Company Independent Financial Advisor - Part 2

Part 2 General Information about BLCP Power Limited and the BLCP Power Plant Project 1) Company Information Company Name: BLCP Power Limited (BLCP) Registered Date: September 30, 1997 Registered Address: 9, I-8 Road, Map Ta Phut, Muang Rayong, Rayong 21150 Tel: 0-3892-5100 Registered Number: 0105540085310 Type of Business: Generation and Distribution of Electricity Registered & Paid-up Capital: As at November 6, 2006, BLCP paid-up capital stood at Baht 5,484.40 million, consisting of 114.844 million ordinary shares, with a par value of Baht 100 each. 14.844 million of which are fully paid up, while 100 million of which are partially paid up to Baht 40 a share. List of Shareholders As at Nov 6, 2006: Shareholder No. of Shares Held % of Shareholding CLP Power (BLCP) Ltd. 57,421,998 50 Banpu Coal Power Ltd. 57,421,997 50 5 Individual Shareholders 5 0 114,844,000 100 Note: Banpu Coal Power Ltd. is a company under the Banpu Plc. Group. CLP Power (BLCP) Ltd. is a company under the CLP Holdings Limited Group. The Board of Directors As at Nov 6, 2006: Mr. CHANIN WONGKUSOLKIT Mr. RAWI COSIRI Mr. ANUN SIRIPONG Mr. CHARNCHAI CHEEWAKET Mr. NITIKORN TANTHITHAM Mr. JAMES RICHARDE TRUSCOTT Mr. MICHAEL IRL NIKKEL Mr. PETER ALBERT LITTLEWOOD Mr. WORAMON PECK KHUMKANIT Mr. KWOK WING HO BLCP Nature of Business BLCP, incorporated on September 30, 1997, entered into the Power Purchase Agreement (PPA) with the Electricity Generating Authority of Thailand (EGAT) under the Independent Power Producer Program (IPP). Details of the BLCP Power Plant Project (the Project) are summarized as follows: - The Project entered into the Power Purchase Agreement (PPA.) with EGAT, with contracted generation capacity of each unit of the power plant of 673.25 MW, for total contracted capacity of the Project of 1,346.50 MW. Scheduled commercial operation dates (SCODs) of Unit 1 and Unit 2 of the Project are October 1, 2006 and February 1, 2007 respectively. The term of the PPA is 25 years from the SCOD of Unit 2 of the Project, and will expire in 2032. - Like those of other power-generating businesses, BLCP main sources of revenue are from Availability Payment (AP) and Energy Payment (EP) to be paid by EGAT for supply and sale of electricity to it. BLCP also earns revenue in the form of Added Facilities Charge (AFC) to be paid by EGAT for reimbursing BLCP for advancing to EGAT funding to cover costs for completing new transmission facilities (NTF) and cover other access costs incurred for EGAT to connect the BLCP IPP Plant to EGAT transmission grid. - The BLCP Power Plant Project is a pulverized coal-fired, steam electric generating station, locating in the Map Ta Phut Industrial Estate, Rayong. The Industrial Estate Authority of Thailand (IEAT) grants BLCP the right of land use for operating electricity generation plant under a long term/30-year land lease agreement. The Plant is arranged within the three interconnected structures, the boiler structures, the turbine building, and the integrated control and electrical building. Construction of the BLCP Power Plant Project was carried out by the Mitsubishi Consortium from Japan that has vast experience and expertise in constructing many types of power plants in many countries around the world under the Engineering Procurement & Construction Contract (EPC Contract). - Imported high quality coal will be used as the primary fuel of the Project. BLCP entered into the Coal Supply &Transportation Agreement (CSTA) with a term of 25 years with Australian Coal Holdings Pty Ltd. (ACH) under the Australian Rio Tinto Group. Under the CSTA, ACH is obligated to supply coal with the quantity and quality as specified in the CSTA to BLCP for the whole CSTA term. - The ashes produced by each boiler would be sold for use as a component for cement to be used in general construction works. BLCP entered into a long-term agreement to sell ashes for use in cement and concrete-producing industries in which buyers will transport such ashes themselves and get rid of unused ones. BLCP also prepared the disposal area of 101 rais in Tambol Tab Ma, Rayong Province for use as the ash storage area. - BLCP entered into the Operation & Maintenance Agreement (O&M Agreement) with a term of 25 years with Power Generation Services Co., Ltd. (PGS), a joint venture between the Banpu Plc. Group (holding an equity stake of 40 %) and the CLP Holdings Limited Group (holding an equity stake of 60 %). Like those normally required for operating power plants, the scope of services as specified in the O&M Agreement include recruiting and appointing qualified staff & personnel for the Project, liasing with EGAT in relation to operation & maintenance of the power plant, generation & distribution of electricity, solving technical problems that may cause interruption of the plant operation, carrying out scheduled checking & testing of the operation of the power plant and carrying out scheduled checking & testing of the security system in the power plant. O&M fee to be paid by BLCP to PGS that is clearly specified in the O&M Agreement has standard and normal terms and conditions like those widely used in the power generation industry (Source: Report for Lender Engineer for BLCP Coal-Fired IPP Project). The O&M Agreement allows either BLCP or PGS to request for reviewing and amendment of the conditions in the agreement as necessary. - BLCP entered into long-term loan agreements with many financial institutions under Common Terms Agreement dated August 14, 2003, with total facilities of Baht 22,063 million and $558 million respectively. As at June 30, 2006, total amount of long-term loans outstanding are Baht 16,669 million Baht and $186 million consecutively, with the longest repayment term of 12 years expiring in February 2019. BLCP also entered into interest rate swap agreements with foreign banks, with total facilities amounting $306 million, and the contract with the longest term expiring in February 2019. The loan facilities have been collateralized with construction & operation agreements, other related agreements as well as BLCP operating assets including power plants, machine, equipment and BLCP ordinary shares. Any change in shareholding structure must obtain prior written consent from creditors. BLCP is in the process of obtaining consent from its creditors for the transaction of acquiring its ordinary shares by EGCOMP, and all consents for the transaction from its creditors should be obtained by the end of Q.2 of 2007. - Currently, BLCP has insured its assets under property damage insurance policies that cover, on an all-risks basis, any physical loss or damage to its property and any property that is in its care, custody and control, including machine, plant, equipment and property in transit. BLCP has also business interruption insurance covering certain financial losses, including loss of profit (as well as loss of BOI tax privileges) and increased operating costs incurred as a result of an interference or interruption to BLCP's business caused by the insured property being damaged. - The Office of Natural and Environmental Policy and Planning (OEPP) approved environmental impact assessments for BLCP operating facilities on December 22, 2000. BLCP has not been party to any litigation, arbitration, suit or proceeding in relation to environmental matters or compliance with any environmental regulation. - The Project has been granted investment promotion from the Board of Investment (BOI), with major investment privileges, namely, an exemption from juristic person income tax on the net profits derived from the promoted activity for a period of 8 years from the date income is first derived from its major business activity and a permission at 50 % of the normal rate of juristic person income tax on the net profits derived from the promoted activity being reduced for a period of 5 years commencing from the expiry date of exempt-period of juristic person income tax. - Although the SCOD of Unit 1 of the BLCP Power Plant Project is on October 1, 2006, Unit 1 passed the relevant tests as required by EGAT and begin distributing electricity to EGAT since mid-August 2006. 3) Financial Summary for BLCP Unit: Millions of Baht Financial Items 2003 2004 2005 1 H of 2006 Current Assets Cash and deposits at financial institutions 678.50 294.49 596.74 626.29 Other accounts receivable - - - 479.61 Value Added Tax refundable 219.32 286.30 124.60 367.19 Prepaid insurance expenses-current portion 74.94 190.39 124.70 75.81 Other current assets 7.45 66.31 57.79 1,273.12 Total Current Assets 980.21 837.49 903.83 2,822.02 Non-Current Assets Property, plant and equipment, net 5,782.80 9,306.06 15,336.89 19,615.12 Intangible assets, net 1,120.28 1,444.64 2,203.48 2,308.84 Other Assets Total Non-Current Assets 7,394.06 11,363.68 18,088.11 22,422.34 Total Assets 8,374.27 12,201.17 18,991.94 25,244.36 Current Liabilities Short-term loans from financial institutions - - - 730 Other payables 358.97 520.28 814.74 772.13 Accrued interest expenses 13.56 51.76 94.04 130.74 Accrued expenses and other current liabilities 26.71 79.60 729.14 62.85 Total Current Liabilities 399.24 651.64 1,637.92 1,695.72 Non-Current Liabilities Long-term loans, net 6,671.62 10,345.10 16,419.08 22,669.09 Total Non-Current Liabilities 6,671.62 10,345.10 16,419.08 22,669.09 Total Liabilities 7,070.86 10,996.74 18,057.00 24,364.81 Shareholders equity Issued & paid-up capital 1,484.40 1,484.40 1,484.40 1,484.40 Retained loss (180.99) (279.98) (549.46) (604.85) Total shareholders equity 1,303.41 1,204.42 934.94 879.55 Total liabilities and shareholders equity 8,374.27 12,201.17 18,991.94 25,244.36 Revenues Gain on exchange rate 32.00 12.22 - 7.27 Total revenues 32.00 12.22 - 7.27 Expenses Administrative expenses 29.77 111.21 126.41 62.65 Loss on exchange rate - - 143.07 - Total expenses 29.77 111.21 269.48 62.65 Net Gain (Loss) 2.23 (98.99) (269.48) (55.38) Net cash receipts (payments) in operating activities (155.57) (433.67) 1,111.98 (2,586.08) Net cash receipts (payments) in investing activities (6,932.99) (3,592.19) (6,581.97) (4,865.04) Net cash receipts (payments) in financing activities 7,546.80 3,641.85 5,772.24 7,480.68 Per share data Par value per share (Baht) 100 100 100 100 Earnings (Loss) per share (Baht) 0.28 (6.67) (18.15)(3.73) Book value per share (Baht) 87.81 81.14 62.98 59.27 3.1 Analysis of BLCP Financial Performance and Condition BLCP Past Peformance For the period between 2003 and 2005 and for the first 6 months of 2006, BLCP had no income from operating activities as it was still in the process of constructing power plants. All of BLCP revenue during such period was in the form of gain on exchange rate. During the same period, BLCP main expense was administrative expense. In the year 2005, in addition to administrative expense, BLCP incurred other extraordinary expense in the form of loss on exchange rate. Thus, BLCP total expense for the year 2005 rose significantly compared to that for the year 2004. BLCP Financial Condition Most of BLCP assets are non-current assets that are mostly in the form of land, plant and equipment in relation to generation and distribution of electricity and intangible assets. BLCP major current assets consist of cash and VAT refundable. BLCP main source of financing for funding construction of power plants is long-term loans from financial institutions denominated in both US dollar and Thai Baht. 4) The Power Generation Business in Thailand 4.1 Overview of the Thai Power Generation Industry Power generators in Thailand consist of EGAT, Small Power Producer (SPP) and Independent Power Producer (IPP). Currently, most of the power plants in Thailand are owned by EGAT. There have been also private power-generating firms engaging in the business by means of acquiring power plants from EGAT such as Electricity Generating Plc. (EGCOMP) and Ratchaburi Holding Plc. (RATCH). For SPPs, they could sell electricity they generate to both EGAT and industrial users, whereas IPPs must sell all electricity they generate solely to EGAT. 4.2 Overview of the Thai IPP Business Back in 1994, under a policy to promote greater participation by the private sector in the power generation industry, the Thai government introduced an independent power producer program, or IPP program, to commission the construction, ownership and operation of power plants by private sector participants, with EGAT agreeing to purchase the output of these plants once their construction has been completed. In doing so, EGAT and related government bodies including the National Energy Policy Office (currently known as the Energy Policy & Planning Office or EPPO) and the National Economic and Social Development Board reviewed proposals from approximately 50 interested private sector producers. After evaluation of proposals and negotiation, EGAT signed power purchase agreements with 7 independent power producers (IPPs). Completion of the construction of the generating facilities of certain IPPs has been delayed due to various reasons such as declining demand for electricity caused by local economic stagnation and protest to construction of power plants that has lead to relocation of plant site and change in types of main fuel used. Despite delay in completion of certain IPP projects, this has no effect on EGAT power generating capacity thanks to its sufficient electricity reserve margin. As at June 30, 2006, power plants operated by certain IPPs namely Independent Power (Thailand) Company Limited, Tri-energy Company Limited, Glow IPP Company Limited and Eastern Power and Electric Company Limited have been in operation. The table below lists the name, size and status of each of the IPP projects in Thailand. Independent Power Producers in Thailand as at June 30, 2006 Project Contracted Primary Amount of Electricity Commercial End of PPA Capacity (MW) Fuel Type Purchased by EGAT Operation Date Contract (Millions of KW Hour) Tri-energy Company Limited (TECO) 700 Natural Gas 5,177.7 July 2000 2020 Independent Power (Thailand) Company Limited 700 Natural Gas 2,831.3 August 2000 2025 Glow IPP Company Limited 713 Natural Gas 5,416.3 January 2003 2028 Eastern Power and Electric Company Limited 350 Natural Gas 2,246.8 March 2003 2023 BLCP Power Company Limited 1,346.5 Coal - Expected October 2032 (2*673.25) 2006 for Unit 1, Expected February 2007 for Unit 2 Ratchaburi Power 1,400 Natural Gas - Expected March 2033 2008 for first unit, Expected June 2008 for second unit Gulf Power Generation Company Limited 1,468 Natural Gas - Expected March 2033 (2*734) 2007 for first unit, Expected March 2008 for second unit Source: EPPO (http://www.eppo.go.th/power/index.html) 5) Key Strengths of the BLCP Power Plant Project 5.1 Advantage of the Coal-Fired Power Plant relative to the Natural Gas-Based One Compared with that generated by the natural gas-based power plant, electricity generated by the coal-fired one is cheaper under the condition that both types of power plants are run on the base load basis. This is because coal price is cheaper and more stable than that of natural gas as current reserve of coal in the world is much higher than that of natural gas (Source: http://www.eppo.go.th/power/ powerplant/4-ng.html). The BLCP Power Plant Project has also installed flue gas desulphurisation plant and to control emission of poisonous substances during the power generation process. This makes the level of pollution and poisonous substances from the power generation process lower than that as specified by the relevant Thai authorities. 5.2 Project Location One of the key strengths of the BLCP Power Plant Project is its plant site that is located in the Map Ta Phut Industrial Estate, Rayong that is a very big and important industrial estate on the eastern coast of Thailand. Located in the Map Ta Phut Industrial Estate are heavy industrial plants engaging in the petrochemical, oil refinery and power-generating businesses. Located in the industrial estate equipped with many utilities systems and facilities allows BLCP to share and make use of such facilities during both construction and operation phases. 5.3 Secured Source of Coal BLCP entered into the Coal Supply & Transportation Agreement (CSTA) with term of 25 years with Australian Coal Holdings Pty.Ltd. (ACH) under the Australian Rio Tinto Ltd. Group. Under the CSTA, ACH is obligated to supply BLCP with coal with quantity and quality as required by BLCP over the term of the CSTA. The Rio Tinto Ltd. Group is a leading mining organization with a highly successful record in the development and management of coal operations. Currently, the Rio Tinto Ltd. Group operates coalmines in Queensland and New South Wales (http://www.riotintocoalaustralia.com.au/). With the experience and expertise of the Rio Tinto Ltd. Group in coal mining and sourcing such fuel for use in the power generation process and other purposes, BLCP faces quite low risk of coal scarcity. 5.4 Support from Groups of Shareholders with Strong Expertise in the Power Generation Business BLCP has gained support from two groups of shareholders, namely the Banpu Plc.Group and the CLP Holdings Limited Group, each holding 50 % stake in BLCP. Both groups of shareholders have vast experience and strong expertise in the coal and the power generation businesses, and they have so far done a great job in managing construction of the BLCP Power Plant Project, obtaining source of financing and performing other necessary tasks during a pre-operation period of the Project as required under the PPA. Even though the CLP Holdings Limited Group will sell its entire stake in BLCP to EGCOMP, it still holds an indirect stake in BLCP via EGCOMP, and will continue to provide support as necessary for running the BLCP Power Plant Project successfully. 5.5 Stable Source of Revenue All of BLCP revenue is from sale of electricity to EGAT under the PPA with term of 25 years ending in February 2032. According to the PPA, EGAT will make payment to BLCP in the form of Availability Payment (AP) and Added Facility Charge (AFC) periodically in accordance with the schedule as specified in the PPA if BLCP IPP facilities are available to generate electricity with the agreed characteristics at agreed levels in response to dispatch instructions from EGAT, regardless of whether EGAT issues a dispatch instruction. This would help to stabilize BLCP revenue stream. In addition, given demand for electricity is less affected by the macroeconomic condition, BLCP revenue in the form of Energy Payment is also quite stable. 5.6 Well-Seasoned Teams of Management, Experts and Technicians with Proven Track Record in the Power Generation Business BLCP teams of management, experts and technicians consist of both Thai and foreign staff with technical knowledge, expertise and long experience in performing plant operation and maintenance tasks domestically and internationally. This would help to ensure the BLCP Power Plant Project would be managed efficiently in accordance with the technical requirements as set out in the PPA. 5.7 Construction of both units of the BLCP Power Plant Project was carried out by a contractor with experience and proven track record in construction of coal-fired power plant The Mitsubishi Consortium from Japan was selected to design and construct both units of the BLCP Power Plant Project, as well as to procure and install machinery and equipment used in power plants under the Engineering Procurement & Construction Contract (EPC Contract) signed between the Mitsubishi Consortium and BLCP. The engineering and construction works under the EPC Contract consist of: - Design, procure and transport certain machine and equipment necessary for construction of power plants (Offshore Supply Works). The services in relation to Offshore Supply Works are provided by M.C.Machinery, Inc., a company under the Mitsubishi Corporation Group. (more)