Management Discussion and Analysis for 3 Month 2006

Management Discussion and Analysis For the Three-month Period Operating Results Ended March 31, 2006 Note: This Management Discussion and Analysis (MD&A) was made to disclose information and the vision of the management in order to assist investors to better understand the company's financial status and operation. It also supports the "Good Corporate Governance Project" of the Securities and Exchange Commission (SEC). The objective of this MD&A is to present the information and the explanation of financial status and operating results as of the date hereof. The information provided in this MD&A may change if the aforementioned factors or situation are changed in the future; the investors are, therefore, required to have their own discretion regarding the usage of this information for any purpose. For further detail, please contact Investor Relations Section of the Electricity Generating Public Company Limited at Tel: 662-998-5131-3 or Email: ir@egco.com Management Discussion and Analysis 1. Executive Summary The Electricity Generating Public Company Limited (EGCO) is an Independent Power Producer (IPP) with 12 operating plants totaling 2,414 equity MW. For the first quarter operating results ended March 31, 2006, EGCO's consolidated net profit was Baht 2,070 million, an increase of Baht 573 million or 38% compared to the same period of 2005. Excluding the impact of foreign exchange, the net profit was Baht 1,689 million, representing an increase of Baht 221 million or 15% as compared to the same period of last year. The details of net profit (before FX) are as follows: - EGCO's net profit was Baht 66 million, a decrease of Baht 39 million as a result of slightly lower dividends from its financial investments. - IPP Group, consisting of Rayong Electricity Generating Co.,Ltd (REGCO) and Khanom Electricity Generating Co.,Ltd (KEGCO), showed a net profit of Baht 1,475 million, up Baht 330 million from higher sales of electricity. - Small Power Producer (SPP) Group, which is comprised of five companies including Gulf Electric Public Company Limited (GEC), Amata-EGCO Power Ltd. (AEP), Amata Power (Bang Pakong) Ltd. (APBP), TLP Cogeneration Co.,Ltd. (TLP Cogen) and Roi-Et Green Co.,Ltd. (Roi-Et Green), reported a net profit of Baht 12 million, a decrease of Baht 72 million which resulted primarily from an increase in GEC's cost of sales, administrative expenses and interest expenses. - Overseas Group refers to the Conal Holdings Corporation (Conal) and Nam Theun 2 Power Co.,Ltd. (NTPC). The net profit from this group was Baht 43 million, down by Baht 26 million owing to Conal's transfering the Northern Mindanao Power Corporation (NMPC)'s power plant to National Power Corporation (NPC), plus a reported net loss of Baht 5 million for the first quarter of 2006 as a result of NTPC's proportionate consolidation, starting from the third quarter of 2005 following the commencement of the construction of the power plant in the Lao People's Democratic Republic (Lao PDR) and EGCO's entering into the agreement to provide credit support in the form of Standby Letters of Credit for its agreed equity commitments to NTPC . - Other Business Group includes two subsidiaries, EGCO Engineering & Service Co.,Ltd. (ESCO) and Egcom Tara Co., Ltd. (ET) from which net profit totaled Baht 93 million, an increase of Baht 28 million due to higher service income from ESCO. 2. Business Expansion Analysis EGCO is the first IPP in Thailand established in 1992 through the partial privitization of The Electricity Generating Authority of Thailand (EGAT). EGCO is structured as a holding company with a number of subsidiaries. Our vision is to be the leading Thai integrated electric power company with comprehensive energy services in Thailand and in the ASEAN region, with full commitment to environment protection and social development support. EGCO's major business is to produce electricity and supply it to EGAT under long-term power purchase agreements (PPA). EGCO also focuses its investment on pursuing opportunities in power generation in Thailand and also seeking to expand its business in the ASEAN countries by acquisition with the aim to provide strong returns to shareholders by improving the profitability of our existing assets and acquiring new projects with acceptable returns and risks. As at the end of March 2006, Thailand's total generating capacity was reported at 26,456.66 MW /1, of which 9.12% was attributable to EGCO. During the first quarter of the year 2006, the peak demand reached 20,744.88 MW /1 in March, which was 2.59% higher than the peak demand in March 2005. Recently, the Electricity Regulatory Board is in the process of considering whether the subsidiaries of EGAT which EGAT holds more than 50% of shares may be prohibited to participate in IPP bidding unless EGAT agrees to reduce its stake in suchsubsidiaries to less than 25%. The impact of this regulation on EGCO cannot be presently concluded. Nevertheless, EGCO will set appropriate strategies to utilize its expertise within the group to prepare and participate in this new bidding program. /1 Source: EGAT Currently, EGCO has 12 operating plants totaling 2,414 equity MW, of which 85% is produced from two natural gas-fired IPP power plants: a 1,232 MW REGCO plant and a 824 MW KEGCO plant. In addition to our existing assets, we are developing 4 power plant projects, representing an additional 1,021 equity MW as follows: 1. The Kaeng Khoi 2 Project, a 1,468 MW natural gas-fired power plant in Saraburi Province. EGCO has a 50% stake in this project by holding 50% of the shares in GEC, which owns 99.99% of Gulf Power Generation Co., Ltd. (GPG), the KK2 project company. The commercial operation dates (COD) for unit 1 and unit 2 with a capacity of 734 megawatts each are scheduled on March 1, 2007 and March 1, 2008, respectively. The Thai bank sourced U.S. dollar loans were successfully refinanced with loans from JBIC and a syndicate of international commercial banks. The new terms are markedly improved over the original loan terms; the first drawdown under the refinanced facilities took place on January 18, 2006. 2. The Nam Theun 2 Project, a 1,070 MW hydroelectric power plant in the Lao PDR in which EGCO has a 25% ownership stake through the project company, NTPC. On April 29, 2005, financial commitments were signed and the first drawdown occured on June 15, 2005. The construction was slightly behind schedule due to heavy rainfalls during the raining season. Progress has been made to recover the time during the current dry season phase. This project is targeted for COD in November 2009 with a contracted capacity to EGAT of 995 MW. The balance will be sold to the Government of Laos. 3. The Gulf Yala Green Project is a 23 MW parawood-fuel biomass power plant in Yala Province, in which EGCO holds a stake of 47.5% through its ownership of GEC. Due to the security situation in the three southernmost provinces of Thailand, the construction of this project has been delayed. The project has received an approval from EGAT to postpone the COD from April 2006 to October 1, 2006. 4.The Amata Power Bang Pakong Expansion (APBP-Expansion) Project will be a 55 MW natural gas-fired power plant supplying industrial users in Amata Nakorn Industrial Estate. EGCO has 15% stake in this project by holding 50% of shares in EGCO JD, which owns 30% of APBP. On September 28, 2005, a loan agreement to fund the expansion project was entered into with KASIKORNBANK Public Company Limited. The first drawdown under this facility was made on October 7, 2005. The COD for the expansion project is scheduled in the first quarter of 2007. Presently, this project is under construction. In the absence of unforeseen circumstances, the company has a policy to dividend approximately 40% of the net profit after taxation, or to increase the dividend amount in a steady manner, to the shareholders. This dividend policy may change in the light of investment opportunities that may become available to the company or as a result of other economic or financial factors or when a dividend payment may have a significant impact on the normal operation of the company. 3. Report and Analysis of the Operating Results EGCO is structured as a holding company and it invests primarily in electricity generation and energy service businesses. The main sources of its income are dividends from investments in its subsidiaries, joint ventures, and associates. The objective of the holding company structure is to provide flexibility for business expansion and to facilitate financing of new projects without recourse to existing ones. During the third quarter of 2005, NTPC has commenced the construction of the power plant in the Lao PDR and EGCO has entered into the agreement to provide credit support in the form of Standby Letters of Credit for its agreed equity commitments to NTPC of USD 94 million. Accordingly, investment in NTPC has been accounted for under the proportionate consolidation method in the consolidated financial statements since the third quarter of 2005 because its financial statements were material to EGCO Group. This report contains the analysis of the financial statements of EGCO and its subsidiaries as follows: 3.1 Operational Results EGCO's consolidated net profit for the first quarter of 2006, as of March 31, 2006, was Baht 2,070 million, an increase of Baht 573 million or 38% compared to the same period of the year 2005. Unit : Million Baht Net Profit of 1Q2006 Net Profit of 1Q2005 Before FX After FX Before FX After FX EGCO 66 66 105 109 IPP Group 1,475 1,791 1,145 1,140 SPP Group 12 75 84 102 Overseas 43 46 69 80 Others 93 92 65 65 Remarks: - IPP : REGCO, KEGCO - SPP : GEC, AEP, APBP, TLP Cogen, Roi-Et Green - Overseas : Conal, Nam Theun 2 - Others : ESCO, ET The net profit for the first quarter of 2006 included foreign exchange gain of Baht 380 million whereas the Company incurred a foreign exchange gain of Baht 28 million for the first quarter of 2005. An unrealized foreign currency exchange gain in the amount of Baht 369 million is an accounting number in accordance with the Thai accounting standard. It incurs from the difference of the translation of the net debt denominated in foreign currency to the Thai Baht equivalent amount using the foreign exchange rate at the end of this accounting period (March 31, 2006) and the previous period (December 31, 2005). Excluding the effect of foreign currency exchange gain, the profit was Baht 1,689 million, representing an increase of Baht 221 million or 15% as compared to the same period of 2005. For the first quarter of 2006, excluding the effect of foreign currency exchange gain of Baht 380 million, interest expenses of Baht 474 million, income tax of Baht 338 million and depreciation and amortization of Baht 665 million, the earnings before interest, tax, depreciation and amortization (EBITDA) would be Baht 3,166 million, representing an increase of Baht 444 million or 16% as compared to the same period of 2005, in which the EBITDA was Baht 2,722 million, excluding the effect of foreign currency exchange gain of Baht 28 million, interest expenses of Baht 468 million, income tax amounting to Baht 119 million and depreciation and amortization amounting to Baht 666 million. Important Financial Ratios for the period were as follows; - Gross Profit Ratio was 54.26% - Net Profit Ratio (excluding the effect of foreign exchange) was 33.24% - Earnings (excluding the effect of foreign exchange) per share (EPS) was Baht 3.21 The gross profit margin of 54.26% was higher than the same period of last year's margin of 53.82%, primarily as a result of REGCO and KEGCO's higher sales of electricity as forecasted whilst an increase of GEC's administrative expenses and KEGCO's income tax lessen the net profit ratio (excluding the effect of foreign exchange) for the first quarter of 2006 reported at 33.24%, lower than the ratio of the same period of 2005 at 34.84%. 3.2 Income and Expenses Analysis The total revenues of EGCO and its subsidiaries for the first three-months of 2006 as well as the share of profits from its associates and interest in joint ventures were Baht 5,082 million, an increase of Baht 867 million or 21% compared to the same period of 2005. And total expenses from EGCO, its subsidiaries and joint ventures in the first quarter of 2006 were Baht 3,285 million, an increase of Baht 625 million or 24% from the same period of last year. The details according to their groups of business are as follows: Total Revenues and Expenses: Unit : Million Baht EGCO IPP SPP Q1'06 Q1'05 Q1'06 Q1'05 Q1'06 Q1'05 Total Revenues 175 200 2,904 2,418 1,471 1,171 Total Expenses 109 95 1,429 1,274 1,417 1,066 Overseas Others Total Q1'06 Q1'05 Q1'06 Q1'05 Q1'06 Q1'05 Total Revenues 195 199 336 226 5,082 4,215 Total Expenses 96 73 234 153 3,285 2,661 1) EGCO's Revenues, amounting to Baht 175 million, showed a decrease of Baht 25 million or 13% from the same period of last year, driven mostly by the fall in dividend income from financial investments by Baht 66 million or 39% as compared to the same period of 2005. EGCO's revenues comprised of dividend income from financial investment of Baht 101 million, other income of Baht 44 million and interest income of Baht 30 million. EGCO's revenues are essentially from Krung Thai Dividend Selected Flexible Portfolio Fund (KTSF) in the amount of Baht 65 million representing a decrease of Baht 26 million as compared to the same period of 2005; dividends from Eastern Water Resources Development and Management Public Company Limited (EASTW) of Baht 31 million, down by Baht 31 million; and interest income of Baht 30 million, up by Baht 6 million. The other income for this quarter was up by Baht 34 million due to the NTPC's net reimbursement of internal development cost according to shareholders' agreement amounting to Baht 35 million. Total expenses of EGCO, which were administrative expenses, totaled Baht 109 million, an increase from the same period of last year by Baht 14 million or 15% due to financing fees from Standby Letters of Credit for the agreed equity commitments to NTPC and the release of Debt Service Reserve Accounts of REGCO and KEGCO as well as advisory fees. 2) IPP Group consisting of two principal subsidiaries, REGCO and KEGCO, represented the total revenues of Baht 2,904 million, up by Baht 485 million or 20% as compared to the same period of 2005 whilst the total expenses were Baht 1,429 million, up by Baht 156 million or 12%. The details are as follows: Total Revenues and Expenses of IPP Group: Unit : Million Baht REGCO KEGCO Total Q1'06 Q1'05 Q1'06 Q1'05 Q1'06 Q1'05 %Chg Revenues 1,432 1,249 1,471 1,169 2,904 2,418 20% Expenses 697 684 733 590 1,429 1,274 12% - Sales of electricity of IPP Group were Baht 2,809 million, representing an increase of Baht 428 million or 18% compared to the same period of last year. The increase was a result of a growth in REGCO's electricity sales of Baht 135 million to be Baht 1,370 million and KEGCO's electricity sales of Baht 292 million to be Baht 1,439 million. These increased were caused by an increase in the Capacity Rate for REGCO and the Base Availability Credit for KEGCO which was in accordance with the capacity payment formula calculated on a "Cost Plus Basis" under the PPAs and in line with the company's projection. Sales of Electricity - IPP Group: Unit : Million Baht 1Q2006 1Q2005 %Changes REGCO 1,370 1,235 11% KEGCO 1,439 1,147 25% Total Sales of Electricity - IPP 2,809 2,382 18% The PPAs cover the full amount of the projected fixed costs, debt financing charges and major maintenance charges, which are used in calculating the electricity tariffs for each period. Moreover, the calculation of the capacity payment is adjusted to include compensation of the exchange rate effect from debt services and expenses of major maintenance parts denominated in US Dollar. REGCO and KEGCO receive the compensation monthly for each billing period. They receive higher capacity charge if the exchange rate is above Baht 28 per US Dollar and vice versa. In the first quarter of 2006, REGCO and KEGCO received compensation for the exchange rate effect of Baht 241 million. - Interest income and others amounted to Baht 95 million, an increase of Baht 58 million or 157%, mainly from REGCO's increased interest income in the amount of Baht 45 million. It resulted from higher amount of deposits at banks and financial institutions due to EGCO's equity injection in REGCO. Moreover, KEGCO's interest income increased by Baht 9 million resulting from an increase in interest rate; REGCO and KEGCO's other revenues increased by Baht 3 million. - Cost of sales, with the total of Baht 777 million, an increase of Baht 52 million or 7% compared to the same period of 2005, mainly from the result of KEGCO's cost of sales increased by Baht 48 million or 16% from major maintenance expenses as planned whilst REGCO's cost of sales increased by Baht 4 million. Cost of Sales - IPP Group: Unit : Million Baht 1Q2006 1Q2005 %Changes REGCO 419 416 1% KEGCO 358 309 16% Total Cost of Sales - IPP Group: 777 725 7% - Administrative expenses and income taxes were Baht 343 million, an increase of Baht 168 million or 96%, mainly from KEGCO's first corporate tax payment amounting to Baht 146 million. Although KEGCO's BOI Tax Privilege for 8 years ended on September 25, 2004, the loss carried forward was utilized up until the end of 2005. Thereafter the 50% corporate tax reduction privilege is applied. This 5-year tax reduction privilege will end on September 25, 2009, In addition, REGCO's corporate tax payment increased by Baht 15 million resulting from its increased revenues. - Interest expenses were Baht 309 million, a decrease of Baht 64 million or 17%, resulting from the decrease in interest expenses at REGCO and KEGCO of Baht 25 million and Baht 40 million, respectively, owing to lower principal amounts. 3) SPP Group's total revenues were reported at Baht 1,471 million for the first quarter of 2006, an increase of Baht 300 million or 26% compared to the same period of 2005. The SPP Group incorporates five companies, GEC, AEP, APBP, TLP Cogen and Roi-Et Green. The expenses were Baht 1,417 million, an increase from the same period of last year by Baht 351 million or 33%. The details are as follows: Total Revenues and Expenses of SPP Group: Unit : Million Baht GEC TLP Cogen APBP Q1'06 Q1'05 Q1'06 Q1'05 Q1'06 Q1'05 Revenues 806 652 466 406 122 70 Expenses 918 636 390 330 75 70 Roi-Et Green Total Q1'06 Q1'05 Q1'06 Q1'05 % Chg Revenues 78 43 1,471 1,171 26% Expenses 34 31 1,417 1,066 33% - Sales of electricity of the SPP Group were Baht 1,398 million, representing an increase of Baht 254 million or 22% compared to the same period of last year. Most of the increase of SPP group's electricity sales was from GEC, TLP Cogen, Roi-Et Green and APBP in the amount of Baht 136 million, Baht 59 million, Baht 30 million and Baht 29 million, respectively. An increase of GEC's electricity sales was due to peak-load demand calls from EGAT and TLP Cogen's increased electricity sales was a result of higher tariff for EGAT and industrial users. The increase of Roi-Et Green's electricity sales came from higher tariff as well, thanks to the tariff formula that is linked to the price of fuel oil. And the APBP's electricity sales increased as a result of the physical impairment of an electricity generating equipment that happened in the same period of 2005. Sales of Electricity - SPP Group: Unit : Million Baht 1Q2006 1Q2005 %Changes GEC 784 648 21% TLP Cogen 462 403 15% APBP 83 54 54% Roi-Et Green 68 38 79% Total Sales of Electricity - SPP Group 1,398 1,143 22% - Interest income and others amounted to Baht 35 million, an increase of Baht 24 million mainly from the increase in GEC's other income from insurance (more)