##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 20-F

(Mark One)

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

or

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
000-29216

CLP Power Hong Kong Limited

(CLP POWER HONG KONG LIMITED)




(Exact Name of Registrant as Specified in Its Charter)


(Translation of Registrants Name Into English)

Hong Kong




(Jurisdiction of Incorporation or Organization)


147 Argyle Street, Kowloon, Hong Kong




(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 ExchangeOn Which Registered
|                    |  |                                         
|None                |  | None                                    

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

None




(Title of Class)




---

(Title of Class)


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

71⁄2% Notes due April 15, 2006




(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.

2,488,320,000 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





---



##### 



TABLE OF CONTENTS

|                                                                     |  |                                                              |  |     
|-------------------------------------------------------------------- |  | ------------------------------------------------------------ |  | ----
|                                                                     |  |                                                              |  | Page
|                                                                     |  |                                                              |  |     
|FORWARD LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY
NOT BE ACCURATE |  | 1                                                           
|PART I                                                               |  |                                                              |  | 2   
|Item 1.                                                              |  | Identity of Directors, Senior Management and Advisers        |  | 2   
|Item 2.                                                              |  | Offer Statistics and Expected Timetable                      |  | 2   
|Item 3.                                                              |  | Key Information                                              |  | 3   
|                                                                     |  | A.      Selected Financial Data                              |  | 4   
|                                                                     |  | B.      Capitalization and Indebtedness                      |  | 7   
|                                                                     |  | C.      Reasons for the Offer and Use of Proceeds            |  | 7   
|                                                                     |  | D.      Risk Factors                                         |  | 7   
|Item 4.                                                              |  | Information on the Company                                   |  | 11  
|                                                                     |  | CLP Power Hong Kong Limited                                  |  | 11  
|                                                                     |  | Relationship with CLP Holdings Limited                       |  | 13  
|                                                                     |  | Business Strategy                                            |  | 14  
|                                                                     |  | Relationship with CAPCO                                      |  | 15  
|                                                                     |  | Scheme of Control                                            |  | 16  
|                                                                     |  | Power Generation                                             |  | 20  
|                                                                     |  | Power Purchase from CAPCO                                    |  | 22  
|                                                                     |  | Fuel                                                         |  | 23  
|                                                                     |  | Non-CAPCO Power Purchases/ Storage Facilities                |  | 24  
|                                                                     |  | Power Systems                                                |  | 26  
|                                                                     |  | Customers and Sales                                          |  | 27  
|                                                                     |  | Hong Kong Customer Base                                      |  | 28  
|                                                                     |  | Sales to the Chinese Mainland                                |  | 29  
|                                                                     |  | Customer Service                                             |  | 30  
|                                                                     |  | Tariff Rates                                                 |  | 31  
|                                                                     |  | Competition                                                  |  | 32  
|                                                                     |  | Environmental Matters                                        |  | 33  
|                                                                     |  | Capital Investment Program                                   |  | 33  
|                                                                     |  | Insurance                                                    |  | 34  
|                                                                     |  | Property, Plants and Equipment                               |  | 34  
|Item 5.                                                              |  | Operating and Financial Review and Prospects                 |  | 35  
|                                                                     |  | A.      Operating Results                                    |  | 35  
|                                                                     |  | B.      Liquidity and Capital Resources                      |  | 46  
|                                                                     |  | C.      Research and Development, Patents and Licenses, Etc. |  | 51  





---



##### 



|         |  |                                                                              |  |     
|-------- |  | ---------------------------------------------------------------------------- |  | ----
|         |  |                                                                              |  | Page
|         |  |                                                                              |  |     
|         |  | D.      Trend Information                                                    |  | 51  
|Item 6.  |  | Directors, Senior Management and Employees                                   |  | 52  
|         |  | A.      Directors and Senior Management                                      |  | 52  
|         |  | B.      Compensation                                                         |  | 58  
|         |  | C.      Board Practices                                                      |  | 59  
|         |  | D.      Employees                                                            |  | 60  
|         |  | E.      Share Ownership                                                      |  | 61  
|Item 7.  |  | Major Shareholders and Related Party Transactions                            |  | 62  
|         |  | A.      Major Shareholders                                                   |  | 62  
|         |  | B.      Related Party Transactions                                           |  | 62  
|         |  | C.      Interests of Experts and Counsel                                     |  | 63  
|Item 8.  |  | Financial Information                                                        |  | 64  
|         |  | A.      Consolidated Statements and Other Financial Information              |  | 64  
|         |  | B.      Significant Changes                                                  |  | 64  
|Item 9.  |  | The Offer and Listing                                                        |  | 65  
|Item 10. |  | Additional Information                                                       |  | 66  
|         |  | A.      Share Capital                                                        |  | 66  
|         |  | B.      Memorandum and Articles of Association                               |  | 66  
|         |  | C.      Material Contracts                                                   |  | 70  
|         |  | D.      Exchange Control                                                     |  | 70  
|         |  | E.      Taxation                                                             |  | 71  
|         |  | F.      Dividends and Paying Agent                                           |  | 74  
|         |  | G.      Statement by Experts                                                 |  | 74  
|         |  | H.      Documents on Display                                                 |  | 74  
|         |  | I.        Subsidiary Information                                             |  | 75  
|Item 11. |  | Quantitative and Qualitative Disclosures About Market Risk                   |  | 76  
|Item 12. |  | Description of Securities Other than Equity Securities                       |  | 82  
|PART II  |  |                                                                              |  | 83  
|Item 13. |  | Defaults, Dividend Arrearages and Delinquencies                              |  | 83  
|Item 14. |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | 83  
|Item 15. |  | Controls and Procedures                                                      |  | 83  





---



##### 



|               |  |                                  |  |     
|-------------- |  | -------------------------------- |  | ----
|               |  |                                  |  | Page
|               |  |                                  |  |     
|Item 16A.      |  | Audit Committee Financial Expert |  | 83  
|Item 16B.      |  | Code of Ethics                   |  | 83  
|PART III       |  |                                  |  | 84  
|Item 17.       |  | Financial Statements             |  | 84  
|Item 18.       |  | Financial Statements             |  | 85  
|Item 19.       |  | Exhibits                         |  | 86  
|SIGNATURES     |  |                                  |  | 87  
|CERTIFICATIONS |  |                                  |  | 88  





---



##### 



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.

1



---



##### 



PART I

Item 1. Identity of Directors, Senior Management and Advisers



| |  | Not applicable.
| |  | ---------------

Item 2. Offer Statistics and Expected Timetable



| |  | Not applicable.
| |  | ---------------

2



---



##### 



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      
|                                                         |  |          |        |          
|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) |  | Represent the average of the noon buying rates on the last day of each
month during the period.
|--- |  | -----------------------------------------------------------------------------------------------

|                                  |  |                   |        |     |  |     |        |  |  |        |        | 
|--------------------------------- |  | ----------------- | ------ | --- |  | --- | ------ |  |  | ------ | ------ | 
|                                  |  |                   |        |     |  |     |        |  |  | At    
|                                  |  |                   |        |     |  |     |        |  |  | Period
|Month Ended                       |  | High              |        | Low |  | End
|                                  |  |                   |        |     |  |    
|                                  |  | (HK$ per US$1.00) |        |     |  |    
|December 31, 2002                 |  |                   | 7.7992 |     |  |     | 7.7980 |  |  |        | 7.7988 | 
|January 31, 2003                  |  |                   | 7.8001 |     |  |     | 7.7988 |  |  |        | 7.8001 | 
|February 28, 2003                 |  |                   | 7.8000 |     |  |     | 7.7989 |  |  |        | 7.7991 | 
|March 31, 2003                    |  |                   | 7.7995 |     |  |     | 7.7987 |  |  |        | 7.7995 | 
|April 30, 2003                    |  |                   | 7.7998 |     |  |     | 7.7991 |  |  |        | 7.7991 | 
|May 31, 2003                      |  |                   | 7.7995 |     |  |     | 7.7985 |  |  |        | 7.7987 | 
|June 2003 (through June 16, 2003) |  |                   | 7.7993 |     |  |     | 7.7983 |  |  |        | 7.7991 | 

3



---



##### 



A.     Selected Financial Data

We are a wholly owned subsidiary of CLP Holdings Limited, which is
referred to as CLP Holdings in this annual report. Effective in 1999, our
financial year end 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. 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.
We entered into the Scheme of Control in 1964 with the Government of Hong Kong
and certain other parties to govern our electricity-related financial affairs.
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.

Prior to our Group reorganization in 1998 whereby we became a wholly owned
subsidiary of CLP Holdings, we were a parent company with several consolidated
subsidiaries. After the reorganization, we became the wholly owned subsidiary
of CLP Holdings. We report our financial statements on a non-consolidated basis
as permitted by an exemption available under Hong Kong GAAP for a company that
is a wholly owned subsidiary company at the end of its financial year.

4



---



##### 



|                                           |                                     |  |               |       |              |  |              |       |      |  |                                          |       |             |  |          |       |  |  |          |       |  |  |          |        |  |  |          |       | 
|------------------------------------------ | ----------------------------------- |  | ------------- | ----- | ------------ |  | ------------ | ----- | ---- |  | ---------------------------------------- | ----- | ----------- |  | -------- | ----- |  |  | -------- | ----- |  |  | -------- | ------ |  |  | -------- | ----- | 
|                                           |                                     |  |               |       |              |  |              |       |      |  | Three Months                             |       | Years Ended
|                                           |                                     |  | Years Ended   |       | Ended        |  | December 31,
|                                           |                                     |  | September 30, |       | December 31, |  |             
|                                           |                                     |  | 1998          |       | 1999         |  | 1999         |       | 2000 |  | 2001                                     |       | 2002       
|                                           |                                     |  |               |       |              |  |              |       |      |  |                                          |       |            
|                                           |                                     |  | HK$           |       | HK$          |  | HK$          |       | HK$  |  | HK$                                      |       | HK$         |  | US$     
|                                           |                                     |  |               |       |              |  |              |       |      |  | (in millions, except for per share data) |       |             |  |          |       |  |  |         
|Income Statement Information:              |                                     |  |               |       |              |  |              |       |      |  |                                          |       |             |  |          |       |  |  |          |       |  |  |          |        |  |  |          |      
|                                           | Hong Kong GAAP(1)                   |  |               |       |              |  |              |       |      |  |                                          |       |             |  |          |       |  |  |          |       |  |  |          |        |  |  |          |       | 
|Turnover(2)                                |                                     |  | 24,132        |       |              |  | 24,327       |       |      |  | 5,965                                    |       |             |  | 25,512   |       |  |  | 26,105   |       |  |  | 27,246   |        |  |  | 3,494    |      
|Operating 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 costs                         |  |               | 572   |              |  |              | 541   |      |  |                                          | 126   |             |  |          | 609   |  |  |          | 592   |  |  |          | 619    |  |  |          | 79    | 
|                                           | Other operating costs               |  |               | 582   |              |  |              | 655   |      |  |                                          | 150   |             |  |          | 731   |  |  |          | 892   |  |  |          | 522    |  |  |          | 67    | 
|                                           | Depreciation                        |  |               | 1,262 |              |  |              | 1,339 |      |  |                                          | 354   |             |  |          | 1,463 |  |  |          | 1,598 |  |  |          | 1,723  |  |  |          | 221   | 
|                                           |                                     |  |               |       |              |  |              |       |      |  |                                          |       |             |  |          |       |  |  |          |       |  |  |          |        |  |  |          |      
|                                           |                                     |  | 16,033        |       |              |  | 16,819       |       |      |  | 3,949                                    |       |             |  | 17,582   |       |  |  | 18,334   |       |  |  | 18,450   |        |  |  | 2,366    |      
|                                           |                                     |  |               |       |              |  |              |       |      |  |                                          |       |             |  |          |       |  |  |          |       |  |  |          |        |  |  |          |      
|Operating profit                           |                                     |  | 8,099         |       |              |  | 7,508        |       |      |  | 2,016                                    |       |             |  | 7,930    |       |  |  | 7,771    |       |  |  | 8,796    |        |  |  | 1,128    |      
|Finance costs                              |                                     |  | (186          | )     |              |  | (202         | )     |      |  | (45                                      | )     |             |  | (195     | )     |  |  | (161     | )     |  |  | (94      | )      |  |  | (12      | )    
|Finance income                             |                                     |  | 18            |       |              |  | 21           |       |      |  | 1                                        |       |             |  | 18       |       |  |  | 1        |       |  |  |         |        |  |  |         |      
|Surplus arising from group
reorganization  |                                     |  | 2,370         | (3)   |              |  |             |       |      |  |                                         |       |             |  |         |       |  |  |         |       |  |  |         |        |  |  |         |      
|                                           |                                     |  |               |       |              |  |              |       |      |  |                                          |       |             |  |          |       |  |  |          |       |  |  |          |        |  |  |          |      
|Profit before taxation                     |                                     |  | 10,301        |       |              |  | 7,327        |       |      |  | 1,972                                    |       |             |  | 7,753    |       |  |  | 7,611    |       |  |  | 8,702    |        |  |  | 1,116    |      
|Taxation                                   |                                     |  | (916          | )     |              |  | (790         | )     |      |  | (233                                     | )     |             |  | (848     | )     |  |  | (537     | )     |  |  | (853     | )      |  |  | (109     | )    
|Transfers under Scheme of Control(4)       |                                     |  | (1,714        | )     |              |  | (1,346       | )     |      |  | (441                                     | )     |             |  | (1,629   | )     |  |  | (1,506   | )     |  |  | (1,643   | )      |  |  | (211     | )    
|                                           |                                     |  |               |       |              |  |              |       |      |  |                                          |       |             |  |          |       |  |  |          |       |  |  |          |        |  |  |          |      
|Net earnings                               |                                     |  | 7,671         |       |              |  | 5,191        |       |      |  | 1,298                                    |       |             |  | 5,276    |       |  |  | 5,568    |       |  |  | 6,206    |        |  |  | 796      |      
|                                           |                                     |  |               |       |              |  |              |       |      |  |                                          |       |             |  |          |       |  |  |          |       |  |  |          |        |  |  |          |      
|Number of shares in issue (million
shares) |                                     |  | 2,488.32      |       |              |  | 2,488.32     |       |      |  | 2,488.32                                 |       |             |  | 2,488.32 |       |  |  | 2,488.32 |       |  |  | 2,488.32 |        |  |  | 2,488.32 |      
|Earnings per share of common stock         |                                     |  | 3.08          |       |              |  | 2.09         |       |      |  | 0.52                                     |       |             |  | 2.12     |       |  |  | 2.24     |       |  |  | 2.49     |        |  |  | 0.32     |      
|Dividends per share of common stock        |                                     |  | 7.55          |       |              |  | 2.08         |       |      |  | 0.53                                     |       |             |  | 2.12     |       |  |  | 2.18     |       |  |  | 2.49     |        |  |  | 0.32     |      
|Dividends per share of common stock
(US$)  |                                     |  | 0.97          |       |              |  | 0.27         |       |      |  | 0.07                                     |       |             |  | 0.27     |       |  |  | 0.28     |       |  |  | 0.32     |        |  |  |          |      
|U.S. GAAP Net Earnings                     |                                     |  | 5,715         |       |              |  | 5,379        |       |      |  | 1,364                                    |       |             |  | 5,432    |       |  |  | 5,634    |       |  |  | 6,323    |        |  |  | 811      |      



| | (1) |  | Certain comparative figures have been reclassified to comply with Hong
Kong GAAP. 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) |  | Turnover represented sale of electricity based on actual and accrued
consumption derived from meter readings during the period, other
electricity-related revenue and dividend income from jointly controlled
entities.                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (3) |  | The surplus arising from group reorganization that occurred in 1998
represents distribution of all of the retained profits of our subsidiaries
as at January 5, 1998 to us as part of the group reorganization and a net
realized gain arising from the transfer of our subsidiaries to CLP
Holdings, our sole owner.                                                                                                                                                                                                                                                                                                                             
|
| | (4) |  | Transfers under the Scheme of Control comprise (i) the difference between
the permitted return and the Scheme of Control profit being transferred to
or from the Scheme of Control 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 Scheme of Control
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 - Scheme of Control.

5



---



##### 



|                                           |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |     |        |        |  |  |        |        |  |  |  |  |  |  |       |       | 
|------------------------------------------ | ------------------------------------------ | --- | ------------------- | ------ | ------------------ | --- | ------ | ------ | ------- | --- | ------- | ------ | ---- |  | ------ | ------ |  | --- | ------ | ------ |  |  | ------ | ------ |  |  |  |  |  |  | ----- | ----- | 
|                                           |                                            |     | As of September 30, |        | As of December 31,
|                                           |                                            |     |                     |        |                   
|                                           |                                            |     | 1998                |        | 1999               |     | 1999   |        | 2000(2) |     | 2001(2) |        | 2002
|                                           |                                            |     |                     |        |                    |     |        |        |         |     |         |        |     
|                                           |                                            | HK$ |                     | HK$    |                    | HK$ |        | HK$    |         | HK$ |         | HK$    |      |  |        |        |  | US$
|                                          
|(in millions)                              |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |    
|                                          
|Balance Sheet Information:                 |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |     |        |        |  |  |        |        |  |  |  |  |  |  |       |      
|Hong Kong GAAP(1):                         |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |     |        |        |  |  |        |        |  |  |  |  |  |  |       |      
|Other assets                               |                                            |     | 3,309               |        |                    |     | 2,627  |        |         |     | 2,071   |        |      |  | 2,342  |        |  |     | 2,269  |        |  |  | 2,204  |        |  |  |  |  |  |  | 282   |      
|Fixed assets                               |                                            |     | 27,280              |        |                    |     | 28,415 |        |         |     | 28,632  |        |      |  | 30,358 |        |  |     | 33,203 |        |  |  | 36,279 |        |  |  |  |  |  |  | 4,652 |      
|Investments in jointly controlled entities |                                            |     | 3,916               |        |                    |     | 3,988  |        |         |     | 4,144   |        |      |  | 4,365  |        |  |     | 4,661  |        |  |  | 5,259  |        |  |  |  |  |  |  | 674   |      
|                                           |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |     |        |        |  |  |        |        |  |  |  |  |  |  |       |      
|                                           | Total assets                               |     |                     | 34,505 |                    |     |        | 35,030 |         |     |         | 34,847 |      |  |        | 37,065 |  |     |        | 40,133 |  |  |        | 43,742 |  |  |  |  |  |  |       | 5,608 | 
|                                           |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |     |        |        |  |  |        |        |  |  |  |  |  |  |       |      
|Current liabilities (3)                    |                                            |     | 5,399               |        |                    |     | 5,690  |        |         |     | 4,281   |        |      |  | 5,000  |        |  |     | 5,906  |        |  |  | 6,723  |        |  |  |  |  |  |  | 862   |      
|Term loans (deferred portion)              |                                            |     | 2,545               |        |                    |     | 2,403  |        |         |     | 2,375   |        |      |  | 2,356  |        |  |     | 3,846  |        |  |  | 6,183  |        |  |  |  |  |  |  | 792   |      
|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  |        |  |     | 4,382  |        |  |  | 4,562  |        |  |  |  |  |  |  | 585   |      
|Shareholders equity                       |                                            |     | 21,120              |        |                    |     | 20,714 |        |         |     | 21,698  |        |      |  | 22,539 |        |  |     | 22,608 |        |  |  | 22,553 |        |  |  |  |  |  |  | 2,892 |      
|                                           |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |     |        |        |  |  |        |        |  |  |  |  |  |  |       |      
|                                           | Total liabilities and shareholders equity |     |                     | 34,505 |                    |     |        | 35,030 |         |     |         | 34,847 |      |  |        | 37,065 |  |     |        | 40,133 |  |  |        | 43,742 |  |  |  |  |  |  |       | 5,608 | 
|                                           |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |     |        |        |  |  |        |        |  |  |  |  |  |  |       |      
|U.S. GAAP:                                 |                                            |     |                     |        |                    |     |        |        |         |     |         |        |      |  |        |        |  |     |        |        |  |  |        |        |  |  |  |  |  |  |       |      
|Shareholders equity                       |                                            |     | 21,312              |        |                    |     | 21,094 |        |         |     | 22,016  |        |      |  | 22,077 |        |  |     | 22,205 |        |  |  | 22,236 |        |  |  |  |  |  |  | 2,851 |      



|(1) |  | Certain comparative figures have been reclassified to comply with Hong
Kong GAAP. 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) |  | Comparatives 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 14 to the
financial statements of CLP Power Hong Kong Limited under Item 17.
|   
|(3) |  | Current liabilities include the current portion of term loans.                                                                                                                                                                                                                            

|                                                         |                |  |               |      |              |  |              |      |  |  |      |  |      |  |       |      |      |  |        |      |  |  |        |      |  |  |        |      | 
|-------------------------------------------------------- | -------------- |  | ------------- | ---- | ------------ |  | ------------ | ---- |  |  | ---- |  | ---- |  | ----- | ---- | ---- |  | ------ | ---- |  |  | ------ | ---- |  |  | ------ | ---- | 
|                                                         |                |  |               |      |              |  |              |      |  |  |      |  |      |  | Three |      |      |  |        |      |  |  |        |      |  |  |       
|                                                         |                |  | Years Ended   |      | Months       |  | Years Ended 
|                                                         |                |  | September 30, |      | Ended        |  | December 31,
|                                                         |                |  |               |      | December 31, |  |             
|                                                         |                |  | 1998          |      | 1999         |  |              |      |  |  | 1999 |  | 2000 |  | 2001  |      | 2002
|                                                         |                |  |               |      |              |  |              |      |  |  |      |  |      |  |       |      |     
|Other Information:                                       |                |  |               |      |              |  |              |      |  |  |      |  |      |  |       |      |      |  |        |      |  |  |        |      |  |  |        |     
|Total units of
electricity sold
(millions of kWh)        |                |  | 25,482        |      |              |  | 25,621       |      |  |  |      |  |      |  | 6,276 |      |      |  | 27,488 |      |  |  | 28,531 |      |  |  | 29,887 |     
|Units of electricity
sold in Hong Kong
(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   |     
|Interest coverage(2)                                     |                |  | 80.9          |      |              |  | 65.2         |      |  |  |      |  |      |  | 67.4  |      |      |  | 74.8   |      |  |  | 105.3  |      |  |  | 134.9  |     
|Ratio of earnings to
fixed charges (3)                   |                |  |               |      |              |  |              |      |  |  |      |  |      |  |       |      |      |  |        |      |  |  |        |      |  |  |        |     
|                                                         | Hong Kong GAAP |  |               | 45:1 |              |  |              | 38:1 |  |  |      |  |      |  |       | 41:1 |      |  |        | 40:1 |  |  |        | 36:1 |  |  |        | 34:1 | 
|                                                         | U.S. GAAP      |  |               | 36:1 |              |  |              | 39:1 |  |  |      |  |      |  |       | 42:1 |      |  |        | 41:1 |  |  |        | 37:1 |  |  |        | 34:1 | 



|(1) |  | Included special rebates which averaged 1.8 HK¢ per kWh for year 1998 and
2.2 HK¢ per kWh for the other periods set out above.                                                                                                                                                                                                                                                 
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Interest coverage is calculated as profit before taxation and interest
divided by interest charges.                                                                                                                                                                                                                                                                            
|   
|(3) |  | 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.

6



---



##### 



B.     Capitalization and Indebtedness



| |  | Not applicable.
| |  | ---------------

C.     Reasons for the Offer and Use of Proceeds



| |  | Not applicable.
| |  | ---------------

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 adversely
affect our business.

From July 1, 1997, Hong Kong ceased to be a Crown Colony of the United
Kingdom and became 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 the Peoples
Republic 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 in 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,
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 experienced a difficult period and Hong Kong is also affected by these
events. 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 the
widespread problems 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
expenditure and adversely affect our revenue.

7



---



##### 



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.

The electricity-related operations and financial affairs of us and our
affiliated company, Castle Peak Power Company Limited, or 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.

The Scheme of Control governs the financial affairs of us and CAPCO
insofar as such affairs relate to our and CAPCOs core electricity-related
operations. 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 Chinas
rule over Hong Kong, a copy of the Scheme of Control was passed on to 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
us and CAPCO, our financial condition could be seriously affected.

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

Our power generating 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 generating, transmission
and distribution services leading to decreased revenues, increased maintenance
and higher engineering costs. Accidents could interrupt our power generating,
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.

8



---



##### 



Our business operations may be adversely affected by the environmental
regulations.

Our operations 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 stations 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.

Technological advancements in the electricity industry may create
competitive pressure in 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 power 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 our parent company, CLP Holdings, has dedicated resources to monitor
technological developments that are of potential relevance to our future
business climates, we cannot assure you that the 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 U.S. markets 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9



---



##### 





| |  |  | 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 current war between
Iraq and the United States and its allies are still being
formulated, and any of such responses could materially 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.

We have long-term purchase commitments denominated in U.S. dollars and
other foreign currencies for our operations and business expansion, and a
devaluation of the Hong Kong dollar may increase costs associated with our
operations and our capital expansion.

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 all 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 expenditure denominated in U.S. dollars or other foreign currencies,
which would adversely affect our financial condition and results of operations.

10



---



##### 



Item 4. Information on the Company

CLP Power Hong Kong Limited

Our legal and commercial name is CLP Power Hong Kong Limited. We were
established in 1901 in Hong Kong. We changed our name from China Light & Power
Company, Limited to the current name on March 5, 1999. Our registered address
is 147 Argyle Street, Kowloon, Hong Kong. Our telephone and facsimile numbers
are (852) 2678-8111 and (852) 2760-4448 respectively. Our website address is
www.clpgroup.com.

We 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 we sell, but
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. We supply electricity to Kowloon, the New Territories and a number of
outlying islands, including Lantau and Cheung Chau. Our supply area extends to
approximately 1,000 square kilometers and covers a population of approximately
5.5 million, including over 2 million customers. We supply approximately 73%
of the electricity consumed in Hong Kong.

We were 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
Energy Limited (ExxonMobil) (a subsidiary of ExxonMobil International
Holdings Inc. and was formerly known as Exxon Energy Limited), 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
and ExxonMobil International Holdings Inc. negotiated a regulatory framework
with the Government of Hong Kong formally known as the Scheme of Control.

Our electricity generation, transmission and distribution business is
regulated by the Government of Hong Kong pursuant to the Scheme of Control
Agreement dated March 9, 1992, as amended, which is referred to as the Scheme
of Control in this annual report. The Scheme of Control, a contract among us,
CAPCO, ExxonMobil and the Government of Hong Kong, regulates our and CAPCOs
financial affairs insofar as they relate to the electricity related operations.
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 and CAPCO are entitled to receive a reasonable return on our
investments. The 15-year term of the current Scheme of Control will expire on
September 30, 2008 and cannot be amended prior to such date without the mutual
agreement of the parties. See   Scheme of Control.

11



---



##### 



In addition to our 40% equity interest in CAPCO, as described above, we
also hold an equity interest of 49% in Hong Kong Pumped Storage Development
Company, Limited, a joint venture company formed between us and ExxonMobil.
See Non-CAPCO Power Purchases/Storage Facilities. The principal activity of
Hong Kong Pumped Storage Development Company, Limited is to provide pumped
storage services to us in the Guangdong Province of the Chinese mainland.

In addition, in January 2002, we incorporated a wholly owned subsidiary,
CLP Power Hong Kong Financing Limited, to establish a Medium Term Note
Programme, or an MTN Programme, for fund raising purposes.

For the year ended December 31, 2002, we received HK$1,401 million as
dividend income from our affiliated companies which was fully distributed to
our parent company, CLP Holdings by way of dividends.

The table below sets forth for each of our principal affiliated companies
in which we hold equity interest, the name and year of incorporation, the
percentage holding of our company and principal activities as of December 31,
2002.

|                                                      |  |               |      |             |  |                      |     |   |  |                                                                                    
|----------------------------------------------------- |  | ------------- | ---- | ----------- |  | -------------------- | --- | - |  | -----------------------------------------------------------------------------------
|                                                      |  | Year of       |      | Our holding |  |                     
|                                                      |  | incorporation |      | percentage  |  | Principal activities
|                                                      |  |               |      |             |  |                     
|Castle Peak Power Company Limited                     |  |               | 1981 |             |  |                      | 40  | % |  | Power generation                                                                   
|                                                      |  |               |      |             |  |                      |     |   |  |                                                                                    
|Hong Kong Pumped Storage Development
Company, Limited |  |               | 1989 |             |  |                      | 49  | % |  | Utilization of 50% of
capacity of Phase I of
Guangzhou Pumped Storage
Power Station
|                                                      |  |               |      |             |  |                      |     |   |  |                                                                                    
|CLP Power Hong Kong Financing Limited                 |  |               | 2002 |             |  |                      | 100 | % |  | Issuer of medium term notes                                                        

12



---



##### 



Relationship with CLP Holdings Limited

We carried out a corporate reorganization, which is referred to as the
Group reorganization, in 1998 to delineate our regulated electricity
generation, transmission and distribution business from the non-regulated
businesses. A new company, CLP Holdings Limited, was established as a top-tier
holding company by way of a Scheme of Arrangement effective on January 6, 1998
and listed on the Stock Exchange of Hong Kong in place of us. We were then
converted into a private company and became a wholly owned subsidiary of CLP
Holdings and transferred to CLP Holdings the shares of those subsidiary
companies undertaking non-regulated businesses. The diagram below sets forth
our ownership relationships immediately prior to and after the Group
reorganization.

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

(REORGANIZATION FLOWCHART)

13



---



##### 



Business Strategy

Our strategy is to concentrate on our electricity utility business in Hong
Kong and to remain a leading electricity utility in the Asia-Pacific region.
We aim to provide electricity efficiently to our customers at the lowest
reasonable cost, while continuing to provide a reasonable return to our
shareholders in accordance with the Scheme of Control. To achieve this, we are
pursuing a number of integrated business strategies and initiatives:



| |  |  | reinforcing the quality of service to our customers to enhance
customer loyalty, through competitive tariff policies, supply
reliability and improvements in customer service;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | continuous advancement of internal business management and
performance, including benchmarking to meet world-best practices;                                                  
|
| |  |  | close management of capital expenditure and operating costs to
achieve the lowest reasonable cost;                                                                            
|
| |  |  | encouraging innovation and growth by developing management and
leadership capabilities, repositioning staff skills and organization to
meet a changing environment;           
|
| |  |  | continuous improvement in environmental performance while
maintaining full compliance with all applicable environmental
regulations and licences;                             
|
| |  |  | monitoring of foreign electricity market developments and preparing
for the future regulatory framework; and                                                                  
|
| |  |  | maintaining and reinforcing responsible corporate citizenship and
partnering with the Government of Hong Kong and the community.                                              

14



---



##### 



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 generating 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 generating 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.

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. See  Scheme of
Control  Net and Permitted Return.

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 us, 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 profits from such sales is retained by us and CAPCO for
the account of our respective shareholders. See  Sales to the Chinese
Mainland.

15



---



##### 



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 profit 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 totalled 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

Our 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 us, 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 us 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.

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
(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.

16



---



##### 



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 financial year 1999. The current five-year interim
review has begun 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 a 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  Capital
Investment Programme.

17



---



##### 



Tariffs

We design the net tariff we charge to cover our and other SOC Companies
operating costs and permitted return. See  Tariff Rates. 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:



| | (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) interest up to a maximum of 8% per annum on borrowings to
finance fixed assets; (ii) a charge of 8% per annum on the average
balance of the sums 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) 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 us (40%) and
CAPCO (60%)); and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (d) |  | local 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
operating 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.

18



---



##### 



(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  Capital
Investment Programme. We pay a charge of 8% per annum on the sum of the
average balances of the Development Fund and special provision account. The
charge is credited to a rate reduction reserve and is applied as rebates to
customers in the electricity bills.

Net and Permitted Return

The Scheme of Control allows us and CAPCO a permitted return and net
return as described above. The net return is divided between us 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. We
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 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.

19



---



##### 



Power Generation

We do not directly own any 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 6,283 MW; (ii) an approximate 70% share (1,380 MW) of the output from the
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% (600 MW) 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 8,263 MW.

Although we do not directly own any power generation facilities, we
operate and maintain CAPCOs power stations. In addition, we and Hong Kong
Nuclear Investment Company Limited 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 the year ended December 31, 2002
without any shortages. The amount of electricity supplied to the system for the
year ended December 31, 2002 was 31,193 million kWh, an increase of 5.1% over
the year ended December 31, 2001. As at December 31, 2002, our system and
local reserve margins were approximately 20% and 42% respectively.

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
generating facilities, and the amount of power used or lost in connection with
transmission and distribution:

20



---



##### 



|                                     |                                        |                         |                            |        |                         |        |        |        |        |       | 
|------------------------------------ | -------------------------------------- | ----------------------- | -------------------------- | ------ | ----------------------- | ------ | ------ | ------ | ------ | ----- | 
|                                     |                                        |                         |                            |        | 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  |       
|                                     |                                        |                         |                            |        |                         |        |        |       



|Note:
|-----
|     
|(1)  

The table below sets forth for the years ended December 31, 2001 and 2002,
total capacity, total CAPCO capacity and peak load for power generated for our
sale.

|                                   |                   |  |                         |       |      |  |       |       | 
|---------------------------------- | ----------------- |  | ----------------------- | ----- | ---- |  | ----- | ----- | 
|                                   |                   |  | Year Ended December 31,
|                                   |                   |  |                        
|                                   |                   |  | 2001                    |       | 2002
|                                   |                   |  |                         |       |     
|                                   |                   |  | (MW)                    |       | (MW)
|Total CAPCO and Non-CAPCO capacity |                   |  | 8,263                   |       |      |  | 8,263 |      
|Total CAPCO capacity               |                   |  | 6,283                   |       |      |  | 6,283 |      
|Peak load                          |                   |  |                         |       |      |  |       |      
|                                   | Local (Hong Kong) |  |                         | 5,844 |      |  |       | 5,829 | 
|                                   | System (Total)    |  |                         | 7,062 |      |  |       | 6,897 | 

21



---



##### 



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 the year ended December
31, 2002, we purchased approximately 68% of our power requirements from CAPCO.
CAPCO presently has three commissioned power stations with a combined installed
capacity of 6,283 MW 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 generation 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 the year ended December 31, 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.

CAPCO leases the properties on which all of its generating facilities are
located from the Government of Hong Kong. See  Property, Plant and
Equipment. We are responsible for the overall management and control of
construction at the site and operation of all of CAPCOs generating 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 kilometres north of the Castle Peak Power Station. It currently consists
of six combined cycle units with a total capacity of 1,875 MW. The
commissioning and installation of units 7 and 8 is expected to occur in 2005
and 2006, respectively. See  Capital Investment Programme. 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 2,500 MW.

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 commenced operations in 1985 and it
now consists of eight coal-fired generating units with a total capacity of
4,108 MW. Its second phase, with four 677 MW
units, was completed in 1990. In April 1997, we and CAPCO agreed with the
Government of Hong Kong to decommission the gas turbines previously in
operation at Tsing Yi and Castle Peak Power Stations and put such gas turbines
into preservation. Castle Peak Power Station burns coal as its primary energy
source, resulting in significantly lower electricity prices than burning oil.
The coal-fired generating units achieved an overall availability of 86.12% for
the year ended December 31, 2002, with a forced outage rate of 0.3%. We believe
this rate corresponds to 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.

22



---



##### 



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 100 MW 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 the year ended December 31, 2002 was minimal.

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.

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 the year ended December 31, 2002. See
 Power Purchase from CAPCO - Black Point Power Station.

23



---



##### 



Coal

For the year ended December 31, 2002, total coal consumption for the eight
generating units of Castle Peak Power Station was approximately 4.3 million
tonnes. 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) for the year ended December 31, 2002.

Oil

CAPCO consumed approximately 32,000 tonnes of fuel oil and industrial
diesel oil for the year ended December 31, 2002. All of these supplies are
imported and sourced principally by ExxonMobil Hong Kong Ltd. from overseas
sources. The average cost per barrel was HK$200 (US$26) for the year ended
December 31, 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.

Non-CAPCO Power Purchases/Storage Facilities

Guangdong Daya Bay Nuclear Power Station

In addition to purchasing power from CAPCO, for the year ended December
31, 2002, we purchased approximately 9,881 million kWh of power from the
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 affiliate, 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 other
75% equity interest of Guangdong Nuclear Power Joint Venture Company, Limited
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.

24



---



##### 



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 limits 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.

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, Ltd., a joint venture
company formed between our company (49%) and ExxonMobil (51%), has the right to
use 50% of the capacity of Phase 1 of the 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 90 km north of Guangzhou. We are allowed to
treat all payments to Hong Kong Pumped Storage Development Company, Ltd. as
part of our operating expenses under the Scheme of Control. See  Scheme of
Control.

25



---



##### 



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. The interconnection with Guangdong Province allows
us to sell our excess capacity to customers in the Chinese mainland. See 
Sales to the Chinese Mainland. 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 utilising other
sources. For the year ended December 31, 2002, 50 MWh of power was purchased
from Hongkong Electric.

Power Systems

The Network

We transmit electricity to load centres through an advanced transmission
network owned and operated by us. As at December 31, 2002, our transmission
and distribution network extended over 11,200 kilometres 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
neighbouring Guangdong Province, China.

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 centres
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 for the year ended December 31, 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
have made investments in the amount of approximately HK$12 billion (US$1.5
billion).

26



---



##### 



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% for
the year ended December 31, 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 the Hongkong Electric and Guangdong
systems, enabling us to avoid disruption of supply to our customers.

Customers and Sales

As at December 31, 2002, we were supplying electricity to 2,055,955
customers, an increase of 2.9% over December 31, 2001. For the year ended
December 31, 2002, total sales increased by 4.8% to 29,887 GWh, and comprised
of 27,712 GWh sold to Hong Kong customers and 2,175 GWh 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
the Guangdong Guang-Dian Power Grid Group Company Ltd. and the Shekou
Industrial Zone under a long-term supply contract, increased by 37.6% over year
2001.

27



---



##### 



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

|                                                                               |  |             |       |           |  |           |        |           |  |             |        |        |  |  |        |              |  |        |       |  |  |         |      |  
|------------------------------------------------------------------------------ |  | ----------- | ----- | --------- |  | --------- | ------ | --------- |  | ----------- | ------ | ------ |  |  | ------ | ------------ |  | ------ | ----- |  |  | ------- | ---- | -
|                                                                               |  |             |       |           |  |           |        |           |  |             |        |        |  |  |        |              |  |        |       |  |  | Average
|                                                                               |  |             |       |           |  |           |        |           |  |             |        |        |  |  |        |              |  |        |       |  |  | Annual 
|                                                                               |  | Number of   |       |           |  |           |        |           |  |             |        |        |  |  |        | Percentage   |  | Sales 
|                                                                               |  | Customers   |       |           |  |           |        |           |  |             |        |        |  |  |        | of our total |  | Change
|                                                                               |  | as at       |       | Annual    |  | Annual    |        | Annual    |  | electricity |        | over  
|                                                                               |  | December    |       | Sales for |  | Sales for |        | Sales for |  | sales for   |        | 1998 -
|End-user                                                                       |  | 31, 2002    |       | 2000      |  | 2001      |        | 2002      |  | 2002        |        | 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
(formerly named as
Government and
others) |  |             | 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
Chinese mainland                                                  |  |             |      |           |  |           | 1,181  |           |  |             | 1,581  |        |  |  | 2,175  |              |  |        | 7.3   |  |  |         | 31.2 |  
|                                                                               |  |             |       |           |  |           |        |           |  |             |        |        |  |  |        |              |  |        |       |  |  |         |      |  
|Total Sales                                                                    |  |             | 2,056 |           |  |           | 27,488 |           |  |             | 28,531 |        |  |  | 29,887 |              |  |        | 100.0 |  |  |         | 4.7  |  
|                                                                               |  |             |       |           |  |           |        |           |  |             |        |        |  |  |        |              |  |        |       |  |  |         |      |  

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 that is expected to be completed and in operation 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.

28



---



##### 



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
service-oriented economy.

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 the Hong Kong Special Administrative Region
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 the Hong Kong Housing Authority, the Water Supplies
Department, the Mass Transit Railway Corporation, the 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 us 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 us 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 utilise CAPCOs spare generating capacity. Pursuant to the Scheme of
Control and another agreement among us, CAPCO and the Government of Hong Kong,
20% of the profit derived from the our sales to the Chinese mainland is
credited to the profit of CAPCO and us in the ratio of 60% and 40%,
respectively. See  Relationship with CAPCO - Sales to the Chinese Mainland.
The remaining 80% of the profit derived from sales to the Chinese mainland is
credited to the Development Fund.

29



---



##### 



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, energy audits and working with customers to reduce local pollution
and save costs.

In July 2002, our largest customer service centre was opened in Tsim Sha
Tsui, a major business and commercial district in Kowloon. The centre 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, revamped website for more user-friendly
information and features for customers, and promoting 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
2002 in the Hong Kong Association for Customer Service Excellence Awards.

30



---



##### 



Tariff Rates

We normally implement changes in basic tariff rates, the fuel clause
rebate or charge and the 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 year ended December 31, 2001 and the year ended
December 31, 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 | 



---

|Note: |  |                                                                             
|----- |  | ----------------------------------------------------------------------------
|     
|(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.

31



---



##### 



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 and other
outlying islands. We and Hongkong Electric share the sales of electricity to
the 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 it is
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 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.

32



---



##### 



Environmental Matters

Our and CAPCOs operations are subject to a number of laws and regulations
relating to environmental protection and safety. For 2002, each of us and CAPCO
has maintained full compliance with environmental licence requirements in all
material respects. Our major operating business groups, including generation,
power systems and marketing and customer services continued to be accredited
with ISO 14001 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 emission
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.

Capital Investment Programme

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 the
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.

For the year ended December 31, 2002, we invested HK$4,923 million (US$631
million) in fixed assets, compared with HK$4,580 million for the year ended
December 31, 2001, and HK$3,319 million for the year ended December 31, 2000.
Capital expenditure by our affiliated companies incorporated in Hong Kong,
principally CAPCO, was HK$950 million for the year ended December 31 2002,
compared with HK$604 million for the year ended December 31, 2001 and HK$356
million for the year ended December 31, 2000. A total of HK$5,873 million
capital expenditure was made by us and our affiliated companies for 2002.

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 decided 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 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.

33



---



##### 



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 year 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.

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.

Property, Plant and Equipment

Our property consists mainly of power transmission and distribution
equipment and facilities in Hong Kong. As discussed in  Relationship with
CAPCO, we do not directly own generating facilities. As at December 31, 2002,
the net book value of our property was HK$36,279 million of which HK$29,946
million represented plant, machinery and equipment and HK$6,333 million
represented land and buildings.

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$2,143 million, of which HK$176
million represents land with a remaining lease period of over 50 years,
HK$1,965 million with remaining lease periods between 10 to 50 years and HK$2
million with remaining lease periods of less than 10 years.

34



---



##### 



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 aspects. 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, which includes in note 26, a discussion of
the material differences between Hong Kong GAAP and U.S. GAAP.

The following discussion and analysis are based on the following financial
statements:



| | 1. |  | our audited financial statements for the financial year ended
December 31, 2000;    
| | -- |  | ------------------------------------------------------------------------------------
|
| | 2. |  | our audited financial statements for the financial year ended
December 31, 2001; and
|
| | 3. |  | our audited financial statements for the financial year ended
December 31, 2002.    

General

In general, our financial condition and results of operations are affected
by the economic activities and the regulatory environment in Hong Kong. Among
our end user sectors, 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 the 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.

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 the 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.

35



---



##### 



We expect that our core business of providing electricity in Hong Kong
will remain so in the foreseeable future. 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 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, as the
Agreement was reviewed in 1998 and will expire in five years time, we do not
believe that the 2003 interim review would 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. In preparation for
the future, 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 continue to contribute our
knowledge and expertise to the discussion of the future of our industry and we
expect that the legitimate interests of our company, our shareholders, our
employees and the community we serve will be given balanced considerations.

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.

Critical Accounting Policies

Our financial statements are 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
the 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.

36



---



##### 



Accounting under the Scheme of Control

The financial operations of our company and our jointly controlled
generating company, CAPCO, are governed by the Scheme of Control. Under the
Scheme of Control, we are allowed to charge tariffs designed to recover the
operating costs (including tax) and allowed net return of our company and
CAPCO. The allowed net return is derived by subtracting from the permitted
return (i) 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)
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 our company 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 a
Development Fund. The Development Fund represents a liability in our accounts.
The allowed net return so derived is to be divided in accordance with the
provisions of the agreements between our company and CAPCO. See Item 17.
Financial Statements  Scheme of Control Statement.

As of December 31, 2002, we and CAPCO together had a carrying value of net
fixed assets of HK$63,115 million (US$8,093 million) which comprised primarily
the generating 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 stipulated under the Scheme of Control Agreement.

The Scheme of Control stipulates the methodology in calculating the return
of our electricity business in Hong Kong and 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 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 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 debt written-off. For the year ended December 31, 2002, the amount of
bad debts written-off was HK$5 million (US$0.6 million).

37



---



##### 



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$1,064 million (US$136 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.

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 salary 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
increases in costs of living into consideration. Changes in these assumptions
can result in different expense and asset/liability amounts.

38



---



##### 



Accounting for 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. 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 adopt 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 and became effective
January 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 the financial 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.

New Accounting Pronouncement

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (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. 01-08

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.

39



---



##### 



Under the proposed guidance, an arrangement conveys the right to use the
property, plant or equipment (PP&E) and 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 to 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
arrangement. If lease accounting does apply and requires the contract be
accounted for as a capital lease under U.S. GAAP, we would have to record the
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.

40



---



##### 



Results of Operations

Year ended December 31, 2002 Compared with Year ended December 31, 2001

Our turnover in 2002 increased to HK$27,246 million (US$3,494 million)
from HK$26,105 million in 2001, representing an increase of 4.4%. Of this,
local sales of electricity 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. Local unit sales 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
2,175 GWh in 2002 represented our largest sales volume to the Chinese mainland
in one year since 1996. This reflects the strong economic growth in Guangdong
Province. The export sales growth in 2002 was mainly attributable to increase
in sales to Guangdong Guang-Dian Power Grid Group Company Limited.

Other revenue increased from HK$1,380 million in 2001 to HK$1,476 million
(US$189 million) in 2002, representing an increase of 7.0%. This was mainly due
to higher dividend income from jointly controlled entities. The balance
included revenue from temporary supplies and other miscellaneous transmission
and districts work, late payment charges from customers and rental income.

Total operating expenses increased to HK$18,450 million (US$2,366 million)
in 2002 from HK$18,334 million in 2001, a slight increase of 0.6%. The
increase in purchase of electricity from CAPCO and higher depreciation expense
was largely offset by lower amount of nuclear electricity purchased, lower
operation and maintenance costs and the capital gain on disposal of fixed
assets.

Purchase of electricity from CAPCO in 2002 amounted to HK$10,191 million
(US$1,307 million), an increase of 3.8% 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. See Item 4. Information on the Company 
Relationship with CAPCO and Item 7. Major Shareholders and Related Party
Transactions  B. Related Party Transactions - CAPCO.

Purchase of nuclear electricity in 2002 amounted to HK$4,976 million
(US$638 million), a slight decrease of 0.7% from HK$5,013 million in 2001,
primarily as a result of a decrease in units purchased but at a higher unit
price. See Item 7. Major Shareholders and Related Party Transactions  B.
Related Party Transactions  Guangdong Daya Bay Nuclear Power Station.

Staff costs in 2002 were HK$619 million (US$79 million), an increase of
4.6% from HK$592 million in 2001. This was mainly due to the lower staff cost
re-charged to CAPCO in 2002.

Other operating costs decreased from HK$892 million in 2001 to HK$522
million in fiscal 2002. This was mainly attributable to the net gain on
disposal of fixed assets and decrease in operation and maintenance costs in 2002, partly offset by
higher government rent and rates and loss on curtailment of the retirement
benefit schemes.

41



---



##### 



Depreciation charge in 2002 increased to HK$1,723 million (US$221
million), a 7.8% increase from HK$1,598 million in 2001. This increase was
primarily due to the addition of assets to our transmission and distribution
network in 2002.

Operating profit in 2002 totaled HK$8,796 million (US$1,128 million), an
increase of 13.2% from HK$7,771 million in 2001. Operating profit as a
percentage of turnover increased from 29.8% in 2001 to 32.3% in 2002, mainly as
a result of the increase in electricity sales revenue.

Finance costs in 2002 decreased to HK$94 million (US$12 million) from
HK$161 million in 2001, a decrease of 41.6% mainly due to lower average
interest rates.

Taxation increased by 58.8% from HK$537 million in 2001 to HK$853 million
(US$109 million) in 2002. This was due to higher sales revenue in 2002 and the
write back in 2001 of the tax provision relating to the change in financial
year-end date in 1999.

The transfers under the Scheme of Control amounted to HK$1,643 million
(US$211 million) in 2002, compared to HK$1,506 million in 2001. Transfers under
the Scheme of Control comprised (i) the difference between the Scheme of
Control profit and the permitted return being transferred from/to the
Development Fund, the difference being 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, which is credited to a rate
reduction reserve, and amounted to HK$319 million (US$41 million) in 2002,
compared to HK$305 million in 2001, (iii) the amount of deferral premium in
relation to Unit 7 and 8 of Black Point Power Station charged to the special
provision account, being HK$96 million (US$12 million) in 2002 compared with no
charge being made in 2001.

Our net earnings after the transfers under the Scheme of Control were
HK$6,206 million (US$796 million) in 2002, compared to HK$5,568 million in
2001.

Our earnings per share of common stock increased by 11.2% to HK$2.49
(US$0.32) in 2002 from HK$2.24 in 2001.

Dividends per share of common stock increased by 14.2% to HK$2.49
(US$0.32) in 2002 from HK$2.18 in 2001.

Year ended December 31, 2001 Compared with Year ended December 31, 2000

Our turnover in 2001 increased to HK$26,105 million from HK$25,512 million
in 2000, an increase of 2.3%. Of this, local sales of electricity 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 development by
the Government of Hong Kong. Local 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 was mainly attributed to the increase of
sales to Guangdong Guang-Dian Power Grid Group Company Limited in 2001.

42



---



##### 



Other revenue increased from HK$1,349 million in 2000 to HK$1,380 million
in 2001, an increase of 2.3%, mainly due to higher dividend income from jointly
controlled entities, and revenue from temporary supplies and other
miscellaneous transmission and districts work.

Total operating expenses increased to HK$18,334 million in 2001 from
HK$17,582 million in 2000, an increase of 4.3% mainly owing to higher nuclear
electricity purchased, higher operation and maintenance costs as well as
depreciation charges. Purchase 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,
resulted principally from higher expenditure requirement of CAPCO. See Item 4.
Information on the Company  Relationship with CAPCO and Item 7. Major
Shareholders and Related Party Transactions  B. Related Party Transactions -
CAPCO. Purchase of nuclear electricity in 2001 amounted to HK$5,013 million,
an increase of 9.3% from HK$4,587 million in 2000, as a result of higher units
purchased and higher unit price. See Item 7. Major Shareholders and Related
Party Transactions  B. Related Party Transactions  Guangdong Daya Bay Nuclear
Power Station.

Staff costs in 2001 were HK$592 million, a slight decrease of 2.8% from
HK$609 million in 2000. This was mainly due to the compensation paid for the
employees left under the Exit Program in 2000.

Other operating cost increased to HK$892 million in 2001 from HK$731
million in 2000. This was mainly due to higher government rent and rates and
costs associated with enhanced services to customers. Depreciation charge in
2001 increased to HK$1,598 million from HK$1,463 million in 2000, a 9.2%
increase. This increase was primarily due to the additional assets added to
our network in 2001.

Operating profit in 2001 totaled HK$7,771 million, a decrease of 2.0% from
HK$7,930 million in 2000. Operating profit as a percentage of turnover
decreased from 31.1% in 2000 to 29.8% in 2001, mainly due to higher operating
expenses, including nuclear electricity purchased, operation and maintenance
costs as well as depreciation charge, but partly offset by the increase in
sales revenue.

Finance costs in 2001 decreased to HK$161 million from HK$195 million in
2000, a decrease of 17.4% mainly due to lower average interest rates and more
interest being capitalized, partly offset by higher interest expenses on fuel
clause recovery arising from the over-recovery in fuel clause account.

Taxation decreased to HK$537 million in 2001 from HK$848 million in 2000,
a decrease of 36.7% mainly due to the write back of a tax provision arising
from the change in financial year in 1999 and higher tax allowance arising from higher
capital expenditure in 2001.

43



---



##### 



The transfers under the Scheme of Control amounted to HK$1,506 million in
2001, compared to HK$1,629 million in 2000. Transfers under the Scheme of
Control comprised (i) the difference between the Scheme of Control profit and
the permitted return being transferred from/to the Development Fund, the
difference being 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, which amounted to HK$305
million in 2001, compared to HK$280 million in 2000, (iii) the amount of
deferral premium in relation to Unit 7 and 8 of Black Point Power Station
charged to special provision account, with no charge being made in 2001
compared to the charge of HK$37 million in 2000.

Our net earnings after the transfers under the Scheme of Control were
HK$5,568 million in 2001, compared to HK$5,276 million in 2000.

Our earnings per share of common stock increased by 5.7% to HK$2.24 in
2001 from HK$2.12 in 2000.

Dividends per share of common stock increased by 2.8% to HK$2.18 in 2001
from HK$2.12 in 2000.

44



---



##### 



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 profit, 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
|                                        |                    |  |                                          |        |      |  |     
|                                        |                    |  | HK$                                      |        | HK$  |  | HK$  |        | US$
|                                        |                    |  | (in millions)                           
|Net Income in accordance with           |                    |  |                                          |        |      |  |      |        |     |  |  |        |  |  |  |      
|                                        | Hong Kong GAAP (1) |  |                                          | 5,276  |      |  |      | 5,568  |     |  |  | 6,206  |  |  |  | 796   | 
|                                        | U.S. GAAP          |  |                                          | 5,432  |      |  |      | 5,634  |     |  |  | 6,323  |  |  |  | 811   | 
|Shareholders Equity in
accordance with |                    |  |                                          |        |      |  |      |        |     |  |  |        |  |  |  |      
|                                        | Hong Kong GAAP(1)  |  |                                          | 22,539 | (2)  |  |      | 22,608 | (2) |  |  | 22,553 |  |  |  | 2,892 | 
|                                        | U.S. GAAP          |  |                                          | 22,077 |      |  |      | 22,205 |     |  |  | 22,236 |  |  |  | 2,851 | 



|(1) |  | Hong Kong GAAP has been modified as necessary to comply with the Scheme
of Control (see note 1 to our financial statements).                                                                                                                                                                                                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(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 14 to our financial statements of CLP
Power Hong Kong Limited under Item 17.

The significant differences between Hong Kong GAAP and U.S. GAAP are
described in note 26 to our financial statements set forth in Item 17.
Financial Statements in this annual report.

45



---



##### 



B.     Liquidity and Capital Resources

Sources of Liquidity

We have financed our operations and capital expenditure 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 foreseeable
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$11 million (US$1
million), as compared to HK$17 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$9,166
million (US$1,176 million), an increase of HK$796 million (US$102 million) when
compared to 2001. This increase was mainly due to our increased profits. Net
cash used in investment activities was HK$5,399 million (US$693 million),
comprising mainly capital expenditure and increased loans and advances to CAPCO
and Hong Kong Pumped Storage Development Company. Net cash used in financing
activities was HK$3,773 million (US$484 million) which primarily resulted from
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, we, through
our wholly owned subsidiary CLP Power Hong Kong Financing Limited, set up a
Medium Term Note Programme (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 us. In return, all proceeds from any issuance of
notes under the MTN Programme will be lent onward to us at same interest rate
and terms as those notes issued by the subsidiary, and we will reimburse the
subsidiary any related expenses incurred. 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$9,655
million (US$1,238 million). We 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.

46



---



##### 



|                              |  |                    |       |        |  |           |       |       |  |       |       |         |  |  |       |  |  |  |        | 
|----------------------------- |  | ------------------ | ----- | ------ |  | --------- | ----- | ----- |  | ----- | ----- | ------- |  |  | ----- |  |  |  | ------ | 
|                              |  | Maturity by Period
|                              |  |                   
|                              |  |                    |       |        |  | Less than |       | 1-3   |  | 4-5   |       | After 5
|Credit Facilities  CLP Power |  | Total              |       | 1 year |  | years     |       | years |  | years
|                              |  |                    |       |        |  |           |       |       |  |      
|                              |  | (in HK$ million)  
|Committed Credit Facilities   |  |                    | 7,686 |        |  |           | 1,503 |       |  |       | 1,503 |         |  |  | 2,340 |  |  |  | 2,340* | 
|Uncommitted Credit Facilities |  |                    | 1,969 |        |  |           | 1,969 |       |  |       |      |         |  |  |      |  |  |  |       | 
|                              |  |                    |       |        |  |           |       |       |  |       |       |         |  |  |       |  |  |  |        | 
|Total                         |  |                    | 9,655 |        |  |           | 3,472 |       |  |       | 1,503 |         |  |  | 2,340 |  |  |  | 2,340  | 
|                              |  |                    |       |        |  |           |       |       |  |       |       |         |  |  |       |  |  |  |        | 
|                             
|                             

*
    
    Representing loan from our subsidiary company CLP Power Hong Kong Financing Limited due 2012 (US$300 million
or HK$2,340 million equivalent).


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
|                                        |  |                   
|                                        |  |                    |        |        |  | Less than |       | 1-3   |  | 4-5   |       | After 5
|Credit Facilities  CAPCO               |  | Total              |        | 1 year |  | years     |       | years |  | years
|                                        |  |                    |        |        |  |           |       |       |  |      
|                                        |  | (in HK$ million)  
|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
Power and CAPCO |  |                    | 26,278 |        |  |           | 8,234 |       |  |       | 4,801 |         |  |  | 5,932 |  |  |  | 7,311 | 
|                                        |  |                    |        |        |  |           |       |       |  |       |       |         |  |  |       |  |  |  |       | 

The sources of credit facilities available to us and CAPCO are as follows:

|                                          |                                                       |  |           |    |         |  |           |    | 
|----------------------------------------- | ----------------------------------------------------- |  | --------- | -- | ------- |  | --------- | -- | 
|                                          |                                                       |  |           |    |         |  | CLP Power
|                                          |                                                       |  | CLP Power |    | + CAPCO
|                                          |                                                       |  |           |    |        
|                                          |                                                       |  | %         |    | %      
|Available Credit Facilities in Percentage |                                                       |  |           |    |         |  |           |   
|                                          | Export Credits                                        |  |          |    |         |  | 30        |   
|                                          | US Dollar Notes due 2006                              |  |           | 24 |         |  |           | 9  | 
|                                          | Private Placement                                     |  |           |   |         |  |           | 6  | 
|                                          | Term Loans                                            |  |           | 16 |         |  |           | 26 | 
|                                          | Loan from CLP Power Hong Kong Financing Ltd. due 2012 |  |           | 24 |         |  |           | 9  | 
|                                          | Money Market Lines (including bank overdraft)         |  |           | 36 |         |  |           | 20 | 
|                                          |                                                       |  |           |    |         |  |           |   
|                                          |                                                       |  | 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.

47



---



##### 



Borrowings

Out of the total HK$9,655 million (US$1,238 million) credit facilities
available to us, HK$6,742 million (US$864 million) was drawn down at December
31, 2002. Our borrowings with maturities of less than one year amounted to
HK$559 million (US$72 million). Those with maturities of between one to five
years and of longer than five years amounted to HK$3,843 million (US$492
million) and HK$2,340 million (US$300 million) respectively. For CAPCO,
HK$11,832 million (US$1,517 million) was drawn down at December 31, 2002.
CAPCOs borrowings with maturities of less than one year as at December 31,
2002 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 Power
|                                 |                                                 |  | CLP Power |    | + CAPCO
|                                 |                                                 |  |           |    |        
|                                 |                                                 |  | %         |    | %      
|Loan Balance in Percentage       |                                                 |  |           |    |         |  |           |   
|                                 | Export Credits                                  |  |          |    |         |  | 21        |   
|                                 | US Dollar Notes due 2006                        |  |           | 35 |         |  |           | 13 | 
|                                 | Private Placement                               |  |           |   |         |  |           | 8  | 
|                                 | Term Loans                                      |  |           | 22 |         |  |           | 37 | 
|                                 | Loan from CLP Hong Kong Financing Ltd. due 2012 |  |           | 35 |         |  |           | 13 | 
|                                 | Money Market Lines (including bank overdraft)   |  |           | 8  |         |  |           | 8  | 
|                                 |                                                 |  |           |    |         |  |           |   
|                                 |                                                 |  | 100       |    |         |  | 100       |   
|                                 |                                                 |  |           |    |         |  |           |   
|Interest Rate Base in Percentage |                                                 |  |           |    |         |  |           |   
|                                 | Floating Rate                                   |  | 50        |    |         |  | 41        |   
|                                 | Fixed Rate                                      |  |           | 50 |         |  |           | 59 | 
|                                 |                                                 |  |           |    |         |  |           |   
|                                 |                                                 |  | 100       |    |         |  | 100       |   
|                                 |                                                 |  |           |    |         |  |           |   
|Maturity in Percentage           |                                                 |  |           |    |         |  |           |   
|                                 | Less than 1 year                                |  |           | 8  |         |  |           | 25 | 
|                                 | 1-3 years                                       |  |           | 22 |         |  |           | 26 | 
|                                 | 4-5 years                                       |  |           | 35 |         |  |           | 26 | 
|                                 | After 5 years                                   |  |           | 35 |         |  |           | 23 | 
|                                 |                                                 |  |           |    |         |  |           |   
|                                 |                                                 |  | 100       |    |         |  | 100       |   
|                                 |                                                 |  |           |    |         |  |           |   
|Currency in Percentage           |                                                 |  |           |    |         |  |           |   
|                                 | HK Dollar Loans                                 |  | 30        |    |         |  | 19        |   
|                                 | US Dollar Loans                                 |  |           |   |         |  |           | 29 | 
|                                 | Foreign Currency Loans (Hedged into HK Dollar)  |  |           | 70 |         |  |           | 52 | 
|                                 |                                                 |  |           |    |         |  |           |   
|                                 |                                                 |  | 100       |    |         |  | 100       |   
|                                 |                                                 |  |           |    |         |  |           |   

The weighted average interest rate for total borrowings for us and CAPCO
were 4.84% and 5.06% respectively for 2002, as compared to 5.99% 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.

48



---



##### 



Our ratio of debt to total capitalization (i.e., total debt divided by the
sum of total debt and shareholders equity) was 22.9% at December 31, 2002, as
compared to 15.7% at December 31, 2001. Our ratios of earnings to fixed
charges were 40:1, 36:1 and 34:1 for 2000, 2001 and 2002, respectively. See
Item 3. Key information  A. Selected financial data.

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 arrangements:

|                                    |  |                        |       |        |  |           |     |       |  |       |       |         |  |  |       |  |  |  |       | 
|----------------------------------- |  | ---------------------- | ----- | ------ |  | --------- | --- | ----- |  | ----- | ----- | ------- |  |  | ----- |  |  |  | ----- | 
|                                    |  | Payments Due by Period
|                                    |  |                       
|                                    |  |                        |       |        |  | Less than |     | 1-3   |  | 4-5   |       | After 5
|Contractual Obligations  CLP Power |  | Total                  |       | 1 year |  | years     |     | years |  | years
|                                    |  |                        |       |        |  |           |     |       |  |      
|                                    |  | (in HK$ million)      
|Short-term borrowings               |  |                        | 556   |        |  |           | 556 |       |  |       |      |         |  |  |      |  |  |  |      | 
|Long-term borrowings                |  |                        | 6,186 |        |  |           | 3   |       |  |       | 1,503 |         |  |  | 2,340 |  |  |  | 2,340 | 
|                                    |  |                        |       |        |  |           |     |       |  |       |       |         |  |  |       |  |  |  |       | 
|Total contractual cash obligations  |  |                        | 6,742 |        |  |           | 559 |       |  |       | 1,503 |         |  |  | 2,340 |  |  |  | 2,340 | 
|                                    |  |                        |       |        |  |           |     |       |  |       |       |         |  |  |       |  |  |  |       | 

We have no significant operating lease commitments or sale-leaseback
arrangements.

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

|                                   |  |                        |        |        |  |           |       |       |  |       |       |         |  |  |       |  |  |  |       | 
|---------------------------------- |  | ---------------------- | ------ | ------ |  | --------- | ----- | ----- |  | ----- | ----- | ------- |  |  | ----- |  |  |  | ----- | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  |                        |        |        |  | Less than |       | 1-3   |  | 4-5   |       | After 5
|Contractual Obligations  CAPCO    |  | Total                  |        | 1 year |  | years     |       | years |  | years
|                                   |  |                        |        |        |  |           |       |       |  |      
|                                   |  | (in HK$ million)      
|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.

49



---



##### 



In addition to the contractual obligation set forth above, as of December
31, 2002, we had contracted for capital expenditures 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 issuance of debt securities.

Off-Balance Sheet Arrangements

We have, from time to time, entered into forward foreign exchange
contracts, currency swaps and interest rate swaps 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 fluctuation on earnings and tariff
charges to customers. We employ these derivative instruments solely for
hedging purposes. We do not engage in any derivative contracts for speculative
purposes. See note 20 to our financial statements.

As of December 31, 2002, our outstanding forward foreign exchange
contracts, currency swaps and interest rate swaps transactions amounted to
HK$29,771 million (US$3,817 million). Out of this total, interest rate swaps
transactions accounted for about 7.3% and US dollar forward foreign exchange
contracts and currency swaps accounted for about 91.4%. The fair value of
these off-balance sheet financial instruments was HK$370 million (US$47
million), which represents 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
Disclosure about Market Risks.

50



---



##### 



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

We sponsored research and development activities that are
electricity-related and in the areas of energy efficiency, conservation and
environmental friendliness. The amounts incurred were immaterial to our
business operations in the last three financial years. In addition, patents and
licenses are immaterial to our business operations.

D.     Trend Information

Please see A. Operating Results General 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, liquidity or capital resources, or
that would cause reported financial information not necessarily to be
indicative of future operating results or financial condition.

51



---



##### 



Item 6. Directors, Senior Management and Employees

A.     Directors and Senior Management

Under our Articles of Association, the business of our company is managed
by our Board of Directors, or the Board. Our Managing Director represents our
company and administers our day-to-day business in all matters not specifically
designated as responsibilities of our Board of Directors.

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

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

|                      |                                                                |     |    |          |  |                         |  |                |      |  |              |  |                |  |  |  | 
|--------------------- | -------------------------------------------------------------- | --- | -- | -------- |  | ----------------------- |  | -------------- | ---- |  | ------------ |  | -------------- |  |  |  | 
|                      |                                                                |     |    |          |  |                         |  |                |      |  | Year         |  | Year Appointed
|                      |                                                                |     |    |          |  |                         |  |                |      |  | Appointed to |  | as Director   
|Name                  |                                                                | Age |    | Position |  | Current Title           |  | of our company
|                      |                                                                |     |    |          |  |                         |  |               
|Directors             |                                                                |     |    |          |  |                         |  |                |      |  |              |  |                |  |  | 
|                      |                                                                |     |    |          |  |                         |  |                |      |  |              |  |                |  |  | 
|W. E. Mocatta         |                                                                |     | 50 |          |  | Chairman                |  |                | 1999 |  |              |  | 1993           | 
|Andrew Brandler       |                                                                |     | 47 |          |  | Vice Chairman           |  |                | 2000 |  |              |  | 2000           | 
|Betty S. M. Yuen*     |                                                                |     | 45 |          |  | Managing Director       |  |                | 2002 |  |              |  | 1998           | 
|J. S. Dickson Leach   |                                                                |     | 57 |          |  | Director                |  |                | 1978 |  |              |  | 1978           | 
|J. A. H. Leigh        |                                                                |     | 49 |          |  | Director                |  |                | 1997 |  |              |  | 1997           | 
|R. B. Hirsch          |                                                                |     | 47 |          |  | Director                |  |                | 2001 |  |              |  | 2001           | 
|L. J. Ryerkerk        |                                                                |     | 40 |          |  | Director                |  |                | 2001 |  |              |  | 2001           | 
|Peter P. W. Tse       |                                                                |     | 52 |          |  | Director                |  |                | 1999 |  |              |  | 1999           | 
|Stewart H. Saunders   |                                                                |     | 59 |          |  | Director                |  |                | 2002 |  |              |  | 2002           | 
|R. C. Eastwood        |                                                                |     | 55 |          |  | Director                |  |                | 2001 |  |              |  | 2001           | 
|Albert S. C. Poon     |                                                                |     | 52 |          |  | Director                |  |                | 2001 |  |              |  | 2001           | 
|Paul W.Y. Poon        |                                                                |     | 50 |          |  | Director                |  |                | 2002 |  |              |  | 2002           | 
|M. J. Hupka**         |                                                                |     | 52 |          |  | Director                |  |                | 2003 |  |              |  | 2003           | 
|                     
|Alternate Directors   |                                                                |     |    |          |  |                         |  |                |      |  |              |  |                |  |  | 
|                      |                                                                |     |    |          |  |                         |  |                |      |  |              |  |                |  |  | 
|P. W. Greenwood,      |                                                                |     | 46 |          |  | Company Secretary       |  |                | 1996 |  |              |  | 1998           |  | 
|                      | Alternate Director to J. A. H
Leigh                            |     |    |          |  |                         |  |                |      |  |              |  |                |  | 
|Richard K. Lancaster, |                                                                |     | 41 |          |  | Alternate Director      |  |                | 2002 |  |              |  | 2002           | 
|                      | Alternate Director to Betty S. M.
Yuen and Stewart H. Saunders |     |    |          |  |                         |  |                |      |  |              |  |                |  |  |  | 
|                     
|Executive Officers    |                                                                |     |    |          |  |                         |  |                |      |  |              |  |                |  |  | 
|                      |                                                                |     |    |          |  |                         |  |                |      |  |              |  |                |  |  | 
|Betty S. M. Yuen*     |                                                                |     | 45 |          |  | Managing Director       |  |                | 2002 |  |              |  |               | 
|Stewart H. Saunders   |                                                                |     | 59 |          |  | Chief Operating Officer |  |                | 2002 |  |              |  |               | 
|R. C. Eastwood        |                                                                |     | 55 |          |  | Director, Generation    |  |                | 2002 |  |              |  |               | 
|Albert S. C. Poon     |                                                                |     | 52 |          |  | Director, Marketing     |  |                | 2002 |  |              |  |               | 
|                      |                                                                |     |    |          |  | and Customer Services   |  |                |      |  |              |  |                | 
|Paul W. Y. Poon       |                                                                |     | 50 |          |  | Director, Power Systems |  |                | 2002 |  |              |  |               | 
|Richard K. Lancaster  |                                                                |     | 41 |          |  | Commercial Director     |  |                | 2002 |  |              |  |               | 



|*  |  | Following the retirement of Mr. Michael Price from the CLP Group after 24
years of service to our company, Mrs. Betty S.M. Yuen was appointed as the
Managing Director of our company effective from April 1, 2002.                                                                                                                                                                                                  
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Our Articles of Association provide that CAPCO shall have the right to
appoint three Directors. Mr. S. F. Goldmann, Ms. L. J. Ryerkerk and Mr.
R. B. Hirsch were appointed to our Board of Directors by CAPCO. After
serving for the full year in 2002, Mr. S. F. Goldmann retired as a
Director of our company on January 1, 2003 and Mr. M. J. Hupka was
appointed as a Director of our company on January 1, 2003.

52



---



##### 



Apart from the Managing Director and Executive Directors, all the
Directors (including our Chairman) are subject to retirement by rotation. At
the Annual General Meeting each year, two 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.

Mr. Stewart H. Saunders was appointed as a Director on June 1, 2002.

Mr. Paul W. Y. Poon was appointed as a Director in place of Mr. E. A.
Woodley on July 1, 2002.

Mr. Richard K. Lancaster was appointed as an Alternate Director to Mrs.
Betty S. M. Yuen and Mr. Stewart H. Saunders on April 1, 2002 and June 1, 2002
respectively.

In accordance with Article 104 of our Articles of Association, Mr. Peter
P. W. Tse and Mr. J. S. Dickson Leach retired by rotation and were re-elected
as Directors of our company at our Annual General Meeting held on March 14,
2003.

In accordance with Article 110 of our Articles of Association, Mr. Stewart
H. Saunders, Mr. Paul W. Y. Poon and Mr. M. J. Hupka retired by rotation and
were elected as Directors of our company at our Annual General Meeting held on
March 14, 2003.

Following the appointment of Mrs. Betty S.M. Yuen as the Managing Director
of our company, a new senior management team was formed and took effect from
April 1, 2002. A Chief Operating Officer was created to manage the operational
side of the business with the Directors of Generation, Power Systems and
Marketing and Customer Services reporting to him. Mr. Stewart H. Saunders was
appointed as the Chief Operating Officer and to the Board of our company on
June 1, 2002. Mr. Paul W. Y. Poon was appointed as Director, Power Systems and
appointed to the Board of our company, in place of Mr. E. A. Woodley, on July
1, 2002. Mr. Richard K. Lancaster was appointed as the alternate to Mrs. Betty
S.M. Yuen and Mr. Stewart H. Saunders on the Board of our company effective on
April 1, 2002 and June 1, 2002 respectively. Accordingly, the Executive
Officers of our company as of February 20, 2003 are as follows:

|                     |  |     |    |          |  |                         |  |  |      |                |  | 
|-------------------- |  | --- | -- | -------- |  | ----------------------- |  |  | ---- | -------------- |  | 
|                     |  |     |    |          |  |                         |  |  |      | Year Appointed
|Executive Officers   |  | Age |    | Position |  | To Current Title       
|                     |  |     |    |          |  |                        
|Betty S. M. Yuen     |  |     | 45 |          |  | Managing Director       |  |  | 2002 |               
|Stewart H. Saunders  |  |     | 59 |          |  | Chief Operating Officer |  |  | 2002 |               
|R. C. Eastwood       |  |     | 55 |          |  | Director, Generation    |  |  | 2002 |               
|Albert S. C. Poon    |  |     | 52 |          |  | Director, Marketing     |  |  | 2002 |               
|                     |  |     |    |          |  | and Customer Services   |  |  |      |               
|Paul W.Y. Poon       |  |     | 50 |          |  | Director, Power Systems |  |  | 2002 |               
|Richard K. Lancaster |  |     | 41 |          |  | Commercial Director     |  |  | 2002 |               

53



---



##### 



Biographical Details of Directors
and Executive Officers

Directors

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 Ltd. in
1982. He is the Deputy Chairman of Hong Kong Pumped Storage Development
Company Limited and a Director of Castle Peak Power Company Limited. He is
also the Vice Chairman of CLP Holdings Limited, the Chairman of CLP
Telecommunications Limited and CLP Properties Limited as well as a Director of
The Hongkong and Shanghai Hotels, Ltd. and other companies in Hong Kong.

Andrew Brandler, MA, MBA, ACA

Mr. Brandler holds an MA degree from the University of Cambridge, MBA
degree from Harvard Business School, and is a member of The Institute of
Chartered Accountants in England and Wales. He joined the CLP Group as the
Group Managing Director and Chief Executive Officer in May 2000 and is
responsible for overall group performance. He is also a Director of Castle
Peak Power Company Limited and Hong Kong Pumped Storage Development Company
Limited. Mr. Brandler was an investment banker specializing in the energy and
utility sectors and prior to joining the CLP Group, he was Head of Asia-Pacific
Corporate Finance with Schroders, based in Hong Kong.

Betty S. M. Yuen, B.Comm., CA (Canada)

Mrs. Yuen has overall responsibility for our company. She is also a
Director of Castle Peak Power Company Limited and Hong Kong Pumped Storage
Development Company Limited. 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 our company as Director  Finance and Planning in 1999. Mrs.
Yuen assumed her current position in April 2002.

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 Vice Chairman of CLP Holdings Limited and the Chairman of CLP Power
International Limited and CLP Power China Limited, as well as the Alternate to
W. E. Mocatta on the boards of Castle Peak Power Company Limited and Hong Kong
Pumped Storage Development Company Limited. He is also Chairman of Tai Ping
Carpets International Ltd. and Sir Elly Kadoorie & Sons Ltd. He is a Director
of The Hongkong & Shanghai Hotels, Ltd. and other companies in Hong Kong.

54



---



##### 



J. A. H. Leigh

Mr. Leigh is a lawyer by training. Prior to joining the CLP Group, 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 currently a Director of Sir Elly Kadoorie & Sons Ltd., overseeing a number
of the Kadoorie Familys interests in Hong Kong and overseas. He is a Director
of CLP Holdings Limited.

R. B. Hirsch, BS, PhD

Mr. Hirsch is the Planning Director of ExxonMobil Energy Limited. He is a
Director of ExxonMobil Energy Limited, Castle Peak Power Company Limited and
Hong Kong Pumped Storage Development Company, Limited. He holds a BS degree in
Chemistry and Economics from Yale University and a PhD degree in Economics from
the Massachusetts Institute of Technology. He began his career with Exxon
Mobil Corporation (formerly known as Exxon Corporation) in 1981 and has held
positions in economics, planning, and finance. He assumed his present position
in Hong Kong in August 2001.

L. J. Ryerkerk, BS

Ms. Ryerkerk is the Chairman of ExxonMobil Energy Limited, Castle Peak
Power Company Limited and Hong Kong Pumped Storage Development Company,
Limited. She is also a Director of CLP Research Institute Limited. A graduate
in Chemical Engineering from Iowa State University; she joined Exxon Mobil
Corporation (formerly known as Exxon 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 Chairman and Managing Director in January 2003.

M. J. Hupka, BBA, MIM

Mr. Hupka is the Commercial and Financial Manager of ExxonMobil Energy
Limited. He is a Director of ExxonMobil Energy Limited, Castle Peak Power
Company Limited and Hong Kong Pumped Storage Development Company, Limited. He
holds a BBA from Miami University of Ohio, and a Master of International
Management degree from The American Graduate School of International
Management. He joined Exxon Mobil Corporation (formerly known as Exxon
Corporation) in 1975 and has broad financial experience in the Upstream,
Downstream, Coal and Power Industries, mainly working in Southeast Asia and
China. He joined ExxonMobil Energy Limited in 2000 as Financial Manager, and
became the Commercial and Financial Manager in November 2001.

55



---



##### 



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
Executive Director and Chief Financial Officer of CLP Holdings Limited. He is
responsible for the CLP Groups financial and treasury affairs, investor
relations and property business. Before joining the CLP Group 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 and a member of the
Dual Filing Advisory Group of Securities and Futures Commission.

Stewart H. Saunders, MBE, BSc (Eng.), DipMS, C.Eng., MIEE, MBIM

Mr. Saunders is the Chief Operating Officer of our company and is
responsible for the Scheme of Control business. He is also a Director of
Castle Peak Power Company Limited. He began his career in the power sector in
1960 when he joined the South of Scotland Electricity Board. He was seconded
from ScottishPower to CLP Power in March 1997 to lead the integration of
Transmission and Distribution & Customer Services Business Groups and became
the General Manager of Power Systems in September of that year. He served as
such until he returned to the United Kingdom in August 1999. Prior to
assuming his current position in June 2002, Mr. Saunders was the Managing
Director of Manweb, then the Corporate Regional Director of ScottishPower. He
was awarded an MBE for his services to the Electricity Industry in the 2002
New Years Honours List.

R. C. Eastwood, BSc, AMIEE

Mr. Eastwood is the Director, Generation of our company. He is also a
Director of Castle Peak Power Company Limited and the Alternate to Andrew
Brandler and Betty S. M. Yuen on the Board of Hong Kong Pumped Storage
Development Company Limited. He is responsible for the operation and
maintenance of Castle Peak Power Company Limiteds generating facilities at
Castle Peak, Black Point and Pennys Bay Power Stations in Hong Kong. He also
manages our companys interests in the Guangzhou Pumped Storage Power Station
in the Chinese mainland. He began his career with the Central Electricity
Generating Board of the United Kingdom and subsequently transferred to our
company in 1978 after two years on secondment with British Electricity
International at the Tsing Yi Power Station. Mr. Eastwood assumed his current
position in August 2001.

56



---



##### 



Albert S. C. Poon, PhD

Dr. Poon is the Director, Marketing and Customer Services of our company
and manages the marketing and customer services functions. He joined the CLP
Group in 1980, having gained experience with the Electricity Commission of New
South Wales in Australia. Dr. Poon held a range of corporate strategy and
planning posts before joining our companys Marketing and Customer Services
team as the Head of Business Strategy & Planning. He assumed his present
position in October 2001.

Paul W. Y. Poon, BSc(Eng.), MIEE, MHKIE

Mr. Poon is the Director, Power Systems of our company and manages the
transmission and distribution systems. He started his career with our company
in 1974 as a graduate trainee. After gaining experience with Binnie
Consultants Limited and the Water Supplies Department of the then Hong Kong
Government, he rejoined CLP Power in 1981. Since then, he had held various
management positions in Transmission Projects, Technical Services, Change
Management, CLP Power International Limited, Regional Operations and Asset
Management. He assumed his current position in July 2002.

Alternate Directors

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 Director and Company Secretary of CLP Holdings
Limited and is responsible for the CLP Groups corporate secretarial and legal
affairs. Before joining the CLP Group 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.

Richard K. Lancaster, BE

Mr. Lancaster is the Commercial Director of our company and is responsible
for finance, procurement, treasury, strategic projects, legal and shared
services functions . He joined our company in 1992 and held a range of posts
in the Generation business before moving to the Corporate Commercial Group in
2002. An engineer by background, Mr. Lancaster began his career with the
Electricity Commission of New South Wales in Australia, and subsequently gained
a wide experience in various industrial operations in both Australia and the
United Kingdom prior to joining our company.

57



---



##### 



B.     Compensation

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 Executives 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 CLP
Holdings long-term share performance by using a phantom share plan with a
vesting period of three years. We pay the Senior Executive 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 Directors and Executive Officers but may be payable, where
appropriate, upon approval by the Chairman of the Human Resources and
Remuneration Committee under the Board of Directors of our parent company, CLP
Holdings.

Directors Remuneration

For 2002, our Directors remuneration included their fees of approximately
HK$1 million; salaries, allowances and benefits in kind of approximately HK$23
million, contribution made to provident funds on Directors behalf of
approximately HK$3 million and compensation for loss of office of HK$10
million. We paid a fee of HK$75,000 per annum to each of our Directors.

Out of our fifteen Directors (including the resigned Mr. Michael Price and
Mr. E. A. Woodley), only seven directors have received remuneration, which is
within the following bands:

|                        |  |                    
|----------------------- |  | -------------------
|HK$                     |  | Number of Directors
|                        |  |                    
|1,500,001
 2,000,000   |  | 1                  
|2,500,001
 3,000,000   |  | 2                  
|3,000,001
 3,500,000   |  | 1                  
|4,000,001  4,500,000   |  | 1                  
|6,000,001  6,500,000   |  | 1                  
|13,000,001  13,500,000 |  | 1                  

58



---



##### 



Executive Officers Remuneration

Except for one of our executive officers who has joined the Mandatory
Provident Fund (MPF) scheme operated by an independent service provider, all of
our other executive officers have joined the defined contribution section of
our retirement fund. Our contribution to the MPF and the defined contribution
section of our retirement fund amounts to a maximum of 5% and 12.5% of base
compensation respectively.

For 2002, our executive officers remuneration included salaries,
allowances and benefits in kind of approximately HK$26 million, contribution
made to provident funds on the Officers behalf of approximately HK$3 million
and compensation for loss of office of HK$10 million.

The remuneration paid to our executive officers during the year is within
the following bands, including Mr. Michael Price and Mr. E. A. Woodley who
resigned on March 31, 2002 and June 30, 2002 respectively:

|                          |  |                   
|------------------------- |  | ------------------
|HK$                       |  | Number of Officers
|                          |  |                   
|2,500,001  3,000,000     |  | 2                 
|3,000,001  3,500,000     |  | 2                 
|3,500,001  4,000,000     |  | 1                 
|4,000,001  4,500,000     |  | 1                 
|6,000,001  6,500,000     |  | 1                 
|13,000,001  13,500,000** |  | 1                 



| | ** |  | included
HK$10.2 million being compensation for loss of office
| | -- |  | --------------------------------------------------------------



|C. |  | Board Practices
|-- |  | ---------------

Our Board of Directors has appointed the following Committees with
specific terms of reference. The membership and a summary of the terms of
reference of each Committee appointed by our Board of Directors are listed
below.

Audit
Committee



| | Members: Mr. Andrew Brandler, Mr. W. E. Mocatta, Mr. S. F. Goldmann and
Mr. Peter P. W. Tse
| | -------------------------------------------------------------------------------------------
|
| | The Audit Committee meets every six months:                                                



| | 1. |  | to assure that adequate internal controls are in place and
followed;
| | -- |  | --------------------------------------------------------------------

59



---



##### 



| | 2. |  | to assure that appropriate accounting principles and
reporting practices are followed;                                                                                                                                                                    
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3. |  | to satisfy itself as to the adequacy of the scope and
direction of external and internal auditing;                                                                                                                                                        
|
| | 4. |  | to provide liaison among the shareholders, management, the
authorized independent auditors, or the Authorized Auditors, and
Internal Auditors;                                                                                                            
|
| | 5. |  | to satisfy itself as to compliance with legal requirements;                                                                                                                                                                                               
|
| | 6. |  | to satisfy itself that proper business ethics have been
followed;                                                                                                                                                                                         
|
| | 7. |  | to review audit and control related corporate representations
made to Authorized Auditors and to shareholders; and either make
recommendations to our Board of Directors as deemed necessary or to
take approved action if within its delegated authority.



| |  | There were two meetings of the Audit Committee in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As our Board of Directors has assumed the duties of the Audit Committee,
the Audit Committee was abolished in February 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Finance and General
Committee                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Members: Mr. W. E. Mocatta, Mr. J. S. Dickson Leach, Mr. S. F. Goldmann
(retired on January 1, 2003), Ms. L. J. Ryerkerk, Mr. M. J. Hupka
(appointed on January 1, 2003), Mr. Andrew Brandler, Mr. Peter P. W. Tse,
Mrs. Betty S. M. Yuen, Mr. Richard K. Lancaster, Mr. Stewart H. Saunders
and Mr. Benjamin K. L. Lau                                                                                                                                                                                                                                                                  
|
| |  | The Finance and General Committee meets as and when required to review
the financial operations and issues regarding the management and
operation of our company. The Finance and General Committee endorses
recommendations to our Board of Directors as deemed appropriate or
approves actions within its delegated authority. The scope of reviews
and actions arising from the reviews are subject to the CLP Group
policies and guidelines established by our parent company, CLP Holdings,
from time to time. There were six meetings of the Finance and General
Committee in 2002.

D.     Employees

As at December 31, 2002, we had a total workforce of 3,865, as compared
with 3,640 as at December 31, 2001. Of the total number of employees as at
December 31, 2002, 31% were professionals and administrative personnel, 35%
were engineers and technical personnel and 34% were industrial workers. We do
not have any unions or labour organisations and consider our relationship with
our employees to be satisfactory.

60



---



##### 



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.

E.     Share Ownership

We are wholly owned by CLP Holdings Limited, a company incorporated in
Hong Kong with limited liability and listed on The Stock Exchange of Hong Kong
Limited.

As at December 31, 2002, there were no arrangement that involved the issue
or grant of options or shares or securities from us.

61



---



##### 



Item 7. Major Shareholders and Related Party Transactions

A.     Major Shareholders

We are a wholly owned subsidiary of CLP Holdings Limited, a company
incorporated in Hong Kong with limited liability and listed on The Stock
Exchange of Hong Kong Limited.

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 such
transactions have been conducted 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 22 to the financial statement included in Item 17.
Financial Statements in this annual report.

CAPCO

Under a contract between us and CAPCO, a company in which we hold 40% of
equity interest, we are obligated to purchase all of the electricity generated
by CAPCO. Pursuant to the contract, the price paid by us 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, we have provided funds to CAPCO as shareholders advances in
the form of interest-free loans. During 2002, we advanced HK$1,986 million
(US$254 million) to CAPCO and CAPCO repaid HK$1,398 million (US$179 million).
As at December 31, 2002, our 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 outstanding in 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 profit 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  Relationship with CAPCO  CAPCO Financing.

62



---



##### 



Guangdong Daya Bay Nuclear Power Station

Pursuant to several offtake and resale contracts, we are obligated to
purchase a total of 70% of the output of the 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 an 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 affiliate, Hong Kong Nuclear
Investment Company Limited, owns a 25% equity interest in GNPS. See Item 4.
Information on the Company  Non-CAPCO Power Purchases/Storage Facilities.

Hong Kong Pumped Storage Development Co., Ltd.

Hong Kong Pumped Storage Development Co., Ltd. or PSDC, in which we hold
a 49% equity interest, has the right to use 50% of the 1,200 MW capacity of
Phase 1 of the Guangzhou Pumped Storage Power Station for 40 years from 1994.
Pursuant to a contract between us 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, we have 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 at
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 outstanding in 2002 was HK$321 million (US$41 million). See
Item 4. Information on the Company  Non-CAPCO Power Purchases/Storage
Facilities.

CLP Engineering Limited

We have entered into a number of capital work contracts with CLP
Engineering Limited, another subsidiary of our parent company, CLP Holdings, to
develop and construct our transmission and distribution facilities. The prices
of the contracts are determined with reference to the prevailing market prices.
During 2002, the capital works rendered to us by CLP Engineering amounted to
HK$290 million (US$37 million).

C.     Interests of Experts and Counsel

Not applicable.

63



---



##### 



Item 8. Financial Information

A.     Consolidated Statements and Other Financial Information

Financial 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.

Dividend Policy

All of our retained profits are to be distributed by way of dividends to
CLP Holdings, our sole owner.

B.     Significant Changes

There are no significant changes that have occurred since the date of the
annual financial statements.

64



---



##### 



Item 9. The Offer and Listing

Not applicable.

65



---



##### 



Item 10. Additional Information

A.     Share Capital

Not applicable for reporting.

B.     Memorandum and Articles of Association

Our Memorandum was adopted on December 28, 1918. As a result of the
conversion into a private company, our current Articles of Association were
adopted on March 11, 1998. The following is a summary of certain provisions of
our Memorandum and Articles of Association.

Objects and Purpose

The purpose of our company is to carry on the business of an electric
light company in all our branches and any other businesses in connection with
the generation, distribution, supply, accumulation and employment of
electricity to enhance the value of or render profitable any of our property or
rights.

Directors

A Director of our company who is directly or indirectly interested in a
transaction, contract or arrangement with our company 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 Directors and employees of us, 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 the Directors of our company is determined by our
shareholders at a general meeting. The Directors remuneration shall be deemed
to accrue from day to day.

Non-executive Directors of our company are subject to retirement by
rotation. At the Annual General Meeting each year, two 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.

66



---



##### 



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 the 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 pro rata 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 the benefit of
us 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.

67



---



##### 



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.

Share Capital

We generally have the right to repurchase our own shares, including any
redeemable shares, by using our distributable profits or the proceeds of
additional issues of shares.

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 the Board of Directors. The 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 ratably 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.

68



---



##### 



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.

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

If the 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 register.

We do not charge any fee 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.

69



---



##### 



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

No foreign exchange controls exist in Hong Kong and there is a free flow
of capital into and out of Hong Kong. There are no restrictions on remittances
of Hong Kong dollars or any other currency from Hong Kong to persons not
resident in Hong Kong for the purpose of paying interest on corporate
indebtedness or otherwise. There are no limitations on the right of non
resident or foreign owners to hold U.S. Dollar Notes due April 15, 2006, or the
2006 Notes imposed by Hong Kong law or by our Memorandum and Articles of
Association.

The Hong Kong dollar is freely convertible into other currencies,
including the U.S. dollar. Since October 17, 1983, the Hong Kong dollar has
been officially linked to the U.S. dollar at the rate of HK$7.80 to US$1.00.
The link is supported by an agreement between Hong Kongs three
banknote-issuing banks and the Government of Hong Kong. This agreement
requires that banknotes issued by such banks are backed by certificates of
indebtedness which have been purchased by such banks from the Hong Kong
Government Exchange Fund with U.S. dollars at the fixed exchange rate of
HK$7.80 to US$1.00. The banknote-issuing banks shall hold the certificates of
indebtedness as cover for the banknotes issued. When banknotes are withdrawn
from circulation, the issuing bank surrenders certificates of indebtedness to
the Hong Kong Government Exchange Fund and receives the payment of the
equivalent amount in U.S. dollars at the fixed rate of exchange. The agreement
does not have a fixed term, and we cannot assure you that this or any linked
exchange rate will be maintained. Hong Kongs three banknote-issuing banks are
The Hongkong and Shanghai Banking Corporation Limited, Standard Chartered Bank
and the Bank of China (Hong Kong) Limited.

Effective from September 7, 1998, the Hong Kong Monetary Authority has
undertaken to convert Hong Kong dollars of all licensed banks in Hong Kong in
their clearing accounts with the Hong Kong Monetary Authority into U.S. dollars
at a fixed exchange rate of HK$7.75 to US$1. The Hong Kong Monetary Authority
also announced that the exchange rate will be adjusted by 0.0001, starting
April 1, 1999, per business day until it reaches HK$7.80 to US$1.00 eventually.

The market exchange rate of the Hong Kong dollar against the U.S. dollar
continues to be determined by the forces of supply and demand in the foreign
exchange market, although the Government of Hong Kong, acting through the Hong
Kong Monetary Authority, may use a number of means to maintain exchange rate
stability. The market exchange rate has not deviated significantly from the
rate of HK$7.80 to US$1.00. Exchange rates between the Hong Kong dollar and
other currencies are influenced by the exchange rate between the U.S. dollar
and such currencies.

70



---



##### 



The Basic Law of the Hong Kong Special Administrative Region provides that
after July 1, 1997, the Hong Kong dollar will remain the legal tender in the
Hong Kong Special Administrative Region. The Basic Law does not alter the Hong
Kong Governments commitments described above. The Basic Law also provides
that the Hong Kong dollar shall remain freely convertible and that no exchange
control restrictions shall be applied in the Hong Kong Special Administrative
Region.



|E. |  | Taxation
|-- |  | --------

Hong Kong Taxation

The following is a brief summary of the Hong Kong taxes to which United
States holders of the 2006 Notes are subject under current Hong Kong law.

Investors in the 2006 Notes are advised to consult their own tax advisors
as to the United States, Hong Kong or other tax consequences of the purchase,
ownership and disposition of the 2006 Notes.

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 interest payments on the 2006 Notes. There is no tax treaty between
Hong Kong Special Administrative Region and the United States with respect to
the matter of withholding taxes. Noteholders 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 from the sale or other disposal of the 2006 Notes are 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.

The 2006 Notes are not subject to Hong Kong stamp duty upon transfer.

United States Taxation

The following is a summary of the material United States federal income
tax consequences of the ownership of the 2006 Notes by United States holders as
of the date of this annual report.

A United States holder means a holder 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.

71



---



##### 



Except where noted, this discussion deals only with the 2006 Notes 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 financial institution, tax-exempt entity or life insurance company;                                       
|
| |  |  | you hold 2006 Notes as a part of a hedging, integrated,
conversion or constructive sale transaction or a straddle;  
|
| |  |  | you are a trader in securities that elect to use a
mark-to-market method of accounting for your securities holdings;
|
| |  |  | your functional currency is not the U.S. dollar;                                                                  
|
| |  |  | you are a regulated investment company;                                                                             
|
| |  |  | you are a real estate investment trust; or                                                                          
|
| |  |  | you are a person liable for alternative minimum tax.                                                                

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.

If you are a partner in a partnership that holds 2006 Notes, your tax
treatment will generally depend upon your status as a partner and the
activities of the partnership. If you are a partner of a partnership holding
2006 Notes, you should consult your tax advisors.

Any of you who are considering the purchase, ownership or disposition of
the 2006 Notes should consult your own tax advisors concerning the United
States federal income tax consequences in light of your particular situations
as well as any consequences arising under the laws of any other taxing
jurisdiction.

Payments of Interest

Interest on a 2006 Note will be taxable to you as ordinary income at the
time it is paid or accrued in accordance with your method of accounting for tax
purposes. Interest income on a 2006 Note will constitute foreign source income
and generally will be considered passive or financial services income,
which is treated separately from other types of income in computing the foreign
tax credit allowable to you under United States federal income tax laws. You
may be subject to special rules if your foreign source income during the
taxable year consists entirely of qualified passive income and if you have
$300 or less ($600 or less if you file a joint return) of creditable foreign
taxes which you have paid or accrued during the taxable year. The rules
governing the foreign tax credit are complex. You are therefore urged to
consult your tax advisor regarding the availability of the foreign tax credit
under your particular circumstances.

72



---



##### 



Market Discount

If you purchase a 2006 Note for an amount that is less than its stated
redemption price at maturity, the amount of the difference will be treated as
market discount for United States federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market
discount rules, you generally will be required to treat any principal payment
on, or any gain on the sale, exchange, retirement or other disposition of, a
2006 Note as ordinary income to the extent of the market discount which has not
previously been included in income and is treated as having accrued on such
2006 Note at the time of such payment or disposition. In addition, you may be
required to defer, until the maturity of the 2006 Note or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such 2006 Note.

Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the 2006 Note, unless you
elect to accrue it on a constant interest method. This election to accrue
market discount on a constant interest method is to be made for the taxable
year in which you acquired the 2006 Note, and applies only to that 2006 Note
and cannot be revoked. You may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest method), in
which case the rule described above regarding deferral of interest deductions
will not apply. The election to include market discount in income currently,
once made, applies to all market discount obligations acquired on or after the
first day of the first taxable year to which the election applies and may not
be revoked without the consent of the Internal Revenue Service. You should
consult your own tax advisors before making either election described in this
paragraph.

Premium

If you purchase a 2006 Note for an amount that is greater than its
principal amount, you will be considered to have purchased the 2006 Note at a
premium and you generally may elect to amortize the premium over the
remaining term of the 2006 Note on a constant yield method as an offset to
interest when includible in income under your regular accounting method. The
election to amortize premium on a constant yield method once made applies to
all debt obligations held or subsequently acquired by you on or after the first
day of the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service. If you do not make
the election, premium on the 2006 Note will decrease the gain or increase the
loss otherwise recognized on disposition of such note. You should consult your
own tax advisors to determine if you should make this election.

Sale, Exchange and Retirement of 2006 Notes

Upon the sale, exchange, retirement, or other disposition of a 2006 Note,
you will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange, retirement or other disposition (less any
accrued interest that you did not previously include in income, which will be
taxable as interest income) and the adjusted tax basis of the 2006 Note. Your tax basis in a 2006 Note will, in general, be your cost
therefore, increased by any market discount previously included in income and
reduced by any amortized premium. Gain or loss realized by you on the sale,
exchange or retirement of a 2006 Note will generally be treated as United
States source gain or loss. Such gain or loss will be capital gain or loss and
will be long-term capital gain or loss if at the time of sale, exchange or
retirement the 2006 Note has been held for more than one year. Capital gains
of individuals are, under certain circumstances, taxed at lower rates than
items of ordinary income. The deductibility of capital losses is subject to
limitations.

73



---



##### 



Information Reporting and Backup Withholding

In general, information reporting requirements will apply to certain
payments of principal and interest paid on the 2006 Notes and to the proceeds
of sale of a 2006 Note made to holders other than certain exempt recipients
(such as corporations). A backup withholding tax will apply to such payments
if you fail to provide a taxpayer identification number or certification of
foreign or other exempt status or fail to report in full dividend and interest
income.

Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your United States federal income tax liability if
the required information is furnished to the Internal Revenue Service.



|F. |  | Dividends and Paying Agent
|-- |  | --------------------------

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 may incorporate by reference in Item 19 of this annual
report certain exhibits which we filed with the SEC before. You may read and
copy this annual report, including the exhibits incorporated by reference in
this annual report, at the SECs Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 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 exhibits 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.govthat 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 web site.

74



---



##### 





|I. |  | Subsidiary Information
|-- |  | ----------------------

Not applicable.

75



---



##### 



Item 11. Quantitative and Qualitative Disclosures About Market Risk

We do not invest in market risk sensitive instruments for trading
purposes.

Our core electrical utility operations in Hong Kong are regulated under
the Scheme of Control. Under the terms of the Scheme of Control, we and
CAPCOs financing costs in excess of 8% per annum, costs of fuel 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 -
Scheme of Control.

Due to these arrangements, we do not believe that during the term of the
current Scheme of Control which expires 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 service area at the lowest
possible cost, and we must periodically submit financial plans to the
Government of Hong Kong for approval. Because of these factors, we do take
steps as described below to manage the impact of any such market exposures on
our operations. See Item 4. Information on the Company - Scheme of Control.

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 fluctuation on our earnings 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, purchases of goods and services and other
projected expenditure. All hedging transactions are with counterparties with
acceptable credit ratings. A limit is assigned to each counterparty for
monitoring the credit exposure.

During 2002, we swapped the full U.S. dollar obligations related to the
US$300 million loans from our subsidiary company, CLP Power Hong Kong Financing
Limited, into Hong Kong dollars to eliminate the currency exposure, and swapped
part of the floating rate obligations into fixed rate to achieve the 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 because the change in fair value
will be offset by an opposite change in the values of the underlying hedged
items.

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 29% at 31 December 2002 to 19% in January 2003.

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 foreign exchange forward contracts, the tables present the notional amounts
and weighted average exchange rates or weighted average interest rates by
contractual maturity dates.

76



---



##### 



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.

INTEREST RATE RISK

|                               |                         |          |     |  |  |   |                             |      |               |   |      |      |           |       |      |      |            |       |           |      |            |   |       |   |            |       |  |      |  |       |  |      |  |       |  |  |  |       |  |       |  |       |  |  | 
|------------------------------ | ----------------------- | -------- | --- |  |  | - | --------------------------- | ---- | ------------- | - | ---- | ---- | --------- | ----- | ---- | ---- | ---------- | ----- | --------- | ---- | ---------- | - | ----- | - | ---------- | ----- |  | ---- |  | ----- |  | ---- |  | ----- |  |  |  | ----- |  | ----- |  | ----- |  |  | 
|                               |                         |          |     |  |  |   | December 2002               |      | December 2001
|                               |                         |          |     |  |  |   |                             |      |              
|                               |                         |          |     |  |  |   | Expected Maturity Dates     |      |               |   |      |      |           |       |      |      |            |       |           |      |            |   |      
|                               |                         |          |     |  |  |   |                             |      |               |   |      |      | Aggregate |       |      |      |            |       | Aggregate
|                               |                         |          |     |  |  |   | 2003                        |      | 2004          |   | 2005 |      | 2006      |       | 2007 |      | Thereafter |       | Total     |      | Fair Value |   | Total |   | Fair Value
|                               |                         |          |     |  |  |   |                             |      |               |   |      |      |           |       |      |      |            |       |           |      |            |   |       |   |           
|                               |                         |          |     |  |  |   | In HK$ equivalent, millions |      |               |   |      |      |           |       |     
|On-balance sheet financial     |                         |          |     |  |  |   |                             |      |               |   |      |      |           |       |      |      |            |       |           |      |            |   |       |   |            |       |  |      |  |       |  |      | 
|instruments                    |                         | Currency |     |  |  |   |                             |      |               |   |      |      |           |       |      |      |            |       |           |      |            |   |       |   |            |       |  |      |  |       |  |      |  |       |  |  |  |       |  |       |  |      
|                               |                         |          |     |  |  |   |                             |      |               |   |      |      |           |       |      |      |            |       |           |      |            |   |       |   |            |       |  |      |  |       |  |      |  |       |  |  |  |       |  |       |  |       | 
|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           |          | HKD |  |  |  |                             |      |               |  |      |      |           | 1,500 |      |      |            |      |           |      |            |  |       |   |            |      |  |      |  | 1,500 |  |      |  | 1,500 |  |  |  | 1,500 |  |       |  | 1,500 | 
|                               | Average Interest Rate % |          |     |  |  |   |                             |     |               |   |      |     |           |       |      | 3.01 |            |       |           |     |            |   |       |  |            |       |  |     |  |       |  | 3.01 |  |       |  |  |  |       |  | 5.73  |  |       |  |  | 

77



---



##### 



INTEREST RATE RISK

|                                                |                     |                           |  |     |  |  |   |                             |   |               |   |      |   |           |   |      |   |            |       |           |      |                |       |       |      |            |       |  |      |  |       |  |      |  |      |   |   |  |       |  |       |  |     |   |   | 
|----------------------------------------------- | ------------------- | ------------------------- |  | --- |  |  | - | --------------------------- | - | ------------- | - | ---- | - | --------- | - | ---- | - | ---------- | ----- | --------- | ---- | -------------- | ----- | ----- | ---- | ---------- | ----- |  | ---- |  | ----- |  | ---- |  | ---- | - | - |  | ----- |  | ----- |  | --- | - | - | 
|                                                |                     |                           |  |     |  |  |   | 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 |   |               |   |      |   |           |   |     
|Off-balance sheet financial                     |                     |                           |  |     |  |  |   |                             |   |               |   |      |   |           |   |      |   |            |       |           |      |                |       |       |      |            |       |  |      |  |       |  |     
|instruments                                     |                     | Currency                  |  |     |  |  |   |                             |   |               |   |      |   |           |   |      |   |            |       |           |      |                |       |       |      |            |       |  |      |  |       |  |      |  |      |   |   |  |       |  |       | 
|                                                |                     |                           |  |     |  |  |   |                             |   |               |   |      |   |           |   |      |   |            |       |           |      |                |       |       |      |            |       |  |      |  |       |  |      |  |      |   |   |  |       |  |       |  |     |  
|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 the Company would receive / (pay) to close out the transactions.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

78



---



##### 



CURRENCY RISK

|                                         |                           |          |     |  |  |   |                             |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |       |   |            |   |  |   |  |   |  |      |  |   |  |   |  |    |  |       |  |    |   |   | 
|---------------------------------------- | ------------------------- | -------- | --- |  |  | - | --------------------------- | ---- | ------------- | - | ---- | ---- | --------- | - | ---- | ---- | ---------- | - | --------- | - | -------------- | - | ----- | - | ---------- | - |  | - |  | - |  | ---- |  | - |  | - |  | -- |  | ----- |  | -- | - | - | 
|                                         |                           |          |     |  |  |   | December 2002               |      | December 2001
|                                         |                           |          |     |  |  |   |                             |      |              
|                                         |                           |          |     |  |  |   | Expected Maturity Dates     |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |      
|                                         |                           |          |     |  |  |   |                             |      |               |   |      |      | Aggregate |   |      |      |            |   | Aggregate
|                                         |                           |          |     |  |  |   | 2003                        |      | 2004          |   | 2005 |      | 2006      |   | 2007 |      | Thereafter |   | Total     |   | Fair Value     |   | Total |   | Fair Value
|                                         |                           |          |     |  |  |   |                             |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |       |   |           
|                                         |                           |          |     |  |  |   | In HK$ equivalent, millions |      |               |   |      |      |           |   |     
|On-balance sheet financial               |                           |          |     |  |  |   |                             |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |       |   |            |   |  |   |  |   |  |      |  |  
|instruments                              |                           | Currency |     |  |  |   |                             |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |       |   |            |   |  |   |  |   |  |      |  |   |  |   |  |    |  |       |  |   
|                                         |                           |          |     |  |  |   |                             |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |       |   |            |   |  |   |  |   |  |      |  |   |  |   |  |    |  |       |  |    |  
|I. 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  |  |    |   |   | 
|                                        
|                                         |                           |          |     |  |  |   | 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 |      |               |   |      |      |           |   |     
|Off-balance sheet financial              |                           |          |     |  |  |   |                             |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |       |   |            |   |  |   |  |   |  |      |  |  
|instruments                              |                           | Currency |     |  |  |   |                             |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |       |   |            |   |  |   |  |   |  |      |  |   |  |   |  |    |  |       |  |   
|                                         |                           |          |     |  |  |   |                             |      |               |   |      |      |           |   |      |      |            |   |           |   |                |   |       |   |            |   |  |   |  |   |  |      |  |   |  |   |  |    |  |       |  |    |  
|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 the Company would receive / (pay) to close out the transactions.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

79



---



##### 



CURRENCY RISK

|                                                 |                           |                              |  |                         |         |               |  |      |        |           |  |      |   |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |         |  |  |  |   |  |  |  |         |  |  |  |    |  
|------------------------------------------------ | ------------------------- | ---------------------------- |  | ----------------------- | ------- | ------------- |  | ---- | ------ | --------- |  | ---- | - | ---------- |  | --------------------------- | - | -------------- |  | ----- | - | ---------- |  |  | - |  |  |  | ------- |  |  |  | - |  |  |  | ------- |  |  |  | -- | -
|                                                 |                           |                              |  | 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.
Foreign Exchange Forward
         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    |  |                         | 11.4866 |               |  |      |       |           |  |      |  |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 11.4866 |  |  |  |   |  |  |  | 11.1591 |  |  |  |    |  
|                                                 |                           | Rate (Vs HKD)                |  |                         |         |               |  |      |        |           |  |      |   |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |         |  |  |  |   |  |  |  |         |  |  |  |    |  
|                                                
|                                                 |                           | Japanese Yen (in millions)   |  |                         | 16      |               |  |      | 4      |           |  |      |  |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 20      |  |  |  |  |  |  |  | 28      |  |  |  | (2 | )
|                                                 |                           | Weighted Average Contract    |  |                         | 0.0660  |               |  |      | 0.0667 |           |  |      |  |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 0.0662  |  |  |  |   |  |  |  | 0.0648  |  |  |  |    |  
|                                                 |                           | Rate (Vs HKD)                |  |                         |         |               |  |      |        |           |  |      |   |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |         |  |  |  |   |  |  |  |         |  |  |  |    |  
|                                                
|                                                 |                           | Euro (in millions)           |  |                         | 110     |               |  |      | 55     |           |  |      |  |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 165     |  |  |  | 8 |  |  |  | 121     |  |  |  | (3 | )
|                                                 |                           | Weighted Average Contract    |  |                         | 7.5577  |               |  |      | 7.9014 |           |  |      |  |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 7.6674  |  |  |  |   |  |  |  | 6.9603  |  |  |  |    |  
|                                                 |                           | Rate (Vs HKD)                |  |                         |         |               |  |      |        |           |  |      |   |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |         |  |  |  |   |  |  |  |         |  |  |  |    |  
|                                                
|                                                 |                           | Euro (in millions)           |  |                         | 21      |               |  |      |       |           |  |      |  |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 21      |  |  |  |  |  |  |  | 1       |  |  |  |   |  
|                                                 |                           | Weighted Average Contract    |  |                         | 1.0773  |               |  |      |       |           |  |      |  |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 1.0773  |  |  |  |   |  |  |  | 0.8845  |  |  |  |    |  
|                                                 |                           | Rate (Vs USD)                |  |                         |         |               |  |      |        |           |  |      |   |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |         |  |  |  |   |  |  |  |         |  |  |  |    |  

Note:



|(1) |  | Fair value for off-balance sheet financial instruments represent
the amounts the Company 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.

80



---



##### 



CURRENCY RISK

|                              |                                   |                              |  |                         |        |               |  |      |        |           |  |      |        |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |        |  |  |  |    |  |  |  |         |  |  |  |     |  
|----------------------------- | --------------------------------- | ---------------------------- |  | ----------------------- | ------ | ------------- |  | ---- | ------ | --------- |  | ---- | ------ | ---------- |  | --------------------------- | - | -------------- |  | ----- | - | ---------- |  |  | - |  |  |  | ------ |  |  |  | -- |  |  |  | ------- |  |  |  | --- | -
|                              |                                   |                              |  | 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. Foreign Exchange Forward |                                   |                              |  |                         |        |               |  |      |        |           |  |      |        |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |        |  |  |  |    |  |  |  |         |  |  | 
|Contracts                     |                                   |                              |  |                         |        |               |  |      |        |           |  |      |        |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |        |  |  |  |    |  |  |  |         |  |  | 
|                             
|                              | 2 For Anticipated Transactions(2) |                              |  |                         |        |               |  |      |        |           |  |      |        |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |        |  |  |  |    |  |  |  |         |  |  |  |    
|                              |                                   | British Pounds (in millions) |  |                         |       |               |  |      |       |           |  |      |       |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  |       |  |  |  |   |  |  |  | 2       |  |  |  |    |  
|                              |                                   | Weighted Average Contract    |  |                         |       |               |  |      |       |           |  |      |       |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  |       |  |  |  |    |  |  |  | 11.1591 |  |  |  |     |  
|                              |                                   | Rate (Vs HKD)                |  |                         |        |               |  |      |        |           |  |      |        |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |        |  |  |  |    |  |  |  |         |  |  |  |     |  
|                             
|                              |                                   | Japanese Yen (in millions)   |  |                         | 6      |               |  |      | 1      |           |  |      |       |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 7      |  |  |  |   |  |  |  | 6       |  |  |  |    |  
|                              |                                   | Weighted Average Contract    |  |                         | 0.0660 |               |  |      | 0.0667 |           |  |      |       |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 0.0662 |  |  |  |    |  |  |  | 0.0648  |  |  |  |     |  
|                              |                                   | Rate (Vs HKD)                |  |                         |        |               |  |      |        |           |  |      |        |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |        |  |  |  |    |  |  |  |         |  |  |  |     |  
|                             
|                              |                                   | 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 |  |  |  | 30,008  |  |  |  | 148 |  
|                              |                                   | Weighted Average Contract    |  |                         | 7.7966 |               |  |      | 7.8003 |           |  |      | 7.8050 |            |  |                             |  |                |  |       |  |            |  |  |  |  |  |  | 7.7984 |  |  |  |    |  |  |  | 7.7963  |  |  |  |     |  
|                              |                                   | Rate (Vs HKD)                |  |                         |        |               |  |      |        |           |  |      |        |            |  |                             |   |                |  |       |   |            |  |  |   |  |  |  |        |  |  |  |    |  |  |  |         |  |  |  |     |  

Note:



|(1) |  | Fair value for off-balance sheet financial instruments represent
the amounts the Company 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.

81



---



##### 



Item 12. Description of Securities Other than Equity Securities

Not applicable.

82



---



##### 



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 Mrs. Betty S.M. Yuen, our Managing Director and Mr.
Richard K. Lancaster, our Commercial Director, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on that
evaluation, our Managing Director and Commercial Director 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.

Item 16A. Audit Committee Financial Expert

Not applicable.

Item 16B. Code of Ethics

Not applicable.

83



---



##### 



PART III

Item 17. Financial Statements

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

|                                  |                                                                                     |  |              |      | 
|--------------------------------- | ----------------------------------------------------------------------------------- |  | ------------ | ---- | 
|                                  |                                                                                     |  | Page        
|                                  |                                                                                     |  |             
|CLP Power Hong Kong Limited       |                                                                                     |  |              |     
|                                  | Report of Independent Accountants                                                   |  |              | F-2  | 
|                                  | Profit and Loss Account for the years ended December 31, 2000, 2001 and 2002        |  |              | F-3  | 
|                                  | 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  | 
|                                  | Cash Flow Statement for the years ended December 31, 2000, 2001 and 2002            |  |              | F-6  | 
|                                  | Notes to Financial Statements                                                       |  | F-7 to F-36 
|                                  | Scheme of Control Statement                                                         |  | F-37 to F-39
|Castle Peak Power Company Limited |                                                                                     |  |              |     
|                                  | Report of Independent Accountants                                                   |  |              | F-40 | 
|                                  | Profit and Loss Account for the years ended December 31, 2000, 2001 and 2002        |  |              | F-41 | 
|                                  | Balance Sheet as of December 31, 2001 and 2002                                      |  |              | F-42 | 
|                                  | Statement of Changes in Equity for the years ended December 31, 2000, 2001 and 2002 |  |              | F-43 | 
|                                  | Cash Flow Statement for the years ended December 31, 2000, 2001 and 2002            |  |              | F-44 | 
|                                  | Notes to Financial Statements                                                       |  | F-45 to F-56

84



---



##### 



Item 18. Financial Statements

Not applicable.

85



---



##### 



Item 19. Exhibits

Exhibit Index

|            |  |                                                                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                              
|1.1         |  | Memorandum and Articles of Association of registrant. *                                                                                                                                                      
|            |  |                                                                                                                                                                                                              
|2.1         |  | Trust Deed in respect of the US$1,500,000,000 Medium Term Note
Programme, established by our wholly owned subsidiary, CLP
Power Hong Kong Financing Limited on April 3, 2002, and
guaranteed by our company**
|            |  |                                                                                                                                                                                                              
|8.1         |  | List of subsidiaries. See Item 4. Information on the Company
 CLP Power Hong Kong Limited                                                                                                                 
|            |  |                                                                                                                                                                                                              
|13.1        |  | Certification by our Managing Director 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 Commercial Director 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 Exhibit No. 1 to our annual report on Form
20-F for fiscal 1998 dated March 23, 1999 and filed with the Securities
and Exchange Commission on March 26, 1999.                     
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Incorporated by reference to Exhibit No. 2.1 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.

86



---



##### 



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 Power Hong Kong Limited(CLP Power Hong Kong Limited)
Registrant
| |  |                                                                    
| |  | /s/ Richard K. Lancaster

Richard K. Lancaster
Commercial Director 
| |  |                                                                    
| |  | Date: June 20, 2003                                                

87



---



##### 



CERTIFICATIONS

I, Betty S. M. Yuen, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of CLP Power Hong Kong
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/ Betty S. M. Yuen
|                    |  |     |                     
|                    |  |     |                      | Betty S. M. Yuen
Managing Director

88



---



##### 



I, Richard K. Lancaster, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of CLP Power Hong Kong
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/ Richard K. Lancaster
|                    |  |     |                         
|                    |  |     |                          | Richard K. Lancaster
Commercial Director

89



---



##### 



INDEX TO FINANCIAL STATEMENTS

|                                  |                                                                                     |  |                  |        | 
|--------------------------------- | ----------------------------------------------------------------------------------- |  | ---------------- | ------ | 
|                                  |                                                                                     |  | Page            
|                                  |                                                                                     |  |                 
|CLP Power Hong Kong Limited       |                                                                                     |  |                  |       
|                                  | Report of Independent Accountants                                                   |  |                  | F - 2  | 
|                                  | Profit and Loss Account for the years ended December 31, 2000, 2001 and 2002        |  |                  | F - 3  | 
|                                  | 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  | 
|                                  | Cash Flow Statement for the years ended December 31, 2000, 2001 and 2002            |  |                  | F - 6  | 
|                                  | Notes to Financial Statements                                                       |  | F - 7 to F - 36 
|                                  | Scheme of Control Statement                                                         |  | F - 37 to F - 39
|Castle Peak Power Company Limited |                                                                                     |  |                  |       
|                                  | Report of Independent Accountants                                                   |  |                  | F - 40 | 
|                                  | Profit and Loss Account for the years ended December 31, 2000, 2001 and 2002        |  |                  | F - 41 | 
|                                  | Balance Sheet as of December 31, 2001 and 2002                                      |  |                  | F - 42 | 
|                                  | Statement of Changes in Equity for the years ended December 31, 2000, 2001
and 2002 |  |                  | F - 43 | 
|                                  | Cash Flow Statement for the years ended December 31, 2000, 2001 and 2002            |  |                  | F - 44 | 
|                                  | Notes to Financial Statements                                                       |  | F - 45 to F - 56

F-1



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
CLP Power Hong Kong Limited

We have audited the accompanying balance sheets of CLP Power Hong Kong Limited
as of December 31, 2001 and 2002 and the related profit and loss accounts,
statements of changes in equity, cash flow statements and Scheme of Control
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 respects, the financial position of CLP Power Hong Kong 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 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(J). 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
financial position as expressed in Hong Kong dollars at December 31, 2001 and
2002, the determination of net income and the classification of cash flow also
expressed in Hong Kong dollars for the years ended December 31, 2000, 2001 and
2002, as adjusted to the extent summarized in Note 26 to the financial
statements.

As discussed in Note 1, on January 1, 2002, the Company adopted Statement of
Standard Accounting Practice (SSAP) No. 34 Employee Benefits, and
recognized as a prior period adjustment an asset for the pension surplus
existing at December 31, 2001.



/s/  PricewaterhouseCoopers

---

Hong Kong
February 20, 2003

F-2



---



##### 



CLP POWER HONG KONG LIMITED

PROFIT AND LOSS ACCOUNT

|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |       | 
|--------------------------------- | ----------------------------------- |  | ---- | - | ---- |  | ----------------------- | ----- | ---- |  | ------- | ----- |  |  | ------- | ------ |  |  | ------- | ----- | 
|                                  |                                     |  |      |   |      |  | Year ended December 31,
|                                  |                                     |  |      |   |      |  |                        
|                                  |                                     |  | Note |   | 2000 |  | 2001                    |       | 2002 |  | 2002   
|                                  |                                     |  |      |   |      |  |                         |       |      |  |        
|                                  |                                     |  |      |   | HK$M |  | HK$M                    |       | HK$M |  | US$M   
|TURNOVER                          |                                     |  | 2    |   |      |  | 25,512                  |       |      |  | 26,105  |       |  |  | 27,246  |        |  |  | 3,494   |      
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|Expenses                          |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|                                  | Purchases of electricity from
CAPCO |  |      |   |      |  |                         | 9,735 |      |  |         | 9,815 |  |  |         | 10,191 |  |  |         | 1,307 | 
|                                  | Purchases of nuclear electricity    |  |      |   |      |  |                         | 4,587 |      |  |         | 5,013 |  |  |         | 4,976  |  |  |         | 638   | 
|                                  | Pumped storage service fee          |  |      |   |      |  |                         | 457   |      |  |         | 424   |  |  |         | 419    |  |  |         | 54    | 
|                                  | Staff expenses                      |  |      |   |      |  |                         | 609   |      |  |         | 592   |  |  |         | 619    |  |  |         | 79    | 
|                                  | Other net operating costs           |  |      |   |      |  |                         | 731   |      |  |         | 892   |  |  |         | 522    |  |  |         | 67    | 
|                                  | Depreciation                        |  |      |   |      |  |                         | 1,463 |      |  |         | 1,598 |  |  |         | 1,723  |  |  |         | 221   | 
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|                                  |                                     |  |      |   |      |  | 17,582                  |       |      |  | 18,334  |       |  |  | 18,450  |        |  |  | 2,366   |      
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|Operating profit                  |                                     |  |      |   |      |  | 7,930                   |       |      |  | 7,771   |       |  |  | 8,796   |        |  |  | 1,128   |      
|Finance costs                     |                                     |  | 3    |   |      |  | (195                    | )     |      |  | (161    | )     |  |  | (94     | )      |  |  | (12     | )    
|Finance income                    |                                     |  | 3    |   |      |  | 18                      |       |      |  | 1       |       |  |  |        |        |  |  |        |      
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|Profit before taxation            |                                     |  | 4    |   |      |  | 7,753                   |       |      |  | 7,611   |       |  |  | 8,702   |        |  |  | 1,116   |      
|Taxation                          |                                     |  | 6    |   |      |  | (848                    | )     |      |  | (537    | )     |  |  | (853    | )      |  |  | (109    | )    
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|Profit after taxation             |                                     |  |      |   |      |  | 6,905                   |       |      |  | 7,074   |       |  |  | 7,849   |        |  |  | 1,007   |      
|Transfers under Scheme of Control |                                     |  | 7    |   |      |  | (1,629                  | )     |      |  | (1,506  | )     |  |  | (1,643  | )      |  |  | (211    | )    
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|                                  |                                     |  |      |   |      |  | 5,276                   |       |      |  | 5,568   |       |  |  | 6,206   |        |  |  | 796     |      
|EARNINGS                          |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|                                  | Scheme of Control earnings          |  |      |   |      |  |                         | 5,154 |      |  |         | 5,389 |  |  |         | 5,831  |  |  |         | 748   | 
|                                  | Other earnings                      |  |      | 8 |      |  |                         | 122   |      |  |         | 179   |  |  |         | 375    |  |  |         | 48    | 
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|                                  | Total earnings                      |  |      |   |      |  |                         | 5,276 |      |  |         | 5,568 |  |  |         | 6,206  |  |  |         | 796   | 
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|DIVIDENDS                         |                                     |  | 9    |   |      |  | 5,273                   |       |      |  | 5,423   |       |  |  | 6,206   |        |  |  | 796     |      
|                                  |                                     |  |      |   |      |  |                         |       |      |  |         |       |  |  |         |        |  |  |         |      
|Earnings per share                |                                     |  | 10   |   |      |  | HK$2.12                 |       |      |  | HK$2.24 |       |  |  | HK$2.49 |        |  |  | US$0.32 |      

F-3



---



##### 



CLP POWER HONG KONG LIMITED

BALANCE SHEET

|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |   |      |  
|------------------------------------------ | ------------------- | ------------------------------------------------- | -- | ---- | -- | ---- | ------ | ------------------ | ------ | ---- | ------ | - | ------ | - | ----- | - | ---- | -
|                                           |                     |                                                   |    |      |    |      |        | As of December 31,
|                                           |                     |                                                   |    |      |    |      |        |                   
|                                           |                     |                                                   |    | Note |    | 2001 |        | 2002               |        | 2002
|                                           |                     |                                                   |    |      |    |      |        |                    |        |     
|                                           |                     |                                                   |    |      |    | HK$M |        | HK$M               |        | US$M
|CAPITAL EMPLOYED                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|Fixed assets                               |                     |                                                   | 11 |      |    |      | 33,203 |                    |        |      | 36,279 |   |        |   | 4,652 |  
|Investments in a subsidiary                |                     |                                                   | 12 |      |    |      |       |                    |        |      |       |   |        |   |      |  
|Investments in jointly controlled entities |                     |                                                   | 13 |      |    |      | 4,661  |                    |        |      | 5,259  |   |        |   | 674   |  
|Employee retirement benefit plan assets    |                     |                                                   | 14 |      |    |      | 1,064  |                    |        |      | 1,013  |   |        |   | 130   |  
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|                                           |                     |                                                   |    |      |    |      | 38,928 |                    |        |      | 42,551 |   |        |   | 5,456 |  
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|                                           | Current assets      |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |   |     
|                                           |                     | Stores                                            |    |      |    |      |        |                    | 41     |      |        |   | 42     |   |       |   | 5    |  
|                                           |                     | Debtors and prepayments                           |    |      | 15 |      |        |                    | 1,116  |      |        |   | 1,085  |   |       |   | 139  |  
|                                           |                     | Current account with ultimate holding
company     |    |      |    |      |        |                    |       |      |        |   | 7      |   |       |   | 1    |  
|                                           |                     | Current accounts with fellow subsidiaries         |    |      |    |      |        |                    | 31     |      |        |   | 46     |   |       |   | 6    |  
|                                           |                     | Deposits, bank balances and cash                  |    |      |    |      |        |                    | 17     |      |        |   | 11     |   |       |   | 1    |  
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|                                           |                     |                                                   |    |      |    |      | 1,205  |                    |        |      | 1,191  |   |        |   | 152   |  
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|                                           | Current liabilities |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |   |     
|                                           |                     | Bank overdrafts, bank loans and other
borrowings  |    |      | 17 |      |        |                    | (394   | )    |        |   | (559   | ) |       |   | (72  | )
|                                           |                     | Customers deposits                               |    |      |    |      |        |                    | (2,450 | )    |        |   | (2,684 | ) |       |   | (344 | )
|                                           |                     | Current account with ultimate holding
company     |    |      |    |      |        |                    | (9     | )    |        |   |       |   |       |   |     |  
|                                           |                     | Current accounts with fellow subsidiaries         |    |      |    |      |        |                    | (163   | )    |        |   | (515   | ) |       |   | (66  | )
|                                           |                     | Current accounts with jointly controlled
entities |    |      |    |      |        |                    | (848   | )    |        |   | (872   | ) |       |   | (112 | )
|                                           |                     | Creditors                                         |    |      |    |      |        |                    | (1,494 | )    |        |   | (1,448 | ) |       |   | (185 | )
|                                           |                     | Fuel clause account                               |    |      |    |      |        |                    | (448   | )    |        |   | (512   | ) |       |   | (66  | )
|                                           |                     | Taxation payable                                  |    |      |    |      |        |                    | (100   | )    |        |   | (133   | ) |       |   | (17  | )
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|                                           |                     |                                                   |    |      |    |      | (5,906 | )                  |        |      | (6,723 | ) |        |   | (862  | )
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|Net current liabilities                    |                     |                                                   |    |      |    |      | (4,701 | )                  |        |      | (5,532 | ) |        |   | (710  | )
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|Total assets less current liabilities      |                     |                                                   |    |      |    |      | 34,227 |                    |        |      | 37,019 |   |        |   | 4,746 |  
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|REPRESENTED BY                             |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|Share capital                              |                     |                                                   | 16 |      |    |      | 12,442 |                    |        |      | 12,442 |   |        |   | 1,595 |  
|Share premium                              |                     |                                                   |    |      |    |      | 7,958  |                    |        |      | 7,958  |   |        |   | 1,021 |  
|Retained profits                           |                     |                                                   |    |      |    |      | 1,064  |                    |        |      | 1,064  |   |        |   | 136   |  
|Proposed dividend                          |                     |                                                   |    |      |    |      | 1,144  |                    |        |      | 1,089  |   |        |   | 140   |  
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|Shareholders funds                        |                     |                                                   |    |      |    |      | 22,608 |                    |        |      | 22,553 |   |        |   | 2,892 |  
|Long-term loans and other borrowings       |                     |                                                   | 17 |      |    |      | 3,846  |                    |        |      | 6,183  |   |        |   | 792   |  
|Deferred taxation                          |                     |                                                   | 18 |      |    |      | 3,391  |                    |        |      | 3,721  |   |        |   | 477   |  
|Development Fund                           |                     |                                                   | 7  | (a)  |    |      | 3,177  |                    |        |      | 3,372  |   |        |   | 432   |  
|Special provision account                  |                     |                                                   | 7  | (b)  |    |      | 766    |                    |        |      | 670    |   |        |   | 86    |  
|Rate reduction reserve                     |                     |                                                   | 7  | (c)  |    |      | 411    |                    |        |      | 458    |   |        |   | 59    |  
|Deferred revenue                           |                     |                                                   |    |      |    |      | 28     |                    |        |      | 62     |   |        |   | 8     |  
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  
|                                           |                     |                                                   |    |      |    |      | 34,227 |                    |        |      | 37,019 |   |        |   | 4,746 |  
|                                           |                     |                                                   |    |      |    |      |        |                    |        |      |        |   |        |   |       |  

F-4



---



##### 



CLP POWER HONG KONG LIMITED

STATEMENT OF CHANGES IN EQUITY

|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |      |  
|------------------------------------------------------------------------------------------------------ | ------------- |  | ------- | - | ------- |  | -------- | - | ----- |  | ----- | ------ | - |  | ------ | ------ | - |  | ----- | ---- | -
|                                                                                                       |               |  | Share   |   | Share   |  | Retained |   |       |  |       |        |   |  |       
|                                                                                                       |               |  | Capital |   | Premium |  | Profits  |   | Total |  | Total
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |      
|                                                                                                       |               |  | HK$M    |   | HK$M    |  | HK$M     |   | HK$M  |  | US$M 
|Balance at January 1, 2000, as previously reported                                                     |               |  | 12,442  |   |         |  | 7,958    |   |       |  |      |        |   |  | 20,400 |        |   |  |       |     
|Proposed final dividend not declared before period
end (1999(1))                                       |               |  |        |   |         |  |         |   |       |  | 1,318 |        |   |  | 1,318  |        |   |  |       |     
|Adjustment for final dividends not declared by
jointly controlled entities before period end
(1999(1)) |               |  |        |   |         |  |         |   |       |  | (148  | )      |   |  | (148   | )      |   |  |       |     
|Surplus of employee retirement benefit plan
assets over liabilities                                    |               |  |        |   |         |  |         |   |       |  | 1,064 |        |   |  | 1,064  |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Balance at January 1, 2000, as adjusted                                                                |               |  | 12,442  |   |         |  | 7,958    |   |       |  | 2,234 |        |   |  | 22,634 |        |   |  |       |     
|Earnings for the year                                                                                  |               |  |         |   |         |  |          |   |       |  | 5,276 |        |   |  | 5,276  |        |   |  |       |     
|Dividends declared for the year                                                                        |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|                                                                                                       | 1999(1) final |  |         |  |         |  |          |  |       |  |       | (1,318 | ) |  |        | (1,318 | ) |  |       |      |  
|                                                                                                       | 2000 interims |  |         |  |         |  |          |  |       |  |       | (4,053 | ) |  |        | (4,053 | ) |  |       |      |  
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Balance at December 31, 2000, as adjusted                                                              |               |  | 12,442  |   |         |  | 7,958    |   |       |  | 2,139 |        |   |  | 22,539 |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Representing:-                                                                                         |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Proposed final dividend                                                                                |               |  |         |   |         |  |          |   |       |  | 1,220 |        |   |  |        |        |   |  |       |     
|Retained profits after proposed final dividend                                                         |               |  |         |   |         |  |          |   |       |  | 919   |        |   |  |        |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Retained profits at December 31, 2000, as adjusted                                                     |               |  |         |   |         |  |          |   |       |  | 2,139 |        |   |  |        |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Balance at January 1, 2001, as previously reported                                                     |               |  | 12,442  |   |         |  | 7,958    |   |       |  |      |        |   |  | 20,400 |        |   |  |       |     
|Proposed final dividend not declared before year end                                                   |               |  |        |   |         |  |         |   |       |  | 1,220 |        |   |  | 1,220  |        |   |  |       |     
|Adjustment for final dividends not declared by
jointly controlled entities before year end             |               |  |        |   |         |  |         |   |       |  | (145  | )      |   |  | (145   | )      |   |  |       |     
|Surplus of employee retirement benefit plan
assets over liabilities (Note 14)                          |               |  |        |   |         |  |         |   |       |  | 1,064 |        |   |  | 1,064  |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Balance at January 1, 2001, as adjusted                                                                |               |  | 12,442  |   |         |  | 7,958    |   |       |  | 2,139 |        |   |  | 22,539 |        |   |  |       |     
|Earnings for the year                                                                                  |               |  |         |   |         |  |          |   |       |  | 5,568 |        |   |  | 5,568  |        |   |  |       |     
|Dividends declared for the year                                                                        |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|                                                                                                       | 2000 final    |  |         |  |         |  |          |  |       |  |       | (1,220 | ) |  |        | (1,220 | ) |  |       |      |  
|                                                                                                       | 2001 interims |  |         |  |         |  |          |  |       |  |       | (4,279 | ) |  |        | (4,279 | ) |  |       |      |  
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Balance at December 31, 2001, as adjusted                                                              |               |  | 12,442  |   |         |  | 7,958    |   |       |  | 2,208 |        |   |  | 22,608 |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Representing:-                                                                                         |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Proposed final dividend                                                                                |               |  |         |   |         |  |          |   |       |  | 1,144 |        |   |  |        |        |   |  |       |     
|Retained profits after proposed final dividend                                                         |               |  |         |   |         |  |          |   |       |  | 1,064 |        |   |  |        |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Retained profits at December 31, 2001, as adjusted                                                     |               |  |         |   |         |  |          |   |       |  | 2,208 |        |   |  |        |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Balance at January 1, 2002, as previously reported                                                     |               |  | 12,442  |   |         |  | 7,958    |   |       |  | 1,144 |        |   |  | 21,544 |        |   |  | 2,763 |     
|Surplus of employee retirement benefit plan
assets over liabilities (Note 14)                          |               |  |        |   |         |  |         |   |       |  | 1,064 |        |   |  | 1,064  |        |   |  | 136   |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Balance at January 1, 2002, as adjusted                                                                |               |  | 12,442  |   |         |  | 7,958    |   |       |  | 2,208 |        |   |  | 22,608 |        |   |  | 2,899 |     
|Earnings for the year                                                                                  |               |  |        |   |         |  |         |   |       |  | 6,206 |        |   |  | 6,206  |        |   |  | 796   |     
|Dividends declared for the year                                                                        |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|                                                                                                       | 2001 final    |  |         |  |         |  |          |  |       |  |       | (1,144 | ) |  |        | (1,144 | ) |  |       | (147 | )
|                                                                                                       | 2002 interims |  |         |  |         |  |          |  |       |  |       | (5,117 | ) |  |        | (5,117 | ) |  |       | (656 | )
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Balance at December 31, 2002                                                                           |               |  | 12,442  |   |         |  | 7,958    |   |       |  | 2,153 |        |   |  | 22,553 |        |   |  | 2,892 |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Representing:-                                                                                         |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Proposed final dividend                                                                                |               |  |         |   |         |  |          |   |       |  | 1,089 |        |   |  |        |        |   |  |       |     
|Retained profits after proposed final dividend                                                         |               |  |         |   |         |  |          |   |       |  | 1,064 |        |   |  |        |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     
|Retained profits at December 31, 2002                                                                  |               |  |         |   |         |  |          |   |       |  | 2,153 |        |   |  |        |        |   |  |       |     
|                                                                                                       |               |  |         |   |         |  |          |   |       |  |       |        |   |  |        |        |   |  |       |     



|(1) |  | 1999 represents the three-month period ended December 31, 1999.
|--- |  | ---------------------------------------------------------------
|   
|    |  | F-5                                                            



---



##### 



CLP POWER HONG KONG 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                               |  |      | 19 |      |  |                         | 7,974  |      |  |        | 7,854  |   |  |        | 8,328  |   |  |       | 1,068 |  
|                                                                       | Dividends received from jointly controlled
entities          |  |      |    |      |  |                         | 1,282  |      |  |        | 1,295  |   |  |        | 1,401  |   |  |       | 180   |  
|                                                                       | Interest received                                            |  |      |    |      |  |                         | 18     |      |  |        | 1      |   |  |        |       |   |  |       |      |  
|                                                                       | Operating interest paid                                      |  |      |    |      |  |                         | (204   | )    |  |        | (171   | ) |  |        | (73    | ) |  |       | (9    | )
|                                                                       | Hong Kong profits tax paid                                   |  |      |    |      |  |                         | (431   | )    |  |        | (609   | ) |  |        | (490   | ) |  |       | (63   | )
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|NET CASH GENERATED FROM OPERATING ACTIVITIES                           |                                                              |  |      |    |      |  | 8,639                   |        |      |  | 8,370  |        |   |  | 9,166  |        |   |  | 1,176 |      
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|INVESTING ACTIVITIES                                                   |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|                                                                       | Capital expenditure                                          |  |      |    |      |  |                         | (2,702 | )    |  |        | (4,354 | ) |  |        | (4,702 | ) |  |       | (603  | )
|                                                                       | Proceeds from disposal of fixed assets                       |  |      |    |      |  |                         | 41     |      |  |        | 85     |   |  |        | 78     |   |  |       | 10    |  
|                                                                       | Capitalized interest paid                                    |  |      |    |      |  |                         | (68    | )    |  |        | (119   | ) |  |        | (178   | ) |  |       | (23   | )
|                                                                       | Increase in loan and advances to jointly
controlled entities |  |      |    |      |  |                         | (209   | )    |  |        | (297   | ) |  |        | (597   | ) |  |       | (77   | )
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|NET CASH OUTFLOW FROM INVESTING ACTIVITIES                             |                                                              |  |      |    |      |  | (2,938                  | )      |      |  | (4,685 | )      |   |  | (5,399 | )      |   |  | (693  | )    
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|NET CASH INFLOW BEFORE FINANCING                                       |                                                              |  |      |    |      |  | 5,701                   |        |      |  | 3,685  |        |   |  | 3,767  |        |   |  | 483   |      
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|FINANCING ACTIVITIES                                                   |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|                                                                       | Proceeds from long-term borrowings                           |  |      |    |      |  |                         | 8      |      |  |        | 1,500  |   |  |        | 2,326  |   |  |       | 298   |  
|                                                                       | Repayment of long-term borrowings                            |  |      |    |      |  |                         | (107   | )    |  |        | (35    | ) |  |        | (11    | ) |  |       | (1    | )
|                                                                       | (Decrease)/increase in short term borrowings                 |  |      |    |      |  |                         | (239   | )    |  |        | 342    |   |  |        | 173    |   |  |       | 22    |  
|                                                                       | Dividends paid                                               |  |      |    |      |  |                         | (5,371 | )    |  |        | (5,499 | ) |  |        | (6,261 | ) |  |       | (803  | )
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|NET CASH OUTFLOW FROM FINANCING ACTIVITIES                             |                                                              |  |      |    |      |  | (5,709                  | )      |      |  | (3,692 | )      |   |  | (3,773 | )      |   |  | (484  | )    
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|Decrease in cash and cash equivalents                                  |                                                              |  |      |    |      |  | (8                      | )      |      |  | (7     | )      |   |  | (6     | )      |   |  | (1    | )    
|Cash and cash equivalents at beginning of the
year                     |                                                              |  |      |    |      |  | 32                      |        |      |  | 24     |        |   |  | 17     |        |   |  | 2     |      
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|CASH AND CASH EQUIVALENTS AT END OF THE YEAR                           |                                                              |  |      |    |      |  | 24                      |        |      |  | 17     |        |   |  | 11     |        |   |  | 1     |      
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      
|Analysis of cash and cash equivalents
Deposits, bank balances and cash |                                                              |  |      |    |      |  | 24                      |        |      |  | 17     |        |   |  | 11     |        |   |  | 1     |      
|                                                                       |                                                              |  |      |    |      |  |                         |        |      |  |        |        |   |  |        |        |   |  |       |      

F-6



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|1. |  | SIGNIFICANT ACCOUNTING POLICIES                                                                  
|-- |  | -------------------------------------------------------------------------------------------------
|  
|   |  | The principal accounting policies adopted in the preparation of these
accounts are set out below:



| | A. |  | Basis of Preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Other than stated 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. The Companys accounts are prepared on the basis of its
own results and incorporating the results of its subsidiary company
and jointly controlled entities on the basis of dividends received
and receivable (Note 1(C) and 1(D)). No consolidated accounts have
been prepared by the Company as a wholly-owned subsidiary of CLP
Holdings Limited.                                
|
| |    |  | On January 1, 2002, the Company adopted Statement of Standard
Accounting Practice (SSAP) No. 34 Employee Benefits. The effect
of this new policy on the accounts and the transitional treatment
are explained in Notes 1(I) and 14.                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | B. |  | Scheme of Control                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |    |  | The financial operations of the Company and its jointly controlled
entity, Castle Peak Power Company Limited (CAPCO), are governed by
a Scheme of Control Agreement entered into with the Government of
The Hong Kong Special Administrative Region. The Companys accounts
are prepared in conformity with Hong Kong generally accepted
accounting principles, modified as necessary to comply with the
terms of the Scheme of Control, the main features of which are
summarized on pages F-37 and F-38. The only such modification which
is significant to the Companys accounts is in respect of deferred
taxation which is set out in Note 1(J) below.
|
| | C. |  | Subsidiary Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |    |  | 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.                                                                                                                                                                                                                                                                                                                                    
|
| |    |  | In the Companys balance sheet, the investment in subsidiary company
is stated at cost less provision for impairment. The results of
subsidiary company are accounted for by the Company on the basis of
dividends received and receivable.                                                                                                                                                                                                                                                                                                                                                                                                                   

F - 7



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



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



| | D. |  | Jointly Controlled Entities                                                                                                                                                                                                                                                                                                                                                         
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | A jointly controlled entity is a joint venture in which the Company
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.                                                                                                                                     
|
| |    |  | In the Companys balance sheet, the investments in jointly
controlled entities are stated at cost less provision for impairment
losses. The results of jointly controlled entities are accounted for
by the Company on the basis of dividends received and receivable.                                                                                                              
|
| | E. |  | Turnover                                                                                                                                                                                                                                                                                                                                                                            
|
| |    |  | Turnover represents sale of electricity, dividend income from
jointly controlled entities and other electricity-related revenue.
Sale of electricity is based on actual and accrued consumption
derived from meter readings during the year. Dividend income is
recognized when the right to receive payment is established. Other
revenue is recognized when services are rendered.
|
| | F. |  | 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 asset, are capitalized, while
maintenance and repair costs are normally charged to the profit and
loss account in the year in which they are incurred.   
|
| |    |  | Depreciation of fixed assets is based on the rates authorized under
the Scheme of Control. The following bases apply to fixed assets
other than land which is not depreciated:                                                                                                                                                                                                      

| |      |  |                                                                                                                                                                                      
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  |  | Fixed assets acquired before October 1, 1998                                                                                                                                         
| |      |  |                                                                                                                                                                                      
| |      |  | The net book value of such commissioned assets held at
September 30, 1998 will be written off uniformly over the
remainder of their extended useful lives, as set out in (iii)
below.
| |      |  |                                                                                                                                                                                      
| | (ii) |  | Fixed assets acquired on or after October 1, 1998                                                                                                                                    
| |      |  |                                                                                                                                                                                      
| |      |  | The cost will be written off uniformly over the useful lives of the
assets, as set out in (iii) below, commencing from the date of
commissioning.                                    

F - 8



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



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



| | F. |  | Fixed Assets and Depreciation (Continued)
| | -- |  | -----------------------------------------

| |       |  |                                                                                                                                                                                                                                                                                                                                        |  |                                                                 
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------
| | (iii) |  | Depreciation periods                                                                                                                                                                                                                                                                                                                   |  |                                                                 
| |       |  |                                                                                                                                                                                                                                                                                                                                        | 
| |       |  | Overhead lines (132kV and above)
Buildings
Overhead Lines (below 132kV) and cables
Generating plant, switchgear and transformers
Meters, system control equipment, furniture, tools,
communication and office equipment
Computers and office automation equipment other than
those forming part of the generating plant
Motor vehicles |  | 35 years
33 years
30 years
25 years
10 years
  5 years
  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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | G. |  | Stores                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |    |  | Stores are valued at the lower of cost and net realizable value.
Cost for stores is calculated on the weighted average basis. Net
realizable value is determined on the basis of anticipated sales
proceeds less estimated selling expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | H. |  | Fuel Clause Account                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |    |  | Costs of fuel consumed 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. Any balance on the account
(inclusive of interest) represents amounts over-recovered or
under-recovered and is treated as an amount due to or from
customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | I. |  | Employee Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |    |  | The Company operates the CLP Groups retirement benefit programmes.
The CLP Group classified its two retirement benefit schemes, which
are established under trust with the assets held separately from
those of the CLP 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 Company.

F - 9



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



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



| | I. |  | Employee Benefits (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Pursuant to the provisions of SSAP No. 34, the Company has recognized
an asset in respect of the pension surplus at December 31, 2001 as
prior year adjustment (Note 14). Comparative figures have been
adjusted to conform with the change in accounting policy.                                                                                                                                                                                                                                                                                                                                                                           
|
| | J. |  | Deferred Taxation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |    |  | In accordance with the Scheme of Control, the charge for taxation
fully recognises 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 crystallize in respect of accelerated
depreciation allowances in the foreseeable future and, accordingly,
the above policy does not fully comply with 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 Scheme of Control, 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 Scheme of Control for the year 2002 by HK$330
million (2000: HK$190 million; 2001: HK$281 million).                                                                                                                                                                                                                                                                                                              
|
| | K. |  | 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.                         



| | L. |  | Translation of 2002 Financial Statements to United States
Dollars US Dollars                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The financial statements are expressed in Hong Kong Dollars (HK
Dollars). Solely for the convenience of the reader, the 2002
financial statements have been translated into US Dollars at the
specified rate below. These translations should not be construed as
representations that the HK Dollar amounts actually represent such
US Dollar amounts or could be converted into US Dollars at the rate
indicated. The translation of HK Dollars into US 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 HK Dollars as certified
for customs purposes by the Federal Reserve Bank of New York on
December 31, 2002.

F - 10



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



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



| | M. |  | 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.
|
| | N. |  | 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.                                                            

F - 11



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|2. |  | TURNOVER
|-- |  | --------

|                                                 |  |      |        |      |  |      |        |  |  |  |        | 
|------------------------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                 |  | 2000 |        | 2001 |  | 2002
|                                                 |  |      |        |      |  |     
|                                                 |  | HK$M |        | HK$M |  | HK$M
|Sale of Electricity                              |  |      | 24,163 |      |  |      | 24,725 |  |  |  | 25,770 | 
|Dividend income from jointly controlled entities |  |      | 1,282  |      |  |      | 1,295  |  |  |  | 1,401  | 
|Others                                           |  |      | 67     |      |  |      | 85     |  |  |  | 75     | 
|                                                 |  |      |        |      |  |      |        |  |  |  |        | 
|                                                 |  |      | 25,512 |      |  |      | 26,105 |  |  |  | 27,246 | 
|                                                 |  |      |        |      |  |      |        |  |  |  |        | 



|   |  | Others mainly comprised revenue incomes from miscellaneous charges on
electricity related activities and property.
|-- |  | ------------------------------------------------------------------------------------------------------------------
|  
|3. |  | FINANCE COSTS AND INCOME                                                                                          

|                                           |                                       |  |      |     |      |  |      |     |  |  |      |     | 
|------------------------------------------ | ------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | ---- | --- | 
|                                           |                                       |  | 2000 |     | 2001 |  | 2002
|                                           |                                       |  |      |     |      |  |     
|                                           |                                       |  | HK$M |     | HK$M |  | HK$M
|Finance costs:                             |                                       |  |      |     |      |  |      |     |  |  |      |    
|Interest on bank loans and overdrafts      |                                       |  | 15   |     |      |  | 43   |     |  |  | 31   |    
|Interest on other loans                    |                                       |  |      |     |      |  |      |     |  |  |      |    
|                                           | - wholly repayable within 5 years     |  |      |    |      |  |      | 165 |  |  |      | 166 | 
|                                           | - not wholly repayable within 5 years |  |      | 177 |      |  |      |    |  |  |      | 62  | 
|Interest on customers deposits and others |                                       |  | 52   |     |      |  | 86   |     |  |  | 23   |    
|Finance charges                            |                                       |  | 11   |     |      |  | 4    |     |  |  | 16   |    
|Exchange losses / (gains)                  |                                       |  | 10   |     |      |  | (3   | )   |  |  | (1   | )  
|                                           |                                       |  |      |     |      |  |      |     |  |  |      |    
|                                           |                                       |  | 265  |     |      |  | 295  |     |  |  | 297  |    
|Less: amount capitalized                   |                                       |  | (70  | )   |      |  | (134 | )   |  |  | (203 | )  
|                                           |                                       |  |      |     |      |  |      |     |  |  |      |    
|                                           |                                       |  | 195  |     |      |  | 161  |     |  |  | 94   |    
|                                           |                                       |  |      |     |      |  |      |     |  |  |      |    
|Finance income:                            |                                       |  |      |     |      |  |      |     |  |  |      |    
|Interest income on bank deposits           |                                       |  | 18   |     |      |  | 1    |     |  |  |     |    
|                                           |                                       |  |      |     |      |  |      |     |  |  |      |    

F - 12



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|4. |  | PROFIT BEFORE TAXATION
|-- |  | ----------------------

|                                                                           |                                |                                                        |       |       |    |      |       |       |    |  |       |       |    | 
|-------------------------------------------------------------------------- | ------------------------------ | ------------------------------------------------------ | ----- | ----- | -- | ---- | ----- | ----- | -- |  | ----- | ----- | -- | 
|                                                                           |                                |                                                        |       | 2000  |    | 2001 |       | 2002 
|                                                                           |                                |                                                        |       |       |    |      |       |      
|                                                                           |                                |                                                        |       | HK$M  |    | HK$M |       | HK$M 
|Profit before taxation is stated after charging/(crediting)
the following: |                                |                                                        |       |       |    |      |       |       |    |  |       |      
|Staff costs (A)                                                            |                                |                                                        |       |       |    |      |       |       |    |  |       |      
|                                                                           | Salaries and other costs       |                                                        |       | 995   |    |      |       | 937   |    |  |       | 903   |   
|                                                                           | Retirement benefit costs       |                                                        |       |       |    |      |       |       |    |  |       |       |   
|                                                                           |                                | - defined benefit plans (Note 14)                      |       |       | 81 |      |       |       | 81 |  |       |       | 65 | 
|                                                                           |                                | - defined contribution plan (Mandatory Provident Fund) |       |       |   |      |       |       | 1  |  |       |       | 1  | 
|Depreciation                                                               |                                |                                                        |       |       |    |      |       |       |    |  |       |      
|                                                                           | Buildings                      |                                                        |       | 110   |    |      |       | 119   |    |  |       | 131   |   
|                                                                           | Plant, machinery and equipment |                                                        |       | 1,353 |    |      |       | 1,479 |    |  |       | 1,592 |   
|                                                                           |                                |                                                        |       |       |    |      |       |       |    |  |       |      
|                                                                           |                                |                                                        | 1,463 |       |    |      | 1,598 |       |    |  | 1,723 |      
|Auditors remuneration                                                     |                                |                                                        | 1     |       |    |      | 1     |       |    |  | 1     |      
|Net loss / (gain) on disposal of fixed assets                              |                                |                                                        | 94    |       |    |      | 52    |       |    |  | (237  | )    
|Net rental income                                                          |                                |                                                        | (21   | )     |    |      | (26   | )     |    |  | (23   | )    
|                                                                           |                                |                                                        |       |       |    |      |       |       |    |  |       |       |   



|   |  | (A)  Staff costs include amounts recharged to jointly controlled entities
for services provided.
|-- |  | ------------------------------------------------------------------------------------------------
|  
|5. |  | DIRECTORS REMUNERATION                                                                         

|                                          |  |      |    |      |  |      |    |  |  |  |    | 
|----------------------------------------- |  | ---- | -- | ---- |  | ---- | -- |  |  |  | -- | 
|                                          |  | 2000 |    | 2001 |  | 2002
|                                          |  |      |    |      |  |     
|                                          |  | HK$M |    | HK$M |  | HK$M
|Fees                                      |  |      | 1  |      |  |      | 1  |  |  |  | 1  | 
|Salaries, allowances and benefits in kind |  |      | 12 |      |  |      | 16 |  |  |  | 23 | 
|Provident fund contributions              |  |      | 1  |      |  |      | 1  |  |  |  | 3  | 
|Compensation for loss of office           |  |      |   |      |  |      |   |  |  |  | 10 | 
|                                          |  |      |    |      |  |      |    |  |  |  |    | 
|                                          |  |      | 14 |      |  |      | 18 |  |  |  | 37 | 
|                                          |  |      |    |      |  |      |    |  |  |  |    | 

F - 13



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE 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                        |                                       |  |      |     |      |  |      |      |   |  |     |    
|                                                    | On Scheme of Control profit           |  |      | 653 |      |  |      | 520  |   |  |     | 516 | 
|                                                    | On Non-Scheme of Control profit       |  |      | 5   |      |  |      | 5    |   |  |     | 7   | 
|                                                    |                                       |  |      |     |      |  |      |      |   |  |     |    
|                                                    |                                       |  | 658  |     |      |  | 525  |      |   |  | 523 |    
|                                                    | Provision written back                |  |      |    |      |  |      | (269 | ) |  |     |    | 
|                                                    |                                       |  |      |     |      |  |      |      |   |  |     |    
|                                                    |                                       |  | 658  |     |      |  | 256  |      |   |  | 523 |    
|Deferred taxation                                   |                                       |  |      |     |      |  |      |      |   |  |     |    
|                                                    | On Scheme of Control profit (Note 18) |  |      | 190 |      |  |      | 281  |   |  |     | 330 | 
|                                                    |                                       |  |      |     |      |  |      |      |   |  |     |    
|                                                    |                                       |  | 848  |     |      |  | 537  |      |   |  | 853 |    
|                                                    |                                       |  |      |     |      |  |      |      |   |  |     |     | 



|   |  | Hong Kong profits tax has been provided at the rate of 16% (2000 & 2001:
16%) on the estimated assessable profit for the year.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------
|  
|7. |  | TRANSFERS UNDER SCHEME OF CONTROL                                                                                             

|                               |  |  |    |   |  |      |        |      |  |      |        |   |  |  |        |  
|------------------------------ |  |  | -- | - |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                               |  |  |    |   |  | 2000 |        | 2001 |  | 2002
|                               |  |  |    |   |  |      |        |      |  |     
|                               |  |  |    |   |  | HK$M |        | HK$M |  | HK$M
|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 | )
|                               |  |  |    |   |  |      |        |      |  |      |        |   |  |  |        |  



| | (a) |  | Development Fund
| | --- |  | ----------------

|                                      |  |      |       |      |  |      |       |   |  |  |       |  
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                      |  | 2000 |       | 2001 |  | 2002
|                                      |  |      |       |      |  |     
|                                      |  | HK$M |       | HK$M |  | HK$M
|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 |  |      | (803  | )    |  |      |      |   |  |  |      |  
|One-off rebate                        |  |      |      |      |  |      | (340  | ) |  |  | (558  | )
|CLP centenary rebate                  |  |      | (387  | )    |  |      |      |   |  |  |      |  
|Business relief rebate                |  |      |      |      |  |      |      |   |  |  | (41   | )
|Special rebates to customers          |  |      | (593  | )    |  |      | (607  | ) |  |  | (626  | )
|                                      |  |      |       |      |  |      |       |   |  |  |       |  
|At end of year                        |  |      | 2,923 |      |  |      | 3,177 |   |  |  | 3,372 |  
|                                      |  |      |       |      |  |      |       |   |  |  |       |  

F - 14



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|7. |  | TRANSFERS UNDER SCHEME OF CONTROL (Continued)
|-- |  | ---------------------------------------------



| |     |  | The Company 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 year 2001, the Company 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).                                                                                                                                                                                                                                                              
|
| |     |  | The CLP centenary rebate in year 2000 represented the rebate of
HK$200 to each customer in commemoration of the Companys centenary.
This amount was charged directly to the Development Fund.                                                                                                                                                                                                                                                   
|
| |     |  | A special rebate of HK¢2.2 per unit (2000 & 2001: HK¢2.2 per unit)
was made to customers during the year. In addition, a business relief
rebate of HK¢0.2 per unit (2000 & 2001: nil) was made to
non-residential customers in 2002. The rebates were charged directly
to the Development Fund.                                                                                                                                                  
|
| | (b) |  | Special Provision Account                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | Movements in the special provision account are as follows:                                                                                                                                                                                                                                                                                                                                                                                       

|                               |  |      |     |      |  |      |     |  |  |  |     |  
|------------------------------ |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- | -
|                               |  | 2000 |     | 2001 |  | 2002
|                               |  |      |     |      |  |     
|                               |  | HK$M |     | HK$M |  | HK$M
|At beginning of year           |  |      |    |      |  |      | 766 |  |  |  | 766 |  
|Transfer from Development
Fund |  |      | 803 |      |  |      |    |  |  |  |    |  
|Charge for the year            |  |      | (37 | )    |  |      |    |  |  |  | (96 | )
|                               |  |      |     |      |  |      |     |  |  |  |     |  
|At end of year                 |  |      | 766 |      |  |      | 766 |  |  |  | 670 |  
|                               |  |      |     |      |  |      |     |  |  |  |     |  



| |  |  | The Company 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 (2000: HK$37
million; 2001: nil) of deferral premium was charged to the special
provision account.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|7. |  | TRANSFERS UNDER SCHEME OF CONTROL (Continued)
|-- |  | ---------------------------------------------



| | (c) |  | Rate Reduction Reserve
| | --- |  | ----------------------

2000
    
    2001
    
    2002HK$M
    
    HK$M
    
    HK$MAt beginning of year
    
    
    253
    
    
    
    371
    
    
    
    411Transfer from profit and loss
account
    
    
    280
    
    
    
    305
    
    
    
    319One-off rebate
    
    
    
    
    
    
    (99
    )
    
    
    (101
    )Rebates to customers
    
    
    (162
    )
    
    
    (166
    )
    
    
    (171
    )At end of year
    
    
    371
    
    
    
    411
    
    
    
    458




| |  |  | A rebate of HK¢0.6 per unit (2000 & 2001: HK¢0.6 per unit) was made to
customers during the year.
| |  |  | -------------------------------------------------------------------------------------------------



|8. |  | OTHER EARNINGS
|-- |  | --------------

2000
    
    2001
    
    2002HK$M
    
    HK$M
    
    HK$MDividends from a jointly controlled entity
    
    
    77
    
    
    
    72
    
    
    
    70Capital gain from site development and disposal of properties
    
    
    4
    
    
    
    51
    
    
    
    316Profit from export sale of electricity
    
    
    28
    
    
    
    49
    
    
    
    58Other Non-Scheme of Control profits
    
    
    13
    
    
    
    7
    
    
    
    5Loss on curtailment of the retirement benefit schemes (Note
14)
    
    
    
    
    
    
    
    
    
    
    (74
    )122
    
    
    
    179
    
    
    
    375


F - 16



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|9. |  | DIVIDENDS
|-- |  | ---------

|                                  |  |  |       |  |      |  |       |  |  |  |       |  | 
|--------------------------------- |  |  | ----- |  | ---- |  | ----- |  |  |  | ----- |  | 
|                                  |  |  | 2000  |  | 2001 |  | 2002 
|                                  |  |  |       |  |      |  |      
|                                  |  |  | HK$M  |  | HK$M |  | HK$M 
|Ordinary
- Interim dividends paid |  |  | 4,053 |  |      |  | 4,279 |  |  |  | 5,117 | 
|- Proposed final dividend         |  |  | 1,220 |  |      |  | 1,144 |  |  |  | 1,089 | 
|                                  |  |  |       |  |      |  |       |  |  |  |       | 
|                                  |  |  | 5,273 |  |      |  | 5,423 |  |  |  | 6,206 | 
|                                  |  |  |       |  |      |  |       |  |  |  |       | 



|10. |  | EARNINGS PER SHARE                                                  
|--- |  | --------------------------------------------------------------------
|   
|    |  | The prescribed figure for earnings per share is computed as follows:

|                                                            |  |  |          |  |      |  |          |  |  |  |          |  | 
|----------------------------------------------------------- |  |  | -------- |  | ---- |  | -------- |  |  |  | -------- |  | 
|                                                            |  |  | 2000     |  | 2001 |  | 2002    
|                                                            |  |  |          |  |      |  |         
|Earnings for the year (HK$M)                                |  |  | 5,276    |  |      |  | 5,568    |  |  |  | 6,206    | 
|                                                            |  |  |          |  |      |  |          |  |  |  |          | 
|Weighted average number of shares in issue (million shares) |  |  | 2,488.32 |  |      |  | 2,488.32 |  |  |  | 2,488.32 | 
|                                                            |  |  |          |  |      |  |          |  |  |  |          | 
|Earnings per share (HK$)                                    |  |  | 2.12     |  |      |  | 2.24     |  |  |  | 2.49     | 
|                                                            |  |  |          |  |      |  |          |  |  |  |          | 

F-17



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|11. |  | FIXED ASSETS
|--- |  | ------------

|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  
|------------------------ | ----------------------- |  | ---- | ----- | --------- |  | --------- | ----- | ----- |  | ------------- | ------ | - |  |  | ------ | -
|                         |                         |  |      |       |           |  |           |       |       |  | Plant,        |        |   |  | 
|                         |                         |  |      |       |           |  |           |       |       |  | Machinery and |        |   |  | 
|                         |                         |  | Land |       | Buildings |  | Equipment |       | Total
|                         |                         |  |      |       |           |  |           |       |      
|                         |                         |  | HK$M |       | HK$M      |  | HK$M      |       | HK$M 
|Cost                     |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |       
|                         | At January 1, 2001      |  |      | 1,853 |           |  |           | 4,330 |       |  |               | 36,971 |   |  |  | 43,154 |  
|                         | Additions               |  |      | 250   |           |  |           | 454   |       |  |               | 3,876  |   |  |  | 4,580  |  
|                         | Transfers and disposals |  |      | (32   | )         |  |           | (24   | )     |  |               | (396   | ) |  |  | (452   | )
|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  
|                         | At December 31, 2001    |  |      | 2,071 |           |  |           | 4,760 |       |  |               | 40,451 |   |  |  | 47,282 |  
|                         | Additions               |  |      | 98    |           |  |           | 821   |       |  |               | 4,004  |   |  |  | 4,923  |  
|                         | Transfers and disposals |  |      | (26   | )         |  |           | (84   | )     |  |               | (381   | ) |  |  | (491   | )
|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  
|                         | At December 31, 2002    |  |      | 2,143 |           |  |           | 5,497 |       |  |               | 44,074 |   |  |  | 51,714 |  
|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  
|Accumulated depreciation |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |       
|                         | At January 1, 2001      |  |      |      |           |  |           | 1,134 |       |  |               | 11,662 |   |  |  | 12,796 |  
|                         | Charge for the year     |  |      |      |           |  |           | 119   |       |  |               | 1,479  |   |  |  | 1,598  |  
|                         | Transfers and disposals |  |      |      |           |  |           | (7    | )     |  |               | (308   | ) |  |  | (315   | )
|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  
|                         | At December 31, 2001    |  |      |      |           |  |           | 1,246 |       |  |               | 12,833 |   |  |  | 14,079 |  
|                         | Charge for the year     |  |      |      |           |  |           | 131   |       |  |               | 1,592  |   |  |  | 1,723  |  
|                         | Transfers and disposals |  |      |      |           |  |           | (70   | )     |  |               | (297   | ) |  |  | (367   | )
|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  
|                         | At December 31, 2002    |  |      |      |           |  |           | 1,307 |       |  |               | 14,128 |   |  |  | 15,435 |  
|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  
|Net book value           |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |       
|                         | At December 31, 2002    |  |      | 2,143 |           |  |           | 4,190 |       |  |               | 29,946 |   |  |  | 36,279 |  
|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  
|                         | At December 31, 2001    |  |      | 2,071 |           |  |           | 3,514 |       |  |               | 27,618 |   |  |  | 33,203 |  
|                         |                         |  |      |       |           |  |           |       |       |  |               |        |   |  |  |        |  



| |  | Included in fixed assets are equipment awaiting installation and plant
under construction, the book values of which at December 31, 2002 are
HK$356 million and HK$5,926 million respectively (2001: HK$371 million
and HK$5,233 million respectively).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The tenure of the land is as follows:                                                                                                                                                                                                                  

|                                         |  |      |       |      |  |  |       | 
|---------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                         |  | 2001 |       | 2002
|                                         |  |      |       |     
|                                         |  | HK$M |       | HK$M
|Held in Hong Kong:                       |  |      |       |      |  |  |       | 
|On long-term lease (over 50 years)       |  |      | 128   |      |  |  | 176   | 
|On medium-term lease (10-50 years)       |  |      | 1,941 |      |  |  | 1,965 | 
|On short-term lease (less than 10 years) |  |      | 2     |      |  |  | 2     | 
|                                         |  |      |       |      |  |  |       | 
|                                         |  |      | 2,071 |      |  |  | 2,143 | 
|                                         |  |      |       |      |  |  |       | 

F-18



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|12. |  | INVESTMENT IN A SUBSIDIARY
|--- |  | --------------------------

|                        |  |      |   |      |  |  |   | 
|----------------------- |  | ---- | - | ---- |  |  | - | 
|                        |  | 2001 |   | 2002
|                        |  |      |   |     
|                        |  | HK$M |   | HK$M
|Unlisted share, at cost |  |      |  |      |  |  |  | 
|                        |  |      |   |     

|                                      |  |                      |  |               |     |                   |  |                                                   |  |                                                                 
|------------------------------------- |  | -------------------- |  | ------------- | --- | ----------------- |  | ------------------------------------------------- |  | ----------------------------------------------------------------
|                                      |  |                      |  |               |     |                   |  | Place of                                          |  |                                                                 
|                                      |  |                      |  | Percentage of |     | Incorporation and |  |                                                  
|                                      |  | Issued               |  | Issued Share  |     | Kind of Legal     |  |                                                  
|Name                                  |  | Share Capital        |  | Directly Held |     | Entity            |  | Principal Activity                               
|                                      |  |                      |  |               |     |                   |  |                                                  
|CLP Power
Hong Kong
Financing
Limited |  | 1 share of US$1
each |  |               | 100 | %                 |  | British Virgin
Islands/ Limited
Liability Company |  | Act as the issuer of
US$1,500,000,000
Medium Term Note
Programme



| |  | CLP Power Hong Kong Limited acquired the entire issued share capital of
CLP Power Hong Kong Financing Limited on March 11, 2002 in exchange for
cash consideration of US$1 (HK$8).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|13. |  | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES
|--- |  | ------------------------------------------

|                                                          |                          |  |       |       |      |  |       |       | 
|--------------------------------------------------------- | ------------------------ |  | ----- | ----- | ---- |  | ----- | ----- | 
|                                                          |                          |  | 2001  |       | 2002
|                                                          |                          |  |       |       |     
|                                                          |                          |  | HK$M  |       | HK$M
|Castle Peak Power Company Limited (A)                     |                          |  |       |       |      |  |       |      
|                                                          | Unlisted shares, at cost |  |       | 20    |      |  |       | 20    | 
|                                                          | Advances                 |  |       | 4,268 |      |  |       | 4,856 | 
|                                                          | Special loan             |  |       | 78    |      |  |       | 78    | 
|                                                          |                          |  |       |       |      |  |       |       | 
|                                                          |                          |  | 4,366 |       |      |  | 4,954 |      
|                                                          |                          |  |       |       |      |  |       |       | 
|Hong Kong Pumped Storage Development Company, Limited (B) |                          |  |       |       |      |  |       |      
|                                                          | Unlisted shares, at cost |  |       | 5     |      |  |       | 5     | 
|                                                          | Advances                 |  |       | 290   |      |  |       | 300   | 
|                                                          |                          |  |       |       |      |  |       |       | 
|                                                          |                          |  | 295   |       |      |  | 305   |      
|                                                          |                          |  |       |       |      |  |       |       | 
|                                                          |                          |  | 4,661 |       |      |  | 5,259 |      
|                                                          |                          |  |       |       |      |  |       |       | 



| | (A) |  | Castle Peak Power Company Limited (CAPCO) is 40% owned by
the Company 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 the Company. While CAPCO
owns the power generation assets, the Company 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, the Companys advances to it
would be subordinated to certain loans of CAPCO. The Company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 earnings and any proposed dividend.
|
| |     |  | The Special Loan to CAPCO is unsecured, interest free and
repayable in full on 30th September, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-20



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|13. |  | INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (Continued)                                                                                
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In view of the significance of this investment, an extract of the
accounts of Castle Peak Power Company Limited 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  |  
|                                                              |  |      |         |      |  |  |        |  
|Companys share of profit before taxation for the year        |  |      | 1,491   |      |  |  | 1,572  |  
|                                                              |  |      |         |      |  |  |        |  
|Companys share of profit after taxation for the year         |  |      | 1,250   |      |  |  | 1,321  |  
|                                                              |  |      |         |      |  |  |        |  
|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 (other than amounts due to the Company) |  |      | (10,591 | )    |  |  | (7,733 | )
|                                                              |  |      |         |      |  |  |        |  
|                                                              |  |      | 11,191  |      |  |  | 12,625 |  
|                                                              |  |      |         |      |  |  |        |  
|Companys share of net assets at year end                     |  |      | 4,532   |      |  |  | 5,109  |  
|                                                              |  |      |         |      |  |  |        |  



| | (B) |  | Hong Kong Pumped Storage Development Company, Limited is 49%
owned by the Company and is incorporated in Hong Kong. This company
has acquired the right to use 50% of the capacity of Phase 1 of the
Guangzhou Pumped Storage Power Station in the Guangdong Province of
China until 2034.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The advances to jointly controlled entities are unsecured, interest free
and have no fixed terms of repayment.
| |  | --------------------------------------------------------------------------------------------------------------

F-21



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|14. |  | RETIREMENT BENEFITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The CLP 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 CLP Group by an independent trustee, and are
Mandatory Provident Fund (MPF) exempted schemes under the Occupational
Retirement Schemes Ordinance. Commencing December 1, 2000, the CLP 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 basic salary. 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 basic salary 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 basic salary (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.                                                                                                                                                                   
|   
|    |  | On January 1, 2002, the Company adopted SSAP No. 34 Employee Benefits.
The effect of this change in accounting policy has been to increase
shareholders funds at January 1, 2002 and January 1, 2001 by HK$1,064
million. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | On December 31, 2002, the remaining members in the defined benefit
programmes were transferred to the defined contribution programmes. At
the same time, the Company obtained the relevant approvals in principle
to enable the winding up of the defined benefit programmes. This
represented a curtailment of the defined benefit programmes. Accordingly,
all actuarial losses of HK$74 million arising during the year have been
recognized in profit and loss account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-22



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|14. |  | RETIREMENT BENEFITS (Continued)                                                                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The amount recognized in the balance sheet, which is limited to the
present value of economic benefits available to the Company, is
determined as follows:

|                                                     |  |  |  |  |  |      |        |      |  |  |        |  
|---------------------------------------------------- |  |  |  |  |  | ---- | ------ | ---- |  |  | ------ | -
|                                                     |  |  |  |  |  | 2001 |        | 2002
|                                                     |  |  |  |  |  |      |        |     
|                                                     |  |  |  |  |  | HK$M |        | HK$M
|Fair value of plan assets                            |  |  |  |  |  |      | 5,127  |      |  |  | 5,079  |  
|Present value of funded obligations                  |  |  |  |  |  |      | (4,063 | )    |  |  | (4,066 | )
|                                                     |  |  |  |  |  |      |        |      |  |  |        |  
|Net retirement benefit plan assets as at December 31 |  |  |  |  |  |      | 1,064  |      |  |  | 1,013  |  
|                                                     |  |  |  |  |  |      |        |      |  |  |        |  



| |  | The amounts recognized in the profit and loss account were as follows:
| |  | ----------------------------------------------------------------------

|                                            |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                            |  | 2000 |      | 2001 |  | 2002
|                                            |  |      |      |      |  |     
|                                            |  | HK$M |      | HK$M |  | HK$M
|Current service cost                        |  |      | 137  |      |  |      | 134  |   |  |  | 138  |  
|Interest cost                               |  |      | 297  |      |  |      | 286  |   |  |  | 260  |  
|Expected return on plan assets              |  |      | (297 | )    |  |      | (287 | ) |  |  | (288 | )
|                                            |  |      |      |      |  |      |      |   |  |  |      |  
|Total expenses before curtailment           |  |      | 137  |      |  |      | 133  |   |  |  | 110  |  
|Less: amount capitalized                    |  |      | (56  | )    |  |      | (52  | ) |  |  | (45  | )
|                                            |  |      |      |      |  |      |      |   |  |  |      |  
|Total, included in staff costs (Note 4)     |  |      | 81   |      |  |      | 81   |   |  |  | 65   |  
|Loss on curtailment of the schemes (Note 8) |  |      |     |      |  |      |     |   |  |  | 74   |  
|                                            |  |      |      |      |  |      |      |   |  |  |      |  
|Total costs                                 |  |      | 81   |      |  |      | 81   |   |  |  | 139  |  
|                                            |  |      |      |      |  |      |      |   |  |  |      |  



| |  | Movements in the assets recognized in the balance sheet:
| |  | --------------------------------------------------------

|                                                  |  |  |  |  |  |      |       |      |  |  |       |  
|------------------------------------------------- |  |  |  |  |  | ---- | ----- | ---- |  |  | ----- | -
|                                                  |  |  |  |  |  | 2001 |       | 2002
|                                                  |  |  |  |  |  |      |       |     
|                                                  |  |  |  |  |  | HK$M |       | HK$M
|Fund plan assets surplus at beginning of year (a) |  |  |  |  |  |      | 1,064 |      |  |  | 1,064 |  
|Expense recognized before curtailment             |  |  |  |  |  |      | (133  | )    |  |  | (110  | )
|Loss on curtailment of the schemes (Note 8)       |  |  |  |  |  |      |      |      |  |  | (74   | )
|Contributions paid                                |  |  |  |  |  |      | 133   |      |  |  | 133   |  
|                                                  |  |  |  |  |  |      |       |      |  |  |       |  
|Fund plan asset surplus at end of year            |  |  |  |  |  |      | 1,064 |      |  |  | 1,013 |  
|                                                  |  |  |  |  |  |      |       |      |  |  |       |  

F-23



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|14. |  | RETIREMENT BENEFITS (Continued)                          
|--- |  | ---------------------------------------------------------
|   
|    |  | The principle 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 salary increases |  |      | 4.0 |      |  |      | 4.0 |  |  |  | 4.0 | 
|                                         |  |      |     |      |  |      |     |  |  |  |     | 



| | (a) |  | The net asset recognized in the balance sheet of the Company
at January 1, 2001 is derived from the net asset of HK$1,064 million
at December 31, 2001 adjusted by the expense of HK$133 million and
contribution paid of HK$133 million for 2001.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|15. |  | DEBTORS AND PREPAYMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Included in debtors and prepayments are Demand Side Management (DSM)
programme costs amounting to HK$52 million (2001: HK$86 million) which
are recoverable from applicable customers in accordance with the DSM
Agreement entered into by the Company, CAPCO and the Government of the
Hong Kong Special Administrative Region. A DSM charge of HK¢0.2 per unit
was introduced on non-residential customers starting in January 2002 to
recover the DSM costs.
|   
|16. |  | SHARE CAPITAL                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                              |  |      |        |      |  |  |        | 
|------------------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                                              |  | 2001 |        | 2002
|                                                              |  |      |        |     
|                                                              |  | HK$M |        | HK$M
|Authorized :                                                  |  |      |        |      |  |  |        | 
|3,900 million (2001: 3,900 million) shares of HK$5 each       |  |      | 19,500 |      |  |  | 19,500 | 
|                                                              |  |      |        |      |  |  |        | 
|Issued and fully paid :                                       |  |      |        |      |  |  |        | 
|2,488.32 million (2001: 2,488.32 million) shares of HK$5 each |  |      | 12,442 |      |  |  | 12,442 | 
|                                                              |  |      |        |      |  |  |        | 

F-24



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|17. |  | BANK OVERDRAFTS, BANK LOANS AND OTHER BORROWINGS
|--- |  | ------------------------------------------------

|                                                                                 |  |                                                            |       |  |       |      |       |      |       |  |  | 
|-------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | ----- |  | ----- | ---- | ----- | ---- | ----- |  |  | 
|                                                                                 |  |                                                            |       |  |       | 2001 |       | 2002
|                                                                                 |  |                                                            |       |  |       |      |       |     
|                                                                                 |  |                                                            |       |  |       | HK$M |       | HK$M
|Total facilities available                                                       |  |                                                            |       |  |       |      |       |     
|                                                                                 |  | Bank overdrafts                                            |       |  | 477   |      |       |      | 479   | 
|                                                                                 |  | Bank loans                                                 |       |  | 3,006 |      |       |      | 4,496 | 
|                                                                                 |  | U.S. Dollar Notes due 2006 (US$300 million)                |       |  | 2,340 |      |       |      | 2,340 | 
|                                                                                 |  | Loan from subsidiary company due 2012 (US$300 million) (a) |       |  |      |      |       |      | 2,340 | 
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 
|                                                                                 |  |                                                            | 5,823 |  |       |      | 9,655 |     
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 
|Utilized at December 31,                                                         |  |                                                            |       |  |       |      |       |     
|                                                                                 |  | Bank loans                                                 |       |  | 1,900 |      |       |      | 2,062 | 
|                                                                                 |  | U.S. Dollar Notes due 2006 (US$300 million)                |       |  | 2,340 |      |       |      | 2,340 | 
|                                                                                 |  | Loan from subsidiary company due 2012 (US$300 million) (a) |       |  |      |      |       |      | 2,340 | 
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 
|                                                                                 |  |                                                            | 4,240 |  |       |      | 6,742 |     
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 
|Bank overdrafts, bank loans and other borrowings
included in current liabilities |  |                                                            |       |  |       |      |       |     
|                                                                                 |  | Short-term loans and borrowings                            |       |  | 383   |      |       |      | 556   | 
|                                                                                 |  | Long-term loans and borrowings repayable within one year   |       |  | 11    |      |       |      | 3     | 
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 
|                                                                                 |  |                                                            | 394   |  |       |      | 559   |     
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 
|Long-term loans and other borrowings, repayable                                  |  |                                                            |       |  |       |      |       |     
|                                                                                 |  | Within 2nd year                                            |       |  | 3     |      |       |      | 2     | 
|                                                                                 |  | Within 3rd to 5th years                                    |       |  | 3,843 |      |       |      | 3,841 | 
|                                                                                 |  | After 5 years                                              |       |  |      |      |       |      | 2,340 | 
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 
|                                                                                 |  |                                                            | 3,846 |  |       |      | 6,183 |     
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 
|                                                                                 |  |                                                            | 4,240 |  |       |      | 6,742 |     
|                                                                                 |  |                                                            |       |  |       |      |       |      |       | 



| | (a) |  | During the year, the Company set up a US$1.5 billion Medium
Term Note Programme (the Programme) through its wholly-owned
subsidiary CLP Power Hong Kong Financing Limited (the subsidiary)
to raise financing for the Company. Under an inter-company lending
arrangement, the Company will unconditionally and irrevocably
guarantee all the obligations of the subsidiary. In return, all
proceeds from any issuance of notes under the Programme will be lent
onward to the Company at the same interest rates and terms as those
notes issued by the subsidiary, and the Company will reimburse the
subsidiary any related expenses incurred. In May 2002, US$300
million 6.25% fixed rate notes due in 2012 were issued under the
Programme and on-lent to the Company.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-25



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|17. |  | BANK OVERDRAFTS, BANK LOANS AND OTHER BORROWINGS (Continued)                       
|--- |  | -----------------------------------------------------------------------------------
|   
|    |  | The total borrowings of HK$6,742 million (2001: HK$4,240 million) mainly
comprised:



| | (i)   |  | a 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 loan from subsidiary company of HK$2,340 million
(2001: Nil) with an interest 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 is kept at variable rate; and
|
| | (iv)  |  | other variable rate loans of HK$2,056 million (2001: HK$1,883
million).                                                                                                                                                                                                                                  



|18. |  | DEFERRED TAXATION
|--- |  | -----------------

|                                                           |  |      |       |      |  |  |       | 
|---------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                           |  | 2001 |       | 2002
|                                                           |  |      |       |     
|                                                           |  | HK$M |       | HK$M
|The movements in deferred taxation account are as follows: |  |      |       |      |  |  |       | 
|At beginning of year                                       |  |      | 3,110 |      |  |  | 3,391 | 
|Charge for the year (Note 6)                               |  |      | 281   |      |  |  | 330   | 
|                                                           |  |      |       |      |  |  |       | 
|At end of year                                             |  |      | 3,391 |      |  |  | 3,721 | 
|                                                           |  |      |       |      |  |  |       | 



| |  | Deferred taxation charge for the year arose from timing differences
attributable to accelerated depreciation allowances, which is unlikely
to reverse in the foreseeable future.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-26



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|19. |  | 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                                                                  |  |      | 7,753  |      |  |      | 7,611  |   |  |  | 8,702  |  
|Finance costs                                                                           |  |      | 195    |      |  |      | 161    |   |  |  | 94     |  
|Finance income                                                                          |  |      | (18    | )    |  |      | (1     | ) |  |  |       |  
|Depreciation                                                                            |  |      | 1,463  |      |  |      | 1,598  |   |  |  | 1,723  |  
|Net loss/(gain) on disposal of fixed assets                                             |  |      | 94     |      |  |      | 52     |   |  |  | (237   | )
|Loss on curtailment of the retirement benefit schemes                                   |  |      |       |      |  |      |       |   |  |  | 74     |  
|Dividend income from jointly controlled entities                                        |  |      | (1,282 | )    |  |      | (1,295 | ) |  |  | (1,401 | )
|Exchange gain                                                                           |  |      | (6     | )    |  |      | (6     | ) |  |  | (3     | )
|Finance charges                                                                         |  |      | (11    | )    |  |      | (4     | ) |  |  | (4     | )
|                                                                                        |  |      |        |      |  |      |        |   |  |  |        |  
|Operating profit before working capital changes                                         |  |      | 8,188  |      |  |      | 8,116  |   |  |  | 8,948  |  
|Increase in stock and fuel                                                              |  |      |       |      |  |      | (1     | ) |  |  | (1     | )
|Increase in customers deposits                                                         |  |      | 133    |      |  |      | 271    |   |  |  | 234    |  
|Increase in fuel clause account                                                         |  |      | 310    |      |  |      | 474    |   |  |  | 258    |  
|Increase in debtors and prepayments                                                     |  |      | (38    | )    |  |      | (421   | ) |  |  | (470   | )
|Increase in retirement benefit plan assets                                              |  |      |       |      |  |      |       |   |  |  | (23    | )
|Increase/(decrease) in creditors                                                        |  |      | 89     |      |  |      | 85     |   |  |  | (73    | )
|Increase in deferred revenue                                                            |  |      |       |      |  |      | 28     |   |  |  | 34     |  
|Increase/(decrease) in amount due on current account
with ultimate holding company      |  |      |       |      |  |      | 16     |   |  |  | (16    | )
|Increase/(decrease) in amounts due on current
accounts with fellow subsidiaries         |  |      | 49     |      |  |      | (14    | ) |  |  | 251    |  
|(Decrease)/increase in amounts due on current
accounts with jointly controlled entities |  |      | (2     | )    |  |      | 73     |   |  |  | 24     |  
|Rebates to customers under Scheme of Control                                            |  |      | (162   | )    |  |      | (166   | ) |  |  | (171   | )
|Business relief rebate                                                                  |  |      |       |      |  |      |       |   |  |  | (41    | )
|Special rebates                                                                         |  |      | (593   | )    |  |      | (607   | ) |  |  | (626   | )
|                                                                                        |  |      |        |      |  |      |        |   |  |  |        |  
|Cash generated from operations                                                          |  |      | 7,974  |      |  |      | 7,854  |   |  |  | 8,328  |  
|                                                                                        |  |      |        |      |  |      |        |   |  |  |        |  



|20. |  | OFF BALANCE SHEET FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Forward foreign exchange contracts, currency swaps and interest rate
swaps are utilized, when suitable opportunities arise, to hedge the
Companys foreign currency and interest rate exposure on loan
interest/repayments, fuel-related payments and other projected
expenditures. During 2002, the Company has swapped its US$300 million
loan from subsidiary company into Hong Kong dollar to eliminate the
currency exposure, and further swapped HK$1,000 million into 5-year fixed
rate and kept the balance at variable rate to achieve the preferred
interest rate mix. As at December 31, 2002, the Company had outstanding
forward foreign exchange contracts, currency swaps and interest rate
swaps amounting to HK$29,771 million (2001: HK$33,472 million).

F - 27



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|21. |  | CAPITAL COMMITMENTS                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------
|   
|    |  | Capital expenditure authorized but not brought into the accounts as at
December 31, 2002 is as follows:

|                                  |  |      |        |      |  |  |        | 
|--------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                  |  | 2001 |        | 2002
|                                  |  |      |        |     
|                                  |  | HK$M |        | HK$M
|Contracted but not provided for   |  |      | 2,717  |      |  |  | 3,056  | 
|Authorized but not contracted for |  |      | 7,733  |      |  |  | 8,372  | 
|                                  |  |      |        |      |  |  |        | 
|                                  |  |      | 10,450 |      |  |  | 11,428 | 
|                                  |  |      |        |      |  |  |        | 



|22. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                          
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The following is a summary of significant related party transactions
between the Company and related parties, in addition to those disclosed
in Notes 2, 4(A), 8, 9, 12, 13 and 17, which were carried out in the
normal course of business during the year ended December 31, 2002:

|                                                                    |  |      |    |      |  |      |       |      |  |      |       |  |  |  |        | 
|------------------------------------------------------------------- |  | ---- | -- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ------ | 
|                                                                    |  | Note |    | 2000 |  | 2001 |       | 2002
|                                                                    |  |      |    |      |  |      |       |     
|                                                                    |  |      |    |      |  | HK$M |       | HK$M |  | HK$M
|Purchase of electricity from a jointly controlled entity            |  |      | (a | )    |  |      | 9,735 |      |  |      | 9,815 |  |  |  | 10,191 | 
|Purchase of electricity from a fellow subsidiary                    |  |      | (b | )    |  |      | 4,587 |      |  |      | 5,013 |  |  |  | 4,976  | 
|Purchase of pumped storage service from a jointly
controlled entity |  |      | (c | )    |  |      | 457   |      |  |      | 424   |  |  |  | 419    | 
|Capital works rendered by a fellow subsidiary                       |  |      | (d | )    |  |      |      |      |  |      | 21    |  |  |  | 290    | 



| | (a) |  | Under the Electricity Supply Contract between the Company and
CAPCO, the Company is obligated to purchase all of CAPCOs
generating capacity. The Electricity Supply Contract provides that
the price paid by the Company 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 Scheme of Control.                                                                                                                                                                          
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Under the offtake and resale contracts, the Company is
obligated to purchase from the fellow subsidiary, Hong Kong Nuclear
Investment Company Limited, (i) 25% equity share of the output from
Guangdong Nuclear Power Station (GNPS) and (ii) an additional 45%
of GNPSs output from Guangdong Nuclear Investment Company, Limited
(GNIC). The price paid by the Company 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.

F - 28



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|22. |  | RELATED PARTY TRANSACTIONS (Continued)
|--- |  | --------------------------------------



| | (c) |  | Under a capacity purchase contract, Hong Kong Pumped Storage
Development Co., Ltd (PSDC) has the right to use 50% of the
1,200MW capacity of Phase 1 of the Guangzhou Pumped Storage Power
Station. The Company has entered into a contract with PSDC to make
use of this capacity. The price paid by the Company 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 Scheme of Control.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (d) |  | The Company has entered into a number of capital work
contracts with a fellow subsidiary, CLP Engineering Limited, to
develop and construct the Companys transmission and distribution
facilities. The prices of the contracts are determined with
reference to the prevailing market prices.                                                                                                                                                                                                                        



|23. |  | PRINCIPAL ACTIVITY                                                                                                                                             
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The principal activity of the Company continues to be the generation and
supply of electricity.                                                                
|   
|24. |  | ULTIMATE HOLDING COMPANY                                                                                                                                       
|   
|    |  | The ultimate holding company of the Company is CLP Holdings Limited, a
company incorporated in Hong Kong and listed on The Stock Exchange of
Hong Kong Limited.
|   
|25. |  | APPROVAL OF ACCOUNTS                                                                                                                                           
|   
|    |  | The accounts were approved by the Board on February 20, 2003.                                                                                                  

F - 29



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|26. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Companys financial statements are prepared in accordance with
generally accepted accounting principles in Hong Kong (Hong Kong GAAP),
other than where a different accounting policy is required by the Scheme
of Control Agreement. Hong Kong GAAP differs in certain significant
respects from accounting principles generally accepted in the U.S. (U.S.
GAAP). The significant differences which have an effect on profit (net
income) or shareholders funds (shareholders equity) are described
below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | Retirement scheme                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Prior to 2002, the periodic charge to the Companys financial statements
for costs arising from a defined benefit retirement scheme was
represented by the Companys contributions to the scheme in a given
period, determined by the Company with reference to independent actuarial
valuations. Statement of Financial Accounting Standards No. 87 (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 is determined by reference to
changes in the actuarial valuation of the pension obligations of the
scheme, the 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 Company adopted the new H.K. accounting standard
SSAP 34 Employee Benefits, which became effective for financial
statements relating to periods beginning on or after January 1, 2002. On
initial adoption of the new standard on January 1, 2002, the Company
carried out an actuarial valuation indicating a surplus of employee
retirement benefit plan assets over liabilities (the surplus) of
HK$1,064 million. Management of the Company are of the opinion that the
surplus is not taxable. The new SSAP 34 is broadly consistent with SFAS
No. 87 under U.S. GAAP. The surplus upon initial adoption of the H.K.
accounting standard has been recognized as a prior year adjustment
against retained earnings. 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 Companys defined
benefit programmes were transferred to the defined contribution
programmes. At the same time, the Company obtained the relevant
approvals in principle to enable the winding up of its defined benefit
programmes. This represented a curtailment 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.                                                                                                                                                                                                                                                                                                                                                                                                    

F - 30



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|26. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP
(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Taxation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Scheme of Control Agreement requires that the Company makes full
provision for deferred taxation arising from timing differences
attributable to accelerated tax depreciation allowances which is computed
at those tax rates current when the timing differences arise, with no
adjustments made subsequently if tax rates change. U.S. GAAP requires
that such provisions be made using the liability method, whereby deferred
tax is calculated at the rate of tax that it is estimated will be
applicable when the timing differences reverse.                                                                                                                                                                                                                                                                                                         
|   
|    |  | 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 are deferred.
Under U.S. GAAP these should be generally included in the income
statement in the period in which the underlying exchange rates change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Depreciation of Leasehold Land                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Scheme of Control 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Consolidation of Subsidiary undertaking                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The Company does not prepare consolidated accounts as permitted by an
exemption available under accounting principles generally accepted in
Hong Kong for a company that is a wholly-owned subsidiary of another
company at the end of its fiscal year. Under U.S. GAAP there is no such
exemption from the preparation of consolidated accounts. The Companys
only subsidiary was established in 2002 to raise financing for the
Company. Since all proceeds from any issuance of notes by the subsidiary
company were lent onward to CLP Power at the same interest rates and
terms as those under the notes issued by the subsidiary, and CLP Power
reimbursed all related expenses incurred by the subsidiary, this
difference had no impact on consolidated net income, assets, liabilities
or shareholders equity for the year ended December 31, 2002.
|   
|    |  | Accounting for Jointly Controlled Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Under Hong Kong GAAP, in the Companys accounts for the years ended
December 31, 2000, 2001 and 2002, the operating results of jointly
controlled entities are recognized on the basis of dividends received and
receivable. Application of U.S. GAAP would require equity accounting for
these entities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F - 31



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|26. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Accounting for Derivatives and Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The Company engages in forward foreign exchange contracts, cross currency
and interest rate swaps to hedge the impact of foreign currency exposures
and fluctuations in interest rates. The Company does not recognize such
derivatives at fair value, nor does it account for gains or losses
relating to 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 Company 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 Company adopted SFAS No. 133, which
requires the Company to recognize all qualifying derivatives on the
balance sheet at fair value. The Companys transition adjustment to
implement SFAS No. 133 was an increase of HK$7 million to accumulated
other comprehensive loss. This transition adjustment was recognized at
January 1, 2001 as a cumulative effect of a change in accounting
principle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Certain derivative transactions, while providing effective 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 at December 31,
2002 the application of SFAS No.133 would result 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.
|   
|    |  | New accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (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.                             

F - 32



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|26. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP
(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Effects of proposed accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | EITF Issue
No. 01-08
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.                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Under the proposed guidance, an arrangement conveys the right to use the
property, plant or equipment (PP&E) and 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 to 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
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 arrangement. If lease accounting does apply and requires that
the contract to be accounted for as capital lease under U.S. GAAP, we
would have to record the 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.                                                                                                                                                                      

F - 33



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|26. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP
(Continued)                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Net Income and Shareholders Equity                                                                                                          
|   
|    |  | The estimated effect of the significant adjustments to net income and
shareholders equity in accordance with U.S. GAAP is summarized below:-

|                                                       |                                                                          |  |       |     |      |  |       |     |      |  |       |      |   |  |     |     |  
|------------------------------------------------------ | ------------------------------------------------------------------------ |  | ----- | --- | ---- |  | ----- | --- | ---- |  | ----- | ---- | - |  | --- | --- | -
|                                                       |                                                                          |  | 2000  |     | 2001 |  | 2002  |     | 2002
|                                                       |                                                                          |  |       |     |      |  |       |     |     
|                                                       |                                                                          |  | HK$M  |     | HK$M |  | HK$M  |     | US$M
|Profit for the year in accordance with Hong Kong
GAAP* |                                                                          |  | 5,276 |     |      |  | 5,568 |     |      |  | 6,206 |      |   |  | 796 |    
|Adjustments required under U.S. GAAP                   |                                                                          |  |       |     |      |  |       |     |      |  |       |      |   |  |     |    
|                                                       | Difference in periodic pension costs and curtailment gain                |  |       | 213 |      |  |       | 76  |      |  |       | 209  |   |  |     | 27  |  
|                                                       | Exchange gain/(loss)                                                     |  |       | 14  |      |  |       | (15 | )    |  |       |     |   |  |     |    |  
|                                                       | Gain/(loss) on change in fair value of derivatives                       |  |       |    |      |  |       | 22  |      |  |       | (115 | ) |  |     | (15 | )
|                                                       | Tax differences                                                          |  |       | (36 | )    |  |       | (13 | )    |  |       | 153  |   |  |     | 20  |  
|                                                       | Depreciation of leasehold land                                           |  |       | (32 | )    |  |       | (32 | )    |  |       | (28  | ) |  |     | (4  | )
|                                                       | Difference in accounting for net income from jointly
controlled entities |  |       | (3  | )    |  |       | 28  |      |  |       | (102 | ) |  |     | (13 | )
|                                                       |                                                                          |  |       |     |      |  |       |     |      |  |       |      |   |  |     |    
|Net income for the year in accordance with U.S. GAAP   |                                                                          |  | 5,432 |     |      |  | 5,634 |     |      |  | 6,323 |      |   |  | 811 |    
|                                                       |                                                                          |  |       |     |      |  |       |     |      |  |       |      |   |  |     |    



|* as appropriately modified to comply with Scheme of Control agreement
|----------------------------------------------------------------------

F - 34



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|26. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP
(Continued)
|--- |  | ---------------------------------------------------------------------------
|   
|    |  | Net Income and Shareholders Equity (Continued)                            

|                                                                |                                                                                                                                                         |  |        |        |      |  |        |      |   |  |       |     |  
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | ------ | ---- |  | ------ | ---- | - |  | ----- | --- | -
|                                                                |                                                                                                                                                         |  | 2001   |        | 2002 |  | 2002  
|                                                                |                                                                                                                                                         |  |        |        |      |  |       
|                                                                |                                                                                                                                                         |  | HK$M   |        | HK$M |  | US$M  
|Shareholders equity in accordance with Hong Kong
GAAP*         |                                                                                                                                                         |  | 22,608 |        |      |  | 22,553 |      |   |  | 2,892 |    
|                                                                | Adjustment of surplus of employee retirement benefit
plan assets over liabilities recognized as prior year
adjustment to reserves under Hong Kong GAAP  |  |        | (1,064 | )    |  |        |     |   |  |       |    |  
|                                                                |                                                                                                                                                         |  |        |        |      |  |        |      |   |  |       |    
|Shareholders equity as previously stated under Hong Kong
GAAP* |                                                                                                                                                         |  | 21,544 |        |      |  | 22,553 |      |   |  | 2,892 |    
|Adjustments required under U.S. GAAP:                           |                                                                                                                                                         |  |        |        |      |  |        |      |   |  |       |    
|                                                                | Difference in periodic pension costs and curtailment gain                                                                                               |  |        | 855    |      |  |        |     |   |  |       |    |  
|                                                                | Gain/(loss) on change in fair value of derivatives                                                                                                      |  |        | 22     |      |  |        | (93  | ) |  |       | (12 | )
|                                                                | Tax differences                                                                                                                                         |  |        | (138   | )    |  |        | 15   |   |  |       | 2   |  
|                                                                | Deferred tax accounting                                                                                                                                 |  |        | 137    |      |  |        | 137  |   |  |       | 17  |  
|                                                                | Accumulated depreciation of leasehold land                                                                                                              |  |        | (381   | )    |  |        | (409 | ) |  |       | (52 | )
|                                                                | Difference in accounting for share of retained profits
in jointly controlled entities                                                                   |  |        | 173    |      |  |        | 71   |   |  |       | 9   |  
|                                                                | Transitional adjustment to other comprehensive loss on
implementation of SFAS No. 133                                                                   |  |        | (7     | )    |  |        | (4   | ) |  |       | (1  | )
|                                                                | Net change in fair value of derivatives in other
comprehensive loss, net of taxes of HK$4 million                                                       |  |        |       |      |  |        | (19  | ) |  |       | (2  | )
|                                                                | Share of net change in fair value of derivatives
recognized under other comprehensive loss in jointly
controlled entities, net of taxes of HK$3 million |  |        |       |      |  |        | (15  | ) |  |       | (2  | )
|                                                                |                                                                                                                                                         |  |        |        |      |  |        |      |   |  |       |    
|Shareholders equity in accordance with U.S. GAAP               |                                                                                                                                                         |  | 22,205 |        |      |  | 22,236 |      |   |  | 2,851 |    
|                                                                |                                                                                                                                                         |  |        |        |      |  |        |      |   |  |       |    



|* as appropriately modified to comply with Scheme of Control
agreement
|----------------------------------------------------------------------

F - 35



---



##### 



CLP POWER HONG KONG LIMITED

NOTES TO THE FINANCIAL STATEMENTS



|26. |  | SUMMARY OF DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GAAP
(Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Cash Flow Statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Under Hong Kong GAAP, bank overdrafts are included as a component of cash
and cash equivalents if it forms an integral part of the Companys cash
management, whereas under U.S. GAAP bank overdrafts are classified as
financing activities. Furthermore, under Hong Kong GAAP, profit before
taxation is reconciled to cash flows provided by/used in operating
activities, whereas under U.S. GAAP, net income is adopted in place of
profit before taxation. 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                           |  |      | 8,639  |      |  |      | 8,370  |      |  |  | 9,166  |   |  |  | 1,176 |  
|Investing activities                           |  |      | (2,938 | )    |  |      | (4,685 | )    |  |  | (5,399 | ) |  |  | (693  | )
|Financing activities                           |  |      | (5,722 | )    |  |      | (3,692 | )    |  |  | (3,773 | ) |  |  | (484  | )
|                                               |  |      |        |      |  |      |        |      |  |  |        |   |  |  |       |  
|Decrease in cash and cash equivalents          |  |      | (21    | )    |  |      | (7     | )    |  |  | (6     | ) |  |  | (1    | )
|Cash and cash equivalents at beginning of year |  |      | 45     |      |  |      | 24     |      |  |  | 17     |   |  |  | 2     |  
|                                               |  |      |        |      |  |      |        |      |  |  |        |   |  |  |       |  
|Cash and cash equivalents at end of year       |  |      | 24     |      |  |      | 17     |      |  |  | 11     |   |  |  | 1     |  
|                                               |  |      |        |      |  |      |        |      |  |  |        |   |  |  |       |  

F - 36



---



##### 



CLP POWER HONG KONG LIMITED

SCHEME OF CONTROL STATEMENT
(CLP Power Hong Kong Limited and Castle Peak Power Company Limited)

Overview

In Hong Kong, the Company (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 of The Hong Kong Special Administrative Region (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
1October 1, 1993, covers the period to September 30, 2008. During the 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 of 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 on 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 unit 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% (2000: 11.87%; 2001: 12.17%).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F - 37



---



##### 



SCHEME OF CONTROL STATEMENT (Continued)
(CLP Power Hong Kong Limited and Castle Peak Power Company Limited)

The net return is divided between the SoC Companies in accordance with the
provisions for 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% (2000: 57%; 2001: 58%) of the net
return was allocated to CLP Power and 42% (2000: 43%; 2001: 42%) 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-39 are in accordance with the SoC and the
agreements between the SoC Companies.

F - 38



---



##### 



CLP POWER HONG KONG 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 - 39



---



##### 



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

---

Hong Kong
February 14, 2003

F - 40



---



##### 



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-41



---



##### 



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-42



---



##### 



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 (1999b(1)) |                |  |        |   |          |  | 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                                   |                |  |         |   |          |  |       |        |       |  |       |        |   |  |     |     
|                                                                  | 1999b(1) 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   | (2)    |       |  | 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   | (3)    |       |  | 428   |        |   |  | 55  |     
|                                                                  |                |  |         |   |          |  |       |        |       |  |       |        |   |  |     |     

Note(1) 1999b represents the three-month period ended
December 31, 1999.(2) The proposed final dividend at December 31, 2001 is HK$404 million.(3) The proposed final dividend at December 31, 2002 is HK$378 million.

F-43



---



##### 



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-44



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|1. |  | BASIS OF PREPARATION OF ACCOUNTS                                                                                                                                                                                                                                                   
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Other than stated in Notes 2(A) and 2(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 30th September, 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-45



---



##### 



CASTLE PEAK POWER COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS



|2. |  | SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- |  | -------------------------------------------



| | A. |  | Scheme of Control
| | -- |  | -----------------



| | (v) | The following are to be deducted from the permitted return:
| | --- | -----------------------------------------------------------



| | - |  | a charge of 8% per annum on the average balance of the sums 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 30th September, 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-46



---



##### 



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 2(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 other
than 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 crystallise. 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-47



---



##### 



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 (US Dollars)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |                     |  | The financial statements are expressed in Hong Kong Dollars (HK
Dollars). Solely for the convenience of the reader, the 2002
financial statements have been translated into US Dollars at the
specified rate below. These translations should not be construed as
representations that the HK Dollars amounts actually represent such
US Dollars amounts or could be converted into US Dollars at the rate
indicated. The translation of HK Dollars into US 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 HK 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 CLP
Power to customers in the Chinese mainland |  |      | 38    |      |  |      | 49    |  |  |  | 71     | 
|                                                                                             |  |      |       |      |  |      |       |  |  |  |        | 
|                                                                                             |  |      | 9,773 |      |  |      | 9,864 |  |  |  | 10,262 | 
|                                                                                             |  |      |       |      |  |      |       |  |  |  |        | 

F-48



---



##### 



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-49



---



##### 



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-50



---



##### 



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-51



---



##### 



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-52



---



##### 



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) comprised
of:
| | -----------------------------------------------------------------------------------------------------------------------
|
| |                                                                                                                        
|
| |                                                                                                                        
|
| |                                                                                                                        
|
| | (d)                                                                                                                    

| |                                     |  |       |       |      |  |       |       | 
| | ----------------------------------- |  | ----- | ----- | ---- |  | ----- | ----- | 
| |                                     |  | 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 US 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-53



---



##### 



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 30th September, 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-54



---



##### 



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 |      
|Adjustment 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-55



---



##### 



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-56



---



##### 



Exhibit Index

|            |  |                                                                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                              
|1.1         |  | Memorandum and Articles of Association of registrant. *                                                                                                                                                      
|            |  |                                                                                                                                                                                                              
|2.1         |  | Trust Deed in respect of the US$1,500,000,000 Medium Term Note
Programme, established by our wholly owned subsidiary, CLP
Power Hong Kong Financing Limited on April 3, 2002, and
guaranteed by our company**
|            |  |                                                                                                                                                                                                              
|8.1         |  | List of subsidiaries. See Item 4. Information on the Company
 CLP Power Hong Kong Limited                                                                                                                 
|            |  |                                                                                                                                                                                                              
|13.1        |  | Certification by our Managing Director 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 Commercial Director 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 Exhibit No. 1 to our annual report on Form
20-F for fiscal 1998 dated March 23, 1999 and filed with the Securities
and Exchange Commission on March 26, 1999.                     
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Incorporated by reference to Exhibit No. 2.1 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.