UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                     
                                    FORM 10-K

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
      ACT OF 1934

        For the fiscal year ended December 31, 1998.
                              
                             OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
       ACT OF 1934

             For  the  transition  period  from             to         .

             Commission file number 333-29005-01

                           PANDA GLOBAL HOLDINGS, INC.

             (Exact name of registrant as specified in its charter)
                              
                              
                     Delaware                               75-2697755
          (State or other jurisdiction of                 (IRS employer 
          incorporation or organization)               Identification Number)

         4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244 
         (Address of principal executive offices, including zip code)

                       (972) 980-7159
         (Registrant's telephone number, including area code)
                              
     Securities Registered Pursuant to Section 12(b) of the Act: None

     Securities Registered Pursuant to Section 12 (g) of the
                              Act: None
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 if disclosure of delinquent filers pursuant to Item 405 
of Regulation S-K is not contained herein, and will not be contained, to the 
best of registrant's knowledge, in definitive proxy or information statements  
incorporated by reference in Part III of this Form 10-K or any amendment to 
this Form 10-K. [x]

Aggregate market value of voting stock held by nonaffiliates of the registrant
is not reflected herein because all voting stock of the registrant is owned
by an affiliate thereof.

As of March 25, 1999, the registrant had 1,000 shares of Common Stock, $.01 par
value, issued and outstanding.

                       Documents Incorporated by Reference
                                      None
    

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<PAGE>
                                TABLE OF CONTENTS
                                     PART I
                                                      Page
                                                      ----

Item 1.    Business                                    3

Item  2.   Properties                                 23

Item  3.   Legal Proceedings                          24

Item  4.   Submission of Matters to a Vote of
           Security Holders                           26

                                     PART II

Item 5.    Market for the Registrant's Equity
           and Related Stockholder Matters            26

Item  6.   Selected Financial Data                    26

Item  7.   Management's Discussion and Analysis 
           of Financial Condition and Results 
           of Operations                              26

Item  8.   Financial Statements and Supplementary  
           Data                                       32

Item  9.   Changes in and Disagreements with
           Accountants on Accounting and 
           Financial Disclosure                       32

                                    PART III

Item  10.  Directors and Executive Officers of
           the Registrant                             32

Item  11.  Executive Compensation                     34

Item  12.  Security Ownership of Certain
           Beneficial Owners and  Man agement         34

Item  13.  Certain Relationships and Related
           Transactions                               34

                                     PART IV

Item  14.  Exhibits, Financial Statement
           Schedules, and Reports  on Form 8-K.       35


           DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
                    
This Annual Report on Form 10-K (as well as previous filings by the Company  
with the Securities and Exchange Commission) includes "forward-looking 
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.  All statements other than 
statements of historical fact included in this Annual Report on Form 10-K (as 
well as previous filings by the Company with the Securities and Exchange 
Commission), including, without limitation, statements regarding financial
position, projects under evaluation or development, construction or other 
budgets and plans and objectives for future operations, are forward looking
statements.  Although the Company believes that the expectations reflected in 
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct.  Important factors that 
could cause actual results to differ materially  from the Company's expectations
("Cautionary Statements") include the impact of geopolitical occurrences world-
wide; the results of financing efforts; risks under contracts and swap 
agreements; changes in laws and regulations; unforeseen engineering and 
mechanical or technological difficulties; and other risks described in the 
Company's filings  from time to time with the Securities and Exchange 
Commission.  All subsequent written and oral forward looking statements 
attributable to he Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.

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<PAGE>
Item 1.  Business.

GENERAL

     Panda Global Holdings, Inc. (the "Company") is a wholly owned subsidiary of
Panda Energy International, Inc., a Delaware corporation ("PEII"), and was
organized in Delaware on March  7, 1997. The Company was organized for the 
purposes of (i) investing in and holding direct and indirect interests in 
entities engaged in the development, construction, ownership, operation and
management of electric generating facilities, sources of fuel, pipelines and 
other infrastructure projects, (ii) the marketing of electric power, thermal 
energy and fuel, and (iii) the financing of any of the above, including the
entering into of indentures, contracts and other agreements in connection
with the purposes described in clauses (i)  and (ii) above.

     The Company wholly owns one operating energy generation facility and
leases pursuant to a capital lease another operating energy generation facility 
located in the United States and owns majority interests in two energy 
generation facilities under construction in the People's Republic of China and 
the Kingdom of Nepal, as described below in more detail.


     The principal executive office of the Company is located at 4100 Spring 
Valley Road, Suite 1001, Dallas, Texas 75244.  The telephone number at such 
office is (972) 980-7159.

     The Company operates in only one industry segment:  electric power 
generation.  Financial information regarding the Company's industry segment,  
its domestic operations, and the Company's capitalized costs for the 
construction of plants which will constitute foreign operations upon 
completion, is set forth in the financial statements hereto.

STRATEGY

     The  Company and its subsidiaries are primarily engaged in the domestic 
and international development, acquisition, construction, ownership and 
operation of electric power generation facilities.

     The principal business strategy of the Company and  its subsidiaries
is to use  their experience in evaluating, developing, constructing, financing 
and managing electric power generation facilities to provide low-cost 
electricity and electric generating capacity.  In addition, the Company 
believes that the global trend of electricity market restructuring has created
new business opportunities for businesses like the Company.   There is a trend 
away from regulated government-owned electricity systems toward deregulated,
competitive market structures, in both domestic and international markets.   
Many countries have rewritten their laws and regulations to allow foreign 
investment and private ownership of electricity generation, transmission or 
distribution systems.  Some countries have been or are in the process of 
privatizing their electricity systems by selling all or part of such systems to 
private investors.  As a result, the Company believes that there is demand for 
both new and more efficiently operated electric generating capacity in many 
regions around the world, including the United States.

The  Company and its subsidiaries therefore are continuously engaged in the 
evaluation of opportunities for the development and acquisition of additional
domestic and international electric power generation facilities.  For example, 
the  Company and its subsidiaries currently are evaluating the development of
various merchant plant facilities in the United States.  Such facilities, if
developed and constructed, could take advantage of cost effective construction 
and new technology, as well as an ability to sell power into markets with
growing demand and aging supplies of energy. Also, the People's Republic of
China (the  "PRC"), Brazil and Central America are current international
strategic target markets for the Company and its affiliates.  

     Substantial risks exist to the successful completion of any domestic or
international projects under development or being considered for acquisition,
including, as the case may be, those relating to political risk, exchange rate
risk, currency inconvertibility, the ability to obtain financing and required
governmental approvals, siting and construction risk, as well as possible
termination of any applicable power sales agreement as a result of the failure
to meet certain construction milestones. No assurance can be given that any
projects being evaluated or developed by the Company or any of its subsidiaries
will be completed.  Further, no assurance can be given that any 

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<PAGE>
projects developed by PEII or other affiliates of the Company would be
contributed to the Company's portfolio of projects, depending on the application
of various agreements among PEII and certain of its affiliates.

PLANTS IN OPERATION

  The Panda-Rosemary Facility

     General. The Panda-Rosemary Facility (herein so called) is a combined-cycle
cogeneration facility located in Roanoke Rapids, North  Carolina, with a total
electric generating capacity of approximately 180 megawatts. The Panda 
Rosemary Facility is owned by the Panda-Rosemary Partnership (herein so 
called), an indirect whollyowned subsidiary of the Company.  A cogeneration 
facility produces electric energy and forms of useful thermal energy (such as
heat or steam) used for industrial, commercial, heating or cooling purposes 
through the sequential use of one or more energy inputs. The PandaRosemary
Facility uses natural gas as its primary fuel input to produce electric 
energy  for sale to Virginia Power Company ("Virginia Power"), and to produce
useful thermal energy in the form of steam and chilled water for sale to The
Bibb  Company ("Bibb") pursuant to the Rosemary Steam Agreement (herein so 
called). On February 18, 1997,  Bibb announced that it would sell the textile 
facility that is the user of such steam and chilled water to Westpoint Stevens, 
Inc. ("Westpoint").  The closing of the sale was reported in the news media on
February 21, 1997. The Rosemary Steam Agreement cannot be assigned without the 
Panda-Rosemary Partnership's consent, which has not been given as of the date 
hereof, and Bibb, Westpoint and a subsidiary of the Company are currently
litigating the issues involved.  While there has been no resolution to this 
matter as of the date hereof, the Panda-Rosemary Partnership has continued 
to sell steam and chilled water to the purchaser in substantially the same 
amounts as it sold prior to the announcement of the sale of the textile 
facility.

     The  Panda-Rosemary Facility is certified as a Qualifying Facility ("QF") 
under the Public Utility Regulatory Policies Act of 1978 ("PURPA") and thus is 
exempt from rate regulation as an electric utility under federal and state law,
provided that it continues to meet the applicable requirements of PURPA.

   The Panda-Rosemary Facility was designed and constructed by Hawker Siddeley
Power Engineering and began commercial operations in December 1990.
The Panda-Rosemary Facility is designed to be operated in a combined-cycle 
mode. It uses natural gas or fuel oil to power two General Electric combustion
turbinegenerators, a GE Frame 6 and a GE Frame 7, each fitted with a heat 
recovery steam generator ("HRSG"). The HRSGs use the reject heat from the 
combustion turbines that might otherwise dissipate to produce steam which 
drives a steam turbine generator. The combustion and steam turbines generate 
electric energy for sale to  Virginia Power. When the PandaRosemary Facility 
is being dispatched, some of the steam produced by the HRSGs is sold pursuant  
to the Rosemary Steam Agreement and some is used in two absorption chillers to
supply chilled water. The combustion turbines use natural gas as their primary
fuel and can use No. 2 fuel oil as an alternate fuel in the event gas supplies 
or transportation are curtailed.  When the facility is not being dispatched, 
two auxiliary boilers are available to be used to produce steam for direct  use
and to produce chilled water for use by the purchaser under  the Rosemary Steam
Agreement.  The design of the Panda Rosemary Facility  permits flexible
operation, including the production of both electricity and a sufficient amount 
of thermal energy  to meet QF requirements, using either one or both of  the
combustion turbine generators.

     Sale of Capacity and Electricity.  The PandaRosemary Partnership sells
electric capacity and energy to Virginia Power pursuant to a Power Purchase
and Operating Agreement (the "Rosemary Power Purchase Agreement"). The 
Rosemary Power Purchase Agreement has an initial term ending December 26, 2015, 
and may be extended for periods of up to five years if the parties so agree.

     Virginia Power has the right to dispatch the PandaRosemary Facility (that
is, require the PandaRosemary Facility to deliver electricity) on a daily basis
within certain guidelines and design limits (which specify load levels, start-up
and shutdown times and minimum run times consistent with prudent utility 
practice).

     The Rosemary Power Purchase Agreement provides for two types of payments: a
capacity payment and an energy payment.  The capacity payment is a fixed charge
required to be paid regardless of whether the Panda-Rosemary Facility is
dispatched, subject to reductions  under certain circumstances as described 
below. Energy payments are calculated based on the actual electrical output 
transmitted to Virginia Power and are  designed to compensate the Panda Rosemary
Partnership for its cost of fuel and its variable operations and maintenance 
expense.

                                       4
<PAGE>
      Monthly capacity payments throughout the term of the Rosemary Power 
Purchase Agreement are calculated by  multiplying the Panda-Rosemary Facility's
"Dependable Capacity" by the following rates: $11.654 per kilowatt per month 
through  December 1998; $10.821 per kilowatt per month thereafter through
December 2005; and  $8.321 per kilowatt per month thereafter through December
2015. The Panda-Rosemary Facility's Dependable Capacity, which is the maximum
level for which capacity payments must  be made under  the Rosemary Power 
Purchase Agreement, is currently 165 megawatts for the summer period and
198 megawatts for the winter period. Dependable Capacity is determined by 
semi-annual tests which may be requested by Virginia Power. Capacity payments
may be reduced in certain circumstances.

    The Panda-Rosemary Partnership is required to maintain the Panda-Rosemary
Facility as a QF.  Virginia Power may terminate the Rosemary Power Purchase
Agreement within one year after the loss of QF certification if the Panda
Rosemary Partnership has not obtained all necessary governmental and regulatory
approvals  for the Rosemary Power Purchase Agreement to remain in effect and for
electricity to continue to be sold to Virginia Power.

    STEAM AND CHILLED  WATER SALES.  Panda-Rosemary Partnership sells steam and
chilled water for use in a textile manufacturing facility, located adjacent to 
the Panda Rosemary Facility, pursuant  the Rosemary Steam Agreement.  The 
Rosemary Steam Agreement has an initial term that expires on December  26, 2015.
Upon expiration of the initial term, the purchaser has the option to 
(i) negotiate a 10-year extension of the Rosemary Steam Agreement, (ii) purchase
the Panda-Rosemary Facility with Virginia Power's consent or (iii) terminate the
Rosemary  Steam Agreement. The purchaser is obligated to pay $1.00 per 1,000
pounds of steam for the first 45,000 pounds of steam delivered in an hour  and
$2.50 per 1,000 pounds of steam for any additional quantities of steam delivered
in an hour.   The purchaser is obligated  to pay the following fixed prices for
chilled  water:  $0.035/ton/hour through December 27, 2000; $0.04/ton/hour
thereafter through December 27, 2005; $0.045/ton/hour thereafter through 
December 27, 2010; and $0.05/ton/hour thereafter through December 26, 2015.

     SITE  LEASE.  The 4.83 acre site on which the PandaRosemary Facility is
located is leased to the Panda Rosemary Partnership pursuant to a Real Property
Lease and Easement Agreement (the "Rosemary Site Lease") in exchange for a 
nominal yearly rental payment. The initial term of the Rosemary Site Lease
expires on December 31, 2015 and is automatically extended on the same terms and
conditions for 10 years if the Rosemary Steam Agreement is extended  for an
additional 10-year period. At the Panda-Rosemary  Partnership's option, the
initial term of the Rosemary Site Lease may  also be extended on the same terms
and conditions for a 10 year term if the PandaRosemary Partnership gives the 
lessor two years' notice prior to December 31, 2015 and for an additional 10
year term if the Panda Rosemary Partnership gives the lessor two years' notice
prior to December 31, 2025, regardless of whether the Rosemary Steam Agreement 
is extended or terminated.

    GAS SUPPLY AND FUEL MANAGEMENT. The Panda-Rosemary Partnership purchases 
certain quantities of natural gas on a firm basis from Natural Gas Clearinghouse
("NGC") pursuant to a Gas Purchase Contract (the  "Rosemary Gas Supply 
Agreement").  The Rosemary Gas Supply Agreement is effective through November
30, 2005, and thereafter from month-to month until terminated by either NGC or
the Panda Rosemary Partnership.  NGC has agreed to deliver natural gas on a firm
basis to  the Panda-Rosemary Partnership,  at pipeline points near the Gulf of
Mexico or (at the PandaRosemary Partnership's request and using the Panda 
Rosemary Partnership's firm transportation arrangements) to the Panda-Rosemary 
Pipeline (as defined below),  up  to the  total contract quantity under the Firm
Gas Transportation Agreements (as defined below), which is currently the thermal
equivalent  of 3,075  Mcf (one "Mcf" constitutes one thousand cubic feet of 
natural gas) of natural gas per day.  The firm  natural gas supplied  under the 
Rosemary Gas Supply Agreement enables the Panda Rosemary Partnership to have 
adequate natural gas supplies available to meet its estimate of the requirements
for steam  and chilled water under the Rosemary Steam Agreement.

     The price paid by the Panda-Rosemary Partnership for natural gas delivered
by NGC is generally equal to an indexed  price (based upon monthly market-price
indices determined by reference to the receipt  points where NGC delivers gas to
the Panda Rosemary Partnership) plus $0.04  per MMBtu (one "MMBtu" constitutes 
one million British thermal units).  If natural gas is required in daily volumes
that are greater than those included in monthly estimates delivered to NGC, the 
price  for the excess volume required is equal to NGC's actual  cost incurred in
acquiring such excess plus $0.04 per MMBtu. If the PandaRosemary Partnership  
fails to purchase the amount included in  monthly estimates delivered to NGC,
and such failure is not excused by force majeure, the Panda-Rosemary Partnership
must pay NGC,  as liquidated damages for such failure, $0.14 for each  MMBtu
of natural gas not purchased below the monthly estimates.


                                       5
<PAGE>
     GAS TRANSPORTATION.  The Panda-Rosemary Partnership receives firm 
transportation service that provides for delivery to the Panda- Rosemary 
Pipeline (as defined below) of up to the thermal equivalent of 3,075 Mcf of 
natural gas per day.  The rates and most of the significant terms and conditions
of service under these firm gas transportation agreements, are set forth in  the
respective pipeline's effective Federal Energy Regulatory Commission("FERC") gas
tariff. These rates, terms and conditions are subject to review, approval and 
modification by FERC.

     PANDA-ROSEMARY PIPELINE.   The Panda Rosemary Partnership owns, and North 
Carolina Natural Gas Corporation ("NCNG") operates and  maintains for the Panda
Rosemary Partnership, the Panda Rosemary Pipeline (herein so called), which runs
for 10.26 miles through portions of Halifax and Northampton Counties, North
Carolina. The PandaRosemary Pipeline is located under, over and upon properties
owned, in certain instances, by private landowners and, in other instances, by  
the State of North Carolina or the City of Roanoke Rapids, pursuant to easement
agreements or encroachment agreements. The Panda-Rosemary Pipeline terminates  
on a 1.26-acre parcel in Pleasant Hill Township, Northampton County, North
Carolina, which is owned by the Panda Rosemary Partnership. The meter stations
and certain appurtenant facilities interconnecting the PandaRosemary Pipeline  
and certain interstate pipeline facilities are located on this parcel.

     The Panda-Rosemary Partnership has entered into a Pipeline Operating 
Agreement with NCNG (the "Pipeline Operating Agreement"), pursuant to which NCNG
has agreed to operate the PandaRosemary Pipeline and provide certain natural gas
balancing services for the Panda Rosemary Partnership's gas supplies.  The term 
of the Pipeline Operating Agreement continues until December 27, 2005, and may 
be extended for two additional periods of five y ears each upon the agreement of
the parties. 

     FUEL OIL. The Panda-Rosemary Facility was constructed with the capability
to operate on No. 2 fuel oil and is designed to change fuel sources from natural
gas to fuel oil and back without interrupting the generation of electricity. The
PandaRosemary Facility currently has on site storage for approximately two
million gallons of fuel oil, a supply sufficient to operate the Panda-Rosemary
Facility at full load for approximately 168 hours. The Panda Rosemary
Partnership purchases fuel oil on a spot market basis. Since the fuel oil
suppliers either own their own trucks or have contracts with local trucking
firms for regional truck delivery and the purchase price includes delivery to
the Panda-Rosemary Facility, the PandaRosemary Partnership does not
independently arrange trucking service from the terminals to the Panda Rosemary
Facility.

     OPERATIONS AND MAINTENANCE.  The PandaRosemary Partnership purchases 
operations and maintenance services  for the Panda Rosemary Facility from 
Panda Global Services, Inc., an affiliate of the Company, pursuant to an 
Operation and Maintenance Agreement  (the  "Rosemary O&M Agreement") which 
expires on December 31,  2003.   Under the Rosemary O&M Agreement, Panda Global 
Services, Inc.  was  paid  a  fixed monthly   fee of approximately $133,000_
per month during 1998 and was paid in advance a fixed monthly fee of 
approximately $137,000 per month for 1999, with annual adjustments based on 
changes  in the consumer  price index  for subsequent years.  In addition, 
the agreement includes bonus and penalty provisions based on maintenance of 
dependable capacity levels, availability of the Panda-Rosemary Facility for 
dispatch and the achievement of certain safety and training goals 
established by the Panda Rosemary Partnership.

    THE PANDA-BRANDYWINE FACILITY 

    GENERAL.  The Panda-Brandywine Facility (herein so called) is  a combined-
cycle cogeneration facility located in  Brandywine, Maryland (near Washington, 
D.C.),  with  a total electric generating capacity of  230 megawatts.   The 
PandaBrandywine Facility is leased by the PandaBrandywine Partnership (herein so
called), an indirect wholly-owned subsidiary of  the Company, pursuant to a 
capital lease. The Panda-Brandywine Facility  uses natural gas as its primary 
fuel input and No. 2 fuel oil as  an alternative fuel in the event that gas 
supplies or transportation are curtailed. The PandaBrandywine Facility was 
constructed by Raytheon Engineers and  Constructors, Inc. ("Raytheon") pursuant
to an agreement between the Panda-Brandywine Partnership and Raytheon (the 
"Brandywine EPC Agreement").  See Note 10 of Consolidated Financial Statements.

     Pursuant to a power purchase agreement (the "Brandywine Power Purchase
Agreement"), the PandaBrandywine Partnership sells the capacity of, and energy  
produced  by,  the Panda Brandywine Facility to Potomac Electric Power Company
("PEPCO"), a utility that serves the District of Columbia and parts of Maryland.
Pursuant to 


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a separate agreement with PEPCO, the Panda Brandywine Partnership also is able
to sell certain amounts of capacity and energy at market prices to third party
purchasers. The Panda-Brandywine Facility is leased by the Panda Brandywine
Partnership pursuant to the Brandywine Facility Lease (herein so called). The
Brandywine Facility Lease was entered into in connection with a sale-leaseback
transaction with General Electric Capital Corporation and other financing
parties. The initial term of the Brandywine Facility Lease will expire on
October 31, 2016. At the end of the initial lease term, so long as the Panda-
Brandywine Partnership is not in default under the Brandywine Facility Lease,
the Panda-Brandywine Partnership may renew the Brandywine Facility Lease for up
to two consecutive five-year terms. Alternatively, the Panda-Brandywine
Partnership may purchase the PandaBrandywine Facility at fair sales market value
at the end of the initial lease term or any renewal term. If the Panda-
Brandywine Partnership does not renew the Brandywine Facility Lease or purchase
the PandaBrandywine Facility, it must surrender possession of the Panda-
Brandywine Facility at the end of the term of the Brandywine Facility Lease.

     The  Panda-Brandywine Facility is certified as a QF under PURPA  and  thus
is exempt from rate regulation as an electric utility  under federal and state 
law, provided that itcontinues to meet the applicable requirements of PURPA.    

     The Panda-Brandywine Partnership has recently beeninformed by  PEPCO that 
PEPCO is pursuing a strategy of selling allof its generating assets, which the  
Panda Brandywine   Partnershipbelieves could include the Brandywine Power 
Purchase Agreement. The Company currently cannot determine the effect, if any, 
of such a transfer of the Brandywine Power Purchase Agreementon the Company.

      SALE OF CAPACITY, ELECTRICITY AND STEAM. The PandaBrandywine Partnership
sells electric capacity  and energy  to PEPCO pursuant  to the Brandywine Power 
Purchase Agreement.  The Brandywine Power Purchase Agreement has an initial term
that expires in October 2021, andmay be extended by agreement of the parties.

     The Brandywine Power Purchase Agreement provides for  two payments: a 
capacity payment and an energy payment. The capacity payment is a fixed charge 
to be paid regardless ofwhether the Panda Brandywine Facility is dispatched, 
subject toreduction  in certain circumstances. Monthly capacitypayments 
throughout the term of the Brandywine Power PurchaseAgreement are based on the 
Panda Brandywine  Facility's dependablecapacity, the  capacity rate and other 
factors. The capacity rate isa fixed schedule  of payments for each of the 25 
years of the initialterm of  the Brandywine Power Purchase Agreement, ranging  
from $14.70 per kilowatt hour through October 1998 to $20.32 per kilowatthour in
2012, subject to various adjustments.

     The energy payment is determined in accordance with a series of formulas  
that reflect specified heat rates, hours of synchronization and operation and a 
combination of fixed  and market  prices  foratural gas. The Brandywine
Power Purchase Agreement provides that the energy price will  be  increased
to compensate the Panda-Brandywine Partnership for its variable costs of fuel
oil if the gas supply isinterrupted.  In  such event,  the Brandywine Power
Purchase Agreement specifies a base cost of oil, which is escalated at the 
annual rate of change according to an oil index described therein.

     Electric energy produced by the PandaBrandywine Facility is delivered to 
PEPCO via a seven-mile long electric transmission line, owned by PEPCO, that 
connects the PandaBrandywine Facility and the transmission facilities of PEPCO.

     The Panda-Brandywine  Partnership sells steam to the Brandywine Water 
Company pursuant to a Steam Sales Agreement (the "Brandywine Steam Agreement"). 
Brandywine Water Company, which is an  indirect wholly owned subsidiary of the 
Company,  uses the steam  to generate distilled water which is sold locally.  
This production and sale of thermal energy allows the Panda-Brandywine Facility 
to achieve QF status. The Brandywine Steam Agreement continues until October 31,
2021 and may be extended by agreement of the parties for additional terms of 
five years each.

     GAS  SUPPLY  AND  FUEL MAINTENANCE.   The Panda- Brandywine Partnership
purchases both firm and interruptible natural gas supply from Cogen Development
Company ("CDC") pursuant to a Gas Sales Agreement between the Panda-Brandywine 
Partnership and  CDC (the "Brandywine  Gas Agreement"). MCN Corporation, the 
parent corporation  of CDC, has unconditionally guaranteed the  payment and 
performance obligations of CDC under the 


                                       7
<PAGE>
Brandywine Gas Agreement. The Brandywine Gas Agreement continues until October
31, 2011, and thereafter is automatically renewed for an additional two-year
term unless terminated by either party upon nine months' written notice.

    CDC is obligated to sell and deliver to the Panda-Brandywine Partnership,  
at receipt points along the pipeline system of Columbia Gas, up to 24,240 MMBtu 
of natural gas per day on a firm basis and up to 24,240 MMBtu of gas per day 
on an interruptible basis. Gas delivered by CDC within the firm basis limit
falls within one of three categories.  The price for the natural gas delivered 
by CDC varies depending upon the category  of the natural gas delivered.

       GAS TRANSPORTATION.  The PandaBrandywine Partnership purchases firm
natural gas transportation service from Columbia Gas Transmission Corporation 
("Columbia Gas") pursuant to an Amended and Restated FTS Service Agreement
(the "Columbia Gas  FT Agreement"). Service under the Columbia  Gas FT 
Agreement continues until October  31, 2021, and year toyear thereafter unless
terminated by either party upon six months' notice.

      Pursuant to the Columbia Gas FT Agreement, Columbia Gas  is obligated to 
provide the PandaBrandywine Partnership with up  to 24,240 Dekatherms ("Dth")  
per  day of firm   natural gas transportation  service from a receipt point near
Monclova,  Ohio to  an interconnection between the facilities of Columbia Gas
and Cove  Point  LNG Limited Partnership ("Cove Point") in Loudoun County,  
Virginia. Columbia Gas provides the firm transportation service pursuant to the 
terms of the Columbia Gas  FT Agreement rate  schedule and the general terms and
conditions  of  Columbia Gas's effective FERC natural gas tariff.

     The Panda-Brandywine Partnership purchases from Cove Point firm natural
gas transportation service to transport natural gas delivered by Columbia Gas
to the facilities of Cove Point pursuant to a FTS Service  Agreement (the "Cove
Point FT Agreement". The Cove Point FT Agreement continues until October 31, 
2021.

     Pursuant  to  the Cove Point FT Agreement, Cove  Point  is obligated to
provide the Panda Brandywine Partnership with up  to 24,000  Dth  per day of 
firm natural gas transportation  service from an interconnection between
the facilities of Cove Point and Columbia  Gas in Loudoun, Virginia to an 
interconnection  between the facilities  of Cove Point and Washington Gas  Light
Company ("WGL") in Charles County, Maryland. Cove Point provides the firm 
transportation service pursuant to the Cove Point FT Agreement, and  the general
terms  and conditions of  its effective  FERC natural gas tariff.

     The Panda-Brandywine Partnership purchases from WGL natural gas 
transportation, natural gas sales and natural gas balancing services pursuant to
a Gas Transportation and Supply Agreement (the "WGL Agreement").  The WGL 
Agreement  continues until October 31,  2021,  and  thereafter will continue 
year-to-year unless terminated by  either party upon  six  months' written 
notice.

      Pursuant to the WGL FT Agreement, WGL is obligated to provide the
Panda-Brandywine Partnership with firm transportation service, up to the 
quantity of natural gas nominated  for such service  on  a  given day, from an 
interconnection between  the facilities of Cove Point and WGL in Charles County,
Maryland  to the interconnection between the WGL facilities  and the Panda 
Brandywine  Facility, provided that WGL only must use its best efforts to 
deliver transportation natural  gas  to  the Panda Brandywine Facility when the 
pressure on the Cove Point pipeline is less than 500 psig. During the months of
January, February and December of any calendar year,  WGL may, under certain 
circumstances,  request that the Panda-Brandywine Partnership release  to  WGL
for its system use a quantity of  natural  gas purchased by the Panda-Brandywine
Partnership under the Brandywine Gas Agreement and transported to the WGL 
system.

     FUEL  OIL.   The  Panda-Brandywine Facility was constructed with  the
capability to operate on No. 2 fuel oil and has the ability to change fuel 
sources from natural gas to fuel oil  and back without interrupting the 
generation of electricity. The Panda- Brandywine Facility has onsite storage for
approximately two million gallons of fuel oil, a supply sufficient to operate 
the Panda-Brandywine Facility at full load for approximately six days.

     The   Panda-Brandywine Partnership entered into  a Sales Agreement with 
Northridge Petroleum Corporation ("Northridge") and a related Storage Agreement 
with Stratus Terminals,  Inc. pursuant to which the Panda-Brandywine Partnership
purchases  and maintains one million gallons of No. 2 fuel oil in storage tanks 
located near Baltimore, Maryland. These Agreements are renewable (for one year 
periods) at the option of the parties on March  31 of each 

                                       8
<PAGE>
succeeding year and, as of the date hereof, will expire on March 31, 2000. The
PandaBrandywine Partnership has access to the stored fuel oil at all times. Upon
request of the Panda Brandywine Partnership, Northridge will use its best
efforts to replenish any fuel oil removed from the storage tank at market based
prices plus additional storage charges. If Northridge is not able to purchase
the requested fuel oil within a specified time period, the PandaBrandywine
Partnership may purchase such fuel oil from another supplier.

  The  Panda-Brandywine Partnership has also entered  into  an agreement (the 
"Hardesty Transportation Agreement") with Hardesty &  Son, Inc. ("Hardesty") 
pursuant to which the Panda Brandywine Partnership has rights to firm 
transportation of a minimum of 20 truckloads  of fuel oil per day during the 
months  of  December through February and ten truckloads of fuel oil per day
during the months of March through November.  Hardesty will use its best 
efforts to provide additional transportation upon the request  of the Panda-
Brandywine Partnership.  If Hardesty is unable  to provide such additional 
transportation when requested, the Panda Brandywine Partnership may use other 
means  of delivery. The Hardesty Transportation Agreement continues until 
October 1, 1999 and  will automatically be renewed for successive one year terms
unless terminated by either party.

      WATER.  The PandaBrandywine Partnership has entered into a 25-year
Treated Effluent Water Purchase Agreement ("Water Supply Agreement")  with
the County Commissioners  of Charles County, Maryland to purchase up to 2.7 
million gallons per day of treated effluent from a local sewage treatment 
plant. Treated effluent is a byproduct of the sewage treatment process and is 
used as  the primary cooling water source for the Panda Brandywine Facility's 
cooling  towers. The  treated effluent is transported  from the sewage treatment
plant to the PandaBrandywine Facility by  a buried transmission pipeline that 
has the capacity to supply  up to 3.0 million gallons per day.

        OPERATIONS AND MAINTENANCE. The PandaBrandywine Partnership 
purchases operations and maintenance services  from Ogden  Brandywine
Operations, Inc. ("Ogden Brandywine") pursuant to an Operation and
Maintenance Agreement (the "Brandywine  O&M Agreement"). The Brandywine O&M 
Agreement is effective  until October 31, 1999,and may be extended thereafter 
by agreement  of the parties.

Plants Under Construction   

     THE LUANNAN FACILITY      

     GENERAL.     The Luannan  Facility (herein so called), approximately 83% of
which is indirectly owned by the Company, is located in Luannan County, 
Tangshan Municipality, Hebei Province, People's Republic of China. The Luannan 
Facility is currently under construction and is expected to reach commercial 
operation in August 1999. The Luannan Facility will be comprised of two steam/
electric generating units, each  nominally rated at  50 megawatts  but with 
nameplate capability of up to 60  megawatts gross output under full condensing
conditions. Two pulverized coal-fired  boilers, each delivering steam to drive a
three-stage extraction/conden sing steam turbine electric generating unit, will 
be utilized.  Electric  power generated by the  Luannan Facility will be 
interconnected to the local electricity grid network  at  110 kilovolts. In 
addition, steam will be extracted from the  steam turbines for distribution by
pipeline  to local industrial and commercial users and also used to heat water  
for district  heating use.   The site of  the Luannan Facility  is purchased 
for a term of 23 years (until 2019) pursuant to several Transfer Contracts for 
the Right to Use State Owned Land with the local Chinese partners, who acquired
granted land use rights from an agency of the PRC.

     SALES OF POWER.  The Luannan Facility will sell  power to North China
Power Group Company pursuant to the Luannan Power Purchase Agreement (herein
so called). The North  China Power Group Company functions as the commercial
arm of the North China Power Administration.  The North China Power Group
Company, which reports  directly to the State Power Corporation ("SP"), operates
the North China Power Grid. The service area of North China Power Group
Company encompasses four regions, including the Beijing/Tianjin/Tangshan area.
Beijing and Tianjin are among the largest and most economically developed cities
in the PRC.   The service  area of North China Power Group Company also includes
Hebei Province, Shanxi Province and western Inner Mongolia. The North China
Power Group Company owns most of the  major power plants within its service 
area. As a commercial entity, the North China Power Group Company manages and 
owns most of  the power assets in its territory including generation and
distribution facilities. The geographical extent of its service area makes North
China Power Group Company one  of  the largest  power operating entities in the
PRC.

                                       9
<PAGE>
     The Luannan Power Purchase Agreement has an initial term of 20 years from
the date of commercial operation of  the Luannan Facility.  The electricity
price is established through a formula provided in the applicable Pricing 
Document (herein so called) which  is separate from, but incorporated by 
reference  in, the Luannan Power Purchase Agreement. According  to the formula
contained  in the Pricing Document, the power price is comprised of fixed and
variable components that may be adjusted, subject to the approval of the
Tangshan Municipal Price Bureau, to reflect changes in  coal costs, depreciation
of plant and equipment and financing expenses.  Certain components of the
power price calculation  may be adjusted to reflect local and U.S. inflation
and  foreign exchange rate fluctuation in order to mitigate the Luannan
Facility's exposure to inflation and currency risks.  Although it is 
anticipated that the Luannan Facility will apply annually for changes in
rates, under the Luannan Power Purchase Agreement it has the right to request a
determination  of a new power price  whenever it determines that changes  in
the  price components require a new determination.  There  are pass-through
provisions  in the pricing formula for increases or decreases  in the cost of 
coal against an index cost that is stipulated in the Pricing Document,
and the pricing formula also has provisions for pass-through or make-whole
calculations relating  to certain construction capital cost items. The tariff
is paid  in Renminbi (the currency  of the PRC) and is required to be paid 
every  30 days by the North China Power Group Company.

     The owners of the Luannan Facility currently intend to make application
to the Tangshan Municipal Price Bureau for determination  of the initial
tariff under the pricing  formula contained in the Pricing Document for the 
Luannan Power  Purchase Agreement during the second quarter of 1999.
There can  be no assurance  that such tariff will allow the Luannan Facility  
to generate sufficient revenues to meet outstanding debt obligations regarding
the   Luannan Facility,  or that   any subsequent applications  for an 
increase in the tariff will be approved  by the Tangshan Municipal Price
Bureau.

     SALES  OF STEAM.  The Company currently believes that the Luannan
Facility will sell approximately 350,000 tons per  year of steam  for
process  and  the equivalent of approximately 360,000 gigajoules per year of 
steam for heating to certain Luannan County enterprises and local industries. 
The Company currently believes that the Luannan Facility will be the single
largest centralized heat supplier in Luannan County. 

     ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT. Harbin Power
Engineering Company Limited (the "Luannan EPC Contractor") is the engineering,
procurement and construction contractor for the Luannan Facility. The Luannan
EPC Contractor has extensive engineering, procurement and construction
experience in the power industry in the PRC and other countries.
Chinesemanufactured equipment and materials and Chinese labor are being utilized
to the maximum extent possible in order to lower the costs of the Luannan
Facility and the sale price of electricity.

       OPERATIONS  AND  MAINTENANCE.  Pursuant  to the  Luannan Operations  &
Maintenance Contract (the "Luannan O&M Contract"), operations and maintenance
services for the Luannan Facility will be provided   by   Duke/Fluor  Daniel
International Services ("Duke/Fluor").  The Luannan O&M Contract provides for a 
recovery of  costs  by Duke/Fluor plus incentive payments based upon the 
performance  of the Luannan  Facility.  Duke/Fluor is a general partnership  
formed in 1994 by affiliates of Duke Power  Company and  Fluor Corporation for 
the purposes of providing services  to the  solid fuel power generation market. 
Duke/Fluor is actively engaged in the operation and maintenance of electric 
generation facilities  throughout the world. Pursuant to  the Luannan  O&M 
Contract, almost  all of  the personnel will  be trained  PRC technicians who 
will work under close supervision of Duke/Fluor's managers.

     COAL SUPPLY. The Company currently believes that the Luannan Facility will 
use approximately 450,000 metric tons of coal per year.  The principal fuel 
supply for the Luannan Facility will come  from  the Qianjiaying Mine, which
is owned and operated by Kailuan  Coal  and  is  located 30 kilometers  from
the  Luannan Facility.  Kailuan Coal, a state-owned coal mining company,  has 
approximately  5.0 billion metric tons of coal reserves  in the Tangshan  area 
and produces approximately 18 million metric tons of  coal  per year. Kailuan 
Coal has committed to supply  up to 300,000 metric tons per year of coal from 
the Qianjiaying Mine to the Luannan  Facility for  ten  years.  The remaining
coal requirements for the Luannan Facility will be supplied  by other mines in
the region.

     THE NEPAL FACILITY

     GENERAL.   The Nepal Facility (herein so called) is located on  the
upper Bhote Koshi  River in Nepal, approximately 110 kilometers from Kathmandu,
Nepal. The Nepal Facility is currently under construction. It will be 
comprised of a 36 megawatt run of-theriver power plant; thus it will not 
have a large  dam and reservoir,  but 


                                       10
<PAGE>
rather, a small diversion structure, and will produce electricity in accordance
with the river flow. The switchyard and a separate 48 kilometer transmission
line that will transmit the power generated by the Nepal Facility to a sub
station in Bhaktapur, Nepal, will be built by the Nepal Electricity Authority
(the "NEA"), the state owned utility prior to completion of the Nepal Facility.
The Company and an investment partner indirectly own 75% of the Nepal Facility.
Cash flow attributable to the Company's and its investment partner's aggregate
interest in the Nepal Facility will be allocated 85% to such partner and 15% to
the Company's wholly owned subsidiary until such partner achieves a 20% internal
rate of return, and 90% to the Company's subsidiary and 10% to such partner
thereafter.

     The Nepalese Government has recently replaced various taxes with a broad 
"Value Added Tax" ("VAT") and has applied the VAT to the  Nepal  Project
with regard to certain capital  items. The Nepal  Project participants
believe that such application of  the VAT constitutes  a "Change  in
Law"  under  the  force  majeure provisions  in the applicable power  purchase  
agreement and accordingly  have delivered a notice to Nepal Electric  Authority 
seeking appropriate price relief to recover any VAT imposed on the Nepal 
Project.

   During August, 1998, a major flood occurred in the upper Bhote Koshi River
basin and as a result, the Nepal Facility is now expected to reach commercial 
operation in approximately September  2000, which constitutes a delay of six 
to eight months from  the initial  projected date of  commercial operation,
although this delay may be reduced through implementation of a mitigation 
program. The  Nepal Project has insurance coverage for a substantial portion  
of  the loss,  including business interruption coverage. This  delay in the  
commercial operation  date is not expected  to cause  any termination  or other
default event under the  applicable power purchase agreement.   In this regard,
the Nepal  Project has provided notice to the Nepalese Government and the
Nepal Electric Authority that it intends to seek appropriate schedule  and
cost relief afforded  it pursuant to the applicable force majeure provisions 
under various project agreements, in addition  to any insurance proceeds
received.

     The Company  does not believe that the delay in commercial operation  of
the Nepal Facility or the VAT imposed  on certain capital items of the
Nepal Facility will cause a material adverse effect  on the  business,
financial condition  or results of operations of the Company and its
subsidiaries, taken as a whole.

     SALES OF POWER. The Nepal Facility will sell power to the NEA pursuant to
the Nepal Power Purchase Agreement (herein so called). The Nepal Power Purchase
Agreement will terminate 25 years from the date of commercial operation of the
Nepal Facility. Upon the termination of the Nepal Power Purchase Agreement, 50%
of the ownership of the Nepal Facility will be transferred to the NEA for a
nominal sum. Payment under the Nepal Power Purchase Agreement will equal the
product of a tariff rate of U.S.$0.060 per kilowatt hourin 1995 prices escalated
by 3% per annum for the first 15 years, and indexed thereafter to the U.S.
Consumer Price Index rate and the total monthly electrical output delivered by
the Nepal Facility subject to monthly deemed generation levels. The NEA will
have the ability to dispatch the Nepal Facility at its discretion. However
should the NEA dispatch the Nepal Facility below the monthly deemed generation
level, the NEA will remain obligated to pay for the deemed generation. During
the dry months of the year (mid-November to mid-May), the NEA has the option to
purchase all electric power produced by the Nepal Facility even if it exceeds
the deemed generation level. The NEA will not be required to purchase electrical
output above the deemed generation levels during the wet months of the year (mid
November to midMay). Payments under the Nepal Power Purchase Agreement will be
denominated in U.S. dollars and paid in Nepalese rupees.

    ENGINEERING,  PROCUREMENT AND CONSTRUCTION CONTRACT. China Gezhouba  
Construction Group Corporation for Water Resources and Hydropower ("China
Gezhouba") is the engineering, procurement and construction contractor for the
Nepal Facility. China Gezhouba is one of the largest construction firms in the
PRC, with extensive experience in the construction of hydropower plants. China
Gezhouba has engaged Harbin Electric Machinery Works ("Harbin"), based in Harbin
China, to supply the turbine generators for the Nepal Facility. Harbin has
supplied hydro units to a large number of hydroelectric plants in several
countries in Asia, Europe, the Middle East and the United States.

     OPERATIONS AND MAINTENANCE. Harza Engineering Company International, L.P.
("Harza") will provide operations and maintenance services for the Nepal
Facility pursuant to a contract with an initial term of five years 

                                       11
<PAGE>
from commercial operation, renewable for additional five-year periods. Harza has
extensive experience in the planning, design, construction, and operation of
power plants throughout the world.

     THE SITE. The Bhote Koshi River is a perennial stream fed by glaciers, snow
melt and monsoons. The river drains an area of 2,132 square kilometers, mostly
in the PRC. The mean annual flow at the proposed site was 66.4 cubic meters per
second between 1965 and 1992. The Nepal Facility will be located in the
Sindhupalchok zone of central Nepal, close to the PRC-Nepal border. The Bhote
Koshi River rises to an elevation of 5,800 meters at Tang Pu, Tibet, PRC and
flows south with a drop of 4,300 meters before reaching the project site. At the
site, the river's slope is about 10 percent. The land at the site for the Nepal
Facility is owned by the project company formed by the Company and its partners,
and is subject to a mortgage lien as part of the financing for the Nepal
Facility.

     COMPETITION  

     The business of developing electric generating power plants is intensely  
competitive.   The Company  and  its subsidiaries compete both  domestically  
and internationally   with other independent  power  producers, including non-
regulated affiliates of utilities.

     Development  of  new  power generation projects in  foreign markets is
difficult and expensive, and many competitors in these foreign markets have 
significantly larger capital resources  and greater local market expertise 
than the Company. In addition, due to increased competition in the
United States, there has been an increasing number of entrants into these 
foreign markets.

     In  the  United States, over the past decade, developing electric
generating power plants has become a progressively  more difficult,
expensive and  competitive process. Increased competition  also  has
lowered  profit margins  of successful projects in the United States and abroad.

REGULATORY MATTERS 

     REGULATION OF THE ELECTRIC POWER INDUSTRY IN THE UNITED STATES 

     Projects of  the Company located in the United States  are subject to 
complex and stringent energy, environmental and other governmental laws and 
regulations at the federal, state and local levels in connection  with the 
development,  ownership and operation of its electricity generation facilities. 
Federal laws and  regulations govern transactions by electric and gas
utility companies, the types of fuel that may be utilized by an electric 
generating facility, the type of energy that may be produced  by such  a
facility and the ownership of the facility. State utility regulatory
commissions  must approve the rates  and terms  and conditions under which 
public utilities sell electric  power  at retail and, under certain 
circumstances, purchase electric power from independent producers. Under
certain circumstances where specific exemptions  are otherwise unavailable,
state utility regulatory commissions may have broad jurisdiction  over
non utility  electric power generation facilities. Energy producing projects
located  in  the United States also  are  subject  to federal, state  and
local  laws and administrative regulations governing the emissions and
other substances produced, discharged or disposed  of  by  a facility and the
geographical location, zoning, land use and operation of a facility.
Applicable federal environmental laws typically have state and local enforcement
and implementation provisions. These environmental laws andregulations generally
require that a variety of permits and other approvals be obtained
before the commencement of construction or operation  of an energy producing
facility and that the  facility then operate in compliance with those permits 
and approvals.

     FEDERAL AND STATE ENERGY REGULATION

     PURPA. PURPA and the regulations promulgated thereunder provide certain
rate and regulatory incentives to an electric generating facility that is a
qualifying cogeneration or small power production facility (a "QF" or "
Qualifying Facility"). A cogeneration facility is a QF if it (i) sequentially
produces both electricity and useful thermal energy that is used for industrial,
commercial, heating or cooling purposes, (ii) meets certain energy efficiency
and operating standards when oil or natural gas is used as a fuel source and
(iii) is not more than 50%-owned by an electric utility, electric utility
holding company or an entity or person owned by either or any combination
thereof. The Panda-Rosemary Facility and the Panda- Brandywine Facility are QFs.

                                       12
<PAGE>
     Under PURPA and the regulations promulgated thereunder, QFs receive two
primary benefits. First, most types of QFs are exempt from most provisions of
the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), and from
most provisions of the Federal Power Act, as amended (the "FPA"), while all QFs
are exempt from certain state laws relating to organizational, rate and
financial regulation. Second, regulations promulgated by the FERC under PURPA
require that (i) electric utilities purchase electricity generated by QFs,
construction of which commenced on or after November 9, 1978, at a price based
on the purchasing utility's full "avoided costs" and (ii) the utilities sell
supplementary, back-up, maintenance and interruptible power to the QFs on a just
and reasonable and nondiscriminatory basis. PURPA and the regulations
promulgated thereunder define "avoided costs" as the "incremental costs to an
electric utility of electric energy or capacity or both which, but for the
purchase from the qualifying facility or qualifying facilities, such utility
would generate itself or purchase from another source." Utilities may also
purchase power from QFs at prices other than "avoided costs" pursuant to
negotiations as provided by FERC regulations.

     Any merchant  plant, if developed and constructed  by the Company in the 
United States, probably would not qualify as a QF, but nonetheless probably 
would be exempt from most provisions of PUHCA  by  virtue of being an
"exempt wholesale generator"  or "EWG" (described below).
 
     The FERC's regulations also provide that if energy or capacity is provided
pursuant to a legally enforceable obligation over a specified term, avoided
costs may be determined, at the option of the QF, either at the time the energy
or capacity is delivered or as calculated at the time the obligation is
incurred. The FERC's regulations further provide that, in the case of rates
based on estimates of avoided costs over the term of a contract, the rates do
not violate the FERC's rates if the rates for such purchases differ from avoided
costs at the time of delivery.

     In certain instances, payments based upon avoided costs estimated at the
time a contract is entered into have proven to be greater than a utility's
avoided costs at the time of delivery. Many utilities have attempted to minimize
the disparity by implementing strategies designed to reduce avoided cost
payments under such contracts to levels that the utilities believe will be more
competitive in a short-term marginal cost electric energy market. Such
strategies include attempts to renegotiate or buy out power purchase contracts
with QFs. Some utilities have sought rigorously to enforce the terms of such
contracts and to exercise their contractual termination rights if the contracts
are not strictly observed. In addition, some utilities have engaged in
litigation and regulatory action against QFs to achieve these ends.

     The FERC has refused to disturb QF contract rates on two operating projects
where estimates of a utility's avoided costs, calculated at the time the
contracts were signed, were higher than the actual avoided costs at the time of
delivery and the contract rates were not challenged at the time the contracts
were signed and were not the subject of an ongoing challenge to the state's
avoided cost determination. New York State Electric & Gas Corporation, 71 FERC
61,027, reconsideration denied, 72 FERC 61,067 (1995). This decision is
currently the subject of a complaint filed in the United States District Court
for the Northern District of New York. Relying in part on the FERC's
regulations, a federal court of appeals has held that once a state commission
has approved (by final and nonappealable order) a QF contract rate as being
consistent with avoided costs, just, reasonable and prudently incurred, any
action or order by the state commission to reconsider its approval or deny the
passthrough of the QF's charges to the utility's retail customers under
purported state authority is preempted by PURPA and the Federal Power Act.
FREEHOLD COGENERATION ASSOCS., L.P. V. BOARD OF REGULATORY COMM'RS OF NEW
JERSEY, 44 F.3D 1178 (3RD CIR.), CERT. DENIED SUB NOM., JERSEY CENTRAL POWER &
LIGHT CO. V. FREEHOLD COGENERATION ASSOCS., L.P., 116 S. CT. 68 (1995).

     In  INDEPENDENT ENERGY PRODUCERS ASSOC. V. CALIFORNIA PUBLIC UTILITIES 
COMM'N,  36 F.3d 848 (9th Cir. 1994), the U.S. Court of Appeals  for the Ninth 
Circuit held that states are not preempted by  PURPA from instituting a program
that requires QFs to submit operating data, to purchasing utilities for 
monitoring compliance with QF status requirements,  as long as the  monitoring 
requirements do not impose an undue burden on the QFs.  However, the same court
determined that states and utilities are preempted by federal law from
taking action on their determination that  a QF  is no longer in compliance 
with QF status requirements, other than  requesting that the FERC revoke the 
facility's QF  status, either by filing a request for revocation or by filing
a petition for a declaratory order that the facility is no longer a QF.


                                       13
<PAGE>
     On May 29, 1996, filed with the State Corporation Commission of the
Commonwealth of Virginia ("SCC") a request for authorization to institute a
formal QF status monitoring program. On June 13, 1997, the SSC issued an order
authorizing such a monitoring program. The order states that the monitoring
program would apply to all QFs that have entered into power purchase agreements
with Virginia Power. Under the program, QFs must submit to Virginia Power by
July 1 of each year certain operational data from the previous year and indicate
significant changes from previous years. Virginia Power must report to the SSC
by October 1 of each year the results of Virginia Power's QF compliance
evaluation. Virginia Power may seek a declaration from the FERC that a QF does
not qualify under the FERC rules.

     The North Carolina Utilities Commission ("NCUC") has disallowed the
pass-through to Virginia Power's North Carolina retail rates of a portion of
capacity payments Virginia Power had been making to several non-utility
generation plants. The capacity payment rates for the plants had been determined
by an arbitrator and approved by the SCC. The NCUC found that bids from a 1988
solicitation (the "1988 Virginia Power Solicitation") were available at the time
the contract was approved and should have been used, instead of arbitration, to
determine Virginia Power's avoided costs. The NCUC ruled that rates in excess of
the rates derived from bids received in the 1988 Virginia Power Solicitation
were therefore disallowed in Virginia Power's North Carolina retail rates. The
North Carolina Supreme Court upheld the NCUC's decision, saying that the NCUC
had simply disallowed rates above avoided costs. North Carolina Utilities Comm'n
v. North Carolina Power, 338 N.C 412, 450 S.E.2d 896 (1994). The United States
Supreme Court declined to review that decision.

     While the Rosemary Power Purchase Agreement with Virginia Power was not
specifically approved by the SCC, the SCC did approve the 1988 Virginia Power
Solicitation that resulted in the Rosemary Power Purchase Agreement. Although
the NCUC used the 1988 Virginia Power Solicitation to determine the avoided
costs in the North Carolina decision discussed above, there can be no assurance
that it would not disallow the pass-through of the Rosemary Power Purchase
Agreement rates, which arose from the 1988 Virginia Power Solicitation. If the
NCUC were to disallow such pass-through, and if the courts were to allow the
decision to stand, the Company believes that any such disallowance would affect
only that portion of Virginia Power's rates allocated to its North Carolina
retail customers. The Brandywine Power Purchase Agreement has been approved by
both the Maryland and District of Columbia Public Service Commissions.

     The Company endeavors to develop its U.S. QF projects, monitor compliance
by such U.S. QF projects with applicable regulations and choose its customers in
a manner which minimizes the risks of losing QF status. Certain factors
necessary to maintain QF status are, however, subject to the risk of events
outside the Company's control. For example, loss of a thermal energy customer or
failure of a thermal energy customer to take required amounts of thermal energy
from a cogeneration facility that is a QF could cause the facility to fail to
satisfy the criteria required for QF status regarding the level of useful
thermal energy output. Upon the occurrence of such an event, the Company would
seek to replace the thermal energy customer or find another use for the thermal
energy that meets PURPA's requirements, but no assurance can be given that this
would be possible.

     If one of the U.S. projects which is a QF and in which the Company has an
interest should lose its status as a QF, such project would no longer be
entitled to the exemptions from PUHCA and the FPA. This could subject the U.S.
project to rate regulation as a public utility under the FPA and state law and
could result in the Company or certain of its affiliates inadvertently becoming
a public utility holding company by owning more than 10% of the voting
securities of, or controlling, a facility that would no longer be exempt from
PUHCA. This could cause all of the Company's remaining U.S. projects which are
QFs to lose their QF status, because QFs may not be controlled, or more than
50%-owned, by public utility holding companies. Loss of QF status could also
trigger defaults under covenants to maintain QF status in the Company's U.S.
project power purchase agreements, steam sales agreements and financing
agreements and result in termination, penalties or acceleration of indebtedness
under such agreements. A facility may lose its QF status on a retroactive or a
prospective basis.

     If a U.S. project which is a QF were to lose its QF status (because, for
example, it lost its steam customer), the Company and its affiliates could
attempt to avoid holding company status (and thereby protect the QF status of
its other QF projects) on a prospective basis by restructuring its interests in
such U.S. project. For instance, the Company could change its voting interest in
the entity owning the nonqualifying project to nonvoting or limited partnership
interests and sell the voting interest to an individual or company which could
tolerate the lack of 


                                       14
<PAGE>
exemption from PUHCA, or by otherwise restructuring ownership of the project so
as not to become a holding company. These actions, however, would require
approval of the Securities and Exchange Commission (the "SEC") or a no-action
letter from the SEC, and would result in a loss of control over the
nonqualifying project, could result in a reduced financial interest therein and
might result in a modification of the operation and maintenance agreement
relating to such project. A reduced financial interest could result in a gain or
loss on the sale of the interest in such project, the removal of the affiliate
through which the ownership interest is held from the consolidated income tax
group or the consolidated financial statements of the Company and its
affiliates, or a change in the results of operations of the Company and its
affiliates. Loss of QF status on a retroactive basis could lead to, among other
things, fines and penalties being levied against the Company and its affiliates,
and its subsidiaries and claims by utilities for refund of payments previously
made.

     Under the Energy Policy Act of 1992 ("Energy Policy Act"), a company  
engaged exclusively in the business  of  owning and/or operating  a
facility used for the generation of electric energy exclusively for sale at 
wholesale may be exempted from PUHCA as an  "exempt wholesale generator"
or "EWG." An  exempt wholesale generator may not make retail sales of
electricity in the U.S. If a project can be qualified as an EWG
under Section 32 of PUHCA it will  be exempt from PUHCA even if it does
not qualify as  a  QF.  Therefore,  if a QF in the Company's project
portfolio  were  to lose its QF status, the Company could apply to
have the  project qualified as an EWG. However, assuming this changed status
would be permissible under the terms of the applicable power purchase agreement,
rate approval from FERC  would  be required.  In addition,  the project  would 
be required  to cease selling electricity  to any retail customers (such as 
the thermal energy customer) and could become subject to state regulation
of sales of thermal energy.

     If EWG status is lost and cannot be regained, this could result in the
Company or certain of its affiliates inadvertently becoming a public utility
holding company by owning more than 10% of the voting securities of, or
controlling, a facility that would no longer be exempt from PUHCA. As noted
above, this could cause all of the Company's remaining U.S. projects which are
QFs to lose their QF status, because QFs may not be controlled, or more than
50%-owned, by public utility holding companies. Loss of exemption from PUHCA
could also trigger defaults under covenants to maintain exemptions from PUHCA.

     PUHCA. PUHCA provides that any corporation, partnership or other entity or
organized group that owns, controls or holds power to vote 10% or more of the
outstanding voting securities of a "public utility company" or a company that is
a "holding company" of a public utility company is subject to regulation under
PUHCA, unless an exemption is established or an SEC order declaring it not to be
a holding company is granted. Registered holding companies under PUHCA are
required to limit their utility operations to a single integrated utility system
and to divest any other operations not functionally related to the operation of
the utility system. In addition, a public utility company that is a subsidiary
of a registered holding company under PUHCA is subject to financial and
organizational regulation, including approval by the SEC of certain of its
financing transactions. As discussed above, most types of QFs and all EWGs are
exempt from most of the provisions of PUHCA. A foreign utility company is also
exempt from most of the provisions of PUHCA if certain notice and other
requirements are satisfied.

     FPA. Under the FPA, the FERC has exclusive rate-making jurisdiction over
wholesale sales of electricity and transmission in interstate commerce. These
rates may be determined on either a cost-ofservice basis or a marketbased
approach. If a QF in the Company's project portfolio were to lose its QF status,
the rates set forth in the applicable power purchase agreement would have to be
filed with the FERC and would be subject to initial and potentially subsequent
reviews by the FERC under the FPA, which could result in reductions to the
rates.

     Industry Restructuring Proposals. The United States Congress is currently
considering legislation to repeal PURPA entirely, or at least to repeal the
obligation of utilities to purchase from QFs. There is strong Congressional
support for grandfathering contracts of existing QFs if such legislation is
passed, and also support for requiring utilities to conduct competitive bidding
for new electric generation if the PURPA purchase obligation is eliminated.
Congress is also considering legislation to repeal PUHCA. Such repeal would
remove restrictions from the Company, but would also remove restrictions from
its competitors.

                                       15
<PAGE>
     The FERC and many state utility commissions are either studying or have
adopted proposals to restructure the electric utility industry in the United
States to permit utility customers to choose their utility supplier in a
competitive electric energy market. The FERC has issued a final rule requiring
utilities to offer wholesale customers and suppliers open access on their
transmission lines, on a basis comparable to the utilities' own use of the
lines. Although the rule (Order No. 888) is currently the subject of a petition
for review in the Unites States Court of Appeals for the D.C. Circuit, all
"public utilities" have already filed "open access" tariffs. The utilities
contend that they should recover from departing customers their fixed costs that
will be "stranded" if their wholesale customers choose new electric power
suppliers. These stranded costs include the capacity costs utilities are
required to pay under many QF contracts, which the utilities view as excessive
when compared with current market prices for capacity. Many utilities are
therefore seeking ways to lower these contract prices or terminate the contracts
altogether, out of fear that their shareholders will have to bear all or part of
such "stranded" costs. Some utilities have engaged in litigation against QFs to
achieve these ends. The FERC's rule allows full recovery of "legitimate and
verifiable" prudently incurred stranded costs at the wholesale level. However,
the FERC has jurisdiction over only a small percentage of electric rates, and
there is likely to be litigation over whether wholesale stranded costs are
"legitimate and verifiable."

     In  addition to restructuring proposals being considered by regulatory  
agencies, a number of bills have been introduced in the  U.S. Congress to
promote electric utility restructuring and deregulation of electric rates. 
These bills differ as to how  and to what extent a utility's "stranded" or
"transition" costs would be recoverable if current captive customers left  the
utility's system. The existence of this legislation may increase the
desire of  utilities  to renegotiate, buy out or attempt  to terminate
existing  power  purchase agreements containing prices that  the utilities  
believe will  not  be competitive in  a  short-term marginal cost electric 
energy market. In addition,  if  electric energy  prices are deregulated, 
electric energy producers  will have  to sell electric energy at competitive 
market prices.  In Virginia, a new law, which will take effect on July 1, 
1999, provides  for the recovery  of "just and reasonable net stranded
costs" (see discussion  of stranded costs, above), which  include "electric 
service contracts." Such recovery may  be made only through either capped 
rates, established for a transition period, or through wire charges for the use
of transmission lines to  reach another supplier. Wire charges will be the sum 
of the difference between the utility's capped unbundled rates and projected 
market prices for generation, and any transition costs found to be just and 
reasonable  by the SCC.  All deferred wire charges  must be paid in full by 
July 1, 2007.

     State Regulations. State public utility commissions ("PUCs") have broad
authority to regulate both the rates charged by and financial activities of
electric utilities, and to promulgate regulations implementing PURPA. Since a
power purchase agreement will become a part of a utility's cost structure (and
therefore generally is reflected in its retail rates), power purchase agreements
from independent power producers are potentially subject to the regulatory
purview of PUCs, particularly the process by which the utility has entered into
the power purchase agreements. If a PUC has approved the process by which a
utility secures its power supply, a PUC generally will be inclined to allow a
utility to "pass through" the expenses associated with an independent power
contract to the utility's retail customers. Moreover, a federal court of appeals
has held in one instance that a PUC may not disallow the full reimbursement to a
utility for the purchase of electricity from a QF once the PUC has approved the
rates as consistent with the requirements of PURPA. See Freehold Cogeneration
Assocs., L.P. v. Board of Regulatory Comm'rs of New Jersey, 44 F.3d 1178 (3rd
Cir.), cert. denied sub nom., Jersey Central Power and Light Co. v. Freehold
Cogeneration Assocs., L.P., 116 S. Ct. 68 (1995). In addition, retail sales of
electricity or thermal energy by an independent power producer may be subject to
PUC regulation, depending on state law.

     Independent power producers that are not QFs under PURPA are considered to
be public utilities in many states and are subject to broad regulation by PUCs
ranging from the requirement that certificates of public convenience and
necessity be obtained to regulation of organizational, accounting, financial and
other corporate matters. However, sales of electricity at wholesale in
interstate commerce (as are currently contemplated by the Company regarding EWG
merchant plants which it might develop in the U.S.), except in the region
regulated by the Electric Reliability Council of Texas ("ERCOT") where FERC
lacks jurisdiction, are subject to the exclusive regulatory jurisdiction of the
FERC. In addition, states may assert jurisdiction over the siting and
construction of such facilities, and over the issuance of securities and the
sale or other transfer of assets by such EWG facilities.

     State PUCs also have jurisdiction over the transportation and retail sale
of natural gas by local distribution companies. Each state's regulatory laws are
somewhat different; however, all generally require a local distribution

                                       16
<PAGE>
company to obtain approval from the PUC to provide services and construct
facilities. The rates of local distribution companies are usually subject to
continuing oversight by the PUC.

     In the case of the PandaRosemary Facility, the Panda Rosemary Partnership
is subject to a number of conditions imposed by the North Carolina Utilities
Commission ("NCUC") pursuant to a Certificate of Public Convenience and
Necessity ("CPCN"), including that the PandaRosemary Facility and the Rosemary
Pipeline both be owned by the Panda-Rosemary Partnership, that the Panda
Rosemary Partnership not transport gas for or sell or deliver gas to any other
entity, that all electricity generated at the PandaRosemary Facility be sold to
an electric utility and that all thermal energy produced at the Panda- Rosemary
Facility be sold only to the textile mill to which steam and chilled water from
the PandaRosemary Facility are currently delivered. On February 18, 1997, the
Bibb Company ("Bibb") announced that it would sell the textile mill to Westpoint
Stevens, Inc. ("Westpoint"). The closing of the sale was reported in the news
media on February 21, 1997. If, in fact, Bibb is no longer the owner of the
textile mill, the Panda- Rosemary Partnership is obligated to notify the NCUC
and Virginia Power and the NCUC could order such further proceedings as it
deemed appropriate, which proceedings could result in revocation of the CPCN or
the imposition of other conditions

     NATURAL GAS REGULATION. The Company has an indirect 100% interest in and
operates two natural gas-fired cogeneration projects in the United States, one
of which is owned and one of which is under a long term lease financing
arrangement. The cost of natural gas (other than debt costs) is ordinarily the
largest expense of a gas-fired power project and is critical to the project's
economics. The risks associated with using natural gas can include the need to
arrange transportation of the gas across great distances, including obtaining
removal, export and import authority if the gas is transported from Canada, the
possibility of interruption of the natural gas supply or transportation
(depending on the quality of the natural gas reserves purchased or dedicated to
the project, the financial and operating strength of the gas supplier and
whether firm or non-firm transportation is purchased), and obligations to take a
minimum quantity of gas or pay for it (take-or-pay obligations).

     Pursuant to the Natural Gas Act, the FERC has jurisdiction over the
transportation and storage of natural gas in interstate commerce. With respect
to most transactions that do not involve the construction of pipeline
facilities, regulatory authorization can be obtained on a selfimplementing
basis. However, pipeline rates for such services are subject to continuing FERC
oversight. Order No. 636, issued by the FERC in April 1992, mandated the
restructuring of interstate natural gas pipeline sales and transportation
services. The restructuring required by the rule includes (i) the separation
("unbundling") of a pipeline's sales and transportation services, (ii) the
implementation of a straight fixedvariable rate design methodology under which
all of a pipeline's fixed costs are recovered through its reservation charge,
(iii) the implementation of a capacity release mechanism under which holders of
firm transportation capacity on pipelines can release that capacity for resale
by the pipeline, and (iv) the opportunity for pipelines to recover 100% of their
prudently incurred costs ("transition costs") associated with implementing the
restructuring mandated by the rule.

     ENVIRONMENTAL REGULATIONS. The development, construction and operation of
power projects in the United States is subject to extensive federal, state and
local laws and regulations adopted for the protection of theenvironment and to
regulate land use. The laws and regulations applicable to the Company and its
subsidiaries primarily involve the discharge of emissions into the water and air
and the use of water, but can also include wetlands preservation, endangered
species, waste disposal and noise regulations. These laws and regulations in
many cases require a lengthy and complex process of obtaining licenses, permits
and approvals from federal, state and local agencies. Noncompliance with
environmental laws and regulations can result in the imposition of civil or
criminal fines or penalties. In some instances, environmental laws also may
impose clean-up or other remedial obligations in the event of a release of
pollutants or contaminants into the environment. The following federal laws are
among the more significant environmental laws that may apply to the Company and
its domestic subsidiaries. In most cases, analogous state laws also exist that
may impose similar, and in some cases more stringent, requirements on the
Company and its subsidiaries.

     CLEAN AIR ACT. The Federal Clean Air Act, as amended (the "Clean Air Act"),
provides for the regulation, largely through state implementation of federal
requirements, of ambient air quality and emissions of air pollutants from
certain facilities and operations. As originally enacted, the Clean Air Act set
guidelines for emissions standards 


                                       17
<PAGE>
for major pollutants (e.g., sulfur dioxide and nitrogen oxide) from new sources.
The 1990 Clean Air Act Amendments tightened regulations on emissions from
existing sources, particularly previously exempted older power plants.

     CLEAN  WATER ACT.  The Federal Clean Water Act, as amended (the  "Clean
Water  Act"),  also provides for  the regulation, largely through state 
implementation of federal requirements, of the quality  of  surface waters  and 
imposes limitations   on discharges to those waters from point sources, 
including  certain facilities   and operations.  The water quality standards 
established under the Clean Water Act are used as the basis  for developing
specific pollutant discharge limitations  from point sources. The discharge
limitations are incorporated into permits called National Pollutant Discharge
Elimination System ("NPDES") permits.  The Clean Water Act also imposes
requirements with respect  to the discharge of stormwater runoff 
from  industrial sites.   Those requirements are implemented through
state stormwater discharge permits. The Clean Water Act also  restricts
discharges of fill materials to wetlands.

     RESOURCE CONSERVATION AND RECOVERY ACT. The Resource Conservation and
Recovery Act of 1976 ("RCRA") regulates the generation, treatment, storage,
handling, transportation and disposal of solid and hazardous waste.

     COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT. The
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA" or "Superfund"), requires the remediation of sites from
which there has been a release or threatened release of hazardous substances and
authorizes the United States Environmental Protection Agency to take any
necessary response action at Superfundsites, including ordering potentially
responsible parties liablefor the release to take or pay for such actions.
Potentially Responsible Parties are broadly defined under CERCLA to include past
and present owners and operators of such sites, as well as generators, arrangers
and transporters of wastes sent to a site.

   REGULATION OF THE  ELECTRIC POWER INDUSTRY IN THE PRC.

     GENERAL. The PRC's electric power industry is regulated primarily by the
State Economic and Trade Commission ("SETC") as successor to the Ministry of
Electric Power ("MOEP") in conjunction with the State Development and Planning
Commission ("SDPC") and other governmental agencies. For foreign investments in
electric power projects in the PRC, such governmental agencies include the
Ministry of Foreign Trade and Economic Cooperation of the PRC ("MOFTEC"), the
SDPC, the State Administration of Foreign Exchange ("SAFE"), the State
Administration of Industry and Commerce of the PRC (the "SAIC") and certain
other agencies. Certain commercial and dispatch functions formerly exercised by
the MOEP have been transferred to the State Power Corporation of China ("SP").
Pursuant to resolutions of the Ninth National People's Congress introduced in
March 1998, the governmental functions of the MOEP were officially transferred
to the SETC and MOEP was dissolved. National grid management, ownership of
statefunded electric generating assets and development planning responsibilities
will remain with the SP. The reorganization of the power industry in the PRC is
still in process and will be accomplished over a period of time. The regulatory
and approval authorities of the Central Government (herein so called) agencies
are delegated to local provincial or city governmental agencies performing
similar functions if the total amount of such foreign-invested projects does not
exceed certain thresholds (denominated in U.S. dollars), although regulations
promulgated by the MOEP in late 1997 and early 1998 (before its replacement by
SETC) would base approval authority on a power project's unit size. However, it
is unclear whether the provincial planning commissions and the SDPC are bound by
or, if not, will follow these regulations.

     STATE ECONOMIC AND TRADE COMMISSION. As the governmental department
responsible for the electric power industry, the SETC has assumed responsibility
previously exercised by the MOEP and is responsible for formulating development
strategies and policies for the electric power industry in the PRC, including
investment, technical, and major production and consumption policies. In
addition to formulating electric power industry planning in collaboration with
the SDPC and other governmental agencies, the SETC (i) coordinates the
development of the electric power industry, (ii) supervises the implementation
of related national policies, decrees and plans and (iii) provides services to
electric power enterprises. The SETC shares certain of its administrative
responsibilities with the China Nuclear Industry Corporation and the Ministry of
Water Resources with respect to nuclear-powered and hydro-powered electricity
generating facilities, respectively.

                                       18
<PAGE>
     In an attempt to separate the regulatory and commercial functions of the
electric power industry, the PRC State Council formally approved the
establishment of the SP in January 1997. The SP is a stateowned legal entity
with funds provided directly by the State Council (a body of the central
government of the PRC). The SP serves as the PRC's principal investor in and/or
operator of wholly or partially state-owned facilities in the PRC. It also is
responsible for the operation of the inter-regional transmission facilities and
the development of a national power grid. After the establishment of the SP, the
MOEP continued (and the SETC now continues) to exercise the regulatory function
over the Chinese electricity industry, but the MOEP's enterprise management
function and its function to operate state assets were turned over to the SP. As
part of the reform of the PRC power industry, the key policy of which is
separation of regulatory functions from enterprise management, eventually
provincial power bureaus will be dissolved and their regulatory function will be
handed over to comprehensive economic administrative departments of provincial
governments, while provincial power companies will be restructured to be
independent legal entities responsible for their own profit and loss. This
restructuring is already under way in Northeast China, and will eventually be
implemented nationwide.

     STATE ADMINISTRATION OF FOREIGN EXCHANGE. The SAFE is responsible for
administration of foreign exchange in the PRC. It formulates and oversees the
implementation of foreign exchange regulations applicable to foreign investment
enterprises ("FIEs"). The relevant approval authorities consult the SAFE in
respect of foreign exchange matters relating to FIEs. The SAFE is also
responsible for monitoring the interbank foreign exchange system.

     REGIONAL, PROVINCIAL AND LOCAL POWER BUREAUS. The SETC directly oversees
the five interprovincial power groups (the "Regional Power Groups") and the
eight independent provincial and two special administrative region power
companies ("Provincial Power Companies") in the PRC, all of which are
subsidiaries of the SP. The Regional Power Groups (i) manage their respective
regional power grids, (ii) dispatch the power plants connected to such grids
either directly or indirectly through lower level power companies, and (iii)
supervise the power companies at lower administrative levels. The Regional Power
Groups also act through power companies which develop, construct, own and
operate certain power plants and transmission facilities within their respective
territories. The key personnel of the Regional Power Groups are appointed by the
SETC and the key personnel of the Provincial Power Companies are appointed by
the provincial governments in consultation with the SETC.

     A similar structure exists for the Provincial Power Companies under the
Regional Power Groups and the Provincial Power Companies directly owned and
managed by the SP. Each Provincial Power Company manages its provincial power
grid and dispatches the power plants connected to such grid to meet local
demand. The Provincial Power Companies operate certain power plants and certain
transmission facilities within their respective provinces. Cities and counties
directly under the administration of the provinces may have power companies
(together with the Regional Power Groups and the Provincial Power Companies, the
"Power Companies") which perform, under the administration of the Power Company
at the next higher level of government, similar functions within their
respective jurisdictions.

     PRC ELECTRIC POWER LAW. Given the importance of the continued rapid
expansion  of the  PRC's power industry,   the National People's Congress 
adopted the Law of Electric Power  on December 28, 1995 (the "Power Law").  
The Power Law, which became effective  on April 1, 1996, provides the 
legislative  basis  for the regulation of China's electric power sector.   
It contains guidelines  in areas such as the generation, supply and  use  of 
electric power, pricing and tariffs and regulatory supervision.

     Under the Power Law, the appropriate administrative department of the State
Council is authorized within the scope of its authority to supervise the
electric power industry throughout the country, and relevant departments of the
State Council are authorized within the scope of their respective authority to
supervise the electric power enterprises. While electric power development
planning will be carried out according to the needs of the national economy, the
Power Law also provides that each administrative department of the local
government at or above the county level will be responsible for the supervision
and control of the electric power industry within its administrative region.

     The Power Law states that independent power companies shall be granted grid
access upon their request, and provides that the on-grid price of electricity
shall be implemented on the basis of "the same price for the same quality on the
same grid." The Power Law lists the criteria to be applied in the determination
of tariffs as including 

                                       19
<PAGE>
reasonable compensation for costs, reasonable profits, inclusion of taxes in
accordance with law, firm adherence to the principle of equitable sharing of
burdens, and promoting electric power construction. The law delineates the
approval process for on-grid tariffs and makes a distinction between the
approvals required for regional/provincial grids. The Power Law reiterates the
position of the Central Government of the PRC that entities involved in the
construction of power plants, power generation and grid operation are autonomous
and assume sole responsibility for their own profits and loses.

     RATE SETTING MECHANISMS. Rates for electricity produced by power
plants that the SP directly or indirectly owns and manages are  generally  
set  by  the  Central Government, thus   most electricity has historically been 
purchased from power plants  at such rates. For certain power plants with 
local government, China Huaneng Group  or foreign investment,  such  as the
Luannan Facility, rates are set on the basis of discussions between  such power
plants, the  power purchaser and the relevant provincial pricing bureau.

    In  the  case of power plants owned and managed directly  or indirectly by  
the SP, customers purchase electricity  from  the Power Companies at each 
level of the administration of the PRC at rates determined by the Central
Government of the PRC, which vary according to the category and location of 
the user. The rates set by the Central Government have traditionally been 
maintained at a low  level, requiring the subsidization of  the electric
power industry  by the Central Government. One of the stated  goals  of the 
Power Law (as described above) is to reform power pricing to be  consistent 
with the development of the market economy.  Trial implementation has
commenced in several cities of a time-sharing pricing policy which charges 
consumers higher rates for peak load periods  and  lower rates for off-peak 
load periods. North China Power Group Company has adopted a similar program 
in its service area. Allowing the market to influence the setting of power
rates is intended  to provide incentives for greater efficiency  in
energy production, reduction of energy use per unit of industrial output
and promotion of conservation technologies.

     TRANSMISSION AND DISPATCH. The main system for the dispatch, transmission
and distribution of electric power in the PRC consists of the five
interprovincial power grids managed by their respective Regional Power Groups
and the eight provincial and two autonomous region power grids managed by the
Provincial Power Companies.

   The  PRC's energy  sources, such as coal and  potential hydroelectric
resources, are principally located in the western, northern and central
inland provinces, but its high electricity consumption regions  are
located in the eastern and southern coastal areas. As a result of plans
to develop large power plants in areas  with significant energy sources,
the expansion  of China's electricity transmission capabilities  is
of major importance.  The PRC plans to interconnect the North China Power
Grid with the Northeast Power Grid around 2000. In 2003, with the
expected completion of the first phase of  the Three Gorges project,
the  Central China  Power Grid  is expected to be interconnected on
the east with the East China Power Grid and  on the west  with the
Sichuan Power Grid. A unified national  power grid is planned for completion
sometime between 2010 and 2020.

     All electricity produced in the PRC is dispatched by the Power Companies,
except for that generated by units not connected to a grid. The grids and the
electric power dispatch to each grid are administered by dispatch centers
("Dispatch Centers") operated by the Power Companies. Prior to November 1993,
such electric power dispatch had been carried out pursuant to MOEP guidelines.
In order to achieve more efficient and rational dispatch of electric power, the
State Council issued, with effect from November 1, 1993, the Regulations on the
Administration of Electric Power Dispatch to Networks and Grids (the "Dispatch
Regulations"). The Dispatch Regulations are the first nationwide regulations in
the PRC governing the dispatch of electric power. Under the Dispatch
Regulations, Dispatch Centers were established at each of five levels: the
National Dispatch Center, the Dispatch Centers of the Regional Power Groups, the
Dispatch Centers of the Provincial Power Companies, the Dispatch Centers of the
Power Companies of municipalities under provinces and the Dispatch Centers of
the county Power Companies. Dispatch Centers are charged with setting production
levels for the various power plants connected to the grid. To effect this
determination, each power plant receives on a daily basis from its local
Dispatch Center an expected hour-by-hour output schedule for the following day,
based on expected demand, the weather and other factors.

     The Dispatch Regulations provide that the Dispatch Centers must dispatch
electric power according to, among other things, (i) power supply agreements
entered into between a Power Company and certain large or

                                       20
<PAGE>
primary electricity customers, where such agreements take into account the
electric power generation and consumption plans formulated annually by the
Central Government and set forth in the applicable State Plan, (ii) agreements
entered into between a Dispatch Center and each power plant subject to its
dispatch, (iii) interconnection agreements between Power Companies and (iv)
actual conditions of the grid, including equipment capabilities and safety
reserve margins.

  REGULATION OF ELECTRIC POWER INDUSTRY IN NEPAL 

     GENERAL.  The regulatory framework for private sector power generation 
in Nepal primarily is based on legislationenacted  by its    Parliament in
1992 and 1993. The legislation  provides  for the licensing of private parties 
to construct, own, and operate hydroelectric power projects for a time period 
of up to 50 years.  Projects  that are more than 50% owned by foreign companies
will be automatically transferred, without compensation,  to His Majesty's  
Government of Nepal ("HMGN"), after the expiration of the license.

     Nepal's electric power industry is primarily regulated  by the  Ministry of
Water Resources ("MOWR") in conjunction with the NEA.  NEA  was established in 
1985 as a commercial entity  with responsibilities for generation, transmission 
and distribution of electricity throughout Nepal. Decisions regarding
the  operation and management of the NEA were made, historically, without
taking into account considerations such as efficiency and profitability. 
However, NEA's  overall  operating performance and  financial position  recently
have improved following tariff increases  and technical assistance  from  
various multinational institutions, including the World Bank.

     Tariff rates are subject to regulation. In August 1994, a newly implemented
Tariff Fixation Committee ("TFC"), which includes representatives from HMGN and
consumers and which is responsible for setting electricity tariffs in accordance
with certain financial covenants, became operational.

     The Ministry of Water Resources has the authority to issue licenses for
plant construction, water rights and to provide financial guarantees. All
hydroelectric projects with a capacity of greater than 1,000 kilowatts require a
license. Within the Ministry, the Hydroelectricity Development Unit of the
Electricity Development Center (the "EDC") promotes the private sector's
participation in the industry, approves projects with a capacity of more than
1,000 killowatts, and provides necessary assistance to the private sector in the
startup and operation of projects. The EDC also may arrange for economic
incentives to private participants, including tax concessions and assistance in
importing goods, obtaining land and obtaining necessary government
authorizations.

     TRANSMISSION SYSTEM. The transmission system in Nepal consists of 33
kilovolt, 66 kilovolt and 132 kilovolt transmission lines. The 132 kilovolt,
singlecircuited 1,178 mile Integrated Nepal Electric Power System is Nepal's
most extensive transmission mechanism, and is connected to India. Nepal also has
a 33 kilovolt, singlecircuit system that measures 1,216 kilometers; a 66
kilovolt, singlecircuit system of 179 kilometers; a 66 kilovolt double-circuit
system of 153 kilometers; and a 132 kilovolt, doublecircuit system of 27
kilometers. Under the applicable project agreements, the NEA has the
responsibility of building a 48 kilometer transmission line connecting the Nepal
Facility to an NEA substation.

     FOREIGN EXCHANGE. The Ministry of Finance has primary responsibility for
the regulation of foreign exchange in Nepal. Nepal increased its foreign
exchange reserves from approximately US$ 270 million in the early 1980s to
approximately US$ 600 million in1996. The Nepalese rupee exchange rate is pegged
against the Indian rupee - a reflection of the high degree of integration
between the two economies.

   FOREIGN ENVIRONMENTAL REGULATIONS

     GENERAL. The Company and its subsidiaries have ownership interests in power
plants under construction in the PRC and Nepal. Each of these countries and the
localities therein have separate laws and regulations governing the siting,
permitting, ownership and power sales from the Company's plants. These laws and
regulations are often quite different than those in effect in the United States.

     Based on current trends, the Company expects that environmental and land
use regulations affecting its plants under construction outside the U.S. will
likely become more stringent over time. This appears to be due in part to a
greater participation by local citizenry in the monitoring and enforcement of
environmental laws, better enforcement of applicable environmental laws by the
regulatory agencies, and the adoption of more sophisticated environmental
requirements. If foreign environmental and land use regulations were to change
in the future, the 

                                       21
<PAGE>
Company may be required to make significant capital or other expenditures in
order to comply. There can be no assurance that the Company would be able to
recover all or any increased costs from its customers or that its business,
financial condition or results of operations would not be materially and
adversely affected by future changes in foreign environmental and land use
regulations.

     PRC ENVIRONMENTAL REGULATIONS. The Luannan Facility is subject to various
PRC environmental laws and regulations which are administered by both Central
Government of the PRC and local government environmental protection bureaus.
Approval or review by the relevant environmental protection bureaus is required
at each of the project proposal, feasibility study, design and commissioning
stages of a project. Filing of an environmentalimpact statement or, in some
cases, an environmental impact assessment outline is required before the
planning commission for the same level of government can issue its approval. The
filing must demonstrate that the project conforms to applicable environmental
standards. Approvals and permits generally have been issued for projects
utilizing modern pollution control technology. Pollution sources are also
required to report their pollution discharges in terms of types and amounts of
pollutants discharged into the water and air, and to secure discharge permits
for their wastewater discharges, airborne emissions and solid waste shipments to
ensure compliance with relevant emissions standards.

     The PRC's environmental laws and regulations establish standards for the
discharge of emissions into the air and water. The rules set forth schedules of
base- level discharge fees for various polluting substances and specify that, if
such levels are exceeded, the polluting entity will be required to pay an excess
discharge fee to the local government. The local environmental rules do not make
it a violation to exceed these limits, but rather set forth a set of graduated
scale of fees that are required for each incremental unit of excess discharge.
Up to a certain level, as the discharge levels increase, the fee per unit also
increases. Above a certain limit, local governments may issue orders to cease or
reduce such discharge levels which, if not complied with, will after three years
from the date of the order, result in an annual increase of 5% in the pollution
fees assessed. Where pollution is causing environmental damage, the local
governments also have the authority to issue orders requiring the polluting
entities to cure the problem within a certain period of time.

     MOEP previously established technical standards for environmental
monitoring and exercised certain disciplinary functions with regard to
environmental compliance in connection with the construction and operation of
power plants. Environmental protection equipment is required to be designed,
installed and commissioned in tandem with the design, construction and
commissioning of the generator or plant. Before commencing operations, each
plant or generator must be tested and qualified with regard to emissions levels
and abatement equipment.

     Nepal Environmental Regulations. The Nepal Facility is subject to certain
environmental laws and regulations which are administered by HMGN. For example,
the Environmental Impact Assessment Guidelines for the Forestry Sector, 1995,
applies to the Company's construction efforts in Nepal. Among other things, an
independent environmental impact assessment was required pursuant thereto, as
well as other ongoing compliance actions. In addition, the Nepal Facility is
subject to the Water Resources Act, which establishes certain pollution
tolerance limits for water resources as well as quality standards for various
uses of water resources. As part of the financing of the Nepal Facility, the
Company is required to comply with World Bank environmental standards.

EMPLOYEES

     At December 31, 1998, the Company and its subsidiaries had no employees.

      Robert W. Carter is Chairman of the Board, Chief Executive Officer and one
of two directors of the Company. Janice Carter is Executive Vice President,
Secretary and Treasurer of the Company, and is married to Robert W. Carter. Todd
Carter is the Senior Vice President, International Business Development of the
Company, and is the son of Robert W. and Janice Carter.Otherwise, no family
relationships exist among the directors and executive officers of the Company.

     All executive officers of the Company are elected annually by the Board of
Directors of the Company to serve in such capacities until their successors are
duly elected and qualified.

YEAR 2000 

                                       22
<PAGE>
     The Company is evaluating its information and non-information technology
systems to identify those systems within each operations group that require
modification to address the so called Year 2000 ("Y2K") problem. The Company is
also assessing possible risks posed by third party technology system non
compliance. These review processes have progressed to various stages of
identification and with varying results depending on the type and age of the
hardware or software item being evaluated and the material nature of the
thirdparty relationship. Overall, the Company's operations groups have made
progress in their evaluations and are well into implementation of solutions to
address the issue as well as developing contingency plans.

     Based on internal analysis, the Company does not anticipate that the costs
to achieve full Y2K readiness company-wide will be material. This estimate
includes expected costs to make its businesss Y2K ready, but not necessarily the
costs associated with post-Y2K corrective actions or damage, if any. The Company
expects to fund these expenditures through internal sources.

     The Company is still in the process of identifying and testing appropriate
contingency plans addressing emergency operations, disaster recovery, data
preservation and business continuation plans, and intends to have them in place
by the fourth quarter of 1999. In the end, as the Commission noted in its
release on the Y2K subject, it is difficult to predict with certainty what truly
will happen after December 31, 1999. However, based on evaluations performed by
the Company to date and the ongoing remediation efforts and within the context
of the risks identified by the Commission in its release, the Company believes
that Y2K issues will not materially affect its facilities, services or
competitive conditions, and that the costs of addressing Y2K issues will not
materially impact future consolidated operating results, financial conditions or
cash flows.No assurance can be provided, however, that Y2K problems will not
have a material impact on the Company and readers should consider this risk
factor when reviewing the Company's business.

Item 2. PROPERTIES. 

     The information regarding the properties of the Company is set forth under
Item 1. Business above and in the Notes to Consolidated Financial Statements
included in Part II hereof. The Company's principal office, located at 4100
Spring Valley, Suite 1001, Dallas, Texas 75244, is leased by PEII, which lease
expires May 2001.

Item 3.   LEGAL PROCEEDINGS.

     The Company is not a party to any legal proceedings. However,  subsidiaries
of the Company are claimants or defendants in various legal proceedings which
have arisen in the ordinary course of business.  The Company believes such 
claims and legal actions, individually  or in the aggregate, will not have  a 
material  adverse effect on the business, financial condition  of results
of operations of the Company and its subsidiaries, taken as a whole.

HEARD PROCEEDINGS

     PEC is a party to a lawsuit captioned PANDA ENERGY CORPORATION, PLAINTIFF
V. HEARD ENERGY CORPORATION, CLF ENERGIA Y ELECTRICIDAD, S.A., ROBERT A. WOLF,
ARMIN ALEXANDER BUDZINSKY, EDWARD R. GWYNN, DONALD L. KINNEY, MORGAN STANLEY &
CO., INC., ALLSTATE INSURANCE COMPANY, ALLSTATE LIFE INSURANCE COMPANY, ENTERGY
CORPORATION, ENTERGY ENTERPRISES, INC., ENTERGY POWER, INC., ENTERGY POWER
DEVELOPMENT CORPORATION, ANIL DESAI, DRS. IR. POERWANTO P., AND PT PANCA SERODJA
PRADHANA, DEFENDANTS, (No. 94-0672J), District Court of Dallas County, Texas
(191st Judicial District). PEC initiated this litigation in April 1994 and
alleges that defendants Wolf, Gwynn and Kinney, former PEC employees, formed a
competing company (Heard Energy Corporation) and misappropriated certain of
PEC's international power project opportunities. PEC alleges that the other
defendants knowingly participated, collaborated and/or conspired in the
misappropriation. PEC alleges causes of action for misappropriation, conspiracy,
fraud, breach of contract, breach of fiduciary duty and legal malpractice
against one or more of the defendants and alleges damages in an unspecified
amount.

     Defendant Morgan Stanley filed a counterclaim on September 14, 1995 against
PEC, alleging that it had performed services for PEC pursuant to an engagement
agreement relating to the Brandywine Project. PEC terminated the engagement
agreement on May 4, 1993. Morgan Stanley alleges that the services it performed
prior to such 

                                       23
<PAGE>
termination included assisting PEC in obtaining certain regulatory approvals,
preparing a draft solicitation booklet and identifying potential project
financing sources, including GE Capital. Morgan Stanley further alleges that PEC
obtained financing from GE Capital after Morgan Stanley was terminated, and that
Morgan Stanley is entitled to a "transaction fee," either pursuant to the
engagement agreement or based on the value of the services it allegedly
performed, in an amount of not less than $4.3 million, plus attorneys' fees and
interest.

     Defendants Heard Energy Corporation, Wolf, Gwynn, Kinney and Budzinsky (the
"Heard Defendants") also filed a counterclaim during November 1994 against PEC
and a third-party claim against Robert Carter and Janice Carter, alleging that
PEC, Robert Carter and Janice Carter negligently made certain misrepresentations
and that they incurred damages in the amount of approximately $5.0 million as a
result of these misrepresentations. In both the counterclaim and the thirdparty
claim, the Heard Defendants further allege that PEC, Robert Carter and Janice
Carter violated a confidentiality order relating to certain documents produced
by the Heard Defendants during the discovery phase of this action by
misappropriating confidential information in these documents for the purpose of
gaining a competitive advantage over Heard Energy Corporation. The Heard
Defendants seek $5.0 million in damages as well as unspecified "exemplary"
damages based on this alleged violation. PEC believes that the Heard Defendants'
claim is without merit.

     On March 15, 1996, all of the defendants filed motions for summary
judgment, and by letter dated April 30, 1996, the court advised all counsel that
it intended to grant the defendants' motions for summary judgment. This order
was entered on June 19, 1996.

     PEC appealed the court's order. On October 22, 1998, the Court of Appeals
Fifth District Court of Texas ruled in favor of PEC and reversed the trial
court's summary judgment and remanded the case back to the trial court. The
Heard Defendants appealed this ruling to the Texas Supreme Court. On February
25, 1999, the Texas Supreme Court denied such appeal.

     The Company and PEC do not believe that the counterclaims or third-party
claims have any merit, nor does the Company believe that these claims, if
eventually decided adversely to PEC, would have a material adverse effect on the
business, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.

BRANDYWINE PROCEEDING

     On June 26, 1996, certain plaintiffs commenced a proceeding against the
Panda-Brandywine Partnership and one of its contractors (as well as other
subcontractors) captioned Jeannine McConnell, McConnell Pool Service, Inc. and
McConnell Fuel Oil, Inc. v. PandaBrandywine, L.P. and Flippo Construction (Case
No. CV 96-1344) in the Circuit Court for Charles County, Maryland. In this
proceeding, plaintiffs allege that in connection with the construction of an
effluent water pipeline, a contractor for the PandaBrandywine Partnership,
Flippo Construction ("Flippo") (and its subcontractors) and the PandaBrandywine
Partnership left their easement and inadvertently trespassed on to plaintiffs'
property. While on plaintiffs' property, Flippo (and its subcontractors) and the
PandaBrandywine Partnership allegedly dug a deep and wide hole which extended
onto the plaintiff's property to locate a buried pipe. Plaintiffs allege that
this trespass damaged the property, decreased its fair market value and resulted
in loss of use thereof. The PandaBrandywine Partnership settled this case for a
minimal amount of damages in October 1998.

     The Company does not believe that the settlement of this proceeding will
have any material adverse effect on the business, financial condition or results
of operations of the Company and its subsidiaries, taken as a whole, or the
PandaBrandywine Partnership.

BIBB/WESTPOINT STEVENS PROCEEDINGS

     In April 1998, Panda Rosemary Corporation, the general partner of the
Panda-Rosemary Partnership and a whollyowned subsidiary of the Company, filed
suit in federal court charging the Bibb Company ("Bibb") and Westpoint Stevens,
Inc. ("Westpoint") with violating a contractual agreement in the sale of a
textile mill in 1997 and in the operation of the mill since that time. The
Rosemary facility supplies steam and chilled water to the textile mill under a
contract originally signed with Bibb. Westpoint acquired the textile mill from
Bibb in 1997. The suit asked the court to determine and clarify the rights of
the parties to the contract. The federal court dismissed this action in June
1998 and Westpoint and Bibb filed a separate suit in state court in Halifax
County, North Carolina 

                                       24
<PAGE>
shortly thereafter, claiming, among other things, breach of contract in regard
to the delivery of steam. On October 27, 1998, an affiliate of Panda Rosemary
Corporation filed suit in state court in Dallas County,Texas against Westpoint
and Bibb seeking various damages regarding the contract. In January 1999, the
state court in Halifax County stayed the action in such court. In February 1999,
Westpoint and Bibb moved to stay the action in the Dallas County court. Panda
Rosemary Corporation and its affiliates intend to vigorously pursue their claims
against Bibb and Westpoint in these court actions. Panda Rosemary Corporation
continues to provide steam and chilled water to the mill. The Company does not
believe that an adverse result in this case would have a material adverse effect
on the business, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole.

NATIONAL DEVELOPMENT AND RESEARCH CORPORATION PROCEEDING 

     On October 14, 1997, Panda Global Energy Company, a wholly owned subsidiary
of the Company ("PGE"), commenced a proceeding in the District Court of Dallas
County, 101st Judicial District captioned Panda Global Energy Company v.
National Development and Research Corporation and Robert E. Tang, Case No.
97-9315-E. PGE's petition sought a declaratory judgment for the termination of
various agreements between PGE and National Development and Research Corporation
("NDR") regarding the development of power projects in the PRC. On December 9,
1997 NDR filed a counter claim against PGE and Robert W. Carter asserting that,
among other things, such agreements are still in effect and that NDR is entitled
to certain payments thereunder. The Company does not believe that an adverse
result in this proceeding would have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No  matters  were submitted to a vote of security holders during
the fourth quarter of the Company's fiscal year  ended December 31,
1998.

                           PART II

Item 5.   MARKET FOR THE REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS.

     There  is  no established market for the Company's Common
Stock, $.01  par value, all of which is owned by PEII.  The Company  has
not  paid cash dividends on shares of its capital stock since its inception. 
The indenture governing the Company's Guarantee of the 12 1/2% Senior
Secured Notes due 2004 of Panda Global Energy Company imposes certain
restrictions on the Company's ability to declare or  pay cash dividends to
PEII and make certain distributions on its capital stock.  See "Managementss
Discussion and Analysis  of Financial Condition and Results of Operations  -
Liquidity  and Capital Resources."

Item 6.  SELECTED FINANCIAL DATA.


                     SELECTED FINANCIAL DATA
                  (in thousands, except ratios)


            Presented below are selected consolidated financial data for the
Company as of and for each of the years in the five-year period ended December
31, 1998, which have been derived from the Company's financial statements. The
selected financial data should be read in conjunction with the information
contained under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of the Company, including the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                            ----------------------------------------------------------------------
                                                               1994           1995           1996          1997          1998
                                                            ------------  -------------  ------------  ---------------------------
<S>                                                          <C>           <C>            <C>            <C>           <C>    
               REVENUE:
               Electric capacity and energy sales:.......    $ 30,664      $ 29,859       $ 32,274       $65,005       $78,252
               Steam and chilled water sales.............         650           473            502           624           695
               Interest income...........................         603           895          1,518         8,050         7,698
                                                             --------      --------       --------      --------      --------
                     Total revenue.......................      31,917        31,227         34,294        73,679        86,645

               EXPENSES:
               Plant operating expenses..................       8,940         9,348         12,050        26,245        25,583
               Development and administrative expenses...       1,779         2,550          5,187        11,580        16,909
               Interest expense..........................      11,018        11,716         19,414        55,329        57,199
               Depreciation..............................       4,208         4,210          5,532        11,575        12,201
               Amortization-- Debt issuance costs........         600           554            494         1,418         1,656
               Amortization-- Partnership formation costs         533           533            533            --            --
                                                             --------      --------       --------      --------      --------
                     Total expenses......................      27,078        28,911         43,210       106,147       113,548

               Income (loss) before taxes and minority
                  interest...............................       4,839         2,316         (8,916)      (32,468)      (26,903)
               Minority interest.........................      (5,700)       (5,048)        (2,405)           --            --
               Deferred tax benefit......................          --            --             --            --        25,000
                                                             --------      --------       --------      --------      --------
               Income (loss) before extraordinary items..        (861)       (2,732)       (11,321)      (32,468)       (1,903)

               Extraordinary loss, net(1)................          --            --        (21,336)           --            --
                                                             --------      --------       --------      --------      --------
                     Net loss............................    $   (861)     $ (2,732)      $(32,657)     $(32,468)     $ (1,903)

               OTHER DATA:
               Ratio of earnings to fixed charges(2).....        1.32x           (2)            (2)           (2)           (2)

<CAPTION>
                                                                                       DECEMBER 31,
                                                           ----------------------------------------------------------------------
                                                              1994          1995           1996           1997          1998
                                                           ------------  ------------  -------------  -----------   ------------
                                                                                                      
               BALANCE SHEET DATA:
               Cash and other current assets.............   $ 15,639      $ 11,339      $ 36,626       $112,067        $91,175
               Power plant and equipment (net)...........     96,136       220,145       268,725        293,008        391,867
               Reserves and escrow deposits,
                  and other assets.......................     15,477        15,471        40,119         86,807         58,100
                                                            --------      --------      --------       --------       --------
                     Total assets........................   $127,252      $246,955      $345,470       $491,882       $541,142

               Current liabilities.......................   $ 12,531      $ 18,457      $ 19,667       $ 25,994       $ 64,783
               Deferred revenue..........................         --            --            --         13,140         12,670
               Long-term debt (including capital lease
                  obligation), less current portion......    106,343       234,608       427,319        580,947        590,819
               Minority interest.........................     35,588        36,836            --          5,741          5,741
               Shareholder's deficit.....................    (27,210)      (42,946)     (101,516)      (133,940)      (132,871)
                                                            ========      ========      ========       ========       ========
                     Total liabilities and
                        shareholder's deficit............   $127,252      $246,955      $345,470       $491,882       $541,142
</TABLE>


Notes (in thousands):

(1) In 1996, there was an extraordinary loss from early extinguishment of debt
of $21,336.

(2) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income (loss) before minority interest, taxes and extraordinary items
plus fixed charges exclusive of capitalized interest. Fixed charges consist of
interest expense, capitalized interest and amortization of debt issuance costs.
Earnings were insufficient to cover fixed charges in 1995 by $3,477, in 1996 by
$19,971, in 1997 by $34,525 and in 1998 by $34,247. In 1994, 1995, 1996, 1997
and 1998, fixed charges included capitalized interest of $803, $5,793, $11,055,
$2,057 and $7,344, respectively.


Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

        (Dollar amounts are in thousands unless otherwise noted)


                                       25
<PAGE>
GENERAL

     The Company has interests in two completed electric power generation
facilities in the United States: a 100% equity ownership interest in the
Rosemary Facility, which began commercial operations in December 1990, and a
100% leasehold interest (through a capital lease arrangement) in the Brandywine
Facility, which began commercial operations in October 1996. Prior to July 31,
1996, the Company owned a 10% equity interest in the Rosemary Facility. The
Company also owns an approximately 83% indirect interest in the Luannan Facility
currently under construction in China, financing for which was completed in
April 1997. Additionally, the Company owns an indirect equity interest in the
Nepal Facility currently under construction in Nepal, financing for which was
completed in December 1997. The Company also has other projects under
development. As discussed in Note 14 to the consolidated financial statements,
the Company entered into a partnership concerning the Paris project in February
1999 and retained a 1% limited partnership interest in the project.

RESULTS OF OPERATIONS 

     The Company's current revenues from electric power generation are primarily
derived from long-term contracts which include both a fixed capacity payment and
a variable energy payment. The capacity payments, which are based upon the
specified power generating capacity of a project, are designed to cover fixed
costs and to provide an acceptable return on equity. The energy payments, which
are based on actual electricity output, are designed to cover variable costs
including fuel costs and variable operating expenses incurred in connection with
electricity output. Accordingly, the impact of price fluctuations on the results
of operations is generally not material. The extent to which a facility is
dispatched (i.e., required to deliver electricity), and therefore the actual
electricity output for a given period, are subject to the discretion of the
power purchaser, with certain limitations. The capacity payments are currently
the predominant source of revenue for the Company. See "Liquidity and Capital
Resources."


     1998 COMPARED TO 1997

     The Company  recorded a net loss of $1,903 in 1998 on revenues of
$86,645 compared to a net loss of $32,468 on revenues of $73,679 in 1997.
The increase in revenues in the 1998 period was primarily  caused by increased
operating revenues  at  the Rosemary and Brandywine facilities.

     Capacity revenues for the Rosemary Facility were $25,382 and $25,361 for
1998 and 1997, respectively. Energy revenues for the Rosemary Facility for 1998
and 1997 were $3,234 and $2,355, respectively. The increase in energy revenues
for the Rosemary Facility is attributable to higher dispatch levels at that
facility compared to 1997. Capacity revenues from Potomac Electric Power Company
("PEPCO") for the Brandywine Facility for 1998 and 1997 were $31,884 and
$21,612, respectively. Capacity revenues for the Brandywine Facility for 1997
were lower than originally anticipated due to a disagreement with PEPCO over the
calculation of the capacity payments. As discussed in Note 5 to the consolidated
financial statements, the Company and PEPCO reached an agreement in October 1997
(which was finalized in July 1998) under which PEPCO paid approximately $3.8
million to the Company for the retroactive effect of higher capacity payments
for the first nine months of 1997. The retroactive capacity payment, which was
received in July 1998, is included in capacity revenues in 1998. In October
1997, PEPCO commenced increased capacity payments to the Company under the terms
of the agreement. Additionally, capacity revenues for 1998 are higher compared
to 1997 as a result of excess capacity sales allowed under the PEPCO agreement
and higher capacity ratings. Energy revenues from PEPCO for the Brandywine
Facility for 1998 and 1997 were $12,068 and $11,905, respectively. The increase
in energy revenues for the Brandywine Facility is attributable to higher
dispatch levels at that facility compared to 1997. In addition to capacity and
energy revenues from PEPCO, the Company earned revenues of $5,576 in 1998 from
excess capacity and energy sales on a merchant basis from the Brandywine
Facility as allowed under the PEPCO agreement. Also, in 1998 and 1997, the
Company had energy revenues of $108 and $3,771, respectively, from the sale of
natural gas and fuel oil to other purchasers.

     Plant operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes, decreased to $25,583 (30% of
revenues) in 1998 from $26,245 (36% of revenues) in 1997. The higher level of
1997 expenses was primarily due to additional fuel costs related to low-margin
sales of natural gas and fuel oil to other purchasers.


                                       26
<PAGE>
     Project development and administrative expenses were $16,909 (20%  of  
revenues) and $11,580 (16% of revenues) for  1998 and 1997, respectively. The  
increase  in 1998   was primarily attributable  to  legal expenses related
to the PEPCO agreement, the write-off of deposits and development costs
of $3.7 million related to the Kathleen project, and higher administrative
costs required to support the Company's expanding operations. 

      Interest expense increased to $57,199 (66% of revenues) in 1998 from
$55,329 (75% of revenues) in 1997 primarily as a result of the increase in
outstanding indebtedness from the issuance of $145.0 million discounted
principal amount of Senior Secured Notes in April 1997 for the Luannan Facility.
Depreciation and amortization of debt issue costs amounted to $13,857 (16% of
revenues) in 1998 and $12,993 (18% of revenues) in 1997. The increase in 1998
was attributable to capital improvements at the Rosemary and Brandywine
Facilities and amortization of debt issue costs for the Senior Secured Notes
issued in April 1997.

      In  1998, the Company recognized a deferred tax benefit  of $25,000.   The
benefit, which resulted from a reduction in  the valuation allowance against 
deferred tax assets, was recognized because  the subsequent sale of the Paris
project will cause  the likely  future realization of a portion  of  the
deferred  tax assets.

      As a result of the various factors discussed above, the Company recorded
net losses of $1,903 and $32,468 for 1998 and 1997, respectively.

      1997 COMPARED TO 1996

      The Company incurred a net loss of $32,468 in 1997 on revenues of $73,679
compared to a net loss before extraordinary item of $11,321 on revenues of
$34,294 during 1996. The increase in revenues in 1997 was primarily caused by
operations of the Brandywine Facility (which commenced operations on October 31,
1996) and by increased interest income, partially offset by a decrease in
revenues at the Rosemary Facility. The 1997 results include operations of both
the Rosemary and Brandywine facilities, whereas the 1996 results include
operations of the Rosemary Facility for a full year and the Brandywine Facility
for the final two months of 1996.

      For 1997 and 1996, capacity revenues for the Rosemary Facility were
$25,361 and $27,204, respectively, reflecting a contractual decrease of $1,843.
Energy revenues for the Rosemary Facility for 1997 and 1996 were $2,355 and
$2,011, respectively. The increase in energy revenues for the Rosemary Facility
is attributable to higher dispatch levels at that facility compared to 1996.
Capacity revenues and energy revenues from PEPCO for the Brandywine Facility for
1997 were $21,612 and $11,905, respectively. Capacity revenues for the
Brandywine Facility for 1997 were lower than originally anticipated due to a
disagreement with PEPCO over the calculation of the capacity payments. As
discussed in Note 5 to the consolidated financial statements, the Company and
PEPCO reached an agreement in October 1997 (which was finalized in July 1998)
under which PEPCO paid approximately $3.8 million to the Company for the
retroactive effect of higher capacity payments for the first nine months of
1997. The retroactive capacity payment, which was received in July 1998, is
included in capacity revenues in 1998. In October 1997, PEPCO commenced
increased capacity payments to the Company under the terms of the agreement.
Additionally, the Company had energy revenues of $3,771 from the sale of natural
gas and fuel oil to other purchasers in 1997.

      Plant operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes, increased to $26,245 (36% of
revenues) in 1997 from $12,050 (35% of revenues) in 1996, primarily due to
commencement of operations at the Brandywine Facility and lower margins obtained
on the sale of natural gas and fuel oil to other purchasers. Additionally, the
1996 plant operating expenses included approximately $700 for the insurance
deductible and other non-covered costs relating to hurricane damage sustained in
September 1996 at the Rosemary Facility.

      Project development and administrative expenses were $11,580 (16% of
revenues) and $5,187 (15% of revenues) for 1997 and 1996, respectively. The
increase in 1997 was primarily attributable to additional administrative
activities related to the commencement of commercial operations at the
Brandywine Facility and higher administrative costs required to support the
increased size and complexity ofthe Company's operations.


                                       27
<PAGE>
      Interest expense increased to $55,329 (75% of revenues) in 1997 from
$19,414 (57% of revenues) in 1996 as a result of the increase in outstanding
indebtedness from the issuance of $111.4 million original principal amount of
first mortgage bonds for the Rosemary Facility (the "Rosemary Bonds"), $105.5
million original principal amount of pooled project bonds ("Series A Bonds"),
the capital lease financing for the Brandywine Facility and $145.0 million
discounted principal amount of Senior Secured Notes issued in April 1997 for the
Luannan Facility. The impact of such new indebtedness was partially offset by
the refinancing of the taxable revenue bonds issued in 1989 for the Rosemary
Facility and the repayment of other term loan financing in July 31, 1996 from
portions of the proceeds of the Rosemary Bonds and the Series A Bonds.

      Depreciation, amortization of debt issue costs and amortization of
partnership formation costs amounted to $12,993 (18% of revenues) in 1997 and
$6,559 (19% of revenues) in 1996. The increase was primarily attributable to
depreciation for the Brandywine Facility in 1997.

      For 1996, minority interest in net income was $2,405. There is no minority
interest in 1997 due to the Company's acquisition on July 31, 1996 of the
minority interest holder's limited partnership interest in PandaRosemary. As a
result of this acquisition, the Company owns 100% of Panda-Rosemary.

      For 1996, the Company incurred an extraordinary loss on early
extinguishment of debt of $21,336 as a result of the refinancing of the taxable
revenue bonds issued in 1989 for the Rosemary Facility and the repayment of
other term loan financing on July 31, 1996 from portions of the proceeds of the
Rosemary Bonds and the Series A Bonds.

      As a result of the various factors discussed above, the Company incurred
net losses of $32,468 and $32,657 for 1997 and 1996, respectively.

     1996 COMPARED TO 1995 

     The Company incurred a net loss before extraordinary item of $11,321
in 1996 on revenues of $34,294, compared to a net loss of $2,732  on
revenues  of $31,227 in 1995. The  10% increase  in revenues  was primarily 
caused by the commencement of commercial operations at the Brandywine
Facility on October 31, 1996 and  by increased interest income.

     For  1996 and 1995, capacity  revenues were $27,204  in both periods and
energy revenues were $5,070 and $2,655, respectively. Capacity revenues for  the
Brandywine Facility commenced in January 1997; accordingly, capacity revenues
for 1996  and 1995 relate  only to the Rosemary Facility.  The increase in
energy revenues is attributable to operations of the Brandywine Facility for the
last two months of 1996, partially offset by a decrease in energy revenues
at the Rosemary Facility which resulted from lower dispatch levels at that
facility compared to 1995.

      Plant operating expenses, which include fuel cost, operation and
maintenance expense, insurance and property taxes related to the Rosemary
Facility (and the Brandywine Facility commencing October 31, 1996), increased
from $9,348 (30% of revenues) in 1995 to $12,050 (35% of revenues) during the
same period in 1996, primarily due to the inclusion of the costs of operating
the Brandywine Facility for two months in1996. Because the Brandywine Facility
earned no capacity revenues during its period of operation in 1996, plant
operating expenses (and all other categories of expenses) were higher than
normal as a percentage of revenues. Another significant cause of the increased
plant operating expenses was the insurance deductible and other non-covered
costs of approximately $700 relating to hurricane damage sustained in September
1996 at the Rosemary Facility as discussed below. Other factors contributing to
the increase in plant operating expenses at the Rosemary Facility included
additional scheduled maintenance costs and higher fuel costs relating to
increased operation of the auxiliary boiler for steam and chilled water
production.

      Project development and administrative expenses were $2,550 (8% of
revenues) and $5,187 (15% of revenues) for 1995 and 1996, respectively. The
increase in 1996 was primarily attributable to increaseddevelopment activity on
the Luannan Facility and the commencement of commercial operations at the
Brandywine Facility on October 31, 1996.


                                       28
<PAGE>
      Interest expense increased from $11,716 (38% of revenues) in 1995 to
$19,414 (57% of revenues) in 1996 as a result of the increase in outstanding
indebtedness under a term loan which was partially offset by the scheduled
reduction in outstanding indebtedness under the taxable revenue bonds issued in
1989 for the Rosemary Facility, and as a result of the increase in outstanding
indebtedness from the issuance of the Rosemary Bonds and the Series A Bonds on
July 31, 1996. The impact of such new indebtedness was partially offset by the
refinancing of the taxable revenue bonds issued in 1989 for the Rosemary
Facility and the repayment of a term loan on July 31, 1996. Additionally,
commencement of commercial operations at the Brandywine Facility resulted in the
recognition of interest expense on the related debt for the last two months of
1996. Prior to commercial operations, interest on the Brandywine debt was
capitalized.

      Depreciation, amortization of debt issue costs and amortization of
partnership formation costs increased from $5,297 (17% of revenues) in 1995 to
$6,559 (19% of revenues) in 1996. The increase was primarily attributable to the
commencement of commercial operations at the Brandywine Facility on October 31,
1996.

      On September 6, 1996, a transformer and two switches at the Rosemary
Facility sustained damage from a hurricane. A substitute transformer was
temporarily installed pending repair of the damaged transformer, which was
substantially completed during the first quarter of 1997. The Company estimated
the total cost to repair the Rosemary Facility (including substitute transformer
rental costs) at approximately $2,450, all of which was covered by insurance
except for deductible and certain non covered items in the amount of
approximately $700. This event did not have a material adverse effect on the
Company's financial condition or results of operations.

      For 1996 and 1995, minority interest in net income was $2,405 and $5,048,
respectively. The decrease in 1996 was due to lower net income (before minority
interest and extraordinary item) in the Rosemary Partnership and the acquisition
on July 31, 1996 of the minority interest holder's limited partnership interest
as discussed below.

      In connection with the issuance of the Rosemary Bonds and the Series A
Bonds, the Company refinanced the taxable revenue bonds issued in 1989 for the
Rosemary Facility and repaid a term loan. The Company incurred an extraordinary
loss of $21,336 on the early extinguishment of these obligations. Additionally,
the Company acquired the minority interest holder's limited partnership interest
in the Rosemary Partnership for a purchase price of approximately $34,256. As a
result of this acquisition, the Company owns 100% of the Rosemary Partnership.
The acquisition was accounted for using the purchase method of accounting. The
excess of minority interest over the purchase price (approximately $3.8 million)
was allocated to plant and equipment. Additionally, the Company advanced
approximately $34,779 to Panda International for project development and general
corporate purposes. As a result of the various factors discussed above, the
Company incurred net losses of $32,657 and $2,732 for 1996 and 1995
respectively.

LIQUIDITY AND CAPITAL RESOURCES.  

     In 1998 and 1997, the Company obtained cash from operations of  the 
Rosemary Facility and the Brandywine Facility  and from interest on cash 
balances. The Company utilized this  cash to service its debt and capital 
lease obligations, make distributions to its parent to fund project 
development efforts, and for general and administrative expenses. 

      In 1996, the Company obtained cash from operations of the Rosemary
Facility, issuance of the Rosemary Bonds and the Series A bonds, and borrowings
under non-recourse project debt for the Brandywine Facility. The Company
utilized this cash to refinance existing debt, fund development and construction
of the Brandywine Facility, service its debt obligations, make distributions to
its parent to fund project development efforts, and for general and
administrative expenses. Additionally, the Company purchased the minority
interest holder's remaining limited partnership interest in Panda-Rosemary.

      The principal future cash requirement of the Company will be payment of
its debt service and capital lease obligations. The Company will rely almost
exclusively on distributions from Global Cayman and PIC to meet its cash
requirements. Those entities in turn will rely almost exclusively on
distributions from the project entities to meet their cash requirements. The
project entities' ability to make such distributions will depend upon the
financial performance of the Rosemary Facility, the Brandywine Facility, the
Luannan Facility and the Nepal Facility and will be subject to a 

                                       29
<PAGE>
number of limitations on distributions contained in the project-level debt
agreements. To continue its development activities, the Company will also
require external financing. The Company is pursuing debt and equity financing to
fund these activities. Also, as discussed in Note 14 to the consolidated
financial statements, the Company entered into a partnership agreement
concerning one of its merchant projects and received net proceeds of
approximately $102 million, after repayment of project debt and escrowed funds,
in exchange for partnership interests therin. The Company's restricted cash
balances are available only for specific uses as stated in the indentures, such
as payment of debt service obligations, project development, construction and
maintenance, and are not available for general corporate purposes.

     The project entities are dependent on capacity payments under their 
respective power purchase agreements to meet their fixed obligations, 
including payment of project-level debt service, and to make distributions 
to the Company. Capacity payments can be adversely affected by a major 
equipment failure, resulting in a facility being unavailable for dispatch 
for an extended period of time. Capacity payments can also be subject to
reduction pursuant to regulatory disallowance and, under contractual 
provisions, as a result of events outside the Company's control.  In 1999 
and 2006, the capacity payments for the Rosemary Facility are scheduled to 
decrease by approximately $1.8 million (7.1%) and $5.4 million (23.1%),
respectively, based on the facility's current capacity rating.

     Each of the electric energy purchasers under the power purchase 
agreements for the Rosemary Facility and the Brandywine Facility has a 
contractual right to schedule the facility for dispatch largely at the 
purchaser's discretion. Thus, revenues from energy payments will vary
depending on the hours these facilities are dispatched by such purchasers.

IMPACT OF INFLATION

     Inflationary increases in the Company's costs, primarily project 
development costs, energy costs, and capital costs, may be offset by 
increases in revenue as provided in the various purchase agreements, 
although competition may limit the Company's ability to fully recover all
such increases.  The Company attempts, where possible, to obtain provisions
in its power purchase agreements whereby certain revenue components, such as 
energy payments, may be adjusted with inflationary increases. The Company 
currently believes that inflation will not have a material adverse effect
on the Company's financial position, results of operations or cash flows in
the foreseeable future. 

MARKET RISK DISCLOSURES

     The Company has limited exposure to financial market risks.  The Company
attempts, whenever possible, to hedge certain aspects of its projects against
the effects of fluctuations in inflation, interest rates, foreign currency 
exchange rates and energy prices.  Because of the complexity of hedging 
strategies and the nature of the Company's operations, its results, although
significantly hedged, will likely be somewhat affected, and in certain cases, 
may be materially affected, by fluctuations in these variables and such 
fluctuations may result in material improvement of deterioration of operating
results.

     The Company has generally structured the energy payments under its power
generation sales contracts to adjust with similar indices as do its contracts 
with the fuel suppliers for the corresponding power plants.  The Company 
currently consists primarily of businesses with long-term contracts.  While the
contract-based portfolio is expected to be an effective hedge against future 
energy and electricity market price risks, a significant portion of the
Company's currently expected future revenues is anticipated to be derived from 
businesses without significant long-term revenue contracts.  Increasing reliance
on non-contract businesses in the Company's portfolio may subject the Company
to potentially increasing electricity market price volatility.

     The Company has also used a hedging strategy in an attempt to insulate each
plant's financial performance, where appropriate, against the risk of 
fluctuations in interest rates.  Because the capacity payments at the  Company's
facilities are essentially fixed, the Company has attempted to hedge against
interest rate fluctuations by arranging fixed rate financing.  The Company's 
borrowings currently consist entirely of fixed rate obligations.  There are no
interest rate swaps or other hedging facilities related to these borrowings. 
The Company has no derivative financial instruments in place as of December 31, 
1998.  The Company estimates that the fair value of its long-term debt 
securities would decrease in the aggregate by approximately 6% if interest rate
levels increased by 10%.  See Notes 7, 8 and 12 of the consolidated financial 
statements for additional information regarding the 

                                       30
<PAGE>
Company's borrowings.

     The Company has certain exposure to changes in the foreign currency 
exchange rate for the Chinese renminbi.  This exposure is limited during the 
construction phase of the Luannan Facility because the related debt and most 
construction expenditures are denominated in U.S. dollars.  After the 
project commences commercial operations, the exposure will increase because 
a significant portion of the project's operating revenues and expenses will be
denominated in the renminbi.  However, certain components of the power price
calculation may be adjusted to reflect local and U.S. inflation and foreign 
exchange rate fluctuations in order to mitigate the Luannan Facility's exposure
to inflation and currency risks, and the operation and maintenance contract for 
the facility is denominated in dollars.  Management currently believes that 
potential losses due to fluctuations in the Chinese currency will not have a 
material impact on the Company's consolidated financial position, results
of operations or cash flows.

     The Company has an investment in a joint venture
in Nepal which has debt at both fixed and variable interest rates.  The joint
venture has interest rate derivative agreements, consisting of interest rate
swaps, which serve as hedges against a portion of the variable interest rate
exposure. Most of the debt is denominated in U.S. dollars; however, a portion
of the debt is denominated in the German mark.  The joint venture has no 
hedging facilities relating to the markdenominated debt.  After commercial 
operations commence, the joint venture's foreign currency risk exposure will 
increase because a significant portion of the project's operating expenses 
will be primarily denominated in the Nepalese rupee.  The project's operating 
revenues under the power purchase agreement are denominated in U.S. dollars.  
The Company uses the equity method of accounting for the joint venture. 
Management currently believes that potential losses to the joint venture due to 
fluctuations in interest rates and foreign currency exchange rates will not 
have a material impact on the Company's consolidated financial position, 
results of operations or cash flows. 

YEAR 2000 MATTERS

     Set forth below is information regarding the Company's efforts to be
prepared for problems associated with the potential inability of many existing
computer programs and/or embedded computer chips to recognize the year 2000,
both those in the Company's businesses and those that its businesses depends 
upon.  Certain of these statements may constitute forward-looking information
as contemplated by the Private Securities Litigation Reform Act of 1995,
including those regarding the Company's expected readiness to handle Y2K
problems, expected costs of remediation and testing, the future costs associated
with business disruption caused by supplier or customer Y2K problems and the 
success of any contingency plans.  The Company cautions that its predictions of
the extent of potential problems and the effectiveness of measures designed to
address them are based on numerous assumptions, including but not limited to
the accuracy of statements or certifications from critical third parties and 
vendors, the ability to identify and remediate or replace embedded computer
chips in affected equipment, and resouce availability, among other things, and
readers should be aware that actual results might differ materially from those
discussed below.

     The Company's approach to analyzing Y2K issues is to (1) inventory all 
systems and equipment likely to be affected, (2) perform an inventory 
assessment, (3) conduct remediations, (4) test all equipment and systems, and
(5) develop contingency plans to aid in business continuity.

STATE OF READINESS

     In 1998, the Company established a readiness program, led by a senior
executive and consisting of a team of employees with extensive knowledge of the
Company's businesses and processes, as well as outside consultants experienced
in these areas who are being used as advisors to assit with third-party analysis
and contingency planning.  The Company estimates that it has identified the
potential issues at substantially all of its generating facilities.  These
issues consist of potential problems in non-information technology (IT) areas
such as distributed control systems, programmable logic control systems, gas
and electricity metering systems, environmental emissions monitoring 
equipment, back-up power systems and telephone and security systems.  
Additionally, the Company estimates that it has identified the potential issues
regarding the more traditional IT areas such as computer hardware and software
programs for accounting and payroll, among others.  The Company's generation
plants are also significantly dependent on transmission and distribution systems
to carry the electricity to the ultimate end users.  Due to the interdependent
nature of the electricity supply chain, the Company has extended its evaluation
of Y2K issues to include key suppliers, customers, and vendors, and has sought
written assurance from 

                                       31
<PAGE>
these parties as to their Y2K readiness. The Company expects to complete steps
one through four, referred to above, by the end of the third quarter of 1999.
The Company's businesses are currently working through planned programs in order
to achieve Y2K readiness.

COSTS OF ADDRESSING Y2K ISSUES

     Based on internal analysis, the Company does not anticipate that the costs
to achieve full Y2K readiness company-wide will be material.  This estimate 
includes expected costs to make its business Y2K ready, but not necessarily the
costs associated with post-Y2K corrective actions or damage, if any.  The 
Company expects to fund these expenditures through internal sources.

RISKS OF Y2K FAILURES

     Failures by each of the Company's generation facilities to address Y2K
issues may lead to numerical errors that, if not addressed or mitigated, may
cause system malfunctions resulting in the inability to deliver electricty,
among other things.  There can be no assurance that Y2K issues will not
materially adversely impact the Company's facilities, services, competitive 
conditions, operating results, financial conditions or cash flows.  The
Company's generating businesses may also be unable to deliver electricity 
because of the failure of the interconnected distribution companies to 
receive or transmit the electricity.  In such instances of business interruption
due to supplier or customer default, the Company will pursue all contractual
remedies available to it to minimize the impact on its results of operations;
however, there can be no assurance that, in all instances, the Company will be
able to legally protect itself from damages arising from third-party Y2K 
failures.  Because of the significant interdependency of the supplier chain, the
Company cannot guarantee that services will be uninterrupted nor can it 
adequately predict a reasonably likely worst case scenario until substantially
all of the testing phase is completed.

CONTINGENCY PLANS

     The Company is still in the process of identifying and testing appropriate
contingency plans addressing emergency operations, disaster recovery, data 
preservation and business continuation plans, and intends to have them in place
by the fourth quarter of 1999.  The plans will be continously refined as new
information becomes available.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Financial Statements and Supplementary Data filed herewith 
begin on page F-1 hereof. 

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         None.

                                PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The number of members of the Board of Directors of Company has been set 
at two, but the number may be increased or decreased by the Board of 
Directors or the stockholders. Directors of the Company are elected annually 
and each elected director holds office until a successor is elected. 
Robert W. Carter and Brian G. Trueblood are the current directors of the 
Company. All executive officers of the Company are elected annually by the
Board of Directors of the Company to serve in such capacities until their 
respective successors are duly elected and qualified.

     The Certificate of Incorporation of the Company provides that the 
Company shall always have an individual serving as an "Independent Director" 
who shall have the right to vote or consent only on, and whose affirmative
vote or consent shall be required with respect to, any decision by the 
Company or the Board of Directors of the Company to (i) file a bankruptcy 
petition, make an assignment for the benefit of creditors, apply for the 
appointment of a custodian, receiver or trustee for it or its property, 
consent to the filing of such proceeding or admit in writing to its inability
to pay its debts generally as they become due; (ii) commence the dissolution,
liquidation, consolidation, merger or sale of all 


                                       32
<PAGE>
or substantially all of its assets; (iii) amend the Certificate of Incorporation
to broaden the purposes of the Company and in other respects; (iv) authorize the
Company to engage in any activity other than those set forth in the Certificate
of Incorporation; or (v) authorize any subsidiary with an Independent Director
to take any action set forth in (i) through (iv). The Certificate of
Incorporation of the Company provides that the Independent Director shall be a
person who is not and has not been, for the five years preceding his election,
(i) a direct or indirect legal or beneficial owner of the Company or its
affiliates (or a member of the immediate family of such owner), (ii) a creditor,
supplier, officer, director, promoter, underwriter, manager or contractor of the
Company or any of its affiliates (or a member of the immediate family of any
such officer or director) or (iii) a person (or a member of the immediate family
of a person) employed by the Company or any of its affiliates or by any
creditor, supplier, employee, stockholder, officer, director, promoter,
underwriter, manager or contractor thereof. The Independent Director may,
however, serve in such capacity for other affiliates of the Company. In March
1999, Brian G. Trueblood was elected as the Independent Director of the Company.

     The following table sets forth the names and ages of the directors and 
the executive officers of the Company and their positions with the Company. 
Since the formation of the Company, each executive officer of the Company
has held the same office(s) with the Company that he or she has held with 
each other corporation that is currently affiliated with the Company. 

     NAME                      AGE         POSITION WITH THE COMPANY
     ----                      ---         -------------------------
     Robert W. Carter          60          Director, Chairman of the Board 
                                           and Chief Executive Officer
     Darol S. Lindloff         60          President
     Janice Carter             56          Executive Vice President, 
                                           Secretary and Treasurer
     Ralph T. Killian          52          Executive Vice President and 
                                           Operations Manager
     Todd W. Carter            31          Senior Vice President,
                                           International Business Development
     Ted C. Hollon             48          Senior Vice President, Project
                                           Development
     L. Stephen Rizzieri       43          Senior Vice President and General
                                           Counsel
     Brian G. Trueblood        37          Independent Director

      ROBERT W. CARTER has been the Chairman of the Board and Chief Executive
Officer of the Company since its formation and of PEII, an affiliate of the
Company, since January 1995. Mr. Carter has held similar chief executive
positions with PEC, a subsidiary of the Company, and PEC's subsidiaries since he
founded PEC in 1982. Mr. Carter also is President of Robert Carter Oil & Gas,
Inc., an oil and gas exploration company, which he founded in 1980. From 1978 to
1980, Mr. Carter was Vice President of oil and gas lease sales for Reserve
Energy Corporation (an oil and gas exploration company). From 1974 to 1978, he
served as a marketing consultant to Forward Products, Inc. (a petrochemical
company). Mr. Carter was Executive Vice President of Blasco Industries (a
chemical and textile manufacturer) from 1970 to 1974. He served as a sales
representative and sales manager for Olin Mathieson Chemical Corporation (a
petrochemical, pulp and paper company) from 1965 to 1970. From 1960 to 1965, he
was a sales representative for Inland, Mead Paper Company in Atlanta. Mr. Carter
attended the University of Georgia. Mr. Carter is married to Janice Carter and
is the father of Todd Carter.

      DAROL S. LINDLOFF has been the President of the Company since its
formation and was appointed President of PEII in February 1997. Prior thereto,
he served as Senior Vice President, Project Development of PEII from January
1996. He served as Vice President of PEII from January 1993 to January 1996 in
the capacities of Business Development, Technical Director and project
Development. Mr. Lindloff served as Marketing Manager for PEC from October 1989
until January 1993. From December 1987 to October 1989, Mr. Lindloff established
a regional office in Dallas for Southwest Research Institute (a research and
development company) and served as Regional Director. From January 1986 to
December 1987, Mr. Lindloff worked on the development of cogeneration facilities
for Hawker Siddeley Power Engineering, Inc. (a British engineering company).
During 1984 and 1985, he worked in the development of cogeneration facilities
for Central & Southwest Corporation's subsidiary, C&SW Energy, Inc. (an energy
company). Mr. Lindloff graduated from Southwestern University with a Bachelor of
Science degree in organic chemistry.

      JANICE CARTER has been the Executive Vice President, Secretary and the
Treasurer of the Company since its formation, has been the Executive Vice
President, Secretary, Treasurer and a Director of PEII since January 1995 and
has served in such capacities with PEC since its inception in 1982. From 1975 to
1980, Mrs. Carter was office manager 


                                       33
<PAGE>
of Reserve Energy Corporation. From 1969 to 1972, Mrs. Carter worked for
University Computing, and from 1962 to 1968 she directed administration for the
engineering department of Otis Engineering, a division of Halliburton
International. Mrs. Carter also serves as Vice President and Secretary/Treasurer
of Robert Carter Oil & Gas, Inc. Mrs. Carter attended Texas Tech University.
Mrs. Carter is married to Robert W. Carter and is the mother of Todd Carter.

      RALPH T. KILLIAN has served as Executive Vice President and Operations
Manager of the Company and PEII since March 1998 and served as Senior Vice
President of the Company from its inception until March 1998 and of PEII from
May 1994 until March 1998. Mr. Killian has overall responsibility for asset
management which includes operations & maintenance, fuel, procurement and
management, and power marketing for facilities. Mr. Killian also leads a group
responsible for development of the Company's merchant plants in the United
States. Between November 1989 and April 1994, Mr. Killian served as Vice
President of Natural Resources for PEC. From 1988 to 1989, he was Senior Vice
President of Texas Eastern Corporation (an energy company). >From 1969 to 1988,
he held various natural gas marketing and engineering management positions with
Amoco Corporation (an energy company) including Regional Natural Gas Marketing
Manager for Amoco Production Company's Denver region. Mr. Killian graduated from
the University of Florida with a Bachelor of Science degree in chemical
engineering.

      TODD W. CARTER has served as Senior Vice President, International Business
Development since October 1998, and before that, served in various capacities
in the project development, finance and acquisition departments of PEII during
the last eight years.  Mr. Carter graduated from the University of Texas in 1990
with a Bachelor of Business Administration degree.  Mr. Carter also serves as an
officer of several significant subsidiaries of PEII.

      TED C. HOLLON has served as Senior Vice President, Project Development of
the Company and PEII since August 1997. Prior to his current position, he served
as Vice President of Construction for the Company from its inception until
August 1997 and for PEII from March 1995 until August 1997. Mr. Hollon served as
project manager for the Company's 230 megawatt Panda-Brandywine Facility from
March 1993 until March 1995. Mr. Hollon previously held various positions with
several prominent international engineering and construction companies such as
Brown & Root International and CSR Serrine. Mr. Hollon has over 25 years of
international construction experience. He earned a Bachelor of Science degree
from Texas A&M University.

      L. STEPHEN RIZZIERI has been Senior Vice President and General Counsel of
the Company and of PEII since March 1998. He was Vice President and General
Counsel of the Company from its inception until March 1998 and of PEII from
February 1997 until March 1998. Prior thereto, he served as Deputy General
Counsel to PEII from April 1996 until February 1997. From 1993 until he joined
PEII, he was Assistant General Counsel of ENSERCH Development Corporation, the
independent power development affiliate of ENSERCH Corporation. From 1985 to
1993, Mr. Rizzieri served in various capacities with Sunshine Mining Company and
its affiliated companies, most recently as Assistant General Counsel and
Secretary. From 1981 to 1985, he served in various capacities with Woods
Petroleum Corporation (which was purchased by Sunshine Mining Company in 1985)
and its affiliates, most recently as President of Woods Securities Corporation.
In 1980, Mr. Rizzieri served as Deputy General Counsel Enforcement Division,
Oklahoma Securities Commission. Mr. Rizzieri earned a Bachelor of Arts degree
from the State University of New York at Geneseo and a Juris Doctor degree from
the University of Oklahoma.

     BRIAN  G. TRUEBLOOD became the Independent Director of the Company in 
March 1997. He has served since February 1997, and also from September 1989
through August 1994, as a senior partner in the Dallas office of Lucas 
Associates (an Atlanta based executive search firm).  From August 1994 to 
February 1997, Mr. Trueblood served as Vice President of TNS Partners, Inc. 
(a Dallas based retained executive search firm).  Mr. Trueblood received a 
Bachelor of Science degree in general engineering from the United States 
Military Academy. Mr. Trueblood also serves as the Independent Director of 
various other subsidiaries of PEII. 

Item 11. EXECUTIVE COMPENSATION.

     No cash, stock options or other non-cash compensation has been paid or 
is proposed to be paid in the current calendar year, or in the last 
completed fiscal year, to any of the officers and directors listed under 
Item 10, Directors and Executive Officers of the Company, for their services 
to the Company.  Mr. Trueblood is currently paid $1,000 annually by the 
Company for serving as the Independent Director of the Company. 

                                       34
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.   

     PEII owned beneficially, at March 25, 1999, one hundred percent (100%) 
of the issued and outstanding shares of the Company's common stock, $.01 par 
value, which is the only security entitled to vote for the election of the 
Company's directors.  No director or officer of the Company owns any shares
of any class of the Company's equity securities. 

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Since the date of incorporation of the Company, there have been no 
transactions, and there currently are not any proposed transactions, or 
series of similar transactions, to which the Company or any of its 
subsidiaries was or is to be party, in which the amount involved exceeds 
$60,000 and in which a director or executive officer of the Company, has a  
material interest. Additionally, there are no business relationships that 
currently exist or have existed since the date of incorporation of the 
Company, involving the Company, on the one hand, and any director of the 
Company (or an affiliate thereof), on the other hand. No director or 
executive officer of the Company has been indebted to the Company since the 
date of incorporation of the Company. 

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K.

          (a)     The following documents are filed as a part o  this Annual 
                  Report on Form 10-K:

          1.      CONSOLIDATED FINANCIAL STATEMENTS.

                  See Index  to Financial Statements and Financial Statement 
                  Schedules on page F-1 hereof.

          2.      CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.

                  See Index  to Financial Statements and Financial Statement 
                  Schedules on page F-1 hereof.

                  Schedules other than those listed on the accompanying
Index to Financial Statements and Financial Statement Schedules are omitted 
for the reason that they are either not required, not applicable or the 
required information is included in the consolidated financial statements or 
notes thereto.

          3.      EXHIBITS.

EXHIBIT
NUMBER        EXHIBIT DESCRIPTION
------        -------------------

3.01          Certificate of Incorporation of Panda Global Holdings, Inc.
              (2)

3.02          Bylaws of Panda Global Holdings, Inc. (2)

4.01          Trust Indenture, dated April 22, 1997, between Panda Global
              Energy Company and Bankers Trust Company as Trustee, (2)

4.02          First Supplemental Indenture between Panda Global Energy 
              Company and Bankers Trust Company, as Trustee, dated April 22, 
              1997. (2)
         
4.03          Registration Rights Agreement among Panda Global Energy
              Company, Panda Global Holdings, Inc. and Donaldson, Lufkin
              & Jenrette Securities Corporation, dated April 22, 1997. (2)
          
4.04          Form of 12-1/2% Senior Secured Notes due 2004 of Panda Global 
              Energy Company. (2)

4.05          Form of 12-1/2% Registered Senior Secured Note due 2004 of
              Panda Global Energy Company. (2)


                                       35
<PAGE>
4.06          Trust Indenture, dated April 22, 1997, between Panda Global 
              Holdings, Inc. and Bankers Trust Company, as Trustee. (2)
          
4.07          First Supplemental Indenture, dated April 22, 1997, between
              Panda Global Holdings, Inc. and Bankers Trust Company, as 
              Trustee. (2)

4.08          Trust Indenture dated July 31, 1996, among Panda Funding 
              Corpora tion, Panda Interfunding Corporation and Bankers Trust 
              Company, as Trustee. (1)

4.09          First Supplemental Indenture to Trust Indenture, dated July 31,
              1996, among Panda Funding Corporation, Panda Interfunding 
              Corpora tion and Bankers Trust Company, as Trustee. (1)

4.10          Second Supplemental Indenture to Trust Indenture, dated January
              6, 1997, among Panda Funding Corporation, Panda Interfunding 
              Corporation and Bankers Trust Company, as Trustee. (1)
          
4.11          Form of 11-5/8% Pooled Project Bonds, Series A due 2012 of 
              Panda Funding Corporation. (1)
             
4.12          Form of 11-5/8% Pooled Project Bonds, Series A-1 due 2012 of 
              Panda Funding Corporation. (1)

4.13          Registration Rights Agreement, dated July 31, 1996, among 
              Panda Funding Corporation, Panda Interfunding Corporation and 
              Jefferies & Company Inc. (1)
          
4.14          Collateral Agency Agreement, dated July 31, 1996, among Panda
              Interfunding Corporation, Panda Funding Corporation and Bankers
              Trust Company, as Trustee  and Collat eral Agent. (1)

4.15          Subrogation and Contribution Agreement, dated July  31, 1996, 
              among Panda Interfunding Corporation, Panda Funding Corporation
              and Panda Interholding Corporation and each PIC U.S. Entity 
              that is a signatory thereto. (1)

4.16          Guaranty Agreement  (PIC U.S.  Entity Subsidiaries), dated 
              July 31, 1996 by Panda Interholding Corporation in favor of 
              Bankers Trust Company, as Collateral Agent for the benefit of 
              the Secured Parties. (1)
10.01         PIC Loan Agreement, dated July 31, 1996, between Panda Funding
              Corporation, as Lender, and Panda Interfunding Corporation, as 
              Borrower. (1)

10.02         Loan Agreement, dated July 31, 1996, between Panda Interfunding
              Corporation, as Lender, and Panda Cayman Interfunding Company, 
              as Borrower. (1)

10.03         Promissory Note issued by Panda Interfunding Corporation on 
              July 31, 1996 to Panda Funding Corporation in the original 
              principal amount of $105,52 5,000, endorsed to Bankers Trust 
              Company, as Collateral Agent. (1)
       
10.04         Security Agreement, dated July 31, 1996, between  Panda 
              Interfunding Corporation and Bankers Trust Company,  as 
              Collateral Agent. (1)
          
10.05         Security Agreement, dated July 31, 1996, between  Panda Funding
              Corporation and Bankers Trust Company, as Collateral Agent. (1)
          
10.06         Security Agreement, dated July 31, 1996, between Panda Cayman
              Interfunding Company, as Debtor, and Panda Interfunding 
              Corporation, as Secured Party. (1)

10.07         Stock Pledge Agreement (Panda Interfunding Corporation Stock),
              dated July 31, 1996, between Panda Energy Corporation and
              Bankers Trust Company,  as Collateral Agent. (1)           


                                       36
<PAGE>
10.08         Stock Pledge Agreement (Panda Funding Corporation and PIC 
              Entity Stock), dated July 31, 1996, between Panda Interfunding 
              Corporation and Bankers Trust Company, as Collateral Agent. (1)
          
10.09         Trust Indenture, dated July 31, 1996, among  Panda-Rosemary 
              Funding Corporation, Panda-Rosemary, L.P. and Fleet National 
              Bank, as Trustee. (1)

10.10         First Supplemental Indenture to Trust Indenture, dated July
              31, 1996, among Panda-Rosemary Funding Corporation, 
              Panda-Rosemary, L.P. and Fleet National Bank, as Trustee. (1)
          
10.10.1       Second Supplemental Indenture to Trust Indenture, dated 
              January 15, 1997,  among Panda-Rosemary Funding Corporation,
              Panda-Rosemary, L.P. and Fleet National Bank, as Trustee. (1) 

10.11         Form  of 8-5/8% First Mortgage Bonds due 2016 of Panda-Rosemary
              Funding Corporation. (1)
             
10.12         Deposit and Disbursement Agreement, dated  July  31, 1996, 
              among Panda-Rosemary Funding Corporation, Panda-Rosemary, L.P.,
              Fleet National Bank,  as Collateral Agent, and Fleet National
              Bank, as Depositary Agent. (1)

10.13         Collateral  Agency and Intercreditor Agreement,  dated July 31,
              1996,   among Panda-Rosemary Funding Corporation, Panda Rosemary,
              L.P., The L/C Issuer,  The Trustee  Under  The Trust Indenture,
              The Depositary Agent,  The Collateral  Agent and  The Other 
              Secured Parties, all as named therein. (1)
          
10.14         Deed  of  Trust and Security Agreement, dated July  31, 1996,  
              by Panda-Rosemary, L.P., Grantor, Ross J. Smyth, Trustee, and 
              Fleet National Bank, as Collateral Agent, the Beneficiary. (1)
          
10.15         Security Agreement,  dated July 31,  1996, by  Panda-Rosemary,
              L.P. to Fleet National Bank,  as Collateral Agent. (1)
          
10.16         Security Agreement,  dated July 31,  1996, by  Panda-Rosemary 
              Funding Corporation to Fleet National Bank, as Collateral 
              Agent. (1)
          
10.17         General  Partner Pledge and Security Agreement, dated July  31,
              1996, by Panda-Rosemary Corporation to Fleet National Bank, as
              Collateral Agent. (1)
          
10.18         Limited  Partner Pledge and Security Agreement, dated July  31,
              1996, by PRC II Corporation to Fleet National Bank, as
              Collateral Agent. (1)

10.19         Stock  Pledge  and Security Agreement, dated  July  31,1996,
              by  Panda Interholding Corporation  to Fleet National Bank, as
              Collateral Agent. (1)
          
10.20         Stock  Pledge and Security Agreement, dated  July  31, 1996, 
              by Panda-Rosemary, L.P. to Fleet National Bank, as Collateral 
              Agent. (1)
                                
10.21         Partnership Guaranty, dated July 31, 1996, by  Panda-Rosemary,
              L.P.  in favor of Fleet National  Bank,  as Trustee. (1)
          
10.22         Reimbursement Agreement, dated July 31, 1996, between 
              Panda-Rosemary, L.P., Panda-Rosemary Funding Corporation  and 
              Bayerische Vereinsbank AG,  New  York Branch. (1)

10.23         Irrevocable  Direct Pay Letter of  Credit issued by Bayerische 
              Vereinsbank AG. (1)
             
10.24         Construction Loan Agreement and Lease Commitment, dated March 
              30, 1996, between Panda-Brandywine, L.P.  and General Electric 
              Capital Corporation. (1)


                                       37
<PAGE>
10.24.1       Participation Agreement, dated December 18, 1996, among
              Panda-Brandywine, L.P., Panda Brandywine Corporation, General
              Electric Capital Corporation, Fleet National Bank, First 
              Security Bank, National Association,  and Credit Suisse. (1)

10.24.2       Letter of Credit Reimbursement Agreement, dated December 18, 
              1996, among Panda-Brandywine, L.P., Panda-Brandywine 
              Corporation  and General  Electric Capital Corporation. (1)
          
10.24.3       Equity  Loan Facility Letter Agreement, dated  December 18, 
              1996, among Panda Brandywine Corporation,  Panda Energy 
              Corporation and  General   Electric Capital Corporation. (1)

10.25         Bill  of  Sale and Severance Agreement, dated  December 30,  
              1996,  between PandaBrandywine, L.P., as  Seller, and Fleet 
              National Bank, Owner Trustee, as Buyer. (1)
          
10.26         Facility Lease, dated December 18, 1996, between  Fleet 
              National  Bank, as Owner Trustee, and Panda Brandywine, L.P. (1)
          
10.27         Steam  Lease, dated as of December 18, 1996,  between 
              Panda-Brandywine, L.P. and Brandywine Water Company. (1)
          
10.28         Amended and Restated Security Deposit Agreement, dated December
              18, 1996, among Panda-Brandywine, L.P., Panda-Brandywine 
              Corporation, General   Electric Capital Corporation,  Fleet 
              National Bank, Credit Suisse  and First Security Bank, National
              Association. (1)

10.28.1       First   Amendment to  Amended and Restated  Security Deposit 
              Agreement, dated February 21, 1997, among Panda-Brandywine, L.P.
              General Electric Capital Corporation, Fleet Nationa l Bank, 
              Credit Suisse and First Security Bank, National Association. (1)

10.29         Amended and Restated  Deed of  Trust and  Security Agreement, 
              dated December 18, 1996, by Panda-Brandywine, L.P. to Chicago 
              Title Insurance Company, Trustee for the benefit of Fleet National
              Bank, as Security Agent, Beneficiary. (1)
          
10.30         Amended and Restated Steam Lessee Security Agreement, dated 
              December 18, 1996, by Brandywine Water Company in favor of 
              Fleet National Bank, as Security Agent. (1)
          
10.31         Amended and Restated Security Agreement, dated December 18, 
              1996, by Panda-Brandywine, L.P. in favor of Fleet National 
              Bank, as Security Agent. (1)
          
10.32         Amended and Restated Trust Agreement, dated  December 18, 1996,
              between General Electric Capital Corporation, as Owner 
              Participant, and Fleet National Bank, as Owner Trustee. (1)

10.33         Amended and Restated General Partner Pledge Agreement, dated 
              December 18, 1996, by Panda-Brandywine Corporation to Fleet 
              National Bank, as Security Agent. (1)

10.34         Amended and Restated Limited Partner Pledge Agreement, dated 
              December 18, 1996, by Panda Energy Corporation to Fleet 
              National Bank, as Security Agent. (1)
          
10.35         Amended and Restated  Stock Pledge Agreement,  dated December 
              18, 1996, by Panda Interholding Corporation to Fleet National 
              Bank, as Security Agent. (1)
           
10.36         Assumption Agreement and Release, dated July 31,  1996, by  
              Panda Interholding Corporation in favor of General Electric 
              Capital Corporation and Fleet National Bank. (1)

10.37         Power Purchase and Operating Agreement, dated January 24, 1989,
              between Panda Energy Corporation and Virginia Electric and 
              Power Company. (1)


                                       38
<PAGE>
10.38         Amendment No. 1 to  Power Purchase and  Operating Agreement, 
              dated October 24, 1989, between Panda Energy Corpora tion and 
              Virginia Electric and Power Company. (1)
          
10.39         Amendment No. 2 to  Power Purchase and  Operating Agreement, 
              dated July 30, 1993, between Panda-Rosemary , L.P. and 
              Virginia Electric and Power Company. (1)
          
10.40         Fuel Supply Management Agreement, dated October  10, 1990, 
              between Panda-Rosemary Corporation and Natural Gas Clearing 
              house. (1)
          
10.41         Amendment No. 1 to Fuel Supply Management Agreement, dated 
              March 5, 1991, between Panda Rosemary Corporation and 
              Natural Gas Clearing house. (1)
          
10.42         Gas Purchase Contract, dated April 12, 1990, between 
              Panda-Rosemary Corporation and Natural Gas Clearing house. (1)

10.43         Amendment  of  Gas Purchase Contract between  Panda-Rosemary 
              Corporation and Natural Gas Clearinghouse. (1)

10.44         Pipeline Operating Agreement, dated February 14, 1990, between 
              Panda Energy Corporation, Panda-Rosemary Corporat ion and 
              North Carolina Natural Gas Corporation. (1)
          
10.45         Amendment No. 1 to Pipeline Operating Agreement,  dated May  7,
              1990, between Panda Energy Corporation, Panda-Rosemary 
              Corporation and North Carolina Natural Gas Corporation. (1)
          
10.46         Assignment Agreement,  dated June  15, 1990,  between Panda 
              Energy Corporation and Panda-Rosemary Corporation. (1)

10.47         Amendment No. 2 to Pipeline Operating Agreement,  dated 
              November  19, 1991, among Panda Energy Corporation, 
              Panda-Rosemary Corporation and North Carolina Natural Gas 
              Corporation. (1)
          
10.48         Real Property Lease and Easement Agreement, dated June 9, 1989,
              between The Bibb Company and Panda-Rosemary Corporation. (1)
          
10.49         First Amendment to Real Property Lease and  Easement Agreement,
              dated October 1, 1989, between The  Bibb Company and 
              Panda-Rosemary Corporation. (1)

10.50         Second Amendment to Real Property Lease and Easement Agreement,
              dated January 31, 1990, between The Bibb Company and 
              Panda-Rosemary Corporation. (1)
          
10.51         Leasehold  and Real Property Assignment and Assumption
              Agreement,  dated  January 6, 1992, between  Panda-Rosemary
              Corporation and  Panda-Rosemary, L.P.   (1)
    
10.52         Third Amendment to Real Property Lease and  Easement Agreement,
              dated March  15, 1996, between The Bibb Company and 
              Panda-Rosemary, L.P. (1)

10.53         Cogeneration Energy Supply Agreement, dated January 12, 1989, 
              between Panda Energy Corporation and The  Bibb Company. (1)

10.54         First Amendment to Cogeneration Energy   Supply Agreement, 
              dated October 1, 1989, between Panda Energy Corporation, 
              Panda-Rosemary Corporation and The Bibb Company. (1)

10.55         Service Agreement,  dated July  26,1996,   between 
              Transcontinental Gas Pipe Line Corporation and Panda-Rosemary,
              L.P. (1)
          

                                       39
<PAGE>
10.55.1       Form of Amendment to Service Agreement, effective January 1, 
              1997, between Transcontinental Gas Pipe Line Corporation and 
              Panda-Rosemary, L.P. (1)
          
10.56         Service Agreement Applicable to Transportation of Natural Gas 
              Under Rate Schedul e FT, dated August 20, 1996, between CNG 
              Transmission Corporation and Panda-Rosemary, L.P. (1)
          
10.57         Gas Transportation Agreement, dated August 1, 1996, between 
              Texas Gas Transmission Corporation and Panda Rosemary, L.P. (1)

10.58         Assignment  and Assumption Agreement, dated  May  15, 1989, 
              between Panda Energy Corporation and Panda-Rosemary 
              Corporation. (1)

10.59         Bill of  Sale and Assignment and Assumption Agreement, dated 
              January 6, 1992, between Panda-Rosemary Corporation and 
              Panda-Rosemary, L.P. (1)
          
10.60         Assignment  and Assumption Agreement, dated January  6, 1992, 
              between Panda Energy Corporation and  Panda-Rosemary 
              Corporation. (1)

10.61         Power Purchase Agreement, dated August 9,1991, between 
              Panda-Brandywine,  L.P.  and Potomac Electric Power Company. (1)
          
10.62         First  Amendment  to  Power Purchase Agreement,  dated 
              September 16, 1994, between Panda-Brandywine, L.P.  and Potomac
              Electric Power Company. (1)

10.62.1       Present Assignment of Power Purchase Agreement, dated December
              18, 1996, by Panda-Brandywine, L.P. to  Fleet National  Bank, 
              as Owner Trustee, for the  benefit  of General Electric Capital
              Corporation,   as Owner Participant. (1)
                                
10.62.2       Amended  and  Restated Consent  and Agreement,  dated December
              30,  1996, among  Potomac Electric Power Company, 
              Panda-Brandywine, L.P., Fleet National  Bank, as  Security 
              Agent and Owner Trustee, General Electric Capital Corporation,
              as the issuer of the Letters of Credit, the Interest Hedging
              Counterparty and Owner Participant, First Security Bank, 
              National Association, as Indenture Trustee, and Credit Suisse, 
              as Administrative Agent. (1)

10.63         Amended and Restated Turnkey Cogeneration Facility Agreement, 
              dated March 30, 1995, between Panda-Brandywine, L.P. and 
              Raytheon Engineers & Constructors, Inc. (1)

10.64         Raytheon  Parent Guaranty, dated May 18,1994,  between 
              Raytheon Company and Panda-Brandywine, L.P. (1)
                 
10.65         Steam Sales Agreement, dated March 30,1995,  between 
              Panda-Brandywine, L.P. and Brandywine Water Company. (1)
          
10.66         Gas Sales Agreement, dated March  30, 1995,  between Cogen 
              Development Company and Panda Brandywine, L.P. (1)

10.67         Precedent Agreement, dated February 25, 1994,  between Columbia
              Gas Transmission Corporation and Panda-Brandywine, L.P. (1)

10.68         Amending Agreement, dated March  24, 1995,  between Columbia 
              Gas Transmission Corporation and Panda-Brandywine, L.P. (1)
          
10.69         Amended and Restated FTS Service Agreement, dated March 23, 
              1995, between Columbia Gas Transmission Corporation and 
              Panda-Brandywine, L.P. (1)

                                       40
<PAGE>
10.70         FTS Service Agreement, dated of as  March 30,  1995, between 
              Cove Point LNG Limited Partnership and Panda-Brandywine, L.P. 
              (1)
          
10.71         Gas Transportation and Supply Agreement, dated November 10, 
              1994, between Panda-Brandywine, L.P. and Washington Gas Light 
              Company. (1)
          
10.72         Amended and Restated Site Lease, dated December  18, 1996, 
              between Panda-Brandywine, L.P. and Fleet National Bank, as 
              Owner Trustee. (1)
10.73         Amended and Restated Site Sublease, dated December  18, 1996, 
              between Fleet National Bank, Owner Trustee, as Sublessor, and
              Panda-Brandywine, L.P., as Sublessee. (1)

10.74         Purchase Agreement, dated July 26, 1996, between  Panda Funding 
              Corporation and Jefferies & Company, Inc. (1)

10.75         Additional Projects Contract, dated  July 31,  1996, among
              Panda Energy International, Inc., Panda Energy Corporati on, 
              and Panda Interfunding Corporation. (1)
          
10.76         Non-Petition Agreement, dated July  31, 1996,  among Panda 
              Interfunding Corporation, Panda Interholding Corporation, 
              Panda-Rosemary Corporation,  PRC II Corporation, Panda-Rosemary
              Funding Corporation  and Panda-Rosemary, L.P. (1)

10.77         Non-Petition Agreement, dated July  31, 1996,  among
              Panda Funding Corporation, Panda Interholding Corporation, 
              Panda Interfunding Corporation and Panda (Cayman) Interfunding
              Company. (1)
                                
10.78         Joint Venture Contract for Tangshan Panda Heat and Power Co., 
              Ltd., dated September 4, 1994, between Luannan County Heat & 
              Power Plant and Pan Western Energy Corp., LLC, as amended 
              July  19, 1996 and November 18, 1996, respectively. (2)

10.79         Joint Venture Contract for Tangshan PanWestern  Heat and Power   
              Co., Ltd., dated September 3, 1994, between Tangshan Luanhua
              Co. (Group) and Pan Western Energy Corp., LLC, as amended 
              July 19, 1996 and November 18, 1996, respectively. (2) 

10.80         Joint Venture  Contract for Tangshan Cayman  Heat  and Power 
              Co., Ltd., dated May 11, 1996, between Luannan County Heat &
              Power Plant and Pan Western Energy Corp., LLC, as amended July 
              19, 1996 and November 18, 1996, respectively. (2)

10.81         Joint Venture Contract for Tangshan PanSino Heat  Co., Ltd., 
              dated May 28, 1996, between Luannan County Heat Company and 
              PanWestern Energy Corp., LLC, as amended July 19, 1996 and 
              November 18, 1996, respectively. (2)

10.82         Coal Supply Agreement between Tangshan Panda Heat  and Power 
              Co., Ltd. and Kailuan Coal Mining Administration, dated 
              February 3, 1996. (2)
          
10.83         General Interconnection Agreement between North  China Power 
              Group Company , Tangshan Panda Heat and Power Co., Ltd. and  
              Tangshan PanWestern Heat and Power Co., Ltd., dated September 
              22, 1995. (2)
          
10.84         Electric  Energy Purchase and Sales Agreement between North 
              China Power Group Company, Tangshan Panda Heat and Power Co., 
              Ltd. and Tangshan PanWestern Heat and Power Co., Ltd., dated
              September 22, 1995. (2)

10.85         Supplemental Agreement for General Interconnection and Electric
              Energy Purchase and Sales Agreement Between North China Power 
              Group Company, Tangshan Panda Heat and Power Co., Ltd. and
              Tangshan PanWestern Heat and Power Co., Ltd. dated February 
              10, 1996. (2)

                                       41
<PAGE>
10.86         Construction Agreement between North China Power Group 
              Company, Tangshan Panda Heat and Power Co., Ltd. and Tangshan
              PanWestern Heat and Power Co., Ltd., dated February 10, 1996.
              (2)
          
10.87         Loan Agreement between North China Power Group Company, 
              Tangshan Panda Heat and Power Co., Ltd. and Tangshan 
              PanWestern Heat and Power Co., Ltd., dated February 10, 1996, 
              as amended June 18, 1996. (2)
          
10.88         Agency Contract for Entrusted  Loan between  China Information 
              Trust and Investment Corporation, Tangshan Panda Heat and 
              Power Co., Ltd. and Tangshan Pan Western Heat and Power Co. 
              Ltd., dated June  18, 1996, as amended July 17, 1996. (2) (4)

10.89         Transfer of Loan Agreement among Tangshan Panda  Heat and 
              Power Co., Ltd., Tangshan PanWestern  Heat and Power Co., Ltd. 
              and Tangshan Pan-Sino Heat Co., Ltd. (2)
          
10.90         Engineering, Procurement  and Construction Contract among 
              Tangshan Panda Heat and Power Co., Ltd., Tangshan Pan Western 
              Heat and Power Co., Ltd. and Harbin Power Engineering Company 
              Limited, dated April 24, 1996, as amended July 4, 1996, 
              Septembe r 14, 1996 and December 17, 1996, respectively. (2) (4)

10.91         Engineering  and Design Contract among Hebei  Electric Power 
              Survey and Design Institute, Tangshan Panda Heat and Power 
              Company, Ltd. and Tangshan Pan Western Heat and Power Company, 
              Ltd., dated December 21, 1995, as amended June 21, 1996. (2)
   
10.92         Guaranty by China Harbin Power Equipment Group Company, dated
              July 16, 1996. (2)
                                
10.93         Performance Guarantee  by The Export-Import  Bank  of China, 
              dated January 3, 1997.  (2)

10.94         Amended and Restated Operation   and Maintenance Agreement  
              between Tangshan Heat and Power Co., Ltd., Tangshan Pan 
              Western Heat and Power Co., Ltd., Tangshan Cayman Heat and 
              Power Co., Ltd., Tangshan PanSino Heat Co., Ltd. and 
              Duke/Fluor Daniel International Services, dated March 6, 1997. 
              (2) (4)

10.94.01      Second Amended and Restated On-Shore Operation and Maintenance 
              Agreement, Commercial Operations Phase, By and Between
              Tangshan Panda Heat and Power Co., LTD., Tangshan Pan Western 
              Heat and Power Co., LTD., Tangshan Cayman Heat and Power Co.,
              LTD., Tangshan PanSino Heat Co., LTD. and Duke/Flu or Daniel 
              Internat ional Services , January 1, 1998. (6)

10.94.02      Second Amended and Restated On-Shore Operation and Maintenance 
              Agreement, Construction Phase, By and Between Tangshan Panda
              Heat  and  Power Co., LTD, Tangshan PanWestern Heat and Power
              Co., LTD, Tangshan Cayman Heat and Power Co., LTD, Tangshan 
              Pan-Sino Heat Co.,  LTD and Duke/Fluor Daniel International 
              Services, January 1, 1998. (6)

10.94.03      Offshore Services Agreement, Commercial Operations Phase, By  
              and Between Tangshan Panda Heat and  Power Co., LTD, Tangshan 
              Pan-Western Heat and Power Co., LTD, Tangshan Cayman Heat and 
              Power Co., LTD, Tangshan Pan Sino  Heat Co., LTD and 
              Duke/Fluor Daniel International Services, January 1, 1998. (6)

10.94.04      Offshore Services Agreement, Construction Phase, By  and 
              Between Tangshan Panda Heat and Power Co., LTD, Tangshan  
              PanWestern Heat and Power Co., LTD, Tangshan Cayman Heat and 
              Power Co., LTD, Tangshan Pan Sino Heat Co., LTD and Duke/Fluor 
              Daniel International Services, January 1, 1998. (6)

10.95         Construction  Agreement  of Heat  and Steam   Network between  
              Tangshan Pan-Sino Heat Co., Ltd. and Tangshan Heat and
              Engineering Company, dated June 20, 1996. (2)

                                       42
<PAGE>
10.96         Amended and Restated Shareholder Loan Agreement between 
              Pan-Western Energy Corporation, LLC and Tangshan Panda Heat 
              and Power Co., Ltd., April 1, 1997 (2) (4)
          
10.97         Amended and Restated Shareholder Loan Agreement between 
              Pan-Western  Energy Corporation, LLC and Tangshan Pan Western 
              Heat and Power Co., Ltd., April 1, 1997 (2) (4)
          
10.98         Amended and Restated Shareholder Loan Agreement between
              Pan-Western Energy Corporation, LLC and Tangshan Cayman Heat 
              and Power Co., Ltd., April 1, 1997 (2) (4)
          
10.99         Amended and Restated Shareholder Loan Agreement between
              Pan-Western  Energy Corporation, LLC and Tangshan Pan Sino 
              Heat and Power Co., Ltd., April 1, 1997 (2) (4)
          
10.100        Water, Heat, Steam and Hot Water Supply and  Usage Agreement  
              between Tangshan  Cayman Heat and Power Company,  Ltd., and
              Tangshan  Panda Heat and Power Company, Ltd., dated October 3, 
              1996. (2) (4)
          
10.101        Water,  Heat,  Steam  and Hot Water Supply and  Usage Agreement
              between  Tangshan  Cayman Heat and Power Company,  Ltd. and 
              Tangshan Pan-Western Heat and Power Company, Ltd., dated 
              October 3, 1996. (2) (4)

10.102        Steam  for  Process and Heating Water Sales  Agreement between
              Tangshan Cayman Heat and Power Company, Ltd., and Tangshan 
              Pan-Sino Heat Company, Ltd., dated October 16, 1996. (2)

10.103        Articles  of Association of Tangshan Panda  Heat  and Power  
              Co.,  Ltd. between Luannan County Heat  & Power Plant and 
              Pan-Western Energy Corp., LLC dated September 4, 1994. (2)

10.104        Articles  of Association for Tangshan Pan-Western  Heat and  
              Power  Co.,  Ltd., between Tangshan Luanhua  Co. (Group) and  
              PanWestern Energy Corp., LLC,  dated September 3, 1994. (2)

10.105        Articles of Association for Tangshan Cayman  Heat  and Power
              Co., Ltd., between Luannan County Heat  & Power Plant and
              PanWestern Energy Corp., LLC, dated May  11, 1996. (2)

10.106        Articles of Association for Tangshan Pan-Sino Heat Co., Ltd.,
              between Luannan County Heat Company and  Pan Western Energy
              Corp., LLC, dated May 28, 1996. (2)
                                
10.107        Application Regarding Power Price among Tangshan  Panda Heat 
              and Power Co., Ltd., Tangshan PanWestern Heat and Power Co., 
              Ltd., and Tangshan Municipal Price Bureau dated October 17, 
              1995, as amended October 18, 1995 and May 8, 1996,
              respectively. (2) (4)

10.108        Administrative Services Agreement between Panda  Energy 
              International, Inc. and Panda Global Holdings, Inc., dated 
              April 22, 1997. (2)
          
10.109        Development Services Agreement between Panda  Energy 
              International, Inc. and Panda Global Holdings, Inc., dated 
              April 22, 1997. (2)

10.110        Form  of Purchase Agreement among Donaldson, Lufkin  & 
              Jenrette  Securities Corporation, Panda Global Energy Company,
              Panda Global Holdings, Inc. and Panda Energy International,  
              Inc., dated April 11, 1997. (2)

10.111        Form  of  Issuer Loan Agreement between Panda  Global Energy 
              Company and PanWestern Energy Corporation, LLC, dated April 
              22, 1997. (2)
          
10.112        Form  of Issuer Note of Pan-Western Energy Corporation, LLC, 
              dated April 22, 1997. (2)
            

                                       43
<PAGE>
10.113        Registered Capital Contribution and Agency  Agreement among 
              Tangshan Panda  Heat and Power Company, Ltd.,
              Tangshan  Pan-Western Heat and Power Company, Ltd., Tangshan 
              Cayman Heat and Power Company, Ltd., Tangshan PanSino  Heat 
              Company, Ltd., Luannan County Heat  and Power Plant, Tangshan 
              Luanhua (Group) Co., Luannan County Heat Company and
              PanWestern Energy Corporation, LLC, dated March 26, 1997. (2)

10.114        Form  of Account  Agreement among  Panda Interfunding 
              Corporation, Panda Energy Corporation and Panda Global 
              Holdings, Inc., dated April 22, 1997. (2)

10.115        Form  of  Pledge Agreement between Panda Global  Energy 
              Company  and Bankers Trust Company, as Trustee,  dated 
              April 22, 1997. (2)

10.116        Form   of Pledge  Agreement between  Pan-Sino  Energy 
              Development Company, LLC and Bankers Trust Company, as Trustee,
              dated April 22, 1997. (2)

10.117        Form  of  Pledge Agreement between Pan-Western  Energy 
              Corporation, LLC and Bankers Trust Company, as Trustee, 
              dated April 22, 1997. (2)
          
10.118        Form of Pledge Agreement between Panda Global Holdings, Inc. 
              and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
          
10.119        Form  of Cash Collateral Agreement between Panda Global Energy
              Company and Bankers Trust Company, as  Trustee, dated April 
              22, 1997. (2)
          
10.120        Form  of  Cash Collateral Agreement between Pan-Western Energy
              Corporation, LLC and Bankers Trust Company, as Trustee, dated 
              April 22, 1997. (2)

10.121        Form  of  Cash Collateral Agreement between  Pan-Sino Energy  
              Development Company, LLC and Bankers Trust Company, as 
              Trustee, dated April 22, 1997. (2)
          
10.122        Form   of Pledge Agreement between Panda Energy International, 
              Inc.  and Bankers  Trust Company,  as Trustee, dated April 
              22, 1997. (2)
          
10.123        Form  of Cash Collateral between Panda Global Holdings, Inc. 
              and Bankers Trust Company, as Trustee, dated April 22, 1997. (2)
          
10.124        Form  of Cash Collateral Agreement between Panda Energy
              Corporation  and Bankers Trust Company, as Trustee, dated 
              April 22, 1997. (2)

10.125        Form of Guarantee between   Pan-Western   Energy Corporation, 
              LLC, Tangshan Panda Heat and Power  Co., Ltd. and  Tangshan 
              Cayman Heat and Power Co., Ltd., dated September 24, 1996.
              (2)

10.126        Form  of Guarantee between   Pan-Western   Energy Corporation,
              LLC, Tangshan Panda Heat and Power  Co., Ltd. and Tangshan Pan 
              Western Heat and Power Co., Ltd., dated September 24, 1996. (2)

10.127        Form of Guarantee between   Pan-Western   Energy Corporation,
              LLC, Tangshan Panda Heat and Power  Co., Ltd. and  Tangshan 
              Pan-Sino Heat Co.,  Ltd., dated September 24,  1996. (2)

10.128        Form    of Guarantee between   Pan-Western   Energy 
              Corporation, LLC, Tangshan PanWestern Heat and  Power Co., Ltd.
              and Tangshan PanSino Heat Co., Ltd., dated September 24,  1996.
              (2)

10.129        Form of Guarantee between   Pan-Western   Energy Corporation, 
              LLC, Tangshan PanWestern Heat and  Power Co., Ltd. and 
              Tangshan Panda Heat and Power Co., Ltd., dated September 24, 
              1996. (2)

                                       44
<PAGE>
10.130        Form of Guarantee between   Pan-Western   Energy Corporation, 
              LLC, Tangshan PanWestern Heat and  Power Co., Ltd. and 
              Tangshan Cayman Heat and Power Co., Ltd., dated September 24, 
              1996. (2)
          
10.131        Form  of Guarantee between   Pan-Western   Energy Corporation, 
              LLC, Tangshan Cayman Heat and Power  Co., Ltd. and Tangshan 
              Panda Heat and Power Co., Ltd., dated September 24, 1996. (2)
          
10.132        Form of Guarantee between Pan-Western Energy Corporation, LLC, 
              Tangshan Cayman Heat and Power  Co., Ltd. and  Tangshan 
              PanSino Heat Co.  Ltd., dated September 24, 1996. (2)

10.133        Form of Guarantee between   Pan-Western   Energy Corporation, 
              LLC, Tangshan Cayman Heat and Power  Co., Ltd. and Tangshan
              Pan Western Heat and Power Co., Ltd., dated September 24, 1996
              (2)
          
10.134        Form of Guarantee between   Pan-Western   Energy Corporation,
              LLC, Tangshan PanSino Heat Co., Ltd.  and Tangshan Cayman  Heat
              and Power  Co.,  Ltd., dated September 24, 1996. (2)

10.135        Form of Guarantee between Pan-Western   Energy Corporation, 
              LLC, Tangshan PanSino Heat Co., Ltd.  and Tangshan Pan-Western 
              Heat and Power Co., Ltd., dated September 24, 1996. (2)

10.136        Form of Guarantee between Pan-Western   Energy Corporation, 
              LLC, Tangshan PanSino Heat Co., Ltd.  and Tangshan Panda  Heat 
              and Power  Co.,  Ltd., dated September 24, 1996. (2)

10.137        Operation and Maintenance Agreement between Bhote Koshi Power
              Company Private Limited and Harza Engineering Company 
              International L.P. dated April 24, 1997. (2)
          
10.138        Amended  and  Restated Contract for  the Engineering, 
              Procurement  and Construction of the Upper Bhote  Koshi 
              Hydroelectric project between China Gezhouba Construction 
              Group Corporation and Bhote Koshi Power Company Private 
              Limited dated December 19, 1996 ("EPC Contract"). (2)
          
10.138.01     Change Order No. 001 to EPC Contract, dated February 1, 1997. 
              (3)
          
10.138.02     Change Order No. 002 to EPC Contract, dated April  26, 1997. (3)
          
10.138.03     Change Order No. 003 to EPC Contract, dated September 4, 1997.
              (3)

10.138.04     Change Order No. 004 to EPC Contract, dated  September 5, 1997.
              (3) 

10.138.05     Change Order No. 005 to EPC Contract, dated  November 12, 1997.
              (3)

10.138.06     Change Order No. 006 to EPC Contract, dated April 21, 1998. (6)

10.139        Project Agreement between His Majesty's Government  of Nepal 
              and Bhote Koshi Power Compan y Privat e Limited dated July 21, 
              1996. (2)
          
10.140        Power Purchase Agreement between   His Majesty's Government of
              Nepal and Bhote Koshi Power Company Private Limited dated 
              July 21, 1996. (2)
          
10.141        Services Agreement between Panda of  Nepal and  Harza 
              Engineering Company International L.P. (for services provided
              outside of Nepal) dated July 11, 1997. (2)

10.142        Services Agreement between Panda of  Nepal and  Harza 
              Engineering Company International L.P. (for service s provided
              in Nepal) dated July 11, 1997. (2) 


                                       45
<PAGE>
10.143        Investment Agreement, General Conditions between Bhote Koshi 
              Power Company  Private Limited, International Finance 
              Corporation and DEG Deutsche Investitionsund 
              Entwicklungsgesellschaft mbH dated December 18, 1997. (3)

10.143.01     Investment Agreement, Special Conditions between Bhote Koshi 
              Power Company Private Limited and DEG Deutsche Investitionsund
              Entwicklungsgesellschaft mbH dated December 18, 1997. (3)
                                
10.143.02     Investment Agreement, Special Conditions between Bhote Koshi 
              Power Company Private Limited and International Finance 
              Corporation dated December 18, 1997.  (3)
          
10.143.03     Investment Agreement, Definitions (Schedule  A) dated 
              December 18, 1997. (3)

10.144        Participation Agreement in respect of B Loan to  Bhote Koshi 
              Power  Company Private Limited between Dresdner Bank AG, New 
              York and Grand Cayman  Branches and International Finance 
              Corporation dated  December 18, 1997.  (3) 

10.145        Participation Agreement in respect of B Loan  to  Bhote Koshi 
              Power Company Private Limited between Bayerische Vereinsbank 
              AG and International Finance Corporation dated December 18, 
              1997. (3)
          
10.146        Participation Agreement in respect of B Loan  to  Bhote Koshi
              Power Company Private Limited between Nederlandse Financierings
              Maatschappij Voor Ontwikkelingslanden N.V. and International  
              Finance Corporation dated December 18, 1997. (3)
          
10.147        Share Retention  and Project Funds Agreement  between Bhote 
              Koshi Power Company Private Limited, Panda Energy International,
              Inc., Panda Bhote Koshi, Panda of Nepal, Harza Engineering 
              Company International, a Limited Liability Company, Harza 
              Engineering Company International, L.P., Resource Development 
              Consultants, a Limited Liability Company, RDC of Nepal, 
              Soaltee Enterprises Private Ltd., Soaltee Hotel Ltd., Surya 
              Enterprises Private Ltd., Himal Interna tional Power 
              Corporation Pvt. Ltd., Interna tional Finance Corporation, and 
              DEG-Deutsche Investitions-und Entwick lungsge sells chaft mbH 
              dated December 18, 1997. (3)

10.148        Equity Subscription Agreement between Bhote Koshi Power 
              Company Private Limited , Himal International Power Corporation
              Ltd., and Wilmington Trust Company dated December 18, 1997. (3)

10.149        Equity Subscription Agreement between Bhote Koshi Power Company
              Private Limited, Panda of Nepal and Wilmington Trust Company 
              dated Decembe r 18, 1997. (3)
          
10.150        Equity Subscription Agreement between Bhote Koshi Power Company
              Private Limited, RDC of Nepal and Wilmington Trust Company 
              dated December 18, 1997. (3)
          
10.151        Shareholder's Agreement between  Bhote Koshi Power Company 
              Private Limited, Himal International Power Corporation Pvt. 
              Ltd., Panda of Nepal, RDC  of Nepal, and International Finance
              Corporation dated December 18, 1997. (3)
          
10.152        Shareholder's Agreement between Panda Bhote Koshi,  a Cayman
              Islands exempted company, Panda of Nepal, a Cayman Islands 
              exempted company and Panda Global Energy Company and MCNIC 
              Nepal Limited, as the Shareholders of Panda Bhote Koshi, dated 
              December 18, 1997. (3).
          
10.152.01     Guarantee Agreement of MCN Investment Corporation, dated 
              December 18, 1997. (3)
          
10.152.02     Guarantee Agreement of Panda Energy International, Inc., dated 
              December 18, 1997. (3)
          
                                       46
<PAGE>
10.153        Master Agreement between Bhote  Koshi Power  Company Private 
              Limited and International Finance Corporation, dated December 
              12, 1997. (3)

10.153.01     Schedule and Annexes to Master Agreement between Bhote Koshi 
              Power Company Private Limited and International Finance 
              Corporation, dated December 12, 1997.  (3)

10.154        HMGN Letter Approval of Financing Documents addressed to 
              International Finance Corporation, DEG Deutsche Investitions-
              und Entwick lungsge sells chaft mbH and Wilmington Trust
              Company dated December 8, 1997.  (3)

10.155        Risk Management Facility Agreement between Bhote Koshi Power
              Company Private Limited and International Finance Corporation
              dated December 18, 1997.  (3)

10.156        Trust and Retention Agreement between Bhote Koshi Power
              Company Private Limited, International Finance Corporation, 
              DEG-Deutsche Investitions-und Entwicklungsgesel lschaft mbH 
              and Wilmington Trust Company dated December 18, 1997. (3)

10.157        Nepal  Agency  and Retention Agreement between  Bhote Koshi  
              Power Company  Private Limited, International Finance
              Corporation,  DEG Deutsche Investitions-und
              Entwicklungsgesells chaft mbH, Wilmington Trust Company, as 
              Trustee,  and Nepal Grindlays Bank  Limited dated December 18, 
              1997.  (3)

10.158        Mortgage Deed between Bhote Koshi Power Company Private Limited, 
              DEG-Deutsche Investions-und Entwicklungsgesellschaft mbH and 
              International Finance Corporation dated December 19, 1997. (3)

10.159        Security Agreement and Assignment between Bhote Koshi Power 
              Company Private Limited, International Finance Corporation,
              DEG-Deutsche Investitions-und Entwicklungsgesellschaft mbH
              and Wilmington Turst company, as Trustee, dated December 18, 
              1997. (3)

10.160        Security Agreement and Assignment between Panda of Nepal, 
              International Finance Corporation, DEG-Duetsche Investitions-und 
              Entwicklungsgesellschaft mbH and Wilmington Trust Company, as
              mbH and Wilmington Trust Company, as Trustee, dated December 18, 
              1997.  (3)

10.161        Share  Pledge Agreement between Himal International Power 
              Corporation Pvt. Ltd., Wilmington Trust Company, as Trustee, and 
              Bhote Koshi Power Company Private Limited dated December 18, 1997.
              (3)

10.162        Share Pledge Agreement between RDC of Nepal, Wilmington Trust 
              Company, as Trustee, and Bhote Koshi Power Company Private Limited
              dated December 18, 1997. (3)

10.163        Share Pledge Agreement between Panda Bhote Koshi, Wilmington 
              Trust Company, as Trustee, and Panda of Nepal, dated December 18, 
              1997. (3)

10.164        Share Pledge Agreement between Panda of Nepal, Wilmington Trust
              Company, as Trustee, and Bhote Koshi Power Company Private 
              Limited, dated December 18, 1997.  (3)

10.165        Performance Guarantee by Industrial and Commercial Bank of China
              dated December 10, 1997.  (3)

10.166        Equity Letter of Credit by The Northern Trust Company for the 
              account of RDC of Nepal, dated December 16, 1997.  (3)

10.167        Equity Letter of Credit by the First National Bank of Chicago
              for the account of Panda of Nepal, dated December 17, 1997. (3)


                                       47
<PAGE>
10.168        Bhote Koshi Power Private Company Limited Amended and Restated 
              Joint Venture Agreement Himal International Power Corporation 
              Ltd., Panda of Nepal, RDC of Nepal and International Finance 
              Corporation, dated December 12, 1997.  (3)

10.169        Articles of Association of Bhote Koshi Company Private Limited, 
              dated August 22, 1997. (3) 

10.170        Memorandum of Association of Bhote Koshi Power Company Private
              Limited, dated August 22, 1997.  (3)

10.171        Engineering Services Agreement between Bhote Koshi Power Company
              Private Limited and Harza Engineering Company International, L.P.,
              dated December 1, 1997.  (3)

10.172        Consent and Amendment Agreement, dated July 17, 1998 by and 
              between Panda Brandywine, L.P., General Electric Capital 
              Corporation, and the other parties set forth therein.  (7)

10.173        Letter Agreement, originally dated October 24, 1997, by and
              between Panda Brandywine, L.P., Potomac Electric Power Company
              (7)(4)

10.174        Letter of Intent, dated July 2, 1998, by and between GE Power
              Power Systems and Sales and Panda Paris Power, LLC.  (7)

10.175        Turnkey, Engineering, Procurement and Construction Agreement by 
              and between Panda Paris Power, L.P. and Duke/Fluor Daniel,
              dated as of October 3, 1998.  (8)(4)

10.176        Purchase Order by and between GE Power Systems and sales and 
              Panda Paris Power, L.P. dated October 16, 1998.  (8)

10.177        Partnership Intrest Purchase Agreement, dated February 17, 1999, 
              by and between FPL Energy Paris GP, LLC, FPL Energy Paris LP, LLC,
              Panda Paris I, LLC and Panda Paris II, LLC.   (5)

12.00         Computation of Ratio of Earning to Fixed Charges.  (3)

21.00         Subsidiaries of Company.  (3)

24.00         Power of Attorney, included on signature page hereof (3)

27.00         Financial Data Schedule (3)

__________________
(1) Previously filed as an exhibit to the Registration Statement on Form S-1
    (Registration No. 333-19445) of Panda Funding Corporation, Panda 
    Interfunding Corporation and Panda Interholding Corporation (affiliates of 
    the Company), and incorporated herein by reference. 
(2) Previously filed as an exhibit to the Registration Statement on Form S-1
    (Registration No. 333-29005) of Panda Funding Corporation, Panda
    Interfunding Corporation and Panda Interholding Corporation (affiliates of 
    the Company), and incorporated herein by reference.
(3) Filed herewith.
(4) Confidential treatment of certain information identified in these exhibits 
    has been applied for or granted by the Securities and Exchange Commission.
(5) Previously filed as an exhibit to the Company's Form 8-K filed with the 
    Securities and Exchange Commission February 18, 1999.
(6) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
    ended March 31, 1998.
(7) Previously filed as an exhibit to the Company's Form 10-Q for the quarter
    ended June 30, 1998.
(8) Previously filed as an exhibit to the Company's Form 10-Q for the quarter 
    ended September 30, 1998.

                                       48
<PAGE>
     (b)  Reports on Form 8-K.  The Company filed a Report on Form 8-K 
(reflecting disclosure under "Item 2.  Acquition ofr Disposition of Assets")
with the Securities and Exchange Commission on February 18, 1999.  No financial 
statements were included in such filing.

     Supplemental Information to be Furnished With Reports Filed Pursuant to 
Section 15(d) of the Act.

     No annual report or proxy statement or other proxy soliciitng material 
was sent to security holders of the Company during the Company's last fiscal 
year.


                                       49
<PAGE>
                             Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Seucrities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its 
behalf by the undersigned, thereunto duly authorized.

                                       PANDA GLOBAL HOLDINGS, INC.

Date:  March 30, 1999                  By:  /S/ROBERT W. CARTER 
                                            _________________________________
                                            Robert W. Carter, Chairman of the 
                                            Board and Chief Executive Officer


                          POWER OF ATTORNEY

     KNOW ALL PEOPLE BY THESE PRESENTS, that each of the undersigned officers
and directors of Panda Global Holdings, Inc. (the "Company") hereby consitutes
and appoints Robert W. Carter or Janice Carter or any of them (with full power 
to each of them to act along), his or her true and lawufl attorney-in-fact and
agent, with full power of substitution, for him or her and on his or her behalf
and in is or her name, place and stead, in any and all capacities, to sign,
execute, and file any and all documents relation to the Company's Form 10-K for
the year ending December 31, 1998, including any and all amendments and 
supplements hereto, with any regulatory authority, granting said attorneys and 
each of them; full power and authoirty to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in order to 
effectuate the same as fully to all intents and purposes as he himself, or she 
herself, might or could do if personally present, hereby ratifying and 
confirming all that said attorneys-in-fact and agents, or either of them, or 
their or his or her substitute or substitutes, may lawfully do or cause to be 
done.

Pursuant to the requirements of Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE                        TITLE                         DATE
---------                        -----                         ----
/S/ROBERT W. CARTER
______________________           Chairman of the Board         March 30, 1999
Robert W. Carter                 Chief Executive Officer
                                 and Director
                                 (Principal Executive Officer)
/S/JANICE CARTER
_____________________            Executive Vice President,     March 30, 1999
Janice Carter                    Secretary and Treasurer
                                 (Principal Financial and
                                 Accounting Officer)

<PAGE>
                          INDEX TO FINANCIAL STATEMENTS


Panda Global Holdings, Inc. and Subsidiaries Consolidated Financial Statements:

   Independent Auditors' Report......................................   F-2

   Consolidated Balance Sheets as of December 31, 1997 and 1998......   F-3

   Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998..................................................   F-5

   Consolidated Statements of Shareholder's Deficit for the years ended
December 31, 1996, 1997 and 1998.....................................   F-6

   Consolidated  Statements  of Cash Flows for the years ended  December 31,
1996, 1997 and 1998..................................................   F-7

   Notes to Consolidated  Financial  Statements for the years ended December
31, 1996, 1997
      and 1998.......................................................   F-8


                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors
of Panda Energy International, Inc.:

We have audited the accompanying consolidated balance sheets of Panda Global
Holdings, Inc. and subsidiaries (the "Company") as of December 31, 1997 and
1998, and the related consolidated statements of operations, shareholder's
deficit and cash flows for each of the three years in the period ended December
31, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1997
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.




DELOITTE & TOUCHE LLP

Dallas, Texas
March 29, 1999


                                      F-2
<PAGE>
                           PANDA GLOBAL HOLDINGS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                         DECEMBER 31, 1997 AND 1998


                                     ASSETS
<TABLE>
<CAPTION>
                                                                   1997             1998
                                                              -------------    -------------
<S>                                                           <C>              <C>          
Current assets:
  Cash and cash equivalents ...............................   $   2,929,289    $   2,056,317
  Restricted cash - current ...............................      92,828,082       52,668,167
  Accounts receivable .....................................       9,786,837        9,582,815
  Fuel oil, spare parts and supplies ......................       6,264,549        6,324,191
  Deferred taxes ..........................................            --         18,609,000
  Other current assets ....................................         257,877        1,934,610
                                                              -------------    -------------
    Total current assets ..................................     112,066,634       91,175,100

Plant and equipment:
  Electric generating facilities ..........................     291,515,328      301,411,796
  Furniture and fixtures ..................................         533,663          542,989
  Less: accumulated depreciation ..........................     (38,114,058)     (50,314,383)
  Construction in progress ................................      36,131,069       81,475,023
  Development costs and equipment deposits ................       2,942,340       58,751,189
                                                              -------------    -------------
    Total plant and equipment, net ........................     293,008,342      391,866,614

Investment in joint venture ...............................         836,654          793,880

Restricted cash - debt service reserves and escrow deposits      72,430,527       39,022,048

Deferred taxes ............................................            --          6,391,000

Debt issuance costs, net of accumulated
  amortization of $1,583,368 and $3,239,618, respectively .      13,539,612       11,893,362
                                                              -------------    -------------

                                                              $ 491,881,769    $ 541,142,004
                                                              =============    =============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                           PANDA GLOBAL HOLDINGS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                      DECEMBER 31, 1997 AND 1998


                      LIABILITIES AND SHAREHOLDER'S DEFICIT

<TABLE>
<CAPTION>
                                                                1997             1998
                                                           -------------    -------------
<S>                                                        <C>              <C>          
Current liabilities:
  Accounts payable and accrued expenses:
    Construction costs .................................   $   5,600,000    $   9,106,941
    Interest and letter of credit fees .................       9,697,648        9,770,768
    Operating expenses and other .......................       4,879,522        6,980,241
  Short-term debt ......................................            --         33,000,000
  Current portion of long-term debt ....................       5,816,974        5,924,989
                                                           -------------    -------------
      Total current liabilities ........................      25,994,144       64,782,939

Deferred revenue .......................................      13,140,387       12,669,811

Long term debt, less current portion ...................     349,667,769      344,740,630

Capital lease obligation ...............................     231,278,528      246,078,324

Minority interest ......................................       5,741,166        5,741,166

Commitments and contingencies (Note 10)

Shareholder's deficit:
  Common stock, $.01 par value; 1,000 shares authorized,
     issued and outstanding ............................              10               10
  Advances to parent ...................................     (52,738,381)     (49,765,758)
  Accumulated deficit ..................................     (81,201,854)     (83,105,118)
                                                           -------------    -------------
                                                            (133,940,225)    (132,870,866)
                                                           -------------    -------------

                                                           $ 491,881,769    $ 541,142,004
                                                           =============    =============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
                           PANDA GLOBAL HOLDINGS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                   1996             1997             1998
                                                              -------------    -------------    -------------
<S>                                                           <C>              <C>              <C>          
REVENUE:
  Electric capacity and energy sales ......................   $  32,273,736    $  65,004,373    $  78,252,477
  Steam and chilled water sales ...........................         502,757          623,934          694,548
  Interest income .........................................       1,518,006        8,050,356        7,698,177
                                                              -------------    -------------    -------------
                                                                 34,294,499       73,678,663       86,645,202
                                                              -------------    -------------    -------------

EXPENSES:
  Plant operating expenses ................................      12,050,495       26,245,012       25,583,482
  Project development and administrative ..................       5,187,348       11,579,911       16,908,950
  Interest expense and letter of credit fees ..............      19,414,012       55,329,157       57,199,458
  Depreciation ............................................       5,531,502       11,574,519       12,200,326
  Amortization of debt issuance costs .....................         493,799        1,418,353        1,656,250
  Amortization of partnership formation costs .............         533,100             --               --
                                                              -------------    -------------    -------------
                                                                 43,210,256      106,146,952      113,548,466
                                                              -------------    -------------    -------------

LOSS BEFORE MINORITY INTEREST, DEFERRED TAX BENEFIT
  AND EXTRAORDINARY ITEM ..................................      (8,915,757)     (32,468,289)     (26,903,264)

  Minority interest .......................................      (2,405,160)            --               --
                                                              -------------    -------------    -------------

LOSS BEFORE DEFERRED TAX BENEFIT AND EXTRAORDINARY ITEM ...     (11,320,917)     (32,468,289)     (26,903,264)

  Deferred tax benefit ....................................            --               --         25,000,000
                                                              -------------    -------------    -------------

LOSS BEFORE EXTRAORDINARY ITEM ............................     (11,320,917)     (32,468,289)      (1,903,264)

  Extraordinary item - loss on early extinguishment of debt     (21,336,550)            --               --
                                                              -------------    -------------    -------------

NET LOSS ..................................................   $ (32,657,467)   $ (32,468,289)   $  (1,903,264)
                                                              =============    =============    =============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>
                           PANDA GLOBAL HOLDINGS, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


<TABLE>
<CAPTION>
                                                       COMMON STOCK                                                 Total      
                                              -----------------------------      Advances       Accumulated      Shareholder's 
                                                 Shares          Amount      (to) from Parent     Deficit          Deficit
                                              -------------   -------------   -------------    -------------    -------------
<S>               <C>                                 <C>     <C>             <C>              <C>              <C>           
BALANCE,  January 1, 1996 ....................        1,000   $          10   $ (26,869,548)   $ (16,076,098)   $ (42,945,636)

  Advances (to) from parent, net .............         --              --       (25,913,392)            --        (25,913,392)

  Net loss ...................................         --              --              --        (32,657,467)     (32,657,467)
                                              -------------   -------------   -------------    -------------    -------------

BALANCE,  December 31, 1996 ..................        1,000              10     (52,782,940)     (48,733,565)    (101,516,495)

  Advances (to) from parent, net .............         --              --            44,559             --             44,559

  Net loss ...................................         --              --              --        (32,468,289)     (32,468,289)
                                              -------------   -------------   -------------    -------------    -------------

BALANCE,  December 31, 1997 ..................        1,000              10     (52,738,381)     (81,201,854)    (133,940,225)

  Advances (to) from parent, net .............         --              --         2,972,623             --          2,972,623

  Net loss ...................................         --              --              --         (1,903,264)      (1,903,264)
                                              -------------   -------------   -------------    -------------    -------------

BALANCE, December 31, 1998 ...................        1,000   $          10   $ (49,765,758)   $ (83,105,118)   $(132,870,866)
                                              =============   =============   =============    =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
                           PANDA GLOBAL HOLDINGS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                      1996             1997             1998
                                                                -------------    -------------    -------------
<S>                                                             <C>              <C>              <C>           
OPERATING ACTIVITIES:
  Net loss ..................................................   $ (32,657,467)   $ (32,468,289)   $  (1,903,264)
  Adjustments to reconcile net loss to
    net cash provided by operating activities:
      Deferred tax benefit ..................................            --               --        (25,000,000)
      Loss on early extinguishment of debt ..................      21,336,550             --               --
      Minority interest .....................................       2,405,160             --               --
      Depreciation ..........................................       5,531,502       11,574,519       12,200,326
      Amortization of debt issuance costs ...................         493,799        1,418,353        1,656,250
      Amortization of partnership formation costs ...........         533,100             --               --
      Amortization of loan discount and deferred
        interest on capital lease obligation ................         391,491       22,250,146       23,851,078
      Write-off of project development costs ................            --               --          2,941,040
      Deferred revenue ......................................            --               --           (470,576)
      Equity in loss of joint venture .......................            --               --             42,774
  Changes in assets and liabilities:
    Accounts receivable .....................................      (4,202,686)        (384,152)         204,022
    Fuel oil, spare parts and supplies ......................      (4,829,609)       1,649,228          (59,642)
    Other current assets ....................................        (152,241)         (92,972)      (1,676,733)
    Accounts payable and accrued expenses ...................       9,529,946        1,287,815        2,173,839
                                                                -------------    -------------    -------------
      Net cash provided (used) by operating activities ......      (1,620,455)       5,234,648       13,959,114
                                                                -------------    -------------    -------------

INVESTING ACTIVITIES:
  Restricted cash - current .................................     (15,933,779)     (75,018,161)      40,159,915
  Additions to property, plant and equipment ................     (62,881,838)     (30,918,077)    (105,679,687)
  Investment in joint venture ...............................            --           (836,654)            --
  Acquisition of minority interest ..........................     (34,256,423)            --               --
  Restricted cash - debt service reserves and escrow deposits     (21,600,418)     (39,882,161)      33,408,479
                                                                -------------    -------------    -------------
      Net cash provided (used) by investing activities ......    (134,672,458)    (146,655,053)     (32,111,293)
                                                                -------------    -------------    -------------

FINANCING ACTIVITIES:
  Contributions from minority interest owners ...............            --          5,741,166             --
  Distributions to minority interest owner ..................      (1,152,113)            --               --
  Advances (to) from parent .................................     (25,913,392)          44,559        2,972,623
  Deferred revenue ..........................................            --         13,140,387             --
  Proceeds from short-term debt .............................            --               --         33,000,000
  Proceeds from long-term debt ..............................     299,677,926      145,025,088             --
  Repayment of long term debt ...............................    (128,415,271)      (5,717,621)      (5,816,974)
  Repayment of capital lease obligation .....................            --         (7,831,527)     (12,866,442)
  Debt issuance costs .......................................      (7,735,536)      (7,387,444)         (10,000)
                                                                -------------    -------------    -------------
      Net cash provided (used) by financing activities ......     136,461,614      143,014,608       17,279,207
                                                                -------------    -------------    -------------

Increase (decrease) in cash and cash equivalents ............         168,701        1,594,203         (872,972)

Cash and cash equivalents, beginning of period ..............       1,166,385        1,335,086        2,929,289
                                                                -------------    -------------    -------------

Cash and cash equivalents, end of period ....................   $   1,335,086    $   2,929,289    $   2,056,317
                                                                =============    =============    =============

SUPPLEMENTAL CASH FLOW INFORMATION:

  Interest paid, net of amounts capitalized .................   $  15,656,801    $  51,929,067    $  57,126,338

NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES:

  Accrued construction costs ................................   $     660,167    $   5,600,000    $   9,106,941
  Interest expense on capital lease obligation ..............            --         21,621,411       22,853,229
  Adjustment of capital lease ...............................            --               --          4,813,009
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       F-7
<PAGE>
                  PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

1.  ORGANIZATION AND BASIS OF PRESENTATION

      Panda Global Holdings, Inc. ("Panda Global", or collectively with its
subsidiaries the "Company"), a wholly owned subsidiary of Panda Energy
International, Inc. ("PEII"), was formed in March 1997 to hold the ownership
interests in certain independent power projects which were formerly owned by
other wholly owned subsidiaries of PEII. The ownership interests were
transferred to the Company at PEII's historical cost. Because the transfers
occurred between entities under common control, the transactions have been
accounted for in a manner similar to a pooling of interests. The Company
operates primarily through three direct wholly owned subsidiaries: Panda Energy
Corporation ("PEC")( a Texas corporation) which indirectly holds the Company's
ownership and leasehold interests in two domestic projects currently in
operation; Panda Global Energy Company ("Global Cayman")(a Cayman Islands
company), which indirectly holds the Company's ownership interests in two
international projects currently under construction; and Panda Merchant Power
Holding, LLC ("Merchant Holding")(a Delaware limited liability company), which
indirectly holds the Company's ownership interests in domestic projects
currently under development.

      PEC, through its wholly owned subsidiary Panda Interfunding Corporation
("PIC") and PIC's wholly owned subsidiary Panda Interholding Corporation
("Interholding"), holds the Company's ownership interest in the Rosemary project
and leasehold interest in the Brandywine project. The entities holding such
interests include the following: Panda Rosemary Corporation ("PRC"), the general
partner in Panda-Rosemary, L.P. ("Panda-Rosemary"); PRC II Corporation ("PRC
II"), the limited partner in Panda-Rosemary; Panda Brandywine Corporation, the
general partner in Panda-Brandywine, L.P. ("Panda-Brandywine"); and Panda Energy
Corporation (a Delaware corporation), the limited partner in Panda-Brandywine.
The Company, through its general and limited partnership interests, owns 100% of
Panda-Brandywine and, as of July 31, 1996, owns 100% of Panda-Rosemary. Prior to
July 31, 1996, the Company owned 10% of Panda-Rosemary. The Rosemary and
Brandywine projects are located in the United States. Other direct or indirect
wholly owned subsidiaries of PIC include Panda Funding Corporation ("PFC"),
Panda-Rosemary Funding Corporation ("PRFC") and Panda Cayman Interfunding
Corporation ("PIC Cayman"), which have been formed to facilitate the financing
of the development and acquisition of independent power projects.

      Additionally, PEC holds the Company's 100% ownership interest in the
Kathleen project through its wholly owned subsidiaries.

      Global Cayman (which collectively with its subsidiaries is a development
stage enterprise having no operating revenues) holds a 95.5% ownership interest
in Pan-Sino Energy Development Company LLC ("Pan-Sino")(a Cayman Islands
company), which in turn holds a 99% ownership interest in Pan-Western Energy
Corporation LLC ("Pan-Western")(a Cayman Islands company), which in turn owns an
approximately 88% interest in four joint venture companies (the "Joint Venture
Companies") organized under the laws of the People's Republic of China ("China")
to develop and construct an independent power project located in China. The
Joint Venture Companies are: Tangshan Panda Heat and Power Company, Ltd.
("Tangshan Panda"), Tangshan Pan-Western Heat and Power Company, Ltd. ("Tangshan
Pan-Western"), Tangshan Cayman Heat and Power Company, Ltd. ("Tangshan Cayman")
and Tangshan Pan-Sino Heat Company, Ltd. ("Tangshan Pan-Sino"). Additionally,
Global Cayman indirectly holds an equity investment in Bhote Koshi Power Company
Pvt. Ltd. (a Nepal company), which was organized under the laws of Nepal to
develop and construct an independent power project in Nepal.

      Merchant Holding (which collectively with its subsidiaries is a
development stage enterprise having no operating revenues), through wholly owned
subsidiaries, holds the Company's ownership interests (100% as of December 31,
1998) in two projects under development in Texas (see Note 5) and certain other
projects under development.

      Additionally, the Company conducts other development activities through
various subsidiaries.


2. SIGNIFICANT ACCOUNTING POLICIES

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Any differences from those estimates are recorded in the period in
which they are identified.

      CASH -- Included in cash and cash equivalents are highly liquid
investments with original maturities of three months or less.


                                      F-8
<PAGE>
      RESTRICTED CASH - CURRENT -- Restricted cash-current represents escrowed
cash which may be used to pay operating expenses and make debt payments and
distributions to partners pursuant to the trust indenture agreements.

      RESTRICTED CASH - DEBT SERVICE RESERVES AND ESCROW DEPOSITS -- Debt
service reserves and escrow deposits include cash held by the bank to pay debt
service and capital improvements pursuant to the trust indenture agreements.

      FUEL OIL, SPARE PARTS AND SUPPLIES -- These items include fuel oil stored
on-site and various spare parts and supplies necessary for plant maintenance.
The items are valued at cost using the weighted average method, and are
expensed, as plant operating expenses, when used.

      PLANT AND EQUIPMENT -- Electric generating facility assets are recorded at
cost and depreciated using the straight-line method over the estimated useful
lives of the assets, generally twenty-five years. Depreciation of office
furniture, equipment, and leasehold improvements is provided using the
straight-line method over the estimated useful lives of the assets, generally
three to five years. Costs, including interest on funds borrowed to finance the
construction of facilities, related to projects under construction are
capitalized as construction in progress. Construction in progress balances are
transferred to electric generating facilities when the assets are ready for
their intended use. Capitalized interest was $11,055,172, $2,057,000 and
$7,344,000 during 1996, 1997 and 1998, respectively. The costs of major overhaul
projects that are scheduled at predetermined intervals, generally three to five
years, are capitalized and amortized over the period until the next scheduled
overhaul. Routine maintenance and repair costs are charged to expense as
incurred.

      DEVELOPMENT COSTS -- The Company capitalizes the costs of developing new
projects after achieving certain project-related milestones which indicate that
completion of the project is probable. Such costs include direct incremental
amounts incurred for professional services (primarily legal, engineering and
consulting services), permits, options and deposits on land and equipment
purchase commitments, capitalized interest and other related costs. The
continued capitalization is subject to on-going risks related to successful
completion, including legal, political, siting, financing, construction,
permitting and contract compliance. Development costs are transferred to
construction in progress when financing has been obtained and construction
activity has commenced, or are expensed at the time the Company determines that
a particular project will no longer be developed.

      DEBT ISSUANCE COSTS -- The costs related to the issuance of debt are
capitalized and amortized using the effective interest method over the term of
the related debt.

      PARTNERSHIP FORMATION COSTS -- The costs related to the formation of
Panda-Rosemary were capitalized and amortized over a five year period ended
December 31, 1996.


      DEFERRED REVENUE -- Revenue from the sale of rights to future interest
income from certain of the Company's restricted cash accounts (debt service
reserves and escrow deposits) is deferred and recognized as interest revenue
over the lives of the related debt obligations.

      ENVIRONMENTAL MATTERS -- The operations of the Company are subject to
federal, state and local laws and regulations relating to protection of the
environment. Although the Company believes that its operations are in compliance
with applicable environmental regulation, risks of additional costs and
liabilities are inherent in cogeneration operations, and there can be no
assurance that significant costs and liabilities will not be incurred by the
Company. Management is not aware of any contingent liabilities that currently
exist with respect to environmental matters.

      Environmental expenditures are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded if environmental assessments and/or remedial efforts
become probable, and the costs reasonably estimable.

      REVENUE RECOGNITION -- Revenue generated from the sale of electric
capacity and energy from the Rosemary project is recognized based on the amount
billed under the power purchase agreements. The revenue generated from the sale
of electric capacity and energy from the Brandywine project is recognized based
on the lesser of the amount billable under the power purchase agreement or an
amount determined by the annual kilowatts made available multiplied by the
estimated average revenue per kilowatt over the term of the power purchase
agreement. Revenue from the sale of steam and chilled water is recognized based
on the output delivered at rates specified under contract terms.

      INCOME TAXES -- The Company records income taxes according to Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109)
which requires deferred tax liabilities or assets to be recognized for the
anticipated future tax effects of temporary differences that arise as a result
of the differences in the carrying amounts and the tax bases of assets and
liabilities. SFAS 109 also requires a valuation allowance for deferred tax
assets in certain circumstances.


                                      F-9
<PAGE>
      The Company is included in the consolidated federal income tax return of
PEII. PEII's policy is to allocate income tax expense or benefits to the Company
as if it filed a separate tax return.

      ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain accounting,
legal, insurance, and consulting services for the Company. These general and
administrative costs are generally allocated to the Company using the percentage
of time PEII personnel spent performing these services. The expenses allocated
were $3,308,000, $5,975,000 and $7,200,000 in 1996, 1997 and 1998, respectively,
and are included in project development and administrative expenses in the
statement of operations. Management believes the method used to allocate these
costs is reasonable.

      ASSET IMPAIRMENT -- In accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (SFAS 121), the Company evaluates the
impairment of long-lived assets if circumstances indicate that the carrying
value of those assets may not be recoverable. The Company adopted SFAS 121 in
1996 and such adoption had no material impact on its financial position or
results of operations.

      INTEREST COST -- Total interest cost incurred, including capitalized
interest, was $30,469,184, $57,386,157 and $64,543,458 in 1996, 1997 and 1998,
respectively.

      CHANGE IN ACCOUNTING STANDARDS -- Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", is effective for fiscal years beginning after June 15, 1999. This
standard requires that all derivative financial instruments be recognized as
either assets or liabilities on the balance sheet at their fair values and that
accounting for the changes in the fair values is dependent upon the intended use
of the derivatives and their resulting designations. The new standard will
supercede or amend existing standards that deal with hedge accounting and
derivatives. The Company has not yet determined the effect adopting this
standard will have on its financial statements.

      CONSOLIDATION -- The consolidated financial statements include the
accounts of all subsidiaries in which the Company has a controlling financial
interest. All material intercompany accounts and transactions are eliminated in
consolidation. For the years ended December 31, 1996, 1997 and 1998, the
consolidated financial statements include all subsidiaries with the exception of
a project in Nepal (see Note 6). The Company uses the equity method of
accounting for the Nepal project.


3.  ADVANCES TO PARENT

      Advances to parent represent cash advances to or from the parent,
allocations of general and administrative expenses from the parent, and the
excess of liabilities assumed over the assets contributed on projects owned by
the parent and contributed in connection with the formation of the Company.

      The advances to parent for the years ended December 31, 1996, 1997 and
1998 consist of the following:


      Balance, January 1, 1996..............................  $26,869,548
      Cash advanced to parent, net..........................   29,221,392
      Administrative costs allocated from parent               (3,308,000)
                                                            --------------

      Balance, December 31, 1996............................   52,782,940
      Cash advanced to parent, net..........................    5,930,441
      Administrative costs allocated from parent               (5,975,000)
                                                            -------------

      Balance, December 31, 1997............................   52,738,381
      Cash advanced to parent, net..........................    4,227,377
      Administrative costs allocated from parent.              (7,200,000)
                                                            -------------

      Balance, December 31, 1998............................  $49,765,758
                                                            =============

      The average balance of advances to parent was $39,826,000, $52,760,000 and
$51,252,000 during 1996, 1997 and 1998, respectively.


                                      F-10
<PAGE>
4. FUEL OIL, SPARE PARTS AND SUPPLIES

     Fuel oil, spare parts and supplies are comprised of the following amounts:

                                          1997             1998
                                       ---------------------------

            Fuel oil.................  $3,232,983       $3,095,299
            Spare parts and supplies    3,031,566        3,228,892
                                       ----------       ----------
                      Total..........  $6,264,549       $6,324,191
                                       ==========       ==========
                                                  
5. POWER PROJECTS

      ROSEMARY PROJECT -- Effective May 5, 1989, PEII formed a wholly-owned
subsidiary, now a wholly-owned subsidiary of the Company, to develop, construct,
and operate the 180 megawatt gas-fired Rosemary cogeneration facility in Roanoke
Rapids, North Carolina ("Rosemary Project"). Construction on the Rosemary
Project began in September 1989, and commercial operation of the facility began
on December 27, 1990.

      The Rosemary Project produces both electricity and useful thermal energy
in the form of steam. Electric capacity and energy sales are based on the terms
of the power purchase agreement between Panda-Rosemary and Virginia Electric
Power Company ("VEPCO") dated January 24, 1989. The agreement requires
Panda-Rosemary to provide VEPCO with all the available capacity of the Rosemary
Project on an as-needed basis with VEPCO obligated to pay for the power
delivered and dependable capacity of the facility at a rate per kilowatt which
decreases in certain periods as defined by the agreement. The term of the
agreement is 25 years and expires December 2015. A financial institution has
provided a letter of credit for approximately $5 million guaranteeing
Panda-Rosemary's performance under the power purchase agreement. Steam and
chilled water are sold to a third party under a separate agreement which also
has a term of 25 years and expires December 2015. The Rosemary Project is
managed by PRC, the general partner, and was operated by an unrelated third
party through 1996. Effective January 1, 1997, the Rosemary Project is operated
by a subsidiary of PEII. The Company incurred management fees of $1,675,142 and
$1,709,368 to the affiliated management company for the years ended December 31,
1997 and 1998, respectively.

      On January 6, 1992, PRC contributed substantially all project assets and
liabilities and $216,553 in cash to Panda-Rosemary, in exchange for a 10%
combined general partnership and limited partnership interest. The assets and
liabilities were recorded at historical cost, resulting in $19,874,216 in
partners' deficit being contributed by PRC. An institutional investor
("Investor") contributed $30,948,987 in cash in exchange for a 90% limited
partnership interest. On July 31, 1996, the Company acquired the Investor's
limited partnership interest in Panda-Rosemary for a purchase price of
approximately $34.3 million. As a result of this acquisition, the Company owns
100% of Panda-Rosemary. The acquisition was accounted for using the purchase
method of accounting. The excess of minority interest over the purchase price
(approximately $3.8 million) was allocated to plant and equipment.

      Prior to July 31, 1996, the Investor received percentage allocations of
income, expense, and cash flow which would decline over time if certain rate of
return requirements were achieved. For the duration of the Investor's
participation in Panda-Rosemary, the allocation to the Investor remained at 90%.

      Prior to acquiring the Investor's 90% limited partnership interest on July
31, 1996, the Company controlled Panda-Rosemary through its general partner
interest. As general partner, the Company has exclusive management authority
over the operations of Panda-Rosemary. Accordingly, Panda-Rosemary's statements
of operations and of cash flows for the period January 1, 1996 through July 31,
1996 (in addition to the post-acquisition period) have been consolidated in the
accompanying financial statements. The capital of the Investor and
Panda-Rosemary's net income allocated to the Investor are presented as minority
interest in the accompanying financial statements.

      BRANDYWINE PROJECT -- On August 9, 1991, Panda-Brandywine entered into a
power purchase agreement ("PPA") with Potomac Electric Power Company ("PEPCO")
to build a 230 megawatt gas-fired facility in Brandywine, Maryland ("Brandywine
Project"). The Brandywine Project, constructed by Raytheon Engineers and
Constructors, Inc. ("Raytheon") under a fixed fee, turnkey contract, was
substantially completed and commenced commercial operations in October, 1996.

      The PPA requires Panda-Brandywine to supply PEPCO with all available
capacity from the facility for the 25-year term of the agreement with a
guaranteed dispatch level of at least 60 hours per week for the first 15 years.
In late 1997, Panda-Brandywine and PEPCO reached an agreement, which was
finalized in July 1998, for modification of the PPA. Under the 

                                      F-11
<PAGE>
agreement, the amount of capacity payments will be increased (as compared with
the capacity payments originally anticipated) during the early years, and will
be reduced during the later years, of the Brandywine Power Purchase Agreement.
In July 1998, PEPCO paid to Panda-Brandywine an additional capacity payment of
approximately $3.8 million, which represents the difference between the
originally scheduled capacity payments and the capacity payments due under the
agreement for the first nine months of 1997. In October 1997, PEPCO commenced
increased capacity payments to the Company under the terms of the agreement.
Additionally, PEPCO agreed to release certain amounts of capacity to
Panda-Brandywine for resale of energy to other parties, and to grant
Panda-Brandywine the right to sell additional energy to other parties subject to
the availability of the facility. The agreement with PEPCO required the consent
of the financing parties, including GECC, under the capital lease financing
arrangements for the facility. In this regard, in July 1998 Panda-Brandywine
also executed an agreement with GECC which, among other things, provides for the
revision of the lease payment schedule to GECC in order to match the revised
capacity payment schedule with PEPCO. See Note 8.

      A construction loan commitment in the amount of $215 million was provided
by General Electric Capital Corporation ("GECC") in April, 1995. On December 30,
1996 the loan converted to a capital lease with GECC in the amount of $217.5
million with a twenty year term and two five year renewal options (see Note 8).
GECC has committed to provide letters of credit up to a maximum of approximately
$7.3 million (under certain circumstances) guaranteeing Panda-Brandywine's
performance under the agreement.

      KATHLEEN PROJECT -- In 1991, through a wholly-owned subsidiary, the
Company entered into a 30-year power purchase agreement with Florida Power
Corporation ("Florida Power") to build a 75 megawatt gas-fired facility near
Lakeland, Florida ("Kathleen Project"). The Company and Florida Power have been
engaged in litigation before various state and federal forums in Florida over
the interpretation of the Kathleen power purchase agreement. In 1995, Florida
Power filed an action with the Florida Public Service Commission ("Florida PSC")
relating to the term of the power purchase agreement for the Kathleen Project
and whether the Kathleen Project, as designed, is eligible to execute the power
purchase agreement pursuant to Florida Power's bid solicitation and the Florida
PSC's regulations. In 1996, the Florida PSC issued an order finding that: (1)
the Kathleen Project, as designed, did not comply with the power purchase
agreement and the Florida PSC's regulations; (2) the capacity payments under the
power purchase agreement should only extend for 20 years (as opposed to the 30
year stated term of the agreement); and (3) the construction and commercial
operation milestones should be extended for an additional 18 months. The Company
appealed this ruling to the Florida Supreme Court. In 1997, the Florida Supreme
Court issued a ruling affirming the earlier finding of the Florida PSC. In April
1998, the U.S. Supreme Court declined to review the matter, and the Florida PSC
issued an order denying further extension of the previously granted 18-month
milestone extension. In May 1998, the Company filed an action with the Florida
Supreme Court seeking to reverse the Florida PSC's order. In August 1998, the
Florida Supreme Court declined to review the matter. Accordingly, the
development costs of $2.9 million were expensed in 1998. Additionally, certain
deposits of approximately $0.8 million were expensed in 1998.

      LUANNAN PROJECT -- In 1994, PEII entered into a preliminary letter of
intent with a subsidiary of the North China Power Group Company ("NCPGC") for
the purchase and sale of electric energy from two 50 megawatt coal-fired
cogeneration plants to be located in Luannan County, Tangshan Municipality,
Hebei Province, China ("Luannan Project"). On September 22, 1995, Tangshan Panda
and Tangshan Pan-Western entered into a Power Purchase Agreement with NCPGC for
the purchase and sale of electric energy from the Luannan Project. Under the
terms of the 20-year agreement, all electrical output of the project will be
sold to NCPGC. The steam and hot water generated by Tangshan-Cayman's facility
within the project will be sold to the domestic Chinese industrial and
commercial markets by Tangshan Pan-Sino. Financing for the project was completed
in April 1997 (see Note 8). The Luannan Project is being constructed pursuant to
a fixed-price, turnkey contract with Harbin Power Engineering Company Limited,
subject to escalation under certain circumstances. The functional currency for
the Luannan Project is the U.S. dollar. The Company has incurred costs for the
Luannan Project of $36.1 million and $81.5 million as of December 31, 1997 and
1998, respectively, which are included in plant and equipment under construction
in progress in the accompanying balance sheet.

       The Company currently intends to make application to the Chinese
government for determination of the initial tariff under the Luannan Power
Purchase Agreement during the second quarter of 1999. There can be no assurance
that such tariff will allow the Luannan Facility to generate sufficient revenues
to meet outstanding debt obligations regarding the Luannan Facility, or that any
subsequent applications for an increase in the tariff will be approved by the
Chinese government.

      The Luannan Project is subject to political, regulatory and economic
uncertainties, risks of expropriation of property and cancellation or
modification of contract rights, foreign exchange restrictions, construction
risk, dependence on limited number of customers and other risks arising from
foreign governmental sovereignty.

                                      F-12
<PAGE>
      TEXAS PROJECTS - At December 31, 1998, the Company was developing two
"merchant plant" projects in Texas. The projects will sell electric energy to
power purchasers and power marketers in the Electric Reliability Council of
Texas ("ERCOT") on the basis of negotiated prices. Because the projects will be
merchant plants, it is expected that the power purchasers will change from time
to time over the lives of the projects.

      The first Texas project is a 1,000 megawatt ("MW") natural gas-fired
electric generating facility to be located near the city of Paris, Lamar County,
Texas (the "Paris Project"). Preliminary engineering work and equipment
purchases for the project began in July 1998. The Company has incurred costs on
the Paris Project of $51.3 million as of December 31, 1998. Such costs are
included in the accompanying balance sheet in plant and equipment under
development costs. The Company has entered into additional equipment purchase
commitments of approximately $93 million for the project. The Company incurred
certain short-term debt in connection with equipment purchases for the project
(see Note 7). In February 1999, the Company sold the Paris Project to a third
party and retained a 1% limited partnership interest (see Note 14).

      The second Texas project is a proposed 1,000 MW natural gas-fired electric
generating facility to be located in Guadalupe County, Texas (the "Guadalupe
Project"). Preliminary engineering work and equipment purchases for the Project
began in July 1998. Commencement of full construction activity is subject to the
successful completion of financing for the project. The Company has incurred
costs on the Guadalupe Project of $7.4 million as of December 31, 1998. Such
costs are included in the accompanying balance sheets in plant and equipment
under development costs. The Company has entered into additional equipment
purchase commitments of approximately $143 million for the project.

      NEPAL PROJECT -- The Company has an equity investment in a hydroelectric
power project in Nepal. See Note 6.

6.  INVESTMENT IN JOINT VENTURE

      The Company has an investment in a joint venture (Bhote Koshi Power
Company, Pvt. Ltd., referred to as "BKPC" ) with a major hydroelectric
engineering company, a unit of the World Bank and a local Nepalese party to
build a 36 megawatt hydroelectric facility on the upper Bhote Koshi River in
Nepal ("Nepal Project"). The investment is accounted for under the equity
method. The Company's ownership interest was transferred from a subsidiary of
PEII to the Company at historical cost in June 1997. The functional currency of
the Nepal Project is the U.S. dollar. A 25-year power purchase agreement with
the Nepal Electricity Authority was signed in July 1996. The Nepal Project is
being constructed pursuant to a fixed-price, turnkey contract with China
Gezhouba Construction Group Corporation. Commercial operations are scheduled to
commence in 2000.

      On December 29, 1997 financial closing occurred with respect to the Nepal
Project. BKPC received commitments for (i) up to approximately $68.8 million in
nonrecourse debt financing from a group of international lenders and (ii) up to
approximately $29.5 million in equity from the Company and a group of
third-party investors which includes one of the lenders. At December 31, 1997
and 1998, approximately $17.9 million and $28.9 million, respectively, of the
debt commitments had been funded and were outstanding. The interest rates on the
loans are a combination of fixed and variable rates, generally at the annual
rate of 325 to 350 basis points above the London Interbank Offered Rate.
Semiannual interest and principal payments on the loans commence in March 1998
and March 2001, respectively. Final maturity of the loans occurs at dates
ranging from 2008 through 2011. Commitment fees of 1% to 2% are payable on
undisbursed portions of the loan commitments.

      The equity commitments of up to approximately $29.5 million referred to
above include approximately $3.1 million in project development and
administrative expenses previously incurred by PEII and the investors which
cannot be capitalized under generally accepted accounting principles and which
therefore are not reflected in BKPC's balance sheet. At December 31, 1997 and
1998, approximately $5.1 million and $9.2 million, respectively, of the equity
commitment (in addition to the $3.1 million of project development and
administrative expenses referred to above) had been contributed. The Company had
contributed $10.8 million in capitalized development costs (in addition to $1.2
million in project development and administrative expenses) and received cash
reimbursement from BKPC at financial closing for $10.0 million of those costs.
The Company has satisfied its equity commitment of $2 million as of December 31,
1997. In addition to the basic equity commitment, the Company and the investors
are required to contribute up to $10 million on a pro-rata basis in the event of
cost overruns.

      The Company and an outside investor ("Investor") jointly own a 75%
interest in BKPC and other investors own the remaining 25%. Based on the
agreement with the Investor, cash flow attributable to the Company's and the
Investor's combined 75% ownership interest will be allocated 85% to the Investor
and 15% to the Company until the Investor achieves a 20% internal rate of return
on its investment (the "Flip Date"), and then 90% to the Company and 10% to the
Investor thereafter.

      During August 1998, a flood occurred in the upper Bhote Koshi River basin
and as a result, the Nepal Project is expected to experience a delay of up to
six months in reaching commercial operations. The total cost of property damage
was 

                                      F-13
<PAGE>
approximately $800,000. BKPC has insurance coverage for substantially all of the
loss, including business interruption coverage, subject to a $100,000 deductible
on property damage and a 60-day uncovered period on business interruption
coverage. In January 1999, BKPC received insurance proceeds of $1.7 million,
consisting of approximately $700,000 for property damage and an advance of $1
million for an acceleration program to mitigate the delay caused by the flood.
The delay in the commercial operation date is not expected to cause any
termination or other default event under the applicable power purchase
agreement. In this regard, BKPC has provided notice to the Nepalese Government
and the Nepal Electric Authority that it intends to seek appropriate schedule
and cost relief afforded it pursuant to the applicable force majeure provisions
under various project agreements.

      The Nepalese Government has recently replaced various taxes with a broad
"Value Added Tax" ("VAT") and has applied the VAT to the Nepal Project. BKPC
management believes that application of the VAT amounts to a "Change in Law"
under the force majeure provisions in the applicable power purchase agreement
and, accordingly, has delivered notice to Nepal Electric Authority that it
intends to seek appropriate price relief to recover any VAT imposed on the Nepal
Project.

      The Company does not believe that the flood or VAT situations will cause a
material adverse effect on its financial condition, results of operations or
cash flows.

      The Nepal Project is subject to political, regulatory and economic
uncertainties, risks of expropriation of property and cancellation or
modification of contract rights, foreign exchange restrictions, construction
risk, dependence on limited number of customers and other risks arising from
foreign governmental sovereignty.

       BKPC is a development stage enterprise. All development and construction
costs incurred to date have been capitalized. Summarized financial information
for BKPC at December 31, 1997 and 1998 and for the years then ended is as
follows:



                                                      1997              1998
                                                   -----------       -----------
Balance Sheet:

Cash .......................................       $   146,000       $   224,954
Restricted cash - current ..................         5,637,608         2,675,625
Insurance proceeds receivable ..............              --           1,719,272
Construction in progress and
    other current assets ...................        20,300,702        39,073,422
                                                   -----------       -----------

Total assets ...............................       $26,084,310       $43,693,273
                                                   ===========       ===========


Current liabilities ........................       $ 3,126,827       $ 5,898,601
Long-term debt .............................        17,851,667        28,929,809

Stockholders' equity .......................         5,105,816         8,864,863
                                                   -----------       -----------

Total liabilities and equity ...............       $26,084,310       $43,693,273
                                                   ===========       ===========

Statement of operations:

Flood damage deductible ....................       $      --         $   100,000

Foreign exchange loss ......................              --             280,213
                                                   -----------       -----------


Net loss ...................................       $      --         $   380,213
                                                   ===========       ===========


                                      F-14
<PAGE>
7.  SHORT-TERM DEBT

      In December 1998, the Company entered into a Bridge Financing Agreement
("BFA") with a lender to borrow an aggregate principal amount of approximately
$47.9 million at an annual interest rate of 10% for the purpose of making
payments required under certain agreements for the Paris Project (see Note 5).
In December 1998, the Company borrowed $33 million under the BFA. Borrowings
under the BFA are collateralized by the assets of the Paris Project and by the
general and limited partnership interests therein.

      During January and February 1999, the Company borrowed the remaining
available principal amount of approximately $14.9 million. In February 1999, the
total principal amount and accrued interest thereon was repaid in connection
with the sale of the Paris Project (see Note 14).


8.   LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION

      Long-term debt and capital lease obligation of the Company as of December
31, 1997 and 1998 are summarized as follows:
                                                       1997             1998
                                                      -----            -----

First Mortgage Bonds for Rosemary Project .....  $ 104,521,719    $  98,704,744
Series A Bonds ................................    105,309,201      105,309,201
Senior Secured Notes ..........................    145,653,823      146,651,674
                                                 -------------    --------------
Total long-term debt ..........................    355,484,743      350,665,619
         Less current portion .................     (5,816,974)      (5,924,989)
                                                 -------------    -------------
                                                 $ 349,667,769    $ 344,740,630
                                                 =============    =============

Capital lease obligation for Brandywine Project  $ 231,278,528    $ 246,078,324
                                                 =============    ============= 

      TAXABLE REVENUE BONDS -- In October 1989, PRC obtained long-term financing
for the Rosemary Project in the form of $116 million of taxable revenue bonds
("Tax Bonds") issued by the Halifax Regional Economic Development Corporation
("Halifax"), a nonprofit corporation organized in North Carolina. In connection
with the issuance of first mortgage bonds for the Rosemary Project in July 1996
as discussed below, the Company refinanced the Tax Bonds and incurred a loss of
$13.3 million on the early extinguishment of that obligation. The Tax Bonds bore
interest at a fixed rate of 9.25% payable semiannually.

      TERM LOAN -- On October 27, 1995, PEII obtained a term loan in the amount
of $20 million from Trust Company of the West ("TCW"). In July 1996, in
connection with the offering of Series A Bonds as discussed below, a portion of
the proceeds was used to retire all of the term loan debt. The Company incurred
a loss of $8 million on the early extinguishment of this obligation. The loan
bore interest at a rate of 13.5%, payable at a rate of 11.0%. The 2.5% interest
not payable currently was added to the principal balance of the loan.

      Under the loan agreement, TCW also received 1,004,000 warrants to purchase
shares of PEII stock. A loan discount of $1,241,812 was created as a result of
allocating value to the warrants. The carrying value of the warrants is adjusted
annually to the redemption price. Such adjustment, which was allocated to the
Company from PEII until the debt was retired in July 1996, was $172,924 in 1996
and was recorded as interest expense in the accompanying statements of
operations.

      FIRST MORTGAGE BONDS -- In July 1996, Panda-Rosemary Funding Corporation
("PRFC"), a wholly-owned subsidiary of Panda-Rosemary, issued $111,400,000 of
first mortgage bonds ("Rosemary Bonds"). The Rosemary Bonds bear interest at a
fixed rate of 8-5/8% payable quarterly commencing November 15, 1996. Scheduled
principal payments are required quarterly commencing November 15, 1996, and will
continue through maturity on February 15, 2016. The Rosemary Bonds are subject
to mandatory redemption prior to maturity under certain conditions. The Rosemary
Bonds are unconditionally guaranteed by Panda-Rosemary but are non-recourse to
the Company, and are secured by substantially all of the assets of
Panda-Rosemary as well as all of the outstanding capital stock of PRC, PRC II
and PRFC. The indenture contains certain covenants, including limitations on
distributions, additional debt and certain other transactions.


      While amounts are outstanding under the Rosemary Bonds, all revenues of
Panda-Rosemary are remitted to a collateral agent. Funds held by the collateral
agent are included in the accompanying consolidated balance sheets as restricted
cash-current. On a monthly basis, the collateral agent remits to Panda-Rosemary
remaining funds available after payment of all 


                                      F-15
<PAGE>
expenditures relating to the Rosemary project, including debt service, provided
that Panda-Rosemary is in compliance with the debt covenants. Additionally, the
collateral agent withholds funds to meet future debt service, maintenance and
pollution control requirements, as required under the indenture. These amounts
are included in the accompanying consolidated balance sheets as restricted
cash-current and restricted cash-debt service reserves and escrow deposits.

      SERIES A BONDS -- In July 1996, Panda Funding Corporation ("PFC"), a
wholly-owned subsidiary of the Company, issued $105,525,000 of pooled project
bonds ("Series A Bonds"). The Series A Bonds bear interest at a fixed rate of
11-5/8% payable semiannually commencing February 20, 1997. Scheduled principal
payments are required semiannually, with certain exceptions, commencing August
20, 1999 and will continue through maturity on August 20, 2012. The Series A
Bonds are subject to mandatory redemption prior to maturity under certain
conditions. The Series A Bonds are fully and unconditionally guaranteed by PIC
and are guaranteed on a limited basis by Interholding up to a maximum amount
specified by the guarantee agreement which approximates $25.1 million at
December 31, 1998. Additionally, the Series A Bonds are secured by (i) all of
the capital stock of PFC, PIC and Interholding, (ii) 60% of the capital stock of
PIC Cayman, (iii) PIC's interest in distributions from Interholding, and (iv)
certain other collateral. The Series A Bonds are effectively subordinated to the
obligations of PIC's subsidiaries under project-level financing arrangements.
The indenture contains certain covenants, including limitations on
distributions, additional debt and certain other transactions.

      While amounts are outstanding under the Series A Bonds, all distributions
to PIC from Interholding and certain proceeds received from PIC Cayman are
remitted to a collateral agent. On a monthly basis, the collateral agent remits
to PIC remaining funds available after satisfaction of PIC's debt service
obligations (including amounts withheld, if necessary, to meet future debt
service and reserve fund requirements as required by the indenture) provided
that PIC is in compliance with the debt covenants.

      In connection with the issuance of the Series A Bonds, the Company
advanced approximately $34.8 million to PEII for project development and general
corporate purposes (see Note 3).

      SENIOR SECURED NOTES FOR LUANNAN PROJECT -- In April 1997, Global Cayman
issued $155.2 million original principal amount of senior secured notes ("Senior
Secured Notes") to finance the development and construction of the Luannan
Project. The Senior Secured Notes, which were issued at a discount for gross
proceeds of $145.0 million, bear interest at a fixed rate of 12 1/2% payable
semiannually commencing October 15, 1997. Scheduled principal payments are
required semiannually commencing October 15, 2000 and will continue through
maturity on April 15, 2004. The Senior Secured Notes are subject to mandatory
redemption prior to maturity under certain conditions. The Senior Secured Notes
are secured by (i) a pledge of 100% of the capital stock of Global Cayman, 99%
of the capital stock of Pan-Western and at least 90% of the capital stock of
Pan-Sino, and (ii) a security interest in certain funds of Global Cayman and its
subsidiaries established under the indenture. Additionally, the Senior Secured
Notes are fully and unconditionally guaranteed by Panda Global, whose guarantee
(the "Senior Secured Notes Guarantee") is secured by (i) a pledge of 100% of the
capital stock of Panda Global and PEC and (ii) a security interest in certain
funds of Panda Global established under the indenture. The Senior Secured Notes
Guarantee is effectively subordinated to the obligations of PIC and its
subsidiaries under the Series A Bonds and project-level financing arrangements.
The indenture contains certain covenants, including limitations on
distributions, additional debt and certain other transactions.

      CONSTRUCTION LOAN AND CAPITAL LEASE -- On April 10, 1995, Panda-Brandywine
closed the initial funding of a $215 million construction loan commitment with
GECC. The construction loan bore an interest rate of the Eurodollar rate plus
2.5%.

      The Brandywine Project commenced commercial operations on October 31,
1996. The construction loan was converted to long-term non-recourse financing of
$217.5 million in the form of a capital lease on December 30, 1996. To effect
the lease financing, title to the Brandywine Project was transferred to a third
party trustee and leased back to Panda-Brandywine. The Brandywine facility lease
is a net lease with an initial term of 20 years and two five-year renewal
options. In connection with the revision of the PPA in 1998, the payment
schedule of the capital lease was revised in order to match the revised capacity
payment schedule from PEPCO under the PPA (see Note 5). The modification of
lease terms resulted in an increase to the capital lease asset (electric
generating facilities) and the related capital lease obligation in the amount of
$4.8 million. The minimum lease payments through 1999 are less than the interest
expense on the capital lease obligation, resulting in increases in the principal
amount of the capital lease obligation. Amortization of the principal amount of
the capital lease obligation begins in 2000. The documents governing the lease
financing contain various affirmative and negative covenants, including
limitations on the ability of Panda-Brandywine to make distributions to its
partners. In connection with the capital lease financing, GECC has committed to
provide letters of credit up to a maximum of approximately $7.3 million under
certain circumstances (see Note 5). The letters of credit have an annual fee of
1.50% on any amounts outstanding.

                                      F-16
<PAGE>
      The future minimum lease commitments under the capital lease for the
Brandywine Project are as follows:

       1999.............................................   $  21,783,243
       2000 ............................................      24,887,466
       2001.............................................      28,642,520
       2002.............................................      30,057,397
       2003.............................................      30,215,606
       Thereafter ......................................     392,239,248
                                                           -------------
       Total minimum lease payments.....................     527,825,480
       Amounts representing interest ...................    (281,747,156)
                                                           -------------
       Present value of net minimum payments ...........   $ 246,078,324
                                                           =============

      LONG-TERM DEBT MATURITIES -- The principal maturities of long-term
obligations, excluding the capital lease relating to the Brandywine Project, for
each of the five years succeeding December 31, 1998 and thereafter are as
follows:

      1999 ..............................................   $   5,924,989
      2000 ..............................................       7,674,598
      2001 ..............................................      11,629,603
      2002 ..............................................      18,081,509
      2003...............................................      22,107,717
      Thereafter ........................................     293,795,529
                                                            -------------
      Total..............................................     359,213,945
      Less discount .....................................      (8,548,326)
                                                            -------------
                                                            $ 350,665,619


9.  INCOME TAXES

      A provision for income taxes for 1996 and 1997 was not recorded since
operating losses were incurred for each year. A deferred tax benefit of
$25,000,000 was recognized for 1998 as discussed below.

      The Company has approximately $53 million of domestic net operating loss
carryforwards at December 31, 1998, the benefits of which will be available to
the Company when realized by PEII. The net operating loss carryforwards will
expire during the years 2007 to 2018. Additionally, the Company's foreign
subsidiaries have approximately $15 million of net operating loss carryforwards
which are considered to be permanently invested outside the United States and
are not currently available to offset U.S. taxable income.

      The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1997 and 1998
were as follows:

                                                     1997             1998
                                                 -----------      -----------

            Deferred tax assets:
   Capital lease obligation .............      $  80,948,000     $  86,127,000
   Domestic net operating loss
carryforward ............................         14,178,000        18,609,000
   Foreign net operating loss
carryforward ............................          2,545,000         5,281,000
                                               -------------     -------------

                                                  97,671,000       110,017,000
                                               -------------     -------------
Deferred tax liabilities:
   Plant and equipment ..................         59,436,000        60,402,000
   Other ................................         12,409,000        14,373,000
                                               -------------     -------------
                                                  71,845,000        74,775,000
                                               -------------     -------------

Net deferred tax assets .................         25,826,000        35,242,000

Valuation allowance .....................        (25,826,000)      (10,242,000)
                                               -------------     -------------

Net deferred tax asset ..................      $        --       $  25,000,000
                                               =============     =============

                                      F-17
<PAGE>
      SFAS No. 109 requires that a valuation allowance be recorded against tax
assets which are not likely to be realized. The Company's carryforwards expire
at specific future dates and utilization of certain carryforwards is limited to
specific amounts each year. However, due to the uncertain nature of their
ultimate realization based upon past performance and expiration dates, prior to
1998 the Company had established a full valuation allowance against these
carryforward benefits. The Company's policy is to recognize the benefits only
when it is determined that it is more likely than not that such benefits will be
realized. Realization is entirely dependent upon future earnings in specific tax
jurisdictions. In 1998, the Company reduced the valuation allowance, recognizing
a deferred tax benefit, because the $86.7 million gain on the subsequent sale of
the Paris Project (see Note 14) will cause the likely future realization of a
portion of the domestic deferred tax assets. The remaining valuation allowance
fully offsets the foreign net operating loss carryforward. While the need for
this valuation allowance is subject to periodic review, if the allowance is
reduced, the tax benefits will be recorded in future operations as a reduction
of the Company's income tax expense or as an income tax benefit.

      The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
pre-tax losses as a result of the following differences:

                                      1996             1997             1998
                                 ------------     ------------     ------------
Income tax at statutory
    U.S. tax rate ...........    $(11,430,000)    $(11,364,000)    $ (9,416,000)
Change in valuation
 allowance ..................      11,430,000       11,364,000      (15,584,000)
                                 ------------     ------------     ------------
Provision (benefit)
   for income taxes (all
 deferred) ..................    $       --       $       --       $(25,000,000)
                                 ============     ============     ============

10.    COMMITMENTS AND CONTINGENCIES

      The Rosemary and Brandywine projects operate as qualifying facilities, and
the related power contracts are subject to the rules and regulations under the
Public Utilities Regulatory Policies Act of 1978 ("PURPA"). In order to promote
open competition in the industry, proposed legislation in the U.S. Congress has
called for either a repeal of PURPA or a complete restructuring of the
regulations governing the electric industry including PURPA. These federal
initiatives are generally not yet effective, but many states are implementing or
considering regulatory initiatives designed to increase competition in the
domestic power generation industry. In most cases, any initiatives discussed
have indicated that power sales agreements of existing qualifying facilities
would be honored. The Company cannot predict the final form or timing of the
proposed restructuring on a federal or individual state level or the impact, if
any, that such restructuring would have on the Company's existing business or
results of operations. The Company believes that any such restructuring would
not have a material effect on its power sales agreements and, accordingly,
believes that its existing business and results of operations would not be
materially adversely affected, although there can be no assurance in this
regard.

      As discussed in Note 5, Raytheon constructed the Brandywine Project
pursuant to a fixed-price, turnkey engineering, procurement and construction
contract (the "Brandywine EPC Agreement") with Panda-Brandywine. Raytheon
completed the construction and start-up of the Brandywine Project and has met
the requirements for commercial operations and substantial completion under the
Brandywine EPC Agreement. The date on which commercial operations were achieved
and the entitlement of Raytheon to certain early completion bonuses under the
Brandywine EPC Agreement have been the subject of a dispute between
Panda-Brandywine and Raytheon. Panda-Brandywine and Raytheon have reached an
agreement under which payment of the disputed amount will not be required,
subject to payment of Panda-Brandywine's undisputed obligation to Raytheon of
approximately $3 million in accordance with the terms of the agreement. As of
December 31, 1998, Panda-Brandywine had paid approximately $2.1 million of the
obligation. The remaining obligation of approximately $0.9 million is due in
1999.

      In April 1998, the Company filed suit in federal court charging the Bibb
Company ("Bibb") and Westpoint Stevens, Inc. ("Westpoint") with violating a
contractual agreement in the sale of a textile mill in 1997 and in the operation
of the mill since that time. The Rosemary Facility supplies steam and chilled
water to the textile mill under a contract originally signed with Bibb.
Westpoint acquired the textile mill from Bibb in 1997. The suit asked the court
to determine and clarify the rights of the parties to the contract. The federal
court dismissed this action in June 1998. Shortly thereafter, Bibb and Westpoint
filed a separate suit in state court in Halifax County, North Carolina claiming,
among other things, breach of contract in regard to delivery of steam. In
October 1998, the Company filed suit against Bibb and Westpoint in state court
in Dallas County, Texas regarding the contract. The Company intends to
vigorously pursue its claims against Bibb and Westpoint in these state court
actions. The Company continues to provide steam and chilled water to the mill
pursuant to the contract. The Company believes that the resolution of this
contractual dispute will not have a material adverse effect upon the financial
position, results of operations or cash flows of the Company.


                                      F-18
<PAGE>
      The Company has entered into various long-term contracts for the purchase
and transportation of fuel subject to termination only in certain limited
circumstances. These contracts have remaining terms of 10 to 25 years. The
Company's minimum purchase commitment under these contracts is 2.3 million
British thermal units of gas annually from October 31, 1996 through October 31,
2011. In the aggregate, such commitments are not at prices in excess of the
current market.

      PEII is also involved in other legal and administrative proceedings in the
ordinary course of business. Management believes that the amount of ultimate
liability allocable to the Company with respect to these matters will not have a
material impact on the financial position, results of operations or cash flows
of the Company.

11. RELATED PARTY TRANSACTIONS

      The Company purchases insurance coverage through an agency owned by a
major shareholder of PEII who is also a member of the board of directors of PEII
and a relative of PEII's chairman. The Company believes such coverage is on
terms that are no less favorable than reasonably available from unaffiliated
third parties. Total insurance purchases through this agency were $754,388,
$1,666,623 and $994,810 for the years ended December 31, 1996, 1997 and 1998,
respectively.

      The Rosemary Project is operated by an affiliated management company which
is a subsidiary of PEII (see Note 5). In 1998, the Luannan Project, the Nepal
Project and the Brandywine Project paid management fees to PEII of $1,632,800,
$300,000 and $180,000, respectively.

12.     FAIR VALUE OF FINANCIAL INSTRUMENTS

      The estimated fair values of the Company's assets and liabilities have
been determined using available market information. The estimates are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on their estimated fair value amounts.
The fair value of current financial assets, current financial liabilities, and
debt service reserves and escrow deposits, are estimated to be equal to their
reported carrying amounts. The Company's debt securities have limited trading.
The fair value of these securities at December 31, 1997 and 1998 is estimated
based on a third party quotation.

      The estimated fair values of the Company's debt securities as of December
31, 1997 and 1998 are as follows:

                                                     CARRYING VALUE  FAIR VALUE
                                                     --------------  ----------
  1997:  Long-term debt, including current portion... $355,484,743  $360,500,000
  1998:  Long-term debt, including current portion...  350,665,619   260,400,000

      The Company is also a party to letters of credit. Historically, no claims
have been made against these financial instruments and management does not
expect any material losses to result from these off-balance-sheet instruments
because performance is not expected to be required. Therefore, management is of
the opinion that the fair value of these instruments is zero.

13.   SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION

      The Company's electric capacity and energy sales are derived primarily
from two power sales contracts with two domestic customers. The failure of these
customers to fulfill their contractual obligations could have a substantial
negative impact on the Company's revenue. However, the Company does not
anticipate non-performance by the customers under these contracts. The portion
of electric capacity and energy sales attributable to the two power sales
contracts were as follows:

                                          1996          1997         1998
                                       -----------   -----------  ------------
            VEPCO (Panda-Rosemary).....    91%           43%           37%
            PEPCO (Panda-Brandywine)...     9%           52%           56%

      The Company operates in a single industry, the independent power industry.
All of the Company's operating revenues are derived from domestic operations.
The Company's long-lived assets are located in the United States, except for the
Luannan Project in China (see Note 5) and the Nepal Project in Nepal (see Note
6).

                                      F-19
<PAGE>
14.   SUBSEQUENT EVENT

      In February 1999, the Company sold the Paris Project (see Note 5) to a
third party for a price of approximately $160.5 million. The Company retained a
1% limited partnership interest in the project. Of the sale price, $10 million
will be held in escrow pending the resolution of certain contingencies regarding
the completion of the project. After the project commences commercial
operations, any funds remaining in escrow will be distributed to the Company. In
connection with the sale, the Company repaid the borrowings and accrued interest
under the Bridge Financing Agreement of approximately $48.5 million (see Note
7). The Company realized a gain of approximately $86.7 million on the sale. Gain
recognition will be deferred on the $10 million held in escrow pending final
disposition of the escrowed funds.

                                      F-20