UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1996
Commission file number 0-23148
AES CHINA GENERATING CO. LTD.
(Exact name of registrant as specified in its charter)
BERMUDA 98-0152612
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3/F(W), Golden Bridge Plaza
No. 1 (A) Jianguomenwai Avenue
Beijing 100020
People's Republic of China Not Applicable
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 8610-6508-9619
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01 per share (NASDAQ National Market System)
(Title of each class)
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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. [ ]
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The aggregate market value of Registrant's voting stock held by
non-affiliates of Registrant, at February 18, 1997, was approximately
$150,930,474.
The number of shares outstanding of Registrant's Class A Common Stock,
par value $0.01 per share, at February 18, 1997 was 8,171,268. The number of
shares outstanding of Registrant's Class B Common Stock, par value $0.01 per
share, at February 18, 1997 was 7,500,000.
DOCUMENTS INCORPORATED BY REFERENCE
None
Item 1. Business
(a) General Development of Business
The Registrant (hereinafter referred to as the "Company" or
"AES Chigen"), a Bermuda Company, is a leading independent power generation
company in the People's Republic of China (the "PRC" or "China") and one of the
few international developers that has successfully completed the development of
electric power projects in the country. AES Chigen was founded in December 1993
by The AES Corporation ("AES") to serve as the exclusive vehicle for AES to
develop, acquire, finance, construct, own and operate electric power generation
facilities in the PRC. AES currently holds 48% of the equity capital of AES
Chigen and AES, as the holder of all of the Company's Class B Common Stock (the
"Class B Common Stock" or "AES Chigen Class B Common Stock"), has the right to
elect one half of the Board of Directors of AES Chigen. Thus, AES may be deemed
to control the management and operation of AES Chigen.
To respond to significant opportunities in China, AES, through
a wholly owned subsidiary, opened an office in Hong Kong in early 1993.
Following the incorporation of AES Chigen, AES purchased shares of AES Chigen
Class B Common Stock for $50.0 million and, in early 1994, AES Chigen completed
an initial public offering of shares of its Class A Common Stock (the "Class A
Common Stock" or "AES Chigen Class A Common Stock"), which provided AES Chigen
with net proceeds, after underwriting commissions and discounts, of $151.9
million.
Since commencing business, AES Chigen has committed $259.6
million and as of January 31, 1997 has invested $165.7 million in eight power
projects in operation or under construction in the PRC, having an aggregate
nameplate capacity (the full load continuous rating of a generator, prime mover
or other electrical equipment under specified conditions as designated by its
manufacturer) of approximately 818 megawatts ("MW") (approximately 422 MW of
which is attributable to AES Chigen's interests in certain joint venture
enterprises (the "Joint Ventures")). These Joint Ventures' projects include
coal, oil and natural gas-fired and hydropower plants located in six different
provinces in China. These projects are referred to as the "Current Projects."
AES Chigen plans to build upon its position as a leading
independent power producer in China through the continued development of and
investment in electric power projects. AES Chigen has signed joint venture
contracts and is in various stages of negotiation to develop three additional
power projects with an aggregate nameplate capacity of approximately 2,900 MW
(approximately 805 MW of which is attributable to the Company's interests in the
proposed project companies). These projects are referred to as the "Potential
Projects."
With a presence in over 35 countries, AES is a global power
company committed to supplying electricity to customers world-wide in a socially
responsible way. AES, based in Arlington, Virginia, markets power principally
from electric generating facilities that it develops, owns and operates. AES was
one of the original entrants in the independent power market and today is one of
the world's largest global power companies, based on net equity ownership of
generating capacity (in megawatts) in operation or under construction.
The Company and AES have entered into an Amended and Restated
Agreement and Plan of Amalgamation, dated as of November 12, 1996 (the
"Amalgamation Agreement"), providing for among other things the Company to
become a wholly owned subsidiary of AES (the "Amalgamation"). The Amalgamation
is subject to various conditions, including approval by the holders of the AES
Chigen Class A Common Stock, and there can be no assurance that the Amalgamation
will be consummated. Following the Amalgamation, AES Chigen would become a
subsidiary of AES, and AES would be entitled to elect the entire Board of
Directors of AES Chigen. AES Chigen's success in project development and the
quality of construction management and operations and maintenance services
provided by AES Chigen in many cases will depend to a large extent on the
capabilities and expertise of AES.
Although the Company is not currently affected by covenants
contained in various AES debt agreements (the "AES Debt Covenants"), as a result
of the Amalgamation, the Company will become a subsidiary of AES and intends to
comply with limitations contained in the AES Debt Covenants applicable to other
AES subsidiaries. Among other things, the AES Debt Covenants would effectively
limit the Company's further investment in power plant projects to funds
currently held by the Company, plus the net proceeds of the 2006 Notes (as
defined below) remaining after the funding of the debt service reserve accounts
for the 2006 Notes. Assuming the Company makes investments equal to the full
amount of its existing investment commitments to its current projects, upon
consummation of the Amalgamation, a maximum amount of approximately $95.0
million would be available to fund the Company's future projects. Additional
investments in future projects could only be made by other investors, including
AES. After the Amalgamation, the ability of the Company to make investments in
the Potential Projects would be substantially limited by the AES Debt Covenants.
Accordingly, prior to the Amalgamation, the Company intends to transfer its
direct ownership interests in certain of the Potential Projects to wholly owned
subsidiaries, each of which, after the transfer, will be the ownership vehicle
for the Company's investment in these projects. In the case of each of these
projects, the consent of the Company's partners in such project and the approval
of the relevant PRC Government authorities are required to effect the transfers
of the Company's interests. Although the Company has no reason to believe that
such consents and approvals cannot be obtained, there is no assurance that such
consents and approvals can be obtained in order to permit investments in these
projects to be made following the Amalgamation.
If the Amalgamation is not consummated or the AES Debt
Covenants otherwise do not apply, the Company would expect to incur additional
commitments in the future in connection with the development, acquisition,
construction, ownership and operation of additional electric power plants and
related facilities in China.
On December 19, 1996, AES Chigen completed a $180 million
public offering of its 10 1/8% Notes due December 2006 (the "2006 Notes") and
received net proceeds of approximately $173.9 million. Pursuant to the terms of
the indenture under which the 2006 Notes were issued (the "Indenture"), AES
Chigen was required to deposit approximately $27.1 million in an interim reserve
account to make interest payments on the 2006 Notes through June 15, 1998, and
approximately $9.1 million in a debt payment reserve. The 2006 Notes are
redeemable at the option of AES Chigen on or after December 15, 2001. The 2006
Notes have been rated BB- by Standard & Poor's Rating Group and Ba3 by Moody's
Investors Service. Net proceeds from the offering of the 2006 Notes will be used
to fund investments in AES Chigen's Current Projects together with its
investments in a portion of one or more of the Potential Projects or other
future projects and for general corporate purposes. AES Chigen's ability to make
investments in projects will be subject to limitations after the Amalgamation.
The proceeds of the Notes together with the Company's existing
cash and cash equivalents are expected to be sufficient to enable it to fund its
commitments to existing Joint Ventures together with its investment in a portion
of one or more of its projects under development. In addition, the Company
expects to obtain additional funds from operating activities (which the Company
will receive as shareholder loan repayments, dividend (profit) distributions and
capital repayments) as more of its electric power plants become operational. If
the Amalgamation is not consummated or the AES Debt Covenants otherwise do not
apply, the Company may raise additional equity or debt, if needed, to fund
future investment opportunities subject to its ability to raise debt financing
under certain covenants governing the 2006 Notes.
(b) Financial Information About Industry Segments.
The Company operates in only one industry segment: independent
electric power generation.
(c) Narrative Description of Business.
Business Strategy
The Company's mission is to help meet China's need for
electricity in a socially responsible manner, balancing the interests of
customers, partners, communities, suppliers, investors and its people. After the
Amalgamation, the Company's operations will be subject to certain limitations
under the AES Debt Covenants.
The Company's business strategy focuses on:
Experience in the China Market. The Company currently employs
47 people in the PRC with 25 people in Beijing and 22 people
in other parts of the country. The Company's principal office
is in Beijing. The Company also maintains an office in Hong
Kong with 22 people. This commitment to the PRC has enabled
the Company to build an expertise in the China power market.
Diversified Project Portfolio. The Company believes that
national diversification of projects in different provinces
reduces the risk of being overly dependent on a single power
purchaser or the demand for power in a single region. The
Company's Current Projects are located in six provinces.
Certain of the Company's Current Projects include smaller
projects that have been developed on a rapid time schedule.
These projects have enabled the Company to establish its
position in the market, develop strategic relationships and
generate immediate cash flow. Certain other of the Current
Projects and the Potential Projects have high visibility and
the support of the national government of the PRC and its
various ministries, agencies and commissions ("Central
Government"). These projects are expected to generate
substantial cash flow following the commencement of their
operation.
Strategic Relationships with Strong Partners. The Company
believes that its presence in China, its available capital and
the well-regarded reputation of AES have allowed the Company
to develop strategic relationships with key Chinese partners.
The Company has included ministry level companies and
affiliates of provincial and local economic commissions as
well as affiliates of regional, provincial and local power
bureaus as partners in its Joint Ventures. These partners
participate in the construction and operation of the Company's
Current Projects, expedite the approval process and mitigate
project construction, operation and tariff adjustment risks.
Similarly, the Company will seek to develop the Potential
Projects and other future projects in the PRC in cooperation
with strong Chinese business partners that have comparable
economic interests and a variety of complementary strengths,
including business experience and political relationships.
In a number of cases, AES Chigen's partner in a Joint Venture
controls or is affiliated with the power purchaser,
contractor, operator and/or fuel supplier of the project. It
is possible, in these cases, that such arrangements may result
in one or more of these parties having a conflict of interest
in a project, which could have an adverse effect on the Joint
Ventures' operations.
Location in Regions of High Power Demand. The Company believes
that its Current Projects and the Potential Projects are
located in regions of high power demand. In the course of
developing its projects, the Company carefully reviews the
regional and local demand and supply for power. In addition,
in the course of project development, the Company evaluates
the proposed power purchaser, usually a provincial or local
government power bureau, to determine its economic resources
and credit profile. One important criterion for any project
developed by the Company is that the tariff to be charged by
the proposed project must be affordable in light of the
overall rates charged in the region, while also being
competitive with the cost of new electric power.
Some regions or cities in the PRC have experienced slower
economic development in recent years. As a consequence, load
growth in the PRC, while generally increasing in the country
overall, has exhibited uneven development. Some of the Joint
Ventures' power plants are designed to provide peaking power.
Such plants are dispatched only after base load power stations
have been brought on-line and reached maximum capacity. If
electric power demand proves less than expected in an area,
additional peak or base load power may not be required in the
area or may be required at lower than expected levels. AES
Chigen's Joint Ventures seek to mitigate this risk by entering
into take-or-pay power purchase arrangements and by entering
into dispatch contracts with PRC electric power dispatching
authorities which obligate the dispatchers to dispatch the
power plants at their full capacity for a minimum number of
hours each year. There can be no assurance, however, that the
Joint Ventures will not experience difficulty in enforcing
take or pay contract obligations or such dispatch contract
obligations if electric power in an area proves not to be
needed by the affected power purchaser and dispatcher. The
term "dispatch" refers to the schedule of production for all
the generating units on a power system, which generally varies
from moment to moment to match production with demand. As a
verb, "dispatch" means to direct a plant to run.
Significant Participation in Operational Management. The
Company seeks to obtain, and has obtained in the case of the
Current Projects and the Potential Projects, significant
rights to participate in major decisions of the project
companies that own the power plants. The Company typically
exerts its influence through directors appointed to the board
of directors of the project companies and by appointing either
the general manager of the power plants and/or a deputy
general manager in charge of finance or operations for the
power plants. Several of the Company's officers have
significant prior experience with AES in the development and
operation of power plants in other countries. The Company is
also developing a core group of local managers who will be
focused on constructing and operating projects in China.
AES's Capabilities. The Company draws on AES's people and
expertise in development, construction oversight and operation
of independent electric power generation projects. In
particular, the Company draws on AES's extensive experience
operating coal-fired power plants around the world. The
Company believes this relationship has provided it with a
competitive advantage in the China power market, which relies
primarily on coal-fired power plants.
Principles and Practices
A core part of the AES Chigen culture is a commitment to
"shared principles." The Company tries to adhere to these principles -- even
though doing so might result in diminished or foregone opportunities.
These principles are:
Integrity - The Company will strive to act with integrity, or
"wholeness." The Company will seek to honor its commitments.
The goal is that the things people say and do in all parts of
the Company should fit together with truth and consistency.
Fairness - The Company wants to treat fairly its people, its
customers, its suppliers, its shareholders, governments and
the communities in which it operates. Defining what is fair is
often difficult, but the Company believes it is helpful to
routinely question the relative fairness of alternative
courses of action.
Fun - The Company desires that people employed by the Company
and those people with whom the Company interacts have fun in
their work. The Company's goal is to create and maintain an
environment in which each person can flourish in the use of
his or her gifts and skills and thereby enjoy the time spent
at the Company.
Social Responsibility - The Company believes that the Company
has a responsibility to be involved in projects that provide
social benefits, such as lower costs to customers, a high
degree of safety and reliability, increased employment and a
cleaner environment.
The Company and AES seek to adhere to these principles not as
a means to achieve economic success, but because adherence is a worthwhile goal
in and of itself. However, if the Company and AES perceive a conflict between
these principles and profits, the Company and AES will try to adhere to these
principles -- even though doing so might result in diminished or foregone
opportunities.
Project Specific Strategies
Subject to the limitations that would be imposed by the AES
Debt Covenants following the Amalgamation, the Company will continue to seek,
when evaluating or developing project opportunities in the PRC, to utilize
project structures and contractual terms which generally have been proven to be
effective in international independent power projects for reducing risks,
obtaining financing and achieving commercially sound projects. The Company
realizes, however, that projects in China will often differ significantly from
the typical project finance model. In addition, the Company recognizes that,
because foreign investment in PRC power projects is in its early stages, in
order to finalize binding contractual documentation with respect to any project,
the Company is sometimes required or elects to assume certain risks not
typically assumed by project sponsors in an international independent power
project. These risks may be associated with construction (such as completion
risk), operations (such as fuel supply or transportation risks), foreign
exchange convertibility and, to the extent that the Company cannot negotiate
contracts that adjust its revenues for changes in exchange rates, exchange rate
fluctuations. Accordingly, while the Company utilizes, where possible, the
strategies summarized below, it also seeks to maintain flexibility in
negotiations and to adopt alternative strategies where appropriate.
Long-Term Power Purchase. It is planned that each project
company in which the Company invests will sell electricity
under one or more long-term power purchase contracts to
regional, provincial, municipal or county electric power
organizations, including power bureaus and electricity
management offices, or industrial customers which the Company
believes will be able to perform their obligations under the
power purchase contracts. It is planned that the power
purchaser will be required to purchase a specified minimum
amount of electricity generated by the plant during the term
of the power purchase contract based on an agreed pricing
formula. These tariff formulas are designed, based on the
minimum take obligation of the power purchaser, to be
sufficient to pay the operating expenses and the financing
costs of the project and to enable the Company to realize a
return on its investment. The Company attempts to negotiate
power purchase contracts that contain provisions requiring the
purchaser to purchase a specified minimum number of kilowatt
hours ("kWh") or to make specified minimum payments even if
the power is not dispatched. The Company seeks to include in
its power purchase contracts incentives to encourage the
purchase of additional kWh over an agreed minimum amount. The
Company attempts, whenever possible, to structure changes in
the revenue component of a power purchase contract to
correspond, as closely as possible, to changes in operating
(primarily fuel) and capital costs of a power plant and
fluctuations in foreign exchange rates.
Construction and Equipment Procurement. The Company seeks to
arrange construction and equipment procurement contracts with
experienced, creditworthy international or Chinese contractors
and suppliers. In a typical international independent power
project one contractor assumes responsibility under a
fixed-price, fixed-schedule turnkey contract for the design,
engineering, equipment procurement, construction,
installation, commissioning, staff training and start-up of a
project. While the Company seeks this type of arrangement when
possible, such a turnkey arrangement is often not available
for PRC power projects. Therefore, where possible, the Company
seeks to have its project companies enter into arrangements
with construction and equipment procurement consortiums in
which the various major responsibilities typically assumed by
one turnkey contractor in the international model are
allocated to individual members of the consortium. The Company
seeks to negotiate contracts pursuant to which equipment
suppliers and contractors agree to pay liquidated damages for
delays and non-performance. The Company also attempts, where
appropriate, to utilize established foreign equipment
manufacturers who are able to provide warranties and service
contracts for their equipment as well as to utilize proven
Chinese technology from well-established Chinese equipment
manufacturers. In some cases, the Company may elect to have
its Joint Ventures manage the construction directly, possibly
with the assistance of reputable Chinese or international
engineering companies.
The construction of an electric power generation plant,
including its ancillary facilities such as a transmission line
or substation, may be adversely affected by many factors
commonly associated with the construction of infrastructure
projects, including shortages of equipment, materials and
labor, as well as labor disputes, adverse weather conditions,
natural disasters, accidents and other unforeseen
circumstances and problems. Any of these could cause
completion delays and cost overruns. Delays in obtaining
requisite licenses, permits or approvals from government
agencies or authorities could also increase the cost or delay
or prevent the commercial operation of a project. Construction
delays can result in the loss or delayed receipt of revenues
and, if completion is delayed beyond the completion date
specified in the power purchase contract, the payment of
penalties. Additionally, the failure to complete construction
according to specifications can result in reduced plant
efficiency, higher operating costs and reduced or delayed
earnings.
AES Chigen's Joint Ventures all rely on PRC contractors for
the construction of their electric power plants. While there
are a number of PRC contractors with substantial construction
experience, there are only a limited number that have
experience constructing plants on a turnkey basis. In only a
few cases has AES Chigen been able to enter into a turnkey
contract with a Chinese contractor which includes a guaranteed
fixed price and/or contractor obligations to pay liquidated
damages for delays in completion or for shortfalls in
performance. In the case of one project, AES Chigen's Joint
Venture has experienced delays in installation and defects in
the quality of equipment. The delays have been mitigated by
the payment of damages by the contractor. AES Chigen seeks to
mitigate construction risk in a number of ways: carefully
choosing its contractors; closely supervising the construction
of its projects or retaining internationally recognized
construction managers to supervise construction; and, in some
cases, by utilizing established foreign equipment
manufacturers and vendors who are able to directly pass
through to the Joint Ventures their equipment and performance
warranties or, where appropriate, by utilizing proven Chinese
equipment and technology. Despite such mitigation efforts, no
assurance can be given that AES Chigen's Joint Ventures will
not experience construction delays or difficulties, or that
any such delays or difficulties will not have a material
adverse effect on the operations of AES Chigen's Joint
Ventures.
Fuel Supply. Whenever possible, fuel for the Company's
operating plants is purchased under long-term supply contracts
with suppliers that have sufficient, and preferably dedicated,
reserves of fuel stock to meet the project's operating
requirements and that have economic interests aligned with the
joint venture partners. In certain circumstances, including
where a plant is located in close proximity to a reliable fuel
source, the Company may deem it advisable for a project
company to purchase its fuel on the spot market in order to
take advantage of lower fuel prices. In such circumstances,
the Company may contract with fuel brokers or government
companies with appropriate guarantees or other performance
supports. In other circumstances, the power purchaser may be
obligated to supply a project's fuel requirements. The Company
attempts, when possible, to have its fuel supply contracts set
out delivery and testing procedures and penalties for delays
or non-performance. Approval of a project by the State
Planning Commission of the Central Government ("State Planning
Commission" or "SPC"), which is required for larger projects,
ordinarily includes a provision for the allocation of fuel,
which reduces the fuel supply risk for such projects.
Most of the Joint Ventures' power projects utilize coal, fuel
oils or natural gas for the generation of electricity. The
power purchase contracts which have been entered into by the
Joint Ventures provide for a pass-through to the power
purchasers of increases in the cost of fuel. In the case of
most of the Joint Ventures, under normal circumstances, the
procedures of the local government pricing bureaus allow
tariff adjustments reflecting fuel cost changes to be made
only once a year. As a result, in these cases AES Chigen's
Joint Ventures may not be able to receive compensation for
increased fuel costs until sometime after the date they are
incurred.
Fuel Transportation. Whenever possible, the Company arranges
with a carrier for transportation of fuel from the fuel source
to the Company's operating plants under long-term
transportation contracts or the Company will obtain
satisfactory assurances that transportation services will be
available to the project. Due to the underdeveloped
transportation infrastructure in China, the Company sometimes
considers more favorably projects located in fuel-rich
regions, such as projects located near coal mines. Approval of
a project by the State Planning Commission, which is required
for larger projects, ordinarily includes a provision for fuel
transportation, which reduces the fuel transportation risk for
such projects.
For coal projects which are not "mine mouth" projects, coal
must be supplied to the project site from the interior
provinces of China. The affected Joint Ventures seek to
mitigate this transportation risk by entering into long term
contracts for the transportation of coal. However, where rail
is utilized as the means of coal transportation, the coal
transporters may experience significant delays due to the
limited capacity of the PRC's rail system. Because of this
lack of capacity, the Central Government rations the
allocation of rail cars. In one project which requires the
transportation of coal by rail, AES Chigen's Joint Venture has
obtained an administrative allocation of rail cars from the
Central Government. However, there can be no assurance that a
satisfactory allocation of rail cars will be available in all
future cases to ensure that the coal supply requirements of
the affected projects will be timely met.
Electricity Transmission. The Chinese electric power
transmission system is not fully interconnected. Some parts of
the transmission system contain isolated grids. Three of AES
Chigen's Joint Ventures are located in areas served by
isolated transmission grids. As a result, if demand in these
areas is less than forecasted, it may be difficult or
impossible for the affected Joint Venture to transmit the
project's available power to a region which has a demand for
it. The Company does not intend to bear the risk of the
construction of transmission lines. Although PRC law prohibits
foreign investment enterprises from constructing, owning or
maintaining a transmission line, in many cases, it may be
necessary for a project company to finance the construction of
the transmission line which is required to connect the power
plant to a nearby electric power grid. In these cases, in
addition to providing financing, the Company will seek to
structure its power purchase contracts in a manner which
places the risk of delays and failure to complete the
construction of the transmission line on the power purchaser.
In order to take advantage of a broader market and an
additional power purchaser, one of the Joint Ventures is
planning to incur additional costs to build a low-voltage
local transmission line to interconnect its power plant with a
larger grid.
Government Approvals. The Company seeks to ensure that its
joint ventures and joint venture partners obtain and comply
with all PRC approvals and laws and regulations and that
project budgets reflect compliance with all then-existing and
applicable PRC environmental protection laws and regulations.
In each case prior to funding its equity portion of the
registered capital of a joint venture, the Company seeks to
obtain a legal opinion from counsel qualified to practice PRC
law regarding, among other things, the validity and
sufficiency of all approvals for the project and joint
venture. The Company also seeks to receive letters of support
from the local governments in areas in which its projects are
located.
Foreign Exchange. The Company attempts to mitigate its foreign
exchange risks by structuring its joint venture contracts and
power purchase contracts to include hedges which provide for
adjustments in equity distributions to joint venture partners
and in electricity payments for changes in the exchange rate
between the Renminbi Yuan, the lawful currency of the PRC
("Renminbi," and "RMB(Y)"), and the US dollar. In instances in
which the Company seeks State Planning Commission approvals
for a project, the Company will also seek to receive an
approval which includes an allocation of foreign exchange to
the project.
Power Plant Management. The Company wants its power plants to
be managed efficiently, as well as in a manner consistent with
Company principles and practices. In pursuit of this goal, the
Company seeks to appoint experienced general managers and/or
deputy general managers with significant decision making
authority at the power plants and to install operating systems
at the power plants which are consistent with AES's operating
approach. The Company also seeks to have key members of a
plant's management team, including the general manager and
deputy general manager, acquire specific AES experience by
working at AES facilities worldwide.
The operation of an electric power generation plant may be
adversely affected by many factors such as the breakdown or
failure of equipment or processes, performance below expected
levels of output or efficiency, labor disputes, operational
errors, natural disasters, and the need to comply with the
directions of the relevant government authorities, the
dispatcher and power purchaser of a power plant. In addition,
such operation may be hampered by insufficient or poor quality
fuel caused by either inadequate supply or transportation or
arrangements therefor.
AES Chigen is not the operator of any of its power plants
either directly or by means of traditional operation and
maintenance agreements with internationally recognized power
plant operators. In some cases, AES Chigen's Joint Ventures
have contracted with the power purchaser to operate a power
plant. In such instances, the power purchaser is obligated
under the power purchase contract to purchase the annual
minimum quantity of electric power regardless of the power
plant being unavailable due to the fault of the operator. In
other cases, the Joint Ventures themselves are operating the
plant. In these instances, AES Chigen may affect the operation
of a power plant through the appointment of a general manager
and/or deputy general manager of the plant.
Insurance. The Company seeks to obtain insurance for its
projects from reputable insurance companies permitted to
insure projects in China for risks during construction and
operation, including business interruption insurance. The
Company typically retains an international insurance
consultant to advise the Company on the insurance coverage and
limits which are appropriate for the relevant hazards. Where
appropriate, the Company may seek to obtain Multilateral
Investment Guarantee Agency insurance coverage of certain
political risks associated with the PRC.
Water Usage Rights. The Company seeks to obtain long-term
water usage rights for the Company's operating plants.
In all of its projects, AES Chigen and its Joint Ventures are
relying on the reliability and creditworthiness of PRC entities such as its
partners, contractors, customers, suppliers, operators, guarantors, lenders and
others who are parties to agreements with AES Chigen or its Joint Ventures.
While AES Chigen believes that these counterparties have the ability to perform
and will perform their obligations, the reliability and creditworthiness of PRC
entities are difficult to ascertain. In most cases, AES Chigen, in assessing the
reliability and credit standing of counterparties, is relying on financial or
other information provided to AES Chigen or its Joint Ventures by such parties
or others, or from information and sources publicly available in the PRC. AES
Chigen can offer no assurance that this information is accurate or that these
counterparties will meet their contractual obligations. The failure of any one
of these counterparties to fulfill its obligations to a Joint Venture could have
a substantial negative impact on such Joint Venture's operations.
The People's Republic of China
The statistics set out in this section have been extracted
from various international organization, government and private publications.
The Company makes no representation as to the accuracy of the information
contained in this section. Furthermore, no representation is made that any
correlation exists between China or its economy in general and the performance
of the Company or the Company's Joint Ventures. Although statistics with respect
to the economy of China generally accord with observed economic trends, some
statistics may not correspond to Western measures, or may be flawed by
ineffective collection methods or other problems. Due to such factors,
statistical information regarding the economy of China may be inaccurate or not
comparable to statistical information with respect to other economies.
General
Since 1978, the Central Government and local governments of
China (together with the Central Government, the "PRC Government") have been
implementing market oriented economic reforms in an effort to revitalize the
PRC's economy and improve its citizens' standard of living. The reforms have
marked a shift from a more rigid, centrally-planned economy to a more mixed
economy in which market forces play an increased role and the government has a
reduced role. Enterprises owned or under the administrative control of the
Central Government ("State-owned") still constitute the largest sector of the
economy, but implementation of the economic reforms has led to, among other
things, the delegation to managers of enterprises of more decision-making powers
and responsibilities regarding matters such as production, marketing, use of
funds and employment of people. Other reform measures have included the
conversion of selected State-owned enterprises into joint stock limited
companies which have issued shares to the public and private investors
(including their employees); the gradual reduction of PRC Government control
over producer prices; and the designation of certain coastal areas and cities as
special economic development zones with greater local autonomy. The PRC
Government has also implemented policies designed to attract foreign investment
and technology. The PRC Government's reforms have resulted in significant
economic growth. The gross domestic product of China increased at an average
annual rate of 12.1% during the period from 1991 to 1995. The growth rate of
gross domestic product was 9.7%.
General economic conditions in the PRC could have a
significant impact on the business prospects of AES Chigen. The economy of the
PRC differs from the economies of most countries belonging to the Organization
for Economic Co-operation and Development in such respects as structure,
government involvement, level of development, growth rate, capital reinvestment,
allocation of resources, self-sufficiency, rate of inflation and balance of
payments position, among others. For over 40 years, the economy of the PRC has
been primarily a planned economy characterized by state ownership and control of
productive assets and the management of such assets through a series of economic
and social development plans. Although the majority of the PRC's productive
assets are still owned by the PRC Government, the adoption of economic reform
policies since 1978 has resulted in a gradual reduction in the role of state
economic plans in the allocation of resources, pricing and management of such
assets, an increased emphasis on the utilization of market forces, and rapid
growth in the PRC economy. However, such growth has been uneven among various
regions of the country and among various sectors of the economy. The success of
AES Chigen depends in part on the continued economic growth of the regions where
the Joint Ventures are located. At times, the economic reform measures adopted
by the PRC Government may be inconsistent or ineffectual, and therefore the
Joint Ventures may not be able to enjoy the potential benefits of such reforms.
Further, these measures may be adjusted or modified in particular ways in
particular areas, possibly resulting in such economic liberalization measures
being inconsistent from time to time or from industry to industry or across
different regions of the PRC.
AES Chigen may also be adversely affected by changes in the
political and social conditions in the PRC, and by changes in governmental
policies with respect to laws and regulations, methods to address inflation,
currency conversion, rates and methods of taxation, or the method by which
electricity tariffs are set and approved, among other things. While the PRC
Government is expected to continue its economic reform policies, many of the
reforms are new or experimental and may be refined or changed. It is also
possible that a change in the PRC Government leadership could lead to changes in
economic policy.
The PRC economy has experienced rapid growth in the past five
years. This growth has also been accompanied by rising inflation, which reached
an annual rate of 21.7% in 1994. The PRC Government has implemented policies
from time to time to restrain the rate of such economic growth and control
inflation in order to achieve coordinated economic development. In July 1993,
the Central Government began implementation of a number of austerity measures to
control economic growth and curb inflation, including increasing interest rates
on bank loans and deposits and postponing certain planned price reforms. While
inflation has since moderated to 6.1% for 1996, there can be no assurance that
such austerity measures will will not be discontinued or result in future severe
dislocations in the PRC economy. Austerity measures intended to slow economic
growth may affect the demand for electricity and the prospects for the financing
of some of the Joint Ventures. Depending on the nature and implementation of
such additional measures, the Joint Ventures' economic prospects at times may be
adversely affected through, among other possible measures, placing additional
controls on the increase of electric power rates. Any such development could
also adversely affect the Joint Ventures' operations or the ability of the Joint
Ventures' customers to honor their obligations under their power purchase
contracts, which could adversely affect AES Chigen.
A significant portion of the economic activity in the PRC is
related to exports and may therefore be affected by developments in the
economies of the PRC's principal trading partners. Trade sanctions imposed by
the PRC's main trading partners, including the revocation or conditional
extension by the United States of China's Most Favored Nation trading status,
could adversely affect the trade and economic development of the PRC and the
ability of the Joint Ventures' customers to honor their obligations under their
power purchase contracts with the Joint Ventures. In addition, current or future
disputes between the PRC and its main trading partners over specific trade
issues, such as intellectual property, the balance of trade or other political
issues, such as regional affairs or arms sales policies, could lead to the
imposition of trade or other sanctions which could adversely affect the demand
for power in the PRC.
China's legal system is relatively new, and the government is
still in the process of developing a comprehensive system of laws, a process
that has been ongoing since 1979. Considerable progress has been made in the
promulgation of laws and regulations dealing with economic matters such as
corporate organization and governance, foreign investment, commerce, taxation
and trade. Such legislation has significantly enhanced the protection afforded
to foreign investors. However, foreign investors may be adversely affected by
new laws, changes to existing laws (or interpretations thereof) and preemption
of provincial or local regulations by national laws or regulations. Moreover,
experience with respect to the implementation, interpretation and enforcement of
such laws and regulations is limited. Such administrative and judicial
interpretation and implementation and the enforcement of commercial claims and
resolution of commercial disputes may be subject to the exercise of considerable
discretion by both administrative and judicial organs and may be influenced by
external forces unrelated to the legal merits of a particular matter or dispute.
Even where adequate laws exist and contractual terms are clearly stated, there
can be no assurance that AES Chigen or a Joint Venture will obtain swift and
equitable enforcement of its rights.
The China Power Market
At the end of 1995, China had an aggregate installed electric
power generation capacity of approximately 217,220 MW, making China's electric
power generation capacity the second largest in the world. In 1995, about 17,323
MW of installed capacity was added. China's electric power industry produced
approximately 1,007 terawatt (one million megawatts) hours ("TWh") of
electricity in 1995. This represents an addition of nearly 80 TWh from 1994,
making China's electricity industry one of the fastest growing in the world.
Despite its size, China's electric power system is inadequate to meet current
and expected demand, and the consequent shortage is one of the major obstacles
to economic growth in the PRC. In addition, approximately 110 million people do
not yet have access to electricity. The following table highlights this
situation on a comparative basis, indicating with respect to the PRC that, while
its economic growth rate is among the highest of the countries mentioned, the
PRC is considerably below average in installed capacity and consumption of
electricity.
1994 1994 1994
Per Capita Per Capita Per Capita
Installed Electricity GDP --
Capacity(1) Consumption(1) Nominal Real GDP Growth Rate% (3)
--------------------------------------------------------------
(Watts) (kWh) US$(2) 1991 1992 1993 1994 1995 1996
-------------- -------------- ----------- ---- ---- ---- ---- ---- ----
(projected)
- --------------
U.S 2,812 11,256 25,850 (1.0) 2.7 2.7 3.5 2.0 2.4
- --------------
Japan 1,552 6,837 36,845 4.0 1.1 1.1 0.5 0.9 3.5
- --------------
Singapore 1,222 5,696 16,700 6.7 6.0 10.1 10.1 8.9 7.5
- --------------
Hong Kong 1,492 4,546 21,750 5.1 6.3 6.4 5.4 5.0 5.0
- --------------
South Korea 687 3,261 8,528 9.1 5.1 5.8 8.6 9.0 7.2
- --------------
Malaysia 352 1,669 3,627 8.6 7.8 8.3 9.2 9.5 8.8
- --------------
Thailand 233 1,080 2,423 8.1 8.1 8.3 8.8 8.7 8.3
- --------------
PRC 153 671 430 9.3 14.2 13.5 12.6 10.2 9.0
- --------------
Philippines 101 290 937 (0.6) 0.3 2.1 4.4 4.8 5.9
- --------------
Indonesia 83 278 874 8.9 7.2 7.3 7.5 8.1 7.8
- ---------------------------
Sources:
(1) U.S. Department of Energy, Energy Information Administration, Office of
Energy Markets and End Use, International Database (August 1996).
(2) U.S. Department of Commerce, Economics and Statistics Administration,
Office of Business Analysis, National Data Bank (August 1996).
(3) International Monetary Fund, World Economic Outlook (October 1996).
Developments in the PRC's Power Industry
Under the PRC's Eighth Five-Year Plan (1991-1995), increasing
demands for electricity resulted in the rapid increase in the PRC's total annual
electricity generation. A total of 65,747 MW of electric power generating
capacity was installed during the five-year period from 1991-1995, representing
an average annual increase of more than 16,000 MW. Notwithstanding such
increase, the PRC's average annual growth rate for electricity generation
between 1991 and 1995 (approximately 10.4%) did not keep pace with the average
annual growth rate of the PRC's Gross Domestic Product ("GDP") (approximately
12.1%) during such time. The following table sets forth figures for installed
capacity, increases in installed capacity, electricity generation and percentage
increases in electric power generation in China for the years 1986 to 1995.
Increase in Increase in
Installed Installed Electricity Electricity
Capacity Capacity Generation Generation
Year (MW) (MW) (TWh) (%)
------------------- ---------- ----------- ----------- -------------
1986 93,818.5 6,795.3 449.6 9.5%
1987 102,897.0 9,078.5 497.3 10.6
1988 115,497.1 12,600.1 545.2 9.6
1989 126,638.6 11,141.5 584.8 7.3
1990 137,890.0 11,251.4 621.2 6.3
1991 151,473.1 13,583.1 677.5 9.0
1992 166,532.4 15,059.3 754.2 11.3
1993 182,910.7 16,378.3 836.4 10.9
1994 199,897.2 16,986.5 927.9 10.9
1995 (estimated)(1) 217,220.0 17,322.8 1,007.0 8.5
- ---------------------------
Source: Ministry of Electric Power, Electric Power Industry in China (1996).
(1) Based on various published statements from MOEP officials.
Based on statements by the Ministry of Electric Power ("MOEP"
or the "Ministry of Electric Power"), China will need an average of
approximately 16,000 MW of new electric generating capacity annually through the
year 2000 (or an aggregate of approximately 80,000 MW of new electric generating
capacity in the Ninth Five-Year Plan period ending 2000). Since domestic savings
are insufficient to fund the PRC's requirements, the Ministry of Electric Power
has adopted plans to attract foreign capital and projects that 20% of the
capital for power industry development will come from foreign investors, 40%
from local governments and enterprises and the remaining 40% from the Central
Government during the five-year period ending December 31, 2000. MOEP estimates
that approximately $20 billion of overseas investment will be needed to reach
the MOEP's target of increasing installed capacity to 290,000 MW by 2000.
Energy Resources
China's main energy resources for power generation, coal and
hydropower, are not evenly dispersed geographically. Two-thirds of China's coal
reserves are located in the northern provinces of Shanxi, Shaanxi and the Inner
Mongolia Autonomous Region, and more than 90% of the PRC's hydropower resources
are concentrated in the western part of the country. Because China's
economically developed regions are principally located in the eastern and
southern coastal areas, the Ministry of Electric Power plans to expand the
interconnected power networks by installing high voltage transmission lines to
facilitate the transmission of power from the west to the east, as well as from
the north to the south. The Ministry of Electric Power has also indicated that
an increased focus should be placed on coal-fired electric power generating
projects which are located in close proximity to coal mines. The Company's
proposed Yangcheng Sun City power plant is an example of such a project. See
"Description of the Potential Projects -- Yangcheng Sun City."
China is rich in coal resources, with proven coal reserves of
966.7 billion tons. The PRC leads the world in coal production, with 1995
production of approximately 1.3 billion tons. Coal accounted for approximately
75% of electricity production in 1995, and approximately 77% of aggregate
domestic commercial energy consumption. The PRC intends to continue to rely on
coal as its primary fuel resource for electric power generation. However, the
PRC is also increasing its utilization of other fuels. Of the 16,987 MW of
electric power generation capacity added in 1994, hydropower accounted for
approximately 24.0%, nuclear power accounted for approximately 14.0% and fossil
fuels accounted for approximately 61.0%.
Organization of the PRC's Electric Power Industry
The PRC's electricity industry is controlled by the Ministry
of Electric Power, which was established by the Eighth National People's
Congress at its first session held in March 1993. Prior to March 1993, the
electric power industry was under the jurisdiction of the Ministry of Energy,
which itself was created in 1988 from parts of the former ministries which
oversaw the coal industry, the nuclear industry, the petroleum industry, water
resources and electric power.
The Ministry of Electric Power is responsible for formulating
development strategies and policies, including: investment, technical and
production and consumption policies relating to electric power development;
formulating unified electric power industry planning in collaboration with the
State Planning Commission and other government agencies; overseeing the
implementation of such planning; supervising the implementation of related
national policies, decrees and plans; and providing services to electric power
enterprises.
The Ministry of Electric Power manages five interprovincial
power groups ("Regional Power Groups") and ten provincial power bureaus. The
Regional Power Groups (i) manage their respective regional power grids, (ii)
dispatch, either directly or indirectly through lower level power bureaus, the
power plants connected to such grids and (iii) supervise the power bureaus at
lower administrative levels (primarily provincial but also certain large
municipalities and other areas). The Regional Power Groups also act through
power companies which develop, construct, own and operate certain power plants
and transmission facilities within their respective jurisdictions.
A similar structure exists for the provincial power bureaus
under the Regional Power Groups and the ten provincial power bureaus directly
managed by the Ministry of Electric Power. Each provincial power bureau manages
its provincial power grid and dispatches the power plants connected to such grid
to meet local demand. Many provincial power bureaus also act through power
companies which operate certain power plants and transmission facilities within
their respective provinces. Counties and municipalities directly under the
administration of the provinces may have power bureaus which perform, under the
administration of the power bureau at the next higher level of government,
similar functions within their respective jurisdictions.
The key personnel of the Regional Power Groups are appointed
by the Ministry of Electric Power, and the key personnel of the provincial power
bureaus are appointed by the provincial governments in consultation with the
Ministry of Electric Power.
In January 1996, the China National Power Corporation ("CNPC")
and the China Federation of Power Enterprises ("CFPE") were established pursuant
to the Central Government's policy to separate the regulatory and commercial
functions of the electric power industry. The PRC Government has announced plans
that the Ministry of Electric Power will be dissolved and its functions
transferred to CFPE and CNPC. CFPE will assume the Ministry of Electric Power's
regulatory functions. CNPC will serve as the PRC's principal investor in and/or
operator of wholly or partially State-owned facilities in the electric power
industry. CNPC also will be responsible for the operation of interregional
transmission facilities and the development of a national power grid.
Investment in the Electric Power Industry
Prior to 1985, virtually all investment in China's electric
power industry was financed by the Central Government. In 1985, the Central
Government began to implement a policy of using a variety of financing methods
to develop the PRC's electric power industry. Such policies included: (i)
allowing local governments to participate in the development and ownership of
power generating facilities in their areas, (ii) loaning (as opposed to directly
allocating) funds to local and provincial power bureaus for the development and
construction of such projects, and (iii) permitting foreign investment and
participation in the development and operation of power plants in China. Hong
Kong investment companies and developers were the first foreign companies to
invest in the industry. More recently, however, developers and investors from
other countries have begun pursuing investment opportunities in various electric
power projects in China. Between 1979 and 1995, 77 large and medium-sized
foreign-invested power projects were constructed, with a total installed
capacity of 49,740 MW, of which 24,290 MW had been put into operation by the end
of 1995. The total contracted foreign investment in power projects has reached
$17.2 billion, of which $11.5 billion had been invested by the end of 1995. In
1995, China launched the first Central Government sponsored pilot build, own and
transfer program to attract foreign investment in infrastructure projects. The
first project under this competitive bidding program is the proposed $600
million, 700 MW coal-fired Laibin project in Laibin County, Guangxi Zhuang
Autonomous Region.
In 1988, as part of the system of investment reform in power
development, the State Council of the PRC (the "State Council"), the highest
administrative organ of the Central Government, organized the State Energy
Investment Corporation (the "SEIC") to represent the PRC Government in the
development and financing of large power plants. Also in 1988, the China Huaneng
Group was formed primarily as a developer and operator of power plants. In March
1994, the State Council announced the absorption of the SEIC into the State
Development Bank ("State Development Bank"), as well as its intention to
transfer the SEIC's personnel to various Central Government enterprises and to
the State Development Investment Company under the State Development Bank.
To finance the expansion of the electric power industry, the
State Council, in 1995, approved the establishment of China Power Investment
Corporation ("CPIC") in China and China Power International Holdings Limited
("CPI"), CPIC's wholly owned subsidiary, in Hong Kong. CPIC was established by
the Ministry of Electric Power to raise funds in the international capital
markets to invest in PRC power projects. CPI has been authorized to sell
interests in State-owned power utilities, issue debt, establish investment funds
for the electric power industry and raise foreign funds for investment in the
electric power industry. CPI is one of the Company's Joint Venture partners in
the Wuhu Grassy Lake project and one of the Company's project partners in the
Nanpu Southern Delta project. See "Description of the Current Projects" and
"Description of the Potential Projects."
With appropriate PRC Government approvals, power bureaus may
form directly managed power companies, which may develop, construct, own and
operate power plants in their respective territories.
Tariff Setting Mechanisms
For power plants that the Ministry of Electric Power directly
or indirectly manages, the tariff is generally set under the plans devised and
implemented by the PRC Government in relation to the economic and social
development of the PRC ("State Plan"). The tariff varies according to the
category and location of the users. Thus, most electricity has been purchased
from power plants at State Plan tariffs. These State Plan tariffs have been
maintained at a low level, due to subsidization by the PRC Government. One of
the stated goals of the Ministry of Electric Power is to reform power pricing
consistent with the development of the market economy in the PRC. The Ministry
of Electric Power has commenced the trial implementation of a pricing policy
which charges consumers higher tariffs for peak load periods and lower tariffs
for off-peak load periods. Allowing the market to influence the setting of power
tariffs 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. As of 1994, more than ten power grids have
implemented this pricing policy.
The tariffs of sino-foreign joint venture power projects
generally have been established by negotiations among the sino-foreign joint
ventures, the prospective power purchasers, the relevant local governments,
planning commissions, pricing bureaus and power bureaus. The tariffs or tariff
formulas are typically set forth in power purchase contracts. The pricing
bureaus are responsible for approving and adjusting the tariffs, usually on an
annual basis.
Electric Power Law
In April 1996, a new national law governing the electric power
sector in the PRC came into effect. The law is intended to protect the
legitimate interests of investors, operators and consumers. It provides a
framework within which the PRC Government intends to guide investment in the
electric power sector. The law also establishes, among other things, broad
principles with respect to the methodology of calculating and setting electric
power tariffs. The principles state that electricity tariffs shall be based on
reasonable compensation for the costs of generation and payment of taxes, the
recovery of reasonable profits and the promotion of the construction of electric
power generating facilities. Detailed regulation with respect to tariff
calculation and tariff setting are expected to be promulgated by the Ministry of
Electric Power in the near future. The impact of the new law will depend on its
implementing regulations and the manner in which the law is interpreted.
Transmission and Dispatch
The main system for the dispatch, transmission and
distribution of electric power in China consists of the five interprovincial
power grids managed by their respective Regional Power Groups, one
interprovincial power grid, which consists of four semi-independent provincial
grids managed by their respective four provincial power bureaus, and the six
independent provincial power grids managed by their respective provincial power
bureaus. The table below shows the aggregate installed capacity of the power
plants connected to the grids managed by such power bureaus and the total
electricity generated on those grids in 1994.
1994 1994
Installed Total Electricity
Capacity Generation
Power Grids (MW) (TWh)
--------------------------- --------- ------------------
East China Power Grid 31,673.2 164.358
Northeast Power Grid 26,534.4 124.531
Central China Power Grid 27,602.2 132.047
North China Power Grid 27,146.4 140.087
Northwest Power Grid 11,483.0 60.423
Guangdong Power Grid(1) 19,009.7 73.916
Shandong Power Grid 11,518.2 67.183
Sichuan Power Grid 10,095.8 47.328
Guangxi Power Grid(1) 4,230.7 16.854
Fujian Power Grid 4,960.3 21.605
Yunnan Power Grid(1) 4,082.9 16.939
Guizhou Power Grid(1) 3,253.8 15.206
Xinjiang Autonomous Region 2,865.1 10.617
Hainan Power Grid 1,057.3 2.869
Tibet Autonomous Region 176.6 0.427
- ---------------------------
Source: Ministry of Electric Power, Electric Power Industry in China (1996).
(1) Part of the Southern Interconnected Power Grid established in 1993.
In 1994, the PRC had almost 540,000 kilometers of transmission
lines with a capacity of 35 kilovolts ("kV") or greater. The power grids
primarily use 500, 330, 220 and 110 kV transmission lines.
All electricity produced in China is dispatched by the power
bureaus, except for that generated by units not connected to a grid. The grids
and the electric power dispatched to each grid are administered by dispatch
centers ("Dispatch Centers") operated by the power bureaus. In November 1993,
the State Council issued the Administrative Regulations Concerning Grid Dispatch
("Dispatch Regulations"), the first nationwide regulations in China governing
the dispatch of electric power. The Dispatch Regulations are intended to help
the PRC achieve a more efficient and rational 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 bureaus, the Dispatch
Centers of the power bureaus of municipalities under provinces and the Dispatch
Centers of the county power bureaus. Pursuant to the principles of unified
dispatch, set forth in the Dispatch Regulations, Dispatch Centers at lower
levels are required to comply with the dispatch instructions of higher level
Dispatch Centers.
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 daily 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 Centers must dispatch
electric power according to, among other things, (i) power supply agreements
entered into between a power bureau and certain large or primary electricity
customers, where such agreements take into account the electric power generation
and consumption plans formulated annually by the PRC Government and set forth in
the State Plan, (ii) agreements entered into between a Dispatch Center and each
power plant subject to its dispatch, (iii) interconnection agreements between
power bureaus, and (iv) the actual conditions of the grid, including equipment
capabilities and safety reserve margins.
Peak and Seasonal Demands
The demand for electric power experiences fairly predictable
daily and other periodic cycles. The peak periods of power use in China are in
the early morning and evening when industrial, commercial and residential use is
highest. Peak power is in great demand in many cities which have rapid economic
growth. Because the PRC has a significant shortage of electric generating
capacity, the Dispatch Centers restrict the access to electricity of certain
users during peak periods of demand. As a result, the peak load demand in China
does not accurately reflect the extent of the total demand for power. While
power plants operate at less than full capacity during off-peak periods,
virtually all available power plants operate at or near full capacity during
peak periods, subject to grid-wide safety reserve margins. Four of the Joint
Ventures' power plants currently in operation or under construction -- Chengdu
Lotus City, Hefei Prosperity Lake, Wuxi Tin Hill and Yangchun Sun Spring -- are
designed to provide peaking power. The Company believes that each of these
plants will be able to take advantage of the demand for peak power in its
region. However, such plants are typically dispatched only after base load power
plants have been brought on-line and reached maximum capacity. If electric power
demand proves less than expected in an area, additional peak or base load power
may not be required in the area or may be required at lower than expected
levels.
Because the combustion of coal provides most of China's
space-heating needs and because air conditioning is not yet prevalent in most
regions of China, seasonal variations in the demand for electricity are less
than in many developed countries.
Joint Venture Companies
Foreign investment in the PRC may take a number of forms,
including joint ventures, wholly foreign-owned enterprises, branches of foreign
companies and shareholdings in limited liability companies and joint stock
limited companies. The Company currently invests through the joint venture
structure. The Company's current joint venture partners are PRC entities. The
Company anticipates that its future joint venture partners will be PRC entities
although non-Chinese partners may be included as partners, if appropriate. Joint
ventures between Chinese and foreign parties in the PRC take two basic forms:
equity joint ventures and cooperative joint ventures. Equity joint ventures are
governed by the Law of the People's Republic of China on Joint Ventures Using
Chinese and Foreign Investment and the implementing regulations related thereto.
Cooperative joint ventures are governed by the Law of the People's Republic of
China on Chinese and Foreign Cooperative Joint Venture Enterprises and the
implementing regulations related thereto ("Cooperative Joint Venture Law").
A cooperative joint venture may be structured as an entity
similar to a partnership (in which case it will not be separately qualified as a
legal person under Chinese law) or it may be structured as a limited liability
company (in which case it will be qualified as a legal person under Chinese
law). In most cases, cooperative joint ventures are formed as limited liability
companies. Cooperative joint ventures allow more flexibility than equity joint
ventures in structuring the terms of the joint venture arrangement. For example,
in a cooperative joint venture the rights of a party to share in the profits of
the joint venture need not correspond to its contributions to the registered
capital (equity) of the joint venture relative to other parties. In addition,
subject to government approval, the Cooperative Joint Venture Law permits
recovery of the foreign party's registered capital during the venture term.
However, the Cooperative Joint Venture Law requires that the fixed assets of the
joint venture be transferred to the Chinese parties without charge at the end of
the venture term if the foreign party recovers all of its equity capital during
the term of the venture. Cooperative joint ventures are subject to laws and
regulations with respect to such matters as the contribution of registered
capital, debt-equity leverage ratios, accounting, taxation, foreign exchange,
labor and liquidation and dissolution. Transfer of an interest in a cooperative
joint venture requires government approval and unanimous agreement among the
parties.
An equity joint venture enterprise is a distinct legal entity
established and registered as a limited liability company. The parties to an
equity joint venture have rights to share in the profits of the joint venture in
proportion to their respective contributions to the registered capital of the
joint venture. The operations of equity joint ventures are subject to many of
the same laws and regulations as cooperative joint ventures. Transfer of an
interest in an equity joint venture requires government approval and unanimous
agreement among the parties. In addition, in an equity joint venture, the
parties may not reduce the amount of their registered capital until the
expiration of the term of the joint venture or its dissolution in accordance
with PRC law.
Typically, dividends are paid by a joint venture in accordance
with the profit distribution plan adopted by the joint venture's board of
directors. Except as mentioned above, PRC laws and regulations provide that only
accounting profits (after payment of taxes, provision for losses for prior years
and contributions to special funds for enterprise expansion, employee welfare
and bonuses and a general reserve) are available for dividend distributions to
the parties of a joint venture.
In addition to contributions of registered capital, joint
ventures may be financed by debt, including shareholder loans. Foreign currency
loans to a joint venture, however, must be registered with the local branch of
the State Administration of Foreign Exchange of the Central Government ("State
Administration of Foreign Exchange" or "SAFE") in the location in which the
joint venture is situated.
Foreign investment enterprises are permitted under PRC laws
and regulations to convert their Renminbi earnings into foreign exchange for
certain purposes, including to pay their foreign currency obligations, to pay
dividends and other distributions to foreign shareholders and to make payment of
interest and principal with respect to foreign currency loans (both third party
and shareholder debt) incurred by the joint venture. To effect such conversions,
joint ventures must comply with certain procedures required by PRC laws and
regulations.
Government Approvals
China's electric power industry is highly regulated, both in
terms of operating existing power plants and developing new power projects. All
electric power projects in China and all foreign investments are required to
obtain approvals from one or more central, provincial or local government
authorities. While the regulations governing and the procedures for obtaining
approvals for foreign investment projects are generally well-understood, the
specific regulations and procedures for the approval of electric power projects
with foreign investment in the PRC and associated foreign investment enterprises
are not entirely transparent. Project approvals and foreign investment approvals
are required, but follow separate procedures. At the highest level, the right to
approve projects in the PRC is vested in the State Council. The State Council
has reserved to itself the authority to approve any project with a total
investment which exceeds $100 million. Pursuant to various internal PRC
Government notices, the State Council has delegated the authority to approve any
project with a total investment of less than $100 million to various ministries
and ministry level entities, including the SPC. The SPC and certain ministries
and other ministry level entities have, in turn, adopted a policy, also by
internal directives, of further delegating authority to approve projects with a
total investment of less than $30 million to provincial governments, provincial
level bureaus of the Central Government and certain municipalities. The project
approval authority of local governments is, therefore, generally limited to not
more than $30 million. Separate from project approval, foreign investment must
be approved by The Ministry of Foreign Trade and Economic Cooperation of the
Central Government ("Ministry of Foreign Trade and Economic Cooperation or
"MOFTEC"), or one of its departments at the provincial or local government
level, should the total investment amount be below $30 million. Accordingly,
foreign investment enterprises proposing to undertake projects must obtain
approvals for the projects from the appropriate government level planning
authorities and approvals for the foreign investment from a similar level
department of MOFTEC.
Generally, the approval process can be divided into three
major stages. First, following preliminary planning by the Chinese party and, in
some instances, initial negotiations with the foreign party and the execution of
a letter of intent by the parties, a project proposal (including a preliminary
feasibility study report and an environmental impact report) is submitted to the
appropriate level planning authorities for approval.
In the second stage, a more detailed joint feasibility study
report and a more detailed environmental impact report will be prepared. During
this stage, the foreign and local parties will negotiate and execute a legally
binding joint venture contract and articles of association. The approval of the
local government authorities for both the project and the foreign investment is
required. Additionally, as stated above, depending on the amount of total
investment in the proposed project and joint venture, the approval of the
Central Government may be required. Approval may also be required from other
central, provincial and local government ministries and agencies, with respect
to, among other matters, foreign exchange plans, allocations of fuel supplies
and related transportation, land use, tax preferences, electricity pricing, grid
access, operations and maintenance arrangements, loan and guarantee arrangements
and design and engineering arrangements.
In the final stage, following approval of the joint venture by
the relevant department of MOFTEC, the joint venture must register with and
obtain a preliminary business license from the State Administration of Industry
and Commerce ("SAIC") or a branch thereof. Following the completion of these
formalities, the parties are required to contribute their agreed upon registered
capital and, upon verification thereof, the joint venture is issued a permanent
business license by the SAIC.
The approval process outlined above could take several years.
Therefore, in some instances, the Company may pursue opportunities for
investments in power projects that are in advanced stages of development or for
which significant approvals have already been obtained or construction has
commenced or been completed.
Two of AES Chigen's power plants have been structured as
multiple projects and joint ventures, each project and joint venture with a
total investment below the $30 million threshold, and have obtained local
government approvals on this basis. It is possible that projects structured in
this fashion could be viewed by the Central Government approval authorities as a
single project. In several other cases, AES Chigen's projects and Joint Ventures
have obtained local government approvals on the basis of anticipated total
investments which were less than $30 million at the time the approvals were
obtained, but will, when construction is completed, exceed the $30 million
approval threshold. While it is common in the PRC for projects and joint
ventures such as these to obtain and rely on only local government approvals, it
is unclear whether such approvals are sufficient. There can be no assurance,
therefore, that the absence of Central Government approvals will not adversely
affect the Joint Ventures and their projects in any of such cases.
In addition to such project and foreign investment approvals,
the tariffs payable under the relevant power purchase contract is established on
the basis of a tariff formula agreed upon through discussions among the Company,
its partners, the prospective power purchaser, the relevant local government,
the relevant pricing bureaus and the relevant planning commission. Once
established, the tariffs are subject to annual review by the relevant local
pricing bureaus and adjustment in accordance with the formula. The tariff
formulas contained in the power purchase contracts entered into by AES Chigen's
Joint Ventures are structured to permit the Joint Ventures to pay the operating
expenses of the plant, the financing costs of each particular project and to
enable AES Chigen to realize a return on its investment. While the relevant PRC
pricing bureaus have committed to utilize the Joint Ventures' formulas in
establishing and adjusting tariffs, there can be no assurance that the relevant
pricing bureaus will calculate and adjust tariffs in accordance with these
tariff formulas. On April 1, 1996, a new law governing the electric power sector
in the PRC came into effect. The law establishes, among other things, broad
principles with respect to the methodology of calculating and setting electric
power tariffs. Detailed regulations with respect to tariff calculation and
tariff setting are expected to be promulgated in the near future by the Central
Government. There can be no assurance that such regulations, when promulgated,
will not adversely affect the tariff structures which AES Chigen's Joint
Ventures have adopted.
Environmental Regulation
The Joint Ventures are subject to various PRC environmental
laws and regulations which are administered by both Central Government 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
environmental impact 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, from April 1, 1996, 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. Non-compliance with such orders may result in the
entities being shut down.
The PRC is a party to the Climate Change Convention ("Climate
Change Convention"), which is intended to limit or capture emissions of
greenhouse gases, such as carbon dioxide. Ceilings on such emissions could limit
the production of electricity from fossil fuels, particularly coal, or increase
the costs of such production. Ceilings on the emissions of greenhouse gases have
not been assigned to developing countries such as the PRC under the Climate
Change Convention and the PRC has objected to the possibility of the imposition
of such ceilings. If the PRC were to agree to such ceilings, or otherwise reduce
its reliance on coal-fired power plants, the business prospects of AES Chigen
could be adversely affected. Under the Air Pollution Prevention and Control Law
of the PRC, as amended in 1995, regulatory preferences are given to the use of
low sulfur-content, low ash coal, and to plants in urban areas that generate
steam as well as electricity. The SPC also has stated that it favors the
construction of more plants relying on clean fuels.
MOEP has established technical standards for environmental
monitoring and exercises 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. The Company believes the environmental protection
systems and facilities of its Current Projects are in compliance with applicable
PRC national and local environmental protection requirements.
AES Chigen's Joint Ventures with power plants in operation
have received the environmental approvals from the PRC Government environmental
authorities required for them to operate their respective electric power plants.
Inasmuch as the Joint Ventures' electric power plants currently under
construction are typically among the most modern in the areas in which they are
located, AES Chigen believes that these plants will also receive all required
environmental approvals. There can be no assurance, however, that the
requirements to obtain such approvals may not be made more stringent in the
future. If such a change in policy occurs, there can be no assurance that all
such requirements will be met and that future approvals for existing or
potential projects will be granted. If a change in environmental requirements
leads to an increase in costs, an affected Joint Venture is able to receive an
adjustment in the tariff it charges for electric power pursuant to its power
purchase contract.
Description of the Current Projects
The following table presents certain summary information on
the Company's Current Projects.
The Current Projects
Company
Company Investment
Location Capacity Interest Commitment
Project (Province) (MW) (MW) (%) Fuel Status
- ------------------ ---------- -------- -------- ---------- ---- -------------------------------
Jiaozuo Aluminum Henan 250 175 70 Coal Under construction (first
Power unit scheduled to be in
operation by the second
quarter of 1997; second unit
scheduled to be in operation
by the second quarter of 1998)
Wuhu Grassy Lake Anhui 250 62.5 25 Coal First unit in operation
(second unit scheduled to be
in operation by the second
quarter of 1997)
Hefei Prosperity Anhui 115.2 80.6 70 Oil Under construction (simple
Lake cycle unit scheduled to be in
operation by the third
quarter of 1997; combined
cycle unit scheduled to be in
operation in the third
quarter of 1998)
Wuxi Tin Hill Jiangsu 63 34.7 55 Oil In operation
Aixi Heart River Sichuan 50 35 70 Coal Under construction (scheduled
to be in operation in
February 1998)
Chengdu Lotus City Sichuan 48 16.8 35 Natural Under construction (scheduled
Gas to be in operation in the
third quarter of 1997)
Cili Misty Mountain Hunan 26.2 13.4 51 Hydro In operation
Yangchun Sun Spring Guangdong 15.1 3.8 25 Oil In operation
------ ------
TOTAL 817.5 421.8
====== ======
Overview
The Company, directly or through one of its wholly owned
offshore subsidiaries, has formed sino-foreign joint ventures, each with one or
more Chinese entities as partners, to develop, construct, own and operate each
of the electric power plants described in this section. Two of the power plants
- -- Cili Misty Mountain and Yangchun Sun Spring -- are financed solely with
registered capital (equity). Four of the power plants -- Aixi Heart River,
Jiaozuo Aluminum Power, Chengdu Lotus City and Wuxi Tin Hill -- are financed
with a combination of registered capital and shareholder loans. One of the power
plants -- Wuhu Grassy Lake -- is financed by registered capital, shareholder
loans and third party debt. One other project -- Hefei Prosperity Lake -- which
is currently financed by registered capital and shareholder loans, may also be
in the future financed by third party debt.
All of the Company's power plants are owned by cooperative
joint ventures, except for one of the projects -- Wuhu Grassy Lake -- which is
owned by an equity joint venture. The joint venture contracts for three of the
cooperative joint ventures -- Wuxi Tin Hill, Aixi Heart River and Chengdu Lotus
City -- provide for the liquidation of the project assets at the end of the term
of the Joint Venture. The cooperative joint venture contracts relating to the
remaining four projects provide for the transfer of all of the fixed assets of
the Joint Venture to the Chinese partners without charge at the end of the Joint
Venture term. Three of these four provide for the recovery of the Company's
registered capital during the term of the Joint Venture.
Revenues from the power plants are generally used to pay
operating expenses, taxes and financing costs and allocated to provide reserves
for employee social welfare benefits and other matters as required by law.
Repayment of principal and interest of third party loans (if any) and
shareholder loans (if any) of the Joint Ventures has priority over distributions
of profit to the Joint Venture partners. Dividends are generally distributed to
the Company and its partners by the Joint Ventures pursuant to board
resolutions. In a number of cases with respect to the Joint Ventures described
in this section, the Company has a priority in the payment of dividends over the
Chinese partners to the Joint Venture. In certain cases, where the Company is
not entitled to appoint a majority of the board of directors of a Joint Venture,
the declaration of dividends or other equity distributions by such Joint Venture
may depend on the assent of the other directors of the Joint Venture.
Pursuant to certain shareholder loan contracts, the Company
has committed to provide shareholder loans to several of the Joint Ventures. In
each case the applicable Joint Venture has either registered the shareholder
loan with the relevant branch of the SAFE if the loan has been drawn, or the
Joint Venture will register the shareholder loan with the relevant branch of the
SAFE when the loan is drawn by the Joint Venture. The payment of principal and
interest to the Company with respect to its shareholder loans to the Joint
Ventures is made in accordance with schedules established by the relevant
shareholder loan contracts.
Each of the Joint Ventures described in this section has
entered into one or more power purchase contracts for the sale of the
electricity from its power plant on a minimum take-or-pay basis. The power
purchase contracts generally require that the power purchaser purchase a
specified annual minimum amount of electricity generated by the power plant
during the term of the power purchase contract at a fixed price or pursuant to a
tariff formula set forth in the power purchase contract. In all but two cases --
Cili Misty Mountain and Yangchun Sun Spring -- the power purchase contracts also
contain incentives to encourage the power purchaser to purchase greater than the
agreed minimum amount of electricity. Payments for electricity sold under the
power purchase contracts are generally made to the Joint Ventures on a monthly
basis.
All of the power purchase contracts have tariff formulas and
other pricing provisions which are designed, based on the minimum take
obligation of the power purchaser, to be sufficient to pay the operating costs
and financing costs of the project and to enable the Company to realize a return
on its investment. These tariff formulas are indexed to hedge against US dollar
and Renminbi exchange rate fluctuation risks relating to repayment of principal
and interest on debt and the conversion to US dollars of the Company's profits.
In the event of a change in law which increases the Joint Ventures' costs, the
power purchase contracts typically require an adjustment to the tariff formulas
in order to pass through such increased costs.
The Joint Ventures in all cases except one -- Cili Misty
Mountain -- have entered, or, it is anticipated will enter, into dispatch
contracts with the relevant dispatching entity for its power plant pursuant to
which the dispatcher has agreed or plans to agree to dispatch the power plant at
least the annual minimum amount of hours required under the power purchase
contract. For the one case, the power purchaser, which is also the dispatcher,
is responsible for dispatching the power plant.
Each of the joint venture contracts for the projects described
in this section may be terminated early, including on account of a termination
of the relevant power purchase contract. In all cases except one -- Jiaozuo
Aluminum Power -- in the event of an early termination of a power purchase
contract which results from a default of a power purchaser, the Company is
entitled under the applicable power purchase contract to receive from the power
purchaser payment intended to compensate the Joint Venture for the return it
would have received had the power purchase contract continued to the end of its
term.
In two cases -- Yangchun Sun Spring and Wuxi Tin Hill --
projects directly managed by the Joint Ventures have been successfully
constructed on time. For three of the Company's projects currently under
construction -- Jiaozuo Aluminum Power, Cili Misty Mountain, and Chengdu Lotus
City -- the respective Joint Venture also directly manages the construction of
the power plant. In these instances the Joint Venture has entered into
arrangements with various construction and equipment procurement consortiums,
including established foreign equipment manufacturers, in which certain
responsibilities relating to construction and procurement have been allocated to
members of the consortium. For the remaining three projects currently under
construction, each relevant Joint Venture has entered into a fixed price, fixed
schedule construction contract, one of which is a turnkey arrangement. In all of
the projects described in this section, the electrical transmission and
interconnection facilities are being financed by interest bearing loans from the
Joint Venture to the relevant power purchaser who is responsible for
constructing, owning, operating and maintaining the facilities. In the case of
Wuhu Grassy Lake, Hefei Prosperity Lake and Chengdu Lotus City, the power
purchasers have also agreed in the power purchase contracts to begin making
payments under their respective power purchase contracts on a specified date if
the power plant is completed, but cannot deliver electricity due to a delay in
completing the transmission and interconnection facilities.
Five of the eight power plants are or will be operated
directly by the Joint Ventures -- Cili Misty Mountain, Wuxi Tin Hill, Aixi Heart
River, Jiaozuo Aluminum Power and Chengdu Lotus City -- and three -- Yangchun
Sun Spring, Hefei Prosperity Lake and Wuhu Grassy Lake -- will be operated by
the relevant power purchasers. Fuel for most of the power plants has been
contracted for under long term fuel supply contracts with fuel suppliers or will
be supplied by the power purchasers. In the latter case, the relevant power
purchaser is not excused from its payment obligations under its power purchase
contract if it is unable to provide fuel to the power plant.
The power projects which are currently in operation or under
construction have obtained insurance coverage for property loss and damage
(including damage arising from natural calamities) and third party liability.
Most force majeure risks which can be categorized as natural calamities are
covered under the insurance policies. The Joint Ventures are in all cases
relieved of their obligation to deliver electricity under their power purchase
contracts for the power plants described in this section in the event of force
majeure, including an event of force majeure caused by the PRC Government. In
the case of all projects, except Wuhu Grassy Lake and Hefei Prosperity Lake, the
power purchaser is not relieved of its obligations under its applicable power
purchase contract, including the obligation to make payments to the Company in
such circumstances. In these two projects, the power purchaser is relieved of
its obligation to purchase the minimum amount of electric power under its
respective power purchase contract during periods in which the power plant is
unable to generate electric power due to events of force majeure, including
events of force majeure caused by the PRC Government.
In the case of all of the power plants described in this
section, the Company and its Joint Venture partners have applied for and
received PRC approvals for the project and for the establishment of the related
foreign investment enterprise. In the case of two power plants -- Jiaozuo
Aluminum Power and Wuhu Grassy Lake -- the power plants have received project
approvals at the Central Government level from the State Planning Commission and
have received approvals from MOFTEC for the establishment of their related Joint
Venture. Each of the remaining six power plants has received its project
approval and foreign investment approval from provincial and local government
entities.
Two of the Company's power plants currently in operation or
under construction -- Wuxi Tin Hill and Hefei Prosperity Lake -- have been
structured as multiple projects and Joint Ventures, with each project and Joint
Venture having a total investment not exceeding the $30 million approval
authority threshold generally applicable to provincial and local governments. In
two other cases -- Aixi Heart River and Chengdu Lotus City -- the Company's
projects and Joint Ventures have obtained local government approvals on the
basis of anticipated total investments which did not exceed $30 million at the
time the approvals were obtained, but will, when construction is completed,
exceed the $30 million approval threshold. See "Governmental Approvals."
The tariff formulas set forth in the power purchase contracts
of the Joint Ventures described in this section have been either approved or
confirmed by the relevant provincial and local government pricing bureaus
responsible for reviewing such tariffs.
All of the joint venture contracts and project contracts of
the Joint Ventures are governed by PRC law. Some of the joint venture contracts
provide for arbitration of a dispute arising under the joint venture contracts
in locations outside of the PRC, while some provide for arbitration in the PRC
by PRC arbitration bodies. Most of the project contracts, including the power
purchase contracts, provide for arbitration of disputes in the PRC by PRC
arbitration bodies.
Jiaozuo Aluminum Power
The Power Plant. The Jiaozuo Aluminum Power power plant is a 2
x 125 MW coal-fired power plant located adjacent to the Jiaozuo Aluminum Mill
("Jiaozuo Mill") aluminum production mills in Jiaozuo, Henan Province.
Construction of the power plant commenced in the first quarter of 1995. The
first unit of the power plant is scheduled to commence commercial operation by
the second quarter of 1997. The second unit is scheduled to commence commercial
operation in the second quarter of 1998.
Joint Venture. The Jiaozuo Aluminum Power power plant is owned
by Jiaozuo Wan Fang Power Company Ltd. ("Jiaozuo Wan Fang"), a 23-year
cooperative joint venture formed by Jiaozuo Mill and a wholly owned subsidiary
of the Company. Pursuant to the joint venture contract the Company is entitled
to recover its registered capital (equity) during the term of the Joint Venture.
The Company, as the majority shareholder of Jiaozuo Wan Fang, is entitled to
appoint four of the six members of the board of directors of the Joint Venture,
including the chairman of the board and the general manager. Pursuant to a
co-development agreement, an entity unaffiliated with the Company is entitled to
no more than ten percent of the Company's equity distributions from Jiaozuo Wan
Fang.
Financing. The approved total investment in Jiaozuo Wan Fang
is $151.3 million. The Joint Venture's approved registered capital is $53.7
million. As of November 30, 1996, it is estimated that the total cost of Jiaozuo
Aluminum Power will be approximately $161.3 million. Any difference between the
approved total investment and the actual total cost will be funded by additional
equity or loans to be contributed pro rata by the shareholders of Jiaozuo Wan
Fang. The Company has committed to contribute $37.6 million to the registered
capital of the Joint Venture. Jiaozuo Mill has committed to contribute $16.1
million in land use rights and certain fixed assets to the registered capital of
the Joint Venture.
Power Purchase. Jiaozuo Wan Fang and Jiaozuo Mill have entered
into a 23-year power purchase contract effective April 26, 1996. Pursuant to the
power purchase contract, Jiaozuo Mill has agreed to purchase from Jiaozuo Wan
Fang at least 5,500 hours each calendar year at 75 MW up to the amount required
to operate Jiaozuo Mill's aluminum mill. Any remaining electricity from the
power plant, but no less than 5,500 hours at 155 MW, will be purchased by the
Henan Electric Power Corporation ("Henan Power") under a 23-year power purchase
contract between Jiaozuo Wan Fang and Henan Power. Both power purchase contracts
require the purchasers to pay for a minimum amount of electricity generated
every calendar year and to compensate the Joint Venture for any shortfalls in
purchases of such minimum amount based on the most recent approved tariff for
power less fuel costs. Both power purchase contracts allow the Joint Venture to
adjust the minimum amount of electricity required to be purchased by the power
purchasers and Jiaozuo Mill may request the Joint Venture to adjust the minimum
amount of electricity required to be purchased by Jiaozuo Mill, in all cases,
upon prior notice.
There are no specific provisions regarding liquidated damages
upon early termination of either power purchase contract. However, in the case
of early termination due to Henan Power's default, Henan Power is obligated
under the power purchase contract, to the extent permitted by law, to transmit
electricity generated by the Joint Venture's power plant to any entity
designated by the Joint Venture which is interconnected with Henan Power.
Construction. Jiaozuo Wan Fang is directly managing the
construction of the power plant. Jiaozuo Wan Fang has hired the Henan Power
Design Institute for the project design and Henan Provincial No. 1 Power
Construction Company and Henan Provincial No. 2 Power Construction Company as
contractors for civil and installation work. Although no heat rate (the term
"heat rate" refers to a power plant's thermal efficiency), output or completion
guarantees are being provided by the contractors, these two contractors have
built a number of similar power plants. In addition, more than 100 of such 125
MW units have been delivered by their manufacturer, Shanghai Electric
Corporation ("Shanghai Electric"), which is providing a limited two-year
warranty of the units. An independent engineering company, Bechtel Power
Corporation, has been retained by Jiaozuo Wan Fang to manage scheduling and
procurement. The construction risk in the case of this project is also mitigated
by the tariff formula set forth in the power purchase contract which provides
for an increase in the tariff payable by the power purchaser sufficient to
compensate the Joint Venture for any reduction in heat rate and capacity
resulting from the contractor's performance failure.
Interconnection and Dispatch. The interconnection facilities
are being constructed by Henan Power. Jiaozuo Wan Fang has agreed to provide a
loan in the amount of approximately $9.9 million to Henan Power for the design
and construction of the interconnection facilities. When in commercial
operation, the power plant will be dispatched by Henan Power. The Joint Venture
is required under its dispatch contract with Henan Power to cause the power
plant to maintain an annual minimum availability. If this annual minimum
availability is not met, the minimum amount required to be purchased by Henan
Power may be reduced proportionately.
Fuel. Jiaozuo Wan Fang plans to enter into one-year fuel
supply contracts for the purchase of anthracite coal from mines in Jiaozuo and
mines located approximately 120 kilometers from the power plant. The price for
coal is to be negotiated periodically with the mine owners. Jiaozuo Wan Fang
will arrange for the transportation of the coal by truck to the power plant.
Operation. Jiaozuo Wan Fang will operate the power plant.
Wuhu Grassy Lake
The Power Plant. The Wuhu Grassy Lake power plant is a 2 x 125
MW coal-fired power plant located near Wuhu, Anhui Province. It is the phase IV
expansion of an existing 325 MW coal-fired power station. The first unit of the
power plant commenced commercial operation in September 1996. The second unit is
scheduled to commence commercial operation in the second quarter of 1997.
Joint Venture. The Wuhu Grassy Lake power plant is owned by
Wuhu Shaoda Electric Power Development Company Ltd. ("Wuhu Shaoda"), a 20-year
equity joint venture formed by CPI, Anhui Liyuan Electric Power Development
Company Limited ("Anhui Liyuan"), Wuhu Energy Development Company Limited ("Wuhu
Energy") and a wholly owned subsidiary of the Company. The board of directors of
Wuhu Shaoda consists of nine directors, of which two are appointed by the
Company. The Company also appoints one of the two vice chairmen and the deputy
general manager responsible for supervising the operation and maintenance of the
power plant.
Financing. The approved total investment in the Joint Venture
is $118.4 million. The Joint Venture's approved registered capital is $30.0
million. The Joint Venture partners of Wuhu Shaoda have committed to contribute
their registered capital according to their respective ownership interests as
follows: (i) CPI, $13.5 million (45%), (ii) the Company, $7.5 million (25%),
(iii) Anhui Liyuan, $6.0 million (20%) and (iv) Wuhu Energy, $3.0 million (10%).
As of November 30, 1996, the estimated total cost of this project was in line
with the approved total investment. The difference between the total investment
and the registered capital of Wuhu Shaoda has been financed through a bank
facility and shareholder loans arranged by the Joint Venture partners. Wuhu
Shaoda has entered into a $65.0 million term loan facility (the "Term Loan")
with a syndicate of lenders. The first drawdown of the Term Loan took place in
August 1996. The Term Loan is to be repaid in 11 successive semi-annual
installments beginning April 22, 1998. In addition to the Term Loan, the Company
has committed to provide an $18.0 million subordinated loan (the "AES Loan") and
Anhui Liyuan has committed to provide up to $4.6 million and Wuhu Energy has
committed to provide up to $2.3 million in subordinated shareholders' loans to
the Joint Venture. The Company has guaranteed to the lenders of the Term Loan
certain obligations of its wholly owned subsidiary under the joint venture
contract, including the obligation to fund the AES Loan and certain
other liabilities which, in the aggregate, do not exceed $6.0 million.
Dividend payments are subject to certain restrictions under
the Term Loan. No dividend distributions by the Joint Venture are permitted if
certain debt service coverage ratios are not met.
Power Purchase. The electric power from the power plant will
be purchased by Anhui Provincial Electric Power Corporation ("Anhui Power")
pursuant to a 20-year operation and offtake contract dated as of July 5, 1996,
between Wuhu Shaoda and Anhui Power. Under the power purchase contract, Anhui
Power has agreed to purchase a minimum amount of electricity at a price
calculated based upon an agreed tariff formula. In the event that the power
plant fails to generate electricity for a period in excess of that permitted for
maintenance and repair in the operation and offtake contract and such failure is
a result of force majeure or Wuhu Shaoda's failure to perform its obligations
under the operation and offtake contract, the minimum amount required to be
purchased by Anhui Power may be reduced in proportion to such excess shutdown
period, provided that in no event will the electricity payments to be made under
the operation and offtake contract be reduced below the amount necessary to
allow Wuhu Shaoda to pay all applicable financing costs under the Term Loan, the
AES Loan and the other shareholder loans.
Construction. The power plant is being designed, engineered
and constructed pursuant to a fixed price construction contract between Wuhu
Shaoda and Anhui Power. Pursuant to the construction contract, Anhui Power is
the principal contractor and is responsible for the timely and successful
completion of the power plant. Anhui Power has sub-contracted the design,
construction, installation and commissioning work to several of its
subsidiaries. Anhui Power is eligible for a bonus in the event of early
completion of a unit. If the power plant is not completed by August 1997, Anhui
Power is required by the operation and offtake contract nonetheless to commence
purchases of the minimum amount of electricity. The construction contract does
not obligate Anhui Power to provide guarantees of heat rate or capacity.
However, in the event that Anhui Power fails to achieve the design heat rate or
nameplate capacity of the power plant, the tariff formula set forth in the
operation and offtake contract increases the tariff payable by Anhui Power in a
manner that compensates Wuhu Shaoda for the reduction in heat rate and capacity.
An independent engineering company, Stone and Webster Management Consultants,
has been retained by the lenders of the Term Loan to monitor construction.
Interconnection and Dispatch. The power plant is
interconnected to the Anhui power grid and is subject to dispatch by Anhui Power
pursuant to an interconnection contract between Wuhu Shaoda and Anhui Power.
Fuel. As part of its obligations under the operation and
offtake contract, Anhui Power is required to supply such fuel as may be
necessary to allow the power plant to generate electricity purchased under the
operation and offtake contract.
Operation. Pursuant to the operation and offtake contract,
Anhui Power is responsible for the operation, maintenance and management of the
power plant. Anhui Power is responsible for ensuring that the power plant
generates the minimum amount of electricity required to be purchased by Anhui
Power and is required to compensate Wuhu Shaoda for any resulting shortfall in
such minimum amount, unless, as indicated above, the shortfall is the result of
force majeure or the failure of Wuhu Shaoda to perform its obligations under the
operation and offtake contract.
Hefei Prosperity Lake
The Power Plant. The Hefei Prosperity Lake power plant is an
oil-fired combined cycle power plant consisting of 2 x 38.2 MW gas turbine
generating units ("gas turbine unit") and a 1 x 38.8 MW heat recovery steam
turbine generating unit ("steam turbine unit"). It is located within the
boundaries of an existing 325 MW coal fired power plant in Hefei, Anhui
Province. Construction of the power plant commenced in November 1996. The gas
turbine unit is scheduled to commence commercial operation in the third quarter
of 1997 and the steam turbine unit is scheduled to commence commercial operation
in the third quarter of 1998.
Joint Ventures. The Hefei Prosperity Lake power plant is owned
by Anhui Liyuan AES Power Company Ltd. ("Liyuan-AES") and Hefei Zhongli Energy
Company Ltd. ("Zhongli Energy"), two 16-year cooperative joint ventures formed
among a wholly owned subsidiary of the Company, Hefei Municipal Construction and
Investment Company ("Hefei Construction") and Anhui Liyuan. In accordance with
the joint venture contracts, the Company is entitled to appoint four of the
seven members of the board of directors and the general manager of each of the
Joint Ventures.
Financing. The approved total investment in each of Liyuan-AES
and Zhongli Energy is $30.0 million. The approved registered capital of each of
Liyuan-AES and Zhongli Energy is $15.0 million. The Joint Venture partners in
Liyuan-AES and Zhongli Energy have committed to contribute registered capital to
each Joint Venture according to their respective ownership interests as follows:
(i) Anhui Liyuan, $3.0 million (20%), (ii) the Company, $10.5 million (70%) and
(iii) Hefei Construction, $1.5 million (10%). As of November 30, 1996, it is
estimated that the total cost of Hefei Prosperity Lake will be approximately
$64.7 million. The difference between the estimated total cost and the
registered capital of each Joint Venture will be financed through shareholder
loans or third party debt arranged by the Joint Venture partners. The Company
has entered into shareholder loan contracts with Liyuan-AES and with Zhongli
Energy pursuant to which the Company has committed to provide loans to the Joint
Ventures in an aggregate amount not to exceed $16.0 million.
Power Purchase. The power generated by the power plant is
purchased by Anhui Power pursuant to a 16-year operation and offtake contract,
dated September 26, 1996, between Liyuan-AES and Zhongli Energy, as the sellers,
and Anhui Power as power purchaser. Under the operation and offtake contract,
Anhui Power has agreed to purchase a minimum amount of electricity at an agreed
upon tariff formula or to compensate the Joint Ventures for any shortfall in
purchases of such minimum amount based on an approved tariff less approved
generation costs. Anhui Power's minimum take obligation under the operation and
offtake contract may be reduced in proportion to periods of power plant shutdown
or curtailment of generation due to events of force majeure or breach of the
operation and offtake contract by the Joint Ventures, provided that in no event
will the payments to be made under the operation and offtake contract be reduced
below the amount necessary to allow the Joint Ventures to pay all applicable
financing costs under the Joint Ventures' loan agreements.
Construction. The power plant is being designed, engineered
and constructed pursuant to a fixed-price construction contract between the
Joint Ventures and Anhui Mingda Power EPC Contract Company ("Mingda"), a wholly
owned subsidiary of Anhui Power. Pursuant to the construction contract, Anhui
Power is the principal contractor and is responsible for the timely and
successful completion of the power plant. Mingda is eligible for a bonus in the
event of early or on-time completion of the gas turbine unit and the steam
turbine unit but must pay penalties in the event of late completion or not
meeting performance guarantees, including heat rate and capacity guarantees. The
gas turbine unit and steam turbine unit have been ordered from GEC Alsthom
Centrales Energetiques S.A. ("GEC Alsthom"). GEC Alsthom will also provide the
conceptual design as a subcontractor to Mingda. If Mingda fails to complete the
gas turbine unit by August 1, 1997 and the steam turbine unit by July 1, 1998,
Anhui Power's minimum take or pay obligation for the minimum amount under the
operation and offtake contract nonetheless commences. An independent engineering
company, Black & Veatch International Company, has been retained by the Joint
Ventures to monitor construction.
Interconnection and Dispatch. The power plant is
interconnected to the Anhui power grid and is subject to dispatch by Anhui Power
pursuant to an interconnection contract between the Joint Ventures and Anhui
Power. Under the operation and offtake contract, Anhui Power, as the operator,
is required to indemnify the Joint Ventures for any loss or cost as a result of
the breach of the interconnection contract.
Fuel. As part of its obligations under the operation and
offtake contract, Anhui Power is required to supply such fuel as may be
necessary to allow the power plant to generate electricity to be purchased under
the operation and offtake contract.
Operations. Pursuant to the operation and offtake contract,
Anhui Power is responsible for the operation, maintenance and management of the
power plant. Anhui Power is responsible for ensuring that the power plant
generates the minimum amount and is required to compensate the Joint Ventures
for any resulting shortfall in the minimum amount, unless, as indicated above,
the shortfall is a result of force majeure or the failure of the Joint Ventures
to perform their obligations under the operation and offtake contract.
Wuxi Tin Hill
The Power Plant. The Wuxi Tin Hill power plant is an oil-fired
combined cycle power plant which consists of a 2 x 24 MW gas turbine generating
plant and a 15 MW heat recovery steam turbine generating plant located in Xishan
(previously known as Wuxi County), Jiangsu Province. The gas turbine generating
plant was completed and commenced commercial operation in March 1996 and the
heat recovery steam turbine generating plant commenced commercial operation in
the first quarter of 1997.
Joint Ventures. The Wuxi Tin Hill power plant is owned by
Wuxi-AES-CAREC Gas Turbine Power Company Ltd. ("Wuxi-AES-CAREC") and
Wuxi-AES-Zhonghang Power Co. Ltd. ("Wuxi-AES-Zhonghang"), two 16-year
cooperative joint ventures formed among the Company, China National Aero-Engine
Corporation ("CAREC") and Wuxi Power Industry Company ("Wuxi Power"). In
accordance with the joint venture contracts, the Company is entitled to appoint
four of the eight members of the board of directors, including the chairman of
the board, for each of the Joint Ventures, while CAREC and Wuxi Power each is
entitled to appoint two members. The chairman of the board of directors of each
Joint Venture has the right to break any tie board votes.
Financing. The approved total investment in Wuxi-AES-CAREC is
$29.5 million. The approved total investment in Wuxi-AES-Zhonghang is $10.5
million. The approved registered capital of Wuxi-AES-CAREC is $11.8 million and
the approved registered capital of Wuxi-AES-Zhonghang is $5.0 million. As of
November 30, 1996, the estimated total cost of this project was in line with the
approved total investment. The Company has contributed $6.5 million to the
registered capital of Wuxi-AES-CAREC and $2.8 million to the registered capital
of Wuxi AES-Zhonghang. CAREC and Wuxi Power each has contributed $2.7 million to
the registered capital of Wuxi-AES-CAREC and each has contributed $1.1 million
to the registered capital of Wuxi-AES-Zhonghang. The Company, CAREC and Wuxi
Power have entered into shareholder loan agreements with the Joint Ventures
pursuant to which they have provided loans to the two Joint Ventures pro rata in
accordance with their ownership interests.
Power Purchase. Power generated by the power plant is
purchased by the Xishan Electricity Management Office ("Xishan Office") under a
16-year power purchase contract, effective May 1995, between Wuxi-AES-CAREC and
Xishan Office. Wuxi-AES-CAREC sells the electricity generated by the steam
generating plant to Xishan Office on behalf of Wuxi-AES-Zhonghang under a
services agreement with Wuxi-AES-CAREC.
The power purchase contract requires Xishan Office to purchase
a minimum amount of 186 gigawatt hours ("GWh") of electricity per calendar year
from the power plant and to compensate the Joint Ventures for any shortfalls in
the purchase of such minimum amount based on the most recent tariff for
electricity less fuel costs. Pursuant to the power purchase contract, the
minimum amount of electricity which Xishan Office is required to purchase from
the Joint Ventures may be reduced by the number of peak time shutdown hours
which exceeds an agreed number of hours permitted for outages related to the
power plant.
During 1996, Xishan Office did not purchase the required
minimum amount of electricity under the power purchase contract and,
accordingly, is required to compensate the Joint Venture for the shortfall. The
parties have a disagreement over the amount of the required minimum take. Xishan
Office has paid 88% of the amount the Joint Venture believes is due but disputes
the balance. The parties also have a disagreement over the amount of
construction-period interest that is due in respect of shareholder loans
provided to the Joint Venture by its respective partners. The Company believes
that the amount at issue in these disagreements is not material to the financial
results of the Company.
Construction. The construction of the power plant has been
managed by the Joint Ventures. The gas turbines were supplied by United
Technologies Inc. ("United Technologies"). Pursuant to a maintenance contract
with the Joint Ventures, United Technologies will provide 10 years of service
and maintenance for the gas turbines. The balance of the plant has been provided
by Chinese manufacturers.
Interconnection and Dispatch. The interconnection facilities
were completed in March 1996 and the power plant is connected to the East China
Power Grid. The power plant is currently dispatched under an agreement between
Wuxi AES-CAREC and Xishan Power Supply Bureau. A dispatch contract between the
Joint Ventures and Jiangsu Provincial Power Bureau Dispatch Center for the
dispatch of the power plant is under negotiation.
Fuel. Wuxi-AES-CAREC has signed 16-year fuel oil supply
contracts with two local State-owned oil companies under the administrative
control of the Xishan municipal government. The fuel suppliers are obligated,
under the contracts, to pay damages for any failure to supply the power plant
with adequate quantities of fuel or fuel not meeting certain specifications. The
price of fuel oil to be supplied under these supply contracts is to be
negotiated annually. The oil companies are obligated to arrange for the
transportation of the fuel to the power plant.
Operation. The power plant is operated by Wuxi-AES-CAREC.
Aixi Heart River
The Power Plant. The Aixi Heart River power plant is a 50 MW
coal-fired circulating fluidized bed power plant located in Nanchuan, Sichuan
Province. Construction of the power plant commenced in February 1996, and is
expected to be completed in February 1998.
Joint Venture. The Aixi Heart River power plant is owned by
Sichuan Fuling Aixi Power Company Ltd. ("Fuling Aixi"), a 25-year cooperative
joint venture formed by Sichuan Fuling Banxi Colliery ("Banxi Colliery") and a
wholly owned subsidiary of the Company. The Company appoints three of the five
members of the board of directors as well as the chairman, the general manager
and financial controller.
Financing. The approved total investment in the Joint Venture
is $30.4 million ($30.0 million based on the Renminbi to US dollar exchange rate
at the time the approval was granted). The Joint Venture's approved registered
capital is $12.1 million. As of November 30, 1996, it is estimated that the
total cost of Aixi Heart River will be approximately $39.1 million. The Company
has committed to contribute $8.5 million to the registered capital of Fuling
Aixi and Banxi Colliery has committed to contribute $3.6 million to the Joint
Venture's registered capital. Pursuant to the construction and term loan
agreement with Fuling Aixi, the Company has committed to provide a loan in the
principal amount of up to $23.5 million to Fuling Aixi. Any difference between
the estimated total cost and the committed shareholder loan and approved
registered capital will be funded by additional equity contributed pro rata by
the shareholders.
Power Purchase. Electricity generated by the power plant will
be sold to Sichuan Fuling Power Company ("Sichuan Power") under a 25-year power
purchase contract. The power purchase contract requires Sichuan Power to
purchase a minimum of 270 GWh of electricity per calendar year. In the event
that Sichuan Power fails in any calendar year to purchase such minimum amount,
Sichuan Power is required by the power purchase contract to make payment for any
shortfall at the then current power price less fuel costs. Pursuant to the power
purchase contract, if Fuling Aixi fails to deliver electricity to Sichuan Power
by the construction completion date specified in the construction contract, it
is obligated to pay a penalty to Sichuan Power for each day of delay.
Construction. Fuling Aixi has entered into a construction
contract with Shanghai Electric to construct the power plant. Certain critical
components of the equipment of the power plant (including the coal fluidized bed
boilers and their design) are being supplied by Pyropower, Inc. ("Pyropower")
pursuant to a supply contract between Shanghai Electric and Pyropower. The
balance of the plant is being provided by Chinese manufacturers. Shanghai
Electric will provide a one-year warranty of its work. If Shanghai Electric
fails to complete construction of the power plant by the guaranteed completion
date, the contractor will be required to pay liquidated damages to Fuling Aixi
for each day of delay in an amount sufficient to compensate the Joint Venture
for penalties due to Sichuan Power under the power purchase contract for delayed
commercial operation of the power plant. Under the construction contract,
Shanghai Electric has guaranteed all the performance specifications of the power
plant, including output, heat rate and emissions. If the power plant fails to
achieve the performance specifications, Shanghai Electric will be obligated to
pay liquidated performance damages to Fuling Aixi.
Interconnection and Dispatch. Sichuan Power is responsible for
construction, and has guaranteed the completion, of the interconnection facility
by the power plant's performance testing date. If a delay in the completion of
the interconnection facility results in delays in commencement of the commercial
operation of the power plant, Sichuan Power is obligated to pay Fuling Aixi a
penalty for each day of delay. The dispatcher of the power plant has agreed to
dispatch the power plant at 100% of its operational capacity during peak hours
and at 75% of its operational capacity during off-peak hours.
Fuel. Fuling Aixi has entered into a 25-year coal supply
contract with Banxi Colliery. Any increase in the price of coal to be paid by
Fuling Aixi will only become effective under the coal supply contract when the
price of electricity payable by Sichuan Power has been increased to reflect the
increased coal cost. The occurrence of a force majeure event will not excuse
Banxi Colliery's obligations under the coal supply contract. Banxi Colliery is
also obligated to supply coal to the power plant in the case of non-payment by
Fuling Aixi for such coal if such non-payment was caused by a failure of Sichuan
Power to make a payment to Fuling Aixi under the power purchase contract. If the
coal supply contract is terminated by Fuling Aixi on account of Banxi Colliery's
default, Banxi Colliery is required to pay a termination charge to Fuling Aixi.
Operation. Fuling Aixi will operate the power plant.
Chengdu Lotus City
The Power Plant. The Chengdu Lotus City power plant is a 2 x
24 MW natural gas-fired power plant located in Chengdu, Sichuan Province.
Construction of the power plant commenced in September 1996 and is scheduled to
take 334 days.
Joint Venture. The Chengdu Lotus City power plant is owned by
Chengdu-AES-Kaihua Gas Turbine Power Co. Ltd. ("Chengdu AES-Kaihua"), a 16-year
cooperative joint venture formed by the Company, Chengdu Huaxi Electric Power
(Group) Shareholding Company Ltd. ("Huaxi"), Huachuan Petroleum & Natural Gas
Exploration Company ("Huachuan") and CAREC. The Company is entitled to appoint
three members of the nine-member board of directors of Chengdu AES-Kaihua and
the general manager.
Financing. The approved total investment in the Joint Venture
is $29.8 million. The Joint Venture's approved registered capital is $11.9
million. As of November 30, 1996, it is estimated that the total cost of Chengdu
Lotus City will be approximately $37.4 million. The Company has committed to
contribute $4.2 million to the registered capital of Chengdu AES-Kaihua. The
Company's joint venture partners have committed to contribute the following
amounts to the registered capital of the Joint Venture: Huaxi has committed to
contribute $3.0 million; Huachuan has committed to contribute $1.2 million; and
CAREC has committed to contribute $3.6 million. The Company, Huaxi and CAREC
have entered into support contracts with Chengdu AES-Kaihua pursuant to which
they have committed to arrange loans for Chengdu AES-Kaihua in the principal
amount of $25.3 million to fund the difference between their registered capital
contributions and the estimated total cost of the Joint Venture.
Power Purchase. Electricity generated by the power plant is to
be sold to Huaxi under a 15-year power purchase contract. The power purchase
contract requires Huaxi to purchase, in each calendar year, 3,000 hours of
electric power based on the net station capacity of the power plant declared by
Chengdu AES-Kaihua to be available in such year. If Huaxi fails, for any reason
(including due to the failure of the interconnection facilities or natural gas
pipeline to be completed), to accept electric power which is made available by
Chengdu AES-Kaihua, Huaxi is required by the power purchase contract to pay
Chengdu AES-Kaihua for the electricity made available at the then current power
price less fuel costs.
The tariff payable by Huaxi under the power purchase contract
is established annually by the board of directors of Chengdu AES-Kaihua in
accordance with a budget which estimates the costs of generating the minimum
amount in the following year. The estimated power price becomes the price
payable by Huaxi in such following year after its approval by the Chengdu
pricing bureau. Any differences between the estimated power price and the actual
costs per kWh incurred by Chengdu AES-Kaihua are recovered each year by means of
a true-up mechanism.
Construction. Chengdu AES-Kaihua has entered into a
construction contract with CAREC to construct the power plant. The principal
equipment for the power plant, the gas turbine generator sets, is being provided
to Chengdu AES-Kaihua pursuant to a supply contract between CAREC and United
Technologies. All performance guarantees (including damages for failures to meet
heat rate and output guarantees) and warranties of United Technologies under the
supply contract have been assigned by CAREC to Chengdu AES-Kaihua. The balance
of the plant is being provided by Chinese manufacturers. An independent
engineering company, Duke/Fluor Daniel International, has been retained by the
Joint Venture to manage scheduling and to ensure equipment performance
compliance.
Interconnection and Dispatch. The interconnection facility is
to be constructed by Huaxi. Chengdu AES-Kaihua has agreed to provide Huaxi with
a loan of RMB(Y)15.0 million for the construction of the interconnection
facilities. The Joint Venture has entered into a dispatch contract with the
Sichuan Dispatch Center, pursuant to which the dispatcher of the power plant has
agreed to dispatch the power plant.
Fuel. Chengdu AES-Kaihua has entered into a 15-year gas supply
contract with Huachuan for the supply of natural gas to the power plant. The gas
supply contract requires Huachuan to provide a minimum annual quantity of
natural gas to the Chengdu facility which meets certain specifications at a
price set by the Chengdu municipal pricing bureau. Any increase in the price of
gas to be paid by Chengdu AES-Kaihua will only become effective under the gas
supply contract when the price of electricity payable by Huaxi under its power
purchase contract has been increased to reflect the increased cost. If Huachuan
fails, on any occasion, to deliver gas in the quantities and specifications
required by Chengdu AES-Kaihua, Huachuan is obligated under the gas supply
contract to indemnify Chengdu AES-Kaihua for the total revenue lost by Chengdu
AES-Kaihua due to such failure. Huachuan is also obligated to continue supplying
natural gas to the power plant in the case of non-payment by Chengdu AES-Kaihua
for such natural gas if such non-payment was caused by a failure of Huaxi to
make payment to Chengdu AES-Kaihua under the power purchase contract.
Chengdu AES-Kaihua may terminate the gas supply contract for
Huachuan's breach of contract, including its failure to deliver natural gas. If
Chengdu AES-Kaihua terminates the contract, Huachuan must pay a termination
charge similar to the termination charge payable under the power purchase
contract. If Huachuan pays this termination charge, the termination charge for
which Huaxi would be liable under the power purchase contract as a consequence
of Huachuan's default is not applicable. Upon any such payment, Chengdu
AES-Kaihua is obligated to transfer the power plant and related gas
interconnection facility to Huachuan.
Operation. Chengdu AES-Kaihua will operate the power plant.
Cili Misty Mountain
The Power Plant. The Cili Misty Mountain power plant, located
in Cili County, Hunan Province, consists of a 5.2 MW hydroelectric generating
unit ("unit 1"), and two 10.5 MW hydroelectric generating units ("unit 2" and
"unit 3"). Unit 1, the original power plant, has been in commercial operation
since 1979. Unit 2 went into commercial operation in May 1996 and unit 3 went
into commercial operation in February 1997.
Joint Venture. The Cili Misty Mountain power plant is owned by
Hunan Xiangci-AES Hydro Power Company Ltd. ("Xiangci-AES"), a 25-year joint
venture formed by Hunan Cili Electric Power Company ("Cili Electric Power") and
the Company. The Company appoints three of the five members of the Joint
Venture's board of directors, and appoints the general manager.
Financing. The approved total investment and approved
registered capital of Xiangci-AES is $14.7 million. The Company contributed $7.5
million to the registered capital of Xiangci-AES and Cili Electric Power
contributed all of the assets of the previously existing and operating unit 1
and all of the equipment and materials purchased for the construction of unit 2
and unit 3 which, at the time of the Company's equity contribution to
Xiangci-AES, were being incorporated into the project by Cili Electric Power.
All liabilities of the power plant incurred prior to the establishment of
Xiangci-AES are the sole obligation of Cili Electric Power. As of November 30,
1996, the estimated total cost of this project was in line with the approved
total investment.
Power Purchase. Electricity generated by the power plant is
sold by Xiangci-AES to Cili Electric Power pursuant to a 25-year power purchase
contract. Cili Electric Power is required by the terms of the power purchase
contract to purchase all of the electricity generated by the power plant and to
use its best efforts to purchase electricity in excess of 120 GWh. Since the
power plant utilizes hydro power, the extent to which the power plant is able to
generate electric power depends upon the flow of river water. Due to a drought
in the area, the power plant was not able to generate 120 GWh in 1996.
Additionally, Cili Electric Power has indicated to the Joint Venture that load
growth in Cili County is likely to be less than anticipated in the near future.
Because the power plant is located in an area served by an isolated transmission
grid, the Joint Venture is planning to incur additional costs to build a 36
kilometer low voltage transmission line to connect the power plant with the
Hunan provincial grid and the larger market it serves. The power purchase
contract provides that payment for electricity purchased by Cili Electric Power
is based on a tariff which is the higher of a minimum rate and a market rate.
Construction. Pursuant to the terms of the joint venture
contract, all of the capital contributed by the Company to Xiangci-AES is to be
used to complete construction of unit 2 and unit 3. Cili Electric Power was
responsible under the terms of the joint venture contract for completing the
construction of unit 2 and unit 3. Work on unit 2 and unit 3 began in September
1991, with completion originally targeted for June 1995. Construction of unit 2
was completed and it began commercial operation in May 1996. However, due to
problems with installation and an equipment defect, construction of unit 3 was
delayed. Xiangci-AES has entered into an agreement with Cili Electric Power
pursuant to which the Joint Venture directly assumed the work of completing the
construction of unit 3. Cili Electric Power has been discharged from any further
obligation to complete the power plant.
Interconnection and Dispatch. The power plant is
interconnected to the Cili County power grid. The power plant is dispatched by
Cili Electric Power.
Operation. Xiangci-AES operates the power plant.
Yangchun Sun Spring
The Power Plant. The Yangchun Sun Spring power plant, located
in Yangchun, Guangdong Province, consists of one existing 8.6 MW diesel engine
generating facility which was constructed prior to the Company's involvement,
and another 6.5 MW Stork-Wartsila diesel engine generating facility which
commenced commercial operation in April 1996.
Joint Venture. Yangchun Sun Spring is owned by Yangchun Fuyang
Diesel Engine Power Co. Ltd. ("Yangchun Fuyang"), a 12-year cooperative joint
venture formed by Yangchun Municipal Power Supply Company ("Yangchun Power
Supply"), Shenzhen Futian Gas Turbine Power Co., Ltd. ("Shenzhen Futian") and a
wholly owned subsidiary of the Company. The Company has the right to appoint one
of the four members of the board of directors of the Joint Venture.
Financing. The Company and Shenzhen Futian each has
contributed $2.3 million in cash to Yangchun Fuyang for their respective 25%
ownership interests. Yangchun Power Supply has contributed land use rights, and
all the fixed assets of the existing plant and all the equipment and materials
purchased for the unit then under construction as its registered capital for a
50% ownership interest in Yangchun Fuyang.
Power Purchase. The electricity generated from the power plant
is purchased by Yangchun Municipal Power Supply Bureau ("Yangchun Power Bureau")
under a 12.5-year power purchase contract. The Yangchun Power Bureau is required
by the power purchase contract to purchase at least 34.4 GWh each year
commencing on January 1, 1995 and at least 58 GWh each year after December 31,
1995. The Yangchun Power Bureau is required to pay for such minimum amounts of
electricity even if it does not or cannot purchase such minimum amounts. The
Yangchun Power Bureau's payment obligation is secured by a pledge of the annual
profit from a 13 MW hydro power plant owned by the Yangchun City People's
Government.
Construction and Management. Yangchun Fuyang and Yangchun
Power Supply have entered into a 12.5-year construction and management contract.
The contract calls for Yangchun Power Supply to assume full responsibility for
the operation and maintenance of the power plant on behalf of Yangchun Fuyang in
compliance with the power purchase contract, and to supply fuel to the power
plant. The construction and management contract provides for scheduled
distributions to the Company and Shenzhen Futian beginning on March 31, 1996 and
continuing on a semi-annual basis for the remainder of the contract term. The
amounts are adjusted if the foreign exchange rate between the U.S. dollar and
Renminbi exceeds or falls below specified thresholds. Yangchun Power Supply has
pledged its registered capital interest in Yangchun Fuyang as security for its
obligations to make scheduled distributions to the Company and Shenzhen Futian
under the construction and management contract.
Interconnection and Dispatch. The power plant is
interconnected to the Yangchun municipal power grid. The power plant is
dispatched by the Yangchun Electric Dispatch Office pursuant to a dispatch
contract between the Joint Venture and the Yangchun Power Bureau.
Fuel. Fuel oil required for the power plant is supplied by
Yangchun Power Supply.
Operation. Yangchun Fuyang operates the power plant.
Description of the Potential Projects
This section contains descriptions of projects, other than the
Current Projects, for which the Company has signed a joint venture contract.
However, in none of the following projects has the Company funded its equity
contribution to the registered capital of the joint venture. After the
Amalgamation, the ability of the Company to make investments in the Potential
Projects would be substantially limited by the AES Debt Covenants.
Under PRC law, joint venture contracts only become effective
after issuance of certain required government approvals. Some of the Company's
joint venture contracts and project contracts for projects in development are
also subject to the satisfaction or waiver of certain significant contractual
conditions precedent. The conditions precedent specified in such contracts must
be satisfied before the Company will contribute to the registered capital of the
applicable joint venture. These conditions precedent may include the negotiation
and execution of further substantial project contracts or the receipt of certain
government approvals.
Some of the required government approvals have not been
obtained for each of the projects described in this section and receipt of such
approvals is not certain. In addition, substantial uncertainties exist with
regard to the ability of the parties to the joint venture contracts and other
project contracts to satisfy the conditions precedent in those documents.
Certain of these conditions involve subjective determinations by one or more
parties enabling the parties, by the terms of the contracts, to exercise
considerable discretion in making such determinations. No assurances can be
given that governmental approvals will be received, conditions precedent will be
satisfied, or that the joint ventures described in this section will be funded.
The projects described in this section are at various stages
of negotiation and discussion. The Company and PRC Government authorities,
including power bureaus, pricing bureaus, industrial customers and other third
parties, must still reach agreement on a number of commercial and technical
issues. There can be no certainty that the parties to these negotiations will
reach agreement with the Company and that the projects described in this section
will be completed. Moreover, the final terms of the contracts relating to these
projects may differ materially from the terms described below, and the terms may
be revised even after a joint venture contract or other project contract has
been signed or becomes effective. The Company may also decide from time to time
to change its investment strategies regarding development of the projects
described in this section. Among other things, the Company may increase the
levels of registered capital contemplated for such projects. Furthermore, the
Company may in the future be unable to, or elect not to, proceed with one or
more, or any, of the projects described in this section. The Company in the past
has signed a number of joint venture contracts for projects that it is no longer
pursuing.
Yangcheng Sun City
The Yangcheng Sun City power plant is a 6 x 350 MW coal-fired
power plant to be located near Yangcheng, Shanxi Province. The Yangcheng Sun
City power plant is to be owned by Yangcheng International Power Generating
Company Ltd. ("Yangcheng International Power"), a 20-year cooperative joint
venture formed by North China Electric Power Group Corporation ("North China
Power"), Jiangsu Province Investment Corporation ("Jiangsu Investment"), Shanxi
Energy Enterprise (Group) Company ("Shanxi Energy"), Shanxi Provincial Power
Company ("Shanxi Power"), Jiangsu Provincial Power Company ("Jiangsu Power") and
the Company.
The approved total investment in Yangcheng International Power
is approximately $1.6 billion. The approved registered capital of Yangcheng
International Power is 25% of the total investment, equal to $392.9 million. The
respective ownership interests of the shareholders in Yangcheng International
Power are as follows: the Company-25%, North China Power-25%, Jiangsu
Investment-20%, Shanxi Energy-16%, Shanxi Power-10% and Jiangsu Power-4%. Hence,
the Company's registered capital contribution will be approximately $98.2
million. The difference between the total investment and the total registered
capital of the joint venture is expected to be financed through debt arranged or
guaranteed by the Chinese parties. It is anticipated that export credit agency
loan guarantees from the Export-Import Bank of the United States and Hermes
Kreditversicherungs-Aktiengesellschaft of approximately $800 million will be
provided to Yangcheng International Power. The export credit agency loan
guarantees are expected to be supported by guarantees from the Construction Bank
of China.
Pursuant to the joint venture contract, the Company is
entitled to appoint two members of the nine-member board of directors of
Yangcheng International Power, one of the three vice chairmen, and a deputy
general manager of the power plant.
Preliminary work on the site has begun. Equipment supply
contracts were executed in Beijing in September 1996 with Siemens Ltd., which
will supply the turbines and generators, and with Foster Wheeler Energy
International, which will supply the boilers. Shanxi Power has been selected as
the turnkey contractor, and negotiations are currently underway with Shanxi
Power on the engineering, procurement and construction contract.
It is anticipated that the power plant will require five years to be completed.
The power plant will primarily utilize local sources of
low-cost anthracite coal. The coal is available from several coal mines owned
and operated by Shanxi provincial government entities located within 30
kilometers of the power plant site. Long-term fuel supply contract negotiations
with Shanxi Provincial Coal Sales and Transportation Company will commence in
the near future. It is anticipated that the project will also be operated by
Yangcheng International Power.
Electric power from the plant will be transmitted over a 730
kilometer transmission line to Jiangsu Power in Jiangsu Province, on the eastern
coast of China. The construction of the transmission line is not part of the
investment of the joint venture. It will be constructed and financed by the
Chinese shareholders in Yangcheng International Power pursuant to a separate
arrangement.
Following State Planning Commission approval of the project
feasibility study in March 1996, negotiations commenced on the principal project
agreements.
The ability of the Company to make an investment in the
Yangcheng Sun City project following the Amalgamation is contingent on, among
other things, the consent of the Company's partners in such project and the
approval of the relevant PRC Government authorities.
Other Potential Projects
Tianjin TEDA. The Tianjin TEDA power project, to be located in
the Tianjin Economic-Technological Development Area near Tianjin, is a 100 MW
coal-fired cogeneration project consisting of 3 x 220 ton circulating fluidized
bed boilers and 2 x 50 MW steam turbine units. The first phase will consist of
one boiler and one steam turbine. The Tianjin TEDA power plant is to be owned by
the Tianjin TEDA AES Power Company Ltd., a 20-year cooperative joint venture
formed by a wholly owned subsidiary of the Company and the Tianjin Economic
Development Corporation ("Tianjin Development"). Total investment in the joint
venture is expected to be approximately $95 million. Registered capital of the
joint venture is expected to be 40% of the total investment. Unless third-party
debt can be arranged, the parties will contribute shareholder loans representing
60% of the total investment. The Company has a 70% ownership interest and
Tianjin Development has a 30% ownership interest in the joint venture.
Applications for approval of the project have been made to the State Planning
Commission and MOFTEC. The joint venture contract will become effective upon
satisfaction of certain conditions precedent.
Nanpu Southern Delta. The Nanpu Southern Delta power plant, to
be located in Huian County Fujian Province, is a 700 MW coal-fired power plant
consisting of 2 x 350 units. The Nanpu Southern Delta power plant is to be owned
by the Fujian Nanpu Power Company Limited, a 19-year cooperative joint venture
formed by the Company, the Fujian Provincial Power Bureau ("Fujian Power") and
CPI. The total investment in the joint venture is expected to be approximately
$600 million and the registered capital is expected to be approximately $150
million. The project costs in excess of the registered capital are expected to
be financed through limited-recourse project financing. CPI and Fujian Power
have committed to obtain, on behalf of the project company, all necessary
approvals, including those from the State Planning Commission, MOFTEC and SAFE.
Negotiation of the power purchase contract and other project documents has
commenced. The project has received its initial project approval from the State
Planning Commission, and Fujian Power has commenced the preliminary design work
for the power plant at its own cost.
The ability of the Company to make an investment in the Nanpu
Southern Delta project following the Amalgamation is contingent on, among other
things, the consent of the Company's partners in such project and the approval
of the relevant PRC Government authorities.
Employees
At January 31, 1997, the Company employed 69 people, 24 of
whom are involved in operations or construction.
Passive Foreign Investment Company Status
The Company has determined that it was not a Passive Foreign
Investment Company ("PFIC") for U.S. federal income tax purposes for its fiscal
years ended November 30, 1995 and 1996. However, the Company has determined
that, subject to the "start-up" exception discussed below, it was a PFIC for its
initial taxable year, the fiscal year ended November 30, 1994, due to the fact
that, pending the investment of its funds in electric power generation projects
in China, the Company had invested in marketable securities that constituted
assets giving rise to passive income. The Company believes that it retroactively
avoided PFIC status for the fiscal year ended November 30, 1994 by qualifying
under the so-called "start-up" exception. Under this exception, a corporation
that would otherwise be a PFIC with respect to its initial taxable year will
generally not be so treated if it is not a PFIC in each of the succeeding two
years. Since the rules regarding PFICs are very complicated, U.S. shareholders
should consult their own tax advisors for further information.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales.
Not applicable.
Item 2. Properties
The Company leases its principal office in Beijing, People's
Republic of China. The Company also leases a regional office in Hong Kong. The
Beijing lease expires in July 1997. The Company's regional office in Hong Kong
is comprised of two floors with the lease expiring in May 1997.
The following table shows the material properties which the
Company's subsidiaries and other joint ventures in which the Company invests
lease or for which they have land use rights.
Expiration or Approximate Plant
Plant or Project Location Land Use Rights Term of Land Use Area Description
Rights
- --------------------- --------------------- ---------------- ------------------- -------------- ---------------
Anhui Liyuan-AES 7 Dang Shan Road, Lease of Land March 28, 2012 13,850 m2* Oil-fired
Power Company Ltd. Hefei City, Anhui Use Right Combined
Province, People's Cycle
Republic of China Gas-steam
Turbine
Facility
Chengdu AES-Kaihua Sichuan Sino-US Acquisition of March 2045 21,722 m2 Natural
Gas Turbine Power (Foreign) Medium & Land Use Right Gas-fired
Co. Ltd. Small-sized Simple Cycle
Enterprises Gas Turbine
Development Zone, Facility
Jin Tang County,
Sichuan Province,
People's Republic
of China
Hefei Zhongli 7 Dang Shan Road, Lease of Land March 17, 2012 13,850 m2* Oil-fired
Energy Company Ltd. Hefei City, Anhui Use Right Combined
Province, People's Cycle
Republic of China Gas-steam
Turbine
Facility
Hunan Xiangci-AES Chao Wang Ta Yi Transfer / October 7, 2019 48,110 m2 Hydroelectric
Hydro Power Company Zu and Pi Pa Zhou Assignment of Facility
Ltd. Tou, Chengguan, Land Use Right
Cili County,
Hunan Province,
People's Republic
of China
Jiaozuo Wan Fang Zhao Zhang Gong Transfer / April 25, 2019 481,490 m2 Pulverized
Power Company Ltd. Village, Dong Kong Assignment of Coal-fired
Zhuang Village, Land Use Right Facility
Daiwang Town,
Machun District,
Jiaozuo City, Henan
Province, People's
Republic of China
Sichuan Fuling Aixi Qiaobang Village, Acquisition of March 24, 2026 140,977 m2 Coal-fired
Power Company Ltd. Longhua Town, Land Use Right Circulating
Nanchuan City, Fluidized Bed
Sichuan Province, Boiler
People's Republic Facility
of China
Wuhu Shaoda Xi He Shan, Wuhu Lease of Land July 10, 2008+ 41,658 m2 Coal-fired
Electric Power City, Anhui Use Right Facility
Development Company Province, People's
Ltd. Republic of China
Wuxi-AES-CAREC Gas Xi Zhang Village Acquisition of November 22, 2012 73,103 m2* Oil-fired Gas
Turbine Power and Sheng Feng Land Use Right Turbine
Company Ltd. Village, Qianqiao Facility
Town, Xishan City,
Jiangsu Province,
People's Republic
of China
Wuxi-AES-Zhonghang Xi Zhang Village Acquisition of November 22, 2012 73,103 m2* Heat Recovery
Power Company Ltd. and Sheng Feng Land Use Right Steam Turbine
Village, Qianqiao Facility
Town, Xishan City,
Jiangsu Province,
People's Republic
of China
Yangchun Fuyang Side of Kongdong Transfer / March 26, 2045 625 m2 Diesel Engine
Diesel Engine Power 110kV Substation, Assignment of Facility
Co. Ltd. Chuncheng Town, Land Use Right
Yangchun City,
Guangdong Province,
People's Republic
of China
- ---------------------------
* Land use rights shared by two plants or projects at the same location.
+ The lessor is Wuhu Energy Development Company ("WED") which is granted the
land use rights of the site by the State for a term of 40 years up to April
16, 2036. WED guaranteed to extend the lease term with the joint venture
prior to its expiration, and obtain the required registration with the Land
Bureau to ensure that the joint venture has the land use right of the site
for its entire term of operations.
Item 3. Legal Proceedings
On November 22, 1996, an action was filed against AES in the
Court of Chancery of the State of Delaware in and for New Castle County, by a
holder of 750 shares of AES Chigen Class A Common Stock, individually and on
behalf of a purported class of public shareholders of the approximately 8.2
million outstanding AES Chigen Class A Common Stock. The complaint seeks
preliminarily and permanently to enjoin AES from acquiring the outstanding
shares of AES Chigen which it does not already own. In addition, the complaint
seeks unspecified damages, including attorneys' fees and costs.
AES Chigen is not named in the suit. Plaintiff's allegations
state that AES, as the controlling shareholder of AES Chigen, breached its
fiduciary duties to treat the plaintiff class with entire fairness in connection
with AES's execution of an agreement with AES Chigen to acquire the outstanding
AES Chigen Class A Common Stock at an allegedly grossly inadequate price.
The parties have entered into a stipulation extending, until
March 24, 1997, AES's time to answer, move or otherwise plead to the complaint
and answer or object to plaintiff's pending document production request.
Plaintiff has the right to move for an order requiring an earlier response. AES
has informed AES Chigen that it believes that it has meritorious defenses to the
lawsuit and intends to defend against it vigorously. The parties to the
Amalgamation Agreement intend to proceed with the Amalgamation, subject to
shareholder approval and the satisfaction of the other conditions contained in
the Amalgamation Agreement, unless enjoined.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
(a) Market Information
The Class A Common Stock is quoted on the National Association
of Securities Dealers Automated Quotation ("NASDAQ") National Market System
under the symbol "CHGNF". The following table sets forth, for the periods
indicated, the high and low sales prices for the Class A Common Stock as
reported by NASDAQ National Market System. There is no market for the Class B
Common Stock.
1996 Fiscal Quarters High Low
------------------------ ------ -------
First Quarter 9 1/4 7 1/2
-------------------------
Second Quarter 10 1/2 8 3/8
-------------------------
Third Quarter 10 5/8 8 5/8
-------------------------
Fourth Quarter 14 8 1/2
1995 Fiscal Quarters High Low
------------------------- ------ -------
First Quarter 10 3/4 8 1/4
-------------------------
Second Quarter 9 1/4 8
-------------------------
Third Quarter 10 3/4 8
-------------------------
Fourth Quarter 10 1/8 8 1/8
The foregoing quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
(b) Holders
As of January 31, 1997, there were approximately 171 record
holders of the Class A Common Stock. AES is the only holder of Class B Common
Stock.
(c) Dividends
No dividends were paid on the Class A Common Stock or Class B
Common Stock during the years ended November 30, 1996 and 1995. The Company does
not currently intend to pay dividends in the foreseeable future. See "Discussion
and Analysis of Financial Condition and Results of Operations" for a discussion
of current and potential restrictions on the ability of the Company and its
project companies to pay dividends, which discussion is incorporated herein by
reference.
(d) Bermuda Law
The Company is organized under the laws of Bermuda. No Bermuda
withholding tax is imposed on dividends paid by the Company. No reciprocal tax
treaty affecting the Company exists between Bermuda and the United States.
Item 6. Selected Financial Data.
(in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------
For the Years Ended November 30, 1996 and 1995
For the Period from December 7, 1993 (inception) to November 1996 1995 1994
30, 1994
- --------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA
Revenue $ 9,212 $ 1,382 $ 38
Operating costs and expenses 8,867 9,894 6,995
Operating income/(loss) 345 (8,512) (6,957)
Income/(loss) before taxes and minority interest 4,804 2,223 (368)
Net income/(loss) 4,140 2,138 (371)
Net income/(loss) per share 0.26 0.12 (0.03)
Cash dividend per share 0 0 0
- --------------------------------------------------------------------------------------------------------------------
As of November 30 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $ 280,698 $ 229,871 210,870
Loans from minority shareholders (long-term) 34,933 6,666 0
Shareholders' equity 190,355 187,585 201,584
Item 7. Discussion and Analysis of Financial Condition and Results of
Operations.
The Company, directly and through its wholly owned offshore
subsidiaries, engages in the development, construction, operation and ownership
of electric power generating facilities in the PRC by means of its participation
in joint ventures. The Company currently owns interests in eight power plants
with an aggregate nameplate capacity of approximately 818 MW. See "Description
of the Current Projects." The Company is considering an investment in Yangcheng
Sun City, a project with an aggregate nameplate capacity of 2,100 MW, and is
also considering investments in two other power projects. See "Description of
the Potential Projects." After the Amalgamation, the Company's ability to invest
in projects will be substantially limited by the AES Debt Covenants.
Because of the significant magnitude and complexity of
constructing electric power plants in the PRC, construction periods generally
range from one to five years, depending on the size of the power plant, the
technology utilized and the location. A power plant does not produce revenues
until it is completed. If construction is delayed, revenues from the power plant
will be similarly delayed and perhaps, if the delay is extended, lost.
Additionally, the cost of developing power plants is substantial. The Company
capitalizes its development costs and seeks to recover them at the financial
closing of a power plant and by amortizing them over the life of the Joint
Venture. However, if a power plant under development is abandoned or not
financed and completed, such development costs may be unrecoverable.
The construction of an electric power generation plant,
including its ancillary facilities such as a transmission line or substation,
may be adversely affected by many factors commonly associated with the
construction of infrastructure projects, including shortages of equipment,
materials and labor, as well as labor disputes, adverse weather conditions,
natural disasters, accidents and other unforeseen circumstances and problems.
Any of these could cause completion delays and cost overruns. Delays in
obtaining requisite licenses, permits or approvals from government agencies or
authorities could also increase the cost or delay or prevent the commercial
operation of a project. Construction delays can result in the loss or delayed
receipt of revenues and, if completion is delayed beyond the completion date
specified in the power purchase contract, the payment of penalties.
Additionally, the failure to complete construction according to specifications
can result in reduced plant efficiency, higher operating costs and reduced or
delayed earnings.
The economics of any electric power project, once in
commercial operation, are primarily a function of the tariffs to be paid and the
quantity of electricity which is purchased. The Company shares in the net income
of the Joint Ventures for the duration of their terms. The Joint Ventures
generate revenues through the sale of electricity to power purchasers pursuant
to long-term power purchase contracts. These contracts require the power
purchaser to purchase and pay for minimum quantities of electricity annually or
to pay for such quantities if not purchased, in either case at prices determined
according to tariff formulas set forth in the power purchase contracts. These
tariff formulas are designed, based on the minimum take obligation of the power
purchaser, to be sufficient to pay the operating costs and financing costs of
the project and to enable the Company to realize a return on its investment.
While the relevant PRC pricing bureaus have committed to
utilize the Joint Ventures' formulas in establishing and adjusting tariffs,
there can be no assurance that the relevant pricing bureaus will calculate and
adjust tariffs in accordance with these tariff formulas. On April 1, 1996, a new
law governing the electric power sector in the PRC came into effect. The law
establishes, among other things, broad principles with respect to the
methodology of calculating and setting electric power tariffs. Detailed
regulations with respect to tariff calculation and tariff setting are expected
to be promulgated in the near future by the Central Government. There can be no
assurance that such regulations, when promulgated, will not adversely affect the
tariff structures which the Company's Joint Ventures have adopted.
Demand for power produced by a power plant is determined by
the demand for electric power in the area served by the power plant and the
degree to which the power plant is dispatched. If the plant is dispatched above
the minimum quantity required to be purchased under the power purchase contract,
these sales will generate additional income for the joint venture and enhance
its profitability. If demand is significantly below the minimum level, the joint
venture can look only to the credit of the power purchaser to pay the required
amount. The Company focuses its development efforts on power plants that will
provide power to areas of high demand relative to existing and planned capacity.
Some regions or cities in the PRC have experienced slower
economic development in recent years. As a consequence, load growth in the PRC,
while generally increasing in the country overall, has exhibited uneven
development. Some of the Joint Ventures' power plants are designed to provide
peaking power. Such plants are dispatched only after base load power stations
have been brought on-line and reached maximum capacity. If electric power demand
proves less than expected in an area, additional peak or base load power may not
be required in the area or may be required at lower than expected levels. The
Company's Joint Ventures seek to mitigate this risk by entering into take-or-pay
power purchase arrangements and by entering into dispatch contracts with PRC
electric power dispatching authorities which obligate the dispatchers to
dispatch the power plants at their full capacity for a minimum number of hours
each year. There can be no assurance, however, that the Joint Ventures will not
experience difficulty in enforcing take or pay contract obligations or such
dispatch contract obligations if electric power in an area proves not to be
needed by the affected power purchaser and dispatcher.
The operation of an electric power generation plant may be
adversely affected by many factors such as the breakdown or failure of equipment
or processes, performance below expected levels of output or efficiency, labor
disputes, operational errors, natural disasters, and the need to comply with the
directions of the relevant government authorities, the dispatcher and power
purchaser of a power plant. In addition, such operation may be hampered by
insufficient or poor quality fuel caused by either inadequate supply or
transportation or arrangements therefor.
In all of its projects, the Company and its Joint Ventures are
relying on the reliability and creditworthiness of PRC entities such as its
partners, contractors, customers, suppliers, operators, guarantors, lenders and
others who are parties to agreements with the Company or its Joint Ventures.
While the Company believes that these counterparties have the ability to perform
and will perform their obligations, the reliability and creditworthiness of PRC
entities are difficult to ascertain. In most cases, the Company, in assessing
the reliability and credit standing of counterparties, is relying on financial
or other information provided to the Company or its Joint Ventures by such
parties or others, or from information and sources publicly available in the
PRC. The Company can offer no assurance that this information is accurate or
that these counterparties will meet their contractual obligations. The failure
of any one of these counterparties to fulfill its obligations to a Joint Venture
could have a substantial negative impact on such Joint Venture's operations.
In a number of cases, the Company's partner in a Joint Venture
controls or is affiliated with the power purchaser, contractor, operator and/or
fuel supplier of the project. It is possible, in these cases, that such
arrangements may result in one or more of these parties having a conflict of
interest in a project, which could have an adverse effect on the Joint Ventures'
operations.
The Company receives cash from the Joint Ventures in the form
of equity distributions and payments of principal and interest on shareholder
loans made by the Company or by its wholly owned subsidiaries to the Joint
Ventures. In a number of cases, the Company has, or anticipates having, priority
in the payment of dividends over the Chinese partners to the Joint Venture. The
Company's shareholder loans rank as general obligations of the Joint Ventures,
except in some instances in which third party financing has been secured or will
be secured for the Joint Venture. Under these circumstances the shareholder
loans generally are, or will be, subordinated to such third party debt.
The Company's revenue growth will depend in large part on the
Company's ability to bring the Joint Ventures' power plants currently under
construction into commercial operation. The Company's revenue growth will also
depend on its ability to secure financing and achieve financial closing,
construction completion and commercial operation of the Potential Projects and
other future project opportunities, subject to the limitations that would be
imposed by the AES Debt Covenants following the Amalgamation.
Results of Operations
The discussion set forth below relates to the results of
operations and financial condition of the Company for, and as of the end of, the
years ended November 30, 1996 and 1995 and the year ended November 30, 1995 and
the period from December 7, 1993 (the date of the Company's establishment) to
November 30, 1994, and the following should be read in conjunction with the
Consolidated Financial Statements of the Company included elsewhere in this
Annual Report on Form 10-K.
Years ended November 30, 1996 and 1995
Revenues and Costs of Sales. Total revenues increased from
approximately $1.4 million to $9.2 million from 1995 to 1996. Costs of sales,
which include fuel, operations and maintenance expenses, depreciation and
amortization, increased from approximately $600,000 to $5.4 million from 1995 to
1996. The increases in revenues and costs of sales were due primarily to the
commencement of operations of the Wuxi Tin Hill project. The increase in
revenues generated in 1996 from the operations of the Wuxi Tin Hill project was
offset, in part, by a decrease in revenues generated pursuant to the payment of
construction delay fees paid by the contractor of the Cili Misty Mountain
project. The Company was entitled to construction delay payments from the
contractor through March 11, 1996 to compensate for the lost generation.
Development, Selling, General and Administrative Expenses.
Development, selling, general and administrative expenses decreased $5.8 million
from $9.3 million in 1995 to $3.5 million in 1996. The decrease was primarily
due to the capitalization of a higher proportion of development costs associated
with projects which have achieved financial closing or which have achieved
certain project-related milestones.
Interest Income. Interest income in 1996 and 1995 was
primarily generated by income from marketable securities purchased with the
proceeds received from the Company's 1994 initial public offering. Interest
income in 1996 decreased $4.1 million from $10.5 million to $6.4 million
compared with 1995. The decrease in interest income for 1996 was primarily due
to a lower average amount of funds available for marketable securities
investment due to capital investments in Joint Ventures, as well as the
repurchase of a portion of the outstanding shares of the Class A Common Stock.
Interest Expense. In 1996, interest expense of $1.1 million
related primarily to the interest on two minority shareholder loans to
Wuxi-AES-CAREC.
Amalgamation Cost. In 1996, amalgamation cost of $1.4 million
related to expenses incurred in pursuing the proposed Amalgamation with AES
announced in November 1996.
Year ended November 30, 1995 and the period from December 7,
1993 (the date of the Company's establishment) to November 30,
1994
Revenues and Costs of Sales. Total revenues increased from
approximately $38,000 to $1.4 million from 1994 to 1995. There were two
components to revenues generated in 1995: (i) revenue generated by electricity
sales from the Cili Misty Mountain project, which increased from approximately
$38,000 to $0.7 million from 1994 to 1995, and (ii) revenue generated pursuant
to the payment of construction delay fees of approximately $0.7 million paid by
the contractor of the Cili Misty Mountain project. Costs of sales increased from
approximately $68,000 to $0.6 million in 1995. The significant increases in
revenues generated and costs of sales in 1995 were primarily attributable to a
full year of operations for the Cili Misty Mountain project, commencing in
November 1994.
Development, Selling, General and Administrative Expenses.
Development, selling, general and administrative expenses increased by $2.3
million from $6.9 million in 1994 to $9.2 million in 1995. The increase in
development, selling, general and administrative expenses was primarily due to
the hiring of additional employees in 1994 and 1995 for the development of power
plants and the financial management of the Joint Ventures in China. The increase
was offset in part by capitalization of development costs associated with
projects which achieved certain project related milestones.
Interest Income. Interest income increased approximately $3.9
million from $6.6 million to $10.5 million from 1994 to 1995. The increase was
due primarily to proceeds received from the Company's initial public offering
being available for investment in marketable securities for all of 1995, while
such proceeds were only available the previous year beginning in the second
quarter of 1994. In addition, interest rates on the Company's marketable
securities were somewhat higher during 1995. These factors were offset in part
by the Company's investment in Yangchun Fuyang in March and September 1995 and
Wuxi-AES-CAREC and Wuxi-AES-Zhonghang beginning in May 1995 and due to the
repurchase by the Company during 1995 of a portion of the outstanding shares of
Class A Common Stock.
Liquidity and Capital Resources
The Company's business has required substantial investment
associated with the development, acquisition and construction of electric power
plants and related facilities through its Joint Ventures. Since commencing
business, the Company had entered into commitments to invest a total of
approximately $259.6 million in the form of equity contributions and loans to
its Joint Ventures, of which $165.7 million had been invested as of January 31,
1997. If the Amalgamation is not consummated or the AES Debt Covenants otherwise
do not apply, the Company would expect to incur additional commitments in the
future in connection with the development, acquisition, construction, ownership
and operation of additional electric power plant and related facilities in
China.
The Company has financed its investments to date out of the
proceeds of its initial public offering in 1994. On December 19, 1996, the
Company completed the issuance of $180 million principal amount of the 2006
Notes. The proceeds, net of underwriting discounts and commissions and other
offering costs, were approximately $173.9 million. Pursuant to the terms of the
Indenture for the 2006 Notes, the Company was required to deposit approximately
$27.1 million in an interim reserve account to make interest payments on the
2006 Notes through June 15, 1998, and approximately $9.1 million in a debt
payment reserve. The Company intends to use the available proceeds of the 2006
Notes to fund investment commitments to the Current Projects, for general
corporate purposes and, to the extent funds are available and subject to the AES
Debt Covenants, for the Potential Projects and other future projects. Pending
such use, the Company will invest such proceeds in marketable securities that
are Permitted Investments as defined in the Indenture for the Notes. The
proceeds of the Notes together with the Company's existing cash and cash
equivalents are expected to be sufficient to enable it to fund its commitments
to the Current Projects together with its investment in a portion of one or more
of the Potential Projects or other future projects. In addition, the Company
expects to obtain additional funds from operating activities as more of its
electric power plants become operational. However, if the Amalgamation is
consummated and the AES Debt Covenants become applicable, the Company will be
restricted in its ability to invest cash flows from operating activities in its
projects. If the Amalgamation is not consummated or the AES Debt Covenants
otherwise do not apply, the Company may raise additional equity or debt, if
needed, to fund future investment opportunities, subject to its ability to raise
debt financing under certain covenants governing the 2006 Notes.
The Indenture for the 2006 Notes limits, among other things,
(i) the payment of dividends and redemption of equity interests by the Company
and its project companies; (ii) the redemption of subordinated indebtedness;
(iii) the making of certain investments; (iv) the incurrence by the Company and
its project companies of certain indebtedness; (v) the imposition by the Company
or any of its project companies of restrictions on the payment of dividends and
other actions; (vi) the creation by the Company or any of its project companies
of certain liens; (vii) certain transactions with affiliates of the Company;
(viii) certain asset sales and the incurrence of indebtedness to refinance
existing indebtedness; (ix) the issuance of stock by certain subsidiaries of the
Company; (x) any change in the nature of the Company's business; and (xi) the
merger or consolidation of the Company or its project companies with other
entities. The Indenture also obligates the Company and its project companies to
maintain certain insurance, obtain required government approvals, maintain good
title to their properties and operate and maintain their power generation
facilities in accordance with prudent industry operating and maintenance
practices. The events of default under the Indenture include, among other
things, (i) failure to pay interest within 30 days or failure to pay principal
at maturity or upon redemption or repurchase of the 2006 Notes; (ii) a default
in the performance of covenants contained in the Indenture; (iii) a default
under indebtedness of the Company or any of its project companies in the amount
of $5 million or more (other than under the 2006 Notes or any non-recourse
debt); and (iv) a judgment against the Company or any of its project companies
in an amount in excess of $5 million.
The Company and its Joint Venture partners will need to raise
limited-recourse or non-recourse financing from third parties for certain large
projects. The Company believes such projects will be successfully developed only
if such debt is obtained. The Company's Nanpu Southern Delta project is one
example of a potential project that is likely to be completed only with
substantial third party financing.
The ability of Wuhu Shaoda Joint Venture to pay dividends or
distribute earnings to the Company is restricted by the terms of a bank facility
which has been entered into by the Joint Venture. See "Description of the
Current Projects -- Wuhu Grassy Lake." The declaration of equity distributions
by certain Joint Ventures in which the Company is not entitled to appoint a
majority of the board of directors may depend on the assent of the other
directors. The Company believes that neither of these restrictions is likely to
have a material adverse effect on its liquidity. Also, the ability of the Joint
Ventures to make payment in US dollars to lenders with respect to third party
debt, to make payment in US dollars to the Company with respect to its
shareholder loans to the Joint Ventures and to make equity distributions in US
dollars may be subject to certain constraints.
In the event that the Amalgamation is consummated, and any
holder of shares of Class A Common Stock exercises dissenter's rights under
Bermuda law, the Company would be obligated to pay any amounts awarded by a
Bermuda court, which would reduce the amounts available for investment in the
Current Projects or the Potential Projects.
The Company is not currently affected by the AES Debt
Covenants because it is not a subsidiary of AES. After the Amalgamation, the
Company will be subject to the AES Debt Covenants, including those contained in
the documents governing AES's 10 1/4% Subordinated Notes due 2006, 9 3/4% Senior
Subordinated Notes due 2000 and $425 million credit facility due 1999. If the
Amalgamation occurs, the material limitations applicable to the Company will
include those described below.
Under the AES Debt Covenants, AES may not permit any
subsidiary with a direct or indirect interest in a power generation facility (as
defined in the relevant agreements) to make any investment in, or to consolidate
or merge with, any other entity with a direct or indirect interest in any other
power generation facility or other business.
Immediately prior to the expected consummation of the
Amalgamation, the Company intends to contribute the net proceeds of the 2006
Notes remaining after the funding of an interim reserve account and a debt
service reserve account, along with certain of its existing funds, to its
subsidiaries to provide funding for potential projects and other future
projects, as well as additional funding for current projects. It is anticipated
that these amounts will not in the aggregate be more than approximately $95
million. Under the AES Debt Covenants, as a general matter, after exhaustion of
these amounts, no additional AES Chigen funds would be available to fund
investment in additional power projects or to fund the capital requirements and
construction cost overruns for current projects. As a consequence, opportunities
for investment, along with the associated risks, that would otherwise be
available to the Company may instead be taken by other investors, including AES.
Additional capital requirements for AES Chigen-invested projects would have to
be funded by other parties, including AES, which would result in a dilution of
the Company's interest in any such project. In addition, due to the application
of the AES Debt Covenants, cash flow generated from projects would not be
permitted to be invested in any other project. As a result, to the extent these
funds are not required to pay expenses incurred by the Company, they may
accumulate over time. The Company is permitted, pursuant to the terms of the
Indenture under which the 2006 Notes were issued, to pay a portion of such funds
as dividends, provided that the Company satisfies certain conditions.
In addition, under the AES Debt Covenants, investment could
not be made in a project directly by the Company (as opposed to through one of
its subsidiaries). Accordingly, prior to the Amalgamation, the Company intends
to transfer its interests in certain potential projects, such as Yangcheng Sun
City and Nanpu Southern Delta, to wholly owned subsidiaries of the Company. In
the case of each of these projects, the consent of the Company's partners in
such project and the examination and approval of the relevant PRC government
authority are required to effect the transfers of the Company's interest. There
can be no assurance that such consents and approvals will be obtained in order
to permit investments to be made in these projects following the Amalgamation.
Under the AES Debt Covenants, the Company and its subsidiaries
would be effectively prohibited from incurring additional indebtedness (as
defined in the relevant instruments), except that a subsidiary would under some
circumstances be permitted to incur indebtedness for the purpose of financing a
power project as long as such indebtedness did not have recourse to AES, the
Company or another subsidiary.
Both the AES Debt Covenants and the covenants contained in the
Indenture for the 2006 Notes applicable to the Company require the repayment or
purchase of indebtedness under specified circumstances involving asset
dispositions. Insofar as separate repayments are required at the AES and the
Company levels with respect to a single asset sale, this covenant may tend to
cause the Company not to make an asset sale under circumstances where it
otherwise would.
Under the AES Debt Covenants, an AES subsidiary is not
permitted to make an investment in a project company following the occurrence of
a condition permitting the acceleration of indebtedness relating to the project
or any failure to pay such indebtedness at its final maturity.
Years ended November 30, 1996 and 1995
Cash from Operations. Net cash used in operating activities
totaled $1.5 million for 1996 as compared to $0.8 million provided by operating
activities for 1995. The decrease in 1996 resulted primarily from an increase in
net income due to the commencement of operations of Wuxi Tin Hill offset by an
adjustment of the provision for project development costs and a net reduction in
the components of working capital.
Cash from Investing Activities. Net cash used in investing
activities totaled $66.6 million during 1996 as compared to $22.8 million
provided by investing activities during 1995. The 1996 amount primarily
reflected the purchase of property, plant and equipment and other project
related investments of $101.5 million which was partially offset by cash of
$34.7 million provided by the maturity of short-term investments (net of
purchases). The 1995 amount primarily reflected cash provided by the maturity of
short-term investments (net of purchases) of $64.5 million. This amount was
partially offset by the cash used in purchases of property, plant and equipment
and other project related investments of $41.7 million.
Cash from Financing Activities. Net cash used in financing
activities aggregated $1.4 million during 1996 as compared to $8.2 million
provided by financing activities during 1995. During 1996, the Company
repurchased shares of its Class A Common Stock for $11.4 million which was
partially offset by $8.5 million of loans and contributions made to subsidiaries
by minority shareholders and net proceeds from notes payable of $1.9 million.
The 1995 amount reflected cash of $13.5 million provided to the Company's
subsidiaries by minority shareholders and $1.0 million from notes payable, less
$6.4 million in cash used for the repurchase of shares of Class A Common Stock.
Inflation
Over the last few years, the PRC economy has registered high
growth rates and high rates of inflation. In response, the PRC Government has
taken measures to curb inflation. These measures, along with other factors, have
reduced inflation in the PRC in 1996. However, there can be no assurance that
these austerity measures alone will succeed in controlling inflation, nor that
they will not result in severe dislocations in the PRC economy in general.
The Company will attempt, whenever possible, to take measures
to hedge its projects against the effects of inflation. Generally, this will be
done by structuring the tariff formulas in its power purchase contracts to pass
through increased costs resulting from inflation.
Foreign Currency Exchange
The Company anticipates that its Joint Ventures will receive
nearly all of their revenues in Renminbi. A significant portion of this revenue
will need to be converted to other currencies, primarily US dollars, and
remitted outside of the PRC to meet foreign currency obligations to equipment
suppliers, to repay borrowings from foreign third party lenders and to make
payments to the Company in respect of equity distributions and shareholder
loans. However, the Renminbi is not freely convertible into US dollars. Although
the receipt of approvals to convert Renminbi into foreign currencies and to
remit foreign currencies outside of the PRC is routine for approved foreign
investment enterprises such as the Joint Ventures, there can be no assurance
that the PRC Government will continue to provide such approvals. Moreover, while
in the last two years foreign currency has been readily available, no assurance
can be given that the Joint Ventures will in the future be able to convert
sufficient amounts of Renminbi to foreign currency in China's foreign exchange
markets to meet their foreign currency obligations, or that the Joint Ventures
will freely be able to remit foreign currency abroad.
Prior to 1994, the Renminbi had experienced a significant net
devaluation against most major currencies, and during certain periods,
significant volatility in the market-based exchange rate. Since the beginning of
1994, the Renminbi to US dollar exchange rate has largely stabilized. While the
Joint Ventures will receive nearly all of their revenues in Renminbi, the
Company expects its Joint Ventures to have significant US dollar obligations
with respect to distributions to the Company. Under the terms of all of their
power purchase contracts, the Company's Joint Ventures are entitled to obtain
tariff adjustments for future Renminbi devaluation. While the Company expects
that its Joint Ventures will be able to pass on increased costs resulting from a
devaluation of the Renminbi by means of such tariff adjustments, no assurance
can be given that the Joint Ventures will be able to obtain approval for a
sufficient tariff adjustment.
Special Note Regarding Forward-Looking Statements
Certain statements in this Discussion and Analysis of
Financial Condition and Results of Operations and under the caption "Business"
and elsewhere in this Annual Report on Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 ("Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance and achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: political and economic considerations,
restrictions on foreign currency convertibility and remittance abroad, exchange
rate fluctuations and developing legal system, in each case pertaining to the
PRC; holding company structure of the Company; regulation and restrictions;
tariffs; governmental approval processes; environmental matters; construction,
operating and fuel risks; load growth, dispatch and transmission constraints;
reliance on and creditworthiness of PRC counterparties; conflict of interest of
contracting parties; control by and reliance on AES; limitations resulting from
the Amalgamation and adherence to the AES principles; and other factors
referenced in this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
The following financial statements of the Company and its
consolidated subsidiaries are attached to this Annual Report on Form 10-K
following the signature page:
- Report of Independent Auditors.
- Consolidated Statements of Operations for the fiscal
years ended November 30, 1996 and 1995 and for the
period from December 7, 1993 (inception) to November
30, 1994.
- Consolidated Balance Sheets as of November 30, 1996 and
1995.
- Consolidated Statements of Shareholders' Equity for the
fiscal years ended November 30, 1996 and 1995 and for
the period from December 7, 1993 (inception) to
November 30, 1994.
- Consolidated Statements of Cash Flows for the fiscal
years ended November 30, 1996 and 1995 and for the
period from December 7, 1993 (inception) to November
30, 1994.
- Notes to Consolidated Financial Statements for the
fiscal years ended November 30, 1996 and 1995 and for
the period from December 7, 1993 (inception) to
November 30, 1994.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Company.
(a) Directors of the Company
The Company's Bye-laws provide that the Board of Directors
consists of two classes, the Class A Directors (the "Class A Directors") and the
Class B Directors (the "Class B Directors"). At each Annual General Meeting of
Shareholders, the holders of Class A Common Stock elect the Class A Directors
and the holders of Class B Common Stock elect the Class B Directors. Directors
serve until the next Annual General Meeting of Shareholders and until their
successors have been elected and shall have qualified. The current directors of
the Company are listed below:
Name Age Position
Roger W. Sant*................... 65 Chairman of the Board and Director
Dennis W. Bakke*................. 51 Vice Chairman and Director
Robert F. Hemphill, Jr*.......... 53 Vice Chairman and Director
Thomas Tribone*.................. 44 Director
Thomas I. Unterberg*............. 65 Director
William Dykes.................... 64 Director
Xiliang Feng..................... 77 Director
Dr. Victor Hao Li................ 55 Director
William H. Taft, IV.............. 51 Director
- ------------------------------
*Class B Director
Roger W. Sant has been the Chairman of the Board and a Class B
Director of the Company since December 1993. In 1981, Mr. Sant and Dennis Bakke
co-founded AES. Mr. Sant has been Chairman of the Board and a Director of AES
since its inception, and he held the additional office of Chief Executive
Officer through 1993. He is currently Chairman of the Board of Directors of The
World Wildlife Fund U.S. and serves on the Boards of Directors of Marriott
International Inc., The World Resources Institute, and The World Wide Fund for
Nature and serves on the National Council for The Environmental Defense Fund. He
was Assistant Administrator for Energy Conservation and the Environment of the
Federal Energy Administration ("FEA") from 1974 to 1976 and the Director of the
Energy Productivity Center, an energy research organization affiliated with The
Mellon Institute at Carnegie Mellon University, from 1977 to 1981.
Dennis W. Bakke has been Vice Chairman and a Class B Director
of the Company since December 1993. Mr. Bakke co-founded AES with Mr. Sant in
1981 and has been a Director of AES since 1986. He was named President and Chief
Executive Officer of AES in January 1994, and from 1987 through 1993, Mr. Bakke
held the office of President and Chief Operating Officer of AES. From 1982 to
1986, he served as Executive Vice President of AES and from 1985 to 1986 he also
served as Treasurer of AES. Mr. Bakke served with Mr. Sant as Deputy Assistant
Administrator of FEA from 1974 to 1976 and as Deputy Director of the Energy
Productivity Center from 1978 to 1981. He is a trustee of Geneva College.
Robert F. Hemphill has been Vice Chairman of the Company since
February 1995 and has been a Class B Director of the Company since December
1993. From December 1993 to February 1, 1995, Mr. Hemphill was President and
Chief Executive Officer of the Company. Mr. Hemphill was named a Director of AES
in June 1996. From 1987 to such appointment, Mr. Hemphill served as Executive
Vice President of AES. From 1984 to 1987, he was Senior Vice President of AES
and from 1982 to 1984 he served as Vice President for project development of
AES. He also has served as President and Chief Executive Officer of AES
Transpower Pvt. Ltd. ("Transpower"), a subsidiary of AES, since 1989. Prior to
joining AES, he was the Deputy Manager of Power of the Tennessee Valley
Authority, the largest electric utility in the United States. He also served
with the U.S. Department of Energy as Deputy Assistant Secretary for Planning
and Evaluation, and with the FEA where he assisted in drafting several major
energy statutes, including the National Energy Act. He serves on the Board of
Directors of the Friends of the U.S. National Arboretum and is a member of the
Arlington County Transportation Commission.
Thomas Tribone has been a Class B Director of the Company
since March 1995. Mr. Tribone has been Senior Vice President of AES since 1990.
He is President of the AES Americas Division of AES with responsibility for
business in Latin America and parts of the United States. He is Vice Chairman of
the Inter-regional Transmission Coordination Forum, an organization of 45
electric utilities which coordinates power transmission in the eastern half of
North America.
Thomas I. Unterberg has been a Class B Director of the Company
since December 1993. He has been a Director of AES since 1984 and was a Director
of AES from 1982 to 1983. He has been a Managing Director of Unterberg Harris,
L.P. since 1989, having been a Managing Director of Shearson Lehman Brothers
Inc. from 1987 through 1988. Prior to 1986, he was a Managing Director and
Chairman of L.F. Rothschild Unterberg Towbin, Inc. He currently serves on the
Boards of Directors of Electronics for Imaging, Inc., Fractal Design
Corporation, and Systems and Computer Technology Corp.
William Dykes has been a Class A Director of the Company since
February 1994. Mr. Dykes retired from Citibank N.A. ("Citibank") in 1992 after
36 years of service. Since his retirement, Mr. Dykes has provided financial
advisory services for international projects. Prior to his retirement, he spent
11 years as Managing Director of Citicorp International Limited in Hong Kong
where he was responsible for providing financial advisory services and
structuring major term loans to governments, corporations and projects in the
Pacific basin. During that time he was responsible for Citibank's involvement in
a number of major PRC-related financings, including the 700 MW Shajiao B project
constructed by Hopewell Holdings Limited in Guangdong Province.
Xiliang Feng has been a Class A Director of the Company since
March 1995. Since 1991, Mr. Feng has been Editor-in-Chief Emeritus and Special
Advisor to the China Daily newspaper and Chairman of the China Daily
Distribution Corporation in New York. Mr. Feng has also been Senior Consultant
to "WINDOW" newsmagazine of Hong Kong since 1991. Born in Shanghai in 1920, Mr.
Feng received a bachelor's degree in journalism from St. John's University in
Shanghai, a master's degree in journalism from University of Missouri and was a
Professional Journalism Fellow at Stanford University in 1983. He was awarded
The Missouri Medal of Honour for Distinguished Service in Journalism awarded by
the University of Missouri in 1984. He has been a Member of the National
Committee of the Chinese People's Political Consultative Conference (CPPCC)
since 1987. Mr. Feng is a trustee of the International Center for Communications
at San Diego State University and a member of the Pacific Communications
Research Council.
Dr. Victor Hao Li has been a Class A Director of the Company
since February 1994. Since 1991, Dr. Li has been Co-Chairman of the Asia Pacific
Consulting Group of Watanabe, Ing & Kawashima in Honolulu, Hawaii and is a
specialist in Asian law. From 1981 to 1990, he served as President of the
East-West Center, a federally supported research center. He currently serves on
the Board of Directors of Hawaiian Electric Industries, Inc., a utility customer
of AES Barbers Point, Inc., a subsidiary of AES. Born in China, Dr. Li graduated
from Columbia College and Columbia Law School and holds two post-graduate
degrees from Harvard Law School.
William H. Taft, IV has been a Class A Director since April
1994. Mr. Taft joined the law firm of Fried, Frank, Harris, Shriver and Jacobson
in September 1992 and is a partner in the firm's Washington, D.C. office. From
1989 until 1992, he was U.S. Permanent Representative of NATO. Prior to coming
to NATO, Mr. Taft served as Deputy Secretary of Defense from January 1984 until
April 1989 and as Acting Secretary of Defense from January to March 1989. From
1981 until 1984, Mr. Taft served as Department of Defense General Counsel. Prior
to his initial appointment to the Department of Defense, Mr. Taft was engaged in
the practice of law in Washington, D.C. from 1977 to 1981. Before entering
private practice, he served in various positions at the Federal Trade
Commission, the Office of Management and Budget, and the Department of Health,
Education and Welfare (HEW), highlighted by his appointment by President Gerald
Ford in 1976 to serve as General Counsel of HEW.
Upon the consummation of the Amalgamation, the Board of
Directors of the Company is expected to consist of three Directors, Roger W.
Sant, Dennis W. Bakke and Robert F. Hemphill, Jr.
(b) Executive Officers of the Company
The following is certain information concerning the executive
officers of the Company.
Roger W. Sant - See information with respect to Mr. Sant under
Item 10(a) hereof, which information is incorporated by reference.
Dennis W. Bakke - See information with respect to Mr. Bakke
under Item 10(a) hereof, which information is incorporated by reference.
Robert F. Hemphill, Jr. - See information with respect to Mr.
Hemphill under Item 10(a) hereof, which information is incorporated by
reference.
Paul T. Hanrahan, 39 years old, has been President and Chief
Executive Officer of the Company since February 1995. From December 1993 until
such appointment, Mr. Hanrahan was Executive Vice President and Chief Operating
Officer of the Company. From December 1993 until April 1994, he was Secretary of
the Company. He has been a Vice President of AES since December 1993. Prior to
December 1993, he was the general manager of Transpower, leading development
efforts in China, India, the Philippines and Eastern Europe. He has also played
a leading role in development of several AES projects, including the Belfast
West and Kilroot projects in Northern Ireland, the AES Barbers Point project in
Hawaii and the AES Thames project in Connecticut. Mr. Hanrahan graduated with a
mechanical engineering degree from the U.S. Naval Academy and with a Master of
Business Administration from the Harvard Business School.
Edward C. Hall III, 37 years old, has been Executive Vice
President of the Company since August 1996. From 1994 until Mr. Hall's
appointment as Executive Vice President, he was a Vice President of the Company.
From December 1993 until April 1994, Mr. Hall served as Chief Financial Officer
of the Company. He has been a Vice President of Transpower since July 1993. From
1992 to July 1993, Mr. Hall served as Project Director for AES and from 1990
through 1992, as Project Director for the AES Warrior Run project. From 1988
through 1989 he served as Project Development Manager working on the AES Thames
project refinancing , the AES Barbers Point project financing and the AES Medway
project in England. His experience includes over ten years of engineering,
operations, and project management in the power industry. He is registered as a
professional engineer in the Commonwealth of Massachusetts. He graduated with a
Master of Science degree from the Massachusetts Institute of Technology Sloan
School of Management and with a mechanical engineering degree from Tufts
University.
Jeffery A. Safford, 38 years old, has been Vice President,
Chief Financial Officer and Secretary of the Company since April 1994. From
February 1994 until his appointment as Vice President, Chief Financial Officer
and Secretary in April 1994, Mr. Safford served as Assistant Secretary of the
Company and performed the function of principal accounting officer. He was
Director of Finance and Administration of AES prior to April 1994. Prior to
joining AES, he worked as a Senior Auditor for Touche Ross & Co., an accounting
firm, with responsibility for several large publicly held clients. He graduated
from Pennsylvania State University with a degree in accounting and he is a
Certified Public Accountant.
James R. Reiney, Jr., 56 years old, joined the Company in
September 1995 and has been Vice President of the Company since November 1995.
Prior to joining the Company, Mr. Reiney was a Vice President and Manager of
Construction for Bechtel Corporation ("Bechtel") (construction and engineering),
with responsibilities for Bechtel's world-wide power construction projects.
After Bechtel's corporate restructuring, Mr. Reiney was appointed as Vice
President and Manager of Construction for the San Francisco Regional Office with
responsibilities for 44 projects world-wide. Mr. Reiney graduated from The
Citadel with a Bachelor of Science degree in Civil Engineering.
Thomas Wu, 36 years old, has been Vice President of the
Company since March 1995. From January 1995 until his appointment as Vice
President, Mr. Wu was a project director of the Company. From February 1993
until January 1995, he was Chief Executive Officer of Health Secrets, Inc.
(health care products) and from January 1994 until January 1995, he also acted
as a part-time consultant to the Company. Prior to February 1993, he was
Director of Product Marketing for the Language Business Unit of Borland
International, Inc. (software). Mr. Wu graduated with a Master of Science degree
in management from the Massachusetts Institute of Technology Sloan School of
Management.
Kerry Yeager, 45 years old, has been a Vice President of the
Company since April 1996. From 1994 until his appointment as Vice President in
April 1996, he was a project director for the Company. From 1989 to 1994, he
served as a project manager for AES. Prior to joining AES, Mr. Yeager worked for
the Lower Colorado River Authority from 1973, with experience in distribution
and transmission lines, as well as power design and management. Mr. Yeager
graduated from the University of Texas with a Bachelor of Business
Administration degree.
The occupations listed above were the principal occupation and
employment of each executive officer during the period indicated. None of the
above listed executive officers is related to any other such executive officer
and none was selected pursuant to any arrangement or understanding between such
executive officer and any other person. All executive officers are elected by
the Board of Directors annually.
(c) Reports under Section 16 of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's directors and certain of
its officers, and persons who own more than ten (10%) percent of a registered
class of the Company's equity securities, to file reports on Forms 3, 4, and 5
with the Securities and Exchange Commission ("SEC") that disclose ownership or
transactions in the Company's securities. Officers, directors and greater than
ten (10%) percent beneficial owners of a class of the Company's equity
securities are required by the SEC to furnish the Company with copies of all
such forms they file.
Based solely on the Company's review of the copies of such
forms it has received and written representations from certain reporting persons
that they were not required to file Forms 4 and 5 for the 1996 fiscal year, the
Company believes that all its officers, directors and greater than ten percent
beneficial owners complied with all the filing requirements applicable to them
with respect to transactions during fiscal year 1996.
Item 11. Executive Compensation.
(a) Compensation of Executive Officers
The following Summary Compensation Table sets forth
compensation received by Paul T. Hanrahan, President and Chief Executive Officer
of the Company, and the other four most highly compensated executive officers of
the Company for the period from December 7, 1993 (inception) through the fiscal
year ending November 30, 1996.
Summary Compensation Table
Long Term
Compensation
Awards
Annual Compensation Table(1) ------------
---------------------------- Securities All Other
Other Annual Underlying Compensation
Names and Principal Position Year Salary($) Bonus($)(3) Compensation($)(4) Options(#) ($)(5)
- ---------------------------------- ------ ------------ ------------- ------------------ ------------ -------------
Paul T. Hanrahan(2)............ 1996 140,000 270,000 179,031 30,550 -0-
President and Chief Executive 1995 139,917 90,000 241,636 200,000 -0-
Officer 1994 117,333 80,000 166,950 150,000 -0-
- ----------------------------------
- ----------------------------------
Edward C. Hall III(2).......... 1996 121,000 200,000 279,006 26,889 -0-
Executive Vice President 1995 120,083 55,000 229,888 80,000 -0-
1994 100,833 60,000 153,198 100,000 -0-
- ----------------------------------
Jeffery A. Safford(2).......... 1996 110,000 125,000 257,548 24,444 -0-
Vice President, Chief Financial 1995 109,167 40,000 290,139 22,059 -0-
Officer and Secretary 1994 61,384 50,000 103,686 70,000 -0-
- ----------------------------------
James R. Reiney, Jr.(6)........ 1996 141,000 50,000 135,218 -0- 12,690
Vice President 1995 27,417 -0- 36,426 50,000 -0-
- ----------------------------------
Thomas Wu(7)................... 1996 115,000 125,000 71,600 15,972 16,415
Vice President 1995 103,871 30,000 84,407 70,000 -0-
- ----------------------------------
- ---------------------------
(1) All officers of the Company who also serve as officers or employees of AES
receive compensation from AES for their services to AES and participate in
the employee benefit plans and arrangements sponsored by AES. The benefit
plans include The AES Corporation Incentive Stock Option Plan, The AES
Corporation Profit Sharing and Stock Ownership Plan, The AES Corporation
Deferred Compensation Plan for Executive Officers, health and life
insurance plans and other plans which may be established in the future. The
Company reimburses AES for the cost of health and life insurance based on
the proportion of time spent by each such person in attending to the
Company's business. The Company does not reimburse AES for the costs of
providing benefits to such persons under any other of the existing plans.
(2) Messrs. Hanrahan, Hall and Safford joined the Company while serving as
officers or employees of AES, and they continue to be employed by AES.
However, they receive no compensation from AES except that they participate
in employee benefit plans and arrangements sponsored by AES.
(3) Bonus amounts were awarded to named individuals in fiscal year 1997 for the
fiscal year 1996, in fiscal year 1996 for the fiscal year 1995, and in
fiscal year 1995 for the fiscal year 1994.
(4) Messrs. Hanrahan, Hall, Safford, Reiney and Wu have been relocated from the
United States and in accordance with market-based practices receive
additional cash compensation attributable to such overseas assignments. In
order to compensate these officers for additional taxes, including United
States federal, state, Social Security and Medicare taxes, imposed on them
as a result of their employment outside the United States, the Company pays
on their behalf their entire federal, state, Social Security and Medicare
tax liabilities and such officers reimburse the Company for an amount equal
to the hypothetical taxes they would have paid if they had been employed in
the United States. The following table provides information with respect to
the taxes paid by the Company on behalf of the named executive officers,
net of hypothetical taxes for which they reimbursed the Company, housing
expenses paid by the Company and other benefits provided by the Company.
Mr. Hanrahan's "Other Benefits" include cost-of-living and relocation
expenses. Mr. Hall's "Other Benefits" include cost-of-living, relocation
and educational expenses, Mr. Safford's "Other Benefits" include
cost-of-living, relocation and educational expenses. Mr. Reiney's "Other
Benefits" include cost-of-living and relocation expenses. Mr. Wu's "Other
Benefits" include cost-of-living, car and relocation expenses.
Other Annual Compensation ($)
---------------------------------
Payment of Housing
Names Year Taxes, Net Expenses Other Benefits
- --------------------------------- ---- ---------- -------- --------------
Paul T. Hanrahan............... 1996 (61,497) 183,264 57,264
1995 (3,830) 171,774 73,692
1994 (30,904) 148,178 49,676
- ---------------------------------
Edward C. Hall III............. 1996 (17,896) 214,924 81,978
1995 9,256 168,603 52,029
1994 1,356 115,230 36,612
- ---------------------------------
Jeffery A. Safford............. 1996 (31,597) 189,143 100,002
1995 6,352 186,104 97,683
1994 3,425 51,282 48,979
- ---------------------------------
James R. Reiney, Jr............ 1996 (39,480) 122,400 55,716
1995 (7,128) 22,100 21,454
- ---------------------------------
Thomas Wu...................... 1996 (42,000) 75,108 38,492
1995 (38,067) 67,839 54,635
- ---------------------------------
(5) This column constitutes contributions to the Profit Sharing and Stock
Ownership Plan of the Company. Contributions for fiscal year 1996 were made
in fiscal year 1997. Messrs. Hanrahan, Hall and Safford also serve as
officers or employees of AES. As a result, they participate in employee
benefit plans and arrangements sponsored by AES and do not participate in
the Company's Profit Sharing and Stock Ownership Plan.
(6) Mr. Reiney joined the Company in September 1995 and he was appointed Vice
President as of November 17, 1995.
(7) Mr. Wu joined the Company in January 1995 and was appointed Vice President
as of March 27, 1995.
(b) Option Grants in Last Fiscal Year
The following table provides information on options granted in
the fiscal year ended November 30, 1996 to the named executive officers.
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise or Grant Date
Granted in Fiscal Base Price Expiration Present Value
Name (#)(1) Year ($/Sh) Date ($)(2)
- ---- ------ ---- ------ ---- ------
Paul T. Hanrahan................ 30,550 13.0% 8.50 01/10/06 109,980
President and Chief Executive
Officer
Edward C. Hall III.............. 26,889 11.5% 8.50 01/10/06 96,800
Executive Vice President
Jeffery A. Safford.............. 24,444 10.4% 8.50 01/10/06 87,998
Vice President, Chief Financial
Officer and Secretary
James R. Reiney, Jr............. -0- -0- -0- -0- -0-
Vice President
Thomas Wu....................... 15,972 6.8% 8.50 01/10/06 57,499
Vice President
- ------------------------------
(1) All options are for shares of Class B Common Stock of the Company. Options
granted with an expiration of January 10, 2006 were granted at the fair
market value of the Class A Common Stock on January 10, 1996. Options
granted on January 10, 1996 to the named officers vest at a rate of 50% per
year.
(2) The Black-Scholes stock option pricing model was used to value the stock
options on the grant date. The assumptions under this model include an
expected volatility of 32.7%, a 5.81% risk-free rate of return and no
payment of dividends. Adjustments were made for vesting. The options expire
ten years after the grant date and vest over a 2 year period at 50% a year.
Therefore, the options vested each year have a different time to
expiration. Using the Black-Scholes model, two values, each representing
50% of the total options granted, were calculated for the options and were
then discounted at 15% to determine the grant date present value. There
were no adjustments made for "price per share" vesting, nontransferability
or risk of forfeiture.
(c) Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
There were no options exercised in fiscal year 1996 by the
named executive officers. The following table reflects the number of unexercised
options at fiscal year end, November 30, 1996, and the value of those
unexercised options.
Number of Securities Value of Unexercised
Value Underlying Unexercised In-the-Money Options
Shares Acquired Realized Options at Fiscal Year-End(#) at Fiscal Year-End ($)
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- --- ----------- ------------- ----------- -------------
Paul T. Hanrahan -0- -0- 100,000 280,550 130,000 657,475
President and
Chief Executive
Officer
Edward C. Hall III -0- -0- 70,000 136,889 97,500 283,501
Executive Vice
President
Jeffery A. Safford -0- -0- 32,412 84,091 28,339 188,351
Vice President,
Chief Financial
Officer and
Secretary
James R. Reiney, Jr. -0- -0- 10,000 40,000 40,000 160,000
Vice President
Thomas Wu -0- -0- 14,000 71,972 45,500 253,874
Vice President
- -----------------------------
(1) The fair market value of the securities underlying the options on November
30, 1996 was $13.00 per share. As of November 30, 1996, the fair market
value exceeded the exercise price of the foregoing options for each named
executive officer.
(d) Compensation of Directors
Each Class A Director receives an annual fee of $18,000. Each
Class B Director who is an officer of the Company or an officer of AES receives
no additional compensation for serving as a director. Each other Class B
Director receives a fee of $2,000 for each meeting he attends. However, fees are
not paid for meetings held by telephonic conference calls. Each director is
reimbursed for expenses in connection with attending meetings of the Board of
Directors. For the fiscal year ending November 30, 1996, Messrs. Taft, Dykes,
Feng and Dr. Li each received $18,000. Mr. Unterberg received $6,000.
(e) Compensation Committee Interlocks and Insider
Participation
The Human Resources Committee (the "Committee") of the Board
of Directors establishes rates of salary, bonuses, grants of stock options,
retirement and other compensation for all executive officers of the Company, and
for such other people as the Board of Directors may designate. For the fiscal
year ending November 30, 1996, the Committee was comprised of Messrs. Dykes,
Feng and Taft and Dr. Li.
All of the members of the Committee served during the fiscal
year ended November 30, 1996. No member of the Committee was an officer or
employee of the Company or any of its subsidiaries during the fiscal year ended
November 30, 1996 or at any prior time. In addition, there are no transactions,
relationships, or indebtedness for which disclosure is required under the rules
of the SEC with respect to any member of the Committee.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth as of February 1, 1997 certain
information known to the Company regarding ownership of the Class A Common Stock
and Class B Common Stock by all persons who own more than five percent (5%) of
each such class. The information in the table relating to ownership of Class A
Common Stock is based solely on the Company's review of filings made with the
SEC pursuant to rules promulgated under Section 13 of the Exchange Act.
Amount and
Nature of
Name and Address of Beneficial % of
Beneficial Owner Ownership % of Class Common Stock
-------------------------- ------------ ---------- ------------
Class B Common Stock......... The AES Corporation 7,500,000 100% 48%
1000 N. 19th St.
Arlington, Virginia 22209
Class A Common Stock......... Weiss, Peck & Greer, L.L.C. 1,627,200(1) 20.0% 10.4%
One New York Plaza
New York, New York
10004-1950
Class A Common Stock......... Wanger Asset Management, L.P. 1,455,000(2) 17.9% 9.3%
227 West Monroe St., Suite
3000
Chicago, Illinois 60606
Class A Common Stock......... John W. Bristol & Co., Inc. 941,477(3) 11.6% 6.0%
233 Broadway
New York, New York 10279
Class A Common Stock......... Acorn Investment Trust, Series 810,000(2) 10.0% 5.2%
Designated Acorn Fund
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
- ----------------------------
(1) Weiss, Peck & Greer, L.L.C. a registered broker-dealer under the Exchange
Act and a registered adviser under the Investment Advisers Act of 1940, as
amended ("IAA"), held 1,627,200 shares of Class A Common Stock at December
31, 1996 for the discretionary accounts of certain clients. Weiss, Peck &
Greer expressly disclaims beneficial ownership of such shares.
(2) Wanger Asset Management, L.P., a registered broker-dealer under the
Exchange Act and a registered adviser under the IAA, reported that it had
beneficial ownership of or investment discretion over 1,455,000 shares of
Class A Common Stock at December 31, 1996. This amount includes the 810,000
shares of Class A Common Stock held by Acorn Investment Trust, Series
Designated Acorn Fund.
(3) John W. Bristol, Inc., a registered adviser under the IAA, reported that it
had investment discretion over 941,477 shares of Class A Common Stock at
December 31, 1996.
(b) Security Ownership of Management
The following table sets forth, as of February 1, 1997, the
beneficial ownership of the Class A Common Stock and Class B Common Stock by
each director and named executive officer, as well as all directors and
executive officers as a group. Unless otherwise indicated, each of the persons
and each person in the group listed below has sole voting and dispositive power
with respect to the shares shown.
Shares of Shares of
Class A Class B
Common Stock % of Common Stock % of
Position Held with the Beneficially Class A Beneficially Class B
Name Age Company Owned Shares Owned (1)(2) Shares
- ---- --- ------- ----- ------ ------------ ------
Roger W. Sant............ 65 Chairman of the Board -0- -0- -0- -0-
and Class B Director
Dennis W. Bakke........... 51 Vice Chairman of the -0- -0- -0- -0-
Board and Class B
Director
Robert F. Hemphill, Jr.(c) 53 Vice Chairman of the -0- -0- 6,000 *
Board and Class B
Director
Thomas I. Unterberg(ac)... 65 Class B Director -0- -0- -0- -0-
Thomas A. Tribone......... 44 Class B Director -0- -0- -0- -0-
William Dykes(abd)........ 64 Class A Director -0- -0- -0- -0-
Xiliang Feng(abd)......... 77 Class A Director -0- -0- -0- -0-.
Dr. Victor Hao Li(abd).... 55 Class A Director 1,000 * -0- -0-
William H. Taft IV(abcd).. 51 Class A Director 1,000 * -0- -0-
Paul T. Hanrahan.......... 39 President and Chief 2,000(3) * 185,275 2.3%
Executive Officer
Edward C. Hall III........ 37 Executive Vice -0- -0- 115,945 1.5%
President
Jeffery A. Safford........ 38 Vice President, Chief 2,000(4) * 49,046 *
Financial Officer and
Secretary
Thomas Wu................. 36 Vice President -0- -0- 35,986 *
James R. Reiney, Jr....... 56 Vice President 1,800 * 10,000 *
Kerry Yeager.............. 45 Vice President 3,300 * 21,122 *
All Directors and
Executive Officers as
a Group (15 persons)O... 11,100 * 423,374 5.3%
- ------------------------
(a) Member of the Audit and Human Resource Committees.
(b) Member of the Nominating Committee.
(c) Member of the Stock Purchase Committee.
(d) Member of the Special Committee.
* Shares held represent less than 1% of the total number of outstanding
shares of Class A Common Stock or Class B Common Stock.
(1) Shares beneficially owned and deemed to be outstanding include Class B
Common Stock issued or issuable, on or before April 1, 1997 upon exercise
of outstanding stock options.
(2) Includes the following shares of Class B Common Stock issuable upon
exercise of options: Mr. Hemphill - 6,000; Mr. Hanrahan - 185,275; Mr. Hall
- 115,945; Mr. Safford - 49,046; Mr. Wu - 35,986; Mr. Reiney - 10,000; and
Mr. Yeager - 21,122.
(3) The 2,000 shares of Class A Common Stock are held jointly by Mr. Hanrahan
and his wife. Mr. Hanrahan and his wife have agreed not to exercise voting
rights with respect to these shares.
(4) Includes 1,000 shares of Class A Common Stock held jointly by Mr. Safford
and his wife; 400 shares of Class A Common Stock held in an IRA for the
benefit of Mr. Safford, and 600 shares of Class A Common Stock held in an
IRA for the benefit of his wife.
The following table sets forth, as of February 1, 1997, the
beneficial ownership of AES Common Stock held by each director and named
executive officer of the Company who beneficially own shares of Common Stock of
The AES Corporation, as well as such directors and executive officers as a
group. Unless otherwise indicated, each of the persons and each person in the
group listed below has sole voting power and dispositive power with respect to
the shares shown.
Shares of
Common
Stock of AES
Beneficially % of Shares
Name Positions Held with the Company Owned (1)(2) (1)(2)
- ---- ------------------------------- ------------ ------
Roger W. Sant.............. Chairman of the Board and Class B Director 10,638,296 (3) 13.66%
Dennis W. Bakke............ Vice Chairman of the Board and Class B 8,993,433 (4) 11.58%
Director
Robert F. Hemphill, Jr..... Vice Chairman of the Board and Class B 856,683 (5) 1.11%
Director
Thomas A. Tribone.......... Class B Director 201,641 *
Thomas I. Unterberg........ Class B Director 675,557 (6) *
William H. Taft IV......... Class A Director 462 (7) *
Paul T. Hanrahan........... President and Chief Executive Officer 40,839 (8) *
Edward C. Hall III......... Executive Vice President 18,052 (9) *
Jeffery A. Safford......... Vice President, Chief Financial Officer 19,019 (10) *
and Secretary
Kerry Yeager............... Vice President 8,703 *
All directors and executive
officers as a group (15 21,443,982 27.59%
persons)...................
- ------------------------------
* Shares held represent less than 1% of the total number of outstanding
shares of Common Stock of AES.
(1) Shares beneficially owned and deemed to be outstanding include AES Common
Stock issued or issuable, on or before April 1, 1997, (a) upon exercise of
outstanding options under The AES Corporation Incentive Stock Option Plan
and The AES Corporate Stock Option Plan for Outside Directors, (b) upon
exercise of warrants, (c) under The AES Corporation Deferred Compensation
Plan for Executive Officers, (d) under The AES Corporation Deferred
Compensation Plan for Directors, (e) upon conversion of subordinated
debentures, (f) under The AES Corporation Profit Sharing and Stock
Ownership Plan, and (g) under The AES Corporation Supplemental Retirement
Plan.
(2) Includes (a) the following shares issuable upon exercise of options under
The AES Corporation Incentive Stock Option Plan: Mr. Sant - 428,449 shares;
Mr. Bakke - 226,870, shares; Mr. Hemphill - 0 shares; Mr. Unterberg - 5,687
shares; Mr. Tribone - 141,799 shares; Mr. Hanrahan - 20,409 shares; Mr.
Hall - 9,725 shares; Mr. Safford - 5,701 shares and Mr. Yeager - 2,590
shares; all directors and executive officers as a group - 841,230 shares;
(b) the following shares issuable under The AES Corporation Deferred
Compensation Plan for Executive Officers: Mr. Sant - 14,021 shares; all
directors and executive officers as a group - 14,021 shares; (c) the
following units issuable under The AES Corporation Deferred Compensation
Plan for Directors: Mr. Unterberg - 57,838 shares; all directors and
executive officers as a group - 57,838 shares; (d) the following units
issuable under The AES Corporation Supplemental Retirement Plan: Mr. Sant -
1,727; Mr. Bakke - 2,151; Mr. Hemphill - 649; Mr. Tribone - 404; all
directors and executive officers as a group - 4,931; (e) the following
shares allocated under The AES Corporation Profit Sharing and Stock
Ownership Plan: Mr. Sant - 146,212 shares; Mr. Bakke - 139,479 shares; Mr.
Hemphill - 99,356 shares; Mr. Tribone - 27,883 shares; Mr. Hanrahan -
16,343 shares; Mr. Hall - 7,316 shares; Mr. Safford - 8,718 shares; and Mr.
Yeager - 4,410 shares; all directors and executive officers as group -
449,717 shares.
(3) Includes 7,550,146 shares held jointly by Mr. Sant and his wife. Also
includes 403,241 shares held by his wife, 146,195 shares held in an IRA for
the benefit of Mr. Sant, and 64,871 shares held in an IRA for the benefit
of his wife. In addition, includes 1,128,751 shares held by The Summit
Foundation, of which Mr. Sant disclaims beneficial ownership.
(4) Includes 6,834,658 shares held jointly by Mr. Bakke and his wife, 31,530
shares held by his children, 449,043 shares held by his wife and 181,383
shares held by the Mustard Seed Foundation, of which Mr. Bakke disclaims
beneficial ownership.
(5) Includes 8,148 shares held in an IRA for the benefit of Mr. Hemphill.
(6) Includes 4,826 shares held by Mr. Unterberg's wife.
(7) Includes 462 shares held by Mr. Taft for the benefit of his children.
(8) Includes 4,060 shares held jointly by Mr. Hanrahan and his wife and 27
shares held by his wife.
(9) Includes 1,011 shares held jointly by Mr. Hall and his wife.
(10) Includes 1,600 shares held jointly by Mr. Safford and his wife, and 3,000
shares held in an IRA for the benefit of Mr. Safford and his wife.
(c) See "Business -- General Development of Business" and
"Discussion and Analysis of Financial Condition and Results of Operations" for
information concerning the proposed Amalgamation of the Company and a wholly
owned subsidiary of AES, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
(a) Related Parties
AES currently owns 7,500,000 shares of Class B Common Stock,
representing approximately 48% of the Company's outstanding shares. As a result
of such ownership, AES has the right to elect one-half of the Company's Board of
Directors. In addition, the Company and AES have entered into a number of
agreements, which are described below. These agreements were not negotiated on
an arm's-length basis. Any amendment of these agreements or waiver by the
Company of its rights under these agreements would have to be approved by a
majority of the Class A Directors. Upon the consummation of the Amalgamation,
the Company will become a wholly owned subsidiary of AES and as a consequence
certain of the agreements described below would be terminated or substantially
modified.
Service Agreement
The Company has entered into a Project Services Agreement with
AES (the "Services Agreement") whereby AES will exclusively provide development,
construction, management and operations services to the Company. The Services
Agreement has an initial term of five years commencing December 1993 with three
five-year renewal terms. As compensation for its services under the Services
Agreement, AES will receive a payment equal to the salaries and benefits (other
than benefits under certain plans identified under "Management -- Compensation
of Directors and Officers") of persons performing services on behalf of AES
under the Services Agreement, plus 45% thereof to cover corporate overhead and
similar indirect costs. AES also will receive 50% of any development fee,
construction success fee or operations and maintenance performance fee received
by the Company in respect of projects for which AES has performed services.
Because these arrangements were not negotiated on an arm's-length basis, it is
possible that the Company could obtain similar services on more favorable terms
from third parties. Management fees under the Services Agreement totalled $0.3
million, $0.1 million, and $0.4 million for the fiscal year ended November 30,
1996, November 30, 1995, and November 30, 1994 respectively. The Services
Agreement provides that for the first five years that the agreement is in
effect, AES will invest the after-tax proceeds of certain performance fees in
additional shares of Class B common Stock. AES was not required to invest in
additional shares of Class B Common Stock pursuant to this provision during the
fiscal year ended November 30, 1996, the fiscal year ended November 30, 1995 or
the fiscal year ended November 30, 1994.
Stock Purchase and Shareholder's Agreement
The Company and AES entered into a Stock Purchase and
Shareholder's Agreement, dated as of December 29, 1993 (the "Stock Purchase
Agreement"), pursuant to which the Company issued to AES 7,500,000 shares of
Class B Common Stock in consideration of: (i) the investment by AES of $50.0
million in the Company; (ii) the assignment (subject to obtaining necessary
third-party consents) to the Company of AES's direct or indirect interests in
all letters of intent and preliminary agreements with PRC Government entities
and other third parties in respect of the development of electric power
generation projects in China; and (iii) AES's agreement not to compete, and to
cause each of its controlled subsidiaries not to compete, with the Company in
China for at least ten years. The Stock Purchase Agreement also provides that
until the fifth anniversary of the date of the Services Agreement, AES will
apply the after-tax proceeds of all performance fees received by AES with
respect to the Company's projects to the purchase of additional shares of Class
B Common Stock, subject to certain exceptions. See "Services Agreement." The
Stock Purchase Agreement would be terminated upon the consummation of the
Amalgamation.
Non-Competition and Non-Disclosure Agreement
As part of the consideration for issuance to AES of 7,500,000
shares of Class B Common Stock, AES entered into a Non-Competition and
Non-Disclosure Agreement, dated as of December 29, 1993 and amended and restated
as of February 1, 1994 (the "Non-Competition Agreement"). The Non-Competition
Agreement provides that AES will not, and will not permit any subsidiary to,
develop, construct, own, manage, operate, control, invest in, lend to, or
acquire an interest in, or otherwise engage or participate in any electric power
generation project in China, for a period equal to the greater of (i) ten years
and (ii) three years after the earlier of (a) termination or non-renewal of the
Services Agreement for any reason and (b) the permitted sale, conveyance or
transfer by AES of all of its shares of Class B Common Stock to an unaffiliated
party or parties. The Non-Competition Agreement would be terminated upon the
consummation of the Amalgamation.
AES Affiliates' Agreements
Roger W. Sant, Chairman of the Board and a director of AES,
and Dennis W. Bakke, Vice Chairman and a director of AES, and each other
director and executive officer of AES (the "AES Affiliates"), have entered into
agreements with the Company (the "AES Affiliates' Agreements") pursuant to which
each AES Affiliate has agreed that until such date as all of the shares of Class
B Common Stock have been converted to shares of Class A Common Stock, such AES
Affiliate will not acquire, offer to acquire, or agree to acquire any shares of
Class A Common Stock or rights or options to acquire any shares of Class A
Common Stock, or make or in any way participate in any solicitation of proxies
to vote or seek to advise, encourage or influence any person or entity with
respect to the voting of any Class A Common Stock. This restriction does not
apply to any such action if any person (other than such AES Affiliate, AES or a
subsidiary of AES) publicly announces or proposes to the Board of Directors or
management of the Company any tender or exchange offer, merger, consolidation,
solicitation of proxies or similar transaction involving the Class A Common
Stock, or any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or series of transactions) by the Company, any
subsidiary of the Company or any Joint Venture in which the Company or any
subsidiary invests which involves aggregate consideration equal to 50% or more
of the aggregate book value of all the assets of the Company determined on a
consolidated basis. The AES Affiliate's Agreement of Thomas I. Unterberg, a
Director of AES and of the Company, provides that the foregoing restrictions
will not restrict any market-making or investment banking activities of
Unterberg Harris, of which he is a Managing Director.
Waivers of restrictions on purchasing Class A Common Stock
under the AES Affiliates' Agreement entered into by Paul T. Hanrahan, President
and Chief Executive Officer of AES Chigen, were granted in 1995 to permit Mr.
Hanrahan to purchase 2,000 shares of Class A Common Stock.
Each AES Affiliates' Agreement will have no further relevance
if the Amalgamation is consummated, because all Common Stock will be owned by
AES.
Dual Status of Officers
Messrs. Sant and Bakke, in addition to serving as Chairman and
Vice Chairman of AES Chigen, respectively, serve as executive officers of AES.
Mr. Hanrahan devotes substantially all of his time serving as President and
Chief Executive Officer of AES Chigen, but continues as a Vice President of AES
and devotes some of his time to AES's activities in Asia. Mr. Safford devotes
substantially all of his time serving as Vice President, Chief Financial Officer
and Secretary of AES Chigen but continues to work for AES, which, from time to
time, requires him to devote a portion of his time to other AES matters. Messrs.
Hall and Yeager devote substantially all of their time serving as Executive Vice
President and Vice President of AES Chigen, respectively, but also continue to
work for AES, which, from time to time, requires them to devote a portion of
their time to other AES matters. While Messrs. Hanrahan, Safford and Hall are
expected to devote substantially all of their time to AES Chigen's business, AES
Chigen and AES have not established any fixed allocation of their time. AES
Chigen and AES acknowledge that the dual status of the aforesaid persons with
AES Chigen and AES may, from time to time, require attention by an individual or
individuals to matters for AES rather than AES Chigen's business in the future.
In the event that such circumstances arise, AES Chigen intends to shift
responsibilities of other officers, or to appoint additional officers, and to
take such other action as may be necessary to avoid an adverse effect on AES
Chigen's business. Furthermore, AES has agreed that it will adopt similar
staffing strategies to avoid, to the extent possible, conflicting demands on
such officers.
Amalgamation
See "Business -- General Development of Business" and
"Discussion and Analysis of Financial Condition and Results of Operations" for
information concerning the proposed Amalgamation of the Company and a wholly
owned subsidiary of AES, which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and
Exhibits.
(1) The following financial statements of the Company
and its consolidated subsidiaries are attached to
this Annual Report on Form 10-K following the
signature page:
- Report of Independent Auditors.
- Consolidated Statements of Operations for
the fiscal years ended November 30, 1996 and
1995 and for the period from December 7,
1993 (inception) to November 30, 1994.
- Consolidated Balance Sheets as of November
30, 1996 and 1995.
- Consolidated Statements of Shareholders'
Equity for the fiscal years ended November
30, 1996 and 1995 and for the period from
December 7, 1993 (inception) to November 30,
1994.
- Consolidated Statements of Cash Flows for
the fiscal years ended November 30, 1996 and
1995 and for the period from December 7,
1993 (inception) to November 30, 1994.
- Notes to Consolidated Financial Statements
for the fiscal years ended November 30, 1996
and 1995 and for the period from December 7,
1993 (inception) to November 30, 1994.
(2) Financial Statement Schedules
- Schedule I - Condensed Financial
Information.
Schedules other than that listed above are
omitted as the information is either not
applicable, not required or has been
furnished in the financial statements or
notes thereto included in this Annual Report
on Form 10-K.
(3) Exhibits
1.1 Underwriting Agreement dated December
12, 1996 between the Company and Morgan
Stanley & Co. Incorporated and
Donaldson, Lufkin & Jenrette Securities
Corporation.
3.1 Memorandum of Association of the Company is
incorporated herein by reference to Exhibit
3.1 to the Registration Statement on Form
S-1 (Registration No.
33-73668).
3.2 Bye-laws of the Company, as amended March
27, 1995, are incorporated herein by
reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended February 28, 1995.
4.1 Indenture dated as of December 19, 1996
between the Company and Bankers Trust
Company, as Trustee.
4.2 Form of 2006 Note.
4.3 Security Agreement, dated as of December
19, 1996, among the Company, Bankers
Trust Company, as Trustee, and Bankers Trust
Company, as Collateral Agent.
10.1 Stock Purchase and Shareholder's Agreement,
dated as of December 29, 1993, between the
Company and AES is incorporated herein by
reference to Exhibit 10.1 to the
Registration Statement on Form S-1
(Registration No. 33-73668).
10.2 Project Services Agreement, dated as of
December 29, 1993, between the Company and
AES is incorporated herein by reference to
Exhibit 10.2 to the Registration Statement
on Form S-1 (Registration No. 33-73668).
10.3 Non-Competition and Non-Disclosure Agreement,
dated as of December 29, 1993 and amended and
restated as of February 1, 1994, between the
Company and AES is incorporated herein by
reference to Exhibit 10.3 to Amendment No. 1
to the Registration Statement on Form S-1
(Registration No. 33-73668).
10.4 Form of AES Affiliate's Agreement, dated
February 1, 1994, between the Company and
each Director and Executive Officer of AES
is incorporated herein by reference to
Exhibit 10.4 to Amendment No. 1 to the
Registration Statement on Form S-1
(Registration No. 33-73668).
10.5 Joint Venture Agreement to Establish
Yangcheng International Power Generating
Company, Limited, initialed draft dated
December 20, 1994, among North China
Electric Power Group Corporation, Jiangsu
Province Investment Corporation, Shanxi
Energy Enterprise (Group) Company, Shanxi
Provincial Power Company, Jiangsu Provincial
Power Company and the Company is
incorporated herein by reference to Exhibit
10.5 to the Annual Report on Form 10-K of
the Company for the fiscal year ended
November 30, 1994.
10.6 Assignment and Assumption dated as of
December 29, 1993 between AES and certain
subsidiaries of AES and the Company is
incorporated herein by reference to Exhibit
10.11 to the Registration Statement on Form
S-1 (Registration No. 33-73668).
10.7 AES China Generating Co. Ltd. Incentive
Stock Option Plan, as amended March 27,
1995, is incorporated herein by reference to
Exhibit 10.12 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
February 28, 1995.
10.8 Agreement to Establish a Sino-U.S.
Cooperative Joint Venture, Nanpu Thermal
Power Plant in Fujian Province, executed on
April 21, 1994 between Fujian Provincial
Electric Power Bureau and the Company is
incorporated herein by reference to Exhibit
10.13 to the Annual Report on Form 10-K of
the Company for the fiscal year ended
November 30, 1994.
10.9 Cooperative Joint Venture Contract for the
Establishment of Sichuan Fuling Aixi Power
Company Limited dated February 9, 1995
between Sichuan Fuling Banxi Colliery and
AES Tian Fu Power Company Limited is
incorporated herein by reference to Exhibit
10.17 to the Annual Report on Form 10-K of
the Company for the fiscal year ended
November 30, 1994.
10.10 Joint Venture Contract to Establish
Xiangci-AES Hydro Power Company Ltd. dated
July 21, 1994 between China Hunan Cili Power
Company and the Company is incorporated
herein by reference to Exhibit 10.19 to the
Annual Report on Form 10-K of the Company
for the fiscal year ended November 30, 1994.
10.11 Power Purchase Contract dated as of July 21,
1994 between China Hunan Cili Electric Power
Company and Xiangci-AES Hydro Power Company
Ltd. (effectiveness certified on September
9, 1994) is incorporated herein by reference
to Exhibit 10.20 to the Annual Report on
Form 10-K of the Company for the fiscal year
ended November 30, 1994.
10.12 Shareholders' Agreement to establish
AES-GITIC Power Development Company Limited,
a Bermuda limited liability company, dated
November 10, 1994 between the Company and
Guangdong International Trust and Investment
Corporation Hong Kong (Holdings) Limited is
incorporated herein by reference to Exhibit
10.21 to the Annual Report on Form 10-K of
the Company for the fiscal year ended
November 30, 1994.
10.13 Amendment to Article 15.03 of the
Shareholders' Agreement to establish
AES-GITIC Power Development Company Limited,
a Bermuda limited liability company, between
the Company and Guangdong International
Trust and Investment Corporation Hong Kong
(Holdings) Limited.
10.14 Cooperative Joint Venture Contract for the
establishment of Yangchun Fuyang Diesel
Engine Power Company Ltd. dated December 4,
1994 among Yangchun Municipal Power Supply
Company, Shenzhen Futian Gas Turbine Power
Company Ltd. and ABC Yangchun Company
Limited is incorporated herein by reference
to Exhibit 10.22 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
February 28, 1995.
10.15 Chengbao (Responsibility) Management
Contract for Yangchun Fuyang Diesel Engine
Power Company Ltd. dated December 31, 1994
between Yangchun Fuyang Diesel Engine Power
Company Ltd. and Yangchun Municipal Power
Supply Company and Supplemental Contract
dated March 6, 1995 are incorporated herein
by reference to Exhibit 10.23 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended February 28, 1995.
10.16 Power Purchase Contract dated May 24, 1995
between Wuxi County Sandianban and
Wuxi-AES-CAREC Gas Turbine Power Company
Limited is incorporated herein by reference
to Exhibit 10.24 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 31, 1995.
10.17 Cooperative Joint Venture Contract for the
establishment of Wuxi-AES-Zhonghang Power
Company Ltd. dated May 4, 1995 among Wuxi
Power Industry Company, China National
Aero-engine Corporation and the Company is
incorporated herein by reference to Exhibit
10.25 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31,
1995.
10.18 Cooperative Joint Venture Contract for the
establishment of Wuxi-AES-CAREC Gas Turbine
Power Company Ltd. dated May 4, 1995 among
Wuxi Power Industry Company, China National
Aero-engine Corporation and the Company is
incorporated herein by reference to Exhibit
10.26 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31,
1995.
10.19 Loan Contract dated May 24, 1995 between
AES-Chigen Company (L) Ltd. and
Wuxi-AES-Zhonghang Power Company Ltd. is
incorporated herein by reference to Exhibit
10.27 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31,
1995.
10.20 Loan Contract dated May 24, 1995 between
AES-Chigen Company (L) Ltd. and
Wuxi-AES-CAREC Gas Turbine Power Company
Ltd. is incorporated herein by reference to
Exhibit 10.28 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 31, 1995.
10.21* Power Purchase Contract dated December 11,
1995 among Power Supply Company of the
Fuling Prefecture of Sichuan Province,
Sichuan Fuling Grid Management Department
and Sichuan Fuling Aixi Power Company
Limited is incorporated herein by reference
to Exhibit 10.21 to the Annual Report on
Form 10-K of the Company for the fiscal year
ended November 30, 1995.
10.22 Addendum Number One of Cooperative Joint
Venture Contract to Establish Sichuan Fuling
Aixi Power Company Limited dated July 11,
1995 between Sichuan Fuling Banxi Colliery
and AES Tian Fu Power Company Limited is
incorporated herein by reference to Exhibit
10.22 to the Annual Report on Form 10-K of
the Company for the fiscal year ended
November 30, 1995.
10.23 Addendum Number Two of Cooperative Joint
Venture Contract to Establish Sichuan Fuling
Aixi Power Company Limited dated August 29,
1995 between Sichuan Fuling Banxi Colliery
and AES Tian Fu Power Company Limited is
incorporated herein by reference to Exhibit
10.23 to the Annual Report on Form 10-K of
the Company for the fiscal year ended
November 30, 1995.
10.24* Construction and Term Loan Agreement dated
December 21, 1995 between AES Tian Fu Power
Company (L) Ltd. and Sichuan Fuling Aixi
Power Generating Company Limited is
incorporated herein by reference to Exhibit
10.24 to the Annual Report on Form 10-K of
the Company for the fiscal year ended
November 30, 1995.
10.25 Cooperative Joint Venture Contract to
Establish Jiaozuo Wan Fang Power Company
Limited dated January 21, 1996 between
Jiaozuo Aluminum Mill and Jiaozuo Power
Partners, L.P. is incorporated herein by
reference to Exhibit 10.25 to the Annual
Report on Form 10-K of the Company for the
fiscal year ended November
30, 1995.
10.26* Cooperative Joint Venture Contract to
Establish Jiaozuo Wan Fang Power Company
Limited dated March 27, 1996 between Jiaozuo
Power Partners, L.P. and Jiaozuo Aluminum
Mill is incorporated herein by reference to
Exhibit 10.26 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 31, 1996.
10.27* Shareholder Loan Contract dated April 26,
1996 between Jiaozuo Wan Fang Power Company
Limited and Jiaozuo Aluminum Mill is
incorporated herein by reference to Exhibit
10.27 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31,
1996.
10.28* Shareholder Loan Contract dated April 26,
1996 between Jiaozuo Wan Fang Power Company
Limited and AES China Power Holding Co. (L),
Ltd. is incorporated herein by reference to
Exhibit 10.28 to Amendment No. 1 on Form
10-Q/A to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31,
1996.
10.29* Power Purchase and Sale Contract dated April
26, 1996 between Jiaozuo Wan Fang Power
Company Limited and Jiaozuo Aluminum Mill is
incorporated herein by reference to Exhibit
10.29 to Amendment No. 1 on Form 10-Q/A to
the Company's Quarterly Report on Form 10-Q
for the quarter ended May 31, 1996.
10.30* Power Purchase and Sale Contract dated April
25, 1996 between Jiaozuo Wan Fang Power
Company Limited and Henan Electric Power
Corporation is incorporated herein by
reference to Exhibit 10.30 to Amendment No.
1 on Form 10-Q/A to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 31, 1996.
10.31 Assignment and Assumption Contract dated
April 26, 1996 between Jiaozuo Wan Fang
Power Company Limited and Jiaozuo Aluminum
Mill is incorporated herein by reference to
Exhibit 10.31 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 31, 1996.
10.32 Equity Joint Venture Contract dated February
12, 1996 among China Power International
Holdings Limited, AES China Holding Company
(L) Ltd., Anhui Liyuan Electric Power
Development Company and Wuhu Energy
Development Company is incorporated herein
by reference to Exhibit 10.32 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1996.
10.33* Operation & Offtake Contract dated July 5,
1996 between Wuhu Shaoda Electric Power
Development Company Limited and Anhui
Provincial Electric Power Corporation is
incorporated herein by reference to Exhibit
10.33 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31,
1996.
10.34 Undertaking and Subordination Deed dated
June 26, 1996 among AES China Holding
Company (L) Limited, Anhui Liyuan Electric
Power Development Company Limited, China
Power International Holding Limited, Wuhu
Energy Development Company, Wuhu Shaoda
Electric Power Development Company Limited
and CCIC Finance Limited is incorporated
herein by reference to Exhibit 10.34 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1996.
10.35 Junior Subordination Agreement among China
Power International Holding Limited, AES
China Holding Company (L) Limited, Anhui
Liyuan Electric Power Development Company
Limited, Wuhu Energy Development Company and
Wuhu Shaoda Electric Power Development
Company Limited is incorporated herein by
reference to Exhibit 10.35 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended August 31, 1996.
10.36 Subordinated Insurance Assignment between
Wuhu Shaoda Electric Power Development
Company Limited and AES China Holdings
Company (L) Limited is incorporated herein
by reference to Exhibit 10.36 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1996.
10.37 Subordinated Borrower Charge Over Accounts
between Wuhu Shaoda Electric Power
Development Company Limited and AES China
Holdings Company (L) Limited is incorporated
herein by reference to Exhibit 10.37 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1996.
10.38 Subordinated Project Contracts Assignment
between Wuhu Shaoda Electric Power
Development Company Limited and AES China
Holdings Company (L) Limited is incorporated
herein by reference to Exhibit 10.38 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1996.
10.39 Subordinated Mortgage Contract between Wuhu
Shaoda Electric Power Development Company
Limited and AES China Holdings Company (L)
Limited is incorporated herein by reference
to Exhibit 10.39 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
August 31, 1996.
10.40* Cooperative Joint Venture Contract dated
March 18, 1996 by and among Anhui Liyuan
Electric Power Development Company Ltd.,
Hefei Municipal Construction and Investment
Company and AES Anhui Power Company Ltd.
establishing Anhui Liyuan-AES Power Company
Ltd.
10.41* AES Loan Contract by and between Anhui
Liyuan-AES Power Company Limited and AES
Chigen Company (L), Ltd.
10.42* Cooperative Joint Venture Contract dated
March 18, 1996 by and among Anhui Liyuan
Electric Plower Development Company Ltd.,
Hefei Municipal Construction and Investment
Company and AES Anhui Power Company Ltd.
establishing Hefei Zhongli Energy Company
Ltd.
10.43* AES Loan Contract by and between Hefei
Zhongli Energy Company Limited and AES
Chigen Company (L), Ltd.
10.44* Operation and Offtake Contract between Anhui
Provincial Electric Power Corporation, Anhui
Liyuan-AES Power Company Ltd. and Hefei
Zhongli Energy Company Ltd.
10.45* Cooperative Joint Venture Contract by and
among Chengdu Huaxi Electric Power (Group)
Shareholding Company Ltd., China National
Aero-engine Corporation and the Company.
10.46* Support Contract dated as of August 12, 1996
between AES Tian Fu Power Company (L) Ltd.
and Chengdu AES KAIHUA Gas Turbine Power
Co., Ltd.
10.47* Power Purchase Contract between Chengdu
Huaxi Electric Power (Group) Shareholding
Company Ltd. and Chengdu AES KAIHUA Gas
Turbine Power Co., Ltd.
10.48* Agreement of Amendment to the Cooperative
Joint Venture Contract and Articles of
Association of Chengdu AES KAIHUA Gas
Turbine Power Co., Ltd.
11.1 Statement of computation of earnings per
share.
21.1 List of Subsidiaries of the Company.
23.1 Independent Auditors' Consent.
25.1 Power of Attorney.
27.1 Financial Data Schedule.
99.1 Statement Re: Computation of Fixed Charge
Coverage Ratio
*The Company has requested confidential treatment for certain information
identified in this exhibit.
(b) Reports on Form 8-K.
No reports on Forms 8-K have been filed during the last
quarter of the Company's fiscal year ended November 30, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 28, 1997
AES CHINA GENERATING CO. LTD.
(Company)
By: /s/ Paul T. Hanrahan
Paul T. Hanrahan
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ Roger W. Sant* Chairman of the Board and February 28, 1997
- ------------------------------ Class B Director
Roger W. Sant
/s/ Dennis W. Bakke* Vice Chairman and February 28, 1997
- ------------------------------ Class B Director
Dennis W. Bakke
/s/ Robert F. Hemphill, Jr.* Vice Chairman and February 28, 1997
- ------------------------------ Class B Director
Robert F. Hemphill, Jr.
/s/ Thomas Tribone* Class B Director February 28, 1997
- ------------------------------
Thomas Tribone
/s/ Thomas I. Unterberg* Class B Director February 28, 1997
- ------------------------------
Thomas I. Unterberg
/s/ William Dykes* Class A Director February 28, 1997
- ------------------------------
William Dykes
/s/ Xiliang Feng* Class A Director February 28, 1997
- ------------------------------
Xiliang Feng
/s/ Dr. Victor Hao Li* Class A Director February 28, 1997
- ------------------------------
Dr. Victor Hao Li
/s/ William H. Taft, IV* Class A Director February 28, 1997
- ------------------------------
William H. Taft, IV
/s/ Paul T. Hanrahan President and Chief Executive Officer February 28, 1997
- ------------------------------ (Principal Executive Officer)
Paul T. Hanrahan
/s/ Jeffery A. Safford Vice President, Chief Financial Officer February 28, 1997
- ------------------------------ and Secretary (Principal Financial and
Jeffery A. Safford Accounting Officer)
*/s/ Jeffery A. Safford
Jeffery A. Safford
Attorney-in-Fact
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF
AES CHINA GENERATING CO. LTD.
We have audited the accompanying consolidated balance sheets of AES
China Generating Co. Ltd. and subsidiaries as of November 30, 1996 and 1995, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two years in the period ended November 30, 1996 and
for the period from December 7, 1993 (inception) to November 30, 1994. Our
audits also included the financial statement schedule listed at Item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of AES China Generating Co.
Ltd. and subsidiaries as of November 30, 1996 and 1995, and the results of their
operations and cash flows for each of the two years in the period ended November
30, 1996 and for the period from December 7, 1993 (inception) to November 30,
1994 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE TOUCHE TOHMATSU
Hong Kong
January 31, 1997
F-1
AES CHINA GENERATING CO. LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Period
Ended November 30,
-----------------------------------------------------
1996 1995 1994
------------ ------------- -------------
(in thousands, except per share amounts)
Revenues:
Electricity sales................................ $8,812 $702 $38
Construction delay fee........................... 400 680 --
------------ ------------- -------------
Total revenues........................... 9,212 1,382 38
Operating costs and expenses:
Costs of sales................................... 5,360 635 68
Development, selling, general and
administrative expenses.......................... 3,507 9,259 6,927
------------ ------------- -------------
Total operating costs and expenses....... 8,867 9,894 6,995
------------ ------------- -------------
Operating income/(loss)............................ 345 (8,512) (6,957)
Other income/(expense):
Interest income.................................. 6,360 10,529 6,589
Interest expense................................. (1,120) -- --
Equity in earnings of affiliates................ 663 206 --
Amalgamation cost ............................... (1,444) -- --
------------ ------------- -------------
Income/(loss) before income taxes and
minority interest................................ 4,804 2,223 (368)
Income taxes..................................... 387 -- --
Minority interest................................ 277 85 3
------------ ------------- -------------
Net income/(loss).................................. $4,140 $2,138 $(371)
------------
============= =============
Net income/(loss) per share........................ $ 0.26 $0.12 $(0.03)
============ ============= =============
Weighted average number of shares.................. 15,670 17,391 14,817
============ ============= =============
See notes to consolidated financial statements.
F-2
AES CHINA GENERATING CO. LTD.
CONSOLIDATED BALANCE SHEETS
As of November 30,
----------------------------------------
1996 1995
---------------- ----------------
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents............................ $56,200 $125,684
Investments-- held-to-maturity....................... 8,995 41,609
Investments-- available-for-sale..................... -- 2,995
Accounts receivable from related parties............. 6,809 463
Interest receivable.................................. 286 293
Inventory............................................ 765 31
Prepaid expenses and other current assets............ 874 422
---------------- ----------------
Total current assets......................... 73,929 171,497
Property, Plant and Equipment:
Electric generating facilities...................... 64,185 6,468
Equipment, furniture and leasehold improvements...... 2,646 1,233
Accumulated depreciation and amortization............ (3,143) (665)
Construction in progress............................. 98,912 39,555
---------------- ----------------
Total property, plant and equipment, net..... 162,600 46,591
Other Assets:
Project development costs............................ 3,352 1,083
Investments in and advances to affiliates............ 33,202 2,566
Note receivable...................................... 6,626 7,500
Deposits and other assets............................ 989 634
---------------- ----------------
Total other assets........................... 44,169 11,783
================ ================
TOTAL........................................ $280,698 $229,871
================ ================
See notes to consolidated financial statements.
F-3
AES CHINA GENERATING CO. LTD.
CONSOLIDATED BALANCE SHEETS (Continued)
As of November 30,
-------------------------------------
1996 1995
--------------- --------------
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-- The AES Corporation........................ $1,185 $214
Accounts payable.............................................. 2,199 537
Payable for repurchase of shares.............................. -- 10,011
Payable for investment purchase............................... -- 2,995
Accrued liabilities........................................... 2,618 1,430
Accrued liabilities for construction.......................... 4,259 --
Loans from minority shareholders-- current portion............ 1,365 351
Notes payable................................................. 2,861 1,000
--------------- --------------
Total current liabilities............................. 14,487 16,538
Long-Term Liabilities:
Deferred income taxes......................................... 387 --
Loans from minority shareholders.............................. 34,933 6,666
--------------- --------------
Total long-term liabilities........................... 35,320 6,666
Minority Interest............................................... 40,536 19,082
Commitments and Contingencies
Shareholders' Equity:
Class A common stock -- par value $0.01 per share, (50,000,000
shares authorized; 1996 -- 8,134,100 shares issued and
outstanding after deducting retirement of treasury stock; 1995-
10,216,000 shares issued)..................................... 81 102
Class B common stock-- par value $0.01 per share, (50,000,000
shares authorized; 7,500,000 shares issued and outstanding)... 75 75
Additional paid-in capital.................................... 183,980 201,762
Retained earnings............................................. 5,907 1,767
Cumulative translation adjustment............................. 312 250
Treasury stock, at cost,
(1,912,600 shares at November 30, 1995)...................... -- (16,371)
--------------- --------------
Total shareholders' equity............................ 190,355 187,585
=============== ==============
TOTAL................................................. $280,698 $229,871
=============== ==============
See notes to consolidated financial statements.
F-4
AES CHINA GENERATING CO. LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Class A Class B
Common Stock Common Stock
-------------------------- -----------------------------
Shares Amount Shares Amount
------------ ----------- ------------- ------------
(in thousands, except share amounts)
Balance December 7, 1993................. -- $ -- -- $ --
Issuance of Class B common stock......... -- -- 7,500,000 75
Issuance of Class A common stock......... 10,216,000 102 -- --
Foreign currency translation............. -- -- -- --
Net loss for the period.................. -- -- -- --
------------ ----------- ------------- ------------
Balance November 30, 1994................ 10,216,000 102 7,500,000 75
Purchase of treasury stock............... -- -- -- --
Foreign currency translation............. -- -- -- --
Net income for the year.................. -- -- -- --
------------ ----------- ------------- ------------
Balance November 30, 1995................ 10,216,000 102 7,500,000 75
Purchase of treasury stock............... -- -- -- --
Retirement of treasury stock ............ (2,081,900) (21) -- --
Foreign currency translation ............ -- -- -- --
Net income for the year ................. -- -- -- --
============ =========== ============= ============
Balance November 30, 1996 ............... 8,134,100 $ 81 7,500,000 $ 75
============ =========== ============= ============
See notes to consolidated financial statements.
F-5
AES CHINA GENERATING CO. LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
Retained
Additional Earnings/ Cumulative
Paid-In (Accumulated Translation Treasury Stock Shareholders'
Capital Deficit) Adjustment Shares Amount Equity
------------- ---------------- -------------- ------------- ------------- ---------------
(in thousands, except share amounts)
$ -- $ -- $ -- -- $ -- $ --
49,925 -- -- -- -- 50,000
151,837 -- -- -- -- 151,939
-- -- 16 -- -- 16
-- (371) -- -- -- (371)
------------- ---------------- -------------- ------------- ------------- ---------------
201,762 (371) 16 -- -- 201,584
-- -- -- (1,912,600) (16,371) (16,371)
-- -- 234 -- -- 234
-- 2,138 -- -- -- 2,138
------------- ---------------- -------------- ------------- ------------- ---------------
201,762 1,767 250 (1,912,600) (16,371) 187,585
-- -- -- (169,300) (1,432) (1,432)
(17,782) -- -- 2,081,900 17,803 --
-- -- 62 -- -- 62
-- 4,140 -- -- -- 4,140
============= ================ ============== ============= ============= ===============
$ 183,980 $ 5,907 $ 312 -- $ -- $ 190,355
============= ================ ============== ============= ============= ===============
See notes to consolidated financial statements.
F-6
AES CHINA GENERATING CO. LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Period Ended November 30,
--- --------------------------------------------- ------
1996 1995 1994
--------------- --------------- --------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)......................................... $ $ $
4,140 2,138 (371)
Adjustments to reconcile net income/(loss) to net cash
(used in)
provided by operating activities:
Depreciation and amortization........................... 2,071 476 107
Provision for deferred taxes............................ 387 -- --
Minority interest....................................... 277 85 3
Equity in earnings of affiliates........................ (663) (206) --
Dividend from affiliate................................. 626 -- --
Decrease in provision for project development costs..... (2,298) -- --
Amortization of discount/premium on investments-net..... (2,038) (3,543) --
Changes in assets and liabilities:
Accounts receivable from related parties.............. (6,346) (422) (41)
Interest receivable................................... 7 683 (976)
Inventory, prepaid expenses and other current assets.. (1,186) (55) (398)
Accrued interest income from affiliates............... (333) -- --
Deposits.............................................. 28 (82) (309)
Accounts payable and accrued expenses................. 3,821 114 2,067
--------------- --------------- --------------
Net cash (used in) / provided by operating
activities......................................... (1,507) 812 82
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock................ -- -- 201,939
Contributions and loans from minority shareholders........ 8,497 13,535 --
Repayment of loans from minority shareholders............. (270) -- --
Proceeds from notes payable............................... 2,861 1,000 --
Repayment of notes payable................................ (1,000) -- --
Repurchase of Class A common stock........................ (11,443) (6,360) --
--------------- --------------- --------------
Net cash (used in) / provided by financing
activities......................................... (1,355) 8,175 201,939
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and construction in progress........ (69,205) (29,544) (3,274)
Purchase of investments................................... -- -- (195,943)
Purchase of investments-held-to-maturity.................. (29,176) (154,630) --
Purchase of investments-available-for-sale................ (16,797) (14,557) --
Proceeds from sales/maturity of investments............... -- -- 93,369
Proceeds from the maturity of investments-held-to-maturity 63,656 219,086 --
Proceeds from the sales of investments-available-for-sale. 16,969 14,609 --
Investments in and advances to affiliates................. (22,990) (2,360) --
Recoupment of investment in affiliate..................... 216 -- --
Project development costs and other assets................ (2,669) (2,269) (687)
Investment in note receivable............................. (6,626) (7,500) --
--------------- --------------- --------------
Net cash (used in) / provided by investing
activities......................................... (66,622) 22,835 (106,535)
--------------- --------------- --------------
(Decrease ) /increase in cash and cash equivalents. (69,484) 30,198 95,486
CASH AND CASH EQUIVALENTS,
Beginning of year/period................................ 125,684 95,486 --
=============== =============== ==============
End of year/period...................................... $ 56,200 $ 125,684 $ 95,486
=============== =============== ==============
F-7
Supplemental disclosure:
In April 1996, the Company's joint venture partner in Jiaozuo Wan Fang
contributed capital and shareholder loans of $38.4 million in the form of land
use rights, construction-in-progress, equipment and receivables, net of accounts
payable.
In 1995, the Company's joint venture partners in Wuxi-AES-CAREC and
Wuxi-AES-Zhonghang contributed capital in the form of work-in-progress and
equipment of $5.3 million. At November 30, 1995, the Company had recorded the
purchase of investments and the purchase of treasury stock for $3.0 million and
$10.0 million, respectively. Payments for such purchases were made subsequent to
year-end.
In 1994, the Company's joint venture partner in Xiangci-AES contributed
capital in the form of work-in-progress and equipment of $7.2 million.
See notes to consolidated financial statements.
F-8
AES CHINA GENERATING CO. LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AES China Generating Co. Ltd. ("AES Chigen" or the "Company"), a
Bermuda company, was incorporated on December 7, 1993, to develop, acquire,
finance, construct, own and manage electric power generation facilities in the
People's Republic of China (the "PRC"). The Company is an effectively controlled
affiliate of The AES Corporation ("AES"). As of November 30, 1996, AES owned
approximately 48% of the outstanding common stock of the Company. AES Chigen was
a development stage company in 1994.
As detailed in note 12, an Amended and Restated Agreement and Plan of
Amalgamation, dated as of November 12, 1996 has been signed which, if approved
by the Class A shareholders of the Company and subject to the satisfaction of
certain conditions, would result in AES owning the entire outstanding common
stock of the Company.
Fiscal Periods -- Statements of operations and cash flows are presented
for the period from December 7, 1993 (inception), to November 30, 1994 and for
the years ended November 30, 1995 and 1996.
Accounting Principles -- The Company has prepared its financial
statements on the basis of United States generally accepted accounting
principles.
Principles of Consolidation -- The consolidated financial statements of
the Company include the accounts of AES Chigen and its subsidiaries. Investments
in 50% or less owned affiliates over which the Company exercises significant
influence, but not control, are accounted for by the equity method. Intercompany
transactions and balances have been eliminated. In the second quarter of 1996, a
subsidiary of the Company acquired a controlling interest in Jiaozuo Wan Fang
Power Company Limited ("Jiaozuo Wan Fang") for cash which approximated the fair
value of net tangible assets acquired. The acquisition was accounted for as a
purchase.
The Company's joint venture partners in certain 50% or less owned
affiliates have guaranteed a minimum return on the Company's investment. The
Company recognizes such guaranteed return in excess of its equity in the
earnings of the affiliates to the extent it believes it is probable that the
guaranteed return will be realized.
Cash and Cash Equivalents -- The Company considers cash on hand,
deposits in banks, certificates of deposit and short-term marketable securities
with an original maturity of three months or less to be cash and cash
equivalents. Cash and cash equivalents consists mainly of short-term commercial
paper and US Treasury bills.
Investments -- Debt and equity securities which the Company has both
the positive intent and ability to hold to maturity are classified as
held-to-maturity and carried at amortized cost. Debt and equity securities which
might be sold prior to maturity are classified as available-for-sale and carried
at approximate fair value. Material unrealized gains and losses, if any, related
to available-for-sale investments, net of applicable taxes, are reflected in a
separate component of shareholders' equity. The Company determines the
appropriate classification of securities at the time of purchase and evaluates
such classification as of each balance sheet date. Transactions in investment
securities are accounted for on the trade date.
F-9
Inventory -- Inventory, valued at lower of cost (principally weighted
average method) or market value, consists of spare parts, materials and fuel
supplies used for the production of electricity.
Property, Plant and Equipment -- Property, plant and equipment is
stated at cost including the cost of improvements. Depreciation, after
consideration of salvage value, is computed using the straight-line method over
the estimated composite lives of the assets, which range from 3 to 25 years.
Maintenance and repairs are charged to expense as incurred.
Construction in Progress -- Construction progress payments, engineering
costs, insurance costs, wages, interest and other costs relating to construction
in progress are capitalized. Construction in progress balances are transferred
to electric generating facilities when the related assets or group of assets are
ready for their intended use. Capitalized interest during construction was $3.2
million in 1996 and $0.3 million in 1995.
Revenue Recognition -- Revenues from the sale of electricity are
recorded based upon output delivered and capacity provided at rates as specified
under contract terms. Most of the Company's power plants rely primarily on one
power sales contract with a single customer for the majority of its revenues.
Two customers accounted for 87% and 13% of electricity sales revenues in 1996,
one customer accounted for 100% of electricity sales revenues in 1995 and 1994.
The failure of any customer to fulfill its contractual obligations could have a
substantial negative impact on AES Chigen's revenues. However, the Company does
not anticipate non-performance by the customers under these contracts. Fees for
construction delay paid by Cili Power Company, the contractor of Xiangci-AES
Hydro Power Company Ltd. ("Xiangci-AES"), to compensate the Company for lost
generation in respect of an expansion facility, are recognized as revenue when
earned.
Project Development Costs -- Project development costs generally
represent costs incurred after achieving certain project related milestones
prior to the acquisition of generating assets or the start of physical
construction. These costs represent amounts incurred for professional services,
salaries, permits, options and other related costs. These costs are transferred
to construction in progress during the construction phase and to electric
generating facilities after commencement of operations.
Income Taxes -- Income taxes are provided based on an asset and
liability approach for financial accounting and reporting of income taxes.
Deferred income tax liabilities or benefits are recorded to reflect the tax
consequences in future years of differences between the tax basis of assets and
liabilities and the financial reporting amounts at each year end. A valuation
allowance is recognized if it is more likely than not that some portion of, or
all of, a deferred tax asset will not be realized.
Net Income/(Loss) Per Share -- Net income/(loss) per share is based on
the weighted average number of shares of common stock and common stock
equivalents outstanding. Common stock equivalents result from dilutive stock
options and pension arrangements. The effect of dilutive stock options on net
income/(loss) per share is computed using the treasury stock method. The
weighted average number of shares used in computing net income/(loss) per share
was 15.7 million, 17.4 million and 14.8 million for 1996, 1995 and 1994. Primary
and fully diluted earnings per share are approximately the same.
Stock Options -- Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation" has been issued and will be
adopted by the Company in the year ended November 30, 1997. The statement
includes an optional new method for recognizing compensation expense for
employee stock options. The Company is continuing to evaluate whether or not it
will change to the new recognition method and, as a result, the Company has not
yet determined the effect of adopting SFAS No.123.
Foreign Currency Translation -- The Company's financial reports are
prepared using the United States dollar as the reporting currency. For
subsidiaries whose functional currency is deemed to be other
F-10
than the United States dollar, asset and liability accounts are translated at
period-end rates of exchange and revenue and expenses are translated at average
exchange rates prevailing during the year. Translation adjustments are included
as a separate component of shareholders' equity. The functional currency of all
the Company's current subsidiaries and affiliates is the Renminbi Yuan, the
lawful currency of the PRC ("Renminbi").
Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires the use of
estimates. Actual results could differ from those estimates.
Reclassifications -- Certain reclassifications have been made to prior
period amounts to conform with the 1996 presentation.
2. INVESTMENTS
At November 30, 1996 and 1995, the Company's investments were
classified as either held-to-maturity or available-for-sale. The amortized cost
and estimated fair value of the investments at November 30, 1996 and 1995
classified as held-to-maturity and available-for-sale were approximately the
same. All investments in debt securities had maturity dates within one year from
the balance sheet date. The short-term investments were invested as follows:
As of
November 30,
--------------------------
1996 1995
------------ -----------
(in thousands)
Held-to-maturity
US Treasury and government agency securities....... $1,000 $32,617
Foreign certificates of deposit.................... -- 3,000
Commercial paper-discounted........................ 7,995 --
Floating rate notes................................ -- 5,992
========== ===========
$8,995 $41,609
========== ===========
Available-for-sale
US Treasury and government agency securities....... $-- $ 2,995
========== ===========
3. INVESTMENTS IN AND ADVANCES TO AFFILIATES
As of November 30, 1996 and 1995, the Company's investments in and
advances to affiliates included a 25% ownership interest in Yangchun Fuyang
Diesel Power Co. Ltd. ("Yangchun Fuyang").
As of November 30, 1996, the Company's investments in and advances to
affiliates also included a 25% ownership interest in, and loan to, Wuhu Shaoda
Electric Power Development Company Ltd. ("Wuhu Shaoda") as well as a 35%
ownership interest in, and loan to, Chengdu AES-Kaihua Gas Turbine Power Co.
Ltd. ("Chengdu AES-Kaihua").
F-11
Summarized financial information for equity method affiliates on a
combined 100% basis is as follows (in thousands):
1996
------
Sales............................................ $ 5,950
Operating income................................. 2,226
Net income/(loss)................................ (407)
Current assets................................... 21,083
Non current assets............................... 124,904
Current liabilities.............................. 17,903
Non current liabilities.......................... 78,448
Stockholders' equity............................. 49,637
4. NOTE RECEIVABLE
As of November 30, 1996, Jiaozuo Wan Fang had provided loans in the
aggregate amount of $6.6 million through Zhongyuan Trust and Investment Company
to Henan Electric Power Corporation for the construction of interconnection and
transmission facilities. The loans are unsecured and bear interest at 15.3% per
annum. Interest on the loans is payable in arrears beginning in 1997 and the
principal is payable in 2004.
In August 1995, the Company provided a non-interest bearing loan in the
amount of $7.5 million to China Power International Holding Limited to develop
and invest in Wuhu Shaoda with a condition that the loan would convert to a
minority equity investment in the project upon obtaining approvals from the PRC
government. In August 1996, the loan successfully converted to a minority equity
investment in the project.
5. LOANS FROM MINORITY SHAREHOLDERS
As of November 30, 1996 and 1995, loans from minority shareholders
included debt provided by the Company's joint venture partners, Wuxi Power
Industry Company ("Wuxi Power") and China National Aero-Engine Corporation
("CAREC") to Wuxi-AES-CAREC Gas Turbine Power Co. Ltd. ("Wuxi-AES-CAREC") and
Wuxi-AES-Zhonghang Power Co. Ltd., ("Wuxi-AES-Zhonghang"). The loans are secured
by the land use rights and all assets of the joint venture companies and bear
interest at 13% per annum through the end of 1995 and 15% per annum thereafter.
Principal and interest are repayable in 20 semi-annual installments beginning
July 1, 1996.
As of November 30, 1996, loans from minority shareholders also included
a loan in the amount of $25.7 million from Jiaozuo Aluminum Mill to Jiaozuo Wan
Fang. The loan is unsecured and bears interest at 15.3% per annum and a service
fee to the lender of 3% per annum. The loan is divided into two tranches in
equal amounts. Interest on the first tranche of the loan is payable quarterly in
arrears following commercial operation of unit one. Interest on the second
tranche of the loan is payable quarterly in arrears following commercial
operation of unit two. Principal of the first tranche is repayable in 27
quarterly installments beginning January 1, 1998 and the principal of the second
tranche is payable in 25 quarterly installments beginning July 1, 1998.
F-12
Scheduled maturities of loans from minority shareholders as of November
30, 1996 are as follows:
As of November 30,
1996
------------------
(in thousands)
1997................................... $ 1,365
1998................................... 4,845
1999................................... 5,120
2000................................... 5,120
2001................................... 5,120
Thereafter............................. 14,728
=========================
$ 36,298
=========================
6. NOTES PAYABLE
At November 30, 1996, short-term bank loans totaling $0.4 million to
Xiangci-AES were outstanding. The loans are secured by the buildings of the
joint venture, bear interest from 10.7% to 14.5% per annum and are repayable
within one year. In addition, a short-term bank loan of $1.5 million to Anhui
Liyuan-AES Power Company Ltd. ("Anhui Liyuan-AES") was outstanding. The note is
unsecured, bears interest at the prevailing lending rates in the PRC which
ranged from 6.8125% to 7.49% per annum and is repayable within one year.
At November 30, 1995, notes payable consisted primarily of a short-term
bank loan to Wuxi-AES-CAREC. The note is guaranteed by Wuxi County Power Fuel
Company. In 1996, the short-term bank loan was renewed for another year with
interest at 12.1% per annum.
7. COMMITMENTS AND CONTINGENCIES
Subsidiaries of the Company entered into various long-term contracts
for the purchase of fuel subject to termination only in certain limited
circumstances. These contracts have remaining terms of 14 years to 27 years.
As of November 30, 1996, Xiangci-AES has approximately a $1.0 million
cash reserve to complete construction of the expansion facility. Upon completion
of the facility, any portion of this amount not utilized will be paid by
Xiangci-AES to Cili Power Company, as contractor.
In April 1996, Wuhu Shaoda entered into a $65.0 million term loan
facility ("the Term Loan") with a syndicate of lenders to finance the
construction of the power plant. The Company has guaranteed to the lenders of
the Term Loan certain obligations of its wholly owned subsidiary under the joint
venture contract, including an obligation to fund an $18.0 million subordinated
loan and certain other liabilities which, in the aggregate, do not exceed $6.0
million.
Wuhu Shaoda had entered into a lease contract with Wuhu Energy
Development Company, one of the PRC partners in the joint venture, for land use
rights of the site over its entire term of operations at an annual lease fee of
$0.2 million. As of November 30, 1996, total commitment under the land use
rights lease contract amounted to $5.3 million.
F-13
Since the commencement of operations, the Company has entered into
commitments to invest a total of approximately $259.6 million in the form of
equity contributions and loans to its joint ventures. As of November 30, 1996,
the total outstanding commitment to its joint ventures was $116.8 million.
The Company has initialed or signed several joint venture contracts
which become effective under Chinese law following receipt of certain government
approvals. These joint venture contracts are also subject to the satisfaction or
waiver of certain conditions precedent specified in the joint venture contracts.
Until the appropriate governmental approvals have been obtained and all
conditions precedent have been satisfied or waived, the Company regards the
initialing or signing of a joint venture contract as being a preliminary step in
the development of an electric power generation project and therefore does not
recognize amounts under these joint venture contracts as commitments.
8. SHAREHOLDERS' EQUITY
Class A Common Stock
On March 2, 1994, the Company issued 10,000,000 shares of Class A
common stock in a public offering. On April 4, 1994, the underwriters for the
offering exercised a portion of the over-allotment option granted to them in
connection with the initial public offering and the Company sold an additional
216,000 shares of Class A common stock. In connection with the offering, the
Company registered its Class A common stock with the United States Securities
and Exchange Commission and its shares were approved for quotation on the
National Association of Securities Dealers Automated Quotation National Market
System. The net proceeds of the offering amounted to $151.9 million.
The holders of AES Chigen's Class A common stock are entitled, voting
as a class, to elect one-half of the Board of Directors of the Company. However,
the voting rights of certain holders, if any, of 20% or more of the Class A
shares will be restricted in accordance with the Company's Bye-laws.
The holders of Class A common stock had a one-time right to require the
Company to repurchase their respective Class A shares if by February 23, 1997
the Company had not invested or entered into binding commitments to invest at
least $50.0 million in one or more electric power generation projects in the PRC
on which construction had commenced. The Company has entered into such
commitments and therefore the Class A shareholders no longer have the right to
require repurchase. As a result, the Class A common stock has been reclassified
into shareholders' equity.
Class B Common Stock
On December 29, 1993, AES, pursuant to a Stock Purchase and
Shareholder's Agreement (the "Stock Purchase Agreement") between AES and the
Company, purchased 7,500,000 shares of Class B common stock.
The net proceeds of the sale amounted to $50.0 million.
The holders of Class B common stock are entitled, voting as a class, to
elect one-half of the Board of Directors of the Company. As of November 30,
1996, 1995 and 1994, there were 7,500,000 shares of Class B common stock
outstanding, all of which were owned by AES.
Under the Stock Purchase Agreement, AES agreed that it would not
transfer any Class B shares before February 23, 1996. AES also agreed not to
dispose of more than 3,750,000 Class B shares plus 50% of any Class B shares
acquired subsequent to AES's initial purchase of Class B common stock (excluding
certain shares issued upon reinvestment by AES of performance fees received by
it under the Services Agreement (see Note 9) between the Company and AES) until
the earlier of the tenth anniversary of the effective date of the offering and
the termination of the Services Agreement. Upon the sale or transfer by AES of
any Class B common stock, such shares convert to Class A common stock. Upon the
sale or transfer by AES in one or more transactions of more than approximately
50% of the Class B common stock acquired by AES, the Class B common stock will
convert into Class A common stock and the right of AES to elect one-half of the
Board of Directors of the Company will terminate.
F-14
The Stock Purchase Agreement also provides AES with a preemptive right
to purchase additional Class B common stock in the event the Company issues
additional Class A common stock. AES also has
agreed not to acquire any Class A common stock until such time as all of the
shares of Class B common stock have been converted to shares of Class A common
stock.
Treasury Stock
On April 4, 1995, the Company announced a plan to repurchase up to an
additional 2,042,000 shares of its Class A common stock. Prior to the
announcement of the plan, the Company had purchased 168,000 shares of Class A
common stock through unsolicited block transactions. As of November 30, 1995,
the Company had repurchased a total of 1,912,600 shares of its Class A common
stock. During the year ended November 30, 1996, the Company repurchased a
further 169,300 shares of Class A common stock. The aggregate repurchase of
shares approximates 20% of the shares of Class A common stock issued and were
acquired at an average price of $8.55 per share. As of November 30, 1996, the
Company had retired all the shares of treasury stock.
Transfer of Funds from Subsidiaries and Affiliates
Nearly all of the monetary assets of the Company's subsidiaries and 50%
or less owned affiliates are denominated in Renminbi. The conversion of Renminbi
into US dollars and the remittance of US dollars abroad require PRC government
approvals. At November 30, 1996, the Company's share of the net assets of its
subsidiaries in the PRC amounted to $98.8 million. In addition, the ability of
Wuhu Shaoda to pay dividends to the Company is subject to certain restrictions
under the terms of a bank facility which has been entered into by the joint
venture. No dividend distributions by the joint venture are permitted if certain
debt service coverage ratios are not met.
Stock Options
In 1994, the Company adopted the AES China Generating Co. Ltd.
Incentive Stock Option Plan (the "Plan"). In March 1995, the Company's
shareholders approved an increase in the total number of shares available for
issuance upon exercise of options granted to employees from 875,000 to 2,000,000
shares of Class B common stock and an increase in the maximum number of shares
issuable upon exercise of options that can be granted to an individual from
250,000 to 500,000 shares of Class B common stock. At November 30, 1996, there
were 589,440 shares reserved for future grants under the Plan. A summary of
stock option activity for the years ended November 30, 1995 and 1996 and for the
period from December 7, 1993 (inception) through November 30, 1994 is as
follows:
Year Ended
November 30, Period Ended
--------------------------------- November 30,
1996 1995 1994
-------------- --------------- -----------------
(in shares)
Outstanding at beginning of year/period........ 1,451,059 752,500 --
Exercised during the year/period............... -- -- --
Forfeited during the year/period............... (290,388) --
Granted during the year/period (from $8.50
to $16.00) ................................. 247,889 698,559 752,500
-------------- --------------- -----------------
Outstanding -- end of year/period (from $8.50
to $16.00).................................. 1,408,560 1,451,059 752,500
============== =============== =================
Eligible for exercise-- end of year/period..... 379,112 150,500 --
============== =============== =================
F-15
All options granted under the Plan have an exercise price equal to 100%
of the market price of the Class A common stock at the date the option was
granted. For the options granted in 1994 and 1995, options granted expire in ten
years from the date of grant and generally become eligible for exercise in
installments of 20% at the end of each of the first five years following the
grant date. Certain options granted during 1995 become eligible for exercise in
installments of 20% at the end of one year following the date of grant with an
additional 20% of the shares vesting on the later of each of the second, third,
fourth and fifth anniversaries of the date of grant or the date the market price
reaches, for a sixty-day consecutive period, a price per share of $15.00,
$20.00, $25.00 and $30.00, respectively. A majority of options granted in 1996
become eligible for exercise over a two year period.
9. RELATED PARTIES
AES Chigen has entered into a Project Services Agreement with AES (the
"Services Agreement") whereby AES will exclusively provide development,
construction management and operations services to the Company. The Services
Agreement has an initial term of five years commencing December 1993 with three
five-year renewal terms. Management fees under the Services Agreement totaled
$0.3 million, $0.1 million and $0.4 million for the years ended November 30,
1996 and 1995 and for the period ended November 30, 1994, respectively. The
Services Agreement provides that for the first five years that the agreement is
in effect AES will invest the after-tax proceeds of certain performance fees in
additional shares of Class B common stock.
The Company has entered into a Non-Competition and Non-Disclosure
Agreement with AES which provides that AES will not compete with the Company in
China to develop, acquire, construct, own, or operate electric power generation
facilities for a period of ten years beginning December 1993, or for the period
ending three years after the Services Agreement is terminated, whichever is
longer. The Company has agreed not to compete with AES in the remaining parts of
Asia with respect to electric power generation activities.
Pursuant to the service agreement between Wuxi-AES Zhonghang and
Wuxi-AES-CAREC, and the construction service agreement between Wuxi-AES-CAREC,
CAREC and Wuxi Power Industry Company ("Wuxi Power"), CAREC and Wuxi Power are
responsible for the construction of the combined cycle plant on a cost-plus
basis. The amounts paid to CAREC and Wuxi Power for construction during 1996 and
1995 were approximately $0.7 million and $0.2 million, respectively.
As of November 30, 1996, accounts receivable from related parties
consisted primarily of amounts due from Cili Power Company, for sale of
electricity and for the payment of construction delay fees, amount due from the
Xishan City Electricity Management Office, an associated company of the joint
venture partner in Wuxi-AES-CAREC, for sale of electricity and a short-term loan
to a Chinese partner in Wuxi-AES-CAREC bearing interest at 12.1% per annum.
As of November 30, 1995, accounts receivable from related parties
represented amounts due from Cili Power Company, a joint venture partner in
Xiangci-AES, for sale of electricity.
10. INCOME TAXES
The Company's PRC joint ventures are entitled to a two-year tax
exemption from state and local income taxes commencing from the first profitable
year of operations, after taking into account any losses brought forward from
prior years, followed by a 50% reduction in tax rates for the next three years
("tax holidays"). No PRC income tax was incurred during 1996, 1995 and 1994 as
the joint ventures were either within the exemption period of the tax holidays
or had not yet commenced commercial operations.
As of November 30, 1996, a deferred tax liability amounting to
approximately $0.4 million was provided for, mainly for timing differences
arising from deferred expenses and accelerated depreciation of property, plant
and equipment under the PRC tax rules.
F-16
As of November 30, 1994 and 1995, there were no material temporary
differences between recognition of transactions for tax reporting purposes and
financial reporting purposes, therefore, no provision for deferred tax was
recorded.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash and cash
equivalents, investments, note receivable and payables for repurchase of shares
and investment purchases, were equal to their approximate fair values as of
November 30, 1996 and 1995 because of the relatively short maturities of these
investments. As of November 30, 1996 and 1995, the carrying value of loans from
minority shareholders and the note payable approximated fair value determined by
the estimated discount rate a prospective seller would pay to a credit-worthy
third party to assume the obligation.
12. SUBSEQUENT EVENTS
The Company and AES have entered into an Amended and Restated Agreement
and Plan of Amalgamation, dated as of November 12, 1996, pursuant to which a
wholly owned subsidiary of AES would amalgamate (the "Amalgamation") with the
Company and each share of the Company's Class A common stock outstanding prior
to the Amalgamation will thereafter represent the right to receive shares of AES
common stock. The Agreement and Plan of Amalgamation is subject to various
conditions, including the approval of the holders of the Class A common Stock of
the Company. In the Amalgamation, all outstanding options to acquire Class B
common Stock in the Company under the Company's Incentive Stock Option Plan
would be converted into options to acquire shares of AES common stock.
On December 19, 1996 the Company completed a $180.0 million public
offering of its notes and received net proceeds of approximately $173.9 million.
The notes mature on December 15, 2006 and bear interest at the rate of 10 1/8%
per annum. Interest is payable on June 15 and December 15 of each year,
commencing on June 15, 1997. The notes rank at least pari passu in right of
payment with all existing and future senior unsecured indebtedness of the
Company. The holders of the notes have a claim to amounts on deposit in certain
collateral accounts that is prior to the claims of other creditors of the
Company. The notes contain certain restrictions on the payment of dividends,
redemption of equity interests and the making of certain investments, among
other things.
F-17
SCHEDULE I
AES CHINA GENERATING CO. LTD.
CONDENSED FINANCIAL INFORMATION
STATEMENTS OF UNCONSOLIDATED OPERATIONS
(in thousands)
Fiscal Period
Ended November 30,
-----------------------------------------------------
1996 1995 1994
------------ ------------- -------------
Revenues $ 400 $ 680 $ --
Equity in earnings of subsidiaries 3,724 465 5
------------ ------------- -------------
Total revenues 4,124 1,145 5
------------ ------------- -------------
Operating costs and expenses:
Costs of sales and services 557 524 37
Selling, general and administrative expenses 3,463 8,616 6,927
------------ ------------- -------------
Total operating costs and expenses 4,020 9,140 6,964
------------ ------------- -------------
Operating Income/ (loss) 104 (7,995) (6,959)
Amalgamation cost (1,444) -- --
Interest income, net 5,480 10,133 6,588
------------ ------------- -------------
Income/(loss) before taxes 4,140 2,138 (371)
Income Taxes -- -- --
============ ============= =============
Net income/(loss) $ 4,140 $ 2,138 $ (371)
============ ============= =============
See notes to Schedule 1
S-1
AES CHINA GENERATING CO. LTD.
CONDENSED FINANCIAL INFORMATION
UNCONSOLIDATED BALANCE SHEETS
(in thousands)
As of November 30,
-----------------------------------------
1996 1995
----------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 26,190 $ 109,713
Investments-- held-to-maturity 8,995 41,609
Investments-- available-for-sale -- 2,995
Accounts receivable from related parties 1,231 320
Prepaid expenses and other current assets 630 978
---------------- ----------------
Total current assets 37,046 155,615
Investment in subsidiaries (on the equity method) 152,712 36,990
Office Equipment:
Cost 1,220 1,003
Accumulated depreciation (653) (355)
---------------- ----------------
Total property, plant and equipment, net 567 648
Other Assets:
Project development costs 3,352 1,083
Note receivable -- 7,500
Deposits and other assets 972 633
---------------- ----------------
Total other assets 4,324 9,216
---------------- ----------------
TOTAL $ 194,649 $ 202,469
================ ================
See notes to Schedule 1
S-2
AES CHINA GENERATING CO. LTD.
CONDENSED FINANCIAL INFORMATION
UNCONSOLIDATED BALANCE SHEETS
(in thousands)
As of November 30,
-------------------------------------
1996 1995
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable-- The AES Corporation $ 1,185 $ 214
Accounts payable 1,114 193
Payable for repurchase of shares -- 10,011
Payable for investment purchase -- 2,995
Accrued liabilities 2,307 1,721
--------------- --------------
Total current liabilities 4,606 15,134
Shareholders' Equity:
Class A common stock 81 102
Class B common stock 75 75
Additional paid-in capital 183,980 201,762
Retained earnings 5,907 1,767
Treasury stock, at cost, -- (16,371)
--------------- --------------
Total shareholders' equity 190,043 187,335
--------------- --------------
TOTAL $ 194,649 $ 202,469
=============== ==============
See notes to Schedule 1
S-3
AES CHINA GENERATING CO. LTD.
CONDENSED FINANCIAL INFORMATION
UNCONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fiscal Period Ended November 30,
--------------------------------------------------------
1996 1995 1994
--------------- --------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) / provided by operating (40) (1,370) 335
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- -- 201,939
Repurchase of Class A common stock (11,443) (6,360) --
--------------- --------------- --------------
Net cash (used in) / provided by financing
activities (11,443) (6,360) 201,939
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and construction in progress (224) (445) (544)
Purchase of investments -- -- (195,943)
Purchase of investments-held-to-maturity (29,176) (154,630) --
Purchase of investments-available-for-sale (16,797) (14,557) --
Proceeds from sales/maturity of investments -- -- 93,369
Proceeds from the maturity of investments-held-to-maturity 63,656 219,086 --
Proceeds from sales of investments-available-for-sale 16,969 14,609 --
Investments in and advances to subsidiaries (104,714) (28,453) (7,500)
Recoupment of investment in subsidiaries 871 -- --
Project development costs and other assets (2,625) (1,327) (996)
Investment in note receivable -- (7,500) --
--------------- --------------- --------------
Net cash (used in) / provided by investing
activities (72,040) 26,783 (111,614)
--------------- --------------- --------------
(Decrease ) / increase in cash and cash equivalents (83,523) 19,053 90,660
CASH AND CASH EQUIVALENTS,
Beginning of year/period 109,713 90,660 --
=============== =============== ==============
End of year/period $ 26,190 $ 109,713 $ 90,660
=============== =============== ==============
See notes to Schedule 1
S-4
AES CHINA GENERATING CO. LTD
NOTES TO SCHEDULE I
1. APPLICATION OF SIGNIFICANT ACCOUNTING PRINCIPLES
Accounting for Subsidiaries - AES China Generating Co. Ltd.
has accounted for the earnings of its subsidiaries on the equity method in the
unconsolidated condensed financial information.
Revenues - Construction and operation management fees earned
by the parent from its consolidated subsidiaries are eliminated.
S-5
EXHIBIT INDEX
Exhibit Sequentially
Number Document Numbered Page
1.1 Underwriting Agreement dated December 12, 1996 between the
Company and Morgan Stanley & Co. Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation.
4.1 Indenture dated as of December 19, 1996 between the Company
and Bankers Trust Company, as Trustee.
4.2 Form of 2006 Note.
4.3 Security Agreement, dated as of December 19, 1996, among the
Company, Bankers Trust Company, as Trustee, and Bankers Trust
Company, as Collateral Agent.
10.40* Cooperative Joint Venture Contract dated March 18, 1996 by
and among Anhui Liyuan Electric Plower Development Company
Ltd., Hefei Municipal Construction and Investment Company and
AES Anhui Power Company Ltd. establishing Anhui Liyuan-AES
Power Company Ltd.
10.41* AES Loan Contract by and between Anhui Liyuan-AES Power
Company Limited and AES Chigen Company (L), Ltd.
10.42* Cooperative Joint Venture Contract dated March 18, 1996 by
and among Anhui Liyuan Electric Plower Development Company
Ltd., Hefei Municipal Construction and Investment Company and
AES Anhui Power Company Ltd. establishing Hefei Zhongli
Energy Company Ltd.
10.43* AES Loan Contract by and between Hefei Zhongli Energy Company
Limited and AES Chigen Company (L), Ltd.
10.44* Operation and Offtake Contract between Anhui Provincial
Electric Power Corporation, Anhui Liyuan-AES Power Company
Ltd. and Hefei Zhongli Energy Company Ltd.
10.45* Cooperative Joint Venture Contract by and among Chengdu Huaxi
Electric Power (Group) Shareholding Company Ltd., China
National Aero-engine Corporation and the Company.
10.46* Support Contract dated as of August 12, 1996 between AES Tian
Fu Power Company (L) Ltd. and Chengdu AES KAIHUA Gas Turbine
Power Co., Ltd.
10.47* Power Purchase Contract between Chengdu Huaxi Electric Power
(Group) Shareholding Company Ltd. and Chengdu AES KAIHUA Gas
Turbine Power Co., Ltd.
10.48* Agreement of Amendment to the Cooperative Joint Venture Contract
and Articles of Association of Chengdu AES KAIHUA Gas Turbine
Power Co., Ltd.
11.1 Statement of computation of earnings per share.
21.1 List of Subsidiaries of the Company.
23.1 Independent Auditors' Consent.
25.1 Power of Attorney.
27.1 Financial Data Schedule.
99.1 Statement Re: Computation of Fixed Charge Coverage
Ratio
*The Company has requested confidential treatment for certain information
identified in this exhibit.