Management Discussion and Analysis for 6 month 2007

of Baht 787 million to register Baht 2,059 million. These decreases were caused by a decrease in the Capacity Rate for REGCO and a decrease in the Base Availability Credit for KEGCO which both partly resulted from Baht appreciation. These were 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 1H'07 1H'06 %Changes REGCO 1,788 2,720 (34%) KEGCO 2,059 2,846 (28%) Total Sales of Electricity - IPP 3,847 5,566 (31%) 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 for 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 than that stated in the original PPAs before the inclusion of foreign exchange indexation if the exchange rate is above Baht 28 per US Dollar and vice versa. In the first six months of 2007, REGCO and KEGCO received compensation for the exchange rate effect of Baht 215 million. * Interest income and others amounted to Baht 64 million, a decrease of Baht 150 million or 70%, mainly from REGCO's decreased interest income in the amount of Baht 116 million. It resulted from lower interest rates and lower amount of deposits at banks and financial institutions due to capital reduction at REGCO from Baht 9,220 million to Baht 4,702 million in December 2006. KEGCO's interest income decreased by Baht 29 million resulting from lower interest rates. REGCO and KEGCO's other revenues also decreased by Baht 5 million. * Cost of sales totaled Baht 1,674 million, an increase of Baht 17 million or 1% compared to the first six months of 2006, mainly because REGCO's cost of sales increased by Baht 59 million or 7% from higher fuel cost caused by EGAT's ordering of machine start-up and shut-down, plus an increase of major maintenance cost according to planned schedule. Meanwhile, KEGCO's cost of sales decreased by Baht 42 million or 5% as compared to the same period of 2006 when there was planned major maintenance. Cost of Sales - IPP Group: Unit : Million Baht 1H'07 1H'06 %Changes REGCO 902 842 7% KEGCO 773 815 (5%) Total Cost of Sales - IPP Group: 1,674 1,657 1% * Administrative expenses and income taxes were Baht 381 million, a decrease of Baht 284 million or 43%, mainly from lower tax payment at REGCO and KEGCO caused by a decrease in revenue by Baht 282 million. REGCO and KEGCO currently enjoy 50% corporate tax reduction privilege on profits from power generation, ending on April 19, 2008 and September 25, 2009, respectively. * Interest expenses were Baht 290 million, a decrease of Baht 322 million or 53%, resulting from REGCO's payment of all of its debt in December 2006 and KEGCO's lower principal amounts of loans and debentures. * Share of profit from joint ventures, BLCP and GPG, were recognised in the amount of Baht 2,951 million. BLCP's recognition of net profit since January 2007 amounted to Baht 2,528 million and GPG's net profit was Baht 422 million thanks to KK2 Project-Unit 1's sales of electricity to EGAT after achieving its COD on May 2007, plus other income from KK2 Project-Unit 1's liquidated damage claim on the EPC contractor owing to the delayed COD. 3) SPP Group incorporates five companies, namely: GEC (excluding GPG), AEP, APBP, EGCO Cogen and Roi-Et Green. The total revenues were reported at Baht 1,087 million, a decrease of Baht 27 million or 2% compared to the first six months of 2006. The expenses were Baht 884 million, an increase from last year by Baht 8 million or 1%. The share of profit from joint ventures were reported at Baht 438 million, an increase of Baht 401 million or 1,070% compared to the same period of last year. The details are as follows: Total Revenues, Total Expenses and Share of Profits of SPP Group: Unit : Million Baht EGCO Cogen Roi-Et Green GEC (exclude GPG) 1H'07 1H'06 1H'07 1H'06 1H'07 1H'06 Revenues 977 983 110 131 - - Expenses 818 812 66 63 - - Share of Profits - - - - 386 (79) APBP and AEP Total 1H'07 1H'06 1H'07 1H'06 % Chg Revenues - - 1,087 1,114 (2%) Expenses - - 884 876 1% Share of Profits 52 116 438 37 1,070% * Sales of electricity of the SPP Group were Baht 1,070 million, representing a decrease of Baht 23 million or 2% compared to the same period of last year. Most of the decrease of SPP group's electricity sales was from Roi-Et Green in the amount of Baht 17 million from lower tariff, as its tariff formula is linked to the price of fuel oil which experienced a drop. EGCO Cogen's electricity sales decreased by Baht 6 million, resulting from lower electricity sales to EGAT due to the Baht appreciation. Sales of Electricity - SPP Group: Unit : Million Baht 1H'07 1H'06 %Changes EGCO Cogen 967 973 (1%) Roi-Et Green 102 120 (14%) Total Sales of Electricity - SPP Group 1,070 1,093 (2%) * Interest income and others amounted to Baht 17 million, a decrease of Baht 4 million or 20%, mainly from a decrease of Roi-Et Green's other income of Baht 3 million. * Cost of Sales of SPP Group were reported at Baht 829 million, an increase of Baht 16 million or 2% as compared to the first six months of 2006. This was substantially driven by an increase in cost of sales of EGCO Cogen amounting to Baht 12 million from higher fuel costs and usages as well as an increase in cost of sales at Roi-Et Green, up by Baht 4 million due to higher fuel costs. Cost of Sales - SPP Group: Unit : Million Baht 1H'07 1H'06 %Changes EGCO Cogen 770 758 2% Roi-Et Green 59 55 7% Total Cost of Sales - SPP Group 829 813 2% * Administrative expenses and income taxes were Baht 8 million, down by Baht 1 million or 10% as compared to the same period of 2006. * Interest expenses were Baht 47 million, a decrease of Baht 7 million or 13%, mainly from a decrease in EGCO Cogen's interest expenses amounting to Baht 6 million due to lower principal. * Share of profit from interests in joint ventures, GEC (excluding GPG), APBP and AEP, totaled Baht 438 million, up by Baht 401 million as compared to the same period of 2006. The share of profit from the joint venture GEC contributed the most in the amount of Baht 386 million, an increase of Baht 465 million as compared to the same period of last year. This was primarily a result of an increase of gain on foreign exchange rate, up by Baht 335 million, plus the electricity sales increased by Baht 111 million. Meanwhile, the share of profit from interest in joint ventures, APBP and AEP, totaled Baht 52 million, down by Baht 64 million, which was primarily from AEP's lower electricity sales to EGAT and higher maintenance expenses. 4) Overseas Group refers to Conal and NTPC, of which their share of loss from joint ventures were reported at Baht 146 million, a decrease in profit of Baht 193 million compared to the first six months of 2006. Conal's share of profit was reported at Baht 34 million, a decrease of Baht 41 million compared to the same period of 2006, mainly from a decrease of electricity sales after transferring NMPC, a 40 MW power plant, to NPC in February 2006 and the Peso appreciation. NTPC's share of loss was Baht 179 million, an increase in loss of Baht 152 million as compared to the same period of 2006, caused by a foreign exchange loss. 5) Other Business Group includes two subsidiaries, ESCO and ET and a joint venture, AMESCO. Total revenues were Baht 407 million, a decrease by Baht 107 million or 21% as compared to the same period of 2006 and total expenses totaled Baht 276 million, a decrease of Baht 78 million or 22%. The share of profit from a joint venture was reported at Baht 3 million, a decrease of Baht 0.22 million or 7% as compared to the same period of last year. The details are as follows: Total Revenues, Total Expenses and Share of Profits of Other Business Group: Unit : Million Baht ESCO ET Total 1H'07 1H'06 1H'07 1H'06 1H'07 1H'06 % Chg Revenues 292 418 114 96 407 514 (21%) Expenses 239 323 37 31 276 354 (22%) Share of Profits 3.00 3.22 - - 3.00 3.22 (7%) * Service income from ESCO amounted to Baht 285 million, down by Baht 126 million or 31%, resulting mostly from a decrease of spare parts sale to Elgali 2 Power Plant in Sudan. * Sales of water from a subsidiary, ET, were Baht 109 million, up by Baht 16 million, or 17%, thanks to the increase of the minimum take and tariff under the long-term Water Purchase Agreement with Provincial Waterworks Authority. * Interest income and others amounted to Baht 12 million, an increase of Baht 3 million or 26%, mainly from an increase in ET's interest income amounting to Baht 2 million. * Cost of services were Baht 201 million, a decrease of Baht 80 million or 28%, resulting from a decrease in the costs of ESCO's spare parts sale to customers which was consistent with its decreased revenues. * Cost of water sales of ET was Baht 33 million, up Baht 5 million or 19% mainly from an increase of operating and maintenance service costs. * Administrative expenses and income taxes totaled Baht 42 million, a decrease of Baht 2 million or 4% compared to the same period of 2006, mostly from a decrease in ESCO's income tax by Baht 14 million as a result of a lower profit whilst ESCO's administrative expenses increased by Baht 9 million. * ESCO's interest in joint ventures totaled Baht 3 million, a decrease of Baht 0.22 million from AMESCO. 4. Report and Analysis of Financial Position 4.1 Asset Analysis As at June 30, 2007, total assets of EGCO, its subsidiaries and interests in joint ventures amounted to Baht 52,588 million, an increase of Baht 2,128 million or 4% from December 31, 2006. The important details are as follows : 1) Cash and deposits at financial institutions, and short term and long term marketable securities were Baht 6,301 million or 12% of the total assets, down Baht 2,476 million or 28%. This resulted mainly from a decrease of cash and cash equivalent by Baht 2,243 million due to EGCO's payment for the acquisition of shares in BLCP amounting to Baht 4,645 million to CLP Power (BLCP) Ltd., a subsidiary of CLP Holdings Limited, and EGCO's payment for additional paid-up shares in BLCP and GEC amounting to Baht 3,735 million. Meanwhile, EGCO drew down short-term financing of Baht 4,350 million from local banks. 2) Short-term and long-term investments used as collateral were Baht 1,226 million or 2% of the total assets, down Baht 1,074 million or 47%. This decrease mainly came from the use of cash to repay the principal and pay the interest of KEGCO's debt. 3) Investment in subsidiaries and interests in joint ventures as at June 30, 2007 amounted to Baht 17,468 million or 33% of the total assets, up Baht 5,090 million or 41%. The major change can be defined as follows : 3.1) an investment in the additional paid-up shares amounting to Baht 3,735 million; GEC of Baht 1,485 million and BLCP of Baht 2,250 million. 3.2) an increase in share of profit from investment according to the equity method amounting to Baht 3,426 million. 3.3) dividend received from BLCP and Conal totaling to Baht 2,085 million 3.4) profit from translation adjustment totaling Baht 15 million For the company financial statements, the original cost was applied for recording the investment in subsidiaries and interests in joint ventures at the beginning; the book value as at June 30, 2007 was Baht 27,845 million, up Baht 3,735 million or 15%, thanks to the additional paid-up shares in joint ventures, GEC and BLCP. 4) Property, plant and equipment (net) totaled Baht 19,409 million or 37% of the total assets. They were down Baht 730 million or 4% due to the decrease in property, plant and equipment from the depreciation of EGCO and subsidiaries' assets totaling Baht 1,050 million and the reclassification of unutilised capital spare parts from property, plant and equipment to spare parts and supplies at REGCO and KEGCO totaling Baht 127 million. Meanwhile, there was a recording of capital spare parts as property, plant and equipment following the major maintenance at REGCO and KEGCO in the amount of Baht 338 million and net purchase of property, plant and equipment totaling Baht 109 million. 5) Other assets were Baht 8,185 million or 16% of the total assets, up Baht 1,318 million or 19% mainly from an increase of dividend receivable from a joint venture by Baht 2,001 million which was partially offset by a decrease of trade receivable from a related party (EGAT) by Baht 303 million, spare parts and supplies by Baht 237 million and shareholders loan to GEC by Baht 100 million. 4.2 Liability Analysis As at June 30, 2007, the EGCO Group's total liabilities were Baht 12,568 million, down Baht 1,973 million or 14%. The total liabilities consist of the following: 1) Short-term loans totaled Baht 4,350 million, or 35% of total liabilities. On 3 January 2007, EGCO entered into short-term loan agreements with two local banks for a credit facility of up to Baht 4,000 million with each bank. The first drawdown was on 29 January 2007. The principal is to be repaid in one lump sum one year from the agreement entering date. 2) Long-term loans and debentures totaled Baht 6,330 million, or 50% of total liabilities, down Baht 1,183 million or 16%. The details are as follows : - USD loans in the amount of USD 58 million - Yen loans in the amount of Yen 869 million - Baht loans in the amount of Baht 753 million - Baht debentures in the amount of Baht 3,292 million Maturity of long-term loans and debentures as of June 30, 2007 Unit: Million Baht KEGCO EGCO Cogen Roi-Et Green Within 1 Year 2,009 147 28 1-5 Years 2,602 927 113 > 5 Years - 388 117 Total 4,611 1,462 257 Long-term loans and debentures are secured liabilities over land, buildings, power plants and equipment of subsidiaries and joint ventures. The subsidiaries and joint ventures have to maintain cash reserves for the purpose of repayment of principal and interest due within one year and as a reserve for minimising the foreign exchange risk. 3) Other liabilities amounted to Baht 1,888 million or 15% of total liabilities, representing a decrease of Baht 5,140 million or 73% which mostly resulted from EGCO's payment for the acquisition of BLCP of Baht 4,645 million to CLP Power (BLCP) Ltd. in return for the share transfer on January 30, 2007. In addition, trade payables decreased by Baht 197 million and income tax payable was down Baht 327 million. 4.3 Shareholders' Equity Analysis As at June 30, 2007, Shareholders' Equity amounted to Baht 40,020 million, which was Baht 4,101 million or 11% higher than the amount as at December 31, 2006. This was due mainly to the net profit in the consolidated financial statements that amounted to Baht 5,025 million. The analysis of the company's capital structure as at June 30, 2007 can be summarized as follows: Shareholders' equity was Baht 40,020 million or 76.10%. Liabilities were Baht 12,568 million or 23.90%. Important financial ratios were as follows: - Debt to equity ratio was 0.31 times, lower than 0.40 times at the end of 2006. - Book value per share was Baht 75.04, higher than Baht 67.26 at the end of 2006. 5. Report and Analysis of Cash Flow Position Cash Flow Statement shows the change in cash flows from operating activities, investing activities, and financing activities at the end of the accounting period, and indicates the ending balance of the cash and the cash equivalents. As at June 30, 2007, the ending balance of the cash and the cash equivalent was Baht 3,359 million, down Baht 2,243 million. The details of the sources and uses of funds are as follows: -Net cash received from operating activities totaled Baht 3,411 million. This was cash received from operating activities that amounted to Baht 2,682 million and cash received from working capital of Baht 729 million. -Net cash payment for investing activities was Baht 7,843 million. Cash payment for the investment in the additional shares in joint ventures amounted to Baht 1,485 million at GEC and Baht 2,250 million at BLCP; meanwhile, cash payment for the acquisition of shares in BLCP amounted to Baht 4,645 million. Whereas the net cash inflow from the disposal of long-term mutual fund investments and repayment of shareholders loan by GEC amounted to Baht 375 million and Baht 100 million, respectively. In addition, the cash receipt from dividends of EASTW and the other open-end funds amounted to Baht 61 million and Baht 47 million, respectively. - Net cash received from financing activities was Baht 2,189 million, mainly owing to short-term loans drawn down by EGCO in the amount of Baht 4,350 million whereas the loan repayment of KEGCO, EGCO Cogen and Roi-Et Green totaled Baht 772 million and debenture repayment of KEGCO totaled Baht 317 million. In addition, dividend payment to shareholders amounted to Baht 1,072 million. In the first six months of 2007, the analysis of the company's liquidity ratios is as follows : - Current ratio was 1.80 times, higher than 1.68 times for 2006 - Quick ratio was 1.03 times, lower than 1.18 times for 2006 Both liquidity ratios changed slightly as compared to 2006, as a result of the payment of the additional shares totaling Baht 3,735 million to BLCP and GEC and the payment for shares acquisition in BLCP totaling Baht 4,645 million to CLP Power (BLCP) Ltd. Meanwhile there was short-term loans draw down amounting to Baht 4,350 million.