |  |       |  
|At 31 December 2005             |  |                    | 27 |   |                     |  | 5  |       |  |  | 36    |   |  |  | 68 |  
|                                |  |                    |    |   |                     |  |    |       |  |  |       |  



31     Share capital


|                                                  |  |                     |               |  |                        |  |       |        |  |  |               |  |  |  |     | 
|------------------------------------------------- |  | ------------------- | ------------- |  | ---------------------- |  | ----- | ------ |  |  | ------------- |  |  |  | --- | 
|                                                  |  | Authorised Ordinary |               |  | Issued and Fully Paid  | 
|                                                  |  | Shares of 50p       |               |  | Ordinary Shares of 50p | 
|                                                  |  |                     |               |  |                        | 
|                                                  |  | Number              |               |  | £m                     |  |       | Number |  |  | £m            | 
|                                                  |  |                     |               |  |                        |  |       |        |  |  |               | 
|At 1 January 2005                                 |  |                     | 2,266,000,000 |  |                        |  | 1,133 |        |  |  | 1,473,269,066 |  |  |  | 737 | 
|Issue of shares under the Sharesave Plan          |  |                     |              |  |                        |  |      |        |  |  | 858,892       |  |  |  |    | 
|Issue of shares under Executive Share Option Plan |  |                     |              |  |                        |  |      |        |  |  | 608,679       |  |  |  |    | 
|                                                  |  |                     |               |  |                        |  |       |        |  |  |               | 
|At 31 December 2005                               |  |                     | 2,266,000,000 |  |                        |  | 1,133 |        |  |  | 1,474,736,637 |  |  |  | 737 | 
|                                                  |  |                     |               |  |                        |  |       |        |  |  |               | 

F-46



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                  |  |                     |               |  |                        |  |       |        |  |  |               |  |  |  |     | 
|------------------------------------------------- |  | ------------------- | ------------- |  | ---------------------- |  | ----- | ------ |  |  | ------------- |  |  |  | --- | 
|                                                  |  | Authorised Ordinary |               |  | Issued and Fully Paid  | 
|                                                  |  | Shares of 50p       |               |  | Ordinary Shares of 50p | 
|                                                  |  |                     |               |  |                        | 
|                                                  |  | Number              |               |  | £m                     |  |       | Number |  |  | £m            | 
|                                                  |  |                     |               |  |                        |  |       |        |  |  |               | 
|At 1 January 2004                                 |  |                     | 1,700,000,000 |  |                        |  | 850   |        |  |  | 1,107,091,994 |  |  |  | 554 | 
|Increase in authorised share capital              |  |                     | 566,000,000   |  |                        |  | 283   |        |  |  |              |  |  |  |    | 
|Issue of shares                                   |  |                     |              |  |                        |  |      |        |  |  | 365,540,834   |  |  |  | 183 | 
|Issue of shares under the Sharesave Plan          |  |                     |              |  |                        |  |      |        |  |  | 33,077        |  |  |  |    | 
|Issue of shares under Executive Share Option Plan |  |                     |              |  |                        |  |      |        |  |  | 603,161       |  |  |  |    | 
|                                                  |  |                     |               |  |                        |  |       |        |  |  |               | 
|At 31 December 2004                               |  |                     | 2,266,000,000 |  |                        |  | 1,133 |        |  |  | 1,473,269,066 |  |  |  | 737 | 
|                                                  |  |                     |               |  |                        |  |       |        |  |  |               | 



| |             
| | ------------
| | Rights Issue





| |                
| | ---------------
| | Ordinary Shares





| |                
| | ---------------
| | Deferred shares





| |                   
| | ------------------
| | Unclassified share





| |                       
| | ----------------------
| | Employee share schemes



| |                                                                     
| | --------------------------------------------------------------------
| | a) Number of shares and exercise prices under Share Option
    Plans



|                             |  |                    |                  |      |             |                           |              |      |            |             |            |  |  |  |            | 
|---------------------------- |  | ------------------ | ---------------- | ---- | ----------- | ------------------------- | ------------ | ---- | ---------- | ----------- | ---------- |  |  |  | ---------- | 
|                             |  |                    |                  |      |             | Number of Ordinary Shares |             
|                             |  |                    |                  |      |             |                           |             
|                             |  |                    |                  |      |             | Year Ended                |              |      | Year Ended |            
|                             |  |                    |                  | Date |             |                           | 31 December  |      |            | 31 December |           
|                             |  | Option Price Range |                  |      | Exercisable |                           |              | 2005 |            |             | 2004       | 
|                             |  |                    |                  |      |             |                           |              |      |            |             |            | 
|Sharesave Plans              |  |                    | 70.33p - 178.06p |      |             |                           | 2004 - 2009  |      |            |             | 4,783,486  |  |  |  | 5,963,482  | 
|Executive Share Option Plans |  |                    | 62.32p - 343.73p |      |             |                           | 1998 - 2015  |      |            |             | 32,687,124 |  |  |  | 29,770,835 | 
|2002 Performance Share Plan  |  |                    | 74.79p           |      |             |                           | 2006 onwards |      |            |             | 4,276,215  |  |  |  | 4,276,215  | 
|                             |  |                    |                  |      |             |                           |              |      |            |             |            | 
|Total options outstanding    |  |                    |                  |      |             |                           |              |      |            |             | 41,746,825 |  |  |  | 40,010,532 | 
|                             |  |                    |                  |      |             |                           |              |      |            |             |            | 

F-47



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                   
| | ------------------
| | i) Sharesave Plans



|       |         |  |             |                           |      |             |            |  |             |  |  |  |           | 
|------ | ------- |  | ----------- | ------------------------- | ---- | ----------- | ---------- |  | ----------- |  |  |  | --------- | 
|       |         |  |             | Number of Ordinary Shares |     
|       |         |  |             |                           |     
|       |         |  |             | Year Ended                |      |             | Year Ended | 
|Option |         |  | Date        |                           |      | 31 December |            |  | 31 December | 
|Price  |         |  | Exercisable |                           |      | 2005        |            |  | 2004        | 
|       |         |  |             |                           |      |             |            |  |             | 
|       | 167.37p |  |             |                           | 2006 |             |            |  | 10,082      |  |  |  | 10,082    | 
|       | 178.06p |  |             |                           | 2004 |             |            |  |            |  |  |  | 7,496     | 
|       | 178.06p |  |             |                           | 2006 |             |            |  | 6,631       |  |  |  | 6,631     | 
|       | 80.12p  |  |             |                           | 2005 |             |            |  | 253,314     |  |  |  | 1,100,049 | 
|       | 80.12p  |  |             |                           | 2007 |             |            |  | 2,673,050   |  |  |  | 2,693,549 | 
|       | 97.93p  |  |             |                           | 2006 |             |            |  | 104,158     |  |  |  | 119,227   | 
|       | 97.93p  |  |             |                           | 2008 |             |            |  | 69,582      |  |  |  | 72,817    | 
|       | 70.33p  |  |             |                           | 2006 |             |            |  | 800,205     |  |  |  | 888,915   | 
|       | 70.33p  |  |             |                           | 2008 |             |            |  | 654,658     |  |  |  | 780,259   | 
|       | 97.93p  |  |             |                           | 2007 |             |            |  | 107,329     |  |  |  | 128,354   | 
|       | 97.93p  |  |             |                           | 2009 |             |            |  | 104,477     |  |  |  | 156,103   | 
|       |         |  |             |                           |      |             |            |  |             | 
|       |         |  |             |                           |      |             |            |  | 4,783,486   |  |  |  | 5,963,482 | 
|       |         |  |             |                           |      |             |            |  |             | 



|                                             |  |                             |           |                  |                             |                             |       |                 |                  |  |                |   |  |  |       | 
|-------------------------------------------- |  | --------------------------- | --------- | ---------------- | --------------------------- | --------------------------- | ----- | --------------- | ---------------- |  | -------------- | - |  |  | ----- | 
|                                             |  | Year Ended 31 December 2005 |           |                  | Year Ended 31 December 2004 |                            
|                                             |  |                             |           |                  |                             |                            
|                                             |  |                             |           | Weighted Average |                             |                             |       |                 | Weighted Average | 
|                                             |  | Number of                   |           |                  | Exercise Price              |                             |       | Number of       |                  |  | Exercise Price |  
|                                             |  | Ordinary Shares             |           |                  | Pence                       |                             |       | Ordinary Shares |                  |  | Pence          |  
|                                             |  |                             |           |                  |                             |                             |       |                 |                  |  |                |  
|                                             |  |                             |           |                  |                             | (Restated for rights issue) |      
|Options outstanding at beginning of the year |  |                             | 5,963,482 |                  |                             |                             | 79.18 |                 |                  |  | 6,742,186      |   |  |  | 80.34 | 
|Exercised during the year                    |  |                             | (858,892  | )                |                             |                             | 80.67 |                 |                  |  | (33,077        | ) |  |  | 79.04 | 
|Expired during the year                      |  |                             | (321,104  | )                |                             |                             | 79.45 |                 |                  |  | (745,627       | ) |  |  | 89.67 | 
|                                             |  |                             |           |                  |                             |                             |       |                 |                  |  |                |  
|Options outstanding at end of the year       |  |                             | 4,783,486 |                  |                             |                             | 78.90 |                 |                  |  | 5,963,482      |   |  |  | 79.18 | 
|                                             |  |                             |           |                  |                             |                             |       |                 |                  |  |                |  
|Options exercisable at end of the year       |  |                             | 253,314   |                  |                             |                             |       |                 |                  |  | 7,496          |   |  |  |       | 
|                                             |  |                             |           |                  |                             |                             |       |                 |                  |  |                |  



F-48



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                 
| | --------------------------------
| | ii) Executive Share Option Plans





|       |         |  |             |                           |           |             |            |  |             |  |  |  |            | 
|------ | ------- |  | ----------- | ------------------------- | --------- | ----------- | ---------- |  | ----------- |  |  |  | ---------- | 
|       |         |  |             | Number of Ordinary Shares |          
|       |         |  |             |                           |          
|       |         |  |             | Year Ended                |           |             | Year Ended | 
|Option |         |  | Date        |                           |           | 31 December |            |  | 31 December | 
|Price  |         |  | Exercisable |                           |           | 2005        |            |  | 2004        | 
|       |         |  |             |                           |           |             |            |  |             | 
|       | 272.55p |  |             |                           | 1998-2005 |             |            |  |            |  |  |  | 294,581    | 
|       | 287.76p |  |             |                           | 1999-2006 |             |            |  | 416,298     |  |  |  | 489,158    | 
|       | 343.73p |  |             |                           | 2000-2007 |             |            |  | 499,572     |  |  |  | 574,892    | 
|       | 313.92p |  |             |                           | 2001-2008 |             |            |  | 712,903     |  |  |  | 776,425    | 
|       | 277.55p |  |             |                           | 2003-2010 |             |            |  | 2,574,081   |  |  |  | 2,864,320  | 
|       | 209.22p |  |             |                           | 2004-2011 |             |            |  | 1,612,812   |  |  |  | 2,044,424  | 
|       | 193.19p |  |             |                           | 2004-2011 |             |            |  | 136,076     |  |  |  | 186,197    | 
|       | 174.50p |  |             |                           | 2005-2012 |             |            |  | 3,673,817   |  |  |  | 4,050,234  | 
|       | 62.32p  |  |             |                           | 2006-2013 |             |            |  | 10,626,586  |  |  |  | 11,354,245 | 
|       | 123.53p |  |             |                           | 2007-2014 |             |            |  | 6,845,144   |  |  |  | 7,136,359  | 
|       | 179.25p |  |             |                           | 2008-2015 |             |            |  | 5,589,835   |  |  |  |           | 
|       |         |  |             |                           |           |             |            |  |             | 
|       |         |  |             |                           |           |             |            |  | 32,687,124  |  |  |  | 29,770,835 | 
|       |         |  |             |                           |           |             |            |  |             | 



|                                             |  |                             |            |                  |                             |                             |        |                 |                  |  |                |   |  |  |        | 
|-------------------------------------------- |  | --------------------------- | ---------- | ---------------- | --------------------------- | --------------------------- | ------ | --------------- | ---------------- |  | -------------- | - |  |  | ------ | 
|                                             |  | Year Ended 31 December 2005 |            |                  | Year Ended 31 December 2004 |                            
|                                             |  |                             |            |                  |                             |                            
|                                             |  |                             |            | Weighted Average |                             |                             |        |                 | Weighted Average | 
|                                             |  | Number of                   |            |                  | Exercise Price              |                             |        | Number of       |                  |  | Exercise Price |  
|                                             |  | Ordinary Shares             |            |                  | Pence                       |                             |        | Ordinary Shares |                  |  | Pence          |  
|                                             |  |                             |            |                  |                             |                             |        |                 |                  |  |                |  
|                                             |  |                             |            |                  |                             | (Restated for rights issue) |       
|Options outstanding at beginning of the year |  |                             | 29,770,835 |                  |                             |                             | 141.65 |                 |                  |  | 26,261,100     |   |  |  | 145.88 | 
|Granted during the year                      |  |                             | 5,589,835  |                  |                             |                             | 179.25 |                 |                  |  | 6,393,750      |   |  |  | 123.53 | 
|Exercised during the year                    |  |                             | (608,679   | )                |                             |                             | 142.02 |                 |                  |  | (603,161       | ) |  |  | 62.32  | 
|Expired during the year                      |  |                             | (2,064,867 | )                |                             |                             | 187.83 |                 |                  |  | (2,280,854     | ) |  |  | 160.54 | 
|                                             |  |                             |            |                  |                             |                             |        |                 |                  |  |                |  
|Options outstanding at end of the year       |  |                             | 32,687,124 |                  |                             |                             | 145.14 |                 |                  |  | 29,770,835     |   |  |  | 141.65 | 
|                                             |  |                             |            |                  |                             |                             |        |                 |                  |  |                |  
|Options exercisable at the end of the year   |  |                             | 9,625,559  |                  |                             |                             |        |                 |                  |  | 7,229,997      |   |  |  |        | 
|                                             |  |                             |            |                  |                             |                             |        |                 |                  |  |                |  



F-49



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                 
| | --------------------------------
| | iii) 2002 Performance Share Plan









| |                                                  
| | -------------------------------------------------
| | b) Fair value of options under Share Option Plans



| |                   
| | ------------------
| | i) Sharesave Plans





| |                                  
| | ---------------------------------
| | ii) Executive Share Options Plans





|                                |  |      |         |   |      |  |         |  
|------------------------------- |  | ---- | ------- | - | ---- |  | ------- | -
|                                |  | 2005 |         |   | 2004 | 
|                                |  |      |         |   |      | 
|Weighted average share price    |  |      | 179     | p |      |  | 124     | p
|Weighted average exercise price |  |      | 179     | p |      |  | 124     | p
|Expected volatility             |  |      | 30      | % |      |  | 30      | %
|Expected life                   |  |      | 4 years |   |      |  | 4 years |  
|Risk-free rate                  |  |      | 4.84    | % |      |  | 4.55    | %
|Expected dividend yield         |  |      | 1.94    | % |      |  | 1.94    | %



F-50



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                 
| | --------------------------------
| | iii) 2002 Performance Share Plan





| |                                      
| | -------------------------------------
| | c) Managers share bonus arrangements





| |                                  
| | ---------------------------------
| | d) Employee Share Ownership Trust



32     Share capital and reserves


|                                                                        |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |      |          |  |  |        |   |  |  |     |   |  |  |       |  
|----------------------------------------------------------------------- |  | -------------------------------------------- | --- | ----- | ------- |  | ------- | ---------- |  |  | ------- |  |  | ------- | --- |  | ----------- |  | ---- | -------- |  |  | ------ | - |  |  | --- | - |  |  | ----- | -
|                                                                        |  | Attributable to Equity Holders of the Parent |    
|                                                                        |  |                                              |    
|                                                                        |  |                                              |     | Share |         |  | Capital |            |  | 
|                                                                        |  | Share                                        |     |       | Premium |  |         | Redemption |  |  | Capital |  |  | Hedging |     |  | Translation |  |      | Retained |  |  | Total  |  
|                                                                        |  | Capital                                      |     |       | Reserve |  |         | Reserve    |  |  | Reserve |  |  | Reserve |     |  | Reserve     |  |      | Earnings |  |  | Equity |  
|                                                                        |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |      |          |  |  |        |  
|                                                                        |  | £m                                           |     |       | £m      |  |         | £m         |  |  | £m      |  |  | £m      |     |  | £m          |  |      | £m       |  |  | £m     |  
|At 1 January 2005 (as previously stated)                                |  |                                              | 737 |       |         |  | 392     |            |  |  | 145     |  |  |         | 422 |  |             |  |     |          |  |  | (39    | ) |  |  | 176 |   |  |  | 1,833 |  
|Effect of adoption of IAS 32 and IAS 39                                 |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  | (12  | )        |  |  |       |   |  |  | (20 | ) |  |  | (32   | )
|                                                                        |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |      |          |  |  |        |  
|At 1 January 2005 (restated)                                            |  |                                              | 737 |       |         |  | 392     |            |  |  | 145     |  |  |         | 422 |  |             |  | (12  | )        |  |  | (39    | ) |  |  | 156 |   |  |  | 1,801 |  
|Profit for the year                                                     |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  |     |          |  |  |       |   |  |  | 285 |   |  |  | 285   |  
|Other recognised income and expenses relating to the year (net)         |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  | (106 | )        |  |  | 88     |   |  |  |    |   |  |  | (18   | )
|Recognition of equity component in 3.75% convertible US
    dollar bond |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  |     |          |  |  |       |   |  |  | 50  |   |  |  | 50    |  
|Issue of shares                                                         |  |                                              |    |       |         |  | 2       |            |  |  |        |  |  |         |    |  |             |  |     |          |  |  |       |   |  |  |    |   |  |  | 2     |  
|Dividends                                                               |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  |     |          |  |  |       |   |  |  | (37 | ) |  |  | (37   | )
|Other movements                                                         |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  |     |          |  |  |       |   |  |  | 9   |   |  |  | 9     |  
|                                                                        |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |      |          |  |  |        |  
|At 31 December 2005                                                     |  |                                              | 737 |       |         |  | 394     |            |  |  | 145     |  |  |         | 422 |  |             |  | (118 | )        |  |  | 49     |   |  |  | 463 |   |  |  | 2,092 |  
|                                                                        |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |      |          |  |  |        |  

F-51



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |   |          |  |  |        |   |  |  |     |  |  |  |       |  
|--------------------------------------------------------------- |  | -------------------------------------------- | --- | ----- | ------- |  | ------- | ---------- |  |  | ------- |  |  | ------- | --- |  | ----------- |  | - | -------- |  |  | ------ | - |  |  | --- |  |  |  | ----- | -
|                                                                |  | Attributable to Equity Holders of the Parent |    
|                                                                |  |                                              |    
|                                                                |  |                                              |     | Share |         |  | Capital |            |  | 
|                                                                |  | Share                                        |     |       | Premium |  |         | Redemption |  |  | Capital |  |  | Hedging |     |  | Translation |  |   | Retained |  |  | Total  |  
|                                                                |  | Capital                                      |     |       | Reserve |  |         | Reserve    |  |  | Reserve |  |  | Reserve |     |  | Reserve     |  |   | Earnings |  |  | Equity |  
|                                                                |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |   |          |  |  |        |  
|                                                                |  | £m                                           |     |       | £m      |  |         | £m         |  |  | £m      |  |  | £m      |     |  | £m          |  |   | £m       |  |  | £m     |  
|At 1 January 2004                                               |  |                                              | 554 |       |         |  | 289     |            |  |  | 145     |  |  |         | 422 |  |             |  |  |          |  |  |       |   |  |  | 76  |  |  |  | 1,486 |  
|Profit for the year                                             |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  |  |          |  |  |       |   |  |  | 98  |  |  |  | 98    |  
|Other recognised income and expenses relating to the year (net) |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  |  |          |  |  | (39    | ) |  |  |    |  |  |  | (39   | )
|Rights issue                                                    |  |                                              | 183 |       |         |  | 103     |            |  |  |        |  |  |         |    |  |             |  |  |          |  |  |       |   |  |  |    |  |  |  | 286   |  
|Other movements                                                 |  |                                              |    |       |         |  |        |            |  |  |        |  |  |         |    |  |             |  |  |          |  |  |       |   |  |  | 2   |  |  |  | 2     |  
|                                                                |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |   |          |  |  |        |  
|At 31 December 2004                                             |  |                                              | 737 |       |         |  | 392     |            |  |  | 145     |  |  |         | 422 |  |             |  |  |          |  |  | (39    | ) |  |  | 176 |  |  |  | 1,833 |  
|                                                                |  |                                              |     |       |         |  |         |            |  |  |         |  |  |         |     |  |             |  |   |          |  |  |        |  



















33     Acquisitions and disposals




| |                            
| | ---------------------------
| | Year ended 31 December 2005



| |            
| | -----------
| | a) Turbogás



F-52



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                              
| | -----------------------------
| | b) Tri Energy Company Limited





| |                     
| | --------------------
| | c) Uch Power Limited





| |                
| | ---------------
| | d) Italian Wind





| |                   
| | ------------------
| | e) EnergyAustralia





| |           
| | ----------
| | f) Saltend



F-53



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                            |  |            |     |   |             |  |      |           |  |  |      |  
|------------------------------------------- |  | ---------- | --- | - | ----------- |  | ---- | --------- |  |  | ---- | -
|                                            |  | Acquirees |     |   |             |  | Fair |          
|                                            |  | Carrying   |     |   | Fair Value  |  |      | Value to  | 
|                                            |  | Amount     |     |   | Adjustments |  |      | the Group | 
|                                            |  |            |     |   |             |  |      |           | 
|                                            |  | £m         |     |   | £m          |  |      | £m        | 
|Intangible assets                           |  |            |    |   |             |  | 234  |           |  |  | 234  |  
|Property, plant and equipment               |  |            | 342 |   |             |  | 23   |           |  |  | 365  |  
|Inventories                                 |  |            | 3   |   |             |  |     |           |  |  | 3    |  
|Trade and other receivables (current)       |  |            | 29  |   |             |  |     |           |  |  | 29   |  
|Cash and cash equivalents                   |  |            | 27  |   |             |  |     |           |  |  | 27   |  
|Trade and other payables (current)          |  |            | (27 | ) |             |  | (82  | )         |  |  | (109 | )
|Other payables (non-current)                |  |            | (1  | ) |             |  |     |           |  |  | (1   | )
|Deferred tax liabilities                    |  |            |    |   |             |  | (53  | )         |  |  | (53  | )
|                                            |  |            |     |   |             |  |      |           | 
|Total assets acquired                       |  |            | 373 |   |             |  | 122  |           |  |  | 495  |  
|                                            |  |            |     |   |             |  |      |           | 
|Consideration (including acquisition costs) |  |            |     |   |             |  |      |           |  |  | 495  |  
|Amount owed by Calpine                      |  |            |     |   |             |  |      |           |  |  | 5    |  
|                                            |  |            |     |   |             |  |      |           | 
|                                            |  |            |     |   |             |  |      |           |  |  | 500  |  
|                                            |  |            |     |   |             |  |      |           | 
|Satisfied by:                               |  |            |     |   |             |  |      |           |  |  |      |  
|Cash consideration paid                     |  |            |     |   |             |  |      |           |  |  | 500  |  
|Cash and cash equivalents acquired          |  |            |     |   |             |  |      |           |  |  | (27  | )
|                                            |  |            |     |   |             |  |      |           | 
|Net cash outflow to the Group               |  |            |     |   |             |  |      |           |  |  | 473  |  
|                                            |  |            |     |   |             |  |      |           | 









| |                
| | ---------------
| | g) Valley Power



F-54



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                    |  |    |     |  
|------------------- |  | -- | --- | -
|                    |  | £m |    
|                    |  |    |    
|Total assets        |  |    | 88  |  
|Total liabilities   |  |    | (15 | )
|                    |  |    |    
|Net assets disposed |  |    | 73  |  
|                    |  |    |    
|Satisfied by:       |  |    |     |  
|Cash consideration  |  |    | 73  |  
|                    |  |    |    



| |        
| | -------
| | h) Pego





| |                                                                             
| | ----------------------------------------------------------------------------
| | i) Acquisition of subsidiaries net of cash and cash
    equivalents acquired





| |                                                                   
| | ------------------------------------------------------------------
| | j) Acquisition of investments in joint ventures and
    associates



|                                                          |  |             |    |  
|--------------------------------------------------------- |  | ----------- | -- | -
|                                                          |  | Year Ended  |   
|                                                          |  | 31 December |   
|                                                          |  | 2005        |   
|                                                          |  | £m          |   
|Net assets acquired                                       |  |             | 58 |  
|                                                          |  |             |    |  
|Satisfied by:                                             |  |             |   
|Consideration                                             |  |             | 58 |  
|Cash consideration not yet paid at the balance sheet date |  |             | (8 | )
|Net cash outflow to the Group                             |  |             | 50 |  
|                                                          |  |             |    |  
|                                                          |  |             |   



| |                                         
| | ----------------------------------------
| | k) Proceeds from disposal of investments



|                                                                                         |  |             |      |  
|---------------------------------------------------------------------------------------- |  | ----------- | ---- | -
|                                                                                         |  | Year Ended  |     
|                                                                                         |  | 31 December |     
|                                                                                         |  | 2005        |     
|                                                                                         |  |             |     
|                                                                                         |  | £m          |     
|Net assets disposed                                                                      |  |             | (131 | )
|Profit on disposal                                                                       |  |             | (7   | )
|                                                                                         |  |             |     
|                                                                                         |  |             | (138 | )
|                                                                                         |  |             |     
|Satisfied by:                                                                            |  |             |      |  
|Net cash inflow to the Group  cash consideration
    received at the balance sheet date |  |             | (138 | )
|                                                                                         |  |             |     

F-55



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                   
| | ------------------------------------------------------------------
| | l) Fair value hindsight adjustments  acquisitions
    during 2004









|   |         
|-- | --------
|34 | Net debt



| |                     
| | --------------------
| | Analysis of net debt

|                                   |  |             |        |                |            |  |    |           |  |  |             |   |  |           |      |   |      |  |     |             |  |  |      |   |  |  |        |  
|---------------------------------- |  | ----------- | ------ | -------------- | ---------- |  | -- | --------- |  |  | ----------- | - |  | --------- | ---- | - | ---- |  | --- | ----------- |  |  | ---- | - |  |  | ------ | -
|                                   |  |             |        | On Adoption of |            |  |    |           |  |  | Other       |   |  |           |      |  
|                                   |  | 31 December |        |                | IAS 32 and |  |    | 1 January |  |  | Exchange    |   |  | Non-Cash  |      |   | Cash |  |     | 31 December | 
|                                   |  | 2004        |        |                | IAS 39     |  |    | 2005      |  |  | Differences |   |  | Movements |      |   | Flow |  |     | 2005        | 
|                                   |  |             |        |                |            |  |    |           |  |  |             |   |  |           |      |   |      |  |     |             | 
|                                   |  | £m          |        |                | £m         |  |    | £m        |  |  | £m          |   |  | £m        |      |   | £m   |  |     | £m          | 
|Cash and cash equivalents          |  |             | 565    |                |            |  |   |           |  |  | 565         |   |  |           | 18   |   |      |  |    |             |  |  | 37   |   |  |  | 620    |  
|Assets held for trading            |  |             | 47     |                |            |  |   |           |  |  | 47          |   |  |           | 2    |   |      |  | 3   |             |  |  |     |   |  |  | 52     |  
|                                   |  |             |        |                |            |  |    |           |  |  |             |   |  |           |      |   |      |  |     |             | 
|                                   |  |             | 612    |                |            |  |   |           |  |  | 612         |   |  |           | 20   |   |      |  | 3   |             |  |  | 37   |   |  |  | 672    |  
|                                   |  |             |        |                |            |  |    |           |  |  |             |   |  |           |      |   |      |  |     |             | 
|Debt financing                     |  |             |        |                |            |  |    |           |  |  |             |   |  |           |      |   |      |  |     |             |  |  |      |   |  |  |        |  
|Loans due within one year          |  |             | (71    | )              |            |  |   |           |  |  | (71         | ) |  |           |     |   |      |  | (73 | )           |  |  | (43  | ) |  |  | (187   | )
|Loans due after more than one year |  |             | (2,525 | )              |            |  | 22 |           |  |  | (2,503      | ) |  |           | (145 | ) |      |  | 63  |             |  |  | (136 | ) |  |  | (2,721 | )
|Preferred equity facility          |  |             | (154   | )              |            |  |   |           |  |  | (154        | ) |  |           | (18  | ) |      |  | (1  | )           |  |  |     |   |  |  | (173   | )
|Convertible bonds                  |  |             | (158   | )              |            |  | 22 |           |  |  | (136        | ) |  |           | (17  | ) |      |  | (3  | )           |  |  | 31   |   |  |  | (125   | )
|Secured bonds                      |  |             | (449   | )              |            |  |   |           |  |  | (449        | ) |  |           |     |   |      |  | 4   |             |  |  |     |   |  |  | (445   | )
|                                   |  |             |        |                |            |  |    |           |  |  |             |   |  |           |      |   |      |  |     |             | 
|Total debt financing               |  |             | (3,357 | )              |            |  | 44 |           |  |  | (3,313      | ) |  |           | (180 | ) |      |  | (10 | )           |  |  | (148 | ) |  |  | (3,651 | )
|                                   |  |             |        |                |            |  |    |           |  |  |             |   |  |           |      |   |      |  |     |             | 
|Net debt                           |  |             | (2,745 | )              |            |  | 44 |           |  |  | (2,701      | ) |  |           | (160 | ) |      |  | (7  | )           |  |  | (111 | ) |  |  | (2,979 | )
|                                   |  |             |        |                |            |  |    |           |  |  |             |   |  |           |      |   |      |  |     |             | 

F-56



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                   |  |           |        |   |             |                 |     |            |       |  |           |   |  |      |      |   |             |  |      |   |  |  |        |  
|---------------------------------- |  | --------- | ------ | - | ----------- | --------------- | --- | ---------- | ----- |  | --------- | - |  | ---- | ---- | - | ----------- |  | ---- | - |  |  | ------ | -
|                                   |  |           |        |   |             | On Acquisitions |     |            |       |  |           |   | 
|                                   |  |           |        |   |             | of Subsidiaries |     |            | Other |  |           |   |  |     
|                                   |  | 1 January |        |   | Exchange    |                 |     | (Excluding |       |  | Non-Cash  |   |  | Cash |      |   | 31 December | 
|                                   |  | 2004      |        |   | Differences |                 |     | Cash)      |       |  | Movements |   |  | Flow |      |   | 2004        | 
|                                   |  |           |        |   |             |                 |     |            |       |  |           |   |  |      |      |   |             | 
|                                   |  | £m        |        |   | £m          |                 |     | £m         |       |  | £m        |   |  | £m   |      |   | £m          | 
|Cash and cash equivalents          |  |           | 696    |   |             |                 | (10 | )          |       |  |          |   |  |      |     |   |             |  | (121 | ) |  |  | 565    |  
|Assets held for trading            |  |           | 47     |   |             |                 |    |            |       |  |          |   |  |      |     |   |             |  |     |   |  |  | 47     |  
|                                   |  |           |        |   |             |                 |     |            |       |  |           |   |  |      |      |   |             | 
|                                   |  |           | 743    |   |             |                 | (10 | )          |       |  |          |   |  |      |     |   |             |  | (121 | ) |  |  | 612    |  
|                                   |  |           |        |   |             |                 |     |            |       |  |           |   |  |      |      |   |             | 
|Debt financing                     |  |           |        |   |             |                 |     |            |       |  |           |   |  |      |      |   |             |  |      |   |  |  |        |  
|Loans due within one year          |  |           | (531   | ) |             |                 | 34  |            |       |  | (39       | ) |  |      | 466  |   |             |  | (1   | ) |  |  | (71    | )
|Loans due after more than one year |  |           | (704   | ) |             |                 | (5  | )          |       |  | (887      | ) |  |      | (437 | ) |             |  | (492 | ) |  |  | (2,525 | )
|Preferred equity facility          |  |           |       |   |             |                 |    |            |       |  |          |   |  |      |     |   |             |  | (154 | ) |  |  | (154   | )
|Convertible bonds                  |  |           | (200   | ) |             |                 | 13  |            |       |  |          |   |  |      | (1   | ) |             |  | 30   |   |  |  | (158   | )
|Secured bonds                      |  |           |       |   |             |                 |    |            |       |  | (449      | ) |  |      |     |   |             |  |     |   |  |  | (449   | )
|                                   |  |           |        |   |             |                 |     |            |       |  |           |   |  |      |      |   |             | 
|Total debt financing               |  |           | (1,435 | ) |             |                 | 42  |            |       |  | (1,375    | ) |  |      | 28   |   |             |  | (617 | ) |  |  | (3,357 | )
|                                   |  |           |        |   |             |                 |     |            |       |  |           |   |  |      |      |   |             | 
|Net debt                           |  |           | (692   | ) |             |                 | 32  |            |       |  | (1,375    | ) |  |      | 28   |   |             |  | (738 | ) |  |  | (2,745 | )
|                                   |  |           |        |   |             |                 |     |            |       |  |           |   |  |      |      |   |             | 



|   |                             
|-- | ----------------------------
|35 | Financial instruments  2005





| |                   
| | ------------------
| | a) Treasury policy





| |                                      
| | -------------------------------------
| | b) Risk identification and management





| |                                           
| | ------------------------------------------
| | c) Interest rate risk and hedge accounting



F-57



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                
| | -----------------------------------------------
| | Effective interest rates and repricing analysis



|                                           |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |      |   |  |      |      |   |  |       |      |  
|------------------------------------------ | ---------------------------- | ---------------- | --- | ---- | ----- |  | --------- | --------- | - | -- | --------- | --------- | -- | --------- | ---- | ---- | --------- |  | ---- | --------- | - | -- | ------- | ---- | - |  | ---- | ---- | - |  | ----- | ---- | -
|                                           |                              | 31 December 2005 |    
|                                           |                              |                  |    
|                                           |                              | Effective        |     |      |       |  | Less Than |           |   |    |           | More Than |   
|                                           |                              | Interest Rate    |     |      | Total |  |           | 12 Months |   |    | 1-2 Years |           |    | 2-3 Years |      |      | 3-4 Years |  |      | 4-5 Years |   |    | 5 Years |     
|                                           |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |     
|                                           |                              |                  |     | £m   |       |  | £m        |           |   | £m |           |           | £m |           |      | £m   |           |  | £m   |           |   | £m |        
|Financial assets                           |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |      |   |  |      |      |   |  |       |     
|Finance lease receivable:                  |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |      |   |  |      |      |   |  |       |     
|                                           | Euro                         |                  |     | 7.9  | %     |  |           | 460       |   |    |           | 12        |    |           |      | 12   |           |  |      | 14        |   |    |         | 15   |   |  |      | 16   |   |  |       | 391  |  
|Assets held for trading:                   |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |      |   |  |      |      |   |  |       |     
|                                           | Australian dollars           |                  |     | 5.5  | %     |  |           | 52        |   |    |           | 52        |    |           |      |     |           |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|Cash and cash equivalents:                 |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |      |   |  |      |      |   |  |       |     
|                                           | Australian dollars           |                  |     | 5.4  | %     |  |           | 109       |   |    |           | 109       |    |           |      |     |           |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|                                           | Czech koruna                 |                  |     | 1.9  | %     |  |           | 4         |   |    |           | 4         |    |           |      |     |           |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|                                           | Euro                         |                  |     | 2.4  | %     |  |           | 55        |   |    |           | 55        |    |           |      |     |           |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|                                           | Sterling                     |                  |     | 4.5  | %     |  |           | 331       |   |    |           | 331       |    |           |      |     |           |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|                                           | US dollars                   |                  |     | 4.3  | %     |  |           | 109       |   |    |           | 109       |    |           |      |     |           |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|                                           | Other currencies             |                  |     | 3.2  | %     |  |           | 12        |   |    |           | 12        |    |           |      |     |           |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|                                           |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |     
|Total financial assets                     |                              |                  |     |      |       |  | 1,132     |           |   |    | 684       |           |    |           | 12   |      |           |  | 14   |           |   |    | 15      |      |   |  | 16   |      |   |  | 391   |     
|                                           |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |     
|Financial liabilities                      |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |      |   |  |      |      |   |  |       |     
|Secured bank loans:                        |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |      |   |  |      |      |   |  |       |     
|                                           | Australian dollars           |                  |     | 6.7  | %     |  |           | 1,108     |   |    |           | 40        |    |           |      | 41   |           |  |      | 80        |   |    |         | 71   |   |  |      | 46   |   |  |       | 830  |  
|                                           | Effect of interest rate swap |                  |     | 0.7  | %     |  |           | (701      | ) |    |           | (17       | )  |           |      | (160 | )         |  |      | (169      | ) |    |         | (71  | ) |  |      | (266 | ) |  |       | (18  | )
|                                           | Czech koruna                 |                  |     | 2.8  | %     |  |           | 55        |   |    |           | 8         |    |           |      | 47   |           |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|                                           | Effect of interest rate swap |                  |     | 0.8  | %     |  |           | (40       | ) |    |           |          |    |           |      | (40  | )         |  |      |          |   |    |         |     |   |  |      |     |   |  |       |     |  
|                                           | Euro                         |                  |     | 4.8  | %     |  |           | 371       |   |    |           | 21        |    |           |      | 22   |           |  |      | 24        |   |    |         | 23   |   |  |      | 27   |   |  |       | 254  |  
|                                           | Effect of interest rate swap |                  |     | 0.4  | %     |  |           | (43       | ) |    |           | (5        | )  |           |      | (5   | )         |  |      | (8        | ) |    |         | (21  | ) |  |      | (4   | ) |  |       |     |  
|                                           | Sterling                     |                  |     | 6.8  | %     |  |           | 335       |   |    |           | 85        |    |           |      | 17   |           |  |      | 15        |   |    |         | 22   |   |  |      | 17   |   |  |       | 179  |  
|                                           | Effect of interest rate swap |                  |     | (0.3 | )%    |  |           | (192      | ) |    |           | (19       | )  |           |      | (12  | )         |  |      | (10       | ) |    |         | (15  | ) |  |      | (136 | ) |  |       |     |  
|                                           | US dollars                   |                  |     | 7.2  | %     |  |           | 1,013     |   |    |           | 31        |    |           |      | 33   |           |  |      | 37        |   |    |         | 31   |   |  |      | 540  |   |  |       | 341  |  
|                                           | Effect of interest rate swap |                  |     | 0.2  | %     |  |           | (440      | ) |    |           | 56        |    |           |      | (23  | )         |  |      | (24       | ) |    |         | (200 | ) |  |      | (17  | ) |  |       | (232 | )
|                                           | Other currencies             |                  |     | 7.7  | %     |  |           | 26        |   |    |           | 2         |    |           |      | 2    |           |  |      | 2         |   |    |         | 3    |   |  |      | 3    |   |  |       | 14   |  
|                                           |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |     
|Sub total secured bank loans               |                              |                  | 6.6 | %    |       |  | 2,908     |           |   |    | 187       |           |    |           | 162  |      |           |  | 158  |           |   |    | 150     |      |   |  | 633  |      |   |  | 1,618 |     
|                                           |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |     
|Sub total of effect of interest rate swaps |                              |                  | 0.4 | %    |       |  | (1,416    | )         |   |    | 15        |           |    |           | (240 | )    |           |  | (211 | )         |   |    | (307    | )    |   |  | (423 | )    |   |  | (250  | )   
|                                           |                              |                  |     |      |       |  |           |           |   |    |           |           |    |           |      |      |           |  |      |           |   |    |         |     

F-58



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                               |            |                  |  |     |       |  |           |           |  |    |           |           |    |           |     |    |           |  |     |           |  |    |         |   |  |  |     |    |  |  |       |     | 
|------------------------------ | ---------- | ---------------- |  | --- | ----- |  | --------- | --------- |  | -- | --------- | --------- | -- | --------- | --- | -- | --------- |  | --- | --------- |  | -- | ------- | - |  |  | --- | -- |  |  | ----- | --- | 
|                               |            | 31 December 2005 | 
|                               |            |                  | 
|                               |            | Effective        |  |     |       |  | Less Than |           |  |    |           | More Than |   
|                               |            | Interest Rate    |  |     | Total |  |           | 12 Months |  |    | 1-2 Years |           |    | 2-3 Years |     |    | 3-4 Years |  |     | 4-5 Years |  |    | 5 Years |  
|                               |            |                  |  |     |       |  |           |           |  |    |           |           |    |           |     |    |           |  |     |           |  |    |         |  
|                               |            |                  |  | £m  |       |  | £m        |           |  | £m |           |           | £m |           |     | £m |           |  | £m  |           |  | £m |        
|Preferred equity:              |            |                  |  |     |       |  |           |           |  |    |           |           |    |           |     |    |           |  |     |           |  |    |         |   |  |  |     |    |  |  |       |    
|                               | US dollars |                  |  | 7.2 | %     |  |           | 173       |  |    |           |          |    |           |     |   |           |  |     | 173       |  |    |         |  |  |  |     |   |  |  |       |    | 
|Convertible bond(1):           |            |                  |  |     |       |  |           |           |  |    |           |           |    |           |     |    |           |  |     |           |  |    |         |   |  |  |     |    |  |  |       |    
|                               | US dollars |                  |  | 7.4 | %     |  |           | 125       |  |    |           |          |    |           |     |   |           |  |     |          |  |    |         |  |  |  |     |   |  |  |       | 125 | 
|Secured bonds:                 |            |                  |  |     |       |  |           |           |  |    |           |           |    |           |     |    |           |  |     |           |  |    |         |   |  |  |     |    |  |  |       |    
|                               | Sterling   |                  |  | 8.3 | %     |  |           | 445       |  |    |           |          |    |           |     |   |           |  |     |          |  |    |         |  |  |  |     |   |  |  |       | 445 | 
|Loans from minority interests: |            |                  |  |     |       |  |           |           |  |    |           |           |    |           |     |    |           |  |     |           |  |    |         |   |  |  |     |    |  |  |       |    
|                               | US dollars |                  |  | 8.0 | %     |  |           | 81        |  |    |           |          |    |           |     | 21 |           |  |     |          |  |    |         |  |  |  |     | 60 |  |  |       |    | 
|                               |            |                  |  |     |       |  |           |           |  |    |           |           |    |           |     |    |           |  |     |           |  |    |         |  
|Total financial liabilities    |            |                  |  |     |       |  | 3,732     |           |  |    | 187       |           |    |           | 183 |    |           |  | 331 |           |  |    | 150     |   |  |  | 693 |    |  |  | 2,188 |    
|                               |            |                  |  |     |       |  |           |           |  |    |           |           |    |           |     |    |           |  |     |           |  |    |         |  






|    |                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The effective interest rate for the convertible bond represents
    the liability element and the equity component (refer to
    note 27 for further details).











| |                                                                    
| | -------------------------------------------------------------------
| | d) Energy trading risk, energy market risk and hedge
    accounting







F-59



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                      
| | ---------------------
| | e) Currency exposures



| |                              
| | -----------------------------
| | Currency translation exposure





| |                              
| | -----------------------------
| | Currency transaction exposure









| |                        
| | -----------------------
| | f) Borrowing facilities



|                                                                         |  |                             |       |  |         |  |     |           |  |  |     | 
|------------------------------------------------------------------------ |  | --------------------------- | ----- |  | ------- |  | --- | --------- |  |  | --- | 
|                                                                         |  | Year Ended 31 December 2005 |      
|                                                                         |  |                             |      
|                                                                         |  | Facility                    |       |  | Undrawn |  |     | Available | 
|                                                                         |  |                             |       |  |         |  |     |           | 
|                                                                         |  | £m                          |       |  | £m      |  |     | £m        | 
|US$640 million Corporate revolving credit facility (June
    2008)(1)    |  |                             | 373   |  |         |  | 142 |           |  |  | 142 | 
|US$110 million ANP Funding 1 revolving credit facility (May
    2010)(2) |  |                             | 64    |  |         |  | 34  |           |  |  | 34  | 
|US$488 million Tihama term facility (December 2021)                      |  |                             | 284   |  |         |  | 72  |           |  |  | 72  | 
|A$92 million Canunda facility (December 2014)                            |  |                             | 39    |  |         |  | 12  |           |  |  | 12  | 
|CZK1,000 million IPO revolving credit facility (May 2007)                |  |                             | 24    |  |         |  | 20  |           |  |  | 20  | 
|£60 million Corporate working capital facility
    (January 2006)(3)     |  |                             | 60    |  |         |  | 60  |           |  |  | 60  | 
|£94 million Corporate letter of credit facilities(4)                     |  |                             | 94    |  |         |  | 1   |           |  |  | 1   | 
|£153 million Subsidiary facilities in various
    currencies             |  |                             | 153   |  |         |  | 100 |           |  |  | 100 | 
|                                                                         |  |                             |       |  |         |  |     |           | 
|Total                                                                    |  |                             | 1,091 |  |         |  | 441 |           |  |  | 441 | 
|                                                                         |  |                             |       |  |         |  |     |           | 






|    |                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The drawn element of the US$640 million Corporate revolving
    credit facility relates to letters of credit issued of
    £181 million and £50 million of cash
    drawings.                                                                                                                               
|   
|(2) | This facility includes a US$50 million supported and
    US$60 million unsupported working capital credit facility
    with capacity to issue letters of credit. At 31 December
    2005, £8 million and £22 million of letters
    of credit had been drawn from each of these facilities
    respectively.
|   
|(3) | This facility could have been utilised to draw cash and issue
    letters of credit in relation to merchant trading support. It
    was not renewed when it expired in January 2006.                                                                                                                        

F-60



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | These facilities can be utilised to issue letters of credit. At
    31 December 2005, £93 million of letters of
    credit had been drawn from these facilities and
    £28 million of cash and cash equivalents was used as
    collateral in relation to these facilities.



|                                                        |  |                  |    |  |       |  |    |         |  |  |    | 
|------------------------------------------------------- |  | ---------------- | -- |  | ----- |  | -- | ------- |  |  | -- | 
|                                                        |  | Year Ended       |   
|                                                        |  | 31 December 2005 |   
|                                                        |  |                  |   
|                                                        |  | Total            |    |  | Drawn |  |    | Undrawn | 
|                                                        |  |                  |    |  |       |  |    |         | 
|                                                        |  | £m               |    |  | £m    |  |    | £m      | 
|Facility                                                |  |                  |    |  |       |  |    |         |  |  |    | 
|Bank borrowing and overdraft facilities                 |  |                  | 36 |  |       |  | 18 |         |  |  | 18 | 
|£11 million Subsidiary facilities in various currencies |  |                  | 11 |  |       |  | 2  |         |  |  | 9  | 
|                                                        |  |                  |    |  |       |  |    |         | 
|                                                        |  |                  | 47 |  |       |  | 20 |         |  |  | 27 | 
|                                                        |  |                  |    |  |       |  |    |         | 





| |                                                   
| | --------------------------------------------------
| | g) Fair values of financial assets and liabilities



|                                                               |  |                  |       |  |       |  |       | 
|-------------------------------------------------------------- |  | ---------------- | ----- |  | ----- |  | ----- | 
|                                                               |  | 31 December 2005 |      
|                                                               |  |                  |      
|                                                               |  | Carrying         |       |  | Fair  | 
|                                                               |  | Amount           |       |  | Value | 
|                                                               |  |                  |       |  |       | 
|                                                               |  | £m               |       |  | £m    | 
|Financial assets                                               |  |                  |       |  |       |  |       | 
|Other investments                                              |  |                  | 4     |  |       |  | 4     | 
|Finance lease receivables                                      |  |                  | 460   |  |       |  | 460   | 
|Other long-term receivables from joint ventures and associates |  |                  | 30    |  |       |  | 30    | 
|Trade receivables (current)                                    |  |                  | 163   |  |       |  | 163   | 
|Other receivables (current)                                    |  |                  | 108   |  |       |  | 108   | 
|Derivative financial instruments                               |  |                  | 268   |  |       |  | 268   | 
|Assets held for trading                                        |  |                  | 52    |  |       |  | 52    | 
|Cash and cash equivalents                                      |  |                  | 620   |  |       |  | 620   | 
|                                                               |  |                  |       |  |       | 
|Total financial assets                                         |  |                  | 1,705 |  |       |  | 1,705 | 
|                                                               |  |                  |       |  |       | 
|Financial liabilities                                          |  |                  |       |  |       |  |       | 
|Trade payables (current)                                       |  |                  | 118   |  |       |  | 118   | 
|Other payables (current)                                       |  |                  | 153   |  |       |  | 153   | 
|Derivative financial instruments                               |  |                  | 687   |  |       |  | 687   | 
|Secured bank loans                                             |  |                  | 2,908 |  |       |  | 2,928 | 
|Preferred equity facility                                      |  |                  | 173   |  |       |  | 173   | 
|Convertible bonds                                              |  |                  | 125   |  |       |  | 125   | 
|Secured bonds                                                  |  |                  | 445   |  |       |  | 480   | 
|Loans from minority interests                                  |  |                  | 81    |  |       |  | 81    | 
|                                                               |  |                  |       |  |       | 
|Total financial liabilities                                    |  |                  | 4,690 |  |       |  | 4,745 | 
|                                                               |  |                  |       |  |       | 

F-61



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Other investments comprise equity held in privately
    owned, unquoted companies and therefore fair value cannot be
    reliably measured. The fair value has thus been based on the
    cost amount.                                                                                                                                                                                                                                                  
|
| | (ii) The fair value of finance lease receivables and other
    long-term receivables have been estimated by discounting
    estimated cash flows.                                                                                                                                                                                                                                                                                                           
|
| | (iii) Trade and other receivables (current) and trade
    and other payables (current) are stated at fair value, set
    equal to book value, because of their short maturity.                                                                                                                                                                                                                                                                              
|
| | (iv) Assets held for trading have been estimated using
    quoted market prices and discounted cash flows.                                                                                                                                                                                                                                                                                                                                                  
|
| | (v) The fair value of the Groups forward exchange
    contracts, foreign currency swaps and foreign currency options
    have been calculated using market rates in effect at the balance
    sheet date.                                                                                                                                                                                                                                                  
|
| | (vi) The fair value of energy derivatives is measured using
    discounted cash flows and other similar quantification
    techniques. Where there is no active market, fair value is
    determined using valuation techniques. These include using
    recent arms length market transactions, reference to the
    current market value of another instrument which is
    substantially the same, discounted cash flow analysis and
    pricing models.
|
| | (vii) All loans and bonds have been calculated using market
    prices where available or the net present value of future cash
    flows arising.                                                                                                                                                                                                                                                                                                           



| |          
| | ---------
| | h) Hedges





| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.



F-62



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                       
| | --------------------------------------
| | i) Cash flow hedging reserve movements



|                                        |  |            |     |   |             |  |      |       |  |  |      |  
|--------------------------------------- |  | ---------- | --- | - | ----------- |  | ---- | ----- |  |  | ---- | -
|                                        |  | Interest   |     |   | Energy      |  |      |      
|                                        |  | Rate Swaps |     |   | Derivatives |  |      | Total | 
|                                        |  |            |     |   |             |  |      |       | 
|                                        |  | £m         |     |   | £m          |  |      | £m    | 
|Unrecognised losses at 31 December 2005 |  |            | (15 | ) |             |  | (103 | )     |  |  | (118 | )
|                                        |  |            |     |   |             |  |      |       | 
|Cash flows expected during              |  |            |     |   |             |  |      |       |  |  |      |  
|2006                                    |  |            | (2  | ) |             |  | (67  | )     |  |  | (69  | )
|2007                                    |  |            | (1  | ) |             |  | (27  | )     |  |  | (28  | )
|2008                                    |  |            | (1  | ) |             |  | (10  | )     |  |  | (11  | )
|2009                                    |  |            | (1  | ) |             |  | 1    |       |  |  |     |  
|2010 onwards                            |  |            | (10 | ) |             |  |     |       |  |  | (10  | )
|                                        |  |            |     |   |             |  |      |       | 
|                                        |  |            | (15 | ) |             |  | (103 | )     |  |  | (118 | )
|                                        |  |            |     |   |             |  |      |       | 



|                                                                                                            |  |            |     |   |             |  |      |       |  |  |      |  
|----------------------------------------------------------------------------------------------------------- |  | ---------- | --- | - | ----------- |  | ---- | ----- |  |  | ---- | -
|                                                                                                            |  | Interest   |     |   | Energy      |  |      |      
|                                                                                                            |  | Rate Swaps |     |   | Derivatives |  |      | Total | 
|                                                                                                            |  |            |     |   |             |  |      |       | 
|                                                                                                            |  | £m         |     |   | £m          |  |      | £m    | 
|Gains and (losses) recognised in the hedging reserve on adoption
    of IAS 32 and IAS 39 at 1 January 2005 |  |            | (20 | ) |             |  | 8    |       |  |  | (12  | )
|Gains and (losses) arising in previous years that were
    recognised during the year                       |  |            | (2  | ) |             |  | (7   | )     |  |  | (9   | )
|Amount removed from equity and included with a non-financial item                                           |  |            | 5   |   |             |  |     |       |  |  | 5    |  
|Amount recognised in equity                                                                                 |  |            | 2   |   |             |  | (104 | )     |  |  | (102 | )
|                                                                                                            |  |            |     |   |             |  |      |       | 
|                                                                                                            |  |            | (15 | ) |             |  | (103 | )     |  |  | (118 | )
|                                                                                                            |  |            |     |   |             |  |      |       | 



| |                             
| | ----------------------------
| | j) Hedge of a net investment









| |                            
| | ---------------------------
| | k) Counterparty credit risk



F-63



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












36     Financial
instruments  2004








| |         
| | --------
| | Policies





| |                                       
| | --------------------------------------
| | a) Short-term receivables and payables



F-64



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                      
| | ---------------------
| | b) Interest rate risk





| |                                                    
| | ---------------------------------------------------
| | Interest rate risk profile of financial liabilities



|                  |  |                  |       |               |             |  |            |             |  |  |       | 
|----------------- |  | ---------------- | ----- | ------------- | ----------- |  | ---------- | ----------- |  |  | ----- | 
|                  |  | 31 December 2004 |      
|                  |  |                  |      
|                  |  |                  |       | Floating Rate |             |  | Fixed Rate |            
|                  |  | Total Financial  |       |               | Financial   |  |            | Financial   | 
|                  |  | Liabilities      |       |               | Liabilities |  |            | Liabilities | 
|                  |  |                  |       |               |             |  |            |             | 
|                  |  | £m               |       |               | £m          |  |            | £m          | 
|Currency          |  |                  |       |               |             |  |            |             |  |  |       | 
|Sterling          |  |                  | 545   |               |             |  | 25         |             |  |  | 520   | 
|US dollar         |  |                  | 1,171 |               |             |  | 706        |             |  |  | 465   | 
|Australian dollar |  |                  | 1,370 |               |             |  | 678        |             |  |  | 692   | 
|Euro              |  |                  | 424   |               |             |  | 388        |             |  |  | 36    | 
|Czech koruna      |  |                  | 52    |               |             |  | 12         |             |  |  | 40    | 
|Others            |  |                  | 15    |               |             |  | 1          |             |  |  | 14    | 
|                  |  |                  |       |               |             |  |            |             | 
|Total             |  |                  | 3,577 |               |             |  | 1,810      |             |  |  | 1,767 | 
|                  |  |                  |       |               |             |  |            |             | 









|                  |  |                                  |      |  |                         |  |    | 
|----------------- |  | -------------------------------- | ---- |  | ----------------------- |  | -- | 
|                  |  | 31 December 2004                 |     
|                  |  | Fixed Rate Financial Liabilities |     
|                  |  |                                  |     
|                  |  | Weighted Average                 |      |  | Weighted Average Period | 
|                  |  | Interest Rate                    |      |  | for Which Rate is Fixed | 
|                  |  |                                  |      |  |                         | 
|                  |  | %                                |      |  | Years                   | 
|Currency          |  |                                  |      |  |                         |  |    | 
|Sterling          |  |                                  | 8.74 |  |                         |  | 15 | 
|US dollar         |  |                                  | 5.82 |  |                         |  | 11 | 
|Australian dollar |  |                                  | 7.92 |  |                         |  | 4  | 
|Euro              |  |                                  | 6.82 |  |                         |  | 3  | 
|Czech koruna      |  |                                  | 3.98 |  |                         |  | 2  | 
|Others            |  |                                  | 7.25 |  |                         |  | 2  | 
|                  |  |                                  |      |  |                         | 
|Weighted average  |  |                                  | 7.49 |  |                         |  | 9  | 
|                  |  |                                  |      |  |                         | 

F-65



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                  
| | -------------------------------------------------
| | c) Interest rate risk profile of financial assets



|                  |  |                  |       |               |                  |  |            |                  |  |  |     | 
|----------------- |  | ---------------- | ----- | ------------- | ---------------- |  | ---------- | ---------------- |  |  | --- | 
|                  |  | 31 December 2004 |      
|                  |  |                  |      
|                  |  |                  |       | Floating Rate |                  |  | Fixed Rate |                 
|                  |  | Total            |       |               | Financial Assets |  |            | Financial Assets | 
|                  |  |                  |       |               |                  |  |            |                  | 
|                  |  | £m               |       |               | £m               |  |            | £m               | 
|Currency          |  |                  |       |               |                  |  |            |                  |  |  |     | 
|Sterling          |  |                  | 246   |               |                  |  | 246        |                  |  |  |    | 
|US dollar         |  |                  | 139   |               |                  |  | 139        |                  |  |  |    | 
|Australian dollar |  |                  | 212   |               |                  |  | 202        |                  |  |  | 10  | 
|Euro              |  |                  | 578   |               |                  |  | 104        |                  |  |  | 474 | 
|Czech koruna      |  |                  | 4     |               |                  |  | 4          |                  |  |  |    | 
|Others            |  |                  | 18    |               |                  |  | 18         |                  |  |  |    | 
|                  |  |                  |       |               |                  |  |            |                  | 
|Total             |  |                  | 1,197 |               |                  |  | 713        |                  |  |  | 484 | 
|                  |  |                  |       |               |                  |  |            |                  | 





|                  |  |                             |      |  |                         |  |    | 
|----------------- |  | --------------------------- | ---- |  | ----------------------- |  | -- | 
|                  |  | 31 December 2004            |     
|                  |  | Fixed Rate Financial Assets |     
|                  |  |                             |     
|                  |  | Weighted Average            |      |  | Weighted Average Period | 
|                  |  | Interest Rate               |      |  | for Which Rate is Fixed | 
|                  |  |                             |      |  |                         | 
|                  |  | %                           |      |  | Years                   | 
|Currency          |  |                             |      |  |                         |  |    | 
|Australian dollar |  |                             | 7.15 |  |                         |  | 3  | 
|Euro              |  |                             | 7.89 |  |                         |  | 14 | 
|                  |  |                             |      |  |                         | 
|Weighted average  |  |                             | 7.87 |  |                         |  | 14 | 
|                  |  |                             |      |  |                         | 



| |                      
| | ---------------------
| | d) Currency exposures





| |                                     
| | ------------------------------------
| | e) Maturity of financial liabilities



|                                                    |  |             |       | 
|--------------------------------------------------- |  | ----------- | ----- | 
|                                                    |  | 31 December |      
|                                                    |  | 2004        |      
|                                                    |  |             |      
|                                                    |  | £m          |      
|In one year or less, or on demand                   |  |             | 100   | 
|In more than one year but not more than two years   |  |             | 113   | 
|In more than two years but not more than five years |  |             | 622   | 
|In more than five years                             |  |             | 2,742 | 
|                                                    |  |             |      
|Total                                               |  |             | 3,577 | 
|                                                    |  |             |      

F-66



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                        
| | -----------------------
| | f) Borrowing facilities



|                                                                         |  |                  |     |  |         |  |     |           |  |  |     | 
|------------------------------------------------------------------------ |  | ---------------- | --- |  | ------- |  | --- | --------- |  |  | --- | 
|                                                                         |  | 31 December 2004 |    
|                                                                         |  |                  |    
|                                                                         |  | Facility         |     |  | Undrawn |  |     | Available | 
|                                                                         |  |                  |     |  |         |  |     |           | 
|                                                                         |  | £m               |     |  | £m      |  |     | £m        | 
|US$450 million Corporate revolving credit facility (October
    2006)(1) |  |                  | 234 |  |         |  | 78  |           |  |  | 78  | 
|US$50 million ANP Funding 1 revolving credit facility (May
    2010)     |  |                  | 26  |  |         |  | 18  |           |  |  | 18  | 
|CZK1,000 million IPO revolving credit facility (May 2007)                |  |                  | 23  |  |         |  | 20  |           |  |  | 20  | 
|US$488 million Tihama term facility (December 2021)                      |  |                  | 254 |  |         |  | 181 |           |  |  | 181 | 
|A$92 million Canunda facility (December 2014)                            |  |                  | 38  |  |         |  | 12  |           |  |  | 12  | 
|£30 million Corporate letter of credit facility(2)                       |  |                  | 30  |  |         |  | 11  |           |  |  | 11  | 
|£95 million Subsidiary facilities in various currencies                  |  |                  | 95  |  |         |  | 66  |           |  |  | 66  | 
|                                                                         |  |                  |     |  |         |  |     |           | 
|Total                                                                    |  |                  | 700 |  |         |  | 386 |           |  |  | 386 | 
|                                                                         |  |                  |     |  |         |  |     |           | 






|    |                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The drawn element of the US$450 million Corporate revolving
    credit facility relates to letters of credit issued.                                                                                                                             
|   
|(2) | These facilities include a £30 million letter of
    credit facility which becomes committed for any letters of
    credit that have been drawn. At 31 December 2004,
    £19 million of letters of credit had been drawn from
    this facility.



|                                                        |  |                  |    |  |       |  |   |         |  |  |    | 
|------------------------------------------------------- |  | ---------------- | -- |  | ----- |  | - | ------- |  |  | -- | 
|                                                        |  | 31 December 2004 |   
|                                                        |  |                  |   
|                                                        |  | Total            |    |  | Drawn |  |   | Undrawn | 
|                                                        |  |                  |    |  |       |  |   |         | 
|                                                        |  | £m               |    |  | £m    |  |   | £m      | 
|Facility                                                |  |                  |    |  |       |  |   |         |  |  |    | 
|Bank borrowing and overdraft facilities                 |  |                  | 22 |  |       |  |  |         |  |  | 22 | 
|ANP Funding 1 working capital facility                  |  |                  | 31 |  |       |  |  |         |  |  | 31 | 
|£13 million Subsidiary facilities in various currencies |  |                  | 13 |  |       |  | 3 |         |  |  | 10 | 
|                                                        |  |                  |    |  |       |  |   |         | 
|                                                        |  |                  | 66 |  |       |  | 3 |         |  |  | 63 | 
|                                                        |  |                  |    |  |       |  |   |         | 





| |                                                   
| | --------------------------------------------------
| | g) Fair values of financial assets and liabilities



|                                                                                   |  |                  |        |   |       |  |        |  
|---------------------------------------------------------------------------------- |  | ---------------- | ------ | - | ----- |  | ------ | -
|                                                                                   |  | 31 December 2004 |       
|                                                                                   |  |                  |       
|                                                                                   |  | Carrying         |        |   | Fair  | 
|                                                                                   |  | Amount           |        |   | Value | 
|                                                                                   |  |                  |        |   |       | 
|                                                                                   |  | £m               |        |   | £m    | 
|Primary financial instruments held or issued to finance the
    Groups operations |  |                  |        |   |       |  |        |  
|Financial assets                                                                   |  |                  | 1,197  |   |       |  | 1,197  |  
|Current liability loans and bonds                                                  |  |                  | (100   | ) |       |  | (100   | )
|Non-current liabilities excluding deferred tax                                     |  |                  | (3,477 | ) |       |  | (3,508 | )

F-67



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Current asset trade and other receivables and current
    liability trade and other payables are excluded from the above
    table. Their carrying amounts approximate to fair value because
    of their short maturity.                                                                  
|
| | (ii) The fair value of assets held for trading maturing
    after three months has been estimated using discounted cash
    flows and quoted market prices.                                                                                                                                    
|
| | (iii) The fair value of current liability loans and bonds
    approximates to carrying amount because of their short maturity.                                                                                                                                                                 
|
| | (iv) The fair value of non-current liability loans and
    bonds and interest rate swaps has been calculated using market
    prices when available or the net present value of future cash
    flows arising.                                                                                 
|
| | (v) The fair value of the Groups forward exchange
    contracts, foreign currency swaps and foreign currency options
    has been calculated using the market rates in effect at the
    balance sheet dates.                                                                                 
|
| | (vi) 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.



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Derivative financial instruments held to manage the
    interest rate, currency profile and exposure to energy
    prices

|                                            |  |                             |   |  |       |  |     |        |  |  |       |   |  |        |    |  |  |  |     |  
|------------------------------------------- |  | --------------------------- | - |  | ----- |  | --- | ------ |  |  | ----- | - |  | ------ | -- |  |  |  | --- | -
|                                            |  | Year Ended 31 December 2004 |  
|                                            |  |                             |  
|                                            |  | Carrying                    |   |  | Fair  |  |     | Gain/  |  |  | Gross |   |  | Gross  |   
|                                            |  | Amount                      |   |  | Value |  |     | (Loss) |  |  | Gain  |   |  | (Loss) |   
|                                            |  |                             |   |  |       |  |     |        |  |  |       |   |  |        |   
|                                            |  | £m                          |   |  | £m    |  |     | £m     |  |  | £m    |   |  | £m     |   
|Interest rate swaps and similar instruments |  |                             |  |  |       |  | (38 | )      |  |  | (38   | ) |  |        |   |  |  |  | (38 | )
|Energy derivatives                          |  |                             |  |  |       |  | 16  |        |  |  | 16    |   |  |        | 90 |  |  |  | (74 | )

F-68



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |          
| | ---------
| | h) Hedges





|                                                                                                         |  |      |     |         |          |  |        |             |  |       |        |  |  |  |     |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | --- | ------- | -------- |  | ------ | ----------- |  | ----- | ------ |  |  |  | --- | -
|                                                                                                         |  |      |     |         |          |  |        | Total Net   | 
|                                                                                                         |  |      |     | Foreign |          |  | Energy |             |  | Gain/ |       
|                                                                                                         |  | Debt |     |         | Exchange |  |        | Derivatives |  |       | (Loss) | 
|                                                                                                         |  |      |     |         |          |  |        |             |  |       |        | 
|                                                                                                         |  | £m   |     |         | £m       |  |        | £m          |  |       | £m     | 
|Unrecognised gains and (losses) on hedges at 1 January 2004                                              |  |      | (38 | )       |          |  |       |             |  |       | 37     |  |  |  | (1  | )
|Gains and (losses) arising in previous years that were
    recognised in the year ended 31 December 2004 |  |      | (15 | )       |          |  |       |             |  |       | 33     |  |  |  | 18  |  
|                                                                                                         |  |      |     |         |          |  |        |             |  |       |        | 
|Gains and (losses) arising in previous years that were not
    recognised in the year                    |  |      | (23 | )       |          |  |       |             |  |       | 4      |  |  |  | (19 | )
|Gains and (losses) arising in the year ended 31 December
    2004 that were not recognised in the year   |  |      | (15 | )       |          |  |       |             |  |       | 12     |  |  |  | (3  | )
|                                                                                                         |  |      |     |         |          |  |        |             |  |       |        | 
|Unrecognised gains and (losses) on hedges at 31 December
    2004                                        |  |      | (38 | )       |          |  |       |             |  |       | 16     |  |  |  | (22 | )
|                                                                                                         |  |      |     |         |          |  |        |             |  |       |        | 
|Of which:                                                                                                |  |      |     |         |          |  |        |             |  |       |        |  |  |  |     |  
|Gains and (losses) expected to be recognised in the year ending
    31 December 2005                     |  |      | (2  | )       |          |  |       |             |  |       | 16     |  |  |  | 14  |  
|Losses expected to be recognised in the year ending
    31 December 2006 or later                        |  |      | (36 | )       |          |  |       |             |  |       |       |  |  |  | (36 | )





| |                            
| | ---------------------------
| | i) Counterparty credit risk



37     Commitments




| |                              
| | -----------------------------
| | Lease and capital commitments

|                                                                                |                            |             |    |    |             |  |     |    | 
|------------------------------------------------------------------------------- | -------------------------- | ----------- | -- | -- | ----------- |  | --- | -- | 
|                                                                                |                            | Year Ended  |    |    | Year Ended  | 
|                                                                                |                            | 31 December |    |    | 31 December | 
|                                                                                |                            | 2005        |    |    | 2004        | 
|                                                                                |                            |             |    |    |             | 
|                                                                                |                            | £m          |    |    | £m          | 
|Capital commitments: contracted but not provided                                |                            |             | 82 |    |             |  | 182 |   
|Future minimum lease payments under non-cancellable operating
    leases:       |                            |             |    |    |             |  |     |   
|                                                                                | Within one year            |             |    | 6  |             |  |     | 6  | 
|                                                                                | Between one and five years |             |    | 21 |             |  |     | 20 | 
|                                                                                | After five years           |             |    | 27 |             |  |     | 35 | 
|Offset by future minimum receipts under non-cancellable
    operating subleases |                            |             | (8 | )  |             |  | (12 | ) 



F-69



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                             
| | --------------------------------------------
| | Fuel purchase and transportation commitments





|   |                       
|-- | ----------------------
|38 | Contingent liabilities



| |                                         
| | ----------------------------------------
| | a) Legal proceedings against the Company





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | RWE npower has agreed to indemnify International Power plc on an
    after-tax basis to the extent of 50% of any liability that the
    Company 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 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 their respective members. The Commission
    ruled on the complaint in 1998 and did not make any findings
    against the Group. Appeals against the Commissions
    findings were brought by NALOO and SWSMA. The SWSMA appeal was
    initially ruled out of time, but on appeal a faction was allowed
    to proceed. Progress with this claim will be influenced by the
    outcome of the NALOO appeal. At first instance, the European
    Court ruled that the Commission is under an obligation to
    investigate the complaint by NALOO. The Company, PowerGen plc,
    British Coal Corporation and the Commission appealed against the
    ruling to the European Court of Justice which delivered a
    judgment on 2 October 2003 for the main part dismissing the
    appeal. In its judgment, the court decided that the Commission
    has the power to investigate and the matter is now with the
    Commission for consideration. It is not practicable to estimate
    legal costs or possible damages, at this stage. RWE npower has
    agreed to indemnify International Power on an after-tax basis to
    the extent of 50% of any liability that the Company may incur
    whether directly or indirectly as a consequence of those
    proceedings.





| |            
| | -----------
| | b) Taxation



F-70



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                        
| | -----------------------
| | c) Bonds and guarantees







| |                                 
| | --------------------------------
| | d) Joint ventures and associates



|    |                  
|--- | -----------------
|(i) | Legal proceedings





| |                          
| | -------------------------
| | (ii) Bonds and guarantees



39     Related party transactions






|    |                                     
|--- | ------------------------------------
|(i) | Operations and maintenance contracts





| |                             
| | ----------------------------
| | (ii) Retail supply contracts





| |                               
| | ------------------------------
| | (iii) Transportation contracts



F-71



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                     
| | --------------------
| | (iv) Other contracts



40     Events after the balance
sheet date






41     Events subsequent to the date
of the auditors report on the Annual Report and
Accounts




42     Critical accounting
judgements and key sources of estimation uncertainty






| |                                                                                  
| | ---------------------------------------------------------------------------------
| | a) Critical accounting judgements in applying the
    Groups accounting policies



| |                           
| | --------------------------
| | Cash flow hedge accounting





| |                                       
| | --------------------------------------
| | Income recognition from long-term PPAs





F-72



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                              
| | ---------------------------------------------
| | Evaluation of levels of control and influence







| |                  
| | -----------------
| | Exceptional items







| |                                            
| | -------------------------------------------
| | (i) disposals of investments;              
|
| | (ii) discontinued operations;              
|
| | (iii) impairments and impairment reversals.





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





| |                                         
| | ----------------------------------------
| | b) Key sources of estimation uncertainty



| |                                                           
| | ----------------------------------------------------------
| | Useful economic lives of property, plant and
    equipment





| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) Interest on borrowings relating to major capital
    projects with long periods of development is capitalised during
    construction and then amortised over the useful life of the
    asset.

F-73



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii) Project development costs (including appropriate
    direct internal costs) are capitalised when it is virtually
    certain that the contract will proceed to completion and income
    will be realised.





| |                           
| | --------------------------
| | Fair values on acquisition





| |                    
| | -------------------
| | Impairment analysis





| |           
| | ----------
| | Provisions





|   |                                   
|-- | ----------------------------------
|43 | Explanation of transition to IFRSs







F-74



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                    
| | -----------------------------------
| | Implementation of IAS 32 and IAS 39







F-75



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        |  |     |   |  |  |       |     | 
|--------------------------------------------------------- | -------------------- | -------------- | ----- | ------------- | ---------------- |  | ------------- | ------ |  |  | ------- | ------------- |  | ----- | ------------- | --- | ------ |  | --- | - |  |  | ----- | --- | 
|                                                          |                      | 1 January 2004 |       |               | 31 December 2004 | 
|                                                          |                      |                |       |               |                  | 
|                                                          |                      |                |       | Effect of     |                  |  | Adopted IFRSs |        |  |  |         | Effect of     |  |       | Adopted IFRSs |    
|                                                          |                      |                |       | Transition to |                  |  | Excluding     |        |  |  |         | Transition to |  |       | Excluding     |    
|                                                          |                      |                |       | Adopted       |                  |  | IAS 32 and    |        |  |  |         | Adopted       |  |       | IAS 32 and    |    
|                                                          |                      | UK GAAP        |       |               | IFRSs            |  |               | IAS 39 |  |  | UK GAAP |               |  | IFRSs |               |     | IAS 39 | 
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|                                                          |                      | £m             |       |               | £m               |  |               | £m     |  |  | £m      |               |  | £m    |               |     | £m     | 
|Non-current assets                                        |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        |  |     |   |  |  |       |    
|Goodwill                                                  |                      |                | 1     |               |                  |  | 6             |        |  |  | 7       |               |  |       | 2             |     |        |  | 195 |   |  |  | 197   |    
|Other intangible assets                                   |                      |                |      |               |                  |  |              |        |  |  |        |               |  |       | 9             |     |        |  |    |   |  |  | 9     |    
|Property, plant and equipment                             |                      |                | 2,048 |               |                  |  |              |        |  |  | 2,048   |               |  |       | 3,545         |     |        |  | (3  | ) |  |  | 3,542 |    
|Investment in joint ventures and associates               |                      |                | 441   |               |                  |  |              |        |  |  | 441     |               |  |       | 1,167         |     |        |  | 2   |   |  |  | 1,169 |    
|Other investments                                         |                      |                | 95    |               |                  |  |              |        |  |  | 95      |               |  |       | 86            |     |        |  |    |   |  |  | 86    |    
|Finance lease receivables                                 |                      |                |      |               |                  |  |              |        |  |  |        |               |  |       | 484           |     |        |  |    |   |  |  | 484   |    
|Other long-term receivables                               |                      |                | 3     |               |                  |  |              |        |  |  | 3       |               |  |       | 101           |     |        |  |    |   |  |  | 101   |    
|Deferred tax assets                                       |                      |                |      |               |                  |  |              |        |  |  |        |               |  |       |              |     |        |  | 79  |   |  |  | 79    |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Total non-current assets                                  |                      |                | 2,588 |               |                  |  | 6             |        |  |  | 2,594   |               |  |       | 5,394         |     |        |  | 273 |   |  |  | 5,667 |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Current assets                                            |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        |  |     |   |  |  |       |    
|Inventories                                               |                      |                | 65    |               |                  |  |              |        |  |  | 65      |               |  |       | 91            |     |        |  |    |   |  |  | 91    |    
|Trade and other receivables                               |                      |                | 157   |               |                  |  |              |        |  |  | 157     |               |  |       | 227           |     |        |  |    |   |  |  | 227   |    
|Finance lease receivables                                 |                      |                |      |               |                  |  |              |        |  |  |        |               |  |       | 11            |     |        |  |    |   |  |  | 11    |    
|Assets held for trading                                   |                      |                | 47    |               |                  |  |              |        |  |  | 47      |               |  |       | 47            |     |        |  |    |   |  |  | 47    |    
|Cash and cash equivalents                                 |                      |                | 696   |               |                  |  |              |        |  |  | 696     |               |  |       | 565           |     |        |  |    |   |  |  | 565   |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|                                                          | Total current assets |                |       | 965           |                  |  |               |       |  |  |         | 965           |  |       |               | 941 |        |  |     |  |  |  |       | 941 | 
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Total assets                                              |                      |                | 3,553 |               |                  |  | 6             |        |  |  | 3,559   |               |  |       | 6,335         |     |        |  | 273 |   |  |  | 6,608 |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Current liabilities                                       |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        |  |     |   |  |  |       |    
|Loans and bonds                                           |                      |                | 531   |               |                  |  |              |        |  |  | 531     |               |  |       | 100           |     |        |  |    |   |  |  | 100   |    
|Trade and other payables                                  |                      |                | 229   |               |                  |  |              |        |  |  | 229     |               |  |       | 398           |     |        |  | (36 | ) |  |  | 362   |    
|Current tax liabilities                                   |                      |                | 86    |               |                  |  |              |        |  |  | 86      |               |  |       | 83            |     |        |  |    |   |  |  | 83    |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Total current liabilities                                 |                      |                | 846   |               |                  |  |              |        |  |  | 846     |               |  |       | 581           |     |        |  | (36 | ) |  |  | 545   |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Non-current liabilities                                   |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        |  |     |   |  |  |       |    
|Loans and bonds                                           |                      |                | 904   |               |                  |  |              |        |  |  | 904     |               |  |       | 3,257         |     |        |  |    |   |  |  | 3,257 |    
|Trade and other payables                                  |                      |                | 5     |               |                  |  |              |        |  |  | 5       |               |  |       | 170           |     |        |  |    |   |  |  | 170   |    
|Retirement benefit obligations                            |                      |                |      |               |                  |  | 15            |        |  |  | 15      |               |  |       | 15            |     |        |  | 14  |   |  |  | 29    |    
|Provisions                                                |                      |                | 33    |               |                  |  |              |        |  |  | 33      |               |  |       | 35            |     |        |  |    |   |  |  | 35    |    
|Deferred tax liabilities                                  |                      |                | 205   |               |                  |  | 26            |        |  |  | 231     |               |  |       | 215           |     |        |  | 299 |   |  |  | 514   |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Total non-current liabilities                             |                      |                | 1,147 |               |                  |  | 41            |        |  |  | 1,188   |               |  |       | 3,692         |     |        |  | 313 |   |  |  | 4,005 |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Total liabilities                                         |                      |                | 1,993 |               |                  |  | 41            |        |  |  | 2,034   |               |  |       | 4,273         |     |        |  | 277 |   |  |  | 4,550 |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Net assets                                                |                      |                | 1,560 |               |                  |  | (35           | )      |  |  | 1,525   |               |  |       | 2,062         |     |        |  | (4  | ) |  |  | 2,058 |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Equity                                                    |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        |  |     |   |  |  |       |    
|Share capital                                             |                      |                | 554   |               |                  |  |              |        |  |  | 554     |               |  |       | 737           |     |        |  |    |   |  |  | 737   |    
|Share premium reserve                                     |                      |                | 289   |               |                  |  |              |        |  |  | 289     |               |  |       | 392           |     |        |  |    |   |  |  | 392   |    
|Capital redemption reserve                                |                      |                | 145   |               |                  |  |              |        |  |  | 145     |               |  |       | 145           |     |        |  |    |   |  |  | 145   |    
|Capital reserve                                           |                      |                | 422   |               |                  |  |              |        |  |  | 422     |               |  |       | 422           |     |        |  |    |   |  |  | 422   |    
|Hedging and translation reserve                           |                      |                |      |               |                  |  |              |        |  |  |        |               |  |       |              |     |        |  | (39 | ) |  |  | (39   | )  
|Retained earnings                                         |                      |                | 111   |               |                  |  | (35           | )      |  |  | 76      |               |  |       | 129           |     |        |  | 47  |   |  |  | 176   |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Total equity attributable to equity holders of the parent |                      |                | 1,521 |               |                  |  | (35           | )      |  |  | 1,486   |               |  |       | 1,825         |     |        |  | 8   |   |  |  | 1,833 |    
|Minority interests                                        |                      |                | 39    |               |                  |  |              |        |  |  | 39      |               |  |       | 237           |     |        |  | (12 | ) |  |  | 225   |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 
|Total equity                                              |                      |                | 1,560 |               |                  |  | (35           | )      |  |  | 1,525   |               |  |       | 2,062         |     |        |  | (4  | ) |  |  | 2,058 |    
|                                                          |                      |                |       |               |                  |  |               |        |  |  |         |               |  |       |               |     |        | 

F-76



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                          |  |                  |       |   |                  |  |                |                  |  |  |       |  
|--------------------------------------------------------- |  | ---------------- | ----- | - | ---------------- |  | -------------- | ---------------- |  |  | ----- | -
|                                                          |  | 31 December 2004 |       |   |                  |  | 1 January 2005 |                 
|                                                          |  |                  |       |   |                  |  |                |                 
|                                                          |  | Adopted IFRSs    |       |   | Effect of IAS 32 |  |                | Adopted IFRSs    | 
|                                                          |  | Excluding IAS 32 |       |   | and IAS 39       |  |                | Including IAS 32 | 
|                                                          |  | and IAS 39       |       |   | Adjustment       |  |                | and IAS 39       | 
|                                                          |  |                  |       |   |                  |  |                |                  | 
|                                                          |  | £m               |       |   | £m               |  |                | £m               | 
|Non-current assets                                        |  |                  |       |   |                  |  |                |                  |  |  |       |  
|Goodwill                                                  |  |                  | 197   |   |                  |  |               |                  |  |  | 197   |  
|Other intangible assets                                   |  |                  | 9     |   |                  |  | (9             | )                |  |  |      |  
|Property, plant and equipment                             |  |                  | 3,542 |   |                  |  |               |                  |  |  | 3,542 |  
|Investment in joint ventures and associates               |  |                  | 1,169 |   |                  |  | (9             | )                |  |  | 1,160 |  
|Other investments                                         |  |                  | 86    |   |                  |  |               |                  |  |  | 86    |  
|Finance lease receivables                                 |  |                  | 484   |   |                  |  |               |                  |  |  | 484   |  
|Other long-term receivables                               |  |                  | 101   |   |                  |  |               |                  |  |  | 101   |  
|Deferred tax assets                                       |  |                  | 79    |   |                  |  | 2              |                  |  |  | 81    |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Total non-current assets                                  |  |                  | 5,667 |   |                  |  | (16            | )                |  |  | 5,651 |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Current assets                                            |  |                  |       |   |                  |  |                |                  |  |  |       |  
|Inventories                                               |  |                  | 91    |   |                  |  |               |                  |  |  | 91    |  
|Trade and other receivables                               |  |                  | 227   |   |                  |  | (3             | )                |  |  | 224   |  
|Finance lease receivables                                 |  |                  | 11    |   |                  |  |               |                  |  |  | 11    |  
|Derivative financial instruments                          |  |                  |      |   |                  |  | 91             |                  |  |  | 91    |  
|Assets held for trading                                   |  |                  | 47    |   |                  |  |               |                  |  |  | 47    |  
|Cash and cash equivalents                                 |  |                  | 565   |   |                  |  |               |                  |  |  | 565   |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Total current assets                                      |  |                  | 941   |   |                  |  | 88             |                  |  |  | 1,029 |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Total assets                                              |  |                  | 6,608 |   |                  |  | 72             |                  |  |  | 6,680 |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Current liabilities                                       |  |                  |       |   |                  |  |                |                  |  |  |       |  
|Loans and bonds                                           |  |                  | 100   |   |                  |  |               |                  |  |  | 100   |  
|Derivative financial instruments                          |  |                  |      |   |                  |  | 78             |                  |  |  | 78    |  
|Trade and other payables                                  |  |                  | 362   |   |                  |  |               |                  |  |  | 362   |  
|Current tax liabilities                                   |  |                  | 83    |   |                  |  |               |                  |  |  | 83    |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Total current liabilities                                 |  |                  | 545   |   |                  |  | 78             |                  |  |  | 623   |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Non-current liabilities                                   |  |                  |       |   |                  |  |                |                  |  |  |       |  
|Loans and bonds                                           |  |                  | 3,257 |   |                  |  | (44            | )                |  |  | 3,213 |  
|Derivative financial instruments                          |  |                  |      |   |                  |  | 221            |                  |  |  | 221   |  
|Trade and other payables                                  |  |                  | 170   |   |                  |  | (147           | )                |  |  | 23    |  
|Retirement benefit obligations                            |  |                  | 29    |   |                  |  |               |                  |  |  | 29    |  
|Provisions                                                |  |                  | 35    |   |                  |  |               |                  |  |  | 35    |  
|Deferred tax liabilities                                  |  |                  | 514   |   |                  |  | (1             | )                |  |  | 513   |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Total non-current liabilities                             |  |                  | 4,005 |   |                  |  | 29             |                  |  |  | 4,034 |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Total liabilities                                         |  |                  | 4,550 |   |                  |  | 107            |                  |  |  | 4,657 |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Net assets                                                |  |                  | 2,058 |   |                  |  | (35            | )                |  |  | 2,023 |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Equity                                                    |  |                  |       |   |                  |  |                |                  |  |  |       |  
|Share capital                                             |  |                  | 737   |   |                  |  |               |                  |  |  | 737   |  
|Share premium reserve                                     |  |                  | 392   |   |                  |  |               |                  |  |  | 392   |  
|Capital redemption reserve                                |  |                  | 145   |   |                  |  |               |                  |  |  | 145   |  
|Capital reserve                                           |  |                  | 422   |   |                  |  |               |                  |  |  | 422   |  
|Hedging and translation reserve                           |  |                  | (39   | ) |                  |  | (12            | )                |  |  | (51   | )
|Retained earnings                                         |  |                  | 176   |   |                  |  | (20            | )                |  |  | 156   |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Total equity attributable to equity holders of the parent |  |                  | 1,833 |   |                  |  | (32            | )                |  |  | 1,801 |  
|Minority interests                                        |  |                  | 225   |   |                  |  | (3             | )                |  |  | 222   |  
|                                                          |  |                  |       |   |                  |  |                |                  | 
|Total equity                                              |  |                  | 2,058 |   |                  |  | (35            | )                |  |  | 2,023 |  
|                                                          |  |                  |       |   |                  |  |                |                  | 



F-77



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                       
| | ----------------------
| | a) IAS 12 (Income Tax)







| |                              
| | -----------------------------
| | b) IAS 19 (Employee Benefits)





| |                                 
| | --------------------------------
| | c) IFRS 2 (Share-based Payments)





| |                                                
| | -----------------------------------------------
| | d) IAS 10 (Events after the Balance Sheet Date)





| |                                 
| | --------------------------------
| | e) IAS 36 (Impairment of Assets)





| |                                             
| | --------------------------------------------
| | f) IAS 32 and IAS 39 (Financial Instruments)





| |                                             
| | --------------------------------------------
| | Financial liabilities and equity instruments





| |                  
| | -----------------
| | Other investments





F-78



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                  
| | -----------------
| | Convertible bonds







| |                                                          
| | ---------------------------------------------------------
| | Derivative financial instruments and hedge
    accounting







| |                                                                 
| | ----------------------------------------------------------------
| | g) The effect of the transition to IFRS on retained
    earnings

|                                      |  |           |     |   |             |  |     |  
|------------------------------------- |  | --------- | --- | - | ----------- |  | --- | -
|                                      |  | 1 January |     |   | 31 December | 
|                                      |  | 2004      |     |   | 2004        | 
|                                      |  |           |     |   |             | 
|                                      |  | £m        |     |   | £m          | 
|Goodwill                              |  |           | 6   |   |             |  | 8   |  
|Share-based payments                  |  |           | 2   |   |             |  | 5   |  
|Employee benefits                     |  |           | (11 | ) |             |  | (10 | )
|Events after balance sheet date       |  |           |    |   |             |  | 37  |  
|Deferred tax                          |  |           | (31 | ) |             |  | (42 | )
|Other                                 |  |           | (1  | ) |             |  | (2  | )
|                                      |  |           |     |   |             | 
|Total adjustment to retained earnings |  |           | (35 | ) |             |  | (4  | )
|                                      |  |           |     |   |             | 
|Attributable to:                      |  |           |     |   |             |  |     |  
|Minority interests                    |  |           |    |   |             |  | (12 | )
|Equity holders of the parent          |  |           | (35 | ) |             |  | 8   |  
|                                      |  |           |     |   |             | 

F-79



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                   
| | --------------------------------------------------
| | h) Reconciliation of the income statement for 2004

|                                                          |  |      |       |           |            |  |                 |            |  |  |       |  
|--------------------------------------------------------- |  | ---- | ----- | --------- | ---------- |  | --------------- | ---------- |  |  | ----- | -
|                                                          |  |      |       | Effect of |            |  | IFRSs Excluding |           
|                                                          |  | UK   |       |           | Transition |  |                 | IAS 32 and | 
|                                                          |  | GAAP |       |           | to IFRSs   |  |                 | IAS 39     | 
|                                                          |  |      |       |           |            |  |                 |            | 
|                                                          |  | £m   |       |           | £m         |  |                 | £m         | 
|Revenue: Group and share of joint ventures and associates |  |      | 1,267 |           |            |  |                |            |  |  | 1,267 |  
|Less: share of joint ventures revenue                    |  |      | (144  | )         |            |  |                |            |  |  | (144  | )
|Less: share of associates revenue                        |  |      | (355  | )         |            |  |                |            |  |  | (355  | )
|                                                          |  |      |       |           |            |  |                 |            | 
|Group revenue                                             |  |      | 768   |           |            |  |                |            |  |  | 768   |  
|Cost of sales                                             |  |      | (637  | )         |            |  |                |            |  |  | (637  | )
|                                                          |  |      |       |           |            |  |                 |            | 
|Gross profit                                              |  |      | 131   |           |            |  |                |            |  |  | 131   |  
|Other operating income                                    |  |      | 56    |           |            |  |                |            |  |  | 56    |  
|Other operating expenses                                  |  |      | (66   | )         |            |  | (1              | )          |  |  | (67   | )
|Share of results of joint ventures and associates         |  |      | 111   |           |            |  | 2               |            |  |  | 113   |  
|                                                          |  |      |       |           |            |  |                 |            | 
|Profit from operations                                    |  |      | 232   |           |            |  | 1               |            |  |  | 233   |  
|Disposal of investments                                   |  |      | 4     |           |            |  |                |            |  |  | 4     |  
|                                                          |  |      |       |           |            |  |                 |            | 
|Finance income                                            |  |      | 30    |           |            |  |                |            |  |  | 30    |  
|Finance costs                                             |  |      | (138  | )         |            |  |                |            |  |  | (138  | )
|                                                          |  |      |       |           |            |  |                 |            | 
|Net finance costs                                         |  |      | (108  | )         |            |  |                |            |  |  | (108  | )
|                                                          |  |      |       |           |            |  |                 |            | 
|Profit before tax                                         |  |      | 128   |           |            |  | 1               |            |  |  | 129   |  
|Income tax expense                                        |  |      | (28   | )         |            |  | 3               |            |  |  | (25   | )
|                                                          |  |      |       |           |            |  |                 |            | 
|Profit for the year                                       |  |      | 100   |           |            |  | 4               |            |  |  | 104   |  
|                                                          |  |      |       |           |            |  |                 |            | 
|Attributable to:                                          |  |      |       |           |            |  |                 |            |  |  |       |  
|Minority interests                                        |  |      | 6     |           |            |  |                |            |  |  | 6     |  
|Equity holders of the parent                              |  |      | 94    |           |            |  | 4               |            |  |  | 98    |  
|                                                          |  |      |       |           |            |  |                 |            | 
|Earnings per share:                                       |  |      |       |           |            |  |                 |            |  |  |       |  
|Basic                                                     |  |      | 7.2   | p         |            |  |                 |            |  |  | 7.5   | p
|Diluted                                                   |  |      | 7.1   | p         |            |  |                 |            |  |  | 7.4   | p
|                                                          |  |      |       |           |            |  |                 |            | 





|   |                                                                                               
|-- | ----------------------------------------------------------------------------------------------
|44 | Financial information prepared under US Generally Accepted
    Accounting Principles (US GAAP)



F-80



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Effect on net income of significant differences between
    Adopted IFRSs and US GAAP

|                                                                            |                                                 |                                      |  |             |      |  |             |      |     |   |    |     |     |  
|--------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------ |  | ----------- | ---- |  | ----------- | ---- | --- | - | -- | --- | --- | -
|                                                                            |                                                 |                                      |  | Year Ended  |      |  | Year Ended  |     
|                                                                            |                                                 |                                      |  | 31 December |      |  | 31 December |     
|                                                                            |                                                 | Note                                 |  |             | 2005 |  |             | 2004 |    
|                                                                            |                                                 |                                      |  |             |      |  |             |      |    
|                                                                            |                                                 |                                      |  | £m          |      |  | £m          |     
|Net income                                                                  |                                                 |                                      |  |             |      |  |             |      |     |   |    |    
|Profit attributable to equity holders of the parent under
    adopted IFRSs |                                                 |                                      |  |             |      |  | 285         |      |     |   | 98 |    
|Adjustments:                                                                |                                                 |                                      |  |             |      |  |             |      |     |   |    |    
|                                                                            | Pensions                                        |                                      |  | (a          | )    |  |             | (4   | )   |   |    | 1   |    
|                                                                            | Impairment of plant:                            |                                      |  | (b          | )    |  |             |      |     |   |    |     |    
|                                                                            |                                                 | Impairment reversal at Rugeley plant |  |             |      |  |             |      | (54 | ) |    |     |    |  
|                                                                            |                                                 | Release on partial disposal of HUBCO |  |             |      |  |             |      |    |   |    |     | 7   |  
|                                                                            |                                                 | Impact on depreciation charge        |  |             |      |  |             |      | (21 | ) |    |     | (20 | )
|                                                                            | Purchase accounting and goodwill                |                                      |  | (c          | )    |  |             | 1    |     |   |    | 1   |    
|                                                                            | Development expenditure                         |                                      |  | (d          | )    |  |             | 1    |     |   |    | 2   |    
|                                                                            | Onerous property lease provision                |                                      |  | (e          | )    |  |             |     |     |   |    | 1   |    
|                                                                            | Liquidated damages and associated costs         |                                      |  | (f          | )    |  |             | 6    |     |   |    | 3   |    
|                                                                            | Derivatives                                     |                                      |  | (g          | )    |  |             | (50  | )   |   |    | (29 | )  
|                                                                            | Deferred finance costs                          |                                      |  | (h          | )    |  |             | 1    |     |   |    | (5  | )  
|                                                                            | Disposal of investments                         |                                      |  | (i          | )    |  |             |     |     |   |    | 3   |    
|                                                                            | Income taxes                                    |                                      |  | (j          | )    |  |             | 49   |     |   |    | (11 | )  
|                                                                            | Share-based payments                            |                                      |  | (k          | )    |  |             | (14  | )   |   |    | (8  | )  
|                                                                            | Others                                          |                                      |  |             |      |  |             | (1   | )   |   |    |    |    
|                                                                            | Tax effect of US GAAP adjustments               |                                      |  |             |      |  |             | 37   |     |   |    | 17  |    
|                                                                            | Minority interest effect of US GAAP adjustments |                                      |  |             |      |  |             | 3    |     |   |    | 1   |    
|                                                                            |                                                 |                                      |  |             |      |  |             |      |    
|Net income under US GAAP                                                    |                                                 |                                      |  |             |      |  | 239         |      |     |   | 61 |    
|                                                                            |                                                 |                                      |  |             |      |  |             |      |    

|                                           |         |             |   |      |             |  |   |      |  
|------------------------------------------ | ------- | ----------- | - | ---- | ----------- |  | - | ---- | -
|                                           |         | Year Ended  |   |      | Year Ended  | 
|                                           |         | 31 December |   |      | 31 December | 
|                                           |         | 2005        |   |      | 2004        | 
|                                           |         |             |   |      |             | 
|Earnings per Ordinary Share under US GAAP: |         |             |   |      |             |  |   |     
|                                           | Basic   |             |   | 16.3 | p           |  |   | 4.7  | p
|                                           | Diluted |             |   | 15.6 | p           |  |   | 4.6  | p
|Earnings per ADS under US GAAP*:           |         |             |   |      |             |  |   |     
|                                           | Basic   |             | £ | 1.63 |             |  | £ | 0.47 |  
|                                           | Diluted |             | £ | 1.56 |             |  | £ | 0.46 |  




*


F-81



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Effect on total equity attributable to equity holders of
    the parent of significant differences between Adopted IFRSs and
    US GAAP

|                                                                                  |                                               |      |  |             |      |  |             |      |   |  |       |      |  
|--------------------------------------------------------------------------------- | --------------------------------------------- | ---- |  | ----------- | ---- |  | ----------- | ---- | - |  | ----- | ---- | -
|                                                                                  |                                               |      |  | As at       |      |  | As at       |     
|                                                                                  |                                               |      |  | 31 December |      |  | 31 December |     
|                                                                                  |                                               | Note |  |             | 2005 |  |             | 2004 |  
|                                                                                  |                                               |      |  |             |      |  |             |      |  
|                                                                                  |                                               |      |  | £m          |      |  | £m          |     
|Total equity attributable to equity holders of the parent                         |                                               |      |  |             |      |  |             |      |   |  |       |     
|Total equity attributable to equity holders of the parent under
    adopted IFRSs |                                               |      |  |             |      |  | 2,092       |      |   |  | 1,833 |     
|Adjustments:                                                                      |                                               |      |  |             |      |  |             |      |   |  |       |     
|                                                                                  | Pensions                                      |      |  | (a          | )    |  |             | 16   |   |  |       | 26   |  
|                                                                                  | Impairment of plant                           |      |  | (b          | )    |  |             | 482  |   |  |       | 514  |  
|                                                                                  | Purchase accounting and goodwill              |      |  | (c          | )    |  |             | (67  | ) |  |       | (53  | )
|                                                                                  | Development expenditure                       |      |  | (d          | )    |  |             | (13  | ) |  |       | (13  | )
|                                                                                  | Liquidated damages and associated costs       |      |  | (f          | )    |  |             | (140 | ) |  |       | (131 | )
|                                                                                  | Derivatives                                   |      |  | (g          | )    |  |             | (128 | ) |  |       | (50  | )
|                                                                                  | Deferred finance costs                        |      |  | (h          | )    |  |             | (1   | ) |  |       | 6    |  
|                                                                                  | Income taxes                                  |      |  | (j          | )    |  |             | (11  | ) |  |       | (57  | )
|                                                                                  | Share-based payments                          |      |  | (k          | )    |  |             |     |   |  |       | (2   | )
|                                                                                  | Others                                        |      |  |             |      |  |             |     |   |  |       | 1    |  
|                                                                                  | Deconsolidation of variable interest entities |      |  | (l          | )    |  |             | (7   | ) |  |       | (7   | )
|Cumulative tax effect of US GAAP adjustments                                      |                                               |      |  |             |      |  | (6          | )    |   |  | (39   | )   
|Cumulative minority interest effect of US GAAP adjustments                        |                                               |      |  |             |      |  | 41          |      |   |  | 26    |     
|                                                                                  |                                               |      |  |             |      |  |             |      |  
|Total equity attributable to equity holders of the parent
    under US GAAP       |                                               |      |  |             |      |  | 2,258       |      |   |  | 2,054 |     
|                                                                                  |                                               |      |  |             |      |  |             |      |  

Significant differences between Adopted IFRSs and US GAAP




| |            
| | -----------
| | a) Pensions







F-82



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                     |  |             |     |   |             |  |     |             |  |  |     |  
|------------------------------------------------------------------------------------ |  | ----------- | --- | - | ----------- |  | --- | ----------- |  |  | --- | -
|                                                                                     |  | As at       |     |   | As at       |  |     | As at       | 
|                                                                                     |  | 31 December |     |   | 31 December |  |     | 31 December | 
|                                                                                     |  | 2005        |     |   | 2004        |  |     | 2003        | 
|                                                                                     |  |             |     |   |             |  |     |             | 
|                                                                                     |  | £m          |     |   | £m          |  |     | £m          | 
|Change in benefit obligation                                                         |  |             |     |   |             |  |     |             |  |  |     |  
|At 1 January                                                                         |  |             | 184 |   |             |  | 107 |             |  |  | 79  |  
|Service cost                                                                         |  |             | 9   |   |             |  | 5   |             |  |  | 5   |  
|Interest cost                                                                        |  |             | 9   |   |             |  | 7   |             |  |  | 6   |  
|Actuarial losses                                                                     |  |             | 35  |   |             |  | 12  |             |  |  | 10  |  
|Employee contributions                                                               |  |             | 3   |   |             |  | 2   |             |  |  | 2   |  
|Benefit payments and expenses                                                        |  |             | (3  | ) |             |  | (3  | )           |  |  | (2  | )
|Acquisitions/divestitures/combinations                                               |  |             |    |   |             |  | 55  |             |  |  |    |  
|Curtailment                                                                          |  |             |    |   |             |  | 1   |             |  |  |    |  
|Exchange differences                                                                 |  |             | 3   |   |             |  | (2  | )           |  |  | 7   |  
|                                                                                     |  |             |     |   |             |  |     |             | 
|At 31 December                                                                       |  |             | 240 |   |             |  | 184 |             |  |  | 107 |  
|                                                                                     |  |             |     |   |             |  |     |             | 
|Change in plan assets                                                                |  |             |     |   |             |  |     |             |  |  |     |  
|Fair value of plan assets at 1 January                                               |  |             | 158 |   |             |  | 99  |             |  |  | 74  |  
|Actual return on plan assets                                                         |  |             | 28  |   |             |  | 16  |             |  |  | 11  |  
|Company contributions                                                                |  |             | 9   |   |             |  | 6   |             |  |  | 5   |  
|Employee contributions                                                               |  |             | 3   |   |             |  | 2   |             |  |  | 2   |  
|Benefit payments and expenses                                                        |  |             | (3  | ) |             |  | (3  | )           |  |  | (2  | )
|Acquisitions/divestitures/combinations                                               |  |             |    |   |             |  | 40  |             |  |  |    |  
|Exchange differences                                                                 |  |             | 3   |   |             |  | (2  | )           |  |  | 9   |  
|                                                                                     |  |             |     |   |             |  |     |             | 
|Fair value of plan assets at 31 December                                             |  |             | 198 |   |             |  | 158 |             |  |  | 99  |  
|                                                                                     |  |             |     |   |             |  |     |             | 
|Reconciliation of funded status and total amount
    recognised                      |  |             |     |   |             |  |     |             |  |  |     |  
|Funded status at end of period                                                       |  |             | (42 | ) |             |  | (25 | )           |  |  | (8  | )
|Unrecognised net loss                                                                |  |             | 38  |   |             |  | 19  |             |  |  | 19  |  
|Unrecognised prior service cost                                                      |  |             | 1   |   |             |  | 1   |             |  |  | 1   |  
|                                                                                     |  |             |     |   |             |  |     |             | 
|(Accrued)/prepaid pension cost                                                       |  |             | (3  | ) |             |  | (5  | )           |  |  | 12  |  
|                                                                                     |  |             |     |   |             |  |     |             | 
|Amounts recognised in the Statement of Financial Position at
    the end of the year |  |             |     |   |             |  |     |             |  |  |     |  
|Prepaid benefit cost                                                                 |  |             | 13  |   |             |  | 12  |             |  |  | 14  |  
|Accrued benefit liability                                                            |  |             | (25 | ) |             |  | (18 | )           |  |  | (5  | )
|Intangible asset                                                                     |  |             | 1   |   |             |  |    |             |  |  | 1   |  
|Accumulated other comprehensive income                                               |  |             | 8   |   |             |  | 1   |             |  |  | 2   |  
|                                                                                     |  |             |     |   |             |  |     |             | 
|Total recognised                                                                     |  |             | (3  | ) |             |  | (5  | )           |  |  | 12  |  
|                                                                                     |  |             |     |   |             |  |     |             | 

F-83



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                    |                     |             |     |   |             |  |    |             |  |  |    |   | 
|----------------------------------------------------------------------------------- | ------------------- | ----------- | --- | - | ----------- |  | -- | ----------- |  |  | -- | - | 
|                                                                                    |                     | Year Ended  |     |   | Year Ended  |  |    | Year Ended  | 
|                                                                                    |                     | 31 December |     |   | 31 December |  |    | 31 December | 
|                                                                                    |                     | 2005        |     |   | 2004        |  |    | 2003        | 
|                                                                                    |                     |             |     |   |             |  |    |             | 
|                                                                                    |                     | £m          |     |   | £m          |  |    | £m          | 
|Service cost                                                                        |                     |             | 9   |   |             |  | 5  |             |  |  | 5  |  
|Interest cost                                                                       |                     |             | 9   |   |             |  | 7  |             |  |  | 6  |  
|Expected return on assets                                                           |                     |             | (11 | ) |             |  | (7 | )           |  |  | (5 | )
|Amortisation of:                                                                    |                     |             |     |   |             |  |    |             |  |  |    |  
|                                                                                    | Unrecognised losses |             |     | 1 |             |  |    | 1           |  |  |    |  | 
|SFAS No. 88 Impact loss due to
    settlements/curtailments and terminations        |                     |             |    |   |             |  | 1  |             |  |  |   |  
|                                                                                    |                     |             |     |   |             |  |    |             | 
|Net periodic pension cost under US GAAP                                             |                     |             | 8   |   |             |  | 7  |             |  |  | 6  |  
|                                                                                    |                     |             |     |   |             |  |    |             | 
|Additional information                                                              |                     |             |     |   |             |  |    |             |  |  |    |  
|Increase/(decrease) in minimum liability included in other
    comprehensive income |                     |             | 7   |   |             |  | (1 | )           |  |  | 2  |  
|                                                                                    |                     |             |     |   |             |  |    |             | 



|                               |  |             |      |   |             |  |      |             |  |  |      |  
|------------------------------ |  | ----------- | ---- | - | ----------- |  | ---- | ----------- |  |  | ---- | -
|                               |  | As at       |      |   | As at       |  |      | As at       | 
|                               |  | 31 December |      |   | 31 December |  |      | 31 December | 
|                               |  | 2005        |      |   | 2004        |  |      | 2003        | 
|                               |  |             |      |   |             |  |      |             | 
|Discount rate                  |  |             | 4.67 | % |             |  | 4.99 | %           |  |  | 6.40 | %
|Rate of compensation increases |  |             | 4.27 | % |             |  | 4.25 | %           |  |  | 4.20 | %
|Pension increases              |  |             | 1.92 | % |             |  | 1.78 | %           |  |  | 2.90 | %



|                               |  |             |      |   |             |  |      |             |  |  |      |  
|------------------------------ |  | ----------- | ---- | - | ----------- |  | ---- | ----------- |  |  | ---- | -
|                               |  | Year Ended  |      |   | Year Ended  |  |      | Year Ended  | 
|                               |  | 31 December |      |   | 31 December |  |      | 31 December | 
|                               |  | 2005        |      |   | 2004        |  |      | 2003        | 
|                               |  |             |      |   |             |  |      |             | 
|Discount rate                  |  |             | 4.99 | % |             |  | 6.38 | %           |  |  | 6.20 | %
|Expected return on assets      |  |             | 6.76 | % |             |  | 7.00 | %           |  |  | 7.00 | %
|Rate of compensation increases |  |             | 4.25 | % |             |  | 4.16 | %           |  |  | 3.90 | %
|Pension increases              |  |             | 1.78 | % |             |  | 1.54 | %           |  |  | 2.50 | %

Assets in schemes




|         |  |                |     |   |                |  |     |                |  |  |     |  
|-------- |  | -------------- | --- | - | -------------- |  | --- | -------------- |  |  | --- | -
|         |  | At 31 December |     |   | At 31 December |  |     | At 31 December | 
|         |  | 2005           |     |   | 2004           |  |     | 2003           | 
|         |  |                |     |   |                |  |     |                | 
|Equities |  |                | 69  | % |                |  | 69  | %              |  |  | 71  | %
|Bonds    |  |                | 16  | % |                |  | 17  | %              |  |  | 20  | %
|Other    |  |                | 15  | % |                |  | 14  | %              |  |  | 9   | %
|         |  |                |     |   |                |  |     |                | 
|Total    |  |                | 100 | % |                |  | 100 | %              |  |  | 100 | %
|         |  |                |     |   |                |  |     |                | 



| |                       
| | ----------------------
| | b) Impairment of plant



F-84



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |                                    
| | -----------------------------------
| | c) Purchase accounting and goodwill









| |                           
| | --------------------------
| | d) Development expenditure





| |                                    
| | -----------------------------------
| | e) Onerous property lease provision





| |                                           
| | ------------------------------------------
| | f) Liquidated damages and associated costs



F-85



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |               
| | --------------
| | g) Derivatives







| |                          
| | -------------------------
| | h) Deferred finance costs







| |                           
| | --------------------------
| | i) Disposal of investments





| |                
| | ---------------
| | j) Income taxes





| |                        
| | -----------------------
| | k) Share-based payments







F-86



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                 |  |             |      |   |             |  |     |  
|---------------------------------------------------------------- |  | ----------- | ---- | - | ----------- |  | --- | -
|                                                                 |  | Year Ended  |      |   | Year Ended  | 
|                                                                 |  | 31 December |      |   | 31 December | 
|                                                                 |  | 2005        |      |   | 2004        | 
|                                                                 |  |             |      |   |             | 
|                                                                 |  | £m          |      |   | £m          | 
|Net income (basic) under US GAAP:                                |  |             |      |   |             |  |     |  
|As reported                                                      |  |             | 239  |   |             |  | 61  |  
|Add back: Compensation expense under APB 25 (net of tax)         |  |             | 16   |   |             |  | 6   |  
|Deduct: Compensation expense under SFAS No. 123 (net
    of tax) |  |             | (4   | ) |             |  | (2  | )
|                                                                 |  |             |      |   |             | 
|Proforma                                                         |  |             | 251  |   |             |  | 65  |  
|                                                                 |  |             |      |   |             | 
|Net income (diluted) under US GAAP:                              |  |             |      |   |             |  |     |  
|As reported                                                      |  |             | 239  |   |             |  | 61  |  
|After tax effect of interest on convertible bond                 |  |             | 7    |   |             |  |    |  
|                                                                 |  |             |      |   |             | 
|                                                                 |  |             | 246  |   |             |  | 61  |  
|Add back: Compensation expense under APB 25 (net of tax)         |  |             | 16   |   |             |  | 6   |  
|Deduct: Compensation expense under SFAS No. 123 (net of tax)     |  |             | (4   | ) |             |  | (2  | )
|                                                                 |  |             |      |   |             | 
|Proforma                                                         |  |             | 258  |   |             |  | 65  |  
|                                                                 |  |             |      |   |             | 
|Basic earnings per share:                                        |  |             |      |   |             |  |     |  
|As reported                                                      |  |             | 16.3 | p |             |  | 4.7 | p
|Proforma                                                         |  |             | 17.1 | p |             |  | 5.0 | p
|Diluted earnings per share:                                      |  |             |      |   |             |  |     |  
|As reported                                                      |  |             | 15.6 | p |             |  | 4.6 | p
|Proforma                                                         |  |             | 16.3 | p |             |  | 4.9 | p







|                                                                            |  |           |      |  |          |  |            |            |  |          |       |  |  |  |     | 
|--------------------------------------------------------------------------- |  | --------- | ---- |  | -------- |  | ---------- | ---------- |  | -------- | ----- |  |  |  | --- | 
|                                                                            |  | Risk-Free |      |  | Expected |  |            |            |  | Dividend |      
|                                                                            |  | Interest  |      |  | Life     |  |            | Volatility |  |          | Yield | 
|                                                                            |  |           |      |  |          |  |            |            |  |          |       | 
|                                                                            |  | %         |      |  | Years    |  |            | %          |  |          | %     | 
|Share Option Scheme:                                                        |  |           |      |  |          |  |            |            |  |          |       |  |  |  |     | 
|2001 Executive share option scheme (22 March 2001)                          |  |           | 4.59 |  |          |  | 3 to 10    |            |  |          | 40.61 |  |  |  | Nil | 
|2001 Executive share option scheme (19 September 2001)                      |  |           | 4.96 |  |          |  | 3 to 10    |            |  |          | 42.26 |  |  |  | Nil | 
|2001 Sharesave scheme (18 April 2001) 
    5 year period before exercise   |  |           | 4.97 |  |          |  | 5.2 to 5.7 |            |  |          | 53.20 |  |  |  | Nil | 
|2001 Sharesave scheme (18 April 2001) 
    3 year period before exercise   |  |           | 4.88 |  |          |  | 3.2 to 3.7 |            |  |          | 61.09 |  |  |  | Nil | 
|2001 Sharesave scheme (11 October 2001) 
    5 year period before exercise |  |           | 5.15 |  |          |  | 5.1 to 5.6 |            |  |          | 45.80 |  |  |  | Nil | 

F-87



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                               |  |           |      |  |          |  |            |            |  |          |       |  |  |  |      | 
|------------------------------------------------------------------------------ |  | --------- | ---- |  | -------- |  | ---------- | ---------- |  | -------- | ----- |  |  |  | ---- | 
|                                                                               |  | Risk-Free |      |  | Expected |  |            |            |  | Dividend |      
|                                                                               |  | Interest  |      |  | Life     |  |            | Volatility |  |          | Yield | 
|                                                                               |  |           |      |  |          |  |            |            |  |          |       | 
|                                                                               |  | %         |      |  | Years    |  |            | %          |  |          | %     | 
|2001 Sharesave scheme (11 October 2001) 
    3 year period before exercise    |  |           | 5.12 |  |          |  | 3.1 to 3.6 |            |  |          | 50.45 |  |  |  | Nil  | 
|2002 Executive share option scheme (24 May 2002)                               |  |           | 5.26 |  |          |  | 3 to 10    |            |  |          | 43.49 |  |  |  | Nil  | 
|2002 Sharesave scheme (1 October 2002) 
    5 year period before exercise     |  |           | 4.32 |  |          |  | 5.2 to 5.7 |            |  |          | 44.32 |  |  |  | Nil  | 
|2002 Sharesave Scheme (1 October 2002) 
    3 year period before exercise     |  |           | 4.09 |  |          |  | 3.2 to 3.7 |            |  |          | 47.92 |  |  |  | Nil  | 
|2003 Executive share option scheme (10 March 2003)                             |  |           | 4.09 |  |          |  | 3 to 10    |            |  |          | 22.33 |  |  |  | Nil  | 
|2003 Global Executive share option plan (10 March 2003)                        |  |           | 4.09 |  |          |  | 3 to 10    |            |  |          | 22.33 |  |  |  | Nil  | 
|2003 Sharesave scheme (3 October 2003) 5 year period
    before exercise       |  |           | 4.62 |  |          |  | 5.2 to 5.7 |            |  |          | 26.41 |  |  |  | Nil  | 
|2003 Sharesave scheme (3 October 2003) 3 year period
    before exercise       |  |           | 4.45 |  |          |  | 3.2 to 3.7 |            |  |          | 28.20 |  |  |  | Nil  | 
|2003 Global Sharesave plan (17 January 2003) 5 year period
    before exercise |  |           | 4.24 |  |          |  | 5.2 to 5.7 |            |  |          | 26.98 |  |  |  | Nil  | 
|2003 Global Sharesave plan (17 January 2003) 3 year period
    before exercise |  |           | 4.04 |  |          |  | 3.2 to 3.7 |            |  |          | 28.14 |  |  |  | Nil  | 
|2003 Global Sharesave plan (3 October 2003) 5 year period
    before exercise  |  |           | 4.62 |  |          |  | 5.2 to 5.7 |            |  |          | 26.41 |  |  |  | Nil  | 
|2003 Global Sharesave plan (3 October 2003) 3 year period
    before exercise  |  |           | 4.45 |  |          |  | 3.2 to 3.7 |            |  |          | 28.20 |  |  |  | Nil  | 
|2004 Executive share option scheme (2 March 2004)                              |  |           | 4.55 |  |          |  | 3.5 to 4.0 |            |  |          | 30.00 |  |  |  | 1.94 | 
|2004 Global Executive share option plan (2 March 2004)                         |  |           | 4.55 |  |          |  | 3.5 to 4.0 |            |  |          | 30.00 |  |  |  | 1.94 | 
|2005 Executive share option scheme (11 March 2005)                             |  |           | 4.84 |  |          |  | 3.5 to 4.0 |            |  |          | 30.00 |  |  |  | 1.94 | 



| |                                                 
| | ------------------------------------------------
| | l) Deconsolidation of variable interest entities









F-88



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                    |  |           |     |   |        |  |             | 
|----------------------------------- |  | --------- | --- | - | ------ |  | ----------- | 
|                                    |  | %         |     |   |       
|Subsidiary                          |  | Ownership |     |   | Region | 
|                                    |  |           |     |   |        | 
|Al Kamil Power Company SAOG         |  |           | 65  | % |        |  | Middle East | 
|Perth Power Partnership             |  |           | 70  | % |        |  | Australia   | 
|Thai National Power Company Limited |  |           | 100 | % |        |  | Asia        | 



|               |                                              |             |  |     |             |  |  |      |  
|-------------- | -------------------------------------------- | ----------- |  | --- | ----------- |  |  | ---- | -
|               |                                              | 31 December |  |     | 31 December | 
|               |                                              | 2005        |  |     | 2004        | 
|               |                                              |             |  |     |             | 
|               |                                              | £m          |  |     | £m          | 
|Balance sheet: |                                              |             |  |     |             |  |  |     
|               | Property, plant and equipment                |             |  | (68 | )           |  |  | (142 | )
|               | Investments in joint ventures and associates |             |  | 13  |             |  |  | 37   |  
|               | Current assets                               |             |  | (10 | )           |  |  | (37  | )
|               | Current liabilities                          |             |  | 4   |             |  |  | 27   |  
|               | Non-current liabilities                      |             |  | 53  |             |  |  | 106  |  
|               | Provisions                                   |             |  | 1   |             |  |  | 2    |  
|               |                                              |             |  |     |             | 
|               | Net assets                                   |             |  | (7  | )           |  |  | (7   | )
|               |                                              |             |  |     |             | 
|               | Shareholders funds                          |             |  |    |             |  |  |     |  
|               | Minority interests                           |             |  | (7  | )           |  |  | (7   | )
|               |                                              |             |  |     |             | 
|               | Equity                                       |             |  | (7  | )           |  |  | (7   | )
|               |                                              |             |  |     |             | 



| |                                                 
| | ------------------------------------------------
| | m) Statement of cash flows: basis of preparation





F-89



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                               
| | ----------------------------------------------
| | n) Reformatted condensed IFRS Income Statement

S-X


|                           |                                            |             |       |        |             |  |     |      |  
|-------------------------- | ------------------------------------------ | ----------- | ----- | ------ | ----------- |  | --- | ---- | -
|                           |                                            | Year Ended  |       |        | Year Ended  | 
|                           |                                            | 31 December |       |        | 31 December | 
|                           |                                            | 2005        |       |        | 2004        | 
|                           |                                            |             |       |        |             | 
|                           |                                            | £m          |       |        | £m          | 
|Net revenue                |                                            |             | 1,959 |        |             |  | 780 |     
|Operating expenses         |                                            |             |       |        |             |  |     |     
|                           | Cost of sales                              |             |       | (1,513 | )           |  |     | (637 | )
|                           | Sales, general and administrative expenses |             |       | (59    | )           |  |     | (32  | )
|                           | Other operating income                     |             |       | 96     |             |  |     | 44   |  
|                           | Other operating costs                      |             |       | (70    | )           |  |     | (35  | )
|                           |                                            |             |       |        |             | 
|Operating income           |                                            |             | 413   |        |             |  | 120 |     
|                           | Income from equity method investments      |             |       | 198    |             |  |     | 113  |  
|                           | Minority interests                         |             |       | (45    | )           |  |     | (6   | )
|                           | Net interest expense                       |             |       | (202   | )           |  |     | (108 | )
|                           | Disposal of investments                    |             |       | 10     |             |  |     | 4    |  
|                           |                                            |             |       |        |             | 
|Income before income taxes |                                            |             | 374   |        |             |  | 123 |     
|                           | Income taxes                               |             |       | (89    | )           |  |     | (25  | )
|                           |                                            |             |       |        |             | 
|Net income                 |                                            |             | 285   |        |             |  | 98  |     
|                           |                                            |             |       |        |             | 
|Earnings per share         |                                            |             |       |        |             |  |     |     
|                           | Basic                                      |             |       | 19.4   | p           |  |     | 7.5  | p
|                           | Diluted                                    |             |       | 18.5   | p           |  |     | 7.4  | p





| |                              
| | -----------------------------
| | o) Classification differences



| |                               
| | ------------------------------
| | Consolidated income statements





F-90



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |              
| | -------------
| | Balance sheet







| |                                                           
| | ----------------------------------------------------------
| | p) Recently issued accounting pronouncements (US
    GAAP)



| |                             
| | ----------------------------
| | SFAS No. 151 Inventory Costs





| |                                                                      
| | ---------------------------------------------------------------------
| | SFAS No. 152 Accounting for Real Estate Time
    Sharing Transactions





| |                                                                          
| | -------------------------------------------------------------------------
| | SFAS No. 153 Exchanges of Non-monetary Assets,
    an amendment of APB 29





| |                                    
| | -----------------------------------
| | SFAS No. 123(R) Share-based Payment



F-91



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                          
| | ---------------------------------------------------------
| | SFAS No. 154 Accounting Changes and Error
    Corrections





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | FASB Interpretation No. 47 Accounting for Conditional
    Asset Retirement Obligations





| |                                                                     
| | --------------------------------------------------------------------
| | SFAS No. 155 Accounting for Certain Hybrid
    Financial Instruments





| |                                                              
| | -------------------------------------------------------------
| | SFAS No. 156 Accounting for Servicing of
    Financial Assets



F-92