Hydro Power Free Lanka Limited Prospectus

8/6/2019 Hydro Power Free Lanka Limited Prospectus

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HYDRO POWER FREE LANKA LIMITED

INITIAL PUBLIC OFFER




INITIAL PUBLIC OFFER

Offer for Subscription of 35,000,000 Ordinary Shares at the

Share Offer Price of Rs. 10/- each

Listing on the Main Board of the Colombo Stock Exchange

The delivery of this Prospectus shall not under any circumstances constitute a representation

or create any implication or suggestion that there has been no material change in the affairs of

the Company since the date of this Prospectus.

If you are in any doubt regarding the contents of this document you should consult your

stockbroker, bank manager, lawyer, registrars to the offering, managers to the offering or any

other professional advisor.

This Prospectus is dated September 28, 2010

This Prospectus is dated September 28, 2010

The Colombo Stock Exchange (the “CSE”) has taken reasonable care to ensure full and fair

disclosure of information in this Prospectus. However, the CSE assumes no responsibility for

accuracy of the statements made, opinions expressed or reports included in this Prospectus.

Moreover, the CSE does not regulate the pricing of the shares offered herein. The Share Offer

Price will be determined in terms of the provisions contained in Section 5.5 (Consideration)

Responsibility for the Content of the Prospectus

This Prospectus has been prepared from information provided by Hydro Power Free Lanka Limited

(HPFL) and from publicly available sources. The Directors of the Company, collectively and individually,

having made all reasonable enquiries confirm to the Managers to the Offering, that to the best of their

knowledge and belief, that this Prospectus contains all information with respect to the Company, which is

material in the context of the Offering; that the information contained herein is true and correct in all

material respects and is not misleading; that there are no other material facts, the omission of which would,

make any statement contained herein misleading; that the opinions and intensions expressed herein are

honestly held and have been reached after considering all relevant circumstances and are based on

reasonable assumptions.

HPFL accepts responsibility for the information contained in this Prospectus. While HPFL has taken

reasonable care to ensure full and fair disclosure of information, it does not assume any responsibility for

any investment decisions made by investors based on information contained herein. In making an

investment decision, prospective investors must rely on their own examination and assessments of the

Company including the risks involved.

This Prospectus has not been registered with any authority outside Sri Lanka.

ii

Hydro Power Free Lanka Limited



7.23 Corporate Governance practices ..................................................................................................... 43

7.23.1 Remuneration committee ............................................................................................... 43

7.23.2 Audit committee ............................................................................................................. 44

8.0 Operational Overview of the Company ...................................................................................................... 45

8.1 Sanquhar Power Plant ...................................................................................................................... 45

8.2 Delta Power Plants ........................................................................................................................... 45

9.0 Financial Overview of the Company ............................................................................................................ 47

10.0 Statutory and other General information ...................................................................................................... 51

10.1 Articles of Association ....................................................................................................................... 51

10.2 Inspection of Documents .................................................................................................................. 51

10.3 Hosting of Prospectus and Application Form on the Web .................................................................. 51

10.4 Brokerage ........................................................................................................................................ 51

10.5 Cost of the Issue .............................................................................................................................. 51

10.6 Underwriting .................................................................................................................................... 51

11.0 Statutory Declarations .................................................................................................................................. 52

11.1 Statutory Declaration by the Directors .............................................................................................. 52

11.2 Statutory Declaration by the Managers to the offering ....................................................................... 53

11.3 Statutory Declaration by the Company ............................................................................................. 53

12.0 Financial Statements and Auditors’ Report .................................................................................................... 54

12.1 Accountant’s report for inclusion in the Prospectus ............................................................................ 54

12.2 Five year summery of the Financial Statements ................................................................................. 56

12.3 Audit report and Financial Statements for the Y/E 31st March 2010 ................................................... 59

12.4 Interim Financial Statements as at 30th June 2010 ............................................................................. 81

Annexure A - Procedure for Application .................................................................................................................... 87

Annexure B - Extracts from Articles of Association of the Company ........................................................................... 93

Annexure C - Collection Points ............................................................................................................................... 107

Annexure D - Annual Rainfall Data ......................................................................................................................... 111

TABLE OF CONTENTS (Contd...)

v


1. CORPORATE INFORMATION

Issuer : Hydro Power Free Lanka Limited

Legal Form : A Private Limited Liability Company incorporated in Sri Lanka under the

Companies Act No. 17 of 1982, re-registered under the Companies Act

No. 07 of 2007 as a private Company, and subsequently converted to a

Public Limited Liability Company on 28th June 2010.

Company Registration Number : PV 7385

(As a Public Company)

Date of Incorporation : 24 th April 2000

Place of Incorporation : Colombo

Register ed Office : Level 03, Prince Alfred Tower,

No. 10, Alfred House Gardens,

Colombo 03.

Tel : 4523643, 4523635 Fax : 4523653

Business Office : No. 168, Negombo Road, Peliyagoda.

Tel : 7990000 Fax : 7990063 / 61

Company Secretaries : SSP Corporate Services (Pvt) Ltd.,

No. 101, Inner Flower Road,

Colombo 03.

Tel : 2573894, 2576871 Fax : 2573609

Auditors to the Company : BDO Partners,

No. 65/2, Sir Chittampalam A. Gardiner Mawatha,

Colombo 02.

Tel : 2421878, 2421879 Fax : 2336064

Bankers to the Company : Seylan Bank PLC

Hatton National Bank PLC

National Development Bank PLC

1




4. DEFINITIONS & ABBREVIATIONS RELATED TO THE OFFERING

Application Form / Application

The Offer / The Offering / The Issue

Initial Public Offering / IPO / Offer for

Subscription

Consideration

Market Day

Ordinary Shares / Issued and Paid up

Ordinary Shares / Ordinary Voting

Shares

Stated Capital

Prospectus

The Board / Board of Directors / BOD

The Company / Hydro Power Free

Lanka / HPFL / The Entity

SEC

CSE

CDS

PPL

FLPH

NIC

POA

FCBU

SIA

RANSI

SLIPS

The Application Form that constitutes a part of this Prospectus through

which the investors may apply for offered shares. The exact size

photocopies of the Application Form will also be permissible.

Relates to the thirty five million (35,000,000) ordinary shares offered to

the public by way of this initial public offering at the Offer price of

Rs.10/- each.

Relates to the invitation for subscription of shares as per the provisions

of this Prospectus.

Relates to the share Offer price of Rs.10/- each

Any day on which the Colombo Stock Exchange is open for trading

Ordinary voting shares of the Company, as per the Articles of

Association of the Company.

The Stated Capital of Hydro Power Free Lanka Limited.

This Prospectus dated September 28, 2010 issued by Hydro Power

Free Lanka Limited and registered with the Registrar of Companies in

Sri Lanka.

The Board of Directors of Hydro Power Free Lanka Limited

Hydro Power Free Lanka Limited (Previously known as Hydro Power

Free Lanka (Pvt) Limited.

The Securities and Exchange Commission of Sri Lanka

The Colombo Stock Exchange

Central Depository Systems (Pvt) Limited

Pussellawa Plantations Limited

Free Lanka Power Holdings Limited

National Identity Card

Power of Attorney

Foreign Currency Banking Unit

Securities Investment Account

Rupee Account for Non-resident Sri Lankan Investment

Sri Lanka Inter Bank Payment System

4


5. PARTICULARS OF THE OFFERING

5.1 INVITATION TO SUBSCRIBE

This invitation represents an opportunity to participate in the future growth prospects of Hydro Power Free Lanka

Limited (HPFL), a key player in the power generation sector in Sri Lanka. Since its incorporation in 2000, the Company

has established itself as a power sector participant with presence in non-conventional renewable energy sectors.

Pursuant to the resolutions passed by the Board of Directors of HPFL on 08th May 2010 and 14th June 2010, HPFL

hereby wishes to make an invitation in respect of Thirty Five Million (35,000,000) Ordinary Shares of the Company to

the general public at the Share Offer Price of Rs.10/- per share, through this Prospectus.

Contained in this document, a prospective investor will find detailed information about HPFL and its business in addition

to other statutory information relating to the O ffering. The Board of Directors of the Company urge the investing public

that the Prospectus be read carefully prior to making an investment decision.

5.2 OBJECTIVES OF THE OFFERING

The Company expects the Offering to generate proceeds of Rs. 350 Million, which will be utilized for the construction

of four more mini hydro plants (MHP s) under their three fully owned subsidiaries as shown below. (Further details of

the subsidiaries are given under the Group Structure in Section 7.7 of the Prospectus.)

The likely utilization of funds would be at the commencement of construction of each project, the details of which are

set out in Section 7.5.1 of the Prospectus. During the interim period the funds will be invested in interest bearing

instruments such as Government securities and bank deposits.

Hydro PowerFree Lanka 2

(Pvt) Ltd

Hydro PowerFree Lanka 3

(Pvt) Ltd

Free LankaPower 1(Pvt) Ltd

Company

Thebuwana MHP(0.83 MW)

Stellenberg MHP(0.94 MW)

Halgran Oya MHPPhase I (3 MW)

Halgran Oya MHPPhase II (0.6 MW)

Rs. 150 mn Rs. 150 mn Rs. 415 mn Rs. 90 mn

November 2010 November 2010 February 2011 February 2011

Project

EstimatedInvestment

LikelyCommencementof Construction

5




6. THE POWER SECTOR OF SRI LANKA

6.1 HISTORY

Electricity was introduced to Sri Lanka way back in 1895 and until the year 1926, was managed by the private sector. In

1927, with the establishment of the Department of Government Electrical Undertakings (DGEU), state ownership of

the power sector was formerly asserted, with the newly formed DGEU being responsible for power generation and

transmission, while the local authorities and licensees were responsible for power distribution and supply.

Thereafter in 1969, the Ceylon Electricity Board (CEB) was established and all the functions of DGEU were transferred

to this public utility. Since then the CEB has been primarily responsible for power generation, transmission and

distribution, even though some local authorities still continued to distribute power. In 1983, Lanka Electricity Company

Ltd (LECO) was established to minimize the inefficiencies present in the local authority system. Although LECO was

incorporated as a private company, the Government and CEB own 99% of its equity. The local power sector comprises

of CEB, LECO and several private power producers. The state-owned CEB is responsible for more than 55% of the

country’s power generation, all transmission and 85% of the distribution, with LECO providing the balance 15% of the

power distribution. The MOPE supervises CEB and LECO.

Throughout the passage of time, especially in light of global changes arising over the last decade or so, the nature of the

domestic power sector has been transforming from the traditional vertically integrated structure to one that encourages

more private sector participation. Accordingly in 1996 the first independent power producer was commissioned in Sri

Lanka. Globally not just the developed world, but developing nations such as India, Pakistan and Bangladesh are

transforming their power sectors from a utility centric industry to a consumer centric industry, in order to achieve

economic efficiency and social objectives. These transformations are mainly associated with positive changes to

regulatory and legislative frameworks of the industry.

6.2 REGULATORY & LEGISLATIVE FRAMEWORK

Regulation of the power sector can be defined as explicit government intervention into the sector to achieve the correct

balance between public policy and social objectives, as electricity is considered a strategic sector, essential to the

wellbeing of the society.

The first legislation on electricity regulation was the Electricity Ordinance No. 5 of 1895, which was enacted to regulate

electricity distribution only, at a time when there were only a few buildings in Colombo with electricity supply.

As the power sector progressed Electricity Ordinance No.26 of 1906 was enacted to capture new developments and

to facilitate and regulate the supply and the use of electrical energy. Then in 1950, the first hydropower project of 25MW

in Laxapana was commissioned and the electricity generated was transported from Laxapana to Colombo. This was a

giant leap forward for the industry; however the existing legislation failed to support these developments, which lead to

the enactment of Electricity Act No.19 of 1950 to regulate the generation, transportation, transformation, distribution,

supply and the consumption of electrical energy.

Until recently the electricity industry of Sri Lanka was regulated primarily by this Electricity Act No.19 of 1950, drafted 60

years ago and the Ceylon Electricity Board Act No.17 of 1969. The Electricity Act empowered the Ministry of Power &

Energy (MOPE) to issue licenses to industry participants in order to generate, transmit, distribute and supply electricity,

subject to the provisions contained in the Act. The MOPE also formulates the national energy policies and strategies for

the country.

Throughout the world the most accepted mode of government intervention (regulation) has been through a regulatory

commission and in 2002 with the passing of Electricity Reforms Act No.28 of 2002, the Public Utilities Commission of

Sri Lanka (PUCSL) was established as a regulatory body of public utilities such as electricity and water. Since its inception,

PUCSL has been engaged in the policy related activities of the power sector.

8


Today our power sector is characterized by more than 2,500 MW of system capacity, over 4.2 million consumer

connections, utilities such as CEB and LECO, private thermal generators, several small renewable energy producers and

a mix of hydro-thermal generation. Considering the present context, the new Electricity Act No. 20 of 2009, which

came into effect from April 2009 was a long overdue piece of legislation.

This new Act, which repealed the Electricity Act No.19 of 1950 and Electricity Reforms Act No.28 of 2002, was drafted

in line with internationally best practices of clearly separating policy, regulatory and operational functions of the power

sector and assigning these to the relevant organizations. Accordingly the sector policy formulation is the responsibility of

the MOPE, operations will be carried out by the CEB, LECO and other industry participants and PUCSL will be

entrusted with regulatory responsibilities such as licensing of power sector operators. Currently PUCSL has issued

licenses to approximately 50 companies including 6 licenses to CEB to generate, transmit and distribute electricity.

Apart from the above, the regulatory framework of the power sector also includes two more important pieces of

legislation; Act No.35 of 2007, under which the Sustainable Energy Authority (SEA) was formed in 2007, to achieve the

objectives of the National Energy Policy and Strategies of Sri Lanka, which includes the three primary goals of energy

security, enhancing indigenous energy and improving energy efficiency in the country. Accordingly all renewable energy

projects commissioned in Sri Lanka require the approval of the SEA. Secondly National Environmental Act No.47 of

1980 applies to certain environmental regulations of the energy sector, adherence to which is monitored by The Central

Environmental Authority (CEA) on a periodic basis.

Government, Regulatory and Facilitation Agencies

• Ministry of Power & Energy (MOPE)

• Public Utilities Commission of Sri Lanka (PUCSL)

• Sri Lanka Sustainable Energy Authority (SEA)

Electricity Utilities

• Ceylon Electricity Board (CEB)• Lanka Electricity Company Ltd (LECO)

Independent Power Producers (IPPs)

• Eleven Thermal IPPs

• Eighty Seven Small Power Producers (SPPs)

6.3 POWER GENERATION

Energy supply in Sri Lanka is mainly based on three primary sources: hydroelectricity, biomass and petroleum. Sri Lanka's

electricity generation sector was dominated by hydroelectricity during the period from 1950 – 1992. However since

then there have been no new large hydro power plants constructed, due to the saturation of economically exploitable

hydropower capacity, the increasing environmental and social impacts of large dams, the rising demand for electricity and

in the absence of any other reliable indigenous primary energy sources that can be used for large-scale electricity

generation. Hence hydro-thermal mixed systems penetrated the industry and gradually became the deriving source of

power generation in Sri Lanka.

Presently despite the installed capacity of hydro power plants exceeding that of thermal power plants, thermal has

become the dominating source in power generation contributing to 60% of the total energy generation. Primarily this

was due to the higher Plant Load factors inherent in thermal power plants in contrast to rain-fall dependent hydro power

plants.

9




6.3.3 ALTERNATIVE RENEWABLE ENERGY SOURCES

Due to the geo-climatic conditions, Sri Lanka is endowed with several forms of renewable energy resources such as

hydro, wind, solar, biomass etc.

An island nation with su bstantial wind potential, it’s estimated around 4,100 square kilometers (km2) of windy area exists

on land, which is 6.25% of the total land area of Sri Lanka. Using a conservative assumption of 5 MW per km2, this windy

land could support more than 20,000 MW of potential installed capacity. In 2009, Hambantota wind power plant

contributed 3 MW to the national grid. In March 2010, Sri Lanka’s first commercial wind energy plant commenced

operations in Puttalam using a 10MW plant, which has potential of enhancing this capacity to 30MWs in the future.

Sri Lanka is situated close to the equator and therefore receives an abundant supply of solar radiation all year around, which does not display marked seasonal variations, though significant differentiation could be observed between the

low-lands and mountain regions. The flat dry zone, which en compasses two thirds of the land area of the island, has solar

radiation varying from 4.0 - 4.5 kWh/m2/day and is considered the most potential area to harness solar energy. In

contrast solar radiation levels remain as low as 2.0 - 3.5 kWh/m2/day over the high plains of Nuwara Eliya due to the

significant cloud cover over most parts of the day.

The concept of biomass based electricity generation, commonly referred to as Dendro, holds much promise and

exploitation of this source for electricity generation is gaining new momentum in Sri Lanka. Biomass comes in differing

forms, the most common forms being fuel wood, municipal waste, industrial waste and agricultural waste. Majority usage

of biomass in Sri Lanka is from the domestic sector for cooking purposes. Also considering the high rate of waste

generation in urban and suburban Sri Lanka and the comparatively slow process of disposing the same, it is safe to

assume that there is great potential to convert this waste to energy.

Unfortunately due to the abundant availability of biomass, only a limited portion of the total biomass usage is chann elled

through the market. Thus no proper accountability exists on th e value of energy sourced by biomass. However the SEA

is presently conducting a study to assess the biomass resources in the country, which is expected to be completed byDecember 2010.

6.4 POWER TRANSMISSION & DISTRIBUTION

As the sole participant, the CEB plays a significant role in power transmission in Sri Lanka. The CEB owns the entire

transmission network called ‘the National Grid’, which transmits electricity across the country. This network cons ists of

high voltages of 220 kV and 132 kV, and most of the two sub-transmission networks of 33kV and 11kV. A few 11kV lines

are now owned and operated by LECO. The Electricity generated at power plants is stepped up to 220 kV or 132 kV

and transmitted to receiving stations across the country through transmission lines. The length of the transmission lines

for the year ended 2009 stood at 2,112 km. 53 grid substations were also in operation, with a combined capacity of

5,822 MVA.

The power received at high voltages is stepped down to the sub-transmission level of 33kV / 11 kV, and distributed

through middle voltage distribution lines, spanning an overall length of 25,212 km as at end of 2009. Thereafter the

power is further stepped down to local distribution level of 415 / 230 V. Distribution sub stations of 19,891 numbers were in operation with a total combined capacity of 11,471 MW. Accordingly domestic users are being served by low

voltages, where the distribution is carried out either by CEB or LECO.

By the end of 2009, CEB accounted for 99,445 km of low voltage overhead and underground lines for distribution and

serviced 89% of the customers, while the remainder was provided for by LECO, who purchases electricity from CEB

and distributes in the areas where they operate.

12


New Ambalangoda - Galle TLP

Puttalam - Veyangoda 220kV TLP

Ukuwela - Pallekele 132 kV TLP

Kerawalapitiya - Kotugoda 220kV TLP

Horana - Paragasthota 132 kV TLP

6.5 ELECTRICITY DEMAND & CONSUMPTION

During the past decade, Sri Lanka’s electricity demand reports an average annual growth of 7% to 8%. However with

the end of the country’s three decade-war in May 2009, demand for electricity is expected rise further. Despite tight

fiscal conditions, the Government continues with sound infrastructure development programs, mainly due to the

essentiality of enhancing the living standards of the society.

With the dawn of peace, the Government is mainly focusing on infrastructure development projects in the northern and

eastern provinces. Projects such as ‘Nagenahira Navodaya’ (Eastern Revival) and ‘Wadakkil Wasantham’ (Northern

Spring), has enabled an increasing number of households to access electricity by drawing new transmitting lines.

The implementation of Conflict Affected Area Rehabilitation Project (CAARP) has provided electricity for 21,000 houses

that were destroyed by the war. Apart from this, several projects are being carried out to expand th e rural electrification

program. CEB has launched Rural Electrification Projects 4, 6 & 8 in the last year alone, resulting in a continuous

increment of electrification as depicted below;

EXPANSION OF ELECTRIFICATION

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2000 200 1 200 2 200 3 20 04 20 05 2 006 2 007 2008 2009

R s . ( T h o u s a n d s )

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Consumer Accounts % of Households Elec tr if ied

Source: CEB Statistical Digest 2009

Between 2000 and 2009, households using electricity rose from 63% to 85% and a similar increase in demand was

observed from commercial and industrial customers. 80% of the Households were served by electricity from the

national grid, in contrast to 3% of households, which used off grid systems.

As per the Electricity Act of 2009, household and manufacturing industries have consumed electrical energy at the

proportions shown below;

13


Several transmission projects have been carried out to develop a reliable quality system, which reduces transmission

losses and a few of them have been outlined below.



However all Non Conventional Renewable Energy (NCRE) project based tariffs of Small Power Purchase Agreements

(SPPAs) changed with effect from 24th April 2009, from the avoided cost principle to cost-based principle and

developers now have the option of selecting a three-tiered tariff or a flat tariff structure. The three tiered tariff system was

cost-based and technology specific, while both tariff options extend up to 20 years and continue to be standardized and

non-negotiable. The introduction of the tiered tariff system was widely see n as a positive step towards the development

of the sector.

6.6.2 CONSUMER TARIFFS

One of the primary facets of incorporating the Electricity Act of 2009 was to revise the tariff structure in a realistic manner.Hence the Act approves of cost reflective tariffs, subject to the approval of PUCSL.

Last year, the CEB granted exemptions of Fuel Adjustment Charges (FAC) to the industry and hotel sectors, who were

badly hit by unfavorable economic conditions prevalent in the global market. Further the CEB also offered concessionary

tariff structures for low income households. Budget - 2009 granted a discount of Rs.30.00 per household that uses less

than 90 units per month. Thereby in 2009, the average tariff cost per unit reduced slightly from Rs. 13.22 to Rs. 13.11

According to the comparison of competitors’ electricity prices, Sri Lanka was the most expensive for commercial

customers in the region and most of the households and industries that pay below the average price are cross subsidized

by high-end households and the commercial sector. Therefore the concessions received by the domestic and industry

sectors were borne by the commercial sector, which has resulted in extremely high levels of tariff.

MAXIMUM DEMAND VS. INSTALLED CAPACITY

0

500

1,000

1,500

2,000

2,500

3,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

( M W )

Instal led Capacity Maximum Demand

Source: CEB Statistical Digest 2009

SMALL HYDRO POWER PURCHASE TARIFF

0

2

4

6

8

10

12

14

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

( R s . / K W h )

Dry Season Wet Season

Source : Hydro Power Free Lanka Ltd.

16


FUTURE ELECTRICITY GENERATION MIX IN SRI LANKA

0%

20%

40%

60%

80%

100%

2007 2010 2015 2020

Hydro Oil-f ired thermal Coal-f ired theral

Source: Electricity Act 2009

Presently in an era where generation costs exceed 80% of the total cost of electricity in Sri Lanka, implementing tariff

reforms and targeted subsidies is essential to managing the c osts of the power sector. The primary cause of these higher

costs prevalent in our country is the deviation from the LTGEP owing to political decisions, w here low-cost power plants

in the plan were replaced with oil burning power plants. As fuel prices increased in the international markets, the burden

on the electricity consumers in Sri Lanka is disproportionately higher than the burden on electricity consumers in other

countries of the region. This is due to the abnormal fuel-mix in electricity generation, dominated by fuel oil and diesel

burning power plants, to the exclusion of coal and nuclear power plants available in electricity grids of neighbouring

countries.

The National Energy Policy of Sri Lanka states that coal and NCRE sources will be the third and the fourth fuels to drive

the next phase of development of the electricity industry and the policy places a moratorium on new oil-fired power

plants and fuel of which the price is linked to oil prices, su ch as natural gas. Therefore there are clear indications that the

way forward would be coal power to ensure price competitiveness and renewable energy to uphold national energy

security and fuel diversity so as to provide the right mix for power generation in the country.

Already several additions to the national grid are underway. The second phase (100MW) of the Kerawalapitiya

Combined Cycle Power Plant is expected to be added on to the grid from May 2010. The first phase of Norochcholai

Coal Power Plant (300MW) and Upper Kotamale Hydro Power Plant (150MW) are expected to contribute to the grid

by 2011. Further the joint venture between CEB and National Thermal Power Company of India is expected to

contribute another 500MW through a coal power plant in Trincomalee.

Implementation of these upcoming projects are expected to improve the resilience of the economy towards weather

and oil price related issues in the power sector along with greater cost saving with the reduction in petroleum imports

for electricity generation. In this aspect alternative sources based on new technology are also been considered in

6.7 FUTURE OF THE POWER SECTOR

Sri Lanka’s electricity generating system, presently dominated by oil-fired electricity generation, will in future include

coal-fired power plants, the cheapest alternative to oil-fired generation, which is also considered as a reliable source of

supply at a regionally competitive price using environmentally compliant power plants. The first coal-fired power plant

scheduled for operation by year 2011 is presently under construction.

According to Sri Lanka’s Long-term Generation Expansion Plan 2005 (LTGEP) also called the Base Case Plan, the share

of hydropower is estimated to reduce from 40.2% in 2007 to 19.5% by 2020, while coal-fired thermal generation is

estimated to reach 70.9% by 2020. Oil-fired thermal generation, which accounted for 59.8% of energy input to the grid

in 2007, would be phased out to provide as little as 9.6% of energy by 2020. However these estimates may alter owing

to contribution from NCRE sources, which are targeted to serve 10% of grid electricity requirement by 2015 anddevelop further thereon.

17




This scheme was set up in relation to the Kyoto Protocol, which was a code of conduct issued to United Nations

Framework Convention on Climate Change (UNFCCC), aimed at battling global warming. The UNFCC, established in

1992, is a global environmental treaty, with goals of stabilizing levels of greenhouse gas concentration in the atmosphere

and countering the threat of climatic changes, following the evidence of dangerous human interferences on the

environment. Sri Lanka was acceded to the Kyoto Protocol on the 3rd of September 2002 and in terms of Clean

Development Mechanism (CDM) defined in Article 12 of the Kyoto Protocol, was eligible to implement

emission-reduction projects in the country and thereby benefit by receiving credits under the CDM scheme. However

the application of CDM is relatively new to the country and hence little explored.

HPFL registered with this scheme in April 2003 and received UNFCC approval for the initial seven year period, which

was extendable for a further fourteen years (two seven-year periods). The initial 7-year period comes to an end in

December 2010 and steps are already underway to extend this period for the second 7-year phase.

In order to qualify for this revenue derived from “green energy”, HPFL since its inception, has had to work in close

harmony with the community and engage in community service activities such as contributing towards the development

of houses, roads and hospitals for the estate workers, providing employment to estate workers and providing them with

health insurance packages etc. Also as per the qualifying criteria, HPFL has had to ensure that they follow the guidelines

put forward by the CEA in maintaining environmental standards, such as maintaining the quality of water, minimizing river

bank erosions, preventing the extinction and protecting the existing fauna and flora in the plant locations. A Quarterly

monitoring program is carried out by independent third party consultants to ensure compliance with all these “green

energy” concerns prior to awarding the Company with carbon credits.

As CER s are earned by an en tity and held for sale in the ordinary course of business, HPFL has acc ounted for the CERs

as prescribed by Sri Lanka Accounting Standard SLAS 5 - Inventories. Accordingly the CERs are measured at Net

Realisable Value with changes in value being recognized in the Income Statement of the period of change.

The CER income received by the Company has enhanced HPFL’s revenue over the last two years in the manner

depicted below.

The higher revenue derived from CER income for the ye ar 2008/09 is due to the inclusion of CER income pertaining to

2007/08, which was received in 2008/09.

7.3 THE DEGREE OF DEPENDENCE ON KEY CUSTOMERS

HPFL’s revenue is entirely dependent on its sole customer, the CEB for the purchase of all the electricity generated by

their MHPs – Sanquhar and Delta. CEB has entered into an SPPA with HPFL to purchase electricity for 15 years from

both these MHPs. Similar to other sm all hydro power plants in Sri Lanka, both these MHPs are “must run” facilities under the SPPA and accordingly the CEB is obliged to purchase all energy output of the plants. On or before first of December

every year, each MHP has to furnish to CEB their annual forecast of the monthly generation for the following year.

However on the part of the MHP, these estimates would be unbinding, as they will not be held responsible and no

penalties would be imposed, in the event of any short-fall arising on the energy generated or on any variation from the

said delivery dates.

The SPPA s introduced by the Government in 1996 to encourage private sector participation on small hydro power

projects, include standardized tariff structures for NCRE based power plants with capacities less than 10MW. The

standardized tariff structure protects the power producer by including a minimu m tariff rate, where the tariffs in any given

year shall not be less than 90% of the tariff applicable in the year the SPPA was executed, which is also called the first

year tariff. Therefore although HPFL’s revenue is dependent on the CEB, its degree of dependence is limited by this

minimum tariff rate applicable on SPPAs. The first year tariffs of the MHP s are given in Section 7.5.2 (i) of the Prospectus.

2008 / 2009 2009 / 2010

CER Income (Rs.) 14,862,246/- 12,486,497/-

Total Revenue (Rs.) 70,571,475/- 114,919,294/-

CER Income (As a % of total Revenue) 21% 11%

20


In comparison with large or medium sc ale hydro power projects or thermal power projects, small hydro power projects

involve minimum generation costs with lesser impact to the environment. Hence there’s reasonable probability that the

CEB would renew the agreements and continue to procure electricity from the MHPs even after the expiration of the

SPPA s.

Apart from the above, CEB at times faces certain limitations on their substation capacities, where small hydro power

projects are located. At such times certain MHP’s will be allowed to dispatch lower capacities than their installed limits.

For instance even though Delta MHP has an installed capacity of 1.6 MW, they were allowed to dispatch only 1.2 MW

of power until the substation capacity was increased. Presently CEB has increased this capacity and on 8th July 2010 an

amended SPPA with maximum in stalled capacity (of 1.6 MW) was signed for the Delta MHP.

Sanquhar MHP encountered no such set-backs and was allowed to dispatch the maximum installed capacity of 1.6 MW

from its inception. Therefore revenues recorded of all hydro power plants in the sector will be dependent on the CEB’s

existing substation capacities until such time that the CEB is able to implement capacity enhancements.

Financially the CEB has been reporting losses since 1999, due to the high cost of power generation and procurement.

Therefore the CEB defaulting or delaying on payments would adversely affect the performance of the Company, as

HPFL’s revenue is entirely dependent on their sole purchaser – the CEB.

Given below are some of the salient features of the existing SPPAs between the CEB and the Company (Seller).

Sale & Purchase of Energy Output:

The Seller shall deliver and sell, and CEB shall accept and purchase the electrical energy output generated by the

facility of the Seller, which Seller shall maintain its status as a Small Power Producer and which energy output shall

conform to quality standards as specified.

Prior to commercial operation date and thereafter on or before 1st December of each subsequent year, the

Seller shall furnish to CEB an annual forecast that includes the following: (i) anticipated monthly generationavailability, and (ii) Scheduled outages (an outage which is scheduled in advance for the performance of

maintenance on the facility) for each year; provided, however, the Seller shall have no liability to CEB and shall

be subject to no penalty in the event that the actual amount of electrical energy delivered to CEB, or the times

of said delivery, differ from the amounts or times shown in said forecasts.

Notwithstanding that the Seller’s facility is a “must run facility”, whenever CEB’s system or the systems with

which it is directly interconnected experience an emergency, or whenever it is necessary to aid in the restoration

of service on CEB’s system or on the systems with which it is directly or indirectly interconnected, CEB may, in

its sole discretion, curtail or interrupt the taking of all or a portion of energy output, provided such curtailment

or interruption shall continue only for so long as it is reasonably necessary under prudent utility practices.

CEB shall not assert the Seller’s liability for, and the Seller shall not be liable to CEB for, any direct damages

resulting from the Seller’s inadvertent or accidental and non-negligent failure in meeting the energy output.

Without CEB’s written approval the said limitations of the Seller’s liability shall not apply where the Seller

deliberately reduces energy output for the purpose of selling or attempting to sell electrical energy to any third

party, or for the purpose of producing any oth er form of energy capable of being produced at the facility.

• Term

The agreement shall continue for a period of 15 years, beginning on the commercial operation date.

• Standards

CEB’s standard and requirements for equipment, transmission and distribution including the interconnection

guidelines shall apply to the facility and to the transmission line. The facility shall be operated by the Seller in a

manner consistent with prudent utility practices.

(1)

(2)

(3)

(4)

21




7.5.2 RISKS ASSOCIATED WITH FUTURE STRATEGIES, ASSUMPTIONS ON WHICH THEY ARE

BASED & RISK MITIGANTS (IF ANY) ADOPTED BY THE COMPANY

a. Political & economic stability in Sri Lanka

The importance of the electricity industry for a country’s economic growth has been increasing over the years. The

sector has undergone many developments and transformations during the last century or so and today is at a critical

juncture as far as the future of this important sector is concerned. Therefore an unstable political environment could

reduce the economic growth of the country and thereby the demand for energy. Hence the political stability of the

country along with stable economic policies is vital for the development of the industry.

The average electricity demand in Sri Lanka has traditionally been reflecting the GDP growth pattern. However since2007, the electricity growth rate plummeted drastically mainly due to upward revisions in electricity tariffs in 2008, which

resulted in lower demand from the energy intensive consumers - the domestic and industrial sectors.

However the end of the three decade long war in Sri Lanka signifies a prospective future for the country with growing

foreign direct investment flows for infrastructure development, especially in th e northern and eastern parts of the island,

which would further accelerate the economic development in the country and thereby create enhanced opportunities

in the power sector.

b. Changes in the regulatory framework of the power sector

The Government of Sri Lanka exercises significant regulatory intervention in to the power sector to achieve public policy

and social objectives. Therefore all of HPFL’s intended expansion plans will be sensitive to any changes to Government’s

energy policies.

However positive revisions to the power sector can be expected in the future with the enactment of the Electricity Act

No.20 of 2009 by the Government last year, which clearly signifies increased deregulation with enhanced private sector participation. The Government has also indicated the possibility of broad basing the ownership of the industry’s

state-owned monopoly - the CEB. Therefore the sector participants can confidently expect to capitalize on the new

opportunities likely to emerge in the future.

Globally with growing concerns on global warming, “cleaner and greener” environment, “greening industries” etc, it’s

likely that new environment protection laws will be introduced in Sri Lanka in the future. The industry participants would

then have to incur additional costs on adopting environmentally friendly technologies and standards, which would

increase the costs of existing and planned new projects. Cost overruns could also arise due to fines and penalties

imposed as a result of non-compliance.

However there’s a definite move towards encouraging investments in green energy development such as tapping of

unutilized hydro power, wind power and solar power. Apart from minor emissions during the construction and

maintenance phases of these projects, they are considered as sources that supply greenhouse-emission free electricity

and encouraged to a great extent at a time when th e national grid is increasingly reliant on fossil fuels and with more coal

power plants commissioned over the next few years, leading to presumably higher levels of CO2 emissions in the future.

Just as HPFL’s existing MHP s are entitled to receive CER Credits applicable for CDM projects, applications are beingprepared to obtain similar benefits to the planned new projects in the future, which incidentally serves to enhance HPFL’s

revenue in the future.

24


c. Fluctuations in weather conditions & future rainfall patterns

As run-of-river hydro power technology is used in MHP s, the amount of power generated by a plant depends on the

available water flow. The Asian Monsoons have led to distinct seasonal variations in the rainfall patterns of Sri Lanka, giving

rise to wet and dry seasons, with significantly higher water flow levels and power generation during the wet season.

Further the increasing levels of deforestation have lead to prolonged draught weather conditions and sudden unexpected

floods in many catchment areas, both of which are two extreme conditions that are detrimental to the power generation

in a country.

However the geo-climatic setting in Sri Lanka is considered to be particularly conducive to harness hydro electricity,

especially given the humid conditions and the hilly terrain of the highlands of the country. Also just as in the past HPFL has

obtained services of third party feasibility studies and hydrology reports and is confident that the new projects wouldgenerate output to the expected levels in the future. The hydrology stu dies carried out in the areas where th e projects

are located or planned to be located, indicate the following rainfall patterns in future.

(Annual rainfall data is given in Annexure D to the prospectus)

d. Exchange rate fluctuations & inflation

As previously mentioned in Section 7.5.1, the planned new projects would qualify for the new SPPA terms and the

escalable component of the three-tiered tariff option contained therein would be affected by the LKR/USD rate of

change for the five preceding years and the average levels of inflation. As there is an inverse relationship between th e tariff rate and these two variables, the risks associated would arise from Rupee appreciation against the Dollar and lowering of

inflation levels, both of which would have a negating effect of lowering the tariffs received by the MHP.

The past three years LKR/USD movement indicates, on average a Rupee depreciation of 6.41% in 2007, appreciation

of 2.07% in 2008 and once again a depreciation of 6.10% in 2009. Presently annual average inflation is almost 13% and

is forecasted to decline to 9.62%, 8.13% and 7.35% levels for th e years 2011, 2012 and 2013 respectively. Therefore

based on the fluctuations of the exchange rate and inflation rates the tariffs received by the Company would vary in the

future.

As discussed in Section 7.2.2, CER income also compliments HPFL’s revenue and applications are currently being

prepared to obtain CER approvals for the new MHPs to be developed by HPFL. As the credits received by HPFL, under

this CDM scheme is in a foreign currency (presently in Euro), the CER income hinges on the exchange rate movement

of that particular currency against the Rupee, where the Rupee appreciation against the currency would entail a lower

income from this source. In addition to Europe, countries such as USA and Australia are now open to carbon trading and

therefore likely sources of future CER income could be from any of these currencies.

e. Dependence on a single purchaser - the CEB

The risks arising from the dependence on CEB as the sole purchaser of the power generated, is discussed in detail under

Section 7.3 of the Prospectus

Gampola 3,118 mm

Kuruwita 5,109 mm

Ragala 2,143 mm

25


Annual Rainfall



7.6 SHAREHOLDING STRUCTURE OF THE ENTITY AS AT DATE OF PROSPECTUS

7.6.1 SHAREHOLDING STRUCTURE BEFORE THE IPO

7.6.2 SHAREHOLDING STRUCTURE AFTER THE IPO

Shareholders Number of shares Percentage of holding

Pussellawa Plantations Limited 37,044,056 50%

Free Lanka Power Holdings (Pvt) Ltd 37,044,056 50%

Total 74,088,112 100%

Shareholders Number of shares Percentage of holding

Pussellawa Plantations Limited 37,044,056 34%

Free Lanka Power Holdings (Pvt) Ltd 37,044,056 34%

Public Holding 35,000,000 32%

Total 109,088,112 100%

7.7 GROUP STRUCTURE

Pussellawa Plantations Ltd(50%)

Free Lanka Power Holdings (Pvt) Ltd(50%)

Hydro Power Free Lanka Ltd(HPFL)

Free Lanka Power 1

(Pvt) Ltd

(100%)

Hydro Power Free

Lanka 2 (Pvt) Ltd

(100%)

Hydro Power Free

Lanka 3 (Pvt) Ltd

(100%)

28


7.7.2 SUBSIDIARY INFORMATION

Date of

Incorporation

Registration No.

Directors

Registered

Address

No. of

Employees

Key

Management

Personnel

Hydro Power Free Lanka 2

(Pvt) Ltd

19 th November 2009

PV 70022

Mr. K.Aloysius

Mr. G.A.A loysiusMr. G.J.Aloysius

Mr. J.M.S.de Mel

Mr. U.K.Devasurendra

Mr. D.S.K.Amarasekara

Level 3, Prince Alfred Tower,

No.10, Alfred House

Gardens, Colombo 03.

None - Presently HPFL

Employees oversee the

company

Mr. R.A.D. Sanjaya Prasad,

Administrative & Finance

Manager of HPFL oversees

the company

Hydro Power Free Lanka 3

(Pvt) Ltd

19 th November 2009

PV 70024

Mr. K.Aloysius

Mr. G.A.AloysiusMr. G.J.Aloysius

Mr. J.M.S.de Mel




No.10, Alfred House




company




the company

Free Lanka Power 1

(Pvt) Ltd

13 th August 2009

PV 68774

Mr. K.Aloysius

Mr. G.A.AloysiusMr. G.J.Aloysius

Mr. J.M.S.de Mel




No.10, Alfred House




company




the company

7.8 NUMBER OF EMPLOYEES OF THE GROUP / ENTITY

Permanent employees - 06Daily wage employees (skilled/unskilled) - 14

The permanent employees’ cadre, mentioned above excludes the Managing Director / Chief Executive Officer and

General Manager Finance.

The employees are not engaged in any labour union activities and from the outset the Company has not had any labour

related disputes with their staff.

The Company has no labour unions and therefore there are no significant agreements entered into between the group

and any labour unions.

7.7.1 SHAREHOLDERS INFORMATION

Pussellawa Plantat ions Ltd Free Lanka Power Holdings (Pvt) Ltd

Principal

Business

Cultivation and production of tea & rubber

and cultivation of timber

To operate, hold and invest in energy

related industries

D ire ct ors M r. K .A lo ys iu s

Mr. G.A.Aloysius

Mr. G.J.Aloysius

Mr. J.M.S.de Mel

Mr. I.C. Nanayakkara

Mr. J.D. Seaton

Mr. J.H.J. Jayamaha

Mr. K.Aloysius

Mr. G.A.Aloysius

Mr. G.J.Aloysius

Mr. J.M.S.de Mel



Shareholders Free Lanka Management Co. (Pvt) Ltd - 58.90%

Secretary to Treasury - 32.78%

Employees - 8.32%

Free Lanka Capital Holdings (Pvt) Ltd - 100%

29




Full Name Age Residential Address Other Directorships Held

Mr. Geoffrey Joseph

Aloysius

52 No.07, Queens Avenue,

Colombo 03.

DIRECTOR:

Pussellawa Plantations Ltd.

• Free Lanka Management Co. (Pvt) Ltd.

• Free Lanka Plantations Co. (Pvt) Ltd.

• Hydro Power Free Lanka (Pvt) Ltd.

• Hydro Power Free Lanka 2 (Pvt) Ltd.


• Free Lanka Power Holdings (Pvt) Ltd.

• Free Lanka Power 1 (Pvt) Ltd.



Mr. Nadarajah

Murali Prakash

47 No. 7 B , Barnes P la ce

Residencies,

Barnes Place,

Colombo 7.

MANAGING DIRECTOR /CEO:

• Brown & Company PLC

• Standard Finance (Pvt) Ltd.

• Eng ineering Services (Pvt) Ltd.

• Browns Group Motels Ltd.

• C.F.T. Engineering

• Browns Group Industries (Pvt) Ltd.

• Browns Tours (Pvt) Ltd.

• B.G. Air Services (Pvt) Ltd.

• The Hatton Transport & Agency Co (Pvt) Ltd.

• Walker & Greig (Pvt) Ltd.• Masons Mixture Ltd.

• I. G. Browns Rubber Industries (Pvt) Ltd.

• Browns Dimo Industrial Products (Pvt) Ltd.

DIRECTOR:

• Associated Battery Manufactures Ceylon Ltd.

• Klevenberg (Pvt) Ltd.

• SifanG Lanka (Pvt) Ltd.

• Sifang Lanka Trading (Pvt) Ltd.

• Browns Investments (Pvt) Ltd.

• K.P.L. Spare Parts (Pvt) Ltd.

Mr. Uditha Kalana

Devasurendra

4 7 No. 16 A , N ik ape

Avenue, Nedimala,

Dehiwala.

DIRECTOR:


• Free Lanka Power 2 (Pvt) Ltd.• Free Lanka Power 3 (Pvt) Ltd.




32


Full Name Age Residential Address Other Directorships Held

Mr. Don Soshan

Kamantha

Amarasekera

3 9 No.1 2, Ro tunda


DIRECTOR:


• Free Lanka Capital Holdings (Pvt) Ltd.

• Free Lan ka Power 1 (Pvt) Ltd.





• Free Lanka Management Co. (Pvt) Ltd.

• Free Lanka Plantations Co. (Pvt) Ltd.

NON EXECUTIVE DIRECTORS:

• Lanka Milk Foods (CWE) PLC

• Madulsima Plantations PLC

• Kelani Tyres PLC

• Colombo Land Exchange Ltd.

• Confifi Hotel Holdings PLC

• River ina Hotel PLC

• Eden Hotel Lanka PLC

• Inside the Jungle (Pvt) Ltd.

Mr. Ranjith Michael

Samuel Fernando

68 No. 7/69C,

2nd Lane, Nawala,Rajagiriya.

CHAIRMAN:

• United Motors PLC• Unimo Enterprises Ltd.

• Orient Motor Company Ltd.

• Orient Financial Services Corporation Ltd.

• UML Property Developments Ltd.

• UML Agencies & Distributors (Pvt) Ltd.

• Latex Green Ltd.

DIRECTOR:

• TVS Lanka (Pvt) Ltd.

• TVS Automotives (Pvt) Ltd.

• Associated Ceat Kelani Radials (Pvt) Ltd.

• Sierra Cables PLC

• Piramal Glass PLC

• ICICI International Ltd.

• Commercial Bank PLC

• Kelani Tyres PLC

Mr. Arjuna Uditha

Weerasinha

36 No. 50, Daham Mawatha,

Maharagama.

EXECUTIVE DIRECTOR:

• Success Consultancy Services (Pvt) Ltd.

33




Mr. N. Murali Prakash(Executive Director)

Mr. N.M. Prakash holds an MBA from University of Southern Queens land and is also a Certified Professional Marketer

(Asia Pacific) and a Certified Management Accountant (Aust.). He also holds an Executive Diploma in Business

Administration from the University of Colombo and is an Alumni of National University of Singapore & Asian Institute of

Management, Manila and a Fellow of Certified Professional Managers Sri Lanka.

He served as the Sales Director for Singer (Sri Lanka) PLC, a multinational company involved in retailing of durables. Mr.

Prakash has also served as the Deputy Credit Director and Credit Manager for many years handling the marketing and

management of hire purchase and related credit portfolios at Singer. He also served in the Boards of Singer (Sri Lanka)

Ltd, Singer Finance Lanka Ltd and Singer Industries (Ceylon) Ltd.

At present, he is the Chief Executive Officer / Group Managing Director of Browns Group of Companies, a public

quoted conglomerate involved in trading, manufacturing, finance, banking, travel & tours, plantations and investments.

Mr. Uditha K. Devasurendra(Non-Executive Director)

Mr. Uditha Devasurendra has been a Director of Free Lanka Power (Pvt) Ltd, since the inception of the Company. He

counts over 28 years of experience in the IT sector and the tea trade and specializes in tea tasting, blending,

warehousing and exporting.

After an initial foundation in IT studies, he acquired an Executive Diploma in Management.

Mr. D. S. Kamantha Amarasekera

(Non-Executive Director)

Mr. Kamantha Amarasekera is a m ember of the Institute of Chartered Accountants of Sri Lanka and is an Attorney-at-law

of the Supreme Court of Sri Lanka. He also holds a degree in Business Administration from the University of Sri

Jayawardenapura and began his career in the year 1998.

Mr. D. S. K. Amarasekera is an eminent Tax Consultant and the Senior Tax and Legal Partner of Amerasekera &

Company, a leading tax consultancy firm in the country. He is a Non- Executive Director of companies such as Kelani

Tyres PLC, Lanka Milk Foods (CWE) PLC, Madulsima Plantations PLC, Colombo Land Exchange Ltd, Inside the Jungle

(Pvt) Ltd, Eden Hotel Lanka PLC, Confifi Hotel Holdings PLC and Riverina Hotel PLC.

Mr. Ranjith M. S. Fernando

(Independent Non-Executive Director)

Mr. Ranjith Fernando is a member of the Chartered Institute of Management Accountants (UK), a companion of the

Chartered Institute of Marketing (UK) and is a Fellow of the Chartered Institute of Bankers. He also holds a LLB (Hons)

degree and is an Attorney-at-law.

He is a former Secretary of the Ministry of Enterprise Development, Industrial Promotion, Industrial Policy and

Constitutional Affairs and a former CEO/Director of the National Development Bank in Sri Lanka.

He is also currently the Chairman of United Motors PLC, Unimo Enterprises Ltd., Orient Motor Company Ltd., Orient

Financial Services Corporation Ltd., UML property Developments Ltd and UML Agen cies & Distributors (Pvt) Ltd., and

also the Chairman of Latex Green Ltd.

Mr. Fernando is also a Director of TVS Lanka (Pvt) Ltd, TVS Automotives (Pvt) Ltd., A ssociated Ceat Kelani Radials (Pvt)

Ltd., Sierra Cables PLC., Piramal Glass PLC, ICICI International Ltd and Commercial Bank PLC.

Mr. Fernando was recently appointed to the Board of HPFL as an independent director.

36


Mr. Arjuna U. Weerasinha

(Independent Non-Executive Director)

Mr. Arjuna Weerasinha is an Attorney-at-Law of the Supreme Court of Sri Lanka since 1997 and his professional

experience in the practice extends to over 12 years. His legal expertise spans across several areas such as Commercial

Dispute Settlement, Arbitration, Intellectual Property Rights, Information Technology, Aviation, Telecommunications and

Corporate Advisory work.

Currently serving as Head of Legal and Regulatory for Bharti Airtel Lanka (Pvt) Ltd; Bharti Airtel’s first international

venture, Mr. Weerasinha is also a Director of Success Consultancy Services (Pvt) Ltd., a company engaged in private

estate management. He h as also served Sri Lankan Airlines as its Legal Affairs Manager.

Furthermore he has had the rare distinction of being nominated as an arbitrator to two panels of international arbitrators

in proceedings by investors against a West African State, where both cases were successfully resolved under the

International Court of Arbitration of the International Chamber of Commerce, Paris, France.

An alumnus of the Cornell University, New York, Mr. Weerasinha is the s econd Sri Lankan to have gained admission to

Cornell Law School to obtain a L.L.M. degree, pursuant to having won the Presidential Scholarship in 2000.

7.9.3 DIRECTORS’ SHAREHOLDING

Directors do not have direct or indirect shareholdings (in respect of all classes of shares) in the Company at the date of

submission of the listing application to the Exchange.

7.9.4 SALES AND PURCHASES OF SHARES MADE BY THE DIRECTORS

There were no sales and purchases of shares by the directors during the year immediately preceding the date of issue

of this Prospectus.

7.9.5 AGGREGATE EMOLUMENTS INCLUDING BONUS AND /OR PROFIT SHARING PAYMENTS

There were no emoluments including bonus and /or profit sharing payments made to the Directors by HPFL during

financial year ended 31st March 2010, as they were remunerated by the Free Lanka Group of Companies.

Further this practice will be continued into the future and there will be no emoluments including bonus and / or profit

sharing payments payable to the Directors by HPFL for the current financial year.

7.9.6 DIRECTORS’ INTEREST IN ASSETS AND CONTRACTS

Directors hold no interest in any assets acquired, disposed or leased by the entity during the past two years preceding

the issue; and or proposed to be acquired, disposed or leased during the two years succeeding the issue.

Further there are no contracts or arrangements in force as at the date of the application in which a director of the Entity

is materially interested, in relation to the business of the Entity.

7.9.7 DIRECTORS’ STATEMENT

No Director or a person nominated to become a director is or was involved in the following events:-

(i) A pe tition under any bankruptcy laws filed against such person or any partnership in which he was a partner or

any corporation of which he was an executive officer.

(ii) A conviction for fraud, misappropriation or breach of trust or any other similar offence, which the Exchange

considers a disqualification.

37




The post employment benefits of key management personnel of the Company are as follows:

7.13 MANAGEMENT AGREEMENTS

There were no management agreements presently in force or currently being considered including particulars of any

consideration passing to or from the Entity.

7.14 DIVIDEND POLICY

The dividend policy of the Company would be to maximize the dividend payout, subject to the conditions laid out in

Sections 56, 57 & 60 of the Companies Act No.7 of 2007. Accordingly the dividends paid (if any) for the 3 years

immediately preceding the issue of Prospectus is set out below.

For further details please refer the Financial Overview of the Company given in Section 9 of the Prospectus.

7.15 PARTICULARS OF DEBT AND LOAN CAPITAL

The Company’s total loan capital outstanding as at date of Prospectus:

Note 1: Pussellawa Plantations Ltd

An aggregate of Rs. 46,530,806/- was borrowed from their Shareholder, Pussellawa Plantations Ltd, for the development

of the hydro power projects and early settlement of bank loans.

Post Employment Benefits

Mr. G.A.Aloysius (CEO) None

Ms. A.D.Outschoorn (GM - Finance) None

Mr. R.A.D.S.Pr asad (Admin is tr at ion & Finance Manager ) Gra tu it y

Mr. A.G.S.Tharanga (Electro - Mechanical Engineer) Gratuity

YearDividends Declared Net

(Rs.)

Dividends Per Share

(Rs.)

2008 7,276,511 5.50

2009 - -

2010 43,659,066 0.59

Amounts payable

within 1 year

(Rs.)

Amounts payable

after 1 year

(Rs.)

Puss el la wa P la nt at io ns L td ( No te 1 ) 4 6,5 30 ,8 06 -

Amounts due to related part ies (Note 2) 30,000,000 -

76,530,806 -

40


Note 2: Amounts Due to related parties

On 30th March 2010, HPFL invested in the three companies shown below, via the issue of short-term Promissory Notes.

The short-term borrowings stated in Notes 1 & 2 above, would be settled via the cash flows generated from the existing

power plants during the current financial year.

7.15.1 WRITTEN BACK AMOUNTS DUE TO RELATED PARTIES

The amounts due to Hydro Power S.A. shown above, was written back during the FY ended 2008/09 & 2009/10 as this

Company, which was incorporated in France was declared bankrupt and as the amounts were outstanding in the books

of HPFL from the year 2002, without any claims being made on the Company. For prudency, the smaller debt due to

HPFL SA of Rs.347,348/- w as written back in the previous year, while the larger debt due to HPFL SA of Rs.3,700,147/-

was written back during this year. No future write backs are expected as no further amounts are due to HPFL SA.

Hydro Power SA (a company which was domiciled in Nice, France) was provided a 50% equity provision in HPFL by

the Free Lanka Group in the year 1999/2000. The initial Sh areholder and Director of Hydro Power SA was Mr. Patrice

Pisterman and their principle business was the supply of turbines. Subsequently their equity provision and rights were

transferred to Eco F, who was the 50% shareholder of H PFL until Free Lanka Power Holdings (Pvt) Ltd purchased the

same on the 31st of December 1999.

As at date of Prospectus,

There were no other borrowings, term loans or indebtedness in the nature of borrowings, including bank

overdrafts or liabilities (other than of normal trading n ature) under acceptance credit.

There were no leasing, lease purchase or hire purchase commitments.

There were no guarantees or other material contingent liabilities.

There were no mortgages or charges on the assets of the Company as the Company has no property, plant &

equipment pledged as security for any liabilities and therefore has no amount of restrictions on title of any

property, plant & equipment.

Description 2009/10

(Rs.)

2008/09

(Rs.)

Amounts payable to Hydro Power SA 3,700,147 347,348

•

•

•

•

Company Name No. of Shares Share Price

(Rs.)

Share Value

(Rs.)

Hydro Power Free Lanka 2 (Pvt) Ltd 10,000,000 1/- 10,000,000

Hydro Power Free Lanka 3 (Pvt) Ltd 10,000,000 1/- 10,000,000

Free Lanka Power 1 (Pvt) Ltd 10,000,000 1/- 10,000,000

30,000,000

41




7.23.2 AUDIT COMMITTEE

The Audit Committee which was set up on the 25th of May 2010, comprises of two independent and Non-Executive

directors. Mr. Ranjith M. S. Fernando has been appointed as the Chairman of the Audit Committee.

The composition of the Audit Committee is as follows,

Mr. Ranjith M. S. Fernando - Chairman (Independent, Non - Executive director)

• Mr. Arjuna U. Weerasinha - (Independent, Non - Executive director)

The Managing Director and the Head of Finance attend meetings of the Audit Committee by invitation.

The Committee is responsible for:

• Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements of a

listed entity, in accordance with the Sri Lanka Accounting Standards.

• Overseeing of the Entity’s compliance with financial reporting requirements, information requirements of

the Companies Act and other relevant financial reporting related to regulations and requirements.

• Overseeing the processes to ensure that the Entity’s internal controls and risk management, are

adequate, to meet the requirements of the Sri Lanka Auditing Standards.

• Recommending to the Board the appointment, re-appointment and removal of internal and external

auditors, approving the remuneration and terms of engagement of the external auditors and asse ssment

of the independence and performance of the Entity’s external auditors.

44


8. OPERATIONAL OVERVIEW OF THE COMPANY

As described in Section 5.1, HPFL commenced commercial operations in December 2003 with the launch of Sanquhar

MHP and further expanded its operations in April 2006 with Delta, the second MHP of the Company.

8.1 SANQUHAR POWER PLANT

Sanquhar MHP has an installed capacity of 1.6 MW and for the year ended 31st March 2010 has generated 5,341 MWh

of electricity with a total plant factor of 38.1%. The monthly plant factors varied from 3.6% to 71.4%, purely based on the weather patterns experienced by the catchment areas. During the dry season (February - April), the capacity

generated was comparatively low compared to the wet season. Therefore, the MHPs have been compensated by

receiving slightly higher tariff rates during the dry season. The power generation output in March 2010 was at the lowest

level, mainly due to scheduled outages for maintenance of the plant and thunder storms that interrupted the normal

power generation during the month. (Refer Table I on page 46 of the prospectus)

8.2 DELTA POWER PLANT

Even though the estimated installed capacity of Delta MHP was 1.6 MW, due to substation capacity limitations of the

CEB, the plant was operating at a capacity of 1.2 MW. For the year ended 31st March 2010, the overall plant factor stood

at 40.5%. However the monthly plant capacities varied from 4.6% to 75.1%, subject to dry and wet seasons. (Refer

Table I on page 46 of the prospectus)

Presently the CEB has indicated their ability to absorb the additional 0.4 MW capacity of Delta and therefore the plant

was closed during the month of March 2010 for a scheduled outage for maintenance and modifications, in order to meet

the additional capacity requirement, hence the reason for the non-performance of the plant during the month of March

2010.

Despite the setback, Delta has generated the highest output during the year of 4,259 MWh as compared to 2,509 MW

generated during the previous year. (Refer Table I on page 46 of the prospectus)

The operating performance of Sanquhar and Delta for the financial year ended 31st March 2010 is summarized in Table

II. (Refer Page 46 of the Prospectus)

45




Total asset base of the Company showed a steady growth throughout the period, until the asset revaluation that took place

in the last financial year, which resulted in a significant augmentation of the asset base. As per the revised ruling of the Urgent

Issue Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka, the revaluation of properties held under

leasehold rights have not been considered in the asset revaluation. The carrying amounts of the property, plant &

equipment, before and after the revaluation are disclosed in Note no. 9 of the audited financial statements.

Shareholders’ funds reflected a moderate growth throughout the past, until the last financial year, where a significant growth

was recorded, mainly due to the Rs. 286 million worth of revaluation reserves being considered. Revenue reserves also

showed a steady increment throughout the years. Initially, the Company had to rely on debt financing sources, in order to

finance the huge construction cost of the power plants. However, with the commencement of the operations of the said

projects, the Company has successfully disposed those long term borrowings during the last financial year and thereby

minimized the finance cost.

The significant rise in current liabilities during the last financial year was mainly due to the rise in short-term borrowings. For

further details of the borrowings please refer to Section 7.15 of the Prospectus – Particulars of debt & loan capital.

The Net Assets per Share (NAPS) was also adversely affected by the share sub-division (Refer Section 7.10 of the

Prospectus) that took place on the 15th of March 2010, that resulted in the dilution of the number of Ordinary Shares,

which impacted the last two years NAPS figures as tabulated above.

Extracts of Cash Flow Statement of HPFL (consolidated) for the year ended 31st March 2006 to 2010;

Net cash flows from operations showed a tremendous increment from Rs. 29 million to Rs. 69 million during the period

under review. Cash & cash equivalents at the year-end have been positive figures, since 2007, where both hydro power

projects were commercially operational, which is an indicator of the sound cash position of the Company.

Significant financial Ratios of HPFL (consolidated) for the last five years can be summarized as follows;

For the year ended 31st March 2006 2007 2008 2009 2010

Net Cash Flows from Operating

Activities13,652,145 4 ,930 ,855 34,006,722 28,584,779 69,041,841

Net Cash Flows from Investing

Activities(60,339,915) (4,518,344) (12,834,998) (13,869,931) (7,188,820)

Net Cash Flows from Financing

Activities 24,273,126 15,178,667 (6,210,899) (19,056,000) (69,018,872)

Net Increase / Decrease in Cash& Cash Equivalents’

(22,414,644) 15,591,178 14,960,825 (4,341,152) (7,165,851)

Cash & Cash Equivalents at theBeginning of the Period

11,904,307 (10 ,510 ,337) 5 ,080 ,841 20,041,666 15,700,514

Cash & Cash Equivalents at theend of the Period

(10,510,337) 5,080,841 20,041,666 15,700,514 8,534,663

For the Year ended 31 st

March 2006 2007 2008 2009 2010

Net Profit Ratio 32.73% 7.58% 25.86% 5.39% 49.42%

Return on Capital Employed (ROCE) 5.61% 5.87% 12.09% 18.89% 17.57%

Return on Equity (ROE) 5.01% 1.6% 8.6% 2.23% 12.18%

Return on Assets (ROA) 5.54% 5.40% 9.99% 16.62% 20.78%

Current Ratio 0.46 0.78 0.71 1.26 0.72

Total Assets Turnover Ratio 0.09 0.13 0.19 0.26 0.21

Debt to Equity Ratio 69.41% 63.45% 76.72% 61.17% 19.58%

Debt to total Assets Ratio 40.97% 38.82% 43.41% 37.95% 16.37%

Earnings PerShare (EPS) 6.64 1.87 9.85 0.05 0.77

Dividends Per Share (DPS) 5.23 0.00 5.50 0.00 0.59

Dividend Payout Ratio 0.79 0.00 0.56 0.00 0.77

Net Assets per Share (NAPS) 132.59 116.55 114.64 2.30 6.29

48


The Net Profit ratio of the Company reported a drop in 2009 with the recognition of deferred tax. However as a result

of high revenue earned by the peak power generation of both plants, the Company reported the highest net profit ratio

of 49% in 2010.

ROCE also improved persistently except in the last financial year, mainly due to the shareholders’ funds being boosted

by the revaluation reserves. The ROE followed a much similar pattern to the ROCE except for a significant drop in 2007

and 2009, where lower net profits were reported. The ROA reflected a steady growth throughout the past financial

years.

The Current Ratio of the Company prevailed at growing levels throughout the years until 2010, where the significantly

higher short term borrowings adversely impacted the current ratio. Total Assets Turnover Ratio indicated a continuous

increment until the last financial year, which clearly reflected the effective utilization of assets of the Company. The last

financial year indicated a lower asset utilization as the asset base was augmented by the revaluation. After 2007, Debt to

Equity ratio altered significantly, with the reduction of long-term liabilities, which lead to more equity dominance in the

capital structure towards the last financial year. The lower gearing levels were also reflected in the Debt to Total Assets

ratio, which also moved in similar lines. Therefore the relatively lower gearing levels would enhance the Company’s

borrowing powers in the future.

Throughout the past, the Company has declared dividends in several years subject to the availability of cash profits.

During the last financial year the Company’s Dividends Per Share (DPS) indicates a low of Rs. 0.59, mainly due to the

share dilution described in Section 7.10 of the Prospectus. However the Dividend Payout ratio, which indicates the

percentage of profits distributed, clearly shows that 2010 had a high dividend payout of 0.77. Generally in the power

sector, exercising a high dividend payout ratio is common and considered a great attraction from the investors’ point of

view.

49




11. STATUTORY DECLARATIONS

11.1 STATUTORY DECLARATION BY THE DIRECTORS

September 28, 2010

"This Prospectus has been seen and approved by the directors of Hydro Power Free Lanka Limited and they collectively

and individually accept full responsibility for the accuracy of the information given and confirm that provisions of the CSE

Listing Rules and of the Companies Act No. 07 of 2007 and any amendments to it from time to time have been complied with and after making all reasonable enquiries and to the best of their knowledge and belief, there are no other facts the

omission of which would make any statement herein misleading or inaccurate. Where representations regarding the

future performance of the Entity have been given in the Prospectus, such representations have been made after due and

careful enquiry of the information available to the Entity and making assumptions that are considered to be reasonable at

the present point in time in the best judgement of the directors."

Sgd. Mrs. Rohini Lettitia Nanayakkara

Chairperson

Sgd. Mr. Kattar Aloysius

Deputy Chairman

Sgd. Mr. Godfrey Anton Aloysius

Managing Director / CEO

Sgd. Mr. Jayasiri Manik Sumithra de MelDirector

Sgd. Mr. Geoffrey Joseph Aloysius

Director

Sgd. Mr. Uditha Kalana Devasur endra

Director

Sgd. Mr. Don Soshan Kamantha Amarasek era

Director

Sgd. Mr. Nadarajah Murali Prakash

Director

Sgd. Mr. Ranjith Michael Samuel Fernando

Director

Sgd. Mr. Arjuna Uditha Weerasinha

Director

52


11.2 STATUTORY DECLARATION BY THE MANAGERS TO THE OFFERING

June 15, 2010

We, Taprobane Holdings Limited, of No. 10, Gothami Road, Colombo 08 being the Manager to the initial public offering

of Hydro Power Free Lanka Limited, hereby declare and confirm to the best of our knowledge and belief the Prospectus

constitutes full and true disclosure of all material facts about Hydro Power Free Lanka Limited and their Offering and that

we are satisfied that where applicable profit forecasts have been stated by the directors after due and careful enquiry.

The Common Seal of Taprobane Holdings Limited affixed on this 15th day of June 2010 at Colombo in the presence of

Mr. Ajith Devasurendra (Managing Director) and Mr. Ishara Nanayakkara (Director).

Sgd. Sgd.

Managing Director Director

11.3 STATUTORY DECLARATION BY THE COMPANY

June 15, 2010

"An application has been made to the Colombo Stock Exchange for permission to deal in and for a listing for all securities

in a particular class issued by the Entity and those Securities of the same class which are the subject of this issue. Such

permission will be granted when the shares are listed on the Colombo Stock Exchange. The Colombo Stock Exchange

assumes no responsibility for the correctness of any of the statements made or opinions expressed or reports included

in this Prospectus. Listing on the Colombo Stock Exchange is not to be taken as an indication of the merits of the Entityor of the Securities issued”

The Common Seal of Hydro Power Free Lanka Limited affixed on this 15th day of June 2010 at Colombo in the

presence of Mr. Godfrey Anton Aloysius (Managing Director/ CEO) and the Company Secretary.

Sgd. Sgd.

Managing Director/ CEO Company Secretary

53




Summary Income Statements and Balance Sheets Year ended 31st March

A) Summary of Operations

Turnover

Gross Profit

Net Profit Before Finance Cost

Profit before Taxation

Taxation

Profit Attributable to Shareholders

B) Summary of Financial Position

Capital and Reserves

Stated Capital

Reserves

Retained Earnings

Total Equity

Assets and Liabilities

Current Assets

Current Liabilities

Net Current Assets

Property, Plant and Equipment

Other Non Current Assets

Non Current Liabilities

Net Assets

2010

Rs.

114,919,294

89,754,534

86,485,869

75,171,485

(18,376,923)

56,794,562

132,300,200

286,543,393

47,316,735

466,160,328

47,203,458

65,164,569

(17,961,111)

499,780,568

10,428,463

(26,087,592)

466,160,328

2009

Rs.

70,571,475

49,046,503

45,130,829

33,133,992

(29,331,864)

3,802,128

132,300,200

4,166,276

34,181,239

170,647,715

45,534,382

36,178,939

9,355,443

226,658,548

2,838,470

(68,204,746)

170,647,715

2008

Rs.

50,428,801

29,778,507

25,302,287

13,259,419

(218,490)

13,040,929

132,300,200

4,166,276

15,206,161

151,672,637

41,713,292

58,689,388

(16,976,096)

208,949,608

17,374,625

(57,675,500)

151,672,637

2007

Rs.

30,883,108

18,013,357

12,982,184

2,418,238

(76,602)

2,341,636

125,300,200

11,154,376

9,576,743

146,031,319

13,795,196

17,685,736

(3,890,540)

220,618,764

4,268,095

(74,965,000)

146,031,319

2006

Rs.

21,866,745

12,051,288

11,710,960

7,335,521

(178,142)

7,157,379

125,300,200

10,397,789

7,235,107

142,933,096

15,333,028

33,234,975

(17,901,947)

171,489,605

55,315,438

(65,970,000)

142,933,096

Financial RatiosEarnings Per Share (LKR) 0.77 0.05 9.85 1.87 6.64

Dividends Per Share (LKR) 0.59 0 5.50 0 5.23

Net Asset Per Share (LKR) 6.29 2.30 114.64 116.55 132.59

Current Ratio (Times) 0.72 1.26 0.71 0.78 0.46

The shares of the Company has sub divided into 56 Ordinary shares on 15th March 2010. Therefore, after the sub division of

shares, the total no. of shares stood at 74,088,112. The ratios of Y/E 31st March 2009 and 31st March 2010 were adjusted

accordingly.

…………………………………(Finance & Administration Manager)

The above summarized financial information and its extraction from audited financial statements, is th e responsibility of the Board

of Directors.

………………………………. ……………………………….

Mr. U. K. Devasurendra Mr. J. M. S. De Mel(Director) (Director)

Colombo

10th August 2010

12.2 Five year summery of the Financial Statements

56


Cash Flow Statement

Operating Activities

Cas h G en erated from Operations 85,73 4,376 43,629,654 47,461 ,645 17,024,298 19,1 64,54 3

Interest Paid (11,314,384) (11,996,837) (10,775,798) (10,511,176) (4,375,439)

Withholding Tax Paid - - (2,559,770) (1,570,162) (1,101,503)Income Tax Paid (5,378,151) (3,048,038) - (12,105) (35,456)

ESC Paid (119,355) - -

Net Cash Generated From Operating Activities 69,041,841 28,584,779 34,006,722 4,930,855 13,652,145

Investing Activities

Interest on Savings Account 752,026 1,436,414 605,312 280,528 888,489

Purchase o f Property, P lant & Equ ipment (350,853) (6,602,214) (345,680) (59,342,797) (60,388,909)

Capital Expenditure of Work - In - Progress (7,589,993) (8,704,131) (13,106,530) 51,047,338 (35,737,908)

Pending Allotment of Shares - (6,988,100) 756,587 7,398,413

Investment in Call Deposit - - (500,000)

Withdrawal of Call Deposit - - 500,000 28,000,000

Disposal of Fixed Assets - - - 2,240,000 -

Share Issued During the Year - - 7,000,000 - -

Net Cash (Used) / Generated from Investment Activities (7,188,820) (13,869,931) (12,834,998) (4,518,344) (60,339,915)

Financing Activities

Dividends Paid (43,659,066) - (7,276,511) - (5,638,510)

Repaymen t of Borrowing (25,359,806) (19,0 56,00 0) (11,396,000) (47,155,0 00) (8,31 6,000 )

Payment to Lease Creditors - - (416,333) (611,364)

Proceeds From Loans - 12,461,612 62,750,000 38,839,000

Net Cash (Used) / Generated from Financing Activities (69,018,872) (19,056,000) (6,210,899) 15,178,667 24,273,126

(Decrease) / Increase in Cash and Cash Equivalents (7 ,1 65 ,8 51 ) ( 4, 34 1,1 52 ) 1 4,9 60 ,8 25 1 5, 59 1, 17 8 ( 22 ,4 14 ,6 44 )

Cash and Cash Equivalents beginning of the Year 15,70 0,514 20,041,666 5,08 0,841 (10,510,3 37) 11,9 04,30 7

Cash and Cash Equivalents End of the Year 8,534,663 15,700,514 20,041,666 5,080,841 (10,510,337)

2010

Rs.

2009

Rs.

2008

Rs.

2007

Rs.

2006

Rs.

57




HYDRO POWER FREE LANKA (PVT) LTDINCOME STATEMENTFOR THE YEAR ENDED 31ST MA RCH, 2010

Page 1

2009/2010 2008/2009 2009/2010 2008/2009

Note Rs. Rs. Rs. Rs.

RestatedRestated

Revenue 3 114,919,294 70,571,475 114,919,294 70,571,475

Cost of Sales (25,164,760) (21,524,972) (25,164,760) (21,524,972)

Gross Profit 89,754,534 49,046,503 89,754,534 49,046,503

Other Income 4 4,452,173 1,783,762 4,452,173 1,783,762

Administration Expenses (7,710,459) (5,692,588) (7,167,589) (5,692,588)

Other Expenses (10,379) (6,848) (10,379) (6,848)

Profit From Operating Activities 86,485,869 45,130,829 87,028,739 45,130,829

Finance Costs 5 (11,314,384) (11,996,837) (11,314,384) (11,996,837)

Profit Before Tax 6 75,171,485 33,133,992 75,714,355 33,133,992

Income Tax Expense 7 (18,376,923) (29,331,864) (18,376,923) (29,331,864)

Profit for the Period 56,794,562 3,802,128 57,337,432 3,802,128

Earnings per share

Basic (Rupees Per Share) 8.1 0.77 0.05 0.77 0.05

Dividend per share

Basic (Rupees per Share) 8.2 0.59 - 0.59 -

Figures in brackets indicate deductions

The accounting policies and notes on pages 5 to 21 form an integral part of these financial statements

Colombo10th May, 2010

Consolidated Company

60


HYDRO POWER FREE LANKA (PVT) LTDBALANCE SHEET AT 31ST MARCH, 2010

Page 2

Note

ASSETS

Non-Current AssetsProperty, Plant and Equipment 9 494,040,761 220,736,533 494,040,761 220,736,533Leasehold Properties 10 5,739,807 5,922,015 5,739,807 5,922,015Capital Work In Progress 11 10,428,463 2,838,470 2,838,470 2,838,470Investments In Subsidaries 12 - - 30,000,000 -

Total Non Current Assets 510,209,031 229,497,018 532,619,038 229,497,018

Current AssetsInventories 13 27,659,447 15,172,950 27,659,447 15,172,950Trade and Other Receivables 14 8,752,931 4,818,996 8,752,931 4,818,996

Amounts Due to Related Parties 15 15,000 1,019,959 1,439,108 1,019,959Deposits, Prepayment & Advances 16 2,241,417 2,209,422 2,241,417 2,209,422Income Tax Credit 23 - 6,612,541 - 6,612,541Cash and Cash Equivalents 17 8,534,663 15,700,514 8,534,663 15,700,514

Total Current Assets 47,203,458 45,534,382 48,627,566 45,534,382

Total Assets 557,412,489 275,031,400 581,246,604 275,031,400

EQUITY AND LIABILITIES

Capital and ReserveStated Capital 18 132,300,200 132,300,200 132,300,200 132,300,200

Amount received on pending Allotment of shares - 4,064,474 - 4,064,474Revaluation Reserve 286,441,591 - 286,441,591 -Reserves 101,802 101,802 101,802 101,802

Retained Earnings 47,316,735 34,181,239 47,859,605 34,181,239Total Equity 466,160,328 170,647,715 466,703,198 170,647,715

Non Current LiabilitiesDeferr ed tax liability 25 ,57 6,1 67 28,009,996 25,576 ,16 7 28 ,00 9,996Interest Bearing Borrowings 19 - 39,853,000 - 39,853,000Retirement Benefit Obligation 20 511,425 341,750 511,425 341,750

Total Non Current Liabilities 26,087,592 68,204,746 26,087,592 68,204,746

Current LiabilitiesExpense and Other Payables 21 9,813,703 3,650,392 3,104,948 3,650,392

Amounts Due to Related Parties 22 - - 30,000,000 -Income Tax Payable 23 8,820,060 - 8,820,060 -Directors' Current Account - 490,935 - 490,935Interest Bearing Borrowings 19 46,530,806 32,037,612 46,530,806 32,037,612

Total Liabilities 65,164,569 36,178,939 88,455,814 36,178,939

Total Equity and Liabilities 557,412,489 275,031,400 581,246,604 275,031,400

Net Assets per Ordinary Share (Rs.) 6.29 2.30 6.30 2.30

Figures in brackets indicate deductions

The accounting policies and notes on pages 5 to 21 form an integral part of these financial statements

These Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007

……………………………Mr.Sanjaya PrasadManager - Finance & Administration

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.

Approved and Signed for and on behalf of the Board of Directors of Hydro Power Free Lanka (Pvt) Ltd

…………………………… ……………………………Mr.J.M.S.De Mel (Mr.Godfrey Aloysius)(Director) (Director)

2009/2010 2008/2009 2009/2010 2008/2009

Rs. Rs. Rs. Rs.


RestatedRestated

61




HYDRO POWER FREE LANKA (PVT) LTD

SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS

Page 5

1. CORPORATE INFORMATION

1.1 Domicile and Legal Form

The Hydro Power Free Lanka (Pvt) Ltd is a BOI approved Limited Liability Company incorporated and domiciled

in Sri Lanka; under the Companies Act No. 07 of 2007. The Registered Office of the Company is located at Level

3, Prince Alfred Tower, No.10, Alfred House Gardens, Colombo-3, Sri Lanka.

1.2 Principal Activities and Nature of Operations

The Company was established for building, owning operating and maintaining power generation facility at

Sanquhar and Delta Estates in Pussellawa Plantation Limited (PPL). The Commercial Production has been

commenced since December, 2003.

1.3 Date of Authorizati on for Issue

The financial statements of Hydro Power Free Lanka (Pvt) Ltd for the year ended 31st March, 2010 were

authorized to issue in accordance with resolution of the board of directors on 15th May, 2010.

1.4 Parent Enterprise

The Shareholders of the company at the end of the financial Year are as follows,

Shareholder Percentage Holding

Pussellawa Plantations Ltd 50%

Free Lanka Power Holdings (Pvt) Ltd 50%

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 GENERAL ACCOUNTING POLICIES

2.1.1 Basis of Preparation

These financial statements presented in Sri Lanka Rupees have been prepared under the historical cost

basis in accordance with Generally Accepted Accounting Principles and the Standards lay down by the

Institute of Chartered Accountants of Sri Lanka.

2.1.2 Statement of Compliance

The balance sheet, statement of Income, changes in equity and cash flows, together with Accounting

Policies and Notes (“Financial Statement”) of Hydro Power Free Lanka (Pvt) Limited as at 31st March,

2010 and for the period then ended, comply with the Sri Lanka Accounting Standards, laid down by the

Institute of Chartered Accountants of Sri Lanka and are in compliance with the requirements of theCompanies Act No.7 of 2007.

2.1.3 Going Concern

The directors have made an assessment of the Company’s ability to continue as a going concern in the

foreseeable future and they do not intend either to liquidate or to cease trading.

2.1.4 Basis of Consolidati on

a) Subsidiaries

The Consolidated Financial Statements represent the consolidation of Financial Statements of

following companies as at 31st March 2010.

64




Page 6

Subsidiary Percentage Holding

1. Hydro Power Free Lanka 2 (Pvt) Ltd 100%

2. Hydro Power Free Lanka 3 (Pvt) Ltd 100%

3. Free Lanka Power 1 (Pvt) Ltd 100%

The Financial Statements of the subsidiaries are prepared for the period/year ended 31st March 2010

using accounting policies which are consistent with that of Parent Company.

Subsidiaries are consolidated from the date the Parent Company obtains control until such time as

control ceases.

Control exits when the Company has the power, directly or indirectly, to govern the financial and

operating policies of an entity so as to obtain benefits from its activities. In assessing the control,

potential voting rights that presently are exercisable or convertible are taken into account.

Consolidated Financial Statements are prepared in accordance with Sri Lanka Accounting Standard

No.26 – Consolidated and Separate Financial Statements ( Revised 2005 ).

Related party transactions, balances and unrealized profits or losses between group of companies are

eliminated.

Minority Interest

The interest of the outside shareholders in net assets of the Group and proportion of the profit after taxation applicable to outside shareholders if any are stated separately in the Consolidated Balance

Sheet and the Consolidated Income Statement under the heading Minority Interest.

b) Goodwill

Goodwill represents the excess of the cost of any acquisition of a subsidiary or an associate over the

Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities

acquired.

Goodwill is initially recognized at cost. The company will test the goodwill for impairment annually

and assess for any indication of impairment to ensure that it's carrying amount does not exceed the

recoverable amount. If an impairment loss is identified, it is recognized immediately to the income

statement.

Carrying amount of the goodwill arising on acquisition of subsidiaries and joint ventures is presented

as an intangible and the goodwill on an acquisition of and equity accounted investment is included in the carrying value of the investment.

If the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities

exceeds the cost of the acquisition of the entity, the Group will reassess the measurement of the

acquirer’s identifiable assets and liabilities and the measurement of the cost and recognize the

difference immediately to the consolidated income statement.

c) Transactions Eliminated on Consolidati on

Intra-group balances and any unrealized gains and losses or income and expenses arising from

intra-group transactions are eliminated in preparing the Consolidated Financial Statements.

65






Page 9

2.2.4 Intangible Assets

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition,

intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

Internally generated intangible assets, excluding capitalised development costs, are not capitalised and

expenditure is reflected in the income statement in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment

whenever there is an indication that the intangible asset may be impaired. The amortisation period and the

amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year end.

Changes in the expected useful life or the expected pattern of consumption of future economic benefits

embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and

treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is

recognised in the income statement in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash

generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life

is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the

change in the useful life assessment from indefinite to finite is made on a prospective basis.

Research and development costs

Research costs are expensed as incurred. An intangible asset arising from development expenditure on an

individual project is recognised only when the Company can demonstrate the technical feasibility of completing

the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset

and the ability to measure reliably the expenditure during the development.

During the period of development, the asset is tes ted for impairment annually. Following the initial recognition of

the development expenditure, the cost model is applied requiring the asset to be carried at cost less any

accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when

development is complete and the asset is available for use. It is amortised over the period of expected future

sales. During the period of which the assets are not yet in use it is tested for impairment annually.

2.2.5 Capital Work in Progress

Capital work in progress is transferred to the respective asset accounts at the time of the first utilization or at the

time the asset is commissioned.

2.2.6 Current Assets

Assets classified as current assets in the balance sheet are those expected to realize during the normal operating

cycle of group businesses or within one year from the balance sheet date, whichever is longer and cash balances.

Assets other than current assets are those which the company intends to hold beyond the one year period from

the balance sheet.

2.2.6.1 Inventories – Certified Emission Reduction

Carbon Credit Units as at the Balance Sheet date have been valued at their estimated net realizable

Value as Inventories and disclosed in the financial statements as Certified Emission Reduction.

2.2.6.2 Trade and Other Receivables

Trade and other receivables are stated at the amounts they are estimated to realize inclusive of

provisions for bad and doubtful receivables.

Other receivables and dues from related parties are recognized at cost less provision for bad and

doubtful receivables.

68




Page 10

2.2.6.3 Cash and Cash Equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short term highly liquid

investments readily convertible to known amounts of cash and subject to insignificant risk of changes

in value.

For the purpose of cash flow statement, cash & cash equivalent consists of cash in hand and deposits

in banks net of outstanding bank overdrafts. Investment with short term maturities i.e. three months

or less from the date of acquisitions is also treated as cash equivalents.

The cash flow statements are reported based on the indirect method.

2.3 LIABILITIES & PROVISIONS

2.3.1 Liabilities

Liabilities stated under current liabilities in the balance sh eet are those expected to fall due within one year

from the balance sheet date. Items stated as long term liabilities are those expected to fall due at point of

time after one year from the balance sheet date.

Expense and Other Payables

Expense and other payables are stated at their book values.

2.3.2 Provisions

Provisions are recognized when the company has a present obligations (legal & constructive) as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be

required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

2.3.2.1 Retirement Benefit Obligations

2.3.2.1.1 Defined Benefit Plans – Gratuity

The provision has been made for retirement gratuities from the first year of service for

all employees, in conformity with SLAS-16 on “Employment benefits” (Revised 2006).

The retirement benefit plan adopted is as required under the Payment of Gratuity Act

No. 12 of 1983, to eligible employees.

The Liability is not externally funded.

2.3.2.1.2 Defined Co ntribution Plans – EPF, ETF AND ESPS

Employees are eligible for Employee’s Provident Fund Contributions and Employee’s

Trust Fund Contributions in line with respective statutes and regulations. The companycontributes 12% and 3% of gross emoluments of employees to the Employee’s

Provident Fund and to the Employee’ Trust Fund respectively

2.3.2.2 Taxation

a) Curren t Taxes

Current income tax assets & liabilities for the current and prior periods are measured at

the amount expected to be recovered from or paid to the Commissioner General of

Inland Revenue.

The provision for income tax is based on the elements of income and expenditure as

reported in the financial statements and computed in accordance with the provision of the

Inland Revenue Act No. 10 of 2006.

69




HYDRO POWER FREE LANKA (PVT) LTDSIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS

Page 13

2009/2010 2008/2009 2009/2010 2008/2009

Rs. Rs. Rs. Rs.


RestatedRestated3. REVENUE

Sale o f E lect ri ca l Energy - S anquhar U ni t 57, 008, 271

- Delta Unit 45,424,526I nc om e f ro m C er ti fi ed Emi ss io n R ed uc ti on 1 2,4 86 ,4 97

114,919,294

4. OTHER INCOME

Interest Income 752,026

Amount Payable to Hydro Power SA written back 4.1 3,700,147

4,452,173

32,905,984

22,803,24514,862,246

70,571,475

1,436,414

347,348

1,783,762

57,008,271

45,424,52612,486,497

114,919,294

752,026

3,700,147

4,452,173

32,905,984

22,803,24514,862,246

70,571,475

1,436,414

347,348

1,783,762

4.1 Note

The amounts due to Hydro Power S.A, was written back during the Financial Year ended 2008/09 & 2009/10 as this Company, which was incorporated

in France was declared bankrupt and as the amounts were outstanding in the books of HPFL from the year 2002, without any claims being made on the

company.

Smaller amount due to Hydro Power S.A of Rs.347,348/-was written back in the previous year and larger amount due to Hydro Power S.A

Rs.3,700,147/- was wr itten back during this year.

5. FINANCE COSTS

Interest Expenses 11,314,384 11,927,635 11,314,384 11,927,635

Exchange Loss - 69,202 - 69,202

11,314,384 11,996,837 11,314,384 11,996,837

6. PROFIT BEFORE TAX IS STATED AFTER CHARGING ALL EXPENSES

INCLUDING THE FOLLOWING

Auditor's Remuneration

- Audit Services 270,000 85,000 120,000 85,000

De pr eciation on Proper ty, Plant a nd Equipment 13 ,67 0,4 24 12 ,13 3,564 13,670,424 12,133,564

Charity and Donation 100,000 6,000 100,000 6,000

Legal Expenses and Professional Fee 18,000 14,000 18,000 14,000Staff Costs

- Salaries and Wages 2,378,675 2,452,000 2,378,675 2,452,000

- Staff Overtime 772,613 529,890 772,613 529,890

- Defined Benefit Cost, Gratuity 169,675 75,250 169,675 75,250

7. INCOME TAX EXPENSE

Current Income Tax Provision 7.1 20,810,752 1,321,868 20,810,752 1,321,868

Deferred tax expenses / (Release) 7.2 (2,433,829) 28,009,996 (2,433,829) 28,009,996

18,376,923 29,331,864 18,376,923 29,331,864

72



Page 14

2009/2010 2008/2009 2009/2010 2008/2009

Rs. Rs. Rs. Rs.


RestatedRestated7.1 RECONCILIATION BETWEEN CURRENT TAX

EXPENSE/(INCOME) AND THE PRODUCT OF

ACCOUNTING PROFIT

Accounting Profit/(Loss) Before Tax (Rs.) 75,171,485 33,133,992 75,714,355 33,133,992

Tax Rate applicable 35% 35% 35% 35%

Lees : Income C onsidere d Separately 1 3,2 38,523 1,783,76 2 13,238,523 1,783,762

Add : 15,287,992 12,467,484 14,745,122 12,467,484

Lees : 14,595,925 14,161,981 14,595,925 14,161,981

Adjusted Service Profit 62,625,029 29,655,733 62,625,029 29,655,733

Add : Taxable Service Profit 62,625,029 1,950,646 62,625,029 1,950,646

Add : 759,540 1,770,304 759,540 1,770,304

L ee s : Ta x E ff ec t o f D ed uc ti on u nd er S ec :3 2 4 ,8 03 ,9 86 - 4,803,986 -

58,580,583 3,720,950 58,580,583 3,720,950

Income Tax Expense 20,503,204 1,302,333 20,503,204 1,302,333

Social Responsibility Levy 307,548 19,535 307,548 19,535Current Income Tax Provision 20,810,752 1,321,868 20,810,752 1,321,868

7.2 Deferred tax liability is recognised retrospectively.

8 EARNINGS PER SHARE

8.1 Basic Earnings Per ShareProfit Attributable to Ordinary Shareholders 56,794,562 3,802,128 57,337,432 3,802,128

Number of Ordinary Shares used as the Denominator Weighted Average Number of Ordinary Shares in Issue 74,088,112 74,088,112 74,088,112 74,088,112

74,088,112 74,088,112 74,088,112 74,088,112

Basic Earnings per Ordinary Share (Rs.) 0.77 0.05 0.77 0.05

8.2 Dividend per Share (Rs.)

Dividend Paid 43,659,066 - 43,659,066 -

Number of Ordinary Shares used as the Denominator

Weighted Average Number of Ordinary Shares in Issue 74,088,112 74,088,112 74,088,112 74,088,112

74,088,112 74,088,112 74,088,112 74,088,112

Dividend per Share (Rs.) 0.59 - 0.59 -

Interest Income

Taxable Income

Disallowable Expenses in determining Taxable Income

Allowable Expenses in determining Taxable Income

Basic Earnings per share is calculated by dividing the net profit for the year attributable to the ordinary share holders of the company by the

weighted average number if ordinary shares outstanding at the end of the year.

The reason for the lower EPS recorded for the period is due to the dilution of the weighted average number of ordinay shares by the share

split (1 for 56) that took place on 15th March, 2010 (Refer note 18). In order to maintain consistency, the EPS for the prior period

(2008/2009) has also been considered on the same basis.

73





Page 17

1 0

L E A S E H O L D P R O P E R T I E S

1 0 . 1

C O N S O L I D A T E D

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C O S T

A m o r t i s a t i o n

W D V

C O S T

A m o r t i s a t i o n

W D V

76


Note

2009/2010 2008/2009 2009/2010 2008/2009

Rs. Rs. Rs. Rs.


RestatedRestated


Page 18

11. CAPITAL WORK IN PROGRESS

Balance as at the Beginning of the Year 2,838,470 17,374,625 2,838,470 17,374,625

Add: Additons During the Year 7,589,993 8,704,131 - 8,704,131

Less: Amount Capitalised During the Year - (23,240,286) - (23,240,286)

Balance at the End of the Period 10,428,463 2,838,470 2,838,470 2,838,470

12. INVESTMENTS IN SUBSIDIARIES

Hydro Power FreeLanka 2 (Pvt) Ltd - - 10,000,000 -

Hydro Power FreeLanka 3 (Pvt) Ltd - - 10,000,000 -

Free Lanka Power 1 (Pvt) Ltd - - 10,000,000 -

- - 30,000,000 -

13 INVENTORIES

Certifies Emission Reduction 27,659,447 15,172,950 27,659,447 15,172,950

27,659,447 15,172,950 27,659,447 15,172,950

14. TRADE AND OTHER RECEIVABLES

Trade Debtors 6,028,639 1,972,159 6,028,639 1,972,159

Other Receivable 14.1 2,724,292 2,846,837 2,724,292 2,846,837

8,752,931 4,818,996 8,752,931 4,818,996

14.1 OTHER RECEIVABLE

VAT Receivable 2,340,959 2,340,959 2,340,959 2,340,959Insurance Receivable - 22,545 - 22,545

Staff Loan 383,333 483,333 383,333 483,333

2,724,292 2,846,837 2,724,292 2,846,837

15. AMOUNTS DUE FROM RELATED PARTIES

Hydro Power Services (Pvt) Ltd - 1,019,959 - 1,019,959Hydro Power Free Lanka 2 (Pvt) Ltd - - 467,415 -

Hydro Power Free Lanka 3 (Pvt) Ltd - - 956,693 -Free Lanka Power 2 (Pvt) Ltd 15,000 - 15,000 -

15,000 1,019,959 1,439,108 1,019,959

16. DEPOSITS, PREPAYMENTS & ADVANCES

Refundable Deposits 16.1 366,200 366,200 366,200 366,200Prepayments 16.2 414,235 430,756 414,235 430,756

Advances 16.3 1,460,982 1,412,466 1,460,982 1,412,466

2,241,417 2,209,422 2,241,417 2,209,422

16.1 REFUNDABLE DEPOSITS

MTN Network-IDD 40,000 40,000 40,000 40,000

Walkie Talkie Deposit 51,200 51,200 51,200 51,200CEB Deposit 200,000 200,000 200,000 200,000

Sanquhar Bulk Supply Deposit 75,000 75,000 75,000 75,000

366,200 366,200 366,200 366,200

16.2 PREPAYMENT

Sanquhar Insuranse

Delta Insuranse -BOI Charges

219,765

194,470-

414,235

219,765

194,470-

414,235

226,552

-204,204

430,756

226,552

204,204

430,756

The company invested further into the hydro power sector by fully subscribing to the share capital of these three entities on 30th March,

2010, where each entity had 10,000,000 ordinary shares in issue at a price of Rs.1/- per share.

77






Page 21

27 PLEDGED ASSETS

No assets have been pledged as security as at Balance Sheet Date

28. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

Company is planning to go for public offer of issuing 35 million shares.

29. COMPARATIVE INFORMATION

Comparative figures have been re-classified where necessary in line with the presentation requirements for the current year.

80


12.3 INTERIM FINANCIAL STATEMENTS AS AT 30TH JUNE 2010

Interim Report 1st Quarter 2010-2011

Provisional and Unaudited Financial Statements

INCOME STATEMENT

GROUP

2010 2010 2009 Change %

Three Months ended 30th June Rs. Rs. Rs.

Revenue 22,467,283 22,467,283 21,307,740 5%

Direct Expenses (9,777,205) (9,777,205) (6,547,237) 49%

Gross Profit 12,690,078 12,690,078 14,760,503 -14%

Other Income 17,500 17,500 283,111 -94%

Administrative Expenses (2,105,158) (2,014,403) (843,696) 139%

Other Operating Expenses (1,310,975) (1,310,975) (2,727) 47974%

Operating Profit 9,291,445 9,382,200 14,197,191 -34%

Finance Cost (1,763,270) (1,763,270) (2,667,629) -34%

Profit Before Tax 7,528,175 7,618,930 11,529,562 -34%

Income Tax Expenses - - -

Profit for the Period 7,528,175 7,618,930 11,529,562 -34%

Earnings Per Share 0.10 - -

Dividends Per Share - - -

Note : The above figures are provisional and subject to audit

Group Accounts - No comparative figures available for the 1st quarter of 2009 - 2010


COMPANY

81




CASH FLOW STATEMENT


GROUP

2010 2010 2009

For the three months ended 30th June Rs. Rs. Rs.

Cash Flows From/(Used in) Operating Activities

Profit before taxation 7,528,175 7,618,930 11,529,562

Adjustment for:

Amortisation of lease hold land 102,246 102,246 45,552

Gratuity 25,728 25,728 23,791

Depreciation 7,192,901 7,192,901 3,372,054

Bad Debts Written Off - - -

Interest income on Savings account (17,500) (17,500) (265,611)

Interest on bank loans 1,763,270 1,763,270 2,323,470

Operating profit before working capital changes 16,594,820 16,685,575 17,028,818

Decrease / (Increase) in trade and other receivables (18,998,944) (18,998,944) (16,886,789)

(Decrease) / Increase in other payables 3,301,932 1,410,967 1,321,660

Cash Generated from / (Used in) Operations 897,808 (902,402) 1,463,689

Interest paid (1,763,270) (1,763,270) (2,323,470)

Income Tax Paid (1,065,918) (1,065,918) (951,515)

Net Cash Flow From/ (Used in) Operating activities (1,931,380) (3,731,590) (1,811,296)

Cash Flows From/(Used In) Investing ActivitiesInterest Received 17,500 17,500 265,611

Purchases of Property, Plant and Equipment (173,894) (111,894) -

Investment in Capital - Work - In - Progress (1,738,210) - -

Written back amount payable - - -

Net Cash Flows From/(Used In) Investing Activities (1,894,604) (94,394) 265,611

Cash Flows From/(Used In) Financing Activities

Dividend paid - - -

Repayment of Borrowing - - (4,389,000)

Net Cash Flows From/(Used In) Financing Activities (4,389,000)

(Decrease) / Increase in cash and cash equivalents (3,825,984) (3,825,984) (5,934,685)

Cash and Cash Equivalents at Beginning of Period (Note A) 8,534,663 8,534,663 15,700,514

Cash and Cash Equivalents at End of Period (Note B) 4,708,679 4,708,679 9,765,829

Analysis of cash and cash equivalents

At the beginning

Balance at Bank 8,466,543 8,466,543 15,505,850

Cash in hand 68,120 68,120 194,664

8,534,663 8,534,663 15,700,514

At the End

Balance at Bank 4,624,684 4,624,684 9,574,503

Cash in Hand 83,995 83,995 191,326

4,708,679 4,708,679 9,765,829

COMPANY

Note : The above figures are provisional and subject to audit

Group Accounts - No comparative figures available for the 1st quarter of 2009 - 2010

84




EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS


1 The Interim Financial Statements have been prepared in accordance with the accounting policies set out in the audited accounts for the

year ended 31 March 2010, and also in compliance with Sri Lanka Accounting Standard 35 - Interim Financial Reporting.

Further, provisions of the new Companies Act.No.07 of 2007 have been considered in preparing the financial Statements.

2 The Previous years’/periods’ figures and phrases have been rearranged wherever necessary to confirm to the current presentation.

3 There has been no significant change in the nature of the contingent liabilities, which were disclosed in the audited financial statement for

the year ended 31 March 2010.

4 Sanquhar Mini Hydro Plant was closed during the period of 29/03/2010 - 12/05/2010 due to lightning damaged the Control Panel.

Negotiating with Insurer (Janashakthi Insurance PLC) to recover the Loss of Production.

5 There have been no other events subsequent to the Balance Sheet date, which require disclosure in the interim financial statements.

SEGMENTAL INFORMATION

Information based on Hydro Power Stations

GROUP

2010 2010 2009Rs. Rs. Rs.

Revenue

Delta Production 13,621,936 13,621,936 8,791,836

Sanquhar Production 6,681,281 6,681,281 10,238,468

Carbon Credit Income 2,164,066 2,164,066 2,277,436

Revenue Related to Energy Production 22,467,283 22,467,283 21,307,740

Site Expenses 9,777,205 9,777,205 6,547,237

Administration and Establishment Expenses 2,105,158 2,014,403 843,696

Finance cost 1,763,270 1,763,270 2,667,629

Other Expenses 1,310,975 1,310,975 2,727

14,956,608 14,865,853 10,061,289

Profit Before Other Income 7,510,675 7,601,430 11,246,451

Other Income 17,500 17,500 283,111

Profit / (Loss) for the period 7,528,175 7,618,930 11,529,562

COMPANY

85






A copy of the Margin Trading Agreement must be submitted along with the application.

A Margin Provider can apply under its own name and such applications will not be construed as multiple applications.

A Sri Lankan citizen must state his/her National Identity Card (NIC) number. In the case of corporate entities the

Company Registration Number must be given. A foreign citizen must state his/her Passport number in the space

provided. A Sri Lankan can state the Passport number only when the NIC number is not available provided that such

applicant lodges his/her shares directly with the CDS.

The Application Form properly filled in accordance with the instructions thereof, together with the remittance (cheque,

bank draft or guarantee) for the full amount payable on application should be enclosed in a sealed envelope marked

“Hydro Power Free Lanka Limited - Initial Public Offering” and be addressed and dispatched by post or delivered

by hand to the “Registrars to the Offering” at the following address:

Registrars to the Offering

SSP Corporate Services (Pvt) Ltd

No. 101, Inner Flower Road,

Colombo 03

Applications could also be handed over to the Managers to the Offering, the branches of the Bankers to the Offering and

CSE Member Firms as set out in “Annexure C - Collection Points”. All applications handed over should reach the

office of the Registrars to the Offering before 4.30pm on the date of closure of the Offering.

Applications communicated by post should reach the office of the Registrars to the Offering at least by 4:30 p.m. on the

succeeding market day immediately upon the closure of the Subscription List. Any applications received after the said

duration will be rejected even though they carry a postmark dated prior to the closing date.

Eligible Applicants

Applications are invited from the following categories of applicants:

Citizens of Sri Lanka who are resident in Sri Lanka and are above 18 years of age.

Companies, Corporations or Institutions incorporated or established within Sri Lanka.

Approved provident funds and approved contributory pension schemes registered / incorporated / established in Sri

Lanka. In the case of approved provident funds and approved contributory pension schemes the application should

be in the name of the Trustee / Board of Management in order to facilitate the opening of the CDS accounts.

Citizens of Sri Lanka resident outside Sri Lanka and are above 18 years of age.

Corporate bodies incorporated or established outside Sri Lanka.

Foreign Citizens above 18 years of age (Irrespective of whether they are resident in Sri Lanka or overseas).

Global, Regional and Country funds approved by the SEC.

11.

12.

13.

14.

15.

•

•

•

•

•

•

•

88


Mode of Payment

Payment should be made separately in respect of each application by way of a cheque or bank draft or bank

guarantee. Remittances on Applications will be deposited in a separate bank account in the name of “Hydro Power

Free Lanka Limited – Initial Public Offering”.

Payment for Applications for values above and inclusive of Rupees One Hundred Million (Rs. 100,000,000/-) should

only be supported by a bank guarantee. Che ques and bank drafts will not be accepted for values above and inclusive

of Rupees One Hundred Million (Rs. 100,000,000/-).

Each Application Form should be accompanied by only one cheque or bank draft or bank guarantee and should be

issued for the full amount indicated in the Application Form. An Application Form accompanied by two or more

cheques or bank drafts or bank guarantees will be rejected at the outset.

Cash will not be accepted. Anyone wishing to pay cash should obtain a bank draft from any Commercial Bank in Sri

Lanka.

Cheques or Bank Drafts should be drawn on any commercial bank in Sri Lanka and crossed “Account Payee Only”

and made payable to “Hydro Power Free Lanka Limited – Initial Public O ffering”

The amount payable should be calculated by multiplying the number of Shares applied for, by the share Offer Price.

If there is discrepancy in the amount payable and the amount specified in the cheque or bank draft, the application will

be rejected, and the cheque or bank draft will not be sen t for clearing and shall be returned via ordinary post at the

risk of the applicant, or in the case of joint applicants, to the first named applicant.

In the event that cheques are not realized within three (3) market days from the day of presenting the same to the

bank for clearing, the cheque will be returned and no allotment of shares will be made to the investors.

Investors residing in outstation areas from which cheque clearance may take over two (02) Market Days are advised

to make payment via bank drafts to avoid any delays.

Cheques must be honored on first presentation for the application to be valid. Applications supported by cheques

which are not honored on the first presentation will be rejected.

Bank Guarantees should be issued in favour of “Hydro Power Free Lanka Limited – Initial Public Offering” in a manner

acceptable to the Company and be payable on demand. The Bank Guarantees will be presented to the respective

Banks only after the shares have been allotted / allocated.

Investors are advised to ensure that sufficient funds are available in order to h onour the bank guarantee, inclusive of

charges, when called upon to do so by the Registrars to the Offering. Investors are encouraged to discuss with their

relevant bankers with regard to the issuance of the guarantee and all related charges that would be incurred by the

investors.

All cheques / bank drafts or bank guarantees received in respect of Applications will not be banked until the day after

the closure of the Su bscription List, in terms of the CSE listing rules. The Company shall endeavour to make allotment

within seven (7) market days from the closure of the Offering.

12.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

89




For successful applicants, share certificates will be dispatched (in the case of joint holders to the first n amed applicant)

before the expiry of twenty five (25) market days from the date of closure of the Offering by registered post to the

address provided by each shareholder in their respective applications. Where requested by a sh areholder, the shares

allotted will be directly uploaded to the respective CDS account given in their applications before the expiry of

eighteen (18) market days, from the date of closure of the Offering.

A written confirmation of the allocation will be sent to the investor within two (2) market days of crediting the CDS

accounts by ordinary post to the address provided by each shareholder in the respective applications.

In terms of the CSE listing rules the shares may be listed upon the completion of the CDS uploads and prior to the

dispatch of share certificates. Therefore investors who wish to trade shares in the secondary market from the first day of

commencement of trading are advised to request for a direct upload of shares to their CDS Account by stating the CDS

Account number when applying for shares. In the event that the CDS Account number is not stated in the Application

Form, the investor may not receive the share certificate dispatched by post, before the Company commences trading on

the CSE.

3.

92


ANNEXURE B

EXTRACTS FROM THE ARTICLES OF ASSOCIATION OF THE COMPANY

3. The objects of the Company are -

To establish and carry on the business of production and sale of Energy in any part of Sri Lanka by utilizing hydro power,

solar power, wind power, nuclear power, fossil fuels, tides, natural thermal gradients, bio-mass, and any natural or nonnatural resources that can be applied or utilized to produce energy, subject to the receipt of regulatory approvals;

To establish and carry on the business of conducting research studies and investigations and to act as consultants,

designers, and contractors for the establishment of power projects and plants for the production of energy of whatever

type;

To establish and carry on the business of conducting research and development in the fields of energy production,

distribution and/or conveyance of energy, and for the development of any and all types of plants, machinery, tools,

equipment and devices relevant to the activities of energy production, distribution and sale, and utilise the results for

commercial gain;

To carry on the bus iness of investing in shares, stocks, options, funds, debentures, debenture s tocks, bonds, obligations

or securities or acquiring any other interest whatsoever in any company which is involved in the generation,

transmission or distribution of power.

The objects set forth in any sub-clause of this clause shall not, except when the context expressly so requires, be in any way

limited or restricted by reference to or inference from the te rms of any other sub-clause, or by the name of the Company. None

of such sub-clauses or the objects therein specified or the powers thereby conferred shall be deemed merely subsidiary or

auxiliary to the objects mentioned in any other sub clause of this clause, but the Company shall have full power to exercise all

or any of the powers conferred by any part of this clause in any part of the world and notwithstanding that the business,

undertaking, property or acts proposed to be transacted, acquired, dealt with or performed do not fall w ithin the objects of any

other sub-clause of this clause.

4. Shares

Subject to Articles 4(2) and 4(3), of these Articles, the Board may issue such shares to such persons as it thinks fit in

accordance with section 51 of the Act. Where the shares confer rights other than those specified in subsection (2) of

section 49 of the Act, or impose any obligation on the holder, the Board must approve the terms of issue which set out

the rights and obligations attached to the shares as required by subsection (2) of section 51 of the Act.

Before it issues shares, the Board must decide the c onsideration for which the shares will be issued. The consideration

must be fair and reasonable to the Company and to all existing shareholders.

(i)

(ii)

(iii)

(iv)

(1)

(2)

93




The Company may by Special Resolution and subject to the provisions of the Act,

consolidate or split (i.e. sub divide) all or any of its sh ares in issue in such proportions as it may seem fit, in a manner

which would leave the relative voting and distribution rights of all shareholders substantially unaffected;

capitalize any part of the amounts for the time being standing to the credit of any of the Company’s reserve accounts

in a manner which would leave the relative voting and distribution rights of all shareholders substantially unaffected;

The consolidation, split or capitalization shall take effect on such day as may be determined in the said resolution or by

the Board.

The Company shall within one month issue a share certificate for the number of shares consequent to such

consolidation and split in lieu of the share certificates held by the shareholder.

In the event of a shareholder becoming entitled to a fraction of a share, consequent to the consolidation, split or

capitalization, the Directors shall have the power to sell such fractional entitlements and donate the proceeds there from

to a charity of their choice.

SHARE REGISTER, SHARE CERTIFICATES AND TRANSFER AND TRANSMISSION OF SHARES

The Company must maintain a share register, which complies with section 123 of the Act. The share register must

be kept at the registered office of the Company or any o ther place in Sri Lanka, notice of which has been given to the

Registrar in accordance with subsection (4) of section 124 of the Act.

Where shares are to be transferred, a form of transfer signed by the holder or by his legal representative shall be

delivered to the Company. The transfer must be signed by the transferee if the share imposes any liability on its holder.

The Board may resolve to refuse to register a transfer of a share within six weeks of receipt of the transfer, if any

amount payable to the Company in respect of the share is due but unpaid. The Company shall not register more

than three (03) persons as joint holders (including the principal holder) of any shares (except in the case of

executors, administrators or heirs of a deceased member). The Board must give notice of the refusal to the

shareholder within one week of the date of the resolution.

The Directors may also decline to register a transfer of a share on which the company has a lien.

Where a joint holder of a share dies, the remaining holders shall be treated by the Company as the holders of that

share. Where the sole holder of a share dies, that shareholder’s legal representative shall be the only person

recognized by the Company as having any title to or interest in the share.

Any person who becomes entitled to a share as a consequence of the death, bankruptcy or insolvency or incapacity

of a shareholder may be registered as the h older of that shareholder’s shares upon making a request in writing to the

Company to be so registered, accompanied by proof satisfactory to the Board of that entitlement. The Board may

refuse to register a transfer under this Article in the circumstances set out in Article 10(iii).

Where the Company issues shares or the transfer of any shares is entered on the share register, the Company must

within one month complete and have ready for delivery a share certificate in respect of the shares

(i)

(ii)

(2)

(1)

(3)

(4)

9.

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(a)

(b)

10.

96


If a Share Certificate be defaced, lost or destroyed, it may be renewed on payment of such fee not exceeding Rs.

100/- and on such terms as to evidence and indemnity and the payment of out-of-pocket expenses of the Company

in investigating evidence as the Directors’ think fit.

Notwithstanding any provision in these Articles suggesting the contrary;

shares listed on the Colombo Stock Exchange or any other Licensed Stock Exchange shall be freely transferable

and registration of the transfer of such listed shares shall not be subject to any restriction, save and except to the

extent required for compliance with statutory requirements;

the Board may register without assuming any liability therefore any transfer of shares which is in accordance with

the rules and regulations in force for the time being and from time to time as laid down by such Licensed Stock

Exchange and any agency whose primary object is to act as a Central Depository for such exchange.

DIRECTORS AND SECRETARY

The number of directors shall not be less than three (3) nor more than twelve (12) in number.

The Directors shall have power at any time to appoint any person to be a director to fill a casual vacancy as an addition

to the existing directors subject to the maximum number set out in Article 24(1). Any Director so appointed shall hold

office until the next following Annual General Meeting and shall be e ligible for re-election and not be counted for Article

24 (6) below.

A director may be appointed or removed by ordinary resolution passed at a meeting called for the purpose. The

shareholders may only vote on a resolution to appoint a director if -

the resolution is for the appointment of one director, or

the resolution is a single resolution for the appointment of two or more persons as directors, and a separate

resolution that it be so voted on has first been passed without a vote being cast against it.

A director may resign by delivering a signed written notice of resignation to the registered office of the Company. Subject

to section 208 of the Act, the notice is effective when it is received at the registered office or at any later time specified

in the notice.

A director vacates office if he -

(b) is removed from office in accordance with the provisions of the Act or these Articles;

(c) becomes disqualified from being a director pursuant to section 202 of the Act ;

(d) dies; or

(e) vacates office pursuant to subsection (2) of section 210 of the Act , on the ground of his age.

(a)

(b)

(a)

(b)

(1)

(2)

(3)

(4)

(5)

(vii)

(viii)

97




A director who is interested in a transaction to which the Company is a party must disclose that interest in

accordance with section 192 of the Act.

Subject to Article 26(3), a director of th e Company is interested in a transaction to which the Company is a party, if,

and only if, the director -

(a) is a party to or will or may derive a material financial benefit from the transaction;

(b) has a material financial interest in another party to the transaction;

(c) is a director, officer or trustee of another party to, or person who will or may derive a material financial benefit

from the transaction, not being a party or person that is –

(i) the Company’ s holding company, being a holding company of which the Company is a wholly-

owned subsidiary;

(ii) a wholly-owned subsidiary of the Company; or

(iii) a wholly subsidiary of a holding company of which the Company is also a wholly-owned subsidiary;

(d) is the parent, child or spouse of another party to or person who will or may derive a material financial benefit

from the transaction; or

(e) is otherwise directly or indirectly materially, interested in the transaction.

A director of the Company is not interested in a transaction to which the Company is a party, if the transaction

comprises only the giving by the Company of security to a third party which has no connection with the director, at

the request of the third party, in respect of a debt or obligation of the Company for which the director or another

person has personally assumed responsibility in wh ole or in part, under a guarantee, indemn ity or by the deposit of

a security.

Article 24(2) does not apply to any remuneration or other benefit given to a director in accordance with section 216

of the Act, or, to any insurance or indemnity provided in accordance with section 218 of the Act.

A director of the Company who is interested in a transaction entered into or to be entered into by the Company,

may -

(a) vote on a matter relating to the transaction;

(b) attend a meeting of directors at which a matter relating to the transaction arises and be included among the

directors present at the meeting for the purpose of a quorum;

(c) sign a document relating to the transaction on behalf of the Company; and

(d) do any other thing in his capacity as a director in relation to the transaction, as if he were not interested in the

transaction.

(26) (1)

(2)

(3)

(4)

(5)

100


A director of the Company who has information in his capacity as a director or employee of the Company which

would not otherwise be available to him, mus t not disclose that information to any person or make use of or act on

the information, except -

(a) for the purposes of the Company;

(b) as required by law; or

(c) in accordance with Article 26(7).

A director of the Company may disclose, make use of or act on information if -

(a) the director is first authorized to do so by the Board under Article 26(8); and

(b) particulars of the authorization are entered in the interests register.

The Board may authorize a director to disclose, make use of or act on information, if it is satisfied that to do so will

not be likely to prejudice th e Company.

A director must disclose all dealings in shares of the Company in which he has a relevant interest, in accordance with

sections 198, 199 and 200 of the Act.

The Board may approve;

(a) the payment of any remuneration and/or the provision of other benefits by the Company to a Director for

services as Director or for services rendered to the Company in any other capacity.

(b) the payment by the Company to a Director or a former Director of compensation for loss of office,

(c) the entering into of a contract to do any of the above,

if the Board is satisfied that to do so is fair to the Company

The Company may by ordinary resolution also vote extra remuneration and / or other benefits to the Directors or

to any Director as may be recommended by the Board for the performance of extra services to the Company.

The Directors shall also be entitled to be repaid all traveling, hotel or other expenses properly incurred by them in

or with a view to the performance of their duties including attendance at Board Meetings.

Nothing in these Articles shall prevent the payment to a Director of any further remun eration for services performed

by him by virtue of any other office or position held by him in conjunction with his directorship.

A meeting of directors may determine its own procedure, to the extent that it is not governed by these Articles.

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(27)

101




if the alternate director shall have a receiving order made against him or compounds with his creditors or

is adjudicated an insolvent;

if the alternate director be lunatic or becomes of unsound mind;

if the appointment of the alternate director is revoked by his Appointer by a notice in writing left at the

office;

if the Board resolve that the appointment of the alternate director be terminated; provided that such

termination shall not take effect until the expiration of thirty (30) days after the date of the resolution of

the Board;

is disqualified by Statute;

A director shall not vote on the question of the approval of an alternate director to act for him or on the

question of the termination of th e appointment of such an alternate director under sub paragraph (f) of the last

foregoing sub clause of this Article and if he does so his vote shall not be counted.

(v)

(c)

(d)

(e)

(f)

(g)

104


DISTRIBUTION AND RESERVES

The Company may make distributions to shareholders in accordance with section 56 of the Act Subject to Article 37 (2),

every dividend must be approved by the Board and by an ordinary resolution of shareholders. The Board must be

satisfied that the Company will immediately after the distribution, satisfy the solvency test. The directors who vote in

favour of a dividend must sign a certificate of solvency to that effect.

The Board may from time to time approve the payment of an interim dividend or any fixed preferential dividend to

shareholders, where that appears to be justified by the Company’s profits, without the need for approval by an ordinary

resolution of shareholders.

The Board must;

(a) be satisfied that the Company will immediately after the divided is paid under (1) or (2) above, satisfy the solvency

test,

(b) ensure the directors who vote in favour of the divided must sign a certificate of solvency their opinion the

Company will satisfy the solvency test immediately after the distribution is made; and

(c) obtain a certificate of solvency from the auditors.

The Company is deemed to have satisfied the solvency test if-

(a) it is able to pay its debts as they fall due in the normal course of business; and

(b) the value of its assets is greater than the sum o f the value of its liabilities and its stated capital.

Before the Directors make any distributions, they may set aside, out of the profits of the Company, such sum as they

think proper as a reserve fund or funds.

Subject to the provisions of Article 37(3), the Board may authorize a distribution by way of a dividend to be paid

to the shareholders according to their rights and interests in the profits and may fix the time for payment.

Any dividend or interim dividend which may be authorized by the Directors, may be paid by means of cash or by

the distribution of specific assets and, in particular, of paid-up shares, debentures or debenture stock of the

Company or of any other company or in specie o r in any one or more of such ways and where any difficulty arises

in regard to the distribution, they may settle the same as they think expedient and in particular may fix the value

for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to

any member upon the footing of the value so fixed in order to adjust the rights of all parties and may vest any such

specific assets in trustees upon such trusts for the persons entitled to the dividend as may seem expedient to the

Board.

Subject to the provisions of Article 37(3), the Board may authorize a distribution by way of a dividend to be paid

to the shareholders according to their rights and interests in the profits and may fix the time for payment.

(1)

(2)

(3)

(4)

(5)

(1)

(2)

(3)

105




MEMBERS AND TRADING MEMBERS OF THE COLOMBO STOCK EXCHANGE

CSE MEMBERS – DEBT & EQUITY

Acuity Stockbrokers (Pvt) Ltd.

Level 6, Acuity House

No. 53, Dharmapala Mawatha

Colombo 3

Tel: 2206206 Fax: 2206298/9

E-mail: [email protected]

Asia Securities (Pvt) Ltd.

Level 21, West Tower

World Trade Centre, Echelon Square

Colombo 1

Tel: 2423905, 5320000 Fax: 2336018


Bartleet Mallory Stockbrokers (Pvt) Ltd.

Level "G", "Bartleet House"

No 65, Braybrooke Place

Colombo 2

Tel: 5220200 Fax: 2434985


Ceylinco Stockbrokers (Pvt) Ltd.

Ceylinco House, Level 9

No. 69, Janadhipathi Mawatha

Colombo 1

Tel: 4-714300, 4-714388 Fax: 2387228


Web site: www.ecsbl.com

D N H Financial (Pvt) Ltd.

Level 16, West Tower, World Trade Center

Colombo 1

Tel: 5732222 Fax: 5736264


John Keells Stockbrokers (Pvt) Ltd.

No. 130, Glennie Street

Colombo 2

Tel: 2326003, 2338066 Fax: 2342068

E-mail:[email protected]

Asha Phillip Securities Ltd.

Level 4, "Millennium House"

No. 46/58, Navam Mawatha,

Colombo 2

Tel: 2429100, Fax: 2429199


Assetline Securities (Pvt) Ltd.

No. 282, Kaduwela Road

Battaramulla

Tel: 4700111, 2307366 Fax: 4700112


Web site:www.dpgsonline.com

Capital TRUST Securities (Pvt) Ltd.

No. 42, Sir Mohamed Macan Markar Mawatha

Colombo 3

Tel: 5-335225 Fax: 5-365725


Web site: www.capitaltrust.lk

CT Smith Stockbrokers (Pvt) Ltd.

4-14, Majestic City

No. 10, Station Road

Colombo 4

Tel: 2552290 - 4 Fax: 2552289


J B Securities (Pvt) Ltd.

No. 150, St. Joseph Street

Colombo 14

Tel: 2490900, 077-2490900 Fax: 2430070


Lanka Securities (Pvt) Ltd.

No. 228/2, Galle Road

Colombo 04

Tel: 4706757, 2554942 Fax: 4706767


Web site: www.lsl.lk

108


N D B Stockbrokers (Pvt) Ltd.

5th Floor, NDB Building

No. 40, Navam Mawatha

Colombo 2

Tel: 2314170-8 Fax: 2314180


Somerville Stockbrokers (Pvt) Ltd.

No. 137, Vauxhall Street

Colombo 2

Tel: 2329201, 2332827 Fax: 2338291


Capital Alliance Securities (Pvt) Ltd.

Level 5, "Millennium House"

No. 46/58, Navam Mawatha

Colombo 2

Tel: 2317777 Fax: 2317788

Heraymila Securities Ltd.

No. 532/4 F, Srikotha Lane

Galle Road

Colombo 3

Tel: 2372561-4 Fax: 2372565


SKM Lanka Holdings (Pvt) Ltd.

No. 377/3, Galle Road

Colombo 3

Tel: 2372413-4 Fax: 2372416


Taprobane Securities (Pvt) Ltd.

2nd Floor

No. 10, Gothami Road

Colombo 08

Tel: 5231000 Fax: 5328177

E-mail: [email protected], [email protected]

Web site: www.taprobanestocks.com

S C Securities (Pvt) Ltd.

2nd Floor

No. 55, D.R. Wijewardena Mawatha

Colombo 10

Tel: 4711000 Fax: 2394405


First Guardian Equities (Pvt) Ltd.

32nd Floor, East Tower, World Trade Centre

Colombo 1.

Tel: 5884400 Fax: 5884401


IIFL Securities Ceylon (Pvt) Ltd.

27th Floor, East Tower, World Trade Centre

Colombo 1

Tel: 2333000 Fax: 2333383


SMB Securities (Pvt) Ltd.

No. 47, Dharmapala Mawatha

Colombo 3

Tel: 5539593 Fax: 2339292


TRADING MEMBERS – DEBT & EQUITY

109


INSTRUCTIONS The bank guarantee should be payable on demand, issued in favour of“Hydro Power Free Lanka Limited – Initial Public Offer” and should

Applicaon Form



Application Form

The Application Form must be completed in FULL in BLOCK CAPITALLETTERS. Please tick (√) in the appropriate boxes.

Applications must be made for a minimu m of two thousand (2000) sharesand multiples of one thousand (1000) shares thereof.

Payment should be calculated by multiplying the number of sharesapplied for by the issue price of ten rupees (Rs.10/-).

Applications made for less than two thousand (2000) shares or for anumber which is not in multiples of one thousand (1000) shares will berejected.

Applications are invited from the following categories of applicants:

Citizens of Sri Lanka who are resident in Sri Lanka and are above 18years of age.

Companies, Corporations or Institutions incorporated or establishedwithin Sri Lanka.

Approved provident funds and approved contributory pensionschemes registered / incorporated / established in Sri Lanka. In thecase of approved provident funds and approved contributory pensionschemes the application should be in the name of the Trustee / Boardof Management in order to facilitate the opening of the CDSaccounts.

Citizens of Sri Lanka resident outside Sri Lanka and are above 18years of age.

Corporate bodies incorporated or established outside Sri Lanka.

Foreign Citizens above 18 years of age (Irrespective of whether theyare resident in Sri Lanka or overseas).

Global, Regional and Country funds approved by the SEC.

If the ownership of shares is desired in the name of one individual, fulldetails should be given o nly under the h eading, SOLE / FIRST APPLICANT.

In the case of joint applicants, the signatures and particulars in respect ofboth applicants must be given under the relevant headings.

In the case of Applications made under Power of Attorney (POA), a copyof the original POA certified by a Notary Public should accompany suchApplications to be lodged with the Registrars to the Offer. The originalPOA should not be attached.

Applicants are requested to state their nationality and residency in theappropriate cages provided in the Application Form.

The passport number will be accepted only when the NIC number is notavailable provided such applicants directly lodge their shares with theCDS.

The CDS account must be for the same passport number.

Foreign citizens must state the passport number in the space provided.

Corporate entities must provide the company registration number.

Any Application Form which does not state NIC, passport orcompany registration number as the case may be will be rejected.

In the event of joint Applications, the applicants should note that bothparties should either be residents of Sri Lanka or non-residents.

An applicant of a joint Application may not apply through a separateApplication Form either individually or jointly.

Only one Application will be accepted on behalf of a natural person or acorporate body.

Multiple Applications will be rejected.

Applicants who wish to apply through their Margin Trading Account, should submit the Application in the name of the “Margin Provider /

Applicant’s Name” signed by the Margin Provider. An applicant under aMargin Trading Account should state their relevant identification numberas applicable. The applicants should state the relevant CDS accountnumber relating to the Margin Trading Account in the space provided forthe CDS account number in the Application Form. A photocopy of theMargin Trading agreement must be submitted along with the Application.

Please note that the Margin Provider can apply under its own name andsuch Applications will not be construed as multiple Applications.

Mode of Remittance

Payments should be made separately in respect of each Application byway of cheque or bank draft or bank guarantee. Each Application shouldbe accompanied by only one cheque or bank draft or bank guarantee andshould be issued for the full amount indicated in the Application Form.

Anyone wishing to pay cash may obtain a bank draft at a nominal feefrom any commercial bank providing such facility.

Cheques or bank drafts should be drawn on any commercial bank in Sri

ybe in a manner acceptable t o the Company.

Payment for Applications for values up to Rupees One Hundred Million(Rs. 100,000,000/-) could be supported by a cheque or bank draft or bank guarantee.

Payment for Applications above and inclusive of Rupees One HundredMillion (Rs.100,000,000/-) should only be accompanied by a bank guarantee.

Investors residing in outstation areas from which cheque clearance maytake over two (02) days are advised to pay via bank drafts to avoid delays.An Application with two or more cheques or bank drafts or bank guarantees will be rejected. Cash will not be accepted.

Please refer to Prospectus for further Mode of Remittance details.

Refund Payments

In the event of an oversubscription, if the applicant has provided accuratedetails of his/her bank account in the Application Form, the refund payment willbe made to the bank account specified by the applicant via the Sri Lanka InterBank Payment System (SLIPS). In such instances, a payment advice shall beissued to the applicant. In the event the details provided under SLIPS areinaccurate, refund payments will be made via cheques.

Forwarding Completed Application Forms

The Application Form duly completed together with the r emittance for the fullamount payable should be dispatched by post or delivered by hand in anenvelope addressed to REGISTRARS TO THE OFFER, S S P CORPORATESERVICES (PRIVATE) LIMITED, NO. 101, INNER FLOWER ROAD,COLOMBO 03 and marked “HYDRO POWER FREE LANKA LIMITED - INITIALPUBLIC OFFER” on the top left hand corner. Completed Applications could alsobe handed over to the collection points given below.

Application Collection Points

Managers to the Offering

• Taprobane Holdings Limited

No. 10, Gothami Road

Colombo 08

Bankers to the Offering

• Seylan Bank PLC and its designated branches.

Please refer Annex C of the Prospectus on further details of Seylan

Bank PLC branches.

Member Firms of the CSE

• Acuity Stockbrokers (Pvt) Limited

• Asha Phillip Securities Limited

• Asia Securities (Pvt) Limited

• Assetline Securities (Pvt) Limited

• Bartleet Mallory Stockbrokers (Pvt) Limited

• Capital Trust Securities (Pvt) Limited

• Ceylinco Stockbrokers (Pvt) Limited

• CT Smith Stockbrokers (Pvt) Limited

• DNH Financial (Pvt) Limited

• J B Securities (Pvt) Limited

• John Keells Stockbrokers (Pvt) Limited

• Lanka Securities (Pvt) Limited• NDB Stockbrokers (Pvt) Limited

• S C Securities (Pvt) Limited

• Somerville Stockbrokers (Pvt) Limited

Trading Members of the CSE

• Capital Alliance Securities (Pvt) Limited

• First Guardian Equities (Pvt) Limited

• Heraymila Securities Limited

• IIFL Securities Ceylon (Pvt) Limited

• SKM Lanka Holdings (Pvt) Limited

• SMB Securities (Pvt) Limited

• Taprobane Securities (Pvt) Limited

m u d r a n a pr i n t er s

ISSUE PRICE

OF RS. 10/=

AMOUNT PAYABLE (RS.)

HYDRO POWER FREE LANKA LIMITED - INITIAL PUBLIC OFFER(Please read instrucons on the reverse and use BLOCK CAPITALS)

OFFERING OF THIRTY FIVE MILLION (35,000,000) ORDINARY SHARES OF THE COMPANY AT AN ISSUE PRICE OF TEN RUPEES (Rs.10) PER SHARE

TO: The Directors - Hydro Power Free Lanka Limted, No.168, Negombo Road, Peliyagoda

RESIDENT NON-RESIDENT

NATIONALITY SRI LANKAN OTHERSRI LANKAN OTHER



SRI LANKAN OTHER

I / We, the undersigned hereby apply for and request you to allot to me / us the number of ordinary shares stated below on the above offer. The amount payable on

applicaon is remied herewith. I / We hereby agree to accept the shares applied for or such smaller number as may be alloed to me / us, subject to the terms and

condions contained in the Propectus dated 28 th September 2010 and the Arcles of Associaon of the Company. I / We authorise you to procure my / our name(s) to

be placed in the Register of Members of Hydro Power Free Lanka Limited for such number of shares that may be alloed on the basis of acceptance by the Company.

ISSUE OPENS October 26, 2010 ISSUE CLOSES November 15, 2010 EARLIEST CLOSING October 26, 2010

DATE 2010

NUMBER OF SHARES SUBCRIBED FOR

GUARANTEEM OD E O F PAY ME NT ( PL EA SE T IC K √ A PP RO PR IAT E) C HE QU E B AN K D RA FT

CHEQUE / BANK DRAFT / GUARANTEE DETAILSNAME OF BANK BANK BRANCH NAME CHEQUE / BANK DRAFT / GUARANTEE NO.

SOLE/ PRIMARY APPLICANT JOINT APPLICANTS (1 & 2)

RESIDENCY

IN SRI LANKA

STATUS (MR /

MRS / OTHER)

SURNAME

WITH INITIALS /

COMPANY

NAME

OTHER

NAMES

(AS DENOTED

BY INITIALS)

ADDRESS

CONTACT NO.

NIC / PP /

CO. REG. NO.

OCCUPATION

1.

1.

2.

2.

1.

2.

1.

2.

1.

1.

2.

2.

1.

2.

1.

2.

1.

2.

NAME AND ADDRESS OF FINANCIER (MARGIN TRADING ONLY)

CDS ACCOUNT NUMBER (FOR DIRECT DEPOSITS ONLY)

REFUND INSTRUCTIONS

P LE AS E T ICK (√ ) TI CK A S A PP RO PR IAT E DIR ECT TR ANSF ER VI A SL IP S CHEQUE SENT VIA POST TO SOLE / PRIMARY APPLICANT

DETAILS FOR DIRECT TRANSFER VIA SRI LANKA INTER-BANK SYSTEM (SLIPS)*

BANK NAME ACCOUNT TYPEBRANCH NAME

BANK CODE BRANCH CODE ACCOUNT NUMBER

DECLARATION IN TERMS OF SECTION 15 OF THE EXCHANGE CONTROL ACT OF SRI LANKA

I / We the above applicant(s), of the above menoned ordinary shares hereby declare that I am / we are cizens of and resident in Sri Lanka andI am / we are not acng as nominee(s) of any person(s) resident outside Sri Lanka. (For Sri Lankan Cizens of and resident in Sri Lanka andCorporate bodies incorporated in Sri Lanka in terms of Secon 15 of the Exchange Control Act).

I / We the above applicant(s), of the above menoned ordinary shares hereby declare that I / we have made remiances enclosed out of fundsauthorised by the Controller of Exchange. Confirmaon from the Bank to such effect is aached to this applicaon. (For non-residents, foreigncizens and corporate bodies established outside Sri Lanka).

APPLICANTS MUST

TICK (√) ONE

BOX ONLY

SIGNATURES

SOLE / PRIMARY FIRST JOINT SECOND JOINT

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