Management Discussion and Analysis year 2008

* Cost of sales totaled Baht 3,451 million, an increase of Baht 19 million or 0.55% compared to 2007 from an increase of KEGCO's cost of sales totaling Baht 18 million due to higher maintenance cost. Cost of Sales - IPP: Unit : Million Baht 2008 2007 %Changes REGCO 1,842 1,841 0.07% KEGCO 1,609 1,591 1% Total Cost of Sales - IPP 3,451 3,433 0.55% * Administrative expenses and income taxes were Baht 974 million, an increase of Baht 132 million or 16%, mainly from higher tax payment at REGCO that amounted to Baht 246 million or 114% higher due to a higher revenue and the end of corporate tax reduction BOI previlege on April 19, 2008. Meanwhile, tax payment at KEGCO decreased by Baht 167 million or 47% due to lower revenues. KEGCO currently enjoy 50% corporate tax reduction BOI privilege on profits from power generation, ending on September 25, 2009. * Finance costs were Baht 342 million, a decrease of Baht 197 million or 37%, resulting from KEGCO's lower principal amounts of debentures and KEGCO's completion of loan repayment in June 2008. * Share of profits from joint ventures, BLCP and GPG, was recognised in the amount of Baht 4,767 million, an increase by Baht 899 million or 23% that resulted from KK2 unit 1 and 2's sales of electricity which achieved COD in May 2007 and February 2008, respectively. 3) SPP's total revenues were reported at Baht 2,234 million, an increase of Baht 48 million or 2% compared to 2007. The total expenses were Baht 1,961 million, an increase from the previous year by Baht 139 million or 8%. The share of profits from joint ventures was reported at Baht 365 million, up by Baht 75 million or 26% as compared to the previous year. The details are as follows: Total Revenues, Total Expenses and Share of Profits (Loss) from JVEs of SPP: Unit : Million Baht EGCO Cogen Roi-Et Green GEC (exclude GPG) 2008 2007 2008 2007 2008 2007 Total revenues 1,947 1,944 287 242 - - Total expenses 1,804 1,670 157 153 - - Profits bf Share of Profits (Loss) from JVEs 143 274 130 90 - - Share of Profits (Loss) from JVEs - - - - 324 189 Net Profit bf FX and MI 143 274 130 90 324 189 APBP and AEP Total 2008 2007 2008 2007 % Chg Total revenues - - 2,234 2,186 2% Total expenses - - 1,961 1,822 8% Profits bf Share of Profits (Loss) from JVEs - - 273 364 (25%) Share of Profits (Loss) from JVEs 41 102 365 290 26% Net Profit bf FX and MI 41 102 638 654 (2%) * Sales of electricity of SPP were Baht 2,216 million, representing an increase of Baht 63 million or 3% compared to the previous year. Most of the increase of SPP group's electricity sales was from Roi-Et Green in the amount of Baht 54 million, resulting mainly from higher Energy Charge due to higher fuel oil cost, which was in accordance with the tariff formula. Moreover, EGCO Cogen's electricity sales also increased by Baht 9 million mainly from a higher steam sales of Baht 13 million. Sales of Electricity - SPP: Unit : Million Baht 2008 2007 %Changes EGCO Cogen 1,935 1,926 0.48% Roi-Et Green 281 226 24% Total Sales of Electricity - SPP 2,216 2,152 3% * Interest income and others amounted to Baht 19 million, a decrease of Baht 15 million or 44%, mainly because the four-year subsidy for guarantee fee from UNDP for Roi-Et Green ended in 2007, causing a lower other income of Baht 9 million, and the lower interest rates caused a decrease in interest income of Roi-Et Green and EGCO Cogen of Baht 6 million. * Cost of Sales of SPP was reported at Baht 1,836 million, an increase of Baht 159 million or 9% as compared to 2007. This was substantially driven by an increase in cost of sales of EGCO Cogen and Roi-Et Green in the amount of Baht 152 million and Baht 7 million, respectively, as a result of higher fuel cost and maintenance cost from planned outage. Cost of Sales - SPP : Unit : Million Baht 2008 2007 %Changes EGCO Cogen 1,698 1,546 10% Roi-Et Green 138 131 5% Total Cost of Sales - SPP 1,836 1,677 9% * Administrative expenses and income taxes were Baht 38 million, down by Baht 11 million or 23% as compared to 2007. This mainly resulted from a decrease of income tax by Baht 16 million due to income tax payment in 2007 following Thai LNG Power Co., Ltd. (TLPC)'s liquidation. * Finance costs were Baht 87 million, a decrease of Baht 9 million or 10%, mainly from a lower debt principal of EGCO Cogen. * Share of profits from joint ventures, GEC (excluding GPG), APBP and AEP, totaled Baht 365 million, an increase of Baht 75 million or 26% compared to the previous year as a result of an increase of electricity sales at GEC (excluding GPG). However, the share of profits from APBP and AEP covered the operating results until May 15, 2008 before the selling of the stake in these power plants. 4) Overseas share of profits from joint ventures was reported at Baht 21 million, an increase of Baht 20 million or 1,517% mainly from a decrease in Conal's interest expenses, owing to the prepayment of long term loans and the recognition of Quezon's share of profit. 5) Other Business's total revenues were Baht 1,034 million, an increase of Baht 34 million or 3% as compared to 2007 and total expenses were Baht 717 million, an increase of Baht 14 million or 2%. The share of profit from the joint venture was reported at Baht 3.68 million, an increase of Baht 1.39 million or 61% as compared to the previous year. The details are as follows: Total Revenues, Total Expenses and Share of Profit (Loss) from JVE of Other Business: Unit : Million Baht ESCO ET Total 2008 2007 2008 2007 2008 2007 % Chg Total revenues 796 773 238 228 1,034 1,000 3% Total expenses 641 631 76 72 717 703 2% Profits bf Share of Profits (Loss) from JVEs 155 142 161 156 317 297 7% Share of Profits (Loss)from JVEs 3.68 2.29 - - 3.68 2.29 61% Net Profit bf FX and MI 159 144 161 156 320 300 7% * Service income from ESCO amounted to Baht 770 million, up by Baht 10 million or 1%, resulting mostly from higher maintenance service income and spare parts sale to overseas power plants. * Sales of water from ET, were Baht 229 million, up by Baht 12 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 35 million, an increase of Baht 12 million or 55% due to a gain from the sale of shares in AMESCO totaling Baht 15 million. * Cost of services was Baht 531 million,a decrease of Baht 4 million or 1%. * Cost of water sales of ET was Baht 71 million, an increase of Baht 5 million or 8%. * Administrative expenses and income taxes totaled Baht 115 million, an increase of Baht 15 million or 14% compared to 2007, mostly from an increase in ESCO's income taxes by Baht 15 million from higher revenues. * ESCO's share of profit from a joint venture, AMESCO, totaled Baht 3.68 million, an increase of Baht 1.39 million or 61%. 4. Report and Analysis of Financial Position 4.1 Asset Analysis As at December 31, 2008, total assets of EGCO Group amounted to Baht 58,330 million, an increase of Baht 4,730 million or 9% 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 6,032 million or 10% of the total assets, up Baht 540 million or 10%. This resulted mainly from an increase of cash and cash equivalent by Baht 1,228 million due to cash receipts from operating activities of Baht 4,881 million, the short-term loan amounting to Baht 3,500 million, dividends from joint ventures totaling Baht 2,007 million, cash receipts from the sale of shares in EGCO Joint Ventures & Development Co., Ltd. (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 5,235 million, debentures and loans repayment totaled Baht 1,563 million and dividend payment to shareholders amounted to Baht 2,753 million. 2) Short-term and long-term investments used as collateral were Baht 1,166 million or 2% of the total assets, up Baht 251 million or 27%. This increase mainly came from the use of deposit of Baht 450 million as collateral for Standby Letters of Credit related to the investment in Quezon Project of EGCO. Meanwhile, there is 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 December 31, 2008 amounted to Baht 24,494 million or 42% of the total assets, up Baht 4,261 million or 21%. 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 4,712 million. 3.2) an investment in additional paid-up shares of NTPC and Quezon's shares amounting to Baht 4,360 million. 3.3) dividends received from BLCP, GEC and Conal by Baht 3,823 million. 3.4) the sale of shares in EGCO JD and AMESCO amounting to Baht 835 million. 3.5) transferring from investment in joint ventures to subsidiaries amounting to Baht 10 million. 3.6) loss from translation adjustment totaling Baht 143 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 December 31, 2008 was Baht 34,325 million, up Baht 4,671 million, thanks to the additional paid-up shares in joint ventures, namely Quezon, NTPC and Sustainable Energy and Environmental Development Co.,Ltd. (SEED), amounting to Baht 4,172 million, Baht 886 million and Baht 10 million, respectively. Meanwhile, the sale of shares in EGCO JD amounted to Baht 348 million and the impairment recognition of Conal amounted to Baht 48 million. 4) Property, plant and equipment (net) totaled Baht 17,041 million or 29% of the total assets. They were down Baht 1,597 million or 9% due to the decrease in property, plant and equipment from the depreciation of EGCO and subsidiaries' assets totaling Baht 2,169 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 259 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 744 million and net purchase of property, plant and equipment totaling Baht 87 million. 5) Other assets were Baht 9,596 million or 16% of the total assets, up Baht 1,275 million or 15% mainly from an increase of dividends receivable from a joint venture by Baht 1,815 million. Meanwhile, spare parts and supplies were down Baht 493 million. 4.2 Liability Analysis As at December 31, 2008, the EGCO Group's total liabilities were Baht 12,788 million, which was Baht 1,183 million or 10% higher than the amount as at December 31, 2007. The total liabilities consist of the following: 1) Short-term loans totaled Baht 3,500 million or 27% of total liabilities. This came from EGCO's drawn down of a short-term loan amounting to Baht 3,500 million according to a long-term promissory note agreement with a Thai commercial bank. 2) Long-term loans and debentures totaled Baht 7,770 million, or 61% of total liabilities, down Baht 1,468 million or 16%. 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 18 million - Yen loans in the amount of Yen 772 million - Baht loans in the amount of Baht 4,636 million - Baht debentures in the amount of Baht 2,227 million Maturity of long-term loans and debentures as of December 31, 2008 Unit : Million Baht EGCO KEGCO EGCO Cogen Roi-Et Green Within 1 Year - 817 157 39 1-5 Years - 1,410 858 158 > 5 Years 4,000 - 229 101 Total 4,000 2,227 1,244 299 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 December 31, 2008 totaling Baht 203 million for the purpose of payment of principal and interest due within one year. 2) Other liabilities amounted to Baht 1,518 million or 12% of total liabilities, representing a decrease of Baht 849 million or 36% which was mostly from a decrease in net liabilities in a joint venture by Baht 783 million as a result of the increased capital and the recognition of NTPC's share of loss totaling Baht 886 million and Baht 103 million, respectively. In addition, trade payables decreased by Baht 203 million mainly from EGCO Cogen and KEGCO. Meanwhile, income tax payable increased by Baht 129 million from REGCO. 4.3 Shareholders' Equity Analysis As at December 31, 2008, Shareholders' Equity amounted to Baht 45,542 million, which was Baht 3,546 million or 8% 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 6,927 million. Meanwhile, appropriated dividend totaled Baht 2,603 million. The analysis of the company's capital structure as at December 31, 2008 can be summarized as follows: Shareholders' equity was Baht 45,542 million or 78.08%. Liabilities were Baht 12,788 million or 21.92%. Important financial ratios were as follows: - Debt to equity ratio was 0.28 times, same as the end of 2007. - Book value per share was Baht 85.60, 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 cash and cash equivalents. As at December 31, 2008, the ending balance of cash and cash equivalents was Baht 4,979 million, which was Baht 1,228 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 4,881 million. This was cash received from operating activities of Baht 5,813 million and cash payment for working capital of Baht 932 million. -Net cash payment for investing activities was Baht 2,217 million mainly due to the investment in joint ventures of Baht 5,235 million. Meanwhile, dividends from joint ventures were Baht 2,007 million, cash receipts from the sale of shares in EGCO JD and AMESCO totaled Baht 815 million and dividend received from EASTW was Baht 78 million. - Net cash payment for financing activities was Baht 1,435 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 1,563 million. The dividend payment to shareholders amounted to Baht 2,753 million. Meanwhile, the company drew down short-term loan amounting to Baht 3,500 million. For 2008, the analysis of the company's liquidity ratios was as follows: - Current ratio was 2.58 times, compared to 4.22 times in 2007 - Quick ratio was 1.34 times, compared to 2.26 times in 2007 Both ratios were lower than the ratios in 2007 because EGCO drew down the short-term loan amounting to Baht 3,500 million.