CE Casecnan Water & Energy Upgraded; Off S&PWatch.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 7/13/98 -- Standard & Poor's today raised its rating on CE Casecnan Water & Energy Co. Inc.'s senior secured debt (see list below) to double-'B' plus from double-'B' and removed the rating from CreditWatch, where it was placed Jan. 24, 1997. The negative outlook is due to the negative outlook on the foreign currency rating on the Republic of the Philippines (double-'B'-plus/Negative/'A-2')

The rating was placed on CreditWatch after Hanbo Corp. and Hanbo Engineering & Construction Co. Ltd. (the original parties to the engineering, procurement, and construction (EPC) contract on the Casecnan project) filed for bankruptcy protection. The upgrade places the project bond rating at the same level as the Republic of Philippine's foreign currency rating.

The following recent events support the positive development on the project: -0-

--   The replacement EPC contractor (a consortium formed between
     Cooperativa Muratori e Cementisti CMC di Ravenna and Impresa
     Pizzarotti & C. Spa.) and subcontractors Siemens AG and de
     Pretto-Escher Wyss S.r.l. are working on site and are on target
     under the revised completion schedule;

--   Standard & Poor's is satisfied that the replacement EPC contract
     and security arrangements do not expose the project to major
     additional risks;

--   CE Casecnan has settled with Korea First Bank on the LOC draws
     and has received US$90 million; and

--   No new risks or changes at the project level have emerged that
     would adversely affect the credit.

The new rating on the project debt reflects the following risks: -0-

--   The remaining construction period is 24 months, during which 23
     kilometers more of water tunnels will be bored in a remote region
     of the Philippines;

--   The credit of the purchaser, a state-owned entity, of the
     project's water and electricity ultimately relies upon the
     Republic of the Philippines' ability and willingness to pay, and
     the Philippine Central Bank's ability to access U.S. dollars;

--   This is the sponsors' initial operation of an irrigation and
     hydroelectric project; and

--   Under the revised construction schedule, the first principal
     payment will occur within a few months of substantial completion,
     which could result in a small draw on the debt service reserve
     fund, a situation that the sponsor considers unlikely as an early
     completion is expected.

Offsetting these risks are the following strengths: -0-

--   The contractor has assumed most construction risk, under a
     fixed-price, turnkey, date-certain contract providing liquidated
     damages up to 93% of the contract value for delay, and security
     in the form of first demand bank guarantees in aggregate up to
     33% of the contract value from Credit Agricole Indosuez S.A.
     (double-'A'/Stable/'A-1'-plus), Commerzbank AG
     (double-'A'-minus/Stable/'A-1'-plus), and Banca di Roma;

--   The Philippine government, by extending a performance undertaking
     for the project, has agreed to support the performance of the
     offtake purchaser's contractual obligations;

--   The Philippine government considers the project strategically
     important for relieving rice shortages, thereby reducing the
     importation of rice. The project also satisfies long-term
     electricity demand and improves foreign currency debt management
     and local employment;

--   The risk of river water flow interruptions is negligible; and

--   Project debt service coverage ratios approximate a 2.2 average
     except for the first partial year of operation.

CE Casecnan is a privately owned Philippine corporation, 70% majority owned by CalEnergy Co. Inc., (double-'B'-plus/Stable).

Proceeds of the offering are being used to construct an irrigation and hydroelectric project in Central Luzon, Philippines. The approximate $585 million project will divert water from the Casecnan and Denip rivers through 29 km of tunnels to a new 150MW generating plant, which will be constructed as part of this project, then to an existing, underutilized reservoir and through two existing hydroelectric facilities. Water flows then will be released for irrigation to remedy the chronic water shortage in the central Luzon Valley, an important agricultural region.

The project is being developed under a 20-year build-own-operate agreement with the National Irrigation Administration (NIA). Casecnan will service its debt with U.S. dollar revenues from its water contracts with the NIA and a contract for electricity sales, of which 70% is on a largely, take-or-pay basis regardless of water availability. The NIA will use the water to provide for irrigation and will sell the electricity to National Power Corp., the Philippine national electric utility. The Philippine Central Bank has agreed to provide NIA with access to U.S. dollars sufficient to fulfill its obligations to CE Casecnan.

OUTLOOK: NEGATIVE Strong and predictable future cash flows, complemented by a new and stronger construction program; a government undertaking to support the project, and evidence of very capable sponsor perseverance in executing this project, particularly under a stressed situation, lead Standard & Poor's to conclude that project fundamentals will prevent a rating downgrade. However, deterioration of the Philippines' rating would cause the project rating to fall, Standard & Poor's said.---CreditWire -0-

RATINGS RAISED AND REMOVED FROM CREDITWATCH                   Rating

US$125 million 11.45% senior secured series A notes due 2005    BB+
US$171.5 million 11.95% senior secured series B notes due 2010  BB+
US$75 million floating-rate notes due 2002                      BB+


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