Opinion of the Independent Financial Advisor-Part 3

Part 3 Independent Financial Advisor's Opinion regarding Rationale of the Transaction of Acquiring BLCP Shares 1) Objectives and Rationale of the Transaction EGCOMP's main business activity consists of owning and operating power generation facilities in domestic and international markets. Being structured as a holding company allows EGCOMP to manage and run separate power plant projects with greater management & operating efficiency and it creates a transparent system for gauging performance and reporting results each year. EGCOMP, as the parent holding company, takes on the responsibility for formulation of strategic plans and new business development, human resource management, financial management, accounting & budgeting as well as public and community relation activities for subsidiaries in the EGCOMP group. In addition, EGCOMP is responsible for providing internal audit and legal services for all firms under its ownership that are directly engaged in the operation and maintenance of power plants. The main source of EGCOMP's revenue includes return from investment in subsidiaries, associated firms and joint ventures that is mostly in the form of share of profit from investment in companies under the EGCOMP Group. (Table) EGCOMP aims to expand its investment in the power generation & distribution business in which it has developed specialist knowledge in a number of different fuel types. In general, EGCOMP has two modes to expand its power generation business, namely: - Participating in a competitive bidding process for new power generation power purchase agreements (PPA). Expanding business in this way might takes time and entails significant development risks. To succeed in bidding for a PPA, bidders must possess expertise and experience in managing power plant projects and have access to project financing. In addition, they must understand how to manage project construction schedule and budget and obtain appropriate source of project financing. - Acquiring firms that are awarded a PPA. Although this alternative for expansion would help to eliminate risks of competitive bidding for a new greenfield project and reduce construction and pre-operating risk, this route can potentially be more costly in the short term. Acquiring 50 % of ordinary shares of BLCP, a company that was awarded a PPA to generate and sell electricity to EGAT for a term of 25 years, f rom the CLP Group conforms to EGCOMP's business expansion policy. In particular, this transaction provides the opportunity for EGCOMP to: 1. Increase its market share in the domestic power generation and distribution business; 2. Generate continuous and stable growth in its revenues and profitability; 3. Expand its technical capabilities to include coal-fired plants and increase its experience in operating and maintaining such plants. This would in turn help to enhance EGCOMP's competitive advantage in the next round of IPP bidding; 4. Invest in an IPP-based power plant project in which construction is almost complete and is ready to be in operation in line with its contractual schedule. This would help to reduce pre-operating risk and allow EGCOMP to realize revenue from investment from the onset of the investment. 2) Benefits of the Transaction to EGCOMP and Its Shareholders 1. Increase EGCOMP's market share in the domestic power generation and distribution business As at December 31, 2005, EGCOMP had a total owned power generation capacity (Equity MW) in Thailand of 2,378.90 MW comprised of 9 different power plants. These plants account for approximately 9 % of total domestic installed generation capacity. Acquiring 50 % of BLCP with its total installed capacity of 1,434 MW will raise EGCOMP's Equity MW to 3,095.90 MW comprising approximately 11 % of total domestic generation capacity at the end of 2006. EGCOMP is also in the process of developing 4 greenfield power projects, with total Equity MW of 1,021 MW, namely the Kaeng Khoi 2 Combined Cycle Power Plant Project, with SCOD of its unit 1 in 2007, the Nam Theun 2 Hydroelectric Power Plant Project located in Laos, with SCOD in 2009, the Gulf Yala Green Biomass Power Plant Project, with SCOD around the end of 2006 and the Amata Power Bang Pakong Expansion Project with first operation scheduled for early 2007. In addition, EGCOMP is in the process of preparing to participate in the next round of IPP solicitations which, if successful, would lead to further increase in EGCOMP's market share over the period from 2009-2011. 2. Increase EGCOMP's Revenue and Profitability from Investing in the BLCP Power Plant Project Pursuant to the PPA signed between BLCP and EGAT in 1997 (as amended in 1999), BLCP will sell all electricity generated to EGAT, and EGAT will make payments to BLCP in the form of: 1. Availability Payments (AP), which EGAT is required to make if the BLCP plant is available to generate electricity with the agreed characteristics at agreed levels in response to a dispatch instructions from EGAT, regardless of whether or not EGAT issues a dispatch instruction. These payments provide a return on BLCP's investment in the facility and cover its fixed operation and maintenance costs. 2. Energy Payments (EP), which EGAT makes in consideration for electricity supplied to EGAT in response to a dispatch instruction. These payments are designed to cover fuel, fuel transportation and variable operation and maintenance costs incurred by BLCP in production of the electricity supplied to EGAT. 3. BLCP also earns an Added Facility Charge from EGAT that is a payment to reimburse BLCP for amounts advanced to EGAT t o build new transmission facilities and cover other access costs incurred for EGAT to connect the BLCP IPP plant to EGAT's transmission grid. Provided that BLCP maintains the availability factors and levels of operational efficiency as specified in the PPA and can manage its operating costs as planned, BLCP will earn its operating revenue on an uninterrupted basis in accordance with the PPA. This is because the business of power generation is less affected by fluctuation in the macro economy than other businesses. Investing in BLCP should generate an appropriate level of investment return for EGCOMP in the long run. 3. Investing in BLCP Helps to Increase EGCOMP's Experience in Operating and Maintaining Coal-fired Power Plants and Diversify Source of Fuel Currently, power plants in Thailand are largely fueled by natural gas, given the fact that 70 % of the electricity generated in Thailand is generated with natural gas. Several of the power plants run by EGCOMP's subsidiaries, associates or joint ventures are natural gas-based ones. Thus, investing in the BLCP Power Plant Project, a facility that uses coal as its fuel, would increase EGCOMP's business scope, and this help to provide EGCOMP's with greater competitive strength in future rounds of IPP bidding. This is because the country's policy is to diversify fuel sources to lessen the dependence on natural gas that could face issues on supply and pipeline capacity in the future. Investing in BLCP would help to increase EGCOMP's market share in the domestic power generation business, provide an opportunity for it to develop greater experience in managing coal-fired power plants and diversify the fuel sources for plants in which it may seek to invest in the future. 4. Investing in BLCP allows EGCOMP to invest in an IPP project of which construction process is almost complete and ready to be in operation in accordance with the schedule, thus substantially reducing pre-operating risk and allowing EGCOMP to realize revenue from investment immediately BLCP was awarded a PPA to generate and sell electricity to EGAT under the IPP scheme, and it has already passed major pre-operating milestones such as obtaining approval from relevant government bodies in relation to constructing and running power plants, securing sources of financing, constructing power plants, and appointing its O&M contractor. Currently, construction of Unit 1 of the BLCP Power Plant Project was complete, and it already passed relevant commissioning tests required under the PPA. It has been in commercial operation since October 1, 2006. Thus, investing in BLCP allows EGCOMP to participate in a power plant project with quite low risks in terms of construction, control of construction costs and project delay. Although, the SCOD of Unit 1 of the BLCP Power Plant Project is October 1, 2006, it has actually generated and sold electricity to EGAT since mid-August 2006. Investing in BLCP thus allows EGCOMP to realize income from investment in such project immediately. 3) Relevant Risk Factors that might Adversely Affect BLCP's Financial Performance and Condition - Risk due to Project Delay Thanks to its vast experience and strong expertise in constructing many types of power plants including coal-fired ones, the Mitsubishi Consortium that served as the EPC Contractor for the BLCP Power Plant Project was able to complete construction of Unit 1 of the Project ahead of schedule, and this unit has delivered electricity to EGAT's transmission grid since mid-August 2006. Unit 2 o f the Project is currently nearing completion, and is expected to be ready for operations in line with the contractual schedule. Additionally, in accordance with the EPC Contract, BLCP is allowed to impose liquidated damages on the Mitsubishi Consortium should construction of the BLCP Power Plant Project fail to conform with the construction schedule or the relevant performance specifications. Thus, risk of project delay or substandard performance for the BLCP IPP Project has been adequately mitigated. - Risk due to Cost-Overrun In accordance with the EPC Contract, the Project is being built on a fixed price, lump sum basis. In estimating BLCP's total project costs, an in-built contingency is also included. As at June 30, 2006, actual contingency used is still much lower than originally forecast one. From information obtained from EGCOMP, adjusted project construction costs are lower than original forecast ones. Thus, risk of cost-overrun for the BLCP IPP Project is quite low. - Risk due to the Fact that EGAT is the Sole Customer of BLCP In accordance with the BLCP PPA, BLCP is required to sell all electricity to EGAT for a term of 25 years, and this may expose it to the risk of sole reliance on EGAT as the only customer. Nevertheless, BLCP's customer and revenue structures are similar to those of other IPPs. The BLCP PPA also specifies clear and standard terms and conditions for the amount and type of payments to be made by EGAT to BLCP. These include Availability Payments, Energy Payments and Added Facility Charges. EGAT will make these payments to BLCP periodically in accordance with the PPA, regardless of the level at which EGAT dispatches the plant. - Risk due to Fluctuation in Demand for Electricity in Thailand Domestic demand for electricity depends o n the condition of the macro economy. Should domestic economic growth decelerate, demand for electricity from both industrial and household sectors declines as well. This will reduce the quantity of electricity to be purchased by EGAT, and thus adversely affecting BLCP's revenue. Nevertheless, EGAT is obligated under the PPA to make payment in the form of Availability Payments (AP) to BLCP should the BLCP IPP plant is available to generate electricity with the agreed characteristics at agreed levels in response to a dispatch instruction from EGAT, regardless of whether or not EGAT issues a dispatch instruction. Such payments provide a return on BLCP's investment in the facility and cover its fixed operation and maintenance costs. In addition, BLCP also earns an Added Facility Charge from EGAT that is a payment to reimburse BLCP IPP for amounts advanced to EGAT to build new transmission facilities and cover other access costs incurred for EGAT to connect the BLCP IPP plant to EGAT's transmission grid. Those two forms of payments would help to partially reduce risk due to fluctuation in domestic demand for electricity. - Risk due to Reliance on only one Supplier of Coal and Fluctuation in Coal Price BLCP entered into the Coal Supply and Transportation Agreement (CSTA) with Australian Coal Holdings Pty Ltd. (ACH), a company under Australian Rio Tinto Ltd. In accordance with the CSTA, ACH is obligated to supply coal to BLCP with the quantity and the quality as required by BLCP for the whole CSTA term of 25 years. Although ACH is obligated under the CSTA to supply coal to BLCP, BLCP still faces risk of reliance on only one supplier of coal. Should the supply of coal be scarce or ACH fails to supply coal to BLCP at the required quantity and quality, the BLCP IPP plants may not generate electricity for sale to EGAT in accordance with the PPA. However, in case ACH fails to supply BLCP with coal at the required quantity and quality, BLCP is allowed to place an order with another supplier, and if additional cost is incurred by BLCP to obtain coal from other sources, ACH is required to bear such additional costs. This would help to reduce fuel supply risk. Risk due to fluctuation in coal price is not a major issue for BLCP, as under the tariff structure agreed upon between EGAT and BLCP, cost of coal is a pass-through when BLCP achieves the contracted heat rate required under the PPA. The result of test of operating efficiency conducted prior to taking over of Unit 1 shows that Unit 1 could achieve operating efficiency at the level higher than that required under the PPA. This helps to reduce the probability BLCP would be unable to pass through cost of coal to EGAT due to its failure to achieve the contracted heat rate required under the PPA. Determination of coal price under the CSTA is clearly specified. - Operational Risk Some operational risk factors that might adversely affect BLCP's ability to generate revenue and maintain profitability include: 1. Risk related to Operational Efficiency of the Power Plants: Under the PPA, BLCP is required to achieve certain operational efficiency criteria such as fuel usage efficiency, availability factor, unplanned outages and etc. Should BLCP fail to achieve the required level of operational efficiency, it may be fined by EGAT, and its revenue may be adversely affected. To reduce risks in relation to operational efficiency and to manage the BLCP Power Plant Project efficiently in accordance with the PPA, BLCP assigned the Mitsubishi Consortium to carry out construction of the BLCP plant, and specified some important production parameters at the standard not lower than the level as required under the PPA must be met. BLCP also entered into the O&M Agreement with Power Generation Services Ltd. (PGS) through which PGS will act as the O&M contractor for the BLCP Power Plant Project. In measuring operation efficiency of the BLCP Power Plant Project and evaluating performance of PGS under the O&M Agreement, BLCP and PGS will coordinate to select certain operating performance criteria for measuring operating efficiency of BLCP power plants. 2. Risk due to Rise in Costs of Operating Power Plants: The tariff structure under the PPA is clearly specified and designed for the whole contract term to cover fixed and variable costs to a certain level. Should operation of power plants fail to achieve required level of operating efficiency, thus resulting in increasing cost of production and operation, BLCP's operating profit may be adversely affected. To reduce risk due to rise in operating costs, PGS and BLCP will coordinate to prepare operating budget to ensure operating and maintenance costs are managed efficiently. 3. Risk due to Business Interruption Caused by Uncontrollable Factors: BLCP's operation may be interrupted by uncontrollable factors such as natural disaster, disaster caused by fire, technical fault and labor disputes. To reduce the risks of business interruption, BLCP will provide an operational handbook and training to its staff, set up contingency plans to deal with unexpected events, install warning systems in its power plants and require its staff to comply with safety measures. BLCP has also insured its assets under property damage insurance policy that cover on an all-risks basis and business interruption insurance to ensure it will be sufficiently and appropriately insured in case of unexpected events or accidents. - Environmental Compliance Risk Under the PPA and relevant regulations regarding environmental compliance required by the OEPP, BLCP is obligated to comply with relevant environmental standards and laws to ensure running of the BLCP Power Plant Project will not cause serious environmental problems. To comply with relevant standards and laws and to reduce the potential risk of environmental problems, BLCP specified conditions regarding environmental impact in the EPC Contract, quality of the coal in the CSTA Agreement as well as operating efficiency of the BLCP IPP Project in the O&M Agreement to ensure running the Project is in conformance with relevant environmental regulations. - Foreign Exchange Risk BLCP is exposed to foreign exchange risk as some portion of its operating cost, procurement and purchasing of accessories, machinery and equipment, cost of coal and transportation, and some portion of its debt are in US dollar. Although fluctuation in the Baht/dollar may have a detrimental impact on BLCP's financial performance and condition, depreciation of the Thai Baht against US dollar relative to the reference baht/dollar exchange rate specified in the PPA will have an overall positive impact on its financial performance. This is because BLCP's revenue that is referenced to the dollar exceeds its corresponding costs or expenses that is referenced to or denominated in the dollar. Most of BLCP's revenue in the form of Availability Payment (AP) is calculated in reference to the Baht/dollar exchange rate, and some of its debt profile denominated in the dollar is designed to match with the tariff structure under the PPA. - Interest Rate Risk According to the financing agreement between BLCP and lending financial institutions, BLCP's debt facilities are denominated in both dollar and Thai baht for the total amount of Baht 22,063 million and $558 million respectively, and both Thai baht and dollar-denominated debts comprise of both fixed-and floating-rate tranches. Thus, BLCP is exposed to interest rate risk should the reference rate rise. To deal with this, BLCP entered into many interest rate swap agreements to convert all of its floating-rate dollar-denominated debt into fixed one, and this would help to reduce its exposure to fluctuation in interest rates. - Risk due to the fact that the CLP Holdings Limited Group will not hold direct stake in BLCP and PGS Given the CLP Holdings Limited Group, with vast experience and strong expertise in running and managing many coal-fired power plants in many countries, has played an important role in managing the BLCP Power Plant Project since the very early of the Project, selling its stake in BLCP to EGCOMP together with the possibility that it will also sell its stake in Power Generation Services Co., Ltd. (PGS) that will operate and maintain the BLCP Power Plant Project may have some impact on running the Project to be in line with the initial plan. Nevertheless, experts from the CLP Holdings Limited Group will continue to work for both BLCP and PGS for a period of three years after the SCOD of Unit 2 to ensure smooth running of both companies. BLCP will also provide continuous training to its staff and management at all levels and regularly review and improve where appropriate its internal working procedures to reduce the risk of reliance on particular individual or group of management. The CLP Holdings Limited Group will continue to hold indirect stakes in both BLCP and PGS via its direct stake in EGCOMP. Furthermore, both the CLP Holdings Limited Group and EGCOMP are committed to provide continuous support to each other in terms of developing and managing their common power generation business in Thailand. These arrangements will help to ensure that BLCP and PGS will enjoy the benefit of adequate support from committed sponsors. 4) Rationale and Necessity for Pursuing the Acquisition Transaction with the Connected Person As the number of IPP projects currently available in Thailand is limited, and most of which are controlled by major shareholders who engage in the business of power generation and its related businesses and would rather maintain or increase their stakes rather than dispose them, the number of target IPP projects that could be acquired by EGCOMP is limited. The opportunity for EGCOMP to invest in BLCP is formed on the basis of long-standing business cooperation between EGCOMP and the CLP Holdings Limited Group in the power generation business. CLP Holdings Limited has engaged in the Thai power generation business by holding an indirect equity stake of 11.21 % in EGCOMP via CLP Power Projects (Thailand) Limited and an indirect equity stake of 50 % in BLCP via CLP-BLCP. Thus, pursuing the transaction of acquiring BLCP shares could be regarded as a step leading to closer cooperation between EGCOMP and the CLP Holdings Limited Group, underpinning the CLP Holdings Limited Group's commitment to conduct power related business in Thailand (more)