ANSWER:Both the development of hydro-power in the southwestern region and the Three Gorges project are major project for the nation？？s economic development during the Tenth Five-year Plan period. Their development and construction not only takes into account of the energy structure and environmental protection factors, but also serves to satisfy the ever-increasing power demand in the PRC. Although the successive commencement of operating such projects will increase power supply and will take up some market shares, it will not have a significant impact on the Company because of the great potential in power demand in the economically vibrant southeastern coastal region.

Also, the development of hydro-power requires the coordination of thermal power plants. Long distance power transmission requires the support of a power source center. This will be an advantage for our power plants, ensuring stable power generation at these plants.

DESCRIPTION:How is the scope of assets for acquisition by the Company in the future? What will be the source of funds for such future acquisitions?

ANSWER:The Company, on the one hand, will continue to acquire assets from the parent company, and, on the other hand, will select suitable opportunities to acquire assets outside the parent company.

After the power reforms, taking into account of the projects under construction, the power generation capacity controlled by Huaneng Group will increase from 25,662 MW to 37,970 MW; if excluding the generation capacity related to the projects under construction and equity participation, the wholly-owned or controlled generation capacity totals 30,132 MW; generation capacity on an equity basis is 19,380MW. The long-term objective of Huaneng Group is: by 2010, the power generation capacity will reach 60,000MW, an increase of approximately 30,000 MW when compared with the present figure; and will reach120,000 MW by 2020. As the ultimate parent company of HPI, Huaneng Group, after its restructuring, reiterated its commitment to fully supporting the development of the Company and giving the right of first refusal to the Company in terms of project development and sale of assets.

Sources of funds for future acquisitions include internal surplus cash and funds obtain through financing. Regarding the financing, equity financing and debt financing or a combination of various methods will be considered.

DESCRIPTION:Why does the Company choose to acquire Xindian, Qinbei and Yushe while there are other assets available for acquisition within Huaneng group ?

ANSWER:In April 2002, the State Council unveiled the structural reform plan for electric power industry, under which the assets held by former State Power Corporation were to be transferred to the five generation groups, including Huaneng group. The structural reform and associated asset reorganization has created an excellent opportunity for the Company to develop. The management has since been deliberating on the question of how to seize the opportunity to expand operating scale and enhance competitiveness.

The asset selection for this acquisition was made on the basis of careful analysis and evaluation of Huaneng group？？s existing asset base. It is in line with the Company？？s acquisition criteria and shareholder？？s interest. From a strategic point of view, of those power plants to be acquired, Shandong Xindian is located in Shandong province, which is experiencing rapid economic development and strong demand growth. The acquisition of Xindian will further consolidate the Company？？s market position in that province. Qinbei and Yushe are respectively located in Henan and Shanxi provinces, both are the country？？s important energy bases and are seeing strong power consumption growth. The acquisition will give the Company access to these two markets for the first time.

From an economic point of view, this acquisition will bring immediate earnings increase and will also be conducive to long-term and steady earnings growth. On pro forma basis, assuming that the acquisition had taken place on January 1, 2002, then the acquired power plants would have contributed after tax profit of RMB46.59 million, representing an increase of 1.14%.

DESCRIPTION:

ANSWER:The Qinbei Power Plant and Yushe Power Plant 2nd Phase Expansion to be acquired are both construction-in-progress projects. The Company？？s main consideration for such acquisition is as following:

Acquiring such construction projects will ensure that the Company will have steady stream of capacity additions annually in the foreseeable future. Take the example of this acquisition, Qinbei Power Plant will add 1,200MW of capacity in 2004 and 2005, Yushe will add 600MW of capacity in 2004. (In addition, according to preliminary plan, Qinbei 2nd Phase Expansion of 2,400MW will be completed within 2006-2010 time frame, Yushe 3rd Phase Expansion of 1,200MW will be completed before 2009.)

Qinbei and Yushe are located in Henan and Shanxi, respectively. Both provinces are in power shortage and the demand growth rates in these two provinces are higher than national average. The acquisition of these two projects will not only expand the geographic coverage of the Company, but also will enable the Company to benefit from the high power consumption growth in these two provinces.

In the on-going power assets reorganization process, acquiring construction projects is of great significance to the Company in terms of ensuring steady and sustainable earnings increase and establishing long-term competitive advantage.

DESCRIPTION:

ANSWER:The Three Gorges Power Station is currently the largest hydro-power station in the world with an aggregate generation capacity of 18,200 MW. From 2003 to 2009, 26 generating units will commence operation successively. On the basis of design, the average annual power generation volume of the power station is 84.7 billion kWh. Recently the State Council has approved the proposal on the power energy consumption of the Three Gorges Hydro-power Station taking into account of issues including balancing, consumption and pricing of the power receiving regions. Eight provinces and one municipality including Hubei, Henan, Hunan, Jiangxi, Shanghai, Jiangsu, Zhejiang, Guangdong and Anhui have been confirmed as the power consumption regions of the Three Gorges Hydro-power Station. Hence, 3,000,000kW and 7,200,000kW will be transmitted to Guangdong and Eastern China respectively, with the remainder being transmitted to Central China.

New projects proposed to be developed by the Company in East China and government approval for new projects in such region have taken into account of factors including growth in local power demand and transmission of electricity from the Three Gorges.

DESCRIPTION:

ANSWER:The Company controls the price in fuel costs mainly by the following measures:

(1) to control coal procurement costs and to reduce transportation costs and storage loss;
(2) to continue to promote coal blending and firing optimization in order to off-set the price increase of the originally designed coal species or sources;
(3) to further reduce the oil consumption of certain power plants through enhancing the operating efficiency of the generating units;
(4) to reduce unit coal consumption through optimizing the operational
mode of the generating units;
(5) economies of scale of centralized coal procurement of the Company is
instrumental in reducing procurement costs.