Management Discussion and Analysis 2007

Baht 134 million, interest income of Baht 63 million and other income of Baht 301 million. Compared to 2006, this showed an increase of Baht 98 million or 24%, which mainly resulted from higher other income of Baht 243 million thanks to gain from the redemption of Krung Thai Dividend Selected Flexible Portfolio Fund (KTSF) amounting to Baht 258 million. However, interest income decreased by Baht 111 million, or 64% as a result of lower interest rate and deposit amounts. Moreover, dividend income also decreased by Baht 34 million or 20% mainly a result of the drop in dividends from KTSF by Baht 78 million. Meanwhile, dividends from Eastern Water Resources Development and Management Public Company Limited (EASTW) were up by Baht 31 million and dividend from other open-end funds up by Baht 13 million. Total expenses of EGCO, including administrative expenses and interest expenses, were Baht 891 million, an increase from 2006 by Baht 387 million or 77%. This resulted mainly from the increase of interest expenses totaling Baht 186 million, incurred from the short-term loans of Baht 4,350 million from two Thai commercial banks; the first drawdown of the short-term loans was on January 29, 2007 and the repayment of the whole amount was made on December 28, 2007. In addition, there was an increase of advertising expenses for the re-branding project and project development expenses which included consulting fees. 2) IPP Group consisting of two principal subsidiaries, REGCO and KEGCO; and two principal joint ventures, BLCP and GPG. Total revenues were Baht 7,910 million, a decrease of Baht 3,142 million or 28% as compared to last year, meanwhile the total expenses were Baht 4,813 million, down by Baht 1,321 million or 22%. The share of profits from joint ventures were reported at Baht 4,638 million (including a gain from foreign exchange of Baht 728 million), up by Baht 4,690 million as compared to 2006 which showed the share of loss totaling Baht 52 million. The details are as follows: Total Revenues, Total Expenses and Share of Profits(Loss) from JVEs of IPP Group: Unit: Million Baht REGCO KEGCO BLCP 2007 2006 2007 2006 2007 2006 Total revenues 3,599 5,630 4,311 5,422 - - Total expenses 2,183 2,947 2,630 3,187 - - Profits bf Share of Profits (Loss) from JVEs 1,416 2,683 1,681 2,235 - - Share of Profits (Loss)from JVEs - - - - 3,907 - Net Profit bf Subs's Fx and MI 1,416 2,683 1,681 2,235 3,907 - GPG Total 2007 2006 2007 2006 %Chg Total revenues - - 7,910 11,053 (28%) Total expenses - - 4,813 6,134 (22%) Profits bf Share of Profits (Loss) from JVEs - - 3,097 4,919 (37%) Share of Profits (Loss)from JVEs 731 (52) 4,638 (52) n.a. Net Profit bf Subs's Fx and MI 731 (52) 7,735 4,866 59% - Sales of electricity of IPP Group were Baht 7,809 million, representing a decrease of Baht 2,856 million or 27% compared to last year. The decrease was a result of REGCO's lower electricity sales by Baht 1,818 million to register Baht 3,574 million due to a decrease in the Capacity Rate and Baht appreciation. To minimize exchange rate risk, REGCO has entered into a revenue swap contract with a financial institution to fix the exchange rate to be used in the conversion of part of the USD-linked revenue provided in the PPA. As at December 31, 2007, the electricity revenue under the foreign currency forward contract of USD 47.82 million has a fixed exchange rate of Baht 33.80 per 1 USD. The contract is effective from November 8, 2007 to January 5, 2010. Moreover, KEGCO's lower electricity sales by Baht 1,038 million to register Baht 4,235 million was caused by a decrease in the Base Availability Credit for KEGCO which partly resulted from Baht appreciation. These decreases 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 2007 2006 %Changes REGCO 3,574 5,392 (34%) KEGCO 4,235 5,273 (20%) Total Sales of Electricity - IPP 7,809 10,665 (27%) 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 tariff 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 2007, REGCO and KEGCO received compensation for the exchange rate effect of Baht 393 million. - Interest income and others amounted to Baht 101 million, a decrease of Baht 287 million or 74%, mainly from REGCO's decreased interest income in the amount of Baht 211 million. It resulted from lower interest rates and lower amount of deposits at banks and financial institutions due to a capital reduction at REGCO from Baht 9,220 million to Baht 4,702 million in December 2006. KEGCO's interest income decreased by Baht 75 million resulting from lower interest rates. - Cost of sales totaled Baht 3,433 million, a decrease of Baht 120 million or 3% compared to 2006, mainly because KEGCO's cost of sales in 2007 decreased by Baht 223 million or 12% due to a high major maintenance cost in 2006. Meanwhile, REGCO's cost of sale increased by Baht 103 million or 6%, from major maintenance cost in 2007. Cost of Sales - IPP Group: Unit : Million Baht 2007 2006 %Changes REGCO 1,841 1,738 6% KEGCO 1,592 1,815 (12%) Total Cost of Sales - IPP Group: 3,433 3,553 (3%) - Administrative expenses and income taxes were Baht 841 million, a decrease of Baht 685 million or 45%, mainly from lower REGCO's administrative expenses of Baht 207 million or 63% compared to last year when REGCO incurred a make-whole premium payment from a loan prepayment; and tax payment at REGCO and KEGCO decreased by Baht 507 million from lower revenues. 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 539 million, a decrease of Baht 515 million or 49%, resulting from REGCO's payment of all of its debt with financial institutions in December 2006 and KEGCO's lower principal amounts of loans and debentures. - Share of profits from joint ventures, BLCP and GPG, were recognised in the amount of Baht 4,638 million. BLCP's recognition of net profit since January 2007 amounted to Baht 3,907 million, which included a foreign exchange gain of Baht 591 million, and GPG's net profit was Baht 731 million, which included a foreign exchange gain of Baht 137 million, thanks to KK2 Project-Unit 1's sales of electricity to EGAT after achieving its COD in 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 2,186 million, a decrease of Baht 45 million or 2% compared to 2006. The expenses were Baht 1,822 million, an increase from last year by Baht 31 million or 2%. The share of profits from joint ventures were reported at Baht 608 million (including a gain from foreign exchange of Baht 360 million), an increase of Baht 483 million or 386% compared to last year. The details are as follows: Total Revenues, Total Expenses and Share of Profits(Loss) from JVEs of SPP Group: Unit : Million Baht EGCO Cogen Roi-Et Green GEC(exclude GPG) 2007 2006 2007 2006 2007 2006 Total revenues 1,944 1,985 242 246 - - Total expenses 1,670 1,648 152 143 - - Profits bf Share of Profits (Loss) from JVEs 274 337 90 103 - - Share of Profits (Loss)from JVEs - - - - 497 0.75 Net Profit bf Subs's Fx and MI 274 337 90 103 497 0.75 APBP and AEP Total 2007 2006 2007 2006 % Chg Total revenues - - 2,186 2,231 (2%) Total expenses - - 1,822 1,791 2% Profits bf Share of Profits (Loss) from JVEs - - 364 440 (17%) Share of Profits (Loss)from JVEs 111 124 608 125 386% Net Profit bf Subs's Fx and MI 111 124 972 565 72% - Sales of electricity of the SPP Group were Baht 2,152 million, representing a decrease of Baht 42 million or 2% compared to last year. Most of the decrease of SPP group's electricity sales was from EGCO Cogen in the amount of Baht 36 million, resulting mainly from lower electricity sales to industrial users as well as the Baht appreciation which caused a drop in revenue from EGAT. Roi-Et Green's electricity sales decreased by Baht 6 million from lower tariff, as its tariff formula is linked to the price of fuel oil which experienced a drop. Sales of Electricity - SPP Group: Unit : Million Baht 2007 2006 %Changes EGCO Cogen 1,926 1,961 (2%) Roi-Et Green 226 233 (3%) Total Sales of Electricity - SPP Group 2,152 2,194 (2%) - Interest income and others amounted to Baht 34 million, a decrease of Baht 3 million or 9%, mainly from lower interest income totaling Baht 7 million cause by lower interest rates. - Cost of Sales of SPP Group were reported at Baht 1,677 million, an increase of Baht 22 million as compared to 2006. This was substantially driven by an increase in cost of sales of Roi-Et Green and EGCO Cogen amounting to Baht 17 million and Baht 5 million, respectively, due to higher fuel costs. Cost of Sales - SPP Group: Unit : Million Baht 2007 2006 %Changes EGCO Cogen 1,546 1,541 0.30% Roi-Et Green 131 114 15% Total Cost of Sales - SPP Group 1,677 1,655 1% - Administrative expenses and income taxes were Baht 53 million, up by Baht 24 million or 82% as compared to 2006. This mainly resulted from EGCO Cogen's penalty payment to EGAT amounting to Baht 16 million, since its thermal process ratio did not meet the requirement in accordance with the PPA; and the income tax payment following Thai LNG Power Co., Ltd. (TLPC)'s liquidation amounting to Baht 13 million. - Interest expenses were Baht 92 million, a decrease of Baht 14 million or 13%, mainly from a decrease in EGCO Cogen's interest expenses amounting to Baht 13 million due to lower principal. - Share of profits from joint ventures, GEC (excluding GPG), APBP and AEP, totaled Baht 608 million, up by Baht 483 million or 386% as compared to 2006. The share of profit from the joint venture GEC contributed the most in the amount of Baht 497 million, an increase of Baht 496 million as compared to last year. This was primarily a result of an increase of gain on foreign exchange rate, up by Baht 373 million, and higher sales of electricity. Meanwhile, the share of profits from joint ventures, APBP and AEP, totaled Baht 111 million, down by Baht 13 million or 10%, 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 losses from joint ventures were reported at Baht 197 million, an increase in loss of Baht 40 million compared to 2006. Conal's share of profit was reported at Baht 53 million, a decrease of Baht 65 million compared to 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 250 million (including a loss from foreign exchange of Baht 210 million), a decrease in loss of Baht 25 million as compared to 2006, caused mainly by lower foreign exchange loss. 5) Other Business Group includes two subsidiaries, ESCO and ET and a joint venture, AMESCO. Total revenues were Baht 1,000 million, a decrease by Baht 2 million or 0.23% as compared to 2006 and total expenses totaled Baht 703 million, a decrease of Baht 3 million or 0.45%. The share of profit from a joint venture was reported at Baht 2.29 million, an increase of Baht 0.78 million or 51% as compared to the last year. The details are as follows: Total Revenues, Total Expenses and Share of Profits(Loss) from JVEs of Other Business Group: Unit : Million Baht ESCO ET Total 2007 2006 2007 2006 2007 2006 % Chg Total revenues 773 802 228 201 1,000 1,003 (0.23%) Total expenses 631 643 72 63 703 706 (0.45%) Profits bf Share of Profits (Loss) from JVEs 142 159 156 138 297 297 0% Share of Profits (Loss)from JVEs 2.29 1.51 - - 2.29 1.51 51% Net Profit bf Subs's Fx and MI 144 160 156 138 300 298 0.33% - Service income from ESCO amounted to Baht 760 million, down by Baht 27 million or 3%, resulting mostly from lower maintenance service income from Granite Services International Co., Ltd., which is the subsidiary of GE and a decrease of spare parts sale to Elgali 2 Power Plant in Sudan. - Sales of water from ET, were Baht 218 million, up by Baht 26 million, or 14%, 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 22 million, a decrease of Baht 1 million or 4%, mainly from a decrease in ESCO's other income amounting to Baht 1 million. - Cost of services were Baht 536 million, a decrease of Baht 13 million or 2%, resulting from a decrease in the cost of maintenance services and the cost of ESCO's spare parts sale to customers which were consistent with its decreased revenues. - Cost of water sales of ET was Baht 66 million, up Baht 7 million or 12% mainly from an increase of operating and maintenance service costs which was consistent with its increased revenues. - Administrative expenses and income taxes totaled Baht 101 million, an increase of Baht 6 million or 6% compared to 2006, mostly from an increase in ESCO's administrative expenses by Baht 6 million. - ESCO's share of profit from a joint venture totaled Baht 2.29 million, an increase of Baht 0.78 million from AMESCO. 5. Report and Analysis of Financial Position 5.1 Asset Analysis As at December 31, 2007, total assets of EGCO, its subsidiaries and interests in joint ventures amounted to Baht 53,600 million, an increase of Baht 3,141 million or 6% 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 5,492 million or 10% of the total assets, down Baht 3,284 million or 37%. This resulted mainly from a decrease of cash and cash equivalent by Baht 1,851 million and a decrease of long-term investments in marketable securities by Baht 1,468 million from the redemption of KTSF. The decrease in cash and cash equivalent was from 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 5,588 million. In addition, EGCO repaid loan and debenture amounting to Baht 2,196 million and paid dividend to shareholders in the amount of Baht 2,214 million. Meanwhile, EGCO received operating cash of Baht 6,318 million, drew down long-term financing of Baht 4,000 million from local banks, received net cash from ST & LT investment of Baht 1,618 million and received dividends from joint ventures totaling Baht 985 million. 2) Short-term and long-term investments used as collateral were Baht 915 million or 2% of the total assets, down Baht 1,385 million or 60%. 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 recorded under the equity method in the consolidated financial statements as at December 31, 2007 amounted to Baht 20,233 million or 38% of the total assets, up Baht 7,857 million or 63%. The major change can be defined as follows : 3.1) an investment in the additional paid-up shares amounting to Baht 5,588 million, GEC of Baht 2,330 million and BLCP of Baht 3,258 million. 3.2) an increase in share of profit from investment according to the equity method amounting to Baht 5,301 million. 3.3) dividend received from BLCP, Conal and EGCO Joint Venture and Development Co.,Ltd. totaling Baht 3,140 million. 3.4) profit from translation adjustment totaling Baht 107 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 December 31, 2007 was Baht 29,653 million, up Baht 5,543 million or 23%, thanks to the additional paid-up shares in joint ventures, GEC and BLCP. Meanwhile, after transfering the shareholding in EGCO Cogen from under TLPC to under EGCO following TLPC's liquidation, the value of EGCO Cogen was lower than EGCO's investment in TLPC by Baht 45 million. 4) Property, plant and equipment (net) totaled Baht 18,638 million or 35% of the total assets. They were down Baht 1,502 million or 7% due to the decrease in property, plant and equipment from the depreciation of EGCO and subsidiaries' assets totaling Baht 2,129 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 230 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 590 million and net purchase of property, plant and equipment totaling Baht 267 million. 5) Other assets were Baht 8,322 million or 15% of the total assets, up Baht 1,455 million or 21% mainly from an increase of dividend receivable from a joint venture by Baht 2,075 million which was partially offset by a decrease of trade receivable from a related party by Baht 266 million, a decline in spare parts and supplies by Baht 219 million and a decrease of shareholder's loan to GEC by Baht 100 million. 5.2 Liability Analysis As at December 31, 2007, the EGCO Group's total liabilities were Baht 11,605 million, down Baht 3,056 million or 21%.The total liabilities consist of the following: 1) Long-term loans and debentures totaled Baht 9,238 million, or 80% of total liabilities, up Baht 1,724 million or 23%. This mainly came from EGCO's drawdown of a long-term loan with a local commercial bank in the amount of Baht 4,000 million on December 28, 2007 to repay short-term loan's that EGCO borrowed in the amount of Baht 4,350 million from two local commercial banks on January 29, 2007. In addition, the long-term loans and debentures repayment from KEGCO, EGCO Cogen and Roi-et Green totaled Baht 2,196 million. The details are as follows : - USD loans in the amount of USD 39 million - Yen loans in the amount of Yen 873 million - Baht loans in the amount of Baht 4,715 million - Baht debentures in the amount of Baht 2,957 million Maturity of long-term loans and debentures as of December 31, 2007 Unit: Million Baht EGCO KEGCO EGCO Cogen Roi-Et Green Within 1 Year - 1,379 150 30 1-5 Years - 2,227 968 120 > 5 Years 4,000 - 255 109 Total 4,000 3,606 1,373 259 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. 2) Other liabilities amounted to Baht 2,367 million or 20% of total liabilities, representing a decrease of Baht 4,781 million or 67% 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 (more)