Fs ege haina 2006 2004 en

Empresa Generadora de Electricidad Haina, S. A. Report of Independent Auditors and Financial Statements December 31, 2006, 2005 and 2004

Empresa Generadora de Electricidad Haina, S. A. Contents December 31, 2006, 2005 and 2004 Page(s) Report of Independent Auditors..........................................................................................................1 Financial Statements Balance Sheets ........................................................................................................................................2 Statements of Operations ........................................................................................................................3 Statements of Changes in Shareholders’ Equity .....................................................................................4 Statements of Cash Flows ................................................................................................................... 5-6 Notes to Financial Statements........................................................................................................... 7-24

PricewaterhouseCoopers Ave. John F. Kennedy Edificio Banco Nova Scotia, 3er Piso Apartado Postal 1286 Santo Domingo, Rep. Dom. Telephone 809 567 7741 Facsimile 809 541 1210

Report of Independent Auditors To the Board of Directors and Shareholders of Empresa Generadora de Electricidad Haina, S. A.

We have audited the accompanying balance sheets of Empresa Generadora de Electricidad Haina, S. A. (“the Company”) at December 31, 2006 and 2005, and the related statements of operations, of changes in shareholders’ equity and of cash flows for the years ended December 31, 2006, 2005 and 2004, expressed in United States Dollars (U.S. dollars). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to in the first paragraph above, expressed in U.S. dollars, present fairly, in all material respects, the financial position of Empresa Generadora de Electricidad Haina, S. A. at December 31, 2006 and 2005, and the results of its operations and its cash flows for the years ended December 31, 2006, 2005 and 2004 in conformity with accounting principles generally accepted in the United States of America.

The electricity sector continues to be affected by the financial difficulties experienced by the local distribution companies. Following the acquisition by the Dominican government of the controlling interest of two major energy distributors in the second semester of 2003, Company's revenues are concentrated with Dominican government controlled distribution companies, representing 70% and 68% of revenues in 2006 and 2005, respectively.

April 13, 2007

1

Empresa Generadora de Electricidad Haina, S. A. Balance Sheets December 31, 2006 and 2005 2005

2006 Assets Current assets Cash and cash equivalents (including short-term deposits of US$1,010,953 at 4.6% at December 31, 2006) Accounts receivable (Note 4) Inventories (Note 5) Prepaid expenses (Note 6) Deferred income tax (Note 15) Total current assets Deposits in banks, restricted (Note 10) Long-term receivables (Note 16) Property, plant and equipment, net (Note 7) Intangible assets, net (Note 8) Other assets

Liabilities and Shareholders’ Equity Current liabilities Short-term debt (Note 9) Current portion of long-term debt (Note 10) Accounts payable Payables to related parties (Note 19) Other liabilities (Note 11) Total current liabilities Long-term debt (Note 10) Deferred income tax (Note 15) Other non-current liabilities, including amounts due to related parties of US$13,972,674 and US$13,839,621, respectively (Note 12) Shareholders’ equity (Note 14) Common stock, RD$100 value (US$6.29) Class A – 22,975,500 shares authorized, issued and outstanding Class B – 22,975,500 shares authorized, issued and outstanding Legal reserve Accumulated deficit Accumulated other comprehensive loss Total shareholders’ equity

US$

7,423,255 71,360,840 16,235,986 1,944,356 2,781,470

US$

99,745,907

89,720,443

11,944,824 41,901,033 273,219,801 10,804,799 296,702

11,407,737 41,700,000 297,292,052 12,918,431 359,907

US$437,913,066

US$453,398,570

US$ 13,905,062 4,370,140 17,489,203 20,406,409 8,675,868

US$ 17,486,201 4,370,140 26,237,091 26,808,782 27,779,282

64,846,682

102,681,496

88,712,645 7,861,016

92,015,445 2,179,041

14,551,056

15,522,202

175,971,399

212,398,184

144,500,000

144,500,000

144,500,000

144,500,000

289,000,000 6,799,577 (2,825,915) (31,031,995)

289,000,000 5,752,513 (22,720,132) (31,031,995)

261,941,667

241,000,386

US$437,913,066

US$453,398,570

The accompanying notes are an integral part of these financial statements.

2

4,929,046 57,912,397 16,555,934 8,144,025 2,179,041

Empresa Generadora de Electricidad Haina, S. A. Statements of Operations Years Ended December 31, 2006, 2005 and 2004

Revenues Energy (Note 16) Capacity (Note 16) Operating costs Fuel (Note 17) Transmission (Note 19) Purchased power (Note 17) Compensation for frequency regulation Operating and maintenance (Note 18) Administrative and general expenses (Note 15) Depreciation and amortization (Note 7) Operating income Financial expense, net Foreign exchange (loss) gain Other income (expenses) (Note 13) Income (loss) before income tax Income tax (Note 15): Deferred Net income (loss)

2006

2005

2004

US$276,331,099 33,274,286

US$217,773,521 32,065,666

US$142,813,440 33,502,241

309,605,385

249,839,187

176,315,681

(128,374,270) (17,644,394) (41,611,394) (2,247,425) (30,002,754)

(113,309,643) (11,324,827) (33,323,465) (666,265) (22,786,025)

(62,576,862) (10,553,952) (39,301,000) (464,652) (19,696,911)

(28,612,250) (27,106,051)

(20,778,509) (18,594,752)

(15,710,690) (18,641,906)

(275,598,538)

(220,783,486)

(166,945,973)

34,006,847

29,055,701

9,369,708

(7,656,988) (391,409) 62,377

(14,529,161) 828,434 (3,292,852)

(23,042,054) (11,037,413) (8,927,676)

26,020,827

12,062,122

(33,637,435)

US$ 12,062,122

US$ (33,637,435)

(5,079,546) US$ 20,941,281

The accompanying notes are an integral part of these financial statements.

3

Empresa Generadora de Electricidad Haina, S. A. Statements of Changes in Shareholders’ Equity Years Ended December 31, 2006, 2005 and 2004

Common Stock US$ Balance at December 31, 2003

289,000,000

Legal Reserve US$ 5,149,407

Net loss

Accumulated Other (Accumulated Comprehensive Deficit) Loss US$ US$ (541,713)

(31,031,995)

(33,637,435)

Balance at December 31, 2004

289,000,000

5,149,407

Net income

(34,179,148)

Balance at December 31, 2005

289,000,000

603,106

(603,106)

5,752,513

(22,720,132)

Net income

(31,031,995)

Balance at December 31, 2006

289,000,000

1,047,064

(1,047,064)

6,799,577

(2,825,915)

(31,031,995)

241,000,386 20,941,281

(31,031,995)

The accompanying notes are an integral part of these financial statements.

4

228,938,264 12,062,122

20,941,281

Transfer to legal reserve

262,575,699 (33,637,435)

12,062,122

Transfer to legal reserve

Total US$

261,941,667

Empresa Generadora de Electricidad Haina, S. A. Statements of Cash Flows Years Ended December 31, 2006, 2005 and 2004 2006 Cash flows from operating activities Net income (loss) US$20,941,281 Adjustments to reconcile net income (loss) to net cash provided by operating activities Loss on write off of accounts receivable with CDEEE Gain from the settlement of accounts receivable with accounts payable with CDEEE Gain from settlement with a supplier 1,617,544 (Settlement on) provision for interest on tax assessment (5,382,552) Loss on fixed asset disposal Deferred income tax 5,079,546 Depreciation and amortization 27,106,051 Unrealized gain on interest rate swap (748,715) Changes in Accounts receivable (54,030,082) Inventories 1,711,948 Prepaid expenses 6,199,669 Other assets 63,205 Accounts payable 23,364,720 Other liabilities (13,943,293) Net cash provided by operating activities

11,979,322

Cash flows from investing activities Net changes in deposits in banks – restricted and unrestricted Additions to property, plant and equipment

US$12,062,122

2004 US$(33,637,435)

1,919,008 (7,332,820) 5,382,552 149,641 18,594,752 (2,309,266)

18,641,920 (1,810,442)

(32,106,757) (6,518,593) (3,670,452) 45,759 34,228,018 7,209,089

(45,898,658) 131,220 2,453,594 1,812,345 55,377,282 18,730,880

25,734,045

17,719,714

(537,087) (996,747)

1,658,846

3,972,890 (424,383)

(1,533,834)

1,658,846

3,548,507

(3,581,139) (4,370,140)

(2,858,008) (12,523,616) (7,528,036)

(14,409,692) (9,528,551)

(7,951,279)

(22,909,660)

(23,938,243)

2,494,209 4,929,046

4,483,231 445,815

US$ 7,423,255

US$ 4,929,046

Net cash (used in) provided by investing activities Cash flows from financing activities Debt issuance costs Net change in short-term debt Repayment of long-term debt Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

2005

5

(2,670,022) 3,115,837 US$

445,815

Empresa Generadora de Electricidad Haina, S. A. Statements of Cash Flows Years Ended December 31, 2006, 2005 and 2004 Supplemental cash flow information Interest paid during the year Income tax paid Non-cash activities Decrease in accounts receivable through the offset in accounts payable with CDEEE Fixed assets set off against accounts payable with CDEEE Decrease in accounts receivable through the set off of accounts payable with other power generators Reclassification of accounts receivable from current to non current Fixed assets set off against other accounts payable

2006

2005

2004

US$ 11,644,538 3,687,667

US$16,030,991 3,381,031

US$20,006,529

40,380,606

27,381,053

38,997,499 (1,883,681) (6,124,648)

201,033 (800,000)

The accompanying notes are an integral part of these financial statements.

6

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 1.

Description of the Business Empresa Generadora de Electricidad Haina, S. A. (the "Company" or "EGE Haina") was established on August 17, 1999 and incorporated on October 28, 1999 pursuant to the laws of the Dominican Republic, as part of the capitalization process of the Dominican electricity sector undertaken in 1999. EGE Haina is the largest generator of electricity in the country, currently operating 14 electric power generator units at seven plants, consisting of San Pedro, Sultana del Este – barge, Haina and Barahona in the southern part of the country, Puerto Plata in the northern and Pedernales in the western part of the country. The Company has approximately 98% and 95% of its contracted power to the three Dominican Republic distributors ("the distribution companies"), for 2006 and 2005 respectively.

In connection with the capitalization of the Company, Corporación Dominicana de Empresas Eléctricas Estatales (CDEEE), a state-owned company, transferred plant assets, inventory and certain liabilities to the Company for its equity interest in the Company and Haina Investment Co., Ltd. (HIC), a private company located in Cayman Islands, contributed cash of US$144.5 million for its equity interest in the Company The Company’s shareholders’ are: (i) Haina Investment Co., Ltd. (HIC), a private company located in Cayman Islands, with a 50% equity interest in EGE Haina, (ii) Corporación Dominicana de Empresas Eléctricas Estatales (CDEEE), a state-owned company, that maintains the transmission lines and hydro generation plants, with a 49.994% equity interest and (iii) other shareholders which hold the remaining 0.006%.

2.

Basis of Presentation The present financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Foreign Currency Transactions and Translation The Company’s operations are conducted primarily in US dollar which is therefore its functional currency. Foreign exchange gains and losses arising from transactions denominated in a currency other than the US dollar are included in net income. Assets and liabilities denominated in currencies other than U.S. dollars are translated at year end exchange rates. At December 31, 2006 and 2005, exchanges rates were RD$33.80:US$1.00 and RD$34.91:US$1.00, respectively.

Use of Estimates The preparation of financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for the allowance for doubtful accounts, depreciation and impairment of long-lived assets, income taxes and contingencies. Actual results could differ from those estimates.

7

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 The Company’s deferred tax asset reflects the tax benefit of US$19.2 million in loss carry forward net of a valuation allowance of US$7.2 million. The tax loss carry forwards expire between 2007 and 2010 and realization is dependent on generating sufficient taxable income prior to their expiration dates. Although realization is not assured, management believes it is more likely than not that US$12 million of benefits from the loss carry forward will be realized. The amounts of the deferred tax asset considered realizable, however, could vary in the near term if estimates of future taxable income during the carry forward period change.

The Company has a long-term receivable from one of its major customers amounting to US$41.9 million (2005: US$41.7 million). The Company believes this balance is fully collectible since this Company is one of the three main distribution companies in the country and is partially owned by the Dominican Republic government. Deterioration in the economic situation of this company, however, could cause possible losses, which would affect operating results adversely.

3.

Significant Accounting Policies The following is a summary of significant accounting policies followed by the Company in the preparation of these financial statements: Revenue Recognition Revenues from energy sales, both contracted and spot, are recognized based on the energy produced during each calendar month. Each company in the Dominican Republic Interconnected System reports the end of month metering reading to the Organismo de Coordinación (OC), the entity in charge of the system transactions. The OC defines the amounts of energy sales made by contract and the amounts of energy sales made in the spot market. The energy sales made under contract are priced according to the respective contract and those sales made in the spot are priced according to the price defined by OC. Inventories Inventories consist of bulk fuel and spare parts. Bulk fuel is recorded at cost that does not exceed market since fuel generally has a very short turnover period. Spare parts are recorded at historical cost and written down when as a result of physical inventories it is determined that there are obsolete parts. These spare parts comprise a large number of individual items of small value each and management believes book values do not exceed market.

Property, Plant and Equipment, Net Property, plant and equipment from initial capitalization was accounted for as a business combination and recorded at estimated fair market value, less allocated excess of the fair market value of assets purchased and liabilities assumed over the purchase price. Subsequent additions are recorded at cost. Depreciation expense has been determined using the straight-line method over the estimated useful lives of the related assets as specified below: Estimated Useful Life (Years)

Asset Buildings Generation plants Transportation equipment Furniture and office equipment Other equipment Leasehold improvements

50 25 5 4-5 4-5 5

8

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 The cost of routine maintenance, repairs and replacements is charged to expense as incurred. The cost of significant overhauls, renewals and improvements, that increase the plants’ capacity and/or efficiency and/or extend their useful lives, are added to the carrying amount of the respective assets.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the results of the period.

Intangible Assets, Net Intangible assets correspond to: (a) Costs in connection with the renegotiation of power contracts. These amounts are amortized on a straight-line basis over the term of the corresponding contracts. (b) Debt issuance costs related to the issuance of the secured fixed rate note described in Note 10.

These deferred costs are amortized under the interest method over the term of the related financings.

Deferred Income Taxes Deferred income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company adjusts the beginning-of-the-year balance of the valuation allowance because of changes in circumstances that cause a change in judgment about the realization of the related deferred tax asset in future years.

Provisions for Allowances and Contingencies The Company establishes an allowance for doubtful accounts to provide for accounts receivable where, in management's judgment, it is not probable that such receivable will be fully collected.

The level of the allowance for doubtful accounts is based on management’s evaluation of various factors, including the credit risk of customers, historical trends and other information. While management uses the information available to make evaluations, adjustments to the allowance may be necessary should future economic conditions differ substantially from the assumptions used in making the evaluations. At December 31, 2006 and 2005, the Company did not provide for any allowance for accounts receivable, as management considered them as recoverable.

Concentration of Credit Risk and Significant Customers Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of deposits in banks and accounts receivable. At December 31, 2006 and 2005, three customers accounted for 99% of gross accounts receivable and 98% of total revenues.

9

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 Pension Information The Company does not maintain any pension plans. Dominican laws provide for pension benefits to be paid to retired employees from government pension plans and/or privately managed funds plans to which employers and employees make contributions.

Impairment of Long-Lived Assets The Company evaluates the carrying value of its long-lived assets for impairment when events or circumstances indicate that the Company may not recover the carrying amounts of the assets.

The carrying value of a long-lived asset, or group of assets, is considered impaired when the expected undiscounted cash flows from the use and eventual disposition of such asset, or group of assets is less than its carrying value. In that event, an impairment loss would be recognized generally based on the amount by which the carrying value of the asset or group of assets exceeds its fair market value. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved or based on independent appraisals.

Fair Value of Financial Instruments Fair value of financial instruments, consisting mainly of cash, current accounts receivable, accounts payable and other short-term liabilities, approximates their carrying values due to their short maturity or short time until realization. See Note 16 for the estimated fair value of long term accounts receivables.

Dismissal Indemnity Dismissal indemnity that only should be paid in certain circumstances as required by the Dominican labor code is charged to expense when employees are dismissed.

Cash and Cash Equivalents For cash flow purposes, the Company considers cash and cash at banks, as well as certificates of deposits and other highly liquid temporary investment with original maturities of three months or less, to be cash equivalents.

Comprehensive Income SFAS No. 130, “Reporting Comprehensive Income,” requires a full set of general purpose financial statements to be expanded to include the reporting of “comprehensive income”.

Comprehensive income is comprised of two components, net income and other comprehensive income. At December 31, 2006 and 2005, the balance in “Accumulated Other Comprehensive Loss” of US$31,031,995 corresponds to prior years’ foreign currency translation adjustments when the Company's functional currency was the Dominican Republic Peso.

The Company occasionally enters into derivative financial instruments to manage its exposure to interest rate risk. The Company recognizes derivative financial instruments in the balance sheet at fair value. For the years ended December 31, 2006, 2005 and 2004, the Company had one interest rate swap outstanding. This derivative does not qualify for hedge accounting and therefore, changes in the fair value of the derivative instrument are included in other income in the accompanying statement of operations.

10

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 New Accounting Standards FIN 48 In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation Number 48 (FIN 48), "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109�. FIN 48 requires an entity to evaluate its tax positions following a two-step process. The first step requires an entity to determine whether, based on the technical merits supporting a particular tax position, it is more likely than not (greater than a 50 percent chance) that the tax position will be sustained. This determination assumes that the relevant taxing authority will examine the tax position and is aware of all relevant facts surrounding the tax position. The second step requires an entity to recognize in the financial statements the benefit of a tax position that meets the more-likely-than-not recognition criterion. The measurement of the benefit equals the largest amount of benefit that has a likelihood of realization, upon ultimate settlement, that exceeds 50 percent. If the more-likely-than-not threshold is unmet, it is inappropriate to recognize that the tax benefits associated with the tax position. FIN 48 also provides guidance on de-recognition of previously recognized tax benefits, classification, interest and penalties, accounting in interim periods, disclosure and transition.

EGE Haina will adopt FIN- 48 effective January 1, 2007. Based on available information at the date of these financial statements, management does not anticipate a material effect on its financial statements in 2007.

SFAS 155 In February 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) 155, "Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140" (SFAS 155). Among other things, SFAS 155 addresses certain accounting issues surrounding securitized financial assets and hybrid financial instruments with embedded derivatives that require bifurcation. EGE Haina adopted SFAS 155 effective January 1, 2007.

The initial adoption did not have an impact on EGE Haina.

SFAS 157 In September 2006, the FASB issued SFAS 157 "Fair Value Measurements". SFAS 157 provides a definition of fair value as well as a framework for measuring fair value. In addition, SFAS 157 expands the fair value measurement disclosure requirements of other accounting pronouncements to require, among other things, disclosure of the methods and assumptions used to measure fair value as well as the earnings impact of certain fair value measurement techniques. SFAS 157 does not expand the use of fair value in existing accounting pronouncements. EGE Haina will adopt SFAS 157 no later than January 1, 2008. The potential impact of adoption is not yet determinable.

11

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 SFAS 159 In February 2007, the FASB issued SFAS 159 "The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115". SFAS 159 provides entities with an option to measure, upon adoption of this pronouncement and at specified election dates, certain financial assets and liabilities at fair value, including available-for-sale and held-tomaturity securities, as well as other eligible items. The fair value option (i) may be applied on an instrument by instrument basis, with a few exceptions, (ii) is irrevocable (unless a new election date occurs), and (iii) is applied to an entire instrument not to only specified risks, cash flows, or portions of that instrument. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.

SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between similar assets and liabilities measured using different attributes. Upon adoption of SFAS 159, an entity may elect the fair value option for eligible items that exist at that date, and shall report the effect of the first remeasurement to fair value as a cumulative-effect adjustment to the opening balance of retained earnings.

EGE Haina will adopt SFAS 159 no later than January 1, 2008. The potential impact of adoption is not yet determinable.

FSP AUG AIR-1, "Accounting for Planned Major Maintenance Activities" The principal source of guidance on the accounting for planned major maintenance activities is the AICPA's Airline Guide. The Airline Guide allows for four alternative methods of accounting for planned major maintenance activities. These methods include: direct expense, built-in overhaul, deferral, and accrual (accrue-in-advance). Those methods are widely used by other industries, including those involved in the electricity generation. This FSP prohibits the use of the "accrue-in-advance method" of accounting for planned major maintenance activities. It further states that an entity shall apply the same method of accounting for planned major maintenance activities in annual and interim financial reporting periods. This FSP is effective for the first fiscal year beginning after December 15, 2006. Earlier application is permitted as of the beginning of an entity's fiscal year. The Company does not believe that adoption of this FSP will have any effect on its financial statements.

4.

Accounts Receivable Accounts receivable consist of:

Trade (*) Advances to suppliers Other

2006

2005

US$112,159,210 1,102,663

US$98,881,448 207 730,742

US$113,261,873

US$99,612,397

(*): At December 31, 2006 and 2005, US$41.9 million and US$41.7 million of trade receivables, respectively, are included in long-term receivable to Edeeste (See Note 16).

12

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 5.

Inventories Inventories consist of:

Fuel Parts Inventories in transit

6.

2006

2005

US$ 6,143,926 8,087,547 2,004,513

US$ 7,807,354 5,728,710 3,019,870

US$16,235,986

US$16,555,934

Prepaid Expenses Prepaid expenses consist of:

Insurance Prepaid taxes and tax advances Other

7.

2006

2005

US$ 743,959 1,131,114 69,283

US$ 664,742 7,432,051 47,232

US$1,944,356

US$8,144,025

Property, Plant and Equipment, Net Property, plant and equipment, net consist of: 2006 US$

Land Buildings Generation plants Transportation equipment Furniture and office equipment Other equipment Leasehold improvements Less: Accumulated depreciation

4,855,036

2005 US$

4,855,036

1,008,716 359,831,334 1,472,112 1,198,426 3,472,089 171,564

1,008,716 361,579,334 511,925 1,107,987 3,472,089 171,564

367,154,241 98,789,476

367,851,615 75,470,972

268,364,765

292,380,643

Construction in progress

56,373 US$273,219,801

US$297,292,052

During 2006, 2005 and 2004, the fixed asset depreciation was US$23,676,998, US$15,567,075 and US$15,811,970, respectively.

During the first quarter of 2006, the Company reviewed the estimation of the useful life of two diesel-operated plants as a result of the decision of discontinuing their operation after 2006 due to efficiency reasons. These plants were fully depreciated during 2006 and, as a result of this change, depreciation of the year increased US$7.9 million and depreciation of future years will decrease in US$0.4 million.

13

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 8.

Intangible Assets, Net Intangible assets consist of:

Deferred costs Debt issuance costs Less: Accumulated amortization

2006

2005

US$11,811,229 6,429,651

US$11,811,229 6,429,651

18,240,880

18,240,880

7,436,081

5,322,449

US$10,804,799

US$12,918,431

During 2006, 2005 and 2004, the amortization charges of the deferred costs amounted to US$814,476 each year. The estimated future amortization is also US$814,476 for each of the next five years.

In 2006, 2005 and 2004, deferred issuance costs amortization was US$2,614,577, US$2,213,201 and US$2,015,460, respectively. The estimated future deferred issuance costs amortization through the end of its useful life is expected to be:

9.

Year

US$

2007 2008 2009 2010

1,141,025 1,044,322 855,445 176,546

Short-Term Debt Short-term debt consists of US$13,905,062 and US$17,486,201 at December 31, 2006 and December 31, 2005, respectively. These debts accrue interest at annual rates that range between 9.25% and 12% for U.S. dollars borrowings at December 31, 2006. The weighted average interest rate in 2006 was 9.73% and 10.93% in 2005.

10.

Long-Term Debt Long-term debt consists of: US$104 million of a 10% senior secured fixed rate bond maturing in March 2010. Interest is payable on a quarterly basis (a) Kreditanstalt für Wiederaufbau, Frankfurt am Main (“KfW”), payable in 12 semi-annual installments of principal and interest, maturing November 30, 2008 (b) Less: Current portion

14

2006

2005

US$91,079,348

US$93,380,428

2,003,437

3,005,157

93,082,785 4,370,140

96,385,585 4,370,140

US$88,712,645

US$92,015,445

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 The fair value of the above debt approximates its book value. a. The fixed rate bond is collateralized by: (i) a first priority security interest in all existing fixed assets (excluding one diesel turbine pledged to a prior lender), including a first priority mortgage in all real properties and a ship mortgage on the Sultana del Este barge; (ii) a pledge of the capital stock of any proposed acquisition; (iii) amounts deposited in a reserve account at JPMorgan Chase Bank of US$11.9 million at December 31, 2006, and (iv) an assignment of all relevant insurance policies, including business interruption.

This bond was issued at a discount of US$7.8 million, based on an imputed discount rate of 7.55% below par value. The unamortized portion amounting to US$3 million and US$4.1 million at December 31, 2006 and 2005, respectively, is shown as a deduction of the principal amount.

Under the terms of the bond, the Company is required, among other conditions, to maintain ownership and keep free of liens all fixed assets, as long as the credit is outstanding, and to maintain certain financial ratios and other financial conditions and certain limits on a quarterly basis. Default on any warranty or covenant could, if not waived or corrected, accelerate the maturity of the bond under the agreement. At December 31, 2006, the Company was in compliance with the loan covenants.

Originally this debt was payable in 19 equal quarterly installments of US$2,842,105 commencing in June 2005 and one balloon payment in of US$50 million in March 2010. In mid December 2005 the Company completed a negotiation of certain conditions to the original March 2003 indenture of the US$104 million bond that included a US$2 million quarterly principal payment deferment, starting December 2005 and for the following eight quarterly payments. The total principal deferment equaled US$18 million, is to be repaid by increasing the remaining quarterly payments and by increasing the final balloon payment by US$10 million. The remaining principal outstanding will be paid in nine equal quarterly payments of US$842,105 commencing in December 14, 2005, eight equal quarterly payments of US$3,842,105 commencing March 14, 2008 and one balloon payment of US$60 million in March 2010. b. The Company owes a loan obtained from KfW for partially financing the supply of an integrated package of parts, shop repairs and field services for the purpose of the major inspection of Haina TG unit, as per a contract signed between the Company and Siemens WestingHouse Service Company Ltd. The loan has a guarantee of the Federal Republic of Germany by Euler Hermes Kreditversicherung AG for 95% of the outstanding interest and capital payment and a negative pledge clause for the disposition of the unit for the period of the loan. This loan bears interest at six month LIBOR plus a margin of 0.875% per annum (6.25% at December 31, 2006).

15

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 11.

Other Current Liabilities Other current liabilities consist of:

Income tax withholdings and other Assets tax payable Income tax payable Interests payable Other

12.

2006

2005

US$4,694,842 1,440,345

US$15,741,534

425,263 2,115,418

3,121,617 6,006,814 2,909,317

US$8,675,868

US$27,779,282

Other Non-Current Liabilities Other non-current liabilities consist of:

Related party (Note 19.a) Interest rate swap (*) Other

(*):

13.

2006

2005

US$13,972,674 201,189 377,193

US$13,839,621 949,904 732,677

US$14,551,056

US$15,522,202

The net payments from the interest rate swap during 2006, 2005 and 2004 were approximately US$0.2 million, US$1.4 million and US$2.6 million, respectively, and were recorded as part of financial expenses in the statements of operations. The value of the interest rate swap marked-to-market was US$0.2 million and US$0.9 million at December 31, 2006 and 2005, respectively. The interest rate swap was terminated in February 2007.

Other Income (Expenses) 2006 Settlement on (provision for) interest on tax assessment US$5,382,552 Gain from settlement with a supplier 1,617,544 Cost for unconsummated acquisition costs Taxes on transfer to foreign suppliers and other (5,268,600) Gain (loss) resulted from agreements with the distribution companies and CDEEE Adjustment to mark-to-market interest rate swap 523,715 Tax assessment other than income tax (1,057,139) Other income and expense, net (1,135,695) US$

16

62,377

2005 US$(5,382,552)

2004 US$ (2,998,503)

(4,632,211)

(4,448,643)

7,332,820

(1,919,008)

2,309,266 (1,141,514) (1,778,661)

1,810,442 (1,371,964)

US$(3,292,852)

US$(8,927,676)

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 14.

Shareholders’ Equity Common Stock At December 31, 2006 and 2005, the common stock consisted of 45,951,000 common shares authorized and outstanding with a par value of US$6.29. The following is a detail of the activity in the Company's shares: Common Stock Shares Par Issued Value CDEEE Shares issued for contribution in kind (less debt assumed by the Company) HIC Shares issued for cash Other shareholders Balance at December 31, 2005 and 2004

22,975,397

US$144,499,352

22,975,500 103

144,500,000 648

45,951,000

US$289,000,000

Legal Reserve The Dominican Commercial Code establishes that at least 5% of the annual net earnings be appropriated as a legal reserve of the Company until such appropriation equals 10% of the outstanding capital. This reserve may not be capitalized, returned to inappropriate retained earnings or used for payment of dividends.

Remittance of Profits The Dominican Foreign Investment Law allows the repatriation of capital and remittance of profits in freely convertible currency. Dividends may be declared during each fiscal period up to the total amount of net profits, subject to a withholding tax of 25%, which can be set off with the income tax due by the Company.

15.

Income Tax Dominican Republic Tax Law (the Tax Law) requires companies to file their tax return denominated in Dominican pesos. Companies that use a functional currency other than the Dominican peso are required to keep their tax accounting records and official filing in Dominican pesos. In addition, Article 293 of the Tax Law allows the deduction/recognition of foreign exchange differences in the determination of the taxable income. The Tax Law also establishes that the Tax Bureau will annually indicate the exchange rate to be used for taxation purposes.

Effective January 1, 2006, a new Tax Reform Law No. 557-05 is in place. The most significant changes introduced by this Law to the Dominican Tax Code are: − The corporate Income Tax rate increased from 25% to 30% as from January 1, 2006. This rate will be reduced to 29% in 2007, 27% in 2008 and 25% for 2009. − The tax loss carry forward can be compensated with earnings generated until the 5th period subsequent to the period in which the loss was incurred, with a maximum amortization of 20% of this loss and with limits of 80% and 70% of the taxable net income, for the 4th and 5th period, respectively.

17

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 − As from 2006, the basis of the monthly tax advance payment will depend on the effective tax rate. Legal entities with an effective tax rate lower than 1.5% of gross income of the previous fiscal year will pay tax advances of 1.5% of such income. Legal entities with an effective tax rate higher than 1.5% will pay their tax advances based on the income tax of the previous fiscal year. − An annual tax is established on the assets of the legal entities, with a rate of a 1% based on the balance of assets net of depreciation, amortization and allowance for bad debt accounts, and excluding stocks investments from the taxable basis. This tax is deductible from the income tax in case the current corporate income tax is higher. If contrary, the entity should complete the tax payment on the assets in two future installments. In this case, the income tax amount can be credited against Asset Tax. Power generation, transmission and distribution companies defined in the General Electric Law 125-01, dated July 26, 2001, shall pay this tax on the basis of the total fixed assets, net of depreciation, as they are shown in the balance sheet. If the income tax does not exceed the 1% on total fixed assets, then this 1% becomes, in effect, a minimum tax.

2006 Tax effect of: Income before income tax

US$7,806,248

Permanent differences Release of provisions previously considered nondeductible Inflation adjustment of nonmonetary assets Taxes nondeductible Other nontaxable income Effects on changes in functional currency

(1,673,197) (3,888,093) 1,115,885 (69,898) 4,294,362 (220,941)

Temporary differences Depreciation Exchange rate differences Other

(44,540) 203,087 8,350 166,897

Current tax expense before tax loss carry forward

7,752,204

Application of tax loss carryforward

(7,495,392) 256,812

Application of asset tax credit

(256,812)

Current income tax

US$

During 2006 income tax on the Company’s taxable income did not exceed the 1% tax on total fixed assets; therefore, the Company’s only commitment will be to pay 1% tax on total fixed assets amounting to approximately US$1.5 million at December 31, 2006. This amount is reflected within general and administrative expenses in the statement of operations.

18

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 The Company has income tax loss carry forwards of approximately US$100 million (adjusted by inflation) as of December 31, 2006, which can be used to offset future taxable income, subject to the limitations expressed below. These losses will expire as follows: Period 2006 2007 2008 2009 2010

Amount US$ Million 25 25 25 25 25 125

Less: utilized in 2006

(25) 100

The components of the deferred income tax asset/liability consist of the following: Balance at December 31, 2005 US$ Current deferred income tax Tax loss carry forward Exchange rate differences Valuation allowance

Non current deferred income tax Tax loss carry forward Fixed assets

Valuation allowance Deferred income tax - net

Effect in Profit and Loss Accounts US$

Balance at December 31, 2006 US$

6,381,776 (155,944)

(1,921,594) 155,944

4,460,182

6,225,832 (4,046,791)

(1,765,650) 2,368,079

4,460,182 (1,678,712)

2,179,041

602,429

25,016,416 (16,909,281)

(10,231,422) (171,989)

14,784,994 (17,081,270)

8,107,135

(10,403,411)

(2,296,276)

(10,286,176)

4,721,436

(5,564,740)

(2,179,401)

(5,681,975)

(7,861,016)

(5,079,546)

(5,079,546)

2,781,470

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable earnings during the periods in which the temporary differences become deductible.

Management considers projected future taxable income and tax planning strategies in making this assessment. At December 31, 2005, based on the analysis of its historical taxable income on the projections for future taxable income over the periods that the deferred tax assets are deductible management believed it was not more likely than not that the Company would realize the benefits of their temporary differences. As a result, the Company recorded a full valuation allowance as of December 31, 2005.

19

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 At December 31, 2006 management reduced the valuation allowance by US$7,089,515 after updating their future taxable income projections, including the reversal of their deferred tax liabilities over the utilization periods of the deferred tax assets which showed that a portion of the deferred tax asset is considered recoverable. During 2006, deferred tax assets were adjusted due to a change in the tax rate for US$5,658,152.

2005 and 2004 For the purpose of determining the ordinary income tax, the reconciliation of the financial and taxable income (loss) for the years ended December 31, 2005 and 2004 is as follows: 2005 Income (loss) before income tax Permanent differences Taxes nondeductible Inflation adjustment of nonmonetary assets Other non taxable income Effects on changes in functional currency Temporary differences Depreciation Exchange rates used for tax purposes Other Net tax loss before loss carry forward 16.

US$12,062,113

2004 US$(33,637,435)

6,168,747 (15,966,023) (200,905) (2,086,616)

(16,878,098) (1,147,382) 40,356,377

(12,084,797)

22,330,897

(7,683,955) (1,049,314) 55,687

(10,359,318) (4,711,224) (1,573,480)

(8,677,582)

(16,644,022)

US$ (8,700,265)

US$(27,950,560)

Sale of Energy to Distribution Companies and Other Customers a. The Company invoices the distribution companies, Empresa Distribuidora del Norte, S. A. (“Edenorte”), Empresa Distribuidora del Sur, S. A. (“Edesur”) and Empresa Distribuidora del Este, S. A. (“Edeeste”), for the service of energy, capacity and transmission toll, according to the existing agreements renegotiated in August 2001 (“the Power Supply Contract”). The terms and conditions for the sale of energy to distribution companies are as follows: Edenorte Edesur Edeeste Term of contracts Indexation

112mw 138mw 100mw 15 years 30% per CPI –USA 70% for fuel

The prices are stated in U.S dollars but can be paid in Dominican Pesos. The exchange rate index utilized tracks the market rate for the U.S. dollar based on daily foreign exchange trading by commercial banks published by the Dominican Republic Central Bank.

20

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 b. At December 31, 2005, the Company had an outstanding account receivable balance with Edeeste of approximately US$55.7 million, including US$47.2 million corresponding to 2004 balances that remained frozen at December 31, 2005 as a result of the General Agreement of the Electrical Industry signed in March 2005 (see Note 19 c). In 2006 the Company offset US$5.5 million of amounts due to CDEEE against the 2004 frozen accounts receivable from Edeeste reducing the outstanding receivable to US$41.7 million. c. On August 3, 2006, the Company and Edeeste signed a financing agreement. The principal terms of this agreement stipulate that Edeeste will pay over six years the principal amount of US$41.9 million with interest payable at 12% per annum. The agreement provides for a twoyear grace period for the principal repayment, 10% repayment in the third year and 30% repayments in the fourth, fifth and sixth year. In addition, the agreement grants the Company the direct monthly collections from Edeeste´s principal customers and credit card receipts equal to a minimum amount of US$5.5 million per month. The estimated fair value of this long term receivable approximates its carrying value.

17.

Fuel Oil, Coal and Power Supply •

During 2004 to 2006, the Company had no fuel oil supply agreement in force. During these periods the Company purchased fuel oil on the spot market from diverse suppliers. During 2006 the Company purchased 2.3 million barrels at a cost of US$113.8 million (2005: 2.5 million barrels at a cost of US$103.6 million and for 2004, 2.0 million barrels at a cost of US$61.7 million). In addition, in 2006 and 2005 a vendor provided a credit facility equivalent to one fuel shipment, up to US$4 million. The Company used this credit facility at 2005 year end and during 2006.

•

In the first quarter of 2006, EGE Haina entered into a contract with Glencore International AG, in which Glencore International AG agreed to supply EGE Haina with coal sufficient to meet the Barahona plant’s requirements for a period of two years, from March 1, 2006 through April 30, 2008. The contract price for coal under this agreement is US$56.80 per metric ton indexed by qualities specifications (Btu), plus a delivery fee. Both parties agree to comply with a delivery of 294,000 metric tons within the period of the contract, except for extraordinary events or circumstances beyond the control of the parties that prevents one or both parties from fulfilling their obligations (force majeure).

•

The Company participates in the Dominican power pool, as a seller or buyer. Due to the temporary inability of the distribution companies to pay their accounts payable, the Company restricted generation and fuel purchases, thus ending as a net purchaser of power on the Dominican power pool.

During 2006 the Company purchased the equivalent of US$41.6 million (2005: US$33.3 million and 2004: US$39.3 million). The Company purchased 348 GWH in 2006 (2005: 316 GWH and 2004: 457 GWH).

21

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 18.

Sultana Operation and Maintenance Contract In August 2001 the Company signed five-year operation and maintenance (O&M) contract with Wartsila North America, Inc., who acts as parts supplier while Wartsila Dominicana, C. por A. serves as operator for the Sultana del Este plant.

The contract establishes the payment of monthly service fees no less than EUR172,000, plus EUR1.55 per Mwh for operation, and EUR1.75 per Mwh for parts supply. Additionally, the Company is committed to pay an annual capacity bonus for every percentage point that the annual generation exceeds the guaranteed capacity factor of 85%. The total operation and maintenance costs under the contract were approximately US$10.6 million in 2006 (2005: US$10.2 million and 2004: US$7.0 million), and the annual bonus was approximately US$0.8 million and US$0.9 million for 2005 and 2004, respectively (during to 2006 no bonus was charged by the supplier).

The contract expired in November 2006. The Company decided not to renew the agreement and assumed full operational and maintenance responsibilities for the La Sultana del Este plant.

As a result of this final agreement, EGE Haina owed to Wartsila approximately US$1.2 million, after deducting a credit note issued by Wartsila for US$1.6 million, corresponding to payment for damages in the mooring and transformer failures of the Sultana plant. EGE Haina paid this debt in January 2007.

19.

Related Parties Transactions and Balances a) Management Fee - HIC As part of the capitalization process, the Company maintains an administration contract with HIC, expiring in 2020, to manage the day-to-day operations of the Company under the direction of the Company’ Board of Directors. HIC charges the Company 2.95% of annual net sales that represented US$9.1 million and US$7.3 million for 2006 and 2005, respectively. At December 31, 2006 and 2005, the Company had an account payable balance to HIC of approximately US$14 million and US$13.8 million, respectively. Up until December 2006, these amounts bore interest at 8% annual. In December 2006 the Company agreed to remit payments quarterly beginning March 31, 2008. Interest accrues on the unpaid balance at 8% per annum. b) Transmission Toll / Capacity and Energy Transaction - CDEEE CDEEE, a shareholder of EGE Haina, receives monthly connection toll rights paid by the Company for the utilization of the transmission facilities. The amounts accrued during 2006 and 2005, which are based on the capacity and energy made available on the system as determined by the Coordinating Body, were approximately US$17.6 million in 2006 (2005: US$11.3 million and 2004, US$10.6 million). In addition, during 2006, 2005 and 2004 the Company purchased capacity and energy from CDEEE through spot market transactions.

22

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 c) Compensation Agreements - CDEEE Agreement dated March 2005: In March 2005 the General Agreement of the Electrical Industry (“General Agreement”) was signed among CDEEE and other government entities, the generation companies including EGE Haina and the distribution companies, including other power generators. The term of this agreement was one year and covered aspects, such as: • An agreement to settle the December 31, 2004 s accounts payable and receivable balances among the parties involved. These balances corresponded to purchases of energy, capacity, transmission tolls and other related concepts, including interest on past due accounts.

• Accounts receivable at December 31, 2004 were agreed to remain frozen during the term of this agreement and would be collectible beginning 2006.

• The distribution companies, Edenorte, Edesur and Edeeste, were committed to pay the monthly invoices corresponding to energy, capacity, transmission tolls and other related concepts as from January 2005 to December 2005 on a timely basis, as well as interest on past due accounts.

In addition, in March 2005 subsequent to the General Agreement, the Company entered into several agreements that resulted in: • Transfer of US$6.5 million of the Company’s accounts payable to other power generators to CDEEE. • A partial offset of accounts payable owed to CDEEE and other power generators, which were transferred to CDEEE, with approximately US$22 million of accounts receivable from Edenorte and Edesur.

As a result of these agreements, the Company recognized a gain of approximately US$7.3 million in 2005, included in the caption other expenses, net in the accompanying Statements of Operations.

Agreements dated February and November 2006 In February 2006, the Company entered into agreements with CDEEE, Edenorte and Edesur and with CDEEE and Edeeste, for the reconciling, recognition, transfer of accounts receivable and offsetting of the Company’s accounts receivable from Edenorte (US$8.8 million), Edesur (US$8.1 million) and Edeeste (US$5.5 million). In case of Edenorte and Edesur, this offset related to accounts receivable outstanding at December 31, 2005, including amounts that remained frozen as per the General Agreement of Electrical Industry signed in March 2005 and related accrued interest. In the case of Edeeste, these amounts partially offset the 2004 frozen accounts receivable outstanding at December 31, 2005. These agreements cleared all accounts payable to CDEEE related to transmission, purchase of energy and power and related interests and penalties up to December 31, 2005.

On November 3, 2006, the Company and CDEEE agreed to offset US$18 million of the Company’s accounts payable to CDEEE as consideration for the reduction of the Company’s accounts receivable from Edenorte and Edesur by US$16.6 million and the assignment to CDEEE of US$1.4 million accounts receivable from Edeeste.

23

Empresa Generadora de Electricidad Haina, S. A. Notes to Financial Statements December 31, 2006 and 2005 d) Sales Agreements with Distribution Companies The distribution companies Edesur, Edenorte and Edeeste are related parties. Edesur and Edenorte are wholly owned by CDEEE, while Edeeste is owned by CDEEE at 50% of its equity interest. Sales performed by the Company to these distribution companies are based in existing agreements which are more detailed in Note 16.

20 .

Contingencies The Company is involved in various litigations arising from the normal course of business. The total amounts involved are approximately US$27.2 million and US$22.4 million at December 31, 2006, and 2005, respectively. The Company did not record any provision to cover possible losses because management estimates, based on legal counsels’ opinion, that the final outcome of these litigations would not have any adverse effects on the Company’s financial position, operational performance and/or cash flows.

21.

Subsequent Events In January 2007, CDEEE and the Company agreed to offset US$15.4 million of the Company’s accounts payable to CDEEE against the same amount of accounts receivable from Edenorte and Edesur.

24