##### 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, DC 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

|  |  |                                                                                                                                 
|- |  | --------------------------------------------------------------------------------------------------------------------------------
|x |  | Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2002

OR


|  |  |                                                                                                                                                 
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|o |  | Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________

Commission file number 333-08176

CLP Holdings Limited

(CLP Holdings Limited)





(Exact name of Registrant as specified in its charter)


Not Applicable




(Translation of Registrants name into English)


Hong Kong Special Administrative Region, China




(Jurisdiction of incorporation or organization)


147 Argyle Street, Kowloon, Hong Kong Special Administrative Region, China




(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
|                   
|None                |  | None                                     

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

Ordinary shares of HK$5.00 each




(Title of Class)


Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

None




(Title of Class)


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

2,408,245,900 Ordinary Shares of HK$5 each

---

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [x]   No _______

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [x]         Item 18 _______

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS.)

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

Yes _______   No
______





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TABLE OF CONTENTS

|                                                                     |  |                                                       |   |                                           |                                                                      |  |      |  | 
|-------------------------------------------------------------------- |  | ----------------------------------------------------- | - | ----------------------------------------- | -------------------------------------------------------------------- |  | ---- |  | 
|                                                                     |  |                                                       |   |                                           |                                                                      |  | Page
|                                                                     |  |                                                       |   |                                           |                                                                      |  |     
|FORWARD LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE
ACCURATE |  |                                                       | 4 |                                          
|PART I                                                               |  |                                                       | 5 |                                          
|Item 1.                                                              |  | Identity of Directors, Senior Management and Advisers |   |                                           | 5                                                                    | 
|Item 2.                                                              |  | Offer Statistics and Expected Timetable               |   |                                           | 5                                                                    | 
|Item 3.                                                              |  | Key Information                                       |   |                                           | 6                                                                    | 
|                                                                     |  | A.                                                    |   | Selected Financial Data                   |                                                                      |  | 7    | 
|                                                                     |  | B.                                                    |   | Capitalization and Indebtedness           |                                                                      |  | 10   | 
|                                                                     |  | C.                                                    |   | Reasons for the Offer and Use of Proceeds |                                                                      |  | 10   | 
|                                                                     |  | D.                                                    |   | Risk Factors                              |                                                                      |  | 11   | 
|Item 4.                                                              |  | Information on the Company                            |   |                                           | 15                                                                   | 
|                                                                     |  | A.                                                    |   | History and Development of the Company    |                                                                      |  | 15   | 
|                                                                     |  | B.                                                    |   | Business Overview                         |                                                                      |  | 17   | 
|                                                                     |  |                                                       |   |                                           | Electricity Business in Hong Kong                                    |  | 18   | 
|                                                                     |  |                                                       |   |                                           | Electricity Business in the Chinese Mainland                         |  | 35   | 
|                                                                     |  |                                                       |   |                                           | Electricity Business in Other Asia-Pacific Countries                 |  | 39   | 
|                                                                     |  |                                                       |   |                                           | Electricity-Related Activities in Hong Kong and the Chinese Mainland |  | 44   | 
|                                                                     |  | C.                                                    |   | Organizational Structure                  |                                                                      |  | 47   | 
|                                                                     |  | D.                                                    |   | Property, Plant and
Equipment             |                                                                      |  | 48   | 
|Item 5.                                                              |  | Operating and Financial Review and Prospects          |   |                                           | 51                                                                   | 
|                                                                     |  | A.                                                    |   | Operating Results                         |                                                                      |  | 51   | 
|                                                                     |  | B.                                                    |   | Liquidity and Capital Resources           |                                                                      |  | 67   | 

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|         |  |                                                   |  |                                                         |     |  |      |  | 
|-------- |  | ------------------------------------------------- |  | ------------------------------------------------------- | --- |  | ---- |  | 
|         |  |                                                   |  |                                                         |     |  | Page
|         |  |                                                   |  |                                                         |     |  |     
|        
|         |  | C.                                                |  | Research and Development, Patents and Licenses, Etc.    |     |  | 73   | 
|         |  | D.                                                |  | Trend Information                                       |     |  | 73   | 
|Item 6.  |  | Directors, Senior Management and Employees        |  |                                                         | 74  | 
|         |  | A.                                                |  | Directors and Senior Management                         |     |  | 74   | 
|         |  | B.                                                |  | Compensation                                            |     |  | 82   | 
|         |  | C.                                                |  | Board Practices                                         |     |  | 84   | 
|         |  | D.                                                |  | Employees                                               |     |  | 94   | 
|         |  | E.                                                |  | Share Ownership                                         |     |  | 95   | 
|Item 7.  |  | Major Shareholders and Related Party Transactions |  |                                                         | 96  | 
|         |  | A.                                                |  | Major Shareholders                                      |     |  | 96   | 
|         |  | B.                                                |  | Related Party Transactions                              |     |  | 98   | 
|         |  | C.                                                |  | Interest of Experts and Counsel                         |     |  | 100  | 
|Item 8.  |  | Financial Information                             |  |                                                         | 101 | 
|         |  | A.                                                |  | Consolidated Statements and Other Financial Information |     |  | 101  | 
|         |  | B.                                                |  | Significant Changes                                     |     |  | 102  | 
|Item 9.  |  | The Offer and Listing                             |  |                                                         | 103 | 
|Item 10. |  | Additional Information                            |  |                                                         | 105 | 
|         |  | A.                                                |  | Share Capital                                           |     |  | 105  | 
|         |  | B.                                                |  | Memorandum and Articles of Association                  |     |  | 105  | 
|         |  | C.                                                |  | Material Contracts                                      |     |  | 111  | 
|         |  | D.                                                |  | Exchange Controls                                       |     |  | 111  | 
|         |  | E.                                                |  | Taxation                                                |     |  | 112  | 
|         |  | F.                                                |  | Dividends and Paying Agents                             |     |  | 116  | 
|         |  | G.                                                |  | Statement by Experts                                    |     |  | 116  | 
|         |  | H.                                                |  | Documents on Display                                    |     |  | 116  | 

ii



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|               |  |                                                                              |     |                        |     |  |      |  | 
|-------------- |  | ---------------------------------------------------------------------------- | --- | ---------------------- | --- |  | ---- |  | 
|               |  |                                                                              |     |                        |     |  | Page
|               |  |                                                                              |     |                        |     |  |     
|               |  | I.                                                                           |     | Subsidiary Information |     |  | 116  | 
|Item 11.       |  | Quantitative and Qualitative Disclosures about Market Risk                   |     |                        | 117 | 
|Item 12.       |  | Description of Securities Other than Equity Securities                       |     |                        | 122 | 
|PART II        |  |                                                                              | 123 |                       
|Item 13.       |  | Defaults, Dividend Arrearages and Delinquencies                              |     |                        | 123 | 
|Item 14.       |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |     |                        | 123 | 
|Item 15.       |  | Controls and Procedures                                                      |     |                        | 123 | 
|Item 16A.      |  | Audit Committee Financial Expert                                             |     |                        | 124 | 
|Item 16B.      |  | Code of Ethics                                                               |     |                        | 124 | 
|PART III       |  |                                                                              | 125 |                       
|Item 17.       |  | Financial Statements                                                         |     |                        | 125 | 
|Item 18.       |  | Financial Statements                                                         |     |                        | 126 | 
|Item 19.       |  | Exhibits                                                                     |     |                        | 127 | 
|SIGNATURES     |  |                                                                              | 128 |                       
|CERTIFICATIONS |  |                                                                              | 129 |                       

iii



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FORWARD LOOKING STATEMENTS IN THIS ANNUAL REPORT
MAY NOT BE ACCURATE

This annual report includes forward-looking statements regarding our
financial condition and business strategy which include certain matters
discussed under Item 5. Operating and Financial Review and Prospects and
Item 11. Quantitative and Qualitative Disclosures about Market Risk and in
other places in this annual report. The forward-looking statements can be
identified by the use of terminology such as believe, may, will,
estimate, continue, anticipate, plan, intend, expect or other
similar expressions. We have based these forward-looking statements on our
current expectations and projections about future events. Although we believe
that these expectations and projections are reasonable, these forward-looking
statements inherently involve risks and uncertainties.

We undertake no obligation to publicly update or revise any
forward-looking statements for any revision, even if new information becomes
available or other events occur in the future. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
annual report might not occur and our actual results could differ materially
from those anticipated in these forward-looking statements.

4



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##### 



PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

5



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##### 



Item 3. Key Information

We publish our financial statements in Hong Kong dollars. For the
convenience of the reader, we have translated Hong Kong dollar amounts into
U.S. dollars in certain portions of this annual report at a rate of HK$7.7988 =
US$1.00. This rate was the noon buying rate in New York City for cable
transfers in foreign currencies, as certified for customs purposes by the
Federal Reserve Bank of New York on December 31, 2002. The translation does
not mean that Hong Kong dollars could actually be converted into U.S. dollars
at that rate.

The following tables show the noon buying rates expressed in Hong Kong
dollars per U.S. dollar for the periods indicated below.

|                                                         |  |                   |        |           |  |  |        | 
|-------------------------------------------------------- |  | ----------------- | ------ | --------- |  |  | ------ | 
|                                                         |  | Average           |        | At Period
|Year Ended                                               |  | Rate (1)          |        | End      
|                                                         |  |                   |        |          
|                                                         |  | (HK$ per US$1.00)
|                                                        
|September 30, 1998                                       |  |                   | 7.7448 |           |  |  | 7.7492 | 
|September 30, 1999                                       |  |                   | 7.7538 |           |  |  | 7.7679 | 
|December 31, 1999 (October 1, 1999
to December 31, 1999) |  |                   | 7.7698 |           |  |  | 7.7740 | 
|December 31, 2000                                        |  |                   | 7.7936 |           |  |  | 7.7999 | 
|December 31, 2001                                        |  |                   | 7.7996 |           |  |  | 7.7980 | 
|December 31, 2002                                        |  |                   | 7.7996 |           |  |  | 7.7988 | 



| | 
| | 

| | (1) |  | These figures each represents the average of the noon buying rates
on the last day of each month during the period.
| | --- |  | -------------------------------------------------------------------------------------------------------------------

|                                  |  |                   |        |     |  |     |        |  |  |           |        | 
|--------------------------------- |  | ----------------- | ------ | --- |  | --- | ------ |  |  | --------- | ------ | 
|                                  |  |                   |        |     |  |     |        |  |  | At Period
|Month                             |  | High              |        | Low |  | End
|                                  |  |                   |        |     |  |    
|                                  |  | (HK$ per US$1.00)
|                                 
|December 2002                     |  |                   | 7.7992 |     |  |     | 7.7980 |  |  |           | 7.7988 | 
|January 2003                      |  |                   | 7.8001 |     |  |     | 7.7988 |  |  |           | 7.8001 | 
|February 2003                     |  |                   | 7.8000 |     |  |     | 7.7989 |  |  |           | 7.7991 | 
|March 2003                        |  |                   | 7.7995 |     |  |     | 7.7987 |  |  |           | 7.7995 | 
|April 2003                        |  |                   | 7.7998 |     |  |     | 7.7991 |  |  |           | 7.7991 | 
|May 2003                          |  |                   | 7.7995 |     |  |     | 7.7985 |  |  |           | 7.7987 | 
|June 2003 (through June 16, 2003) |  |                   | 7.7993 |     |  |     | 7.7983 |  |  |           | 7.7991 | 

6



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A. Selected Financial Data

Effective in 1999, our financial year end date has been changed from
September 30 to December 31. The table below sets forth our selected financial
data for (i) the years ended September 30, 1998 and 1999, (ii) a 3-month period
ended December 31, 1999 and (iii) the years ended December 31, 2000, 2001 and
2002. We became the holding company of a group of companies, consisting of CLP
Power Hong Kong Limited and various other companies under a scheme of
arrangement, referred to as the Scheme of Arrangement in this annual report, on
January 6, 1998. The consolidated financial statements have been prepared on a
continuing entity basis, as if we had been in existence for the entire
periods presented, rather than from the effective date of the Scheme of
Arrangement. Such data have been derived from our financial statements, which
have been prepared in conformity with Hong Kong generally accepted accounting
principles, or Hong Kong GAAP, modified as necessary to comply with the terms
of the Scheme of Control Agreement, which is referred to as the Scheme of
Control in this annual report. The current Scheme of Control to govern our
Hong Kong electricity-related financial affairs was entered into in March 1992
with the Government of Hong Kong and certain other parties and became effective
on October 1, 1993. In addition, such data have been reconciled with U.S.
generally accepted accounting principles, or U.S. GAAP, and presented in
compliance with Item 17 of Form 20-F under the Exchange Act of 1934, as
amended.

The following information should be read in conjunction with Item 5.
Operating and Financial Review and Prospects and the financial statements and
the related notes to those statements included in Item 17. Financial
Statements in this annual report.

7



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|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |     |       | 
|-------------------------------------------- |  | ----------------------------------- | ------ | ---------------------------------------- | ----- | ------------ | ------ | ------------ | ----- | ---- | ----- | ------------ | ----- | ---- | ------ | ---- | ----- | - | ------ | --- | ----- |  | ------ | --- | ------ |  | ----- | --- | ----- | 
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       | Three Months |       |     
|                                             |  |                                     |        | Year Ended                               |       | Ended        |        | Year Ended  
|                                             |  |                                     |        | September 30,                            |       | December 31, |        | December 31,
|                                             |  |                                     |        |                                          |       |              |        |             
|                                             |  |                                     |        | 1998                                     |       | 1999         |        | 1999         |       | 2000 |       | 2001         |       | 2002 |        | 2002
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |     
|                                             |  |                                     |        | HK$                                      |       | HK$          |        | HK$          |       | HK$  |       | HK$          |       | HK$  |        | US$ 
|                                             |  |                                     |        | (in millions, except for per share data)
|Consolidated Income Statement Information:   |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Hong Kong GAAP(1)                            |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Turnover(2)                                  |  |                                     | 22,880 |                                          |       |              | 23,300 |              |       |      | 5,735 |              |       |      | 24,451 |      |       |   | 24,999 |     |       |  | 26,134 |     |        |  | 3,351 |    
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Expenses                                     |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|                                             |  | Purchases of electricity from CAPCO |        |                                          | 9,481 |              |        |              | 9,739 |      |       |              | 2,439 |      |        |      | 9,735 |   |        |     | 9,815 |  |        |     | 10,191 |  |       |     | 1,307 | 
|                                             |  | Purchases of nuclear electricity    |        |                                          | 3,645 |              |        |              | 4,071 |      |       |              | 764   |      |        |      | 4,587 |   |        |     | 5,013 |  |        |     | 4,976  |  |       |     | 638   | 
|                                             |  | Pumped storage service fee          |        |                                          | 491   |              |        |              | 474   |      |       |              | 116   |      |        |      | 457   |   |        |     | 424   |  |        |     | 419    |  |       |     | 54    | 
|                                             |  | Staff expenses                      |        |                                          | 790   |              |        |              | 780   |      |       |              | 184   |      |        |      | 827   |   |        |     | 929   |  |        |     | 945    |  |       |     | 120   | 
|                                             |  | Other net operating costs           |        |                                          | 766   |              |        |              | 843   |      |       |              | 299   |      |        |      | 1,180 |   |        |     | 1,246 |  |        |     | 1,331  |  |       |     | 171   | 
|                                             |  | Depreciation                        |        |                                          | 1,270 |              |        |              | 1,348 |      |       |              | 356   |      |        |      | 1,474 |   |        |     | 1,624 |  |        |     | 1,749  |  |       |     | 224   | 
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|                                             |  |                                     | 16,443 |                                          |       |              | 17,255 |              |       |      | 4,158 |              |       |      | 18,260 |      |       |   | 19,051 |     |       |  | 19,611 |     |        |  | 2,514 |    
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Property disposal gain                       |  |                                     |       |                                          |       |              |       |              |       |      |      |              |       |      |       |      |       |   |       |     |       |  | 313    |     |        |  | 40    |    
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Operating profit                             |  |                                     | 6,437  |                                          |       |              | 6,045  |              |       |      | 1,577 |              |       |      | 6,191  |      |       |   | 5,948  |     |       |  | 6,836  |     |        |  | 877   |    
|Finance costs                                |  |                                     | (186   | )                                        |       |              | (202   | )            |       |      | (45   | )            |       |      | (204   | )    |       |   | (187   | )   |       |  | (189   | )   |        |  | (24   | )  
|Finance income                               |  |                                     | 1,160  |                                          |       |              | 789    |              |       |      | 70    |              |       |      | 110    |      |       |   | 29     |     |       |  | 33     |     |        |  | 4     |    
|Hok Un redevelopment profit(3)               |  |                                     | 1,837  |                                          |       |              |       |              |       |      | 626   |              |       |      | 1,357  |      |       |   | 1,752  |     |       |  | 282    |     |        |  | 36    |    
|Share of profits less losses of              |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|                                             |  | jointly controlled entities         |        |                                          | 2,098 |              |        |              | 2,203 |      |       |              | 529   |      |        |      | 2,216 |   |        |     | 2,339 |  |        |     | 2,976  |  |       |     | 382   | 
|                                             |  | associated companies                |        |                                          | 15    |              |        |              | (9    | )    |       |              | 16    |      |        |      | 5     |   |        |     | 71    |  |        |     | 86     |  |       |     | 11    | 
|Impairment loss on investment in             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|                                             |  | associated company(4)               |        |                                          |      |              |        |              |      |      |       |              |      |      |        |      | (900  | ) |        |     |      |  |        |     |       |  |       |     |      | 
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Profit before taxation                       |  |                                     | 11,361 |                                          |       |              | 8,826  |              |       |      | 2,773 |              |       |      | 8,775  |      |       |   | 9,952  |     |       |  | 10,024 |     |        |  | 1,286 |    
|Taxation                                     |  |                                     | (1,509 | )                                        |       |              | (1,083 | )            |       |      | (400  | )            |       |      | (1,378 | )    |       |   | (1,189 | )   |       |  | (1,302 | )   |        |  | (167  | )  
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Profit after taxation                        |  |                                     | 9,852  |                                          |       |              | 7,743  |              |       |      | 2,373 |              |       |      | 7,397  |      |       |   | 8,763  |     |       |  | 8,722  |     |        |  | 1,119 |    
|Transfers under Scheme of Control(5)         |  |                                     | (1,714 | )                                        |       |              | (1,346 | )            |       |      | (441  | )            |       |      | (1,629 | )    |       |   | (1,506 | )   |       |  | (1,643 | )   |        |  | (211  | )  
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Net earnings                                 |  |                                     | 8,138  |                                          |       |              | 6,397  |              |       |      | 1,932 |              |       |      | 5,768  |      |       |   | 7,257  |     |       |  | 7,079  |     |        |  | 908   |    
|                                             |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Earnings per share of common stock(6)        |  |                                     | 2.73   |                                          |       |              | 2.17   |              |       |      | 0.76  |              |       |      | 2.31   |      |       |   | 2.92   |     |       |  | 2.94   |     |        |  | 0.38  |    
|Dividends per share of common stock(6)       |  |                                     | 1.817  | (7)                                      |       |              | 1.267  |              |       |      | 0.625 | (7)          |       |      | 1.867  | (7)  |       |   | 2.100  | (7) |       |  | 1.880  | (7) |        |  | 0.241 | (7)
|Dividends per share of common stock(6)
(US$) |  |                                     | 0.233  | (7)                                      |       |              | 0.167  |              |       |      | 0.080 | (7)          |       |      | 0.239  | (7)  |       |   | 0.269  | (7) |       |  | 0.241  | (7) |        |  |       |    
|U.S. GAAP:                                   |  |                                     |        |                                          |       |              |        |              |       |      |       |              |       |      |        |      |       |   |        |     |       |  |        |     |        |  |       |    
|Net income                                   |  |                                     | 7,941  |                                          |       |              | 6,641  |              |       |      | 1,997 |              |       |      | 6,071  |      |       |   | 7,405  |     |       |  | 7,023  |     |        |  | 901   |    



---

|(1) |  | Certain comparative figures have been reclassified to comply with Hong
Kong GAAP, modified as necessary to comply with the Scheme of Control.
See Note 1 to our financial statements included in Item 17. Financial
Statements in this annual report.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Turnover represents sale of electricity based on actual and accrued
consumption derived from meter readings during the period, other
electricity-related revenue, property income, and supply and maintenance
services fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) |  | This represents our share of profit (Phase 1 in 1998, Phase 2 in 1999
(September to December), Phase 3 in 2000, and Phases 4 & 5 in both 2001
and 2002) arising from Laguna Verde (the Hok Un site at Hung Hom), which
is a joint venture undertaken with a subsidiary company of Cheung Kong
(Holdings) Limited.                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) |  | In 2000, we reviewed the carrying value of Electricity Generating Public
Company Limited of Thailand, or EGCO, which included unamortized goodwill
capitalized in accordance with our accounting policy. This review focused
on the investment fundamentals and took into consideration a change in
government policy on the privatization of the assets of Electricity
Generating Authority of Thailand, as well as slower growth of electricity
demand in Thailand. In reflecting the fair value of the investment, we
wrote off HK$900 million of the unamortized goodwill of EGCO as an
impairment loss.                                                                                                          
|   
|(5) |  | Transfers under the Scheme of Control comprised (i) the difference
between the permitted return and the Scheme of Control profit being
transferred to or from the Scheme of Control development fund, or the
Development Fund, (ii) the amount of deferral premium in relation to Units
7 and 8 of the Black Point Power Station charged to the special provision
account, and (iii) a charge of 8% per annum on the sum of the average
balances of the Development Fund and the special provision account, being
credited to a rate reduction reserve to be applied as rebates to
customers. See Item 4. Information on the Company  B. Business Overview
 Electricity Business in Hong Kong  Scheme of Control.
|   
|(6) |  | Earnings and dividends per share for 1998 to 2000 have been adjusted for
the capitalization issue of one-for-five shares on April 23, 2001. See
Note 25(A) to our financial statements included in Item 17. Financial
Statements in this annual report.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(7) |  | Excluding the special dividends, dividends per share would have been
HK$1.30 (US$0.17) in 1998, HK$0.417 (US$0.05) in 1999 (September to
December), HK$1.417 (US$0.18) in 2000, HK$1.49 (US$0.19) in 2001 and
HK$1.65 (US$0.21) in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

8



---



##### 



|                                          |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |          |        |  |  |          |        |  |  |          |        |  |  |       |       | 
|----------------------------------------- | --------------------------- |  | ------------------- | ----- | ------------------ |  | -------- | ------ | ------- |  | -------- | ------ | ---- |  | -------- | ------ |  |  | -------- | ------ |  |  | -------- | ------ |  |  | ----- | ----- | 
|                                          |                             |  | As of September 30, |       | As of December 31,
|                                          |                             |  |                     |       |                   
|                                          |                             |  | 1998                |       | 1999               |  | 1999     |        | 2000(2) |  | 2001(2)  |        | 2002 |  | 2002    
|                                          |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |         
|                                          |                             |  | HK$                 |       | HK$                |  | HK$      |        | HK$     |  | HK$      |        | HK$  |  | US$     
|                                          |                             |  | (in millions)      
|Consolidated Balance Sheet Information:   |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |          |        |  |  |          |        |  |  |          |        |  |  |       |      
|Hong Kong GAAP(1):                        |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |          |        |  |  |          |        |  |  |          |        |  |  |       |      
|Current assets                            |                             |  | 17,615              |       |                    |  | 17,637   |        |         |  | 2,862    |        |      |  | 3,821    |        |  |  | 1,704    |        |  |  | 2,510    |        |  |  | 321   |      
|Fixed assets                              |                             |  | 27,503              |       |                    |  | 28,668   |        |         |  | 28,903   |        |      |  | 30,692   |        |  |  | 33,577   |        |  |  | 36,550   |        |  |  | 4,687 |      
|Investments in                            |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |          |        |  |  |          |        |  |  |          |        |  |  |       |      
|                                          | jointly controlled entities |  |                     | 8,065 |                    |  |          | 10,153 |         |  |          | 11,002 |      |  |          | 12,155 |  |  |          | 15,786 |  |  |          | 18,855 |  |  |       | 2,418 | 
|                                          | associated companies        |  |                     | 1,952 |                    |  |          | 1,891  |         |  |          | 2,156  |      |  |          | 1,173  |  |  |          | 1,230  |  |  |          | 1,448  |  |  |       | 186   | 
|Other assets                              |                             |  |                    |       |                    |  |         |        |         |  | 773      |        |      |  | 1,837    |        |  |  | 1,925    |        |  |  | 1,425    |        |  |  | 183   |      
|                                          |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |         
|Total assets                              |                             |  | 55,135              |       |                    |  | 58,349   |        |         |  | 45,696   |        |      |  | 49,678   |        |  |  | 54,222   |        |  |  | 60,788   |        |  |  | 7,795 |      
|                                          |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |         
|Current liabilities(3)                    |                             |  | 5,262               |       |                    |  | 5,627    |        |         |  | 4,357    |        |      |  | 5,393    |        |  |  | 7,241    |        |  |  | 7,053    |        |  |  | 905   |      
|Term loans (long-term portion)            |                             |  | 2,545               |       |                    |  | 2,403    |        |         |  | 2,375    |        |      |  | 2,501    |        |  |  | 4,068    |        |  |  | 8,727    |        |  |  | 1,119 |      
|Deferred taxation                         |                             |  | 2,759               |       |                    |  | 2,915    |        |         |  | 2,920    |        |      |  | 3,110    |        |  |  | 3,391    |        |  |  | 3,721    |        |  |  | 477   |      
|Other long-term liabilities               |                             |  | 2,682               |       |                    |  | 3,308    |        |         |  | 3,573    |        |      |  | 4,060    |        |  |  | 4,354    |        |  |  | 4,500    |        |  |  | 577   |      
|Shareholders funds                       |                             |  | 41,887              |       |                    |  | 44,096   |        |         |  | 32,471   |        |      |  | 34,614   |        |  |  | 35,168   |        |  |  | 36,787   |        |  |  | 4,717 |      
|                                          |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |         
|Total liabilities and shareholders funds |                             |  | 55,135              |       |                    |  | 58,349   |        |         |  | 45,696   |        |      |  | 49,678   |        |  |  | 54,222   |        |  |  | 60,788   |        |  |  | 7,795 |      
|                                          |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |         
|U.S. GAAP:                                |                             |  |                     |       |                    |  |          |        |         |  |          |        |      |  |          |        |  |  |          |        |  |  |          |        |  |  |       |      
|Shareholders equity                      |                             |  | 41,900              |       |                    |  | 44,353   |        |         |  | 32,793   |        |      |  | 34,045   |        |  |  | 34,615   |        |  |  | 36,177   |        |  |  | 4,638 |      
|                                         
|Number of shares in issue(4)
(millions)   |                             |  | 2,938.20            |       |                    |  | 2,938.20 |        |         |  | 2,497.47 |        |      |  | 2,497.47 |        |  |  | 2,421.49 |        |  |  | 2,408.25 |        |  |  |       |      



---

|(1) |  | Certain comparative figures have been reclassified to comply with Hong
Kong GAAP, modified as necessary to comply with the Scheme of Control.
See Note 1 to our financial statements included in Item 17. Financial
Statements in this annual report.                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Comparative figures in 2000 and 2001 have been adjusted as required upon
the initial adoption of the new Hong Kong Statement of Standard Accounting
Practice on Employee Benefits in 2002. See Notes 1 and 8 to our
financial statements included in Item 17. Financial Statements in this
annual report.
|   
|(3) |  | Current liabilities include the current portion of term loans.                                                                                                                                                                                                                                               
|   
|(4) |  | Number of shares in issue for 1998 to 2000 have been adjusted for the
capitalization issue of one-for-five shares on April 23, 2001. See Note
25(A) to our financial statements included in Item 17. Financial
Statements in this annual report.                                                           

|                                              |                                   |  |               |        |              |  |              |        |      |  |              |       |      |  |       |        |  |  |        |        |  |  |        |        |  |  |  |  | 
|--------------------------------------------- | --------------------------------- |  | ------------- | ------ | ------------ |  | ------------ | ------ | ---- |  | ------------ | ----- | ---- |  | ----- | ------ |  |  | ------ | ------ |  |  | ------ | ------ |  |  |  |  | 
|                                              |                                   |  |               |        |              |  |              |        |      |  | Three Months |       |      |  |       |        |  |  |        |        |  |  |       
|                                              |                                   |  | Year Ended    |        | Ended        |  | Year Ended  
|                                              |                                   |  | September 30, |        | December 31, |  | December 31,
|                                              |                                   |  |               |        |              |  |             
|                                              |                                   |  | 1998          |        | 1999         |  | 1999         |        | 2000 |  | 2001         |       | 2002
|                                              |                                   |  |               |        |              |  |              |        |      |  |              |       |     
|Other Information:                            |                                   |  |               |        |              |  |              |        |      |  |              |       |      |  |       |        |  |  |        |        |  |  |        |       
|Units of electricity sold by CLP Power        |                                   |  |               |        |              |  |              |        |      |  |              |       |      |  |       |        |  |  |        |        |  |  |        |       
|                                              | Total (millions of kWh)           |  |               | 25,482 |              |  |              | 25,621 |      |  |              | 6,276 |      |  |       | 27,488 |  |  |        | 28,531 |  |  |        | 29,887 | 
|                                              | Local (millions of kWh)           |  |               | 24,881 |              |  |              | 24,988 |      |  |              | 6,128 |      |  |       | 26,307 |  |  |        | 26,950 |  |  |        | 27,712 | 
|Average local tariff(1)
(HK¢ per kWh)         |                                   |  | 87.7          |        |              |  | 88.6         |        |      |  | 88.4         |       |      |  | 88.0  |        |  |  | 88.0   |        |  |  | 87.6   |       
|Group generating capacity
(owned/operated)(2) |                                   |  |               |        |              |  |              |        |      |  |              |       |      |  |       |        |  |  |        |        |  |  |        |       
|                                              | Hong Kong (MW)                    |  |               | 6,908  |              |  |              | 6,908  |      |  |              | 6,908 |      |  |       | 6,908  |  |  |        | 6,908  |  |  |        | 6,908  | 
|                                              | Chinese mainland (MW)             |  |               | 1,486  |              |  |              | 2,015  |      |  |              | 2,015 |      |  |       | 2,015  |  |  |        | 2,743  |  |  |        | 3,163  | 
|                                              | Other Asia-Pacific countries (MW) |  |               | 710    |              |  |              | 710    |      |  |              | 838   |      |  |       | 1,048  |  |  |        | 2,151  |  |  |        | 2,675  | 
|                                              |                                   |  |               |        |              |  |              |        |      |  |              |       |     
|                                              |                                   |  | 9,104         |        |              |  | 9,633        |        |      |  | 9,761        |       |      |  | 9,971 |        |  |  | 11,802 |        |  |  | 12,746 |       
|                                              |                                   |  |               |        |              |  |              |        |      |  |              |       |     
|                                             
|Interest coverage(3) (times)                  |                                   |  | 50            |        |              |  | 46           |        |      |  | 56           |       |      |  | 44    |        |  |  | 44     |        |  |  | 29     |       
|Total debt to total capitalization(4)
(%)     |                                   |  | 6.1           |        |              |  | 5.5          |        |      |  | 7.9          |       |      |  | 6.9   |        |  |  | 13.7   |        |  |  | 20.2   |       
|Ratio of earnings to fixed charges(5)         |                                   |  |               |        |              |  |              |        |      |  |              |       |      |  |       |        |  |  |        |        |  |  |        |       
|                                              | Hong Kong GAAP                    |  |               | 33:1   |              |  |              | 42:1   |      |  |              | 16:1  |      |  |       | 21:1   |  |  |        | 17:1   |  |  |        | 27:1   | 
|                                              | U.S. GAAP                         |  |               | 32:1   |              |  |              | 43:1   |      |  |              | 17:1  |      |  |       | 22:1   |  |  |        | 17:1   |  |  |        | 26:1   | 



---

|(1) |  | Included special rebates which averaged 1.8 HK¢ per kWh for financial
year 1998 and 2.2 HK¢ per kWh for the other periods set out above.                                                                                                                                                                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Group generating capacity (in MW) are incorporated on the following
basis: (i) CAPCO on 100% capacity as stations are operated by us; (ii)
PSDC on 100% as having the right to use and (iii) other stations are on
the proportion of our equity interests.                                                                                                                     
|   
|(3) |  | Interest coverage is calculated as profit before taxation and interest
divided by interest charges.                                                                                                                                                                                                                                                                            
|   
|(4) |  | Total debt to total capitalization is calculated as total debt divided by
the sum of total debt and shareholders funds.                                                                                                                                                                                                                                                       
|   
|(5) |  | For the purpose of calculating ratio of earnings to fixed charges,
earnings consist of (i) profit before taxation and fixed charges for us
and our consolidated subsidiaries and (ii) distributed income received
from less than fifty-percent owned investments. Fixed charges consist of
interest expense (including capitalized interest) and amortization of
notes charges.

9



---



##### 



B. Capitalization and
Indebtedness

Not applicable.

C. Reasons for the Offer and Use of
Proceeds

Not applicable.

10



---



##### 



D. Risk Factors

Because we are incorporated in Hong Kong and most of our revenues are
derived from operations in Hong Kong, changes in Hong Kongs political
situation may affect the manner in which our business is conducted, as well as
business confidence and economic conditions in Hong Kong, which could
materially and adversely affect our business.

From July 1, 1997, Hong Kong ceased to be a Crown Colony of the United
Kingdom and became a Special Administrative Region of the Peoples Republic of
China, or China. The basic policies of China regarding Hong Kong are embodied
in the Basic Law of the Hong Kong Special Administrative Region, or the Basic
Law, which was adopted by the National Peoples Congress of China on April 4,
1990 and came into effect on July 1, 1997. The Basic Law provides that Hong
Kong will have a high degree of legislative, legal and economic autonomy. We,
however, cannot assure you that political developments in Hong Kong will not
adversely affect our business operations. We cannot predict how various local
public interest groups will respond and function under Hong Kongs future
political and economical circumstances or whether or not China will exercise
direct influence over Hong Kong. In these events, the economic climate in Hong
Kong and our operations may change, which could materially and adversely affect
our financial condition and results of operations.

We generate revenues primarily from provision of electricity to Hong Kong
residents and commercial, manufacturing and infrastructure and public services
sectors within Hong Kong. Any material adverse developments in Hong Kongs
economy could reduce the growth in the electricity demand in Hong Kong, further
defer our capital expenditures and adversely affect our business and results of
operations.

Most of our revenues are derived from our business activities in Hong
Kong, which are directly affected by the performance of Hong Kongs economy.
The economy of Hong Kong has in recent years experienced a decline from the
high rates of growth experienced in the 1960s, 1970s and 1980s as businesses in
Hong Kong have increasingly relocated manufacturing operations to the mainland
of China, which is referred to as the Chinese mainland in this annual report,
and other regions where labor and other fixed costs are generally lower. This
has resulted, and is expected to continue to result, in a decline in
electricity sales by us to the manufacturing sector and consequently, reduced
growth in our sales of electricity in Hong Kong.

After the cool-down of the information technology fever since mid-2000 and
the September 11, 2001 terrorist attacks in the United States, the world
economy has experienced a difficult period. Hong Kong has also been negatively
affected by these events. As a result, stock market and property prices
experienced declines in Hong Kong. Although Hong Kongs currency link to the
U.S. dollar has been maintained and its financial sector has not seen
widespread problems as experienced elsewhere, these events have led to an
economic downturn in Hong Kong. This could in turn slow the growth in
electricity demand in Hong Kong, leading to pressure to further defer our
capital expenditures and adversely affect our revenue.

11



---



##### 



In recent months, several economies in Asia, including Hong Kong, have
been negatively affected by the outbreak of severe acute respiratory syndrome,
or SARS. Some industries in Hong Kong, in particular the tourism and
restaurant sectors, were hard hit by the SARS outbreak. The dramatic decline in the business of these industries is expected to
have negative effects on the economy of Hong Kong for 2003. The Government of
Hong Kong and business communities have taken various measures to stimulate the
economic recovery of Hong Kong. While the ultimate impact of SARS is unclear
at this time, the effects of these measures are crucial to Hong Kongs future
financial condition and economic developments, which would in turn affect our
financial condition and results of operations.

Most of our revenues are derived from the operations of our subsidiary,
CLP Power Hong Kong Limited, or CLP Power, and our affiliated company, Castle
Peak Power Company Limited, or CAPCO. The electricity-related operations and
financial affairs of CLP Power and CAPCO are governed by the current Scheme of
Control which is effective until September 30, 2008. Any unfavorable
modifications to the Scheme of Control by the Government of Hong Kong following
its expiry in 2008 may have an adverse effect on our financial performance.

Most of our revenues are derived from the operations of our subsidiary,
CLP Power, and our affiliated company, CAPCO. The Scheme of Control governs
the financial affairs of CLP Power and CAPCO insofar as such affairs relate to
CLP Powers and CAPCOs electricity-related operations in Hong Kong. The
current Scheme of Control is effective until September 30, 2008. In accordance
with procedures agreed in the Sino-British Joint Liaison Group, or the Joint
Liaison Group, which oversaw the transition to Chinese rule over Hong Kong, a
copy of the Scheme of Control was passed on to the Chinas representatives of
the Joint Liaison Group for comment. Those representatives confirmed that they
had no objection to the terms of the Scheme of Control and that the Scheme of
Control shall continue to be valid and shall be recognized and protected by the
Government of Hong Kong after July 1, 1997. However, the Government has
indicated that it will conduct a review of the electricity market with a view
of drawing up a broad framework for the development of the electricity supply
sector to succeed the current Scheme of Control. Should there be any
modification to the Scheme of Control by the Government of Hong Kong following
its expiration in 2008 in a manner which would be unfavorable to CLP Power and
CAPCO, our financial condition could be seriously affected.

Our business outside Hong Kong may be adversely affected by factors beyond
our control.

We have invested in power projects located in Australia, India, Taiwan,
Thailand, Malaysia and the Chinese mainland. Most of these projects are in the
form of jointly controlled entities where we share the control over these
entities with our joint venture partners. As we do not have unilateral control
over these ventures, their operations may not follow the same policies and
standards that are adopted by our wholly owned subsidiaries.

In addition, the success and profitability of our investment activities
depend largely on the following factors, which are beyond our control:



| |  |  | performance of a particular foreign economy;  
| | - |  | ----------------------------------------------
|
| |  |  | political stability;                          
|
| |  |  | unexpected changes in regulatory requirements;
|
| |  |  | foreign exchange control;                     
|
| |  |  | stability of interest and exchange rates; and 

12



---



##### 





| |  |  | foreign taxes.
| | - |  | --------------

Any unfavorable changes in the above factors will adversely affect the
profitability of our investments and our operating results.

We have long-term commitments denominated in U.S. dollars and other
foreign currencies for our operations and business expansion. A devaluation of
the Hong Kong dollar may increase costs associated with our operations and
business expansion, and materially and adversely affect our financial condition
and results of operations.

Although the Hong Kong dollar has been officially linked to the U.S.
dollar at the rate of approximately HK$7.80 to US$1.00 since October 17, 1983,
we cannot assure you that this or any linked exchange rate will be maintained
by the Government of Hong Kong in the future. While most of our revenues are
denominated in Hong Kong dollars and we have hedged a material portion of our
foreign currency exposures through the use of derivative instruments, any
devaluation of the Hong Kong dollar in the longer term beyond the available and
practicable hedging time span would increase the Hong Kong dollar cost of our
future expenditures denominated in U.S. dollars or other foreign currencies,
which would materially and adversely affect our financial condition and results
of operations.

Accidents and natural disasters could prevent operation of our power
generation and distribution facilities and prevent us from generating
electricity-related revenues or reduce our operating flexibility.

Our power generation and distribution operations may be affected from time
to time by equipment failures and natural disasters such as typhoons or floods.
Natural disasters could interrupt our power generation, transmission and
distribution services leading to decreased revenues, increased maintenance and
higher engineering costs. Accidents could interrupt our power generation,
transmission and distribution services, subject us to increased liabilities or
bring about pressure for greater regulation of our services. Although we have
acquired insurance that is consistent with industry practice against such
risks, our insurance may not be sufficient to cover our losses or the losses of
others, and the insurance may not continue to be available to us on a
commercially reasonable basis.

Our power generation and distribution operations may be adversely affected
by the environmental regulations.

Our power generation and distribution operations in Hong Kong, as well as
in the Chinese mainland and other Asia-Pacific countries, are subject to a
number of laws and regulations relating to environmental protection and safety.
The operations may, in particular, be affected by mitigation measures such as
those required under the Kyoto Protocol addressing the rising concerns over
greenhouse gas emission and global climate change. Although we believe we are
in compliance in all material respects with existing environmental laws and
regulations, it is possible that additional costs may be incurred or operations
of some of our power assets may be affected as a result of new interpretation
or revision of existing laws and regulations, enactment of new or more
stringent requirements, or evolvement in mitigation measures for global
environmental issues. As some risks of environmental costs and liabilities are
inherent in our operations, we cannot assure you that material costs and liabilities
will not be incurred in the future in this regard.

13



---



##### 



Technological advancements in the electricity industry may create
competitive pressure on our operations, which may adversely affect our
financial conditions and results of operations.

Development of alternative generating, delivering, storage and application
technologies may not only affect the ways we supply our electricity to
customers, but also drive for more competition in the electricity industry.
For instance, microturbine, together with other waste heat conversion
technologies, are being experimented to provide combined heat and power to
electricity customers at high fuel efficiency. Such technological developments
may negatively affect our competitive strength, which may adversely affect our
business. New technologies take time and require heavy investment to develop
and become commercially operational and to cause impacts to our operations.
Although we have dedicated resources to monitor technological developments that
are of potential relevance to our future business climates, we cannot assure
you that our efforts can clear all risks and uncertainties that may be caused
by technological advancements worldwide.

Our business may be harmed, and our financial condition and results of
operations may be adversely affected, by changes in general economic and
business conditions resulting from the terrorist activities, political unrest
and military actions that take place outside Hong Kong.

We are exposed to the risks of political unrest, war, acts of terrorism
and other instability, which can result in disruption to our business or the
business of our customers. The following recent events illustrate these risks:



| |  |  | On September 11, 2001, terrorist attacks on the United
States caused significant loss of life and property damage
and disruptions in the U.S. market and in global markets. In
light of these events, some South Asian countries and the
Middle East area have been considered vulnerable to terrorist
activities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Recent announcement of withdrawal by North Korea from
the Nuclear Non-Proliferation Treaty and a series of steps
taken by North Korea to escalate the dispute with the United
States, including restarting a small reactor, test-firing
short-range missiles and threatening to test-fire a ballistic
missile.    
|
| |  |  | Diplomatic and financial responses to the war between
Iraq and the United States and its allies are still being
formulated, and any of such responses could materially and
adversely affect us in ways we cannot predict at this time.                                                                            

Occurrence of any similar activity in the future could result in increased
volatility in or damage to the global financial markets, which in turn may
adversely affect our business and results of operations.

14



---



##### 



Item 4. Information on the Company

A. History and Development of the Company

Our legal and commercial name is CLP Holdings Limited. We were
incorporated on October 24, 1997 in Hong Kong Special Administrative Region,
China. Under a Scheme of Arrangement with effect from January 6, 1998, we
reorganized the companies in our business group and became the holding company
of a group of companies, consisting of CLP Power Hong Kong Limited, or CLP
Power, (formerly known as China Light & Power Company, Limited, which was the
listed and holding company of the CLP Group before reorganization) and other
companies. We refer to our company and our consolidated subsidiaries as the
CLP Group, or our Group, in this annual report. The diagrams below set forth
our ownership relationships immediately before and after our corporate
reorganization in 1998. Our registered address is 147 Argyle Street, Kowloon,
Hong Kong Special Administrative Region, China. Our telephone and facsimile
numbers are (852) 2678-8111 and (852) 2760-4448 respectively. Our website
address is www.clpgroup.com.

|                                  |  |                                 
|--------------------------------- |  | --------------------------------
|Immediately before
reorganization |  | Immediately
after reorganization

(REORGANIZATION FLOWCHART)

The reorganization resulted in the separation of our regulated electricity
business in Hong Kong from our non-regulated businesses. Our regulated
electricity business in Hong Kong is carried out by CLP Power. In recent
years, we have been actively exploiting opportunities by leveraging off our
skills and resources to invest in electricity businesses outside Hong Kong and
electricity-related businesses in Hong Kong and the Chinese mainland. We have
established a significant presence in the power industry of the Chinese
mainland and several other Asia-Pacific countries and are now one of the
largest investor-owned power businesses in Asia.

In 2002, we continued to make improvements to our power generation and
distribution facilities in Hong Kong and our supply reliability in terms of

delivery energy index was above 99.99%. In view of the cost savings achieved
through productivity improvements in the past years and to help the alleviation
of the difficult economic environment in Hong Kong, we announced in December
2002 a freeze on any tariff increase for 2003 and a rebate package amounting to
HK$910 million (US$117 million) to all of our customers in Hong Kong. In May
2003, we further announced another special one-off rebate package amounting to
HK$460 million (US$59 million) to our Hong Kong customers. Tariff levels have
been frozen since 1998.

15



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For our electricity business in the Chinese mainland and other
Asia-Pacific countries, in 2002, we achieved the financial close for the
2x300MW Anshun II power project in Guizhou, China and purchased an 80% interest
in Gujarat Paguthan Energy Corporation Private Limited, or GPEC, which owns a
655MW combined cycle power station in Gujarat, India. We also reached an
agreement with Powergen UK plc to acquire all of its remaining interest in
GPEC, Yallourn Energy Pty Limited, or Yallourn Energy, and BLCP Power Limited,
or BLCP. The acquisitions of the additional interests in BLCP, Yallourn Energy
and GPEC were completed in January, April and June 2003 respectively.
Construction of the Heze II and Liaocheng power projects in Shandong, China, as
well as Ho-Ping power project in Taiwan, progressed well. The Ho-Ping power
plant commenced commercial operation in 2002 whilst Heze II Unit 1 entered into
commercial operation in February 2003.

The pursuit of investment opportunities outside Hong Kong will depend on
those opportunities meeting our criteria in terms of price, earnings and risk
profile. Our policy of diversification will be selective, prudent and
incremental. Details of our investments are described in  B. Business
Overview below.

16



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B. Business Overview

Our businesses fall broadly into two categories. The primary category is
the electricity generation and supply business in Hong Kong, which is our core
business and regulated by the Government of Hong Kong pursuant to the Scheme of
Control. We operate the power stations and transmit electricity to over 2
million customers via our solely owned transmission and distribution network.
Our electricity generation and supply business in Hong Kong is referred to as
the Scheme of Control business in this annual report.

The second category of our businesses comprises our power-related and
other investments and services, both in Hong Kong and elsewhere, which are
outside the scope of the Scheme of Control and is referred to as non-Scheme of
Control business in this annual report. This include investments in the
electricity sector in the Chinese mainland and other Asia-Pacific countries, as
well as activities beyond the electricity business such as redevelopment of
properties no longer in use for electricity purposes, engineering services and
consultancy, telecommunications services, information technology services and
research on sustainable development and emerging energy technologies.

Business Strategy

The key elements of our strategy are to:



| |  |  | continuously enhance our core Hong Kong electricity business;                                                                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | develop our portfolio of electricity businesses in the
Chinese mainland and other Asia-Pacific countries; and                                                                          
|
| |  |  | selectively pursue opportunities to expand our
activities beyond our conventional electricity business, by
leveraging off our existing businesses, assets, expertise and
relationships.

The objective of our electricity business in Hong Kong is to keep the
costs down and at the same time improve efficiency. We have cut costs
significantly in the past decade, reducing the number of our staff under the
Scheme of Control business from the peak of over 6,500 in 1993 to approximately
3,900 by the end of 2002. Through improved operating efficiency and tight cost
control, we have been able to both manage tariff levels and preserve financial
returns. As effective management of regulatory issues is essential to our
business, in March 2003, we began discussions with the Government of Hong Kong
concerning the second five-year interim review of the Scheme of Control. The
key challenges for us are the expiry of the current Scheme of Control in 2008
and negotiation of any new arrangement with the Government of Hong Kong.

The performance of our investments in the electricity industry outside
Hong Kong is improving and we will continue our focus on managing the existing
joint ventures to further improve the quality and returns of these businesses.
We will also invest in the future in projects that meet our investment
criteria, including those projects with an expected return to be higher than
our risk-adjusted cost of capital. Electricity-related businesses that make
use of our existing assets and skills are carried out on a limited and selected
basis, reflecting the overriding focus on our electricity businesses.

17



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Electricity Business in Hong Kong

We, through CLP Power, a wholly owned subsidiary, are engaged in the
electricity generation, transmission and distribution business in Hong Kong.
We are one of the only two electricity providers in Hong Kong. We do not
generate the electricity power that we sell. Pursuant to several contracts
described below in   Power Purchase from CAPCO and
 Non-CAPCO Power
Purchases/Storage Facilities, we purchase the electricity from CAPCO, our
affiliated company incorporated in Hong Kong and from Guangdong Daya Bay
Nuclear Power Station, located in Guangdong Province, China. These sources of
power, together with CLP Powers right to use 50% of the capacity of Phase 1 of
the Guangzhou Pumped Storage Power Station, amount to a total installed
capacity of 8,263 megawatts, or MW. We supply electricity to Kowloon, the New
Territories and a number of outlying islands, including Lantau Island and
Cheung Chau, which are collectively referred to as our supply area in this
annual report. We supply approximately 73% of the electricity consumed in Hong
Kong.

Our electricity generation and supply business in Hong Kong is regulated
by the Government of Hong Kong pursuant to the Scheme of Control. The Scheme
of Control, a contract among CLP Power, CAPCO, ExxonMobil Energy Limited
(formerly known as Exxon Energy Limited) which is referred to as ExxonMobil in
this annual report, and the Government of Hong Kong, regulates CLP Powers and
CAPCOs financial affairs insofar as they relate to the electricity related
operations in Hong Kong. The Scheme of Control provides that we are obligated
to meet electricity demand at the lowest reasonable cost. In return, the
Government of Hong Kong recognizes that we are entitled to receive a reasonable
return on our investment. The 15-year term of the current Scheme of Control
will expire on September 30, 2008.

CLP Power

CLP Power was established in 1901 in Hong Kong to supply electricity to
Guangzhou (formerly known as Canton) in the Chinese mainland. In 1903, we
established our first power station in Kowloon. In 1964, we entered into a
joint venture arrangement with ExxonMobil International Holdings Inc. (formerly
known as Esso Eastern Inc.), a wholly owned subsidiary of Exxon Mobil
Corporation (formerly known as Exxon Corporation), to help finance the
substantial capital commitments required to build power stations needed in
connection with the anticipated rapid economic expansion in Hong Kong in the
1960s and 1970s. This arrangement created a new generating company, Peninsula
Electric Power Company Limited, 40% owned by us and 60% owned by ExxonMobil (a
subsidiary of ExxonMobil International Holdings Inc.), to meet our increasing
supply requirements. In 1978 and 1981, two more generating companies, Kowloon
Electricity Supply Company Limited and CAPCO, were formed respectively under
the joint venture arrangement, each of which was owned 60% by ExxonMobil and
40% by us. In 1992, the three generating companies were consolidated under the
name of CAPCO with us maintaining our 40% ownership in CAPCO. Concurrently
with the establishment of the joint venture arrangement, we, through CLP Power,
and ExxonMobil International Holdings Inc. negotiated a regulatory framework
with the Government of Hong Kong formally known as the Scheme of Control.

18



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Relationship With CAPCO

General

As we do not directly own power generation facilities, we purchase a
significant part of our electricity demand from CAPCO. We work closely with
ExxonMobil, which owns 60% of CAPCO, in the financing, construction and
management of CAPCOs generation facilities. The affairs of CAPCO are managed
by an eleven-member board of directors, of which six representatives are
nominated by ExxonMobil and five representatives are nominated by us. While we
act as the operator of CAPCOs generation facilities under the direction of the
CAPCOs board of directors, there are a number of key areas requiring the
consent of both shareholders, including financing.

The joint venture relationship between us and ExxonMobil is governed by an
agreement initially signed in 1964 and subsequently amended and supplemented by
several contracts which, collectively, are referred to as the Basic Agreement
in this annual report. The Basic Agreement provides, amongst other matters,
that no facility expansion can be carried out independently by CAPCO without
the approval of us and ExxonMobil. ExxonMobil also has the option to
participate in any future generating capacity expansion undertaken by us or
CAPCO for the Hong Kong market. However, if ExxonMobil declines to participate
in any such further expansion, their right to participate in succeeding
expansions of generating capacity is deemed to be waived.

Due to its significance to our electricity business in Hong Kong, CAPCOs
balance sheets as of December 31, 2001 and 2002 and statements of income, cash
flows and changes in equity for the years ended December 31, 2000, 2001 and
2002, audited by PricewaterhouseCoopers, independent public accountants, are
included in Item 17. Financial Statements in this annual report.

Electricity Purchases

Under the Basic Agreement, we are obliged to purchase the total
electricity output of CAPCO. It further provides that we are responsible for
payment of all of CAPCOs operating expenses, including fuel cost,
depreciation, interest expenses, current and deferred taxes, as well as CAPCOs
share of the return permitted under the Scheme of Control.

Sales to the Chinese Mainland

The Scheme of Control contemplates a special arrangement to cover our
purchase of electricity from CAPCO for supply to the Chinese mainland. Only
spare generating capacity of CAPCO not used to serve customers in Hong Kong may
be used for sales to the Chinese mainland. Pursuant to a separate agreement
among CLP Power, CAPCO and the Government of Hong Kong, 80% of the profit from
our sales to the Chinese mainland is credited to a Scheme of Control
development fund, which is referred to as the Development Fund in this annual
report. The remaining 20% of the profit from such sales is retained by CLP
Power and CAPCO for the account of our respective shareholders. See  Sales
to the Chinese Mainland below.

19



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CAPCO Financing

We and ExxonMobil have provided most of our funding to CAPCO in the form
of interest-free loans, by way of shareholders advances. As at December 31,
2002, CAPCOs paid-in-capital amounted to HK$50 million (US$6 million), while
shareholders advances amounted to HK$12.2 billion (US$1.6 billion). Pursuant
to a deed of subordination, shareholders advances are subordinated to certain
debt financing of CAPCO and may be repaid to the extent that CAPCOs ratio of
borrowed moneys to shareholders funds (representing the sum of the issued
share capital, shareholders advances, special advances, deferred taxation,
retained profits and any proposed dividend) is not higher than 1.5:1. Borrowed
moneys means moneys lent to CAPCO excluding fuel stock loans, obligations
arising from swaps and foreign currency transactions, and unrealized foreign
exchange differences. As at December 31, 2002, the borrowed moneys of CAPCO
amounted to approximately HK$11.6 billion (US$1.5 billion), while shareholders
funds totaled approximately HK$15.3 billion (US$2.0 billion), giving a ratio of
0.75:1, which is lower than the ratio of 0.98:1 as at December 31, 2001 mainly
due to the decrease in long-term borrowed moneys.

If CAPCO requires additional financing, we and ExxonMobil may at our
discretion provide such financing in proportion to our respective
participations and, if either declines, the other has the right, but not the
obligation, to provide all or any part of the required financing. In addition,
if so requested by CAPCO, we are obliged to provide financing in the form of
special advances, provided that the cumulative amount of such special advances
does not exceed the balance of the Development Fund. CAPCO also has the
ability to raise funds through borrowings and/or to reduce its dividend
payments to us and ExxonMobil to finance its activities.

Scheme of Control

Overview

CLP Powers and CAPCOs electricity-related operations and financial
affairs have been governed since October 1, 1963 by a series of Scheme of
Control Agreements entered into among CLP Power, CAPCO, ExxonMobil and the
Government of Hong Kong. The current Scheme of Control became effective on
October 1, 1993 for a term of 15 years until September 30, 2008.

The Scheme of Control contains provisions covering the obligations of the
parties to the Scheme of Control, the tariff setting mechanism, calculation of
the permitted and net return of CLP Power and CAPCO and the procedures for
government monitoring. Our sales of electricity to the Chinese mainland are
governed by a separate contract, the terms of which do not form part of the
Scheme of Control. See  Sales to the Chinese Mainland below.

In accordance with the Scheme of Control, we are obliged to contribute to
the development of Hong Kong by providing sufficient facilities to meet the
demand for electricity at the lowest reasonable cost. In return, we, CAPCO and
any future companies formed by us, alone or together with ExxonMobil or others,
these companies being collectively referred to as the SoC Companies, are
entitled to receive tariff revenue sufficient for a reasonable return
on our investments. Costs are forecasted by means of a financial review process
described below and the rate of return is determined by means of a formula
established by the Scheme of Control. See  Tariffs below.

20



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The Scheme of Control provides for government monitoring of the SoC
Companies financial affairs and operating performance through financial
reviews and auditing reviews as described below. Every five years during the
15-year term, the Scheme of Control is expected to be reviewed, and the SoC
Companies and the Government of Hong Kong have the right to request
modifications. Pursuant to the terms of the Scheme of Control, no party can
unilaterally make changes to the Scheme of Control. The last five-year interim
review was completed in 1999. The current five-year interim review began in
March 2003.

The Government of Hong Kong reviews the SoC Companies major capital
additions and tariff rates. A financial review is conducted whenever major
system expansion is proposed, or the period of the existing review is about to
expire or when adjustments in excess of 14% of the previously approved tariff
rates for that particular year are proposed. A tariff review is conducted in
October of each year to agree on the implementation of tariff adjustments for
the next year.

The results of a financial review, including basic tariff rates, are
subject to the approval of the Government of Hong Kong. Once the financial
review has been approved by the Government, the basic tariff rates cannot be
unilaterally reduced by the Government of Hong Kong. However, if a financial
review is not completed prior to the expiry of the approved financial review,
we and CAPCO may increase the basic tariff rates by up to 7% above the level
approved by previous financial review.

Subsequent to the approval of a financial review, we and CAPCO may
increase the basic tariff rates by up to 7% above the level approved in the
financial review for a particular year. A further increase of 7% is permitted
with the approval of Hong Kong Executive Council without a further financial
review. If we and CAPCO have requested an increase in basic tariff rates
requiring governmental approval or if we and CAPCO have requested revisions to
the current financial review and any agreement has not yet been reached with
the Government of Hong Kong concerning such increase or revisions, we and CAPCO
still have the right to increase the approved basic tariff rates up to 7% on an
interim basis.

An auditing review is also submitted each year by the SoC Companies and
reviewed by the Government of Hong Kong. The auditing review is to provide
information to the Government in connection with its monitoring of the SoC
Companies activities under the Scheme of Control. The auditing review
contains an analysis of the prior-year actual results and current-year
projections of sales, capital and operating expenditures and other financial
and operating data.

Our existing financial plan that outlined our projected capital
investments and tariff rates was approved by the Hong Kong Executive Council in
May 2000 for the period from October 1999 to December 2004. See D. Property,
Plant and Equipment  Capital Investment Programme below.

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Tariffs

We design the net tariff we charge to cover CLP Powers and other SoC
Companies operating costs and permitted return. The net tariff consists of
three components: (i) the basic tariff rates, (ii) a fuel clause recovery
rebate or charge, and (iii) the Scheme of Control rebate.



| | (i) |  | Basic Tariff Rates
| | --- |  | ------------------

We calculate our annual projected basic tariff rates by taking into
account the SoC Companies permitted return and the annual forecasts of (a),
(b), (c) and (d) below, using the formula (a+b-c)/d, where:



| | (a) |  | operation costs, which include, among other things, the
standard cost of fuel; generation, transmission, distribution and
administration expenses; depreciation; interest expense; and tax;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | allowed net return, referred to as net return in this annual
report, which is derived by subtracting from the Scheme of Control
permitted return, referred to as permitted return in this annual
report, (i) an interest up to a maximum of 8% per annum on
borrowings to finance fixed assets; (ii) a charge of 8% per annum on
the sum of the average balances of the Development Fund and the
special provision account; (iii) an excess capacity adjustment of
13.5% on the average excess capacity expenditure less an allowed
interest charge of up to 8% per annum on the average excess capacity
expenditure after the Black Point Units 7 and 8 are commissioned;
and (iv) an interest up to a maximum of 8% per annum on the increase
in average balance of the customers deposits in excess of the
balance at September 30, 1998. The permitted return is the sum of
13.5% of the SoC Companies average net fixed assets and 1.5% on the
average net fixed assets financed by shareholders investments after
September 30, 1978;
|
| | (c) |  | revenue from sales to the Chinese mainland less 20% of the
incremental profit before tax (this 20% of incremental profit from
the sales to the Chinese mainland is shared between CLP Power (40%)
and CAPCO (60%)); and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (d) |  | local (i.e. excluding the Chinese mainland) unit sales in
terms of kWh as determined by the load forecast.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Under the Scheme of Control, all of our expenses relating to power
purchases from Guangdong Daya Bay Nuclear Power Station and all payments to
Hong Kong Pumped Storage Development Company, Limited are included in the
operation costs described in (a) above.



| | (ii) |  | Fuel Clause Recovery Rebate or Charge
| | ---- |  | -------------------------------------

The standard cost of fuel is recovered through the basic tariff rates as
operation costs. The fuel clause recovery rebate or charge represents the
difference between the actual cost of fuel (including natural gas, coal and
oil) and the standard cost recovered through the basic tariff rates. The
difference is charged or credited to a fuel clause recovery account maintained
in our books. No approval from the Government of Hong Kong is required to
recover increases in the cost of fuel.

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| | (iii) |  | Scheme of Control Rebate
| | ----- |  | ------------------------

Any difference between our profit for Scheme of Control operations and our
permitted return is required to be transferred to or from the Development Fund.
The balance in the Development Fund represents a liability in our accounts.
In addition, in relation to the deferral in constructing Units 7 and 8 of the
Black Point Power Station, we and the Government of Hong Kong agreed in 1999
that we set aside a total of HK$803 million from the Development Fund to a
special provision account to pay for the additional costs incurred by the
vendors for delayed delivery of the two generator units. See D. Property,
Plant and Equipment  Capital Investment Programme below. We pay a charge of
8% per annum on the sum of the average balances of the Development Fund and the
special provision account. The charge is credited to a rate reduction reserve
and is applied as rebates to customers on our monthly bills.

Net and Permitted Return

The Scheme of Control allows CLP Power and CAPCO a permitted return and
net return as described above. The net return is divided between CLP Power and
CAPCO in accordance with the Basic Agreement which provides that CAPCO will
receive that proportion of the total net return represented by the net return
CAPCO would receive if CAPCO were the only company under the Scheme of Control
and the net return were calculated solely on the basis of CAPCOs accounts. If
the actual profit under the Scheme of Control, together with the amount
available for transfer from the Development Fund, is less than the permitted
return, CAPCO will not bear more than 20% of any such deficit. We believe that
such limitation will not have a material effect on our business or financial
condition in the foreseeable future.

Rate-Making Procedures

The revenue requirements of the SoC Companies, which are theoretically
equal to the cost of supply of electricity, are computed in a financial model
based on load forecast, projected operating expenses and return to
shareholders. The overall cost of electricity supply is allocated to each
class of customer based on consumption profiles, which are determined by load
research. We use the cost of service to each class of customer to determine
the revenue required and the unit rate. We then propose basic tariff rates to
the Government of Hong Kong for approval in accordance with the provisions of
the Scheme of Control.

Demand Side Management

We undertake activities to encourage the efficient use of electricity.
CLP Power and CAPCO entered into a Demand Side Management, or DSM, agreement
with the Government of Hong Kong in May 2000. The implementation of the DSM
Programme commenced in 2000, which included an educational programme and a
rebate programme for energy efficient equipment. The DSM agreement allows us
to recover all programme costs from customers. Starting in January 2002, we
introduced a DSM charge of HK¢0.2 per unit on non-residential customers to
recover the DSM costs. The DSM agreement will expire in June 2003.

23



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Power Generation

We do not directly own any power generation facilities. Our sources of
power supply comprise: (i) CAPCOs power stations located in Castle Peak,
Pennys Bay and the six commissioned units at Black Point with a total
installed capacity of 6,283MW; (ii) an approximate 70% share (1,380MW) of the
output from Guangdong Daya Bay Nuclear Power Station under a contract for a
period of 20 years beginning in 1994; and (iii) our right to use 50% (600MW) of
the capacity of Phase I of Guangzhou Pumped Storage Power Station for a period
of 40 years commencing in 1994. All of our sources of power supply provide us
with a total installed capacity of 8,263MW.

Although we do not directly own any power generation facilities, we
operate and maintain CAPCOs power stations. In addition, we have seconded a
number of staff to Guangzhou Pumped Storage Power Station and Guangdong Daya
Bay Nuclear Power Station respectively to operate and maintain their power
stations.

We met all demands for power during 2002 without any shortages. The
amount of electricity supplied to the system for 2002 was 31,193 million kWh,
an increase of 5.1% over 2001. As at December 31, 2002, our system and local
reserve margins were approximately 20% and 42% respectively.

24



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The table below sets forth for the
years ended December 31, 2001 and 2002, the amount of electricity purchased by
us, as generated by CAPCO and other generation facilities and the amount of
power used or lost in connection with transmission and distribution:

|                                     |                                        |                         |        |                         |   |       |        |        |   | 
|------------------------------------ | -------------------------------------- | ----------------------- | ------ | ----------------------- | - | ----- | ------ | ------ | - | 
|                                     |                                        |                         |        | Year ended December 31,
|                                     |                                        |                         |        |                        
|                                     |                                        |                         |        | 2001                    |   | 2002 
|                                     |                                        |                         |        |                         |   |      
|                                     |                                        |                         |        | (GWh)                   |   | (GWh)
|                                    
|CAPCO facilities                     |                                        |                         |        |                         |   |       |        |       
|                                     | Castle Peak                            |                         |        | 9,302                   |   |       |        | 10,264 |  
|                                     | Black Point                            |                         |        | 11,444                  |   |       |        | 12,265 |  
|                                     | Gas Turbines                           |                         |        | 1                       |   |       |        | 2      |  
|                                     |                                        |                         |        |                         |   |      
|                                     |                                        |                         | 20,747 |                         |   |       | 22,531 |       
|                                     | Auxiliary
use (1)                      |                         |        | (1,031                  | ) |       |        | (1,123 | )
|                                     |                                        |                         |        |                         |   |      
|                                     | Net CAPCO production                   |                         |        | 19,716                  |   |       |        | 21,408 |  
|                                    
|Other power purchased                |                                        |                         |        |                         |   |       |        |       
|                                     | Nuclear                                |                         |        | 10,055                  |   |       |        | 9,881  |  
|                                     | Net transfer from/(to)                 |                         |        |                         |   |       |        |        |  
|                                     |                                        | Hongkong Electric       |        |                         |  |       |        |        |  | 
|                                     |                                        | Landfill gas generation |        |                         | 2 |       |        |        | 1 | 
|                                     |                                        |                         |        |                         |   |      
|                                     | Total other power purchase             |                         |        | 10,057                  |   |       |        | 9,882  |  
|                                    
|Pumped Storage operation             |                                        |                         |        |                         |   |       |        |       
|                                     | Energy transferred                     |                         |        | 300                     |   |       |        | 300    |  
|                                     | Energy consumed for pumping            |                         |        | (394                    | ) |       |        | (397   | )
|                                     |                                        |                         |        |                         |   |      
|                                     | Net (loss) in Pumped Storage operation |                         |        | (94                     | ) |       |        | (97    | )
|                                    
|Total net generation                 |                                        |                         | 29,679 |                         |   |       | 31,193 |       
|                                     |                                        |                         |        |                         |   |      
|Transmission and distribution losses |                                        |                         | 1,148  |                         |   |       | 1,306  |       
|                                     |                                        |                         |        |                         |   |      



---

|(1) |  | Auxiliary use represents electricity consumed by generating units in the
course of generation.
|--- |  | ----------------------------------------------------------------------------------------------

Power Purchase from CAPCO

Under the Basic Agreement, we have agreed to purchase, and CAPCO has
agreed to sell, the total power produced by CAPCO. For 2002, we purchased
approximately 68% of our power from CAPCO. CAPCO presently has three
commissioned power stations with a combined installed capacity of 6,283MW as at
December 31, 2002.

To ensure the reliability and security of power supply, CAPCOs power
generation system comprises a mix of different types of generating units,
including gas-fired combined cycle units, coal-fired steam generators and gas
turbines. The power stations at Black Point and Castle Peak provided almost
all of CAPCOs electricity supply to us during 2002.

Smaller capacity gas turbines are used as supplementary facilities to meet
demand at peak periods and for emergency back-up because of their quick-start
capability. CAPCOs gas turbines have achieved 100% starting reliability, which is a key indicator
of gas turbine performance.

25



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CAPCO leases the properties on which all of its generation facilities are
located from the Government of Hong Kong. We are responsible for the overall
management and control of construction at the site and operation of all of
CAPCOs generation facilities.

Black Point Power Station

Black Point Power Station commenced commercial operation in 1996 (Units 1
and 2) and is located at the western tip of the New Territories, approximately
four kilometers north of the Castle Peak Power Station. It currently consists
of six combined cycle units with a total capacity of 1,875MW. The
commissioning and installation of Units 7 and 8 are expected to occur in 2005
and 2006 respectively. See D. Property, Plant and Equipment  Capital
Investment Programme below. Black Point Power Station, when completed, will
be one of the largest combined cycle power plants in the world with an expected
total capacity of 2,500MW.

Black Point Power Station is the first natural gas-fired plant in Hong
Kong. The use of natural gas, a clean burning fuel which leaves no ash and
emits negligible sulphur dioxide, allows the power station to operate with
lower environmental impact and higher thermal efficiency. The current supply
of natural gas comes from the Yacheng 13-1 field in the South China Sea. In
view of the lengthy lead-time required for new gas projects and the possibility
of increased promotion of gas-fired generation over time due to environmental
considerations, we have commenced long-term planning of future arrangements for
natural gas supply from other sources.

Castle Peak Power Station

Castle Peak Power Station is one of the largest coal-fired power station
complexes in the world. Its first phase (four units) commenced operations in
1985 and it now consists of eight coal-fired generating units with a total
capacity of 4,108MW. Castle Peak Power Station burns coal as its primary
energy source. The coal-fired generating units achieved an overall
availability of 86.12% for 2002, with a forced outage rate of 0.3%. We believe
this rate represents one of the highest world standards and reflects the high
quality of the plant and its operation. The design of the Castle Peak Power
Station also enables it to burn, as alternatives, oil or natural gas supplied
from CAPCOs Black Point Power Station, should this be required.

The Castle Peak Power Station has achieved consistently high levels of
compliance with air quality control standards. An energy saving programme has
been in operation in each of the Black Point and Castle Peak Power Stations
since 2000 to explore opportunities for auxiliary power reduction and resources
conservation. As a consequence, energy savings of about 1.34% have been
achieved as compared with the levels at the base year 1999.

Pennys Bay Gas Turbine Power Station

The three 100MW gas turbines at Pennys Bay Gas Turbine Power Station are
utilized for peak load and emergency generation purposes. Total output by such
units during 2002 was minimal.

26



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Fuel

For the majority of the 1980s, coal was our primary energy source.
Through commissioning of a total of six units of the natural gas-fired
generating plant at Black Point Power Station and the purchases from Guangdong
Daya Bay Nuclear Power Station, our energy sources for 2002 consisted of the
following: natural gas (30.6%), coal (33.1%), oil (0.4%) and nuclear (35.9%).
Although gas is more expensive on the basis of heating value, we determined and
demonstrated to the Government of Hong Kong in receiving approval for our
financial plan, that the higher efficiency, lower capital costs and
environmental benefits of a natural gas-fired plant outweigh any increase in
fuel costs. As the financial plan has accounted for the use of natural gas,
the change in fuel mix is not expected to have a material impact on us. In
addition, a diversity of energy sources will provide greater long-term security
for customers and will be beneficial to Hong Kongs environment. Our fuel
costs are recovered through the basic tariff rates and the fuel clause recovery
rebate or charge. See  Scheme of Control  Tariffs above.

Natural Gas

CAPCO purchases gas for the Black Point Power Station on a take-or-pay (if
tendered) basis pursuant to a 20-year contract with BP China Exploration and
Production Company (formerly known as Arco China Inc.), China National Offshore
Oil Corporation and Kufpec (China) Inc. which commenced in January 1996. The
base price under the contract was established when the contract was signed in
December 1992. Escalations in the contract price are determined annually by
reference to certain market and economic indices. The Black Point Power
Station consumed a total volume of 88,002 Giga British Thermal Unit, or Gbtu,
of natural gas in 2002.

Coal

Total coal consumption for the eight generating units of Castle Peak Power
Station was approximately 4.3 million tonnes in 2002. Approximately 81% of
CAPCOs coal requirements are imported under long-term contracts from
Australia, Indonesia and China. Prices are generally negotiated in line with
market factors. The average cost of coal per tonne purchased was HK$225
(US$29) in 2002.

Oil

CAPCO consumed approximately 32,000 tonnes of fuel oil and industrial
diesel oil in 2002. All of these supplies are imported and sourced principally
by ExxonMobil Hong Kong Limited from overseas sources. The average cost per
barrel was HK$200 (US$26) in 2002. CAPCO maintains strategic fuel stocks of
approximately 40,000 tonnes to cover contingencies. CAPCO has phased out oil
as a fuel from base and intermediate power generation and now uses oil only for
peak and standby generation.

Nuclear

See  Non-CAPCO Power Purchases/Storage Facilities  Guangdong Daya Bay
Nuclear Power Station below.

27



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Non-CAPCO Power Purchases/Storage Facilities

Guangdong Daya Bay Nuclear Power Station

In addition to purchasing power from CAPCO, for 2002, we purchased
approximately 9,881 million kWh of power from Guangdong Daya Bay Nuclear Power
Station located in Guangdong Province, China, pursuant to power purchase
agreements covering 70% of the output of Guangdong Daya Bay Nuclear Power
Station. The agreements extend for 20 years from 1994 and contain a provision
which permits us to continue to purchase 25% of the power generated by
Guangdong Daya Bay Nuclear Power Station for an additional five years. Our
wholly owned subsidiary, Hong Kong Nuclear Investment Company Limited, or
HKNIC, owns a 25% equity interest in Guangdong Nuclear Power Joint Venture
Company, Limited which owns Guangdong Daya Bay Nuclear Power Station. The
remaining 75% equity interest is owned by Guangdong Nuclear Investment Company,
Limited, a Chinese mainland enterprise. Guangdong Daya Bay Nuclear Power
Station is one of the largest joint venture power projects in the Chinese
mainland.

We are obliged to purchase HKNICs 25% equity share of Guangdong Daya Bay
Nuclear Power Stations output and an additional 45% of such output from
Guangdong Nuclear Investment Company, Limited. The price paid by us for
electricity generated by Guangdong Daya Bay Nuclear Power Station throughout
the terms of the power purchase agreements is determined by a formula based on
Guangdong Daya Bay Nuclear Power Stations operating costs and a profit
calculated by reference to shareholders funds and the capacity factor for the
year. We are allowed to treat all our payments for nuclear electricity
generated by Guangdong Daya Bay Nuclear Power Station as part of our operating
expenses allowable under the Scheme of Control. See  Scheme of Control 
Tariffs above.

The design, construction, operation and maintenance of nuclear power
plants involve significant safety measures because of the hazardous nature of
radioactive materials. The use and disposal of nuclear fuels have the
potential, albeit very low, to create substantial risks of liability arising
from exposure to or release of radioactive materials. We believe that
Guangdong Daya Bay Nuclear Power Station complies in all material respects with
international safety standards. We also consider that HKNICs minority
ownership interest and minor participation in Guangdong Daya Bay Nuclear Power
Station limit its exposure to nuclear-related liabilities to the amount of its
initial US$100 million investment and its share of undistributed retained
profits in Guangdong Nuclear Power Joint Venture Company, Limited.

Guangdong Nuclear Investment Company, Limited, together with its parent
company, also own Ling Ao Nuclear Power Station which was commissioned in 2002.
We do not have any direct or indirect interest in Ling Ao Nuclear Power
Station. The Ling Ao Nuclear Power Station is similar in design and situated
very close to the Guangdong Daya Bay Nuclear Power Station. Guangdong Nuclear
Power Joint Venture Company, Limited is currently carrying on the operation and
maintenance of the Ling Ao Nuclear Power Station under contract. However,
Guangdong Nuclear Power Joint Venture Company, Limited and Ling Ao Nuclear
Power Company, Limited, as the direct owners of the Guangdong Daya Bay Nuclear
Power Station and the Ling Ao Nuclear Power Station respectively, are in the
process of establishing a management company, Daya Bay Nuclear Power Operations
and Management Company, Limited. This new management company, which will be owned on a 50/50 basis, will be
responsible for the operation and maintenance of these two power stations.

28



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The existing operating staff of the two power stations will be transferred
to the management company to provide pooling of resources, sharing of expertise
and benefits of economy of scale. The documents on the establishment of the
management company are structured in a manner to ensure that neither Guangdong
Nuclear Power Joint Venture Company, Limited nor HKNIC would take on additional
risk or liability as a result of the establishment of the management company or
the operation of the Ling Ao Nuclear Power Company, Limited.

Guangzhou Pumped Storage Power Station

Hong Kong Pumped Storage Development Company, Limited, a joint venture
company formed between CLP Power (49%) and ExxonMobil (51%), has the right to
use 50% of the capacity of Phase 1 of Guangzhou Pumped Storage Power Station
for 40 years from 1994 pursuant to a capacity purchase contract. The Guangzhou
Pumped Storage Power Station, owned by Guangdong Pumped Storage Company,
Limited (formerly known as Guangzhou Pumped Storage Joint Venture Corporation),
which in turn is owned by three Chinese government-owned entities, is located
in Lu-Tien, Conghua County, which is about 90km north of Guangzhou. We are
allowed to treat all payments to Hong Kong Pumped Storage Development Company,
Limited as part of our operating expenses under the Scheme of Control. See 
Scheme of Control  Tariffs above.

As electricity cannot be stored in large quantities, Guangzhou Pumped
Storage Power Station indirectly stores electricity by way of pumping water to
a high-level reservoir during periods of low demand such as at night. The
water can then be released generating hydro-electric power at times of peak
demand. Some energy is lost in this process, but the loss is more than offset
by the savings from the reduction in use of high production cost plants during
the day and the efficiency gains of running plants at a constant output level.

Power from Hongkong Electric and Guangdong Grid

The interconnection of our system with those of Hongkong Electric (the
only other electricity supplier in Hong Kong) to the south and Guangdong
Province to the north allows us to access other generating capacity to further
enhance the reliability of our own supply system. See  Power Systems 
Security and Reliability below. The interconnection with Guangdong Province
allows us to sell our excess capacity to customers in the Chinese mainland.
See  Sales to the Chinese Mainland below. We have an interconnection
agreement with Hongkong Electric under which the two companies sell each other
electricity to meet marginal demand when doing so is more economical than
utilizing other sources. For 2002, we purchased 50MWh of power from Hongkong
Electric.

Power Systems

The Network

We transmit electricity to load centers through an advanced transmission
network owned and operated by us. As at December 31, 2002, our transmission
and distribution network comprised 11,227 kilometers with 195 primary substations and 11,539
secondary substations. Our system is interconnected with the transmission
system of Hongkong Electric and the power system of neighboring Guangdong
Province, China.

29



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Electricity generated from the steam turbine units at Castle Peak Power
Station, the combined cycle units at Black Point Power Station, the nuclear
units at Guangdong Daya Bay Nuclear Power Station and the pumped storage units
at Guangzhou Pumped Storage Power Station is transmitted to the load centers
via our 400kV transmission network. The 400kV network consists of two
double-circuit 400kV transmission lines arranged in a ring encircling the New
Territories together with cross-connection, and five 400kV underground cable
circuits reaching into the densely populated Kowloon peninsula. Continuity of
supply is guaranteed even if one double-circuit power line is lost.

We continue to expand our distribution network to supply new customers,
the number of whom increased by 57,449 in 2002, and to reinforce and upgrade
supply to our 2 million existing customers. We are making additional
investments to expand and reinforce our transmission network in order to
maintain our high reliability standards as well as to accommodate the
increasing demand for electricity especially in new development areas. We
expect to invest HK$21 billion in our transmission and distribution network for
our current financial plan covering the period from October 1999 through
December 2004. As at December 31, 2002, we had made investments in the amount
of approximately HK$12 billion (US$1.5 billion).

Security and Reliability

We utilize two independent protection systems to isolate any faulty
equipment to safeguard the smooth operation of the network. The reliability of
our transmission system in transmitting energy to the distribution system for
delivery to customers in terms of delivery energy index was above 99.99% in
2002. This rate is comparable to the leading utilities in North America. The
interconnection of our system with those of Hongkong Electric to the south and
Guangdong Province to the north allows us to access other generating capacity
to further improve the reliability of our own supply system. In case of a
sudden loss of generation, the interconnectors allow emergency power transfers
from Hongkong Electric and Guangdong systems, enabling us to avoid disruption
of supply to our customers.

Customers and Sales

As at December 31, 2002, we supplied electricity to 2,055,955 customers,
an increase of 2.9% over December 31, 2001. Total sales increased by 4.8% to
29,887GWh in 2002, and comprised of 27,712GWh sold to Hong Kong customers and
2,175GWh sold to customers in the Chinese mainland. There was a rise of 2.8%
in unit sales to local customers in 2002. Sales to the Chinese mainland, which
consist of sales to Guangdong Guang-Dian Power Grid Group Company Limited and
the Shekou Industrial Zone under a long-term supply contract, increased by
37.6% over 2001.

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The table below sets forth our sales categorized by end user sectors:

|                                       |  |                 |       |              |  |              |        |                       |  |           |        |     |  |  |        |             |  |  |       |              |  |  |      |  
|-------------------------------------- |  | --------------- | ----- | ------------ |  | ------------ | ------ | --------------------- |  | --------- | ------ | --- |  |  | ------ | ----------- |  |  | ----- | ------------ |  |  | ---- | -
|                                       |  | Number of       |       |              |  |              |        |                       |  |           |        |     |  |  |        |             |  |  |       | Average     
|                                       |  | Customers as at |       |              |  |              |        |                       |  |           |        |     |  |  |        |             |  |  |       | Annual
Sales
|                                       |  | December 31,    |       | Annual Sales |  | Annual Sales |        |                       |  |           |        |     |  |  |        | Change over
|End-user                               |  | 2002            |       | for 2000     |  | for 2001     |        | Annual Sales for 2002 |  | 1998-2002
|                                       |  |                 |       |              |  |              |        |                       |  |          
|                                       |  | (thousands)     |       | (GWh)        |  | (GWh)        |        | (GWh)                 |  | (%)       |        | (%)
|                                      
|Commercial                             |  |                 | 176   |              |  |              | 10,014 |                       |  |           | 10,378 |     |  |  | 10,661 |             |  |  | 35.7  |              |  |  | 4.3  |  
|Manufacturing                          |  |                 | 40    |              |  |              | 3,488  |                       |  |           | 3,245  |     |  |  | 3,085  |             |  |  | 10.3  |              |  |  | (4.4 | )
|Residential                            |  |                 | 1,779 |              |  |              | 6,608  |                       |  |           | 6,752  |     |  |  | 6,930  |             |  |  | 23.2  |              |  |  | 3.5  |  
|Infrastructure
and
Public Services (1) |  |                 | 61    |              |  |              | 6,197  |                       |  |           | 6,575  |     |  |  | 7,036  |             |  |  | 23.5  |              |  |  | 7.8  |  
|                                       |  |                 |       |              |  |              |        |                       |  |           |        |    
|Subtotal (local)                       |  |                 | 2,056 |              |  |              | 26,307 |                       |  |           | 26,950 |     |  |  | 27,712 |             |  |  | 92.7  |              |  |  | 3.7  |  
|Sales to the
Chinesemainland           |  |                 |      |              |  |              | 1,181  |                       |  |           | 1,581  |     |  |  | 2,175  |             |  |  | 7.3   |              |  |  | 31.2 |  
|                                       |  |                 |       |              |  |              |        |                       |  |           |        |    
|Total Sales                            |  |                 | 2,056 |              |  |              | 27,488 |                       |  |           | 28,531 |     |  |  | 29,887 |             |  |  | 100.0 |              |  |  | 4.7  |  
|                                       |  |                 |       |              |  |              |        |                       |  |           |        |    



---

|(1) |  | formerly named as Government
and others
|--- |  | -----------------------------------------

Hong Kong Customer Base

Electricity demand varies within each year for a variety of reasons other
than general growth in demand. Electricity demand tends to be highest during
daylight hours due to commercial and industrial activities and electric
appliance use during such periods. Due to air conditioner use, electricity
demand is higher during the summer than during any other seasons. Variations
in weather conditions may also cause significant variations in electricity
demand.

Commercial

Commercial customers accounted for approximately 36% of our total sales in
2002. Demand from the commercial sector in the past five years has shown
moderate growth, owing to the expansion of the service sector of the Hong Kong
economy and the urbanization of Kowloon resulting in increased office building
construction, office automation and use of air conditioners. We expect the
completion of Disney Theme Park around 2005/2006 in our supply area and further
developments of the tourist industry will boost our sales to this sector in the
medium term.

Manufacturing

Sales to the manufacturing sector have gradually declined as a percentage
of total demand, and represented approximately 10% for 2002. We believe that
electricity sales to the manufacturing sector as a percentage of total demand
in general will continue to decline due to Hong Kongs transformation into a
services-oriented economy.

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Residential

As at December 31, 2002, we serviced approximately 1.78 million
residential customers in our supply area. Demand from the residential sector
has increased in recent years. For 2002, residential customers accounted for
approximately 23% of our total sales. As the Government of Hong Kong has
forecasted that the population of Hong Kong will grow to 7.6 million by 2012,
it is estimated that over 50,000 new flats a year up to the year 2008 will be
built to help accommodate this forecasted increase in population. More than
90% of those new flats are expected to be built in our supply area which we
expect would increase the demand for electricity in this customer sector.

Infrastructure and Public Services

The other categories of Hong Kong customers include government accounts
and utilities, such as Hong Kong Housing Authority, Water Supplies Department,
Mass Transit Railway Corporation, Kowloon-Canton Railway Corporation, and Hong
Kongs telecommunications companies and container terminals. These categories
together accounted for approximately 24% of total sales for 2002. We expect
the demand from this customer sector including infrastructure projects
supported by the Government of Hong Kong to remain steady.

Sales to the Chinese Mainland

In addition to sales to customers in Hong Kong, we sold approximately 7%
of our electricity in 2002 to customers in Guangdong Province of China. We
sell electricity to the Chinese mainland mainly through an exclusive agreement
between CLP Power and China Merchants Steam Navigation Company covering the
Shekou Industrial Zone. This agreement was renewed in 1996 for a term of 20
years. Sales to the Chinese mainland have also been made pursuant to a
short-term agreement between CLP Power and Guangdong Guang-Dian Power Grid
Group Company Limited since May 2000.

We and CAPCO have entered into an agreement to govern the sale of
electricity by CAPCO to us for supply to the Chinese mainland. Such sales are
made to utilize CAPCOs spare generating capacity. Pursuant to the Scheme of
Control and another agreement among CLP Power, CAPCO and the Government of Hong
Kong, 20% of the profit derived from our sales to the Chinese mainland is
credited to the profit of CAPCO and CLP Power in the ratio of 60% and 40%
respectively. The remaining 80% of the profit is credited to the Development
Fund. See  Relationship with CAPCO  Sales to the Chinese Mainland above.

Customer Service

We have committed to providing quality service and value to our customers.
To this end, we have enhanced our customer communications through a Customer
Consultative Group, Local Customer Advisory Committees, customer focus groups
and reach out programmes. In meeting the needs of major commercial and
industrial customers, we provide customized services as well as commercially
viable technical advice on energy related solutions by conducting power quality
seminars and energy audits and working with customers to reduce local pollution
and save costs.

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In July 2002, our largest customer service center was opened in Tsim Sha
Tsui, a major business and commercial district in Kowloon. The center provides
core service applications and bill payments services, and offers a new range of
value-added customer services and facilities including cooking and other
interest classes and direct access to online services, as well as being a
showcase for energy efficient products and information.

We continue to provide high quality customer services through our enhanced
Customer Telephone Services operation and a revamped website for more
user-friendly information and features for customers. We also promote a
culture of service dedication among staff by means of training and recognition.
We have also begun upgrading our customer information system to an on-line,
user-friendly system with fully integrated processes.

Building on our achievements in 2001, we won an additional four awards in
the Hong Kong Association for Customer Service Excellence Awards in 2002.

Tariff Rates

We normally implement changes in basic tariff rates, fuel clause rebate or
charge and Scheme of Control rebate on January 1 of each year. The table below
sets out our average net tariffs by category of customers and by tariff
component for the years ended December 31, 2001 and 2002:



|                                 |  |                                 |      |                              |  |         |     |         |  |        |      |        |  |        |      |         |  |         |      |        |  |      |      |    |  |  |     |        |  |  |      |   |  |  |      |   |  |  |      | 
|-------------------------------- |  | ------------------------------- | ---- | ---------------------------- |  | ------- | --- | ------- |  | ------ | ---- | ------ |  | ------ | ---- | ------- |  | ------- | ---- | ------ |  | ---- | ---- | -- |  |  | --- | ------ |  |  | ---- | - |  |  | ---- | - |  |  | ---- | 
|                                 |  | Average Net Tariffs per kWh (1)
|                                
|                                 |  | Year ended December 31, 2001    |      | Year
ended December 31, 2002
|                                 |  |                                 |      |                             
|                                 |  |                                 |      |                              |  |         |     |         |  | Scheme |      |        |  |        |      |         |  |         |      |        |  |      |      |    |  |  |     | Scheme |  |  |      |   |  |  |      |  
|                                 |  |                                 |      |                              |  | Fuel    |     | of      |  |        |      |        |  |        |      |         |  |         |      |        |  | Fuel |      | of |  |  |     |        |  |  |      |  
|                                 |  | Basic                           |      | Clause                       |  | Control |     | Special |  | Net    |      | Basic  |  | Clause |      | Control |  | Special |      | Net   
|                                 |  | Tariff                          |      | Charge                       |  | Rebate  |     | Rebate  |  | Tariff |      | Tariff |  | Charge |      | Rebate  |  | Rebate  |      | Tariff
|                                 |  |                                 |      |                              |  |         |     |         |  |        |      |        |  |        |      |         |  |         |      |       
|                                 |  | (HK¢)                           |      | (HK¢)                        |  | (HK¢)   |     | (HK¢)   |  | (HK¢)  |      | (HK¢)  |  | (HK¢)  |      | (HK¢)   |  | (HK¢)   |      | (HK¢) 
|                                
|Residential                      |  |                                 | 91.2 |                              |  |         | 2.2 |         |  |        | (0.6 | )      |  |        | (2.2 | )       |  |         | 90.6 |        |  |      | 91.2 |    |  |  | 1.9 |        |  |  | (0.6 | ) |  |  | (2.2 | ) |  |  | 90.3 | 
|General Services                 |  |                                 | 97.0 |                              |  |         | 2.2 |         |  |        | (0.6 | )      |  |        | (2.2 | )       |  |         | 96.4 |        |  |      | 97.0 |    |  |  | 1.9 |        |  |  | (0.6 | ) |  |  | (2.2 | ) |  |  | 96.1 | 
|Bulk Tariff (time-of-use)        |  |                                 | 84.8 |                              |  |         | 2.2 |         |  |        | (0.6 | )      |  |        | (2.2 | )       |  |         | 84.2 |        |  |      | 84.6 |    |  |  | 1.9 |        |  |  | (0.6 | ) |  |  | (2.2 | ) |  |  | 83.7 | 
|Large Power (time-of-use)        |  |                                 | 72.6 |                              |  |         | 2.2 |         |  |        | (0.6 | )      |  |        | (2.2 | )       |  |         | 72.0 |        |  |      | 72.3 |    |  |  | 1.9 |        |  |  | (0.6 | ) |  |  | (2.2 | ) |  |  | 71.4 | 
|Large Power (Super Demand Rider) |  |                                 | 68.9 |                              |  |         | 2.2 |         |  |        | (0.6 | )      |  |        | (2.2 | )       |  |         | 68.3 |        |  |      | 68.4 |    |  |  | 1.9 |        |  |  | (0.6 | ) |  |  | (2.2 | ) |  |  | 67.5 | 
|Public Lighting                  |  |                                 | 76.7 |                              |  |         | 2.2 |         |  |        | (0.6 | )      |  |        | (2.2 | )       |  |         | 76.1 |        |  |      | 76.9 |    |  |  | 1.9 |        |  |  | (0.6 | ) |  |  | (2.2 | ) |  |  | 76.0 | 
|Total Local                      |  |                                 | 88.6 |                              |  |         | 2.2 |         |  |        | (0.6 | )      |  |        | (2.2 | )       |  |         | 88.0 |        |  |      | 88.5 |    |  |  | 1.9 |        |  |  | (0.6 | ) |  |  | (2.2 | ) |  |  | 87.6 | 



---

|(1) |  | Average Net Tariff for a class = (Total bill in $)/(Total kWh
consumption)
|--- |  | --------------------------------------------------------------------------

Published basic tariff rates did not change in 2002 and the change of the
above basic tariff figures were due to changes of consumption patterns.

We have announced a further freeze in basic tariffs for 2003, meaning that
the basic tariff rates remain at the 1998 levels. We also announced in
December 2002 a package of rebates resulting in an average tariff reduction of
3.7%. The package comprised a one-off rebate of HK¢1.5 per unit of electricity
consumed during 2002, with a minimum of HK$250 for each residential customer
and HK$700 for each non-residential customer. Furthermore, in May 2003, we
announced a special one-off rebate made to all local customers that is
equivalent to one half of their bill for electricity consumed in March 2003, up
to a maximum of HK$10,000 per non-residential account and HK$200 per
residential account.

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Competition

We and Hongkong Electric are currently Hong Kongs only suppliers of
electricity. Our and Hongkong Electrics supply areas are divided
geographically: Hongkong Electric supplies Hong Kong Island, Lamma Island and
Ap Lei Chau Island and we supply Kowloon, the New Territories, Lantau Island
and other outlying islands. We and Hongkong Electric share the sales of
electricity to Mass Transit Railway Corporation, which operates in both
companies supply areas. We are the only provider of electricity in our supply
area and hence have no competitors in transmission and distribution. We
believe that we are unlikely to have any competitor to supply electricity to
our supply area in the foreseeable future in light of the Scheme of Control,
which is scheduled to remain in effect until 2008. The Government of Hong Kong
may however consider adopting alternative regulatory structures for the power
industry in Hong Kong in the longer term. In November 1999, the Government of
Hong Kong published the findings of a consultancy study into the potential for
increasing interconnection capacity between the two electricity systems in Hong
Kong as well as the potential for introducing competition. Subsequent to the
consultancy study, the Government of Hong Kong appointed another consultant to
evaluate and establish a feasible route, if any, to install new additional
interconnectors between us and Hongkong Electric. On the subject of
alternative market structures, those consultants concluded that no major
reforms are advisable until 2009 at the earliest. They also acknowledged that
much would depend on whether the power industry in Southern China has been
sufficiently restructured to enable power producers located on the Chinese
mainland to participate in some form of power pooling arrangements.

The electricity-related operations of Hongkong Electric are governed by a
scheme of control similar to the one to which we are a party. These two
schemes of control are similar and do not give either us or Hongkong Electric
the exclusive right to supply electricity in our respective supply areas.
Nevertheless, we believe we have significant competitive advantage in Kowloon
and the New Territories by virtue of our extensive transmission and
distribution network.

Our principal competition is from alternative power and heating sources.
In the residential market, consumers may use piped or cylinder gas and oil for
space and water heating and cooking. A variety of high performance electrical
products may make inroads into the traditional cooking market, which is
currently dominated by gas. Though practical substitutes for electricity in
lighting and other traditional household appliances are rare, more severe
competition in domestic gas clothes drying and space heating may develop.

In the commercial market, electricity is the dominant energy source for
lighting, office equipment and air conditioning. Due to stringent
environmental pollution regulations, we expect some existing diesel oil
applications to be gradually phased out, which presents good opportunities for
their replacement by electricity or gas. Efficient electric cooking appliances
now being produced for the commercial sector provide an alternative to a market
previously dominated by gas. In the industrial market, currently there is no
practical substitute for electricity in a number of applications including
lighting and power for many types of industrial machinery and processes.

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Electricity Business in the Chinese Mainland

CLP Power China

CLP Power China Limited, a wholly owned subsidiary, is our principal
investment vehicle for power projects in the Chinese mainland and engages in
the acquisition, development and management of power generation facilities. We
were one of the first power companies from outside the Chinese mainland to
invest in the electricity industry in the Chinese mainland and are currently
the largest external investor in the Chinese mainland electricity industry.
Our successful track record of developing projects in the Chinese mainland
started in 1985 with our investment in Guangdong Nuclear Power Joint Venture
Company, Limited. We currently own 3,163 equity MW generating capacity in the
Chinese mainland, of which 2,296 equity MW are operational and 867 equity MW
being under construction.

Our overall business direction in the Chinese mainland is to build up a
meaningful and competitive presence in provincial and regional electricity
markets. The geographical focus for expanding our electricity business in the
Chinese mainland is in three strategic markets, namely (i) Guangdong Province,
including investments in generating assets in the western provinces for
eastward supply to Guangdong; (ii) North China area, including
Beijing-Tianjin-Tangshan area and Shandong Province where we have already
established a strong presence; and (iii) the East China region (including
Shanghai). In pursuit of this goal, we plan to continue to work with reputable
Chinese mainland parties jointly to pursue opportunities.

Investments in the Chinese Mainland

We have successfully developed a number of generation projects in the
Chinese mainland and have actively participated in the management of our joint
venture companies, including secondment of a number of staff to hold key
managerial positions, in order to add value to the joint ventures, deliver
satisfactory returns on the investments and meet safety, health and
environmental objectives.

Guangdong Nuclear Power Joint Venture Company, Limited

Guangdong Nuclear Power Joint Venture Company, Limited is 25% owned by us
and 75% owned by Guangdong Nuclear Investment Company, Limited. It was
established in 1985 to construct and operate Guangdong Daya Bay Nuclear Power
Station in Guangdong Province. The power station is the first large-scale
commercial nuclear power installation in the Chinese mainland.

Guangdong Daya Bay Nuclear Power Station is equipped with two 984MW
pressurized water reactors. The majority of the key equipment was imported
from France and the United Kingdom. Unit 1 and Unit 2 commenced commercial
operation in February and May 1994 respectively. The station continues to
operate smoothly with high levels of safety and reliability and received
accreditation to ISO14001, ISO9000 and OHSAS18000. It was also the first power
station to attain ISO14001 accreditation in the electric power industry in
China.

A total of 14,116GWh of electricity was sent out by Guangdong Daya Bay
Nuclear Power Station in 2002, as compared to 14,365GWh in 2001. The annual
station capacity factor was 86%. 70% of the electricity generated is supplied to Hong Kong with
the remaining 30% sold to Guangdong. See  Electricity Business in Hong Kong
 Non-CAPCO Power Purchases/Storage Facilities above.

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Hong Kong Pumped Storage Development Company, Limited

Hong Kong Pumped Storage Development Company, Limited is 49% owned by us
and 51% owned by ExxonMobil and has the right to use 50% of the 1,200MW pumped
storage capacity of Phase 1 of the Guangzhou Pumped Storage Power Station until
2034. In 2002, the pumped storage units generated 285GWh for us with an
overall efficiency above 75%, at a level similar to 2001. There were over
1,000 unit starts during the year to fulfill our system requirements, mainly
during peak lopping and back up operations. See  Electricity Business in
Hong Kong  Non-CAPCO Power Purchases/Storage Facilities above.

Shandong Zhonghua Power Company Limited

We own a 29.4% equity interest in Shandong Zhonghua Power Company Limited,
with the remaining interest owned by Shandong Electric Power Corporation
(36.6%), Shandong International Trust and Investment Corporation (14.4%) and
Electricite de France International S.A. (19.6%). Shandong Zhonghua Power
Company Limited was formed in 1997 to develop, own and operate four coal-fired
power stations with a total generating capacity of 3,000MW in Shandong
Province.

The project consists of two operating power stations, Shiheng I (2x300MW)
and Shiheng II (2x300MW), and two new power stations, Liaocheng (2x600MW) and
Heze II (2x300MW). The operation of the plants is outsourced to Shandong
Electric Power Corporation through an operation and offtake contract. The
construction was contracted to Shandong Electric Power Corporation through a
consortium formed by the four project sponsors.

Shiheng Power Stations (Phases 1 and 2) were awarded International First
Class Power Station by the State Power Corporation of China in 2002, one of
the only two power stations in China to win such an award. The stations have
also achieved the accreditation to ISO14001, ISO9001 and OHSAS18000. As part
of the water resources conservation, the stations have completed a waste
water-recycling scheme, which significantly reduces discharges while improving
the station economics.

As for the new stations, Unit 1 of Heze II has passed the performance test
and entered into commercial operation in February 2003 while Heze II Unit 2 is
undergoing performance and environmental tests. Liaocheng Unit 1 completed
168-hour reliability test and is being prepared for performance test. All
construction works progressed well, meeting the quality requirements, within
budget and ahead of schedule. It is expected that the remaining units will
come on stream in turn in the next 18 months. Unlike Shiheng where the major
equipment was locally manufactured, the two new stations use foreign equipment,
reflecting the need for large boilers capable of using low volatile anthracite
from the local mines.

Electricity output from the operating power stations is sold to the
Shandong power grid and amounted to 6,495GWh in 2002 (as compared to 6,346GWh
in 2001), which was 4.7% higher than the annual electricity generation quantity stipulated in the
power purchase agreement relating to this project.

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Huaiji Hydroelectric Power Project

We own a 41.5% equity interest in the Huaiji hydroelectric power joint
ventures which were formed in 1997 and 1998 respectively, with the remaining
8.5% owned by Sun Hung Kai China Development Fund Limited and 50.0% owned by
Huaiji County Huilian Hydroelectric (Group) Co. Limited. This project is
located in Huaiji County in northwestern Guangdong Province and involves
building, owning and operating nine small-scale power stations with a total
installed capacity of 98MW. They are cascading hydro power stations installed
along two river streams. Eight of the power stations are operational and one
is under construction. The power is sold to the power grids of Huaiji County
and Guangdong Province. The collection of electricity charges from the
offtaker continues to be slow and requires our intense monitoring.

CLP Guohua Power Company Limited

CLP Guohua Power Company Limited, or CLP Guohua, was established in
January 2001 as an evergreen joint stock company and is 49% owned by us and 51%
owned by Beijing Guohua Electric Power Corporation, or Beijing Guohua, a wholly
owned subsidiary of the Shenhua Group. CLP Guohua holds interests in three
coal-fired power stations, namely Beijing Yire Power Station in Beijing,
Panshan Power Station in Tianjin and Sanhe Power Station in Hebei, with a
combined generating capacity of 2,100MW in the Beijing-Tianjin-Tangshan area,
of which it owns 1,285 equity MW. This project extends our geographical
presence into the North China market.

Beijing Yire Power Station has two 200MW coal-fired units. It is wholly
owned by CLP Guohua and located in Chaoyang District to the east of Tiananmen,
Beijing. The station commenced operation in 1999 and supplies heat as well as
electricity to Beijing city. In view of its proximity to the heart of Beijing,
efforts have been made, since its operation, to continuously enhance
environmental protection to minimize the impact on the environment in Beijing.
The station has one unit equipped with a flue gas desulphurisation facility,
with another one on the second unit now under construction which is expected to
be completed by the end of 2003.

Sanhe Power Station has two 350MW coal-fired units and is owned by three
parties with CLP Guohua holding a majority interest of 55%. The station is
located in the Yanjiao Economic and Technology Development Zone of Heibei at
the junction of Beijing and Tianjin. It began operation in 2000 and has been
operating with high availability and reliability.

Similar to Sanhe, Panshan Power Station is owned by three parties with CLP
Guohua holding an interest of 50%. The station owns two 500MW coal-fired units
and began operation in 1996. It formed part of an economic cooperation scheme
between China and the former Soviet Union which supplied the major equipment,
including the turbines and boilers.

The three power stations have already been rated under South Africas
National Occupational Safety Association, or NOSA, 5 Star Safety Management
System, with Panshan and Sanhe Power Stations achieved three stars in the NOSA
safety audit whilst Beijing Yire Power Station achieved two stars. They are
also committed to continuous environmental improvement and have obtained full accreditation to ISO14001. As part of
the water resources conservation programme, both Beijing Yire and Panshan Power
Stations have separately completed a waste water-recycling scheme which
significantly reduces discharges as well as improves the station economics.
Panshan Power Station has also received the Chinese mainland National First
Class Power Station Award.

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All three stations sell their power to the North China power grid. The
total electricity sold by the three power stations in 2002 was 10,406GWh. Heat
sales totaled 7.7 million gigajoules. Regular tariffs have been approved and
implemented in all three power stations.

CLP Guohua Shenmu Power Company Limited

We acquired a 49% equity interest in CLP Guohua Shenmu Power Company
Limited in November 2001, with the remaining 51% equity interest owned by
Beijing Guohua. The joint venture owns and operates a coal-fired power
station, namely Shenmu II Power Station, with a generating capacity of 200MW in
Shaanxi Province. The power station is located in northern Shaanxi, adjacent
to Inner Mongolia and is a mine-mouth power station supplying electricity to
the Shaanxi power grid. It entered into commercial operation in 2000.

Shenmu II Power Station has completed its base-line audit under the NOSA 5
Star Safety Management System with a plan to start the star grading audit in
2003. In late 2002, the station obtained ISO14001 accreditation.

The station achieved availability of 94% in 2002. Sale of electricity was
1,298GWh for 2002 with a capacity factor over 80%. The station operated under
a temporary tariff until December 2002 and has implemented regular tariff since
January 2003.

Guizhou CLP Power Company Limited

Guizhou CLP Power Company Limited, or Guizhou CLP Power, was formed
between us (70%), Guizhou Electric Power Corporation (18%) and Guizhou
Infrastructure Investment Company (12%) in September 2002 for a term of 30
years. Guizhou CLP Power is to build and operate a coal-fired power station,
Anshun II Power Station, with a generating capacity of 2x300MW in Guizhou. The
power station will support the increasing demand for electricity in Guizhou and
the provincial governments obligation to deliver electricity to Guangdong
under the West-to-East Electricity Delivery Project. This is the first power
project in the Chinese mainland in which we hold a majority share. Under the
joint venture agreement, however, none of the partners has unilateral control
over the economic activity of Guizhou CLP Power.

Anshun II Power Station is now under construction and its design features
environmental-friendly flue gas desulphurisation facilities. Construction is
progressing well ahead of schedule and the first unit has now completed its
reliability test. Commercial operation is scheduled in March 2004 for Unit 1
and November 2004 for Unit 2. The overall construction contract is being
undertaken by Guizhou Electric Power Corporation.

The power station represents the expansion phase of Anshun I (also
2x300MW) and is developed as an integral part of the whole Anshun power
station. Both Anshun Power Stations I and II will be operated as one power
station using the existing operating crew of Anshun I Power Station. A joint operation representative committee will be set up by us
and other parties to monitor the operation and maintenance activities, make
decisions on major operational matters and ensure smooth coordination between
the two phases and enhance performance. We will assign senior staff to the
station to ensure that our rights and interests will be duly protected.

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Guizhou Electric Power Corporation will be the electricity offtaker for
Anshun II Power Station, as it is currently the sole wholesale electricity
offtaker of the Guizhou power grid. The power purchase agreement provides that
the annual electricity offtake will be based on similar plants in Guizhou
Province and that the annual electricity tariff should not be lower than the
previous years tariff for similar plants in Guizhou Province.

Competitive Environment and Regulatory Issues

The economy and the electricity market in the Chinese mainland grew
strongly during 2002. Electricity demand increased by 10.5% in 2002 and demand
growth is expected to continue in the coming years.

A structural reform is being implemented in the Chinese mainland power
industry, involving corporatisation by separating government functions from
business activities, separation of grid assets from generation assets and
break-up of the State Power Corporation to form five national generating
companies and two grid companies and eventual deregulation. As part of the
power sector reform, the State Council of China has also approved the
establishment of a power industry regulatory body, the China Electricity
Regulatory Commission, or CERC. While full details of the functions and
institutional structure of CERC have yet to be released, the establishment of
CERC signifies governments efforts to better regulate the power industry
following the break-up of the State Power Corporation.

The power sector reform in the Chinese mainland has created increased
risks and uncertainties for private investors in China. The break-up of the
State Power Corporation will lead to increasing competition between the newly
created five national generating companies and other independent power
producers such as us. There has also been considerable downward pressure on
electricity tariffs paid to generating companies, and it is likely that some
form of more transparent pricing will gradually replace the current tariff
setting mechanism. The regulatory environment in the Chinese mainland will
gradually become more open and transparent to create a level playing field for
all market participants, both local and foreign. We will closely monitor the
progress of the reform and the changing market conditions in the Chinese
mainland.

Electricity Business in Other Asia-Pacific Countries

CLP Power International

CLP Power International Limited, another wholly owned subsidiary, is our
development and investment arm for the Asia-Pacific region outside Hong Kong
and the Chinese mainland. We have established a significant presence in the
private sector power industry in a number of countries in the Asia-Pacific
region, notably Australia, India, Taiwan and Thailand. After the completion of
acquiring Powergen UK plcs, or Powergens, remaining
interest in Gujarat Paguthan Energy Corporation Private Limited in June 2003, we now own
operational assets of 3,073 equity MW in the Asia-Pacific region outside Hong
Kong and the Chinese mainland.

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We aim to become the leading international private sector power company in
the Asia-Pacific region. This will be done through (i) developing effective
investment partnerships and establishing a meaningful presence in each of our
target markets; and (ii) building a balanced portfolio across our selected
Asia-Pacific countries, with a suitable mix of plant and fuels and a
combination of operating assets, projects under construction and a pipeline of
development projects.

Investments in the Asia-Pacific
Region outside Hong Kong and the Chinese Mainland

We have substantially boosted our asset portfolio in the Asia-Pacific
region outside Hong Kong and the Chinese mainland through the acquisitions of
Powergens electricity generating assets and development projects since late
2000. The acquisitions have helped us gain a foothold in the Australian power
market and have substantially strengthened our position in India. We now have
interests in power assets in Australia, India, Taiwan, Thailand and Malaysia as
well as a development project in Thailand.

Yallourn Energy Pty Limited, Australia

As at December 31, 2002, we held an 80% interest in two joint venture
companies, CLP Power (Yallourn) Sdn Bhd (formerly known as CLP Powergen Sdn
Bhd) and CLP Power (Yallourn) Funding Limited (formerly known as CLP Powergen
Funding Limited), with the remaining 20% held by Powergen. In February 2001,
these joint venture companies completed the acquisition of a 92% interest in
Yallourn Energy Pty Limited, or Yallourn Energy, which owns and operates a
1,450MW coal-fired plant and dedicated coal mine in Victoria, Australia.
AusPower Holdings Pty Limited, or AusPower, is the immediate holding company of
Yallourn Energy. In April 2003, we completed the acquisition of Powergens
remaining 20% interest in the two joint venture companies, and we now own an
effective equity interest of 92% in Yallourn Energy.

Yallourn Energy has four generating units. The first two units, each
rated at 350MW, commenced operation in 1974 and 1975 whilst the second two
units, each rated at 375MW, commenced operation in 1981 and 1982. The captive
brown coal mine is within the Yallourn Energy site and with operations
integrated with the power station. In 2002, Yallourn Energy completed the
process of contracting out its mine operations and maintenance activities,
which has been a strategic objective aimed at improving the performance of the
asset. At the same time, considerable progress was made in the introduction of
new mining technology and in the plans to extend the life of the mine. The
original control and instrumentation equipment of the power plant is also being
replaced and upgraded. Yallourn Energy is a low cost power producer within the
National Electricity Market, or NEM, of Australia.

Yallourn Energy operates as a merchant plant in the NEM and bids its
output into the pool. It negotiates a range of hedging contracts with various
counterparties in order to provide volume and price stability such that around
85% to 90% of its expected generation output is protected against pool volatility. The following four market channels
reflect its hedged position and the residual pool exposure:

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| |  |  | relationship contracts with electricity retailers, whereby
there is a shared risk and benefit of end market pricing but full
cost recovery;                                                                                
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | direct retail sales through AusPower by way of contracts of
typically 2 to 5-year duration with relatively large customers, and
at a price that reflects the wholesale market together with a cost
margin and risk premium;
|
| |  |  | wholesale market, being a combination of traditional hedges
and a small volume of trading; and                                                                                                                             
|
| |  |  | direct exposure to the pool to provide potential upside
during price peaks, reducing the cost of availability risk
management and as an additional source of market intelligence.                                          

In 2002, a number of initiatives (including clearer divisions between
front, middle and back offices; enhanced reporting; clear trading rules; and
active compliance monitoring) were implemented to strengthen the risk
management function for trading and marketing.

Annual load in the NEM is forecasted to increase by approximately 2% each
year between 2003 and 2007 with maximum demand forecast to increase by
approximately 3%. However, we forecast that prices will continue to soften due
to an oversupply in Victoria and South Australia, an excess of new generation
in Queensland and additional volumes available between regions through
interconnection projects.

Yallourn Energy is exposed to risks associated with the industrial
relations situation prevailing in Australia. In December 2001, there was a
strike in Yallourn Energy, which led to a shut down of the power station.
However, the strike was over before the end of December 2001. All Yallourn
Energy employees are now covered either by an MX award determined by the
Australian Industrial Relations Commission which will expire in 2004 or by
personal contracts of employment. Management at Yallourn Energy is currently
focused on delivering a cultural change programme aimed at creating an
alignment of interest between Yallourn Energy and its employees.

Management at Yallourn Energy is also committed to the highest standards
of safety and environmental protection and the Board of AusPower has
established a sub-committee to supervise these activities. Yallourn Energys
key achievements include National Safety Council Australia five-star
recognition; periods of over one year with no lost time injuries; Royal Society
for Prevention of Accidents Gold Awards; Computational Solutions Incorporated
Reliability Based Maintenance (USA) excellence award; and ISO14001
accreditation.

Gujarat Paguthan Energy Corporation Private Limited, India

On February 20, 2002, we acquired an 80% interest in a newly formed joint
venture company (with the remaining 20% held by Powergen) which as at December
31, 2002 held a 100% equity interest in Gujarat Paguthan Energy Corporation
Private Limited, or GPEC. GPEC owns a 655MW combined cycle power station in
Gujarat, India. The plant was commissioned in open cycle in October 1997 and
combined cycle in December 1998. It is dual-fuel fired using natural gas or naphtha. In June 2003, we acquired Powergens remaining
interest in the joint venture company. As a result, we currently own an
effective interest of 100% in GPEC.

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Operation of this power station was restricted for some time in 2002 due
to a shortfall in the supply of natural gas. Naphtha was available but the
cost was significantly higher than for operation on gas. GPEC did, however,
secure a new gas supply, which has enabled the plant to operate efficiently to
meet the Gujarat system requirements.

GPEC entered into a 20-year power purchase agreement with the state-owned
Gujarat Electricity Board, or GEB, to sell all of its output to GEB commencing
1998. The power purchase agreement between GPEC and GEB enables GPEC to
recover its fixed costs and profit irrespective of the availability of fuel and
the level of dispatch from GEB. Despite this arrangement, GPEC aims to deliver
electricity to GEB at a reasonable price through maximum usage of natural gas
and reductions in pass-through costs. The sales in 2002 decreased as compared
to 2001 as only naphtha was available for most of the time which made our
electricity very expensive and the plant had run only when required.

Our challenge in GPEC is to manage receivables. GEB continues to have
difficulty in making timely payment to GPEC for electricity and has disputed a
portion of these payments. GPEC has obtained payment for some of its
receivables from GEB through bill discounting with recourse and there is no
recourse to us beyond GPEC from these arrangements. Nevertheless, the position
on overdue and disputed receivables remains a concern and is being actively
pursued with GEB.

GPEC has achieved an exceptionally high standard of safety and
environmental protection. It was awarded the Royal Society for the Prevention
of Accidents Gold Awards for safety each year from 2000 to 2002. It has also
maintained a zero incident frequency rate for more than 1,500 days and has
established a benchmark for safety management in the power generation sector in
India. On environmental management, GPEC has been accredited ISO14001
certification for the past several years.

Ho-Ping Power Company and Ho-Ping Power Services Corporation, Taiwan

Ho-Ping Power Company, or Ho-Ping, and Ho-Ping Power Services Corporation
are two joint venture companies formed between us (40%) and Taiwan Cement
Corporation (60%). Ho-Ping, formed in 1997, has constructed and owns a 1,320MW
coal-fired power station and an associated 53km of 345kV transmission line at
Ho-Ping City in eastern Taiwan. Ho-Ping Power Services Corporation was
established in 2000 to manage the operations and maintenance of the two units
under a contract with Ho-Ping.

Ho-Ping achieved commercial operation of the power station on schedule and
within budget, with Unit 1 and Unit 2 commencing operation in June and
September 2002 respectively. Coal is procured internationally from Australia,
Indonesia, South Africa and China, largely through long-term coal supply
contracts. The station has established a Safety, Health and Environmental
Protection Committee comprising management and staff representatives at various
levels to devise and implement the various initiatives in relation to safety,
health and environment. The plant has been tested to comply with the emission
limits. The reliability of the monitoring equipment needs to be improved but there is presently no
major problem with controlling the plant emissions.

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Ho-Ping sells all output to Taiwan Power Company, or Taipower, the
government-owned utility of Taiwan, under a 25-year power purchase agreement
commencing in 2002. The power purchase agreement enables Ho-Ping to recover
its fixed costs and generate profits if it achieves a certain availability
level during periods defined as guaranteed days and guaranteed hours. For
periods not within those guaranteed days and hours, Ho-Ping may be dispatched
by Taipower, but no penalty will be imposed by Taipower if Ho-Ping cannot
provide power at these times.

Our key objectives of investing in Ho-Ping are to maximize the long-term
profit of Ho-Ping and to achieve this in full compliance with environmental and
safety requirements. As the two units in Ho-Ping have recently been
commissioned, the main thrust of management effort will be directed towards
risk mitigation, rectification of outstanding technical problems and continuous
training and retention of operation and maintenance staff. With our extensive
experience in constructing and operating power plants, we have seconded our
staff to key positions in Ho-Ping and provided a range of supports in areas
including asset management, engineering and commercial operations.

Electricity Generating Public Company Limited, Thailand

Electricity Generating Public Company Limited, or EGCO, is incorporated
and listed in Thailand. It is 22.4% owned by us and 25.4% owned by the
Electricity Generating Authority of Thailand, or EGAT. Its principal activity
is the generation of electricity for supply to EGAT under 20-year power
purchase agreements commencing in 1994 and 1996 respectively. EGCO owns and
operates two natural gas-fired power stations with a total generating capacity
of 2,056MW in Thailand. It has also invested in a number of small power
projects in Thailand and the Philippines, totaling 151 equity MW.

In 2000, we reviewed the carrying value of our investment in EGCO. The
review focused on the investment fundamentals and took into consideration a
change in government policy on the privatization of the assets of EGAT as well
as slower growth of electricity demand in Thailand. In reflecting the fair
value of the investment, we wrote off HK$900 million of the unamortized
goodwill in 2000 as an impairment loss. In 2002, we reviewed the carrying
value of EGCO again and, based on value in use, we concluded that no additional
impairment is required for this investment.

The performance of this investment remains unsatisfactory, as we believe
EGCOs share price remains below its fair value. Our four nominees on the
EGCOs 13-member Board continue to make an active contribution to the strategic
direction of EGCOs affairs, with a view to enhancing EGCOs performance and
return to shareholders.

BLCP Power Limited, Thailand

As at December 31, 2002, we held an 80% interest in CLP Power (BLCP)
Limited (formerly known as CLP Powergen Southeast Asia Limited), with the
remaining 20% owned by Powergen. CLP Power (BLCP) Limited acquired a 50%
interest in BLCP Power Limited, or BLCP, in Thailand in December 2001. BLCP is
the developer of a 1,434MW (2x717MW) coal-fired power project at Map Ta Phut, Thailand. The project is under
development and its financing arrangement is expected to be finalized in the
second half of 2003. Upon commencement of commercial operation of the two
units which is expected to occur in 2006 and 2007 respectively, all power
generated is to be supplied to EGAT under a 25-year power purchase agreement.

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In January 2003, we acquired Powergens remaining interest in the joint
venture company, resulting in owning a total interest of 50% in BLCP, which is
being developed in partnership with Banpu Coal Power Limited.

YTL Power International Berhad, Malaysia

We have a 5% interest in YTL Power International Berhad, or YTL Power, a
listed company in Malaysia. YTL Powers principal activity is the generation
of electricity for supply to Tenaga Nasional Berhad, the government-owned
utility of Malaysia, under a 21-year power purchase agreement commencing in
1994. YTL Power owns and operates two gas-fired combined cycle power stations
with a total generating capacity of 1,212MW in Malaysia.

When we made our investment in YTL Power in 1999, we expected to
participate in the anticipated privatization or opening up of the electricity
generating market in Malaysia in the future. The 3-year period during which we
have agreed not to sell our shareholding in YTL Power expired in 2002. In the
absence of any movement towards privatization of the Malaysian power industry,
we are reviewing the strategic rationale of our shareholding in YTL Power.

Electricity-Related Activities in Hong Kong and the Chinese Mainland

We explore opportunities in Hong Kong and the Chinese mainland to develop
electricity-related activities by making use of our existing assets and
expertise. These activities are carried out on a limited and selected basis as
our overriding focus is on our electricity businesses.

Property Development

Our non-Scheme of Control property development is managed by our wholly
owned subsidiary, CLP Properties Limited, or CLP Property. The objective of
CLP Property is to redevelop sites in Hong Kong which are no longer required
for electricity purposes. We do not acquire land and buildings for
redevelopment.

Our major property project is the residential redevelopment of a former
power station at Hok Un, now named Laguna Verde. This 50/50 joint venture
project, led by CLP Property and a wholly owned subsidiary of Cheung Kong
(Holdings) Limited, comprises 4,735 flats, 1,692 parking spaces and 270,000 sq.
ft. of commercial space. Over 90% of the residential units in the
redevelopment had been sold by December 2002.

In addition, we sold a former staff quarters site in Ho Man Tin Hill to a
property developer for HK$410 million (US$53 million) in 2002. We also
received approval from the Government of Hong Kong to redevelop our Head Office
site at Argyle Street but there is no immediate plan for redevelopment.

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Public Lighting and Engineering Services

Through our wholly owned subsidiary, CLP Engineering Limited, we offer
contracting and consultancy services in power engineering, telecommunications,
building services, energy services, road lighting and facility management for
customers in Hong Kong and the neighboring areas.

We have built a strong presence in transmission and distribution projects
and are considered as a reliable, high quality and competitive contractor with
capability in the full range of substation and cable projects including design,
supply, installation, refurbishment and maintenance services. Contracting
services to major developers and government departments such as Water Supplies
Department and Electrical and Mechanical Services Department will also be
explored. A four-year Management, Operation and Maintenance Contract for the
design, supply, installation, maintenance and operation of the public lighting
system in Kowloon and the New Territories East has been secured, commencing
from October 2002. This will position us to take a more active part in private
road lighting. With the award of a three-year maintenance contract of
electrical services in buildings from Hong Kong Airport Authority, we made a
good start in facility management.

The economic fundamentals in Hong Kong remain weak and competition in the
contracting business is expected to be high. We are developing more
consultancy business and exploring businesses with new technology that can give
us a better edge and higher profit margins.

Telecommunications

CLP Telecommunications Limited, our wholly owned subsidiary, launched a
new retail brand Oxygen in 2001 and started the marketing of narrowband and
broadband Internet access services. In June 2001, we were awarded an External
Fixed Telecommunications Network Services Licence, referred to as ChinaLink,
by the Government of Hong Kong, which allows us to offer highly secure network
service between Hong Kong and the Chinese mainland.

In 2001, we faced extremely challenging market conditions including heavy
competition and declining margins in the telecommunications industry in Hong
Kong. Year 2002 has also been another difficult year for telecommunications
business. Following a strategic review of our business model, in light of
competitive market conditions, we partnered with Cheung Kong Enterprises
Limited to launch a new broadband service using powerline carrier technology in
2002. Our retail telecommunications operations carried on under the Oxygen
brand were transferred into this new joint venture, PowerCom Network Hong Kong
Limited, in which we own a 19% interest.

The ChinaLink cross-border network services business has been growing
steadily after market consolidation and recovery in 2002. We expect to work
with strategic partners in Hong Kong and the Chinese mainland to provide
quality and competitive network services to the service provider and corporate
markets.

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Information Technology

In 2001, we, through CLP Enterprises Limited, our wholly owned subsidiary,
acquired a 27.3% interest in Precision Marketing Inc., or PMI, a market
research company which provides us with access to database management skills
and technology. In 2002, we increased our shareholding in PMI to 40% at a
nominal price with the purpose of tightening the control over the use of our
invested funds. Our investment objective in PMI is currently under review.

In early January 2002, we set up CLP IT Solutions Limited and its two
subsidiaries (namely DataMetro Limited and CLP DataStorage Limited) under CLP
Enterprises Limited to explore information technology, or IT, services business
opportunities in Hong Kong and the Chinese mainland, by using our IT expertise.
DataMetro Limited was formed with a focus on IT operations and management
services which make use of our accumulated expertise in SAP Enterprises
Resources Planning Application support. CLP DataStorage Limited, through
partnership with a Taiwanese company named StorageBank Inc., was formed to
focus on data storage and disaster recovery services.

We made a minor strategic investment of a 5.23% interest in DataSys
Technology Holdings Limited, a Chinese mainland IT company listed on the Growth
Enterprises Market of the Stock Exchange of Hong Kong, in June 2002 as a means
of expanding services in the Chinese mainland over the longer term.

Research and Development

The primary efforts of our research and development activities, which are
led by our wholly owned subsidiary CLP Research Institute Limited, centered on
three topics: (a) environmental policy, (b) sustainable development and (c)
renewable energy.

In 2002, we reviewed and reported on international environmental practices
in the electric power sector, and engaged staff throughout the CLP Group in
discussion and analysis of the essential elements of our environmental policy.

Sustainable development has become a prominent theme in government,
academic, and business communities, notably in the electric power sector and in
the communities served by us. We sponsored stakeholder engagement in the
community and other forms of outreach to academic, business, and professional
audiences, on the topic of sustainable development. Our efforts were aimed at
developing an understanding of how we can contribute to sustainability,
providing economic value, supporting social development, and practicing
environmental stewardship throughout our business activities.

We have also conducted studies on the applications of renewable energy for
electric power generation in Hong Kong. In 2002, we studied the performance of
the hybrid renewable energy system on the island of Shek Kwu Chau. Progress
was also made towards the side-by-side comparison study of the performance of
different photovoltaic panels at the Ma Wan School, jointly sponsored by us and
the Hong Kong Innovation and Technology Fund.

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C. Organizational Structure

Please
see  A. History and Development of the Company above for our
corporate structure immediately before and after our corporate restructuring in
1998. The table below sets forth for each of our principal subsidiaries, the
name, year and country of incorporation and our percentage holding and
principal activities as of December 31, 2002.

|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|-------------------------------------------- |  | ------------- | ---- | --------------- |  | ------------------------------------------------------ |  | -------------------- | --- | - |  | ------------------------------------
|                                             |  |               |      |                 |  | Place of                                               |  | Our                  |     |  
|                                             |  | Year of       |      | Incorporation / |  | Percentage                                             |  |                     
|                                             |  | Incorporation |      | Operation       |  | Holding                                                |  | Principal Activities
|                                             |  |               |      |                 |  |                                                        |  |                     
|CLP Power Hong Kong Limited                  |  |               | 1918 |                 |  | Hong Kong                                              |  |                      | 100 | % |  | Generation and
supply of
electricity
|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|Hong Kong Nuclear Investment
Company Limited |  |               | 1983 |                 |  | Hong Kong /
Chinese
mainland                           |  |                      | 100 | % |  | Power project
investment holding    
|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|CLP Engineering Limited                      |  |               | 1985 |                 |  | Hong Kong                                              |  |                      | 100 | % |  | Engineering services                
|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|CLP Power China Limited                      |  |               | 1998 |                 |  | British Virgin
Islands /
Chinese mainland              |  |                      | 100 | % |  | Power projects
investment holding   
|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|CLP Power International Limited              |  |               | 1996 |                 |  | British Virgin
Islands /
International                 |  |                      | 100 | % |  | Power projects
investment holding   
|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|CLP Properties Limited                       |  |               | 1989 |                 |  | Hong Kong                                              |  |                      | 100 | % |  | Property investment
holding         
|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|CLP Telecommunications Limited               |  |               | 1994 |                 |  | Hong Kong                                              |  |                      | 100 | % |  | Telecommunications
business         
|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|CLP Enterprises Limited                      |  |               | 2000 |                 |  | British Virgin
Islands /Hong Kong and
Chinese mainland |  |                      | 100 | % |  | Energy-related
investment holding   
|                                             |  |               |      |                 |  |                                                        |  |                      |     |   |  |                                     
|CLP Research Institute Limited               |  |               | 2000 |                 |  | British Virgin
Islands /Hong Kong                      |  |                      | 100 | % |  | Research and
development            

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D. Property, Plant and Equipment

Our fixed assets consist mainly of CLP Powers transmission and
distribution equipment and facilities in Hong Kong. As discussed in
 B. Business Overview  Electricity Business in Hong Kong  Relationship with
CAPCO above, we do not directly own generation facilities. As of December 31,
2002, the net book value of our fixed assets was HK$36,550 million (US$4,687
million) of which HK$29,990 million (US$3,846 million) represented plant,
machinery and equipment and HK$6,560 million (US$841 million) represented land
and buildings. We invested HK$4,935 million (US$633 million) in fixed assets
in 2002, of which HK$4,923 million (US$631 million) was invested by CLP Power
for the Scheme of Control business.

Land is held under lease from the Government of Hong Kong and many of our
land leases are either long-term or containing an automatic right to renew for
a specified fixed term. As at December 31, 2002, the aggregate net book value
of our leased land held in Hong Kong was HK$2,157 million (US$277 million), of
which HK$176 million (US$22 million) represented land with an unexpired lease
period of over 50 years, HK$1,979 million (US$254 million) expiring between 10
and 50 years and HK$2 million (US$0.3 million) expiring in less than 10 years.

Our investments, principally the electricity business in the Chinese
mainland and other Asia-Pacific countries as well as in CAPCO, are accounted
for as our interests in the jointly-controlled entities, associated companies,
investment securities and other investments in 2002. As of December 31, 2002,
these interests amounted to HK$21,261 million (US$2,727 million), of which
HK$19,965 million (US$2,560 million) was in the electricity business.
Geographically, our interests in the affiliates engaging in the electricity
business included HK$8,528 million (US$1,094 million) in the Asia-Pacific
region excluding Hong Kong and the Chinese mainland,
HK$6,328 million (US$811 million)
in the Chinese mainland and HK$5,109 million (US$655 million) in Hong Kong.

Capital Investment Programme

Scheme of Control Business

Our current financial plan, under the Scheme of Control, was approved by
the Hong Kong Executive Council in May 2000. The plan covers the period from
October 1999 to December 2004 and includes, among other matters, estimated
operating and capital expenditures, projected level of Development Fund and
projected basic tariff rates. The projected capital expenditure of HK$30
billion is mainly required for improving reliability and quality of supply to
customers through prudent investments in transmission and distribution
facilities and generating assets.

In 2002, we invested HK$4,923 million (US$631 million) in fixed assets,
compared to HK$4,580 million in 2001. Capital expenditure incurred by CAPCO
was HK$938 million (US$120 million) in 2002, compared to HK$592 million in
2001. A total of HK$5,861 million (US$751 million) capital expenditure was
made by us and CAPCO combined in 2002.

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We reached an agreement with the Government of Hong Kong in December 1999
to defer the installation and commissioning of Units 7 and 8 of the Black Point
Power Station by five years, and hence the commissioning dates for those units
are expected to be 2005 and 2006 respectively. Following the agreement to
defer Units 7 and 8 of the Black Point Power Station, we and CAPCO agreed to
forgo the permitted return on the outstanding deferral premium of HK$803
million arising from the delayed commissioning of the units. The deferral
premium is a contractual obligation that corresponds to additional costs
incurred by the vendors for delayed delivery of the two generator units. We
and the Government of Hong Kong agreed that we set aside a total of HK$803
million from the Development Fund to a special provision account to pay for the
outstanding deferral premium.

With the slowdown in growth in overall electricity demand and the adequate
level of our existing generating capacity, the emphasis of our current
financial plan is on investments in transmission and distribution systems,
which are forecasted to constitute 70% of our capital expenditure through 2004.
The purpose of these investments is to address the demand created by new
towns, rail and infrastructure development projects in our supply area, as well
as to upgrade our existing network to further enhance supply quality and
reliability. Major projects currently under implementation include 132kV
supply network reinforcement to Tseung Kwan O, Sai Kung, Yuen Long and Tin Shui
Wai areas, substation reinforcement to Sham Shui Po, Kwun Tong and Tsuen Wan
areas, and five infeed substations to the railway systems. In addition, two
400kV cable circuits are planned for 2004 to reinforce the 400kV system. Also,
design and engineering activities are underway regarding approximately 60
transmission development projects due for commissioning over the next several
years.

Non-Scheme of Control Business

We made a number of acquisitions in 2002, including (a) an 80% interest in
GPEC for a total consideration of HK$2,249 million (US$288 million); (b) a 70%
interest in Guizhou CLP Power with an initial capital contribution of HK$145
million (US$19 million) and (c) a 19% interest in PowerCom Hong Kong Limited
for a cash consideration of HK$100 million (US$13 million) and an injection of
assets with a net book value of HK$57 million (US$7 million). In 2002, we also
paid our final capital contribution of HK$136 million (US$17 million) to
Ho-Ping and made net shareholders advances of HK$588 million (US$75 million)
to CAPCO.

In respect of our investment in Guizhou CLP Power, we are required to
contribute share capital of approximately HK$414 million. The remainder of the
share capital of HK$269 million will be paid by installments up to March 2004.

Under a Sales and Purchase Agreement executed in November 2002, we are
committed to pay a total consideration of HK$897 million to acquire from
Powergens remaining interests in GPEC, Yallourn Energy and BLCP. The
acquisitions were completed by June 2003.

The pursuit of investment opportunities in the non-Scheme of Control
business will depend on those opportunities which meet our investment criteria.
We finance those opportunities by using our internal resources and/or
additional borrowings.

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Environmental Matters

Our operations are subject to a number of laws and regulations relating to
environmental protection and safety. We believe both CLP Power and CAPCO
maintain full compliance with environmental licence requirements in all
material respects. Our major operating business groups, including generation,
power systems and marketing and customer services, continue to be accredited
with ISO14001 certification. In addition, the fuel diversification strategy
featured by the use of a natural gas combined cycle generation and the purchase
of nuclear electricity has resulted in significant reductions in air emissions
over the past decade.

Furthermore, we have introduced a new green substation design and
environmentally friendly cable laying technology in our network development
projects in Hong Kong and have also adopted a new approach on managing
vegetation in the vicinity of our power system grid to enhance safety, system
reliability and environmental friendliness.

To align with international best practices, many of our joint venture
power stations were accredited ISO14001 certification. Operating units, such
as Yallourn Energy in Australia and GPEC in India, have been accredited
ISO14001 certification for some years. The newly ISO14001 accredited power
stations include Shiheng Power Stations I and II, Beijing Yire Power Station,
Sanhe Power Station, Panshan Power Station and Shenmu II Power Station in the
Chinese mainland.

New initiatives launched by our joint venture companies outside Hong Kong
to minimize emissions included installation at Ho-Ping Power Station in Taiwan
of flue gas desulphurisation and selective catalytic reduction at the two
generating units, and successful commissioning at Beijing Yire Power Station in
the Chinese mainland of a flue gas desulphurisation plant on one of its
generating units, with a sulphur dioxide removal efficiency of over 90%.

Insurance

We maintain property and casualty insurance against risks of our business
to the extent we consider appropriate. Our Insurance and Claims Branch, which
arranges insurance for our business in Hong Kong, assesses prudent levels of
risk retention in consultation with professional external insurance advisors.
Insurance coverage for risk above our retention level is obtained in the
market.

In respect of our investments outside Hong Kong, suitable insurance
coverage is in place to ensure risks are appropriately transferred. Typical
coverage include property all risks, machinery breakdown, and/or business
interruption for operating assets and construction all risks for plants under
construction.

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Item 5. Operating and Financial Review and Prospects

A. Operating Results

Unless stated otherwise, the discussion and analysis of our financial
condition and results of operations in this section apply to our financial
information as prepared according to Hong Kong GAAP, modified as necessary to
comply with the terms of the Scheme of Control, which differs from U.S. GAAP in
certain material respects. You should read the following discussion of our
financial condition and results of operations together with the financial
statements and the notes to these statements included in Item 17. Financial
Statements in this annual report, especially Note 35 for a discussion of the
material differences between Hong Kong GAAP and U.S. GAAP.

References to us in this section for the relevant periods, unless the
context otherwise requires, are to us and our consolidated subsidiaries,
together with our share of the results of jointly controlled entities and
associated companies.

Overview

We derived approximately 82% of our net earnings in 2002 from our Scheme
of Control business. Excluding the property redevelopment profit and disposal
gain and unallocated expenses, our operating earnings were 86.7% contributed by
the Scheme of Control business and 13.3% by the non-Scheme of Control business,
as compared to 92.2% by the Scheme of Control business and 7.8% by the
non-Scheme of Control business in 2001.

Electricity Business in Hong Kong

Our major source of revenue is from CLP Powers Scheme of Control business
in Hong Kong. Therefore, our financial condition and results of operations
are, in general, affected by the economic activities and the regulatory
environment in Hong Kong. Among our end user sectors with respect to our
Scheme of Control business, the infrastructure and public services (formerly
referred to as government and others) sectors recorded the largest growth in
recent years. Specific customer groups within these sectors contributing
significant growth are railway and underground networks, sewage facilities,
institutions, telecommunications and other public facilities. In the near
future, we expect that the demand of these sectors including infrastructure
projects supported by the Government of Hong Kong will remain steady. Increase
of consumption in the residential and commercial sectors was moderate in 2002,
and is expected to remain moderate in the future. In the short term,
consumption of the commercial sector is expected to be negatively affected by
the outbreak of SARS. In the longer term when the effect of the outbreak of
SARS subsides, consumption in the commercial sector is expected to benefit from
further development of the tourist industry. For the manufacturing sector, we
expect its demand for electricity to continue to decrease due to Hong Kongs
transformation into a services-oriented economy. However, we expect the
recently announced Closer Economic Partnership Arrangement, or CEPA, between
Hong Kong and the Chinese mainland, when implemented, will generate economic
benefits to Hong Kong in the future. Growth of electricity sales in Hong Kong
in kilowatt hours has averaged 3.9% over the last ten years.

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The local economic recovery has been slow since the Asian financial crisis
in 1997. Despite a rebound in re-exports, sustainability of the growth is
threatened by uncertainties due to the September 11 terrorist attack in the
United States, the ensuing military actions taken by the United States in
Afghanistan and the war between the United States and its allies and Iraq.
Domestically, a large fiscal deficit, prolonged deflation and sluggish property
market continued to have considerable impact on consumer and corporate
spending. Aggravated by the impact of the outbreak of SARS, the economic
recovery is expected to be slow during the remainder of 2003. In the medium
term, the Hong Kong economy is expected to benefit from the development of
local infrastructure projects, cross-border activities, expansion of logistics
services and upturn of the tourist industry. A new Disney Theme Park is
expected to be completed and in operation in Hong Kong around 2005/2006.

In light of the economic conditions in Hong Kong, we have announced to
further freeze our tariff levels in 2003. In effect, our basic tariff rates
remain at the 1998 levels. In addition, we have offered various rebates to our
customers during the period from 1999 to 2003.

The current Scheme of Control Agreement will expire in 2008. It provides
for an interim review in 2003 when modifications to any part of the Agreement
may be requested by us and the Government of Hong Kong but with changes only to
be made upon mutual consent from all parties concerned. However, since the
Agreement was reviewed in 1998 and will expire in five years time, we do not
expect that the 2003 interim review will entail major modifications to the
Agreement as it currently stands. Discussions with the Government of Hong Kong
on any revision and extension of the Scheme of Control beyond 2008 will
therefore be of more fundamental importance. The Government of Hong Kong has
indicated that it will conduct a review of the electricity market with a view
of drawing up a broad framework for the development of the electricity supply
sector to succeed the current Scheme of Control Agreement. For this, we have
been devoting considerable management resources to a thorough understanding of
the implications of different regulatory systems for our Hong Kong electricity
business. We will contribute our knowledge and expertise to the discussion of
the future of our industry and expect that the legitimate interests of the CLP
Group, our shareholders, our employees and the community we serve will be given
balanced consideration.

We expect that the provision of electricity in Hong Kong will remain as
our core business in the foreseeable future. Effective management of the
regulatory issues is essential to our continued success and we will continue to
maintain our efforts in enhancing the quality of this business, in terms of
tariff management, productivity and efficiency gains, reliability and customer
service.

Electricity Businesses in the Chinese Mainland and Other Asia-Pacific Countries

The increasing maturity of our Hong Kong electricity business, evidenced
by the slowdown of the growth in electricity demand in recent years coupled
with a degree of regulatory uncertainties post-2008, has led us to diversify
our activities. We are doing so through the application of our skills and
competencies to investments and projects in the electricity sector in the
Chinese mainland and other Asia-Pacific countries. While we are encouraged by
the strong growth recorded for our overseas power project investments in 2002,
it should be noted that the risk/reward profile of these investments is more
volatile than that of the Scheme of Control business.

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Economic growth and electricity demand remain strong in the Chinese
mainland. However, the recent power sector reform in the Chinese mainland has
created increased risks and uncertainties for private investors in China. Our
focus in 2002 was therefore on the management of our existing joint ventures
and the completion of the Guizhou Anshun II project in the western China. We
will remain extremely selective in our choice of new investments in the Chinese
mainland. In the short to medium term, we are prepared to slow the pace of
investments. Over a longer period, we expect that the market will become
clearer and more settled, and it will be possible to assess with greater
confidence the long-term value of assets in relation to their prices in the
market.

Our portfolio of electricity assets in the Asia-Pacific region outside
Hong Kong and the Chinese mainland grew significantly in the past two years and
we now have a significant presence in Australia, India, Taiwan and Thailand.
This early-stage development must now be translated into building sustainable
businesses in our selected markets and improving investment returns to meet our
expectations and those of our shareholders. For this reason, we will
concentrate on improving the quality and returns of our existing businesses, if
necessary, by additional incremental investment or joint ventures, rather than
on new investments which are not complementary to our existing interests or in
countries where we are not yet present. The challenges to electricity business
in the Asia-Pacific region outside Hong Kong and the Chinese mainland come
largely from political, economic and regulatory uncertainty, much of which
occurs, and must be managed and assessed on a country-by-country basis.

Electricity-Related Activities in Hong Kong and the Chinese Mainland

Our skills, experience and competencies are those of an electric utility.
Though we are alert for opportunities to leverage off our existing business, we
recognize that these are likely to be closely related to our primary function
as an electric service provider. For this reason, combined with the extremely
competitive market conditions, we substantially reduced our involvement in the
Hong Kong telecommunications business by withdrawal from the retail
telecommunications business in 2002. Our involvement in the telecommunications
business has not been a successful one and the experience gained has reinforced
the wisdom of staying close to what we know best. Nonetheless, as the revenues
from the Hok Un redevelopment and the sale of a former staff quarters site have
illustrated, selective exploitation of our assets for non-electricity purposes
can generate significant earnings for our shareholders. We expect to continue
to explore opportunities in Hong Kong and the Chinese mainland to develop
electricity-related activities by making use of our existing assets and skills
but opportunities identified will be carried out on a limited and selected
basis.

Share Premium Reduction and Share Repurchases

Following the approval by shareholders at the Extraordinary General
Meeting in April 2002 and confirmation from the High Court of Hong Kong in June
2002, we undertook a restructuring of our balance sheet and transferred
HK$10,117 million (US$1,297 million) from our share premium account to our
retained profits. We do not have immediate plans to use this increased
distributable reserve. The share premium reduction will, however, provide
greater flexibility for us in terms of our dividend or share repurchase
policies.

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We have undertaken share repurchases to optimize our capital structure and
enhance earnings per share. In 2002, we repurchased a total of 13,240,500
shares at an aggregate price of HK$396 million (US$51 million), as compared to
75,986,000 shares we repurchased at an aggregate price of HK$2,273 million in
2001. All the shares we repurchased have been cancelled in accordance with the
Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong.

Critical Accounting Policies

Our financial statements have been prepared in conformity with Hong Kong
GAAP, modified as necessary to comply with the terms of the Scheme of Control.
The financial statements also include a reconciliation to U.S. GAAP. In
preparing these financial statements, management exercises judgment in the
selection and application of accounting principles, including making estimates
and assumptions. Critical accounting policies include those policies that
could result in materially different financial statement results if our
assumptions regarding application of accounting principles were different. The
following is a summary of critical accounting policies that are impacted by
judgments and uncertainties and for which different amounts may be reported
under a different set of conditions or using different assumptions.

Accounting under the Scheme of Control

The financial operations of CLP Power and its jointly controlled
generating company, CAPCO, are governed by the Scheme of Control. Under the
Scheme of Control, CLP Power is allowed to charge tariffs designed to recover
the operating costs (including tax) and allowed net return of CLP Power and
CAPCO. The allowed net return is derived by subtracting from the permitted
return (i) an interest up to a maximum of 8% per annum on borrowings to finance
fixed assets; (ii) a charge of 8% per annum on the sum of the average balances
of the Development Fund and the special provision account; (iii) an excess
capacity adjustment of 13.5% on the average excess capacity expenditure less an
allowed interest charge of up to 8% per annum on the average excess capacity
expenditure after the Black Point Units 7 and 8 are commissioned; and (iv) an
interest up to a maximum of 8% per annum on the increase in average balance of
the customers deposits in excess of the balance at September 30, 1998. The
annual permitted return is determined as 13.5% of the average net fixed assets
of CLP Power and CAPCO relating to the electricity business plus a further 1.5%
on the average net fixed assets financed by shareholders investments and
acquired after September 30, 1978. Any difference between the permitted return
and the profit for Scheme of Control operations is transferred to or from the
Development Fund. The Development Fund represents a liability in the accounts
of CLP Power. The allowed net return so derived is to be divided in accordance
with the provisions of the agreements between CLP Power and CAPCO. See Item
17. Financial Statements  Scheme of Control Statement.

As of December 31, 2002, CLP Power and CAPCO together had a carrying value
of net fixed assets of HK$63,115 million (US$8,093 million) which comprised
primarily the generation facilities and transmission and distribution systems.
This carrying amount reflects the application of our fixed assets accounting
policy which complies with Hong Kong GAAP and U.S. GAAP. Depreciation is based
on the rates authorized under the Scheme of Control.

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The Scheme of Control stipulates the methodology in calculating the return
of our electricity business in Hong Kong and its current term will expire on
September 30, 2008. Any modifications to the existing Scheme of Control
following its expiry in 2008 may have an effect on our financial performance as
it may affect the way we calculate our earnings from this business.

Turnover and Trade Receivables

Our turnover primarily consists of sales of electricity by CLP Power which
is recognized based on actual and accrued consumption derived from meter
readings during the period. Residential customers are billed on a bi-monthly
basis and their unbilled consumption accrued is estimated by taking into
account the past trend of consumption.

Our credit policy in respect of electricity sales in Hong Kong is to allow
customers to settle their electricity bills within 13 to 15 working days after
issue. Our customers receivable balances are generally secured by cash
deposits or bank guarantees. We continually assess the collectibility of our
receivables and in the event we believe a receivable to be uncollectible, we
write it off as bad debt. Changes in the assumptions on the collectibility of
our receivables would change the amount of bad debts written-off. In 2002, the
amount of bad debts written-off was HK$5 million (US$0.6 million).

We use the equity method to recognize our pro rata share of the net income
or loss of our unconsolidated investments. Accordingly, revenues from our
joint ventures or associated companies are not consolidated in our turnover.
We nevertheless review the collectibility of receivables of these business
ventures and, in 2002, our management considered that it was prudent to make
additional provisions against our share of the receivables in some joint
ventures.

Retirement Benefits

Prior to 2002, under Hong Kong GAAP, the periodic charge to our financial
statements for costs arising from a defined benefit retirement scheme was
represented by our contributions to the scheme in a given period, determined
with reference to independent actuarial valuations.

On January 1, 2002, we adopted the new Hong Kong Statement of Standard
Accounting Practice, or SSAP, No. 34 Employee Benefits in accounting for
employee benefits which became effective for financial statements with periods
beginning on or after January 1, 2002. On initial adoption of the new standard
under Hong Kong GAAP, we carried out an actuarial valuation resulting in a
surplus of plan assets over liabilities of HK$1,194 million (US$153 million).
We are of the opinion that the surplus is not subject to taxation in Hong Kong.
The new standard under Hong Kong GAAP is broadly consistent with Statement of
Financial Accounting Standards, or SFAS, No. 87 Employers Accounting for
Pensions under U.S. GAAP. The surplus upon initial adoption of the new Hong
Kong accounting standard has been recognized as a prior year adjustment against
retained profits. Under U.S. GAAP, the retirement scheme asset at January 1,
2002 differs from this surplus due to the existence of unrecognized actuarial
gains and losses; under U.S. GAAP such actuarial gains and losses are amortized
over the average remaining active employee service period.

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On December 31, 2002, the remaining members in our defined benefit
programmes were transferred to our defined contribution programmes. At the
same time, we obtained the relevant approvals in principle to enable the
winding up of the trusts governing our existing programmes. This represented a
curtailment and settlement of the retirement benefit programmes. Accordingly,
all previously unrecognized gains and losses were credited to the profit and
loss account in 2002 under U.S. GAAP. Our retirement benefit programmes will
be consolidated under a new trust which will commence to operate in June 2003.
The retirement fund under the new trust is a defined contribution programme
with additional guarantee that the individual members benefit will not be less
than the amount of our mandatory contributions to a basic Mandatory Provident
Fund scheme.

The calculation of our pension expense and asset/liability for the defined
benefit programmes requires the use of assumptions. These include assumptions
about the discount rate, long-term expected return on plan assets and rate of
future base compensation increases. In selecting the assumed discount rate, we
made reference to market yields on high quality corporate bonds which have a
similar term as the related liabilities. The expected rate of return on plan
assets was arrived based upon the asset model used by our actuarial
consultants, Watson Wyatt Hong Kong Limited, which takes into account
inflation, short and long-term interest rates, equity risk premium and changes
to bond price relating to changes in interest rates. Base compensation
escalation took scale increments, promotions and cost of living increases into
consideration. Changes in these assumptions can result in different expense
and asset/liability amounts.

Asset Impairment

Under both Hong Kong GAAP and U.S. GAAP, if a triggering event occurs
indicating that the carrying amount of an asset may not be recoverable, an
impairment assessment of that asset is required. Triggering events include
significant adverse changes in the market value of an asset, legal factors and
business or regulatory environment. In addition, goodwill is subject to an
annual impairment test under U.S. GAAP whereas, under Hong Kong GAAP, such
annual review is required only when its useful life is greater than 20 years.

Under Hong Kong GAAP, the recoverable amount is the higher of an assets
net selling price and its value in use which is the present value of estimated
future cash flows before tax and financing charges we expect to recover from
the future use of the asset discounted using a pre-tax rate. An impairment
loss is the amount by which the carrying amount of the asset exceeds its
recoverable amount. Under U.S. GAAP, an impairment loss is recognized only if
the carrying amount of an asset is not recoverable from its undiscounted cash
flows and is measured as the difference between the carrying amount and fair
value of the asset. Fair value will generally be determined using valuation
techniques such as discounted cash flows.

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We review the carrying amounts of our long-lived assets, equity
investments, goodwill and marketable debt and equity securities for impairment
whenever events or changes in circumstances indicate that the carrying amount
of these assets may not be recoverable or whenever it is required in accordance
with relevant accounting standards. The interpretation of such triggering
events requires judgment from management with respect to the circumstances as
to whether the events have occurred and whether assessment of the value of the
assets is required. Judgment is also exercised to estimate the future cash flows
and the useful lives of these assets as well as the discount rates to be used.
In 2002, after reviewing the business environment as well as our objectives and
past performance of our investments, management decided to record impairment
charges on our long-lived assets in the telecommunications business and against
goodwill arising from an investment in a jointly controlled entity in the
amount of HK$97 million (US$12 million).

Non-consolidation of Majority-owned Joint Ventures

Under Hong Kong GAAP, consolidation is allowed if we have control over a
company, i.e. the power to govern the financial and operating policies of the
company. In cases where our ownership exceeds 50% but does not bring about
control, we account for the investment using the equity method. Under U.S.
GAAP, if we own more than 50% interest in a company, we are presumed to control
this company and consolidation will be required, unless the minority
shareholder(s) can exercise substantive participating rights in the company.

As of December 31, 2002, our effective interests in Yallourn Energy, GPEC
and Guizhou CLP Power Company Limited were 73.6%, 80.0% and 70.0% respectively.
Under the joint venture agreements with respective parties, none of the joint
venture partners has unilateral control over the economic activity of these
entities. Accordingly, our interests are accounted for as jointly controlled
entities under Hong Kong GAAP. For U.S. GAAP purposes, since the minority
joint venture partners have substantive participating rights, our management is
of the view that non-consolidation of these joint ventures is appropriate and
hence there is no difference in treatment between Hong Kong GAAP and U.S. GAAP.

In April 2003, we completed the acquisition of the remaining interest of
Powergen UK plc, our joint venture partner, in Yallourn Energy and, as a
result, our effective interest in Yallourn Energy increased to 92%. In
addition, we completed the acquisition of Powergen UK plcs remaining interest
in GPEC in June 2003 and we now own 100% of GPEC. We will therefore be
required to consolidate the financial results, including debts, of Yallourn
Energy and GPEC in 2003. Assuming we had consolidated the debts of Yallourn
Energy and GPEC as at December 31, 2002, our ratio of total debt to total
capitalization would have been in the mid to high 20% range, as compared to
20.2% we reported as at the same date. See Item 3. Key Information  A.
Selected Financial Data. However, it should be noted that those debts are at
Yallourn Energy and GPEC levels and have no recourse to CLP Holdings.

In view of the significance of our investments in Yallourn Energy and
GPEC, we included in Note 17 to our financial statements extracts of the
management accounts of Yallourn Energy for the period from our acquisition to
December 31, 2001 and for year 2002 and of GPEC for the period from our
acquisition to December 31, 2002, in each case, after making adjustments to
conform with our significant accounting policies.

57



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Deferred Taxation

For the purposes of our Hong Kong consolidated financial statements, we
have made full provision for deferred taxation for our Scheme of Control
business using the deferral method which is computed using the tax rate enacted
at the time the relevant provision was established. For our non-Scheme of Control business, Hong Kong GAAP has historically
required a partial provision approach to deferred taxation such that timing
differences are accounted for only to the extent that it is probable that a
liability or asset will crystallize in the foreseeable future. The Hong Kong
accounting standard on deferred taxation has been revised and effective January
1, 2003, we are required to adopt the revised SSAP No. 12 Income Taxes which
is broadly consistent with the U.S. accounting standards.

U.S. GAAP generally requires that deferred taxation be provided in full in
respect of temporary differences, which represent the difference between the
carrying amount and tax base of assets and liabilities, under the liability
method. Deferred tax assets are recorded where it is more likely than not that
these assets will be recoverable via offset against future taxable profits.

In calculating our deferred taxation for U.S. GAAP purposes, in addition
to the deferred tax recognized under Hong Kong GAAP, we have recognized
deferred tax assets arising from the tax losses and assets revaluations on
acquisition of some of our joint ventures. Estimating the amount for deferred
tax assets requires a process that involves determining appropriate provisions
for taxation, forecasting future years taxable income and assessing our
ability to utilize tax benefits through future earnings. Our current financial
models indicate that the tax losses can be utilized in the future, but any
changes in assumptions and estimates and in tax regulations can affect the
recoverability of the deferred tax assets.

Derivative Instruments and Hedging Activities

We engage in forward foreign exchange transactions and cross currency and
interest rate swaps transactions to hedge the impact of foreign currency
exposures and fluctuations in interest rates. Our affiliate, Yallourn Energy
in Australia, also uses energy-related derivative instruments to hedge the
price risk of sales of electricity and the price risk of purchasing energy to
satisfy retail sales contract obligations. We do not recognize such
derivatives at fair value, nor do we account for the gains or losses relating
to the fair value changes in these derivatives as this is not required under
Hong Kong GAAP.

Under U.S. GAAP, we have adopted SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities which, as amended by SFAS Nos. 137 and 138,
is referred to in this annual report as SFAS No. 133. Since its implementation
in 2001, SFAS No. 133 requires that all qualifying derivatives be recognized on
the balance sheet at fair value. The fair value of our forward foreign
currency contracts is the present value of expected future cash flows related
to the difference between the contract rates and the market forward rates. In
measuring the swap transactions, the fair value is the net present value of
each cash flow discounted at the market quoted swap rates.

We determine the fair value of derivative instruments under U.S. GAAP
based on externally verifiable model inputs and quoted prices, and use market
interest rates in determining discount rates. For certain derivative
transactions which provide economic hedges but do not qualify for hedge
accounting under SFAS No. 133, changes in fair value of the derivatives will
impact our earnings.

58



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New Accounting Pronouncements

FIN 45

In November 2002, the FASB issued Interpretation No., or FIN, 45
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued and clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition
and measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002 and the disclosure
requirements are effective for financial statements ending after December 15,
2002.

FIN 45 does not prescribe a specific account for the guarantors
offsetting entry when it recognizes the liability at the inception of the
guarantee and that offsetting entry will depend on the circumstances in which
the guarantee is issued. There is also no prescribed approach included for
subsequently measuring the guarantors recognized liability over the term of
the related guarantee. We are currently assessing the impact of FIN 45s
initial recognition and measurement provisions on our financial position and
results of operations.

FIN 46

In January 2003, the FASB issued FIN 46 Consolidation of Variable
Interest Entities-an Interpretation of ARB No. 51. FIN 46 requires that
certain variable interest entities, or VIE, be consolidated by their primary
beneficiary if the primary beneficiary is subject to a majority of the risk of
loss from the VIE activities, or entitled to receive a majority of the VIEs
residual returns, or both. FIN 46 is effective immediately for all new VIE
created or acquired after January 31, 2003. For VIE created or acquired prior
to February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. We are in the process
of reviewing our joint venture arrangements to determine if there is any
venture that would be considered as VIE and hence needs to be consolidated
under the provisions of FIN 46.

Effects of Proposed Accounting Pronouncements

EITF Issue No. 01-8

In August 2001, the Emerging Issues Task Force released Issue No. 01-8
Determining Whether an Arrangement Is a Lease, or Issue 01-8. Issue 01-8 was
originally intended to provide guidance in determining whether an
energy-related contract should be accounted for as a lease in accordance with
SFAS No. 13 Accounting for Leases and the scope was later extended beyond
energy-related contracts by developing additional guidance in determining
whether any arrangement is a lease.

59



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Under the proposed guidance, an arrangement that conveys the right to use
the property, plant or equipment, or PP&E, would be considered to constitute a
lease if (a) the purchaser has the ability or right to operate
the PP&E, (b) the purchaser has the ability or right to control physical access to the
underlying PP&E, or (c) it is remote that parties other
than the purchaser will take more than a minor amount of the PP&Es output during the term of
the arrangement and the unit price for the purchaser is neither contractually
fixed nor equal to the then current market price. It was further proposed that
the determination of whether an arrangement contains a lease be made at
inception of the arrangement based on all the facts and circumstances and a
reassessment is required only if there are certain specific modifications made
to the agreement.

Based on the proposed guidance and subject to the final decision of the
Emerging Issues Task Force, lease accounting may apply to CLP Powers power
purchase arrangement with CAPCO if there is any modification to the existing
arrangement since Issue 01-8 was proposed to be applicable on new or modified
arrangements. If lease accounting does apply and requires the contract to be
accounted for as a capital lease under U.S. GAAP, we would have to record
CAPCOs related power plants as fixed assets in our accounts for U.S. GAAP
purposes with an offsetting liability due to CAPCO. We anticipate that the
implementation of Issue 01-8, if applicable, will have no material impact on
our results of operations.

Results of Operations

Overview

Our financial results in 2002 reflected a stable earnings growth for our
core electricity business in Hong Kong and a turnaround for power businesses
outside Hong Kong. Earnings from our Scheme of Control business grew 7.2% to
HK$5,814 million (US$745 million) in 2002 as a result of our ongoing investment
in our transmission and distribution network to expand and improve services to
customers. Earnings from non-Scheme of Control activities increased from
HK$461 million in 2001 to HK$890 million (US$114 million) in 2002, reflecting
improved performance of overseas power project investments. Total earnings for
2002 amounted to HK$7,079 million (US$908 million), a reduction of HK$178
million as compared to HK$7,257 million in 2001. The lower total earnings were
mainly due to reduced contribution from property sales. In 2002, the profits
from Hok Un redevelopment and the sale of a former staff quarters site were
HK$546 million (US$70 million), as compared to a Hok Un redevelopment profit of
HK$1,468 million in 2001.

Our total earnings in 2001 were HK$7,257 million, an increase of 25.8% as
compared to HK$5,768 million in 2000. The increase was mainly due to an
impairment charge against our investments of HK$1,030 million made in 2000.
Our Hong Kong electricity business recorded satisfactory growth in local
electricity sales and continued strong productivity enhancements, and produced
a 5.3% increase in earnings to HK$5,422 million in 2001. Earnings from our
non-Scheme of Control business activities increased from HK$374 million in 2000
to HK$461 million in 2001. The increase in earnings was mainly due to
increased contributions from power businesses outside Hong Kong but partly
offset by the loss suffered from our telecommunications business. Profits of
HK$1,468 million were recorded from the sales of Phases 4 and 5 of Hok Un
redevelopment project in 2001 as compared to HK$1,132 million from the sales of
Phase 3 in 2000.

Changes in the financial statement line items from year to year are
described below.

60



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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Our turnover in 2002 increased to HK$26,134 million (US$3,351 million)
from HK$24,999 million in 2001, representing a rise of 4.5%. The turnover
mainly comprised electricity sales in Hong Kong which accounted for HK$24,793
million (US$3,179 million), up 3.2% from 2001. The increase was mainly due to
increased demand for electricity as a result of the continued housing and
infrastructure developments undertaken by the Government of Hong Kong. Unit
sales in Hong Kong grew by 2.8% in 2002. Sales to the Chinese mainland
increased from HK$706 million in 2001 to HK$977 million (US$125 million) in
2002. The total export sales of 2,175GWh in 2002 represented our largest sales
volume to the Chinese mainland in one year since 1996. This also reflected the
strong economic growth in Guangdong Province. The export sales growth in 2002
was mainly attributable to the increase in sales to Guangdong Guang-Dian Power
Grid Group Company Limited.

Other revenue increased from HK$274 million in 2001 to HK$364 million
(US$47 million) in 2002, a rise of 32.8%. The increase was mainly attributable
to the full year results of our ChinaLink telecommunications business in
2002.

Total operating expenses increased to HK$19,611 million (US$2,514 million)
in 2002 from HK$19,051 million in 2001, an increase of 2.9%. Main reasons for
this increase were:



| |  |  | A 3.8% increase in purchases of electricity from CAPCO in
2002 amounting to HK$10,191 million (US$1,307 million), from
HK$9,815 million in 2001, mainly due to higher fuel expenses in
CAPCO as a result of increased generation and higher coal and gas
prices.                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Purchases of nuclear electricity in 2002 from Guangdong Daya
Bay Nuclear Power Station, or GNPS, amounted to HK$4,976 million
(US$638 million), a slight decrease of 0.7% from HK$5,013 million in
2001, which was due to the effect of less units purchased partly
offset by higher unit price.                                                                                                              
|
| |  |  | Increase in other net operating costs to HK$1,331 million
(US$171 million) in 2002 from HK$1,246 million in 2001. This
increase was mainly due to the provision for loss on the curtailment
of our retirement benefit plan and impairment charges on our
investments in telecommunications and other businesses, partly
offset by the mark-to-market gain of our investment in YTL Power
International Berhad.
|
| |  |  | A 7.7% increase in depreciation charges to HK$1,749 million
(US$224 million) in 2002 from HK$1,624 million in 2001. This
increase was primarily due to the addition of assets to our
transmission and distribution network in Hong Kong in 2002.                                                                                                                                                              

In 2002, we recorded a capital gain of HK$313 million (US$40 million) from
the disposal of the former staff quarters site in Ho Man Tin Hill.

As a result of the above, we recorded an operating profit in 2002 in the
amount of HK$6,836 million (US$877 million), an increase of 14.9% from HK$5,948
million in 2001. Operating profit as a percentage of turnover increased from
23.8% in 2001 to 26.2% in 2002, mainly due to growth in turnover and a gain
from our disposal of the former staff quarters site, partially offset by the
increase in our operating expenses.

61



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Finance costs and finance income in 2002 were HK$189 million (US$24
million) and HK$33 million (US$4 million) respectively. While there was an
increase in total interest and finance charges in 2002, a higher amount was
allowed for capitalization. As a result, the operating finance costs in 2002
remained at the 2001 level.

In 2002, we recorded our share of profit (before tax) of HK$282 million
(US$36 million) arising from the sale of remaining units of Phases 4 and 5 and
car parking spaces of Laguna Verde at Hok Un site, as compared to a HK$1,752
million profit recorded in 2001. Over 90% of the residential units in the
redevelopment had been sold by December 2002.

Our share of profits (before tax) from jointly controlled entities and
associated companies in 2002 were HK$3,062 million (US$393 million), 27.1%
higher than in 2001. The contributions of our major investments were as
follows:



| |  |  | CAPCO contributed HK$1,572 million (US$202 million), 5.4%
higher than in 2001 mainly due to lower interest expenses.                                                                                                                                                                                                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Contribution from Guangdong Nuclear Power Joint Venture
Company Limited, or GNPJVC, amounted to HK$757 million (US$97
million), slightly lower than the 2001 level of HK$764 million due
to lower generation.                                                                                                                                                                         
|
| |  |  | Share of profit from Hong Kong Pumped Storage Development
Company Limited, or PSDC, was HK$87 million (US$11 million), a
slight decrease from HK$90 million in 2001 due to the impact of
depreciation on fixed asset value.                                                                                                                                                           
|
| |  |  | Share of profit from Yallourn Energy was HK$86 million (US$11
million), as opposed to a loss in 2001. This mainly resulted from
smooth operation without major industrial relations or technical
issues in 2002.                                                                                                                                                                      
|
| |  |  | GPEC, which was acquired in February 2002, contributed a
profit of HK$176 million (US$23 million) before deduction of
amortized goodwill.                                                                                                                                                                                                                                             
|
| |  |  | Contributions from other investments in the Chinese mainland
amounted to HK$244 million (US$31 million), a decrease of 7.6% as a
result of the provisions for unrealized exchange losses (as compared
to an exchange gain in 2001) and impairment of assets made in 2002.
Earnings from Shandong Zhonghua Power Company Limited, or Shandong
Zhonghua, were similar to the 2001 level.
|
| |  |  | Contributions from other investments in the Asia-Pacific
region other than the Chinese mainland and Hong Kong amounted to
HK$179 million (US$23 million), an increase of HK$124 million as
compared to the amount in 2001, mainly due to commencement of
commercial operation of Ho-Ping in 2002 and an increase in
contribution from EGCO.                                           

Taxation increased to HK$1,302 million (US$167 million) in 2002 from
HK$1,189 million in 2001, an increase of 9.5% mainly due to lower effective tax
rate in 2001 which resulted from the write-back of a tax provision of HK$269
million arising from the change in financial year end date in 1999. Our
effective tax rate for 2002 was 13.0%, compared to 11.9% in 2001. The
statutory tax rate in Hong Kong for 2002 was 16.0%.

Transfers under the Scheme of Control requirements amounted to HK$1,643
million (US$211 million) in 2002, compared to HK$1,506 million in 2001. These
transfers comprised:

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| | (i)   |  | the difference between the Scheme of Control profit and the
permitted return being transferred from/to the Development Fund;
with the difference of HK$1,420 million (US$182 million) transferred to Development Fund in 2002, compared to
HK$1,201 million in 2001;     
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | a charge of 8% per annum on the sum of the average balances
of the Development Fund and the special provision account being
credited to a rate reduction reserve; this charge amounted to HK$319
million (US$41 million) in 2002, compared to HK$305 million in 2001;
and
|
| | (iii) |  | the amount of deferral premium in relation to Units 7 and 8
of the Black Point Power Station charged to the special provision
account; the charge was HK$96 million (US$12 million) in 2002,
compared to no charge being made in 2001.                                   

As a result of lower profit from property sales, our earnings decreased by
2.5% to HK$7,079 million (US$908 million) in 2002 from HK$7,257 million in
2001. Our earnings per share of common stock, however, increased by 0.7% to
HK$2.94 (US$0.38) in 2002 from HK$2.92 in 2001 as a result of the full year
effect of share repurchases from the open market during 2001 (76 million
shares) and share repurchases in 2002 (13 million shares).

In 2002 we paid interim dividends of HK$1.14 (US$0.15) per share of common
stock and declared a final dividend of HK$0.51 (US$0.06) per share and a
special final dividend of HK$0.23 (US$0.03) per share. In 2001 we paid interim
dividends of HK$1.05 per share of common stock and declared a final dividend of
HK$0.44 per share and a special final dividend of HK$0.61 per share.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Our turnover in 2001 increased to HK$24,999 million from HK$24,451 million
in 2000, representing a rise of 2.2%. The turnover mainly comprised sales of
electricity in Hong Kong which accounted for HK$24,019 million, up 1.9% from
2000. The increase was mainly due to the growth in commercial sector and the
continuous infrastructure developments by the Government of Hong Kong. Local
unit sales growth of 2.4% was recorded in 2001. Sales to the Chinese mainland
increased from HK$588 million in 2000 to HK$706 million in 2001, which at that
time represented our largest sales volume to the Chinese mainland in one year
since 1996. The export sales growth in 2001 was mainly attributable to the
increase in sales to Guangdong Guang-Dian Power Grid Group Company Limited.

Other revenue decreased from HK$288 million in 2000 to HK$274 million in
2001, a decline of 4.9%. The decline was mainly due to the loss of part of the
public lighting works in 2001.

Total operating expenses increased to HK$19,051 million in 2001 from
HK$18,260 million in 2000, an increase of 4.3%. Main reasons for this increase
were:



| |  |  | Purchases of electricity from CAPCO in 2001 amounted to
HK$9,815 million, a slight increase of 0.8% from HK$9,735 million in
2000, resulting principally from higher capital expenditure
requirements of CAPCO.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A 9.3% increase in purchases of nuclear electricity in 2001
from GNPS amounting to HK$5,013 million, from HK$4,587 million in
2000, as a result of higher units purchased and higher unit price.               

63



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| |  |  | Staff costs increased from HK$827 million in 2000 to HK$929
million in 2001, resulting mainly from the increase in headcount to
handle more business activities.                                                                                                                                                                                                
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Increase in other net operating costs to HK$1,246 million in
2001 from HK$1,180 million in 2000. This was mainly due to our
increased activities in the development of power projects outside
Hong Kong, the start-up costs for telecommunications and
electricity-related businesses and higher government rent and rates
resulting from higher rateable value.
|
| |  |  | A 10.2% increase in depreciation charges to HK$1,624 million
in 2001 from HK$1,474 million in 2000. This increase was primarily
due to the addition of assets to our transmission and distribution
network in Hong Kong in 2001.                                                                                                                                

As a result of the above, operating profit in 2001 totaled HK$5,948
million, a decrease of 3.9% from HK$6,191 million in 2000. Operating profit as
a percentage of turnover decreased from 25.3% in 2000 to 23.8% in 2001, mainly
due to higher operating costs but partly offset by increased sales revenue.

Finance costs in 2001 decreased by 8.3% to HK$187 million while finance
income decreased by 73.6% to HK$29 million due to lower interest income from
reduced cash reserves after we invested in overseas projects and repurchased
75,986,000 shares from the open market.

In 2001, we recorded our share of profit (before tax) of HK$1,752 million
arising from the sales of Phases 4 and 5 and car parking spaces of Laguna Verde
at Hok Un site, as compared to a HK$1,357 million profit recorded in 2000.

Our share of profits (before tax) from jointly controlled entities and
associated company in 2001 were HK$2,410 million, 8.5% higher than in 2000.
The contributions of our major investments were as follows:



| |  |  | CAPCO contributed HK$1,491 million, 4.0% higher than in 2000
due to lower interest expenses.                                                                                                                                                                                                                                                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Contribution from GNPJVC amounted to HK$764 million, up 26.9%
over 2000, mainly due to higher profit factor on shareholders funds
in 2001.                                                                                                                                                                                                                                                                                                                               
|
| |  |  | Share of profit from PSDC was HK$90 million, a slight
decrease from HK$93 million in 2000 due to the impact of
depreciation on fixed asset value.                                                                                                                                                                                                                                                                                                                         
|
| |  |  | Share of loss from Yallourn Energy was HK$256 million, mainly
due to lower price contracts entered in earlier years and industrial
action in December 2001. Yallourn Energy was acquired in February
2001.                                                                                                                                                                                                                                                                
|
| |  |  | Contributions from other investments in the Chinese mainland
amounted to HK$264 million, up from HK$96 million in 2000 and mainly
came from Shandong Zhonghua and CLP Guohua Power Company Limited, or
CLP Guohua. Share of Shandong Zhonghuas profit was higher than in
2000 as a result of a higher electricity tariff and lower fuel cost.
CLP Guohua was acquired in 2001 and our share of profit included an
exchange gain on translation of foreign currency loans.
|
| |  |  | Contributions from other investments in the Asia-Pacific
region other than the Chinese mainland and Hong Kong amounted to
HK$55 million, as compared to a loss of HK$6 million in 2000. The
increase was attributable to EGCO as a result of an increase in
shareholding and a smaller exchange loss.                                                                                                                                                                     

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Taxation decreased to HK$1,189 million in 2001 from HK$1,378 million in
2000, a decrease of 13.7% mainly due to the write-back of a tax provision of
HK$269 million arising from the change in financial year end date in 1999. Our
effective tax rate for 2001 was 11.9%, compared to 15.7% in 2000. The
statutory tax rate in Hong Kong for 2001 was 16.0%.

Transfers under the Scheme of Control requirements amounted to HK$1,506
million in 2001, compared to HK$1,629 million in 2000. These transfers
comprised:



| | (i)   |  | the difference between the Scheme of Control profit and the
permitted return being transferred from/to the Development Fund;
with the difference of HK$1,201 million transferred to Development
Fund in 2001, compared to HK$1,386 million in 2000;      
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | a charge of 8% per annum on the sum of the average balances
of the Development Fund and the special provision account being
credited to a rate reduction reserve; this charge amounted to HK$305
million in 2001, compared to HK$280 million in 2000; and
|
| | (iii) |  | the amount of deferral premium in relation to Units 7 and 8
of the Black Point Power Station charged to the special provision
account, with no charge being made in 2001 compared to the charge of
HK$37 million in 2000.                                

Our earnings increased by 25.8% to HK$7,257 million in 2001 from HK$5,768
million in 2000. Our earnings per share of common stock increased by 26.4% to
HK$2.92 in 2001 from HK$2.31 in 2000, reflecting the enhancement by share
repurchase from the open market in 2001.

In 2001 we paid interim dividends of HK$1.05 per share of common stock,
and declared a final dividend of HK$0.44 per share and a special final dividend
of HK$0.61 per share. In 2000 we paid interim dividends of HK$1.000 per share
of common stock and a special interim dividend of HK$0.225 per share, and
declared a final dividend of HK$0.417 per share and a special centenary final
dividend of HK$0.225 per share. For comparability purposes, we have adjusted
the dividends per share figures for 2000 by taking into account the
one-for-five bonus share issuance in April 2001.

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U.S. GAAP Reconciliation

Our financial statements are prepared in accordance with Hong Kong
GAAP, modified as necessary to comply with the Scheme of Control. This accounting
practice differs in certain material respects from U.S. GAAP. The following
table sets forth a comparison of our net earnings, or net income, and
shareholders funds, or shareholders equity, in accordance with Hong Kong GAAP
(as modified) and U.S. GAAP.

|                                        |                   |  |                                           |        |      |  |      |        |      |  |  |        |  |  |  |       | 
|--------------------------------------- | ----------------- |  | ----------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ----- | 
|                                        |                   |  | As of, or for the year ended December 31,
|                                        |                   |  |                                          
|                                        |                   |  | 2000                                      |        | 2001 |  | 2002 |        | 2002
|                                        |                   |  |                                           |        |      |  |      |        |     
|                                        |                   |  | HK$                                       |        | HK$  |  | HK$  |        | US$ 
|                                        |                   |  | (in millions)                            
|                                       
|Net Income in accordance with           |                   |  |                                           |        |      |  |      |        |      |  |  |        |  |  |  |      
|                                        | Hong Kong GAAP(1) |  |                                           | 5,768  |      |  |      | 7,257  |      |  |  | 7,079  |  |  |  | 908   | 
|                                        | U.S. GAAP         |  |                                           | 6,071  |      |  |      | 7,405  |      |  |  | 7,023  |  |  |  | 901   | 
|                                       
|Shareholders Equity in
accordance with |                   |  |                                           |        |      |  |      |        |      |  |  |        |  |  |  |      
|                                        | Hong Kong GAAP(1) |  |                                           | 34,614 | (2)  |  |      | 35,168 | (2)  |  |  | 36,787 |  |  |  | 4,717 | 
|                                        | U.S. GAAP         |  |                                           | 34,045 |      |  |      | 34,615 |      |  |  | 36,177 |  |  |  | 4,638 | 



---



|(1) |  | Hong Kong GAAP has been modified as necessary to comply with the Scheme
of Control. See Note 1 to our financial statements included in Item 17.
Financial Statements in this annual report.                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Shareholders Equity in accordance with Hong Kong GAAP as of December 31,
2000 and 2001 have been adjusted as required upon the initial adoption of
the new Statement of Standard Accounting Practice No. 34 Employee
Benefits in 2002. See Notes 1 and 8 to our financial statements included
in Item 17. Financial Statements in this annual report.

The significant differences between Hong Kong GAAP and U.S. GAAP are
described in Note 35 to our financial statements set forth in Item 17.
Financial Statements in this annual report.

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B. Liquidity and Capital Resources

Sources of Liquidity

We have financed our operations and business expansions, in particular the
capital expenditure programmes of CLP Power and CAPCO and strategic investments
in the Chinese mainland and other Asia-Pacific countries, from cash flow
generated from operations, short-term borrowings, long-term borrowings and the
issuance of debt securities. Our cash flow generated from operations has been
and is expected to continue to be our principal source of liquidity. We expect
that customer demand for our electricity will remain stable and may increase as
the economy grows. We do not believe our customer demand in the near future is
likely to be negatively affected by rapid technological changes. We have not
relied, and we do not plan to rely in the foreseeable future, on off-balance
sheet financing arrangements as our source of financing.

At December 31, 2002, we had cash and deposits of HK$516 million (US$66
million), as compared to HK$80 million at December 31, 2001. All of these
liquid funds were denominated in Hong Kong dollars.

Net cash provided by operating activities in 2002 amounted to HK$6,953
million (US$891 million), an increase of HK$815 million when compared to 2001.
This increase was mainly due to the good performance of CLP Power in 2002. Net
cash used in investment activities was HK$4,509 million (US$578 million) and
included the capital expenditure of CLP Power as well as investments in power
projects in the Chinese mainland and other Asia-Pacific countries, partly
offset by dividends received from investments and profit received from the Hok
Un joint venture. Net cash used in financing activities was HK$2,008 million
(US$257 million) which primarily resulted from the payment of dividends, partly
offset by an increase in borrowings.

We adopt a prudent approach to all our financial arrangements, while at
the same time aiming to achieve cost efficient funding. In 2002, CLP Power,
through its wholly owned subsidiary, CLP Power Hong Kong Financing Limited, set
up a Medium Term Note Programme, or the MTN Programme. Under the MTN
Programme, notes in an aggregate amount of up to US$1.5 billion or its
equivalent in other currencies may be issued from time to time and will be
unconditionally and irrevocably guaranteed by CLP Power. In May 2002, US$300
million 6.25% fixed rate notes due 2012 were issued under the MTN Programme.
Another HK$500 million 4.45% fixed rate notes due 2013 were issued in June
2003.

Credit Facilities

As of December 31, 2002, the total credit facilities, excluding the
commercial paper facility mentioned below, available to us were HK$17,212
million (US$2,207 million). CLP Power established a U.S. dollar denominated
commercial paper programme in the amount of US$500 million in 1996, which we
have not utilized since March 1998. We did not and do not plan to rely on this
commercial paper facility for our liquidity. The table below sets forth the
committed and uncommitted credit facilities and the periods of maturity of
these credit facilities available to us as of December 31, 2002.

67



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|                              |  |                    |        |                 |  |           |       |          |  |              |       |  |  |  |       |  |  |  |       |  
|----------------------------- |  | ------------------ | ------ | --------------- |  | --------- | ----- | -------- |  | ------------ | ----- |  |  |  | ----- |  |  |  | ----- | -
|                              |  | Maturity by Period
|                              |  |                   
|Credit Facilities  CLP Group |  | Total              |        | Less
than1 year |  | 1-3 years |       | 4-5years |  | After
5years
|                              |  |                    |        |                 |  |           |       |          |  |             
|                              |  | (in HK$ millions) 
|                             
|Committed credit facilities   |  |                    | 14,223 |                 |  |           | 3,002 |          |  |              | 1,591 |  |  |  | 7,290 |  |  |  | 2,340 | *
|Uncommitted credit facilities |  |                    | 2,989  |                 |  |           | 2,989 |          |  |              |      |  |  |  |      |  |  |  |      |  
|                              |  |                    |        |                 |  |           |       |          |  |              |       |  |  |  |       |  |  |  |       |  
|Total                         |  |                    | 17,212 |                 |  |           | 5,991 |          |  |              | 1,591 |  |  |  | 7,290 |  |  |  | 2,340 |  
|                              |  |                    |        |                 |  |           |       |          |  |              |       |  |  |  |       |  |  |  |       |  



|* |  | representing the US$300 million or HK$2,340 million equivalent issued under the MTN Programme.
|- |  | ----------------------------------------------------------------------------------------------

As of December 31, 2002, the total credit facilities available to CAPCO
were HK$16,623 million (US$2,131 million), including a new loan facility of
HK$2.3 billion CAPCO arranged in the last quarter of 2002 to refinance certain
U.S. dollar and Hong Kong dollar loans at lower interest rates. The entire
committed amount under this new loan facility was drawn down by CAPCO in
January 2003. The table below sets forth the committed and uncommitted credit
facilities and the periods of maturity of these credit facilities available to
CAPCO as of December 31, 2002.

|                                        |  |                    |        |                 |  |           |        |          |  |              |       |  |  |  |        |  |  |  |       | 
|--------------------------------------- |  | ------------------ | ------ | --------------- |  | --------- | ------ | -------- |  | ------------ | ----- |  |  |  | ------ |  |  |  | ----- | 
|                                        |  | Maturity by Period
|                                        |  |                   
|Credit Facilities  CAPCO               |  | Total              |        | Less
than1 year |  | 1-3 years |        | 4-5years |  | After
5years
|                                        |  |                    |        |                 |  |           |        |          |  |             
|                                        |  | (in HK$ millions) 
|                                       
|Committed credit facilities             |  |                    | 15,657 |                 |  |           | 3,796  |          |  |              | 3,298 |  |  |  | 3,592  |  |  |  | 4,971 | 
|Uncommitted credit facilities           |  |                    | 966    |                 |  |           | 966    |          |  |              |      |  |  |  |       |  |  |  |      | 
|                                        |  |                    |        |                 |  |           |        |          |  |              |       |  |  |  |        |  |  |  |       | 
|Total                                   |  |                    | 16,623 |                 |  |           | 4,762  |          |  |              | 3,298 |  |  |  | 3,592  |  |  |  | 4,971 | 
|                                        |  |                    |        |                 |  |           |        |          |  |              |       |  |  |  |        |  |  |  |       | 
|Credit Facilities  CLP
Group and CAPCO |  |                    | 33,835 |                 |  |           | 10,753 |          |  |              | 4,889 |  |  |  | 10,882 |  |  |  | 7,311 | 
|                                        |  |                    |        |                 |  |           |        |          |  |              |       |  |  |  |        |  |  |  |       | 

The sources of credit facilities available to us, as well as those to us
and CAPCO combined, are as follows:

|                                          |                                              |  |           |    |           |  |           |    | 
|----------------------------------------- | -------------------------------------------- |  | --------- | -- | --------- |  | --------- | -- | 
|                                          |                                              |  |           |    |           |  | CLP Group
|                                          |                                              |  | CLP Group |    | and CAPCO
|                                          |                                              |  |           |    |          
|                                          |                                              |  | %         |    | %        
|                                         
|Available Credit Facilities in Percentage |                                              |  |           |    |           |  |           |   
|                                          | Export Credits                               |  |           |   |           |  |           | 24 | 
|                                          | U.S. Dollar Notes due 2006                   |  |           | 14 |           |  |           | 7  | 
|                                          | Private Placement                            |  |           |   |           |  |           | 5  | 
|                                          | Term Loans                                   |  |           | 38 |           |  |           | 35 | 
|                                          | Medium Term Notes due 2012                   |  |           | 14 |           |  |           | 7  | 
|                                          | Money Market Line (including bank overdraft) |  |           | 34 |           |  |           | 22 | 
|                                          |                                              |  |           |    |           |  |           |   
|                                          |                                              |  | 100       |    |           |  | 100       |   
|                                          |                                              |  |           |    |           |  |           |   

The uncommitted credit facilities available to us and CAPCO were comprised
of short-term money market lines and overdraft facilities. The financial
market stability and individual banks funding position may affect the
availability of these uncommitted short-term credit facilities. However, we
adopt a prudent approach in determining the appropriate mix of committed and
uncommitted facilities and solicit our facilities from a pool of strong credit
based financial institutions.

68



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Borrowings

Out of the total HK$17,212 million (US$2,207 million) credit facilities
available to us, HK$9,297 million (US$1,192 million) were drawn down at
December 31, 2002. Our borrowings with maturities of less than one year
amounted to HK$570 million (US$73 million). Those with maturities of between
one to five years and of longer than five years amounted to HK$6,387 million
(US$819 million) and HK$2,340 million (US$300 million) respectively. The
undrawn credit facilities are part of our source of liquidity for financing our
operations and continuous business expansion.

For CAPCO, out of the total HK$16,623 million (US$2,131 million) credit
facilities available, HK$11,832 million (US$1,517 million) were drawn down at
December 31, 2002. CAPCOs borrowings with maturities of less than one year
amounted to HK$4,099 million (US$526 million). CAPCOs borrowings with
maturities of between one to five years and of longer than five years amounted
to HK$5,711 million (US$732 million) and HK$2,022 million (US$259 million)
respectively.

The type, interest rate, maturity and currency profile of our borrowings,
as well as those for us and CAPCO combined, are summarized in the following
tables:

|                                 |                                                |  |           |    |           |  |           |    | 
|-------------------------------- | ---------------------------------------------- |  | --------- | -- | --------- |  | --------- | -- | 
|                                 |                                                |  |           |    |           |  | CLP Group
|                                 |                                                |  | CLP Group |    | and CAPCO
|                                 |                                                |  |           |    |          
|                                 |                                                |  | %         |    | %        
|Loan Balance in Percentage       |                                                |  |           |    |           |  |           |   
|                                 | Export Credits                                 |  |           |   |           |  |           | 18 | 
|                                 | U.S. Dollar Notes due 2006                     |  |           | 25 |           |  |           | 11 | 
|                                 | Private Placement                              |  |           |   |           |  |           | 8  | 
|                                 | Term Loans                                     |  |           | 44 |           |  |           | 45 | 
|                                 | Medium Term Notes due 2012                     |  |           | 25 |           |  |           | 11 | 
|                                 | Money Market Line (including bank overdraft)   |  |           | 6  |           |  |           | 7  | 
|                                 |                                                |  |           |    |           |  |           |    | 
|                                 |                                                |  | 100       |    |           |  | 100       |   
|                                 |                                                |  |           |    |           |  |           |    | 
|Interest Rate Base in Percentage |                                                |  |           |    |           |  |           |   
|                                 | Floating Rate                                  |  |           | 64 |           |  |           | 48 | 
|                                 | Fixed Rate                                     |  |           | 36 |           |  |           | 52 | 
|                                 |                                                |  |           |    |           |  |           |    | 
|                                 |                                                |  | 100       |    |           |  | 100       |   
|                                 |                                                |  |           |    |           |  |           |    | 
|Maturity in Percentage           |                                                |  |           |    |           |  |           |   
|                                 | Less than 1 year                               |  |           | 6  |           |  |           | 22 | 
|                                 | 1-3 years                                      |  |           | 17 |           |  |           | 23 | 
|                                 | 4-5 years                                      |  |           | 52 |           |  |           | 34 | 
|                                 | After 5 years                                  |  |           | 25 |           |  |           | 21 | 
|                                 |                                                |  |           |    |           |  |           |    | 
|                                 |                                                |  | 100       |    |           |  | 100       |   
|                                 |                                                |  |           |    |           |  |           |    | 
|Currency in Percentage           |                                                |  |           |    |           |  |           |   
|                                 | HK Dollar Loans                                |  |           | 26 |           |  |           | 18 | 
|                                 | U.S. Dollar Loans                              |  |           |   |           |  |           | 26 | 
|                                 | Foreign Currency Loans (Hedged into HK Dollar) |  |           | 50 |           |  |           | 46 | 
|                                 | AUD Loans*                                     |  |           | 24 |           |  |           | 10 | 
|                                 |                                                |  |           |    |           |  |           |    | 
|                                 |                                                |  | 100       |    |           |  | 100       |   
|                                 |                                                |  |           |    |           |  |           |    | 



|* |  | The Australian dollar loans were incurred to hedge against currency exposure of our investment in Yallourn Energy.
|- |  | ------------------------------------------------------------------------------------------------------------------

69



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##### 



The weighted average interest rate for total borrowings for us and CAPCO
were 4.43% and 5.06% respectively for 2002, as compared to 5.80% and 6.30%
respectively for 2001. The borrowing costs will be affected by the changes in
our financial strength, credit rating and economic and political conditions.

Our ratio of total debt to total capitalization (i.e. total debt divided
by the sum of total debt and shareholders funds) was 20.2% at December 31,
2002, as compared to 13.7% at December 31, 2001. Our ratios of earnings to
fixed charges were 27:1 and 17:1 for 2002 and 2001 respectively. See Item 3.
Key Information  A. Selected Financial Data.

We or our subsidiaries and affiliates, which are parties to our respective
credit facilities, are required to comply with certain financial ratios and
covenants. In particular, under certain loan agreements entered into by CAPCO,
CAPCO is required to maintain the ratio of its borrowings to shareholders
funds to be not more than 150%. At December 31, 2002, CAPCOs ratio of
borrowings to shareholders funds was 75%. Under some of our loan agreements,
committed or uncommitted, material adverse change in our business could give
rise to the acceleration of our repayment obligations and/or cancellation of
available commitments. Under the current outlook, we do not expect any
material adverse change in our business and are confident to comply with the
financial covenants.

Contractual Obligations and Other Commercial Commitments

Set forth below are the aggregate amounts, as of December 31, 2002, of our
future cash payment obligations under existing debt, guarantee, undertaking and
indemnity arrangements:

|                                    |  |                        |       |                 |  |          |     |          |  |              |       |  |  |  |       |  |  |  |       | 
|----------------------------------- |  | ---------------------- | ----- | --------------- |  | -------- | --- | -------- |  | ------------ | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                    |  | Payments Due by Period
|                                    |  |                       
|Contractual Obligations  CLP Group |  | Total                  |       | Less
than1 year |  | 1-3years |     | 4-5years |  | After 5years
|                                    |  |                        |       |                 |  |          |     |          |  |             
|                                    |  | (in HK$ millions)     
|                                   
|Short-term borrowings               |  |                        | 567   |                 |  |          | 567 |          |  |              |      |  |  |  |      |  |  |  |      | 
|Long-term borrowings                |  |                        | 8,730 |                 |  |          | 3   |          |  |              | 1,591 |  |  |  | 4,796 |  |  |  | 2,340 | 
|                                    |  |                        |       |                 |  |          |     |          |  |             
|Total contractual cash obligations  |  |                        | 9,297 |                 |  |          | 570 |          |  |              | 1,591 |  |  |  | 4,796 |  |  |  | 2,340 | 
|                                    |  |                        |       |                 |  |          |     |          |  |             

|                                         |  |                                            |       |                 |  |          |       |          |  |              |       |  |  |  |     |  |  |  |       | 
|---------------------------------------- |  | ------------------------------------------ | ----- | --------------- |  | -------- | ----- | -------- |  | ------------ | ----- |  |  |  | --- |  |  |  | ----- | 
|                                         |  | Amount of Commitment Expiration Per Period
|                                         |  |                                           
|Other Commercial Commitments  CLP Group |  | Total                                      |       | Less than1 year |  | 1-3years |       | 4-5years |  | After 5years
|                                         |  |                                            |       |                 |  |          |       |          |  |             
|                                         |  | (in HK$ millions)                         
|                                        
|Guarantees(1)                            |  |                                            | 4,490 |                 |  |          |      |          |  |              | 1,320 |  |  |  | 698 |  |  |  | 2,472 | 
|Other commercial commitments(2)          |  |                                            | 1,166 |                 |  |          | 1,063 |          |  |              | 103   |  |  |  |    |  |  |  |      | 
|                                         |  |                                            |       |                 |  |          |       |          |  |             
|Total commercial commitments             |  |                                            | 5,656 |                 |  |          | 1,063 |          |  |              | 1,423 |  |  |  | 698 |  |  |  | 2,472 | 
|                                         |  |                                            |       |                 |  |          |       |          |  |             



|(1) |  | Guarantees represent our contingent payment obligations under various
guarantees, deed of undertakings and letters of indemnity to third parties
in connection with the projects that were developed by us and our
subsidiaries.                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | We paid approximately HK$145 million in December 2002 for our investment
in the Anshun II Power Project in Guizhou. Further share capital
contributions of about HK$269 million will be made by installments up to
March 2004. We also executed a Sale and Purchase Agreement in November
2002 to acquire from Powergen its remaining interests in GPEC, Yallourn
Energy and BLCP for a total consideration of HK$897 million. The
acquisitions were completed by June 2003.

70



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We have no significant operating lease commitments or sale and leaseback
arrangements at December 31, 2002.

Also set out below are the aggregate amounts of CAPCOs future cash
payment obligations under its existing debt arrangement as of December 31,
2002:

|                                   |  |                        |        |                 |  |          |       |          |  |              |       |  |  |  |       |  |  |  |       | 
|---------------------------------- |  | ---------------------- | ------ | --------------- |  | -------- | ----- | -------- |  | ------------ | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|Contractual Obligations - CAPCO    |  | Total                  |        | Less than1 year |  | 1-3years |       | 4-5years |  | After 5years
|                                   |  |                        |        |                 |  |          |       |          |  |             
|                                   |  | (in HK$ millions)     
|                                  
|Short-term borrowings              |  |                        | 1,003  |                 |  |          | 1,003 |          |  |              |      |  |  |  |      |  |  |  |      | 
|Long-term borrowings               |  |                        | 10,829 |                 |  |          | 3,096 |          |  |              | 3,298 |  |  |  | 2,413 |  |  |  | 2,022 | 
|                                   |  |                        |        |                 |  |          |       |          |  |             
|Total contractual cash obligations |  |                        | 11,832 |                 |  |          | 4,099 |          |  |              | 3,298 |  |  |  | 2,413 |  |  |  | 2,022 | 
|                                   |  |                        |        |                 |  |          |       |          |  |             

CAPCO also has entered into a 20-year take-or-pay contract to purchase
natural gas for the electricity generation of the Black Point Power Station.
The contract commenced in 1996. CAPCO is required to take or pay at least 90%
of approximately 100,000 Giga British Thermal Unit, or Gbtu, every year under
this contract. The purchase price of the gas is based on a basket of
parameters such as United States Consumer Prices Index, crude oil price and
coal price. CAPCO paid HK$2,344 million (US$301 million) for the gas in 2002
pursuant to the contract. See Item 4. Information on the Company  B.
Business Overview  Electricity Business in Hong Kong  Fuel.

In addition to the contractual obligations set forth above, as of December
31, 2002, we had contracted for capital expenditure in the amounts of HK$3,056
million (US$392 million). The contracted amounts for us and CAPCO combined
were HK$5,055 million (US$648 million), of which the contracted amounts for
2003 totaled HK$3,276 million (US$420 million). These expenditures will be
used primarily for enhancing our transmission and distribution systems and
constructing Black Point Power Station Units 7 and 8. We expect to continue to
make significant investments in fixed assets over the next several years which
will be financed by cash flow from operations, borrowings from banks and export
credit agencies and the issuance of debt securities.

Off-Balance Sheet Arrangements

We and our wholly owned subsidiaries have, from time to time, entered into
forward foreign exchange contracts, currency swaps and interest rate swaps
transactions to hedge our foreign currency and interest rate exposure on loan
interest/repayments, purchase of goods and services and other projected
expenditures with an objective to minimize the impact of exchange rate and
interest rate fluctuations on earnings, reserves and tariff charges to
customers. We employ these derivative instruments solely for hedging purposes.

71



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##### 



As of December 31, 2002, our outstanding forward foreign exchange
contracts, currency swaps and interest rate swaps amounted to HK$30,014 million
(US$3,849 million). Out of this total, interest rate swaps transactions
accounted for about 7.2% and U.S. dollar forward foreign exchange contracts and
currency swaps transactions accounted for about 90.6%. The fair value of these
off-balance sheet financial instruments was HK$370 million (US$47 million),
which represented the net proceeds we would receive if these forward foreign
exchange contracts, currency swaps and interest rate swaps were closed out on December 31,
2002. See Item 11. Quantitative and Qualitative Disclosures about Market
Risk.

72



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C. Research and Development, Patents and Licenses, Etc.

Our research and development activities are led by our wholly owned
subsidiary, CLP Research Institute Limited, which was set up with the mission
to strengthen our innovation capabilities with the intent of increasing the
economic, social and environmental value of our products, services and
businesses in the communities we serve.

These activities are principally conducted in the form of trend
monitoring, research concept development, project sponsorship and
collaboration, and knowledge sharing throughout the CLP Group. Our current
research topics focus on environmental policy, sustainable development and
renewable energy. See Item 4. Information on the Company  B. Business
Overview  Electricity-related Activities in Hong Kong and
the Chinese Mainland  Research and Development.

The amounts incurred for research activities have been immaterial to our
business operations. In addition, patents and licenses are immaterial to our
business operations.

D. Trend Information

Please see  A. Operating Results above for a discussion of the most
significant recent trends in our operations, sales and revenues since the end
of 2002. In addition, please refer to discussions included in this Item for a
discussion of known trends, uncertainties, demands, commitments or events that
we believe are reasonably likely to have a material effect on our net operating
revenues, income from continuing operations, profitability, liquidity or
capital resources, or that would cause reported financial information not
necessarily to be indicative of future operating results or financial
condition.

73



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Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

Under our Articles of Association, our business is managed under the
direction of our Board of Directors, or the Board. Our Group Managing Director
& Chief Executive Officer represents us and administers our day-to-day business
in all matters not specifically designated as responsibilities of our Board of
Directors.

The presence of three Board members at Board meetings constitutes a voting
quorum and resolutions can be passed by a majority of the Board members
present. The Board met five times in 2002.

The following table shows information regarding all of our Directors and
Executive Officers as of May 31, 2003.

|                                   |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|---------------------------------- |  | --- | -- | -------- |  | ----- | ------------------------- | ------- |  | ---------- | ---- | ----------- |  | ---- | ---- | 
|                                   |  |     |    |          |  |       |                           |         |  |            |      |             |  | Year
|                                   |  |     |    |          |  |       |                           |         |  | Year       |      | Appointed  
|                                   |  |     |    |          |  |       |                           |         |  | Appointed  |      | as Director
|                                   |  |     |    |          |  |       |                           |         |  | to Current |      | of our     
|Name                               |  | Age |    | Position |  | Title |                           | Company
|                                   |  |     |    |          |  |       |                           |        
|Board of Directors                 |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|                                   |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|Non-executive Directors            |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|                                   |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|Michael D. Kadoorie                |  |     | 61 |          |  |       | Chairman                  |         |  |            | 1997 |             |  |      | 1997 | 
|W. E. Mocatta                      |  |     | 50 |          |  |       | Vice Chairman             |         |  |            | 1999 |             |  |      | 1997 | 
|J. S. Dickson Leach                |  |     | 57 |          |  |       | Vice Chairman             |         |  |            | 1999 |             |  |      | 1997 | 
|R. J. McAulay                      |  |     | 67 |          |  |       | Director                  |         |  |            | 1997 |             |  |      | 1997 | 
|J. A. H. Leigh                     |  |     | 49 |          |  |       | Director                  |         |  |            | 1997 |             |  |      | 1997 | 
|R. Bischof                         |  |     | 61 |          |  |       | Director                  |         |  |            | 1997 |             |  |      | 1997 | 
|I. D. Boyce                        |  |     | 58 |          |  |       | Director                  |         |  |            | 1999 |             |  |      | 1999 | 
|P. C. Tan                          |  |     | 56 |          |  |       | Director                  |         |  |            | 2003 |             |  |      | 2003 | 
|                                   |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|Independent Non-executiveDirectors |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|                                   |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|S. Y. Chung                        |  |     | 85 |          |  |       | Director                  |         |  |            | 1997 |             |  |      | 1997 | 
|William K. Fung                    |  |     | 54 |          |  |       | Director                  |         |  |            | 1997 |             |  |      | 1997 | 
|V. F. Moore                        |  |     | 56 |          |  |       | Director                  |         |  |            | 2002 |             |  |      | 1997 | 
|Hansen C. H. Loh                   |  |     | 65 |          |  |       | Director                  |         |  |            | 2000 |             |  |      | 2000 | 
|Paul M. L. Kan                     |  |     | 56 |          |  |       | Director                  |         |  |            | 2001 |             |  |      | 2001 | 
|                                   |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|Group Managing Director            |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|                                   |  |     |    |          |  |       |                           |         |  |            |      |             |  |      |      | 
|Andrew Brandler                    |  |     | 47 |          |  |       | Group Managing Director   |         |  |            | 2000 |             |  |      | 2000 | 
|                                   |  |     |    |          |  |       | & Chief Executive Officer |         |  |            |      |             |  |      |      | 

74



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##### 



|                    |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |      | 
|------------------- | ------------------------ | --- | -- | -------- |  | ----- | -------------------------- | --------------------- |  |  | ---------- | ---- | ----------- |  | ---- | ---- | 
|                    |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  | Year
|                    |                          |     |    |          |  |       |                            |                       |  |  | Year       |      | Appointed  
|                    |                          |     |    |          |  |       |                            |                       |  |  | Appointed  |      | as Director
|                    |                          |     |    |          |  |       |                            |                       |  |  | to Current |      | of our     
|Name                |                          | Age |    | Position |  | Title |                            | Company              
|                    |                          |     |    |          |  |       |                            |                      
|Executive Directors |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |     
|                    |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |     
|Peter P. W. Tse     |                          |     | 52 |          |  |       | Executive Director & Chief |                       |  |  | 2000       |      |             |  | 2000 |     
|                    |                          |     |    |          |  |       | Financial Officer          |                       |  |  |            |      |             |  |      |     
|Peter W. Greenwood  |                          |     | 46 |          |  |       | Director & Company         |                       |  |  | 2001       |      |             |  | 2001 |     
|                    |                          |     |    |          |  |       | Secretary                  |                       |  |  |            |      |             |  |      |     
|                    |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |     
|Alternate Director  |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |     
|                    |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |     
|                    | L. J. Ryerkerk           |     |    | 40       |  |       |                            | Chairman and Managing |  |  |            | 2003 |             |  |      | 2001 | 
|                    | (Alternate to P. C. Tan) |     |    |          |  |       |                            | Director,             |  |  |            |      |             |  |      |      | 
|                    |                          |     |    |          |  |       | ExxonMobil Energy          |                       |  |  |            |      |             |  |      |     
|                    |                          |     |    |          |  |       | Limited                    |                       |  |  |            |      |             |  |      |     
|                    |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |     
|Executive Officers  |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |     
|                    |                          |     |    |          |  |       |                            |                       |  |  |            |      |             |  |      |     
|Andrew Brandler     |                          |     | 47 |          |  |       | Group Managing Director    |                       |  |  | 2000       |      |             |  | 2000 |     
|                    |                          |     |    |          |  |       | & Chief Executive Officer  |                       |  |  |            |      |             |  |      |     
|Peter P. W. Tse     |                          |     | 52 |          |  |       | Executive Director & Chief |                       |  |  | 2000       |      |             |  | 2000 |     
|                    |                          |     |    |          |  |       | Financial Officer          |                       |  |  |            |      |             |  |      |     
|Peter W. Greenwood  |                          |     | 46 |          |  |       | Director & Company         |                       |  |  | 2001       |      |             |  | 2001 |     
|                    |                          |     |    |          |  |       | Secretary                  |                       |  |  |            |      |             |  |      |     
|Betty Yuen          |                          |     | 45 |          |  |       | Managing Director,         |                       |  |  | 2002       |      |             |  |     |     
|                    |                          |     |    |          |  |       | CLP Power                  |                       |  |  |            |      |             |  |      |     
|Y. B. Lee           |                          |     | 56 |          |  |       | Managing Director,         |                       |  |  | 1998       |      |             |  |     |     
|                    |                          |     |    |          |  |       | CLP Power China            |                       |  |  |            |      |             |  |      |     
|Richard McIndoe     |                          |     | 38 |          |  |       | Managing Director,         |                       |  |  | 2003       |      |             |  |     |     
|                    |                          |     |    |          |  |       | CLP Power International    |                       |  |  |            |      |             |  |      |     

Apart from the Group Managing Director and the Executive Directors, all
Non-executive Directors (including our Chairman) are subject to retirement by
rotation. At the Annual General Meeting each year, one-third of the Directors
for the time being or, if the number is not a multiple of three, the number
nearest to but not greater than one-third (who have been longest in office
since their last election or appointment) shall retire and are eligible for
re-election in accordance with our Articles of Association. On May 9, 2003,
our Board noted the comments expressed at the Annual General Meeting held on
May 5, 2003 and agreed that it would be a good practice for all Directors to be
subject to periodic retirement and re-election. Therefore, with effect from
our next Annual General Meeting, Executive Directors will be treated similarly
to Non-executive Directors with respect to their periodic retirement and
re-election.

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Mr. Michael Price retired as an Executive Director of our company and
Managing Director of CLP Power, effective from April 1, 2002, after 24 years of
service with the CLP Group. Mrs. Betty Yuen assumed the position of Managing
Director of CLP Power from April 1, 2002.

Mr. V. F. Moore, a Non-executive Director of our company since 1997,
became our Independent Non-executive Director effective from September 27,
2002.

Mr. P. C. Tan was appointed as our Director on January 1, 2003 in place of
Mr. S. F. Goldmann who retired effective from the same date.

In light of Mr. S. F. Goldmanns retirement, Ms. L. J. Ryerkerk ceased to
be Mr. Goldmanns alternate on January 1, 2003 and was appointed as Mr. P. C.
Tans alternate on the same date.

Mr. P. C. Tan, being a new Director appointed by our Board of Directors,
retired in accordance with Article 109 of our Articles of Association and,
being eligible, was elected as a Director at our Annual General Meeting held on
May 5, 2003.

In accordance with Article 103 of our Articles of Association, Mr. R. J.
McAulay, Dr. William K. Fung, Mr. I. D. Boyce and Mr. J. S. Dickson Leach
retired by rotation and, being eligible, were re-elected as our Directors at
our Annual General Meeting held on May 5, 2003.

Non-executive Directors

The Hon. Michael D. Kadoorie, Chevalier de la Légion dHonneur, Commandeur de
lOrdre de Léopold II

Mr. Kadoorie is the Chairman of CLP Research Institute Limited. He is
also Chairman of The Hongkong and Shanghai Hotels, Limited, Metrojet Limited
and Heliservices (Hong Kong) Limited. He holds a number of directorships in
other companies as well. He is a member of the Council of the University of
Hong Kong. He is the brother-in-law of a fellow Director, Mr. R. J. McAulay.
Prior to our Group reorganization in 1998, Mr. Kadoorie had served on the Board
of CLP Power since 1967.

W. E. Mocatta, FCA

Mr. Mocatta is a Fellow of The Institute of Chartered Accountants in
England and Wales. He became a Director of Sir Elly Kadoorie & Sons Limited in
1982. He is the Chairman of CLP Power, CLP Telecommunications Limited and CLP
Properties Limited. He is a Director of The Hongkong and Shanghai Hotels,
Limited and other companies in Hong Kong. Prior to our Group reorganization in
1998, Mr. Mocatta had been a Director of CLP Power since 1993.

J. S. Dickson Leach, MBA, FCA

Mr. Dickson Leach holds an MBA degree from Columbia University and is a
Fellow of The Institute of Chartered Accountants in England and Wales. He is
the Chairman of CLP Power International Limited and CLP Power China Limited.
He is also Chairman of Sir Elly Kadoorie & Sons Limited and Tai Ping Carpets
International Limited. He is a Director of The
Hongkong & Shanghai Hotels, Limited and other companies in Hong Kong.
Prior to our Group reorganization in 1998, Mr. Dickson Leach had been a
Director of CLP Power since 1978.

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R. J. McAulay, MA, CA

Mr. McAulay holds an MA degree from the University of Glasgow and is a
Member of The Institute of Chartered Accountants in Scotland. He is the
brother-in-law of The Hon. Michael D. Kadoorie, our Chairman. Mr. McAulay is a
Director of Sir Elly Kadoorie & Sons Limited and The Hongkong and Shanghai
Hotels, Limited. He is also a trustee or council member of a number of
commercial, artistic or charitable organizations, in Hong Kong and elsewhere.
Prior to our Group reorganization in 1998, Mr. McAulay had served on the Board
of CLP Power since 1968.

J. A. H. Leigh

Mr. Leigh is a lawyer by training. Prior to joining us, Mr. Leigh was in
private practice as a solicitor in Hong Kong and the United Kingdom. He was
the Senior Legal Advisor, Company Secretary and General Manager - Corporate
Affairs in the CLP Group between 1986 and 1996. Mr. Leigh is a Director of Sir
Elly Kadoorie & Sons Limited overseeing a number of the Kadoorie Familys
interests in Hong Kong and overseas.

R. Bischof

Educated in Switzerland, Mr. Bischof has been engaged in the field of
asset management and private banking in Hong Kong since 1971, including several
years with the former Swiss Bank Corporation. Prior to coming to Hong Kong,
Mr. Bischof worked for a leading British investment bank in London, Madrid and
New York. He joined Sir Elly Kadoorie & Sons Limited as a Director in 1996.

I. D. Boyce, FCA

A chartered accountant from the United Kingdom, Mr. Boyce spent 18 years
with the Warburg group, six years of which were as Managing Director of East
Asia Warburg in Hong Kong; and nine years with Schroders Asia, also in Hong
Kong. Mr. Boyce was Managing Director (Vice Chairman from April 1998) of
Schroders Asia before joining Sir Elly Kadoorie & Sons Limited as a Director in
1999. Mr. Boyce is also a Director of The Hongkong and Shanghai Hotels,
Limited and Tai Ping Carpets International Limited.

P. C. Tan, BSc, MBA

Mr. Tan is the Chairman of ExxonMobil (China) Investment Company Limited
and ExxonMobil Hong Kong Limited with oversight responsibility for ExxonMobils
businesses in the Chinese mainland and Hong Kong. He is also President,
ExxonMobil China Petroleum & Petrochemical Company Limited. Mr. Tan graduated
from the University of Singapore as a Bachelor of Science (Applied Chemistry)
and has an MBA degree from New York University. He joined Mobil Oil in
Singapore in 1970 and worked in Singapore, the United States and Australia. He
was Chairman and Managing Director for Mobil Oil in Australia from
1996 to 1999. He was later elected as General Manager, Corporate Planning by the
Board of Exxon Mobil Corporation.

77



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Independent Non-executive
Directors

The Hon. Sir S. Y. Chung, GBM, GBE, PhD, FREng, JP

Sir S. Y. Chung is the Chairman and an Independent Non-executive Director
of The Kowloon Motor Bus Holdings Limited, as well as a Director of other
companies in Hong Kong. He has contributed significantly in Hong Kongs
political, industrial and tertiary education fields for over four decades. He
was Senior Member of Hong Kong Legislative Council (1974-78), Executive Council
(1980-88), and again Convenor of the Hong Kong Special Administrative Region
Executive Council (1997-99). He was Chairman of Federation of Hong Kong
Industries (1966-70), and Hong Kong Productivity Council (1974-78); and
President of Engineering Society of Hong Kong (1960-61) and Hong Kong Academy
of Engineering Sciences (1994-97). He was deeply involved in the Sino-British
negotiation on Hong Kongs future (1982-85) and the establishment of the Hong
Kong Special Administrative Region (1993-97). Prior to our Group
reorganization in 1998, Sir S. Y. Chung had served on the Board of CLP Power
since 1967.

William K. Fung, OBE, DBA, MBA, BSE, JP

Dr. Fung is Group Managing Director of Li & Fung Limited, and has held key
positions in major trade associations. He is past Chairman of the Hong Kong
General Chamber of Commerce, the Hong Kong Exporters Association and the Hong
Kong Committee for the Pacific Economic Cooperation Council. Dr. Fung holds a
Bachelor of Science degree in Engineering from Princeton University, and an MBA
degree from the Harvard Graduate School of Business. He has been awarded an
Honorary Doctorate degree of Business Administration by the Hong Kong
University of Science and Technology. He is also a Non-executive Director of
HSBC Holdings plc, chinadotcom corporation, VTech Holdings Limited and
Convenience Retail Asia Limited. Prior to our Group reorganization in 1998,
Dr. Fung had served on the Board of CLP Power since 1994.

V. F. Moore, BBS, FCA, FHKSA

Mr. Moore is Deputy Managing Director of CITIC Pacific Limited and
Executive Director of China International Trust & Investment Corporation Hong
Kong (Holdings) Limited. He is a Non-executive Director of Cathay Pacific
Airways; the Chairman of the New Hong Kong Tunnel Company, Western Harbour
Tunnel Company, Hong Kong Tunnels and Highways Management Company, a Director
of Eastern Harbour Crossing Company and Deputy Chairman of CITIC Capital
Markets Holdings Limited.

Hansen C. H. Loh

Mr. Loh is the Chairman of Farrington American Express Travel Services
Limited. He is also the Managing Director of Wyler Textiles Limited and a
Non-executive Director of CITIC Pacific Limited of which he is also a member of
its Audit Committee.

78



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Paul M. L. Kan, MBA

Mr. Kan holds an MBA degree from the Chinese University of Hong Kong, and
various professional qualifications with a number of computing and engineering
societies and institutes in the United Kingdom and the United States. He is
the founder and Chairman of Champion Technology Holdings Limited and Kantone
Holdings Limited, both of which are listed on the Main Board of The Stock
Exchange of Hong Kong Limited. He is the Chairman of DIGITALHONGKONG.COM,
which is listed on the Growth Enterprises Market Board of The Stock Exchange of
Hong Kong Limited. Mr. Kan won the Young Industrialist Award in 1992, and was
a member of the Technology Committee of the Industry and Technology Development
Council of the Hong Kong Government Industry Department (1993-94). He is the
Chairman of Hong Kong Information Technology Industry Council and a member of
the General Committee of the Federation of Hong Kong Industries. Other
memberships include the Hong Kong Trade Development Council Electronics and
Electrical Appliances Advisory Committee; and the Chinese Peoples Political
Consultative Conference of Anhui Province in the Peoples Republic of China.

Group Managing Director &
Chief Executive Officer

Andrew Brandler, MA, MBA, ACA

Mr. Brandler holds an MA degree from the University of Cambridge and an
MBA degree from Harvard Business School, and is a Member of The Institute of
Chartered Accountants in England and Wales. He joined us as the Group Managing
Director & Chief Executive Officer in May 2000 and is responsible for our
overall performance. Prior to joining us, Mr. Brandler was an investment
banker, specializing in the energy and utility sectors and was the Head of
Asia-Pacific Corporate Finance with Schroders, based in Hong Kong.

Executive Director & Chief
Financial Officer

Peter P. W. Tse, BSc (Eng.), MSc, FCA, FHKSA

Mr. Tse holds a BSc (Eng.) degree in Mechanical Engineering from the
University of Hong Kong and an MSc degree from the University of Stirling in
Scotland. He is a Fellow of The Institute of Chartered Accountants in England
and Wales and a Fellow of The Hong Kong Society of Accountants. Mr. Tse is the
Chief Financial Officer of our Group. He is responsible for our financial and
treasury affairs, investor relations and property business. Before joining us
in 1981, he worked with Deloitte & Co. in London and Hong Kong, and the Swire
Group. Mr. Tse is a member of the Listing Committees of the Main Board and
Growth Enterprises Market Board of The Stock Exchange of Hong Kong Limited and
a member of the Dual Filing Advisory Group of Securities and Futures
Commission.

Director & Company
Secretary

Peter W. Greenwood, MA, FCS, FCIS

Mr. Greenwood holds an MA degree in law from the University of Cambridge.
He is a Fellow of The Institute of Chartered Secretaries in England and a
Fellow of The Hong Kong Institute of Company Secretaries. He is a solicitor in England and Wales
and in Hong Kong as well as being qualified as an avocat in France. Mr. Greenwood is the Corporate Counsel and Company Secretary of our Group. He is
responsible for corporate secretarial and group legal affairs. Before joining
us in 1995, he was a Senior Commercial Lawyer with the Provisional Airport
Authority, Hong Kong, and had also been in private practice as a solicitor with
leading corporate law firms in the United Kingdom, Hong Kong and France.

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Alternate Director

L. J. Ryerkerk, BS

Ms. Ryerkerk is the Chairman of ExxonMobil Energy Limited, Castle Peak Power Company
 Limited and Hong Kong Pumped Storage Development Co., Limited. She is also a Director of
 CLP Power and CLP Research Institute Limited. A graduate in Chemical Engineering from Iowa
 State University, she joined Exxon Corporation (currently known as Exxon Mobil Corporation)
 in 1984 and has extensive experience in operations, technical and manufacturing in both
 petroleum refining and chemical industries within the United States. She joined ExxonMobil
 Energy Limited in Hong Kong in April 2001 and assumed her current position as the Chairman
 and Managing Director in January 2003.

Executive Officers

For the biographical details of Mr. Andrew Brandler, Mr. Peter P. W. Tse
and Mr. Peter W. Greenwood, please refer to the details shown above.

Betty Yuen, B.Comm., CA (Canada)
Managing Director, CLP Power

Mrs. Yuen has overall responsibility for CLP Power, which is a vertically
integrated electricity utility serving over 2 million customer accounts in
Kowloon and the New Territories of Hong Kong. Mrs. Yuen began her career in
public accounting in Canada. She spent 13 years with ExxonMobil Energy Limited
and her latest position there was Executive Director  Finance and Development
before taking up the position in CLP Power as Director  Finance and Planning
in 1999. Mrs. Yuen assumed her current position in April 2002.

Y. B. Lee, BSc, MSc, PhD, DIC, C.Eng, MIEE, FHKIE
Managing Director, CLP Power China

Dr. Lee is responsible for the development and management of our
electricity business and relations in the Chinese mainland. He holds a BSc
degree in Electrical Engineering from the University of Hong Kong, an MSc
degree from Imperial College, University of London and a Ph.D. degree from the
University of Bath. He is a Chartered Engineer and a Fellow of the Hong Kong
Institution of Engineers. He first joined our Group in 1976 and had taught at
the University of New South Wales, Australia.

80



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Richard McIndoe, MA, MBA
Managing Director, CLP Power International

Following the departure of Mr. Kenneth W. Oberg from CLP Power
International in the end of December 2002, Mr. McIndoe took up the position of
Managing Director of CLP Power International on January 1, 2003. Mr. McIndoe
joined our Group in November 2002 and is now responsible for the development
and management of our electricity business in the Asia-Pacific region. He is
an experienced electricity industry professional with extensive regional
background in transaction execution and asset management. He worked for
InterGen since 1998 as Managing Director, China, and previously as Vice
President  Development and Finance. Prior to joining InterGen, Mr. McIndoe
spent a number of years with S.G. Warburg in Hong Kong. He holds an MA degree
from the University of Cambridge and an MBA degree from INSEAD Business School
in France.

81



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B. Compensation

Our fees paid to the Non-executive Directors are set at levels in line
with market practice, based on a formal independent review undertaken no less
frequently than every three years. The latest review was undertaken in January
2003 by Deloitte & Touche Management Solutions Limited. The levels of
remuneration for Non-executive Directors have remained unchanged since 1995.

For Executive Directors, Executive Officers and other senior management
within the CLP Group, we have adopted a Senior Executive Remuneration Programme
which was revised with effect from May 1, 2001. The programme consists of base
compensation, retirement and medical benefits and performance-based incentive
schemes. The programme includes an Annual Incentive Plan and a Long-term
Incentive Plan. The Annual Incentive Plan focuses on achievement of annual
objectives and to reward senior management for the results achieved and is
payable annually in cash. The Long-term Incentive Plan aims to align
management and shareholder interests. The Long-term Incentive Plan ties to our
long-term share performance by using a Phantom Share Plan with a vesting period
of three years. We pay our senior management an amount equal to the product of
a notional number of shares, determined by performance, and the prevailing
share price at the end of the three-year period. We recognize such incentive
bonus as expense on a pro-rata basis throughout the three-year period. Subject
to certain vesting conditions, the award is payable in the first quarter of the
fourth year. We expect to make the first award in 2004.

Early retirement/termination compensation is not part of the remuneration
arrangements for our senior management but may be payable, where appropriate,
upon approval by the Chairman of our Human Resources and Remuneration
Committee, which comprises solely Non-executive Directors.

Directors Remuneration

For 2002, our Directors remuneration included their fees of HK$2 million
(of which HK$589,167 was paid to our Independent Non-executive Directors); base
compensation, allowances and benefits in kind of HK$13 million; performance
bonus of HK$10 million; contribution made to provident funds on Directors
behalf of HK$2 million and early retirement compensation of HK$10 million. The
remunerations paid to our Directors is within the following bands:

|                |   |                     |  |  |    |  | 
|--------------- | - | ------------------- |  |  | -- |  | 
|Remuneration(1) |   | Number of Directors
|                |   |                    
|HK$ nil         | - | HK$1,000,000        |  |  | 13 | 
|HK$5,000,001    | - | HK$5,500,000        |  |  | 1  | 
|HK$8,000,001    | - | HK$8,500,000        |  |  | 1  | 
|HK$9,000,001    | - | HK$9,500,000        |  |  | 1  | 
|HK$13,000,001   | - | HK$13,500,000(2)    |  |  | 1  | 

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The remuneration details of the current Executive Directors in 2002 are
shown below:

|                              |  |               |      |             |  |                |     |          |  |  |     |  |  |  |      | 
|----------------------------- |  | ------------- | ---- | ----------- |  | -------------- | --- | -------- |  |  | --- |  |  |  | ---- | 
|                              |  | Base          |      |             |  |                |     |          |  |  |     |  |  | 
|                              |  | Compensation, |      |             |  |                |     |          |  |  |     |  |  | 
|                              |  | Allowances &  |      | Performance |  | Provident Fund |     |          |  | 
|                              |  | Benefits      |      | Bonus(1)    |  | Contribution   |     | Total(3)
|                              |  |               |      |             |  |                |     |         
|                              |  |               |      |             |  | (HK$ millions) |     |          |  | 
|                             
|Group Managing Director & CEO |  |               | 4.7  |             |  |                | 3.7 |          |  |  | 0.6 |  |  |  | 9.0  | 
|Executive Director & CFO      |  |               | 4.3  |             |  |                | 3.5 |          |  |  | 0.5 |  |  |  | 8.3  | 
|Director & Company Secretary  |  |               | 3.2  |             |  |                | 1.7 |          |  |  | 0.4 |  |  |  | 5.3  | 
|                              |  |               |      |             |  |                |     |         
|                              |  |               | 12.2 |             |  |                | 8.9 |          |  |  | 1.5 |  |  |  | 22.6 | 
|                              |  |               |      |             |  |                |     |         



|(1) |  | Performance bonus presented above consists of annual
incentives only. Long-term incentives only vest and become payable
once the relevant vesting conditions have been satisfied.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Early retirement compensation was paid to a former Executive Director.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(3) |  | These figures included estimated performance bonus for 2002,
bonus paid in 2002 in respect of services rendered during 2001 and
compensation for untaken annual leave. The final amount of the
performance bonus payable for 2002 was determined by the Human
Resources & Remuneration Committee of the Board after the release of
the 2002 annual results in February 2003; whilst the compensation
for untaken leave was a one-off payment as a result of the alignment
of our benefit programmes with market practice. After adjusting
for the difference between the actual and estimated amounts of the
performance bonus and the one-off compensation for untaken leave,
the remuneration of our Group Managing Director & CEO, Executive
Director & CFO and Director & Company Secretary were HK$8.6 million,
HK$7.3 million and HK$5.5 million respectively for 2002.

Executive Officers Remuneration

Our Executive Officers include three who served as Directors for the full
year in 2002 and one who retired and served as a Director for part of the year.
The Executive Officers have joined the defined contribution section of our
retirement fund, with our contribution to the retirement fund amounting to a
maximum of 12.5% of base compensation. For 2002, our Executive Officers
remuneration included base compensation, allowances and benefits in kind of
HK$22 million; performance bonus of HK$16 million; contribution made to
provident funds on Executive Officers behalf of HK$4 million and early
retirement/termination compensation of HK$18 million. The remuneration paid to
our Executive Officers in office in 2002 is within the following bands:

|                |   |                              |  |  |   |  | 
|--------------- | - | ---------------------------- |  |  | - |  | 
|Remuneration(1) |   | Number of Executive Officers
|                |   |                             
|HK$5,000,001    | - | HK$5,500,000                 |  |  | 1 | 
|HK$6,000,001    | - | HK$6,500,000                 |  |  | 2 | 
|HK$8,000,001    | - | HK$8,500,000                 |  |  | 1 | 
|HK$9,000,001    | - | HK$9,500,000                 |  |  | 1 | 
|HK$11,500,001   | - | HK$12,000,000(2)             |  |  | 1 | 
|HK$13,000,001   | - | HK$13,500,000(2)             |  |  | 1 | 



|(1) |  | Performance bonus presented above consists of annual
incentives only. Long-term incentives only vest and become payable
once the relevant vesting conditions have been satisfied.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Early retirement/termination compensation was paid to two
individuals, including one former Executive Director.                                                                  

We have expanded the information on the remuneration of Non-executive
Directors, Executive Directors and senior management, as set out in Notes 6 and
7 to our financial statements. See Item 17. Financial Statements in this
annual report.

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C. Board Practices

For discussion of the term of office of members of our Board, see Item
6. Directors, Senior Management and Employees  A. Directors and Senior Management.

We and our subsidiaries have not signed any service contract with any of
our Directors and Executive Officers in respect of provision of benefits upon
termination of employment.

Our Board of Directors has appointed the following Board Committees to
oversee particular aspects of our affairs. Management and third parties are
co-opted to the Committees as required. The membership and a summary of the
terms of reference of each Committee appointed by our Board of Directors are
listed below. Full terms of reference of these Committees and Members
attendance are set out on our website at www.clpgroup.com.

Audit Committee

Members: V. F. Moore (Chairman), S. Y. Chung, Hansen C. H. Loh and Paul M. L.
Kan

The Audit Committee was established in 1981. All of its members are
appointed from the Independent Non-executive Directors having appropriate
professional qualifications and experience in financial matters. Our board of
directors has designated Mr. V. F. Moore, Chairman of the Audit Committee, as
our audit committee financial expert, as defined by rules of the U.S.
Securities and Exchange Commission or the SEC, under the U.S. Sarbanes-Oxley
Act of 2002. During 2002, the terms of reference of the Committee were amended
to align with the recommendations set out in A Guide for Effective Audit
Committees issued by the Hong Kong Society of Accountants. Those terms of
reference were further revised to comply with the requirements of the
Sarbanes-Oxley Act and its implementation regulations adopted by the SEC. It
should however be noted that the requirements of audit committee under the
Sarbanes-Oxley Act do not apply to us because our securities are not listed on
any national stock exchange in the United States or quoted on any inter-dealer
quotation system in the United States. The Audit Committees main duties
include those to:



| |  |  | Review the completeness, accuracy and fairness of
half-yearly and annual financial statements;                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Retain, dismiss and replace the Groups external auditors,
subject to endorsement by our Board and final approval and
authorization by our shareholders in General Meeting;
|
| |  |  | Pre-approve all audit and permissible non-audit services to
be performed by the Groups external auditors and the associated
fees;                                         
|
| |  |  | Review the work of the Groups external auditors and the
relevant fees and terms;                                                                                          
|
| |  |  | Review results of audits performed by the Groups external
auditors and appropriate action required on significant control
weaknesses;                                     
|
| |  |  | Meet with the Groups external auditors, whenever they consider it necessary;                                                                                              
|
| |  |  | Conduct annual audit planning reviews with the Group Internal Auditor;                                                                                                     
|
| |  |  | Ensure co-ordination between the Groups external auditors
and Group Internal Auditor is adequate;                                                                         
|
| |  |  | Review the system of internal controls in use by us; and                                                                                                                   

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| |  |  | Approve and adjust procedures for: (i) the receipt,
retention and treatment of complaints received by us regarding
accounting, internal accounting controls, or auditing matters; and
(ii) the confidential, anonymous submission by our employees of
concerns regarding questionable accounting or auditing matters.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Committee has authority to obtain external legal or other independent
professional advice, to secure the attendance of outsiders with relevant
experience and expertise, and to approve the fees payable to such advisors and
any other terms of retention, if it considers this necessary.

The Audit Committee meets every six months. Special meetings may be
called at the discretion of the Chairman of the Audit Committee or at the
request of senior management to review significant control or financial issues.
The Audit Committee Chairman gives an annual report to our Board covering the
Committees activities for the year and highlighting any significant issues.
The Audit Committee met twice in 2002.

|                               |  |                          |   |      |  |  |   | 
|------------------------------ |  | ------------------------ | - | ---- |  |  | - | 
|                               |  | No. of Meetings Attended
|                               |  | 2001                     |   | 2002
|                               |  |                          |   |     
|V. F. Moore                    |  |                          | 2 |      |  |  | 2 | 
|S. Y. Chung                    |  |                          | 2 |      |  |  | 2 | 
|Hansen C. H. Loh               |  |                          | 2 |      |  |  | 2 | 
|Paul M. L. Kan*                |  |                          |  |      |  |  | 2 | 
|* appointed on January 1, 2002 |  |                          |   |      |  |  |   | 

Finance and General Committee

|         |  |                                                                                                
|-------- |  | -----------------------------------------------------------------------------------------------
|Members: |  | J. S. Dickson Leach (Chairman), W. E. Mocatta, V. F.
Moore, Andrew Brandler and Peter P. W. Tse

The Finance and General Committee meets as and when required to review our
financial operations. Such reviews include group-wide financial, accounting,
treasury and risk management policies, major financing transactions, corporate
plans and budgets. The Committee also reviews major acquisitions of, or
investments in, companies, businesses or projects, and their funding
requirements. The Finance and General Committee met seven times in 2002.

|                                                                                              
|----------------------------------------------------------------------------------------------
|Human Resources & Remuneration Committee                                                      
|                                                                                              
|Members: J. S. Dickson Leach (Chairman), W. E. Mocatta, V. F.
Moore, S. Y. Chung and P. C. Tan

The Human Resources & Remuneration Committee meets as and when required to
consider and review human resources policies, particularly those governing the
terms and conditions of service of our employees, remuneration (including that
of Executive Directors and senior management), retirement benefits, management
development and succession plans. In line with good practice in such matters,
there are no Executive Directors on this Committee. Three meetings of the Human
Resources & Remuneration Committee were held in 2002.

85



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##### 



Nomination Committee

|         |  |                                                                
|-------- |  | ---------------------------------------------------------------
|Members: |  | Michael D. Kadoorie (Chairman), S. Y. Chung and William K. Fung

The Nomination Committee was established in 2003 to enhance transparency
in the nomination of new directors by taking on the responsibility of
recommending nominees for appointment to our Board. The Nomination Committee
comprises the Chairman of our Board and two Independent Non-executive
Directors. The Nomination Committee reviews the structure, size and
composition of our Board and makes recommendations to our Board with particular
regard to ensuring a substantial majority of the Directors on our Board being
independent of management. It also identifies and nominates qualified
individuals, subject to the approval of our Board, to be additional Directors
or fill Board vacancies as and when they arise.

Provident & Retirement Fund Committee

|         |  |                                                                  
|-------- |  | -----------------------------------------------------------------
|Members: |  | W. E. Mocatta (Chairman), R. Bischof, Peter P. W. Tse and Trustee

The Provident & Retirement Fund Committee advises the trustees to our
retirement funds on investment policy and objectives of those funds. The
Committee meets regularly to review the position of the funds, to monitor the
performance of the investment managers, and to consider and make
recommendations to the trustees on the appointment and removal of investment
managers and on the investment of available funds outside the portfolios of the
investment managers. The Provident & Retirement Fund Committee met four times
in 2002.

Public Affairs Committee

|         |  |                                                                                                                                                                                  
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Members: |  | Andrew Brandler (Chairman), W. E. Mocatta, J. S. Dickson
Leach, V. F. Moore, P. C. Tan, S. Y. Chung, Hansen C. H. Loh,
Peter P. W. Tse, Y. B. Lee, Betty Yuen and Richard McIndoe

The Public Affairs Committee oversees the development and implementation
of our public relations programmes with a view to improving the public image
and the general understanding by the public of the CLP Group. Three meetings
of the Committee took place during 2002.

The Hon. Michael D. Kadoorie is an Ex-officio Member of Finance and
General Committee, Human Resources and Remuneration Committee, Provident &
Retirement Fund Committee and Public Affairs Committee.

Corporate Governance

Corporate
governance is above all a matter of culture  a shared
commitment to do the right thing.

We recognize that it is possible for a company to institute a full
framework of policies, procedures and rules but still have poor corporate
governance. To avoid such a pitfall, we aim to create a corporate governance
regime which combines a cultural emphasis on honesty and integrity with a formal structure of policies and systems, which includes
checks and balances to monitor compliance with ethical standards.

86



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##### 



Our cultural imperative stems from:



| |  |  | A clear and longstanding decision by our Board and
management to adopt and promote good ethical behaviour;                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The obligations that come from being a public utility with
responsibilities to the communities we serve and the public
scrutiny that this involves; and
|
| |  |  | An awareness that the long-term interests of our company
are best served by maintaining a strong commitment to honest and
open business practices.     

In this section, we set out the measures we have put in place to support
our cultural commitment to good governance. Our aim is to enable our
stakeholders to form their own view on our governance and decide whether this
properly reflects the standards they require of us.

(CLPS CORPORATE GOVERNANCE FRAMEWORK FLOWCHART)

Shareholders

Our Board and senior management recognize their responsibility to
represent the interests of the shareholders and to maximize shareholder value.

87



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##### 



We use a number of formal channels to account to shareholders for our
performance and operations. We report to shareholders on a quarterly basis.
The Annual General Meeting, or AGM, provides an opportunity for communication
between our Board and shareholders. We regard the AGM as an important event in
a corporate year and all our Directors and senior management make special
efforts to attend. The Chairman of the Audit Committee will usually attend the
AGM to answer questions. Active participation by shareholders at the
AGM is welcome. In addition, our Corporate Secretarial Department and Investor
Relations Department respond to letters and telephone enquiries from
shareholders/investors on various issues throughout the year. We have also set
up a shareholders hotline ((852) 2678-8228).

The Board

Our Board is accountable to the shareholders for leading us in a
responsible and effective manner. Our Directors, collectively and
individually, are aware of their responsibilities to the shareholders for the
manner in which our affairs are managed and operated. Each Director is
expected to act in good faith in the best interests of our company. Our Board
establishes the strategic direction of the CLP Group, sets the objectives of
our management and monitors its performance. Our Board also oversees the
management of our relationships with representatives of governments, customers,
the community, interest groups and others who have a significant interest in
the responsible conduct of our business.

Our Board has established written procedures to determine which issues
require a decision of the full Board and which can be delegated to Board
Committees or management. Matters reserved to the full Board for decision
include any matters involving a conflict of interest for a substantial
shareholder or a Director, material acquisitions and disposals of assets,
investments, capital projects, authority levels, treasury policies, risk
management policies and key human resources issues.

Our Company Secretary is responsible to our Board for ensuring that Board
procedures are followed and that applicable laws and regulations are complied
with. These include obligations on Directors relating to disclosure of
interests in securities, disclosure of any conflict of interest in a
transaction involving our Group, prohibitions on dealing in securities and
restrictions on disclosure of price-sensitive information.

All Directors (with the exception of the Group Managing Director and two
Executive Directors) are non-executive and independent of management, thereby
promoting critical review and control of the management process. Our Board
includes five Independent Non-executive Directors to whom any shareholder
concerns can be conveyed. This helps ensure that our Board takes into account
the interests of all shareholders. The non-executive members of our Board
bring a wide range of business and financial experiences to our Board, which
contribute to the effective direction of the Group.

The posts of Chairman and the Group Managing Director are separate. There
is a clear distinction between the Chairmans responsibility for managing the
operations of our Board and the Group Managing Directors responsibility for
running our business.

Our full Board meets in person at least once every three months and
specially when a board decision is required on major issues. Five Board
meetings were held in 2002.

88



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##### 



|                                                          |  |                          |   |             |  |  |   | 
|--------------------------------------------------------- |  | ------------------------ | - | ----------- |  |  | - | 
|                                                          |  | No. of Meetings Attended
|                                                          |  | 2001                     |   | 2002       
|                                                          |  | (6 Meetings              |   | (5 Meetings
|                                                          |  | in Total)                |   | in Total)  
|                                                          |  |                          |   |            
|Non-executive Directors                                   |  |                          |   |             |  |  |   | 
|Michael D. Kadoorie (Chairman)                            |  |                          | 5 |             |  |  | 3 | 
|W. E. Mocatta (Vice Chairman)                             |  |                          | 6 |             |  |  | 5 | 
|J. S. Dickson Leach (Vice Chairman)                       |  |                          | 4 |             |  |  | 4 | 
|R.J. McAulay                                              |  |                          | 3 |             |  |  | 3 | 
|J. A. H. Leigh                                            |  |                          | 4 |             |  |  | 4 | 
|R. Bischof                                                |  |                          | 6 |             |  |  | 5 | 
|S. F. Goldmann (retired with effect from January
1, 2003) |  |                          | 4 |             |  |  | 4 | 
|I. D. Boyce                                               |  |                          | 6 |             |  |  | 4 | 
|Independent Non-executive Directors                       |  |                          |   |             |  |  |   | 
|S. Y. Chung                                               |  |                          | 4 |             |  |  | 5 | 
|William K. Fung                                           |  |                          | 3 |             |  |  | 4 | 
|V. F. Moore                                               |  |                          | 5 |             |  |  | 5 | 
|Hansen C. H. Loh                                          |  |                          | 6 |             |  |  | 5 | 
|Paul M. L. Kan (appointed on September 7, 2001)           |  |                          | 2 |             |  |  | 5 | 
|                                                          |  | (out of 2 meetings)      |   |             |  | 
|Executive Directors                                       |  |                          |   |             |  |  |   | 
|Andrew Brandler                                           |  |                          | 6 |             |  |  | 5 | 
|Peter P.W. Tse                                            |  |                          | 4 |             |  |  | 5 | 
|Peter W. Greenwood (appointed on September 7, 2001)       |  |                          | 2 |             |  |  | 5 | 
|                                                          |  | (out of 2 meetings)      |   |             |  | 

We have adopted practices which meet and, in many instances, exceed the
provisions of the Code of Best Practice contained in Appendix 14 of the Rules
Governing the Listing of Securities on the Stock Exchange of Hong Kong (Listing
Rules).

The appointment of new Directors is a matter for consideration by the
Nomination Committee and decision by the full Board. All Directors are subject
to election by shareholders at the AGM in their first year of appointment. New
Directors are expected to have such expertise to qualify them to make a
positive contribution to the performance by our Board of its duties and to give
sufficient time and attention to our business affairs.

One-third of the Non-executive Directors retire by rotation and submit
themselves for re-election by shareholders at each AGM. The Group Managing
Director and the Executive Directors are currently not subject to retirement by
rotation whilst holding office. With effect from the next AGM in 2004, the
Group Managing Director and Executive Directors will be treated similarly to
Non-executive Directors with respect to their periodic retirement and
re-election.

89



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##### 



Management and Staff

In
2002, we issued From Vision to Reality  a value framework
encompassing our vision, mission, strategy, values, commitments and codes
applicable to all of our employees. The purpose of this framework is to
reinforce our cultural and ethical standards. A series of staff briefings have
been carried out to ensure awareness of this framework and to promote its
application throughout our Group.

(FRAMEWORK CHART)

The value framework includes a formal Code of Conduct which places all
employees and Directors under specific obligations as to the ethics and
principles by which our business is conducted. All staff receive training on
the Code of Conduct and its implications. Employees above a designated level
are required to sign annual statements confirming compliance with the Code of
Conduct.

Internal Audit

Our Group Internal Audit Department plays a major role in monitoring the
internal governance of the Group. Key tasks of the department include:



| |  |  | Unrestricted access to and review of all aspects of our
Groups activities and internal controls;                                                                             
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Comprehensive audits of the practices, procedures and
internal controls of all business and support units and
subsidiaries on a regular basis;                                
|
| |  |  | Investigation of business ethics, conflicts of interest and
other company policy violations;                                                                                  
|
| |  |  | Special reviews of areas of concern identified by
management;                                                                                                                 
|
| |  |  | Liaison with the Independent Commission Against Corruption
in Hong Kong, particularly with a view to incorporating preventive
measures and reducing potential malpractice; and
|
| |  |  | Maintenance of the Code of Conduct on an evergreen basis
and assuring that effective training is periodically conducted.                                                      

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##### 



Our Group Internal Auditor reports directly to our Group Managing Director
and has direct access to our Board through the Chairman of the Audit Committee.
Our Group Internal Auditor has the right to consult the Audit Committee
without reference to our management.

In 2002, our Group Internal Audit Department issued reports to senior
management covering various operational and financial units of the Group,
including several joint venture activities outside Hong Kong. Group Internal
Audit also conducted reviews of computer operations, as well as areas of
concern identified by management.

The annual audit plan, which is reviewed by the Audit Committee, is based
on a risk assessment methodology, which assists in determining business risks
and establishing audit frequencies. Concerns which have been reported by Group
Internal Audit are monitored quarterly by management until appropriate
corrective measures have been implemented.

External Auditors

In order to maintain the independence of the Groups external auditors and
in line with the applicable requirements of the U.S. Sarbanes-Oxley Act and
rules thereunder, the external auditors will not be employed for non-audit work
unless this constitutes permissible non-audit work as defined in the
Sarbanes-Oxley Act and has been pre-approved by the Audit Committee. In
addition, there must be clear efficiencies and value-added benefits to us from
that work being undertaken by the external auditors, with no adverse effect on
the independence of their audit work, or the perception of such independence.

For 2001 and 2002, our external auditors, PricewaterhouseCoopers Hong
Kong, provided the following non-audit services to us:

|                                               |                                   |  |                |   |      |  |   |   | 
|---------------------------------------------- | --------------------------------- |  | -------------- | - | ---- |  | - | - | 
|                                               |                                   |  | 2001           |   | 2002
|                                               |                                   |  |                |   |     
|                                               |                                   |  | (HK$ millions)
|Due diligence and accounting advisory services |                                   |  |                |   |      |  |   |  
|                                               | relating to business developments |  |                | 3 |      |  |   | 2 | 
|Taxation services                              |                                   |  | 1              |   |      |  | 1 |  
|Other advisory services                        |                                   |  | 1              |   |      |  |  |  

Other Stakeholders

Good governance requires due regard to the impact of business decisions
(including their environmental impact) not only on shareholders, but also on
other key stakeholders whose support for and participation in our business is
important for our long-term success and viability.

Internal Control and Risk Management

Our Board determines policies for risk management and control. Our Board
reviews regularly our strategies and the risks and controls associated with
these strategies. Management of our company designs, operates and monitors
risk management and control processes to implement our strategies effectively.
Internal control systems have been designed to allow our Board to monitor our
overall financial position, to protect our assets and to assure against
material financial misstatement or loss. Our Directors are responsible for
these systems, and authorizations and guidelines are in place. Specific categories of risk
are also reviewed by appropriate Committees and subsidiary Boards.

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##### 



Our Group Managing Director & Chief Executive Officer, or CEO, and
Executive Director & Chief Financial Officer, or CFO, are obliged to maintain
the effectiveness of the disclosure controls and due diligence procedures, and
to report any significant changes, deficiencies and material weaknesses in, and
fraud related to, internal controls to the Audit Committee and the Groups
external auditors.

The CEO and CFO submit an annual General Representation Letter to the
Audit Committee, in which they give a personal certification of compliance by
themselves and their subordinates with a range of key internal control systems,
disciplines and procedures. These letters rest on similar letters of
representation issued by individual managers across our Group, which certify
compliance with the internal controls as to their particular businesses,
departments and activities. These General Representation Letters reinforce
personal responsibility for good governance and controls at all levels within
the Group.

Code for Securities Transactions by Directors and Specified Individuals

We have our own Code for Securities Transactions by Directors and
Specified Individuals pursuant to the Hong Kong Stock Exchange Model Code for
Securities Transactions and Part XV of the Hong Kong Securities and Futures
Ordinance.

Open Communication

We have a policy of open communication and fair disclosure. Financial
results are announced as early as possible, and audited accounts are published
within three months after the end of the financial year. Quarterly reports are
issued to keep shareholders informed of our performance and operations.

Our website enables our shareholders and other stakeholders to obtain
information on our corporate governance structure, policies and systems. The
Corporate Governance section of our website includes:



| |  |  | Corporate Governance  CLP Principles & Practices;                                                                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Value Framework including Code of Conduct;                                                                               
|
| |  |  | CLP Fair Disclosure Policy;                                                                                              
|
| |  |  | Policy and Guidelines on the Provision of Gifts and Entertainment;                                                       
|
| |  |  | General Representation Letter;                                                                                           
|
| |  |  | Memorandum and Articles of Association of our company;                                                                   
|
| |  |  | Biographical data on Directors and senior management;                                                                    
|
| |  |  | Terms of reference of Board Committees;                                                                                  
|
| |  |  | Frequency and length of Board and Board Committee meetings,
volume of briefing papers considered and Members attendance;
|
| |  |  | Annual General Meeting proceedings;                                                                                      
|
| |  |  | Top 10 shareholders of our company;                                                                                      
|
| |  |  | Analysts briefings; and                                                                                                 
|
| |  |  | Most frequently asked questions from analysts (regularly updated).                                                       

92



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Enhancement of Corporate Governance Standards

Corporate governance is an evolving process. We regularly check and amend
our corporate governance principles and practices in light of experience,
regulatory requirements and international developments. For example, in recent
years, we have increased our disclosure in areas of growing shareholder
interest, such as auditors independence, directors remuneration and
off-balance sheet liabilities.

Disclosure is a key means to enhance our corporate governance standards,
in that it provides our shareholders with the information necessary for them to
form their own judgement and to provide feedback to us. Shareholders or other
stakeholders, who have any comments or suggestions on our corporate governance
standards, are welcome to write to our Company Secretary.

93



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##### 



D. Employees

As of December 31, 2002, we had a total workforce of 4,303, an increase
from 4,085 at December 31, 2001; of which 3,865, an increase from 3,640 at
December 31, 2001, were employed in the Scheme of Control business. Of the
total number of employees as of December 31, 2002, 2% were management and
senior manager, 23% were managerial and professional staff, 43% were general
staff and 32% were industrial workers. Substantially all of our employees are
located in Hong Kong and they do not have any unions or labor organizations.
Our workforce is characterized by (a) stability and loyalty and (b) a high
level of technical and professional skills. The employee voluntary turnover
rate was 4.9% in 2002.

Total remuneration for 2002 was HK$2,046 million (US$262 million). Our
remuneration policies are to attract, retain and motivate high performing
staff. Our pay-for-performance remuneration system consists of two
components  base compensation and annual incentive. Base compensation is
reviewed annually, taking into consideration the competitive market position,
market practice and individual performance. Staff receive an annual incentive
determined by the achievement of pre-set individual, functional, corporate and
CLP Group objectives and the incentive award ranges from zero to twice the
target award.

We have revised a number of major benefit programmes to support our pay
philosophy. We currently operate two retirement funds, established under
separate trusts, with one for professional and general staff and the other for
industrial staff. We have obtained the relevant approvals in principle to
consolidate the two retirement funds under a new single trust, which will
commence to operate in June 2003, to streamline our operation and enhance
administrative efficiency. The retirement fund under the new trust is a
defined contribution programme which provides benefits linked to contributions
and investment returns made on the programme, with additional guarantee that
the individual members benefit will not be less than the amount of our
mandatory contributions to a basic Mandatory Provident Fund scheme which
commenced on December 1, 2000 and is operated by an independent service
provider. Other benefit programmes such as medical coverage and annual leave
policies were further revised in 2002 to align with market practices.

We are committed to nurturing a learning culture throughout the
organization. In 2002, 30,930 man-days were allocated to staff training and
development. We also have a structured process to proactively identify, manage
and develop high potentials to ensure a continuum of competent leadership over
time for all key positions.

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##### 



E. Share Ownership

The following table sets forth the share ownership of our Directors and
Executive Officers in our company as of May 31, 2003.

|                             |  |                             |         |           |  |           |         |           |  |           |   |            |  |  |             |         |  |  |             |     |  |  |        |    
|---------------------------- |  | --------------------------- | ------- | --------- |  | --------- | ------- | --------- |  | --------- | - | ---------- |  |  | ----------- | ------- |  |  | ----------- | --- |  |  | ------ | ---
|                             |  | No. of ordinary shares held |         |           |  |          
|                             |  |                             |         |           |  |          
|Directors/                   |  | Personal                    |         | Family    |  | Corporate |         | Other     |  | Total     |   | Percentage
|Executive Officers           |  | Interests                   |         | Interests |  | Interests |         | Interests |  | Interests |   | Holding   
|                             |  |                             |         |           |  |           |         |           |  |           |   |           
|The Hon. Michael D. Kadoorie |  |                             |        |           |  |           | 1,243   |           |  |           |  |            |  |  | 472,423,717 | (1)&(2) |  |  | 472,424,960 | (4) |  |  | 19.62% | (4)
|W. E. Mocatta                |  |                             |        |           |  |           | 250,000 |           |  |           |  |            |  |  |            |         |  |  | 250,000     |     |  |  |       | (5)
|J. S. Dickson Leach          |  |                             | 3,436   |           |  |           |        |           |  |           |  |            |  |  |            |         |  |  | 3,436       |     |  |  |       | (5)
|R. J. McAulay                |  |                             | 13,141  |           |  |           |        |           |  |           |  |            |  |  | 439,787,424 | (1)&(3) |  |  | 439,800,565 | (4) |  |  | 18.26% | (4)
|The Hon. Sir S. Y. Chung     |  |                             | 393,789 |           |  |           |        |           |  |           |  |            |  |  |            |         |  |  | 393,789     |     |  |  |       | (5)
|William K. Fung              |  |                             | 120,000 |           |  |           |        |           |  |           |  |            |  |  |            |         |  |  | 120,000     |     |  |  |       | (5)
|R. Bischof                   |  |                             | 35,000  |           |  |           |        |           |  |           |  |            |  |  |            |         |  |  | 35,000      |     |  |  |       | (5)
|P. C. Tan                    |  |                             |        |           |  |           | 5,000   |           |  |           |  |            |  |  |            |         |  |  | 5,000       |     |  |  |       | (5)
|Andrew Brandler              |  |                             | 20,600  |           |  |           |        |           |  |           |  |            |  |  |            |         |  |  | 20,600      |     |  |  |       | (5)
|Peter P. W. Tse              |  |                             | 20,600  |           |  |           |        |           |  |           |  |            |  |  |            |         |  |  | 20,600      |     |  |  |       | (5)
|Peter W. Greenwood           |  |                             | 5,600   |           |  |           |        |           |  |           |  |            |  |  |            |         |  |  | 5,600       |     |  |  |       | (5)
|Y. B. Lee                    |  |                             | 600     |           |  |           | 15,206  |           |  |           |  |            |  |  |            |         |  |  | 15,806      |     |  |  |       | (5)



|(1) |  | 233,379,505 shares were held by discretionary trusts, of which The Hon.
Michael D. Kadoorie and Mr. R. J. McAulay are two of the beneficiaries.                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 239,044,212 shares were held by discretionary trusts, of which The Hon.
Michael D. Kadoorie is a beneficiary.                                                                                   
|   
|(3) |  | 206,407,919 shares were held by
discretionary trusts, of which Mr. R. J. McAulay, his wife and members of his family are beneficiaries.                                                         
|   
|(4) |  | The interests of The Hon. Michael D. Kadoorie and Mr. R. J. McAulay are
duplicated to the extent of 233,379,505 shares by the interests held by
the discretionary trusts mentioned in (1) above.
|   
|(5) |  | None of the Directors and Executive Officers beneficially owns one
percent or more of our outstanding shares.                                                                                   

Mr. S. F. Goldmann, who retired effective from January 1, 2003, had
disclosed personal interests in 2,400 American Depositary Receipts representing
2,400 shares as at December 31, 2002.

We do not have, and have never had, a share option scheme. Accordingly,
as of May 31, 2003, there were no options outstanding to purchase shares from
us.

95



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##### 



Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

The following table sets forth certain information as of December 31,
2000, December 31, 2001, December 31, 2002 and May 31, 2003 with respect to
major shareholders known to us to be the owner, including beneficial owners, of
more than 5% of our ordinary shares.

|              |  |                    |             |                    |  |                    |       |               |  |             |             |         |  |             |       |         |  |  |             |  |  |  |       |   |  |  |             |  |  |  |       |  
|------------- |  | ------------------ | ----------- | ------------------ |  | ------------------ | ----- | ------------- |  | ----------- | ----------- | ------- |  | ----------- | ----- | ------- |  |  | ----------- |  |  |  | ----- | - |  |  | ----------- |  |  |  | ----- | -
|              |  | As of December 31, |             | As of December 31, |  | As of December 31, |       | As of May 31,
|Name          |  | 2000               |             | 2001               |  | 2002               |       | 2003         
|              |  |                    |             |                    |  |                    |       |              
|              |  | Number of          |             | %                  |  | Number of          |       | %             |  | Number of   |             | %       |  | Number of   |       | %      
|              |  | shares held        |             | holding            |  | shares held        |       | holding       |  | shares held |             | holding |  | shares held |       | holding
|Bermuda Trust |  |                    |             |                    |  |                    |       |               |  |             |             |         |  |             |       |         |  |  |             |  |  |  |       |   |  |  |             |  |  |  |       |  
|Company
Ltd   |  |                    | 569,247,306 |                    |  |                    | 27.35 | %             |  |             | 682,978,836 |         |  |             | 28.20 | %       |  |  | 682,978,836 |  |  |  | 28.36 | % |  |  | 682,978,836 |  |  |  | 28.36 | %



|(1) |  | The interests of Bermuda Trust Company Limited in shares of our company
include the shares held by discretionary trusts of which The Hon. Michael
D. Kadoorie and/or Mr. R. J. McAulay are among the beneficiaries as
disclosed in Item 6. Directors, Senior Management and Employees  E.
Share Ownership.                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | New Boron Holding Corporation, Esko Limited, Hesko Limited, Mikado
Holding Inc., Mikado Investments Limited and The Hon. Michael D. Kadoorie
notified the Stock Exchange of Hong Kong on April 14, 2003 of the
following interests in our company attributable to and discloseable by
them pursuant to the Securities and Futures Ordinance as of April 1, 2003
(and so far as our company is aware such interests remained unchanged as
of May 31, 2003):

|                              |  |                       |             |           |  |  |       |  
|----------------------------- |  | --------------------- | ----------- | --------- |  |  | ----- | -
|Name                          |  | As of May 31, 2003   
|                              |  |                      
|                              |  | Number of shares held |             | % holding
|                             
|New Boron Holding Corporation |  |                       | 193,512,472 |           |  |  | 8.04  | %
|Esko Limited                  |  |                       | 233,379,505 |           |  |  | 9.69  | %
|Hesko Limited                 |  |                       | 233,379,505 |           |  |  | 9.69  | %
|Mikado Holding Inc.           |  |                       | 239,044,212 |           |  |  | 9.93  | %
|Mikado Investments Limited    |  |                       | 239,044,212 |           |  |  | 9.93  | %
|The Hon. Michael D. Kadoorie  |  |                       | 472,424,960 |           |  |  | 19.62 | %



|    |  | The interests of New Boron Holding Corporation, Esko Limited, Hesko Limited,
Mikado Holding Inc. and Mikado Investments Limited in our company are
duplicated by the interests in our company held by Bermuda Trust Company
Limited which effectively controls them. The attributable interests held by
The Hon. Michael D. Kadoorie are those identified in Item 6. Directors,
Senior Management and Employees  E. Share Ownership, and apart from the
minor family interests so identified therein, they are also duplicated by
the interests in our company held by Bermuda Trust Company Limited.                                                                                                                                                                                                                                                                   
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Bermuda Trust Company Limited, The Hon. Michael D. Kadoorie, Mr. R. J.
McAulay, The Sir Horace Kadoorie International Foundation and The
Incorporated Trustees of the Kadoorie Foundation, or the Parties, are
treated, and were registered on December 30, 2002 by the Securities and
Futures Commission of Hong Kong, for the purposes of the Hong Kong Code on
Takeovers and Mergers as holding in aggregate voting rights in respect of
839,028,074 ordinary shares in our company as at October 19, 2001,
representing 33.96% of our issued share capital on that date. We,
however, are not aware of any voting agreement among the Parties. As at
May 31, 2003, the Parties aggregated voting rights in us for those
purposes had increased to 34.84% as a result of our repurchases of
ordinary shares pursuant to our Share Repurchase Programme described
below.

96



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The increase in number of shares held by our major shareholder in 2001
resulted primarily from the one-for-five bonus issue in April 2001. None of
our major shareholders has different voting rights from those of our other
shareholders.

As recorded on December 30, 2002 in the Register of Shareholdings under
Rule 26.6 of the Hong Kong Code on Takeovers and Mergers maintained by the
Securities and Futures Commission, Bermuda Trust Company Limited, The Hon.
Michael D. Kadoorie, Mr. R. J. McAulay, The Sir Horace Kadoorie International
Foundation and The Incorporated Trustees of the Kadoorie Foundation, or the
Parties, are treated under that Code as holding in aggregate voting rights in
respect of 839,028,074 ordinary shares in our company as at October 19, 2001,
representing 33.96% of our issued share capital on that date. As at May 31,
2003, the Parties aggregated interests in us increased to 34.84% as a result
of our repurchases of ordinary shares pursuant to our Share Repurchase
Programme. In 2002, we repurchased a total of 13,240,500 shares from the
market, as compared to 75,986,000 shares in 2001. All of the shares we
repurchased were cancelled in accordance with the Rules Governing the Listing
of Securities on the Stock Exchange of Hong Kong.

As of May 31, 2003, we had a total of 2,408,245,900 shares outstanding.
At the same date, 18,461,193 American Depositary Shares, or ADSs, were
outstanding, representing 18,461,193 shares or approximately 0.77% of the total
number of our outstanding shares. These ADSs were held by 828 record holders,
including nominee holders and out of the 828 record holders, a total of 826 had
registered addresses in the United States. We have no further information as
to common shares held, or beneficially owned, by U.S. persons.

97



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B. Related Party Transactions

We from time to time have engaged in a variety of transactions with our
affiliates in the normal course of business. Our policy is to encourage
competition among suppliers that may include our affiliates. We usually select
our suppliers through competitive bidding procedures. We believe that the
transactions with our affiliates have been conducted on an arms length basis
or on terms as favorable to us as would be obtainable at the time in a
comparable arms length transaction with a non-affiliate. See Note 32 to the
financial statements included in Item 17. Financial Statements in this annual
report.

CAPCO

Under a contract between CLP Power and CAPCO, a company in which CLP Power
holds a 40% equity interest, we, through CLP Power, are obligated to purchase
all of the electricity generated by CAPCO. Pursuant to the contract, the price
paid by CLP Power to CAPCO is sufficient to cover all of CAPCOs operating
expenses as well as CAPCOs share of return permitted under the Scheme of
Control. See Item 4. Information on the Company  B. Business Overview 
Electricity Business in Hong Kong  Scheme of Control; and  Power Purchases
from CAPCO. In 2002, we purchased approximately 68% of our electricity from
CAPCO at a price of HK$10,191 million (US$1,307 million), as compared to
HK$9,815 million in 2001 and HK$9,735 million in 2000.

In addition, CLP Power has provided funds to CAPCO as shareholders
advances in the form of interest-free loans. During 2002, CLP Power advanced
HK$1,986 million (US$254 million) to CAPCO and CAPCO repaid HK$1,398 million
(US$179 million). As of December 31, 2002, CLP Powers advances to CAPCO
amounted to HK$4,934 million (US$633 million), as compared to HK$4,346 million
in 2001 and HK$4,055 million in 2000. The largest amount of shareholders
advances outstanding during 2002 was HK$5,099 million (US$654 million).

Pursuant to a deed of subordination, shareholders advances to CAPCO are
subordinated to CAPCOs certain debt financing and may be repaid to the extent
that CAPCOs ratio of borrowed moneys to shareholders funds (representing the
sum of the issued share capital, shareholders advances, special advances,
deferred taxation, retained profits and any proposed dividend) is not higher
than 1.5:1. Such ratio has been kept below 1.5:1 and as at December 31, 2002,
such ratio was 0.75:1, compared to 0.98:1 at 2001 and 1.16:1 in 2000. See
Item 4. Information on the Company  B. Business Overview  Electricity
Business in Hong Kong  Relationship with CAPCO.

98



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Guangdong Daya Bay Nuclear Power Station

Pursuant to several offtake and resale contracts, we, through CLP Power,
are obligated to purchase a total of 70% of the output of Guangdong Daya Bay
Nuclear Power Station, or GNPS, in Guangdong Province, China. The contracts
extend for 20 years from 1994. Under the contracts, we have a right to
purchase 25% of the electricity generated by GNPS for additional five years.
The price for electricity generated by GNPS through the term of the contracts
is determined by a formula based on GNPSs operating costs and a calculation of
profits by reference to shareholders funds and the capacity factor for a given
year. In 2002, we purchased approximately 32% of our power from GNPS at a price of approximately
HK$4,976 million (US$638 million), as compared to HK$5,013 million in 2001 and
HK$4,587 million in 2000. Our wholly owned subsidiary, Hong Kong Nuclear
Investment Company Limited, owns a 25% equity interest in GNPS. See Item 4.
Information on the Company  B. Business Overview Electricity Business in Hong
Kong  Non-CAPCO Power Purchases/Storage Facilities.

Hong Kong Pumped Storage Development Company, Limited

Hong Kong Pumped Storage Development Company, Limited, or PSDC, in which
we, through CLP Power, hold a 49% equity interest, has the right to use 50% of
the 1,200 MW capacity of Phase 1 of Guangzhou Pumped Storage Power Station for
40 years from 1994. Pursuant to a contract between CLP Power and PSDC, we have
the right to make use of that capacity. The price paid by us to PSDC is
sufficient to cover all of PSDCs operating expenses, taxation and net return.
In 2002, we paid PSDC approximately HK$419 million (US$54 million) for the
pumped storage service, as compared to HK$424 million in 2001 and HK$457
million in 2000.

In addition, CLP Power has provided funds to PSDC as shareholders
advances in the form of interest-free loans. During 2002, we advanced HK$160
million (US$21 million) to PSDC and PSDC repaid HK$150 million (US$19 million).
As of December 31, 2002, our advances to PSDC amounted to HK$300 million
(US$38 million), as compared to HK$290 million in 2001 and HK$285 million in
2000. The largest amount of shareholders advances outstanding during 2002 was
HK$321 million (US$41 million). See Item 4. Information on the Company  B.
Business Overview Electricity Business in Hong Kong  Non-CAPCO Power
Purchases/Storage Facilities.

99



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##### 



C. Interest of Experts and Counsel

Not applicable.

100



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##### 



Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

Consolidated Statements

Please refer to Item 17. Financial Statements for the financial
statements which form an integral part of this annual report on Form 20-F.

Information on legal or arbitration proceedings

We are not aware that any of us, our Directors, any member of our senior
management or any of our affiliates is a party to any current or pending legal
proceedings the outcome of which is expected to have a material adverse effect
on us or any of our subsidiaries.

Dividend Policy

Our dividend policy is to provide relatively consistent increases in
ordinary dividends, linked to the underlying earnings performance of the
business.

Since 1993, our ordinary dividend payout ratio, which is the ratio of
ordinary dividends over operating earnings excluding Hok Un redevelopment
profit and property disposal gain, have been between 54% and 63%. Earnings
from the property development at Hok Un have been the subject of special
dividends, ranging from 54% to 100% of such earnings in each financial year in
which they have arisen. To date, 91% of all Hok Un profits have been
distributed to shareholders through special dividends.

We have normally declared interim dividends and final dividends each year
to our shareholders. In line with our dividend policy, a final dividend and a
special final dividend on our shares for 2002 were approved at our Annual
General Meeting held on May 5, 2003. See Item 5. Operating and Financial
Review and Prospect  A. Operating Results.

The form, frequency and amount of future dividends on our shares will
depend upon our earnings, financial condition and other factors. Accordingly,
we cannot assure you that we will continue to pay dividends on our shares or
that future dividends will be comparable to historical dividends.

101



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##### 



B. Significant Changes

In November 2002, we entered into an agreement with Powergen UK plc, or
Powergen, to purchase its remaining interest in Gujarat Paguthan Energy
Corporation Private Limited, or GPEC, Yallourn Energy Pty Limited, or Yallourn
Energy, and BLCP Power Limited, or BLCP. The total consideration for these
acquisitions was HK$897 million (US$115 million). Upon completion, we would
effectively own interests of 100% in GPEC, 92% in Yallourn Energy and 50% in
BLCP.

Acquisitions of Powergens remaining interest in BLCP, Yallourn Energy and
GPEC were completed in January, April and June 2003 respectively. For more
information on these acquisitions, see Item 4. Information on the Company  B.
Business Overview  Electricity Business in Other Asia-Pacific Countries and
Item 5. Operating and Financial Review and Prospects  A. Operation Results 
Critical Accounting Policies  Non-consolidation of Majority-owned Joint
Ventures.

102



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##### 



Item 9. The Offer and Listing

Trading Market and Market Price Information for Our Shares

The principal trading market for our shares is the Stock Exchange of Hong
Kong, where over 858 million of our shares were traded in 2002. The board lot
for trading in our shares on the Stock Exchange of Hong Kong is 500 shares.
Our shares are also traded in the over-the-counter market in the United States
in the form of American Depositary Shares, or ADSs. The ADSs are not listed on
any United States securities exchange and were originally issued pursuant to
several unsponsored American Depositary Receipts, or ADR, programmes. In
November 1997, we appointed JPMorgan Chase Bank (formerly known as Morgan
Guaranty Trust Company of New York) as the depositary for a sponsored ADR
programme which replaced the previous unsponsored programmes.

On the basis of a market capitalization of approximately HK$76 billion or
approximately US$9.7 billion at the close of business on December 31, 2002, we
were the 10th largest company, in terms of market capitalization, listed on the
Stock Exchange of Hong Kong.

The table below shows, for the periods indicated, the high and low closing
prices (adjusted with the one-for-five bonus issue in April 2001) and the
average daily trading volume for our shares and the ADSs.

103



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##### 



|              |                |      |            |        |               |        |             |        |               |  |           |           |       |     |       |        |           |  |         |         |  |  |         |         |  |  |         |           | 
|------------- | -------------- | ---- | ---------- | ------ | ------------- | ------ | ----------- | ------ | ------------- |  | --------- | --------- | ----- | --- | ----- | ------ | --------- |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | --------- | 
|              |                |      | Our Shares |        | ADSs         
|              |                |      |            |        |              
|              |                |      | Per Share  |        | Average Daily |        | Per ADS     |        | Average Daily
|              |                |      |            |        | Trading       |        |             |        | Trading      
|Period        |                | High |            | Low    |               | Volume |             |        |               |  |           | High      |       | Low |       | Volume
|              |                |      |            |        |               |        |             |        |               |  |           |           |       |     |       |       
|              |                |      | (HK$)      |        | (HK$)         |        | (in shares) |        |               |  |           |           | (US$) |     | (US$) |        | (in ADSs)
|             
|1998          |                |      | 36.667     |        |               |        | 24.875      |        |               |  | 5,605,423 |           |       |     |       |        |           |  | 4.68750 |         |  |  | 3.02083 |         |  |  | 43,020  |          
|1999          |                |      | 34.917     |        |               |        | 28.333      |        |               |  | 3,336,694 |           |       |     |       |        |           |  | 4.58333 |         |  |  | 3.54167 |         |  |  | 46,258  |          
|2000          |                |      | 32.417     |        |               |        | 24.125      |        |               |  | 3,238,031 |           |       |     |       |        |           |  | 4.12500 |         |  |  | 3.02083 |         |  |  | 120,897 |          
|2001          |                |      | 34.833     |        |               |        | 29.350      |        |               |  | 3,294,329 |           |       |     |       |        |           |  | 4.50000 |         |  |  | 3.40000 |         |  |  | 351,106 |          
|2002          |                |      | 33.000     |        |               |        | 29.500      |        |               |  | 3,473,000 |           |       |     |       |        |           |  | 4.20000 |         |  |  | 3.65000 |         |  |  | 52,931  |          
|             
|2001:         |                |      |            |        |               |        |             |        |               |  |           |           |       |     |       |        |           |  |         |         |  |  |         |         |  |  |         |          
|              | First Quarter  |      |            | 34.417 |               |        |             | 29.667 |               |  |           | 3,357,300 |       |     |       |        |           |  |         | 4.37500 |  |  |         | 3.70833 |  |  |         | 109,446   | 
|              | Second Quarter |      |            | 34.833 |               |        |             | 31.200 |               |  |           | 2,861,406 |       |     |       |        |           |  |         | 4.50000 |  |  |         | 3.50000 |  |  |         | 71,319    | 
|              | Third Quarter  |      |            | 33.300 |               |        |             | 29.500 |               |  |           | 2,255,578 |       |     |       |        |           |  |         | 4.20000 |  |  |         | 3.40000 |  |  |         | 153,625   | 
|              | Fourth Quarter |      |            | 30.400 |               |        |             | 29.350 |               |  |           | 4,705,868 |       |     |       |        |           |  |         | 3.90000 |  |  |         | 3.50000 |  |  |         | 1,042,683 | 
|             
|2002:         |                |      |            |        |               |        |             |        |               |  |           |           |       |     |       |        |           |  |         |         |  |  |         |         |  |  |         |          
|              | First Quarter  |      |            | 32.000 |               |        |             | 29.500 |               |  |           | 3,557,800 |       |     |       |        |           |  |         | 4.05000 |  |  |         | 3.65000 |  |  |         | 38,300    | 
|              | Second Quarter |      |            | 32.700 |               |        |             | 29.850 |               |  |           | 2,978,299 |       |     |       |        |           |  |         | 4.20000 |  |  |         | 3.70000 |  |  |         | 55,014    | 
|              | Third Quarter  |      |            | 33.000 |               |        |             | 30.200 |               |  |           | 3,863,470 |       |     |       |        |           |  |         | 4.20000 |  |  |         | 3.70000 |  |  |         | 97,955    | 
|              | Fourth Quarter |      |            | 32.500 |               |        |             | 31.000 |               |  |           | 3,469,662 |       |     |       |        |           |  |         | 4.20000 |  |  |         | 3.90000 |  |  |         | 19,539    | 
|             
|2003:         |                |      |            |        |               |        |             |        |               |  |           |           |       |     |       |        |           |  |         |         |  |  |         |         |  |  |         |          
|              | First Quarter  |      |            | 32.900 |               |        |             | 31.300 |               |  |           | 3,106,234 |       |     |       |        |           |  |         | 4.25000 |  |  |         | 3.95000 |  |  |         | 25,113    | 
|             
|December 2002 |                |      | 31.800     |        |               |        | 31.200      |        |               |  | 2,628,418 |           |       |     |       |        |           |  | 4.10000 |         |  |  | 3.90000 |         |  |  | 13,700  |          
|January 2003  |                |      | 31.800     |        |               |        | 31.300      |        |               |  | 2,849,648 |           |       |     |       |        |           |  | 4.11000 |         |  |  | 3.95000 |         |  |  | 23,567  |          
|February 2003 |                |      | 32.100     |        |               |        | 31.500      |        |               |  | 3,033,166 |           |       |     |       |        |           |  | 4.20000 |         |  |  | 4.00000 |         |  |  | 19,953  |          
|March 2003    |                |      | 32.900     |        |               |        | 32.000      |        |               |  | 3,428,930 |           |       |     |       |        |           |  | 4.25000 |         |  |  | 4.10000 |         |  |  | 31,329  |          
|April 2003    |                |      | 33.200     |        |               |        | 31.900      |        |               |  | 3,548,049 |           |       |     |       |        |           |  | 4.30000 |         |  |  | 4.05000 |         |  |  | 15,948  |          
|May 2003      |                |      | 34.100     |        |               |        | 32.000      |        |               |  | 2,972,061 |           |       |     |       |        |           |  | 4.45000 |         |  |  | 4.05000 |         |  |  | 18,705  |          



---

|Source: Bloomberg.
|------------------

104



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Item 10. Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Our current Memorandum and Articles of Association were adopted on October
8, 1997 and December 12, 1997, amended on October 8, 1999, April 25, 2002 and
May 5, 2003 respectively.

Under Clause 3 of our Memorandum of Association, we have the capacity and
the rights, powers and privileges of a natural person.

The following is a summary of certain provisions of our Articles of
Association.

Directors

A Director of our company who is directly or indirectly interested in a
transaction, contract or arrangement with us shall disclose the nature of his
interest at a meeting of the Board of Directors. A Director shall not vote on
a transaction in which he has a material interest and that Director shall not
be counted in the quorum present at the meeting for such transaction. However,
a Director may vote and be counted in the quorum regarding a transaction in
which such Director has a non-material interest. The question of materiality
or the question of the entitlement of any Director to vote at a meeting may be
resolved by the interested Director voluntarily abstaining from voting or by
the Chairman of the meeting. Directors may vote on any proposals or
arrangements concerning the benefit of our employees which may relate to both
our Directors and employees, so long as any Director does not have any
privilege or advantage not generally granted to the class of persons to which
such benefit scheme relates. In addition, any of our Directors may vote on any
contract for the purchase or maintenance for any Director or Directors of our
company of insurance against liability. Our Board of Directors may exercise
all the powers of our company to borrow any sum of money, to give guarantees or
indemnities, to mortgage or charge our undertaking, property and uncalled
capital, or to issue debentures or other securities for any debt, liability or
obligation of our company.

The remuneration of our Directors is determined by our shareholders in a
General Meeting. The Directors remuneration shall be deemed to accrue from
day to day.

Our Non-executive Directors are subject to retirement by rotation. At the
Annual General Meeting each year, one-third of our Directors for the time being
who have been longest in office since their last election or appointment shall
retire and are eligible for re-election in accordance with our Articles of
Association. There is no provision for the retirement of our Directors at a
specified age limit.

105



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Our Directors are not required to hold any of our shares by way of
qualification. A Director who is not a shareholder of us is nevertheless
entitled to attend and speak at shareholders meetings.

Dividends

Our Board of Directors may declare dividends by passing an ordinary
resolution at an Annual General Meeting. Our profits available for dividend
and determined to be distributed shall be applied to pay dividends to
shareholders according to their respective rights and priorities. Except for
shares with special rights as to dividends, all dividends shall be declared and
paid according to the amounts paid up or deemed paid up on shares.

All dividends unclaimed for one year after having been declared may be
invested or otherwise made use of by our Board of Directors for our benefit
until claimed. If any dividend has not been claimed for six years after
becoming due for payment, our Board of Directors may forfeit such dividend.
After such forfeiture no shareholder or other person shall have the right to
claim such dividend, but our Board of Directors may determine to pay the whole
or part of such dividend to the shareholder or other person who could have
claimed that dividend immediately before it was forfeited. No dividend shall
bear interest against us.

Liquidation Distribution

In the case of winding up our company and in accordance with requirements
of laws, our shareholders may pass a special resolution to authorize a
liquidator to divide and distribute our assets to our shareholders or,
authorize the liquidator to vest the whole or part of our assets in trustees
upon such trusts for the benefit of the contributories so that no shareholder
will be compelled to accept shares or other securities on which there is any
liability.

Shareholders Meeting

We are required to hold our Annual General Meeting once a year. Our Board
of Directors has the right to convene an Extraordinary General Meeting whenever
it thinks fit. According to the applicable Hong Kong law, shareholders
representing one-tenth or more voting shares of our company may request an
Extraordinary General Meeting. If our Board of Directors fails to proceed to
convene an Extraordinary General Meeting within 21 days from the date of the
request, the original shareholders making the request or any of them
representing more than one-half of the total voting rights of such shareholders
may hold an Extraordinary General Meeting.

Subject to any special rights or restrictions as to voting attached to any
shares, at any general meeting, on a show of hands every shareholder who is
present in person or (being a corporation) represented by proxy shall have one
vote and, on a poll every shareholder present in person or by proxy or (being a
corporation) represented by proxy shall have one vote for every share which he
holds.

No shareholder has the right to attend or vote or otherwise exercise the
rights of a shareholder in person or by proxy at a general meeting if he has
not paid up his shares if already called or becoming payable by him.

106



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Share Capital

We generally have the right by obtaining a general mandate at the Annual
General Meeting to repurchase not more than 10% of our own shares in issue.

Our Board of Directors may make a capital call on our shareholders with
respect to the amounts unpaid on their shares and the shareholders are required
to pay the call in one sum or by installment to the person at the time and
place as appointed by our Board of Directors. Our Board of Directors may
revoke a call or postpone the time previously fixed for the call payment.

We have the right, by ordinary resolution, to increase our capital by a
sum and the number of shares as the resolution prescribes.

We may by ordinary resolution:



| | (i)   |  | consolidate and divide some or all of our share capital into
shares of a larger nominal value than our existing shares; upon such
consolidation, our Board of Directors may determine, as between the
holders of shares to be consolidated, which particular shares are to
be consolidated into each consolidated share, and may appoint a
third party to sell any fractions of shares resulting from such
consolidation and distribute rateably the net proceeds of such sale
to the shareholders who would otherwise be entitled to a fraction or
fractions of shares;
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | subject to applicable law, sub-divide some or all of our
shares into shares of a smaller nominal value than is fixed by our
Memorandum of Association and determine that, as between the holders
of the divided shares, different rights or restrictions which we may
apply to new shares may apply to some of those divided shares; or                                                                                                                                                                                                                                 
|
| | (iii) |  | cancel any shares which have not been taken or agreed to be
taken by any person at the date of the passing of the resolution and
reduce the amount of our share capital by the amount of the shares
so cancelled;                                                                                                                                                                                                                                                                                                                                                       

We may also by special resolution reduce our share capital and any capital
redemption reserve fund and any share premium account in any manner as
authorized by law.

We are not required to provide any sinking fund pursuant to our Articles
of Association. There was no provision discriminating against any existing or
prospective holder of shares as a result of such shareholder owning a
substantial number of our shares.

There was no limitation on the rights of non-resident or foreign
shareholders to hold or exercise voting rights on the shares.

Modification of Rights

We may vary or abrogate any special rights attached to any class of our
shares, with the consent in writing of the holders of three-fourths in nominal
value of the issued shares of that class, or by a special resolution passed at
a separate meeting of holders of the shares of that class.

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Transfer of Shares

Any transfer of our shares shall be effected by instrument of transfer in
any common form, or in such other form as approved by our Board of Directors.
The instrument of transfer of a share is required to be executed by the
transferor and the transferee in a manner and/or by such means as our Board of
Directors may approve from time to time. The transferor is deemed to remain
the holder of the share until the name of the transferee is entered in the
register of members in respect of the shares transferred.

Our Board of Directors may, without assigning any reason, decline to
register any transfer of any share, which is not fully paid up.

In addition, a transfer will not be registered if:



| | (i)   |  | it purports to transfer more than one class of shares;                                                                                                                                  
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | it is in favor of more than four joint holders;                                                                                                                                         
|
| | (iii) |  | it is not delivered to our registered office or to any other
place decided on by our Board of Directors;                                                                                
|
| | (iv)  |  | it is not accompanied by the relevant share certificate or
other evidence reasonably asked for by our Board of Directors to show
the entitlement of the transferor to make the transfer.

If our Board of Directors decline to register a transfer of any share,
they shall send to the transferor and the transferee a notice of the refusal
within two months after the date on which the transfer was lodged with our
share registrar.

We do not charge any fee of more than the maximum fee prescribed by the
Stock Exchange of Hong Kong of any transfer, probate, letters of
administration, certificate of marriage or death, power of attorney, stop
notice, order of court or other document relating to or affecting the title to
any share.

Our Board of Directors may decide to suspend the registration of transfers
from time to time either generally or in respect of any class of shares. But
such registration shall not be suspended for more than thirty days in any
calendar year.

We will retain for six years all instruments of transfer which are
registered.

Disclosable Ownership

Under Part XV of the Securities and Future Ordinance, or SFO, of Hong Kong
which became effective on April 1, 2003, a substantial shareholder, whether an
individual or a company, is required to notify the Stock Exchange of Hong Kong
and the listed corporation on the occurrence of relevant events which
include:

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##### 





| | (i)    |  | When he first becomes interested in 5% or more of the shares of
the listed corporation.                                                                                                                                  
| | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)   |  | When his interest drops below 5%.                                                                                                                                                                                        
|
| | (iii)  |  | When there is an increase or decrease in the percentage figure
of his holding that results in his interest crossing over a whole
percentage number which is above 5%.                                                    
|
| | (iv)   |  | When he has a notifiable interest and the nature of his
interest in the shares changes.                                                                                                                                  
|
| | (v)    |  | When he has a notifiable interest and he comes to have, or
cease to have, a short position of more than 1%.                                                                                                              
|
| | (vi)   |  | When he has a notifiable interest and there is an increase or
decrease in the percentage figure of his short position that results
in his short position crossing over a whole percentage number which
is above 1%.      
|
| | (vii)  |  | If he has an interest in 5% or more of the shares of a
corporation that is being listed, shares of a class that is being
listed, or shares of a class which are being given full voting
rights.                          
|
| | (viii) |  | Upon effectiveness of the SFO, if he has an interest in 5% or more
of the shares of a listed corporation, or if he has a notifiable
interest and a short position of 1% or more, which has not previously
been disclosed.
|
| | (ix)   |  | If the 5% threshold is reduced or the 1% threshold for short
position is reduced.                                                                                                                                        

A notification of relevant events (vii) to (ix) is referred to as an
Initial Notification. In the case of an Initial Notification the time
allowed for filing a notice is ten business days (including Saturday) as
opposed to three business days in the case of the other relevant events.

Relevant event (iv) may not always give rise to a duty to give a
notification. The change in the nature of the substantial shareholders
interest is not required to be reported if the percentage level of his interest
has not changed, and the percentage level of his interest at the last
notification given by him are both the same.

The obligations of Directors and chief executives are more extensive than
those of substantial shareholders, reflecting their greater involvement in the
management of the affairs of the listed corporation. Directors have to
disclose:



| | (i)  |  | Interests and short positions in any shares of the listed
corporation and any of its associated corporations of which they are
a Director  not simply voting shares; and
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | Interests in debentures of the listed corporation and any of
its associated corporations of which they are a Director.                                                   

109



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##### 



In addition, there is no disclosure threshold  Directors have to disclose
all dealings even if they have an interest, or a short position, in a small
number of shares or debentures.

The term Director is defined widely and includes a shadow director and
any person occupying the position of director by whatever name called. The
term shadow director means a person in accordance with whose directions or
instructions the directors of a corporation are accustomed or obliged to act.

Mandatory Offer

Under the amended Hong Kong Code on Takeovers and Mergers which became
effective on October 19, 2001, subject to the granting of a waiver by the
Securities and Futures Commission of Hong Kong or the limited exceptions for a
transitional period as specified in the Code, a person is required to make a
mandatory offer to acquire shares from the other shareholders of our company as
soon as practicable after such person acquires 30% or more of the voting rights
of our company.

Bermuda Trust Company Limited, The Hon. Michael D. Kadoorie, Mr. R. J.
McAulay, The Sir Horace Kadoorie International Foundation and The Incorporated
Trustees of the Kadoorie Foundation, or the Parties, were registered on
December 30, 2002 by the Securities and Futures Commission as holding for the
purposes of the Hong Kong Code on Takeovers and Mergers, as at October 19,
2001, voting rights in respect of shares which in aggregate represented 33.96%
of our issued share capital on that date. As at May 31, 2003, the Parties
aggregated holdings in us for the Codes purposes had increased to 34.84% as a
result of our repurchases of ordinary shares pursuant to our Share Repurchase
Programme. See Item 7. Major Shareholders and Related Party Transactions  A.
Major Shareholders. The Parties are entitled to the benefit of the
transitional arrangements of the amended Hong Kong Code on Takeovers and
Mergers, whereby the Parties are not required to make a mandatory offer to
acquire shares from other shareholders of our company unless their aggregated
interests in our issued capital reach the threshold of 35% on or before October
18, 2011. If the shareholding of the Parties drops below 30% at any time, the
new 30% trigger will apply to the Parties who will generally, on their again
reaching that level, be required to make a mandatory offer absent a waiver from
the Securities and Futures Commission.

110



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C. Material Contracts

We have not entered into any material contract other than those entered
into in the ordinary course of business for the two years immediately preceding
the publication of this annual report.

D. Exchange Controls

Under existing Hong Kong law, there are no foreign exchange controls or
other decrees or regulations (1) which restrict the import or export of capital
and which affect the availability of cash and cash equivalents for use by us;
and (2) that affect the remittance of dividends, interest or other payments to
non-resident holders of our securities. There are also no limitations on the
rights of non-resident or foreign owners to hold or vote the shares imposed by
Hong Kong law or by our Memorandum and Articles of Association.

111



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##### 



E. Taxation

The following summary of Hong Kong taxes and United States federal income
tax is of general nature only and is based on the tax laws in effect on the
date of this annual report. You, as investors in our shares or American
Depository Shares, or ADSs, are advised to consult your own tax advisors with
respect to your individual situation as to Hong Kong, United States or other
tax consequences of the purchase, ownership and disposition of our shares or
ADSs.

Hong Kong Taxation

The following is a brief summary of the Hong Kong taxes to which holders
of our shares or ADSs are subject to under current Hong Kong law.

Taxation of Dividends and Capital Gains

Under existing Hong Kong law, neither we nor any paying agent will be
required to declare or withhold for or on account of any Hong Kong taxes in
respect of dividends paid by us, except that holders of our shares or ADS
carrying on a trade, profession or business in Hong Kong may be subject to Hong
Kong taxation on the receipt of such payments.

Capital gains arising from the sale of our shares or ADSs are also not
taxable in Hong Kong, except that Hong Kong profits tax may arise in the case
of persons carrying on a trade, profession or business in Hong Kong.

Stamp Duty

Our shares constitute Hong Kong stock for the purposes of Hong Kong stamp
duty. Effective September 1, 2001, any person who effects a sale or purchase
of our shares, whether as principal or as agent, is required to execute a
contract note evidencing such sale or purchase and to have that note stamped.
Contract notes attract stamp duty at the rate of HK$2 per HK$1,000 or part
thereof (of which half is payable by the seller and half by the purchaser) by
reference to the value of the consideration or market value, whichever is
greater. If, in the case of a sale or purchase of our shares by a person who
is not resident in Hong Kong, the stamp duty on either or both of the contract
notes is not paid, the transferee will be liable to pay stamp duty on the
instrument of transfer in an amount equal to the unpaid duty. In addition, if
the stamp duty is not paid on or before the due date, a penalty of up to 10
times the duty payable may be imposed.

Transfers of ADSs are generally not subject to Hong Kong stamp duty where
the transfer is not required to be registered in Hong Kong. An ADS which
confers on the holder an entitlement to specific shares (e.g. by linking the
serial numbers of the shares to which it relates) would, however, attract Hong
Kong stamp duty on transfer.

112



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##### 



Estate Duty

Our shares are Hong Kong property for the purposes of the Estate Duty
Ordinance (Chapter 111 of the Laws of Hong Kong, as amended) and accordingly
Hong Kong estate duty may be payable in respect of our shares on the death of
the owner of such shares. ADSs that are not physically located in Hong Kong
may not, according to existing practice, be regarded as Hong Kong property for such purposes, in which event no Hong Kong estate
duty would be payable in respect of such ADSs. However, we cannot assure you
that the Hong Kong Inland Revenue Department will not treat the ADSs as Hong
Kong property that may be subject to estate duty on the death of the beneficial
owner of the ADSs even if the ADSs are located outside Hong Kong at the date of
such death. The chances of the Hong Kong Inland Revenue Department treating
the ADSs as Hong Kong property would be particularly high if an ADS confers on
the holder an entitlement to specific shares (e.g. by linking the serial
numbers of the shares to which it relates).

Where the shares, and possibly the ADSs, are owned by a controlled company
which is defined under the Estate Duty Ordinance as a company under the control
of not more than 5 persons, the death of a person who made at any time a
transfer of property to such company and who received or could have received
benefits from the company in the 3 years ending with that persons death may
expose the company to a liability to estate duty.

United States Taxation

The following is a summary of the material United States federal income
tax consequences for beneficial owners of our shares and ADSs that hold such
shares or ADSs as capital assets and that are U.S. holders that do not carry on
a trade, profession or business in Hong Kong.

A U.S. holder is a beneficial owner of shares or ADSs that is:



| |  |  | a citizen or resident of the United States;                                                                                                                                                                                                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a corporation or partnership created or organized in or under
the laws of the United States or any political subdivision thereof;                                                                                                                                                                                               
|
| |  |  | an estate the income of which is subject to United States
federal income taxation regardless of its source; or                                                                                                                                                                                                                  
|
| |  |  | a trust if (a) it is subject to the primary supervision of a
court within the United States and one or more United States persons
have the authority to make all substantial decisions of the trust or
(b) it has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a United States person.

Except where noted, this discussion deals only with shares or ADSs held as
capital assets and does not deal with tax consequences to you if you are
subject to special treatment under the United States federal income tax laws,
including if:



| |  |  | you are a dealer in securities or currencies;                                                                            
| | - |  | -------------------------------------------------------------------------------------------------------------------------
|
| |  |  | you are a trader in securities and you elect to use a
mark-to-market method of accounting for your securities holdings;  
|
| |  |  | you are a financial institution, tax-exempt entity or insurance company;                                                 
|
| |  |  | you are a regulated investment company or a real estate investment trust;                                                
|
| |  |  | you hold your shares or ADSs as part of a hedging,
integrated, conversion or constructive sale transaction or a
straddle;
|
| |  |  | you own, actually or constructively, 10% or more of our voting stock; or                                                 
|
| |  |  | your functional currency is not the United States dollar.                                                              

113



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Furthermore, the discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended, and regulations, rulings and
judicial decisions thereunder as of the date of this annual report, and such
authorities may be repealed, revoked or modified so as to result in United
States federal income tax consequences different from those discussed below.
In addition, this summary is based, in part, upon representations made by
JPMorgan Chase Bank (formerly known as Morgan Guaranty Trust Company of New
York), as depositary for the ADSs, to us and assumes that the Deposit Agreement
made among us and JPMorgan Chase Bank, as depositary and holders of the ADSs,
dated as of January 6, 1998, and all other related agreements, will be
performed in accordance with their terms.

If a partnership holds shares or ADSs, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding shares or ADSs, you
should consult your tax advisors.

ADSs

In general, for United States federal income tax purposes, if you hold
ADSs you will be treated as the owner of the underlying shares that are
represented by the ADSs. Deposits or withdrawals of shares for ADSs generally
will not be subject to United States federal income tax.

Taxation of Dividends

The amount of dividends you receive on your shares or ADSs will be treated
as dividend income to you if the distributions are paid out of our current or
accumulated earnings and profits, as determined under United States federal
income tax principles. These amounts will be includable in your gross income
as ordinary income on the day you actually or constructively receive the
dividends, which in the case of ADSs will be the date the depository actually
or constructively receives the dividends. You will not be entitled to claim
the dividends received deduction with respect to dividends you receive from us.

Under recently enacted legislation, dividends received before January 1,
2009 by U.S. holders that are individuals on shares of certain foreign
corporations may be subject to United States federal income tax at lower rates
than other types of ordinary income if certain conditions are met. You should
consult your own tax advisor regarding the application of this legislation to
your particular circumstances.

The amount of any dividend paid in Hong Kong dollars will equal the U.S.
dollar value of the Hong Kong dollars you receive, calculated by reference to
the exchange rate in effect on the date you actually or constructively receive
the dividend, which in the case of ADSs will be the date actually or
constructively received by the depository, regardless of whether the Hong Kong
dollars are actually converted into U.S. dollars. If the Hong Kong dollars you
receive as a dividend are not converted into U.S. dollars on the date you
receive them, you will have a basis in the Hong Kong dollars equal to their
U.S. dollar value on the date of receipt. Any gain or loss you realize if you
subsequently sell or otherwise dispose of the Hong Kong dollars will be treated
as ordinary gain or loss from sources within the United States.

114



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To the extent that the amount of any distribution exceeds our current and
accumulated earnings and profits for a taxable year, the distribution will
first be treated as a tax-free return of capital, causing a reduction in your
adjusted basis in the shares or ADSs. Such reduction in your basis in the
shares or ADSs will increase the amount of gain, or decrease the amount of
loss, which you will recognize on a subsequent disposition of the shares or
ADSs. The balance in excess of your adjusted basis will be taxable to you as
capital gain recognized on a sale or exchange.

It is possible that distributions of shares that you receive as part of a
pro rata distribution to all of our shareholders may be made in a manner that
is not subject to United States federal income tax. In the event that such
distributions are tax-free, the basis of the new shares that you receive will
be determined by allocating your basis in the old shares between the old shares
and the new shares received, based on their relative fair market values on the
date of distribution.

Taxation of Capital Gains

For United States federal income tax purposes, you will recognize taxable
gain or loss on any sale, exchange or other disposition of a share or ADS in an
amount equal to the difference between the amount realized for the share or ADS
and your basis in the share or ADS. This gain or loss will be capital gain or
loss. If you have held the shares or ADSs for more than one year, you will be
eligible for reduced rates of taxation. The deductibility of capital losses is
subject to limitations. Any gain or loss you recognize will generally be
treated as United States source gain or loss.

Estate and Gift Taxation

Hong Kong imposes an estate tax on a decedent who owns shares (and
possibly ADSs), even if the decedent was not a citizen or resident of Hong
Kong. See  Hong Kong Taxation above. The amount of any inheritance tax
paid to Hong Kong may be eligible for credit against the amount of United
States federal estate tax imposed on the estate of a U.S. holder. You should
consult your personal tax advisors to determine whether and to what extent you
may be entitled to such credit.

Information Reporting and Backup Withholding

In general, unless you are an exempt recipient such as a corporation,
information reporting requirements will apply to dividends in respect of the
shares or ADSs or the proceeds received on the sale, exchange, or redemption of
the shares or ADSs paid within the United States (and in certain cases, outside
of the United States) to you, and backup withholding may apply to such amounts
if you fail to provide an accurate taxpayer identification number, or fail to
either report interest and dividends required to be shown on your federal
income tax returns or to make the necessary certifications. The amount of any
backup withholding from a payment to you will be allowed as a refund or a
credit against your United States federal income tax liability, provided you
furnish the required information to the Internal Revenue Service.

115



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##### 



F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

The U.S. Securities and Exchange Commission, or the SEC, allows us to
incorporate by reference the information we have filed with the SEC. This
means that we can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated
by reference in this annual report is considered to be part of this annual
report. We therefore incorporate by reference in Item 19 of this annual report
certain exhibit(s) which we filed with the SEC before. You may read and copy
this annual report, including the exhibit(s) incorporated by reference in this
annual report, at the SECs Public Reference Room at 450 Fifth Street, N.W.,
Washington, DC 20549 and at the SECs regional offices in New York, New York
and Chicago, Illinois. You can also request copies of this annual report,
including the exhibit(s) incorporated by reference in this annual report, upon
payment of a duplicating fee, by writing information on the operation of the
SECs Public Reference Room.

The
SEC also maintains a website at www.sec.gov that contains reports,
proxy statements and other information regarding registrants that file
electronically with the SEC. Our annual report and some of the other
information submitted by us to the SEC may be accessed through this website.

I. Subsidiary Information

Not applicable.

116



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Item 11. Quantitative and Qualitative Disclosures about Market Risk

Our core electrical utility operations in Hong Kong are regulated under
the Scheme of Control. Under the terms of the Scheme of Control, CLP Powers
and CAPCOs financing costs in excess of 8% per annum and commodity costs are
passed on to customers through the tariff mechanism so that we are able to
receive our net return. See Item 4. Information on the Company  B. Business
Overview  Electricity Business in Hong Kong  Scheme of Control. Due to
these arrangements, we do not believe that during the term of the current
Scheme of Control which will expire in 2008, we would face material market risks to
our rate of return from interest rate risk, foreign currency exchange risk or
commodity price risk. Under the Scheme of Control, however, we have an
overriding obligation to provide electricity to our supply area at the lowest
reasonable cost, and we must periodically submit financial plans to the
Government of Hong Kong for approval.

We also have foreign exchange exposure relating to our strategic
investments, particularly those in the Asia-Pacific region outside Hong Kong
and the Chinese mainland. As of December 31, 2002, approximately 14% of our
consolidated total assets, or HK$8,605 million (US$1,103 million), are from
this geographical segment. Any volatility in currency exchange rate between
Hong Kong dollar and other currencies may affect our financial position and
results of operations.

Because of these factors, we do take steps as described below to manage
the impact of any such market exposures on our operations.

We use derivative instruments, including forward foreign exchange
contracts, currency swaps and interest rate swaps, to manage our exposure to
foreign currency and interest rate risks with an objective to minimize the
impact of exchange rate and interest rate fluctuations on our earnings,
reserves and tariff charges to customers. Our interest rate risks are managed
according to our preferred interest rate mix model. Foreign currency exposures
mainly arise from loan repayment obligations, purchase of goods and services
and overseas investment activities. All hedging transactions are with
counterparties with acceptable credit ratings. A limit is assigned to each
counterparty for monitoring the credit exposure. Other than derivative
instruments, we also adopt an approach of financing our investments by
borrowings of matching currency where appropriate to mitigate the currency
risk.

During 2002, we hedged the currency exposure arising from our investment
in Yallourn Energy Pty Limited, or Yallourn Energy, in Australia by refinancing
the investment with borrowings denominated in Australian dollars. In addition,
we swapped the full U.S. dollar obligations related to the US$300 million notes
issued in 2002 under the MTN Programme into Hong Kong dollars to eliminate the
currency exposure, and swapped part of the floating rate obligations into fixed
rate to achieve our preferred interest rate mix. We also utilized forward
contracts and currency swaps, when suitable opportunities arise, to hedge our
U.S. dollar exposure on loan interest/repayments, purchase of goods and
services and other projected expenditures. As we employ all these derivative
instruments solely for hedging purposes, we are not exposed to market risk
resulting from the derivative transactions because the change in fair value
will be offset by an opposite change in the values of the underlying hedged
items.

117



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##### 



In 2002, CAPCO entered into interest rate swaps with notional principal
amount of HK$2.3 billion to hedge the interest rate exposure of the floating
rate loan arranged for refinancing certain U.S. dollar and Hong Kong dollar
loans. After taking into account of this refinancing, the percentage of
unhedged U.S. dollar loans to total loans of us and CAPCO combined would also
be reduced from 26% at December 31, 2002 to 17% in January 2003.

We do not invest in risk sensitive instruments for trading purposes,
except for Yallourn Energy which was 92% owned and jointly controlled by us and
Powergen UK plc before we acquired Powergen UK plcs remaining interest in
April 2003. Yallourn Energy uses energy-related derivative instruments
principally to hedge the price risk of sales of electricity and the price risk
of purchasing energy to satisfy retail sales contract obligations and has
limited trading activities for its wholesale market. As of December 31, 2002,
the fair value of Yallourn Energys energy-related derivatives for trading
purposes was approximately Australian dollars 126,000 (US$0.1 million). In
addition, Yallourn Energy uses derivative financial instruments like forwards,
swaps and swaptions to minimize its foreign currency and interest rate risk
exposure.

The tables below provide information about our derivative financial
instruments that are sensitive to changes in interest rates or foreign currency
exchange rates. For debt obligations, the tables present principal cash flows
and related weighted average interest rates by expected maturity dates. For
cross currency and interest rate swaps and forward foreign exchange contracts,
the tables present the notional amounts and weighted average exchange rates or
weighted average interest rates by contractual maturity dates.

The interest rate risk table also assumes interest rates based on the
implied forward rates in the yield curve at year end. Actual future market
conditions may differ materially from such assumptions.

Deposits and short-term borrowings (including overdrafts and money market
loans) are not included in the following tables. Due to the short-term nature
of deposits and short-term borrowings, the fair values of these instruments
approximate costs.

118



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##### 



INTEREST RATE RISK

|                                       |                         |          |     |                             |  |   |                         |               |  |      |  |      |  |           |  |      |  |               |  |           |  |            |  |       |  |            |  |      |  |       |  |      |  |       |  |  |  |       |  |       |  |       |  |  |  | 
|-------------------------------------- | ----------------------- | -------- | --- | --------------------------- |  | - | ----------------------- | ------------- |  | ---- |  | ---- |  | --------- |  | ---- |  | ------------- |  | --------- |  | ---------- |  | ----- |  | ---------- |  | ---- |  | ----- |  | ---- |  | ----- |  |  |  | ----- |  | ----- |  | ----- |  |  |  | 
|                                       |                         |          |     |                             |  |   |                         | December 2002 |  |      |  |      |  |           |  |      |  | December 2001
|                                       |                         |          |     |                             |  |   |                         |               |  |     
|                                       |                         |          |     |                             |  |   | Expected Maturity Dates |               |  |      |  |      |  |           |  |      |  |               | 
|                                       |                         |          |     |                             |  |   |                         |               |  |      |  |      |  | Aggregate |  |      |  |               |  | Aggregate
|                                       |                         |          |     |                             |  |   |                         | 2003          |  | 2004 |  | 2005 |  | 2006      |  | 2007 |  | Thereafter    |  | Total     |  | Fair
Value |  | Total |  | Fair Value
|                                       |                         |          |     |                             |  |   |                         |               |  |      |  |      |  |           |  |      |  |               |  |           |  |            |  |       |  |           
|On-balance sheet financial instruments |                         | Currency |     | In HK$ equivalent, millions |  |   |                         |               |  |      |  |     
|                                       |                         |          |     |                             |  |   |                         |               |  |      |  |      |  |           |  |      |  |               |  |           |  |            |  |       |  |            |  |      |  |       |  |      |  |       |  |  |  |       |  |       |  |       |  | 
|I. Capital Markets Instruments         |                         |          |     |                             |  |   |                         |               |  |      |  |      |  |           |  |      |  |               |  |           |  |            |  |       |  |            |  |      |  |       |  |      |  |       |  |  |  |       |  |       |  |       |  | 
|                                      
|                                       | Fixed Rate Note         |          | USD |                             |  |  |                         |               |  |     |  |      |  |          |  |      |  | 2,340         |  |           |  |           |  |       |  | 2,340      |  |      |  | 4,680 |  |      |  | 5,417 |  |  |  | 2,340 |  |       |  | 2,539 | 
|                                       | Average Interest Rate % |          |     |                             |  |   |                         |              |  |      |  |     |  |           |  |     |  |               |  | 7.50      |  |            |  |      |  |            |  | 6.25 |  |       |  | 6.88 |  |       |  |  |  |       |  | 7.50  |  |       |  |  | 
|                                      
|II. Bank Loans                         |                         |          |     |                             |  |   |                         |               |  |      |  |      |  |           |  |      |  |               |  |           |  |            |  |       |  |            |  |      |  |       |  |      |  |       |  |  |  |       |  |       |  |       |  | 
|                                      
|                                       | Fixed Rate              |          | GBP |                             |  |  |                         |               |  |     |  |      |  |          |  |      |  |              |  |           |  |           |  |       |  |           |  |      |  |      |  |      |  |      |  |  |  | 1     |  |       |  | 1     | 
|                                       | Average Interest Rate % |          |     |                             |  |   |                         |              |  |      |  |     |  |           |  |     |  |               |  |          |  |            |  |      |  |            |  |     |  |       |  |     |  |       |  |  |  |       |  | 9.15  |  |       |  |  | 
|                                      
|                                       | Fixed Rate              |          | EUR |                             |  |  |                         |               |  |     |  |      |  |          |  |      |  |              |  |           |  |           |  |       |  |           |  |      |  |      |  |      |  |      |  |  |  | 5     |  |       |  | 6     | 
|                                       | Average Interest Rate % |          |     |                             |  |   |                         |              |  |      |  |     |  |           |  |     |  |               |  |          |  |            |  |      |  |            |  |     |  |       |  |     |  |       |  |  |  |       |  | 10.05 |  |       |  |  | 
|                                      
|                                       | Fixed Rate              |          | USD |                             |  | 3 |                         |               |  | 2    |  |      |  | 1         |  |      |  |              |  |           |  |           |  |       |  |           |  |      |  | 6     |  |      |  | 7     |  |  |  | 11    |  |       |  | 11    | 
|                                       | Average Interest Rate % |          |     |                             |  |   |                         | 5.42          |  |      |  | 5.42 |  |           |  | 5.42 |  |               |  |          |  |            |  |      |  |            |  |     |  |       |  | 5.42 |  |       |  |  |  |       |  | 5.42  |  |       |  |  | 
|                                      
|                                       | Floating Rate           |          | AUD |                             |  |  |                         |               |  |     |  |      |  | 88        |  |      |  |              |  |           |  | 2,102      |  |       |  |           |  |      |  | 2,190 |  |      |  | 2,190 |  |  |  |      |  |       |  |      | 
|                                       | Average Interest Rate % |          |     |                             |  |   |                         |              |  |      |  |     |  |           |  | 5.07 |  |               |  |          |  |            |  | 5.20  |  |            |  |     |  |       |  | 5.19 |  |       |  |  |  |       |  |      |  |       |  |  | 
|                                      
|                                       | Floating Rate           |          | HKD |                             |  |  |                         |               |  |     |  |      |  | 1,500     |  |      |  | 354           |  |           |  |           |  |       |  |           |  |      |  | 1,854 |  |      |  | 1,854 |  |  |  | 1,867 |  |       |  | 1,867 | 
|                                       | Average Interest Rate % |          |     |                             |  |   |                         |              |  |      |  |     |  |           |  | 3.01 |  |               |  | 3.40      |  |            |  |      |  |            |  |     |  |       |  | 3.08 |  |       |  |  |  |       |  | 5.54  |  |       |  |  | 

|                                          |                     |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |            |       |  |      |  |       |  |      |  |      |   |  |  |       |  |       |  |     |   |  | 
|----------------------------------------- | ------------------- | ------------------------- |  | --------------------------- |  |  | - | ----------------------- | - | ---- | - | ---- | - | --------- | - | ---- | - | ------------- | ----- | --------- | ---- | ------------- | ----- | ----- | ---- | ---------- | ----- |  | ---- |  | ----- |  | ---- |  | ---- | - |  |  | ----- |  | ----- |  | --- | - |  | 
|                                          |                     |                           |  |                             |  |  |   | December 2002           |   |      |   |      |   |           |   |      |   | December 2001
|                                          |                     |                           |  |                             |  |  |   |                         |   |     
|                                          |                     |                           |  |                             |  |  |   | Expected Maturity Dates |   |      |   |      |   |           |   |      |   |               |       |          
|                                          |                     |                           |  |                             |  |  |   |                         |   |      |   |      |   | Aggregate |   |      |   |               |       | Aggregate
|                                          |                     |                           |  |                             |  |  |   | 2003                    |   | 2004 |   | 2005 |   | 2006      |   | 2007 |   | Thereafter    |       | Total     |      | Fair
Value(1) |       | Total |      | Fair Value
|                                          |                     |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |           
|Off-balance sheet financial instruments   |                     | Currency                  |  | In HK$ equivalent, millions |  |  |   |                         |   |      |   |     
|                                          |                     |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |            |       |  |      |  |       |  |      |  |      |   |  |  |       |  |       |  |     |  
|III. Cross Currency & Interest
Rate Swaps |                     |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |            |       |  |      |  |       |  |      |  |      |   |  |  |       |  |       |  |     |  
|                                         
|                                          | 1 Fixed to Variable |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |            |       |  |      |  |       |  |      |  |      |   |  |  |       |  |       |  |     |   | 
|                                          |                     | Notional pay amount       |  | HKD                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               | 1,170 |           |      |               |      |       |      |            | 2,340 |  |      |  | 3,510 |  |      |  | 508  |   |  |  | 1,170 |  |       |  | 116 |  
|                                          |                     | Notional receive
amount   |  | USD                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               | 1,170 |           |      |               |      |       |      |            | 2,340 |  |      |  | 3,510 |  |      |  |      |   |  |  | 1,170 |  |       |  |     |  
|                                          |                     | Interest pay rate (%)     |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |       |           | 3.17 |               |       |       |     |            |       |  | 5.36 |  |       |  | 4.63 |  |      |   |  |  |       |  | 5.64  |  |     |   |  | 
|                                          |                     | Interest receive
rate (%) |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |       |           | 7.50 |               |       |       |     |            |       |  | 6.25 |  |       |  | 6.67 |  |      |   |  |  |       |  | 7.50  |  |     |   |  | 
|                                         
|                                          | 2 Fixed to Fixed    |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |            |       |  |      |  |       |  |      |  |      |   |  |  |       |  |       |  |     |   | 
|                                          |                     | Notional pay amount       |  | HKD                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               | 1,170 |           |      |               |      |       |      |            |      |  |      |  | 1,170 |  |      |  | (8   | ) |  |  | 1,170 |  |       |  | 2   |  
|                                          |                     | Notional receive
amount   |  | USD                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               | 1,170 |           |      |               |      |       |      |            |      |  |      |  | 1,170 |  |      |  |      |   |  |  | 1,170 |  |       |  |     |  
|                                          |                     | Interest pay rate (%)     |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |       |           | 8.00 |               |       |       |     |            |       |  |     |  |       |  | 8.00 |  |      |   |  |  |       |  | 8.00  |  |     |   |  | 
|                                          |                     | Interest receive
rate (%) |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |       |           | 7.50 |               |       |       |     |            |       |  |     |  |       |  | 7.50 |  |      |   |  |  |       |  | 7.50  |  |     |   |  | 
|                                         
|                                          | 3 Fixed to Fixed    |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |            |       |  |      |  |       |  |      |  |      |   |  |  |       |  |       |  |     |   | 
|                                          |                     | Notional pay amount       |  | USD                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               |      |           |      |               |      |       |      |            |      |  |      |  |      |  |      |  |     |   |  |  | 4     |  |       |  | (2  | )
|                                          |                     | Notional receive
amount   |  | EUR                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               |      |           |      |               |      |       |      |            |      |  |      |  |      |  |      |  |      |   |  |  | 3     |  |       |  |     |  
|                                          |                     | Interest pay rate (%)     |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |       |           |     |               |       |       |     |            |       |  |     |  |       |  |     |  |      |   |  |  |       |  | 5.40  |  |     |   |  | 
|                                          |                     | Interest receive
rate (%) |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |       |           |     |               |       |       |     |            |       |  |     |  |       |  |     |  |      |   |  |  |       |  | 10.05 |  |     |   |  | 
|                                         
|IV. Interest Rate Swaps                   |                     |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |            |       |  |      |  |       |  |      |  |      |   |  |  |       |  |       |  |     |  
|                                         
|                                          | 1 Variable to Fixed |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |       |           |      |               |       |       |      |            |       |  |      |  |       |  |      |  |      |   |  |  |       |  |       |  |     |   | 
|                                          |                     | Notional amount           |  | HKD                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               | 1,170 |           |      |               | 1,000 |       |      |            |      |  |      |  | 2,170 |  |      |  | (206 | ) |  |  | 1,170 |  |       |  | (25 | )
|                                          |                     | Interest pay rate (%)     |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |       |           | 5.65 |               |       |       | 5.32 |            |       |  |     |  |       |  | 5.50 |  |      |   |  |  |       |  | 5.65  |  |     |   |  | 
|                                          |                     | Interest receive
rate (%) |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |       |           | 2.82 |               |       |       | 4.60 |            |       |  |     |  |       |  | 3.64 |  |      |   |  |  |       |  | 5.29  |  |     |   |  | 

Note:
(1)    Fair value for off-balance sheet financial instruments represent the amounts we would receive / (pay) to close out the transactions.

119



---



##### 



CURRENCY RISK

|                                       |                         |          |     |  |                             |   |                         |      |      |   |      |      |           |    |      |      |               |   |           |   |            |       |       |      |            |   |  |   |  |       |  |      |  |       |  |  |  |    |  |       |  |    |  |  | 
|-------------------------------------- | ----------------------- | -------- | --- |  | --------------------------- | - | ----------------------- | ---- | ---- | - | ---- | ---- | --------- | -- | ---- | ---- | ------------- | - | --------- | - | ---------- | ----- | ----- | ---- | ---------- | - |  | - |  | ----- |  | ---- |  | ----- |  |  |  | -- |  | ----- |  | -- |  |  | 
|                                       |                         |          |     |  |                             |   | December 2002           |      |      |   |      |      |           |    |      |      | December 2001
|                                       |                         |          |     |  |                             |   |                         |      |     
|                                       |                         |          |     |  |                             |   | Expected Maturity Dates |      |      |   |      |      |           |    |      |      |               |   |          
|                                       |                         |          |     |  |                             |   |                         |      |      |   |      |      | Aggregate |    |      |      |               |   | Aggregate
|                                       |                         |          |     |  |                             |   | 2003                    |      | 2004 |   | 2005 |      | 2006      |    | 2007 |      | Thereafter    |   | Total     |   | Fair Value |       | Total |      | Fair Value
|                                       |                         |          |     |  |                             |   |                         |      |      |   |      |      |           |    |      |      |               |   |           |   |            |       |       |     
|On-balance sheet financial instruments |                         | Currency |     |  | In HK$ equivalent, millions |   |                         |      |      |   |      |      |          
|                                       |                         |          |     |  |                             |   |                         |      |      |   |      |      |           |    |      |      |               |   |           |   |            |       |       |      |            |   |  |   |  |       |  |      |  |       |  |  |  |    |  |       |  |    | 
|I. Bank Loans:                         |                         |          |     |  |                             |   |                         |      |      |   |      |      |           |    |      |      |               |   |           |   |            |       |       |      |            |   |  |   |  |       |  |      |  |       |  |  |  |    |  |       |  |    |  | 
|                                      
|                                       | Floating Rate           |          | AUD |  |                             |  |                         |      |      |  |      |      |           | 88 |      |      |               |  |           |   |            | 2,102 |       |      |            |  |  |   |  | 2,190 |  |      |  | 2,190 |  |  |  |   |  |       |  |   | 
|                                       | Average Interest Rate % |          |     |  |                             |   |                         |     |      |   |      |     |           |    |      | 5.07 |               |   |           |  |            |       |       | 5.20 |            |   |  |  |  |       |  | 5.19 |  |       |  |  |  |    |  |      |  |    |  |  | 
|                                      
|                                       | Fixed Rate              |          | GBP |  |                             |  |                         |      |      |  |      |      |           |   |      |      |               |  |           |   |            |      |       |      |            |  |  |   |  |      |  |      |  |      |  |  |  | 1  |  |       |  | 1  | 
|                                       | Average Interest Rate % |          |     |  |                             |   |                         |     |      |   |      |     |           |    |      |     |               |   |           |  |            |       |       |     |            |   |  |  |  |       |  |     |  |       |  |  |  |    |  | 9.15  |  |    |  |  | 
|                                      
|                                       | Fixed Rate              |          | EUR |  |                             |  |                         |      |      |  |      |      |           |   |      |      |               |  |           |   |            |      |       |      |            |  |  |   |  |      |  |      |  |      |  |  |  | 5  |  |       |  | 6  | 
|                                       | Average Interest Rate % |          |     |  |                             |   |                         |     |      |   |      |     |           |    |      |     |               |   |           |  |            |       |       |     |            |   |  |  |  |       |  |     |  |       |  |  |  |    |  | 10.05 |  |    |  |  | 
|                                      
|                                       | Fixed Rate              |          | USD |  |                             | 3 |                         |      |      | 2 |      |      |           | 1  |      |      |               |  |           |   |            |      |       |      |            |  |  |   |  | 6     |  |      |  | 7     |  |  |  | 11 |  |       |  | 11 | 
|                                       | Average Interest Rate % |          |     |  |                             |   |                         | 5.42 |      |   |      | 5.42 |           |    |      | 5.42 |               |   |           |  |            |       |       |     |            |   |  |  |  |       |  | 5.42 |  |       |  |  |  |    |  | 5.42  |  |    |  |  | 

|                                         |                |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |   |           |   |               |   |       |   |            |   |  |   |  |   |  |   |  |   |  |  |  |   |  |       |  |    |   |  | 
|---------------------------------------- | -------------- | ------------------------- |  | --------------------------- |  |  | - | ----------------------- | - | ---- | - | ---- | - | --------- | - | ---- | - | ------------- | - | --------- | - | ------------- | - | ----- | - | ---------- | - |  | - |  | - |  | - |  | - |  |  |  | - |  | ----- |  | -- | - |  | 
|                                         |                |                           |  |                             |  |  |   | December 2002           |   |      |   |      |   |           |   |      |   | December 2001
|                                         |                |                           |  |                             |  |  |   |                         |   |     
|                                         |                |                           |  |                             |  |  |   | Expected Maturity Dates |   |      |   |      |   |           |   |      |   |               |   |          
|                                         |                |                           |  |                             |  |  |   |                         |   |      |   |      |   | Aggregate |   |      |   |               |   | Aggregate
|                                         |                |                           |  |                             |  |  |   | 2003                    |   | 2004 |   | 2005 |   | 2006      |   | 2007 |   | Thereafter    |   | Total     |   | Fair
Value(1) |   | Total |   | Fair Value
|                                         |                |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |   |           |   |               |   |       |   |           
|Off-balance sheet financial instruments  |                | Currency                  |  | In HK$ equivalent, millions |  |  |   |                         |   |      |   |     
|                                         |                |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |   |           |   |               |   |       |   |            |   |  |   |  |   |  |   |  |   |  |  |  |   |  |       |  |    |  
|II.
Cross Currency & Interest
Rate Swaps |                |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |   |           |   |               |   |       |   |            |   |  |   |  |   |  |   |  |   |  |  |  |   |  |       |  |    |  
|                                        
|                                         | 1
EUR to USD   |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |   |           |   |               |   |       |   |            |   |  |   |  |   |  |   |  |   |  |  |  |   |  |       |  |    |   | 
|                                         | Fixed to Fixed |                           |  |                             |  |  |   |                         |   |      |   |      |   |           |   |      |   |               |   |           |   |               |   |       |   |            |   |  |   |  |   |  |   |  |   |  |  |  |   |  |       |  |    |   | 
|                                         |                | Notional pay amount       |  | USD                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |   |  |  |  |  |  | 4 |  |       |  | (2 | )
|                                         |                | Notional receive
amount   |  | EUR                         |  |  |  |                         |   |      |  |      |   |           |  |      |   |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |   |  |   |  |  |  | 3 |  |       |  |    |  
|                                         |                | Interest pay rate (%)     |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |   |           |  |               |   |       |  |            |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 5.40  |  |    |   |  | 
|                                         |                | Interest receive
rate (%) |  |                             |  |  |   |                         |  |      |   |      |  |           |   |      |  |               |   |           |  |               |   |       |  |            |   |  |  |  |   |  |  |  |   |  |  |  |   |  | 10.05 |  |    |   |  | 

Note:
(1)    Fair value for off-balance sheet financial instruments represent the amounts we would receive / (pay) to close out the transactions.

120



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##### 



CURRENCY RISK (continued)

|                                        |                                   |                                         |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |         |  |  |  |    |  |  |  |         |  |  |  |     |  
|--------------------------------------- | --------------------------------- | --------------------------------------- |  | --------------------------- | ------- | ---- |  | ---- | ------ | --------- |  | ---- | ------ | ------------- |  | --------- | - | ------------- |  | ----- | - | ---------- |  |  | - |  |  |  | ------- |  |  |  | -- |  |  |  | ------- |  |  |  | --- | -
|                                        |                                   |                                         |  | December 2002               |         |      |  |      |        |           |  |      |        | December 2001
|                                        |                                   |                                         |  |                             |         |     
|                                        |                                   |                                         |  | Expected Maturity Dates     |         |      |  |      |        |           |  |      |        |               |  |          
|                                        |                                   |                                         |  |                             |         |      |  |      |        | Aggregate |  |      |        |               |  | Aggregate
|                                        |                                   |                                         |  | 2003                        |         | 2004 |  | 2005 |        | 2006      |  | 2007 |        | Thereafter    |  | Total     |   | Fair Value(1) |  | Total |   | Fair Value
|                                        |                                   |                                         |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |           
|                                        |                                   |                                         |  | In HK$ equivalent, millions |         |      |  |      |        |           |  |     
|III. Forward Foreign Exchange Contracts |                                   |                                         |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |         |  |  |  |    |  |  |  |         |  |  | 
|                                       
|                                        | 1
For Firm Commitments(2)         |                                         |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |         |  |  |  |    |  |  |  |         |  |  |  |    
|                                        |                                   | Swiss Franc (in millions)               |  |                             | 1       |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 1       |  |  |  |   |  |  |  |        |  |  |  |    |  
|                                        |                                   | Weighted Average Contract               |  |                             | 5.4745  |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 5.4745  |  |  |  |    |  |  |  |        |  |  |  |     |  
|                                        |                                   | Rate (Vs HKD)                           |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |         |  |  |  |    |  |  |  |         |  |  |  |     |  
|                                       
|                                        |                                   | British Pounds (in millions)            |  |                             | 13      |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 13      |  |  |  | 1  |  |  |  | 28      |  |  |  |    |  
|                                        |                                   | Weighted Average Contract
Rate (Vs HKD) |  |                             | 11.4866 |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 11.4866 |  |  |  |    |  |  |  | 11.1591 |  |  |  |     |  
|                                       
|                                        |                                   | Japanese Yen (in millions)              |  |                             | 16      |      |  |      | 4      |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 20      |  |  |  |   |  |  |  | 28      |  |  |  | (2  | )
|                                        |                                   | Weighted Average Contract
Rate (Vs HKD) |  |                             | 0.0660  |      |  |      | 0.0667 |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 0.0662  |  |  |  |    |  |  |  | 0.0648  |  |  |  |     |  
|                                       
|                                        |                                   | Euro (in millions)                      |  |                             | 110     |      |  |      | 55     |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 165     |  |  |  | 8  |  |  |  | 121     |  |  |  | (3  | )
|                                        |                                   | Weighted Average Contract
Rate (Vs HKD) |  |                             | 7.5577  |      |  |      | 7.9014 |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 7.6674  |  |  |  |    |  |  |  | 6.9603  |  |  |  |     |  
|                                       
|                                        |                                   | Euro (in millions)                      |  |                             | 21      |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 21      |  |  |  |   |  |  |  | 1       |  |  |  |    |  
|                                        |                                   | Weighted Average Contract
Rate (Vs USD) |  |                             | 1.0773  |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 1.0773  |  |  |  |    |  |  |  | 0.8845  |  |  |  |     |  
|                                       
|                                        | 2
For Anticipated Transactions(2) |                                         |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |         |  |  |  |    |  |  |  |         |  |  |  |    
|                                        |                                   | Australian Dollar (in
millions)         |  |                             | 243     |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 243     |  |  |  |   |  |  |  |        |  |  |  |    |  
|                                        |                                   | Weighted Average Contract
Rate (Vs HKD) |  |                             | 4.3718  |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 4.3718  |  |  |  |    |  |  |  |        |  |  |  |     |  
|                                       
|                                        |                                   | British Pounds (in millions)            |  |                             |        |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  |        |  |  |  |   |  |  |  | 2       |  |  |  |    |  
|                                        |                                   | Weighted Average Contract               |  |                             |        |      |  |      |       |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  |        |  |  |  |    |  |  |  | 11.1591 |  |  |  |     |  
|                                        |                                   | Rate (Vs HKD)                           |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |         |  |  |  |    |  |  |  |         |  |  |  |     |  
|                                       
|                                        |                                   | Japanese Yen (in millions)              |  |                             | 6       |      |  |      | 1      |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 7       |  |  |  |   |  |  |  | 6       |  |  |  |    |  
|                                        |                                   | Weighted Average Contract
Rate (Vs HKD) |  |                             | 0.0660  |      |  |      | 0.0667 |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 0.0662  |  |  |  |    |  |  |  | 0.0648  |  |  |  |     |  
|                                       
|                                        |                                   | Euro (in millions)                      |  |                             | 115     |      |  |      | 56     |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 171     |  |  |  | 10 |  |  |  | 144     |  |  |  | (2  | )
|                                        |                                   | Weighted Average Contract               |  |                             | 7.5577  |      |  |      | 7.9014 |           |  |      |       |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 7.6674  |  |  |  |    |  |  |  | 6.9603  |  |  |  |     |  
|                                        |                                   | Rate (Vs HKD)                           |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |         |  |  |  |    |  |  |  |         |  |  |  |     |  
|                                       
|                                        |                                   | US Dollars (in millions)                |  |                             | 12,560  |      |  |      | 8,852  |           |  |      | 1,111  |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 22,523  |  |  |  | 57 |  |  |  | 32,029  |  |  |  | 148 |  
|                                        |                                   | Weighted Average Contract               |  |                             | 7.7966  |      |  |      | 7.8003 |           |  |      | 7.8050 |               |  |           |  |               |  |       |  |            |  |  |  |  |  |  | 7.7984  |  |  |  |    |  |  |  | 7.7965  |  |  |  |     |  
|                                        |                                   | Rate (Vs HKD)                           |  |                             |         |      |  |      |        |           |  |      |        |               |  |           |   |               |  |       |   |            |  |  |   |  |  |  |         |  |  |  |    |  |  |  |         |  |  |  |     |  

Note:

|(1) |  | Fair value for off-balance sheet financial instruments represent the
amounts we would receive / (pay) to close out the transactions.                                                                                                                                            
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | U.S. dollar forward foreign exchange contracts for some projected
expenditures grouped under Firm Commitments in 2001 are re-classified as
Anticipated Transactions in 2002. This reclassification does not have any
impact on our financial position and results of operations.

121



---



##### 



Item 12. Description of Securities Other than Equity Securities

Not applicable.

122



---



##### 



PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

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

Not Applicable.

Item 15. Controls and Procedures

Within 90 days prior to the date of this annual report, an evaluation has
been carried out under the supervision and with the participation of our
management, including Mr. Andrew Brandler, our Group Managing Director & Chief
Executive Officer, and Mr. Peter P. W. Tse, our Executive Director & Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, our Group
Managing Director & Chief Executive Officer and Executive Director & Chief
Financial Officer have concluded that our disclosure controls and procedures
are effective in ensuring that information required to be disclosed in this
annual report is recorded, processed, summarized and reported within the time
period specified in the rules and forms of the Securities and Exchange
Commission.

There have been no significant changes in our internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date of their evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.

123



---



##### 



Item 16A. Audit Committee Financial Expert

On May 9, 2003, our Board of Directors determined Mr. V. F. Moore as our
audit committee financial expert.

Mr. Moore has been appointed as our Non-executive Director since 1997 and
he became our Independent Non-executive Director effective from September 27,
2002. He has also acted as the Chairman of the Audit Committee since April 1,
1998. He is a Fellow of The Institute of Chartered Accountants in England and
Wales and a Fellow of The Hong Kong Society of Accountants. His biographical
details are shown in Item 6. Directors, Senior Management and Employees  A.
Directors and Senior Management.

Item 16B. Code of Ethics

We have adopted a code of ethics, or the Code, as required by the
Sarbanes-Oxley Act. The Code applies to our Group Managing Director & Chief
Executive Officer, Executive Director & Chief Financial Officer and Director of
Group Financial Control. In addition, it also applies to Directors, other
officers and employees of our company, our wholly owned subsidiaries, and joint
ventures or companies in which we have a controlling interest. In the case of
joint ventures or companies in which we do not hold a controlling interest, our
representatives concerned are expected to act in accordance with the Code
themselves and to do everything possible to influence those with whom they are
working to ensure that they also act to similar standards of integrity and
ethical behavior.

As our policy and practice, we are committed to act with integrity in all
our activities; we care how results are achieved, not just that they are
achieved. This commitment stems from a corporate awareness that our long-term
interests are best served by maintaining a strong commitment to honest and open
business practices. We adopted our initial code of ethics in early 1990s and
we believe we are amongst the first companies in Hong Kong to document our
commitments in the form of a code of conduct or ethics. We amended our code of
ethics in December 2002 to address the requirements of the Sarbanes-Oxley Act.

The
text of the Code is posted on our website www.clpgroup.com under the
Corporate Governance  CLP Value Framework and Policy  CLP Value Framework
section.

124



---



##### 



PART III

Item 17. Financial Statements

Our consolidated financial statements and the report thereon by our
independent auditors listed below are attached to this annual report as
follows:

|                                  |                                                                                           |                  |                  |  | 
|--------------------------------- | ----------------------------------------------------------------------------------------- | ---------------- | ---------------- |  | 
|                                  |                                                                                           |                  | Page            
|                                  |                                                                                           |                  |                 
|                                 
|CLP Holdings Limited              |                                                                                           |                  |                  | 
|                                 
|                                  | Report of Independent Accountants                                                         |                  | F  2           
|                                 
|                                  | Consolidated Profit and Loss Account for the years ended December 31, 2000, 2001 and
2002 |                  | F  3           
|                                 
|                                  | Consolidated Balance Sheet as of December 31, 2001 and 2002                               |                  | F  4           
|                                 
|                                  | Statement
of Changes in Equity for the years ended December 31, 2000, 2001 and 2002       |                  | F  5 to F  6  
|                                 
|                                  | Consolidated Cash Flow Statement for the years ended December 31, 2000, 2001 and 2002     |                  | F  7           
|                                 
|                                  | Notes to the Consolidated Financial Statements                                            |                  | F  8 to F  54 
|                                 
|Scheme of Control Statement       |                                                                                           | F  55 to F  56
|                                 
|Castle Peak Power Company Limited |                                                                                           |                 
|                                 
|                                  | Report of Independent Accountants                                                         |                  | F  57          
|                                 
|                                  | Profit and Loss Account for the years ended December 31, 2000, 2001 and 2002              |                  | F  58          
|                                 
|                                  | Balance Sheet as of December 31, 2001 and 2002                                            |                  | F  59          
|                                 
|                                  | Statement of Changes in Equity for the years ended December 31, 2000, 2001 and 2002       |                  | F  60          
|                                 
|                                  | Cash Flow Statement for the years ended December 31, 2000, 2001 and 2002                  |                  | F  61          
|                                 
|                                  | Notes to the Financial Statements                                                         |                  | F  62 to F  73

125



---



##### 



Item 18. Financial Statements

Not applicable.

126



---



##### 



Item 19. Exhibits

Exhibit Index

|            |  |                                                                                                                                                                                                                                    |  |  |  | 
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  | Description                                                                                                                                                                                                                        |  |  |  | 
|            |  |                                                                                                                                                                                                                                    |  |  |  | 
|1.1         |  | Memorandum and Articles of Association of our company adopted on October 8, 1997 and
December 12, 1997, amended on October 8, 1999, April 25, 2002 and May 5, 2003 respectively.                                                  
|            |  |                                                                                                                                                                                                                                   
|2.1*        |  | Trust Deed in respect of US$1,500,000,000 Medium Term Note Programme, established by our
indirectly wholly owned subsidiary, CLP Power Hong Kong Financing Limited on April 3, 2002
and guaranteed by CLP Power Hong Kong Limited.
|            |  |                                                                                                                                                                                                                                   
|8.1         |  | List of subsidiaries. See Item 4. Information on the
Company  C. Organization Structure.                                                                                                                                       
|            |  |                                                                                                                                                                                                                                   
|13.1        |  | Certification by our Group Managing Director & Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                   
|            |  |                                                                                                                                                                                                                                   
|13.2        |  | Certification by our Executive Director & Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                        



---

*    Incorporated by reference to our Annual Report on Form 20-F for the year
ended December 31, 2001, dated June 25, 2002 and filed with the Securities and
Exchange Commission on June 27, 2002.


127



---



##### 



SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

| |  |                                            |                                                             
| |  | ------------------------------------------ | ------------------------------------------------------------
| |  | CLP HOLDINGS LIMITED(CLP HOLDINGS LIMITED)
| |  |                                            |                                                             
| |  | By:                                        | /s/ Peter P. W.
Tse                                         
| |  |                                            | Peter P. W. Tse
Executive Director & Chief Financial Officer

Date: June 20, 2003

128



---



##### 



CERTIFICATIONS

I, Andrew Brandler, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of CLP Holdings Limited;                                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 20, 2003

|    |                                                                  
|--- | -----------------------------------------------------------------
|By: | /s/ Andrew Brandler                                              
|    | Andrew Brandler
Group Managing Director & Chief Executive Officer

129



---



##### 



I, Peter P. W. Tse, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of CLP Holdings Limited;                                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 20, 2003

|     |                                                             
|---- | ------------------------------------------------------------
|By : | /s/ Peter P. W.
Tse                                         
|     | Peter P. W. Tse
Executive Director & Chief Financial Officer

130



---



##### 



INDEX TO FINANCIAL STATEMENTS

|                                  |                                                                                           |                  |      |        | 
|--------------------------------- | ----------------------------------------------------------------------------------------- | ---------------- | ---- | ------ | 
|                                  |                                                                                           |                  | Page
|                                 
|CLP Holdings Limited              |                                                                                           |                  |      |       
|                                 
|                                  | Report of Independent Accountants                                                         |                  |      | F - 2  | 
|                                 
|                                  | Consolidated Profit and Loss Account for the years ended December 31, 2000, 2001 and
2002 |                  |      | F - 3  | 
|                                 
|                                  | Consolidated Balance Sheet as of December 31, 2001 and 2002                               |                  |      | F - 4  | 
|                                 
|                                  | Statement of Changes in Equity for the years ended December 31, 2000, 2001 and 2002       | F  5 to F  6  
|                                 
|                                  | Consolidated Cash Flow Statement for the years ended December 31, 2000, 2001 and 2002     |                  |      | F  7  | 
|                                 
|                                  | Notes to the Consolidated Financial Statements                                            | F  8 to F  54 
|                                 
|Scheme of Control Statement       | F  55 to F  56                                                                         
|                                 
|Castle Peak Power Company Limited |                                                                                           |                  |      |       
|                                 
|                                  | Report of Independent Accountants                                                         |                  |      | F  57 | 
|                                 
|                                  | Profit and Loss Account for the years ended December 31, 2000, 2001 and 2002              |                  |      | F  58 | 
|                                 
|                                  | Balance Sheet as of December 31, 2001 and 2002                                            |                  |      | F  59 | 
|                                 
|                                  | Statement of Changes in Equity for the years ended December 31, 2000, 2001 and 2002       |                  |      | F  60 | 
|                                 
|                                  | Cash Flow Statement for the years ended December 31, 2000, 2001 and 2002                  |                  |      | F  61 | 
|                                 
|                                  | Notes to the Financial Statements                                                         | F  62 to F  73

F-1



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
CLP Holdings Limited

We have audited the accompanying consolidated balance sheets of CLP Holdings
Limited and its subsidiaries as of December 31, 2001 and 2002 and the related
consolidated profit and loss accounts, statements of changes in equity and cash
flow statements for the years ended December 31, 2000, 2001 and 2002 all
expressed in Hong Kong dollars. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CLP Holdings
Limited and its subsidiaries at December 31, 2001 and 2002 and the results of
their operations and cash flows for the years ended December 31, 2000, 2001 and
2002 in conformity with accounting principles generally accepted in Hong Kong
as modified where required by the Scheme of Control.

Accounting principles required by the Scheme of Control in all material
respects follow those generally accepted in Hong Kong with the exception of
accounting for deferred taxation, as explained in Note 1. Accounting
principles generally accepted in Hong Kong vary in certain significant respects
from accounting principles generally accepted in the United States of America.
The application of the latter would have affected the determination of
consolidated financial position as expressed in Hong Kong dollars at December
31, 2001 and 2002, the determination of consolidated net income and the
classification of consolidated cash flows also expressed in Hong Kong dollars
for the years ended December 31, 2000, 2001 and 2002, as adjusted, to the
extent summarized in Note 35 to the consolidated financial statements.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopers
Certified Public Accountants

Hong Kong
February 24, 2003, except for Notes 30(C) and 35, as to which the date is June 16, 2003

F-2



---



##### 



CLP HOLDINGS LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNT

|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |       |     | 
|----------------------------------------------------------- | --------------------------------------------------- | -------- | ----- | -- | ---- | ------- | ------ | ----------------------- | ----- | ------- | ------ | ------- | ----- | ---- | ------ | ------ | ----- |  | ----- | ----- | --- | 
|                                                            |                                                     |          |       |    |      |         |        | Year ended December 31,
|                                                            |                                                     |          |       |    |      |         |        |                        
|                                                            |                                                     |          |       |    | Note |         |        | 2000                    |       |         | 2001   |         |       | 2002 |        |        | 2002 
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |        
|                                                            |                                                     |          |       |    |      |         |        | HK$M                    |       | HK$M    |        | HK$M    |       | US$M |       
|                                                           
|TURNOVER                                                    |                                                     |          | 2     |    |      |         | 24,451 |                         |       |         | 24,999 |         |       |      | 26,134 |        |       |  | 3,351 |      
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|Expenses                                                    |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|                                                            | Purchases of electricity from CAPCO                 |          |       | 32 |      |         |        | 9,735                   |       |         |        | 9,815   |       |      |        | 10,191 |       |  |       | 1,307 |    
|                                                            | Purchases of nuclear electricity                    |          |       | 32 |      |         |        | 4,587                   |       |         |        | 5,013   |       |      |        | 4,976  |       |  |       | 638   |    
|                                                            | Pumped storage service fee                          |          |       | 32 |      |         |        | 457                     |       |         |        | 424     |       |      |        | 419    |       |  |       | 54    |    
|                                                            | Staff expenses                                      |          |       |    |      |         |        | 827                     |       |         |        | 929     |       |      |        | 945    |       |  |       | 120   |    
|                                                            | Other net operating costs                           |          |       |    |      |         |        | 1,180                   |       |         |        | 1,246   |       |      |        | 1,331  |       |  |       | 171   |    
|                                                            | Depreciation                                        |          |       |    |      |         |        | 1,474                   |       |         |        | 1,624   |       |      |        | 1,749  |       |  |       | 224   |    
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|                                                            |                                                     |          |       |    |      |         | 18,260 |                         |       |         | 19,051 |         |       |      | 19,611 |        |       |  | 2,514 |      
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|Property disposal gain                                      |                                                     |          | 5(A)  |    |      |         |       |                         |       |         |       |         |       |      | 313    |        |       |  | 40    |      
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|Operating profit                                            |                                                     |          | 2,3   |    |      |         | 6,191  |                         |       |         | 5,948  |         |       |      | 6,836  |        |       |  | 877   |      
|Finance costs                                               |                                                     |          | 4     |    |      |         | (204   | )                       |       |         | (187   | )       |       |      | (189   | )      |       |  | (24   | )    
|Finance income                                              |                                                     |          | 4     |    |      |         | 110    |                         |       |         | 29     |         |       |      | 33     |        |       |  | 4     |      
|Hok Un redevelopment profit                                 |                                                     |          | 5(B)  |    |      |         | 1,357  |                         |       |         | 1,752  |         |       |      | 282    |        |       |  | 36    |      
|Share of profits less losses of jointly
controlled entities |                                                     |          |       |    |      |         | 2,216  |                         |       |         | 2,339  |         |       |      | 2,976  |        |       |  | 382   |      
|Share of profits less losses of associated
companies        |                                                     |          |       |    |      |         | 5      |                         |       |         | 71     |         |       |      | 86     |        |       |  | 11    |      
|Impairment loss on investment in associated
company         |                                                     |          | 18(A) |    |      |         | (900   | )                       |       |         |       |         |       |      |       |        |       |  |      |      
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|Profit before taxation                                      |                                                     |          |       |    |      |         | 8,775  |                         |       |         | 9,952  |         |       |      | 10,024 |        |       |  | 1,286 |      
|Taxation                                                    |                                                     |          | 9     |    |      |         | (1,378 | )                       |       |         | (1,189 | )       |       |      | (1,302 | )      |       |  | (167  | )    
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|Profit after taxation                                       |                                                     |          |       |    |      |         | 7,397  |                         |       |         | 8,763  |         |       |      | 8,722  |        |       |  | 1,119 |      
|Transfers under Scheme of Control                           |                                                     |          | 10    |    |      |         | (1,629 | )                       |       |         | (1,506 | )       |       |      | (1,643 | )      |       |  | (211  | )    
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|EARNINGS                                                    |                                                     |          | 11    |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|                                                            | Scheme of Control earnings (Page F-56)              |          |       |    |      |         |        | 5,147                   |       |         |        | 5,422   |       |      |        | 5,814  |       |  |       | 745   |    
|                                                            | Non-Scheme of Control operating earnings            |          |       | 12 |      |         |        | 374                     |       |         |        | 461     |       |      |        | 890    |       |  |       | 114   |    
|                                                            | Unallocated net finance income/(costs)              |          |       |    |      |         |        | 93                      |       |         |        | 11      |       |      |        | (54    | )     |  |       | (6    | )  
|                                                            | Unallocated Group expenses                          |          |       |    |      |         |        | (78                     | )     |         |        | (105    | )     |      |        | (117   | )     |  |       | (15   | )  
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|                                                            | Group operating earnings                            |          |       |    |      |         |        | 5,536                   |       |         |        | 5,789   |       |      |        | 6,533  |       |  |       | 838   |    
|                                                            | Hok Un redevelopment profit/property
disposal gain  |          |       | 5  |      |         |        | 1,132                   |       |         |        | 1,468   |       |      |        | 546    |       |  |       | 70    |    
|                                                            | Impairment loss on investment in
associated company |          |       |    |      |         |        | (900                    | )     |         |        |        |       |      |        |       |       |  |       |      |    
|                                                            | Total earnings                                      |          |       |    |      |         |        | 5,768                   |       |         |        | 7,257   |       |      |        | 7,079  |       |  |       | 908   |    
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|                                                           
|DIVIDENDS                                                   |                                                     |          | 13    |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|                                                            | Interim dividends paid                              |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |       |    
|                                                            |                                                     | Ordinary |       |    |      |         |        |                         | 2,497 |         |        |         | 2,605 |      |        |        | 2,746 |  |       |       | 352 | 
|                                                            |                                                     | Special  |       |    |      |         |        |                         | 562   |         |        |         |      |      |        |        |      |  |       |       |    | 
|                                                            | Final dividends                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |       |    
|                                                            |                                                     | Ordinary |       |    |      |         |        |                         | 1,040 |         |        |         | 1,059 |      |        |        | 1,228 |  |       |       | 157 | 
|                                                            |                                                     | Special  |       |    |      |         |        |                         | 562   |         |        |         | 1,469 |      |        |        | 554   |  |       |       | 71  | 
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|                                                            |                                                     |          |       |    |      |         | 4,661  |                         |       |         | 5,133  |         |       |      | 4,528  |        |       |  | 580   |      
|                                                            |                                                     |          |       |    |      |         |        |                         |       |         |        |         |       |      |        |        |       |  |       |      
|                                                           
|Earnings per share                                          |                                                     |          | 14    |    |      | HK$2.31 |        | HK$2.92                 |       | HK$2.94 |        | US$0.38

F-3



---



##### 



CLP HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEET

|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |      |  
|------------------------------------------ | ---------------------------------------------------------------------------- |  | ----- | ---- |  |  | ------------------ | ------ | ---- | ---- | ------ | ------ | ---- |  | ----- | ---- | -
|                                           |                                                                              |  |       |      |  |  | As of December 31,
|                                           |                                                                              |  |       |      |  |  |                   
|                                           |                                                                              |  |       | Note |  |  | 2001               |        |      | 2002 |        |        | 2002
|                                           |                                                                              |  |       |      |  |  |                    |        |     
|                                           |                                                                              |  |       |      |  |  | HK$M               |        | HK$M |      | US$M  
|                                           |                                                                              |  |       |      |  |  | (adjusted)         |        |      |      |       
|CAPITAL EMPLOYED                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|Fixed assets                               |                                                                              |  | 15    |      |  |  | 33,577             |        |      |      | 36,550 |        |      |  | 4,687 |     
|Investments in jointly controlled entities |                                                                              |  | 17    |      |  |  | 15,786             |        |      |      | 18,855 |        |      |  | 2,418 |     
|Investments in associated companies        |                                                                              |  | 18    |      |  |  | 1,230              |        |      |      | 1,448  |        |      |  | 186   |     
|Investment securities                      |                                                                              |  | 19    |      |  |  | 731                |        |      |      | 287    |        |      |  | 37    |     
|Employee retirement benefit plan assets    |                                                                              |  | 8     |      |  |  | 1,194              |        |      |      | 1,138  |        |      |  | 146   |     
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|                                           |                                                                              |  |       |      |  |  | 52,518             |        |      |      | 58,278 |        |      |  | 7,474 |     
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|Current assets                             |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|                                           | Deposits, bank balances and cash                                             |  |       | 20   |  |  |                    | 80     |      |      |        | 516    |      |  |       | 66   |  
|                                           | Other investments                                                            |  |       | 21   |  |  |                    |       |      |      |        | 671    |      |  |       | 86   |  
|                                           | Stores                                                                       |  |       |      |  |  |                    | 43     |      |      |        | 67     |      |  |       | 9    |  
|                                           | Trade and other receivables                                                  |  |       | 22   |  |  |                    | 1,581  |      |      |        | 1,256  |      |  |       | 160  |  
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|                                           |                                                                              |  |       |      |  |  | 1,704              |        |      |      | 2,510  |        |      |  | 321   |     
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|Current liabilities                        |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|                                           | Customers deposits                                                          |  |       |      |  |  |                    | (2,450 | )    |      |        | (2,684 | )    |  |       | (344 | )
|                                           | Short-term loans and current
portion of long-term loans and
other borrowings |  |       | 27   |  |  |                    | (1,499 | )    |      |        | (570   | )    |  |       | (73  | )
|                                           | Fuel clause account                                                          |  |       | 23   |  |  |                    | (448   | )    |      |        | (512   | )    |  |       | (66  | )
|                                           | Taxation payable                                                             |  |       |      |  |  |                    | (166   | )    |      |        | (196   | )    |  |       | (25  | )
|                                           | Trade and other payables                                                     |  |       | 24   |  |  |                    | (2,678 | )    |      |        | (3,091 | )    |  |       | (397 | )
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|                                           |                                                                              |  |       |      |  |  | (7,241             | )      |      |      | (7,053 | )      |      |  | (905  | )   
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|Net current liabilities                    |                                                                              |  |       |      |  |  | (5,537             | )      |      |      | (4,543 | )      |      |  | (584  | )   
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|Total assets less current liabilities      |                                                                              |  |       |      |  |  | 46,981             |        |      |      | 53,735 |        |      |  | 6,890 |     
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|                                          
|REPRESENTED BY                             |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|Share capital                              |                                                                              |  | 25    |      |  |  | 12,107             |        |      |      | 12,041 |        |      |  | 1,544 |     
|Share premium                              |                                                                              |  | 26    |      |  |  | 11,281             |        |      |      | 1,164  |        |      |  | 149   |     
|Reserves                                   |                                                                              |  |       |      |  |  | 9,252              |        |      |      | 21,800 |        |      |  | 2,795 |     
|Proposed dividends                         |                                                                              |  |       |      |  |  | 2,528              |        |      |      | 1,782  |        |      |  | 229   |     
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|Shareholders funds                        |                                                                              |  |       |      |  |  | 35,168             |        |      |      | 36,787 |        |      |  | 4,717 |     
|Long-term loans and other borrowings       |                                                                              |  | 27    |      |  |  | 4,068              |        |      |      | 8,727  |        |      |  | 1,119 |     
|Deferred taxation                          |                                                                              |  | 28    |      |  |  | 3,391              |        |      |      | 3,721  |        |      |  | 477   |     
|Development Fund                           |                                                                              |  | 10(A) |      |  |  | 3,177              |        |      |      | 3,372  |        |      |  | 432   |     
|Special provision account                  |                                                                              |  | 10(B) |      |  |  | 766                |        |      |      | 670    |        |      |  | 86    |     
|Rate reduction reserve                     |                                                                              |  | 10(C) |      |  |  | 411                |        |      |      | 458    |        |      |  | 59    |     
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     
|                                           |                                                                              |  |       |      |  |  | 46,981             |        |      |      | 53,735 |        |      |  | 6,890 |     
|                                           |                                                                              |  |       |      |  |  |                    |        |      |      |        |        |      |  |       |     

F-4



---



##### 



CLP HOLDINGS LIMITED

STATEMENT OF CHANGES IN EQUITY

|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |      |        |  
|----------------------------------------------------------------------------- | --------------------------- | ------------- | ------ | ------- | - | ------- | ------ | ---------- | - | -------- | ----- | -------- | - | ----- | ---- | ---- | - |  | ------ | --- | ------ | - | ------ | ---- | ------ | -
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       | Capital  |   |       |      |      |   |  |        |     |        |   |        |     
|                                                                              |                             |               |        | Share   |   | Share   |        | Redemption |   | Other    |       | Retained |   |       |      |     
|                                                                              |                             |               |        | Capital |   | Premium |        | Reserve    |   | Reserves |       | Profits  |   | Total
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |      
|                                                                              |                             |               |        | HK$M    |   | HK$M    |        | HK$M       |   | HK$M     |       | HK$M     |   | HK$M 
|                                                                             
|Balance at January 1, 2000, as previously
reported                            |                             |               | 10,406 |         |   |         | 13,362 |            |   |          | 2,036 |          |   |       | 126  |      |   |  | 6,541  |     |        |   | 32,471 |     
|Surplus of employee retirement benefit
plan assets over liabilities (Note 8)  |                             |               |       |         |   |         |       |            |   |          |      |          |   |       |     |      |   |  | 1,194  |     |        |   | 1,194  |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|Balance at January 1, 2000, adjusted                                          |                             |               | 10,406 |         |   |         | 13,362 |            |   |          | 2,036 |          |   |       | 126  |      |   |  | 7,735  |     |        |   | 33,665 |     
|Exchange differences arising on
translation of :                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|                                                                              | jointly controlled entities |               |        |        |   |         |        |           |   |          |       |         |   |       |      | (23  | ) |  |        |    |        |   |        | (23  | )     
|                                                                              | associated company          |               |        |        |   |         |        |           |   |          |       |         |   |       |      | (176 | ) |  |        |    |        |   |        | (176 | )     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|Net
gains and losses not recognized in
the profit and loss account            |                             |               |       |         |   |         |       |            |   |          |      |          |   |       | (199 | )    |   |  |       |     |        |   | (199   | )   
|Earnings for the year                                                         |                             |               |       |         |   |         |       |            |   |          |      |          |   |       |     |      |   |  | 5,768  |     |        |   | 5,768  |     
|Dividends declared for the year                                               |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|                                                                              |                             | 1999 finals   |        |         |  |         |        |            |  |          |       |          |  |       |      |      |  |  |        |     | (1,561 | ) |        |      | (1,561 | )
|                                                                              |                             | 2000 interims |        |         |  |         |        |            |  |          |       |          |  |       |      |      |  |  |        |     | (3,059 | ) |        |      | (3,059 | )
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|Balance at December 31, 2000, adjusted                                        |                             |               | 10,406 |         |   |         | 13,362 |            |   |          | 2,036 |          |   |       | (73  | )    |   |  | 8,883  | (a) |        |   | 34,614 |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|                                                                             
|Company and subsidiary companies, adjusted                                    |                             |               | 10,406 |         |   |         | 13,362 |            |   |          | 2,036 |          |   |       | (74  | )    |   |  | 4,849  |     |        |   | 30,579 |     
|Jointly controlled entities                                                   |                             |               |       |         |   |         |       |            |   |          |      |          |   |       | 1    |      |   |  | 3,905  |     |        |   | 3,906  |     
|Associated company                                                            |                             |               |       |         |   |         |       |            |   |          |      |          |   |       |     |      |   |  | 129    |     |        |   | 129    |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|Balance at December 31, 2000, adjusted                                        |                             |               | 10,406 |         |   |         | 13,362 |            |   |          | 2,036 |          |   |       | (73  | )    |   |  | 8,883  |     |        |   | 34,614 |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|                                                                             
|Balance at January 1, 2001, as previously
reported                            |                             |               | 10,406 |         |   |         | 13,362 |            |   |          | 2,036 |          |   |       | (73  | )    |   |  | 7,689  |     |        |   | 33,420 |     
|Surplus of employee retirement benefit
plan assets over liabilities (Note 8)  |                             |               |       |         |   |         |       |            |   |          |      |          |   |       |     |      |   |  | 1,194  |     |        |   | 1,194  |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|Balance at January 1, 2001, adjusted                                          |                             |               | 10,406 |         |   |         | 13,362 |            |   |          | 2,036 |          |   |       | (73  | )    |   |  | 8,883  |     |        |   | 34,614 |     
|Exchange differences arising on
translation of :                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|                                                                              | jointly controlled entities |               |        |        |   |         |        |           |   |          |       |         |   |       |      | (197 | ) |  |        |    |        |   |        | (197 | )     
|                                                                              | associated company          |               |        |        |   |         |        |           |   |          |       |         |   |       |      | (21  | ) |  |        |    |        |   |        | (21  | )     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|Net gains and losses not recognized in
the profit and loss account            |                             |               |       |         |   |         |       |            |   |          |      |          |   |       | (218 | )    |   |  |       |     |        |   | (218   | )   
|One-for-five bonus issue                                                      |                             |               | 2,081  |         |   |         | (2,081 | )          |   |          |      |          |   |       |     |      |   |  |       |     |        |   |       |     
|Repurchase of ordinary shares                                                 |                             |               | (380   | )       |   |         |       |            |   |          | 380   |          |   |       |     |      |   |  | (2,282 | )   |        |   | (2,282 | )   
|Earnings for the year                                                         |                             |               |       |         |   |         |       |            |   |          |      |          |   |       |     |      |   |  | 7,257  |     |        |   | 7,257  |     
|Dividends declared for the year                                               |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|                                                                              |                             | 2000 finals   |        |         |  |         |        |            |  |          |       |          |  |       |      |      |  |  |        |     | (1,602 | ) |        |      | (1,602 | )
|                                                                              |                             | 2001 interims |        |         |  |         |        |            |  |          |       |          |  |       |      |      |  |  |        |     | (2,605 | ) |        |      | (2,605 | )
|Share of other reserves of jointly
controlled entities and associated
company |                             |               |       |         |   |         |       |            |   |          |      |          |   |       | 4    |      |   |  |       |     |        |   | 4      |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|Balance at December 31, 2001, adjusted                                        |                             |               | 12,107 |         |   |         | 11,281 |            |   |          | 2,416 |          |   |       | (287 | )    |   |  | 9,651  | (b) |        |   | 35,168 |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|                                                                             
|Company and subsidiary companies, adjusted                                    |                             |               | 12,107 |         |   |         | 11,281 |            |   |          | 2,416 |          |   |       | (292 | )    |   |  | 5,134  |     |        |   | 30,646 |     
|Jointly controlled entities                                                   |                             |               |       |         |   |         |       |            |   |          |      |          |   |       | 2    |      |   |  | 4,335  |     |        |   | 4,337  |     
|Associated company                                                            |                             |               |       |         |   |         |       |            |   |          |      |          |   |       | 3    |      |   |  | 182    |     |        |   | 185    |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     
|Balance at December 31, 2001, adjusted                                        |                             |               | 12,107 |         |   |         | 11,281 |            |   |          | 2,416 |          |   |       | (287 | )    |   |  | 9,651  |     |        |   | 35,168 |     
|                                                                              |                             |               |        |         |   |         |        |            |   |          |       |          |   |       |      |      |   |  |        |     |        |   |        |     

F-5



---



##### 



CLP HOLDINGS LIMITED

STATEMENT OF CHANGES IN EQUITY

|                                                                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |    |      |  
|---------------------------------------------------------------------------- | --------------------------- | ------------- | ------ | ------- | - | ------- | ------- | ---------- | - | -------- | ----- | -------- | - | ----- | ---- | ----- | - |  | ------ | --- | ------ | - | ------ | --- | ------ | - | ----- | -- | ---- | -
|                                                                             |                             |               |        |         |   |         |         |            |   |          |       | Capital  |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   
|                                                                             |                             |               |        | Share   |   | Share   |         | Redemption |   | Other    |       | Retained |   |       |      |       |   |  |        |    
|                                                                             |                             |               |        | Capital |   | Premium |         | Reserve    |   | Reserves |       | Profits  |   | Total |      | Total
|                                                                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |      
|                                                                             |                             |               |        | HK$M    |   | HK$M    |         | HK$M       |   | HK$M     |       | HK$M     |   | HK$M  |      | US$M 
|                                                                            
|Balance at January 1, 2002, as
previously reported                           |                             |               | 12,107 |         |   |         | 11,281  |            |   |          | 2,416 |          |   |       | (287 | )     |   |  | 8,457  |     |        |   | 33,974 |     |        |   | 4,356 |   
|Surplus of employee retirement
benefit plan assets over
liabilities (Note 8) |                             |               |       |         |   |         |        |            |   |          |      |          |   |       |     |       |   |  | 1,194  |     |        |   | 1,194  |     |        |   | 153   |   
|                                                                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   
|Balance at January 1, 2002, adjusted                                         |                             |               | 12,107 |         |   |         | 11,281  |            |   |          | 2,416 |          |   |       | (287 | )     |   |  | 9,651  |     |        |   | 35,168 |     |        |   | 4,509 |   
|Exchange differences arising on
translation of :                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   
|                                                                             | jointly controlled entities |               |        |        |   |         |         |           |   |          |       |         |   |       |      | 182   |   |  |        |    |        |   |        | 182 |        |   |       | 23 |     
|                                                                             | associated company          |               |        |        |   |         |         |           |   |          |       |         |   |       |      | 29    |   |  |        |    |        |   |        | 29  |        |   |       | 4  |     
|                                                                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   
|Net gains and losses not recognized
in the profit and loss account           |                             |               |       |         |   |         |        |            |   |          |      |          |   |       | 211  |       |   |  |       |     |        |   | 211    |     |        |   | 27    |   
|Repurchase of ordinary shares                                                |                             |               | (66    | )       |   |         |        |            |   |          | 66    |          |   |       |     |       |   |  | (397   | )   |        |   | (397   | )   |        |   | (51   | ) 
|Transfer of share premium to
retained profits (Note 26)                      |                             |               |       |         |   |         | (10,117 | )          |   |          |      |          |   |       |     |       |   |  | 10,117 |     |        |   |       |     |        |   |      |   
|Earnings for the year                                                        |                             |               |       |         |   |         |        |            |   |          |      |          |   |       |     |       |   |  | 7,079  |     |        |   | 7,079  |     |        |   | 908   |   
|Dividends declared for the year                                              |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   
|                                                                             |                             | 2001 finals   |        |         |  |         |         |            |  |          |       |          |  |       |      |       |  |  |        |     | (2,528 | ) |        |     | (2,528 | ) |       |    | (324 | )
|                                                                             |                             | 2002 interims |        |         |  |         |         |            |  |          |       |          |  |       |      |       |  |  |        |     | (2,746 | ) |        |     | (2,746 | ) |       |    | (352 | )
|                                                                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   
|Balance at December 31, 2002                                                 |                             |               | 12,041 |         |   |         | 1,164   |            |   |          | 2,482 |          |   |       | (76  | )     |   |  | 21,176 | (c) |        |   | 36,787 |     |        |   | 4,717 |   
|                                                                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   
|                                                                            
|Company and subsidiary companies                                             |                             |               | 12,041 |         |   |         | 1,164   |            |   |          | 2,482 |          |   |       | (81  | )     |   |  | 17,235 |     |        |   | 32,841 |     |        |   | 4,211 |   
|Jointly controlled entities                                                  |                             |               |       |         |   |         |        |            |   |          |      |          |   |       | 1    |       |   |  | 3,678  |     |        |   | 3,679  |     |        |   | 472   |   
|Associated companies                                                         |                             |               |       |         |   |         |        |            |   |          |      |          |   |       | 4    |       |   |  | 263    |     |        |   | 267    |     |        |   | 34    |   
|                                                                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   
|Balance at December 31, 2002                                                 |                             |               | 12,041 |         |   |         | 1,164   |            |   |          | 2,482 |          |   |       | (76  | )     |   |  | 21,176 |     |        |   | 36,787 |     |        |   | 4,717 |   
|                                                                             |                             |               |        |         |   |         |         |            |   |          |       |          |   |       |      |       |   |  |        |     |        |   |        |     |        |   |       |   



|(a) |  | The proposed final dividends at December 31, 2000 and balance of retained
profits after proposed final dividends were HK$1,602 million and HK$7,281
million respectively. 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The proposed final dividends at December 31, 2001 and balance of retained
profits after proposed final dividends were HK$2,528 million and HK$7,123
million respectively. 
|   
|(c) |  | The proposed final dividends at December 31, 2002 and balance of retained
profits after proposed final dividends were HK$1,782 million and HK$19,394
million respectively.

F-6



---



##### 



CLP HOLDINGS LIMITED

CONSOLIDATED CASH FLOW STATEMENT

|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |       |     | 
|-------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------- |  | ---- |  | ---- | ------ | ----------------------- | ----- | ---- | ------ | ------ | ----- | ---- | ------ | ------ | ----- |  | ---- | ----- | --- | 
|                                                   |                                                                    |                               |  |      |  |      |        | Year ended December 31,
|                                                   |                                                                    |                               |  |      |  |      |        |                        
|                                                   |                                                                    |                               |  | Note |  | 2000 |        | 2001                    |       | 2002 |        | 2002  
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |       
|                                                   |                                                                    |                               |  |      |  |      |        | HK$M                    |       | HK$M |        | HK$M   |       | US$M
|OPERATING ACTIVITIES                               |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|                                                   | Cash generated from operations                                     |                               |  | 29   |  |      |        | 7,415                   |       |      |        | 7,307  |       |      |        | 7,849  |       |  |      | 1,006 |    
|                                                   | Operating interest paid                                            |                               |  |      |  |      |        | (208                    | )     |      |        | (192   | )     |      |        | (164   | )     |  |      | (21   | )  
|                                                   | Interest received                                                  |                               |  |      |  |      |        | 134                     |       |      |        | 30     |       |      |        | 15     |       |  |      | 2     |    
|                                                   | Profits tax paid                                                   |                               |  |      |  |      |        | (454                    | )     |      |        | (1,007 | )     |      |        | (747   | )     |  |      | (96   | )  
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|NET CASH INFLOW FROM OPERATING ACTIVITIES          |                                                                    |                               |  |      |  |      | 6,887  |                         |       |      | 6,138  |        |       |      | 6,953  |        |       |  | 891  |      
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|INVESTING ACTIVITIES                               |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|                                                   | Capital expenditure                                                |                               |  |      |  |      |        | (2,794                  | )     |      |        | (4,471 | )     |      |        | (4,734 | )     |  |      | (607  | )  
|                                                   | Capitalized interest paid                                          |                               |  |      |  |      |        | (68                     | )     |      |        | (119   | )     |      |        | (178   | )     |  |      | (23   | )  
|                                                   | Proceeds from disposal of fixed assets                             |                               |  |      |  |      |        | 42                      |       |      |        | 88     |       |      |        | 85     |       |  |      | 11    |    
|                                                   | Investments in, loans, and advances to
jointly controlled entities |                               |  |      |  |      |        | (961                    | )     |      |        | (3,478 | )     |      |        | (3,364 | )     |  |      | (431  | )  
|                                                   | Investments in associated companies                                |                               |  |      |  |      |        | (125                    | )     |      |        | (61    | )     |      |        | (100   | )     |  |      | (13   | )  
|                                                   | Purchase of investment securities                                  |                               |  |      |  |      |        |                        |       |      |        | (88    | )     |      |        | (187   | )     |  |      | (24   | )  
|                                                   | Project development costs                                          |                               |  |      |  |      |        | (18                     | )     |      |        |       |       |      |        |       |       |  |      |      |    
|                                                   | Dividends received from investments                                |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |       |    
|                                                   |                                                                    | - jointly controlled entities |  |      |  |      |        |                         | 1,603 |      |        |        | 1,811 |      |        |        | 2,318 |  |      |       | 297 | 
|                                                   |                                                                    | - associated company          |  |      |  |      |        |                         | 38    |      |        |        | 57    |      |        |        | 53    |  |      |       | 7   | 
|                                                   |                                                                    | - other investments           |  |      |  |      |        |                         |      |      |        |        | 17    |      |        |        | 17    |  |      |       | 2   | 
|                                                   | Profit received from Hok Un joint venture                          |                               |  |      |  |      |        | 1,470                   |       |      |        | 1,514  |       |      |        | 1,581  |       |  |      | 203   |    
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|NET CASH OUTFLOW FROM INVESTING ACTIVITIES         |                                                                    |                               |  |      |  |      | (813   | )                       |       |      | (4,730 | )      |       |      | (4,509 | )      |       |  | (578 | )    
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|NET CASH INFLOW BEFORE FINANCING                   |                                                                    |                               |  |      |  |      | 6,074  |                         |       |      | 1,408  |        |       |      | 2,444  |        |       |  | 313  |      
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|FINANCING ACTIVITIES                               |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|                                                   | Proceeds from long-term borrowings                                 |                               |  |      |  |      |        | 153                     |       |      |        | 1,722  |       |      |        | 4,595  |       |  |      | 589   |    
|                                                   | Repayment of long-term borrowings                                  |                               |  |      |  |      |        | (27                     | )     |      |        | (76    | )     |      |        | (156   | )     |  |      | (20   | )  
|                                                   | (Decrease)/increase in short-term borrowings                       |                               |  |      |  |      |        | (313                    | )     |      |        | 1,343  |       |      |        | (776   | )     |  |      | (99   | )  
|                                                   | Repurchase of ordinary shares                                      |                               |  |      |  |      |        |                        |       |      |        | (2,282 | )     |      |        | (397   | )     |  |      | (51   | )  
|                                                   | Dividends paid                                                     |                               |  |      |  |      |        | (4,620                  | )     |      |        | (4,207 | )     |      |        | (5,274 | )     |  |      | (676  | )  
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|NET CASH OUTFLOW FROM FINANCING ACTIVITIES         |                                                                    |                               |  |      |  |      | (4,807 | )                       |       |      | (3,500 | )      |       |      | (2,008 | )      |       |  | (257 | )    
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|Increase/(decrease) in cash and cash equivalents   |                                                                    |                               |  |      |  |      | 1,267  |                         |       |      | (2,092 | )      |       |      | 436    |        |       |  | 56   |      
|Cash and cash equivalents at beginning of the year |                                                                    |                               |  |      |  |      | 905    |                         |       |      | 2,172  |        |       |      | 80     |        |       |  | 10   |      
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|CASH AND CASH EQUIVALENTS AT END OF THE YEAR       |                                                                    |                               |  |      |  |      | 2,172  |                         |       |      | 80     |        |       |      | 516    |        |       |  | 66   |      
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|                                                  
|Analysis of cash and cash equivalents              |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|                                                   | Deposits, bank balances and cash                                   |                               |  | 20   |  |      |        | 2,162                   |       |      |        | 80     |       |      |        | 516    |       |  |      | 66    |    
|                                                   | Fixed-income securities                                            |                               |  |      |  |      |        | 10                      |       |      |        |       |       |      |        |       |       |  |      |      |    
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      
|                                                   |                                                                    |                               |  |      |  |      | 2,172  |                         |       |      | 80     |        |       |      | 516    |        |       |  | 66   |      
|                                                   |                                                                    |                               |  |      |  |      |        |                         |       |      |        |        |       |      |        |        |       |  |      |      

F-7



---



##### 



CLP HOLDING LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | SIGNIFICANT ACCOUNTING POLICIES
|-- |  | -------------------------------



| | A. |  | Basis of Preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The Company, CLP Holdings Limited, and its subsidiaries are collectively
referred to as the Group in the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |    |  | Other than noted in Note 1(B) below, the accounts have been prepared under
the historical cost convention, in accordance with generally accepted
accounting principles in Hong Kong and comply with accounting standards
issued by the Hong Kong Society of Accountants.                                                                                                                                                                                                                                                                                                                                                                          
|
| |    |  | On January 1, 2002, the Group adopted Statement of Standard Accounting
Practice (SSAP) No. 34 Employee Benefits. The effect of this new
policy on the accounts and the transition treatment are explained in Note
1(N)  Employee Benefits.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | B. |  | Scheme of Control (SoC)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |  | The financial operations of the Companys major subsidiary company, CLP
Power Hong Kong Limited (CLP Power), and its jointly controlled entity,
Castle Peak Power Company Limited (CAPCO), are governed by an SoC
Agreement entered into with the Government of the Hong Kong Special
Administrative Region. Their accounts are prepared in conformity with
Hong Kong generally accepted accounting principles, modified as necessary
to comply with the terms of the SoC, the main features of which are
summarized on page F-55. The only such modification which is significant
to the Groups accounts is in respect of deferred taxation.
|
| |    |  | In accordance with the SoC, the charge for taxation fully recognizes
deferred taxation arising from timing differences attributable to
accelerated depreciation allowances. No provision is made for other
timing differences as these are immaterial. It is unlikely that a
liability will crystallise in respect of accelerated depreciation
allowances in the foreseeable future. Accordingly, the above policy does
not comply with the ruling SSAP No. 12 Accounting for Deferred Tax
issued by the Hong Kong Society of Accountants, which states that deferred
taxation should not be provided in these circumstances.                   
|
| |    |  | Under the arrangement of the SoC, this departure from ruling SSAP No. 12
does not have any effect on earnings or total deferred liabilities. The
departure has the effect of reducing the transfer under the SoC for the
year 2002 by HK$330 million (2001: HK$281 million, 2000: HK$190 million).                                                                                                                                                                                                                                                                                                                                                
|
| | C. |  | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |    |  | The consolidated accounts of the Group incorporate the accounts of the
Company and its subsidiary companies made up to the balance sheet date and
include the Groups interests in jointly controlled entities and
associated companies on the basis set out in Notes 1(E) and 1(F) below
respectively. Goodwill arising on consolidation represents the excess of
purchase consideration over the fair value ascribed to the separable net
assets of the entity or company acquired and is amortized on a
straight-line basis over its estimated useful economic life.                                                                           
|
| |    |  | All significant inter-company transactions and balances within the Group
are eliminated on consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-8



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | -------------------------------------------



| | D. |  | Subsidiary Companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | A subsidiary company is a company which is controlled by the Company and
in which the Company has an interest, directly or indirectly, in more than
50% of the issued equity as defined in the Hong Kong Companies Ordinance.
Control represents the power to govern the financial and operating
policies of that company. Investments in subsidiary companies are carried
in the balance sheet of the Company at cost less provision for impairment.
Provisions for investments in and advances to subsidiary companies are
made when the subsidiary company carries net assets lower than the
respective CLP Holdings cost of investment and the diminution is
considered not to be recoverable in the near future. The results of
subsidiary companies are accounted for by the Company on the basis of
dividends received and receivable.
|
| | E. |  | Jointly Controlled Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |    |  | A jointly controlled entity is a joint venture in which the Group and
other parties undertake an economic activity which is subject to joint
control and none of the participating parties has unilateral control over
the economic activity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |    |  | The consolidated profit and loss account includes the Groups share of the
results of the jointly controlled entities for the year, and the
consolidated balance sheet includes the Groups share of the net assets of
the jointly controlled entities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | F. |  | Associated Companies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |    |  | An associated company is a company, not being a subsidiary company or
jointly controlled entity, in which the Group holds equity share capital
for the long term and can exercise significant influence in its
management.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |    |  | The consolidated profit and loss account includes the Groups share of the
results of the associated companies for the year, and the consolidated
balance sheet includes the Groups share of the net assets of the
associated companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | G. |  | Turnover                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |    |  | Turnover represents sale of electricity, other electricity-related
revenue, property income, supply and maintenance services. Sale of
electricity is based on actual and accrued consumption derived from meters
read during the year. Other revenue is recognized when services are
rendered or sales are completed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-9



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | -------------------------------------------



| | H. |  | Fixed Assets and Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Fixed assets are stated at cost less accumulated depreciation. Major
renewals and improvements which will result in future economic benefits,
in excess of the originally assessed standard of performance of the
existing assets, are capitalized, while maintenance and repair costs are
charged to the profit and loss account in the year in which they are
incurred.                                                                                               
|
| |    |  | Depreciation of fixed assets used for the electricity-related business in
Hong Kong is based on the rates authorized under the SoC. During the 1998
SoC interim review, agreement was reached with the Government to extend
the useful life of overhead lines (132kV and above) from 30 years to 35
years. As a result, the net book value of these overhead lines as at
September 30, 1998 was written off uniformly over the remainder of their
extended useful lives.
|
| |    |  | Except for the above, the following bases apply to fixed assets other than
land which is not depreciated in accordance with the SoC. The cost will
be written off uniformly over the useful lives of the assets commencing
from the date of commissioning.                                                                                                                                                                                                              

|                                                                                               |  |         
|---------------------------------------------------------------------------------------------- |  | --------
|Buildings                                                                                      |  | 33 years
|Overhead lines (132 kV and above)                                                              |  | 35 years
|Overhead lines (below 132 kV) and cables                                                       |  | 30 years
|Generating plant, switchgear and transformers                                                  |  | 25 years
|Meters, system control equipment,
furniture, tools,communication
and office equipment          |  | 10 years
|Computers
and office automation equipment other thanthose
forming part of the generating plant |  | 5 years 
|Motor vehicles                                                                                 |  | 5 years 



| |    |  | The gain or loss on disposal of a fixed asset is the difference between
the net sales proceeds and the carrying amount of the relevant asset, and
is recognized in the profit and loss account.                                                                                                                                                                                             
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | I. |  | Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                             
|
| |    |  | The Group reviews the carrying amounts of long-lived assets and goodwill
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If such assets
are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
recoverable amount.
|
| | J. |  | Properties under Development                                                                                                                                                                                                                                                                                                                                                                
|
| |    |  | Properties under development comprise land cost and development expenses
including professional charges and are stated at the lower of cost and net
realization value. The income from the sale of development properties is
recognized only when the property or any portion thereof contracted for
sale is completed and the relevant occupation permit is issued.                        

F-10



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|   |  |                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)
|  
|   |  | K.                                          |  | Investments in Securities                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  |                                             |  | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Held-to-maturity securities                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  |                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Held-to-maturity securities are stated in the balance sheet at cost
plus/less any discount/premium amortized to date. The discount or
premium is amortized over the period to maturity and included as
interest income/expense in the profit and loss account. Provision is
made when there is a diminution in value which is other than temporary.                                                               
|  
|   |  |                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | The carrying amounts of individual held-to-maturity securities or
holdings of the same securities are reviewed at the balance sheet date
in order to assess the credit risk and whether the carrying amounts are
expected to be recovered. Provisions are made when carrying amounts
are not expected to be recovered and are recognized in the profit and
loss account as an expense immediately.                
|  
|   |  |                                             |  | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Investment securities                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  |                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Investment securities are stated at cost less any provision for
impairment. Impairment is assessed in accordance with other long-lived
assets.                                                                                                                                                                                                                                                                    
|  
|   |  |                                             |  | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Fixed-income securities                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  |                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Fixed-income securities, which are intended to be held for an
identified long-term purpose, are accounted for using the benchmark
treatment and classified as investment securities. Investment
securities are stated at cost less any provision for impairment.                                                                                                                                                  
|  
|   |  |                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Other fixed-income securities are carried at fair value at the balance
sheet date, with the net unrealized gains or losses arising from the
changes in fair value recognized in the profit and loss account.
Profits or losses on disposal of these investments, representing the
difference between the net sales proceeds and the carrying amounts, are
recognized in the profit and loss account as they arise.
|  
|   |  |                                             |  | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Other investments                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  |                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Other investments are carried at fair value. At each balance sheet
date, the net unrealized gains or losses from the change in fair value
of other investments are recognized in the profit and loss account.
Profits or losses on disposal of other investments, representing the
difference between net sales proceeds and the carrying amounts, are
recognized in the profit and loss account as they arise.   
|  
|   |  | L.                                          |  | Foreign Currencies                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  |                                             |  | Monetary assets and liabilities denominated in foreign currencies are
translated into Hong Kong dollars at the rates of exchange prevailing at
the balance sheet date or at the relevant forward contract rates where
applicable. Exchange differences are included in the profit and loss
account. Transactions during the year are converted into Hong Kong
dollars at the rates of exchange ruling at the dates of transactions.
|  
|   |  |                                             |  | The accounts of subsidiary companies, jointly controlled entities or
associated companies denominated in foreign currencies are translated into
Hong Kong dollars using the year end rates of exchange for balance sheet
items and the average rates of exchange for the year for the profit and
loss account. Exchange differences are dealt with as a movement in
reserves.                                                      

F-11



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | -------------------------------------------



| | M. |  | Borrowing Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Borrowing costs include interest and other costs incurred in connection
with the borrowing of funds. Borrowing costs are charged to the profit
and loss account in the year in which they are incurred, except to the
extent that they are capitalized as being directly attributable to the
acquisition, construction or production of an asset which necessarily
takes a substantial period of time to complete.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | N. |  | Employee Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |    |  | The Group has classified its two retirement benefit schemes, which are
established under trust with the assets held separately from those of the
Group in trustee-administered funds, as defined benefit schemes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |    |  | Retirement benefit costs are assessed using the projected unit credit
method. Under this method the regular cost of providing retirement
benefits is spread over the service lives of employees in accordance with
the advice of qualified actuaries who carry out periodic valuations of the
two schemes. The retirement benefit obligation is measured based upon the
estimated future cash outflows, discounted by reference to market yields
on high quality corporate bonds which have a similar term as the related
liabilities. Plan assets are measured at fair value. Actuarial gains and
losses are recognized over the average remaining service lives of
employees. The surplus of plan assets over the present value of benefit
obligations, if recognized, is restricted to the present value of economic
benefits available to the Group. This is a change in accounting policy,
as in previous years the cost of providing retirement benefits was charged
to the profit and loss account to the extent of contributions paid to the
funds. This change in accounting policy has not impacted the prior year
profit and loss account, as contributions paid during 2001 were in line
with the charge required under SSAP No. 34.
|
| |    |  | Pursuant to the requirements of SSAP No. 34, the Group has recognized an
asset in respect of the pension surplus at December 31, 2001 as prior year
adjustment (Note 8).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | O. |  | Related Parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |    |  | Related parties are individuals and companies, where the individual or
company has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making
financial and operating decisions. Parties are also considered to be
related if they are subject to common control or common significant
influence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | P. |  | Comparatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |    |  | Where necessary, comparative figures have been adjusted to conform with
changes in presentation in the current financial year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Q. |  | Translation of 2002 Consolidated Financial Statements to United
States Dollars (U.S. Dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |    |  | The Group publishes its consolidated financial statements in Hong Kong
Dollars. Solely for the convenience of the reader, the 2002 consolidated
financial statements have been translated into U.S. Dollars at the
specified rate below. These translations should not be construed as
representations that the Hong Kong Dollar amounts actually represent such
U.S. Dollar amounts or could be converted into U.S. Dollars at the rate
indicated. The translation of Hong Kong Dollars into U.S. Dollars has
been made at the rate of HK$7.7988 to US$1.00, which was the noon buying
rate in New York City for cable transfers in Hong Kong Dollars as
certified for customs purposes by the Federal Reserve Bank of New York on
December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F-12



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. |  | TURNOVER AND SEGMENT INFORMATION                                                                                                                                    
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | An analysis of the Groups turnover, contribution to operating profit and
profit before financing and taxation for the year, by principal activities,
is as follows:

|                                 |  |      |        |      |  |      |        |  |  |  |        | 
|-------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|Turnover comprises:              |  | 2000 |        | 2001 |  | 2002
|                                 |  |      |        |      |  |     
|                                 |  | HK$M |        | HK$M |  | HK$M
|                                 |  |      |        |      |  |     
|SoC business                     |  |      | 24,224 |      |  |      | 24,806 |  |  |  | 25,844 | 
|Power projects outside Hong Kong |  |      | 18     |      |  |      | 17     |  |  |  | 35     | 
|Telecom business                 |  |      |       |      |  |      | 9      |  |  |  | 71     | 
|Other businesses                 |  |      | 209    |      |  |      | 167    |  |  |  | 184    | 
|                                 |  |      |        |      |  |      |        |  |  |  |        | 
|                                 |  |      | 24,451 |      |  |      | 24,999 |  |  |  | 26,134 | 
|                                 |  |      |        |      |  |      |        |  |  |  |        | 

|                                              |  |      |       |      |  |      |       |   |  |  |       |  
|--------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|Operating Profit/(Loss) (Note (a)) comprises: |  | 2000 |       | 2001 |  | 2002
|                                              |  |      |       |      |  |     
|                                              |  | HK$M |       | HK$M |  | HK$M
|                                              |  |      |       |      |  |     
|SoC business                                  |  |      | 6,630 |      |  |      | 6,419 |   |  |  | 7,147 |  
|Power projects outside Hong Kong              |  |      | (281  | )    |  |      | (211  | ) |  |  | (214  | )
|Telecom business                              |  |      | (78   | )    |  |      | (192  | ) |  |  | (175  | )
|Other businesses                              |  |      | (4    | )    |  |      | 37    |   |  |  | 195   |  
|Unallocated Group expenses                    |  |      | (76   | )    |  |      | (105  | ) |  |  | (117  | )
|                                              |  |      |       |      |  |      |       |   |  |  |       |  
|                                              |  |      | 6,191 |      |  |      | 5,948 |   |  |  | 6,836 |  
|                                              |  |      |       |      |  |      |       |   |  |  |       |  

|                                                                  |  |      |       |      |  |      |        |   |  |  |        |  
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  |  | ------ | -
|Profit/(Loss) Before Financing and Taxation (Note (b)) comprises: |  | 2000 |       | 2001 |  | 2002
|                                                                  |  |      |       |      |  |     
|                                                                  |  | HK$M |       | HK$M |  | HK$M
|                                                                  |  |      |       |      |  |     
|SoC business                                                      |  |      | 8,064 |      |  |      | 7,910  |   |  |  | 8,719  |  
|Power projects outside Hong Kong                                  |  |      | (396  | )    |  |      | 706    |   |  |  | 1,299  |  
|Telecom business                                                  |  |      | (78   | )    |  |      | (192   | ) |  |  | (182   | )
|Other businesses                                                  |  |      | 1,355 |      |  |      | 1,791  |   |  |  | 461    |  
|Unallocated Group expenses                                        |  |      | (76   | )    |  |      | (105   | ) |  |  | (117   | )
|                                                                  |  |      |       |      |  |      |        |   |  |  |        |  
|                                                                  |  |      | 8,869 |      |  |      | 10,110 |   |  |  | 10,180 |  
|                                                                  |  |      |       |      |  |      |        |   |  |  |        |  



| |  | Other than those in relation to the SoC business, none of the other segment
assets exceeded 10% of the operating assets attributable to all business
segments.                                       
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Note (a):  Operating Profit/(Loss) is stated before taking into account the
Groups share of the results of jointly controlled entities      
      
   and associated companies.                    
|
| |  | Note (b):  Profit/(Loss) Before Financing and Taxation is stated after
taking into account the Groups share of the results of jointly
      
      
   controlled entities and associated companies.

F-13



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. |  | TURNOVER AND SEGMENT INFORMATION (continued)                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Group operates, through its subsidiary companies, jointly controlled
entities and associated companies, in three major geographical
regions  Hong
Kong, the Chinese mainland and the Asia-Pacific region. Information about
the Groups operations by geographical regions is as follows:

|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |        | 
|-------------------------------------------------------- | ------------------------------ | ---- | ------ | -------- | ---- | ------- | ----- | ----------- | ---- | ----- | ----- | ----- |  |  | ---- | --- |  |  | ------ | ------ | 
|                                                         |                                |      |        |          |      |         |       |             |      |       | Asia- |       |  |  |      |     |  |  |       
|                                                         |                                | Hong |        | Chinese  |      | Pacific |       | Unallocated |      |       |       |      
|2002                                                     |                                | Kong |        | Mainland |      | Region  |       | Items       |      | Total
|                                                         |                                |      |        |          |      |         |       |             |      |       |      
|                                                         |                                |      | HK$M   |          | HK$M |         | HK$M  |             | HK$M |       | HK$M 
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Turnover                                                 |                                |      | 25,118 |          |      |         | 977   |             |      |       | 36    |       |  |  | 3    |     |  |  | 26,134 |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Segment results                                          |                                |      | 7,119  |          |      |         | (70   | )           |      |       | (96   | )     |  |  | (117 | )   |  |  | 6,836  |       
|Hok Un redevelopment profit                              |                                |      | 282    |          |      |         |      |             |      |       |      |       |  |  |     |     |  |  | 282    |       
|Share of profits/(losses) of
jointly controlled entities |                                |      | 1,531  |          |      |         | 1,112 |             |      |       | 333   |       |  |  |     |     |  |  | 2,976  |       
|Share of profits/(losses) of
associated companies        |                                |      | (7     | )        |      |         |      |             |      |       | 93    |       |  |  |     |     |  |  | 86     |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Profit/(Loss) before financing
and taxation              |                                |      | 8,925  |          |      |         | 1,042 |             |      |       | 330   |       |  |  | (117 | )   |  |  | 10,180 |       
|Finance costs                                            |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | (189   | )     
|Finance income                                           |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 33     |       
|Taxation                                                 |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | (1,302 | )     
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Profit after taxation                                    |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 8,722  |       
|Transfers under SoC                                      |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | (1,643 | )     
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Earnings for the year                                    |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 7,079  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Capital expenditure (Note (a))                           |                                |      | 4,923  |          |      |         | 19    |             |      |       | 186   |       |  |  | 6    |     |  |  | 5,134  |       
|Depreciation                                             |                                |      | 1,710  |          |      |         | 35    |             |      |       | 2     |       |  |  | 2    |     |  |  | 1,749  |       
|Amortization of goodwill and
cost of investment          |                                |      | 9      |          |      |         | 48    |             |      |       | 35    |       |  |  |     |     |  |  | 92     |       
|Impairment charges                                       |                                |      | 97     |          |      |         |      |             |      |       |      |       |  |  |     |     |  |  | 97     |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|At
December 31, 2002                                     |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Segment assets                                           |                                |      | 38,161 |          |      |         | 752   |             |      |       | 1,012 |       |  |  | 44   |     |  |  | 39,969 |       
|Investments in jointly
controlled entities               |                                |      | 6,232  |          |      |         | 6,328 |             |      |       | 6,295 |       |  |  |     |     |  |  | 18,855 |       
|Investments in associated
companies                      |                                |      | 150    |          |      |         |      |             |      |       | 1,298 |       |  |  |     |     |  |  | 1,448  |       
|Cash and cash equivalents                                |                                |      |       |          |      |         |      |             |      |       |      |       |  |  | 516  |     |  |  | 516    |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         | Consolidated total assets      |      |        | 44,543   |      |         |       | 7,080       |      |       |       | 8,605 |  |  |      | 560 |  |  |        | 60,788 | 
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Segment liabilities                                      |                                |      | 10,658 |          |      |         | 48    |             |      |       | 29    |       |  |  | 52   |     |  |  | 10,787 |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Total borrowings                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 9,297  |       
|Tax liabilities                                          |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 3,917  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         | Consolidated total liabilities |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        | 24,001 | 
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       



| |  | Note (a): Includes additions of fixed assets and other segment assets.
| |  | ----------------------------------------------------------------------
|
| |  | F-14                                                                  



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. |  | TURNOVER AND SEGMENT INFORMATION (continued)
|-- |  | --------------------------------------------

|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |        | 
|-------------------------------------------------------- | ------------------------------ | ---- | ------ | -------- | ---- | ------- | ----- | ----------- | ---- | ----- | ----- | ----- |  |  | ---- | --- |  |  | ------ | ------ | 
|                                                         |                                |      |        |          |      |         |       |             |      |       | Asia- |       |  |  |      |     |  |  |       
|                                                         |                                | Hong |        | Chinese  |      | Pacific |       | Unallocated |      |       |       |      
|2001                                                     |                                | Kong |        | Mainland |      | Region  |       | Items       |      | Total
|                                                         |                                |      |        |          |      |         |       |             |      |       |      
|                                                         |                                |      | HK$M   |          | HK$M |         | HK$M  |             | HK$M |       | HK$M 
|                                                         |                                |      |        |          |      |         |       |             |      |       |      
|Turnover                                                 |                                |      | 24,273 |          |      |         | 706   |             |      |       | 18    |       |  |  | 2    |     |  |  | 24,999 |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |      
|Segment results                                          |                                |      | 6,239  |          |      |         | (69   | )           |      |       | (110  | )     |  |  | (112 | )   |  |  | 5,948  |       
|Hok Un redevelopment profit                              |                                |      | 1,752  |          |      |         |      |             |      |       |      |       |  |  |     |     |  |  | 1,752  |       
|Share of profits/(losses) of
jointly controlled entities |                                |      | 1,474  |          |      |         | 1,137 |             |      |       | (272  | )     |  |  |     |     |  |  | 2,339  |       
|Share of profit of associated
company                    |                                |      |       |          |      |         |      |             |      |       | 71    |       |  |  |     |     |  |  | 71     |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Profit/(Loss) before financing
and taxation              |                                |      | 9,465  |          |      |         | 1,068 |             |      |       | (311  | )     |  |  | (112 | )   |  |  | 10,110 |       
|Finance costs                                            |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | (187   | )     
|Finance income                                           |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 29     |       
|Taxation                                                 |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | (1,189 | )     
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Profit after taxation                                    |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 8,763  |       
|Transfers under SoC                                      |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | (1,506 | )     
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Earnings for the year                                    |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 7,257  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |      
|Capital expenditure (Note (a))                           |                                |      | 4,618  |          |      |         | 35    |             |      |       | 86    |       |  |  | 2    |     |  |  | 4,741  |       
|Depreciation                                             |                                |      | 1,586  |          |      |         | 35    |             |      |       | 2     |       |  |  | 1    |     |  |  | 1,624  |       
|Amortization of goodwill and
cost of investment          |                                |      | 2      |          |      |         | 46    |             |      |       | 15    |       |  |  |     |     |  |  | 63     |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |      
|At December 31, 2001                                     |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Segment assets                                           |                                |      | 35,205 |          |      |         | 760   |             |      |       | 1,124 |       |  |  | 37   |     |  |  | 37,126 |       
|Investments in jointly
controlled entities               |                                |      | 6,764  |          |      |         | 6,181 |             |      |       | 2,841 |       |  |  |     |     |  |  | 15,786 |       
|Investment in associated company                         |                                |      |       |          |      |         |      |             |      |       | 1,230 |       |  |  |     |     |  |  | 1,230  |       
|Cash and cash equivalents                                |                                |      |       |          |      |         |      |             |      |       |      |       |  |  | 80   |     |  |  | 80     |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         | Consolidated total assets      |      |        | 41,969   |      |         |       | 6,941       |      |       |       | 5,195 |  |  |      | 117 |  |  |        | 54,222 | 
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |      
|Segment liabilities                                      |                                |      | 9,850  |          |      |         | 27    |             |      |       | 18    |       |  |  | 35   |     |  |  | 9,930  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|Total borrowings                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 5,567  |       
|Tax liabilities                                          |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  | 3,557  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       
|                                                         | Consolidated total liabilities |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        | 19,054 | 
|                                                         |                                |      |        |          |      |         |       |             |      |       |       |       |  |  |      |     |  |  |        |       



| |  | Note (a): Includes additions of fixed assets and other segment assets.
| |  | ----------------------------------------------------------------------
|
| |  | F-15                                                                  



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|2. |  | TURNOVER AND SEGMENT INFORMATION (continued)
|-- |  | --------------------------------------------

|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |        | 
|-------------------------------------------------------- | ------------------------------ | ---- | ------ | -------- | ---- | ------- | ----- | ----------- | ---- | ----- | ------ | ----- |  |  | ----- | ----- |  |  | ------ | ------ | 
|                                                         |                                |      |        |          |      |         |       |             |      |       | Asia-  |       |  |  |       |       |  |  |       
|                                                         |                                | Hong |        | Chinese  |      | Pacific |       | Unallocated |      |       |        |      
|2000                                                     |                                | Kong |        | Mainland |      | Region  |       | Items       |      | Total
|                                                         |                                |      |        |          |      |         |       |             |      |       |       
|                                                         |                                |      | HK$M   |          | HK$M |         | HK$M  |             | HK$M |       | HK$M  
|                                                         |                                |      |        |          |      |         |       |             |      |       |       
|Turnover                                                 |                                |      | 23,843 |          |      |         | 588   |             |      |       | 18     |       |  |  | 2     |       |  |  | 24,451 |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       
|Segment results                                          |                                |      | 6,537  |          |      |         | (48   | )           |      |       | (208   | )     |  |  | (90   | )     |  |  | 6,191  |       
|Hok Un redevelopment profit                              |                                |      | 1,357  |          |      |         |      |             |      |       |       |       |  |  |      |       |  |  | 1,357  |       
|Share of profits/(losses) of
jointly controlled entities |                                |      | 1,421  |          |      |         | 806   |             |      |       | (11    | )     |  |  |      |       |  |  | 2,216  |       
|Share of profit of associated
company                    |                                |      |       |          |      |         |      |             |      |       | 5      |       |  |  |      |       |  |  | 5      |       
|Impairment loss on investment
in associated company      |                                |      |       |          |      |         |      |             |      |       | (900   | )     |  |  |      |       |  |  | (900   | )     
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|Profit/(Loss) before financing
and taxation              |                                |      | 9,315  |          |      |         | 758   |             |      |       | (1,114 | )     |  |  | (90   | )     |  |  | 8,869  |       
|Finance costs                                            |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  | (204   | )     
|Finance income                                           |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  | 110    |       
|Taxation                                                 |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  | (1,378 | )     
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|Profit after taxation                                    |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  | 7,397  |       
|Transfers under SoC                                      |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  | (1,629 | )     
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|Earnings for the year                                    |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  | 5,768  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       
|Capital expenditure (Note (a))                           |                                |      | 3,379  |          |      |         | 21    |             |      |       | 1      |       |  |  | 1     |       |  |  | 3,402  |       
|Depreciation                                             |                                |      | 1,437  |          |      |         | 34    |             |      |       | 2      |       |  |  | 1     |       |  |  | 1,474  |       
|Amortization of goodwill and
cost of investment          |                                |      |       |          |      |         | 32    |             |      |       | 37     |       |  |  |      |       |  |  | 69     |       
|Impairment charges                                       |                                |      |       |          |      |         |      |             |      |       | 1,030  |       |  |  |      |       |  |  | 1,030  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       
|At December 31, 2000                                     |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|Segment assets                                           |                                |      | 32,327 |          |      |         | 744   |             |      |       | 1,068  |       |  |  | 39    |       |  |  | 34,178 |       
|Investments in jointly
controlled entities               |                                |      | 6,453  |          |      |         | 4,773 |             |      |       | 929    |       |  |  |      |       |  |  | 12,155 |       
|Investment in associated company                         |                                |      |       |          |      |         |      |             |      |       | 1,173  |       |  |  |      |       |  |  | 1,173  |       
|Cash and cash equivalents                                |                                |      |       |          |      |         |      |             |      |       |       |       |  |  | 2,172 |       |  |  | 2,172  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|                                                         | Consolidated total assets      |      |        | 38,780   |      |         |       | 5,517       |      |       |        | 3,170 |  |  |       | 2,211 |  |  |        | 49,678 | 
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |       
|Segment liabilities                                      |                                |      | 8,626  |          |      |         | 12    |             |      |       | 38     |       |  |  | 32    |       |  |  | 8,708  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|Total borrowings                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  | 2,578  |       
|Tax liabilities                                          |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  | 3,778  |       
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       
|                                                         | Consolidated total liabilities |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        | 15,064 | 
|                                                         |                                |      |        |          |      |         |       |             |      |       |        |       |  |  |       |       |  |  |        |       



| |  | Note (a): Includes additions of fixed assets and other segment assets.
| |  | ----------------------------------------------------------------------

F-16



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|3. |  | OPERATING PROFIT
|-- |  | ----------------

|                                                                     |                           |                                                        |     |       |    |      |     |       |     |  |      |       |    | 
|-------------------------------------------------------------------- | ------------------------- | ------------------------------------------------------ | --- | ----- | -- | ---- | --- | ----- | --- |  | ---- | ----- | -- | 
|                                                                     |                           |                                                        |     | 2000  |    | 2001 |     | 2002 
|                                                                     |                           |                                                        |     |       |    |      |     |      
|                                                                     |                           |                                                        |     | HK$M  |    | HK$M |     | HK$M 
|Operating profit is stated after charging/(crediting) the following: |                           |                                                        |     |       |    |      |     |       |     |  |      |      
|                                                                     |                           |                                                        |     |       |    |      |     |      
|Charging                                                             |                           |                                                        |     |       |    |      |     |       |     |  |      |      
|Staff costs (A)                                                      |                           |                                                        |     |       |    |      |     |       |     |  |      |      
|                                                                     | Salaries and other costs  |                                                        |     | 1,327 |    |      |     | 1,276 |     |  |      | 1,275 |   
|                                                                     | Retirement benefits costs |                                                        |     |       |    |      |     |       |     |  |      |       |   
|                                                                     |                           | - defined benefit costs (Note 8)                       |     |       | 93 |      |     |       | 101 |  |      |       | 85 | 
|                                                                     |                           | - defined contribution plan (Mandatory Provident Fund) |     |       |   |      |     |       | 1   |  |      |       | 2  | 
|Loss on disposal of fixed assets                                     |                           |                                                        | 100 |       |    |      | 107 |       |     |  | 79   |      
|Auditors remuneration                                               |                           |                                                        | 3   |       |    |      | 3   |       |     |  | 4    |      
|Impairment loss and mark-to-market gain                              |                           |                                                        | 130 |       |    |      |    |       |     |  | 70   |      
|Loss on curtailment of employee retirement benefit plan (Note 8)     |                           |                                                        |    |       |    |      |    |       |     |  | 83   |      
|Other net exchange losses/(gains)                                    |                           |                                                        | 3   |       |    |      | (9  | )     |     |  | (6   | )    
|                                                                     |                           |                                                        |     |       |    |      |     |      
|Crediting                                                            |                           |                                                        |     |       |    |      |     |       |     |  |      |      
|Net rental income from properties                                    |                           |                                                        | (17 | )     |    |      | (18 | )     |     |  | (16  | )    
|Capital gains on disposal of other properties                        |                           |                                                        | (7  | )     |    |      | (52 | )     |     |  | (8   | )    
|Gain on disposal of staff quarters at Ho Man Tin Hill Road           |                           |                                                        |    |       |    |      |    |       |     |  | (313 | )    



| | (A) |  | Staff costs include amounts recharged to jointly controlled entities
for services provided and amounts allocated to project development
costs (Note 32).
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



|4. |  | FINANCE COSTS AND INCOME
|-- |  | ------------------------

|                                                          |                                        |  |      |     |      |  |      |     |  |  |      |     |  | 
|--------------------------------------------------------- | -------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | ---- | --- |  | 
|                                                          |                                        |  | 2000 |     | 2001 |  | 2002
|                                                          |                                        |  |      |     |      |  |     
|                                                          |                                        |  | HK$M |     | HK$M |  | HK$M
|Finance costs:                                            |                                        |  |      |     |      |  |      |     |  |  |      |    
|Interest on bank loans and overdrafts                     |                                        |  | 24   |     |      |  | 63   |     |  |  | 127  |    
|Interest on other loans                                   |                                        |  |      |     |      |  |      |     |  |  |      |    
|                                                          | wholly repayable within five years     |  |      |    |      |  |      | 165 |  |  |      | 166 | 
|                                                          | not wholly repayable within five years |  |      | 177 |      |  |      |    |  |  |      | 62  | 
|Interest on customers deposits and others                |                                        |  | 52   |     |      |  | 86   |     |  |  | 23   |    
|Finance charges                                           |                                        |  | 11   |     |      |  | 11   |     |  |  | 36   |    
|Exchange losses/(gains)                                   |                                        |  | 10   |     |      |  | (4   | )   |  |  | (22  | )  
|                                                          |                                        |  |      |     |      |  |      |     |  |  |      |    
|                                                          |                                        |  | 274  |     |      |  | 321  |     |  |  | 392  |    
|Less : amount capitalized                                 |                                        |  | (70  | )   |      |  | (134 | )   |  |  | (203 | )  
|                                                          |                                        |  |      |     |      |  |      |     |  |  |      |    
|                                                          |                                        |  | 204  |     |      |  | 187  |     |  |  | 189  |    
|                                                          |                                        |  |      |     |      |  |      |     |  |  |      |    
|                                                          |                                        |  |      |     |      |  |     
|Capitalization rate (%)                                   |                                        |  | 25.5 |     |      |  | 41.7 |     |  |  | 51.8 |    
|                                                          |                                        |  |      |     |      |  |      |     |  |  |      |    
|                                                         
|Finance income:                                           |                                        |  |      |     |      |  |      |     |  |  |      |    
|Net interest income from investment securities            |                                        |  | 11   |     |      |  | 6    |     |  |  | 11   |    
|Interest income on bank deposits                          |                                        |  | 99   |     |      |  | 23   |     |  |  | 5    |    
|Interest income on advance to a jointly controlled entity |                                        |  |     |     |      |  |     |     |  |  | 17   |    
|                                                          |                                        |  |      |     |      |  |      |     |  |  |      |    
|                                                          |                                        |  | 110  |     |      |  | 29   |     |  |  | 33   |    
|                                                          |                                        |  |      |     |      |  |      |     |  |  |      |    

F-17



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|5. |  | HOK UN REDEVELOPMENT PROFIT/PROPERTY DISPOSAL GAIN
|-- |  | --------------------------------------------------

| |                                                        |  |       |       |      |  |       |       |   |  |     |     |  
| | ------------------------------------------------------ |  | ----- | ----- | ---- |  | ----- | ----- | - |  | --- | --- | -
| |                                                        |  | 2000  |       | 2001 |  | 2002 
| |                                                        |  |       |       |      |  |      
| |                                                        |  | HK$M  |       | HK$M |  | HK$M 
|
| | (A)     Property
disposal
gain               (Note(a)) |  |      |       |      |  |      |       |   |  | 313
| |                                                        |  |       |       |      |  |       |       |   |  |     |    
| | (B)     Hok Un redevelopment profit:  (Note(b))        |  |       |       |      |  |       |       |   |  |    
| | Share of profit before taxation                        |  | 1,353 |       |      |  | 1,751 |       |   |  | 282 |    
| | Reversal of provision                                  |  | 4     |       |      |  | 1     |       |   |  |    |    
| |                                                        |  |       |       |      |  |       |       |   |  |     |    
| |                                                        |  |       | 1,357 |      |  |       | 1,752 |   |  |     | 282 |  
| | Taxation                                               |  |       | (225  | )    |  |       | (284  | ) |  |     | (49 | )
| |                                                        |  |       |       |      |  |       |       |   |  |     |    
| | Share of profit after taxation                         |  |       | 1,132 |      |  |       | 1,468 |   |  |     | 233 |  
| |                                                        |  |       |       |      |  |       |       |   |  |     |    
|
| |                                                        |  | 1,132 |       |      |  | 1,468 |       |   |  | 546 |    
| |                                                        |  |       |       |      |  |       |       |   |  |     |    



| |  |  | Note (a): |  | The Group recorded a capital gain from disposal of a site which
was formerly used as staff quarters in Ho Man Tin Hill.                                 
| |  |  | --------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Note (b): |  | During the year, the Group recorded its share of profit arising
from the sale of further units of Phases 4 and 5 and car parking spaces
at Laguna Verde.



|6. |  | DIRECTORS REMUNERATION                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The CLP Holdings Board is currently composed of 13 (2001: 13, 2000: 12)
Non-executive Directors and three (2001: four, 2000: two) Executive
Directors.                                                                                                                                                                                                                                   
|  
|   |  | Non-Executive Directors Remuneration                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | The fees paid to the Non-executive Directors are set at levels in line with
market practice as a result of regular independent reviews and benchmarked
with comparable Hong Kong listed companies. The levels of remuneration for
Directors have remained unchanged since 1995. In the year ended December 31,
2002, the fees paid to each of the Non-executive Directors were as follows:

| |                                                             |  |     |         | 
| | ----------------------------------------------------------- |  | --- | ------- | 
| |                                                             |  | HK$
|
| | Chairman                                                    |  |     | 225,000 | 
| | Vice-Chairmen                                               |  |     | 150,000 | 
| | Non-executive Directors                                     |  |     | 100,000 | 
| | Additional fee for Directors serving on the Audit Committee |  |     | 50,000  | 



| |  | The total amount of fees paid to the five (2001: four, 2000: three)
Independent Non-executive Directors during the year was HK$589,167 (2001:
HK$439,671, 2000: HK$429,212).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|6. |  | DIRECTORS REMUNERATION (continued)                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Executive Directors and Senior Management Remuneration                                                                           
|  
|   |  | Under the current remuneration package, there are three key components of
Executive Directors and Senior Management remuneration:



| | (A) |  | Base Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Base compensation is reviewed annually taking into consideration the
competitive market position, market practice and individual performance.
For the Executive Directors and members of Senior Management, base
compensation accounts for approximately 50% to 80% of total
remuneration.                                                                                                                                                                                      
|
| | (B) |  | Incentive Bonus                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | The levels of the incentive bonus are set by the Human Resources &
Remuneration Committee, which comprises solely Non-executive Directors.                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | Annual Incentive                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | The annual incentive payout depends upon the performance of the CLP
Group, the business units, the functions and the individuals concerned.
Key measures include achievement of financial goals and operational
performance targets. For the Executive Directors and members of Senior
Management, the annual incentive target accounts for 15% to 40% of total
remuneration.                                                                                                   
|
| |     |  | Individuals who attain target performance are awarded a pre-set Annual
Incentive amount. The actual payout ranges from zero to two times the
pre-set amount, subject to performance.                                                                                                                                                                                                                                                                                            
|
| |     |  | Long-term Incentive                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | The Executive Directors and members of Senior Management are also
eligible to take part in the Long-term Incentive Plan  the Phantom
Share Plan, which accounts for 5% to 10% of their total remuneration at
target performance.                                                                                                                                                                                                                                             
|
| |     |  | The Phantom Share Plan is designed to align the interests of the
Executive Directors and other Senior Management with those of the
Shareholders by an award that is pegged to the creation of Shareholder
value. A three-year financial target is set every year to drive towards
higher performance and to ensure that such performance is sustained over
the long-term.                                                                                                       
|
| |     |  | Individuals who attain target performance are awarded a pre-set award
payout. The actual award ranges from zero to one and a half times the
pre-set amount, subject to performance. The award is further adjusted
to reflect the share price performance of CLP Holdings, with dividends
reinvested, over the same three-year period. Subject to certain vesting
conditions, the award is payable in the first quarter of the 4th year.
The first award will be payable in 2004.
|
| | (C) |  | Pension Arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | The Executive Directors and members of Senior Management are eligible to
join the defined contribution section of the Groups retirement fund.
The Groups contribution to the retirement fund amounts to a maximum of
12.5% of base compensation.                                                                                                                                                                                                                              

F-19



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|6. |  | DIRECTORS REMUNERATION (continued)                                                                                                                                                                                                                             
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Early retirement/termination compensation is not part of the remuneration
arrangements for the Executive Directors or Senior Management, but may be
payable, where appropriate, upon approval by the Chairman of the Human
Resources and Remuneration Committee.
|  
|   |  | The Group does not have, and has never had, a share option scheme.                                                                                                                                                                                              
|  
|   |  | The total remuneration of the Directors is shown below:                                                                                                                                                                                                         

| |                                                    |            |      |    |      |  |      |    |  |  |    |    | 
| | -------------------------------------------------- | ---------- | ---- | -- | ---- |  | ---- | -- |  |  | -- | -- | 
| |                                                    |            | 2000 |    | 2001 |  | 2002
| |                                                    |            |      |    |      |  |     
| |                                                    |            | HK$M |    | HK$M |  | HK$M
| |                                                    |            |      |    |      |  |     
| | Fees                                               |            |      | 2  |      |  |      | 2  |  |  |    | 2  | 
| | Base compensation, allowances and benefits in kind |            | 13   |    |      |  | 12   |    |  |  | 13 |   
| | Performance bonus                                  | (Note (a)) |      | 1  |      |  |      | 7  |  |  |    | 10 | 
| | Provident fund contributions                       |            | 1    |    |      |  | 1    |    |  |  | 2  |   
| | Early retirement compensation                      | (Note (b)) |      |   |      |  |      |   |  |  |    | 10 | 
| |                                                    |            |      |    |      |  |      |    |  |  |    |    | 
| |                                                    |            |      | 17 |      |  |      | 22 |  |  |    | 37 | 
| |                                                    |            |      |    |      |  |      |    |  |  |    |    | 



| |  | The Directors remuneration is within the following bands:
| |  | ----------------------------------------------------------

| |                                         |           |                       |    |      |  |      |    |  |  |  |    | 
| | --------------------------------------- | --------- | --------------------- | -- | ---- |  | ---- | -- |  |  |  | -- | 
| |                                         |           | Number of Individuals
| |                                         |           | 2000                  |    | 2001 |  | 2002
| |                                         |           |                       |    |      |  |     
| |                                         |           |                       |    |      |  |     
| | HK$nil                -    HK$1,000,000 |           |                       | 13 |      |  |      | 13 |  |  |  | 13 | 
| | HK$1,000,001    -    HK$1,500,000       | (Note(c)) |                       |   |      |  |      | 1  |  |  |  |   | 
| | HK$2,000,001    -    HK$2,500,000       | (Note(c)) |                       |   |      |  |      | 1  |  |  |  |   | 
| | HK$4,000,001    -    HK$4,500,000       |           |                       | 1  |      |  |      |   |  |  |  |   | 
| | HK$4,500,001    -    HK$5,000,000       |           |                       | 1  |      |  |      |   |  |  |  |   | 
| | HK$5,000,001    -    HK$5,500,000       |           |                       |   |      |  |      |   |  |  |  | 1  | 
| | HK$5,500,001    -    HK$6,000,000       |           |                       | 1  |      |  |      |   |  |  |  |   | 
| | HK$8,000,001    -    HK$8,500,000       |           |                       |   |      |  |      | 1  |  |  |  | 1  | 
| | HK$9,000,001    -    HK$9,500,000       |           |                       |   |      |  |      | 1  |  |  |  | 1  | 
| | HK$13,000,001 -  HK$13,500,000          | (Note(b)) |                       |   |      |  |      |   |  |  |  | 1  | 

F-20



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|6. |  | DIRECTORS REMUNERATION (continued)                                         
|-- |  | ----------------------------------------------------------------------------
|  
|   |  | The remuneration details of the current Executive Directors are shown below:

| |                                          |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| | ---------------------------------------- |  | ------------- | ---- | ----------- |  | ------------ | --- | ----- |  |  | --- |  |  |  | ---- | 
| |                                          |  | Base          |      |             |  |              |     |       |  |  |     |  |  | 
| |                                          |  | Compensation, |      | Performance |  | Provident    |     |       |  | 
| |                                          |  | Allowances    |      | Bonus       |  | Fund         |     |       |  | 
| |                                          |  | & Benefits    |      | (Note (a))  |  | Contribution |     | Total
| |                                          |  |               |      |             |  |              |     |      
| |                                          |  | HK$M          |      | HK$M        |  | HK$M         |     | HK$M 
| | 2002                                     |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| | Group Managing Director & CEO            |  |               | 4.7  |             |  |              | 3.7 |       |  |  | 0.6 |  |  |  | 9.0  | 
| | Executive Director & CFO                 |  |               | 4.3  |             |  |              | 3.5 |       |  |  | 0.5 |  |  |  | 8.3  | 
| | Director & Company Secretary             |  |               | 3.2  |             |  |              | 1.7 |       |  |  | 0.4 |  |  |  | 5.3  | 
| |                                          |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| |                                          |  |               | 12.2 |             |  |              | 8.9 |       |  |  | 1.5 |  |  |  | 22.6 | 
| |                                          |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| | 2001                                     |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| | Group Managing Director & CEO            |  |               | 5.3  |             |  |              | 3.1 |       |  |  | 0.6 |  |  |  | 9.0  | 
| | Executive Director & CFO                 |  |               | 4.4  |             |  |              | 3.2 |       |  |  | 0.5 |  |  |  | 8.1  | 
| | Director & Company Secretary (Note (c))  |  |               | 1.0  |             |  |              | 0.2 |       |  |  | 0.1 |  |  |  | 1.3  | 
| |                                          |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| |                                          |  |               | 10.7 |             |  |              | 6.5 |       |  |  | 1.2 |  |  |  | 18.4 | 
| |                                          |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| | 2000                                     |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| | Group Managing Director & CEO (Note
(d)) |  |               | 4.4  |             |  |              |    |       |  |  | 0.3 |  |  |  | 4.7  | 
| | Executive Director & CFO                 |  |               | 5.2  |             |  |              | 0.2 |       |  |  | 0.4 |  |  |  | 5.8  | 
| |                                          |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 
| |                                          |  |               | 9.6  |             |  |              | 0.2 |       |  |  | 0.7 |  |  |  | 10.5 | 
| |                                          |  |               |      |             |  |              |     |       |  |  |     |  |  |  |      | 

|          |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|--------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (a): |  | Performance bonus for the Executive Directors consists of annual
incentives only. Long-term incentives, as explained above, only vest
and become payable once the relevant vesting conditions have been
satisfied. The first payments will be payable in 2004.                                                                                                                                       
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|          |  | The amount of performance bonus paid in 2001 included bonus in respect
of service during 2000 and interim bonus in respect of service during
2001. The interim bonus was paid as part of the transition to a
performance-based senior management compensation structure.                                                                                                                             
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|          |  | Accruals have been made in the performance bonus for year 2002. These
accruals represent the difference between an executive directors
entitlement to the 2002 annual bonus at the target level of
performance which will be payable in 2003, and the interim bonus
already paid in 2002 as part of the arrangements for transition to a
performance-based senior management compensation structure.
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|Note (b): |  | Early retirement compensation was paid to a former Executive
Director.                                                                                                                                                                                                                                                                                                                               
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|Note (c): |  | For the Executive Director who served for part of year 2001, the
directors remuneration only includes remuneration for the period he
served as director.                                                                                                                                                                                                                                            
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|Note (d): |  | Appointed as Executive Director from May 2000.                                                                                                                                                                                                                                                                                                                                                       

F-21



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|7. |  | SENIOR MANAGEMENT REMUNERATION                                                                                                                                                                                                                                                                
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The eight highest paid individuals in the Group during the year included
three (2001: two, 2000: one) who served as Directors for the full year and
one (2001: two, 2000: two) who served as a Director for part of the year.
The details of the remuneration of these eight individuals were:

|                                                                        |  |      |    |      |  |      |    |  |  |  |    | 
|----------------------------------------------------------------------- |  | ---- | -- | ---- |  | ---- | -- |  |  |  | -- | 
|                                                                        |  | 2000 |    | 2001 |  | 2002
|                                                                        |  |      |    |      |  |     
|                                                                        |  | HK$M |    | HK$M |  | HK$M
|                                                                       
|Base compensation, allowances and benefits in kind                      |  |      | 33 |      |  |      | 28 |  |  |  | 25 | 
|Performance bonus                   
           
           
(Note (a)) |  |      | 2  |      |  |      | 14 |  |  |  | 18 | 
|Provident fund contributions                                            |  |      | 4  |      |  |      | 3  |  |  |  | 4  | 
|Early retirement/termination compensation     
(Note
(b))               |  |      |   |      |  |      |   |  |  |  | 21 | 
|                                                                        |  |      |    |      |  |      |    |  |  |  |    | 
|                                                                        |  |      | 39 |      |  |      | 45 |  |  |  | 68 | 
|                                                                        |  |      |    |      |  |      |    |  |  |  |    | 



| |  | Of the remuneration, HK$22 million (2001: HK$10 million, 2000: HK$6 million)
has been charged to the SoC operation.
| |  | -------------------------------------------------------------------------------------------------------------------
|
| |  | The remuneration paid to these eight individuals is within the following
bands:                                    

|                                               |  |                       |   |      |  |      |   |  |  |  |   | 
|---------------------------------------------- |  | --------------------- | - | ---- |  | ---- | - |  |  |  | - | 
|                                               |  | Number of Individuals
|                                               |  | 2000                  |   | 2001 |  | 2002
|                                               |  |                       |   |      |  |     
|                                              
|HK$3,500,001    -   HK$4,000,000               |  |                       | 1 |      |  |      | 3 |  |  |  |  | 
|HK$4,000,001    -   HK$4,500,000               |  |                       | 2 |      |  |      | 1 |  |  |  |  | 
|HK$4,500,001    -   HK$5,000,000               |  |                       | 3 |      |  |      |  |  |  |  |  | 
|HK$5,000,001    - 
 HK$5,500,000               |  |                       |  |      |  |      | 1 |  |  |  | 1 | 
|HK$5,500,001    -   HK$6,000,000               |  |                       | 2 |      |  |      |  |  |  |  |  | 
|HK$6,000,001    -   HK$6,500,000               |  |                       |  |      |  |      |  |  |  |  | 2 | 
|HK$6,500,001    -   HK$7,000,000               |  |                       |  |      |  |      | 1 |  |  |  |  | 
|HK$7,500,001    -   HK$8,000,000     (Note(b)) |  |                       |  |      |  |      |  |  |  |  | 1 | 
|HK$8,000,001    -   HK$8,500,000               |  |                       |  |      |  |      | 1 |  |  |  | 1 | 
|HK$9,000,001    -   HK$9,500,000               |  |                       |  |      |  |      | 1 |  |  |  | 1 | 
|HK$11,500,001 -   HK$12,000,000   (Note
(b))   |  |                       |  |      |  |      |  |  |  |  | 1 | 
|HK$13,000,001 -   HK$13,500,000   (Note
(b))   |  |                       |  |      |  |      |  |  |  |  | 1 | 

|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (a): |  | Performance bonus for the Executive Directors and members of
Senior Management consists of annual incentives only. Long-term
incentives, as explained above, only vest and become payable once the
relevant vesting conditions have been satisfied. The first payment will
be payable in 2004.                                                                                                                                                             
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|          |  | The amount of performance bonus paid in 2001 included bonus in respect
of service during 2000 and interim bonus in respect of service during
2001. The interim bonus was paid as part of the transition to a
performance-based senior management compensation structure.                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|          |  | Accruals have been made in the performance bonus for the Executive
Directors and members of Senior Management for year 2002. These
accruals represent the difference between the individuals entitlement
to the 2002 annual bonus at the target level of performance which will
be payable in 2003, and the interim bonus already paid in 2002 as part
of the arrangements for transition to a performance-based senior
management compensation structure.
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Note (b): |  | Early retirement/termination compensation was paid to three
individuals, including one former Executive Director.                                                                                                                                                                                                                                                                                                                                          

F-22



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|8. |  | RETIREMENT BENEFITS
|-- |  | -------------------



| | (A) |  | The Group currently operates two retirement funds, one for
professional and general staff, and the other for industrial staff.
Both funds are established under trust with the assets of the funds
held separately from those of the Group by an independent trustee, and
are Mandatory Provident Fund (MPF) exempted schemes under the
Occupational Retirement Schemes Ordinance. Commencing December 1,
2000, the Group also participates in a master trust MPF scheme operated
by an independent service provider.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The fund for professional and general staff consists of three
programmes: the defined benefit programme, the segregated fund programme
and the defined contribution programme (introduced on December 1, 2000).
The defined benefit programme provides benefits that are linked to
final pay and requires member contributions of 5% of base compensation.
Both the defined contribution programme and the segregated fund
programme provide benefits linked to contributions and investments
thereon. The defined contribution programme further provides members
with a guarantee that benefits will not be less than mandatory company
contributions to a basic MPF scheme. The defined contribution programme
requires member contributions of at least 2.5% of base compensation,
whereas members are not required to contribute under the segregated fund
programme. The defined benefit programme and the segregated fund
programme have been closed to new employees since December 1, 2000.
Furthermore, all remaining members in the defined benefit programme have
been transferred to the defined contribution programme upon business
close on December 31, 2002.
|
| |     |  | The fund for industrial staff consists of two programmes: the defined
benefit programme and the defined contribution programme (introduced on
December 1, 2000). The defined benefit programme provides benefits that
are linked to final pay and does not require member contributions. The
defined contribution programme provides benefits linked to contributions
and investments thereon and provides members with a guarantee that
benefits will not be less than mandatory company contributions to a basic
MPF scheme. The defined contribution programme requires members to
contribute at least 2.5% of base compensation (waived for existing
members who opted to join the defined contribution programme at
inception). The defined benefit programme has been closed to new
employees since December 1, 2000. Furthermore, all remaining members in
the defined benefit programme have been transferred to the defined
contribution programme upon business close on December 31, 2002.                                                                                                                                                                         
|
| |     |  | The Groups total retirement benefit costs for the year ended December
31, 2002, including contribution to a master trust MPF scheme, were
HK$134 million (2001, including contribution to a master trust MPF
scheme: HK$157 million, 2000: HK$149 million). The latest valuations of
the retirement funds were carried out as of December 31, 2001 by Mr.
Aaron Wong, Principal Consulting Actuary, of Watson Wyatt Hong Kong
Limited, using the projected unit credit method. These valuations showed
that the ratio of net assets available for benefits to aggregate past
service liabilities was 123% and 145% for professional & general staff
fund and the industrial staff fund respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (B) |  | On January 1, 2002, the Group adopted SSAP No. 34 Employee
Benefits. Retirement benefit costs are assessed using the projected
unit credit method. Under this method the regular cost of providing
retirement benefits is spread over the service lives of employees in
accordance with the advice of qualified actuaries who carry out periodic
valuations of the two funds. This is a change in accounting policy, as
in previous years the cost of providing retirement benefits was charged
to the profit and loss account to the extent of contributions paid to
the funds. The effect of this change in policy has been to increase
shareholders funds at January 1 of 2002, 2001 and 2000 by HK$1,194
million. This change in accounting policy has not impacted the prior
year profit and loss account as contributions paid were in line with the
charge required under SSAP No. 34.                                                                                                                                                                                                                                                                              

F-23



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|8. |  | RETIREMENT BENEFITS (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The retirement benefit obligation is measured based upon the estimated future
cash outflows, discounted by reference to market yields on high quality
corporate bonds which have a similar term as the related liabilities. Plan
assets are measured at fair value. Actuarial gains and losses are recognized
over the average remaining service lives of employees. The surplus of plan
assets over the present value of benefit obligations (the surplus), if
recognized, has to be restricted to the present value of economic benefits
available to the Group, as required by SSAP No. 34.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | In the second half of year 2000, to prepare for the transfer of the majority
of the members in the defined benefit programme to the new defined
contribution programme on December 1, 2000, a large portion of the plan
investments were converted to cash. At that time, the Group also announced
that those members (about 1% of total members) remaining with the defined
benefit programme would be transferred to the defined contribution programme
or MPF upon implementation of the revised remuneration scheme within the next
two to three years. Before the transfer of the remaining members and
relevant approvals, the defined benefit programme could not be wound up to
enable economic benefits to become available to the Group. Consequently, the
directors were of the opinion that material economic benefits associated with
the surplus would not be available to the Group and hence no asset was
recognized in the June 30, 2002 interim report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | In the second half of year 2002, the Group announced the implementation of a
revised remuneration scheme for implementation by stages commencing from
January 2003 and, in accordance with the plan developed in 2000, transferred
the remaining members in the defined benefit programme to the defined
contribution programme upon business close on December 31, 2002. At the same
time, the Group obtained the relevant approvals in principle to enable the
winding up of the defined benefit programmes. In accordance with the Trustee
Deeds, upon winding up the retirement benefit schemes, any surplus assets
after meeting the obligation to the members will be returned to the Group.
It therefore became clear that the surplus was indeed available to the Group
upon the completion of a routine administrative process involving the
transfer of defined benefit members to the defined contribution programme and
the winding up of the existing schemes; the economic benefits associated with
the surplus therefore accrued to the Group at both June 30, 2002 and December
31, 2001. Accordingly, the recognition of an asset in respect of the pension
surplus at December 31, 2001 has been recorded as a prior year adjustment as
required by the transitional rules of SSAP No. 34. This treatment differs
from that recognized in our 2002 interim report as a result of the
unavailability of further information regarding the economic benefits
available to the Group at December 31, 2001 as set out above.
|  
|   |  | On December 31, 2002, the remaining members in the defined benefit programme
were transferred to the defined contribution programme. This represented a
curtailment of the defined benefit programme. Accordingly, all actuarial
losses of HK$83 million arising during the year have been recognized in the
profit and loss account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-24



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|8. |  | RETIREMENT BENEFITS (continued)                                                                                                                            
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The amounts recognized in the balance sheet, which are limited to the present
value of economic benefits available to the Group, are determined as follows:

|                                                      |  |      |        |      |  |  |        |  
|----------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | -
|                                                      |  | 2001 |        | 2002
|                                                      |  |      |        |     
|                                                      |  | HK$M |        | HK$M
|                                                      |  |      |        |     
|Fair value of plan assets                             |  |      | 5,810  |      |  |  | 5,757  |  
|Present value of funded obligations                   |  |      | (4,616 | )    |  |  | (4,619 | )
|                                                      |  |      |        |      |  |  |        |  
|Net retirement benefit plan assets as at December 31, |  |      | 1,194  |      |  |  | 1,138  |  
|                                                      |  |      |        |      |  |  |        |  



| |  | The plan assets include the Companys ordinary shares with a fair value of
HK$297 million.
| |  | ------------------------------------------------------------------------------------------
|
| |  | The amounts recognized in the profit and loss account were as follows:                    

|                                        |  |      |      |      |  |      |      |   |  |  |      |  
|--------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                        |  | 2000 |      | 2001 |  | 2002
|                                        |  |      |      |      |  |     
|                                        |  | HK$M |      | HK$M |  | HK$M
|                                        |  |      |      |      |  |     
|Current service cost                    |  |      | 148  |      |  |      | 157  |   |  |  | 162  |  
|Interest cost                           |  |      | 337  |      |  |      | 324  |   |  |  | 295  |  
|Expected return on plan assets          |  |      | (336 | )    |  |      | (325 | ) |  |  | (326 | )
|                                        |  |      |      |      |  |      |      |   |  |  |      |  
|Total expenses before curtailment       |  |      | 149  |      |  |      | 156  |   |  |  | 131  |  
|Less: amount capitalized                |  |      | (56  | )    |  |      | (55  | ) |  |  | (46  | )
|                                        |  |      |      |      |  |      |      |   |  |  |      |  
|Total, included in staff costs (Note 3) |  |      | 93   |      |  |      | 101  |   |  |  | 85   |  
|Loss on curtailment of the schemes      |  |      |     |      |  |      |     |   |  |  | 83   |  
|                                        |  |      |      |      |  |      |      |   |  |  |      |  
|Total costs                             |  |      | 93   |      |  |      | 101  |   |  |  | 168  |  
|                                        |  |      |      |      |  |      |      |   |  |  |      |  



| |  | Movement in the asset recognized in the balance sheet:
| |  | ------------------------------------------------------

|                                                    |  |      |       |      |  |  |       |  
|--------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | -
|                                                    |  | 2001 |       | 2002
|                                                    |  |      |       |     
|                                                    |  | HK$M |       | HK$M
|                                                    |  |      |       |     
|Fund plan assets surplus at January 1,              |  |      | 1,194 |      |  |  | 1,194 |  
|Expenses recognized before curtailment              |  |      | (156  | )    |  |  | (131  | )
|Loss on curtailment of the schemes                  |  |      |      |      |  |  | (83   | )
|Contributions paid                                  |  |      | 156   |      |  |  | 158   |  
|                                                    |  |      |       |      |  |  |       |  
|Fund plan assets surplus at December 31, (Note (a)) |  |      | 1,194 |      |  |  | 1,138 |  
|                                                    |  |      |       |      |  |  |       |  



| |  | The principal actuarial assumptions used were as follows:
| |  | ---------------------------------------------------------

|                                                    |  |      |     |      |  |      |     |  |  |  |     | 
|--------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                                    |  | 2000 |     | 2001 |  | 2002
|                                                    |  |      |     |      |  |     
|                                                    |  | %    |     | %    |  | %   
|                                                    |  |      |     |      |  |     
|Discount rate                                       |  |      | 7.0 |      |  |      | 7.0 |  |  |  | 6.5 | 
|Expected rate of return on plan assets              |  |      | 5.6 |      |  |      | 5.6 |  |  |  | 5.6 | 
|Expected rate of future base compensation increases |  |      | 4.0 |      |  |      | 4.0 |  |  |  | 4.0 | 

|          |  |                                                                                                                                                                                                                                                  
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note (a): |  | The net asset recognized in the balance sheet of the Group at January 1, 2001 is derived from the net asset of HK$1,194 million at
December 31, 2001 adjusted by the expense of HK$156 million and contributions paid of HK$156 million for 2001.

F-25



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|9. |  | TAXATION
|-- |  | --------

|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|---------------------------------------------------------------- | ------------------------- | ------------------------------------- | ------------------------ |  | ---- | --- | ----- |  | ---- | ---- | ----- |  | ---- | --- | 
|                                                                 |                           |                                       |                          |  | 2000 |     | 2001  |  | 2002
|                                                                 |                           |                                       |                          |  |      |     |       |  |     
|                                                                 |                           |                                       |                          |  | HK$M |     | HK$M  |  | HK$M
|Taxation in the consolidated profit and loss account represents: |                           |                                       |                          |  |      |     |       |  |      |      |       | 
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       | 
|Current taxation                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       | 
|                                                                 | On
SoC profit  Hong Kong |                                       |                          |  |      |     |       |  |      |      |       |  |     
|                                                                 |                           | Subsidiary company                    |                          |  |      |     |       |  |      |      |       |  |      |    
|                                                                 |                           |                                       | - current year           |  |      | 653 |       |  |      | 520  |       |  |      | 516 | 
|                                                                 |                           |                                       | - provision written back |  |      |    |       |  |      | (269 | )     |  |      |    | 
|                                                                 |                           | Jointly controlled entity             |                          |  | 243  |     |       |  | 260  |      |       |  | 256  |    
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|                                                                 |                           |                                       | 896                      |  |      |     | 511   |  |      |      | 772   | 
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|                                                                 | On Non-SoC profit         |                                       |                          |  |      |     |       |  |      |      |       |  |     
|                                                                 |                           | Subsidiary companies                  |                          |  |      |     |       |  |      |      |       |  |      |    
|                                                                 |                           |                                       | - Hong Kong              |  |      | 242 |       |  |      | 247  |       |  |      | 253 | 
|                                                                 |                           |                                       | - outside Hong Kong      |  |      |    |       |  |      | 7    |       |  |      | 8   | 
|                                                                 |                           | Jointly controlled entities           |                          |  |      |     |       |  |      |      |       |  |      |    
|                                                                 |                           |                                       | - Hong Kong              |  |      | 2   |       |  |      | 3    |       |  |      | 5   | 
|                                                                 |                           |                                       | - outside Hong Kong      |  |      | 72  |       |  |      | 115  |       |  |      | 135 | 
|                                                                 |                           | Associated companies                  |                          |  |      |     |       |  |      |      |       |  |      |    
|                                                                 |                           |                                       | - outside Hong Kong      |  |      |    |       |  |      |     |       |  |      | 2   | 
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|                                                                 |                           |                                       | 316                      |  |      |     | 372   |  |      |      | 403   | 
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|                                                                
|                                                                 |                           |                                       | 1,212                    |  |      |     | 883   |  |      |      | 1,175 | 
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|Deferred taxation                                                |                           |                                       |                          |  |      |     |       |  |      |      |       | 
|                                                                 | On SoC profit  Hong Kong |                                       |                          |  |      |     |       |  |      |      |       |  |     
|                                                                 |                           | Subsidiary company                    |                          |  | 190  |     |       |  | 281  |      |       |  | 330  |    
|                                                                 |                           | Jointly controlled entity             |                          |  | (16  | )   |       |  | (22  | )    |       |  | (10  | )  
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|                                                                 |                           |                                       | 174                      |  |      |     | 259   |  |      |      | 320   | 
|                                                                 | On Non-SoC profit         |                                       |                          |  |      |     |       |  |      |      |       |  |     
|                                                                 |                           | Jointly controlled entity  Hong Kong |                          |  | (8   | )   |       |  | 47   |      |       |  | (193 | )  
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|                                                                 |                           |                                       | 166                      |  |      |     | 306   |  |      |      | 127   | 
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 
|                                                                
|                                                                 |                           |                                       | 1,378                    |  |      |     | 1,189 |  |      |      | 1,302 | 
|                                                                 |                           |                                       |                          |  |      |     |       |  |      |      |       |  |      |     | 



| |  | Hong Kong profits tax has been provided at the rate of 16% (2000 and 2001:
16%) on the estimated assessable profit for the year. Taxation on profits
assessable outside Hong Kong has been provided at the rates prevailing in the
respective jurisdictions.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-26



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|10. | TRANSFERS UNDER SCHEME OF CONTROL (SoC)                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | The financial operations of CLP Power are governed by an SoC Agreement. In
accordance with this Agreement, transfers required under the SoC are shown
below:

| |                                                                                                                      |                                    |      |        |      |  |      |        |   |  |  |        |  
| | -------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
| |                                                                                                                      |                                    | 2000 |        | 2001 |  | 2002
| |                                                                                                                      |                                    |      |        |      |  |     
| |                                                                                                                      |                                    | HK$M |        | HK$M |  | HK$M
| | Transfers under SoC                                                                                                  |                                    |      |        |      |  |      |        |   |  |  |       
| |                                                                                                                      | To Development Fund (A)            |      | (1,386 | )    |  |      | (1,201 | ) |  |  | (1,420 | )
| |                                                                                                                      | From special provision account (B) |      | 37     |      |  |      |       |   |  |  | 96     |  
| |                                                                                                                      | To rate reduction reserve (C)      |      | (280   | )    |  |      | (305   | ) |  |  | (319   | )
| |                                                                                                                      |                                    |      |        |      |  |      |        |   |  |  |        |  
| |                                                                                                                      |                                    |      | (1,629 | )    |  |      | (1,506 | ) |  |  | (1,643 | )
| |                                                                                                                      |                                    |      |        |      |  |      |        |   |  |  |        |  
| |                                                                                                                      |                                    |      |        |      |  |     
| | Movements on the Development Fund, special provision account and rate
reduction reserve of CLP Power are as follows:

|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |      |       |   |  |  |       |  
|---- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 2000 |       | 2001 |  | 2002
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |     
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | HK$M |       | HK$M |  | HK$M
|     | (A) | Development Fund                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |      |       |      |  |      |       |   |  |  |       |  
|     |     | Balance at beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      | 3,320 |      |  |      | 2,923 |   |  |  | 3,177 |  
|     |     | Transfer from profit and loss account                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      | 1,386 |      |  |      | 1,201 |   |  |  | 1,420 |  
|     |     | Transfer to special provision account (B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |      | (803  | )    |  |      |      |   |  |  |      |  
|     |     | One-off rebate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      |      |      |  |      | (340  | ) |  |  | (558  | )
|     |     | Business relief rebate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |      |      |  |      |      |   |  |  | (41   | )
|     |     | CLP centenary rebate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |      | (387  | )    |  |      |      |   |  |  |      |  
|     |     | Special rebates to customers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      | (593  | )    |  |      | (607  | ) |  |  | (626  | )
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |      |       |   |  |  |       |  
|     |     | Balance at end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      | 2,923 |      |  |      | 3,177 |   |  |  | 3,372 |  
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |      |       |   |  |  |       |  
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |     
|     |     | CLP Power provided each customer as at December 31, 2002 with a one-off
rebate determined on the basis of HK¢1.5 per unit of electricity
consumption during 2002, with a minimum rebate of HK$250 for each
residential customer and HK$700 for each non-residential customer. The
one-off rebate was funded by the Development Fund (HK$558 million), the
rate reduction reserve (HK$101 million) and the fuel clause account
(HK$223 million). In addition, a business relief rebate of HK¢0.2 per
unit (2000 and 2001: nil) amounting to HK$41 million was made to
non-residential customers in 2002. The rebate was charged directly to
the Development Fund.
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |     
|     |     | In year 2001, CLP Power provided each customer with a rebate of HK$220
which was charged to the Development Fund (HK$340 million) and the rate
reduction reserve (HK$99 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |     
|     |     | In year 2000, CLP Power provided each customer with a rebate of HK$200
in commemoration of CLPs centenary. This amount was charged directly
to the Development Fund (HK$387 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |     
|     |     | The special rebate of HK¢2.2 per unit (2000 and 2001: HK¢2.2 per unit)
made to customers during the year amounted to HK$626 million (2001:
HK$607 million, 2000: HK$593 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |       |      |  |     
|F-27



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|10. |  | TRANSFERS UNDER SCHEME OF CONTROL (continued)
|--- |  | ---------------------------------------------

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |     |      |  |      |     |  |  |  |     |  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | -
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 2000 |     | 2001 |  | 2002
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |     |      |  |     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | HK$M |     | HK$M |  | HK$M
| | (B) | Special provision account                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |     |      |  |      |     |  |  |  |     |  
| |     | Balance at beginning of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |      |    |      |  |      | 766 |  |  |  | 766 |  
| |     | Transfer from Development Fund (A)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |      | 803 |      |  |      |    |  |  |  |    |  
| |     | Transfer to profit and loss account                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      | (37 | )    |  |      |    |  |  |  | (96 | )
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |     |      |  |      |     |  |  |  |     |  
| |     | Balance at end of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      | 766 |      |  |      | 766 |  |  |  | 670 |  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |     |      |  |      |     |  |  |  |     |  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |     |      |  |     
| |     | CLP Power and its jointly controlled generating company, Castle Peak
Power Company Limited, agreed with the Government in December 1999 to
further defer construction of units 7 & 8 of the Black Point Power
Station. It was also agreed that a total of HK$803 million be set aside
from the Development Fund to a special provision account to which the
deferral premium incurred will be charged. The deferral premium is a
contractual obligation that corresponds to additional costs incurred by
the vendors for delayed delivery of the two generating units. During
the year, HK$96 million (2001: nil, 2000: HK$37 million) of deferral
premium was charged to the special provision account.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |     |      |  |     

| |     |                                                                                                     |      |      |      |  |      |      |   |  |  |      |  
| | --- | --------------------------------------------------------------------------------------------------- | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
| |     |                                                                                                     | 2000 |      | 2001 |  | 2002
| |     |                                                                                                     |      |      |      |  |     
| |     |                                                                                                     | HK$M |      | HK$M |  | HK$M
| | (C) | Rate reduction reserve                                                                              |      |      |      |  |      |      |   |  |  |      |  
| |     | Balance at beginning of year                                                                        |      | 253  |      |  |      | 371  |   |  |  | 411  |  
| |     | Transfer from profit and loss account                                                               |      | 280  |      |  |      | 305  |   |  |  | 319  |  
| |     | One-off rebate                                                                                      |      |     |      |  |      | (99  | ) |  |  | (101 | )
| |     | Rebates to customers                                                                                |      | (162 | )    |  |      | (166 | ) |  |  | (171 | )
| |     |                                                                                                     |      |      |      |  |      |      |   |  |  |      |  
| |     | Balance at end of year                                                                              |      | 371  |      |  |      | 411  |   |  |  | 458  |  
| |     |                                                                                                     |      |      |      |  |      |      |   |  |  |      |  
| |     |                                                                                                     |      |      |      |  |     
| |     | A rebate of HK¢0.6 per unit (2000 and 2001: HK¢0.6 per unit) was made to
customers during the year.



|11. |  | EARNINGS                                                                                                                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Of the consolidated earnings of HK$7,079 million (2001: HK$7,257 million,
2000: HK$5,768 million), HK$7,607 million (2001: HK$7,352 million, 2000:
HK$5,614 million) has been dealt with in the accounts of the Company.
|   
|12. |  | NON-SCHEME OF CONTROL OPERATING EARNINGS                                                                                                                                                                                

| |                                              |      |  |      |   |      |  |      |   |  |  |       |  
| | -------------------------------------------- | ---- |  | ---- | - | ---- |  | ---- | - |  |  | ----- | -
| |                                              | 2000 |  | 2001 |   | 2002
| |                                              |      |  |      |   |     
| |                                              | HK$M |  | HK$M |   | HK$M
| |                                              |      |  |      |   |     
| | Income from power projects outside Hong Kong |      |  | 423  |   |      |  | 576  |   |  |  | 1,150 |  
| | Sales to the Chinese mainland                |      |  | 34   |   |      |  | 44   |   |  |  | 64    |  
| | Telecom business                             |      |  | (78  | ) |      |  | (192 | ) |  |  | (182  | )
| | Other businesses                             |      |  | (5   | ) |      |  | 33   |   |  |  | (142  | )
| |                                              |      |  |      |   |      |  |      |   |  |  |      
| |                                              |      |  | 374  |   |      |  | 461  |   |  |  | 890   |  
| |                                              |      |  |      |   |      |  |      |   |  |  |      

F-28



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|13. |  | DIVIDENDS
|--- |  | ---------

|                                                          |  |      |       |      |  |      |       |  |  |  |       | 
|--------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                          |  | 2000 |       | 2001 |  | 2002
|                                                          |  |      |       |      |  |     
|                                                          |  | HK$M |       | HK$M |  | HK$M
|                                                          |  |      |       |      |  |     
|Interim dividends paid                                    |  |      | 2,497 |      |  |      | 2,605 |  |  |  | 2,746 | 
|Special interim dividend paid                             |  |      | 562   |      |  |      |      |  |  |  |      | 
|                                                          |  |      |       |      |  |      |       |  |  |  |       | 
|                                                          |  |      | 3,059 |      |  |      | 2,605 |  |  |  | 2,746 | 
|Final dividend                                            |  |      | 1,040 |      |  |      | 1,059 |  |  |  | 1,228 | 
|Special final dividend (2000: special centenary
dividend) |  |      | 562   |      |  |      | 1,469 |  |  |  | 554   | 
|                                                          |  |      |       |      |  |      |       |  |  |  |       | 
|                                                          |  |      | 4,661 |      |  |      | 5,133 |  |  |  | 4,528 | 
|                                                          |  |      |       |      |  |      |       |  |  |  |       | 



|    |  | At the Board meeting held on February 24, 2003 the directors recommended a
final dividend of HK$0.51 per share and a special final dividend of HK$0.23
per share. The proposed dividends are not reflected as dividends payable in
these accounts, but as a separate component of the shareholders funds for
the year ended December 31, 2002.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|14. |  | EARNINGS PER SHARE                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The prescribed figure for earnings per share which includes the Hok Un
redevelopment profit/property disposal gain (Note 5) is computed as follows:                                                                                                                                                                                            

|                                                             |  |      |           |      |  |      |           |  |  |  |           | 
|------------------------------------------------------------ |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                             |  | 2000 |           | 2001 |  | 2002
|                                                             |  |      |           |      |  |     
|                                                             |  |      |           |      |  |     
|Earnings for the year (HK$M)                                 |  |      | 5,768     |      |  |      | 7,257     |  |  |  | 7,079     | 
|                                                             |  |      |           |      |  |      |           |  |  |  |           | 
|                                                            
|Weighted average number of shares in issue (thousand shares) |  |      | 2,497,472 |      |  |      | 2,486,583 |  |  |  | 2,408,783 | 
|                                                             |  |      |           |      |  |      |           |  |  |  |           | 
|                                                            
|Earnings per share (HK$)                                     |  |      | 2.31      |      |  |      | 2.92      |  |  |  | 2.94      | 
|                                                             |  |      |           |      |  |      |           |  |  |  |           | 



| |  | Fully diluted earnings per share is not included as the Company does not have
any diluting equity instruments as at December 31, 2002.                               
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The weighted average number of shares and earnings per share for 2000 have
been adjusted for the capitalization issue on April 23, 2001 as referred to
in Note 25(A).
|
| |  | F-29                                                                                                                                                                 



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|15. |  | FIXED ASSETS
|--- |  | ------------

|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  
|------------------------ | ----------------------- |  | ---- | ----- | --------- |  | --------- | ----- | ----- |  | --------- | ------ | - |  |  | ------ | -
|                         |                         |  |      |       |           |  |           |       |       |  | Plant,    |        |   |  | 
|                         |                         |  |      |       |           |  |           |       |       |  | Machinery |        |   |  | 
|                         |                         |  |      |       |           |  |           |       |       |  | and       |        |   |  | 
|                         |                         |  | Land |       | Buildings |  | Equipment |       | Total
|                         |                         |  |      |       |           |  |           |       |      
|                         |                         |  | HK$M |       | HK$M      |  | HK$M      |       | HK$M 
|Cost                     |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |       
|                         | At January 1, 2001      |  |      | 1,867 |           |  |           | 4,575 |       |  |           | 37,081 |   |  |  | 43,523 |  
|                         | Additions               |  |      | 250   |           |  |           | 457   |       |  |           | 3,946  |   |  |  | 4,653  |  
|                         | Transfers and disposals |  |      | (32   | )         |  |           | (32   | )     |  |           | (399   | ) |  |  | (463   | )
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  
|                         | At December 31, 2001    |  |      | 2,085 |           |  |           | 5,000 |       |  |           | 40,628 |   |  |  | 47,713 |  
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  | 
|                         | Additions               |  |      | 98    |           |  |           | 823   |       |  |           | 4,014  |   |  |  | 4,935  |  
|                         | Transfers and disposals |  |      | (26   | )         |  |           | (84   | )     |  |           | (459   | ) |  |  | (569   | )
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  
|                         | At December 31, 2002    |  |      | 2,157 |           |  |           | 5,739 |       |  |           | 44,183 |   |  |  | 52,079 |  
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  
|Accumulated depreciation |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |       
|                         | At January 1, 2001      |  |      |      |           |  |           | 1,156 |       |  |           | 11,675 |   |  |  | 12,831 |  
|                         | Charge for the year     |  |      |      |           |  |           | 124   |       |  |           | 1,500  |   |  |  | 1,624  |  
|                         | Transfers and disposals |  |      |      |           |  |           | (9    | )     |  |           | (310   | ) |  |  | (319   | )
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  
|                         | At December 31, 2001    |  |      |      |           |  |           | 1,271 |       |  |           | 12,865 |   |  |  | 14,136 |  
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  | 
|                         | Charge for the year     |  |      |      |           |  |           | 134   |       |  |           | 1,615  |   |  |  | 1,749  |  
|                         | Transfers and disposals |  |      |      |           |  |           | (69   | )     |  |           | (318   | ) |  |  | (387   | )
|                         | Impairment charge       |  |      |      |           |  |           |      |       |  |           | 31     |   |  |  | 31     |  
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  
|                         | At December 31, 2002    |  |      |      |           |  |           | 1,336 |       |  |           | 14,193 |   |  |  | 15,529 |  
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  
|Net book value           |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |       
|                         | At December 31, 2002    |  |      | 2,157 |           |  |           | 4,403 |       |  |           | 29,990 |   |  |  | 36,550 |  
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  
|                        
|                         | At December 31, 2001    |  |      | 2,085 |           |  |           | 3,729 |       |  |           | 27,763 |   |  |  | 33,577 |  
|                         |                         |  |      |       |           |  |           |       |       |  |           |        |   |  |  |        |  



| |  | Included in fixed assets is equipment awaiting installation and plant under
construction, the book values of which at December 31, 2002 were HK$356
million and HK$5,926 million respectively (2001: HK$372 million and HK$5,233
million respectively) for the Group.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The tenure of the land of the Group is as follows:                                                                                                                                                                                                                   

|                   |                                           |  |       |       |      |  |       |       | 
|------------------ | ----------------------------------------- |  | ----- | ----- | ---- |  | ----- | ----- | 
|                   |                                           |  | 2001  |       | 2002
|                   |                                           |  |       |       |     
|                   |                                           |  | HK$M  |       | HK$M
|Held in Hong Kong: |                                           |  |       |       |      |  |       |      
|                   | On long-term leases (over 50 years)       |  |       | 128   |      |  |       | 176   | 
|                   | On medium-term leases (10-50 years)       |  |       | 1,955 |      |  |       | 1,979 | 
|                   | On short-term leases (less than 10 years) |  |       | 2     |      |  |       | 2     | 
|                   |                                           |  |       |       |      |  |       |       | 
|                   |                                           |  | 2,085 |       |      |  | 2,157 |      
|                   |                                           |  |       |       |      |  |       |       | 

F-30



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|16. |  | INVESTMENTS IN SUBSIDIARY COMPANIES
|--- |  | -----------------------------------

|                                                  |  |      |        |      |  |  |        |   | 
|------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | - | 
|                                                  |  | 2001 |        | 2002 | 
|                                                  |  |      |        |      | 
|                                                  |  | HK$M |        | HK$M | 
|                                                 
|Unlisted shares, at cost                          |  |      | 24,153 |      |  |  | 23,673 |  
|Provisions for impairment losses                  |  |      | (100   | )    |  |  | (100   | ) | 
|Advances to subsidiary companies, less provisions |  |      | 7,028  |      |  |  | 10,592 |  
|Advances from subsidiary companies                |  |      | (40    | )    |  |  | (33    | ) | 
|                                                  |  |      |        |      |  |  |        |   | 
|                                                  |  |      | 31,041 |      |  |  | 34,132 |  
|                                                  |  |      |        |      |  |  |        |   | 



| |  | The advances to/from subsidiary companies are unsecured, interest free and
have no fixed repayment terms except:
| |  | ----------------------------------------------------------------------------------------------------------------



| | (i)  |  | an advance to CLP Properties Group of HK$11 million (2001: nil),
which is repayable on demand and bears average interest of 2.03% per
annum; and              
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | an advance from CLP Properties Group of HK$14 million (2001: HK$23
million), which is repayable on demand and bears interest of 1.75%
(2001: 1.75%) per annum.



| |  | The table below lists the principal subsidiary companies of the Group.
| |  | ----------------------------------------------------------------------

|                                             |  |                                   |  |                  |     |                |  |                                                        |  |                                     
|-------------------------------------------- |  | --------------------------------- |  | ---------------- | --- | -------------- |  | ------------------------------------------------------ |  | ------------------------------------
|                                             |  |                                   |  | Percentage of    |     |                |  |                                                       
|                                             |  |                                   |  | Issued Capital   |     | Place of       |  |                                                       
|                                             |  | Issued                            |  | Directly Held in |     | Incorporation/ |  | Principal                                             
|Name                                         |  | Share Capital                     |  | 2001 and 2002    |     | Operation      |  | Activity                                              
|                                             |  |                                   |  |                  |     |                |  |                                                       
|CLP Power Hong Kong
Limited                  |  | 2,488,320,000
shares of HK$5 each |  |                  | 100 |                |  | Hong Kong                                              |  | Generation and
Supply of
Electricity
|                                            
|Hong Kong Nuclear
Investment Company
Limited |  | 300,000 shares
of HK$1,000 each   |  |                  | 100 |                |  | Hong Kong/
Chinese mainland                            |  | Power Project
Investment Holding    
|                                            
|CLP Engineering
Limited                      |  | 410 shares
of HK$10,000 each      |  |                  | 100 |                |  | Hong Kong                                              |  | Engineering Services                
|                                            
|CLP Power China
Limited                      |  | 192,000,000 shares
of US$1 each   |  |                  | 100 |                |  | British Virgin
Islands/Chinese mainland                |  | Power Projects
Investment Holding   
|                                            
|CLP Power
International
Limited              |  | 192,000 shares
of US$1,000 each   |  |                  | 100 |                |  | British Virgin
Islands/
International                  |  | Power Projects
Investment Holding   
|                                            
|CLP Properties
Limited                       |  | 15,000,000 shares
of HK$10 each   |  |                  | 100 |                |  | Hong Kong                                              |  | Property Investment
Holding         
|                                            
|CLP
Telecommunications
Limited               |  | 10,000,000 shares
of HK$10 each   |  |                  | 100 |                |  | Hong Kong                                              |  | Telecommunications
Business         
|                                            
|CLP Enterprises
Limited                      |  | 1 share of US$1                   |  |                  | 100 |                |  | British Virgin
Islands/
Hong Kong and
Chinese mainland |  | Energy-related
Investment Holding   
|                                            
|CLP Research
Institute Limited               |  | 1 share of US$1                   |  |                  | 100 |                |  | British
VirginIslands/Hong Kong                        |  | Research and
Development            

F-31



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|17. |  | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES                                                    
|--- |  | ----------------------------------------------------------------------------------------------
|   
|    |  | The table below lists the share of net assets of the jointly controlled
entities of the Group.

|                                                                                    |                                         |  |        |       |      |  |        |       |  
|----------------------------------------------------------------------------------- | --------------------------------------- |  | ------ | ----- | ---- |  | ------ | ----- | -
|                                                                                    |                                         |  | 2001   |       | 2002
|                                                                                    |                                         |  |        |       |     
|                                                                                    |                                         |  | HK$M   |       | HK$M
|Castle Peak Power Company Limited (A)                                               |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets                     |  |        | 186   |      |  |        | 175   |  
|                                                                                    | Advances                                |  |        | 4,268 |      |  |        | 4,856 |  
|                                                                                    | Special loan                            |  |        | 78    |      |  |        | 78    |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  | 4,532  |       |      |  | 5,109  |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|Guangdong Nuclear Power Joint Venture Company, Limited (B)                          |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets                     |  |        | 3,095 |      |  |        | 3,071 |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|CLP
Powergen joint venture  Gujarat Paguthan EnergyCorporation Private Limited (C) |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets other than goodwill |  |        |      |      |  |        | 2,486 |  
|                                                                                    | Unamortized goodwill on acquisition     |  |        |      |      |  |        | 274   |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  |       |       |      |  | 2,760  |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|CLP Powergen joint venture  Yallourn Energy Pty Limited (D)                        |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets                     |  |        | 1,789 |      |  |        | 2,073 |  
|                                                                                    | Advances                                |  |        | 40    |      |  |        | 221   |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  | 1,829  |       |      |  | 2,294  |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|Hok Un joint venture (E)                                                            |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets                     |  |        | 1,872 |      |  |        | 825   |  
|                                                                                    | Advances                                |  |        | 60    |      |  |        |      |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  | 1,932  |       |      |  | 825    |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|Shandong Zhonghua Power Company Limited (F)                                         |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets                     |  |        | 1,390 |      |  |        | 1,367 |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|Ho-Ping Power Company (G)                                                           |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets other than goodwill |  |        | 759   |      |  |        | 982   |  
|                                                                                    | Unamortized goodwill on acquisition     |  |        | 249   |      |  |        | 242   |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  | 1,008  |       |      |  | 1,224  |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|CLP Guohua Power Company Limited (H)                                                |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets other than goodwill |  |        | 792   |      |  |        | 895   |  
|                                                                                    | Unamortized goodwill on acquisition     |  |        | 129   |      |  |        | 121   |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  | 921    |       |      |  | 1,016  |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|Hong Kong Pumped Storage Development Company, Limited (I)                           |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets                     |  |        | 11    |      |  |        | 12    |  
|                                                                                    | Advances                                |  |        | 290   |      |  |        | 300   |  
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  | 301    |       |      |  | 312    |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|Others (J)                                                                          |                                         |  |        |       |      |  |        |      
|                                                                                    | Share of net assets other than goodwill |  |        | 456   |      |  |        | 535   |  
|                                                                                    | Unamortized goodwill on acquisition     |  |        | 77    |      |  |        | 67    |  
|                                                                                    | Advances                                |  |        | 245   |      |  |        | 313   |  
|                                                                                    | Impairment charge                       |  |        |      |      |  |        | (38   | )
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  | 778    |       |      |  | 877    |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  
|                                                                                    |                                         |  | 15,786 |       |      |  | 18,855 |      
|                                                                                    |                                         |  |        |       |      |  |        |       |  

F-32



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|17. |  | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (continued)                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The purchased goodwill of jointly controlled entities is being amortized on a
straight-line basis over its estimated useful economic life. Movement of
goodwill is shown as below:



|                                  |                           |  |      |     |      |  |     |     |  
|--------------------------------- | ------------------------- |  | ---- | --- | ---- |  | --- | --- | -
|                                  |                           |  | 2001 |     | 2002
|                                  |                           |  |      |     |     
|                                  |                           |  | HK$M |     | HK$M
|                                  |                           |  |      |     |     
|Gross Amount                      |                           |  | 261  |     |      |  | 463 |    
|Accumulated amortization          |                           |  |     |     |      |  | (8  | )  
|                                  |                           |  |      |     |      |  |     |    
|Balance at beginning of year      |                           |  | 261  |     |      |  | 455 |    
|                                  | Addition for the year     |  |      | 214 |      |  |     | 282 |  
|                                  | Amortization for the year |  |      | (8  | )    |  |     | (34 | )
|                                  | Exchange differences      |  |      | (12 | )    |  |     | 1   |  
|                                  |                           |  |      |     |      |  |     |    
|Balance at end of year            |                           |  | 455  |     |      |  | 704 |    
|                                  |                           |  |      |     |      |  |     |    
|Balance at end of year comprises: |                           |  |      |     |      |  |     |    
|Gross Amount                      |                           |  | 463  |     |      |  | 746 |    
|Accumulated amortization          |                           |  | (8   | )   |      |  | (42 | )  
|                                  |                           |  |      |     |      |  |     |    
|                                  |                           |  | 455  |     |      |  | 704 |    
|                                  |                           |  |      |     |      |  |     |    



| | (A) |  | Castle Peak Power Company Limited (CAPCO) is 40% owned by CLP Power
and 60% owned by ExxonMobil Energy Limited and is incorporated in Hong
Kong. Its principal activity is the generation of electricity for the
sole supply to CLP Power. While CAPCO owns the power generation assets,
CLP Power builds and operates all CAPCOs power stations and is the sole
offtaker.                                                                                                                                                                                     
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Under the terms of the revised CAPCO Deed of Subordination, in the event
of the winding up of CAPCO, CLP Powers advances to it would be
subordinated to certain loans of CAPCO. CLP Powers advances to CAPCO may
be withdrawn only to the extent that the shareholders funds exceed
two-thirds of the aggregate principal amount outstanding of the said
loans. In this context the shareholders funds represent the sum of the
issued share capital, shareholders advances, special advances, deferred
taxation, retained profits and any proposed dividend.
|
| |     |  | The Special Loan to CAPCO is non-interest bearing and repayable in full on
September 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | In view of the significance of this investment, an extract of the accounts
of CAPCO for the years ended December 31, is set out as follows:                                                                                                                                                                                                                                                                                                                                                                                                                       



|                                                     |  |  |         |        |      |  |        |        | 
|---------------------------------------------------- |  |  | ------- | ------ | ---- |  | ------ | ------ | 
|                                                     |  |  | 2001    |        | 2002
|                                                     |  |  |         |        |     
|                                                     |  |  | HK$M    |        | HK$M
|Results for the year                                 |  |  |         |        |      |  |        |       
|Turnover                                             |  |  | 9,864   |        |      |  | 10,262 |       
|                                                     |  |  |         |        |      |  |        |        | 
|Profit before taxation                               |  |  | 3,716   |        |      |  | 3,917  |       
|                                                     |  |  |         |        |      |  |        |        | 
|Groups share of profit before taxation for the year |  |  | 1,491   |        |      |  | 1,572  |       
|                                                     |  |  |         |        |      |  |        |        | 
|Net assets as at year end                            |  |  |         |        |      |  |        |       
|Fixed assets                                         |  |  | 27,433  |        |      |  | 26,836 |       
|Current assets                                       |  |  | 1,333   |        |      |  | 1,392  |       
|Current liabilities                                  |  |  | (4,253  | )      |      |  | (5,164 | )     
|Deferred taxation                                    |  |  | (2,731  | )      |      |  | (2,706 | )     
|Long-term liabilities                                |  |  | (10,591 | )      |      |  | (7,733 | )     
|                                                     |  |  |         |        |      |  |        |        | 
|                                                     |  |  |         | 11,191 |      |  |        | 12,625 | 
|                                                     |  |  |         |        |      |  |        |        | 

F-33



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|17. |  | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (continued)
|--- |  | ------------------------------------------------------



| | (B) |  | Guangdong Nuclear Power Joint Venture Company, Limited (GNPJVC) is
25% owned by the Group and 75% owned by Guangdong Nuclear Investment
Company, Limited and is incorporated in the Chinese mainland. This
company constructed and operates the Guangdong Daya Bay Nuclear Power
Station and its principal activity is the generation of electricity for
supply to Hong Kong and Guangdong Province.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In view of the significance of this investment, an extract of the
management accounts of GNPJVC, after making adjustment to conform with the
Groups significant accounting policies, for the years ended December 31,
is set out as follows:                                                                                                                                                         

|                                                     |  |      |        |      |  |  |        |  
|---------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | -
|                                                     |  | 2001 |        | 2002
|                                                     |  |      |        |     
|                                                     |  | HK$M |        | HK$M
|Results for the year                                 |  |      |        |      |  |  |        |  
|Turnover                                             |  |      | 7,111  |      |  |  | 7,146  |  
|                                                     |  |      |        |      |  |  |        |  
|Profit before taxation                               |  |      | 3,056  |      |  |  | 3,028  |  
|                                                     |  |      |        |      |  |  |        |  
|Groups share of profit before taxation for the year |  |      | 764    |      |  |  | 757    |  
|                                                     |  |      |        |      |  |  |        |  
|Net assets as at year end                            |  |      |        |      |  |  |        |  
|Fixed assets                                         |  |      | 19,302 |      |  |  | 17,646 |  
|Current assets                                       |  |      | 3,389  |      |  |  | 3,404  |  
|Current liabilities                                  |  |      | (2,690 | )    |  |  | (2,166 | )
|Long-term liabilities                                |  |      | (7,623 | )    |  |  | (6,599 | )
|                                                     |  |      |        |      |  |  |        |  
|                                                     |  |      | 12,378 |      |  |  | 12,285 |  
|                                                     |  |      |        |      |  |  |        |  



| | (C) |  | On February 20, 2002, the Group acquired an 80% interest in a newly
formed joint venture company (with the remaining 20% held by Powergen)
which during the period acquired a 100% equity interest in Gujarat
Paguthan Energy Corporation Private Limited, India (GPEC). GPEC owns
a combined cycle 655MW power station in Gujarat, India. GPEC has
entered into a 20-year (1998-2018) power purchase agreement with Gujarat
Electricity Board (GEB). The total cost of acquisition of the Groups
effective equity interest of 80% in GPEC was HK$2,249 million, including
cash consideration of HK$2,218 million. Purchased goodwill was HK$286
million at the time of acquisition. This goodwill is being amortized
over the remaining term of the power purchase agreement.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Under the joint venture agreement, none of the joint venture partners has
unilateral control over the economic activity of the joint venture.
Hence, the Groups interest is accounted for as jointly controlled entity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-34



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|17. |  | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (continued)
|--- |  | ------------------------------------------------------



| |  |  | In view of the significance of this investment, an extract of the
management accounts of GPEC, after making adjustment to conform with the
Groups significant accounting policies, for the period since acquisition
to December 31, 2002 is set out as follows:
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                             |  |      |   |      |  |  |        |  
|------------------------------------------------------------ |  | ---- | - | ---- |  |  | ------ | -
|                                                             |  | 2001 |   | 2002
|                                                             |  |      |   |     
|                                                             |  | HK$M |   | HK$M
|Results for the period from acquisition to December 31, 2002 |  |      |   |      |  |  |        |  
|Turnover                                                     |  |      |  |      |  |  | 1,106  |  
|                                                             |  |      |   |      |  |  |        |  
|Profit before taxation                                       |  |      |  |      |  |  | 220    |  
|                                                             |  |      |   |      |  |  |        |  
|Groups share of profit before taxation for the period       |  |      |  |      |  |  | 176    |  
|                                                             |  |      |   |      |  |  |        |  
|Net assets as at year end                                    |  |      |   |      |  |  |        |  
|Non-current assets                                           |  |      |  |      |  |  | 3,458  |  
|Current assets                                               |  |      |  |      |  |  | 2,151  |  
|Current liabilities                                          |  |      |  |      |  |  | (416   | )
|Long-term liabilities                                        |  |      |  |      |  |  | (2,085 | )
|                                                             |  |      |   |      |  |  |        |  
|                                                             |  |      |  |      |  |  | 3,108  |  
|                                                             |  |      |   |      |  |  |        |  



| |  |  | GPECs Contingent Liabilities
| |  |  | -----------------------------

| |    |  |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. |  | GPEC has obtained payment for some of its receivables from GEB
through bill discounting with recourse. The potential effect on the
Group as at December 31, 2002 if these financing arrangements are not
settled by GEB is HK$254 million. There is no recourse to the CLP
Group beyond GPEC from these arrangements and to date there has been
no incident where recourse to GPEC has been necessary.
| |    |  |                                                                                                                                                                                                                                                                                                                                                                                                       
| | 2. |  | Under an arrangement with a fuel supplier, bills if not settled
by GEB are with recourse to GPEC. There is no recourse to the CLP
Group beyond GPEC. The potential effect on the Group if recourse to
GPEC is applied due to this arrangement, as at December 31, 2002, is
HK$91 million.                                                                                                             



| | (D) |  | The Group owns an 80% interest in two joint venture companies, CLP
Powergen Sdn Bhd and CLP Powergen Funding Limited, incorporated in
Malaysia and British Virgin Islands respectively. In February 2001,
these joint venture companies completed the acquisition of a 92%
interest in Yallourn Energy Pty Limited (Yallourn Energy), which owns
a 1,450MW coal-fired plant and dedicated coal mine in Victoria,
Australia. Under the joint venture agreement, none of the joint venture
partners has unilateral control over the economic activity of the joint
venture companies. Hence, the Groups interests are accounted for as
jointly controlled entities.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-35



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|17. |  | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (continued)
|--- |  | ------------------------------------------------------

| |                                                                                                                                                                                                                                                                                                                     |  |        |       |      |  |        |       | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | ----- | ---- |  | ------ | ----- | 
| | In view of the significance of this investment, an extract of the
management accounts of Yallourn Energy, after making adjustment to conform
with the Groups significant accounting policies, for the period from
acquisition to December 31, 2001 and for the year ended December 31, 2002
is set out as follows:
|
| |                                                                                                                                                                                                                                                                                                                     |  | 2001   |       | 2002
| |                                                                                                                                                                                                                                                                                                                     |  |        |       |     
| |                                                                                                                                                                                                                                                                                                                     |  | HK$M   |       | HK$M
|
| | Turnover                                                                                                                                                                                                                                                                                                            |  | 715    |       |      |  | 1,486  |      
| |                                                                                                                                                                                                                                                                                                                     |  |        |       |      |  |        |       | 
| | (Loss)/Profit before taxation                                                                                                                                                                                                                                                                                       |  | (347   | )     |      |  | 116    |      
| |                                                                                                                                                                                                                                                                                                                     |  |        |       |      |  |        |       | 
| | Groups share of (loss)/profit before taxation for the year                                                                                                                                                                                                                                                         |  | (256   | )     |      |  | 86     |      
| |                                                                                                                                                                                                                                                                                                                     |  |        |       |      |  |        |       | 
| | Net assets as at year end                                                                                                                                                                                                                                                                                           |  |        |       |      |  |        |      
| | Non-current assets                                                                                                                                                                                                                                                                                                  |  | 8,183  |       |      |  | 8,633  |      
| | Current assets                                                                                                                                                                                                                                                                                                      |  | 466    |       |      |  | 579    |      
| | Current liabilities                                                                                                                                                                                                                                                                                                 |  | (628   | )     |      |  | (428   | )    
| | Long-term liabilities                                                                                                                                                                                                                                                                                               |  | (5,589 | )     |      |  | (5,968 | )    
| |                                                                                                                                                                                                                                                                                                                     |  |        |       |      |  |        |       | 
| |                                                                                                                                                                                                                                                                                                                     |  |        | 2,432 |      |  |        | 2,816 | 
| |                                                                                                                                                                                                                                                                                                                     |  |        |       |      |  |        |       | 



| | (E) |  | The Group entered into a joint venture agreement with a wholly-owned
subsidiary company of Cheung Kong (Holdings) Limited in 1991 to develop
the Hok Un site at Hung Hom (named Laguna Verde). Under the agreement,
the Group has the right to share 50% of profits arising from the
project, with a minimum overall profit guaranteed by the subsidiary
company of Cheung Kong (Holdings) Limited which also provides all the
necessary funding.                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In 1999, the joint venture acquired additional Plot Ratio from the
Government. Under a separate agreement with the subsidiary company of
Cheung Kong (Holdings) Limited, the Group shares 50% of the net proceeds
of sale from this additional gross floor area and bears 50% of associated
land premium, development and marketing costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (F) |  | Shandong Zhonghua Power Company Limited is 29.4% owned by the Group
and is incorporated in the Chinese mainland. This company owns four
power stations totalling 3,000MW. Two of the power stations, Shiheng I
and Shiheng II are in operation, Liaocheng is under construction and
Heze II is entering the final stage of commissioning. All power
generated is for supply to the Shandong Grid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (G) |  | The Group has an interest in 40% of the issued share capital of
Ho-Ping Power Company (Ho-Ping), a company which is incorporated in
Taiwan. This company has constructed, owns and operates a coal-fired
power station and an associated 53 km of 345 kV transmission line at
Ho-Ping in eastern Taiwan. Unit 1 and Unit 2 of the plant commenced
operation in June and September 2002 respectively. All power generated
is supplied to Taiwan Power Company (Taipower), the government-owned
utility of Taiwan. Goodwill associated with the acquisition of Ho-Ping
is being amortized over a period of 25 years as the directors are of the
opinion that it is appropriate to amortize goodwill over the term of the
power purchase agreement signed with Taipower. The goodwill is tested
for impairment annually in accordance with the requirements of SSAP No.
30.
|
| | (H) |  | CLP Guohua Power Company Limited, the joint stock company owned 51%
by Beijing Guohua Electric Power Corporation and 49% by the Group, is
incorporated in the Chinese mainland. It holds interests in three
coal-fired power stations, namely Beijing Yire Power Station in Beijing,
Panshan Power Station in Tianjin and Sanhe Power Station in Hebei, with
a combined installed capacity of 2,100MW, of which the joint stock
company owns 1,285 equity MW. Goodwill is being amortized over 20 years
from the date of acquisition.                                                                                                                                                                                                                                                                                                                                       

F-36



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|17. |  | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (continued)
|--- |  | ------------------------------------------------------



| | (I) |  | Hong Kong Pumped Storage Development Company, Limited is 49% owned by
CLP Power and is incorporated in Hong Kong. This company has the right
to use 50% of the capacity of Phase I of the Guangzhou Pumped Storage
Power Station in Guangdong Province until 2034.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (J) |  | The Groups other investments include:                                                                                                                                                                                                                            



| |  |  | 41.5% interest in a number of hydro power projects in
Huaiji County, Guangdong Province;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 50% interest in a joint venture undertaken with a
subsidiary company of Cheung Kong (Holdings) Limited in Hong Kong
to provide second mortgage financing to purchasers of Laguna Verde;                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | 49% in CLP Guohua Shenmu, which is incorporated in the
Chinese mainland and holds an interest in a coal-fired power
station  Shenmu Power Station with an installed capacity of 200MW;                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | 40% (2001: 27.3%) interest in Precision Marketing Inc.,
which provides customer database management services in Hong Kong,
Taiwan and the Chinese mainland;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | 80% interest in CLP Powergen Southeast Asia Limited
incorporated in Hong Kong, which acquired a 50% interest in BLCP
Power Limited (BLCP) in Thailand in December 2001. BLCP entered
into a 25-year Power Purchase Agreement with Electricity Generating
Authority of Thailand Limited in 1997 to build, own and operate a
1,434MW coal-fired power station in Thailand. This project is
under development and construction has not yet commenced. The
Group had an effective interest of 40% in the BLCP joint venture.
Under the joint venture agreement, none of the parties has
unilateral control over the economic activity of BLCP;
|
| |  |  | 70% interest in Guizhou CLP Power, which is incorporated in
the Chinese mainland and holds an interest in a coal-fired power
station in Guizhou  Anshun II Power Station which is under
construction and with an installed capacity of 600MW. Under the
joint venture agreement, none of the joint venture partners has
unilateral control over the economic activity of the joint venture
company. Hence, the Groups interest is accounted for as jointly
controlled entity; and                                                                                                                                                         
|
| |  |  | 40% interest in Ho-Ping Power Services Corporation owned by
the Group. Its principal activity is to provide operation and
maintenance services to Ho-Ping Power Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



| | Goodwill on the above investments is being amortized over 10 to 18 years from
the date of acquisition.
| | ------------------------------------------------------------------------------------------------------
|

| | The advances to jointly controlled entities are unsecured and have no fixed
repayment terms whilst the terms of repayment of an advance to CLP Powergen
joint venture in Yallourn Energy, are effectively subject to the associated
terms under the senior debt documents and the subordinated notes documents of
Yallourn Energy as a borrower. The advances to jointly controlled entities
are interest free except for
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|
|
|
|
|
|
|

F-37



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|18. |  | INVESTMENTS IN ASSOCIATED COMPANIES
|--- |  | -----------------------------------

|                                                           |                                         |  |       |       |      |  |       |       |  
|---------------------------------------------------------- | --------------------------------------- |  | ----- | ----- | ---- |  | ----- | ----- | -
|                                                           |                                         |  | 2001  |       | 2002
|                                                           |                                         |  |       |       |     
|                                                           |                                         |  | HK$M  |       | HK$M
|Electricity Generating Public Company Limited (EGCO) (A) |                                         |  |       |       |      |  |       |      
|                                                           | Share of net assets other than goodwill |  |       | 1,055 |      |  |       | 1,133 |  
|                                                           | Unamortized goodwill on acquisition     |  |       | 175   |      |  |       | 165   |  
|                                                           |                                         |  |       |       |      |  |       |       |  
|                                                           |                                         |  | 1,230 |       |      |  | 1,298 |      
|                                                           |                                         |  |       |       |      |  |       |       |  
|                                                          
|PowerCom Network Hong Kong Limited (PowerCom) (B)        |                                         |  |       |       |      |  |       |      
|                                                           | Share of net losses other than goodwill |  |       |      |      |  |       | (2    | )
|                                                           | Unamortized goodwill on acquisition     |  |       |      |      |  |       | 152   |  
|                                                           |                                         |  |       |       |      |  |       |       |  
|                                                           |                                         |  |      |       |      |  | 150   |      
|                                                           |                                         |  |       |       |      |  |       |       |  
|                                                          
|                                                           |                                         |  | 1,230 |       |      |  | 1,448 |      
|                                                           |                                         |  |       |       |      |  |       |       |  



| |  | The purchased goodwill of associated companies is being amortized on the
straight-line basis over its estimated useful economic life of 10 to 16
years. Movement of goodwill is shown as below:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  |                           |  |        |     |      |  |        |     |  
|--------------------------------- | ------------------------- |  | ------ | --- | ---- |  | ------ | --- | -
|                                  |                           |  | 2001   |     | 2002
|                                  |                           |  |        |     |     
|                                  |                           |  | HK$M   |     | HK$M
|                                 
|Gross Amount                      |                           |  | 1,205  |     |      |  | 1,212  |    
|Accumulated amortization          |                           |  | (1,022 | )   |      |  | (1,037 | )  
|                                  |                           |  |        |     |      |  |        |    
|Balance at beginning of year      |                           |  | 183    |     |      |  | 175    |    
|                                  | Addition for the year     |  |        | 9   |      |  |        | 157 |  
|                                  | Amortization for the year |  |        | (15 | )    |  |        | (19 | )
|                                  | Exchange differences      |  |        | (2  | )    |  |        | 4   |  
|                                  |                           |  |        |     |      |  |        |    
|Balance at end of year            |                           |  | 175    |     |      |  | 317    |    
|                                  |                           |  |        |     |      |  |        |    
|Balance at end of year comprises: |                           |  |        |     |      |  |        |    
|Gross Amount                      |                           |  | 1,212  |     |      |  | 1,373  |    
|Accumulated amortization          |                           |  | (1,037 | )   |      |  | (1,056 | )  
|                                  |                           |  |        |     |      |  |        |    
|                                  |                           |  | 175    |     |      |  | 317    |    
|                                  |                           |  |        |     |      |  |        |    



| | (A) |  | EGCO is 22.4% (2001: 22.4%) owned by the Group and is incorporated
and listed in Thailand. Its principal activity is the generation of
electricity for supply to the Electricity Generating Authority of
Thailand. The Group has nominated 4 directors to the EGCO Board out of
the total of 13 Board members. The market value as at December 31, 2002
was HK$800 million (2001: HK$766 million).                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In 2002, the directors reviewed the carrying value of the investment in
EGCO. Based on value in use, it was concluded that no additional
impairment (2001: nil, 2000: HK$900 million) is required for the
investment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (B) |  | On August 21, 2002, the Group and Cheung Kong Enterprises jointly
invested in PowerCom with interests of 19% and 81% respectively. The
Group has transferred its retail telecom business and a number of
employees into PowerCom. Besides transferring retail operations to
PowerCom, the Group has paid HK$100 million and transferred assets at
net book value totalling HK$57 million to acquire its interest in
PowerCom. PowerCom will launch a service to provide broadband Internet
access to customers, using powerline telecommunication technology.
Because the Group holds equity share capital for the long term and can
exercise significant influence over PowerComs management, the
investment is accounted for as an associated company. The goodwill
arising on acquisition is being amortized over 10 years.

F-38



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|19. |  | INVESTMENT SECURITIES
|--- |  | ---------------------

|                                               |  |      |     |      |  |  |     | 
|---------------------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                               |  | 2001 |     | 2002
|                                               |  |      |     |     
|                                               |  | HK$M |     | HK$M
|                                              
|Equity securities listed in Hong Kong (A)      |  |      |    |      |  |  | 14  | 
|Equity securities listed outside Hong Kong (B) |  |      | 643 |      |  |  |    | 
|Unlisted shares (C)                            |  |      | 4   |      |  |  | 4   | 
|Held-to-maturity securities (D)                |  |      | 79  |      |  |  | 264 | 
|Fixed-income securities                        |  |      | 5   |      |  |  | 5   | 
|                                               |  |      |     |      |  |  |     | 
|                                               |  |      | 731 |      |  |  | 287 | 
|                                               |  |      |     |      |  |  |     | 



| | (A) |  | The Group acquired 41.8 million shares (representing a 5.23%
shareholding) of DataSys Technology Holdings Limited, a listed company
on the Growth Enterprise Market of The Stock Exchange of Hong Kong
Limited, at a price of HK$0.34 per share in June 2002. The market
value as at December 31, 2002 was HK$16 million at a price of HK$0.39
per share.                                                                                                                                                           
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (B) |  | The Group holds a 5% interest in YTL Power International Berhad
(YTL Power), a listed company in Malaysia. During the year, the
Group reclassified the investment in YTL Power from long-term
investment to other investments under current assets (Note 21).                                                                                                                                                                                                                                                     
|
| | (C) |  | The Group acquired a 6.4% shareholding in StorageBank Inc., an
unlisted company in Taiwan which provides storage systems, backup and
disaster recovery of computer systems.                                                                                                                                                                                                                                                                                                                                         
|
| | (D) |  | In 2001, the Group acquired A$20 million of floating rates notes
issued by Mezzco Pty Limited. Mezzco Pty Limited is a wholly-owned
subsidiary company of AusPower Holdings Pty Limited, which is the
immediate holding company of Yallourn Energy Pty Limited. During the
year, an additional A$40 million of the floating rate notes were
acquired. On January 7, 2003, the Group purchased additional notes from
a third party totalling A$100 million. The Group holds 100% of the
notes after this transaction.



|20. |  | DEPOSITS, BANK BALANCES AND CASH
|--- |  | --------------------------------

|                                   |  |      |    |      |  |  |     | 
|---------------------------------- |  | ---- | -- | ---- |  |  | --- | 
|                                   |  | 2001 |    | 2002
|                                   |  |      |    |     
|                                   |  | HK$M |    | HK$M
|                                  
|Trust fund for unclaimed dividends |  |      |   |      |  |  | 25  | 
|Deposits, bank balances and cash   |  |      | 80 |      |  |  | 491 | 
|                                   |  |      |    |      |  |  |     | 
|                                   |  |      | 80 |      |  |  | 516 | 
|                                   |  |      |    |      |  |  |     | 



|    |  | During the year, two trust funds were created for the balances of unclaimed
dividends and trade creditors for the purpose of the Share Premium Reduction
of the Company (Note 26). The liabilities to those trade creditors were
discharged and the respective trust fund was returned to the Company
accordingly.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|21. |  | OTHER INVESTMENTS                                                                                                                                                                                                                                                                                                 

|                                                            |  |      |   |      |  |  |     | 
|----------------------------------------------------------- |  | ---- | - | ---- |  |  | --- | 
|                                                            |  | 2001 |   | 2002
|                                                            |  |      |   |     
|                                                            |  | HK$M |   | HK$M
|                                                           
|Equity securities listed outside Hong Kong, at market value |  |      |  |      |  |  | 671 | 
|                                                            |  |      |   |      |  |  |     | 



| |  | During the year, the directors changed their intention regarding their
shareholding in YTL Power. Accordingly, it was reclassified from investment
securities held for the long-term (Note 19(B)) to other investments within
current assets and valued at its market price of HK$671 million (Market value
at 2001: HK$587 million). As a result, a gain of HK$27 million was
recognized representing the partial reversal of a previously recognized
impairment.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-39



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|22. |  | TRADE AND OTHER RECEIVABLES
|--- |  | ---------------------------

|                                                   |  |      |       |      |  |  |       | 
|-------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                   |  | 2001 |       | 2002
|                                                   |  |      |       |     
|                                                   |  | HK$M |       | HK$M
|                                                   |  |      |       |     
|Trade receivables (ageing analysis is shown below) |  |      | 966   |      |  |  | 605   | 
|Deposits and prepayments                           |  |      | 573   |      |  |  | 601   | 
|Current accounts with jointly controlled entities  |  |      | 42    |      |  |  | 50    | 
|                                                   |  |      |       |      |  |  |       | 
|                                                   |  |      | 1,581 |      |  |  | 1,256 | 
|                                                   |  |      |       |      |  |  |       | 



| | CLP Powers credit policy in respect of receivables arising from its
principal electricity business is to allow customers to settle their
electricity bills within 13 to 15 working days after issue. Customers
receivable balances are secured by cash deposits or bank guarantees.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | The ageing analysis of the trade receivables at December 31, is as follows:                                                                                                                                                                                                          

|              |  |      |     |      |  |  |     | 
|------------- |  | ---- | --- | ---- |  |  | --- | 
|              |  | 2001 |     | 2002
|              |  |      |     |     
|              |  | HK$M |     | HK$M
|              |  |      |     |     
|Below 30 days |  |      | 937 |      |  |  | 573 | 
|31-60 days    |  |      | 16  |      |  |  | 17  | 
|61-90 days    |  |      | 5   |      |  |  | 6   | 
|Over 90 days  |  |      | 8   |      |  |  | 9   | 
|              |  |      |     |      |  |  |     | 
|              |  |      | 966 |      |  |  | 605 | 
|              |  |      |     |      |  |  |     | 



|    |  | The bad debts written-off during the year were HK$5 million (2001: HK$6
million, 2000: HK$7 million).                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|23. |  | FUEL CLAUSE ACCOUNT                                                                                                                                                                                                                                                                                                      
|   
|    |  | Costs of fuel consumed by CLP Power are passed on to the customers. The
variations between the actual cost of fuel and the fuel cost billed are
captured in the Fuel Clause Account. The balance on the account (inclusive
of interest) represents amounts over-recovered and is an amount due to
customers of CLP Power.
|   
|24. |  | TRADE AND OTHER PAYABLES                                                                                                                                                                                                                                                                                                 

|                                                  |  |      |       |      |  |  |       | 
|------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                  |  | 2001 |       | 2002
|                                                  |  |      |       |     
|                                                  |  | HK$M |       | HK$M
|                                                  |  |      |       |     
|Trade payables (ageing analysis is shown below)   |  |      | 1,344 |      |  |  | 1,404 | 
|Other payables                                    |  |      | 426   |      |  |  | 637   | 
|Current accounts with jointly controlled entities |  |      | 908   |      |  |  | 1,050 | 
|                                                  |  |      |       |      |  |  |       | 
|                                                  |  |      | 2,678 |      |  |  | 3,091 | 
|                                                  |  |      |       |      |  |  |       | 



| |  | The ageing analysis of the trade payables at December 31, is as follows:
| |  | ------------------------------------------------------------------------

|              |  |      |       |      |  |  |       | 
|------------- |  | ---- | ----- | ---- |  |  | ----- | 
|              |  | 2001 |       | 2002
|              |  |      |       |     
|              |  | HK$M |       | HK$M
|              |  |      |       |     
|Below 30 days |  |      | 1,318 |      |  |  | 1,341 | 
|31-60 days    |  |      | 10    |      |  |  | 5     | 
|61-90 days    |  |      |      |      |  |  | 1     | 
|Over 90 days  |  |      | 16    |      |  |  | 57    | 
|              |  |      |       |      |  |  |       | 
|              |  |      | 1,344 |      |  |  | 1,404 | 
|              |  |      |       |      |  |  |       | 

F-40



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|25. |  | SHARE CAPITAL
|--- |  | -------------

|            |                               |  |  |  |               |  |  |        |       
|----------- | ----------------------------- |  |  |  | ------------- |  |  | ------ | ------
|            |                               |  |  |  | Number of     |  |  |       
|            |                               |  |  |  | Shares of     |  |  | Amount
|            |                               |  |  |  | HK$5 Each     |  |  | HK$M  
|Authorized: |                               |  |  |  |               |  |  |       
|            | At December 31, 2001 and 2002 |  |  |  | 3,000,000,000 |  |  |        | 15,000
|            |                               |  |  |  |               |  |  |        |       

|                       |                                                                                                                                                                                                                                                                                                                                                                       |  |           |               |        |  |           |        |           |  |  |               |   |  |  |        |  
|---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------------- | ------ |  | --------- | ------ | --------- |  |  | ------------- | - |  |  | ------ | -
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  | 2001      |               | 2002  
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  |           |               |       
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  | Number of |               |        |  |           |        | Number of |  |  |               |  
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  | Shares of |               | Amount |  | Shares of |        | Amount   
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  | HK$5 Each |               | HK$M   |  | HK$5 Each |        | HK$M     
|Issued and fully-paid: |                                                                                                                                                                                                                                                                                                                                                                       |  |           |               |        |  |           |        |           |  |  |               |   |  |  |       
|                       | At January 1,                                                                                                                                                                                                                                                                                                                                                         |  |           | 2,081,227,000 |        |  |           | 10,406 |           |  |  | 2,421,486,400 |   |  |  | 12,107 |  
|                       | One-for-five bonus issue (A)                                                                                                                                                                                                                                                                                                                                          |  |           | 416,245,400   |        |  |           | 2,081  |           |  |  |              |   |  |  |       |  
|                       | Shares repurchased during
the year (B)                                                                                                                                                                                                                                                                                                                                |  |           | (75,986,000   | )      |  |           | (380   | )         |  |  | (13,240,500   | ) |  |  | (66    | )
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  |           |               |        |  |           |        |           |  |  |               |   |  |  |        |  
|                       | At December 31,                                                                                                                                                                                                                                                                                                                                                       |  |           | 2,421,486,400 |        |  |           | 12,107 |           |  |  | 2,408,245,900 |   |  |  | 12,041 |  
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  |           |               |        |  |           |        |           |  |  |               |   |  |  |        |  
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  |           |               |       
|(A)                    | In accordance with an ordinary resolution passed on April 23, 2001,
the issued share capital of the Company was increased to HK$12,487
million by applying HK$2,081 million standing to the credit of the share
premium account in payment in full at par of 416,245,400 shares of HK$5
each, on the basis of one share for every five shares held on April 23,
2001.
|                       |                                                                                                                                                                                                                                                                                                                                                                       |  |           |               |       
|(B)                    | In 2002, the Company repurchased a total of 13,240,500 (2001:
75,986,000) of its own shares on The Stock Exchange of Hong Kong
Limited, all of which have been cancelled, as follows:                                                                                                                                                                                

|             |  |                  |            |                                      |  |                |       |           |  |  |       |  |  |  |     | 
|------------ |  | ---------------- | ---------- | ------------------------------------ |  | -------------- | ----- | --------- |  |  | ----- |  |  |  | --- | 
|             |  |                  |            |                                      |  | Purchase Price |       | Aggregate
|             |  |                  |            |                                      |  | Per Share      |       | Purchase 
|             |  | Number of Shares |            | Highest                              |  | Lowest         |       | Price    
|Month/Year   |  | Repurchased      |            | HK$                                  |  | HK$            |       | HK$M     
|             |  |                  |            |                                      |  |                |       |          
|January 2002 |  |                  | 13,240,500 |                                      |  |                | 30.00 |           |  |  | 29.50 |  |  |  | 396 | 
|             |  |                  |            |                                      |  |                |       |           |  |  |       |  | 
|             |  |                  |            | Total expenses on shares repurchased |  |                |       | 1         | 
|             |  |                  |            |                                      |  |                |       |           |  |  |       |  |  |  |     | 
|             |  |                  |            |                                      |  |                |       |           |  |  |       |  |  |  | 397 | 
|             |  |                  |            |                                      |  |                |       |           |  |  |       |  |  |  |     | 



|26. |  | SHARE PREMIUM                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the year, CLP Holdings undertook a restructuring of its balance sheet
by the reduction of the Share Premium account. Following approval by
shareholders at the Extraordinary General Meeting in April 2002 and
confirmation from the High Court, the reduction of the Share Premium account
became effective on June 7, 2002. As a result, HK$10,116,789,910 was
transferred from the Share Premium account to the Retained Profits of the
Company on the same day.

F-41



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|27. |  | BANK OVERDRAFTS, BANK LOANS AND OTHER BORROWINGS
|--- |  | ------------------------------------------------

|                                                       |                                                         |  |        |       |      |  |        |        | 
|------------------------------------------------------ | ------------------------------------------------------- |  | ------ | ----- | ---- |  | ------ | ------ | 
|                                                       |                                                         |  | 2001   |       | 2002
|                                                       |                                                         |  |        |       |     
|                                                       |                                                         |  | HK$M   |       | HK$M
|Total facilities available                             |                                                         |  |        |       |      |  |        |       
|                                                       | Bank overdrafts                                         |  |        | 497   |      |  |        | 499    | 
|                                                       | Bank loans                                              |  |        | 8,300 |      |  |        | 12,033 | 
|                                                       | U.S. Dollar Notes due 2006 (US$300 million)             |  |        | 2,340 |      |  |        | 2,340  | 
|                                                       | U.S. Dollar Medium Term Notes due 2012 (US$300 million) |  |        |      |      |  |        | 2,340  | 
|                                                       |                                                         |  |        |       |      |  |        |       
|                                                       |                                                         |  | 11,137 |       |      |  | 17,212 |       
|                                                       |                                                         |  |        |       |      |  |        |        | 
|Utilised at December 31,                               |                                                         |  |        |       |      |  |        |       
|                                                       | Bank overdrafts                                         |  |        |      |      |  |        |       | 
|                                                       | Bank loans                                              |  |        | 3,227 |      |  |        | 4,617  | 
|                                                       | U.S. Dollar Notes due 2006                              |  |        | 2,340 |      |  |        | 2,340  | 
|                                                       | U.S. Dollar Medium Term Notes due 2012                  |  |        |      |      |  |        | 2,340  | 
|                                                       |                                                         |  |        |       |      |  |        |       
|                                                       |                                                         |  | 5,567  |       |      |  | 9,297  |       
|                                                       |                                                         |  |        |       |      |  |        |        | 
|                                                       |                                                        
|Short-term loans                                       |                                                         |  | 1,343  |       |      |  | 567    |       
|Current portion of long-term loans and borrowings      |                                                         |  | 156    |       |      |  | 3      |       
|                                                       |                                                         |  |        |       |      |  |        |       
|                                                       |                                                         |  | 1,499  |       |      |  | 570    |       
|                                                       |                                                         |  |        |       |      |  |        |        | 
|Long-term loans and borrowings, repayable              |                                                         |  |        |       |      |  |        |       
|                                                       | within one year                                         |  |        | 156   |      |  |        | 3      | 
|                                                       | between one and two years                               |  |        | 3     |      |  |        | 2      | 
|                                                       | between two and five years                              |  |        | 4,065 |      |  |        | 6,385  | 
|                                                       | after five years                                        |  |        |      |      |  |        | 2,340  | 
|                                                       |                                                         |  |        |       |      |  |        |       
|                                                       |                                                         |  | 4,224  |       |      |  | 8,730  |       
|Less current portion of long-term loans and borrowings |                                                         |  | (156   | )     |      |  | (3     | )     
|                                                       |                                                         |  |        |       |      |  |        |       
|                                                       |                                                         |  | 4,068  |       |      |  | 8,727  |       
|                                                       |                                                         |  |        |       |      |  |        |       
|                                                      
|                                                       |                                                         |  | 5,567  |       |      |  | 9,297  |       
|                                                       |                                                         |  |        |       |      |  |        |        | 

|The total borrowings of HK$9,297 million at December 31, 2002 (2001:
HK$5,567 million) comprise the following:
|--------------------------------------------------------------------------------------------------------------

|(i)   | fixed rate bank loan of HK$6 million (2001: HK$17 million) with
interest rate at 5.42% (2001: 5.40% to 7.77%) per annum;                                                                                                                                                                
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|(ii)  | U.S. Dollar Notes of HK$2,340 million (2001: HK$2,340 million) with
a coupon rate of 7.5% (2001: 7.5%) per annum; this liability was fully
swapped into Hong Kong Dollars, at an average fixed rate of 7.07% per
annum;                                                                 
|     
|(iii) | U.S. Dollar Medium Term Notes of HK$2,340 million (2001: nil) with
a coupon rate of 6.25% per annum; this liability was fully swapped into
Hong Kong Dollars, with HK$1,000 million further swapped into 5-year
fixed rate of 6.12% per annum and the balance kept at variable rate;
and
|     
|(iv)  | other variable rate bank loans of HK$4,611 million (2001: HK$3,210
million).                                                                                                                                                                                                            

F-42



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|28. |  | DEFERRED TAXATION
|--- |  | -----------------

|                             |  |      |       |      |  |  |       | 
|---------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                             |  | 2001 |       | 2002
|                             |  |      |       |     
|                             |  | HK$M |       | HK$M
|                            
|Balance at beginning of year |  |      | 3,110 |      |  |  | 3,391 | 
|Charge for the year          |  |      | 281   |      |  |  | 330   | 
|                             |  |      |       |      |  |  |       | 
|Balance at end of year       |  |      | 3,391 |      |  |  | 3,721 | 
|                             |  |      |       |      |  |  |       | 



|    |  | Deferred taxation arose from timing differences attributable to accelerated
depreciation allowances, which are unlikely to reverse in the
foreseeable future.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|29. |  | NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT                                                                                                                
|   
|    |  | Reconciliation of profit before taxation to cash generated from operations:                                                                                  

|                                                                |                                                               |  |       |        |      |  |       |        |   |  |        |        |  
|--------------------------------------------------------------- | ------------------------------------------------------------- |  | ----- | ------ | ---- |  | ----- | ------ | - |  | ------ | ------ | -
|                                                                |                                                               |  | 2000  |        | 2001 |  | 2002 
|                                                                |                                                               |  |       |        |      |  |      
|                                                                |                                                               |  | HK$M  |        | HK$M |  | HK$M 
|                                                               
|Profit before taxation                                          |                                                               |  | 8,775 |        |      |  | 9,952 |        |   |  | 10,024 |       
|Adjustments for:                                                |                                                               |  |       |        |      |  |       |        |   |  |        |       
|                                                                | Operating interests                                           |  |       | 184    |      |  |       | 180    |   |  |        | 184    |  
|                                                                | Finance income                                                |  |       | (110   | )    |  |       | (29    | ) |  |        | (33    | )
|                                                                | Hok Un redevelopment profit                                   |  |       | (1,357 | )    |  |       | (1,752 | ) |  |        | (282   | )
|                                                                | Share of profits less losses of jointly controlled
entities   |  |       | (2,216 | )    |  |       | (2,339 | ) |  |        | (2,976 | )
|                                                                | Share of profits less losses of associated companies          |  |       | (5     | )    |  |       | (71    | ) |  |        | (86    | )
|                                                                | Exchange gain                                                 |  |       |       |      |  |       |       |   |  |        | (28    | )
|                                                                | Impairment loss on investments in jointly
controlled entities |  |       |       |      |  |       |       |   |  |        | 38     |  
|                                                                | Impairment loss on investment in associated company           |  |       | 900    |      |  |       |       |   |  |        |       |  
|                                                                | Impairment loss on investment securities                      |  |       | 130    |      |  |       |       |   |  |        |       |  
|                                                                | Impairment loss on long-lived assets                          |  |       |       |      |  |       |       |   |  |        | 59     |  
|                                                                | Unrealized investment loss on retirement benefit
plan assets  |  |       |       |      |  |       |       |   |  |        | 83     |  
|                                                                | Provision for development costs                               |  |       | 18     |      |  |       |       |   |  |        |       |  
|                                                                | Depreciation                                                  |  |       | 1,474  |      |  |       | 1,624  |   |  |        | 1,749  |  
|                                                                | Loss on disposal of fixed assets                              |  |       | 100    |      |  |       | 107    |   |  |        | 79     |  
|                                                                | Capital gain arising from disposal of properties              |  |       | (7     | )    |  |       | (52    | ) |  |        | (321   | )
|                                                                | Dividend income from investment                               |  |       |       |      |  |       | (17    | ) |  |        | (34    | )
|                                                                | Mark-to-market gain on other investments                      |  |       |       |      |  |       |       |   |  |        | (27    | )
|                                                                |                                                               |  |       |        |      |  |       |        |   |  |        |       
|Operating profit before working capital changes                 |                                                               |  | 7,886 |        |      |  | 7,603 |        |   |  | 8,429  |       
|Increase in customers deposits                                 |                                                               |  | 133   |        |      |  | 271   |        |   |  | 234    |       
|Decrease in fuel clause account                                 |                                                               |  | 310   |        |      |  | 473   |        |   |  | 258    |       
|Increase in debtors and prepayments                             |                                                               |  | (394  | )      |      |  | (408  | )      |   |  | (589   | )     
|Increase in retirement benefit plan assets                      |                                                               |  |      |        |      |  |      |        |   |  | (27    | )     
|Increase in creditors                                           |                                                               |  | 220   |        |      |  | 114   |        |   |  | 248    |       
|Increase in current accounts due to jointly controlled
entities |                                                               |  | 15    |        |      |  | 27    |        |   |  | 134    |       
|Rebates to customers under SoC                                  |                                                               |  | (162  | )      |      |  | (166  | )      |   |  | (171   | )     
|Business relief rebate                                          |                                                               |  |      |        |      |  |      |        |   |  | (41    | )     
|Special rebate                                                  |                                                               |  | (593  | )      |      |  | (607  | )      |   |  | (626   | )     
|                                                                |                                                               |  |       |        |      |  |       |        |   |  |        |       
|Cash generated from operations                                  |                                                               |  | 7,415 |        |      |  | 7,307 |        |   |  | 7,849  |       
|                                                                |                                                               |  |       |        |      |  |       |        |   |  |        |       

F-43



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|30. |  | COMMITMENTS
|--- |  | -----------



| | (A) |  | Capital expenditure authorized but not brought into the accounts is
as follows:
| | --- |  | -------------------------------------------------------------------------------

|                                  |  |      |        |      |  |  |        | 
|--------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                  |  | 2001 |        | 2002
|                                  |  |      |        |     
|                                  |  | HK$M |        | HK$M
|                                  |  |      |        |     
|Contracted but not provided for   |  |      | 2,746  |      |  |  | 3,056  | 
|Authorized but not contracted for |  |      | 8,573  |      |  |  | 8,402  | 
|                                  |  |      |        |      |  |  |        | 
|                                  |  |      | 11,319 |      |  |  | 11,458 | 
|                                  |  |      |        |      |  |  |        | 



| | (B) |  | In respect of the investment in the Anshun II Power Project in
Guizhou, the Group is required to contribute share capital of RMB440
million (approximately HK$414 million). The amount already paid at the
end of December 2002 was RMB154 million (approximately HK$145 million).
The remainder of the share capital will be paid by instalments within
one and a half years from the joint ventures incorporation date of
September 9, 2002.                                                                                                                                                                                                                                                                                                                                                                                 
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (C) |  | Under a Sale and Purchase Agreement executed in November 2002, the
Group was committed to pay a total consideration of HK$897 million to
acquire from Powergen the remaining interests in Gujarat Paguthan Energy
Corporation Private Limited (GPEC), Yallourn Energy Pty Limited
(Yallourn Energy) and BLCP Power Limited (BLCP). In respect of GPEC
and Yallourn Energy, completion of these acquisitions was subject to
certain consents from lenders and relevant regulatory authorities. Upon
completion of the deal, the Group would own effective interests of 100%
in GPEC, 92% in Yallourn Energy and 50% in BLCP. Up to December 31,
2002, no payment had been made. The acquisitions of the additional
interests in BLCP, Yallourn Energy and GPEC were completed in January,
April and June 2003 respectively.



|31. |  | CONTINGENT LIABILITIES
|--- |  | ----------------------



| | (A) |  | China Energy Investment Company Limited (CEIC), a wholly-owned
subsidiary company of the Group, is a shareholder of the Shandong
Zhonghua Power Company Limited formed to develop, own and operate the
Shiheng I, Shiheng II, Heze II and Liaocheng Power Stations totalling
3,000MW in the Shandong Province of the Chinese mainland. As part of
the security package for the project, the Company has provided a Letter
of Support to the finance parties to procure that CEIC will perform its
contractual obligations.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The contingent financial liabilities at December 31, 2002 to be assumed by
the Company, in respect of the performance by CEIC of its contractual
obligations, are estimated to be as follows:                                                                                                                                                                                                                                                                                                                               

|                                                                                                             |  |      |       |      |  |  |       | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | ---- |  |  | ----- | 
|                                                                                                             |  | 2001 |       | 2002
|                                                                                                             |  |      |       |     
|                                                                                                             |  | HK$M |       | HK$M
|                                                                                                             |  |      |       |     
|Sponsor support for completion                                                                               |  |      | 702   |      |  |  | 702   | 
|Liability under engineering, procurement and construction
contracts for Heze II and Liaocheng Power Stations |  |      | 2,472 |      |  |  | 2,472 | 
|Dividend escrow                                                                                              |  |      | 436   |      |  |  | 618   | 
|                                                                                                             |  |      |       |      |  |  |       | 
|                                                                                                             |  |      | 3,610 |      |  |  | 3,792 | 
|                                                                                                             |  |      |       |      |  |  |       | 

F-44



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|31. |  | CONTINGENT LIABILITIES (continued)
|--- |  | ----------------------------------



| | (B) |  | The refinancing of Yallourn Energy Pty Limited (Yallourn Energy)
was completed on February 27, 2001. Pursuant to the relevant loan
agreements, all the relevant shareholders of AusPower Holdings Pty
Limited, the immediate holding company of Yallourn Energy, agreed to
provide the lenders with contingent equity support on a pro rata basis
up to the sum of A$200 million in respect of a senior debt facility and
up to the sum of A$15 million in respect of a subordinated notes
facility. The contribution of contingent equity depends on certain
minimum requirements regarding the availability of cash flows for debt
service within five years from February 27, 2001. As at December 31,
2002, CLP Groups 73.6% share of the contingent equity support is
approximately A$158 million. As stated in Note 19(D), on January 7,
2003, the Group purchased all the subordinated notes.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Directors are of the opinion that no provision is required to be made
in the financial statements in respect of the matters described in (A) and
(B) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



|32. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                               
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In the normal course of business the Group undertakes on an arms-length basis
a wide variety of transactions with related parties. The more significant of
such transactions during the year ended December 31, 2002 are described
below.

|                                        |  |      |       |      |  |      |       |  |  |  |        | 
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ------ | 
|                                        |  | 2000 |       | 2001 |  | 2002
|                                        |  |      |       |      |  |     
|                                        |  | HK$M |       | HK$M |  | HK$M
|                                        |  |      |       |      |  |      |       |  |  |  |        | 
|Purchases of electricity from CAPCO (A) |  |      | 9,735 |      |  |      | 9,815 |  |  |  | 10,191 | 
|Purchases of nuclear electricity (B)    |  |      | 4,587 |      |  |      | 5,013 |  |  |  | 4,976  | 
|Pumped storage service fee (C)          |  |      | 457   |      |  |      | 424   |  |  |  | 419    | 



| | (A) |  | Under the Electricity Supply Contract between CLP Power and CAPCO,
CLP Power is obligated to purchase all of CAPCOs generating capacity.
The Electricity Supply Contract provides that the price paid by CLP
Power to CAPCO is sufficient to cover all of CAPCOs operating
expenses, including fuel cost, depreciation, interest expenses and
current and deferred taxes, as well as CAPCOs share of the return
permitted under the SoC.                                                                                                                 
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (B) |  | Under the offtake and resale contracts, CLP Power is obligated to
purchase the Groups 25% equity share of the output from Guangdong Daya
Bay Nuclear Power Station (GNPS) and an additional 45% of such output
from Guangdong Nuclear Investment Company, Limited. The price paid by
CLP Power for electricity generated by GNPS throughout the terms of the
power purchase agreements is determined by a formula based on GNPSs
operating costs and a calculation of profits by reference to
shareholders funds and the capacity factor for that year.
|
| | (C) |  | Under a capacity purchase contract, Hong Kong Pumped Storage
Development Company, Limited (PSDC) has the right to use 50% of the
1,200MW capacity of Phase 1 of the Guangzhou Pumped Storage Power
Station. CLP Power has entered into a contract with PSDC to make use
of this capacity. The price paid by CLP Power to PSDC is sufficient to
cover all of PSDCs operating expenses and net return. PSDCs net
return is based on a percentage of its net fixed assets in a manner
analogous to the SoC.                                                

F-45



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|33. |  | FINANCIAL ASSISTANCE AND GUARANTEES TO AFFILIATED COMPANIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company has obtained a waiver from The Stock Exchange of Hong Kong
Limited under Paragraph 3.10 of Practice Note 19 of the Listing Rules from
disclosing a proforma combined balance sheet of affiliated companies.
Affiliated companies include the Groups jointly controlled entities and
associated companies. Instead, in accordance with Practice Note 19, the
Company discloses the following alternative information in relation to the
affiliated companies as at December 31, 2002. This information has been
extracted from the relevant audited accounts or management accounts of all
affiliated companies.

|                                                                                     |                                                    |  |        |        |      |  |        |        | 
|------------------------------------------------------------------------------------ | -------------------------------------------------- |  | ------ | ------ | ---- |  | ------ | ------ | 
|                                                                                     |                                                    |  | 2001   |        | 2002
|                                                                                     |                                                    |  |        |        |     
|                                                                                     |                                                    |  | HK$M   |        | HK$M
|The Groups share of total indebtedness of affiliated companies
analyzed as follows: |                                                    |  |        |        |      |  |        |       
|                                                                                     | Bank borrowings                                    |  |        | 17,697 |      |  |        | 18,468 | 
|                                                                                     | Other borrowings including loans from shareholders |  |        | 3,050  |      |  |        | 3,074  | 
|                                                                                     |                                                    |  |        |        |      |  |        |       
|                                                                                     |                                                    |  | 20,747 |        |      |  | 21,542 |       
|                                                                                     |                                                    |  |        |        |      |  |        |        | 
|                                                                                    
|The Groups share of contingent liabilities of affiliated companies                  |                                                    |  | 255    |        |      |  | 667    |       
|                                                                                     |                                                    |  |        |        |      |  |        |        | 
|                                                                                    
|The Groups share of capital commitments of affiliated companies                     |                                                    |  |        |        |      |  |        |       
|                                                                                     | Contracted but not provided for                    |  |        | 2,454  |      |  |        | 1,934  | 
|                                                                                     | Authorized but not contracted for                  |  |        | 1,792  |      |  |        | 2,943  | 
|                                                                                     |                                                    |  |        |        |      |  |        |       
|                                                                                     |                                                    |  | 4,246  |        |      |  | 4,877  |       
|                                                                                     |                                                    |  |        |        |      |  |        |        | 



|34. |  | APPROVAL OF ACCOUNTS                                         
|--- |  | -------------------------------------------------------------
|   
|    |  | The accounts were approved by the Board on February 24, 2003.

F-46



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|35. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Groups financial statements are prepared in accordance with generally
accepted accounting principles in Hong Kong (Hong Kong GAAP), other than
where different accounting policies are required by the Scheme of Control
Agreement. Hong Kong GAAP, as modified to comply with the terms of the
Scheme of Control, differ in certain significant respects from accounting
principles generally accepted in the United States (U.S. GAAP). The
significant differences applicable to the Group are described below and the
adjustments considered necessary to reconcile the consolidated profit (net
income) or shareholders funds (shareholders equity) in accordance with
U.S. GAAP are shown in the following tables.                                                                                                                                                                                                                                                
|   
|    |  | Retirement Scheme                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Prior to 2002, under Hong Kong GAAP, the periodic charge to the Groups
financial statements for costs arising from a defined benefit retirement
scheme was represented by the Groups contributions to the scheme in a given
period, determined by the Group with reference to independent actuarial
valuations. Statement of Financial Accounting Standards (SFAS) No. 87
Employers Accounting for Pensions in the United States requires that the
net periodic pension cost related to the employers liability under a defined
benefit retirement scheme be determined by reference to changes in the
actuarial valuation of the pension obligations of the scheme, fair value of
the schemes assets, amortization of the amount of underfunded or overfunded
projected benefit obligations at the time the accounting standard is adopted
and amortization of additional projected benefits arising as a result of
changes to the scheme.                                   
|   
|    |  | On January 1, 2002, the Group adopted the new Hong Kong accounting standard
SSAP No. 34 Employee Benefits, which became effective for financial
statements with periods beginning on or after January 1, 2002. On initial
adoption of the new standard, the Group carried out an actuarial valuation
indicating a surplus of employee retirement benefit plan assets over
liabilities (the surplus) of HK$1,194 million. Management of the Group are
of the opinion that the surplus is not taxable. The new SSAP No. 34 is
broadly consistent with SFAS No. 87. The surplus upon initial adoption of
the SSAP No. 34 has been recognized as a prior year adjustment against
retained profits. Under U.S. GAAP, the retirement scheme asset at January 1,
2002 differs from this surplus due to the existence of unrecognized actuarial
gains and losses; under U.S. GAAP such actuarial gains and losses are
recognized over the average remaining active employee service period.
|   
|    |  | On December 31, 2002, the remaining members in the Groups defined benefit
programmes were transferred to the defined contribution programmes. At the
same time, the Group obtained the relevant approvals in principle to enable
the winding up of its defined benefit programmes. This represented a
curtailment and settlement of the defined benefit programmes. Accordingly,
all previously unrecognized gains and losses have been credited to the profit
and loss account in the current year under U.S. GAAP. The amount of tax
provision made in prior years against the differences in periodic pension
costs was also written back.                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Foreign Exchange Gain and Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | The accounting treatment prescribed by the Scheme of Control Agreement
requires that unrealized exchange differences arising from long-term
borrowings, suppliers credits and shareholders advances be deferred. Under
U.S. GAAP these should be generally included in the income statement in the
period in which the underlying exchange rates change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-47



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|35. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Derivatives and Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The Group engages in forward foreign exchange contracts and cross currency
and interest rate swaps to hedge the impact of foreign currency exposures and
fluctuations in interest rates. Our affiliate, Yallourn Energy, also uses
energy-related derivative instruments to hedge the price risk of sales of
electricity and the price risk of purchasing energy to satisfy retail sales
contract obligations. The Group does not recognize such derivatives at fair
value, nor does it account for the gains or losses relating to the fair value
changes in these derivatives as this is not required under Hong Kong GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | For U.S. GAAP purposes, before the implementation of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
SFAS Nos. 137 and 138 (collectively referred to here as SFAS No. 133), the
Group generally included gains and losses on forward foreign exchange
contracts in the profit and loss account, except for gains and losses on
forward foreign exchange contracts that were accounted for as hedges of firm
identifiable foreign currency commitments, which were deferred and recognized
in the profit and loss account upon settlement of the related foreign
currency commitment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | Effective January 1, 2001, the Group adopted SFAS No. 133, which requires the
Group to recognize all qualifying derivatives on the balance sheet at fair
value. The Groups transition adjustment to implement SFAS No. 133 was a net
after-tax increase of HK$6 million to accumulated other comprehensive loss.
This transition adjustment was recognized as of January 1, 2001, as a
cumulative effect of a change in accounting principle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Certain derivative transactions, while providing economic hedges, do not
qualify for hedge accounting under SFAS No. 133. For these derivatives,
changes in fair values are recognized in the profit and loss account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Changes in the fair value of derivatives that are designated and qualify as
fair value hedges are recorded in the profit and loss account to offset
changes in the fair value of the hedged assets or liabilities. Changes in
the fair value of derivatives that are designated and qualify as cash flow
hedges are recognized in other comprehensive income (loss) until the hedged
items are recognized in earnings, at which point the cumulative gain (loss)
previously recorded in other comprehensive income (loss) is transferred to
the profit and loss account. As of December 31, 2002, the application of
SFAS No. 133 to the Group resulted in the fair value of derivative contracts
amounting to an asset of HK$370 million (2001: HK$232 million), with
offsetting amounts of HK$113 million (2001: HK$176 million) being accrued to
customers in accordance with the Scheme of Control and HK$377 million (2001:
HK$41 million) being credited to the carrying amount of a hedged liability.
The remaining amount of HK$120 million (2001: HK$15 million) was principally
charged to the profit and loss account and accumulated other comprehensive
loss.
|   
|    |  | The Groups share of changes in the fair value of derivatives of the jointly
controlled entities and associated companies were also recognized in
accordance with the requirements of the SFAS No. 133, resulting in a decrease
in the Groups share of the net assets of its jointly controlled entities and
associated companies of HK$229 million (2001: HK$127 million). Of this
amount, cumulative charges of HK$78 million (2001: HK$1 million) have been
reflected in the profit and loss account and HK$151 million (2001: HK$126
million) has been charged to accumulated other comprehensive loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Depreciation of Leasehold Land                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | The Scheme of Control Agreement provides that leasehold land should be
capitalized at unamortized cost. U.S. GAAP requires that such an asset be
amortized over the term of the lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-48



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|35. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Taxation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | The Scheme of Control Agreement requires that CLP Power, and its jointly
controlled generating company Castle Peak Power Company Limited, make full
provision for deferred taxation arising from timing differences attributable
to accelerated tax depreciation allowances which is computed using the rate
ruling when the timing differences arise, with no adjustments made
subsequently if tax rates change. U.S. GAAP requires that such provision be
made using the liability method, whereby deferred tax is calculated at the
tax rate that it is estimated will be applicable when the timing differences
reverse.
|   
|    |  | For affiliates not operating under the Scheme of Control, Hong Kong GAAP
requires the deferred taxation to be computed using the liability method and
the taxation effect arising from all material timing differences be accounted
for to the extent it is probable that an asset or liability will crystallize.
Hong Kong GAAP further establishes recognition criteria for deferred tax
assets and only permits the recording of such assets relating to current
trading losses where                                                                                                                                    



| |  |  | the loss results from an identifiable and non-recurring cause;                                                  
| | - |  | ----------------------------------------------------------------------------------------------------------------
|
| |  |  | the enterprise has been consistently profitable over a considerable period; and                                 
|
| |  |  | it is assured beyond reasonable doubt that future taxable profits will be sufficient to offset the current loss.



| |  | Under U.S. GAAP, deferred tax assets and liabilities are recognized in full,
subject to the possible provision of a valuation allowance when it is more
likely than not certain deferred tax assets will not be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Development Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Prior to 2000, under Hong Kong GAAP, development expenditures were deferred
because recovery could be regarded as reasonably assured. In 2000, a Hong
Kong accounting pronouncement was issued which states that pre-operating
costs, which do not generally give rise to an asset, should be recognized as
an expense in the period in which they are incurred. The relevant amounts,
which had been capitalized in the accounts, were written off as expenses in
2000. Under U.S. GAAP, development costs are charged to expense when
incurred.                                                                                                                                                                                   
|
| |  | Investments in Equity Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Under Hong Kong GAAP, investments in equity securities which are held for an
identified long-term purpose and that purpose is documented at the time of
acquisition or change of purpose are considered as investment securities
and should be carried at cost less any provision for impairment. Those not
classified as investment securities should be classified as other
investments and should be measured at fair value with unrealized gains and
losses being charged to the profit and loss account. When securities are
transferred between categories, the transfer should be accounted for at fair
value at the date of transfer. Any gain or loss arising is recognized
immediately in the profit and loss account.
|
| |  | For investments in equity securities that are classified as available for
sale under U.S. GAAP, they are required to be reported at fair value with
the unrealized gains and losses to be recognized in other comprehensive
income. Impairments in the value of equity securities, other than temporary
impairments, are reflected in the profit and loss account. Any subsequent
recovery in the fair value of previously impaired securities is recorded in
other comprehensive loss until the security is sold.                                                                                                                                                                                                                
|
| |  | Amortization of Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Under Hong Kong GAAP, goodwill is required to be amortized over its useful
life and if the goodwill is being amortized over more than 20 years, such
goodwill will be subject to an annual impairment review even if there is no
indication that it is impaired. Under U.S. GAAP, goodwill is no longer
amortized but subject to impairment test at least annually.                                                                                                                                                                                                                                                                                                                                                                 

F-49



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|35. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | FIN 45
In November 2002, the FASB issued Interpretation No. (FIN) 45 Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 elaborates on the disclosures
to be made by a guarantor about its obligations under certain guarantees that
it has issued and clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The initial recognition and measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002 and the disclosure requirements
are effective for financial statements ending after December 15, 2002.                                                                                                               
|   
|    |  | FIN 45 does not prescribe a specific account for the guarantors offsetting
entry when it recognizes the liability at the inception of the guarantee and
that offsetting entry will depend on the circumstances in which the guarantee
is issued. There is also no prescribed approach included for subsequently
measuring the guarantors recognized liability over the term of the related
guarantee. The Group is currently assessing the impact of FIN 45s initial
recognition and measurement provisions on its financial position and results
of operations.                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | FIN 46
In January 2003, the FASB issued FIN 46 Consolidation of Variable Interest
Entities-an Interpretation of ARB No. 51. FIN 46 requires that certain
variable interest entities (VIE) be consolidated by their primary
beneficiary if the primary beneficiary is subject to a majority of the risk
of loss from the VIE activities, or entitled to receive a majority of the
VIEs residual returns, or both. FIN 46 is effective immediately for all new
VIE created or acquired after January 31, 2003. For VIE created or acquired
prior to February 1, 2003, the provisions of FIN 46 must be applied for the
first interim or annual period beginning after June 15, 2003. The Group is
in the process of reviewing its joint venture arrangements to determine if
there is any venture that would be considered as VIE and hence needs to be
consolidated under the provisions of FIN 46.

F-50



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|35. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Effects of Proposed Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | EITF Issue No. 01-8                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | In August 2001, the Emerging Issues Task Force released Issue No. 01-8
Determining Whether an Arrangement Is a Lease (Issue 01-8). Issue 01-8
was originally intended to provide guidance in determining whether an
energy-related contract should be accounted for as a lease in accordance with
SFAS No. 13 Accounting for Leases and the scope was later extended beyond
energy-related contracts by developing additional guidance in determining
whether any arrangement is a lease.                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Under the proposed guidance, an arrangement that conveys the right to use the
property, plant or equipment (PP&E) would be considered to constitute a
lease if (a) the purchaser has the ability or right to operate the PP&E, (b)
the purchaser has the ability or right to control physical access to the
underlying PP&E, or (c) it is remote that parties other than the purchaser
will take more than a minor amount of the PP&Es output during the term of
the arrangement and the unit price for the purchaser is neither contractually
fixed nor equal to the then current market price. It was further proposed
that the determination of whether an arrangement contains a lease be made at
inception of the arrangement based on all the facts and circumstances and a
reassessment is required only if there are certain specific modifications
made to the agreement.
|   
|    |  | Based on the proposed guidance and subject to the final decision of the
Emerging Issues Task Force, lease accounting may apply to CLP Powers power
purchase arrangement with CAPCO if there is any modification to the existing
arrangement since Issue 01-8 was proposed to be applicable to arrangements
entered into or modified on or after the first fiscal quarter beginning after
May 28, 2003. If lease accounting does apply and requires the contract to be
accounted for as a capital lease under U.S. GAAP, CLP Power would have to
record CAPCOs related power plants as fixed assets in its accounts for U.S.
GAAP purposes with an offsetting liability due to CAPCO. The Group
anticipates that the implementation of Issue 01-8, if applicable, will have
no material impact on its results of operations.                                                        

F-51



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|35. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP (continued)
|--- |  | ---------------------------------------------------------------------------
|   

| |  | Net Income and Shareholders Equity                                                                                                             
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The estimated effect of the significant adjustments to the net income and
shareholders equity in accordance with U.S. GAAP is summarized below:
|
| |  | Net income                                                                                                                                      

|                                                       |                                                           |  |       |     |      |  |       |     |      |  |       |      |   |  |     |     |  
|------------------------------------------------------ | --------------------------------------------------------- |  | ----- | --- | ---- |  | ----- | --- | ---- |  | ----- | ---- | - |  | --- | --- | -
|                                                       |                                                           |  | 2000  |     | 2001 |  | 2002  |     | 2002
|                                                       |                                                           |  |       |     |      |  |       |     |     
|                                                       |                                                           |  | HK$M  |     | HK$M |  | HK$M  |     | US$M
|                                                       |                                                           |  |       |     |      |  |       |     |     
|Profit for the year in accordance with Hong Kong
GAAP* |                                                           |  | 5,768 |     |      |  | 7,257 |     |      |  | 7,079 |      |   |  | 908 |    
|                                                       |                                                           |  |       |     |      |  |       |     |      |  |       |      |   |  |     |    
|Adjustments required under U.S. GAAP:                  |                                                           |  |       |     |      |  |       |     |      |  |       |      |   |  |     |    
|                                                       | Difference in periodic pension costs and
curtailment gain |  |       | 269 |      |  |       | 81  |      |  |       | 130  |   |  |     | 17  |  
|                                                       | Exchange gain/(loss)                                      |  |       | 14  |      |  |       | (15 | )    |  |       |     |   |  |     |    |  
|                                                       | Gain/(Loss) on change in fair value of derivatives        |  |       |    |      |  |       | 22  |      |  |       | (221 | ) |  |     | (28 | )
|                                                       | Tax effect of the above adjustments                       |  |       | (45 | )    |  |       | (14 | )    |  |       | 218  |   |  |     | 28  |  
|                                                       | Depreciation of leasehold land                            |  |       | (33 | )    |  |       | (32 | )    |  |       | (216 | ) |  |     | (28 | )
|                                                       | Deferred tax accounting                                   |  |       |    |      |  |       | 106 |      |  |       | 32   |   |  |     | 4   |  
|                                                       | Development costs                                         |  |       | 98  |      |  |       |    |      |  |       |     |   |  |     |    |  
|                                                       | Change in fair value of equity securities                 |  |       |    |      |  |       |    |      |  |       | (27  | ) |  |     | (3  | )
|                                                       | Amortization of goodwill                                  |  |       |    |      |  |       |    |      |  |       | 28   |   |  |     | 3   |  
|                                                       |                                                           |  |       |     |      |  |       |     |      |  |       |      |   |  |     |    
|Net income for the year in accordance with U.S. GAAP   |                                                           |  | 6,071 |     |      |  | 7,405 |     |      |  | 7,023 |      |   |  | 901 |    
|                                                       |                                                           |  |       |     |      |  |       |     |      |  |       |      |   |  |     |    



| |  | * as modified to comply with the Scheme of Control Agreement
| |  | ------------------------------------------------------------

F-52



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|35. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP (continued)
|--- |  | ---------------------------------------------------------------------------
|   
|    |  | Net Income and Shareholders Equity (continued)                            
|   
|    |  | Shareholders equity                                                       

|                                                                                                                                                                  |                                                                                                                                            |                                                                                              |        |       |      |   |        |      |      |   |       |     |     |   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------- | ------ | ----- | ---- | - | ------ | ---- | ---- | - | ----- | --- | --- | - | 
|                                                                                                                                                                  |                                                                                                                                            |                                                                                              |        |       | 2001 |   | 2002   |      | 2002
|                                                                                                                                                                  |                                                                                                                                            |                                                                                              |        |       |      |   |        |      |     
|                                                                                                                                                                  |                                                                                                                                            |                                                                                              |        |       | HK$M |   | HK$M   |      | US$M
|                                                                                                                                                                  |                                                                                                                                            |                                                                                              |        |       |      |   |        |      |     
|Shareholders funds in accordance with Hong Kong GAAP*                                                                                                            |                                                                                                                                            |                                                                                              | 35,168 |       |      |   | 36,787 |      |      |   | 4,717 |    
|Adjustment of surplus of employee retirement benefit plan
assetsover liabilities recognized as prior year adjustment
againstretained profits under Hong Kong GAAP |                                                                                                                                            |                                                                                              | (1,194 | )     |      |   |       |      |      |   |      |    
|                                                                                                                                                                  |                                                                                                                                            |                                                                                              |        |       |      |   |        |      |      |   |       |    
|Shareholders funds as previously stated under Hong Kong GAAP                                                                                                     |                                                                                                                                            |                                                                                              | 33,974 |       |      |   | 36,787 |      |      |   | 4,717 |    
|Cumulative adjustments required under U.S. GAAP:                                                                                                                  |                                                                                                                                            |                                                                                              |        |       |      |   |        |      |      |   |       |    
|                                                                                                                                                                  | Difference in periodic pension costs and curtailment gain                                                                                  |                                                                                              |        | 1,064 |      |   |        |     |      |   |       |    |    
|                                                                                                                                                                  | Gain/(Loss) on change in fair value of derivatives                                                                                         |                                                                                              |        | 22    |      |   |        | (199 | )    |   |       | (26 | )  
|                                                                                                                                                                  | Tax effect of the above adjustments                                                                                                        |                                                                                              |        | (174  | )    |   |        | 44   |      |   |       | 6   |    
|                                                                                                                                                                  | Depreciation of leasehold land                                                                                                             |                                                                                              |        | (382  | )    |   |        | (598 | )    |   |       | (77 | )  
|                                                                                                                                                                  | Deferred tax accounting                                                                                                                    |                                                                                              |        | 243   |      |   |        | 275  |      |   |       | 35  |    
|                                                                                                                                                                  | Change in fair value of equity securities                                                                                                  |                                                                                              |        |      |      |   |        | (27  | )    |   |       | (3  | )  
|                                                                                                                                                                  | Amortization of goodwill                                                                                                                   |                                                                                              |        |      |      |   |        | 28   |      |   |       | 3   |    
|                                                                                                                                                                  | Transitional adjustment to other comprehensive
income/(loss) on
    implementation of SFAS No. 133, net of
tax of nil (2001: HK$1 million) |                                                                                              |        | (6    | )    |   |        | (4   | )    |   |       | (1  | )  
|                                                                                                                                                                  | Net change in fair value of derivatives to other
comprehensive
    income/(loss)                                                           |                                                                                              |        |       |      |   |        |      |      |   |       |     |    
|                                                                                                                                                                  |                                                                                                                                            | - company and subsidiaries, net of tax of HK$3 million
(2001: nil)                           |        |       |     |   |        |      | (18  | ) |       |     | (2  | )
|                                                                                                                                                                  |                                                                                                                                            | - share of jointly controlled entities, net of tax of
HK$49 million
   (2001: HK$54 million) |        |       | (126 | ) |        |      | (151 | ) |       |     | (19 | )
|                                                                                                                                                                  | Net change in fair value of equity securities to other
comprehensiveincome/(loss), net of tax of nil                                       |                                                                                              |        |      |      |   |        | 27   |      |   |       | 3   |    
|                                                                                                                                                                  | Foreign currency translation to other comprehensive
income/(loss)                                                                          |                                                                                              |        |      |      |   |        | 13   |      |   |       | 2   |    
|                                                                                                                                                                  |                                                                                                                                            |                                                                                              |        |       |      |   |        |      |      |   |       |    
|Shareholders equity in accordance with U.S. GAAP                                                                                                                 |                                                                                                                                            |                                                                                              | 34,615 |       |      |   | 36,177 |      |      |   | 4,638 |    
|                                                                                                                                                                  |                                                                                                                                            |                                                                                              |        |       |      |   |        |      |      |   |       |    



|* |  | as modified to comply with the Scheme of Control Agreement
|- |  | ----------------------------------------------------------

F-53



---



##### 



CLP HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|35. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Cash Flow Statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Under Hong Kong GAAP, cash flows from dividends received can be classified in
a manner which is most appropriate to the business and the Group therefore
classifies dividends received as investing cash flows. Hong Kong GAAP
further allows bank overdrafts to be a component of cash and cash equivalents
as it forms an integral part of the Groups cash management. Under U.S.
GAAP, dividends received should be classified as operating cash flows whereas
bank overdrafts as financing activities. The consolidated cash flow data by
operating, investing and financing activities in accordance with U.S. GAAP
are summarized below:

|                                                 |                      |  |       |        |      |  |        |        |      |  |     |        |   |  |    |        |  
|------------------------------------------------ | -------------------- |  | ----- | ------ | ---- |  | ------ | ------ | ---- |  | --- | ------ | - |  | -- | ------ | -
|                                                 |                      |  | 2000  |        | 2001 |  | 2002   |        | 2002
|                                                 |                      |  |       |        |      |  |        |        |     
|                                                 |                      |  | HK$M  |        | HK$M |  | HK$M   |        | US$M
|Net cash provided/(used) by:                     |                      |  |       |        |      |  |        |        |      |  |     |        |   |  |    |       
|                                                 | Operating activities |  |       | 9,998  |      |  |        | 9,537  |      |  |     | 10,922 |   |  |    | 1,400  |  
|                                                 | Investing activities |  |       | (3,924 | )    |  |        | (8,129 | )    |  |     | (8,478 | ) |  |    | (1,087 | )
|                                                 | Financing activities |  |       | (4,820 | )    |  |        | (3,500 | )    |  |     | (2,008 | ) |  |    | (257   | )
|                                                 |                      |  |       |        |      |  |        |        |      |  |     |        |   |  |    |       
|Increase/(decrease) in cash and cash equivalents |                      |  | 1,254 |        |      |  | (2,092 | )      |      |  | 436 |        |   |  | 56 |       
|Cash and cash equivalents at beginning of year   |                      |  | 918   |        |      |  | 2,172  |        |      |  | 80  |        |   |  | 10 |       
|                                                 |                      |  |       |        |      |  |        |        |      |  |     |        |   |  |    |       
|Cash and cash equivalents at end of year         |                      |  | 2,172 |        |      |  | 80     |        |      |  | 516 |        |   |  | 66 |       
|                                                 |                      |  |       |        |      |  |        |        |      |  |     |        |   |  |    |        |  

F-54



---



##### 



CLP HOLDINGS LIMITED

SCHEME OF CONTROL STATEMENT

CLP Power Hong Kong Limited (CLP Power)

Overview

In Hong Kong, CLP Power operates a vertically integrated electricity
generation, transmission and distribution business. The generating plants in
Hong Kong are owned by Castle Peak Power Company Limited (CAPCO), which is
40% owned by CLP Power and 60% owned by ExxonMobil Energy Limited. CLP Power
builds and operates CAPCOs power stations under contract and is the sole
customer for CAPCOs electricity which CLP Power transmits and distributes to
its customers in Kowloon and the New Territories. CLP Power owns the
transmission and distribution network.

Since 1963, the electricity-related operations of CLP Power and CAPCO (the SoC
Companies) have been governed by a Scheme of Control (SoC) Agreement with
the Government. The SoC specifies the SoC Companies obligations to supply
adequate and reliable electricity supplies to customers at the lowest
reasonable cost and the mechanism for Government to monitor their financial
affairs and operating performance. In return, CLP Power is allowed to charge
tariffs designed to recover the operating costs (including tax) and allowed net
return of the SoC Companies. The current agreement, which took effect from
October 1, 1993, covers the period to September 30, 2008. During this period,
each of the SoC Companies and the Government has the right during the year
ended September 30, 1998 and the year ending December 31, 2003 to request
modification of the SoC, subject to agreement being reached by all parties.

Permitted and Net Return

The permitted and net return that the SoC Companies are allowed under the SoC
are calculated as follows:



| |  | The annual permitted return is 13.5% of the SoC Companies average net
fixed assets relating to the electricity business in Hong Kong; plus a
further 1.5% on the average net fixed assets financed by shareholders
investments and acquired after September 30, 1978.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Any difference between the permitted return and the profit for SoC
operations is transferred to or from a Development Fund. The
Development Fund does not form part of distributable shareholders
funds and is, in effect, a liability owing to customers carried in CLP
Powers books.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| 
| |  | Four charges are deducted from the permitted return. First,
shareholders of the SoC Companies pay interest up to a maximum of 8%
per annum on borrowed capital arranged for financing fixed assets.
Second, shareholders of CLP Power pay a charge of 8% per annum on the
sum of the average balances of the Development Fund and special
provision account. This charge is credited to a rate reduction
reserve in CLP Powers books and is applied as rebates to customers.
By a Supplemental Agreement which took effect from October 1, 1998,
two more charges have been introduced. Third, shareholders of the SoC
Companies pay an excess capacity adjustment of 13.5% on the average
excess capacity expenditure less an allowed interest charge up to 8%
per annum on the average excess capacity expenditure. This excess
capacity adjustment will only apply to additional generating units
installed after the SoC Companies Black Point Units 7 and 8 are
commissioned. Fourth, shareholders of CLP Power pay interest up to 8%
per annum on the increase in average balance of the customers
deposits in excess of the balance as at September 30, 1998.
| 
| |  | The net return is the permitted return less the deductions. The rate
of return on average net fixed assets of the SoC Companies for the
year ended December 31, 2002 was 12.52% (2001: 12.17%, 2000: 11.87%).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

The net return is divided between the SoC Companies in accordance with the
provisions of the agreements between the companies. These provisions state
that each company will receive that proportion of the total net return
represented by the net return that company would receive if it were the only
company under the SoC and the net return were calculated solely on the basis of
its own accounts. In the year 2002, 58% (2001: 58%, 2000: 57%) of the net
return was allocated to CLP Power and 42% (2001: 42%, 2000: 43%) to CAPCO. If
the actual profit for the SoC, when added to the amount available for transfer
from the Development Fund is less than the permitted return, the share of any
such deficit to be borne by CAPCO is limited to 20%.

The calculations shown on page F-56 are in accordance with the SoC and the
agreements between the SoC Companies. The calculations are extracted from the
audited accounts of CLP Power for the year ended December 31, 2002, upon which
the auditors have expressed an unqualified opinion.

F-55



---



##### 



CLP HOLDINGS LIMITED

SCHEME OF CONTROL STATEMENT

|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |     | 
|---------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ------ | ----- | ---- |  | ------ | ----- |  |  | ----- | --- | 
|                                                                                                                                               |                                                                                         |  | Year ended December 31,
|                                                                                                                                               |                                                                                         |  |                        
|                                                                                                                                               |                                                                                         |  | 2000                    |       | 2001 |  | 2002   |       | 2002
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |     
|                                                                                                                                               |                                                                                         |  | HK$M                    |       | HK$M |  | HK$M   |       | US$M
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |     
|SCHEME OF CONTROL REVENUE                                                                                                                      |                                                                                         |  | 24,224                  |       |      |  | 24,806 |       |      |  | 25,844 |       |  |  | 3,314 |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|EXPENSES                                                                                                                                       |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                               | Operating costs                                                                         |  |                         | 2,735 |      |  |        | 2,964 |      |  |        | 2,848 |  |  |       | 365 | 
|                                                                                                                                               | Fuel                                                                                    |  |                         | 2,912 |      |  |        | 2,897 |      |  |        | 3,268 |  |  |       | 419 | 
|                                                                                                                                               | Purchases of nuclear electricity                                                        |  |                         | 4,587 |      |  |        | 5,013 |      |  |        | 4,976 |  |  |       | 638 | 
|                                                                                                                                               | Depreciation                                                                            |  |                         | 2,803 |      |  |        | 3,026 |      |  |        | 3,164 |  |  |       | 406 | 
|                                                                                                                                               | Operating interest                                                                      |  |                         | 1,163 |      |  |        | 931   |      |  |        | 617   |  |  |       | 79  | 
|                                                                                                                                               | Taxation                                                                                |  |                         | 1,418 |      |  |        | 1,138 |      |  |        | 1,478 |  |  |       | 190 | 
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                               |                                                                                         |  | 15,618                  |       |      |  | 15,969 |       |      |  | 16,351 |       |  |  | 2,097 |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|PROFIT AFTER TAXATION                                                                                                                          |                                                                                         |  | 8,606                   |       |      |  | 8,837  |       |      |  | 9,493  |       |  |  | 1,217 |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |     
|Interest on increase in customers deposits                                                                                                    |                                                                                         |  | 10                      |       |      |  | 8      |       |      |  | 1      |       |  |  |      |    
|Interest on long-term financing                                                                                                                |                                                                                         |  | 1,170                   |       |      |  | 1,005  |       |      |  | 818    |       |  |  | 105   |    
|Adjustment
required under the SoC
(including share of profit on sale of
electricity to the
Chinese mainland
attributable to the SoC Companies) |                                                                                         |  | (16                     | )     |      |  | (69    | )     |      |  | (5     | )     |  |  | (1    | )  
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|PROFIT FOR SCHEME OF CONTROL                                                                                                                   |                                                                                         |  | 9,770                   |       |      |  | 9,781  |       |      |  | 10,307 |       |  |  | 1,321 |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |     
|Transfer to Development Fund                                                                                                                   |                                                                                         |  | (1,386                  | )     |      |  | (1,201 | )     |      |  | (1,420 | )     |  |  | (182  | )  
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|PERMITTED RETURN                                                                                                                               |                                                                                         |  | 8,384                   |       |      |  | 8,580  |       |      |  | 8,887  |       |  |  | 1,139 |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|DEDUCT INTEREST                                                                                                                                |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                               | On increase in customers deposits                                                      |  |                         | 10    |      |  |        | 8     |      |  |        | 1     |  |  |       |    | 
|                                                                                                                                               | On long-term financing as above                                                         |  |                         | 1,170 |      |  |        | 1,005 |      |  |        | 818   |  |  |       | 105 | 
|                                                                                                                                               | On Development Fund and special
provision account transferred to rate
reduction reserve |  |                         | 280   |      |  |        | 305   |      |  |        | 319   |  |  |       | 41  | 
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                               |                                                                                         |  | 1,460                   |       |      |  | 1,318  |       |      |  | 1,138  |       |  |  | 146   |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|NET RETURN                                                                                                                                     |                                                                                         |  | 6,924                   |       |      |  | 7,262  |       |      |  | 7,749  |       |  |  | 993   |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                              
|Divisible as follows:                                                                                                                          |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                               | CLP Power                                                                               |  |                         | 3,955 |      |  |        | 4,188 |      |  |        | 4,517 |  |  |       | 579 | 
|                                                                                                                                               | CAPCO                                                                                   |  |                         | 2,969 |      |  |        | 3,074 |      |  |        | 3,232 |  |  |       | 414 | 
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                               |                                                                                         |  | 6,924                   |       |      |  | 7,262  |       |      |  | 7,749  |       |  |  | 993   |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                              
|CLP POWERS SHARE OF NET RETURN                                                                                                                |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                               | CLP Power                                                                               |  |                         | 3,955 |      |  |        | 4,188 |      |  |        | 4,517 |  |  |       | 579 | 
|                                                                                                                                               | Interest in CAPCO                                                                       |  |                         | 1,192 |      |  |        | 1,234 |      |  |        | 1,297 |  |  |       | 166 | 
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    
|                                                                                                                                               |                                                                                         |  | 5,147                   |       |      |  | 5,422  |       |      |  | 5,814  |       |  |  | 745   |    
|                                                                                                                                               |                                                                                         |  |                         |       |      |  |        |       |      |  |        |       |  |  |       |    

F-56



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Castle Peak Power Company Limited

We have audited the accompanying balance sheets of Castle Peak Power Company
Limited as of December 31, 2001 and 2002 and the related profit and loss
accounts, statements of changes in equity and cash flow statements for the
years ended December 31, 2000, 2001 and 2002 all expressed in Hong Kong
dollars. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material aspects, the financial position of Castle Peak Power Company
Limited at December 31, 2001 and 2002 and the results of their operations and
cash flows for the years ended December 31, 2000, 2001 and 2002 in conformity
with accounting principles generally accepted in Hong Kong.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopers
Certified Public Accountants

Hong Kong
February 14, 2003

F-57



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

PROFIT AND LOSS ACCOUNT

|                       |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |     | 
|---------------------- | --------------- | ---- | - |  | ---- |  | ----------------------- | ----- | ---- |  | ----- | ----- |  | ---- | ------ | ----- |  |  | ----- | --- | 
|                       |                 |      |   |  |      |  | Year ended December 31,
|                       |                 |      |   |  |      |  |                        
|                       |                 | Note |   |  | 2000 |  | 2001                    |       | 2002 |  | 2002 
|                       |                 |      |   |  |      |  |                         |       |      |  |      
|                       |                 |      |   |  |      |  | HK$M                    |       | HK$M |  | HK$M  |       |  | US$M |       
|                      
|TURNOVER               |                 |      | 3 |  |      |  | 9,773                   |       |      |  | 9,864 |       |  |      | 10,262 |       |  |  | 1,316 |    
|                       |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |    
|Expenses               |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |    
|                       | Fuel            |      |   |  |      |  |                         | 2,914 |      |  |       | 2,897 |  |      |        | 3,268 |  |  |       | 419 | 
|                       | Operating costs |      |   |  |      |  |                         | 458   |      |  |       | 526   |  |      |        | 747   |  |  |       | 96  | 
|                       | Depreciation    |      |   |  |      |  |                         | 1,340 |      |  |       | 1,429 |  |      |        | 1,442 |  |  |       | 185 | 
|                       | Staff expenses  |      |   |  |      |  |                         | 447   |      |  |       | 419   |  |      |        | 329   |  |  |       | 42  | 
|                       |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |    
|                       |                 |      |   |  |      |  | 5,159                   |       |      |  | 5,271 |       |  |      | 5,786  |       |  |  | 742   |    
|                       |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |    
|Operating profit       |                 |      | 4 |  |      |  | 4,614                   |       |      |  | 4,593 |       |  |      | 4,476  |       |  |  | 574   |    
|                      
|Finance costs          |                 |      | 5 |  |      |  | 1,042                   |       |      |  | 877   |       |  |      | 559    |       |  |  | 72    |    
|                       |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |    
|Profit before taxation |                 |      |   |  |      |  | 3,572                   |       |      |  | 3,716 |       |  |      | 3,917  |       |  |  | 502   |    
|                      
|Taxation               |                 |      | 6 |  |      |  | 571                     |       |      |  | 601   |       |  |      | 625    |       |  |  | 80    |    
|                       |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |    
|EARNINGS               |                 |      |   |  |      |  | 3,001                   |       |      |  | 3,115 |       |  |      | 3,292  |       |  |  | 422   |    
|                       |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |    
|                      
|DIVIDENDS              |                 |      | 7 |  |      |  | 3,001                   |       |      |  | 3,115 |       |  |      | 3,292  |       |  |  | 422   |    
|                       |                 |      |   |  |      |  |                         |       |      |  |       |       |  |      |        |       |  |  |       |    

F-58



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

BALANCE SHEET

|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |      |  
|------------------------------------- | ------------------------------------------------ | ---- | -- | -- | ---- |  | ------------------ | ------ | ---- |  | ------ | ------ | - |  | ----- | ---- | -
|                                      |                                                  |      |    |    |      |  | As of December 31,
|                                      |                                                  |      |    |    |      |  |                   
|                                      |                                                  | Note |    |    | 2001 |  | 2002               |        | 2002
|                                      |                                                  |      |    |    |      |  |                    |        |     
|                                      |                                                  |      |    |    |      |  | HK$M               |        | HK$M |  | US$M  
|CAPITAL EMPLOYED                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|Fixed assets                          |                                                  |      | 8  |    |      |  | 27,433             |        |      |  | 26,836 |        |   |  | 3,441 |     
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|Current assets                        |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                      | Fuel and stores                                  |      |    |    |      |  |                    | 392    |      |  |        | 427    |   |  |       | 54   |  
|                                      | Sundry debtors and prepayments                   |      |    |    |      |  |                    | 122    |      |  |        | 123    |   |  |       | 16   |  
|                                      | Current account with
CLP Power Hong Kong Limited |      |    | 9  |      |  |                    | 819    |      |  |        | 842    |   |  |       | 108  |  
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                      |                                                  |      |    |    |      |  | 1,333              |        |      |  | 1,392  |        |   |  | 178   |     
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|Current liabilities                   |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                      | Bank loans and other borrowings                  |      |    | 10 |      |  |                    | (3,273 | )    |  |        | (4,099 | ) |  |       | (526 | )
|                                      | Creditors                                        |      |    |    |      |  |                    | (789   | )    |  |        | (905   | ) |  |       | (116 | )
|                                      | Taxation payable                                 |      |    |    |      |  |                    | (191   | )    |  |        | (160   | ) |  |       | (20  | )
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                      |                                                  |      |    |    |      |  | (4,253             | )      |      |  | (5,164 | )      |   |  | (662  | )   
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                     
|Net current liabilities               |                                                  |      |    |    |      |  | (2,920             | )      |      |  | (3,772 | )      |   |  | (484  | )   
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                     
|Total assets less current liabilities |                                                  |      |    |    |      |  | 24,513             |        |      |  | 23,064 |        |   |  | 2,957 |     
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                     
|REPRESENTED BY                        |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|Share capital                         |                                                  |      | 11 |    |      |  | 50                 |        |      |  | 50     |        |   |  | 6     |     
|Retained profits                      |                                                  |      |    |    |      |  |                   |        |      |  |       |        |   |  |      |     
|Proposed dividend                     |                                                  |      |    |    |      |  | 404                |        |      |  | 378    |        |   |  | 49    |     
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|Shareholders funds                   |                                                  |      |    |    |      |  | 454                |        |      |  | 428    |        |   |  | 55    |     
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                     
|Advances from shareholders            |                                                  |      | 12 |    |      |  | 10,737             |        |      |  | 12,197 |        |   |  | 1,564 |     
|Long-term loans and other borrowings  |                                                  |      | 10 |    |      |  | 10,591             |        |      |  | 7,733  |        |   |  | 991   |     
|Deferred liabilities                  |                                                  |      | 13 |    |      |  | 2,731              |        |      |  | 2,706  |        |   |  | 347   |     
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                      |                                                  |      |    |    |      |  | 24,059             |        |      |  | 22,636 |        |   |  | 2,902 |     
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     
|                                     
|                                      |                                                  |      |    |    |      |  | 24,513             |        |      |  | 23,064 |        |   |  | 2,957 |     
|                                      |                                                  |      |    |    |      |  |                    |        |      |  |        |        |   |  |       |     

F-59



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

STATEMENT OF CHANGES IN
EQUITY

|                                                       |               |  |         |   |          |  |       |        |       |  |       |        |   |  |     |      |  
|------------------------------------------------------ | ------------- |  | ------- | - | -------- |  | ----- | ------ | ----- |  | ----- | ------ | - |  | --- | ---- | -
|                                                       |               |  | Share   |   | Retained |  |       |        |       |  |       |        |  
|                                                       |               |  | Capital |   | Profits  |  | Total |        | Total
|                                                       |               |  |         |   |          |  |       |        |      
|                                                       |               |  | HK$M    |   | HK$M     |  | HK$M  |        | US$M 
|                                                      
|Balance at January 1, 2000, as previously reported     |               |  | 50      |   |          |  |      |        |       |  | 50    |        |   |  |     |     
|Proposed final dividend not declared
before period end |               |  |        |   |          |  | 344   |        |       |  | 344   |        |   |  |     |     
|                                                       |               |  |         |   |          |  |       |        |       | 
|Balance at January 1, 2000, as adjusted                |               |  | 50      |   |          |  | 344   |        |       |  | 394   |        |   |  |     |     
|                                                      
|Earnings for the year                                  |               |  |        |   |          |  | 3,001 |        |       |  | 3,001 |        |   |  |     |     
|Dividends declared for the year                        |               |  |         |   |          |  |       |        |       |  |       |        |   |  |     |     
|                                                       | 1999 final    |  |         |  |          |  |       | (344   | )     |  |       | (344   | ) |  |     |      |  
|                                                       | 2000 interims |  |         |  |          |  |       | (2,665 | )     |  |       | (2,665 | ) |  |     |      |  
|                                                       |               |  |         |   |          |  |       |        |       | 
|Balance at December 31, 2000, as adjusted              |               |  | 50      |   |          |  | 336   |        |       |  | 386   |        |   |  |     |     
|                                                       |               |  |         |   |          |  |       |        |       | 
|                                                      
|Balance at January 1, 2001, as previously reported     |               |  | 50      |   |          |  |      |        |       |  | 50    |        |   |  |     |     
|Proposed final dividend not declared
before year end   |               |  |        |   |          |  | 336   |        |       |  | 336   |        |   |  |     |     
|                                                       |               |  |         |   |          |  |       |        |       | 
|Balance at January 1, 2001, as adjusted                |               |  | 50      |   |          |  | 336   |        |       |  | 386   |        |   |  |     |     
|                                                      
|Earnings for the year                                  |               |  |        |   |          |  | 3,115 |        |       |  | 3,115 |        |   |  |     |     
|Dividends declared for the year                        |               |  |         |   |          |  |       |        |       |  |       |        |   |  |     |     
|                                                       | 2000 final    |  |         |  |          |  |       | (336   | )     |  |       | (336   | ) |  |     |      |  
|                                                       | 2001 interims |  |         |  |          |  |       | (2,711 | )     |  |       | (2,711 | ) |  |     |      |  
|                                                       |               |  |         |   |          |  |       |        |       | 
|Balance at December 31, 2001                           |               |  | 50      |   |          |  | 404   | (a)    |       |  | 454   |        |   |  |     |     
|                                                       |               |  |         |   |          |  |       |        |       | 
|                                                      
|Balance at January 1, 2002                             |               |  | 50      |   |          |  | 404   |        |       |  | 454   |        |   |  | 58  |     
|                                                      
|Earnings for the year                                  |               |  |        |   |          |  | 3,292 |        |       |  | 3,292 |        |   |  | 422 |     
|Dividends declared for the year                        |               |  |         |   |          |  |       |        |       |  |       |        |   |  |     |     
|                                                       | 2001 final    |  |         |  |          |  |       | (404   | )     |  |       | (404   | ) |  |     | (52  | )
|                                                       | 2002 interims |  |         |  |          |  |       | (2,914 | )     |  |       | (2,914 | ) |  |     | (373 | )
|                                                       |               |  |         |   |          |  |       |       
|Balance at December 31, 2002                           |               |  | 50      |   |          |  | 378   | (b)    |       |  | 428   |        |   |  | 55  |     
|                                                       |               |  |         |   |          |  |       |       

Note(a)      The proposed final dividend at December 31,
2001 is HK$404 million.

(b)      The proposed final dividend at December 31,
2002 is HK$378 million.

F-60



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

CASH FLOW STATEMENT

|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |      |  
|-------------------------------------------------- | ------------------------------------------------ |  | ---- | -- | ---- |  | ----------------------- | ------ | ---- |  | ------ | ------ | ---- |  | ------ | ------ | - |  | ---- | ---- | -
|                                                   |                                                  |  |      |    |      |  | Year ended December 31,
|                                                   |                                                  |  |      |    |      |  |                        
|                                                   |                                                  |  | Note |    | 2000 |  | 2001                    |        | 2002 |  | 2002  
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |       
|                                                   |                                                  |  |      |    |      |  | HK$M                    |        | HK$M |  | HK$M   |        | US$M
|OPERATING ACTIVITIES                               |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|                                                   | Cash generated from operations                   |  |      | 14 |      |  |                         | 6,250  |      |  |        | 5,917  |      |  |        | 6,025  |   |  |      | 772  |  
|                                                   | Interest paid                                    |  |      |    |      |  |                         | (1,194 | )    |  |        | (1,028 | )    |  |        | (685   | ) |  |      | (88  | )
|                                                   | Hong Kong profits tax paid                       |  |      |    |      |  |                         | (763   | )    |  |        | (594   | )    |  |        | (681   | ) |  |      | (87  | )
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|NET CASH INFLOW FROM OPERATING ACTIVITIES          |                                                  |  |      |    |      |  | 4,293                   |        |      |  | 4,295  |        |      |  | 4,659  |        |   |  | 597  |     
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|INVESTING ACTIVITIES                               |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|                                                   | Capital expenditure                              |  |      |    |      |  |                         | (281   | )    |  |        | (354   | )    |  |        | (777   | ) |  |      | (99  | )
|                                                   | Proceeds from disposal of fixed assets           |  |      |    |      |  |                         |       |      |  |        |       |      |  |        | 10     |   |  |      | 1    |  
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|NET CASH OUTFLOW FROM INVESTING ACTIVITIES         |                                                  |  |      |    |      |  | (281                    | )      |      |  | (354   | )      |      |  | (767   | )      |   |  | (98  | )   
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|NET CASH INFLOW BEFORE FINANCING                   |                                                  |  |      |    |      |  | 4,012                   |        |      |  | 3,941  |        |      |  | 3,892  |        |   |  | 499  |     
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|FINANCING ACTIVITIES                               |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|                                                   | Net drawdown of shareholders advances           |  |      |    |      |  |                         | 526    |      |  |        | 720    |      |  |        | 1,459  |   |  |      | 187  |  
|                                                   | Net repayment of bank loans and other
borrowings |  |      |    |      |  |                         | (1,529 | )    |  |        | (1,614 | )    |  |        | (2,033 | ) |  |      | (261 | )
|                                                   | Dividends paid                                   |  |      |    |      |  |                         | (3,009 | )    |  |        | (3,047 | )    |  |        | (3,318 | ) |  |      | (425 | )
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|NET CASH OUTFLOW FROM FINANCING ACTIVITIES         |                                                  |  |      |    |      |  | (4,012                  | )      |      |  | (3,941 | )      |      |  | (3,892 | )      |   |  | (499 | )   
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |      |  
|Decrease in cash and cash equivalents              |                                                  |  |      |    |      |  |                        |        |      |  |       |        |      |  |       |        |   |  |     |     
|Cash and cash equivalents at beginning of
the year |                                                  |  |      |    |      |  |                        |        |      |  |       |        |      |  |       |        |   |  |     |     
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |     
|CASH AND CASH EQUIVALENTS AT END OF THE
YEAR       |                                                  |  |      |    |      |  |                        |        |      |  |       |        |      |  |       |        |   |  |     |     
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |      |  
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |      |  
|Analysis
of cash and cash equivalents              |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |      |  
|                                                   | Bank balances                                    |  |      |    |      |  |                         |       |      |  |        |       |      |  |        |       |   |  |      |     |  
|                                                   |                                                  |  |      |    |      |  |                         |        |      |  |        |        |      |  |        |        |   |  |      |      |  

F-61



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|1. |  | BASIS OF PREPARATION OF ACCOUNTS                                                                                                                                                                                                                                                  
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Other than stated in Notes 2(A) and (H) below, the accounts have been
prepared under the historical cost convention, in accordance with generally
accepted accounting principles in Hong Kong and comply with accounting
standards issued by the Hong Kong Society of Accountants.
|  
|2. |  | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                   



| |  | A. | Scheme of Control                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |    | The financial operations of the Company (CAPCO) and CLP Power Hong Kong
Limited (CLP Power), together called the SoC Companies, are governed
by a Scheme of Control (SoC) Agreement entered into with the Government
of the Hong Kong Special Administrative Region (the Government) and by
other agreements entered into by CLP Power, CAPCO and ExxonMobil
International Holdings Inc (formerly known as Esso Eastern Inc.).
|
| |  |    | The main features of the SoC Agreement are as follows:                                                                                                                                                                                                                                                                                                                                                                                  
|

| | (i)   |  | The Scheme is to be applicable to the electricity-related
activities of the SoC Companies excluding those associated with
export sales of electricity in accordance with the separate
arrangement between the SoC Companies and the Government.
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | CAPCO is to construct and operate generating facilities and sell power exclusively to CLP Power.                                                                                                                                               
|
| | (iii) |  | The annual permitted return is to be the sum of:                                                                                                                                                                                               



| | - |  | 13.5% of the average net fixed assets of the SoC Companies, and                                                                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | a further 1.5% on the average net fixed assets
financed by shareholders investments and acquired after
September 30, 1978, as defined in the SoC.



| | (iv) |  | Any difference between the permitted return and the profit for
SoC is transferred to or from the Development Fund. The balance of
the Development Fund represents a liability in the accounts of CLP
Power.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-62



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | -------------------------------------------



| |  | A. | Scheme of Control (continued)
| |  | -- | -----------------------------
|

| | (v) |  | The following are to be deducted from the permitted return:
| | --- |  | -----------------------------------------------------------



| | - |  | a charge of 8% per annum on the sum of the average
balances of the Development Fund and special provision account,
such charge to be credited to a rate reduction reserve to be
applied as rebates to customers;                
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | interest payable, up to a maximum of 8% per annum, on
borrowed capital for financing of fixed assets;                                                                                                                           
|
| | - |  | an excess capacity adjustment which will only apply
to additional generating unit installed after the SoC Companies
Black Point Units 7 and 8 are commissioned; and                                                            
|
| | - |  | interest on the increase in customers deposits which
represents the average of opening and closing balances of
customers deposits for any year in excess of the balance as at
September 30, 1998 up to a rate of 8% per annum.



| | (vi)  |  | The net return, being the permitted return less the deductions,
is to be divided in accordance with the provisions of the agreements
between the SoC Companies (where the profit for SoC when added to the
amount available for transfer from the Development Fund is less than
the permitted return, the share of any such deficit to be borne by
the Company is to be limited to 20%).
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (vii) |  | The records of the Development Fund, the special provision
account, the rate reduction reserve and customers deposits are to be
maintained in the accounts of CLP Power.                                                                                                                                                                                                               
|

| |  | B. | Non Scheme of Control activities                                                                                                                                                                                                                                                        
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |    | Commencing October 1, 1991 the Company is entitled to 60% of the profit
allowed to the SoC Companies derived from sale of electricity by CLP Power
to customers located in the Chinese mainland, in accordance with the
arrangement agreed between the SoC Companies and the Government.
|
| |  | C. | Fuel and stores                                                                                                                                                                                                                                                                         
|
| |  |    | These are valued at the lower of cost (fuel oil on the first-in,
first-out basis, coal and stores on the weighted average basis) and net
realizable value.                                                                                                                            

F-63



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | -------------------------------------------



| |  | D. | Turnover                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |    | Turnover mainly represents sale of electricity to CLP Power under the
terms of the Scheme of Control, together with the Companys share of
profit on the sale of electricity by CLP Power to customers located in the
Chinese mainland. Turnover is recognized when it is paid or becomes
payable by CLP Power to the Company in accordance with the agreements
referred to in Notes 2(A) and (B) above.
|
| |  | E. | Fixed assets and depreciation                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |    | Fixed assets are stated at cost less accumulated depreciation.                                                                                                                                                                                                                                                                                                                                          
|
| |  |    | Depreciation of fixed assets is based on the rates authorized under the
Scheme of Control and is provided on a straight line basis commencing from
the date of commissioning. The following bases apply to fixed assets
other than land which is not depreciated:                                                                                                                                       

|                                                                                               |  |          |  | 
|---------------------------------------------------------------------------------------------- |  | -------- |  | 
|Buildings                                                                                      |  | 33 years
|Cables                                                                                         |  | 30 years
|Generating plant, switchgear and transformers                                                  |  | 25 years
|Furniture, system control equipment, tools,communication and
office equipment                  |  | 10 years
|Computers and office automation equipment otherthan those
forming part of the generating plant |  | 5 years 
|Motor vehicles and marine craft                                                                |  | 5 years 



| |  |    | The gain or loss on disposal of a fixed asset is the difference between
the net sales proceeds and the carrying amount of the relevant asset, and
is recognized in the profit and loss account.          
| |  | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | F. | Deferred taxation                                                                                                                                                                                        
|
| |  |    | The charge for taxation recognizes deferred taxation arising from timing
differences which are expected to crystallize. These differences are
mainly attributable to accelerated depreciation allowances.
|
| |  | G. | Interest                                                                                                                                                                                                 
|
| |  |    | Interest on borrowed capital arranged for the financing of fixed assets
is:                                                                                                                              
|

| | (i)  |  | incorporated in capital expenditure when incurred until the asset is
commissioned; and
| | ---- |  | --------------------------------------------------------------------------------------
|
| | (ii) |  | charged to operating costs when incurred after commissioning.                         

F-64



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | -------------------------------------------



| |  | H. | Foreign currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |    | Monetary assets and liabilities denominated in foreign currency are
translated into Hong Kong Dollars at the rates of exchange prevailing at
the balance sheet date, or at the relevant forward contract rates where
applicable. Profit and loss account items are converted into Hong Kong
Dollars at the rates of exchange applicable at the dates when the
transactions took place.                                                                                                                                                                                                                                                                                                                                
|
| |  |    | All unrealized exchange differences arising from long-term borrowings and
shareholders advances are deferred in accordance to the treatment
stipulated under the Scheme of Control. All other unrealized and all
realized exchange differences are credited or debited to the profit and
loss account.                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | I. | Related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |    | Related parties are individuals and companies, where the individual or
company has the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making
financial and operating decisions. Parties are also considered to be
related if they are subject to common control or common significant
influence.                                                                                                                                                                                                                                                                                                                                               
|
| |  | J. | Translation of 2002 Financial Statements to United States Dollars (U.S.
Dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |    | The financial statements are expressed in Hong Kong Dollars. Solely for
the convenience of the reader, the 2002 financial statements have been
translated into U.S. Dollars at the specified rate below. These
translations should not be construed as representations that the Hong Kong
Dollar amounts actually represent such U.S. Dollar amounts or could be
converted into U.S. Dollars at the rate indicated. The translation of
Hong Kong Dollars into U.S. Dollars has been made at the rate of HK$7.7988
to US$1.00, which was the noon buying rate in New York City for cable
transfers in Hong Kong Dollars as certified for customs purposes by the
Federal Reserve Bank of New York on December 31, 2002.



|3. |  | TURNOVER           
|-- |  | -------------------
|  
|   |  | Turnover comprises:

|                                                                                            |  |  |       |  |      |  |       |  |  |  |        |  | 
|------------------------------------------------------------------------------------------- |  |  | ----- |  | ---- |  | ----- |  |  |  | ------ |  | 
|                                                                                            |  |  | 2000  |  | 2001 |  | 2002 
|                                                                                            |  |  |       |  |      |  |      
|                                                                                            |  |  | HK$M  |  | HK$M |  | HK$M 
|                                                                                            |  |  |       |  |      |  |      
|Sale of electricity to CLP Power                                                            |  |  | 9,735 |  |      |  | 9,815 |  |  |  | 10,191 | 
|Share of profit on the sale of electricity by CLPPower to customers in the Chinese mainland |  |  | 38    |  |      |  | 49    |  |  |  | 71     | 
|                                                                                            |  |  |       |  |      |  |       |  |  |  |        | 
|                                                                                            |  |  | 9,773 |  |      |  | 9,864 |  |  |  | 10,262 | 
|                                                                                            |  |  |       |  |      |  |       |  |  |  |        | 

F-65



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

|   |                                                            |                                               |       |       |      |  |      |       |   |  |     |       |  
|-- | ---------------------------------------------------------- | --------------------------------------------- | ----- | ----- | ---- |  | ---- | ----- | - |  | --- | ----- | -
|4. | OPERATING PROFIT                                          
|  
|   |                                                            |                                               | 2000  |       | 2001 |  | 2002
|   |                                                            |                                               |       |       |      |  |     
|   |                                                            |                                               | HK$M  |       | HK$M |  | HK$M
|   | Operating profit is stated after charging
the following:   |                                               |       |       |      |  |      |       |   |  |     |      
|  
|   | Depreciation                                               |                                               |       |       |      |  |      |       |   |  |     |      
|   |                                                            | Buildings                                     |       | 260   |      |  |      | 260   |   |  |     | 261   |  
|   |                                                            | Generation and other equipment                |       | 1,080 |      |  |      | 1,169 |   |  |     | 1,181 |  
|   |                                                            |                                               |       |       |      |  |      |       |   |  |     |      
|   |                                                            |                                               |       | 1,340 |      |  |      | 1,429 |   |  |     | 1,442 |  
|  
|   | Loss on disposal of fixed assets                           |                                               | 5     |       |      |  | 81   |       |   |  | 83  |      
|   | Directors remuneration                                    |                                               |       |       |      |  |      |       |   |  |     |      
|   |                                                            | - fees                                        |       | 1     |      |  |      | 1     |   |  |     | 1     |  
|   |                                                            | - other emoluments                            |       |      |      |  |      |      |   |  |     |      |  
|   | Auditors remuneration                                     |                                               | 1     |       |      |  | 1    |       |   |  | 1   |      
|  
|5. | FINANCE COSTS                                             
|  
|   |                                                            |                                               | 2000  |       | 2001 |  | 2002
|   |                                                            |                                               |       |       |      |  |     
|   |                                                            |                                               | HK$M  |       | HK$M |  | HK$M
|   | Finance costs:                                             |                                               |       |       |      |  |      |       |   |  |     |      
|   | Interest on bank loans and overdrafts                      |                                               | 993   |       |      |  | 746  |       |   |  | 502 |      
|   | Interest on other loans                                    |                                               | 165   |       |      |  | 161  |       |   |  | 142 |      
|   | Interest on short-term bank loans for fuel stock financing |                                               | 16    |       |      |  | 11   |       |   |  | 5   |      
|   |                                                            |                                               |       |       |      |  |      |       |   |  |     |      
|   |                                                            |                                               |       | 1,174 |      |  |      | 918   |   |  |     | 649   |  
|   | Finance charges                                            |                                               | 14    |       |      |  | 30   |       |   |  | 20  |      
|   | Exchange losses                                            |                                               | 30    |       |      |  | 83   |       |   |  | 17  |      
|   | Less:                                                      | amount
capitalized                            |       | (160  | )    |  |      | (143  | ) |  |     | (122  | )
|   |                                                            | fuel stock interest included in fuel expenses |       | (16   | )    |  |      | (11   | ) |  |     | (5    | )
|   |                                                            |                                               |       |       |      |  |      |       |   |  |     |      
|   |                                                            |                                               | 1,042 |       |      |  | 877  |       |   |  | 559 |      
|   |                                                            |                                               |       |       |      |  |      |       |   |  |     |      

F-66



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

|   |                                                     |                                                                                                           |       |       |      |  |       |       |   |  |       |       |  
|-- | --------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ----- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | -
|6. | TAXATION                                           
|   |                                                     |                                                                                                           | 2000  |       | 2001 |  | 2002 
|   |                                                     |                                                                                                           |       |       |      |  |      
|   |                                                     |                                                                                                           | HK$M  |       | HK$M |  | HK$M 
|   | Taxation in the profit and loss account represents: |                                                                                                           |       |       |      |  |       |       |   |  |       |      
|  
|   | Current taxation                                    |                                                                                                           |       |       |      |  |       |       |   |  |       |      
|   |                                                     | Hong
Kong profits tax at 16.0%
(2000: 16.0%; 2001: 16.0%) on the
estimated assessable profit for the year |       | 611   |      |  |       | 656   |   |  |       | 650   |  
|  
|   | Deferred taxation (Note 13)                         |                                                                                                           |       |       |      |  |       |       |   |  |       |      
|   |                                                     | Amount written back for the year                                                                          |       | (40   | )    |  |       | (55   | ) |  |       | (25   | )
|   |                                                     |                                                                                                           |       |       |      |  |       |       |   |  |       |      
|   |                                                     |                                                                                                           | 571   |       |      |  | 601   |       |   |  | 625   |      
|   |                                                     |                                                                                                           |       |       |      |  |       |       |   |  |       |       |  
|  
|7. | DIVIDENDS                                          
|  
|   |                                                     |                                                                                                           | 2000  |       | 2001 |  | 2002 
|   |                                                     |                                                                                                           |       |       |      |  |      
|   |                                                     |                                                                                                           | HK$M  |       | HK$M |  | HK$M 
|   |                                                     |                                                                                                           |       |       |      |  |       |       |   |  |       |      
|   | Interim dividends paid                              |                                                                                                           | 2,665 |       |      |  | 2,711 |       |   |  | 2,914 |      
|   | Proposed final dividend                             |                                                                                                           | 336   |       |      |  | 404   |       |   |  | 378   |      
|   |                                                     |                                                                                                           |       |       |      |  |       |       |   |  |       |      
|   |                                                     |                                                                                                           |       | 3,001 |      |  |       | 3,115 |   |  |       | 3,292 |  
|   |                                                     |                                                                                                           |       |       |      |  |       |       |   |  |       |       |  

F-67



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|8. |  | FIXED ASSETS
|-- |  | ------------

|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |        |  
|------------------------ | ----------------------- |  | --------- | ----- | --------- |  | --------- | ----- | ---------- |  | ------------ | ------ | --------- |  | --------- | --- | - |  | -- | ----- |  |  | ----- | ------ | -
|                         |                         |  | Medium    |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |      
|                         |                         |  | term      |       |           |  |           |       |            |  |              |        | Other     |  |           |     |   |  |    |       | 
|                         |                         |  | leasehold |       |           |  |           |       |            |  |              |        | equipment |  | Equipment |     |   |  |   
|                         |                         |  | land in   |       |           |  |           |       | Generation |  | and          |        | awaiting  |  |           |     |  
|                         |                         |  | Hong Kong |       | Buildings |  | equipment |       | vehicles   |  | installation |        | Total    
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |          
|                         |                         |  | HK$M      |       | HK$M      |  | HK$M      |       | HK$M       |  | HK$M         |        | HK$M     
|Cost                     |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                         | At January 1, 2001      |  |           | 2,761 |           |  |           | 9,388 |            |  |              | 28,528 |           |  |           | 299 |   |  |    | 1,096 |  |  |       | 42,072 |  
|                         | Additions               |  |           |      |           |  |           | 61    |            |  |              | 493    |           |  |           | 13  |   |  |    | 25    |  |  |       | 592    |  
|                         | Transfers and disposals |  |           | (12   | )         |  |           | (3    | )          |  |              | (101   | )         |  |           | (34 | ) |  |    |      |  |  |       | (150   | )
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                         | At December 31, 2001    |  |           | 2,749 |           |  |           | 9,446 |            |  |              | 28,920 |           |  |           | 278 |   |  |    | 1,121 |  |  |       | 42,514 |  
|                        
|                         | Additions               |  |           |      |           |  |           | 65    |            |  |              | 772    |           |  |           | 26  |   |  |    | 75    |  |  |       | 938    |  
|                         | Transfers and disposals |  |           |      |           |  |           | (43   | )          |  |              | (121   | )         |  |           | (42 | ) |  |    |      |  |  |       | (206   | )
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                         | At December 31, 2002    |  |           | 2,749 |           |  |           | 9,468 |            |  |              | 29,571 |           |  |           | 262 |   |  |    | 1,196 |  |  |       | 43,246 |  
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                        
|Accumulated depreciation |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                         | At January 1, 2001      |  |           |      |           |  |           | 3,100 |            |  |              | 10,404 |           |  |           | 217 |   |  |    |      |  |  |       | 13,721 |  
|                         | Charge for the year     |  |           |      |           |  |           | 260   |            |  |              | 1,080  |           |  |           | 21  |   |  |    | 68    |  |  |       | 1,429  |  
|                         | Transfers and disposals |  |           |      |           |  |           | (2    | )          |  |              | (35    | )         |  |           | (32 | ) |  |    |      |  |  |       | (69    | )
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                         | At December 31, 2001    |  |           |      |           |  |           | 3,358 |            |  |              | 11,449 |           |  |           | 206 |   |  |    | 68    |  |  |       | 15,081 |  
|                        
|                         | Charge for the year     |  |          |       |           |  | 261       |       |            |  | 1,091        |        |           |  | 20        |     |   |  | 70 |       |  |  | 1,442 |       
|                         | Transfers and disposals |  |           |      |           |  |           | (4    | )          |  |              | (68    | )         |  |           | (41 | ) |  |    |      |  |  |       | (113   | )
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                         | At December 31, 2002    |  |           |      |           |  |           | 3,615 |            |  |              | 12,472 |           |  |           | 185 |   |  |    | 138   |  |  |       | 16,410 |  
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                        
|Net book value           |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |       
|                         | At December 31, 2002    |  |           | 2,749 |           |  |           | 5,853 |            |  |              | 17,099 |           |  |           | 77  |   |  |    | 1,058 |  |  |       | 26,836 |  
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |        |  
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |        |  
|                         | At December 31, 2001    |  |           | 2,749 |           |  |           | 6,088 |            |  |              | 17,471 |           |  |           | 72  |   |  |    | 1,053 |  |  |       | 27,433 |  
|                         |                         |  |           |       |           |  |           |       |            |  |              |        |           |  |           |     |   |  |    |       |  |  |       |        |  



| |  | Included in fixed assets is plant under construction, the net book value of
which at December 31, 2002 is HK$2,786 million (2001: HK$2,282 million).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

F-68



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|9.  |  | CURRENT ACCOUNT WITH CLP POWER HONG KONG LIMITED                                                                                                  
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The amount due from CLP Power mainly represents sale of electricity for the
month of December 2002, which is to be settled in the following month.
|   
|10. |  | BANK LOANS AND OTHER BORROWINGS                                                                                                                   

|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |        |       |  | 
|------------------------------------------------------------- | ---------------------------------------- | ----------------------------------- | -- | --- | ---- | --- | ------ | ------ | ----- |  | ------ | ------ | ----- |  | 
|                                                              |                                          |                                     |    |     | Note |     | 2001   |        | 2002 
|                                                              |                                          |                                     |    |     |      |     |        |        |      
|                                                              |                                          |                                     |    |     |      |     |        |        | HK$M  |  | HK$M  
|(a)     Amount included in current liabilities                |                                          |                                     |    |     |      |     |        |        |       |  |        |       
|                                                              | Short-term loans and borrowings          |                                     |    | 10  | (c)  |     |        | 1,056  |       |  |        | 1,003  |      
|                                                              | Current portion of long-term liabilities |                                     |    |     |      |     |        |        |       |  |        |        |      
|                                                              |                                          | Bank loans                          |    |     |      |     |        |        | 1,694 |  |        |        | 1,699 | 
|                                                              |                                          | Other borrowings                    |    |     |      |     |        |        | 523   |  |        |        | 1,397 | 
|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |       
|                                                              |                                          |                                     |    |     |      |     | 2,217  |        |       |  | 3,096  |       
|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |       
|                                                              |                                          |                                     |    |     |      |     | 3,273  |        |       |  | 4,099  |       
|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |        |      
|                                                             
|(b)     Amounts shown as long-term loans and
other borrowings |                                          |                                     |    |     |      |     |        |        |       |  |        |       
|                                                              | Bank loans                               |                                     |    |     |      |     |        |        |       |  |        |        |      
|                                                              |                                          | Wholly repayable within 5 years     |    |     |      |     |        |        | 4,233 |  |        |        | 3,240 | 
|                                                              |                                          | Not wholly repayable within 5 years |    |     |      |     |        |        | 6,448 |  |        |        | 5,985 | 
|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |       
|                                                              |                                          |                                     | 10 | (c) |      |     | 10,681 |        |       |  | 9,225  |       
|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |       
|                                                             
|                                                              | Other borrowings                         |                                     |    |     |      |     |        |        |       |  |        |        |      
|                                                              |                                          | Wholly repayable within 5 years     |    |     | 10   | (d) |        |        |      |  |        |        | 1,604 | 
|                                                              |                                          | Not wholly repayable within 5 years |    |     | 10   | (d) |        |        | 2,127 |  |        |        |      | 
|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |       
|                                                              |                                          |                                     |    |     |      |     | 12,808 |        |       |  | 10,829 |       
|                                                              | Current portion of long-term liabilities |                                     |    |     |      |     |        | (2,217 | )     |  |        | (3,096 | )    
|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |       
|                                                              |                                          |                                     |    |     |      |     | 10,591 |        |       |  | 7,733  |       
|                                                              |                                          |                                     |    |     |      |     |        |        |       |  |        |        |      

F-69



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|10. |  | BANK LOANS AND OTHER BORROWINGS (continued)
|--- |  | -------------------------------------------



| |  | (c) | The total bank loan balances of HK$10,228 million as at December 31,
2002 (2001: HK$11,737 million) comprise of:
| |  | --- | ----------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|
|

|
|
|

| |                          |                                     |       |       |      |  |       |       | 
| | ------------------------ | ----------------------------------- | ----- | ----- | ---- |  | ----- | ----- | 
| |                          |                                     | 2001  |       | 2002
| |                          |                                     |       |       |     
| |                          |                                     | HK$M  |       | HK$M
| | Private Placement (Note) |                                     |       |       |      |  |       |      
| |                          | on a 10-year bullet repayment basis |       | 1,817 |      |  |       | 1,345 | 
| |                          | on a 15-year amortizing basis       |       | 310   |      |  |       | 259   | 
| |                          |                                     |       |       |      |  |       |      
| |                          |                                     | 2,127 |       |      |  | 1,604 |      
| |                          |                                     |       |       |      |  |       |       | 



| |  | Note: | The interest rates for these borrowings are at margins over
the 10-year U.S. Treasury note rates at the time of commitment.
| |  | ----- | ---------------------------------------------------------------------------------------------------------------------------



|11. |  | SHARE CAPITAL
|--- |  | -------------

|                                                  |  |      |     |      |  |  |     | 
|------------------------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                                  |  | 2001 |     | 2002
|                                                  |  |      |     |     
|                                                  |  | HK$M |     | HK$M
|Authorized:                                       |  |      |     |      |  |  |     | 
|1,000,000 (2001: 1,000,000) shares of HK$100 each |  |      | 100 |      |  |  | 100 | 
|                                                  |  |      |     |      |  |  |     | 
|Issued and fully paid:                            |  |      |     |      |  |  |     | 
|500,000 (2001: 500,000) shares of HK$100 each     |  |      | 50  |      |  |  | 50  | 
|                                                  |  |      |     |      |  |  |     | 

F-70



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|12. |  | ADVANCES FROM SHAREHOLDERS
|--- |  | --------------------------

|                          |  |      |        |      |  |  |        | 
|------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                          |  | 2001 |        | 2002
|                          |  |      |        |     
|                          |  | HK$M |        | HK$M
|                          |  |      |        |     
|ExxonMobil Energy Limited |  |      | 6,391  |      |  |  | 7,263  | 
|CLP Power                 |  |      | 4,346  |      |  |  | 4,934  | 
|                          |  |      |        |      |  |  |        | 
|                          |  |      | 10,737 |      |  |  | 12,197 | 
|                          |  |      |        |      |  |  |        | 



|    |  | The advances are unsecured, interest free and have no fixed terms of
repayment, except for advances from CLP Power which include a special loan
of HK$78 million repayable in full on September 30, 2008.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|13. |  | DEFERRED LIABILITIES                                                                                                                                                                                     

|                  |  |      |       |      |  |  |       | 
|----------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                  |  | 2001 |       | 2002
|                  |  |      |       |     
|                  |  | HK$M |       | HK$M
|                  |  |      |       |     
|Deferred taxation |  |      | 2,731 |      |  |  | 2,706 | 
|                  |  |      |       |      |  |  |       | 



| |  | Movements in deferred taxation account:
| |  | ---------------------------------------

|                                          |  |      |       |      |  |  |       |  
|----------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | -
|                                          |  | 2001 |       | 2002
|                                          |  |      |       |     
|                                          |  | HK$M |       | HK$M
|                                          |  |      |       |     
|At beginning of year                      |  |      | 2,786 |      |  |  | 2,731 |  
|Amount written back for the year (Note 6) |  |      | (55   | )    |  |  | (25   | )
|                                          |  |      |       |      |  |  |       |  
|At end of year                            |  |      | 2,731 |      |  |  | 2,706 |  
|                                          |  |      |       |      |  |  |       |  

F-71



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|14. |  | NOTES TO THE CASH FLOW STATEMENT                                           
|--- |  | ---------------------------------------------------------------------------
|   
|    |  | Reconciliation of profit before taxation to cash generated from
operations:

|                                                      |                                  |  |       |       |      |  |       |       |   |  |       |       |  
|----------------------------------------------------- | -------------------------------- |  | ----- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | -
|                                                      |                                  |  | 2000  |       | 2001 |  | 2002 
|                                                      |                                  |  |       |       |      |  |      
|                                                      |                                  |  | HK$M  |       | HK$M |  | HK$M 
|                                                      |                                  |  |       |       |      |  |      
|Profit before taxation                                |                                  |  | 3,572 |       |      |  | 3,716 |       |   |  | 3,917 |      
|Adjustments for:                                      |                                  |  |       |       |      |  |       |       |   |  |       |      
|                                                      | Finance costs                    |  |       | 1,042 |      |  |       | 877   |   |  |       | 559   |  
|                                                      | Loss on disposal of fixed assets |  |       | 5     |      |  |       | 81    |   |  |       | 83    |  
|                                                      | Depreciation                     |  |       | 1,340 |      |  |       | 1,429 |   |  |       | 1,442 |  
|                                                      | Other financing costs            |  |       | (19   | )    |  |       | (94   | ) |  |       | (23   | )
|                                                      |                                  |  |       |       |      |  |       |       |   |  |       |      
|Operating profit before working capital changes       |                                  |  | 5,940 |       |      |  | 6,009 |       |   |  | 5,978 |      
|Decrease/(increase) in fuel and stores                |                                  |  | 128   |       |      |  | (42   | )     |   |  | (35   | )    
|(Increase)/decrease in sundry debtors and prepayments |                                  |  | (32   | )     |      |  | 132   |       |   |  | 1     |      
|Decrease/(increase) in current account with CLP Power |                                  |  | 6     |       |      |  | (81   | )     |   |  | (23   | )    
|Increase/(decrease) in creditors                      |                                  |  | 208   |       |      |  | (101  | )     |   |  | 104   |      
|                                                      |                                  |  |       |       |      |  |       |       |   |  |       |      
|Cash generated from operations                        |                                  |  | 6,250 |       |      |  | 5,917 |       |   |  | 6,025 |      
|                                                      |                                  |  |       |       |      |  |       |       |   |  |       |      



|15. |  | INTEREST RATE SWAP CONTRACT                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the year, the Company arranged an interest rate swap contract
amounting to HK$2,292 million to swap the floating rate of a HK$ term loan
into fixed rate with effective interest rate at 4.37% for interest payments
due from 2003 to 2012.
|   
|16. |  | COMMITMENT                                                                                                                                                                                                                                        



| | (a) |  | Capital expenditure authorized by the Board and not provided in the
accounts at December 31, 2002 amounted to HK$5,164 million (2001:
HK$5,535 million). Of this amount, contracts had been entered into at
December 31, 2002 for HK$1,999 million (2001: HK$1,862 million). No
forward exchange contract has been arranged for settlement of these
contracts (2001: Nil).
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Natural gas for the Black Point Power Station is purchased by the
Company on a take-or-pay (if tendered) basis pursuant to a 20-year
contract which commenced in January 1996. The prices for the gas are
determined by reference to a base price adjusted annually according to
certain market and economic indices.                                                     

F-72



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|17. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The following is a summary of significant related party transactions between
the Company and a related party, in addition to those disclosed in Note 12,
which were carried out in the normal course of business during the year:

|                                 |  |      |       |      |  |      |       |  |  |  |        | 
|-------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ------ | 
|                                 |  | 2000 |       | 2001 |  | 2002
|                                 |  |      |       |      |  |     
|                                 |  | HK$M |       | HK$M |  | HK$M
|                                 |  |      |       |      |  |     
|Sale of electricity to CLP Power |  |      | 9,735 |      |  |      | 9,815 |  |  |  | 10,191 | 
|(refer to Note 3)                |  |      |       |      |  |      |       |  |  |  |        | 



|    |  | The Company sells electricity to CLP Power at cost plus profit calculated in
accordance with the Scheme of Control. CLP Power owns a 40% share of the
Company.                                      
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|18. |  | PRINCIPAL ACTIVITY                                                                                                                                                                                  
|   
|    |  | The principal activity of the Company is the generation and sale of
electricity to CLP Power.                                                                                                       
|   
|19. |  | ULTIMATE HOLDING COMPANY                                                                                                                                                                            
|   
|    |  | The Company is 60% owned by ExxonMobil Energy Limited. The ultimate holding
company of ExxonMobil Energy Limited is Exxon Mobil Corporation, a company
incorporated in the United States of America.
|   
|20. |  | APPROVAL OF ACCOUNTS                                                                                                                                                                                
|   
|    |  | The accounts were approved by the Board on February 14, 2003.                                                                                                                                       

F-73



---



##### 



Exhibit Index

|            |  |                                                                                                                                                                                                                                    |  |  |  | 
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  | Description                                                                                                                                                                                                                        |  |  |  | 
|            |  |                                                                                                                                                                                                                                    |  |  |  | 
|1.1         |  | Memorandum and Articles of Association of our company adopted on October 8, 1997 and
December 12, 1997, amended on October 8, 1999, April 25, 2002 and May 5, 2003 respectively.                                                  
|            |  |                                                                                                                                                                                                                                   
|2.1*        |  | Trust Deed in respect of US$1,500,000,000 Medium Term Note Programme, established by our
indirectly wholly owned subsidiary, CLP Power Hong Kong Financing Limited on April 3, 2002
and guaranteed by CLP Power Hong Kong Limited.
|            |  |                                                                                                                                                                                                                                   
|8.1         |  | List of subsidiaries. See Item 4. Information on the
Company  C. Organization Structure.                                                                                                                                       
|            |  |                                                                                                                                                                                                                                   
|13.1        |  | Certification by our Group Managing Director & Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                   
|            |  |                                                                                                                                                                                                                                   
|13.2        |  | Certification by our Executive Director & Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                        



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*    Incorporated by reference to our Annual Report on Form 20-F for the year
ended December 31, 2001, dated June 25, 2002 and filed with the Securities and
Exchange Commission on June 27, 2002.