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Investment In Power Assets*

CKI, the major shareholder of Power Assets, holds a 38.87% stake in the company. Through its subsidiary, The Hongkong Electric Company, Limited, Power Assets generates, transmits and distributes reliable electricity to more than 560,000 customers on Hong Kong Island and Lamma Island. In addition, Power Assets has a growing portfolio outside Hong Kong.

A supply reliability rating of over 99.999% was maintained.

Previously known as Hongkong Electric Holdings Limited, the company changed its name in early 2011 to Power Assets Holdings Limited to reflect the increasingly diverse global investment portfolio of the company.

For the year ended 31 December 2010, Power Assets' audited profit was HK$7,194 million, representing a 7% increase over the previous year. This rise was attributed to the growth in earnings from operations outside of Hong Kong, which rose by 24% to HK$2,535 million. Earnings from the company's Hong Kong operations were HK$4,659 million, a marginal increase over 2009.

Hong Kong Operations

The performance of Power Assets' operations in Hong Kong was satisfactory. The total unit sales of electricity in 2010 were at the same level as in 2009, with the customer base growing slightly to 566,000. The number of customers from the domestic and commercial sectors recorded a small increase, while the number of industrial customers continued to decline.

A world-class supply reliability rating of over 99.999% was maintained, a record held since 1997.

The company has continued to adopt initiatives to reduce the dependence on coal and increase the use of natural gas. In 2010, units sent out from the gas-fired generating units increased from 20% to 33% of total electricity supply. This has enabled Power Assets to reduce carbon dioxide emissions by approximately 13% as compared with 2005.

The emission reduction programme at the Lamma Power Station was successfully completed during the year under review, resulting in a substantial reduction in the emission of sulphur dioxide, nitrogen oxides and respirable suspended particles. In addition, the largest solar power system in Hong Kong was commissioned at the Lamma Power Station. In the first six months of operation, this system generated 414,000 units of electricity while helping to reduce the emission of 345 tonnes of carbon dioxide. Progress has also been made in regards to the proposed offshore wind farm project of approximately 100 MW.

HK Electric changed its name to Power Assets in early 2011.

Operations Outside Hong Kong

During the year under review, strong results were delivered by operations outside of Hong Kong. In 2010, 35% of overall earnings were attributed to international investments.

Two significant acquisitions have extended the company's foothold in the United Kingdom electricity market.

During the year under review, a 25% stake was acquired in Seabank Power, an electricity-generating company located near Bristol. With two gas-fired combined-cycle gas turbine generating units, this company has an aggregate capacity of 1,140 MW. Following completion, this new acquisition contributed seven months of revenue during the period under review.

A very major acquisition involving a 40% stake in UK Power Networks was made. Its distribution networks cover London, the South East and the East of England, with customers totalling approximately eight million in the country. This acquisition brought in two months of earnings in 2010 and has strong future earnings contribution potential.

As for the existing portfolio, overall higher contribution has been recorded.

The Australian electricity businesses, comprising ETSA Utilities, CitiPower and Powercor, achieved strong growth during the year.

In the United Kingdom, Northern Gas Networks performed well. Earnings before interest, taxation, depreciation and amortisation were maintained at 2009 levels.

In New Zealand, Wellington Electricity recorded a satisfactory growth in profit contribution to the Group.

In Canada, Stanley Power, owned by Power Assets and CKI on a 50/50 basis, holds a 49.99% interest in TransAlta Cogeneration, L.P. During the year, Stanley Power's power plants in Ontario, Alberta and Saskatchewan continued to deliver satisfactory operating performance. In February 2011, Stanley Power proposed to increase its interest in the 220 MW Meridian Cogeneration Plant in Saskatchewan from 24.995% to 100%. This transaction is expected to be completed in April 2011.

Dali Wind Farm delivered its first full year of operation in 2010.

In Mainland China, the Dali and Laoting Wind Farms delivered their first full year of operation in 2010 and sent out 38% more electricity than in 2009. The Jinwan Power Plant saw double-digit growth in units sold in 2010, while the output of Zhuhai Power Plant and Siping Cogeneration Plant was slightly lower than 2009.

Jinwan Power Plant saw double-digit growth in units sold.

The Ratchaburi Power Plant in Thailand reported a successful year of operation.

* Formerly known as HK Electric

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