RNS Number:9195W
Zhejiang Southeast Elec Power Co Ld
25 March 2004


               Zhejiang Southeast Electric Power Company Limited


                               Annual Report 2003



                                  March 2004



Important:

The Directors of Zhejiang Southeast Electric Power Company Limited (ZSEPC)
confirm that there are no false representations, misleading statements or
material omissions in this Report, and jointly and severally accept full
responsibilityfor the authenticity, accuracy and integrity of the information
contained herein.

The Board Chairman of ZSEPC Sun Yongsen and the management personnel in charge
of accounting affairs including General Manager Shou Desheng, Chief Accountant
Hu Senjian and Manager of Finance Department Yang Xiaodong affirm that the
financial statements contained herein are true and complete.


Contents





I. About ZSEPC   1

II. Summary of Accounting Figures and Operating Figures   2

III. About Shareholders and Changes in Share Capital 5

IV. About the Directors, Supervisors, Senior Management and Employees 9

V. Corporate Governance Structure 12

VI. Shareholders' General Meeting 14

VII. Report of Board of Directors 16

VIII. Reportof Supervisory Committee 32

IX. Important Events 36

X. Financial Statements 1    47

XI. Financial Statements 2 48

XII. Documents Available for Inspection  56



I. About ZSEPC



1.      Registered Name in Chinese:

   Zhejiang Southeast Electric Power Company Limited

   Registered Name in English:

   Zhejiang Southeast Electric Power Company Limited

   Abbreviation of the English Name of the Company: ZSEPC

2.      Legal Representative: Sun Yongsen

3.      Secretary to the Board of Directors: Xia Jinghan

   Address: 22-23 Floor, Biao Li Tower, 528 Yanan Road,

Hangzhou, Zhejiang Province, the People!s Republic of China

   Tel: 0571-85774566

   Fax: 0571-85774321

       E-mail Address: xjh@zsepc.com

4.      Registered Address and Office Location:

   22-23 Floor, Biao Li Tower, 528 Yanan Road,

   Hangzhou, Zhejiang Province, P.R. China

   Postal Code: 310006

   Website: http://www.zsepc.com/

5.      Designated Press for Information Release:

 Shanghai Securities News, China Securities Journal, South China Morning Post
(Hong Kong), Wen Hui Bao (Hong Kong)

 Website for Publication of Annual Reports as designated by the China Securities
Regulatory Commission (CSRC):

 http://www.sse.com.cn/

    Venues for Inspection of the Annual Report:

   Head Office of ZSEPC, Herbert Smith Hong Kong Office and London Office

6.      Information on Listing of Shares of ZSEPC

Listing Place of B Shares: Shanghai Stock Exchange

   Abbreviation of B Shares: ZSEPC B Shares

   Code of B Shares: 900949

   Listing place of GDRs: London Stock Exchange

   Code of GDRs: 0949QLT

7.      Other Information

(1) Initial Registration Date: 15 May 1997

   Initial Registered Address:

   Fengqi Building, 451 Fengqi Road, Hangzhou, Zhejiang Province

   Re-registration Date: 8 July 2002

   Re-registered Address:

   22-23 Floor, Biao Li Tower, 528 Yanan Road,

   Hangzhou, Zhejiang Province

(2)   Registration No. of Business License: Qi Gu Zhe Zong Zi No.002189

(3)   Taxation Registration No.: State Tax Registration No.330000142943450

                      Local Tax Registration No.330000142943450

(4)   Names and Addresses of Domestic and International Accountants Appointed by
ZSEPC:

Domestic Accountant: Zhejiang Pan-China Certified Public Accountants

Address: Qianjiang Sci-tech Building, 388 Wensan Road, Hangzhou, Zhejiang, China

International Accountant: PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd.

Address: Ruian Plaza, 333 Mid-Huaihai Road, Shanghai, China

II. Summary of Accounting Figures and Operating Figures

1.  Main Accounting Figures

(1)   Accounting figures based on the Chinese accounting standards:
      Item                                              Amount (RMB yuan)
Principal Operating Income                                                        4,738,196,944.73
Gross Profit                                               1,076,967,843.80
Net Profit                                                                          609,283,351.82
Net Profit After Deducting Non-recurring Gains/Losses (Note)                        623,702,351.21
Principal Operating Profit                                                        1,556,252,810.50
Other Operating Profit                                                                  759,658.17
Operating Profit                                                 1,258,811,607.84
Returns on Investment                                                              -146,757,285.34
Subsidy Income                                                                                0.00
Net Value of Non-operating Income/Expense                                           -35,086,478.70
Net Cash Flow Generated from Operations                                           1,416,710,611.72
Net Increase in Cash and Cash Equivalents                              -37,397,618.65



Note: Items and amounts of non-recurring gains/losses
                               Item                                                     Amount (RMB yuan)
Returns on Investment - Income from management of trusted fund                              14,174,314.66
                     - Reversal of previous allocation of the                                   99,900.00
reserve for short-term investment devaluation
Non-operating income                            668,046.95
Less: non-operating expenses                                                                35,754,525.65
Non-recurring gains/losses                                                             -20,812,264.04
Impact of income tax on non-recurring gains/losses                                          -6,116,641.37
Impact of minority shareholders' equity on non-recurring gains/                               -276,623.28
losses
Non-recurring gains/losses after deducting income tax and minority                         -14,418,999.39
shareholders' equity



(2) Difference between New Profits Based on Chinese and International Accounting
Standards:
                                   Unit: RMB1000 yuan
Net profit based on the Chinese Enterprise Accounting System                                        609,283
Adjustment made based on the international accounting standards:
1. Reversal of prepaid corporate income tax                                                          -3,123
2. Deferred income tax                                                                               -9,056
3. Transferred to capital reserve      12,773
4. Offset against retroactive adjustment to corporate income tax                                          -
5. Offset against other retroactive adjustment                            -
Net profit based on the international accounting standards                                          609,877



2.  Main Financial Indicators

                                                                      Unit: RMB
Item                                    Year 2003              Year 2002            Year 2001
Principal operating income               4,738,196,944.73     3,320,944,888.62     3,370,277,286.61
Gross profit                             1,076,967,843.80       812,753,137.31       958,949,587.73
Net profit                                 609,283,351.82       545,515,105.11       707,945,727.20
Net profit after deducting                 623,702,351.21       551,529,400.73       712,085,858.46
non-recurring gains/losses
Earnings per share (diluted)                         0.30                 0.27                 0.35
Earnings per share                                   0.30                 0.27                 0.35

(weighted average)
Earnings per share after                             0.31                 0.27                 0.35
deducting non-recurring gains/
losses
Yield on net assets (diluted)                       10.14                 9.27                12.12
(%)
Yield on net assets                                  9.84                 8.92                11.95

(weighted average) (%)
Yield on net assets after                           10.08                 9.02                12.02
deducting non-recurring gains/
losses

(weighted average) (%)
Item                                    Year 2003           End of Year 2002     End of Year 2001
Total assets                             8,680,084,385.48     8,602,419,267.42     7,816,313,776.25
Shareholders' equity (excluding          6,008,838,568.82     5,885,261,727.00     5,842,246,621.89
minority shareholders' equity)
Net asset value per share                            2.99                 2.92                 2.91
Adjusted net asset value per     2.97                 2.91                 2.90
share
Net cash flow generated from             1,416,710,611.72     1,040,154,528.73     1,297,137,638.21
operating activities
Net cash flow generated from                         0.70                 0.52                 0.65
operating activities per share




Annex to Statement of Profit in the current report period:
                                         Yield on Net Assets (%)       Earnings per Share (yuan/share)
   Diluted        Weighted         Diluted      Weighted
    Profit in Current Report period                         Average                      Average
Principal Operating Profit                         25.90   25.14              0.77          0.77
Operating Profit                                   20.95         20.34              0.63          0.63
Net Profit                                         10.14          9.84              0.30          0.30
Net Profit After Deducting                         10.38         10.08              0.31          0.31
Non-recurring Gains & Losses



3.  Changes in Shareholders' Equity in Current Report period

                                                 Unit: RMB yuan
Item       Share Capital   Capital Reserve  Surplus        Statutory      Undistributed    Shareholders'
                                            Reserve        Welfare        Profit           Equity
               Reserve
Beginning 2,010,000,000.00 1,863,272,079.51 763,152,307.26 381,576,153.63 1,248,837,340.23 5,885,261,727.00
Amount
Increase              0.00    12,773,490.00 121,856,670.36  60,928,335.18   609,283,351.82   622,056,841.82
in
Current
Period
Decrease              0.00             0.00           0.00           0.00   620,336,670.36   498,480,000.00
in
Current
Period
Ending    2,010,000,000.00 1,876,045,569.51 885,008,977.62 442,504,488.81 1,237,784,021.69 6,008,838,568.82
Amount
Reasons                  - Incoming         10% statutory  10% statutory  Incoming         Increase in net
for                        transfer of the  capital        welfare fund   transfer of net  profit, capital
Changes                    waived           reserve and    allocated from profit realized  reserve and
                           environmental    10% welfare    the net profit in current year  profit
                           protection loan  fund allocated realized in    after allocating distribution in
                           for the          from the net   current year   statutory        current year.
                           desulfurization  profit                        capital reserve,
                           project of       realized in                   statutory
                           Xiaoshan Power   current year                  welfare fund and
                           Plant (after                              profit
                           deducting income                               distribution
                           tax payable) and
                           payables unable
                           to be paid





III. About Shareholders and Changes in Share Capital

1.      Changes in Share Capital


(1)   Table for Changes in Share Capital

                                                                Unit : per share
                                           Before Change Increase/decrease in current year                 After Change

                                                         (+, -)
1. Non-listed shares
1) Promoters' shares                       1,320,000,000                                  0       1,320,000,000
Including:
Shares held by the State                   1,315,000,000                                          0       1,315,000,000
Shares held by domestic legal                  5,000,000                                 0           5,000,000
persons
Shares held by foreign legal
persons
Other shares
2) Legal person's shares by
subscription
3) Internal employee shares
4) Preference shares and other
shares
Subtotal                                   1,320,000,000                                          0       1,320,000,000
2. Outstanding shares
1) RMB   ordinary shares
2) Domestically listed foreign               690,000,000                                          0         690,000,000
investment shares
3) Offshore listed foreign
investment shares
4) Other shares
Subtotal                                     690,000,000                                          0         690,000,000
3. Total number of shares                  2,010,000,000  0       2,010,000,000

(2)   Issuance and Listing of Shares

a.       No issuance of shares was conducted in the last 3 years ending on 31
December 2003.

b.      There was no changes in the total number ofZSEPC's shares or the share
structure in this report period.

c.       ZSEPC has no internal employee share.

2.  Profile of Shareholders

(1) Total Number of Shareholders

Ending on 31 December 2003, ZSEPC has a total of 76,729 shareholders.

(2) Profile of the top 10 shareholders as at end of the report period



Full Name of     Increase/    Number of     Percentage of  Type of Shares  Number of     Nature of
Shareholder                   Shares Held    Shareholding                Shares in     Shareholders
                 Decease in   at Year End                                  Pledge or
                 Current Year                                              Freeze
                 (degrees-
                 +/- denotes
                 decrease)
Zhejiang                    0   799,963,200         39.799   Non-listed         Nil      State-owned
Provincial                                                                               Shares
Electric Power
Development
Company (ZPEPDC)
China Huaneng               0   514,036,800         25.574   Non-listed         Nil      State-owned
Group (CHNG)                                                                             Shares
NAITO SECURITIES    1,058,78215,306,586          0.762     Listed         Unknown    Foreign
CO.LTD                                                                                   Investment
                                                                                   Shares
SCBHK A/C BROWN     5,031,000    14,143,918          0.704     Listed         Unknown    Foreign
BROTHERS                                                                                 Investment
HARRIMAN AND                            Shares
COBOSTON S/A CMO
EMERGING MARKETS
FUND
Hua Cong            7,230,514    14,038,339          0.698     Listed         Unknown    Foreign
Investment                                              Investment
Company Limited                                                                          Shares
JPM IRE / GT PRC    9,290,364    10,996,764          0.547     Listed         Unknown    Foreign
FUND         Investment
                                                                                         Shares
TOYO SECURITIES       485,600     7,791,100          0.388     Listed      Unknown       Foreign
ASIA LTD. A/C                                                                            Investment
CLIENT                                                                                   Shares
MERRILL LYNCH       5,430,281     6,754,559          0.336     Listed         Unknown    Foreign
INTERNATIONAL                                                                            Investment
                                                                               Shares
DEUTSCHE BANK       3,781,773     4,841,696          0.241     Listed         Unknown    Foreign
LONDON                                                                                   Investment
                                    Shares
SKANDIA GLOBAL      4,533,625     4,533,625          0.226     Listed         Unknown    Foreign
FUNDS PLC                                                                                Investment
                                                                                         Shares

Note: There is no connection between the state-owned legal person shareholders
of ZSEPC. And ZSEPC is unaware whether the other shareholders have any
inter-connection.

Up to the end of this report period, the shareholders holding 5% and above of
ZSEPC's stock are ZPEPDC and CHNG.

(3)   About Controlling Shareholders

The controlling shareholder of ZSEPC is ZPEPDC. As approved by Zhejiang
Provincial Government, the assets of ZPEPDC was wholly transferred to Zhejiang
Provincial Energy Group Corp. (ZPEGC), making ZPEPDC a wholly-owned subsidiary
of ZPEGC. Thus ZPEGC became the de facto controller of ZSEPC.

ZPEPDC is a collectively owned enterprise. After being restructured, its staff
and organization was merged into ZPEGC. Therefore, the rights and power of the
first largest shareholder of ZSEPC is to be exercised directly by ZPEGC.

ZPEGC was founded in March 2001, with its business scope covering
state-authorized operations of the stated-owned assets and stocks of group
corporations and enterprises, investment in industrial development and technical
consulting service, its registered capital amounting to RMB 3.5 billion yuan,
its legal representative Sun Yongsen.

The controlling shareholders and the de facto controller of ZSEPC remained
unchanged in this report period.

(4)   About Other Legal Person Shareholders Holding more than 10% of ZSEPC's
Shares

China Huaneng Group (CHNG) holds 514,036,800 shares of ZSEPC, accounting for
25.57% of ZSEPC's total shares. In the light of Document Ji Ji Chu (2002)2704 '
degreesThe State Planning Commission's Approval of the Plan for Restructuring of
the Generation Assets of the State Power Corp.'+/- issued by the State Planning
Commission, the 514,036,800 state-owned legal person shares of ZSEPC originally
held by Zhejiang Provincial Electric Power Co. (ZPEPC) were decreed to be
transferred to CHNG at no cost.Based on the Share Transfer Agreement between
the two parties, the effective date of the transfer was 1 January 2003. After
the share transfer, CHNG came into possession of 514,036,800 shares of ZSEPC,
accounting for 25.57% of the total as the second largest shareholder of ZSEPC.
Announcement of the above transfer was made on 23 April 2003.

CHNG was founded in 1989, with its business scope covering industrial
investment, operations and management; power plant development, investment,
construction, operation and management; organization of electric power (heat)
production and sales; and engagement in product development, investment,
construction, production and sales in the fields of information, transportation,
new energies and environmental protection, its registered capital amounting to
RMB 20 billion yuan, its legal representative Li Xiaopeng.

(5)   Top 10 Shareholders of Listed Shares of ZSEPC at End of the Report period
          Full Name of Shareholder           Increase/ Number of           Percentage of    Type of Share
                                             Decrease in      Shares Held    Shareholding#%#(c)
                                             Current Year ('  at Year End
                      degrees-'+/-
                                             denotes
                                             decrease)
NAITO SECURITIES CO.LTD                             1,058,782   15,306,586                0.762  Listed B shares
SCBHK A/C BROWN BROTHERS HARRIMAN AND               5,031,000   14,143,918                0.704
COBOSTON S/A CMO EMERGING MARKETS FUND
Hua Cong Investment Company Limited                 7,230,514   14,038,339                0.698  Listed B shares
JPM IRE / GT PRC FUND                               9,290,364   10,996,764                0.547  Listed B shares
TOYO SECURITIES ASIA LTD. A/C CLIENT                  485,600    7,791,100                0.388  Listed B shares
MERRILL LYNCH INTERNATIONAL                         5,430,281    6,754,559                0.336  Listed B shares
DEUTSCHE BANK LONDON                                3,781,773    4,841,696                0.241  Listed B shares
SKANDIA GLOBAL FUNDS PLC                    4,533,625    4,533,625                0.226  Listed B shares
SCBHK A/C NOMURA TB/NOMURA ITM                      1,200,000    3,600,000                0.179  Listed B shares
SHENYIN WANGUO NOMINEES (H. K) LTD.                 3,081,561    3,512,561                0.175  Listed B shares

Note: ZSEPC is unaware whether the top 10 shareholders of listed shares of ZSEPC
have inter-connection.



IV. About the Directors, Supervisors, Senior Management and Employees

1.  Directors, Supervisors and Senior Management

(1)   Profile
Name         Position      Sex        Age   Tenure           Shareholding at Shareholding at Causes of
                                                             Year Beginning  Year End        Changes
Sun Yongsen  Board         Male       58    6/2003-6/2006    0               0               -
             Chairman
Wang         Vice Chairman Male       57    6/2003-6/2006    0               0               -
Xiaosong
Shou Desheng Director,     Male       46    6/2003-6/2006    0               0               -
             General
             Manager
Xie Guoxing  Director      Male       49    6/2003-6/2006    0               0               -
Hu Genfa     Director      Male       48    6/2003-6/2006    0               0               -
Cao Lu       Director      Male       38    6/2003-6/2006    0               0               -
Liu Ranxing  Director      Male       41    6/2003-6/2006    0               0               -
Xing JunjieDirector      Male       45    6/2003-6/2006    0               0               -
Li Hua       Director      Female     45    6/2003-6/2006    0               0               -
Li Jianguo   Director      Male       45    6/2003-6/2006    0          0               -
Qian         Independent   Male       65    6/2003-6/2006    0               0               -
Zhongwei     Director
Wu Xianquan  Independent   Male       63    6/2003-6/2006    0               0               -
             Director
Huang        Independent   Male       48    6/2003-6/2006    0               0               -
Dongliang    Director
Mao Fugen    Independent   Male       40    6/2003-6/2006    0               0               -
             Director
Huan Guocang Independent   Male       54    6/2003-6/2006    0               0               -
             Director
Huang Lixin  Convener of   Male       37    6/2003-6/2006    0               0               -
             Supervisory
             Committee
Fu Muqing    Supervisor    Male       45    6/2003-6/2006    0               0               -
Yang         Supervisor    Male       31    6/2003-6/2006    0               0               -
Jianxiong
Sun Chaoyang Supervisor    Male       38    6/2003-6/2006    0               0               -
Chen Xi      Supervisor    Male       31    6/2003-6/2006    0               0               -
Wang Jiafu   Supervisor    Male       50    6/2003-6/2006    0               0               -
Huang    Supervisor    Male       45    6/2003-6/2006    0               0               -
Guanlin
Wu Yaozhong  Deputy        Male       55    6/2003-6/2006    0               0               -
             General
             Manager
Chen Juemin  Deputy        Male       50    6/2003-6/2006    0               0               -
             General
             Manager
Xia Jinghan  Deputy        Female     34    6/2003-6/2006    0               0
             General
             Manager,
     Secretary to
             Board of
             Directors
Hu Senjian   Chief         Male       48    6/2003-6/2006    0               0               -
             Accountant
Qiu Baoxing  Director of   Male       55    6/2003-6/2006    0 0               -
             Trade Union
             Committee



(2)   Directors/Supervisors Taking Office in Shareholder Organizations
Name        Shareholder             Position                     Tenure             Whether taking
            Organization                                                            remuneration or
                                                                                    subsidy from ZSEPC
Sun Yongsen Zhejiang Provincial     Board Chairman               3/2003To date      No
            Energy Group
            Corporation
Wang        China Huaneng Group     Deputy General Manager       1/2000To date      No
Xiaosong
            Huaneng International
            Power Co.Ltd


                                    Vice Chairman
Xie Guoxing Zhejiang Provincial     Deputy Chief Engineer        7/2003 To date     No
            Energy Group
            Corporation
Hu Genfa    Zhejiang Provincial     Head of Finance Department.  7/2003To date      No
            Energy Group
            Corporation
Cao Lu      Zhejiang Provincial     Head of Asset Operation      7/2003To date      No
            Energy Group            Department
            Corporation
Liu Ranxing Huaneng International   Deputy Manager of Safety and 2/2002To date      No
            Power Co. Ltd           Production Department
Xing Junjie Huaneng International   Deputy Manager of Planning & 12/2002To date     No
            Power Co. Ltd           Development Department
Li Hua      Huaneng International   Deputy Head of Stock         12/2002To date     No
            Power Co. Ltd           Management Department
Huang Lixin Huaneng International   Deputy Manager of Finance    8/2001To date      No
            Power Co. Ltd           Department
Yang        Zhejiang Provincial     Deputy Head of Planning &    7/2003To date      No
Jianxiong   Energy Group            Development Department
            Corporation
Sun         Zhejiang Provincial     Deputy Head of Finance       7/2003To date      No
Chaoyang    Energy Group            Department
            Corporation
Chen Xi     Huaneng International   Deputy Head of General       12/2002To date     No
            Power Co. Ltd           Division, Finance Department

Note: In accordance with Agreement on Trusted Management of Thermal Power
Generating Assets between China Huaneng Group, Huaneng International Power
Development Co. and Huaneng International Power Co. Ltd, China Huaneng Group
authorized Huaneng International Power Co. Ltd to send independent directors,
directors and supervisors on behalf of China Huaneng Group to limited liability
generating companies and stock companies limited in which China Huaneng Group
has controlling or non-controlling shares, the validity of the authorization
spanning from 26 February 2003 to 6 November 2007.



(3)   Annual Remuneration

The directors and supervisors not taking remuneration from ZSEPC will be paid by
the shareholder companies or related parties of the shareholder companies that
send them, without getting any additional salaries or welfare benefit from
ZSEPC; the directors, supervisors and other senior management personnel taking
remuneration from ZSEPC will get payment and welfare benefit in line with the
salary system of ZSEPC. The annual remuneration of the independent directors is
to be decided in the shareholders' general meeting. In accordance with the
resolution adopted in the Shareholders' General Meeting 2001, the annual subsidy
for the independent supervisors of ZSEPC amounts to RMB 50,000 yuan (excluding
tax) (except Independent Supervisor Huan Guocang who does not take subsidy for
independent supervisors). The expenses for their traveling and hotel rooms will
be borne by ZSEPC


Total annual remuneration                            RMB 2.5366 million yuan
Sum of remuneration of top 3 highest-paid directors  RMB 630,500 yuan
Sum of remuneration of top 3 highest-paid senior     RMB 884,700 yuan
managers
Subsidy for independent directors                    Annual subsidy of RMB 50,000 yuan/person-year
                                                     (excluding tax)
Other benefits for independent directors Traveling and hotel expenses borne by ZSEPC
Names of directors and supervisors not taking        Sun Yongsen, Wang Xiaosong, Xie Guoxing, He Genfa,
remuneration or subsidy from ZSEPC                   Cao Lu, Liu Ranxing, Xing Junjie, Li Hua, Huang
                                                     Lixin, Yang Jianxiong, Sun Chaoyang, Chenxi
Remuneration range
Below RMB 100,000 yuan                               5 people
Between 100,000 and 200,000 yuan                     1 person
Between 200,000 and 300,000 yuan                     6 people
More than 300,000 yuan                               2 people



(4)   Names of Directors, Supervisors and Senior Managers Leaving Office in
Current Report period and Reasons

As stipulated in the Company Law and the Articles of Association of ZSEPC, the
tenure of ZSEPC's directors and supervisors is 3 years. The 2nd Board of
Directors of ZSEPC was elected and formed in the Shareholders' General Meeting
2000. So their tenure expired in 2003. The 3rd Board of Directors and
Supervisory Committee of ZSEPC were elected and formed after being approved in
the Shareholders' General Meeting 2002 held on 30 June 2003. A new management
team of ZSEPC was elected and formed after being approved in the first meeting
of the Board of Director of ZSEPC.



The directors leaving office were Hu Jiangchao, Shen Zhiyun, Zhang Huaiyu, Li
Yuan, Ke Jixin, Zhu Li, Fu Muqing, Dai Jiancheng, Wang Jiafu, Zhu Changrong and
Gu Gongyun; the supervisors leaving office were Tang Xingen, Jiang Huadong, Hu
Genfa, Zhu Haiming, Wu Hongfei and Wang Guoqiang; the senior managerial person
leaving office was Dai Jiancheng.



(5)   Employees

As of 31 December 2003, there are 4,081 employees in total in ZSEPC, of which
333 hold university bachelor or above degrees, 734 having senior non-degree
education, 315 having medium non-degree education and 2,821 having technical
training of various disciplines there are 2,514 production personnel accounting
for 69.91% of the total, 39 financial personnel and 397 management personnel,
with 23 holding senior technical titles, 310 holding medium technical titles,.
There are 279 retirees.

V. Corporate Governance Structure

1.  Corporate Governance Structure

In accordance with the Company Law, the Securities Law, relevant stipulations
issued by CSRC and Rules for Listing of Shares in Shanghai Stock Exchange, ZSEPC
constantly tries to refine the corporate legal person governance structure and
regularizes its operations.

Centered around the Articles of Association at its core, the corporate internal
operating system was further consolidated. Clear definition of the duties and
authorities of the Shareholders' General Meeting, the Board of Directors, the
Supervisory Committee and the management team and the open well-spelt rules of
procedure ensure the efficient operation of the corporate governance structure.
                                                            
Duringthe report period, the Shareholders' General Meeting was held in strict
accordance with the prescribed procedure to ensure that the shareholders have
ample time to communicate with ZSEPC effectively. The time, venue and the voting
manner of the Meeting were so chosen as to allow as many as possible
shareholders to attend the meeting. When taking a vote on related party
transactions, the related shareholders were avoided to ensure fair and
reasonable related party transactions.

The Board of Directors were re-elected upon conclusion of their tenure of office
in this report period. After the election, independent directors make up 1/3 of
the Board. The staffing of the Strategic, the Auditing and the Remuneration &
Appraisal Committees under the Board were adjusted, of which the Auditing and
the Remuneration & Appraisal Committees are dominated by independent directors
who also act as conveners. The Board meetings of ZSEPC were conducted in strict
accordance with the Articles of Association and the Rules of Procedure for Board
Meetings. The directors performed their duties in earnest and in good faith.

The Supervisory Committee members were re-elected upon conclusion of their
tenure of office in this report period. The Supervisory Committee meetings were
held in strict accordance with the Articles of Association and the Rules of
Procedure for Supervisory Committee Meetings. The Supervisory Committee is
staffed and structured such that it can exercise its supervision independently
and effectively. The Committee conducted effective supervision over the
performance of the directors and the senior management personnel of ZSEPC.

Information disclosure awareness was raised in ZSEPC and its holding
subsidiaries. The internal communication system for information disclosure was
further improved to make sure timely, accurate, true and complete disclosure of
the information about ZSEPC. Methods for Management of Relations with Company
Investors was formulated to ensure the communication between ZSEPC and the
investors. It was closely followed in work to increase communication with the
investors through multiple channels. Timely disclosure of information about
ZSEPC and real time interaction with investors were realized through road shows
and ZSEPC's website construction.

2.  Performance of Independent Directors

Qian Zhongwei, Wu Xianquan, Huang Dongliang, Mao Fugen and Huan Guocang were
appointed as independent directors of ZSEPC in 2003. Since taking office , the
independent directors have performed their duties and obligation in strict
accordance with the relevant laws/regulations and the Articles of Association of
ZSEPC, followed the operations of ZSEPC with great interest, attended the
shareholders' general meeting, the board meetings and the ad hoc committee
meetings, made serious examination of ZSEPC's regular reports, checked the
office holding and remuneration of ZSEPC's management team, put forward their
independent opinions on the various important matters of ZSEPC, came up with
rational proposals for its normal operation and sustainable development, thus
safeguarding the correctness and rationality of its Board decision and
protecting the interest of its medium and small shareholders.

3.  Relation between ZSEPC and its Controlling Shareholders

The controlling shareholders of ZSEPC exercised their rights as investors
prescribed by the law through Shareholders' General Meeting. ZSEPC and its
controlling shareholders are independent of each other in terms of personnel,
assets, finance, organization and business operations. The Board of Directors,
the Supervisory Committee and the internal organs of ZSEPC can operate
independently.

(1)   In respect of staff, ZSEPC iscompletely independent of its controlling
shareholders in terms of management of labor, manpower and salary with sound
labor management system. All the senior administrative staff of ZSEPC such as
General Manager, Deputy General Managers, Chief Accountant and Secretary to the
Board of Directors are full time employees and get paid from ZSEPC, none of them
taking payment or holding important positions in controlling shareholder
companies.

(2)   In respect of assets, ZSEPC owns independent production system, auxiliary
production system and ancillary facilities. Such intangible assets as the land
use rights, industrial properties, trade marks and non-patented technology
belong to ZSEPC.

(3)   In respect of financial affairs , ZSEPC established an independent
financial department, formulated independent accounting system and financial
management system and opened an independent bank account.

(4)   In respect of organization, ZSEPC has an independent organization with the
Board ofDirectors, the Supervisory Committee and the internal organs of ZSEPC
operating independently without any affiliation with the functional departments
of the controlling shareholders.

(5)   In respect of business operations, ZSEPC operates independently,
responsible for its own gains or losses with self-contained operational
structure.



4.  Appraisal and Incentive Mechanism for Senior Management



A preliminary performance appraisal criterion and incentive mechanism linking
performance with targets for the senior management staff was established. The
senior management staff of ZSEPC are directly responsible to the Board of
Directors, subject to the appraisal and awards/penalties given by the Board of
Directors and the Remuneration & Appraisal Committee under the Board. The senior
management staff undertake to fulfill the responsibility targets of operations,
management, production safety and clean administration laid down by the Board,
who will measure profit and appraise their performance against the
responsibility targets and the profit target to mete out awards or penalties
accordingly.



VI. Shareholders' General Meeting

1. Shareholders' General Meeting

One annual shareholders' general meeting and two extraordinary shareholders'
general meetings were held in 2003.

(1) The Annual Shareholders' General Meeting for 2002

Notice on the Shareholders' General Meeting for 2002 was published in China
Securities Journal, Shanghai Securities News, Hongkong-based South China Morning
Post and Hongkong-based Wen Hui Bao dated 30 May 2003. The meeting was held at
Da Hua Hotel in Hangzhou on 30 June 2003. The shareholders and shareholders'
proxies present at the meeting held 1,328,941,887 shares, accounting for 66.12%
of the total shares of ZSEPC, which conformed to the Company Law and the
Articles of Association of ZSEPC.

The meeting discussed and approved the following through vote casting:

(1)   the Work Report of the Board of Directors for Year 2002

(2)   the Work Report of the Supervisory Committee for Year 2002

(3)   the Final Accounting Statement for Year 2002

(4)   the Profit Distribution Proposal for Year 2002

(5)   the Budgetary Report for Year 2003

(6)   the Proposal to Renew Appointment of the Accounting Firms

(7)   the Proposal to Amend the Articles of Association of ZSEPC

(8)   the Proposal to Re-elect the Board of Directors upon Conclusion of Tenure
of Office

(9)   the Proposal to Re-elect the Supervisory Committee upon Conclusion of
Tenure of Office

The announcement of resolutions of the meetings were published in China
Securities Journal, Shanghai Securities News, South China Morning Post (Hong
Kong) and Wen Hui Bao (Hong Kong) dated 2 July 2003.

(2)   The First Extraordinary Shareholders' General Meeting in 2003

The notice to hold the first extraordinary shareholders' general meeting in 2003
was published in China Securities Journal, Shanghai Securities News,
Hongkong-based South China Morning Post and HongKong-based Wen Hui Bao on 2 July
2003. The meeting took place at Da Hua Hotel, Hangzhou on 1 August 2003. The
shareholders and the proxies of shareholders attending the meeting totaled 31,
holding 1,344,169,292 shares of ZSEPC in total, accounting for 66.87% of the
total, which conformed to the requirement of the Company Law and the Articles of
Association.

The meeting discussed and approved the Proposal to Invest in Tankeng Hydropower
Station Project through vote casting.

The resolution of the above meeting was announced in China Securities Journal,
Shanghai Securities News, the Hongkong-based South China Morning Post and the
HongKong-based Wen Hui Bao dated 2 August 2003.

(3)   The Second Extraordinary Shareholders' General Meeting in 2003

The notice to hold the second extraordinary shareholders' general meeting in
2003 was published in China Securities Journal, Shanghai Securities News,
Hongkong-based South China Morning Post and HongKong-based Wen Hui Bao on 16
September 2003. The meeting took place at Zhejiang Grand Hotel, Hangzhou on 16
October 2003. The shareholders and the proxies of shareholders attending the
meeting totaled 25, holding 1,361,088,090 shares of ZSEPC in total, accounting
for 67.72% of the total, which conformed to the requirement of the Company Law
and the Articles of Association.

The meeting discussed and approved the Proposal to Solely Invest in Xiaoshan
Power Plant Gas Turbine Generation Project through vote casting.

The resolution of the above meeting was announced in China Securities Journal,
Shanghai Securities News, the Hongkong-based South China Morning Post and the
HongKong-based Wen Hui Bao dated 17 October 2003.

2. Re-election of Directors and Supervisors

The Board of Directors and the Supervisory Committee of ZSEPC were re-elected
upon expiry of tenure of office. It was approved in the shareholders' general
meeting for 2002 that Sun Yongsen, Wang Xiaosong, Shou Desheng, Xie Guoxing, Hu
Genfa, Cao Lu, Liu Ranxing, Xing Junjie, Li Hua and Li Jianguo were elected
directors of the third Board of ZSEPC; that Qian Zhongwei, Wu Xianquan, Huang
Dongliang, Mao Fugen, Huan Guocang were elected independent directors; and that
Huang Lixin, Fu Muqing, Yang Jianxiong, Sun Chaoyang, Chen Xi, Wang Jiafu and
Huang Guanlin were elected supervisors of the third Supervisory Committee of
ZSEPC, of whom Wang Jiafu and Huang Guanlin represent the employees of ZSEPC.

VII. Report of Board of Directors

1.      Business Operations of ZSEPC

(1)   Scope of Principal Business and Status of Operations

a. Scope of Principal Business

The principal business of ZSEPC is investment in, development and operations of
the power business. As of the end of this report period, the installed
generating capacity owned by ZSEPC on consolidated statement basis amounts to
2,300 MW, of which the equity capacity of ZSEPC amounts to 2,090 MW.

b. Status of Business Operations

In 2003, with the lasting rapid development of the national economy, the power
demand in Zhejiang registered a significant growth, both the social power
consumption and the maximum load reaching a record high. Against the backdrop of
the persistent power shortage, the generating units of ZSEPC sustained
continuous high load operation in a safe and stable manner all year around.
Based on the consolidated statements, the generation totaled 15.896 billion kwh,
the electricity sales amounted to 14.813 billion kwh, increasing by 47.79% and
49.75% respectively in comparison with those in the previous year.

In the same year, the operating records of ZSEPC saw rapid growth. Its annual
principal operating income and principal operating profit went up by 42.68% and
43.68% to RMB 4.738 billion yuan and 1.556 billion yuan respectively. After
allocating the devaluation reserve for long-term investment in China Southern
Securities Co., Ltd ("degreesSouthern Securities"+/-) of RMB 180 million yuan,
the profit realizedby ZSEPC in 2003 totaled RMB 1.076 billion yuan, rising by
32.51% compared with that of 2002. Deducting the minority shareholders' gains/
losses, the net profit realized amounted to RMB 609 million yuan, up by 11.69%
compared with that of 2002. The earnings per share reached RMB 0.30 yuan.

c. Composition of Principal Business

1) Principal Business by Sector

All of the principal operating income and the principal operating profit of
ZSEPC come from production and sales of electric power and energy. Compared with
that of the preceding year, the composition of ZSEPC' principal business
underwent no change.
Sector or    Principal operating Principal operating Gross      Increase/        Increase/        Increase/
Product      income   cost                profit     decrease in      decrease in      decrease in
                                                     rate       principal        principal        gross profit
             (RMB yuan)          (RMB yuan)         operating income operating cost   rate compared
                                                     (%)        compared with    compared with    with that in
                                                                that in         that in          preceding year
                                                                preceding year   preceding year   (%)
                                                                (%)              (%)
Power           4,738,196,944.73    3,130,675,914.14      33.93            42.68            41.78             0.42
Generation
Of which:                   0.00    1,891,168,214.98          -          -100.00            40.55                -
related
party
transaction
Pricing   ZSEPC enters into Annual Coal Supply Contract with the coal supplier each year to set down the
principles   quality, specifications, quantity and price of the coal supply for that year. The coal supplier shall
of the       supply fuel to ZSEPC at aprice neither higher than the price at which it charges other power plants
related      for the same type of fuel, nor higher than the price at which ZSEPC can purchase the same type of
party        fuel in the open market at the time of the price negotiation between both parties. Otherwise, ZSEPC
transaction  shall have the right to purchase fuel at its own discretion.
Necessity    The coal supplier of ZSEPC enjoys preferential price of bulk purchase and stable supply/
and          transportation channels, which ensure the normal operations of the power plants under ZSEPC.
continuity   Especially when the coal market price is on the rise, the long term cooperative relationship between
of the       ZSEPC and the coal supplier is of great importance. ZSEPC will continue the cooperation with the coal
related      supplier on the precondition that the pricing principles remain unchanged.
party
transaction

2) Principal Business by Area
                Area                  Principal Operating Income       Increase/decrease in principal operating
                                                                       income compared with that in preceding
                                       (RMB yuan)                      year (%)
East China Area (Note)                                4,738,196,944.73                                      42.68

Note: Due to unified dispatch in the power grid, ZSEPC's power sales is entered
into the East China power grid.

(2)   Operating Results of Controlling and Non-controlling Subsidiaries

a. Zhejiang Changxing Power Generation Company Limited (ZCPGC)

  ZSEPC holds 65% of the equity interest of ZCPGC.

As at the end of current report period, ZCPGC has a registered capital of RMB
610 million yuan, with its business scope covering generation and sale of
electricity, derivative industries and auxiliary services. It has two 300 MW
generating units, of which Unit 1 went into commercial operation on 15 December
2002, and Unit 2 went into commercial operation in May 2003. Now another two 300
MW generating units are under construction.

ZCPGC achieved principal operating income of RMB 1.067 billion yuan and net
profit of RMB 176 million yuan in 2003.

b. Zhejiang Jiahua Power Generation Company Limited (ZJPGC)

  ZSEPC holds 24% of the equity interest of ZJPGC.

As at the end of the current report period, ZJPGC has a registered capital of
RMB 1,555.19 million yuan, with its business scope covering generation and sale
of electricity, related derivative industries and ancillary services. ZJPGC has
four 600 MW generating units under construction, of which Unit 1 will be
commissioned in late 2004, and Unit 2, 3 and 4 to be commissioned each at an
interval of half year later.

ZJPGC yielded no profit yet in 2003.

(3)   Main Suppliers and Customer

a. Main Suppliers
                   Main Suppliers                                  Percentage out of Total Purchase#%#(c)
Ningbo Fuxing Electric Fuel CompanyLtd                                                             49.53
Zhejiang Fuxing Electric Fuel Company Ltd                                                           43.18
Changxing Changfeng Energy Company Ltd                                    2.46
Jingning Jingfeng Energy Company Ltd                                                                 1.96
Shanghai Steam Turbine Company Ltd                                                                   1.14



b. Customer

Due to the inherent characteristics of the power industry, ZPEPC is the grid
operator and single buyer in Zhejiang power grid. All the electricity generated
by ZSEPC is sold to ZPEPC, with the sale income constituting 100% of the
principal operating income of ZSEPC.



(4)   Operational Problems/Difficulties and Solutions



a. Efforts to minimize the effect of coal price hike

The coal cost makes up more than 50% of the principal operating cost of ZSEPC.
In recent years, the coal price in China has risen continuously as the rapid
development of the downstream industries led to mounting demand for coal
products. ZSEPC attached great importance to the coal price hike and took a
number of measures to control the coal cost. Firstly, the equipment was
retrofitted to reduce the coal consumption for power generation; secondly, ZSEPC
sought to cultivate long term cooperative relationship with the coal supplier to
ensure smooth contract implementation and stable coal price so that the real
coal price for ZSEPC was RMB 386 yuan/ton in 2003, on a par with that of 2002;
thirdly, ZSEPC strengthened its internal management of coal consumption to raise
coal weighing accuracy, reduce transportation loss and mixed coal burning so as
to reduce the coal losses.



b. Efforts to offset the adverse effect of the contractual power tariff drop in
Taizhou Power Plant

  As approved by Document Zhe Jia Shang (2003)36 of Zhejiang Provincial Pricing
Bureau (ZPPB), the contractual power tariff for Taizhou Power Plant under ZSEPC
was lowered by RMB 5 yuan/MWh compared with that of 2002 to RMB 352.42 yuan/MWh
(excluding tax), effective from 1 January 2003. At the same time, due to the
synergic effect of some favorable factors such as the increase in utilization
hours of the generating units, the commissioning of new generators, the
suspension of Zhejiang Power Market and the raise of power tariff for excess
generation, the principal operating income of ZSEPC increased substantially
compared with that of 2002, of which the principal operating income of Taizhou
Power Plant went up by RMB 347 million yuan compared with that of 2002 to RMB
3,161 million yuan, completely offsetting the adverse effect of the downward
adjustment of its contractual power tariff.



2.      Investment

(1)   Use of Proceeds Raised Through Share Listing

The proceeds raised from the listing of ZSEPC's shares in 1997 totaled USD
230.59 million (equivalent to RMB 1,910.8759 million yuan). This fund has been
used in accordance with the Prospectus as follows:
Invested Projects             Amount      (in         Completion Time           Income
                              millions yuan)
Continued construction of          269.6475         Completed in 1998         Achieved sale income of
Unit 8 of Taizhou Power Plant                                                   RMB 746.2831 million yuan
                                                                            in 2003
Acquisition of Xiaoshan Power        903.6985         Completed in 1997         Achieved sale income of
Plant                                                                           RMB 509.6481 million yuan
                            in 2003



As approved in the extraordinary shareholders' meeting in 2001, the remaining
amount of the proceeds raised from share listing was used to:

a.       make equity investment in Zhejiang Jiahua Power Generation Company
Limited (ZJPGC);

b.      supplement the working capital of ZSEPC.

ZSEPC holds 24% of the equity of ZJPGC. The equity investment in ZJPGC is
injected in installments. Based on the Resolution on Increasing Registered
Capital adopted in shareholders' general meeting 2002 of ZJPGC, the registered
capital of ZJPGC would be increased to RMB 1,555,190,000 yuan (As of 31 December
2003, the registered capital of ZJPGC amounted to RMB 555.19 million yuan). Each
shareholder would inject the additional amount in proportion to his equity
investment ratio in conformity with ZJPGC's Equity Capital Injection Plan 2003
in 4 installments in 2003. ZSEPC injected equity capital totaling RMB 240
million yuan to ZJPGC in 2003. The registered capital of ZJPGC has been altered
to RMB 1,555.19 million yuan.

As at the end of the current report period, ZSEPC made cumulative equity capital
injection to ZJPGC amounting to RMB 373.2456 million yuan.

Jiaxing Power Plant Phase II to be built and operated by ZJPGC is now under
construction. It is planned that Unit 1 will be put into operation in the second
half of 2004, and the other 3 units to be commissioned by the end of June 2006.

(2)   Important Investment UsingCapital Not Raised from Share Listing

 a. Zhejiang Changxing Power Generation Co. Ltd (ZCPGC)

 ZSEPC holds 65% of the equity of ZCPGC. As at the end of the current report
period, the registered capital of ZCPGC amounted to RMB 610 million yuan. In
accordance with the shareholding ratio, ZCPGC made equity capital injection
amounting to RMB 396.50 million yuan.

(a) Phase I (2 x 300 MW)

Unit 1 went into commercial operation on 15 December 2002; Unit 2 went into
commercial operation on 22May 2003. In this report period, the total profit
realized amounted to RMB 176 million yuan. In accordance with the shareholding
ratio, the net profit reaped by ZSEPC based on the consolidated statements
amounted to RMB 114 million yuan.

(b) Phase II (2 x 300 MW)

As deliberated and approved by the 5th meeting of the 2nd Board of Directors and
the 2nd shareholders' general meeting of ZCPGC, ZCPGC decided to construct the
extension project containing 2 x 300 MW generating units. As the controlling
shareholder of ZCPGC, ZSEPC convened the 5th meeting of the 2nd Board of
Directors on 21 November 2003 to deliberate and approve (by telecommunication)
investment in the extension project.

Based on the Feasibility Study Report for ZCPGC Project Phase II, the estimated
total dynamic investment of Phase II will be RMB 2.585 billion yuan, including
the project equity accounting for 20% of the total investment, i.e. about RMB
520 million yuan. The capital needed other than the equity will be sourced from
the bank loans. After the project approval is given, the equity capital of the
Project Phase II will be contributed by the shareholders in proportion to their
shareholding ratio. It is estimated that ZSEPC will make a contribution of RMB
338 million yuan to the project equity capital based on its shareholding ratio,
the final total project investment, project equity and the amount of ZSEPC's
contribution to the equity being subject to the approval of the feasibility
study report. As of the end of this report period, ZSEPC made no additional
capital injection to ZCPGC yet.

At present, the pre-construction preparation for Phase II is advancing fast. As
at 31 December 2003, the cumulative expenses incurred for Phase II of ZCPGC
amounted to RMB 154.3535 million yuan.

b. Zhejiang Beihai (Tankeng) Hydropower Station Project

As approved by the 1st meeting of the 3rd Board of Directors and the 1st
extraordinary shareholders' general meeting of ZSEPC in 2003, Zhejiang
Provincial Energy Group Corp., Lishui Municipal State-owned Assets Operation Co.
Ltd and ZSEPC will make joint investment to construct Zhejiang Beihai (Tankeng)
Hydropower Station Project, of which ZSEPC will hold 25% of equity capital. The
Project will erect 3 x 200 MW units with a reservoir volume of 4.19 billion
cubic meters. The Project Proposal has been approved by the relevant government
departments.

Based on the Feasibility Study Report for Tankeng Hydropower Station Project,
the total budgetary project investment amounts to RMB 4.642 billion yuan, of
which 30% equity will be contributed by the investors in proportion to their
investment ratio, 70% will be financed with the bank loans. It is estimated that
ZSEPC will make a contribution of RMB 325 million yuan to the project equity
capital based on its investment ratio, the final total project investment,
project equity and the amount of ZSEPC's contribution to the equity being
subject to the approval of the feasibility study report. As of the end of this
report period, ZSEPC made no capital injection to the Project yet.

The pre-construction preparation for Tankeng Hydropower Station Project is now
under way expeditiously.

c. Xiaoshan Power Plant Gas Turbine Generation Project

As approved by the 3rd meeting of the 3rd Board of Directors (by
telecommunication) and the 2nd extraordinary shareholders' general meeting of
ZSEPC in 2003, ZSEPC will solely invest in Xiaoshan Power Plant Gas Turbine
Generation Project, which is also referred to as Xiaoshan Power Plant Phase II
to erect 2 sets of 300 MW gas-steam combined cycle generating units combusting
the natural gas from the East Sea, in addition to the existing 2 x 130 MW
coal-fired generating units of Xiaoshan Power Plant Phase I wholly owned by
ZSEPC. The Project is a downstream key gas consumption project to go with the
East Sea gas development project. Its Project Proposal has been approved by the
relevant government departments.

Based on the Feasibility Study Report for Gas Turbine Generation Project, the
planned project investment totals RMB 2.576 billion yuan, of which 25% equity
will be paid in by ZSEPC solely, 75% will be financed with the bank loans. As of
31 December 2003, the project cost incurred by Xiaoshan Power Plant amounted to
RMB 10.2483 million yuan.

The pre-construction preparation for Xiaoshan Power Plant Gas Turbine Generation
Project is now under way expeditiously.

d. Zheneng Lanxi Power Generation Co. Ltd

As approved by the 6th meeting of the 3rd Board of Directors (by
telecommunication) and the 1st extraordinary shareholders' general meeting of
ZSEPC in 2004, Zhejiang Provincial Energy Group Corp., Lanxi Municipal Power
Development Investment Co. Ltd and ZSEPC will co-finance to establish Zheneng
Lanxi Power Generation Co. Ltd to invest in construction and future operation of
Zheneng Lanxi Power Plant, of which ZSEPC will hold 25% of equity capital. The
Project will erect 4 x 600 MW units.

Based on the Feasibility Study Report for Zhejiang Zheneng Power Plant Project,
the total budgetary dynamic project investment amounts to RMB 11.025 billion
yuan, of which 20% i.e. RMB 2.2 billion yuan will be equity capital, the rest
will be financed with the bank loans. It is estimated that ZSEPC will make a
contribution of RMB 550 million yuan to the project equity capital based on its
investment ratio, the final total project investment, project equity and the
amount of ZSEPC's contribution to the equity being subject to the approval of
the feasibility study report.

The registered capital of Zheneng Lanxi Power Generation Co. Ltd will be
contributed by the shareholders in proportion to their investment ratio in
installments consistent with the project progress. The initial registered
capital of Zheneng Lanxi Power Generation Co. Ltd will be RMB 132 million yuan.
So the first installment fo ZSEPC's contribution will be RMB 33 million yuan. As
of the end of this report period, ZSEPC made no capital injection to the Project
yet.

The pre-construction preparation for Zheneng Lanxi Power Plant Project is now
under way expeditiously

3.      Analysis of Financial Position, Operating Results and Cash Flow

(1)   Analysis of Financial Position

a. Total asset

The total asset of ZSEPC in the current report period stands at RMB 8.680
billion yuan, which increased by RMB 780 million yuan in comparison with the
amount of RMB 8.602 billion yuan in 2002, representing no significant changes.

b. Shareholders' equity

The shareholders' equity in the current report period amounts to RMB 6.009
billion yuan, which increased by RMB 124 million yuan as opposed to RMB 5.885
billion yuan in 2002. For detailed reasons of the change, refer to Item 3 of
Section II herein entitled 'degreesChanges in Shareholders' Equity in Current
Report period'+/-.

(2)   Analysis of Operating Results

a. Principal Operating Income

The principal operating income realized by ZSEPC grew by 42.68% to RMB 4.738
billion yuan in the current report period compared with that of the preceding
year, due to an increase of 49.57% in the amount of electricity sale.



The increase in the electricity sales resulted from the following factors:

(a) ZCPGC's Unit 1 coming into operation on 15 December 2002 and Unit 2 coming
into operation on 22 May 2003 increased ZCPGC's electricity sales by 3.427
billion kwh compared with that in the previous year;

(b) Against the backdrop of continuous rapid economic development and lasting
heat wave and drought giving rise to unprecedented power shortage in Zhejiang,
ZSEPC seized the market opportunity to utilize the potential of the available
generators for more power generation and sales to the extent that production
safety is ensured.


Power Plants wholly         Electricity Sales (in billion kwh)         Principal Operating Income
owned or controlled by
ZSEPC                                                                     (in RMB billion yuan)
                               2003      2002   Increase/Decrease     2003    2002   Increase/Decrease
Taizhou Power Plant           96.77     82.76              16.93%    31.61   28.14              12.33%
Xiaoshan Power Plant        16.55     15.75               5.08%     5.10    4.89               4.29%
ZCPGC                         34.81      0.53            6467.92%    10.67    0.18            5827.78%

                                       (Note)                          (Note)
Total                        148.13     99.04              49.57%    47.38   33.21              42.68%

Note: Unit 1 of ZCPGC went into commercial operation in December 2002 and Unit 2
in May 2003.

b. Principal Operating Profit

  The principal operating profit of ZSEPC increased by 43.68% to RMB 1.556
billion yuan in the current report period compared with that of 2002, which is
mainly attributable to the increase in the principal operating income.

c. Returns on Investment

  The returns on investment of ZSEPC decreased by RMB 180 million yuan to RMB
C147 million yuan in this report period compared with that of 2002, which is
mainly due to the allocation of the devaluation reserve for long-term investment
amounting toRMB 180 million yuan after Southern Securities was taken over by
the government.

d. In this report period, the non-principal operating profit and the net value
of the non-operating gains/losses of ZSEPC underwent no significant changes.
ZSEPC hadno subsidy income.

e. Net Profit

  The net profit realized by ZSEPC in this report period increased by 11.69% to
RMB 609 million yuan compared with that of 2002. The increase of the net profit
is less than the increase of the principal operating profit mainly because of
the allocation of the devaluation reserve for long term investment and the
deduction of the minority shareholders' equity.

(a) the lump-sum housing subsidy and the service length subsidy totaling RMB
50.44 million yuan were recorded as the current administrative expenses.

(b) Zhejiang Changxing Power Generation Company's establishment cost of RMB
53.22 million yuan was recorded as the current administrative expenses.

d. The non-operating cost increased by RMB 22.37 million yuan in the current
report period compared with that of the preceding year, which is mainly
attributable to the net losses on retirement and transfer of fixed assets.

e. The increase in income tax payment is due to the fact that from 2002 onwards,
ZSEPC no longer enjoys the preferential treatment of the local income tax refund
in accordance with the relevant stipulations of Ministry of Finance.

(3) Analysis of Cash Flow

Net increase in cash and cash equivalents:

The net increase in cash and cash equivalents amounted to RMB C37,397,618.65
yuan, of which the net cash flow generated from the operating activities was RMB
1,416,710,611.72 yuan, the net cash flow generated from the investment
activities was RMB C905,770,778.89 yuan, and the net cash flow generated from
the financing activities was RMB C548,244,426.03 yuan.

4.      Loss of Corporate Assets

(1) Allocation of Devaluation Reserve for Long-term Investment

  As approved in the 7th meeting of the 2nd Board of Directors of ZSEPC, ZSEPC
made capital contribution of RMB 220 million yuan to acquire 200 million shares
of Southern Securities, accounting for 5.78% of the total stock of the latter.
As of the end of 2002, the book investment cost of ZSEPC amounted to RMB 220
million yuan.

  Due to its disorderly management, weak internal control and misoperation, the
financial position of Southern Securities deteriorated so much that China
Securities Regulatory Commission and Shenzhen Municipal Government issued a
joint announcement to take over the administration of Southern Securities. In
the light of the aforesaid situation, ZSEPC decided to allocate devaluation
reserve for this long-term investment in accordance with the relevant accounting
standards.

  As Southern Securities is now under thorough auditing and investigation, it is
impossible to make accurate allocation of the devaluation reserve for long-term
investment before release of the auditing result. For accounting soundness, it
is decided for ZSEPC to allocate the devaluation reserve for long-term
investment amounting to RMB 180.15 million yuan based on the auditing
information provided by the auditor of Southern Securities.

(2) Retirement and Inventory Loss of Corporate Assets

  In 2003, technical renovation and expiry of equipment service life led to net
losses on retirement of fixed assets of ZSEPC amounting to RMB 29.4416 million
yuan; equipment replacement and natural depletion led to net losses on
retirement and inventory loss of current assets amounting to RMB 649,400 yuan.
The above losses has been examined and confirmed by Zhejiang Pan-China Certified
Public Accountants.

5.      Changes in Accounting Policies and Accounting Assumptions

(1)The cash dividends in the profit distribution proposal made by the Board of
Directors between the balance sheet date of the reported year and the approval
of the financial statements was previously treated by ZSEPC as post-adjustment
and recorded as'degrees dividends payable'+/-. Now this will be disclosed
separately in the notes to financial statements without accounting treatment in
line with the relevant stipulations. Through retroactive adjustment, this
accounting policy change led to adjustment of the beginning amount of retained
earnings and other beginning amounts of relevant accounting items. The columns
of the amount in previous year in the statement of profit and profit
distribution were filled in with the adjusted figures. The cumulative impact of
the above accounting policy change amounts to RMB 498,480,000.00 yuan. Due to
this accounting policy change, the dividends payable at the end of 2002 was
decreased by RMB 498,480,000.00 yuan; the retained earnings/undistributed profit
at the beginning of 2003 was increased by RMB 498,480,000.00 yuan; the beginning
amount of undistributed profit in the statement of profit and profit
distribution for the previous year was increased by RMB 502,500,000.00 yuan.

(3)   In line with Document Cai Kuai (2003)10 of the Ministry of Finance, for
the external investment after the issuance of this document, the difference by
which ZSEPC's initial investment cost is less than its equity share of the
investee is recorded as 'degreescapital reserve-equity investment reserve'+/-.
For the external investment before the issuance of the aforesaid document that
has been recorded as 'degreeslong-term equity investment-equity investment
difference'+/-, no retroactive adjustment will bemade, with its balance being
treated in line with the old accounting policy until the finish of amortization.

The Board of Directors think that the above changes in the accounting policy and
accounting assumptions were made based on the Chinese accounting standards,
systems and related explanations, and that they have no substantive effect on
the Company.

6.      Impact of Changes in Operational Environment, Policies and Regulations
on Production and Operations of ZSEPC

(1)   Zhejiang Power Market

As Zhejiang province suffered severe power shortage, Zhejiang Power Market
Dispatching and Trade Center suspended operation of the power market in
accordance with the Market Code on 2 July 2003. Up to now, the market has not
been re-opened. The electricity sale is settled at the contractual price.

(2)   East China Power Market

The State Electricity Regulatory Commission (SERC) issued Notice on Pilot East
China Power Market to carry out the pilot power market in East China, which will
cover Shanghai, Jiangsu, Zhejiang, Anhui and Fujian. Subsequently, SERC issued
Document Ban Shi Chang No.(2004)3 entitled Notice on Preparation for Mimic
Operation of East China Power Market taking into account the realities of East
China power grid and general arrangement for establishment of the pilot East
China power market. In the light of the Notice, the mimic operation of East
China Power Market will be commenced on 18 May 2004. The market code governing
the market operation will be set forth before mid-April 2004.

As all the power plants owned or controlled by ZSEPC are located in the area
covered by East China power market, ZSEPC will closely follow and study the
operating code of East China power market. In view of the power shortage in East
China at present, it is forecasted that the establishment of East China power
market will have minimal impact on ZSEPC in the near future.

(3)   Power Tariff

Based on Document Zhe Jia Shang No.(2003)445 Notice on Adjustmentof Power
Tariff Applicable to ZPEPC-dispatched Coal-fired Power Plants from ZPPB, the
tariff rate applicable to the ZPEPC-dispatched coal-fired power plants will be
raised by 0.007 yuan/kwh (including tax), effective from 1 January 2004. This
applies to Taizhou Power Plant, Xiaoshan Power Plant and ZCPGC. This move will
reduce the cost pressure brought about by the coal price hike.

(4)   Coal Price

The market price of coal continues to rise with the mounting coal demand. It was
proposed by the relevant governmental departments in the national coal order
placing meeting in 2004 that the coal price should increase by RMB 12 yuan/ton
on average nationwide. But the coal price rise sustained by ZSEPC is still
greater than this amount. In addition, coal transportation cost went up by a
wide margin, which contributed to coal purchase cost of ZSEPC ( based on coal
price to power plant). Now ZSEPC is negotiating with the coal supplier about the
coal price for 2004, with the agreement notyet signed.

(5)   Emission Charges

Based on Emission Charges Standards Management Method jointly issued by the
State Planning Commission, the Ministry of Finance and the State Agency of
Environmental Protection, the emission charges of sulfur dioxide will be
collected at a standard of RMB 0.2 yuan per one unit of pollutants for the first
year, RMB 0.4 yuan per unit for the second year (effective from 1 July 2004) and
RMB 0.6 yuan per unit for the third year (effective from 1 July 2005). The
emission of NOx is not charged before 1 July 2004, but will be charged at RMB
0.6 yuan per one unit of pollutants after 1 July 2004. The raising of the charge
standards will increase the cost expenditure of ZSEPC.

7.      The financial statements of ZSEPC for 2003were audited by Zhejiang
Pan-China Certified Public Accountants and PricewaterhouseCoopers Zhong Tian
CPAs Co. Ltd. Both produced standard Auditor's Reports without reservations. The
Chinese certified accountants Wang Yuehao, Chen Shu and Huang Yuanxi produced
Auditor's Report No. Zhe Tian Kuai Shen (2003)383 in its standard form without
reservations.

8.      Day-to-day Work of Board of Directors

(1)   Board Meetings and Resolutions

Nine board meetings were held in 2003. The subjects of the meetings and
resolutions formed are as follows:

a. The 24th meeting of the 2nd board of directors of ZSEPC was held on 26 March
2003. The meeting discussed and approved:

(a) the Work Report of the Board of Directors 2002;

(b) the General Manager's Work Report 2002;

(c) the Final Accounting Statement 2002, and the Statement on Changes in
Accounting Policies, Accounting Assumptions and Correction of Important
Accounting Errors;

(d) the Annual Report 2002 and itssummary;

(e) the Profit Distribution Proposal for 2002;

(f) the proposal to allocate four reserves;

(g) the Financial Budget for 2003;

(h) the proposal to renew appointment of the accounting firms;

(i) the proposal to change shareholdersof Zhejiang Natural Gas Development Co.
Ltd (ZNGDC), which agrees to let China Sea Oil Corp. transfer its 37% equity of
ZNGDC to its wholly owned subsidiary C Zhonghai Oil Gas & Power Generation Co.
Ltd; and

(j) the proposal to change shareholders of ZCPGC, which agrees to let ZPEPDC
transfer its 20% equity of ZCPGC to Zhejiang Hongfa Energy Co. Ltd.

The resolutions formed in this board meeting were announced in China Securities
Journal, Shanghai Securities News, Hongkong-based South ChinaMorning Post and
Hongkong-based Wen Hui Bao dated 28 March 2003.

b. The 25th board meeting of ZSEPC was held through telecommunication on 21
April 2003. The meeting discussed and approved the Quarterly Report for the
first quarter of 2003, which was published in China Securities Journal, Shanghai
Securities News, Hongkong-based South China Morning Post and Hongkong-based Wen
Hui Bao dated 23 April 2003.

c. The 26th board meeting of ZSEPC was held on 28 May 2003. The meeting
discussed and approved the following:

(a) the proposal to amend the Articles of Association of ZSEPC;

  Article 97 of the Articles of Association reads 'degreesthe Board of Directors
is made up of 17 directors, of which 3 are independent directors'+/-. It is
amended to read 'degreesthe Board of Directors is made up of 15 directors, of
which 5 are independent directors'+/-.

(b) the proposal to re-elect the Board of Directors upon expiry of tenure of
office;

Upon expiry of the tenure of the second Board of Directors of ZSEPC, the
nomination and election procedure prescribed in the Articles of Association was
followed and votes were taken to elect the following persons to be the
candidates of the third Board of Directors of ZSEPC: Sun Yongsen, Wang Xiaosong,
Shou Desheng, Xie Guoxing, Hu Genfa, Cao Lu, Li Hua, Xing Junjie, Liu Ranxing,
Li Jianguo, Wu Xianquan, Qian Zhongwei, Huang Dongliang, Huan Guocang and Mao
Fugen, of whom Wu Xianquan, Qian Zhongwei, Huang Dongliang, Huan Guocang and Mao
Fugen are candidates of independent directors.

(c) the proposal to hold the shareholders' general meeting for 2002.

The resolutions formed in this board meeting were announced in China Securities
Journal, Shanghai Securities News, Hongkong-basedSouth China Morning Post and
Hongkong-based Wen Hui Bao dated 30 May 2003.

d. The 1st meeting of the 3rd Board of Directors of ZSEPC was held on 30 June
2003. The meeting discussed and approved:

(a) the proposal to elect Chairman of Board of Directors of ZSEPC, electing Sun
Yongsen to be Board Chairman;

(b) the proposal to elect Vice Chairman of Board of Directors of ZSEPC, electing
Wang Xiaosong to be Vice Chairman;

(c) the proposal to staff ad hoc committees under the 3rd Board of Directors as
follows:

  Strategic Committee: Sun Yongsen (Director), Wang Xiaosong, Qian Zhongwei, Xie
Guoxing, Wu Xianquan and Shou Desheng

  Auditing Committee: Huang Dongliang (Director), Mao Fugen, Hu Genfa, Xing
Junjie and Huan Guocang

 Remuneration & Appraisal Committee: Qian Zhongwei (Director), Huang Dongliang,
Wu Xianquan, Mao Fugen, Liu Ranxing, Cao Lu, Li Hua and Li Jianguo

(d) the proposal to appoint General Manager of ZSEPC, appointing Shou Desheng as
General Manager;

(e) the proposal to appoint Deputy General Managers and Chief Accountant,
appointing Wu Yaozhong, Chen Juemin and Xia Jinghan as Deputy General Managers
and Hu Senjian as Chief Accountant of ZSEPC;

(f) the proposal to appoint Secretary to Board of Directors of ZSEPC, appointing
Xia Jinghan as Secretary to Board of Directors;

(g) the proposal to invest in Tankeng Hydropower Station Project using ZSEPC's
own capital to hold 25% of the equity of Tankeng Hydropower Station; and

(h) the proposal to hold the first extraordinary shareholders' general meeting
in 2003.

The resolutions formed in this board meeting were announced in China Securities
Journal, Shanghai Securities News, Hongkong-based South China Morning Post and
Hongkong-basedWen Hui Bao dated 2 July 2003.

e. The 2nd meeting of the 3rd Board of Directors was held through
telecommunication on 8 August 2003. The following resolutions were formed in the
meeting:

(a) The Interim Report 2003 and its summary were discussed and approved for
release to the public;

(b) It is agreed that no interim profit distribution for 2003 will be made, nor
conversion of common reserves into bonus shares.

The Interim Report 2003 was published in China Securities Journal, Shanghai
Securities News, Hongkong-based South China Morning Post and Hongkong-based Wen
Hui Bao dated 12 August 2003.

f. The 3rd meeting of the 3rd Board of Directors was held through
telecommunication on 12 September 2003. The following resolutions were formed in
the meeting:

(a) It is agreed that ZSEPC will solely invest in Xiaoshan Power Plant Gas
Turbine Generation Project;

(b) It is agreed that the proposal to solely invest in Xiaoshan Power Plant Gas
Turbine Generation Project will be referred to the second extraordinary
shareholders' general meeting for review.

The resolutions formed in this board meeting were announced in China Securities
Journal, Shanghai Securities News, Hongkong-based South China Morning Post and
Hongkong-based Wen Hui Bao dated 16 September 2003.

g. The 4th meeting of the 3rd Board of Directors was held through
telecommunication on 29 October 2003. The meeting discussed and approved

(a) the Quarterly Report of ZSEPC for the 3rd quarter of 2003;

(b) Stipulations on Management of Relationship between ZSEPC Investors

The resolutions formed in this board meeting were announced in China Securities
Journal, Shanghai Securities News, Hongkong-based South China Morning Post and
Hongkong-based Wen Hui Bao dated 31 October 2003.

h. The 5th meeting of the 3rd Board of Directors was held through
telecommunication on 21 November 2003. The following resolutions were adopted in
the meeting:

(a) It is agreed for ZCPGC to construct Changxing Power Plant Phase II;

(b) It is agreed for ZCPGC to pay for the pre-construction cost to ensure smooth
progress of the pre-construction preparation including site leveling and supply
of electricity, water, telecommunication and transportation facilities;

(c) In view of the fact that the project equity of Phase II will be contributed
by the same shareholders by adding their capital injection in proportion to
their shareholding ratio, the Board of Directors of ZSEPC will review the
additional capital injection again after the project approval is obtained.

The resolutions formed in this board meeting were announced in China Securities
Journal, Shanghai Securities News, Hongkong-based South China Morning Post and
Hongkong-based Wen Hui Baodated 25 November 2003.

i. The 6th meeting of the 3rd Board of Directors was held through
telecommunication on 19 December 2003. The following resolutions were adopted in
the meeting:

(a) It is agreed that ZSEPC will invest in Zheneng Lanxi Power Generation Co.
Ltd (ZLPGC) and contribute 25% of the equity of ZLPGC.

(b) It is agreed that, in conformity with the resolution of the board meeting
and the shareholders' general meeting of ZLPGC, the capital injection will be
made in installments consistent with the project progress; and that the initial
installment of ZSEPC will amount to RMB 33 million yuan as required by ZLPGC to
put in place its initial registered capital.

(c) It is agreed to refer this proposal to the shareholders' general meeting for
review, with the details in relation to holding of the shareholders' general
meeting to be determined by the Board Chairman.

The resolutions formed in this board meeting were announced in China Securities
Journal, Shanghai Securities News, Hongkong-based South China Morning Post and
Hongkong-based Wen Hui Bao dated 23 December 2003.

(2)   Implementation of Resolutions of Shareholders' General Meeting by the
Board of Directors

In the current report period, the Board ofDirectors of ZSEPC carried out the
various resolutions passed in the shareholders' general meeting in earnest,
focusing their work on the various targets set by the shareholders' general
meeting. Thanks to the joint effort of the whole staff, ZSEPC over-fulfilled the
various targets laid down in the shareholders' general meeting, maintained
production safety and workforce stability, and made breakthroughs in power
project investment.

All the cash dividends of ZSEPC have been distributed. Thedividends payable to
the domestic investment shareholders were directly transferred to their
designated accounts; the dividends payable to B share holders have been
distributed by China Securities Registration & Settlement Company Ltd Shanghai
Branch, the agent trusted by ZSEPC for distribution of dividends to B share
holders.

9. Profit Distribution Proposal

According to whichever is lower of the financial statements 2002 audited by the
domestic or the international accounting firms, based on the after-tax profit of
the Parent Company as audited by the domestic amounting firm amounting to RMB
545,474,480.11 yuan less allocation of 10% statutory surplus reserve and 10%
statutory common welfare reserve totaling RMB 109,094,896.02 yuan,plus the
Parent Company's beginning undistributed profit amounting to RMB 812,457,756.14
yuan, then the distributable profit of ZSEPC in 2002 is equal to RMB
1,248,837,340.23 yuan. Taking 2.01 billion shares at the end of 2002 as a base
figure, ZSEPC proposed to distribute cash dividends of RMB 2.48 yuan per 10
shares (including tax), totaling RMB 498,480,000.00 yuan.



10. Other Matters



XXXXX

VIII. Report of Supervisory Committee



1.      Meetings of Supervisory Committee

Three supervisory committee meetings were convened in the current report period,
as follows:

(1)   The 8th meeting of the 2nd supervisory committee was held on 26 March
2003, which discussed and approved:

a. The supervisory committee's Work Report for 2002

b. The Annual Report 2002 and its summary

The supervisory committee deems that the Annual Report 2002 and its summary are
true, accurate and complete, free of false statement, material omissions or
serious misleading information; that the Statement on Changes in Accounting
Policies, Accounting Assumptions and Correction of Important Accounting Errors
is agreeable; that the Auditor's Reports in their standard form without
reservations produced by both the domestic and the international accounting
firms give a true and fair account of the financial position and operating
results of ZSEPC; and that ZSEPC has been operating by the law with no problem
with its financial position, use of the proceeds raised from share listing,
purchase of assets and related party transactions.

The resolutions formed in this Supervisory Committee meeting were announced in
China Securities Journal, Shanghai Securities News, Hongkong-based South China
Morning Post and Hongkong-based Wen Hui Bao dated 28 March 2003.

(2)   The 9th meeting of the 2nd Supervisory Committee was held on 28 May 2003.
The meeting discussed and approved the proposal to re-elect supervisory
committee members upon conclusion of their tenure of office.

   Upon conclusion of the tenure of the second Supervisory Committee of ZSEPC,
the following persons were elected to be the candidates of the third Supervisory
Committee of ZSEPC representing shareholders and employees after taking votes in
compliance with the nomination and election procedure prescribed in the Articles
of Association: Huang Lixin, Yang Jianxiong, Sun Chaoyang, Fu Muqing, Chen Xi,
Wang Jiafu and Huang Guanlin, of whom Wang Jiafu and Huang Guanlin are
representatives of the employees.

The resolutions formed in this Supervisory Committee meeting were announced in
China Securities Journal, Shanghai Securities News, Hongkong-based South China
Morning Post and Hongkong-based Wen Hui Bao dated 30 May 2003.

(3)   The 1st meeting of the 3rd Supervisory Committee of ZSEPC in 2003 was held
on 30 June 2003. The meeting discussed and approved the proposal to elect
convener of the Supervisory Meeting, electing Huang Lixin to be the convener of
the Supervisory Committee meeting.

The resolutions formed in this Supervisory Committee meeting were announced in
China Securities Journal, Shanghai Securities News, Hongkong-based South China
Morning Post and Hongkong-based Wen Hui Bao dated 2 July 2003.

2.      Independent Opinionof Supervisory Committee

(1)    Supervision of ZSEPC's Operation Within the Law

In 2002, with the power bestowed by the Company Law and the Articles of
Association, the Supervisory Committee exercised supervision over the
organizational structure of the board, the proceeding of the board meetings, the
resolutions, the board's execution of the resolutions of the shareholders'
general meeting and the performance of the senior management, and formed the
opinion that ZSEPC carried out its operations in accordance with the relevant
laws/ regulations and the administrative rules/systems.

The Board of Directors of ZSEPC was re-elected in 2003 upon expiry of tenure.
Three ad hoc committees, namely the Strategic Committee, the Auditing Committee
and the Remuneration & Appraisal Committee under the new Board were established.
Independent directors make up 1/3 of the Board. They predominate in the Auditing
Committee and the Remuneration & Appraisal Committee and act as conveners. The
organizational structure of the Board conforms to the Rules for Governance of
Listed Companies, with its internal control mechanism further refined.

The Supervisory Committee deems that the Board of Directors and the management
team of ZSEPC the performed their duties in accordance with the law, regulations
and the Articles of Association and carried out the various resolutions with the
aim to maximize the interest of the shareholders.

(2)    Supervision of Financial Position of ZSEPC

The Supervisory Committee deems examination of the corporate financial position
as its first and foremost responsibility. It scrutinized the regular financial
statements of ZSEPC, listened to the reports given by the management team and
gained a full accurate knowledge of the financial position of ZSEPC.

The Committee thinks that the rapid increase in the operating results of ZSEPC
is not only due to the power shortage in Zhejiang. But more importantly, it is
due to ZSEPC's serious efforts to adhereto production safety, focus on economic
benefit, strengthen corporate management, further improve equipment health,
expedite investment in power construction and asset expansion.

The Supervisory Committee is of the opinion that the Financial Statements of
ZSEPC for 2003 gives a true, accurate and complete account of the financial
position and operating results of ZSEPC. Both Zhejiang Pan-China Certified
Public Accountants and PricewaterhouseCoopers Zhong Tian CPAs Co. Ltd produced
the Auditor's Reports in their standard forms with no reservations.

(3)    Supervision of Important Decisions

The Supervisory Committee attended each Board meetings and shareholders' general
meetings as observers to exercise pre-, mid- and post-supervisionof the
important decisions with good effectiveness.

In 2003, ZSEPC seized the opportunity to make external investment to hold
controlling or non-controlling shares of power plants with good potential. The
Supervisory Committee is of the opinion that power generation is the principal
business of ZSEPC so extension of generating capacity is the main means for
ZSEPC to increase income. Against the backdrop of rapid economic development and
severe power shortage in Zhejiang, ZSEPC got hold of the favorable opportunity
to participate in construction of new generators with good efforts so as to lay
the foundation and provide potential for its future development.

(4)    Supervision of Use of Proceeds Raised from Share Listing

As approved in the extraordinary shareholders' meeting in 2001, the remaining
amount of the proceeds raised from share listing was used to:

a.  make equity investment in Zhejiang Jiahua Power Generation Company Limited
(ZJPGC);

b. supplement the working capital of ZSEPC.

Based on the Resolution on Increasing Registered Capital adopted in shareholders
' general meeting 2002 of ZJPGC, ZSEPC injected equity capital totaling RMB 240
million yuan to ZJPGC in 2003 as per its investment ratio of 24%. As of the end
of 2003, the registered capital of ZJPGC amounted to RMB 1,555.19 million yuan,
to which ZSCPC has made cumulative capital contribution amounting to RMB 373.25
million yuan.

The construction for 4 x 600 MW generating units of ZJPGC has been going ahead
smoothly since commencement, thanks to the joint effort of the owner and the
constructor to improve construction management and tap construction potential
while ensuring safety, quality and cost control. The original plan to commission
the first generating unit at the end of 2004 can be advanced, and so can the
other generating units. The Supervisory Committee believes that commissioning of
the 4 x 600 MW generating units one after another will be the new profit engines
of ZSEPC.

(5)    Supervision of Related Party Transaction

The Supervisory Committee is of the opinion that the related parties
transactions between ZSEPC and the related parties in the past year were
governed by the agreements or contracts between them. Both sides exercise their
rights and fulfill their obligations in strict accordance with the agreement/
contract, to no detriment of the interest of ZSEPC and the interest of the
medium and small shareholders of ZSEPC. There was no inside transactionsbetween
them.

(6)    Explanation About Allocation of Long-term Investment Devaluation Reserve
and Losses on Retirement of Corporate Assets

 a. Allocation of Long-term Investment Devaluation Reserve

Southern Securities in which ZSEPC investedwas taken over by the government on
2 January 2004 due to its disorderly management, weak internal control and
mis-operation leading to deteriorating financial position. The Supervisory
Committee considers that ZSEPC' move to allocate devaluation reserve for this
long-term investment amounting to RMB 180 million yuan before release of the
auditing result conforms to the principle of accounting soundness.

The Supervisory Committee further considers that ZSEPC should draw a lesson from
the incident of Southern Securities, do thorough prior investigation and make
prudent investment decisions so as to safeguard the interest of ZSEPC and its
shareholders.

 b. Losses on Retirement of Corporate Assets

  In 2003, technical renovation and expiry of equipment service life led to net
losses on retirement of fixed assets of ZSEPC amounting to RMB 29.4416 million
yuan; equipment replacement and natural depletion led to net losses on
retirement and inventory loss of current assets amountingto RMB 649,400 yuan.

The Supervisory Committee considers that it is reasonable for ZSEPC to take
stock of the fixed assets and the inventory items at year end and dispose of
retired assets in accordance with the prevailing accounting system. The above
losses has been examined and confirmed by Zhejiang Pan-China Certified Public
Accountants.

IX. Important Events

1.  Major Events of Litigation or Arbitration

ZSEPC was not subjected to any major events of litigation or arbitration during
the current report period.

2.  Purchase/Sale of Assets and Acquisition/Merger

ZSEPC carried out no purchase/sale of assets or acquisition/merger in the
current report period.

3.  Important Related Party Transactions

(1)   Purchase of Goods
Related Party      Transaction   Pricing            Amount        Settlement Method Percentage out
                                 Principle                                          of Same Type of
                                                 (RMB Yuan)                        Transaction
Zhejiang Fuxing    Coal purchase Note 1            880,824,043.31 Based on the                49.53%
Electric Power                                                    actual volume of
Fuel Company Ltd   annual purchase
Ningbo Fuxing      Coal purchase Note 1          1,010,344,171.67 Based on the                43.18%
Electric Power                                                    actual volume of
Fuel Company Ltd                                                  annual purchase
Changxing          Purchase of   Agreement          50,209,183.38 Based on the                 2.46%
Changfeng Energy   fuel oil and  price                            actual volume of
Co. Ltd            production                                     annual purchase
                   material      (Note 2)
Jingning Jingfeng  Purchase of   Agreement          39,933,021.49 Based on the                 1.96%
Energy Co.Ltd      production    price                            actual volume of
                   material                                       annual purchase
                                 (Note 2)

Note 1: The fuel needed by ZSEPC for power generationis supplied by Zhejiang
Fuxing Electric Power Fuel Company Limited (ZFEPFC) (of which ZSEP has
non-controlling shares) and its subsidiary Ningbo Fuxing Electric Power Fuel
Company Limited (NFEPFC), who entered into the Fuel Supply Agreement with ZSEPC
in May 1997. The Agreement is valid for 20 years. Pursuant to the Agreement,
both parties shall agree an Annual Coal Supply Contract each year to determine
the quality, specifications, quantity and price of the coal supply for that
year. ZFEPFC and NFEPFC shall supply fuel to ZSEPC at a price neither higher
than the price at which it charges other power plants for the same type of fuel,
nor higher than the price at which ZSEPC can purchase the same type of fuel in
the open market at the timeof the price negotiation between both sides.
Otherwise, ZSEPC shall have the right to purchase fuel at its own discretion.

Note 2: ZCPGC signed Agreement on Trusted Purchase and Custody with Changxing
Changfeng Energy Co. Ltd (whose day-to-day management involves ZCPGC) and
Jingning Jingfeng Energy Co. Ltd (whose day-to-day management involves ZCPGC) on
28 December 2002 and 25 March 2003 respectively. Based on the Agreements, ZCPGC
purchased fuel oil and production material from the two companies in this report
period. The two agreements will be valid until 30 September 2003. Starting from
1 October 2003, ZCPGC will make purchase on its own.



(2) Supply of Labor Service
Related Party      Transaction   Pricing            Amount    Settlement Method Percentage out
                                 Principle                                          of Same Type of
                                                  (RMB Yuan)                        Transaction
Taizhou City     (Note 3)      Agreement          32,009,871.00 Based on annual             23.09%
Haitian Electric                 Price                            project
Power Engineering                                                 construction
Corp.        completed

Note 3: Taizhou Power Plant, Xiaoshan Power Plant and ZCPGC under ZSEPC paid RMB
32,009,871.00 yuan to Taizhou City Haitian Electric Power Engineering Corp.
(whose day-to-day managementinvolves Taizhou Power Plant) for overhaul of
auxiliary equipment and common facilities.

(3) Credits and Debts

a. Repayment of Long-term Liabilities

ZSEPC signed a Liabilities Contract with the creditor, namely ZPEPDC in 1997,
whereby ZSEPC borrowed a loan for construction of the Phase IV Project (Units 7
and 8) for 10 years. It is specified in the Contract that ZSEPC shall repay the
principal and interest in installments to ZPEPDC after completion of the trial
production of the new generating units. Then ZSEPC and the creditor made some
amendment to the terms and conditions of Liabilities Contract in March 1999. And
they signed Supplementary Agreement to Liabilities Contract subsequently on 22nd
March 1999, which re-adjusted and confirmed the actual investment, the liability
ratio and the amount of liabilities of the creditor. On 29 December 2000, ZSEPC,
ZPEPDC and Shanghai Pudong Development Bank Hangzhou Branch entered into Trust
Loan Contract, by which the remaining debt owing to ZPEPDC up to the end of 2000
was transformed to 4-year-term trust borrowing totaling RMB 317,892,000 yuan.
After repayment, the amount of this long-term liability as at the end of 2001
was RMB 739,761,000.00 yuan. Based on Agreement on Liabilities Repayment in 2001
and Thereafter signed by the 3 parties on 28 February 2001, the amount of the
repayment in 2003 and the changes are as follows:


                        Item                                               Amount (RMB yuan)
Total amount of liabilities at end of 2001                                    238,419,000.00
Amount repaid in 2002                                                          79,473,000.00
Amount repaid in 2003                                            79,473,000.00
Transferred to long-term liabilities due within 1                              79,473,000.00
year
Amount of long-term liabilities as at end of 2003                                       0.00

b. Trust loans

(a) ZSEPC entrusted Industrial & Commercial Bank of China, Hangzhou Qingchunlu
Branch to provide trust loans to Zhejiang Changxing Power Generation Company
Limited.
    Time          Loan Amount         Term    Repayment Time   Annual      Income
            Interest
              (RMB million yuan)                               Rate
30/01/2002            50             1 year      29/01/2003       5.85%    Total income from trust
25/09/2002            50             1 year      24/09/2003       5.31%    loan amounts to RMB
25/10/2002            50             1 year      24/10/2003       5.31%    13.1253 million yuan.
25/12/2002            50             1 year   Advanced to 18/     5.31%    After deducting the bank
                                                  12/2003                  loan income at the same
27/01/2003            50             1 year   Advanced to 18/     5.31%    interest rate for the
                                    12/2003                  term, it amounts to RMB
29/01/2003            50             1 year   Advanced to 18/     5.31%    8.4 million yuan. The
                                                  12/2003                  trust loan income is
04/03/2003            50             1 year   Advanced to 18/     5.31%    canceled out in the
                                                  12/2003                  consolidated statements.

ZSEPC provided trust loan to ZCPGC because (a) ZCPGC needs a large amount of
bank loan for construction of 2 x 300 MW generating units; (b) ZSEPC has surplus
fund to provide its subsidiary with power construction fund in order to raise
capital use efficiency while preserving capital safety.

China Securities Regulatory Commission issued Notice on Regulating Capital Move
between Listed Companies and Related Parties and External Guarantees by Listed
Companies (Document Zheng Jian Fa (2003)56) in August 2003. In the light of the
stipulation inthe Notice that 'degreesListed companies shall not provide trust
loans to related parties through banks or non-bank financial institutions'+/-,
ZSEPC terminated the agreement and recovered the trust loan in full in December
2003.

(b) In the current report period, ZPEPDC provided trust loans in amount of RMB
26 million yuan and RMB 134 million yuan totaling RMB 160 million yuan through
China Construction Bank Hangzhou Zhijiang Branch to ZCPGC, with the terms of the
two loans being from 2 July2003 to 2 July 2004 and from 15 December 2003 to 14
December 2004 respectively. The trust loan in amount of RMB 320 million that
ZPEPDC provided to ZCPGC in the previous period was recovered in this report
period.

(c) ZPEGC provided trust loan inamount of RMB 200 million yuan to ZCPGC through
China Construction Bank Hangzhou Zhijiang Branch with the loan term being from
15 December 2003 to 21 December 2012.

(4) Guarantees

a. Providing ZCPGC with Shareholder's Guarantee In Proportion toShareholding
Ratio

ZCPGC is the project company responsible for construction and operation of ZCPGC
Project Phase I 2 x 300 MW(originally called Changxing Power Plant Phase IV,
commissioned on 22 May 2003) and Phase II 2 x 300 MW (under construction). ZSEPC
holds 65% of its equity. The other shareholders of ZCPGC as at the end of this
report period are Zhejiang Hongfa Energy Investment Co. and ZPEPDC.

Based on Document Jing Mao Tou Zhi (2001)460 Approval of Feasibility Study
Report for Changxing Power Plant Phase IV issued by the State Economic & Trade
Commission, the planned total investment of ZCPGC Project 2 x 300 MW amounts to
RMB 2.593 billion yuan, of which 25% is the project equity, 75% are the bank
loans.

ZCPGC and China Construction Bank Changxing County Branch signed Fixed Assets
Loan Contract for the Project in December 2001, based on which China
Construction Bank Changxing County Branch agreed to provide ZCPGC with a loan
amounting to RMB 1.5 billion yuan (In addition, the shareholders provided trust
loans amounting to RMB 300 million yuan).

Since the amount of loan is substantial, the Bank required shareholders'
guarantees to ensure security of the loan capital. So the shareholders of ZCPGC
separately signed Guarantee Contract with China Construction Bank Changxing
County Branch based on the principle of providing shareholders' guarantees for
the project loan in proportion to their shareholding ratios without joint
liability among shareholders. According to the Guarantee Contract, ZSEPC is to
provide guarantee for the loan to ZCPGC up to a ceiling of RMB 1.07 billion yuan
(which was obtained by multiplying ZCPGC's loan ceiling of RMB 1.8 billion by
65% minus ZSEPC's trust loan of RMB 100 millionyuan), with the term of
guarantee being from 18 December 2001 to 17 June 2019.

ZSEPC completed the formalities necessary for the guarantee provided to ZCPGC.
In accordance with Rules for Listed Companies, the provision of this guarantee
was endorsed in the 15th meeting of the second Board of Directors of ZSEPC. The
resolution was announced in China Securities Journal, Shanghai Securities News,
Hongkong-based South China Morning Post and HongKong-based Wen Hui Bao dated 10
November 2001.

As of the end of this report period, the balance of ZCPGC's loan amounts to RMB
560 million yuan, of which the amount of RMB 392 million yuan is guaranteed by
ZSEPC. In this report period, ZCPGC's balance of loan increased by RMB 110
million yuan, so ZSEPC's guaranteed amount increased by RMB 63 million yuan.

The 2 x 300 MW generating units of ZCPGC Project Phase I were put into
commercial operation on 15 December 2002 and 22 May 2003 separately. They are
now in good operation. ZCPGC achieved principal operating income amounting to
RMB 1,067 million yuan and net profit amounting to RMB 176 million yuan. As at
the end of the current report period, there are no signs of anticipated joint
liabilities.

b. Providing ZJPGC with Shareholder's Guarantee In Proportion to Shareholding
Ratio

ZJPGC is the project company responsible for construction and operation of
Jiaxing Power Plant Phase II 4 x 600 MW. ZSEPC holds 24% of its equity. The
other shareholders of ZCPGC as at the end of this report period are ZPEPDC
holding 53% of its equity, Beijing Guohua Electric Power Co. Ltd holding 20% and
Zhejiang Provincial Electric Power Construction Co. holding 3%.

Based on Document Ji Ji Chu (2002)2349 State Planning Commission's Approval of
Adjustment to Construction Plan of Zhejiang Jiaxing Power Plant Phase II issued
by the State Development Planning Commission, the adjusted dynamic investment of
ZJPGC totals RMB 10.28 billion yuan. The adjusted project equity amounts to RMB
2.57 billion yuan, accounting for 25% of the total investment. The capital
needed for the project other than the equity will be sourced from Industrial &
Commercial Bank of China providing a loan of RMB 4.5 billion yuan and China
Construction Bank providinga loan of RMB 3.21 billion yuan separately.

Since the amount of loan is substantial, the Bank required shareholders'
guarantees to ensure security of the loan capital. So ZSEPC and the other
shareholders of ZCPGC signed Guarantee Contract with Industrial & Commercial
Bank of China Zhejiang Branch and China Construction Bank Zhejiang Branch
separately. The contract is up to a ceiling, with the actual guarantee based on
the actual amount of principal and interest of the loan. According to the
Guarantee Contract, ZSEPC is to provide guarantee for the 24% of the loan to
ZJPGC without joint liability between shareholders, with the term of guarantee
being from 17 December 2001 to 16 June 2026.

ZSEPC completed the formalities necessary for the guarantee provided to ZJPGC.
The provision of this guarantee was endorsed in the 15th meeting of the second
Board of Directors and the extraordinary shareholders' general meeting of ZSEPC
in 2001. The resolutions of the Board meeting and the shareholders' meeting were
announced in China Securities Journal, Shanghai Securities News, Hongkong-based
South China Morning Post and HongKong-based Wen Hui Bao dated 10 November 2001
and 11 December 2001 separately.

As of 31 December 2003, the balance of ZCPGC's loan amounts to RMB 2,000 million
yuan, of which the amount of RMB 480 million yuan or 24% of the total (i.e.
ZSEPC's equity contribution ratio) is guaranteed by ZSEPC. During the period
from January to December 2003, ZJPGC's balance ofloan increased by RMB 1,900
million yuan, so ZSEPC's guaranteed amount increased by RMB 456 million yuan.

The 4 x 600 MW generating units of ZJPGC are now under construction. It is
planned that Unit 1 will be put into operation in the second half of 2004. As at
the end of the current report period, there are no signs of anticipated joint
liabilities.

c. The purpose of above guarantees provided by ZSEPC is to advance the
development of the principal business of ZSEPC and protect the fundamental
interest of the company and its shareholders, to no detriment of the interest of
its medium and small shareholders. The guarantees are proportional to its
investment ratios with proportional liabilities without inter-shareholder joint
liabilityor related transactions. It can be regarded as ZSEPC providing
guarantee for itself. So it is not in violation of the relevant stipulations in
actuality. For details, please refer to 'degreesIndependent Directors' Specific
Statement and Independent Opinion about ZSEPC's Guarantees'+/- under 'degrees
Other Matters'+/- of Section VIII 'degreesReport of Board of Directors'+/-.

(4) Other Related Party Transactions

a. In the current report period, ZSEPC signed Labor Borrowing Agreement and
Transportation Service Contract with Taizhou Power Plant Industrial Company and
paid the latter for labor borrowing and commuting buses to/from work totaling
RMB 22,658,017.28 yuan. Taizhou Power Plant is involved in the daily management
of Taizhou PowerPlant Industrial Company.

b. In the current report period, ZSEPC and its subsidiary ZCPGC paid for Unit 4
automation design, installation and testing as well as waste water treatment
totaling RMB 23,601,639.50 yuan. ZSEPC is involved in the daily management of
Hangzhou Dongfa Environmental Protection Engineering Co. Ltd .

c. In the current report period, Xiaoshan Power Plant and ZCPGC under ZSEPC paid
Hangzhou Xiaoshan Linjiang Industrial & Trade Company Limited in accordance with
the signed Vehicle Transport Contract and Logistic Service Contract for rental
and logistic service charges totaling RMB 20,134,581.45 yuan. Xiaoshan Power
Plant is involved in the daily management of Hangzhou Xiaoshan Linjiang
Industrial & Trade Company Limited.

d. Based on Operators and Maintenance Personnel's Service Contract, Contract for
Unit 2 Commissioning Test and Material Conveyance Service Contract signed
between ZCPGC and Changxing Changfeng Energy Co. Ltd, ZCPGC paid the latter for
operators and maintenance service fee and commissioning test fee totaling RMB
21,284,840.00 yuan.

e. Based on Waste Ash and Slag Handling Contract signed between ZCPGC and
Jingning Jingfeng Energy Co. Ltd, ZCPGC paid the latter for handling of waste
ash/slag and landscaping totaling RMB 6,940,000.00 yuan.

  Based on Coal Transportation Contract for 2003 signed between ZCPGC and
Jingning Jingfeng Energy Co. Ltd (who assigned the contractual service in
November and December to Changxing Chengfeng Energy Co. Ltd), ZCPGC paid
Jingfeng Co. for coal transportation totaling RMB 9,439,936.00 yuan and
Changfeng Co. for coal transportation totaling RMB 2,582,096,00 yuan.

f. ZSEPC rented the non-operating assets divested from Taizhou Power Plant at
the time of restructuring from ZPEPDC. And ZCPGC rented warehouses and other
assets from Changxing Changfeng Energy Co. Ltd. For details, refer to Paragraph
3 'degreesTrust Custody, Contracting and Renting'+/- of Item 5 'degreesImportant
Contracts and Implementation'+/- of this section herein.

5.  Important Contracts and Implementation

(1)   Sale of Electricity

Owing to the special characteristics of the power sector, all the electricity
generated by ZSEPC was sold to the single buyer in Zhejiang power grid, ZPEPC.
Of the total electricity sales, the contractual amount was settled at the
contract price approved by ZPPB; and the competitive bidding amount was settled
at the market price on real time basis. As the power supply in Zhejiang is in
serious shortage, the bidding in Zhejiang power market was suspended from 2 July
2003. So the bidding amount was settled at the contract price.

In the current report period, ZSEPC completed electricity sale to ZPEPC
amounting to 14.813 billion kwh and achieved principal operating income totaling
RMB 4.738 billion yuan.

(2)   Construction of Xiaoshan Power Plant Desulfurization Project

In line with the 10th National Environmental Protection Plan and the policy to
encourage desulfurization of servicing coal-fired generating units, after
competitive bidding, ZSEPC selected Zhejiang Tiandi Environmental Protection
Engineering Co. to undertake construction of the flue gas desulfurization
project for Xiaoshan Power Plant 2 x 130MW.

The construction cost of Xiaoshan Power Plant Desulfurization Project will be
entirely borne by ZSEPC. Based on Document Zhe Ji Ji Chu (2003)240 Approval of
Xiaoshan Power Plant Desulfurization Project issued by Zhejiang Provincial
Development Planning Commission, the planned total investment of the project
amounts to RMB 183.18 million yuan. The project construction was commenced in
December 2003. It is planned that it will be put into operation by the end of
2005.

(3)   Trust Custody, Contracting and Renting

In the current report period, ZSEPC made no important trust custody, contracting
or renting of other companies' assets, nor did other companies make any trust
custody, contracting or renting of ZSEPC's assets.

Based onthe Agreement on Rent of Divested Asset signed between ZSEPC and ZPEPC,
ZPEPDC on 8 Nov.2000, the Company rented the non-operating assets divested from
Taizhou Power Plant at the time of restructuring at a rental cost of RMB
1,058,581.44 yuan in thecurrent reporting period.

Based on the Contract on Rent of Ash Silos and Contract on Rent of Assets signed
between ZCPGC and Changxing Changfeng Energy Co. Ltd, the Company paid the
latter for the rental cost of ash silos and other assets amounting to RMB
11,447,000.00 yuan in the current reporting period.

(4)   Important Guarantees

ZSEPC provided no guarantees other than the guarantees proportional to its
investment ratio for invested power projects as mentioned under the subheading '
degreesGuarantees'+/- of 'degreesImportant Related Party Tractions'+/- of this
section herein.

Based on the Guarantee Contract between ZPEPDC and China Construction Bank
Changxing County Branch, ZPEPDC is to provide guarantee for the loan to ZCPGC up
to a ceiling of RMB 430 million yuan (which was obtained by multiplying ZCPGC's
loan ceiling of RMB 1.8 billion by 35% minus ZPEPDC's trust loan of RMB 200
million yuan), with the term of guarantee being from 18 December 2001 to 17 June
2019.

(5)   Trust fund Management

  In line with the resolution of the 1st meeting of the 2nd Board of Directors
of ZSEPC, the management team was authorized to invest in state treasury bonds
and other securities. ZSEPC signed Agreement on Trust Fund Management with
Zhejiang International Trust Investment Corporation (ZITIC) up to a ceiling of
RMB 300 million yuan for a term from the date of the trust fund arriving at the
account designated by ZITIC to 21 January 2004. Based on this Agreement, ZSEPC
provided three trust funds amounting to RMB 100 million, 50 million and 100
million yuan totaling RMB 250 million yuan. ZSEPC terminated the Agreement ahead
of time and recovered the principal of RMB 250 million on 25 December 2003,
receiving an investment income of RMB 14.1743 million yuan on the same date.

(6)   Trust loan

Refer to Item 3 'degreesCredits and Debits'+/- under Paragraph 3 'degrees
Important Related Party Transactions'+/- herein.

6.  Commitment

(1) ZSEPC will invest in Zhejiang Beihai (Tankeng) Hydropower Station Project to
hold 25% of its equity.

(2)   ZSEPC will invest in Xiaoshan Power Plant Gas Turbine Power Generation
Project a sole investor.

(3)   ZSEPC will invest in Zheneng Lanxi Power Generation Limited Liability Co.
to hold 25% of its equity.

(4)   ZSEPC will invest in ZCPGC extension project Phase II to hold its majority
shares.

For the details of the above commitments, refer to Item 2 'degreesUse of
Proceeds not Raised from Share Listing'+/- of Paragraph 2 'degreesInvestment'+/-
of Section 7 'degreesReport of Board of Directors'+/- herein.

7.  Appointment of Accountants

In this report period, ZSEPC renewed appointment of Zhejiang Pan-China Certified
Public Accountants as its domestic auditor and PricewaterhouseCoopers Zhong Tian
CPAs Co. Ltd as its international auditor. Up to the end of this report period,
Zhejiang Pan-China Certified Public Accountants and PricewaterhouseCoopers Zhong
Tian CPAs Co. Ltd had provided their auditing service for ZSEPC for 7
consecutive years. The remuneration to the accounting firms in the past two
years were as follows:
     Name of Accounting Firms      Year 2003           Year 2002           Note
Zhejiang Pan-China Certified      RMB                 RMB                 ZSEPC borne no traveling
Public Accountants                                                         expenses of the
                                   1,000,000.00 yuan   950,000.00          accountants.

   yuan
PricewaterhouseCoopers Zhong Tian  RMB                 RMB                 ZSEPC borne no traveling
CPAs Company Limited                                                       expenses of the
  1,100,000.00 yuan   1,050,000.00        accountants.

                                                       yuan

8. ZSEPC was free from any audit, administrative punishment or open criticism by
CSRC, or open accusation by the stock exchanges in this report period.

9.      Other Important Matters

(1) Based on Document Zhe Jia Shang (2003)15 Approval of ZCPGC's Power Sale
Tariff issued by ZPPB, the power tariff applicable to ZCPGC was RMB 0.38 yuan/
kwh (including tax), effective from the date of commissioning up to the end of
2003.

(2) Based on Document Zhe Jia Shang (2003)36 Notice on Adjustment to Power
Tariff of Taizhou Power Plant under ZSEPC issued by ZPPB, the power tariff
applicable to Taizhou Power Plant was RMB 352.42 yuan/MWh (excluding tax) (as
opposed to RMB 357.42 yuan/MWh for 2002)

(3) Based on Document Zhe Jia Shang (2003)372 Notice on Power Tariff of Excess
Generation by Coal-Fired Power Plant Under Unified Dispatch in 2003 issued by
ZPPB, the power tariff for 80% of the excess generation over and above 6,000
generating hours in 2003 was RMB 0.205 yuan/kwh (as opposed to RMB 0.20 yuan/
kwh) for Taizhou Power Plant, and RMB 0.202 yuan/kwh (as opposed to RMB 0.197
yuan/kwh) for Xiaoshan Power Plant. The other 20%, i.e. the amount in bidding in
the power market previously, was settled at the contractual rate due to
suspension of the power market bidding.

(4)   Based on Document Zhe Jia Shang (2003)445 Notice on Power Tariff of
Coal-Fired Power Plant Under Unified Dispatch in 2003 issued by ZPPB, the power
tariff applicable to the coal-fired generating units was raised by RMB 0.007
yuan/kwh (including tax), effective from 1 January 2004. This applies to Taizhou
Power Plant, Xiaoshan Power Plant and ZCPGC under ZSEPC.

(5)   It was endorsed in the 7th meeting of the 3rd Board of Directors of ZSEPC
that the ZSEPC employees would be given a total bonus of RMB 20 million yuan for
2003. the amount of which was recorded as administrative expenses in 2003.
Corresponding income tax adjustment was made.

(6)   CSRC and Shenzhen Municipal Government issued a joint announcement on 2
January 2004 to take over the administration of Southern Securities starting
from the same date. During the administrative custody, an administrative
taking-over group composed of CSRC, Shenzhen Municipal Government, the People's
Bank of China and the Ministry of Public Security will be responsible for
operation management and risk management of Southern Securities. The
administrative taking-over group will exercise the corporate power of Southern
Securities, with the group head assuming the rights and responsibility of the
legal representative of the company. The responsibilities of the shareholders'
general meeting, the board of directors and the supervisory committee of
Southern Securities were suspended, so were the duties of its directors,
supervisors and senior management staff.

ZSEPC holds 200 million shares of Southern Securities, with the book investment
cost amounting to RMB 220 million yuan. In the current report period, ZSEPC
allocated long-term investment devaluation reserve amounting to RMB 180.15
million yuan based on the information providedby the auditor of Southern
Securities.



X. Financial Statements 1

(based on the Chinese Enterprise Accounting Standards)



1.      Auditor's Report



Zhe Kuai Tian Shen (2004) xxx

To: The Shareholders of Zhejiang Southeast Electric Power Company Limited



We have accepted the appointment to audit the Balance Sheet and the Consolidated
Balance Sheet as at 31 December 2003, the Profit & Profit Distribution Statement
and the Consolidated Profit & Profit Distribution Statement, and the Cash Flow
Statement and the Consolidated Cash Flow Statement of ZSEPC for 2003. These
accounting statements are prepared by ZSEPC. It is our responsibility to form
audit opinion on these accounting statements. We conducted our audit in
accordance with Independent Auditing Standards of the Certified Public
Accountant in the People's Republic of China (PRC). In the course of audit, we
have reviewed practical situations of ZSEPC and conducted audit procedures which
we considered necessary including random examination of accounting records.



In our opinion, the above accounting statements have complied with the
Enterprise Accounting Standards and the relevant provisions of the Enterprise
Accounting Systems. The statements givefair view, in all material respects, of
the state of financial affairs of ZSEPC as at 31st December 2003 and of the
operating results and cash flows of ZSEPC for 2003. The accounting policies are
applied consistently.



Zhejiang Pan-China Certified Public Accountants

PRC Certified Public Accountant   Wang Yuehao

PRC Certified Public Accountant   Chen Shu

PRC Certified Public Accountant   Huang Yuanxi



Dated: 20 February 2003

XI. Financial Statements 2

a.       Balance Sheet (attached hereafter)

b.      Statement of Profit and Profit Distribution (attached hereafter)

c.       Statement of Cash Flow (attached hereafter)


Balance Sheet

                            As at 31st December 2003







       Prepared by: Zhejiang Southeast Electric Power Company
Limited   Unit: RMB Yuan
             Assets                              Consolidated                     Parent Company

                                 Note   Ending Amount   Beginning Amount  Ending Amount   Beginning Amount

Current assets
  Monetary assets                1     1,279,205,146.47 1,316,602,765.12 1,268,177,544.16 1,275,444,909.15
  Short term investments         2        42,074,980.00    45,066,100.00    42,074,980.00   245,339,100.00
  Bills receivable
  Share dividends receivable
  Interests receivable
  Accounts receivable            3       259,777,666.62   189,310,963.44   119,040,954.43   101,911,910.02
  Other receivables              4       26,071,484.65    34,892,310.31    22,575,971.02    34,336,919.77
  Prepayments                    5        11,912,907.66    12,461,180.00    11,780,907.66    12,461,180.00
  Subsidy receivable
  Inventories                    6       126,475,405.97 109,881,758.45    97,589,340.72    89,186,432.87
  Deferred expenses
  Long term investments in bond
due within 1 year
  Other current assets
                   Total current       1,745,517,591.37 1,708,215,077.32 1,561,239,697.99 1,758,680,451.81
assets
Long term investments:
  Long term equity investments   7     1,268,400,000.00 1,208,550,000.00 1,741,834,317.95 1,567,688,293.33
  Long term debt investments
  Total long term investments          1,268,400,000.00 1,208,550,000.00 1,741,834,317.95 1,567,688,293.33
  Including: consolidated price
differences
  Including: equity investments
differences
Fixed assets:
  Costs of fixed assets          8     8,865,174,966.21 8,262,163,609.22 6,680,890,382.07 6,663,381,995.97
Less: Accumulated depreciation   9     3,785,806,165.46 3,315,214,904.61 3,629,538,867.45 3,313,017,453.44
  Net value of fixed assets      10    5,079,368,800.75 4,946,948,704.61 3,051,351,514.62 3,350,364,542.53
   Less: Reserve for fixed
assets devaluation
  Net value of fixed assets            5,079,368,800.75 4,946,948,704.61 3,051,351,514.62 3,350,364,542.53
  Project material               11       82,466,727.42    32,013,043.90    18,616,208.82    21,012,643.90
  Construction in progress       12254,184,753.87   458,328,216.40   123,818,356.35    80,280,204.67
Disposal of fixed assets
           Total fixed assets          5,416,020,282.04 5,437,289,964.91 3,193,786,079.79 3,451,657,391.10
Intangible assets and other
assets:
  Intangible assets              13      216,733,557.76   221,098,737.29   215,985,272.92   221,098,737.29
  Long term deferred expenses    14       33,412,954.31    27,265,487.90    33,412,954.31    24,564,741.71
  Other long term assets
  Total intangible and other             250,146,512.07   248,364,225.19   249,398,227.23   245,663,479.00
assets
Deferred tax:
  Deferred tax debit
           Total assets                8,680,084,385.48 8,602,419,267.42 6,746,258,322.96 7,023,689,615.24


Liabilities and shareholders'
equity
Current liabilities:
  Short term borrowings          15      627,000,000.00   553,390,000.00     7,000,000.00     3,390,000.00
  Bills payable                                            56,963,000.00
  Accounts payable               16      422,716,632.11   456,384,684.26   183,341,484.44   144,452,442.30
  Accounts received in advance
  Salaries payable               17       76,857,556.01    86,668,618.65    76,857,556.01    86,879,011.39
  Welfare expenses payable                27,519,279.78    26,425,375.38    27,337,551.98    26,056,228.71
  Dividends payable
  Tax payable                    18       98,183,145.97   116,153,980.49    47,967,594.97   108,557,056.55
  Other payments due             19   7,473,689.75     1,584,804.17     6,130,616.49     1,320,983.85
  Other payables                 20       68,904,368.51   122,446,669.53    62,724,950.25   115,652,165.44
  Accruals                       21          909,773.33       934,800.00
 Anticipated liabilities
  Long term liabilities due      22      326,060,000.00   326,060,000.00   326,060,000.00   326,060,000.00
within one year
  Other current liabilities
         Total current                 1,655,624,445.46 1,747,011,932.48 737,419,754.14   812,367,888.24
liabilities
Long term liabilities:
  Long term borrowings           23      760,695,200.00   776,763,450.00                    326,060,000.00
  Bonds payable
  Long term payables
  Special payables
  Other long term liabilities
       Total long term                   760,695,200.00   776,763,450.00                    326,060,000.00
liabilities
Deferred tax:
  Deferred tax credit
Total liabilities                      2,416,319,645.46 2,523,775,382.48   737,419,754.14 1,138,427,888.24
Minority shareholders' equity            254,926,171.20   193,382,157.94
Shareholders' equity
Share capital                    24    2,010,000,000.00 2,010,000,000.00 2,010,000,000.00 2,010,000,000.00
  Less: investments paid back
  Net value of share capital           2,010,000,000.00 2,010,000,000.00 2,010,000,000.00 2,010,000,000.00
  Capital reserve                25    1,876,045,569.51 1,863,272,079.51 1,876,045,569.51 1,863,272,079.51
  Surplus reserve       26      885,008,977.62   763,152,307.26   885,008,977.62   763,152,307.26
  Including: statutory common    26      442,504,488.81   381,576,153.63   442,504,488.81   381,576,153.63
welfare reserve
  Undistributed profits          27    1,237,784,021.69 1,248,837,340.23 1,237,784,021.69 1,248,837,340.23
  Foreign currency statement
conversion difference
Total shareholders' equity             6,008,838,568.82 5,885,261,727.00 6,008,838,568.82 5,885,261,727.00
Total liabilities and owners'          8,680,084,385.48 8,602,419,267.42 6,746,258,322.96 7,023,689,615.24
equity




                  Statement of Profit and Profit Distribution

Year 2003



       Prepared by: Zhejiang Southeast Electric Power Company Limited
Unit: RMB Yuan
           Item            Note            Consolidated                     Parent Company
                                    Ending Amount Beginning Amount    Ending Amount Beginning Amount
1. Income from principal     1   4,738,196,944.73 3,320,944,888.62 3,670,972,684.16 3,303,121,784.34
operating activities
Less: Principal operating    1   3,130,675,914.14 2,208,191,596.44 2,440,007,934.01 2,197,760,669.91
costs
        Principal            2   51,268,220.09    29,631,064.15    39,821,558.24    29,518,549.61
operating tax and surtax
2. Profit from principal         1,556,252,810.50 1,083,122,228.03 1,191,143,191.91 1,075,842,564.82
operating activities
Add: Profit from other       3   759,658.17       489,090.01       759,658.17       489,090.01
activities
Less: Operating expenses
        Administrative           235,580,541.51   229,175,442.48   197,755,599.64   173,026,072.79
expenses
        Financial expenses   4   62,620,319.32    41,228,922.57    13,110,622.1240,081,923.83
3.Operating profit               1,258,811,607.84 813,206,952.99   981,036,628.32   863,223,658.21
Add: Investment income       5   -146,757,285.34  33,459,111.29    -19,335,916.62   2,552,849.05
        Subsidy income
        Non-operating        6   668,046.95       399,756.67       668,046.95       399,756.67
income
Less: Non-operating          7   35,754,525.65    34,312,683.64    34,578,096.95    34,295,269.99
expenses
4.Gross profit                   1,076,967,843.80 812,753,137.31   927,790,661.70   831,880,993.94
Less: Income tax                 406,140,478.72   287,355,874.26   318,507,309.88   286,406,513.83
Minority shareholders'           61,544,013.26    -20,117,842.06
gains and losses
5.Net profit         609,283,351.82   545,515,105.11   609,283,351.82   545,474,480.11
Add: Undistributed profit        1,248,837,340.23 1,314,917,131.14 1,248,837,340.23 1,314,957,756.14
at year beginning
        Profit transferred
from others
6.Distributable profit           1,858,120,692.05 1,860,432,236.25 1,858,120,692.05 1,860,432,236.25
Less: Allocation of              60,928,335.18    54,547,448.01    60,928,335.18    54,547,448.01
statutory surplus reserve
 Allocation of statutory         60,928,335.18    54,547,448.01    60,928,335.18    54,547,448.01
common welfare reserve
      Allocation of
employee bonus and welfare
fund
     Allocation of reserve
fund
     Allocation of
corporate development fund
     Profit payback to
investments
7.Profit Distributable to        1,736,264,021.69 1,751,337,340.23 1,736,264,021.69 1,751,337,340.23
shareholders
Less: Preference share
dividends payable
       Allocation of
discretionary surplus
reserve
        Ordinary share           498,480,000.00   502,500,000.00   498,480,000.00   502,500,000.00
dividends payable
Dividends of ordinary
shares converted to share
capital
8.Undistributed profit           1,237,784,021.69 1,248,837,340.23 1,237,784,021.69 1,248,837,340.23
Supplementary information
Income from sales/disposal
of departments or invested
organizations
Loss caused by natural
calamities
Increase/decrease in total
profit caused by
accounting policy changes
Increase/decrease in total
profit caused by
accounting assumption
changes
Loss on debt restructuring
Others




Statement of Cash Flow

 Year 2003



               Prepared by: Zhejiang Southeast Electric Power Company Limited
          Unit: RMB
                             Item      Note  Parent company     Consolidated

                                                                     Ending Amount      Ending Amount
1.Cash flow generated from operating activities
Cash received from sale of goods andsupply of labor service           5,477,538,987.75   4,277,732,201.85
Cash received from refund of taxes
Other cash received relating to operating activities                       2,931,812.81         492,667.37
Sub-total of cash inflow             5,480,470,800.56   4,278,224,869.22
Cash paid for purchase of goods and labor services                     2,602,546,997.48   2,001,740,713.31
Cash paid to and for the employee                                        402,373,731.76     348,647,474.23
  Taxes paid                                                           1,026,013,411.11     841,189,964.79
Other cash paid relating to operating activities                          32,826,048.49      20,320,342.85
Sub-total of cash outflow                                              4,063,760,188.84   3,211,898,495.18
Net cash flow generated from operating activities                      1,416,710,611.72   1,066,326,374.04
2.Cash flow generated from investment activities
Cash received from investment recovery                                                      350,000,000.00
Including: cash received from sale of subsidiaries
Cash received from investment income                                      49,014,818.20      35,616,474.10
Net cash received from disposal of fixed assets, intangible               77,030,245.94      77,030,245.94
assets and other long-term assets
Other Cash received relating to investment activities                     41,897,228.53      41,152,153.62
Sub-total of cash inflow                                                 167,942,292.67     503,798,873.66
Cash paid for purchase/building of fixed assets, intangible              833,704,461.56     345,354,406.81
assets and other long-term assets
Cash paid for investment                                                 240,008,610.00     390,008,610.00
  Including: cash paid for purchase of subsidiaries
Other cash paid relating to investment activities
Sub-total of cash outflow                                              1,073,713,071.56     735,363,016.81
Net cash flow generated from investment activities                      -905,770,778.89    -231,564,143.15
3. Cash flow from financing activities
Cash received by absorbing investment
 Including: cash received by subsidiaries absorbing minority
shareholders' equity investment
Cash received from borrowing                                           1,075,390,000.00      25,390,000.00
Other cash received in relation to financing activities
Sub-total of cash inflow                                               1,075,390,000.00      25,390,000.00
Cash paid for debt service                                               999,450,000.00     329,450,000.00
Cash paid for distribution of dividend or profit or payment of           624,184,426.03     537,876,570.43
interest
   Including: distribution of dividend from subsidiaries to
minority shareholders
Other cash paid in relation to financing activities
  Including: cash paid to minority shareholders by
subsidiaries decreasing equity in accordance with the law
Sub-total of cash outflow                                              1,623,634,426.03     867,326,570.43
Net cash flow generated from financing activities                       -548,244,426.03    -841,936,570.43
4. Impact of foreign exchange fluctuation on cash                            -93,025.45         -93,025.45
5. Net increase in cash and cash equivalents                             -37,397,618.65      -7,267,364.99


Supplementary Information
1. Net profit converted to operating cash flow
   Net profit                                                              609,283,351.82     609,283,351.82
   Add: Minority shareholders' gains and losses                             61,544,013.26
       Allocated reserve for assets devaluation                            185,906,443.25     182,314,244.41
       Depreciation of fixed assets                                        580,986,371.40     426,916,524.56
       Amortization of intangible assets                                     6,362,696.53       6,337,471.37
       Amortization of long term deferred expenses                           9,452,533.59       6,751,787.40
       Decrease in deferred expenses (less: increase)
       Increase in pre-allocated expenses (less: decrease)
       Loss on disposal of fixed assets, intangible assets and              29,001,316.80      29,001,316.80
other long-term assets

 (less: income)
       Loss on retirement of fixed assets
       Financial expenses                                                   61,220,727.29      11,741,349.22
       Loss on investment (less: income)                                   -35,214,314.66    -162,635,683.38
       Deferred tax credit (less: debit)
       Decrease in inventory (less: increase)                              -16,593,647.52      -8,402,907.85
       Decrease in operational receivables (less: increase)                -60,518,620.31      -6,122,759.73
       Increase in operational payables (less: decrease)                   -14,720,259.73     -28,858,320.58
       Others
      Net cash flow generated from operating activities                  1,416,710,611.72   1,066,326,374.04
2. Investment and financing activities not involving cash income
and expenditure
   Debt transferred to capital
   Convertible corporate bonds due within 1 year
   Fixed assets leased in by financing lease
3. Net increase in cash and cash equivalents:
Ending balance of cash                                                   1,279,205,146.47   1,268,177,544.16
Less: Beginning balance of cash                                          1,316,602,765.12   1,275,444,909.15
Add: Ending balance of cash equivalents
Less: Beginning balance of cash equivalents
Net increase in cash and cash equivalents                                  -37,397,618.65      -7,267,364.99


Supplementary Data



1. Reasons for Differences of Net Assets/Net Profits Based on Chinese
Accountants and International Accountants:



(1) Difference of Net Profits
                                                                                         Unit: RMB'000 yuan
Net profit based on the Chinese Enterprise Accounting System                                        609,283
Adjustment made based on the international accounting standards# 
1. Reversal of prepaid corporate income tax                                                          -3,123
2. Deferred income tax                                                                               -9,056
3. Transferred to capital reserve                                                                    12,773
4. Offset against retroactive adjustment to corporate income tax                                          -
5. Offset against other retroactive adjustment                                                            -
Net profit based on the international accounting standards                   609,877



(2) Differences of Net Assets

XII. Documents Available for Inspection



1.      Financial Statements affixed therewith the signatures and stamps of the
Legal Representative, Chief Accountant and Accounting Department Manager;

2.      Originals of Financial Statements affixed therewith the stamps of the
accounting firms, the signatures and stamps of the certified public accountants;

3.      Originals of all the documents and announcements published on the press
designated by CSRC during the report period;

4.      Annual Report published on London Stock Exchange













                                 Board of Directors

                 Zhejiang Southeast Electric Power Company Limited

                                 26 March, 2003














                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

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