Clarification on the value added tax(VAT)in relation to gas

No. EGCO 110/117 Date : February 25, 2004 Attn : President of the Stock Exchange of Thailand Subject: Clarification on the value added tax (VAT) in relation to gas deliveries under the Power Purchase Agreements Following the notification of the Electricity Generating Public Company Limited (EGCOMP) on February 23, 2004 regarding the gas deliveries by the Electricity Generating Authority of Thailand (EGAT) to two of EGCOMP's wholly owned subsidiaries, Rayong Electricity Generating Company Limited and Khanom Electricity Generating Company Limited under the Power Purchase Agreements, EGCOMP would like to further clarify on the issue for the better understanding of the investors as follow: EGAT and EGCOMP's subsidiaries entered into the PPA to generate and sell electricity to EGAT at an agreed tariff rate. Pursuant to the PPA, EGAT is responsible for providing the fuel supply to EGCOMP's subsidiaries, by means of purchasing it from PTT. As EGAT did not charge EGCOMP's subsidiaries for the fuel supply, likewise EGCOMP's subsidiaries never charged any fuel cost in the tariff rate either. In February 2004, EGCOMP discovered that the calculation of the tariff under the PPA, which excluded the fuel cost, caused EGCOMP's subsidiaries to invoice VAT on electricity to EGAT at a lower VAT calculation than would be the case if it had included the fuel cost. Nevertheless, even if EGAT and EGCOMP had taken into account the fuel cost in the tariff calculation, the net VAT delivered to the Revenue Department would not have differed from the net VAT calculated without the fuel cost. In conclusion, EGCOMP's subsidiaries had no intention to avoid any payment of VAT, nor to cause any damage to the Revenue Department. Furthermore, EGCOMP's subsidiaries have paid tax in good faith, which can be explained as follows: Example: Declaration of VAT in the previous term Assuming that the tariff is equal to Baht 40 (without fuel cost) Tax Month January 2002 February 2002 March 2002 Total Output tax on tariff 40*7% = 2.8 40*7% = 2.8 40*7% = 2.8 Input tax on fuel cost 0 0 0 Tax payable 2.8 - 0 = 2.8 2.8 - 0 = 2.8 2.8 - 0 = 2.8 8.4 Example: Declaration of VAT if fuel cost is included from the beginning Assuming that the tariff is equal to Baht 100 (with fuel cost) Tax Month January 2002 February 2002 March 2002 Total Output tax on tariff 100*7%=7 100*7%=7 100*7%=7 Input tax on fuel cost 60*7%=4.2 60*7%=4.2 60*7%=4.2 Tax payable 7 - 4.2 = 2.8 7 - 4.2 = 2.8 7 - 4.2 = 2.8 8.4 When EGCOMP was informed of the above situation, it immediately contacted the Revenue Department and consulted on the legal interpretation issue, as well as the guidelines to amend the VAT returns properly, so as to maintain its transparency. EGCOMP will expedite the matter and will provide full cooperation to the relevant persons to settle the issue as soon as possible and will report on the progress of such in due course. Please be informed accordingly. Yours sincerely, Chalermchai Ratnarak President Corporate Secretary Division Tel. 0 2998 5020 - 27