UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________.
Commission File Number 333-29005-01
PANDA GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2697755
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244 (Address of
principal executive offices, including zip code)
(972) 980-7159
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of November 10, 1999.
Common Stock, Par Value $.01 Per Share 1,000
<PAGE>
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)................................. F-1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 1
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 7
Item 6. Exhibits and Reports on Form 8-K................................. 8
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical fact included in this Quarterly Report on
Form 10-Q, including, without limitation, statements regarding financial
position, projects under evaluation or development, construction or other
budgets and plans and objectives for future operations, are forward-looking
statements. Although the registrant believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the registrant's expectations
("Cautionary Statements") include the impact of geopolitical occurrences
worldwide; the results of financing efforts; risks in financial markets; risks
under contracts and swap agreements; changes in laws and regulations; unforeseen
engineering and mechanical or technological difficulties; and other risks
described in the registrant's filings from time to time with the Securities and
Exchange Commission. All subsequent written and oral forward-looking statements
attributable to the registrant or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 2,056,317 $ 2,036,366
Restricted cash - current ............................... 52,668,167 68,205,988
Accounts receivable ..................................... 9,582,815 10,506,496
Fuel oil, spare parts and supplies ...................... 6,324,191 6,161,770
Deferred taxes .......................................... 18,609,000 --
Other current assets .................................... 1,934,610 758,475
------------- -------------
Total current assets .................................. 91,175,100 87,669,095
Plant and equipment:
Electric generating facilities .......................... 301,411,796 301,593,765
Furniture and fixtures .................................. 542,989 1,232,590
Less: accumulated depreciation .......................... (50,314,383) (59,510,961)
Construction in progress ................................ 81,475,023 110,412,486
Development costs and equipment deposits ................ 58,751,189 26,800,000
------------- -------------
Total plant and equipment, net ........................ 391,866,614 380,527,880
Investments in joint ventures ............................. 793,880 1,001,179
Restricted cash - debt service reserves and escrow deposits 39,022,048 52,722,925
Deferred taxes ............................................ 6,391,000 6,391,000
Debt issuance costs, net of accumulated
amortization of $3,239,618 and $4,476,167, respectively . 11,893,362 10,656,813
------------- -------------
$ 541,142,004 $ 538,968,892
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-1
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ................................. $ 9,106,941 $ 11,204,647
Interest and letter of credit fees ................. 9,770,768 11,508,716
Operating expenses and other ....................... 6,980,241 3,758,438
Short-term debt ...................................... 33,000,000 --
Current portion of long-term debt .................... 5,924,989 5,929,574
------------- -------------
Total current liabilities ........................ 64,782,939 32,401,375
Deferred revenue ....................................... 12,669,811 23,259,125
Long term debt, less current portion ................... 344,740,630 340,931,395
Capital lease obligation ............................... 246,078,324 248,130,229
Minority interest ...................................... 5,741,166 5,741,166
Commitments and contingencies (Note 4)
Shareholder's deficit:
Common stock, $.01 par value; 1,000 shares authorized,
issued and outstanding ............................ 10 10
Advances to parent ................................... (49,765,758) (73,182,026)
Accumulated deficit .................................. (83,105,118) (38,312,382)
------------- -------------
(132,870,866) (111,494,398)
------------- -------------
$ 541,142,004 $ 538,968,892
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
REVENUE:
Electric capacity and energy sales ............... $ 60,245,537 $ 70,902,270
Steam and chilled water sales .................... 490,025 324,941
Interest income .................................. 6,365,518 4,919,246
Other income - gain on sale of development project -- 86,698,331
------------- -------------
67,101,080 162,844,788
------------- -------------
EXPENSES:
Plant operating expenses ......................... 19,741,409 23,216,631
Project development and administrative ........... 12,871,307 12,328,081
Interest expense and letter of credit fees ....... 43,239,603 40,065,213
Depreciation ..................................... 9,090,947 9,196,578
Amortization of debt issuance costs .............. 1,241,086 1,236,549
------------- -------------
86,184,352 86,043,052
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES .................. (19,083,272) 76,801,736
Income tax benefit (expense):
Current ........................................ -- (13,400,000)
Deferred ....................................... -- (18,609,000)
------------- -------------
Total income tax expense ..................... -- (32,009,000)
------------- -------------
NET INCOME (LOSS) .................................. $ (19,083,272) $ 44,792,736
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
1998 1999
------------ ------------
REVENUE:
Electric capacity and energy sales ........... $ 25,718,687 $ 26,679,539
Steam and chilled water sales ................ 109,271 67,899
Interest income .............................. 1,988,631 1,647,287
------------ ------------
27,816,589 28,394,725
------------ ------------
EXPENSES:
Plant operating expenses ..................... 8,645,394 10,486,232
Project development and administrative ....... 6,033,443 3,949,084
Interest expense and letter of credit fees ... 14,002,417 13,087,311
Depreciation ................................. 3,240,668 3,250,168
Amortization of debt issuance costs .......... 416,191 411,278
------------ ------------
32,338,113 31,184,073
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES .............. (4,521,524) (2,789,348)
Income tax expense - current ................. -- (1,400,000)
------------ ------------
NET INCOME (LOSS) .............................. $ (4,521,524) $ (4,189,348)
============ ============
See accompanying notes to condensed consolidated financial statements.
F-3a
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------- ---------------- ADVANCES ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT (TO) FROM PARENT DEFICIT DEFICIT
---------- ---------------- ------------------ ---------------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1999.............. 1,000 $ 10 $ (49,765,758) $ (83,105,118) $(132,870,866)
Advances (to) from parent, net...... - - (23,416,268) - (23,416,268)
Net income.......................... - - - 44,792,736 44,792,736
---------- ---------------- ------------------ ---------------------- --------------
BALANCE, September 30, 1999........... 1,000 $ 10 $ (73,182,026) $ (38,312,382) $(111,494,398)
========== ================ ================== ====================== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .................................................... $ (19,083,272) $ 44,792,736
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Gain on sale of development project .............................. -- (86,698,331)
Deferred tax expense ............................................. -- 18,609,000
Depreciation ..................................................... 9,090,947 9,196,578
Amortization of debt issuance costs .............................. 1,241,086 1,236,549
Amortization of loan discount and deferred
interest on capital lease obligation ........................... 17,616,696 18,562,042
Write-off of project development costs ........................... 2,941,040 --
Deferred revenue ................................................. (375,236) (910,686)
Equity in income of joint venture ................................ -- (53,056)
Changes in assets and liabilities:
Accounts receivable ................................................ (2,381,894) (923,681)
Fuel oil, spare parts and supplies ................................. 129,427 162,421
Other current assets ............................................... 177,995 1,176,135
Accounts payable and accrued expenses .............................. 855,012 (1,483,855)
------------- -------------
Net cash provided (used) by operating activities ................. 10,211,801 3,665,852
------------- -------------
INVESTING ACTIVITIES:
Restricted cash - current ............................................ 22,031,364 (15,537,821)
Additions to property, plant and equipment ........................... (42,628,184)
Sale of development project .......................................... -- 168,503,059
Restricted cash - debt service reserves and escrow deposits .......... 25,897,474 (13,700,877)
------------- -------------
Net cash provided (used) by investing activities ................. 5,300,654 71,889,145
============= =============
FINANCING ACTIVITIES:
Advances (to) from parent ............................................ (2,465,075) (23,760,161)
Deferred revenue ..................................................... -- 1,500,000
Proceeds from short-term debt ........................................ -- 15,534,633
Repayment of short-term debt ......................................... -- (48,534,633)
Repayment of long term debt .......................................... (4,336,357) (4,653,077)
Repayment of capital lease obligation ................................ (9,447,798) (15,661,710)
Debt issuance costs .................................................. (30,000) --
============= =============
Net cash provided (used) by financing activities ................. (16,279,230) (75,574,948)
============= =============
Increase (decrease) in cash and cash equivalents ....................... (766,775) (19,951)
Cash and cash equivalents, beginning of period ......................... 2,929,289 2,056,317
------------- -------------
Cash and cash equivalents, end of period ............................... $ 2,162,514 $ 2,036,366
============= =============
NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES:
Investment in joint venture .......................................... $ -- $ 154,243
Accrued construction costs ........................................... 8,700,000 11,204,647
Interest expense on capital lease obligation ......................... 16,866,729 17,713,615
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Global Holdings, Inc. ("Panda Global", or collectively with its
subsidiaries the "Company"), a wholly owned subsidiary of Panda Energy
International, Inc. ("PEII"), was formed in March 1997 to hold the ownership
interests in certain independent power projects which were formerly owned by
other wholly owned subsidiaries of PEII. The ownership interests were
transferred to the Company at PEII's historical cost. Because the transfers
occurred between entities under common control, the transactions have been
accounted for in a manner similar to a pooling of interests. The Company
operates primarily through three direct wholly owned subsidiaries: Panda Energy
Corporation ("PEC")( a Texas corporation) which indirectly holds the Company's
ownership and leasehold interests in two domestic projects currently in
operation; Panda Global Energy Company ("Global Cayman")(a Cayman Islands
company), which indirectly holds the Company's ownership interests in two
international projects currently under construction; and Panda Merchant Power
Holding, LLC ("Merchant Holding")(a Delaware limited liability company), which
has been established to hold the Company's ownership interests in any domestic
projects which might be developed.
PEC, through its wholly owned subsidiary Panda Interfunding Corporation
("PIC") and PIC's wholly owned subsidiary Panda Interholding Corporation
("Interholding"), holds the Company's ownership interest in the Rosemary project
and leasehold interest in the Brandywine project. The entities holding such
interests include the following: Panda Rosemary Corporation ("PRC"), the general
partner in Panda-Rosemary, L.P. ("Panda-Rosemary"); PRC II Corporation ("PRC
II"), the limited partner in Panda-Rosemary; Panda Brandywine Corporation, the
general partner in Panda-Brandywine, L.P. ("Panda-Brandywine"); and Panda Energy
Corporation (a Delaware corporation), the limited partner in Panda-Brandywine.
The Company, through its general and limited partnership interests, owns 100% of
Panda-Brandywine and, as of July 31, 1996, owns 100% of Panda-Rosemary. Prior to
July 31, 1996, the Company owned 10% of Panda-Rosemary. The Rosemary and
Brandywine projects are located in the United States. Other direct or indirect
wholly owned subsidiaries of PIC include Panda Funding Corporation ("PFC") and
Panda-Rosemary Funding Corporation ("PRFC") and Panda Cayman Interfunding
Corporation ("PIC Cayman"), which have been formed to facilitate the financing
of the development and acquisition of independent power projects.
Global Cayman (which collectively with its subsidiaries is a development
stage enterprise having no operating revenues) holds a 95.5% ownership interest
in Pan-Sino Energy Development Company LLC ("Pan-Sino")(a Cayman Islands
company), which in turn holds a 99% ownership interest in Pan-Western Energy
Corporation LLC ("Pan-Western")(a Cayman Islands company), which in turn owns an
approximately 88% interest in four joint venture companies (the "Joint Venture
Companies") organized under the laws of the People's Republic of China ("China")
to develop and construct an independent power project located in China. The
Joint Venture Companies are: Tangshan Panda Heat and Power Company, Ltd.
("Tangshan Panda"), Tangshan Pan-Western Heat and Power Company, Ltd. ("Tangshan
Pan-Western"), Tangshan Cayman Heat and Power Company, Ltd. ("Tangshan Cayman")
and Tangshan Pan-Sino Heat Company, Ltd. ("Tangshan Pan-Sino"). Additionally,
Global Cayman indirectly holds an equity investment in Bhote Koshi Power Company
Pvt. Ltd. (a Nepal company), which was organized under the laws of Nepal to
develop and construct an independent power project in Nepal.
Merchant Holding (which collectively with its subsidiaries is a
development stage enterprise having no operating revenues), through wholly owned
subsidiaries, has been established to hold the Company's ownership interests in
any domestic projects which might be developed.
Additionally, the Company conducts other development activities through
various subsidiaries.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 1998. The accompanying unaudited
condensed consolidated financial statements for the nine-month and three-month
periods ended September 30, 1998 and 1999 include all adjustments, consisting of
normal recurring accruals, which management considers necessary for a fair
presentation of the results for the interim periods. The results of operations
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999. The
amounts presented in the balance sheet as of December 31, 1998 were derived from
the Company's audited consolidated financial statements.
F-6
<PAGE>
ALLOCATION OF ADMINISTRATIVE COSTS -- PEII performs certain accounting,
legal, insurance, and consulting services for the Company. These general and
administrative costs are generally allocated to the Company using the percentage
of time PEII personnel spent performing these services. The expenses allocated
were $4.5 million and $6.7 million for the nine-month periods, and $1.5 million
for each of the three-month periods, ended September 30, 1998 and 1999,
respectively. Such costs are included in project development and administrative
expenses in the statement of operations. Management believes the method used to
allocate these costs is reasonable.
3. POWER PROJECTS
TEXAS PROJECTS-- In February 1999, the Company sold the Paris Project to a
third party for a price of approximately $160.5 million. The Company retained a
1% limited partnership interest in the project. Of the sale price, $10 million
is being held in escrow pending successful completion of the project within the
anticipated time and cost budgets. After the project commences commercial
operations, any funds remaining in escrow will be distributed to the Company. In
connection with the sale, the Company repaid the borrowings and accrued interest
under the Bridge Financing Agreement of approximately $48.5 million. The Company
realized a gain of approximately $86.7 million on the sale. Gain recognition has
been deferred on the $10 million held in escrow pending final disposition of the
escrowed funds.
In March 1999, the Company sold the Guadalupe Project (which was in the
initial stage of development) to PEII for $8.0 million, which was the fair
market value of the project as determined by an independent engineering firm.
The proceeds in excess of the Company's capitalized costs of approximately $7.5
million on the project have been included in advances to parent in the
accompanying financial statements.
LUANNAN PROJECT -- The Company has incurred costs on the Luannan Project
of $81.5 million and $110.4 million as of December 31, 1998 and September 30,
1999, respectively. Such costs are included in the accompanying balance sheets
in plant and equipment under construction in progress.
In May 1999, the Company filed an application with the Chinese government
for determination of the initial tariff under the Luannan Power Purchase
Agreement. During the third quarter, the Company continued discussions with the
Chinese government concerning the tariff application and the related approval
process. The tariff application is still in process and the Company has not yet
received an approved tariff from the government. There can be no assurance that
the Company will receive the requested tariff, and the approved tariff may be
significantly lower than the amount requested. If the approved tariff varies
from the requested amount, the Company's consolidated financial position,
results of operations and cash flows could be materially affected. Due to
construction delays, the Company currently believes that the Luannon Project
will achieve commercial operations in December 1999.
NEPAL PROJECT -- BKPC, the Company's equity investee, has incurred costs
for the Nepal Project (including development, construction and debt issuance
costs) of $37.2 million and $49.1 million as of December 31, 1998 and September
30, 1999, respectively.
EQUIPMENT DEPOSITS -- The Company has paid deposits of $26.8 million on
equipment orders at September 30, 1999.
4. COMMITMENTS AND CONTINGENCIES
The Rosemary and Brandywine projects operate as qualifying facilities, and
the related power contracts are subject to the rules and regulations under the
Public Utilities Regulatory Policies Act of 1978 ("PURPA"). In order to promote
open competition in the industry, proposed legislation in the U.S. Congress has
called for either a repeal of PURPA or a complete restructuring of the
regulations governing the electric industry including PURPA. These federal
initiatives are generally not yet effective, but many states are implementing or
considering regulatory initiatives designed to increase competition in the
domestic power generation industry. In most cases, any initiatives discussed
have indicated that power sales agreements of existing qualifying facilities
would be honored. The Company cannot predict the final form or timing of the
proposed restructuring on a federal or individual state level or the impact, if
any, that such restructuring would have on the Company's existing business or
results of operations. The Company currently believes that any such
restructuring would not have a material effect on its power sales agreements
and, accordingly, that its existing business and results of operations would not
be materially adversely affected, although there can be no assurance in this
regard.
F-7
<PAGE>
In April 1998, the Company filed suit in federal court charging the Bibb
Company ("Bibb") and Westpoint Stevens, Inc. ("Westpoint") with violating a
contractual agreement in the sale of a textile mill in 1997 and in the operation
of the mill since that time. The Rosemary Facility supplies steam and chilled
water to the textile mill under a contract originally signed with Bibb.
Westpoint acquired the textile mill from Bibb in 1997. The suit asked the court
to determine and clarify the rights of the parties to the contract. The federal
court dismissed this action in June 1998. Shortly thereafter, Bibb and Westpoint
filed a separate suit in state court in Halifax County, North Carolina claiming,
among other things, breach of contract in regard to delivery of steam. In
October 1998, the Company filed suit against Bibb and Westpoint in state court
in Dallas County, Texas regarding the contract. In January 1999, the state court
in Halifax County stayed the action in such court. In February 1999, Westpoint
and Bibb moved to stay the action in the Dallas County court. The Company
intends to vigorously pursue its claims against Bibb and Westpoint in these
state court actions. The Company continues to provide steam and chilled water to
the mill pursuant to the contract. The Company believes that the resolution of
this contractual dispute will not have a material adverse effect upon the
financial position, results of operations or cash flows of the Company.
The Company has entered into purchase commitments totaling approximately
$325 million for equipment. The Company is pursuing external financing with
respect to these commitments.
The Company has entered into various long-term contracts for the purchase
and transportation of fuel subject to termination only in certain limited
circumstances. These contracts have remaining terms of 10 to 25 years. The
Company's minimum purchase commitment under these contracts is 2.3 million
British thermal units of gas annually through October 31, 2011. In the
aggregate, such commitments are not at prices in excess of the current market.
PEII is also involved in other legal and administrative proceedings in the
ordinary course of business. Management believes that the amount of ultimate
liability allocable to the Company with respect to these matters will not have a
material effect on the financial position, results of operations or cash flows
of the Company.
F-8
<PAGE>
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED)
GENERAL
The Company has interests in two completed electric power generation
facilities in the United States: a 100% equity ownership interest in the
Rosemary Facility, which began commercial operations in December 1990, and a
100% leasehold interest (through a capital lease arrangement) in the Brandywine
Facility, which began commercial operations in October 1996. Prior to July 31,
1996, the Company owned a 10% equity interest in the Rosemary Facility. The
Company also owns an approximately 83% indirect interest in the Luannan Facility
currently under construction in China, financing for which was completed in
April 1997. Additionally, the Company owns an indirect equity interest in the
Nepal Facility currently under construction in Nepal, financing for which was
completed in December 1997.
The Company also has other projects under development.
RESULTS OF OPERATIONS
The Company's current revenues from electric power generation are
primarily derived from long-term contracts which include both a fixed capacity
payment and a variable energy payment. The capacity payments, which are based
upon the specified power generating capacity of a project, are designed to cover
fixed costs and to provide an acceptable return on equity. The energy payments,
which are based on actual electricity output, are designed to cover variable
costs including fuel costs and variable operating expenses incurred in
connection with electricity output. Accordingly, the impact of price
fluctuations on the results of operations is generally not material. The extent
to which a facility is dispatched (i.e., required to deliver electricity), and
therefore the actual electricity output for a given period, are subject to the
discretion of the power purchaser, with certain limitations. The capacity
payments are currently the predominant source of revenue for the Company. See
"Liquidity and Capital Resources."
FIRST NINE MONTHS OF 1999 COMPARED TO 1998
The Company recorded net income of $44,792 in the first nine months of
1999 on revenues of $162,844 compared to a net loss of $19,083 on revenues of
$67,101 during the same period in 1998. The increase in revenues in the 1999
period was primarily caused by a gain of $86.7 million from the sale of a 99%
interest in the Paris project, as well as an increase in operating revenues at
the Brandywine Facility.
For the 1999 and 1998 periods, capacity revenues for the Rosemary
Facility were $17,119 and $18,460, respectively, reflecting a contractual
decrease in 1999. Energy revenues for the Rosemary Facility for the 1999 and
1998 periods were $3,680 and $3,180, respectively. The increase in energy
revenues for the Rosemary Facility is attributable to higher dispatch levels at
that facility compared to the 1998 period. Capacity revenues from Potomac
Electric Power Company ("PEPCO") for the Brandywine Facility for the first nine
months of 1999 and 1998 were $32,697 and $24,880, respectively, reflecting a
contractual increase in 1999 and a retroactive capacity payment of $3.8 million
in 1998 which is discussed in Note 5 to the 1998 consolidated financial
statements. Energy revenues from PEPCO for the Brandywine Facility for the first
nine months of 1999 and 1998 were $12,574 and $9,518, respectively. The increase
in energy revenues for the Brandywine Facility is primarily attributable to
higher dispatch levels at that facility compared to the 1998 period. In addition
to capacity and energy revenues from PEPCO, the Company earned revenues of
$4,776 and $4,100 in the 1999 and 1998 periods, respectively, from excess
capacity and energy sales on a merchant basis from the Brandywine Facility as
allowed under the PEPCO agreement. Additionally, in the first nine months of
1999 and 1998, the Brandywine Facility had energy revenues of $56 and $108,
respectively, from the sale of natural gas and fuel oil to other purchasers.
Plant operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes, increased to $23,217 (33% of
electricity revenues) in the 1999 period from $19,741 (33% of electricity
revenues) in the 1998 period. The increase was primarily due to higher dispatch
levels in the 1999 period.
1
<PAGE>
Project development and administrative expenses were $12,328 (17% of
electricity revenues) and $12,871 (21% of electricity revenues) for the 1999 and
1998 periods, respectively. The decrease in 1999 expenses is primarily
attributable to certain nonrecurring expenses incurred in 1998, partially offset
by increased expenses in 1999. The nonrecurring expenses incurred in 1998
consisted of legal costs related to the PEPCO agreement and the write-off of
certain deferred costs related to the Kathleen development project. The
increased expenses in 1999 are primarily attributable to a greater level of
management involvement and support that was required to complete the sale of the
99% interest in the Paris project, and to the accrual of employee bonuses at
PEII in the first quarter of 1999 instead of the fourth quarter of 1998. Such
bonuses, which are included in the overhead cost allocation pool, were accrued
in the fourth quarter of 1997 and prior years.
Interest expense decreased to $40,065 (57% of electricity revenues) in the
1999 period from $43,240 (72% of electricity revenues) in 1998 as a result of an
increase in the capitalized portion of the interest cost on the Senior Secured
Notes as the Luannan Facility approaches completion.
Depreciation and amortization of debt issue costs amounted to $10,433 (15%
of electricity revenues) in the 1999 period and $10,332 (17% of electricity
revenues) in 1998. The slight increase in 1999 was primarily attributable to
capital improvements at the Rosemary and Brandywine facilities.
As previously disclosed, the Company filed the initial tariff application
for the Luannan Facility with the Chinese government in the second quarter of
1999. During the third quarter, the Company continued discussions with the
Chinese government concerning the tariff application and the related approval
process. The tariff application is still in process and the Company has not yet
received an approved tariff from the government. There can be no assurance that
the Company will receive the requested tariff, and the approved tariff may be
significantly lower than the amount requested. If the approved tariff varies
from the requested amount, the Company's consolidated financial position,
results of operations and cash flows could be materially affected. Due to
construction delays, the Company currently believes that the Luannon Project
will achieve commercial operations in December 1999.
The provision for income taxes, which relates to the Company's domestic
operations and was primarily attributable to the gain on the sale of the Paris
project, amounted to $32,009 in the first nine months of 1999. Losses incurred
in the Company's offshore operations are not deductible from the Company's
domestic taxable income. There was no provision for income taxes in the first
nine months of 1998 due to the net loss incurred and the uncertainty at that
time concerning the realization of the deferred tax asset that resulted from
such net loss.
As a result of the various factors discussed above, the Company recorded
net income of $44,792 and a net loss of $19,083 for the 1999 and 1998 periods,
respectively.
THIRD QUARTER 1999 COMPARED TO 1998
The Company recorded a net loss of $4,189 in the third quarter of 1999 on
revenues of $28,395 compared to a net loss of $4,522 on revenues of $27,817
during the same period in 1998. The increase in revenues in the 1999 period was
primarily caused by an increase in operating revenues at the Brandywine
Facility.
For the 1999 and 1998 periods, capacity revenues for the Rosemary
Facility were $5,356 and $5,768, respectively, reflecting a contractual decrease
in 1999. Energy revenues for the Rosemary Facility for the 1999 and 1998 periods
were $2,406 and $2,132, respectively. The increase in energy revenues for the
Rosemary Facility is attributable to higher dispatch levels at that facility
compared to the 1998 period. Capacity revenues from Potomac Electric Power
Company ("PEPCO") for the Brandywine Facility for the third quarter of 1999 and
1998 were $10,822 and $10,762, respectively, reflecting a contractual increase
in 1999 and a retroactive capacity payment of $3.8 million in 1998 which is
discussed in Note 5 to the 1998 consolidated financial statements. Energy
revenues from PEPCO for the Brandywine Facility for the third quarter of 1999
and 1998 were $5,793 and $2,956, respectively. The increase in energy revenues
for the Brandywine Facility is primarily attributable to higher dispatch levels
at that facility compared to the 1998 period. In addition to capacity and energy
revenues from PEPCO, the Company earned revenues of $2,302 and $4,100 in the
1999 and 1998 periods, respectively, from excess capacity and energy sales on a
merchant basis from the Brandywine Facility as allowed under the PEPCO
agreement.
2
<PAGE>
Plant operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes, increased to $10,486 (39% of
electricity revenues) in the 1999 period from $8,645 (34% of electricity
revenues) in the 1998 period. The increase was primarily due to higher dispatch
levels and fuel prices in the 1999 period.
Project development and administrative expenses were $3,949 (15% of
electricity revenues) and $6,033 (23% of electricity revenues) for the 1999 and
1998 periods, respectively. The decrease in 1999 was primarily attributable to
certain nonrecurring expenses incurred in 1998, primarily legal costs related to
the PEPCO agreement and the write-off of certain deferred costs related to the
Kathleen development project.
Interest expense decreased to $13,087 (49% of electricity revenues) in the
1999 period from $14,002 (54% of electricity revenues) in 1998 as a result of an
increase in the capitalized portion of the interest cost on the Senior Secured
Notes as the Luannan Facility approaches completion.
Depreciation and amortization of debt issue costs amounted to $3,661 (14%
of electricity revenues) in the 1999 period and $3,657 (14% of electricity
revenues) in 1998. The slight increase in 1999 was primarily attributable to
capital improvements at the Rosemary and Brandywine facilities.
As previously disclosed, the Company filed the initial tariff application
for the Luannan Facility with the Chinese government in the second quarter of
1999. During the third quarter, the Company continued discussions with the
Chinese government concerning the tariff application and the related approval
process. The tariff application is still in process and the Company has not yet
received an approved tariff from the government. There can be no assurance that
the Company will receive the requested tariff, and the approved tariff may be
significantly lower than the amount requested. If the approved tariff varies
from the requested amount, the Company's consolidated financial position,
results of operations and cash flows could be materially affected. Due to
construction delays, the Company currently believes that the Luannon Project
will achieve commercial operations in December 1999.
The provision for income taxes, which is attributable to domestic
operations, amounted to $1,400 in the third quarter of 1999. Losses incurred in
the Company's offshore operations are not deductible from the Company's domestic
taxable income. There was no provision for income taxes in the third quarter of
1998 due to the net loss incurred and the uncertainty concerning the realization
of the deferred tax asset that resulted from such net loss.
As a result of the various factors discussed above, the Company recorded
net losses of $4,189 and $4,521 for the 1999 and 1998 periods, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1999 and 1998, the Company obtained cash from
operations of the Rosemary Facility and the Brandywine Facility and from
interest on cash balances. Additionally, the Company entered into a partnership
agreement concerning the Paris project and received net proceeds of
approximately $102 million, after repayment of project debt and escrowed funds,
in exchange for partnership interests therein. The Company utilized a portion of
this cash to service its debt and capital lease obligations, to fund project
development efforts, and for general and administrative expenses, including
reimbursement to the Company's parent for costs currently and previously
incurred for the Company's development projects.
The principal future cash requirement of the Company will be payment of
its debt service and capital lease obligations. The Company will rely almost
exclusively on distributions from Global Cayman, PIC and the Nepal Facility to
meet its cash requirements. Those entities in turn will rely almost exclusively
on distributions from the project entities to meet their cash requirements. The
project entities' ability to make such distributions will depend upon the
financial performance of the Rosemary Facility, the Brandywine Facility, the
Luannan Facility and the Nepal Facility and will be subject to a number of
limitations on distributions contained in the project-level debt agreements. To
continue its development activities, the Company will also require external
financing. The Company is pursuing debt and equity financing to fund these
activities. The Company's restricted cash balances are available only for
specific uses as stated in the indentures, such as payment of debt service
obligations, project development, construction and maintenance, and are not
available for general corporate purposes.
3
<PAGE>
The U.S. project entities are dependent on capacity payments under their
respective power purchase agreements to meet their fixed obligations, including
payment of project-level debt service, and to make distributions to the Company.
Capacity payments can be adversely affected by a major equipment failure,
resulting in a facility being unavailable for dispatch for an extended period of
time. Capacity payments can also be subject to reduction pursuant to regulatory
disallowance and, under contractual provisions, as a result of events outside
the Company's control. In 1999 and 2006, the capacity payments for the Rosemary
Facility are scheduled to decrease by approximately $1.8 million (7.1%) and $5.4
million (23.1%), respectively, based on the facility's current capacity rating.
Each of the electric energy purchasers under the power purchase agreements
for the Rosemary Facility and the Brandywine Facility has a contractual right to
schedule the facility for dispatch largely at the purchaser's discretion. Thus,
revenues from energy payments will vary depending on the hours these facilities
are dispatched by such purchasers.
IMPACT OF INFLATION
Inflationary increases in the Company's costs, primarily project
development costs, energy costs, and capital costs, may be offset by increases
in revenue as provided in the various purchase agreements, although competition
may limit the Company's ability to fully recover all such increases. The Company
attempts, where possible, to obtain provisions in its power purchase agreements
whereby certain revenue components, such as energy payments, may be adjusted
with inflationary increases. The Company currently believes that inflation will
not have a material adverse effect on the Company's financial position, results
of operations or cash flows in the foreseeable future.
MARKET RISK DISCLOSURES
The Company has limited exposure to financial market risks. The Company
attempts, whenever possible, to hedge certain aspects of its projects against
the effects of fluctuations in inflation, interest rates, foreign currency
exchange rates and energy prices. Because of the complexity of hedging
strategies and the nature of the Company's operations, its results, although
significantly hedged, will likely be somewhat affected, and in certain cases may
be materially affected, by fluctuations in these variables and such fluctuations
may result in material improvement of deterioration of operating results.
The Company has generally structured the energy payments under its power
generation sales contracts to adjust with similar price indices as do its
contracts with the fuel suppliers for the corresponding power plants. The
Company's operations currently consist primarily of businesses with long-term
contracts. While the contract-based portfolio is expected to be an effective
hedge against future energy and electricity market price risks, a significant
portion of the Company's currently expected future revenues may be derived from
businesses without significant long-term revenue contracts. Increasing reliance
on non-contract businesses in the Company's portfolio may subject the Company to
potentially increasing electricity market price volatility.
The Company has also used a hedging strategy in an attempt to insulate
each plant's financial performance, where appropriate, against the risk of
fluctuations in interest rates. Because the capacity payments at the Company's
facilities are essentially fixed, the Company has attempted to hedge against
interest rate fluctuations by arranging fixed rate financing. The Company's
borrowings currently consist entirely of fixed rate obligations. There are no
interest rate swaps or other hedging facilities related to these borrowings. The
Company has no derivative financial instruments in place as of September 30,
1999.
The Company has certain exposure to changes in the foreign currency
exchange rate for the Chinese renminbi. This exposure is limited during the
construction phase of the Luannan Facility because the related debt and most
construction expenditures are denominated in U.S. dollars. After the project
commences commercial operations, the exposure will increase because the
project's operating revenues and expenses will be primarily denominated in the
renminbi. However, certain components of the power price calculation may be
adjusted to reflect local and U.S. inflation and foreign exchange rate
fluctuations in order to mitigate the Luannan Facility's exposure to inflation
and currency risks, and the operation and maintenance contract for the facility
is denominated in dollars. Management currently believes that potential losses
due to fluctuations in the Chinese currency will not have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.
4
<PAGE>
The Company has an investment in a joint venture in Nepal which has debt
at both fixed and variable interest rates. The joint venture has interest rate
derivative agreements, consisting of interest rate swaps, which serve as hedges
against a portion of the variable interest rate exposure. Most of the debt is
denominated in U.S. dollars; however, a portion of the debt is denominated in
the German mark. The joint venture has no hedging facilities relating to the
mark-denominated debt. After commercial operations commence, the joint venture's
foreign currency risk exposure will increase because a significant portion of
the project's operating expenses will be primarily denominated in the Nepalese
rupee. The project's operating revenues under the power purchase agreement are
denominated in U.S. dollars. The Company uses the equity method of accounting
for the joint venture. Management currently believes that potential losses to
the joint venture due to fluctuations in interest rates and foreign currency
exchange rates will not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
YEAR 2000 READINESS DISCLOSURE
Set forth below is information regarding the Company's efforts to be
prepared for problems associated with the potential inability of many existing
computer programs and/or embedded computer chips to recognize the year 2000,
both those in the Company's businesses and those that its businesses depend
upon. Certain of these statements may constitute forward-looking information as
contemplated by the Private Securities Litigation Reform Act of 1995, including
those regardng the Company's expected readiness to handle Y2K problems, expected
costs of remediation and testing, the future costs associated with business
disruption caused by supplier or customer Y2K problems and the success of any
contingency plans. The Company cautions that its predictions of the extent of
potential problems and the effectiveness of measures designed to address them
are based on numerous assumptions, including but not limited to the accuracy of
statements or certifications from critical third parties and vendors, the
ability to identify and remediate or replace embedded computer chips in affected
equipment, and resource availability, among other things, and readers should be
aware that actual results might differ materially from those discussed below.
The Company's approach to analyzing Y2K issues is to (1) inventory all
systems and equipment likely to be affected, (2) perform an inventory
assessment, (3) conduct remediations, (4) test all equipment and systems, and
(5) develop contingency plans to aid in business continuity.
STATE OF READINESS
In 1998, the Company established a readiness program, led by a senior
executive and consisting of a team of employees with extensive knowledge of the
Company's businesses and processes, as well as outside consultants experienced
in these areas who are being used as advisors to assist with third-party
analysis and contingency planning. The Company estimates that its has identified
the potential problems in non-information technology (IT) areas such as
distributed control systems, programmable logic control systems, gas and
electricity metering systems, environmental emissions monitoring equipment,
back-up power systems and telephone and security systems. Additionally, the
Company estimates that it has identified the potential issues regarding the more
traditional IT areas such as computer hardware and software programs for
accounting and payroll, among others. The Company has completed steps one
through four, referred to above, and is continuing to develop contingency plans
to aid in business continuity in the event that problems arise. The Company's
generation plants are also significantly dependent on transmission and
distribution systems to carry the electricity to the ultimate end users. Due to
the interdependent nature of the electricity supply chain, the Company has
extended its evaluation of Y2K issues to include key suppliers, customers and
vendors, and has sought written assurance from these parties as to their Y2K
readiness.
COSTS OF ADDRESSING Y2K ISSUES
Based on internal analysis, the Company does not anticipate that the costs
to achieve full Y2K readiness company-wide will be material. This estimate
includes expected costs to make its businesses Y2K ready, but not necessarily
the costs associated with post-Y2K corrective actions or damage, if any. The
Company expects to fund these expenditures through internal sources.
5
<PAGE>
RISKS OF Y2K FAILURES
Failures by each of the Company's generation facilities to address Y2K
issues may lead to numerical errors that, if not addressed or mitigated, may
cause system malfunctions resulting in the inability to deliver electricity,
among other things. There can be no assurance that Y2K issues will not
materially adversely impact the Company's facilities, services, competitive
conditions, operating results, financial conditions or cash flows. The Company's
generating businesses may also be unable to deliver electricity because of the
failure of the interconnected distribution companies to receive or transmit the
electricity. In such instances of business interruption due to supplier or
customer default, the Company will pursue all contractual remedies available to
it to minimize the impact on its results of operations; however, there can be no
assurance that, in all instances, the Company will be able to legally protect
itself from damages arising from third-party Y2K failures. Because of the
significant interdependency of the supplier chain, the Company cannot guarantee
that services will be uninterrupted nor can it adequately predict a reasonably
likely worst case scenario.
CONTINGENCY PLANS
The Company is still in the process of identifying and testing appropriate
contingency plans addressing emergency operations, disaster recovery, data
preservation and business continuation plans, and intends to have them in place
during the fourth quarter of 1999. The plans will be continuously refined as new
information becomes available.
6
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
HEARD PROCEEDINGS
Panda Energy Corporation ("PEC") is a party to a lawsuit captioned,
PANDA ENERGY CORPORATION, V. HEARD ENERGY CORPORATION, ET AL., (No.
94-0672-J); in the District Court of Dallas County, Texas (191st
Judicial District). PEC initiated this litigation in April 1994 and
alleged that certain of the defendants, former PEC employees, formed
a competing company in cooperation with various industry and
investment advisors to the registrant and misappropriated certain of
PEC's international power project opportunities. Recently, the
registrant settled this matter with certain of the defendants (the
terms of such settlement are subject to a confidentiality agreement)
and further discovery is ongoing with the remaining defendants,
including, but not limited to, Morgan Stanley & Co., Inc., Allstate
Insurance Company and certain of the former employees. Further
discussion of this matter is set forth in the registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.
The registrant does not believe that an adverse result in this case
would have a material adverse effect on the business, financial
condition or results of operations of the registrant and its
subsidiaries, taken as a whole.
NATIONAL DEVELOPMENT AND RESEARCH CORPORATION PROCEEDING
On October 14, 1997, Panda Global Energy Company, a wholly-owned
subsidiary of the Company ("PGE"), commenced a proceeding in the
District Court of Dallas County, 101st Judicial District captioned
PANDA GLOBAL ENERGY COMPANY V. NATIONAL DEVELOPMENT AND RESEARCH
CORPORATION AND ROBERT E. TANG, Case No. 97-9315-E. PGE's petition
sought a declaratory judgment for the termination of various
agreements between PGE and National Development and Research
Corporation ("NDR") regarding the development of power projects in
the PRC. On December 9, 1997, NDR filed a counter-claim asserting
that, among other things, such agreements were still in effect and
that NDR is entitled to certain payments thereunder. A trial on this
matter was held in August 1999 and on September 13, 1999, PGE filed
a motion for judgment on the jury's verdict, contending that NDR
take nothing and that PGE be awarded its attorneys' fees. NDR also
filed a motion for judgment, which included claims for increased
ownership in the Luannan Facility, additional cash compensation and
that PGE be required to buy out its interest at an appraised value.
The judge in the trial court denied all requests for relief by NDR
but has not yet signed a formal order to that effect. NDR
subsequently has filed numerous motions with the court that are
currently set for hearing during December 1999. Further discussion
of this matter is set forth in the registrant's Annual Report on
Form 10-K for the year ended
-7-
<PAGE>
December 31, 1998. The registrant does not believe that an adverse
result in this proceeding would have a material adverse effect on
the business, financial condition or results of operations of the
registrant and its subsidiaries, taken as a whole.
ITEM 5. OTHER MATTERS
The owners of the Luannan Facility continue discussions with the
Tangshan Price Bureau for determination of the initial tariff for
the Luannan Power Purchase Agreement. The Company currently believes
that the final tariff could be lower than the amount requested in
its original application. There can be no assurance that any such
tariff will allow the Luannan Facility to generate sufficient
revenues to meet outstanding debt obligations regarding the Luannan
Facility, or that any subsequent applications for an increase in the
tariff will be approved by the Tangshan Price Bureau. Due to
construction delays, the Company currently believes that the Luannan
Facility will achieve commercial operations in December 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this Quarterly Report on
Form 10-Q:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.143.04 Adjustment to Loan Agreement between Bhote Koshi Power Company
Private Limited and DEG dated September 8, 1999.
10.180 Interconnection Dispatch Agreement between North China Power
Group Corporation and Tangshan Panda Heat and Power Co., Ltd. and
Tangshan Pan-Western Heat and Power Co., Ltd., dated September 2,
1999.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K: None.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PANDA GLOBAL HOLDINGS, INC.
Date: November 12, 1999 By: /s/ JANICE CARTER
Janice Carter, Executive Vice President,
Secretary and Treasurer
EXHIBIT 10-143.04
Bhote Koshi Power Company Pvt. Ltd.
c/o Panda Energy International
Mr. Rhett Hurless
4100 Spring Valley Road, Suite 1001
Dallas, Texas 75244
U.S.A
September 8, 1999
Dear Mr. Hurless,
ADJUSTMENTS TO THE LOAN AGREEMENT DATED DECEMBER 12, 1997
We refer to the Loan Agreement between your company and DEG dated December 12,
1997 (the "Loan Agreement"), in particular to the Special Conditions of said
agreement and our letter of February 1999 in which we informed you about the
introduction of the Euro and its effect on our business relationship.
As of January 1, 2000, DEG will transfer its accounting system into Euro.
Referring to the Definition of "DM" or "Deutsche Mark" in the Loan Agreement we
hereby notify you that as of March 15, 2000 payments under the Loan Agreement
shall only be made in Euro.
From this date onwards any amount outstanding under or expressed in the Loan
Agreement in Deutsche Mark shall be substituted by its Euro equivalent. The
conversion rate is 1 EUR= 1.95583 DEM.
In the course of the introduction of the Euro the interest determination method
in Germany has changed to actual/actual. Consequently the following adjustment
of the Loan Agreement has become necessary:
<PAGE>
Article 3 Section 3.3 (interest): The last sentence shall read as follows:
"Interest payable in respect of each calendar day shall be calculated by
dividing annual interest due by the actual number of days of the year."
We kindly ask you to confirm the perusal of the adjustments by returning to us
the duplicate of this letter duly signed by your authorized representative(s).
Yours sincerely,
DEG - Deutsche Investitions- und
Entwicklungsgesellschaft mbH
ROLF GRUNWALD BERND PARTING
Rolf Grunwald Bernd Parting
We have taken notice of the above adjustments to the Loan Agreement
Dallas, October 25, 1999.
TED HOLLON RHETT HURLESS
Ted Hollon Rhett Hurless
Sr. Vice President Project Manager
EXHIBIT 10.180
INTERCONNECTION DISPATCH AGREEMENT
BETWEEN
NORTH CHINA POWER GROUP CORPORATION
AND
TANGSHAN PANDA HEAT AND POWER CO., LTD.
TANGSHAN PAN-WESTERN HEAT AND POWER CO., LTD.
SEPTEMBER 2ND, 1999
<PAGE>
TABLE OF CONTENTS
PAGE NO.
CHAPTER ONE GENERAL PRINCIPLE........................................ 1
CHAPTER TWO RIGHTS AND OBLIGATIONS OF PARTIES A AND B................ 3
CHAPTER THREE DISPATCH REGULATION AND DISPATCH SCOPE................... 4
CHAPTER FOUR MANAGEMENT FOR FACILITIES MAINTENANCE
(INCLUDING SECONDARY FACILITIES)......................... 5
CHAPTER FIVE ADJUSTMENT OF FREQUENCY, PEAK LOAD, AND
VOLTAGE/STAND-BY......................................... 6
CHAPTER SIX GENERATION DISPTACH...................................... 7
CHAPTER SEVEN RELAY PROTECTION, AUTOMATIC SAFETY DEVICES............... 8
CHAPTER EIGHT COMMUNICATION AND DISPATCH AUTOMATION.................... 9
CHAPTER NINE RENOVATION AND EXPANSION, BREAKER CHANGE-OVER OPERATION,
ACCIDENT HANDLING AND TRAINING........................... 10
CHAPTER TEN LIABILITY FOR BREACH OF CONTRACT AND PENALTY............. 11
CHAPTER ELEVEN MISCELLANEOUS............................................ 12
<PAGE>
INTERCONNECTION DISPATCH AGREEMENT
This Agreement is signed and entered into by and between the following parties:
Party A: North China Power Group Corporation ("NCPGC")(hereinafter as "Party
A")
Party B: Tangshan Panda Heat and Power Co., Ltd. and Tangshan Pan-Western Heat
and Power Co., Ltd. (hereinafter collectively as "Party B")
In accordance with the Electric Power Law of the People's Republic of China,
Administrative Regulation on Dispatch of Electric Grid issued by the State
Council, Implementation Methods for Administrative Regulation on Dispatch of
Electric Grid and Provisional Rules on Interconnection Operation between Grid
and Power Plants and among Grids issued by the former Ministry of Electric Power
Industry, and other relevant laws and regulations, as well as General
Interconnection Agreement, Electric Energy Purchase and Sales Agreement signed
by and between the Parties, the following Interconnection Dispatch Agreement is
hereby signed upon equal consultation to govern the administrative matters
regarding dispatch and operation after interconnection with the Heat and Power
Plant of Party B, Tangshan Panda Heat and Power Co., Ltd. and Tangshan
Pan-Western Heat and Power Co., Ltd., (hereinafter "Party B PP"), to ensure
safe, high-quality and economic operation of the Grid, to preserve the
legitimate rights and interests of both parties, and to clearly identify rights
and obligations of both parties.
CHAPTER ONE GENERAL PRINCIPLE
1.1 Party A agrees that Party B PP shall operate in interconnection with
Jing-Jin-Tang Grid. Party B PP shall obey the unified dispatch orders by
the Grid Dispatch Agent (namely Dispatch Station of Tangshan Power Supply
Co. ("DSTPSC") of NCPGC), an affiliate to Party A. Both parties shall
mutually comply with Administrative Regulation of Jing-Jin-Tang Grid
Dispatch and Administrative Regulation of Power Dispatch and Operation of
Tangshan Electric Power System of Jing-Jin-Tang Grid, and carry out the
regulations, criteria and standards (hereinafter as "Dispatch
Administrative Regulations") on grid dispatch and operation management
stipulated by the State, North China Power Administration Bureau
(hereinafter as "NCPAB"), Tangshan Power Supply Company ("TPSC"),
Dispatch Bureau of NCPGC, and DSTPSC. The operational rules of Party B PP
shall not contravene the Dispatch Administrative Regulations. Party B PP
shall accept corresponding management in various special technical fields
(such as dispatch, operational modes, relay protection, dispatch automation
and communication), technological supervision, training guidance and
examination from Dispatch Bureau of NCPGC, DSTPSC, and communication
station.
1.2 Party B PP shall guarantee reliable operation of technical equipment and
monitoring devices necessary for implementation of Grid dispatch and
ensuring safe operation of the Grid. For the purpose of adapting to the
development and change of the Grid, Party B shall fulfill all safe measures
to assure safe operation of the Grid and power plant, and install
additional secondary facilities such as relay protection, automatic safety
devices, communication and automation equipment as required. Party B shall
bear the expenses incurred from the changes
1
<PAGE>
of secondary system within boundary limit of Party B PP caused by Grid
changes and facilities renovation (including investment, set-point
rectification, commissioning, startup and operation, etc.)
1.3 All chief operators and authorized operators of Party B PP for accepting
dispatch orders must be trained for Dispatch Administrative Regulations and
relevant laws and regulations and be determined qualified by Grid dispatch
management authorities of Party A upon examination, before they are allowed
to be put on duty for business communication with DSTPSB.
1.4 The maintenance of main equipment and non-self-dispatched transformer
facilities of Party B PP shall be conducted in schedule as per unified
arrangement by DSTPSC. Party A shall create conditions to guarantee the
completion of maintenance task by Party B PP.
1.5 Party B PP shall operate as per generation dispatch plan issued by DSTPSC,
and participate in dispatch of peak load, frequency adjustment, voltage
adjustment, and standby arrangement of Grid as per dispatchable output of
generator units ratified by both parties and requirement of Grid operation.
The dispatch from DSTPSC to Party B PP units shall comply with the design
criteria of Party B PP units and relevant regulations.
1.6 Party B PP shall timely and accurately file and submit technical data and
reports required for electric energy calculation, analysis, operation
statistics and technical management as per required by Dispatch
Administrative Regulations. Party A shall deliver periodical reports to
Party B PP regarding statistics and examination results.
1.7 Party B PP facilities can not be interconnected with the system of the Grid
until an inspection and acceptance is passed as per requirement of Document
Hua-Bei-Dian-Zhi [1997] No. 5, on Implementation Methods of Quality
Inspection for Small-Independent-Power-Plant and Enterprise Self-Contained
Plant.
1.8 Party B PP can not start commercial operation (which refers to the
operation when Party B PP has capability and authorization to start
delivery of stable and reliable power to Party A) until it has installed
tariff metering device that meets the requirement of TPSC for automatic
remote checking system for electric energy plan. At the same time, the Test
Period for each unit from initial interconnection till the start of
commercial operation shall not exceed six months. During the Test Period,
Party A shall not conduct inspection and examination on items under clauses
4.4, 6.3 and 6.4 of this Agreement, but the other inspection and
examination items will be carried out from the date of interconnection.
During the Test Period, Party B PP can not be treated as in commercial
operation.
2
<PAGE>
CHAPTER TWO RIGHTS AND OBLIGATIONS OF PARTIES A AND B
2.1 Rights and obligations of Party A and its affiliated Grid Dispatch Agent
are as follows:
(1) To formulate power generation dispatch scheme and operation mode for
Party B PP and issue them at stipulated time as per Dispatch
Administrative Regulations in accordance with General Interconnection
Agreement, annual operation plan of Party B PP as well as relevant
rules and regulations;
(2) To be in charge of dispatching the operation of generator units and
equipment within the boundary limit of Party B PP, which falls within
dispatch scope,
(3) To review maintenance schedule for generator units and primary,
secondary equipment within the boundary limit of Party B PP, which
falls within dispatch scope, and approve such maintenance to be
performed as per the schedule;
(4) To be responsible for inspection and examination of the work of
relevant disciplines related to dispatch and operation of Party B PP
as per relevant regulations of the Grid;
(5) To enjoy and assume other rights and obligations entitled to Party A
as per Dispatch Administrative Regulations.
2.2 The rights and obligations of Party B PP are as follows:
(1) Party B PP has the right to bring forward maintenance schedule and
maintenance application of relevant equipment as per stipulated
herein.
(2) Party B PP shall conduct its maintenance as per the maintenance
schedule approved by DSTPSC.
(3) Party B PP shall generate power as per daily generation and dispatch
plan issued by DSTPSC.
(4) Party B PP shall regularly calibrate and maintain its secondary
equipment for relay protection, automatic safety devices,
communication, and automation, etc. as per relevant management
stipulations, to ensure normal operation.
(5) Party B PP shall timely eliminate abnormal function and failure of
its equipment, and the chief shift operator shall immediately report
such incident to DSTPSC, and file the relevant records and
oscillogram with DSTPSC within 24 hours.
(6) When abnormal function occurs to a generator unit, Party B PP may
file an application with Party A's operator on duty at DSTPSC for
dispatch curve modification. Upon approval, such modified curve shall
be implemented. In case of emergency threatening safety of personnel,
facilities and the Grid, Party B PP may take emergency measures first
as per current operational regulations, and report to DSTPSC of Party
A afterwards.
(7) When the primary and secondary facilities of Party B PP are
interconnected with the Grid (including after completion of
maintenance), if the system is affected due to changes of parameters
and performance, DSTPSC shall be notified first, and afterwards
operation shall be implemented as per requirement of DSTPSC.
(8) Party B PP shall also enjoy and assume other rights and obligations
entitled thereto as per Dispatch Administrative Regulations.
3
<PAGE>
CHAPTER THREE DISPATCH REGULATIONS AND DISPATCH SCOPE
3.1 Dispatch regulations
3.1.1 Party B PP must operate its facility according to dispatch plan (active
power, reactive power or voltage curve, start-up and shut-down of steam
turbine and boiler etc.) and within the scope of voltage changes as per
issued and stipulated by DSTPSC. Start-up and shut-down of steam turbine
and boiler, adjustment of output and voltage shall be conducted as per
dispatch orders. No refusal or delay in implementing dispatch orders is
permitted regardless of whatever excuses. If a dispatch order threatens
the safety of personnel and facilities, Party B PP shall immediately
report and explain such threats to a dispatch operator on duty of DSTPSC,
it shall be decided by the dispatch operator of DSTPSC whether
implementation of the above dispatch order shall continue.
In case of emergency which threatens the safety of personnel and
facilities of Party B PP, shift operator of Party B PP may resolve it as
per relevant stipulations and immediately thereafter report such incident
to the dispatch operators of DSTPSC.
3.1.2 In case of the following emergency, dispatch operators on duty of DSTPSC
may adjust daily generation dispatch plan, and issue orders to adjust
power output from Party B PP, and to start up or shut down generator
units, etc. DSTPSC dispatch operator may also issue dispatch orders to
operation section on duty of Party B PP:
(1) Serious accidents to power generation and power supply facilities or
accidents of the Grid;
(2) Grid frequency or voltage exceeding specified limitation;
(3) Load of transmission facilities exceeding set parameters;
(4) Power rate of main transmission lines exceeding stipulated steady
limitation;
(5) Other emergencies threatening safe operation of the Grid.
3.1.3 Commissioning and test run related to the Grid for Party B PP prior to
its interconnection operation with the Grid may not be conducted until
its relevant plan has been filed with DSTPSC pursuant to Dispatch
Administrative Regulations, and deliberated and approved by DSTPSC.
3.2 Numbering and scope of dispatch order
3.2.1 All primary and secondary facilities of Unit #1, Unit #2, boiler, main
transformers (including main transformer neutral point) and 110KV bus bar
of Party B PP excluding high voltage auxiliary transformer shall be under
dispatch scope by DSTPSC, while other facilities shall be under dispatch
scope by Party B PP itself. The system numbering and division of dispatch
scope for main electrical facilities of Party B PP shall be subject to
approval document issued by DSTPSC.
4
<PAGE>
3.2.2 Relay protection automatic safety facilities, communication and automatic
system shall be dispatched and managed as per relevant dispatch scope.
3.2.3 During both normal operation and maintenance period, operation rules for
the facilities of Party B PP under the scope of dispatch by DSTPSC shall
be implemented as per dispatch orders issued by DSTPSC with regard to
synchronization mode, bus bar distribution mode, grounding methods of
neutral points, relay protection and automatic safety devices.
3.2.4 Normal on-line and off-line terminal points of Party B PP units are No.
101, 102 circuit breakers at the 110KV side of the main transformers and
No. 145 bus bar circuit breaker of Party B PP.
CHAPTER FOUR MANAGEMENT FOR FACILITIES MAINTENANCE (INCLUDING SECONDARY
FACILITIES)
4.1 Maintenance or test of the following facilities shall not be performed
until approval by DSTPSC:
(1) The facilities within scope of dispatch by DSTPSC;
(2) The facilities within scope of dispatch by Party B PP but involving
the Grid or affecting comprehensive generation of the power plant;
(3) The interface equipment dispatched by both parties.
4.2 Party B PP shall compile annual maintenance plans of its generator units
and annual maintenance plan of its facilities under clause 4.1 for the
following year, and submit a written report to DSTPSC before September 1st
of the current year. DSTPSC of Party A shall give its approval before
December 25th of the current year.
For the approved maintenance plan, it is still required to file an
application with DSTPSC by chief shift operator of Party B PP at stipulated
period prior to commencement of the maintenance. The application, approval
and reply, as well as implementation of daily maintenance schedule, holiday
maintenance, and temporary maintenance shall be conducted as per
Administrative Regulation for Electric Power Dispatch and Operation of
Tangshan Electric Power System of Jing-Jin-Tang Electric Power Grid and
regulations of DSTPSC.
4.3 Maintenance duration for generator units shall be counted from the time
when facilities quit operation (or stand-by) till the time when facilities
resume formal operation (or stand-by), with all the time for operation,
startup and test run included within the maintenance duration.
4.4 The check and ratification of maintenance schedule for generator units of
Party B PP by Party A shall be made on the basis of Power Plant Maintenance
Instructions issued by the former Ministry of Electric Power and effected
as per approved schedule and time by DSTPSC.
5
<PAGE>
When planned maintenance duration for generator units of Party B PP exceeds
the approved schedule (that is beyond the approved planned duration), Party
A may deduct Party B Electric Energy Delivered at the amount of rated power
times maintenance overtime.
CHAPTER FIVE ADJUSTMENT OF FREQUENCY, PEAK LOAD, AND VOLTAGE/STAND-BY
5.1 The rated power, normal output range, and power adjustment rate of Unit #1
and Unit #2 of Party B PP are checked and ratified by Party A and Party B
as follows:
(1) The rated power for Unit #1 of Party B PP is 50 MW; The rated power
for Unit #2 of Party B PP is 50MW;
(2) The normal output range of Unit #1 of Party B PP is maximum output
50MW, minimum output 30MW; The normal output range of Unit #2 of
Party B PP is maximum output of 50MW, minimum output 30MW;
(3) The power adjustment rate during normal operation: For Unit #1 of
Party B PP, it is 2000 kW/Minute; For Unit #2 of Party B PP, it is
2000 kW/Minute.
5.2 The generator units of Party B PP shall have operation capability for two
shifts.
5.3 Party B PP is a non-frequency-adjustment plant, and therefore it will
participate in grid frequency regulation as per conditions specified under
Administrative Regulation of Jing-Jin-Tang Grid Dispatch.
5.4 DSTPSC shall determine quarter voltage curve as per the principle of
inverse voltage adjustment, and notify Party B PP in writing prior to the
current quarter. Party B PP shall adjust 110 kV voltage by adjusting
reactive power (including generator phase lead operation), etc. as per
issued voltage curve. If Party B PP has ability (which refers to voltage
exceeding high limit on the voltage curve while unit power factor not
reaching phase lead 0.95 and over, or voltage below low limit on voltage
curve while unit power factor not reaching 0.8 and lower), but can not
ensure 110KV voltage within voltage curve range, then Party A shall count
it as one unqualified point of Party B, after which every five consecutive
minutes beyond limitation shall be counted as one unqualified point. For
each unqualified point, 10,000 RMB yuan shall be deducted from Party B as
penalty. Both parties shall keep proper records.
5.5 Generator units of Party B PP under stand-by status shall be available as
part of stand-by capacity of the Grid. After receiving DSTPSC's order to
start up, unit(s) subject to such order shall synchronize with the grid
within 2 hours under hot condition, or within 5 hours under warm condition,
or within 8 hours under cold condition. After such synchronization, the
unit(s) shall reach the output value requested by DSTPSC within the
specified time period based on its individual characteristics.
6
<PAGE>
CHAPTER SIX GENERATION DISPATCH
6.1 DSTPSC shall compile dispatch plan for daily generation in strict
accordance with General Interconnection Agreement, Electric Energy Purchase
and Sales Agreement signed by and between the parties and with due
consideration of Grid safety and stability.
6.2 DSTPSC will issue its generation dispatch plan curve with 96 time points
for the following day with regard to generator units of Party B PP prior to
16:00 every day. Such curve shall not be modified once issued.
Party B PP shall report to DSTPSC defects and malfunction affecting its
equipment generation capability before 12:00 every day. DSTPSC will
correspondingly compile daily generation curve of dispatch plan based on
the actual generation capability of the units of Party B PP for the
following day, and keep statistics of relevant defect capacity (i.e., the
difference between unit rated capacity and actual maximum generating
capability) and time. If due to factors attributable to Party B PP, the
daily generation dispatch plan compiled by DSTPSC can not meet the daily
generation plan reflecting different hour periods for Party B PP as per
stipulated under Electric Energy Purchase and Sales Agreement, or power
generation output of Party B PP can not reach the value requested in such
generation dispatch plan, the generation output shortfall therefrom for
Party B PP shall not be compensated by Party A.
6.3 When Party B PP does not undertake frequency adjustment task of the Grid,
it must strictly implement the daily generation dispatch plan issued by
DSTPSC and error shall not exceed 3% of the planned value. Dispatch
operators on duty have the right of adjusting daily generation dispatch
plan of Party B PP to meet the requirement of change in power load, or
handling of accidents and abnormality. Party B PP must follow and implement
the adjusted daily generating curve, and Party A will then afterward
compensate Party B PP for its shortfall in generation output caused by the
Grid.
6.4 Check-up and examination of daily generation dispatch plan:
6.4.1 The check-up and examination of daily generation dispatch plan will be
undertaken by DSTPSC. The Electric Energy Delivered shall be calculated
in accordance with the electric energy tariff readings transmitted from
Party B's metering device to DSTPSC as well as active power at the 110KV
outgoing side of Party B PP measured every 5 minutes by checking system.
Check-up and examination of daily generation dispatch plan shall be
conducted pursuant to the electric energy tariff readings transmitted
from Party B's metering device to DSTPSC, and active power at the
generator outlet of Party B PP measured every 5 minutes by the checking
system, as well as daily per 5 minutes energy generation plan (288
periods of time) converted from daily generation dispatch plan curve with
an interval of each 15 minutes as per issued by DSTPSC. When the levels
of any two adjacent 15-minute-plans within the daily generation dispatch
curve are found different, the planned figure for every
5-minute-generation within such adjacent plans shall be converted by
means of linear interpolation.
7
<PAGE>
6.4.2 Party A shall specify concrete time for Peak Hours, Non-Peak Hours and
Trough Hours based on changes of seasons and notify Party B PP
accordingly via DSTPSC.
6.4.3 If the total active power in five minutes at the generator outlet of
Party B PP deviates from the planned amount for the corresponding hours
by 3%, Party A's DSTPSC will deduct amount of Electric Energy Delivered
of Party B PP equal to three times of the excess of shortfall based on
the planned generation amount in the same period of hours.
CHAPTER SEVEN RELAY PROTECTION, AUTOMATIC SAFETY DEVICES
7.1 The parties shall formulate setting scheme for relay protection and
automatic safety devices as per scope of dispatch by each party. Party B PP
is responsible for setting calculations of protection devices for
generators and main transformers (including neutral point zero sequence
voltage, and zero sequence current protection of main transformers) inside
of power plant as per system constant reactance provided by DSTPSC, under
the condition that the highest permissive time limits are met.
7.2 Relay protection and automatic safety devices inside of Party B PP must
function in coordination with system protection. When the system is
changed, the set point under protection coverage shall be modified in a
timely manner as per request of DSTPSC.
Party B PP must install low-frequency/low-voltage detach device, and meet
the set-point requirement of Party A's DSTPSC.
Party B PP must entrust relevant agencies to make calculation for
interconnection system stability prior to interconnection of Unit #2, and
file such calculation report with DSTPSC.
7.3 Party B PP shall conduct regular calibration and other test of relay
protection and automatic safety devices in operation as per Regulation on
Inspection of Relay Protection and Automatic Safety Devices issued by the
former Ministry of Electric Power and relevant inspection criteria. The
calibration schedule for relay protection and automatic safety devices
related to the Grid shall be arranged by Party A in a coordinated manner
based on the circumstances of Grid.
7.4 Party B PP shall carry out accident preventing measures issued by the
former Ministry of Electric Power and technical stipulations on accident
preventing measures issued by NCPAB.
7.5 The investigation on facilities accident as listed Clause 4.1 herein shall
be organized by safety supervision department of TPSC, and Party B PP shall
render active cooperation.
7.6 Party B PP will provide Party A with internal connection diagrams,
equipment technical parameters and interface setting points of Party B PP.
8
<PAGE>
7.7. Party A will check up and examine action of relay protection and automatic
safety devices inside of Party B PP and within the scope of dispatch by
DSTPSC. For each incorrect action taken by relay protection and automatic
safety devices of Party B PP, and for each incorrect action of relay
protection and automatic safety devices of the Grid caused by Party B PP,
50,000 RMB yuan will be deducted from Party B PP.
CHAPTER EIGHT COMMUNICATION AND DISPATCH AUTOMATION
8.1 Party B PP shall strictly carry out relevant regulations, instructions and
management methods with regard to grid communication and dispatch
automation operational management issued by former Ministry of Electric
Power, NCPAB, DSTPSC and communication station of TPSC.
8.2 Party A shall set up for Party B PP two different operation modes of
dispatch telephone lines and telecontrol signal transmission channels to
DSTPSC. Party B PP shall provide 24-hour coverage maintenance personnel and
technical support for safe and stable operation of communication facilities
within the administrative scope of Party B, and ensure unimpeded
communication of dispatch telephones, relay protection and telecontrol
signal transmission lines.
8.3 Party B PP shall ensure that the reliability and accuracy of its
telecontrol signal and information of electric energy metering readings
transmitted to DSTPSC reach the standards set by the former Ministry of
Electric Power.
8.4 Party A's check and examination methods towards communication specialty of
Party B PP are as follows:
8.4.1 In case any of the following events occurs, 20,000 RMB yuan shall be
deducted from Party B PP each time:
(1) Communication accidents caused by Party B PP (to be confirmed
according to the relevant rules set by the former Ministry of
Electric Power);
(2) Complete interruption of dedicated lines for communication between
Party B PP and DSTPSC caused by Party B PP;
(3) Interruption of the relay protection and telecontrol transmission
channel during accidents of the Grid due to the communication
responsibility attributable to Party B PP.
8.4.2 If a communication impediment is caused by Party B PP 2,000 RMB Yuan
shall be deducted from Party B PP each time.
8.4.3 If Party B PP does not file in time with Party A reports on operation
check-up and evaluation, statistical forms and summary, and does not
complete operation modes of communication in time, 1,000 RMB yuan will be
deducted from Party B PP each time.
9
<PAGE>
8.5 The following telemetering and tele-indication signals of Party B PP shall
be transmitted to EMS of DSTPSC as per communication protocol requested of
Party A.
Active and reactive power and switch tele-indication signals of Unit #1 and
Unit #2, total active and reactive power of the entire plant, active and
reactive power and switch tele-indication signals of 110KV lines, active
and reactive power and current at each side of main transformers; 110KV bus
bar voltage; other relevant telecontrol signals required by DSTPSC. The
error of general accuracy of telemetering signal transmission shall not
exceed 1.5%
8.6 Party B PP shall ensure the safe and reliable operation of metering devices
for the generation amount of power plant, and correctly transmit the
following signals of generation amount to tariff metering system of TPSC.
Active and reactive power amount of Unit #1 and Unit #2, active and
reactive power amount of 110KV lines and high voltage side of high voltage
auxiliary transformers.
8.7 Party B PP shall provide full-time maintenance personnel (staff on duty
during daytime) and technical support for safe and stable operation of
telecontrol devices inside of power plant. During major political events,
it shall be guaranteed that professional telecontrol operators will be on
24-hour duty.
8.8 Party A may deduct 10,000 RMB yuan from Party B PP if one of the following
events occurs to Party B PP; Such penalty will be multiplied if it causes
economic losses or serious consequences to the Grid.
8.8.1. The accuracy rate of tele-indication signal transmission during
accidents is required to reach 100%. Penalty shall apply to any single
account of refusal to take correct action or any single account of
taking incorrect action.
8.8.2. The monthly qualified rate for telemetering signal communication is
required to exceed or reach 99%. Penalty shall apply to any one
percentage point lower than 99% (including less than one percentage
point).
CHAPTER NINE RENOVATION AND EXPANSION, BREAKER CHANGE-OVER OPERATION,eeee
ACCIDENTAL HANDLING AND TRAINING
9.1 Dispatch management of renovation and expansion project related to the Grid
and inside of the Party B PP shall be made pursuant to relevant
stipulations of Party A.
9.2 The parties shall manage breaker change-over operation, abnormality and
accidents, and take responsibility for the correct and prompt handling of
accidents pursuant to the dispatch scope of each party, and Management
Rules of Electric Power Dispatch Operation of Tangshan Electric Power
System of Jing-Jin-Tang Grid and relevant stipulations on operation
instructions of Party B PP.
10
<PAGE>
9.3 In accordance with Training and Examination Methods of Grid Dispatch System
Operators issued by the former Ministry of Electric Power, the chief shift
operator of Party B PP should pass the dispatch and operation examinations
held by Party A, and obtain a qualification certificate. Until then can he
or she be put into such position to conduct business communication with
DSTPSC and to accept dispatch order. The training and examination of other
operators shall be the responsibility by Party B PP.
CHAPTER TEN LIABILITY FOR BREACH OF CONTRACT AND PENALTY
10.1 It shall be deemed as breach of contract if either party does not perform
or does not fully perform the stipulations and obligations under this
Agreement. The defaulting party shall compensate the observing party for
relevant economic losses caused by such breach.
10.2 In case Party B PP seriously breaks or refuses to implement dispatch
orders, which threatens safe operation of the Grid, and Party B is not
responsive to warnings issued, DSTPSC may detach Party B PP from the Grid.
All the consequences thus incurred shall be borne by Party B.
10.3 If due to either party's fault, facilities are damaged, accidents take
place or are escalated which lead to economic losses to the other party,
the responsible party should make compensation, of which, generation
amount losses of Party B shall be addressed in accordance with Article
6.2, and 6.3 of the Agreement. The responsibilities shall be determined as
per Investigation Rules on Power Generation Accidents issued by the former
Ministry of Electric Power.
10.4 If a generator unit is started up without approval by DSTPSC, it must be
stopped immediately, and if the unit is already interconnected with the
Grid, it must be detached from the Grid immediately as per dispatch
orders. Party B PP's Electric Energy Delivered shall be deducted by the
amount of rated power for the generator unit times operation time.
10.5 In case any of the following occurs to Party B PP and causes economic
losses to the Grid, corresponding compensation will be made, and the exact
amount for such compensation shall be finalized through negotiation by
both parties or determined by an arbitration tribunal.
10.5.1 Refusal without reasons or delay or incorrect implementation of dispatch
order;
10.5.2 Delay in implementation of measures for safety and stability as per
required by the Grid, and thus restricting the Grid operation;
10.5.3 Failure in keeping the unimpeded communication of dedicated dispatch
telephone lines or ensuring the accuracy of the information regarding
telecontrol signals and generation amount transmitted to DSTPSC;
11
<PAGE>
10.5.4 Malfunction (exceeding stipulated time of power Grid) of relay
protection, automatic safety devices, communication or telecontrol
equipment or their incorrect actions;
10.5.5 Other actions that call for economic compensation.
CHAPTER ELEVEN MISCELLANEOUS
11.1 Applicable law to force majeure and exemption of liability, change or
termination shall all be the same as per stipulations under General
Interconnection Agreement. Applicable law to this Agreement shall include
"Regulations" as per defined under Article 1.13 of General
Interconnection
Agreement. Any modification, supplement and/or changes to this Agreement
shall be made in writing only, and shall take effect only after being
signed and sealed by duly authorized representatives of both parties. For
any outstanding issues under this Agreement, a supplemental agreement may
be signed by and between the parties after consultation, and such
supplemental agreement shall have equal legal effect with this Agreement.
11.2 There are ten original texts of this Agreement, of which each party shall
hold five.
11.3 This Agreement shall take effect upon signature and seal by legal
representatives or duly authorized representatives of both parties and
shall continue in effect for a period ending on the 1st anniversary of
Party B PP Commercial Operation Date. The parties hereto agree to consult
and extend this Agreement one month before the expiration date of this
Agreement and may make necessary alterations to accommodate changes in the
operating and commercial environments. If General Interconnection
Agreement and Electric Energy Purchase and Sales Agreement by and between
Party A and Party B are terminated, this Agreement shall be terminated
simultaneously.
11.4 This Agreement is a sub-agreement of General Interconnection Agreement
signed by and between the parties and it shall constitute an inseparable
part of the General Interconnection Agreement, and shall have the same
legal effect with such General Interconnection Agreement.
Unless other specified in the context of this Agreement, terms and names
used in this Agreement shall carry the same meaning as those in the
General Interconnection Agreement.
12
<PAGE>
This Agreement is officially executed in Beijing on this 2nd day of September,
1999.
PARTY A: NORTH CHINA POWER GROUP CORPORATION
(company seal)
Legal representative or authorized representative:
PARTY B: TANGSHAN PANDA HEAT AND POWER CO., LTD. (company seal)
TANGSHAN PAN-WESTERN HEAT AND POWER CO., LTD. (company seal)
Legal representative or authorized representative:
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> SEP-30-1998 SEP-30-1999
<CASH> 54,724,484 70,242,354
<SECURITIES> 0 0
<RECEIVABLES> 9,582,815 10,506,496
<ALLOWANCES> 0 0
<INVENTORY> 6,324,191 6,161,770
<CURRENT-ASSETS> 91,175,100 87,669,095
<PP&E> 442,180,977 440,038,841
<DEPRECIATION> (50,314,383) (59,510,961)
<TOTAL-ASSETS> 541,142,004 538,968,892
<CURRENT-LIABILITIES> 64,782,939 32,401,375
<BONDS> 344,740,630 340,931,395
0 0
0 0
<COMMON> 10 10
<OTHER-SE> (132,870,876) (111,494,408)
<TOTAL-LIABILITY-AND-EQUITY> 544,142,004 538,968,892
<SALES> 60,735,562 71,227,211
<TOTAL-REVENUES> 67,101,080 162,844,788
<CGS> 19,741,409 23,216,631
<TOTAL-COSTS> 32,612,716 35,544,712
<OTHER-EXPENSES> 10,332,033 10,433,127
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 43,239,603 40,065,213
<INCOME-PRETAX> (19,083,272) 76,801,736
<INCOME-TAX> 0 (32,009,000)
<INCOME-CONTINUING> (19,083,272) 44,792,736
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (19,083,272) 44,792,736
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
