Management Discussion and Analysis for the 1H 2008

interest income by Baht 29 and 9 million, respectively, owing to lower interest rates. * Cost of sales totaled Baht 1,671 million, a decrease of Baht 5 million or 0.3% compared to the same period of 2007, mainly because KEGCO's cost of sales decreased by Baht 16 million or 2% mostly from a higher maintenance cost in 2007. Cost of Sales - IPP Group: Unit : Million Baht 1H08 1H07 %Changes REGCO 913 902 1% KEGCO 759 774 (2%) Total Cost of Sales - IPP Group 1,671 1,677 (0.3%) * Administrative expenses and income taxes were Baht 450 million, an increase of Baht 69 million or 18%, mainly from higher tax payment at REGCO that amounted to Baht 94 million or 90% higher due to the end of corporate tax reduction BOI previlege on April 19, 2008. Meanwhile, tax payment at KEGCO decreased by Baht 42 million or 26% due to lower revenues. KEGCO currently enjoy 50% corporate tax reduction BOI privilege on profits from power generation, ending on September 25, 2009. * Interest expenses were Baht 196 million, a decrease of Baht 96 million or 33%, resulting from 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 2,545 million, a decrease of Baht 402 million or 14%, mostly due to a fall in the share of profit from BLCP of Baht 1,894 million (including a gain from foreign exchange rate of Baht 76 million) by Baht 631 million or 25% from lower gain on foreign exchange rate and lower electricity sales which was in accordance with the tariff formula as well as higher maintenance cost in 2008. Meanwhile, the share of profit from GPG of Baht 651 million (including a loss from foreign exchange rate of Baht 88 million) increased by Baht 228 million or 54% thanks to the electricity sales of GPG, following its KK2 Project-Unit 1 and 2 achieving COD in May 2007 and February 2008, respectively. 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 1,099 million, an increase of Baht 12 million or 1% compared to the same period of 2007. The total expenses were Baht 915 million, an increase from the same period of last year by Baht 31 million or 4%. The share of profits from joint ventures were reported at Baht 236 million (including a gain from foreign exchange rate of Baht 24 million), a decrease of Baht 202 million or 46% compared to the same period of 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) 1H08 1H07 1H08 1H07 1H08 1H07 Total revenues 960 977 139 110 - - Total expenses 848 818 68 66 - - Profits bf Share of Profits (Loss) from JVEs 112 159 72 44 - - Share of Profits (Loss) from JVEs - - - - 189 386 Net Profit bf Subs's Fx and MI 112 159 72 44 189 386 APBP and AEP Total 1H08 1H07 1H08 1H07 % Chg Total revenues - - 1,099 1,087 1% Total expenses - - 915 884 4% Profits bf Share of Profits (Loss) from JVEs - - 184 203 (9%) Share of Profits (Loss) from JVEs 47 52 236 438 (46%) Net Profit bf Subs's Fx and MI 47 52 420 641 (35%) * Sales of electricity of the SPP Group were Baht 1,090 million, representing an increase of Baht 21 million or 2% compared to the same period of last year. Most of the increase of SPP group's electricity sales was from Roi-Et Green in the amount of Baht 34 million, resulting mainly from higher Energy Charge due to higher fuel oil cost, which was in accordance with the tariff formula. Meanwhile, EGCO Cogen's electricity sales decreased by Baht 14 million due to lower electricity sales to EGAT as a result of planned outage and Baht appreciation. Sales of Electricity - SPP Group: Unit : Million Baht 1H08 1H07 %Changes EGCO Cogen 953 967 (1.4%) Roi-Et Green 137 102 33% Total Sales of Electricity - SPP Group 1,090 1,070 2% * Interest income and others amounted to Baht 9 million, a decrease of Baht 9 million or 49%, mainly because the four-year subsidy for guarantee fee from UNDP for Roi-Et Green ended in 2007 and the lower interest rates caused a decrease in interest income of Roi-Et Green and EGCO Cogen. * Cost of Sales of SPP Group were reported at Baht 858 million, an increase of Baht 29 million or 3% as compared to the same period of 2007. This was substantially driven by an increase in cost of sales of EGCO Cogen amounting to Baht 27 million as a result of planned outage. Cost of Sales - SPP Group: Unit : Million Baht 1H08 1H07 %Changes EGCO Cogen 797 770 4% Roi-Et Green 61 59 3% Total Cost of Sales - SPP Group 858 829 3% * Administrative expenses and income taxes were Baht 16 million, up by Baht 8 million or 105% as compared to the same period of 2007. This mainly resulted from EGCO Cogen's penalty payment to EGAT amounting to Baht 8 million, since its thermal process ratio did not meet the requirement in accordance with the PPA. * Interest expenses were Baht 41 million, a decrease of Baht 6 million or 13%, mainly from a lower principal of EGCO Cogen. * Share of profits from joint ventures, GEC (excluding GPG), APBP and AEP, totaled Baht 236 million, down by Baht 202 million or 46% as compared to the same period of 2007. This mainly resulted from the share of profit from the joint venture GEC of Baht 189 million (including a gain on foreign exchange rate of Baht 18 million), a decrease of Baht 197 million or 51% from a decrease in the gain on foreign exchange rate. Moreover, the share of profits from joint ventures, APBP and AEP, totaled Baht 47 million (including a gain on foreign exchange rate of Baht 6 million), which included the operating results until May 15, 2008 due to the sale of share in EGCO JD, down by Baht 5 million or 10%. 4) Overseas Group refers to Conal and NTPC, of which their share of losses from joint ventures were reported at Baht 64 million, a lower loss of Baht 82 million compared to the same period of 2007. NTPC's share of loss was Baht 110 million (including a loss from foreign exchange rate of Baht 75 million), a lower loss of Baht 70 million or 39% as compared to the same period of 2007, caused mainly by lower foreign exchange loss of Baht 85 million. Meanwhile, Conal's share of profit was reported at Baht 46 million (including a gain on foreign exchange rate of Baht 32 million), an increase of Baht 12 million or 34% compared to the same period of last year, mainly from an increase in gain on foreign exchange rate. 5) Other Business Group includes two subsidiaries, ESCO and ET, and a joint venture, AMESCO. Total revenues were Baht 570 million, an increase of Baht 164 million or 40% as compared to the same period of 2007 and total expenses were Baht 387 million, an increase of Baht 109 million or 39%. The share of profit from the joint venture was reported at Baht 4 million, an increase of Baht 0.68 million or 23% as compared to the same period of 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 1H08 1H07 1H08 1H07 1H08 1H07 % Chg Total revenues 451 292 119 114 570 407 40% Total expenses 352 341 34 37 387 278 39% Profits bf Share of Profits (Loss) from JVEs 98 51 85 77 183 129 42% Share of Profits (Loss)from JVEs 4 3 - - 4 3 23% Net Profit bf Subs's Fx and MI 102 55 85 77 187 132 42% * Service income from ESCO amounted to Baht 432 million, up by Baht 147 million or 51%, resulting mostly from higher maintenance service income and spare parts sale to power plants overseas. * Sales of water from ET, were Baht 114 million, up by Baht 5 million, or 5%, 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 24 million, an increase of Baht 12 million or 93% due to a gain from the sale of shares in AMESCO totaling Baht 15 million. * Cost of services were Baht 282 million, an increase of Baht 80 million or 40%, resulting from an increase in maintenance service costs which was consistent with increased revenues. * Cost of water sales of ET was Baht 33 million the same as the same period of last year. * Administrative expenses and income taxes totaled Baht 71 million, an increase of Baht 29 million or 70% compared to the same period of 2007, mostly from an increase in ESCO's income taxes by Baht 30 million from higher revenues. * ESCO's share of profit from a joint venture, AMESCO, totaled Baht 4 million, an increase of Baht 0.68 million or 23%. 4. Report and Analysis of Financial Position 4.1 Asset Analysis As at June 30, 2008, total assets of EGCO, its subsidiaries and interests in joint ventures amounted to Baht 54,671 million, an increase of Baht 1,071 million or 2% from December 31, 2007. The important details are as follows: 1) Cash and deposits at financial institutions, and short-term and long-term marketable securities were Baht 7,022 million or 13% of the total assets, up Baht 1,529 million or 28%. This resulted mainly from an increase of cash and cash equivalent by Baht 1,575 million due to cash receipts from operating activities of Baht 2,794 million, dividends from joint ventures totaling Baht 1,101 million, cash receipts from the sale of shares in EGCO JD and AMESCO totaling Baht 815 million, and dividend of Baht 78 million received from EASTW. Meanwhile, the investment in joint ventures was Baht 366 million, debenture and loan repayment totaled Baht 1,424 million and dividend payment to shareholders amounted to Baht 1,360 million. 2) Short-term and long-term investments used as collateral were Baht 535 million or 1% of the total assets, down Baht 380 million or 42%. This decrease mainly came from the use of cash to pay the principal and interest of the debt of KEGCO and EGCO Cogen. 3) Investment in subsidiaries and interests in joint ventures recorded under the equity method in the consolidated financial statements as at June 30, 2008 amounted to Baht 19,662 million or 36% of the total assets, down Baht 571 million or 3%. The major change can be defined as follows: 3.1) an increase in share of profit from investment according to the equity method amounting to Baht 2,830 million. 3.2) an investment in additional paid-up shares amounting to Baht 10 million. 3.3) dividend received from BLCP, GEC and Conal by Baht 2,476 million. 3.4) the sale of shares in EGCO JD and AMESCO amounting to Baht 835 million. 3.5) loss from translation adjustment totaling Baht 100 million. For the company financial statements, the original cost was applied to record the investment in subsidiaries and interests in joint ventures at the beginning; the book value as at June 30, 2008 was Baht 29,671 million, up Baht 17 million, thanks to the additional paid-up shares in joint ventures, NTPC and Sustainable Energy and Environmental Development Co.,Ltd. (SEED), amounting to Baht 356 million and Baht 10 million, respectively. Meanwhile, the sale of shares in EGCO JD amounted to Baht 348 million. 4) Property, plant and equipment (net) totaled Baht 17,792 million or 33% of the total assets. They were down Baht 846 million or 5% due to the decrease in property, plant and equipment from the depreciation of EGCO and subsidiaries' assets totaling Baht 1,073 million and the reclassification of unutilised capital spare parts from property, plant and equipment to spare parts and supplies at REGCO, KEGCO and EGCO Cogen totaling Baht 219 million. Meanwhile, there was a recording of capital spare parts as property, plant and equipment following the major maintenance at REGCO, KEGCO and EGCO Cogen in the amount of Baht 381 million and net purchase of property, plant and equipment totaling Baht 65 million. 5) Other assets were Baht 9,661 million or 18% of the total assets, up Baht 1,339 million or 16% mainly from an increase of dividends receivable from a joint venture by Baht 1,376 million, ESCO's accrued income by Baht 75 million. Meanwhile, spare parts and supplies were down Baht 124 million. 4.2 Liability Analysis As at June 30, 2008, the EGCO Group's total liabilities were Baht 9,926 million, which was Baht 1,679 million or 14% lower than the amount as at December 31, 2007. The total liabilities consist of the following: 1) Long-term loans and debentures totaled Baht 8,157 million, or 82% of total liabilities, down Baht 1,080 million or 12%. This mainly came from the long-term loans and debentures repayment from KEGCO, EGCO Cogen and Roi-Et Green. The details are as follows: - USD loans in the amount of USD 19 million - Yen loans in the amount of Yen 823 million - Baht loans in the amount of Baht 4,677 million - Baht debentures in the amount of Baht 2,602 million Maturity of long-term loans and debentures as of June 30, 2008 Unit : Million Baht EGCO KEGCO EGCO Cogen Roi-Et Green Within 1 Year - 772 154 32 1-5 Years - 1,830 1,016 128 > 5 Years 4,000 - 126 99 Total 4,000 2,602 1,296 259 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 as at June 30, 2008 totaling Baht 253 million for the purpose of payment of principal and interest due within one year and as a reserve for minimising the foreign exchange risk. 2) Other liabilities amounted to Baht 1,769 million or 18% of total liabilities, representing a decrease of Baht 599 million or 25% which was mostly from a decrease in net liabilities in a joint venture by Baht 258 million as a result of the increased capital and the recognition of NTPC's share of loss totaling Baht 356 million and Baht 110 million, respectively. In addition, trade payables decreased by Baht 278 million mainly from EGCO Cogen and KEGCO. 4.3 Shareholders' Equity Analysis As at June 30, 2008, Shareholders' Equity amounted to Baht 44,746 million, which was Baht 2,750 million or 7% higher than the amount as at December 31, 2007. This was due mainly to the net profit in the consolidated financial statements amounting to Baht 4,257 million. Meanwhile, appropriated dividend totaled Baht 1,376 million. The analysis of the company's capital structure as at June 30, 2008 can be summarized as follows: Shareholders' equity was Baht 44,746 million or 81.84%. Liabilities were Baht 9,926 million or 18.16%. Important financial ratios were as follows: - Debt to equity ratio was 0.22 times, lower than 0.28 times at the end of 2007. - Book value per share was Baht 84.03, higher than Baht 78.78 at the end of 2007. 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, 2008, the ending balance of the cash and the cash equivalent was Baht 5,325 million, which was Baht 1,575 million higher than the amount as at December 31, 2007. The details of the sources and uses of funds are as follows: -Net cash received from operating activities totaled Baht 2,794 million. This was cash received from operating activities of Baht 3,260 million and cash payment for working capital of Baht 466 million. -Net cash received from investing activities was Baht 1,565 million mainly due to dividends from joint ventures Baht 1,101 million, cash receipts from the sale of shares in EGCO JD and AMESCO totaling Baht 815 million and dividend received from EASTW by Baht 78 million. Meanwhile, the investment in joint ventures was Baht 366 million. - Net cash payment for financing activities was Baht 2,785 million. The payment includes the payment of principal and interest of EGCO, KEGCO, EGCO Cogen and Roi-Et Green's debentures and loans totaling Baht 1,424 million. The dividend payment to shareholders amounted to Baht 1,360 million . In the six-month period of 2008, the analysis of the company's liquidity ratios is as follows: - Current ratio was 7.49 times, compared to 4.22 times in 2007 - Quick ratio was 3.94 times, compared to 2.26 times in 2007 Both ratios were higher than the ratios in 2007 due to an increase of cash and cash equivalent resulted mainly from dividends from joint ventures and cash receipts from the sale of shares in EGCO JD and AMESCO and an increase of dividends receivable from a joint venture.