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Global Pe r s p e c t i v e
1. PETROLEUM World Economy and Oil Demand World economies in 2004 managed to grow 4 percent over the preceding year despite oil prices rising as steeply as US$ 30-40 per barrel. The main participants were the developing nations, Latin America, and North America. China and Russia boasted the most dramatic economic activity at 8 percent growth. The escalating trend drove global oil consumption up by 3.4 percent to 82.4 million barrels per day, or 2.7 million barrels per day (mbpd). Demand originating in the Asia-Pacific region represented 1.3 mbpd, of which China alone accounted for 53 percent.
World oil supply notched 83 mbpd. The nations of the Organization of Petroleum Exporting Countries (OPEC) accounted for 33 mbpd, or 40 percent, the Former Soviet Union 11 mbpd, countries in America and Europe continent 21 mbpd. Other oil producing countries, including Iraq where the output level was 2 mbpd, were responsible for the remaining 18 mbpd.
World Oil Demand
Million barrels per day (mbpd)
100
80
77.94
79.70
2002
2003
82.40
83.86
2004
2005
60
40
20
0
Source : Global Economic Prospects ; Overview and Global Outlook : The International Bank for Reconstruction and Development : World Bank ; November 2004, * OECD = Organization for Economic Corporation and Development
China
Other Asia
Non-OECD
OECD
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Asia-Pacific Oil Demand Demand (thousand barrels per day)
% Refinery Utilization
30,000
92% 91%
25,000
20,000
19,390 87%
19,929
20,069
20,304
90%
22,315
20,925
88%
87%
86%
86%
15,000 84%
84% 83%
10,000
82% 5,000
80% 78%
0 2000
2001
2002
2003
2004
2005
China
Korea
Japan
Indonesia
Others
Actual Consumption
Asia-Pacific Oil Market The impact of continuing economic expansion in the Asia-Pacific region was the growth of oil demand by 1.3 mbpd, or 3.4 percent, over the previous year, to 22.3 mbpd. China led the way with the largest demand at 5.4 mbpd, or 24 percent of the regional total. China’s oil consumption also climbed 15 percent or 0.7 mbpd. The transportation, agricultural and manufacturing sectors were the main consumers. Most notably, demand for gasoline and diesel fuel in China increased by 13 and 17 percent respectively from 2003.
Regional refineries were heavily utilized at 90 to 93 percent of operable capacity, producing 22.2 mbpd of refined products to meet the intensive demand. Refining capacity is projected to expand by 2.5 mbpd in the 2005-2010 period with China and India as the main contributors. Future Capacity Expansion will nonetheless still underperform the additional region’s demand which will inflate to 4.5 mbpd, making it necessary to import 0.5 to 2 mbpd of products from other parts of the world.
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New Asia-Pacific Capacity Additions New capacity (Thousand barrels per day)
Existing capacity (Thousand barrels per day) 30,000
10,000 9,000
25,000
8,000 7,000
20,000
6,000 15,000
5,000 4,000
10,000
3,000 2,000
5,000
1,000 0
0 1999
2000
2001
2002
2003
2004
2005
2007
2010
Oil Prices and GRM World oil demand in 2004 exhibited stronger growth than expected due to the influence of vigorous economic activity. The tight supply market, low stockpiles in the early part of 2004, concerns over military operations and terrorist threats converged to drive crude prices up 30 percent from previous levels of US$ 27-30 per barrel to US$ 34-41 per barrel.
An upward adjustment of product prices followed on the heels of surging crude prices. Most notable, though, were gasoline and diesel prices which escalated 35 percent and 40 percent respectively, outstripping crude prices. The dramatic price increases merely mirrored demand spikes in the region. China was the largest consumer with a demand that grew 15 percent, primarily diesel fuel for use in the transportation and agriculture sectors. The price of fuel oil, on the other hand, merely increase by 8 percent on average due to depressed overall demand caused by environmental factors. Also, as refineries across the region raised production levels in response to demand growth, more fuel oil was produced as well.
With the demand for diesel surpassing fuel oil, the cracking margin, the price difference between diesel and high sulfur fuel, swelled from US$ 6.48 per barrel in 2003 to US$ 17.51 per barrel in 2004. Hydroskimming refineries, which means refineries who
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have no fuel oil upgrading facilities, have to use Far East crudes which contain higher yield of gasoline and diesel and less sulfur content (light sweet crude). For this reason, the price difference between Far East crudes such as Tapis and heavy sour crudes sourced from Middle East such as Dubai was adjusted higher from US$ 3.29 per barrel in 2003 to US$ 7.42 per barrel in 2004.
The margins of a complex refinery, therefore, tend to be higher than the margins of a hydroskimming refinery. The GRM of a complex refinery in Singapore averaged at US$ 6.40 per barrel as compared to US$ -0.87 per barrel for a hydroskimming refinery.
Average oil and product prices in Singapore in 2003 and 2004:
(US$ per barrel)
2003
2004
Different
Tapis crude
30.08
41.05
10.97
Dubai crude
26.79
33.63
6.84
95 octane gasoline
34.74
46.69
11.95
Diesel fuel (0.5 percent sulfur)
32.45
44.90
12.45
Fuel oil (3.5 percent sulfur)
25.97
27.90
1.93
Domestic Market The year 2004 recorded a growth of 6.1 percent in the Thai economy, 9.7 percent in product demand (excluding Bitumen) to 731,563 barrels per day, and 8.4 percent in refining production (excluding Bitumen) to 832,027 barrels per day.
To analyze the oil growth in 2004. Gasoline demand merely grew at 1 percent, while middle distillates (kerosene, aviation fuel, diesel fuel) rose 12 percent as the government subsidized the retail price of diesel fuel to minimize the impact on the country’s economy. Fuel oil consumption, on the other hand, saw a 21-percent surge to satisfy power generator demand as subsitute fuel for natural gas since the third natural gas pipeline from gulf of Thailand is under construction. Fuel oil demand is expected to dip in 2007 after the third natural gas pipeline is completed in late 2006.
The Energy Policy and Planning Office (EPPO) expects the country’s oil demand for the next five years to grow at an annual rate of 6.3 percent. Demand and supply will strike a balance during 2006-2007. Thaioil’s CDU-3, which will enhance production by a further 50,000 barrels per day, will be able to meet the excess demand as from 2007.
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Oil Pricing Movement US$ per barrel
2003
2004
58 56 54 52
Diesel fuel
50 48 46
Gasoline
44 42 40
Tapis
38 36
Oman
34 32 30 28
Fuel oil
26 24 22 20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
2003
May Jun Jul
Aug Sep Oct Nov Dec
2004
Oil Subsidy Policy The government adopted on January 10, 2004 a stabilizing response to rapid oil price increases by utilizing the existing Oil Fuel Fund to subsidize retail prices. The policy aimed to relieve the burden of consumers and help industries reduce production costs, thereby sustaining the momentum of economic growth. But soon after, the government gradually lifted the ceiling on gasoline prices and finally terminated the subsidization on October 21, 2004. Diesel retail price, however, continued to be subsidized at 2-6 baht per liter. Thai government were using approximately 60,000 million baht of the Oil Fuel Fund in the process. It is expected that its subsidy program will be gradually phased out after the general election in February 2005 until full flotation at market prices.
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Thailand Oil Demand And Supply thousand barrels per day 1,200 Demand 1,000
800
600
400
200
0
2004
2005
2006
2007
Source : Thai Oil Public Company Limited; and Office of Energy Policy and Planning
TOP
ESSO
TOP – Thaioil SPRC – Star Petroleum Refining
BCP
RRC
SPRC
BCP – Bangchak Petroleum TPI – Thai Petrochemical Industry
TPI
RPC
RRC – Rayong Refinery RPC – Rayong Purifier
2. PETROCHEMICAL Paraxylene prices reached new heights in 2004, driven by strong demand from China for feedstock in producing polyester after having expanded polyester production capacity by 3 million tons per year. The upward trend in paraxylene prices was further buoyed by soaring oil prices. There is ample room for supply growth as polyester consumption in Asia is only half of the demand in the United States.
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THAILAND PARAXYLENE DEMAND-SUPPLY BALANCE
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Unit: KTA 2004
2005
2006
2007
TPX : Thai Paraxylene
289
348
407
407
ESSO
450
520
520
520
ATC : Aromatics (Thailand)
520
520
520
1,040
1,259
1,388
1,447
1,967
SMPC
603
755
905
1,206
Tuntex
281
281
348
348
109
435
435
Total Supply
Indorama Total Demand
884
1,145
1,688
1,989
Surplus/(Deficit)
375
(243)
(241)
(22)
World Paraxylene Sales
Thousand tons per annum
Asia
1,800
900 900
2012
North America
1,800
0
2003
900
007
2
0
1,800
Middle E -900 -1,800
-900 -1,800
2007
2012
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During 2006-2010, Thailand will need to import paraxylene to meet increased demand in light of Siam Mitsui PTA Company Limited (SMPC) planning to expand its production of pure terephthalic acid (PTA) and will need paraxylene as feed by the additional of 600,000 tons per year while Indorama’s new PTA plant will commence production toward the end of 2005 and will need paraxylene as feed by 435,000 tons per year.
3. LUBE BASE OIL
The price of lube base oil 500 SN continuously climbed during 2004 given the strong demand in Thailand and abroad. Its average price per ton in 2004 was US$ 279 higher than high-sulfur fuel oil (HSFO) in Singapore’s spot market against the acheived level of US$ 220 per ton last year.
500 SN (FOB S’ pore) - HSFO Spread 1995
1994
US$ per ton
1996
1997
1998
1999
2000
2001
2002
2003
2004
400 350 300
500SN minus HSFO 250
279
269
200
232
225
220
230 199
189
150
140
185
180
GO Minus HSFO
100 50
Dec/04
Jun/04
Dec/03
Jun/03
Dec/02
Jun/02
Dec/01
Jun/01
Dec/00
Jun/00
Dec/99
Jul/99
Dec/98
Jul/98
Dec/97
Jul/97
Dec/96
Jul/96
Jan/96
Jul/95
Jan/95
Jul/94
Jan/94
0
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Domestic Market demand for lube base oil expanded by 3.4 percent. But consumer trend pointed toward the new superior quality standards of Group II oils, which had to be imported. As a result, lube base oil producers such as Thai Lube Base and TPI had to export supplies which were lower quality (Group I) and in excess of domestic demand. In the near future, Thai Lube Base plans to expand its capacity to produce the high quality of lube base oil (Group II and Group III).
Lube Base Oil Demand And Supply Metric tons per year 45,000 40,000 35,000 Demand
30,000 25,000 20,000 15,000 10,000 5,000 0 2001
2002
2003
2004
TLB (Thai Lube Base)
TPI (Thai Petrochemical Industry)
Demand
Source : Thai Oil Public Company Limited
4. ELECTRICITY Thailand produced 25,407 megawatts of electricity during the first half of 2004. This can be broken down into 14,851 megawatts (58 percent of total installed capacity) of on-site generation by EGAT, 8,000 megawatts (31 percent) from independent power producers, 1,916 megawatts (8 percent) from small power producers, and 640 megawatts (3 percent) imported from Laos and Malaysia.
Electricity generation during the first half of 2004 was 62,976 gigawatts hour, a year-on-year increase of 7.6 percent. This comprised 49 percent generated by EGAT, and 51 percent by other producers. Consumption peaked in March 2004 at 19,325.8 megawatts, which was 6.7 percent higher than in 2003. Minimum electricity reserved margin stood at 31.9 percent.
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Thailand’s power development plan for 2004-2015 (PDP 2004) forecast the country’s demand, in a scenario of medium economic expansion, to grow 7.5 percent per annum during 2004-2008, 6.8 percent during 2009-2013, and 6.4 percent during 2014-2015.
By the end of 2015, electricity demand will total 40,978 megawatts. The PDP 2004 forecast 12,600 megawatts of new generation capacity will be needed during this period using natural gas as the primary feedstock. Coal will be the alternative feedstock and imported electricity from neighboring countries will be the backup in the event of fluctuating natural gas prices. EGAT will be adding 2,800 megawatts to its own generation capacity, while private power producers will contribute a further 9,800 megawatts.
Installed Electricity Generation Capacity and Electricity Energy Demand Megawatts
Thousand gigawatts hour 250
50,000 45,000
200
40,000 35,000
150
30,000 25,000
100
20,000 15,000
50
10,000 5,000
0
0 2003
EGAT
2004
2005
Private producers
2006
2007
EGCO + RATCH
2008
2009
Imports
2010
2011
2012
New private producers
EGAT – Electricity Generating Authority of Thailand EGCO – Electricity Generating Public Company Limited RATCH – Ratchaburi Generating Holding Public Company Limited
2013
2014
2015
Electricity energy demand
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Capital P ro g ra ms
A. THAI OIL PUBLIC COMPANY LIMITED CDU-3 Debottleneck Our first major capital project will expand the refinery’s capacity from 220,000 barrels per day to 270,000 barrels per day to better meet future growth in domestic demand for petroleum products. The project would debottleneck CDU-3 to increase throughput from 100,000 barrels per day to 150,000 barrels per day. Associated process units will also be modified including the installation of electricity and steam generating units to meet the higher energy needs. Heavy oils from the revamped CDU-3 would be routed to the hydrocracker, which still has spare capacity, for upgrading into valuable lighter products. By optimizing capacity utilization of the hydrocracker to produce more diesel fuel and gasoline, the project will gain higher returns. The capital expenditure to be spent will be around US$ 100 million. Invitation to bid documents is being prepared for construction contractor selection. Construction is scheduled to commence in mid-2005 and expected to complete in the last quarter of 2006. Single Buoy Mooring Expansion A second capital project would focus on the expansion of the single buoy mooring (SBM) system by replacing the existing 40" submarine pipeline that is 3.5 kilometers from shore with a 16-kilometer 52" submarine line. This would allow Ultra Large Crude Carriers, which can carry 320,000 tons or 2 million barrels of crude oil, to berth at Thaioil’s mooring facility without draft limitations and offload to onshore storage tanks via the submarine pipeline. The existing SBM can accommodate only Very Large Crude Carriers of 210,000 tons or 1.5 million barrels. The expanded SBM is expected to reduce the cost for transporting crude from the Middle East, thereby improving Thaioil’s competitiveness. The benefit will be even more substantial when freight rates soar to new levels as expected. The upsurge would be influenced by higher growth rates in oil consumption as the world economy continues to expand. Another factor driving up freight rates are new mandates for supertankers to be double-hulled to prevent oil spills. Moreover, we plan to invest in a new gas turbine generator to serve our power demand due to Thaioil’s and subsidiaries’ future expansion. B. THAI PARAXYLENE COMPANY LIMITED Acquisitions Following Thaioil’s acquisition of Thai Paraxylene and Thai Lube Base, we plan to implement performance improvement programs that focus on a balanced integration of petrochemical and base oil production. Production Expansion We plan to expand the production of paraxylene and other petrochemicals in two stages.
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Stage 1: Approval has been granted for Thai Paraxylene to replace its catalyst with a new batch that has superior yield performance. Paraxylene yield is expected to increase from 82 percent to 89 percent by weight of the mixed xylenes used as feedstock. Paraxylene output is expected to rise by 10 percent from 289,000 tons per annum to 348,000 tons per annum. Less lower-value by-products are expected to be produced while the additional paraxylene will be exported to serve demand growth in the region. The catalyst change costs around US$ 5 million with payback in 3-5 months. The project is slated for completion in February 2005. It is further planned to transfer Thaioil’s mixed xylenes process unit to Thai Paraxylene. This would provide the paraxylene plant with greater processing flexibility, enabling optimized feedstock selection from mixed xylenes to the more cost-effective reformate. Stage 2: An additional US$ 40 million is expected to be spent to expand the capacity of the paraxylene plant to 407,000 tons per annum. An idle process unit at Thaioil would be modified into a tutored unit to convert heavy aromatics produced by the refinery and paraxylene plant into an additional supply of mixed xylenes. The feedstock can then be processed into high-value paraxylene instead of being used as a gasoline blending component and exported at a lower price. This project is expected to increase output value as well as provide Thai Paraxylene with greater flexibility in feedstock selection. As at the end of 2004, engineering design of the project is underway. The paraxylene production capacity will increase from 348,000 tons per annum to 407,000 tons per annum. The total paraxylene supply would be sold domestically. We hope to complete Stage 2 in the fourth quarter of 2006 to coincide with the completion of Thaioil’s crude refining expansion. This additional capacity will be used to supplement the production of aromatics for optimized efficiency. C. THAI LUBE BASE PUBLIC COMPANY LIMITED Base Oil Integration Thaioil and Thai Lube Base participated in a hydrocarbon management review to improve the profitability of Thai Lube Base. The exercise also planned for integration of facilities by constructing a product pipeline between Thaioil refinery and Thai Lube Base plant to advance the initiative to optimize product value. Additionally, these joint investment projects were identified for future implementation: 1. Utilization of Thai Lube Base excess capacity to process feedstock for Thaioil refinery. 2. Production of high-quality base oil from intermediate yields from Thaioil’s Hydrocracker. 3. Further investment in production of higher quality Group II and Group III base oils.
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R e f i ne r y O p e ra t io ns
A. PERFORMANCE BENCHMARKING Our commitment to improve the operational efficiency of Thaioil refinery continued to be the primary objective as we raised the performance across all refining disciplines to levels consistent with standards adopted by leading international refineries.
To achieve this objective, we have in 2004, as in previous years, participated in the annual review that compared the performance of Thaioil’s refinery to the operations of 50 Shell-advised refineries worldwide. The comparative review is one of the services provided by Shell Global Solutions under its technical service agreement with Thaioil. The performance monitoring covered operating cost index, annualized maintenance costs, corrected energy and loss, average personnel cost, Shell personnel index and maintenance effort, total reportable case frequency, utilization and operational availability
The chart below demonstrates Thaioil’s performance in 2003 relative to 2002.
Operating Cost Index
Operational Availability
Sri Efficiency Performance Annualised Maintenance Costs
Peer group comparisons 1 Tercile
Utilization
2 Tercile
Corrected Energy and Loss
3 Tercile
Total Reportable Case Frequency
Avg. Personnel Cost
Shell Personal Index + Maintenance Effort
Center : Less opportunities Outside : More opportunities 2002
2003
The assessment of Thaioil’s performance and improvement relative to participating refineries are ranked as follows:
ë
Thaioil led in the operating cost and maintenance costs performance, ranking in the top tercile of participating refineries with low costs;
ë
The lower corrected energy and loss index, which reflects efforts to reduce energy loss, ranked Thaoil in the upper tercile and showed potential for further improvement; and
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ë
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Personnel index performance ranked in the middle tercile because a larger workforce was employed at Thaioil than at peer refineries. However, the lower rates of employment fees in Thailand brought down the personnel cost, ranking Thaioil in the upper tercile of leading refineries;
ë
In safety performance, Thaioil ranked in the middle tercile with the total reportable case frequency reduced from 2.3 cases per million man-hours in 2002 to 1.1 cases per million man-hours in 2003. Thaioil also achieved an injury-free record for the second year running.
ë
We demonstrated progressive improvement in utilization and operational availability, ranking in the top and middle terciles. This reflected our efficient management of product processing and maintenance.
B. HYDROCARBON MANAGEMENT
Thaioil’s performance was robust in 2004 influenced by the upward demand for oil products both domestically and regionally, and stronger market prices. We nevertheless remained focused on our continual improvement of performance integrity.
The hydrocarbon management review (HMR) undertaken jointly with Shell Global Solutions in 2003 had identified opportunities to lower costs, capture revenue, and gain margins. The review recommended enhancing refining efficiency, optimizing feedstock selection, improving planning and supply, and broadening networking activities.
The HMR projects launched by Thaioil during 2004 were designed to improve the efficiency of the fluid catalytic cracker, increase the production capacity of mixed xylenes, and optimizing energy consumption in other manufacturing facilities.
During the year, we identified and implemented opportunities to maximize synergy benefits with other refineries. For example, we purchased the long residue 14,000 barrels per day and converted long residue from Bangchak Petroleum Public Company Limited into lighter products of higher value, and shared the gains.
It is estimated that these HMR projects implemented during 2004 earned Thaioil around US$ 31 million or an additional processing fee of US$ 0.37 per barrel.
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Hu ma n R e s o u rc e Ma na ge me nt
For more than 40 years, we have consistently placed great importance on human resource management and development, which now extends to our subsidiaries and affiliated companies. We always held the belief that to achieve continued business success we must have skilled and experienced employees who are capable of translating business goals into day-to-day operations. Through the efficient discharge of duties and the know-how to effectively monitor, strategize and solve problems, our employees have been instrumental in Thaioil’s sustained success and growth.
Our approach is to select “smart people” in various fields who are also “good people” with morals and ethics that align with our objective to excel as an energy producer with good corporate governance.
Human resource development is a long-term investment that will contribute to business success and add value to the organization. Thaioil’s strategy for human resource development is implemented in many formats covering all levels of employees. This includes familiarizing new staff with the refining business, as well as the safety, health, and environment concept. Transfer of knowledge and best practices in a number of areas by experts inside and outside Thaioil, both local and international. It is a credit to our achievement that Shell Global Solutions selected Thaioil to be its regional learning hub where Thai and foreign employees are given technology training.
The development programs we offer our workforce undergo continuous improvement in terms of quality content and reputable knowledge providers. We also support cross-posting of our staff to refineries and other organizations abroad in order to acquire new knowledge and experience as well as extend employees’ network of relations for future collaboration.
To advance an environment of shared knowledge, integrated performance and consolidated flexibility across the Group, it is Thaioil’s policy to implement rotational assignments of employees to Thaioil, Thai Paraxylene, and Thai Lube Base. Our objective is to equip staff with professional knowledge, management skills, breadth and richness of experience, and positive attitude and behavior desirable to drive the Company to achieve our goals.
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S o c ia l R e s p o ns i b i l i t y
We are committed to operate the Group in accordance with well-accepted standards with a focus on quality delivery to customers, environmental conservation, and sustained social contributions.
A. MANAGEMENT SYSTEMS We have long recognized that it is crucial to the integrity of our operations to have in place comprehensive systems based on the internationally accepted ISO standards to manage our quality, safety, health, environmental and laboratory performance to ensure the requirements of legislation as well as our own criterion and benchmarks are continually met. In 2004, we successfully passed ISO 9001, ISO 14001, and TIS 18001 audits. Since the original accreditations, Thaioil has continuously received re-certifications up to the present year.
Quality Management We have adopted a quality management system that meets the ISO 9001 standard. Thaioil was registered to the ISO 9001 quality standard in 1996 by MASCI (Thailand). The certification guarantees that the quality of our petroleum products meets stated customer needs as well as applicable regulatory requirements. The ISO 9001 standard further assures our customers that Thaioil will continually improve the efficiency and effectiveness of quality management.
Laboratory Management The testing competency of our laboratory has been accredited to meet ISO/IEC 17025 requirements. This assures the public and our customers that Thaioil’s laboratory has in place a quality system that meets the ISO 9000 standards and that tests performed by our laboratory are accurate. We were awarded the original accreditation by TISI in 1996 and became the first private laboratory to be certified.
Environmental Management We recognize the environmental impact that may occur from our operations and is therefore committed to safeguarding and improving the environment. To this end, we have established a management system that brings environmental benefits to both the community adjacent to our refinery and to our business. Thaioil was awarded the first ISO 14001 certification from MASCI (Thailand) in 1999. We are currently in the process of registering for our third certification in early 2005.
During the year, environmental audits and assessments to verify air and water management performance were conducted internally
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by Thaioil and in parallel with independent consultants. The environmental audit included reviewing the effectiveness and continuity of managing effluent discharges from refinery operations. The results of these reviews were reported to relevant government agencies to reconfirm our commitment to environmental protection and improvement.
In our effort to progressively protect the impact from refinery operations on the environment, Thaioil will be constructing a Shell-Claus Off-gas Treating Unit as part of the CDU-3 de-bottlenecking project. This treating unit will enhance the efficiency in recovering pure sulfur by the existing sulfur recovery unit, thereby reducing gas emissions into the air to levels well below legal requirements.
Health, Safety, and Fire Response Management International safety practices and procedures have been introduced to our refinery operations. This included designing the refinery for safety, equipping refinery personnel with comprehensive protection systems, fostering safety awareness, and developing emergency procedures and plans.
The health and safety management system now being implemented at Thaioil is based on the TIS 18001 standard. We were awarded the first certification from MASCI (Thailand) in 2001, and the second in 2004. Our health and safety system focuses on sustainable development, risk control and progressive improvement, and adoption of safety best practices.
Key health and safety initiatives during 2004 were developing our health, safety, and fire response management system in alignment with new regulatory changes that came into effect in 2004. These were: - Improvement of the refinery work permits system. - Emergency response drills by refinery personnel. - Improvement of the pre-incident planning. - Review of risk factors and risk management plans. - Activities to foster health and safety awareness.
Thaioil is further recognized as a leader in health and safety management, and in 2004 we received numerous visitors from public and private sectors as well as local and international educational institutions for tours of our facilities. Our personnel were also regularly invited to speak on health and safety issues as well as to participate on committees drafting health and safety legislation and regulations.
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B. COMMUNITY INVOLVEMENT Thaioil has extensive involvement with the Laem Chabang, Cholburi community, in which we operate, both as a caring member and neighbor. We have collaborated with government agencies, private organizations and local neighborhoods on public activities designed to benefit the community in the areas of sustained education and quality of life.
Education • Thaioil is a world-standard knowledge resource on refinery technology. We have therefore made it our policy to support the improvement the Thai petroleum industry standards as well as the development of quality personnel in relevant fields. - We have been working for 8 years on the CHEPS (Chemical Engineering Practice School) program initiated by King Mongkut Institute of Technology Thonburi. Here, we encourage employees with skills and experience in various disciplines to participate as visiting experts and teach chemical engineering masters students. Thaioil is also a training base for senior-year students in the CHEPS program under the close supervision of process engineers. This contributes to the production of quality chemical engineers for entry into the industrial sector. - Thaioil provides educational tours of our refinery facilities to public and private agencies, educational institutions as well as the general public. We also lend support and cooperation to the local community in organizing educational exhibitions and activities on various occasions. • Thaioil recognizes that it is our corporate responsibility to support the education of children. We actively work on school committees, provide support to local school operations and activities, and award scholarships to schools and colleges in Sriracha District every year. In 2004, we awarded a total of 62 scholarships to schools adjacent to the refinery as well as 4 scholarships to students at Kasetsart University’s Sriracha Campus.
Communities • We participate as active members on community and Laem Chabang, Cholburi municipality committees for environmental management. This opens up a two-way communication and the opportunity to bring benefits to the community. • We regularly welcome community members to tour Thaioil’s refinery complex and receive briefing on the advanced refinery technology. We lend support to Laem Chabang, Cholburi municipality and community committee members in setting up a local radio station to broadcast news and information. We continuously provide fire safety training and firefighting drills to local authorities and communities. • We attach great importance to operating our refinery in a way that minimizes impacts on the environment and the community. Not only do we apply the greatest care in our production process, we also closely monitor the community. During 2004, Thaioil
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participated in the Ao Udom beach clean-up campaign, health and environmental awareness program, and the mobile health service to provide medical care to local communities. We supported field visits by medical interns to provide the community with health knowledge, as well as sports and health activities organized by the public. • Thaioil is committed to maintaining the ISO and TIS standards we have adopted to convince local communities in the efficiency of our management systems for product quality, the environment, health and safety. This also gives confidence to the public in our operations and established measures for protecting the community. We also cooperate closely with authorities at provincial, district and municipal levels in providing firefighting service to the community when needed.
Religion and Local Culture and Traditions Each year, we participate in numerous local activities to mark important religious and cultural holidays, such as the parade of sculptured candles to mark the Buddhist Lent, and the Kathin ceremony in which robes are offered to monks. During the year, we also endorsed the Drug-Free Village program by lending support to the work of the local community of Ban Thung in being the first community to be free of drugs within the Laem Chabang, Cholburi municipality.
Aid to Tsunami Victims in 6 Southern Provinces We provided immediate aid to the victims of the recent tsunami that hit the six provinces in the South causing loss of lives and property. Thaioil supported various activities and donated a total of over 25 million baht through public and private agencies. • Contributed fuel costs for boats and vessels participating in the search and rescue operation through collaboration with the Bangkok Club of Diving Operators; • Contributed fuel costs for boats inspecting the damage through the Ministry of Natural Resources and Environment; • Participated in a joint effort with the local radio program presented by INN Company Limited that sent volunteers from Bangkok to help in the disaster-struck areas, as well as made a monetary contribution; • Contributed funds through the Department of Energy Business toward the purchase of cold storage containers for corpses; and • Contributed through the “Office of the Prime Minister’s account for relief aid to disaster victims” an amount of 21 million baht.
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Risk Ma na ge me nt
Recognizing that risk management has recently become even more critical for energy corporations, Thaioil has taken the approach of aligning risk management to corporate goals and strategic objectives. A comprehensive program was developed to identify and address potential risks as well as to monitor and evaluate the effectiveness of implemented risk management initiatives. This program applies to all key functions across the Company as well as individual Group operations. It encompasses the management of strategic, commercial, financial and operational risks.
To establish and maintain an effective internal risk management system, Thaioil adopted the use of the Control Self Assessment model. All employees are informed of the risks to which their areas of operations are exposed, how to measure these risks, analyze their effects, and determine internal systems and controls to prevent or mitigate their impact. This system focuses on the participation of employees at all levels in continuously assessing the risks. The assessment is monitored by the Risk Management Committee with the results reported to the Audit Committee and the Managing Director. These results then form the basis of the benchmark for internal auditing performed by the Audit Committee and the Systems Evaluation Department.
Risk management principles and functions are described in the Good Corporate Governance Manual, which has been distributed to the Board of Directors, management team, and all employees. The manual provides guidance on the implementation of risk management.
The followings are Thaioil’s major risks inherent to our operations and our approach to managing these risks.
(1) Gross Refining Margin Volatility Prices of crude oil, feedstock, and oil products are determined by a number of market-driven factors beyond Thaioil’s control. To minimize this risk, Thaioil has set up the Throughput Planning Committee (TPC) comprising representatives from related departments. TPC is responsible for production planning, analyzing oil demand, supply and prices, and scheduling maintenance turnarounds.
(2) Feedstock Shortage We purchase a significant portion of crude oil and other feedstock from international sources. Supply shortages or uncompetitive price offers may reduce our gross margins. This risk is minimized by the refinery’s ability to process different types of feedstock, as well as the measure we have adopted for advance crude supply planning.
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(3) Crude and Product Price Fluctuation Market prices for crude oil and petroleum products may fluctuate, but generally they do so in the same direction with perhaps some lead / lag time. Therefore, the impact on Thaioil’s profit margins, if any, is manageable.
(4) Foreign Currency Volatility The majority of our activities are US dollar based, but recorded in Thai baht for accounting purposes. The volatility of exchange rate movements between the Thai baht and US dollar therefore exposes Thaioil to financial risks which have the potential to materially affect corporate performance.
While the pricing of both crude oil and petroleum products in US dollars inherently prevents such risks, we also minimize shorter term exchange rate exposure by spreading out our US dollar payments which tend to be bulky through forward foreign exchange contracts.
(5) Unplanned Refinery Shutdowns Accidents in the processing, transportation, and storage of crude oil, other feedstock, and petroleum and petrochemical products may cause business interruptions or refinery shutdowns. To mitigate this risk, Thaioil adopted a shutdown planning process that effectively ensures maintenance turnarounds are scheduled efficiently to minimize shutdown frequency. We are further protected by the Business Interruption Insurance arising from equipment damages.
(6) Insufficient Insurance Coverage Thaioil has arranged for the provision of All Risks and Loss of Profits Insurance, and Third Party and Products Liability Insurance with coverage amounts consistent with best practices in the local refining industry.
We have also formed the Occupational Safety, Health and Environment Committee to monitor and assess our safety, health and environment compliance, and performance results to minimize such risks.
(7) Environmental Compliance The refinery business is subject to strict environmental laws and regulations, and non-compliance may result in Thaioil being
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punished according to the criminal law-which includes being fined or imprisoned-or having the refinery operating license revoked, or the refinery closed down.
Thaioil adopted an environmental management system according to ISO 14001 standards that is continuously improved through audits and recommendations by representatives from every business unit to ensure effective environmental performance. We have also established the Environmental Community Relations Committee to coordinate environmental issues with the community in which we operate.
(8) Governmental Compliance Thaioil operates under the strict control and monitoring of the government. Our business may therefore be impacted by new or changing government policies, such as the imposition of oil price ceilings or introduction of new oil product specifications.
Thaioil has the advantage over most other refineries in that our operating costs are lower and our complex refinery has greater flexibility in responding to new product specifications.
(9) Conflict of Interest between Shareholder Groups PTT, Thaioil’s major shareholder, operates an integrated oil and natural gas business. Circumstances may, therefore, arise in which the business of PTT, or any subsidiary company, overlap with the operations of Thaioil. This may lead to a casting of votes by PTT at Thaioil’s Board or shareholders meetings in conflict of interest with our other shareholders.
Thaioil has in place procedures for the equitable treatment of all groups of shareholders and other stakeholders in the event of conflict of interest. Our Audit Committee is responsible for reviewing related party transactions and conflicts of interest in our quarterly and annual financial reports, particularly transactions with PTT, which must conform to good business conduct and ethics.
(10) Limited Customers Our product offtakers are PTT, The Shell Company of Thailand Limited, and Caltex Oil (Thailand) Limited. We have agreed terms that specify the supply of products to these three major oil companies and to third party customers, and that any changes in buyers’
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demand for oil products will be based on the country’s total demand.
(11) Interest Rate Fluctuation Major portions of Thaioil’s debt obligations are based on floating interest rates. Any significant rises in market interest rates will impact on our financial expenses and interest charges in the future.
We have implemented such mechanisms as interest rate caps with banks, whereby the banks are responsible for the differential between Thaioil’s buying rate and the market rate on the date of interest payment. This will help minimize the risk of higher interest rates.
(12) Military Conflict and Terrorist Threats Thaioil continuously monitors local and international situations that have the potential to affect the operations of Thaioil Group, and adjusts our production and distribution plans accordingly.
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C o r p o ra t e G o v e r na nc e
Thaioil places strong emphasis on the management of our Company under principles of good corporate governance. It reflects our philosophy of how we do business. Our mission is to be a leading producer of petroleum products in the region with integrated chemical and power businesses operated at high standards of corporate governance. We are committed to delivering high quality products and services to customers, superior returns to investors, and career development and advancement opportunities to employees. Thaioil believes these can be achieved through the exercise of best business practices that enhance transparency and accountability. Good governance is a value driver, leading to enhanced corporate credibility and wealth through the release of complete and reliable information to investors, business associates, and various stakeholder groups. In addition, we believe that corporate leadership must adhere to ethical and moral principles. It is the basic value of a leading organization. Everyone at Thaioil, from the Board of Directors and the management team to the employees, whose purpose is to create value by meeting stakeholder expectations, must practice good corporate governance. The Corporate Governance Manual containing Thaioil’s guiding principles to governance practices is distributed to each director, executive officer, and employee. It is crucial that everyone follows these principles in order to achieve a higher standard in performing his or her responsibility. This manual explains Thaioil’s business philosophy, corporate values, ethics and moral standards applicable to directors and management, guidelines and code of business conduct for employees, and other significant policies that would lead to good corporate governance. SHAREHOLDERS: RIGHTS AND EQUITABLE TREATMENT Shareholders have the right to protect their interests by expressing their opinions, offering recommendations or suggestions, and voting on resolutions in shareholders’ meetings. Shareholders also have the right to participate in making significant changes and appointing directors. It is the shareholders’ right to receive corporate information that is accurate, comprehensive, and transparent. VARIOUS STAKEHOLDERS GROUPS AND THEIR RIGHTS We attend to the needs of various stakeholder groups by providing clear guidelines in the Corporate Governance Manual for everyone in the organization as follows:
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Stakeholders Shareholders
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Guidelines –
Manage business in a manner that provides shareholders with suitable returns, creates growth, and achieves sustainable profit.
Customers
–
Employees
–
Create customer satisfaction by providing quality products and services that meet customer needs at fair and competitive prices. Develop employee potential and provide learning and working opportunities. Manage fair remuneration and provide benefits for employees and families that meet the standards of leading corporations.
Communities
–
Preserve and protect the environment; manage and supervise safety; support community activities that create better quality of life for people.
Business partners –
Create good business relationships that mutually benefit business partners, government agencies, and various related organizations. Carry out fair and open activities as a law-abiding corporate citizen.
SHAREHOLDER MEETINGS The Board of Directors is responsible for preparing the meeting notice stating the venue, date and time, the agenda, and details of matters to be reviewed at the general meeting, each of which shall be clearly specified as for information or for consideration, together with the Board’s recommendations. The meeting package shall be sent to all shareholders and the registrar at least 21 days prior to the meeting. Under urgent circumstances to protect the rights or interests of the Company, the meeting package may be sent no less than seven days prior to the meeting. It is the Company’s policy to facilitate decision from shareholders by allocating sufficient meeting time. All shareholders have equal freedom to express their views and raise questions at the meeting, at which directors and executive officers are present to provide answers. Key questions and opinions are recorded in the minutes of the meeting for referral by the shareholders. LEADERSHIP AND VISION The Board of Directors is composed of directors who are qualified, skilled and experienced in business activities to establish the policy, vision, strategy, goals, mission, business plan, and budget of the Company. The Board ensures that the Company is managed in accordance with set policies efficiently and effectively under the framework of the law, objectives, Articles of Association, and resolutions passed at shareholder meetings. The discharge of these duties shall be executed responsibly, honestly, and prudently according to good practices. The Board of Directors, under the leadership of the chairman, has a leading role in directing the management of the Company to ensure it achieves maximum economic value and integrity for the Company and the shareholders. Thaioil also attaches great importance to maintaining effective systems for internal control, internal audit, and risk management that are regularly evaluated for compliance with regulatory requirements and to ensure that adequate governance systems and processes are in place to protect as well as enhance the Company’s interests.
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CONFLICT OF INTEREST Our policy concerning conflict of interest is based on the principle that every employee must perform his or her responsibilities in the best interest of the Company. Employee actions and decisions shall not be influenced by personal gains or nepotism, and duties shall be executed in strict accordance with Thaioil’s rules and regulations. The disclosure to outsiders of privileged information, such as Company activities or strategic plans, which lead to personal gains or nepotism, shall constitute an act of conflict of interest. BUSINESS ETHICS Thaioil distributes to all directors, management members and employees the Corporate Governance Manual, which contains concepts and guidelines that are comprehensive, transparent, and well accepted by all related parties. The Manual includes principles, policies, and ethics of the Board of Directors, management, and employees. As a commitment to business ethics, personnel at all levels, from the Board of Directors, management, and employees, must each sign an agreement which requires them to conduct business under good governance principles at all times. Employee actions shall be monitored and assessed by Thaioil. In addition, the booklet would be reviewed, improved and revised annually. BALANCE OF POWER BY NON-EXECUTIVE DIRECTORS At present, there are 12 directors on the Board comprising: • One executive director. • Eleven non-executive directors. • Three Audit Committee members, representing 25 percent of the Board, and meeting the qualifications set in the SET announcement on qualifications and scope of work of the audit committee. The Audit Committee monitors and audits the Company’s business and affairs to ensure they are implemented with integrity, fairness, and in the best interests of all shareholders. RESPECTIVE ROLES OF CHAIRMAN AND MANAGING DIRECTOR Thaioil has separated the roles of the Chairman and the Managing Director in order to create a healthy balance between the supervision and management of the Company’s business. The Board of Directors consists of eight non-executive directors (inclusive of three Audit Committee members) responsible for formulating the policy on effective management of the business. The Company has clearly defined the scope of authority, duties and responsibilities of the Managing Director to prevent having limitless powers. REMUNERATION FOR DIRECTORS AND MANAGING DIRECTOR It is Thaioil’s policy to remunerate directors and the Managing Director at levels that attract and maintain qualified persons or which are consistent with other leading corporations within the same industry. Director remuneration is based on the performance of the Company
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and requires approval from the shareholders. In the event a director is assigned a significant increase in responsibilities, his remuneration shall be adjusted accordingly. The Chairman of the Board may receive higher remuneration than that of other directors. Director Compensation In the fiscal year ended December 31, 2004, compensation for the board of directors amounted to 8.73 million baht. This comprised 6.88 million baht of director fees and 1.85 million baht of meeting fees (for all the directors as from the beginning of the year). Director 1. Manu Leopairote
Position
Director Fee
Meeting Fee
Chairman of the Board
780,000.00
210,000.00
90,000.00
–
626,000.00
168,000.00
Chairman of the Audit Committee 2. Cherdpong Siriwit
Director
75,000.00
–
3. Pala Sookawesh
Audit Committee member Director
576,000.00
156,000.00
4. Piti Yimprasert
Director
576,000.00
156,000.00
5. Somchai Wongsawat
Director
626,000.00
156,000.00
75,000.00
–
Audit Committee member 6. Anothai Techamontrikul
Director
192,000.00
60,000.00
7. Banlue Chantadisai
Director
480,000.00
156,000.00
8. David R. Cook
Director
480,000.00
144,000.00
9. Pliu Mangkornkanok
Director
480,000.00
120,000.00
10. Sirichai Sombutsiri
Director
480,000.00
132,000.00
11. Vachara Tuntariyanond
Director
480,000.00
156,000.00
12. Prasert Bunsumpun
Director
576,000.00
156,000.00
13. Kraithip Krairiksh
Director
288,000.00
84,000.00
6,880,000.00
1,854,000.00
Total Management Remuneration
In the fiscal year ended December 31, 2004, the remuneration for 17 executive officers amounted to 132.6 million baht. This comprised 83.2 million baht of salaries and allowances, 30.6 million baht of special bonuses, 5.6 million baht of provident fund contributions, and 13.2 million baht of retirement gratuity fund payments.
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Other Compensations Executive officers who are members of the provident fund receive contributions from the Company at a rate of 10 percent of their salary pursuant to the Company’s provident fund regulations. In addition, at the General Meeting of Shareholders No. 2/2547 on August 6, 2004, a resolution was passed to allocate an additional 40 million common shares at 10 baht per share for offer to the Company’s directors and employees, and the employees of Thaioil Marine. Should there be any shares remaining from this offer, those shares shall be further offered to the Thaioil Group provident fund, which have been registered also at 10 baht per share. The directors and employees who have been offered the shares are prohibited from disposing of their holdings during the first two years as from the date the Company’s shares begin trading on the SET. The directors and employees may dispose one-third of the restricted shares at a time after a period of 12 months, 18 months, and 24 months, respectively as from the date the Company’s shares begin trading on the SET. BOARD MEETINGS The Articles of Association specifies that the Board of Directors shall meet at least once every three months with additional special meetings as necessary. Meeting notice is sent to the directors at least seven days prior to the meeting, except in urgent circumstances to protect the rights and interests of the Company. Every meeting has a clear agenda with complete and adequate meeting documents, which is delivered in advance to allow the directors time to study the information. At the meeting, every director has the freedom to openly express his views. The practice has been sent to meeting notices to directors for review at least an average of 14 days prior to the meeting. In the period from January 1, 2004 to December 31, 2004, the Board of Directors has met a total of 10 times consisting of eight meetings to consider the normal monthly agenda, and two meetings to consider special agendas. Attendance by directors at each meeting formed a quorum.
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Total Meeting Attendance (Times) Director
Normal Monthly Agenda
Special Agenda
Total
1. Manu Leopairote
12/12
2/2
14/14
2. Cherdpong Siriwit
12/12
2/2
14/14
3. Somchai Wongsawat
11/12
2/2
13/14
4. Prasert Bunsumpun
12/12
1/2
13/14
5. Piti Yimprasert
12/12
2/2
14/14
6. Pala Sookawesh
12/12
2/2
14/14
6/6
1/2
7/8
8. Banlue Chantadisai (2)
10/10
2/2
12/12
9. David R. Cook (2)
10/10
1/2
11/12
10. Pliu Mangkornkanok (2)
8/10
1/2
9/12
11. Sirichai Sombutsiri (2)
9/10
1/2
10/12
12. Vachara Tuntariyanond (2)
10/10
2/2
12/12
7. Kraithip Krairiksh (1)
Remarks;
(1) Assumed directorship in May 2004 and resigned in November 2004. (2) Resigned from directorship in November 2004.
SPECIFIC COMMITTEES The Board of Directors appointed the Audit Committee to audit and assist in supervising the business activities of the Company. All members are non-executive directors with qualifications as required by the law on securities and the stock exchange, or by the rules, announcements or regulations of SEC, or by SEC or SET. INTERNAL CONTROL AND AUDIT SYSTEM The Board of Directors oversees the management of the Company by ratifying strategic plans, performance budgets, and performance targets. Management must submit quarterly reports of the Company’s performance to the Board to monitor and review the effectiveness and efficiency in managing the Company. Management performance is also monitored and reviewed by the Board through the Audit Committee. Its responsibilities include ensuring the accuracy and adequacy of financial reports, the effectiveness of established internal controls and audit system, and that the Company’s operations comply with laws or regulations.
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Internal Control System :
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Thaioil engaged independent consultants to assess our internal control system for financial information and activities. We plan to expand independent assessment to cover five more internal control systems, namely for control environment, risk management, information technology and communication, and monitoring and evaluation. These five components are expected to strengthen the Company’s internal control structure.
Internal Audit System
:
Our System Evaluation Department, which reports directly to the Audit Committee, performs according to the best practice in internal audit standards. Audit was conducted against the annual plan, which was consistent with the results of the risk management assessment. Internal audit reports were submitted to the Audit Committee on a quarterly basis.
The Risk Management Committee was appointed to oversee the overall risk management performance by the Company, assess risks, and establish the framework for managing risks at an acceptable level. BOARD REPORTS The Board of Directors is accountable for the consolidated financial statements of Thaioil and subsidiary companies, and the financial information in the annual report. The Board is responsible for establishing an effective internal control system to ensure that accounting information is correct, complete and adequate for maintaining assets. This enables weaknesses in the system and processes to be identified and measures adopted to protect against fraudulent or irregular acts of significant adverse impact. RELATIONS WITH INVESTORS The Company is committed to maintaining good communications with investors by focusing on the integrity, quality, and adequacy of information disclosed to investors, stock analysts, and various stockholder groups. Our senior executive officers regularly meet with investors and analysts. This includes holding meetings at which the Company’s quarterly and annual performance are reported, personal visits, participating in conferences and seminars with local and international investors and analysts. These initiatives are designed to promote better understanding of the management of the Company, establish good relations, and enable continuous exchange of opinions. Thaioil has set up the Investor Relations function as a focal point for implementing proactive investor relations activities. This is consistent with the practice of leading international corporations in promoting communication channels with investors, analysts and other related parties with maximum effect. The approach also includes allowing investors to question and receive Company information through a number of media, such as meetings with investors and stock analysts, visits, information disclosure through our corporate Web site, and direct telephone communication as well as e-mail which can establish instant contact to clarify queries and answer questions by investors.
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INSIDER INFORMATION SUPERVISION Thaioil has adopted preventive measures against benefiting from insider information. Company employees at all levels must keep safe information and documents which are restricted from being disclosed to outside individuals. Sharing of insider information among employees must be conducted within the framework of duties and responsibilities assigned to each employee. In addition, executive officers are required to report each sale, purchase, and transfer of securities to SEC. This is a vital measure in controlling insider information activities. Thaioil has established an internal control process to prevent insider information activities for practice by executive officers and employees in every department. 1. Measures and processes for close supervision of Company information within departments and sections have been established to prevent important internal information from being disclosed to the public prior to formal announcement. These measures and processes form part of the Company’s risk management system. 2. It is the responsibility of all supervisors at every level to ensure that there are no leaks of key information or news to the public from employees under their supervision prior to formal disclosure by the Company. Anyone providing information to the public before formal disclosure shall be processed according to Thaioil’s disciplinary measures and may also face legal proceedings.
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D i re c t o r s, Ma na ge me nt , a nd S u b s id ia r y a nd A f f i l ia t e d C o m p a n ie s
1. BOARD OF DIRECTORS OF THAIOIL As from August 9, 2004 (after becoming a public company) 1. Manu Leopairote
Chairman
2. Cherdpong Siriwit
Director
3. Pala Sookawesh
Director
4. Piti Yimprasert
Director
5. Somchai Wongsawat
Director
6. Prasert Bunsumpun
Director
7. Kraithip Krairiksh
Director
8. Banlue Chantadisai
Director
9. David R. Cook
Director
10. Pliu Mangkornkanok
Director
11. Sirichai Sombutsiri
Director
12. Vachara Tuntariyanond
Director
As from December 8, 2004 to the present 1. Manu Leopairote
Chairman
2. Cherdpong Siriwit
Director
3. Pala Sookawesh
Director
4. Piti Yimprasert
Director
5. Somchai Wongsawat
Director
6. Prasert Bunsumpun
Director
7. Chakramon Phasukavanich
Director
8. Olarn Chaipravat
Director
9. Prapun Naigowit
Director
10. Nibhat Bhukkanasut
Director
11. Prajya Phinyawat
Director
12. Nit Chantramonklasri
Director
P.63
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2. DIRECTOR PROFILES
Manu Leopairote Chairman
Cherdpong Siriwit Director
Pala Sookawesh Director
Shareholding: 0.02634 % Qualifications and Training: – BSc in Economics (Hons), Thammasat University, Thailand – MSc in Economics, University of Kentucky, USA – National Defence College, Thailand, Class 34 Current Positions: – Director, PTT Public Company Limited – Chairman, PTT Exploration and Production Public Company Limited – Chairman, Thaioil Power Company Limited Work Experience: 2001-2003 – Chairman, PTT Public Company Limited 2001-2003 – Permanent Secretary, Ministry of Industry
Shareholding: 0.01742 % Qualifications and Training: – BA in Economics (Hons), Thammasat University, Thailand – MSc in Economics, Georgetown University, USA – National Defence College, Thailand, Class 40 Current Positions: – Permanent Secretary, Ministry of Energy – Chairman, PTT Public Company Limited – Chairman, Ratchaburi Electricity Generating Holding Public Company Limited – Director, Thaioil Power Company Limited Work Experience: 2000-2001 – Director-General, Department of Mineral Resources, Ministry of Industry 2001-2002 – Secretary General, Thai Industrial Standards Institute – Deputy Permanent Secretary, Ministry of Industry
Shareholding: 0.01742 % Qualifications and Training: – BSc (Hons) in Engineering, Chulalongkorn University, Thailand – MSc in Industrial Engineering, Oregon State University, USA – National Defence College, Thailand, Joint Public-Private Sector, Class 3 – Honorary PhD in Engineering, Chulalongkorn University, Thailand Current Positions: – Chairman, The Aromatics (Thailand) Public Company Limited – Director, Electricity Generating Authority of Thailand – Director, PTT Public Company Limited – Director, Thaioil Power Company Limited Work Experience: 1999-2001 – Governor, Petroleum Authority of Thailand
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Piti Yimprasert Director
Prasert Bunsumpun Director
Somchai Wongsawat Director
Shareholding: 0.05239 % Qualifications and Training: – BSc in Engineering, Chulalongkorn University, Thailand – MSc in Civil Engineering, University of Texas, USA – PhD in Civil Engineering, University of Texas, USA – National Defence College, Thailand, Joint Public-Private Sector, Class 9 Current Positions: – Managing Director, Thai Oil Public Company Limited – Chairman, Thai Paraxylene Company Limited – Chairman, Thaioil Marine Company Limited – Chairman, Thai Lube Base Public Company Limited – Director and Managing Director, Thaioil Power Company Limited – Director, Independent Power (Thailand) Company Limited Work Experience: 1993-1995 – Senior Vice President, Operations, Downstream Oil Business, Petroleum Authority of Thailand 1996-1999 – President, PTT Gas, Petroleum Authority of Thailand 2000 – Executive Director, Petrochemicals Sector Group, Petroleum Authority of Thailand 2002-2003 – Senior Vice President, Petrochemicals & Refining Business Group, PTT Public Company Limited
Shareholding: 0.01742 % Qualifications and Training: – BSc in Engineering, Chulalongkorn University, Thailand – MBA, Utah State University, USA – National Defence College, Thailand, Joint Public-Private Sector, Class 10 Current Positions: – President, PTT Public Company Limited – Director, PTT Exploration and Production Public Company Limited – Director, PTT Natural Gas Distribution Company Limited – Chairman, Independent Power (Thailand) Company Limited – Chairman, Thai Petroleum Pipeline Company Limited – Director, Thaioil Power Company Limited Work Experience: 1996-1999 – President, PTT Oil, Petroleum Authority of Thailand 2000-2001 – President, PTT Natural Gas, Petroleum Authority of Thailand
Shareholding: 0.01742 % Qualifications and Training: – LLB, Thammasat University, Thailand – Barrister-at-law (Thai Bar Association) – Master of Public and Private Management, National Institute of Development Administration – National Defence College, Thailand, Class 38 Current Positions: – Permanent Secretary, Ministry of Justice – Director, Electricity Generating Authority of Thailand – Director, PTT Public Company Limited Work Experience: 1998-2000 – Deputy Permanent Secretary, Ministry of Justice
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Chakramon Phasukavanich Director
Olarn Chaipravat Director
Prapun Naigowit Director
Shareholding: None Qualifications and Training: – BSc in Economics, Chulalongkorn University, Thailand – MSc in Economics, California State University, USA – Certificate of Senior Executive Development Program, Thailand, Class 12 – National Defence College, Thailand, Class 39 Current Positions: – Permanent Secretary, Ministry of Industry – Director, PTT Public Company Limited – Member, Monetary Policy Committee, Bank of Thailand Work Experience: 2001-2002 – Secretary General, Board of Investment 2002-2004 – Secretary General, National Economic and Social Development Board
Shareholding: None Qualifications and Training: – BSc (Magna Cum Laude) in Economics, Wharton School, University of Pennsylvania, USA – PhD in Economics, Massachusetts Institute of Technology, USA Current Positions: – Council Chairman, Shinawatra University – Director, PTT Public Company Limited Work Experience: 1992-1999 – President and CEO, The Siam Commercial Bank Public Company Limited 1999-2001 – Advisor to Management Board, The Siam Commercial Bank Public Company Limited
Shareholding: None Qualifications and Training: – LLB (Hons), Thammasat University, Thailand – Barrister-at-law (Thai Bar Association) – LLM, Tulane University, USA – National Defence College, Thailand, Class 38 Current Positions: – Deputy Attorney General, Office of the Attorney General, Ministry of Justice – Director, PTT Public Company Limited Work Experience: 1999 – Director-General, International Affairs Department, Ministry of Justice 2000 – Director-General, Department of Litigation of the Attorney General, Ministry of Justice
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Nibhat Bhukkanasut Director
Prajya Phinyawat Director
Nit Chantramonklasri Director
Shareholding: None Qualifications and Training: – BSc in Economics, University of Hawaii, USA – MSc in Political Science, University of Hawaii, USA – National Defence College, Thailand, Class 35 Current Positions: – Policy Advisor to the Minister of Energy – Policy Advisor to the Prime Minister Work Experience: 1992-1996 – Director-General, Treasury Department, Ministry of Finance 1996-1997 – Director-General, Fiscal Policy Office, Ministry of Finance 1997-1998 – Deputy Permanent Secretary, Ministry of Finance
Shareholding: 0.00723 % Qualifications and Training: – BSc in Engineering, Chulalongkorn University, Thailand – MSc in Engineering, Stanford University, USA – PhD in Engineering, University of Texas, USA – National Defence College, Thailand, Joint Public-Private Sector, Class 15 Current Positions: _ Senior Executive Vice President, Petrochemicals & Refining Business Group, PTT Public Company Limited – Director, Thai Paraxylene Company Limited – Director, Rayong Refinery Company Limited Work Experience: 2001-2002 – Senior Executive Vice President, Corporate Strategy & Development, PTT Public Company Limited 2002-2004 – Senior Executive Vice President, Corporate Support, PTT Public Company Limited
Shareholding: None Qualifications and Training: – BSc in Engineering, Chulalongkorn University, Thailand – MSc and PhD in Industrial and Energy Technology Policy and Technology Management, Science Policy Research Unit, University of Sussex, UK Current Positions: – Policy Advisor to the Minister of Energy – Director, National Energy Fund Administration – Member, National Science and Technology Committee – Director, SME Venture Capital Fund and National Innovation Fund – Director, The Aromatics (Thailand) Public Company Limited – Trustee and Vice President, New International School of Thailand Work Experience: 1992-1993 – Vice President, National Science and Technology Development Agency 1993-1996 – President, National Science and Technology Development Agency 1996-2000 – Vice President, Thailand Development Research Institute
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P.68
3. DIRECTOR SIGNATORIES The signatures of any two directors shall be binding on the Company when affixed with the Company seal.
4. COMPOSITION OF THE BOARD The composition of the board of directors, and the selection, appointment, and removal of Company directors are provided in the Articles of Association, which are summarized below. 1. The board of directors shall consist of a minimum of five directors, of which at least half must reside in Thailand. 2. To resign from the board, a director must submit a resignation letter to the Company. The resignation shall become effective on the date the resignation letter is received by the Company. 3. Directors shall be elected at the shareholder meeting according to the following principles and practice: (i) One shareholder shall cast one vote per share. (ii) Each shareholder may use all of his votes under (i) in favor of one or several directors, but shall not divide his votes among different directors in any proportion. (iii) Nominees receiving the most votes in descending order shall be elected to the board according to the number of directors to be elected. If the nominees receiving the same number of votes exceed the number of directors to be elected, the chairman of the meeting shall cast a deciding vote. 4. One-third of the directors shall retire at every annual general meeting. If the number of directors cannot be equally divided into three groups, the closest number of directors to one-third shall retire. Retiring directors are eligible for re-election. The directors to retire in the first and second years of Thaioil’s registration as a public company shall be picked by draws. In the years to follow, directors who serve the longest terms shall retire in rotation. 5. Shareholders may pass a resolution at the annual general meeting to remove any director from the board prior to the completion of his term. This requires a minimum of three-fourths of the votes of attending shareholders who have voting rights and whose combined shares form the majority.
5. ROLE AND DUTIES OF THE BOARD The business and affairs of the Company shall be conducted by management under the direction of the board of directors in accordance with all applicable laws and regulations, corporate goals, and the Articles of Association. The board of directors is further responsible for the proper enforcement of resolutions of shareholder meetings, and for protecting the interests of the Company and the shareholders.
>> contents Thai Oil Public Company Limited
P.69
The board of directors shall elect a director as chairman and, if the board determines it to be appropriate, elect one or more directors as vice chairmen. The role of the vice chairman shall be consistent with the Articles of Association in affairs as assigned by the chairman.
6. ROLE AND DUTIES OF MANAGING DIRECTOR Dr. Piti Yimprasert, the Company’s Managing Director, has been empowered by the board of directors to manage the business and affairs of the Company in alignment with plans and budgets approved by the board. This responsibility shall be discharged with integrity and honesty, and in the best interests of the Company and shareholders. His role and duties are: (i)
To develop and recommend business plans and strategies to the board of directors.
(ii)
To report the Company’s affairs to the board of directors, including other information as required by the board.
(iii) To manage the Company and the implementation of business plans and strategies in accordance with the approvals of the board of directors. (iv)
To organize and manage an efficient corporate structure consistent with the direction given by the board of directors.
(v)
To create a corporate culture that is suitable for the domestic oil industry.
(vi)
To discharge other responsibilities as delegated the board of directors.
(vii) To be empowered to authorize or delegate his authority to other persons to execute specific duties on his behalf within the scope consistent with applicable rules, regulations, or instructions from the board of directors, and/or as determined by the Company. (viii) To report to the board of directors every two months on the performance of the Company, including other reports as required by the board.
7. RELATED PARTY TRANSACTIONS When the Company or subsidiary companies need to execute related party transactions or the acquisition or disposal of significant assets of the Company, SET regulations require that the Company obtain approval from the shareholders. This approval must receive no less than three-fourths of the total votes of shareholders or proxies with voting rights attending the general meeting, disregarding the votes of shareholders with conflict of interest.
>> contents Thai Oil Public Company Limited
P.70
8. AUDIT COMMITTEE According to the Articles of Association registered with SET, an audit committee shall be set up to monitor and evaluate the Company’s performance, financial reports, internal controls, the selection of independent auditors, the review of conflict of interest, and to report to the board of directors its findings and recommendations.
The Board of Directors at its Meeting No. 1/2547 on August 11, 2004, appointed an Audit Committee comprising: (i)
Manu Leopairote
as chairman
(ii)
Somchai Wongsawat
as member
(iii) Cherdpong Siriwit
as member
(iv)
as secretary
Chaiwat Damrongmongkolgul
The role and duties of the audit committee are: (i)
To ensure that the Company’s financial reports are correct, transparent and adequate.
(ii)
To ensure that the Company’s internal control system and implementation by external and internal auditors are appropriate and effective.
(iii) To ensure the Company’s compliance with SET laws and regulations, as well as other legislature relevant to the Company’s business. (iv)
To select and recommend independent auditors and compensation fees.
(v)
To ensure the full disclosure of Company information when there are related party transactions or conflicts of interest.
(vi)
To report the affairs of the audit committee in the Company’s annual report with endorsement from the chairman of the audit committee.
(vii) To oversee other affairs as assigned by the board of directors and approved by the audit committee.
>> contents Thai Oil Public Company Limited
P.71
The directors and executive officers of Thaioil and its subsidiary and affiliated companies as at March 1, 2005 are:
Subsidiaries Name
Thaioil
Thai Paraxylene
Thai Lube Base
Thaioil Power
1
Manu Leopairote
X
X
2
Cherdpong Siriwit
3
Pala Sookawesh
/ /
/ /
4
Piti Yimprasert
5
Prasert Bunsumpun
6
Somchai Wongsawat
7
Nibhat Bhukkanasut
8
Chakramon Phasukavanich
9
Prajya Phinyawat
10
Prapun Naigowit
11
Olarn Chaipravat
12
Nit Chantramonklasri
13
Somkeirt Hudthagosol
14
Chainoi Puankosoom
15
Dhawatchai Hengrasme
16
Chaiwat Damrongmongkolgul
17
Narongrit Tavornvisitporn
18
Nitas Krongvanitchayakul
19
Somchai Wongwattanasan
20
Kanika Srisilpavongse
21
Pattaralada Sa-ngasang
22
Bowon Vongsinudom
23
Sukrit Surabotsopon
24
Feiko W. Snuif
25
Abhinant Supatrabutra
26
Yuthana Pasurapunya
27
Mitri Reodacha
28
Pramin Phantawesak 1
29
Klahan Tochamnanvit 2
X = Chairman
/ = Director
/ XX / / / / / / / / // // // // // // // // // // // // // // // // // XX = Managing
X
/ XX /
X
Affiliate IPT
Thaioil Marine
/
X
X
Thappline
X
/
/ /
/
/
/
/
/ / XX
/ / / / / XX Director
// = Executive Officer
Remarks : 1. Assumed positioned on 1 February, 2005 2. Assumed positioned on 2 March, 2005 None of our management members has a criminal record over the past 10 years related to: (i) conviction for a criminal offence or pending trial, except for traffic offence, misdemeanor, or other similar offences; (ii) being declared bankrupt or have assets frozen; and (iii) is not an executive or controlling officer in a company or partnership declared bankrupt or have assets frozen
>> contents Thai Oil Public Company Limited
P.72
O rg a n i z a t io na l S t r uc t u re
Board of Directors Managing Director/MD Piti Yimprasert
Audit Committee
Systems Evaluation Manager & Secretary to Audit Committee/SE Narongrit Tavornvisitporn Manager – Special Assignment/SA Chaiwat Damrongmongkolgul SA-1 Pramin Phantawesak SA-2
Deputy Managing Director -
Deputy Managing Director -
Finance/DMD-F
Refinery/DMD-R
Chainoi Puankosoom
Dhawatchai Hengrasme
Treasurer/FT
Subsidiary & Investor
Accounting Manager/FN
Kanika Srisilpavongse
Relations Manager/SI
Nitas Krongvanitchayakul
Pattaralada Sa-ngasang
Technology Manager/TN
Operations Manager/MF
Products & Quality
Sukrit Surabotsopon
Feiko W. Snuif
Manager/MQ Abhinant Supatrabutra
>> contents Thai Oil Public Company Limited
Manager-Corporate Management Office/CO Somchai Wongwattanasan
Information Technology & Insurance Manager/TI Nitas Krongvanitchayakul (Act.)
Deputy Managing Director Business/Human Resources/DMD-B Somkeirt Hudthagosol
Commercial Manager/CM
Human Resources &
Business Development &
Bowon Vongsinudom
Administration Manager/HR
Strategic Planning Manager/BS
Somchai Wongwattanasan
Sukrit Surabotsopon (Act.)
Engineering Manager/EN
Project and Development Manager/PD
Yuthana Pasurapunya
Mitri Reodacha
P.73
>> contents Thai Oil Public Company Limited
Ma na ge me nt
Management members as at March 1, 2005 are: 1. Piti Yimprasert
Managing Director
2. Somkeirt Hudthagosol
Deputy Managing Director- Business / Human Resources
3. Dhawatchai Hengrasme
Deputy Managing Director- Refinery
4. Chainoi Puankosoom
Deputy Managing Director- Finance
5. Kanika Srisilpavongse
Treasurer
6. Pattaralada Sa-ngasang
Subsidiary & Investor Relations Manager
7. Nitas Krongvanitchayakul
Information Technology & Insurance Manager (Act.) / Accounting Manager
8. Sukrit Surabotsopon
Business Development & Strategic Planning Manager (Act.) / Technology Manager
9. Feiko W. Snuif
Operations Manager
10. Abhinant Supatrabutra
Products & Quality Manager
P.74
>> contents Thai Oil Public Company Limited
P.75
From left to right : 4, 17, 1, 2, 13, 15, 5, 6, 3, 8, 9, 14, 10, 12, 16, 7, 11
11. Yuthana Pasurapunya
Engineering Manager
12. Mitri Reodacha
Project and Development Manager
13. Somchai Wongwattanasan
Manager-Corporate Management Office
14. Bowon Vongsinudom
Commercial Manager
15. Narongrit Tavornvisitporn
Systems Evaluation Manager & Secretary to Audit Committee
16. Chaiwat Damrongmongkolgul
Manager - Special Assignment
17. Pramin Phantawesak 1
Manager - Special Assignment
18. Klahan Tochamnanvit 2
Human Resources & Administration Manager
Remarks : 1 Assumed position on February 1, 2005. 2 Assumed position on March 1, 2005. None of our management members has a criminal record over the past 10 years related to: (i) conviction for a criminal offence or pending trial, except for traffic offence, misdemeanor, or other similar offences; (ii) being declared bankrupt or have assets frozen; and (iii) is not an executive or controlling officer in a company or partnership declared bankrupt or have assets frozen
>> contents Thai Oil Public Company Limited
P.76
C o m p a ny I n fo r ma t io n
SHAREHOLDING STRUCTURE Ten major shareholders as at January 10, 2005, grouped according to their partnerships as defined in Section 258 of the Securities and Exchange Act of B.E. 2535, are:
Shareholder
Shares Percentage
1. PTT Public Company Limited
1,010,647,483
49.54
2. Credit Agricole Indosuez (Suisse) SA
62,338,518
3.06
3. Government of Singapore Investment Corporation Limited
49,181,400
2.41
4. HSBC (Singapore) Nominee Pte Limited
42,645,500
2.09
5. State Street Bank and Trust Company
41,505,224
2.03
6. Deutsche Bank AG, Frankfurt
21,180,100
1.04
7. MOC Holding (Thailand) Public Company Limited
20,512,200
1.01
8. Somers (UK) Limited
18,942,600
0.93
9. Bank Thai Public Company Limited
18,726,590
0.92
18,361,332
0.90
1,304,040,947
63.93
10. Thai NVDR Company Limited Total
Note: Calculated from 2,040,027,873 issued and fully paid ordinary shares.
>> contents Thai Oil Public Company Limited
P.77
BUSINESS DESCRIPTION AND REVENUE STRUCTURE
Business Description Thaioil owns and operates the largest single site oil refinery in Thailand with a production capacity of 220,000 barrels per day. In addition to oil refinery, we expanded our business portfolio in to petrochemicals and lube base oils through acquisition of Thai Paraxylene and Thai Lube Base in October 2004. We plan to integrate these adjacent facilities to create further synergy. Greater optimization could be achieved in 2006 when Thaioil’s refinery capacity is expected to increase to 270,000 barrels per day and the paraxylene plant to 407,000 tons per year. The lube base plant 270,000 tons per year of lube base oil, 370,000 tons per year of bitumen and 260,000 tons per year of by-products.
Thaioil has interests in the oil and petrochemical transportation business. The first is the wholly-owned Thaioil Marine, which operates a fleet of seven petroleum product and petrochemical tankers with a combined capacity of 43,340 tons. Thaioil Marine provides transportation service primarily in the Asia-Pacific region. The second is an 8.69-percent stake in Thappline, which is a joint venture among major oil companies to operate a network of petroleum product pipeline.
Our business portfolio extends to the power generation business. Thaioil owns 55 percent of Thaioil Power, and have formalized the agreement to acquire the 24-percent interest in IPT from Unocal Asia-Pacific Ventures. This is in addition to the 56-percent stake we already hold in IPT through Thaioil Power. Thaioil, therefore, owns directly and indirectly a total of 450 MW of power generation capacity for commercial sales.
PTT, our major shareholder, has mandated Thaioil as its flagship refinery. PTT buys petroleum products largely from Thaioil to meet the demand of the retail market, in which PTT enjoys a 36-percent share.
Thaioil has registered with the SET (in the energy sector) under the name Thai Oil Public Company Limited, or TOP, and our shares began trading on October 26, 2004. As at December 31, 2004, the consolidated assets of Thaioil and our subsidiary and affiliated companies amount to 115,427 million baht, with 61,852 million baht in liabilities, and 53,575 million baht in shareholders’ equity.
>> contents Thai Oil Public Company Limited
P.78
Revenue Structure Thaioil’s basic source of revenue is from our oil refining business. We also earn revenues from lube base oil, petrochemical, power generation, and oil & petroleum product transportation businesses.
Fiscal year ending December 31 Operator (4)
Thaioil’s
2002
2003
2004
Stake in %
Baht million
%
Baht million
%
Baht million
%
A. Net sales Oil refining business (1)
TOP
–
96,407
93
139,327
95
176,993
96
Lube base oil business (2)
TLB
100
–
–
–
–
1,792
1
Paraxylene business (2)
TPX
100
–
–
–
–
2,219
1
TP/IPT
55
8,080
8
7,719
5
7,281
4
TM
100
576
1
790
1
906
0
(1,937)
(2)
(1,887)
(1)
(4,390)
(2)
103,126
100
145,949
100
184,801
100
Power generation business Oil & petrochemical transportation business Minus: Related party transactions Sub Total B. Foreign exchange gain Oil refining business
TOP
–
824
1
3,025
2
337
0
Lube base oil business (2)
TLB
100
–
–
–
–
(12)
0
Paraxylene business (2)
TPX
100
–
–
–
–
144
0
TP/IPT
55
181
0
579
0
75
0
TM
100
–
–
14
0
(1)
0
1,005
1
3,618
2
543
0
Power generation business Oil & petrochemical transportation business Sub Total C. Profit from debt prepayment Oil refining business
TOP
–
–
–
640
1
315
0
TP/IPT
55
–
–
635
0
20
0
D. Net compensation claims from insurers Power generation business
>> contents Thai Oil Public Company Limited
P.79
Fiscal year ending December 31 Operator (4)
Thaioil’s
2002
2003
2004
Stake in %
Baht million
%
Baht million
%
Baht million
%
TOP
-
839
1
1,074
1
1,040
1
TLB
100
-
-
-
-
85
0
TPX
100
-
-
-
-
5
0
TP/IPT
55
172
0
482
0
63
0
TM
100
2
0
3
0
4
0
(349)
0
(544)
0
(575)
0
664
1
1,015
1
622
1
104,795
102
151,857
104
186,301
101
E. Other revenues (3) Oil refining business Lube base oil business (2) Paraxylene business
(2)
Power generation business Oil & petrochemical transportation business Minus: Related party transactions Sub Total Total revenues (A-E) Remark: (1)
2002 includes oil processing fee of 1,163 million baht.
(2)
For the period as from Thaioil’s 100-percent ownership in Thai Lube Base and Thai Paraxylene, or from October 21, 2004 to December 31, 2004.
(3)
Comprises received interests, tax coupon compensation , revenue from the provision of services to Group companies, land lease, SBM service charge, oil tank storage fee,
(4)
TOP is Thai Oil Public Company Limited.
service charge for use of lorry loading terminal TLB is Thai Lube Base Public Company Limited. TPX is Thai Paraxylene Company Limited. TP is Thaioil Power Company Limited. IPT is Independent Power (Thailand) Company Limited, in which Thaioil Power owns 56 percent. TM is Thaioil Marine Company Limited.
Dividend Policy The Board of Directors may declare annual dividends subject to approval from the shareholders at its annual general meeting. When interim dividends are declared, the Board is authorized to approve payment of dividends from time to time if the Company deems it appropriate to do so. The payment of interim dividends shall be reported to shareholders at the next meeting. The present policy is to pay dividends at a minimum rate of 25 percent of net profits after deduction of all reserve funds according to requirements of the Articles of Association and relevant laws. However, payment of dividends is subject to investment plans and other obligations as deemed appropriate by the Board of Directors. At our subsidiary companies, there are no definite rates of dividend payment. Each board of directors will review the matter and recommend it to the shareholders at its annual general meeting for approval according to investment plans and other obligations and factors as seen appropriate by the board.
>> contents Thai Oil Public Company Limited
P.80
OTHER INFORMATION Company Name:
Thai Oil Public Company Limited
Abbreviation:
TOP
Registration Number:
0107574700712
Business:
A single-site complex refinery using advanced production process that produces petroleum products. Investment has been made to expand operations to the production of petrochemicals, as well as in the power generation, and marine and pipeline transportation businesses.
Number of employees of Thaioil and subsidiary and affiliated companies as at December 31, 2004: • Thai Oil Public Company Limited : 733 employees
• Thaioil Marine Company Limited : 166 employees
• Thaioil Power Company Limited : none*
• Independent Power (Thailand) Company Limited : 40 employees
• Thai Paraxylene Company Limited : 57 employees
Thai Lube Base Public Company Limited : 142 employees
• Thai Petroleum Pipeline Company Limited : 196 employees
*
Thaioil Power has no employee of their own. Subsidiary is staffed by Thaioil’s employee according to “RELATED PARTY SERVICE AND SUPPLY AGREEMENT”
Bangkok Office:
123 Suntowers Building B, 12th Floor, Vibhavadi Rangsit Road, Chomphon, Chatuchak, Bangkok 10900, Thailand Telephone: 66-2299-0000, 66-2617-8300 Facsimile: 66-2299-0024
Sriracha Office:
42/1 Moo 1, Sukhumvit Road Km. 124, Tungsukla, Sriracha, Cholburi 20230, Thailand
and Refinery plant
Telephone: 66-3840-8500, 66-3835-9000, 66-3835-1555 Facsimile: 66-3835-1554, 66-3835-1444, 66-3835-9019 TELEX : 85802 THAIOIL TH
Web Site:
www.thaioil.co.th
Registered Capital:
20,400,278,730 baht Comprising 2,040,027,873 common shares at 10 baht a share.
Registrar:
Thailand Securities Depository Company Limited 4th, 6th-7th Floors, The Stock Exchange of Thailand Building, 62 Rachadapisek Road, Klongtoey, Bangkok 10110, Thailand Telephone: 66-2359-1200 to 1 Facsimile: 66-2359-1259
Auditors:
Mr. Winid Silamongkol KPMG Phoomchai Audit Limited
>> contents Thai Oil Public Company Limited
P.81
>> contents
To w a rd A S t ro nge r F u t u re
Thaioil has set clear and focused plans in moving toward the realization of our goal to become a leading oil and petrochemical corporation in the Asia-Pacific region. We are confident that, when all of our expansion and i m p ro v e me nt p ro g ra ms a re c o m p l e t e d i n 2 0 0 7 , w e w o u l d b e ne f i t f ro m t he s e i n v e s t me nt s a nd de l i v e r t o a l l stakeholders enhanced value and sustained growth.
>> contents
>> contents Thai Oil Public Company Limited
P.85
Report of Certified Public Accountant
To the Shareholders of Thai Oil Public Company Limited
I have audited the accompanying consolidated balance sheets of Thai Oil Public Company Limited and subsidiaries as at December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years then ended. I have also audited the balance sheets of Thai Oil Public Company Limited as at December 31, 2004 and 2003, and the related statements of income, changes in shareholders’ equity and cash flows for each of the years then ended. The management of Thai Oil Public Company Limited is responsible for the correctness and completeness of information presented in these financial statements. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements and the financial statements referred to above present fairly, in all material respects, the financial position of Thai Oil Public Company Limited and subsidiaries and of Thai Oil Public Company Limited as at December 31, 2004 and 2003 and the results of their operations and their cash flows for each of the years then ended in conformity with generally accepted accounting principles.
KPMG Phoomchai Audit Ltd. Bangkok January 25, 2005
(Winid Silamongkol) Certified Public Accountant Registration No. 3378
>> contents Thai Oil Public Company Limited
P.86
B a l a nc e S he et s
As at December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
The Company Only
Notes
2004
2003
2004
2003
Cash and cash equivalents
5, 15
6,667,166,281
7,103,095,589
4,170,710,665
4,387,901,761
Short-term investments
6, 15
468,479,067
979,014,374
–
–
3,946,218,265
4,051,783,286
5,174,351,881
3,982,844,287
5,886,190,892
4,964,644,039
4,167,293,624
4,104,338,444
4
100,543,193
129,154,742
61,505,666
48,180,198
from subsidiary and related companies
4
–
141,840,994
132,725,668
138,607,681
Inventories - net
8
17,624,158,916
10,681,467,938
16,102,092,742
10,322,668,845
Receivable from Oil Fuel Fund
4,016,032,518
745,123,585
4,016,032,518
745,123,585
Other current assets
1,414,557,824
813,182,511
991,125,883
647,060,978
Total Current Assets
40,123,346,956
29,609,307,058
34,815,838,647
24,376,725,779
Assets Current Assets
Trade account receivables
7
- Related companies
4
- Other companies Other receivables from subsidiary and related companies Current portion of long-term receivables
The accompanying notes are an integral part of these financial statements.
>> contents Thai Oil Public Company Limited
P.87
B a l a nc e S he et s (Continued)
As at December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
The Company Only
Notes
2004
2003
2004
2003
21
196,040,835
–
181,199,758
–
492,977,127
487,301,652
492,977,127
487,301,652
Non-current Assets Deferred tax assets Loans to savings co-operative of employees - net of current portion shown under other current assets Long-term receivables from subsidiary and related companies -net of current portion
4
–
208,589,376
250,927,728
307,232,174
Subordinated loan to a related company
4
–
–
120,652,596
–
9
112,945,300
811,732,878
8,440,136,298
4,401,731,739
4, 10, 15
72,525,179,606
68,812,628,825
49,864,662,793
54,073,389,415
Intangible assets
11
120,405,878
160,794,122
119,554,259
158,548,767
Other non-current assets - net
12
1,856,418,884
1,844,985,765
1,329,079,287
1,377,417,400
75,303,967,630
72,326,032,618
60,799,189,846
60,805,621,147
115,427,314,586
101,935,339,676
95,615,028,493
85,182,346,926
Investments in shares of subsidiary and related companies - net Property, plant and equipment - net
Total Non-Current Assets Total Assets
The accompanying notes are an integral part of these financial statements.
>> contents Thai Oil Public Company Limited
P.88
Balance Sheets (Continued)
As at December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
Notes
The Company Only
2004
2003
2004
2003
1,156,707,013
17,776,734
–
–
2,857,772,642
3,004,650,142
2,554,969,436
2,056,649,778
8,374,179,790
5,709,222,562
8,291,830,492
5,671,224,559
1,895,824,316
395,335,808
26,521,200
22,496,181
571,583,678
755,362,372
571,583,678
755,362,371
4
–
6,941,232
8,902,046
6,941,232
10, 15
1,578,782,209
2,601,929,104
–
1,041,178,565
2,725,823,602
–
2,725,823,602
–
Accrued interest
710,073,362
105,727,920
326,228,231
3,963,343
Other current liabilities
566,152,624
806,420,090
330,594,561
618,533,232
Total Current Liabilities
20,436,899,236
13,403,365,964
14,836,453,246
10,176,349,261
Liabilities And Shareholders’ Equity Current Liabilities Bank overdrafts and short-term loans from financial institutions Trade account payables - Related companies
4
- Other companies Other payables to subsidiary and related companies
4
Excise duty payable Current portion of long-term payable to subsidiary and related companies Current portion of long-term debts Income tax payable
The accompanying notes are an integral part of these financial statements.
>> contents Thai Oil Public Company Limited
P.89
B a l a nc e S he et s (Continued)
As at December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
The Company Only
Notes
2004
2003
2004
2003
Deferred tax liabilities
21
2,263,736,720
1,606,400,289
2,204,683,957
1,550,018,848
Pension fund
13
194,849,798
341,332,590
194,849,798
341,332,590
4
–
270,708,034
258,159,334
270,708,034
10, 15
38,705,576,784
49,819,164,673
28,503,617,248
40,605,964,023
117,217,436
216,833,352
321,132,154
342,726,494
133,731,652
–
–
–
Total Non-Current Liabilities
41,415,112,390
52,254,438,938
31,482,442,491
43,110,749,989
Total Liabilities
61,852,011,626
65,657,804,902
46,318,895,737
53,287,099,250
Non-current Liabilities
Long-term payable to subsidiary and related companies - net of current portion Long-term debts - net of current portion Deposits and rental charges received in advance for land lease - net Other non-current liabilities
16
The accompanying notes are an integral part of these financial statements.
>> contents Thai Oil Public Company Limited
P.90
Balance Sheets (Continued)
As at December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
Notes
The Company Only
2004
2003
2004
2003
20,400,278,730
18,965,278,730
20,400,278,730
18,965,278,730
2,456,261,491
431,749,000
2,456,261,491
431,749,000
17,970,643,983
20,418,574,798
17,970,643,983
20,418,574,798
347,289,541
2,000,000
347,289,541
2,000,000
244,500,000
244,500,000
244,500,000
244,500,000
Liabilities and Shareholders’ Equity (Continued) Shareholders’ Equity Share capital
17
- Authorized share capital; 2,040,027,873 common shares with a par value of Baht 10 each, totaling Baht 20,400 million in 2004 1,896,527,873 common shares with
a par value of Baht 10 each, totaling Baht 18,965 million in 2003 - Issued and paid-up share capital, 2,040,027,873 common shares with a
par value of Baht 10 each in 2004 1,896,527,873 common shares with a
par value of Baht 10 each in 2003 Premium on share capital - net Revaluation surplus of property, plant and equipment - net Retained earnings (deficit) Appropriated for - Legal reserve - Fixed reserve for capital increment Retained earnings (deficit)
18
7,877,159,011
(8,166,854,852)
7,877,159,011
(8,166,854,852)
49,296,132,756
31,895,247,676
49,296,132,756
31,895,247,676
4,279,170,204
4,382,287,098
–
–
53,575,302,960
36,277,534,774
49,296,132,756
31,895,247,676
115,427,314,586
101,935,339,676
95,615,028,493
85,182,346,926
Shareholders’ equity of parent company - net Minority interests Shareholders’ Equity - Net Total Liabilities and Shareholders’ Equity
The accompanying notes are an integral part of these financial statements.
>> contents Thai Oil Public Company Limited
P.91
Statements of Income
For Each of the Years Ended December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
Notes
Revenues
4
Net sales and services
The Company Only
2004
2003
2004
2003
184,801,485,213
145,949,416,982
176,992,937,435
139,326,674,237
–
–
432,168,897
573,123,942
542,532,749
3,618,130,940
337,172,016
3,025,306,419
314,903,186
640,045,288
314,903,186
640,045,288
20,377,513
634,925,113
–
–
–
413,778,759
–
–
621,919,618
601,351,690
1,040,305,340
1,074,277,230
186,301,218,279
151,857,648,772
179,117,486,874
144,639,427,116
Share of profits from investments recorded by the equity method Gain on foreign exchange Gain from debt repurchase before maturity
15
Net claim on insurance recovery from loss income Compensation for under lifting Other income Total Revenues
Expenses
4
Cost of sales and services
19
164,732,051,261
140,025,415,310
158,788,146,835
135,021,358,798
Selling and administrative expenses
20
1,207,161,065
575,341,590
658,509,314
249,386,022
–
277,216,768
–
277,216,768
165,939,212,326
140,877,973,668
159,446,656,149
135,547,961,588
Compensation under the Supplemental Supply and Offtake Agreement Total Expenses
The accompanying notes are an integral part of these financial statements.
>> contents Thai Oil Public Company Limited
P.92
Statements of Income (Continued)
For Each of the Years Ended December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
Notes
The Company Only
2004
2003
2004
2003
and Financial Charges and Income Tax
20,362,005,953
10,979,675,104
19,670,830,725
9,091,465,528
Interest Expense and Financial Charges
(2,299,182,632)
(2,625,551,299)
(1,619,170,761)
(1,897,603,335)
(2,966,844,546)
(441,582,012)
(2,979,014,301)
(443,647,877)
Profit before Interest Expense
Income Tax
21
Profit after Income Tax
15,095,978,775
Net Profit of Minority Interests
(23,333,112)
Profit before Extraordinary Item
15,072,645,663
7,912,541,793 (962,257,773) 6,950,284,020
15,072,645,663
6,750,214,316
–
–
15,072,645,663
6,750,214,316
–
–
Extraordinary Item - Loss from Debt Restructuring of a Subsidiary Company Net Profit
4, 15
–
(200,069,704)
15,072,645,663
6,750,214,316
15,072,645,663
6,750,214,316
7.82
3.66
7.82
3.56
–
–
7.82
3.56
Basic Earnings per Share (Baht) Profit before extraordinary item Extraordinary item Net profit
The accompanying notes are an integral part of these financial statements.
– 7.82
(0.10) 3.56
Balance as at
431,749,000
–
–
20,418,574,798
–
–
– (1,839,316,297)
22,257,891,095
and equipment
property, plant
surplus in
Revaluation
2,000,000
–
–
–
2,000,000
reserve
Legal (deficit)
earnings/
Retained
244,500,000
–
–
–
(8,166,854,852)
–
6,750,214,316
1,839,316,297
244,500,000 (16,756,385,465)
increment
for capital
Fixed reserve
Consolidated (Baht)
Net
–
(101,160,002)
7,712,472,089
4,382,287,098 36,277,534,774
(101,160,002)
962,257,773
–
3,521,189,327 28,666,222,687
interests
Minority
18,965,278,730
–
–
–
18,965,278,730
paid-up
- issued and
Share capital
22,257,891,095
and equipment
property, plant
surplus in
Revaluation
431,749,000
–
–
20,418,574,798
–
–
– (1,839,316,297)
431,749,000
capital
on share
Premium
2,000,000
–
–
–
2,000,000
reserve
Legal
Retained
(deficit)
earnings/
244,500,000
–
–
–
(8,166,854,852)
–
6,750,214,316
1,839,316,297
244,500,000 (16,756,385,465)
increment
for capital
Fixed reserve
The Company Only (Baht)
31,895,247,676
–
6,750,214,316
–
25,145,033,360
Net
Thai Oil Public Company Limited and Subsidiaries
Thai Oil Public Company Limited
The accompanying notes are an integral part of these financial statements.
December 31, 2003
18,965,278,730
–
Dividend payment
Balance as at
–
–
Net profit
431,749,000
capital
paid-up
18,965,278,730
on share
- issued and
in plant and equipment
revaluation surplus
Depreciation of
January 1, 2003
Premium
Share Capital
For Each of the Years Ended December 31, 2004 and 2003
Equity
in Shareholde r s’
Changes
Statements of
>> contents P.93
–
–
Legal reserve
Dividend payment
–
–
20,418,574,798
Revaluation surplus in property, plant and equipment
2,456,261,491
–
–
–
17,970,643,983
–
–
–
– (1,131,273,074)
– (1,316,657,741)
(252,487,509)
2,277,000,000
431,749,000
Premium on share capital
347,289,541
–
345,289,541
–
–
–
–
–
2,000,000
Legal reserve
244,500,000
–
–
–
–
–
–
–
244,500,000
Fixed reserve for capital increment
Consolidated (Baht)
The accompanying notes are an integral part of these financial statements.
December 31, 2004
20,400,278,730
–
Balance as at
–
Net profit
–
equipment
of plant and
revaluation
Deferred tax on
equipment
surplus in plant and
revaluation
Depreciation of
share capital
–
1,435,000,000
Expense for issuing
18,965,278,730
Issue share capital
Balance as at
January 1, 2004
Share Capital - issued and paid-up
For Each of the Years Ended December 31, 2004 and 2003
(Continued)
Equity
in Shareholde r s’
Changes
Statements of
7,877,159,011
–
(345,289,541)
15,072,645,663
–
1,316,657,741
–
–
(8,166,854,852)
Retained earnings/ (deficit)
–
(252,487,509)
3,712,000,000
36,277,534,774
Net
4,279,170,204
(126,450,006)
–
23,333,112
53,575,302,960
(126,450,006)
–
15,095,978,775
– (1,131,273,074)
–
–
–
4,382,287,098
Minority interests
20,400,278,730
–
–
–
–
–
–
1,435,000,000
18,965,278,730
Share capital - issued and paid-up
–
–
20,418,574,798
Revaluation surplus in property, plant and equipment
2,456,261,491
–
–
–
17,970,643,983
–
–
–
– (1,131,273,074)
– (1,316,657,741)
(252,487,509)
2,277,000,000
431,749,000
Premium on share capital
347,289,541
–
345,289,541
–
–
–
–
–
2,000,000
Legal reserve
244,500,000
–
–
–
–
–
–
–
244,500,000
Fixed reserve for capital increment
The Company Only (Baht)
7,877,159,011
–
(345,289,541)
15,072,645,663
–
1,316,657,741
–
–
(8,166,854,852)
Retained earnings/ (deficit)
49,296,132,756
–
15,072,645,663
(1,131,273,074)
–
(252,487,509)
3,712,000,000
31,895,247,676
Net
Thai Oil Public Company Limited and Subsidiaries
>> contents
Thai Oil Public Company Limited P.94
>> contents Thai Oil Public Company Limited
P.95
Statements of Cash Flows
For Each of the Years Ended December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
Notes
The Company Only
2004
2003
2004
2003
15,072,645,663
6,750,214,316
15,072,645,663
6,750,214,316
6,072,483,599
6,026,190,368
5,099,019,755
5,170,069,875
Cash Flows From Operating Activities Net profit Adjustments to reconcile net profit to net cash provided by (used in) operating activities: Depreciation and amortization Unrealized gain on foreign exchange Provision of decline in value of inventories
(328,024,028)
(3,435,652,567)
9,118,376
–
–
–
(115,893,625) –
(2,871,160,897) –
Share of profit from investments recorded by the equity method Loss (gain) on disposal of assets Gain from debt repurchase before maturity Realization of deferred land lease and other income Utilization of deferred income tax
147,929,879
56,943
(573,123,942) (2,945,919)
(314,903,186)
(640,045,288)
(314,903,186)
(640,045,288)
(55,768,216)
(50,230,008)
(123,499,328)
(116,386,277)
(669,977,478)
441,582,012
(657,807,723)
443,647,877
Loss from debt restructuring of subsidiary company Net profit of minority interests
(2,945,919)
(432,168,897)
–
200,069,704
–
–
23,333,112
962,257,773
–
–
19,956,837,721
10,251,440,391
18,527,449,602
8,160,269,745
Profit from operating activities before changes in operating assets and liabilities Decrease (increase) in operating assets: Trade account receivables
(1,296,260,021)
(451,257,606)
(1,344,221,740)
(328,220,988)
(17,509,009)
(215,961,702)
(13,325,468)
(10,895,453)
Inventories
(5,303,757,512)
(1,855,092,371)
(5,779,423,897)
(1,777,032,164)
Receivable from Oil Fuel Fund
(3,270,908,932)
Other receivables from subsidiary and related companies
Other current assets
(702,843,763)
Other non-current assets
(138,553,017)
The accompanying notes are an integral part of these financial statements.
801,770,733 (363,351,141) 8,768,752
(3,270,908,932) (693,190,785) (111,254,214)
801,770,733 (415,391,404) 8,103,804
>> contents Thai Oil Public Company Limited
P.96
Statements of Cash Flows (Continued)
For Each of the Years Ended December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
Notes
The Company Only
2004
2003
2004
2003
2,240,053,410
3,924,588,359
3,165,917,857
3,385,125,428
127,623,435
185,744,640
(6,138,076)
(185,589,516)
42,097,129
(183,778,693)
Increase (decrease) in operating liabilities: Trade account payables Other payables to subsidiary and related companies Excise duty payable Income tax payable
(29,928,389) 42,097,129
2,725,823,602
–
2,725,823,602
–
332,763,762
46,461,192
322,264,889
67,651,826
Other current liabilities
(265,642,244)
444,409,933
(259,921,107)
352,219,366
Pension fund
(146,482,792)
Accrued interest
(2,794,762)
(146,482,792)
(2,794,762)
Deposits and rental charged received in advance for land lease Other non-current liabilities Net Cash Provided by Operating Activities
7,401,735
(1,727,884)
65,615,796
57,296,884
(4,482,130)
–
–
–
14,058,474,729
12,815,095,663
12,998,426,042
10,310,271,755
(337,244,505)
–
–
(253,587,285)
62,186,459
Cash Flows From Investing Activities: (Increase) decrease in short-term investments
510,604,783
(Increase) decrease in long-term receivables from subsidiary and related companies
–
(138,064,784)
Increase in long-term loan to subsidiary and related companies
(118,260,000)
–
(118,260,000)
–
(5,675,475)
6,551,431
(5,675,475)
6,551,431
(3,760,417,752)
–
(3,760,417,752)
–
(Increase) decrease in loans to savings co-operative of employees Payment of investments in shares of subsidiary and related companies Dividend received Payment of plant and equipment
– (382,652,789)
Proceeds from sales of property, plant and equipment
201,764,899
Increase in intangible assets
(20,139,717)
Net Cash Used in Investing Activities
(3,574,776,051)
The accompanying notes are an integral part of these financial statements.
– (389,704,771) 7,374,119 – (966,611,011)
154,549,994
123,639,994
(326,791,752)
(175,104,151)
22,622 (20,139,717) (4,014,525,621)
5,249,907 – (177,727,603)
>> contents Thai Oil Public Company Limited
P.97
Statements of Cash Flows (Continued)
For Each of the Years Ended December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
Consolidated (In Baht)
Notes
The Company Only
2004
2003
2004
2003
(17,733,817)
(532,223,266)
–
(550,000,000)
–
277,649,266
–
277,649,266
(7,558,094,455)
(3,359,475,996)
(7,558,094,455)
(3,359,475,996)
80,262,400
–
–
–
(6,850,324,240)
(3,967,105,398)
(5,102,509,553)
(2,918,715,933)
Proceeds from increase of share capital
3,459,512,490
–
3,459,512,491
–
Dividend payment
(126,450,006)
(101,160,002)
–
–
(11,012,827,628)
(7,682,315,396)
(9,201,091,517)
(6,550,542,663)
(529,128,950)
4,166,169,256
(217,191,096)
3,582,001,489
7,103,095,589
2,936,926,333
4,387,901,761
805,900,272
93,199,642
–
–
–
6,667,166,281
7,103,095,589
4,170,710,665
4,387,901,761
1,565,451,918
2,536,447,211
956,264,674
1,790,867,170
917,794,212
48,337,371
910,998,421
42,252,173
1,391,688,750
–
–
–
Cash Flows from Financing Activities: Decrease in short-term loans from financial institutions Increase in long-term payable to related companies Debt repurchase Proceed from long-term debts Repayments of long-term debts
Net Cash Used in Financing Activities
Net Increase (Decrease) in Cash and Cash Equivalents Cash And Cash Equivalents - Net, Beginning of Year Cash and Cash Equivalents from Subsidiary Companies at The Acquisition Date Cash and Cash Equivalents - Net, End of Year
5
Supplemental Disclosures of Cash Flow Information: 1. Cash paid during the year for: - Interest expense - Income tax
2. Non-monetary item: Purchase of machinery on credit terms
The accompanying notes are an integral part of these financial statements.
>> contents Thai Oil Public Company Limited
P.98
Statements of Cash Flows (Continued)
For Each of the Years Ended December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
3. Acquisitions of subsidiary companies during the year 2004, the Company purchased shares of two subsidiary companies, Thai Lube Base Public Company Limited and Thai Paraxylene Company Limited. The fair value of assets and liabilities of these subsidiary companies taken into the Company’s accounts at the acquisition date is as follows :
Thai Lube Base Public
Thai Paraxylene
Company Limited
Company Limited
Total
(Million Baht)
(Million Baht)
(Million Baht)
Cash and cash equivalents
19
74
93
Trade account receivables
398
728
1,126
1,289
242
1,531
436
164
600
1,258
5,041
6,299
Inventories Other assets Property, plant and equipment - net Trade account payables
(526)
(1,050)
(1,576)
Other current liabilities
(629)
(1,277)
(1,906)
Long-term debts
(267)
(2,252)
(2,519)
1,670
3,648
Acquisition prices Less cash and cash equivalents of the subsidiary companies Net cash paid for the acquisitions of subsidiary companies
The accompanying notes are an integral part of these financial statements.
1,978 (19) 1,959
(74) 1,596
(93) 3,555
>> contents Thai Oil Public Company Limited
P.99
Note to Financial Statements
As at December 31, 2004 and 2003
Thai Oil Public Company Limited and Subsidiaries
1. General
Company Thai Oil Public Company Limited, which is a company in the PTT Public Company Limited group of companies, was incorporated in 1961 and commenced its oil refining operations in 1964 following the completion of the first crude distillation complex. The Company comprises a highly sophisticated oil-refining complex with a capacity of approximately 220,000 barrels per day of crude oil and feedstock intake.
Performance for a refinery is generally measured from capacity utilization or the number of barrels of crude and feedstock refined into petroleum products and the gross refinery margin (GRM) earned for each barrel of crude/feedstock processed. GRM is derived as the difference between the aggregate value of production and the aggregate cost of crude/feedstock inclusive of its transport cost and energy used in the refining process. This number is divided by the number of barrels of crude/feedstock to arrive at GRM/barrel and expressed in US Dollars.
For oil movement logistics, the Company has its own single buoy mooring, crude receiving facilities as well as marine and land loading infrastructure for petroleum products. Product marine loading is via the jetty alongside the refinery’s shoreline while land movements are via either the connecting multi-product pipeline owned by Thai Petroleum Pipeline Co., Ltd. or lorry loading arms owned by the Company.
Presently, the Company has offices located at the following addresses: Sriracha office and refinery plant
:
42/1 Moo 1, Sukhumvit Road Km. 124, Tungsukla, Sriracha, Cholburi, Thailand.
Bangkok office
:
123 Suntowers Building B, 12th Floor, Vibhavadi Rangsit Road, Chomphon, Chatuchak, Bangkok,
Thailand.
The employees of the Company as at December 31, 2004 and 2003 numbered 733 and 727 respectively. The employee costs of the Company for each of the years then ended amounted to Baht 1,107.8 million and Baht 929.6 million, respectively.
The Subsidiary Companies Thaioil Marine Co., Ltd. was registered on July 31, 1998 and is an owned subsidiary of Thai Oil Public Company Limited (99.99% holding). The subsidiary company is engaged in transportation of petroleum oil products and chemical products by waterway. The numbers of employees of the subsidiary company at December 31, 2004 and 2003 were 166 and 169, respectively. The employee costs for the years ended December 31, 2004 and 2003 amounted to Baht 85.7 million and Baht 82.3 million, respectively. The registered office of the subsidiary company is located at PTT Bangchak Oil Terminal, 2/84 Moo 15, Old Railway Road, Bangchak, Phrakhanong, Bangkok, Thailand.
>> contents Thai Oil Public Company Limited
P.100
Note to Financial Statements (Continued)
Thaioil Power Co., Ltd. was registered on September 17, 1996. The subsidiary company is presently a 54.99% owned subsidiary of Thai Oil Public Company Limited. The principal business of the subsidiary company is to operate a power plant with a capacity to produce 118 Megawatt of electricity and approximately 168 tons of steam per hour. The registered office of the subsidiary company is located at 123 Suntowers Building B, 12th floor, Vibhavadi Rangsit Road, Chomphon, Chatuchak, Bangkok, Thailand. The subsidiary company has 11 directors and no employees. Its administrative work was performed by the Company as described in Note 4.3.
Independent Power (Thailand) Co., Ltd. was registered on November 18, 1996 to develop and operate a 700 Megawatt combined cycle power plant. As at December 31, 2004 and 2003, its shareholders were Thaioil Power Co., Ltd. (56% holding), Unocal Asia-Pacific Venture Limited (24% holding) and Siemens AG Company (20% holding). The output is sold to the Electricity Generating Authority of Thailand (EGAT) under a 25 years Power Purchase Agreement as part of EGAT’s Independent Power Producer Program. The numbers of employees of the subsidiary company at December 31, 2004 and 2003 were 40 and 43, respectively. The employee costs for the years ended December 31, 2004 and 2003 amounted to Baht 30.5 million and Baht 29.5 million, respectively. The registered office of the subsidiary company is located
at 42/3 Moo 1, Sukhumvit Road Km. 124, Tungsukla, Sriracha, Cholburi, Thailand.
Thai Lube Base Public Co., Ltd. (TLB) was incorporated as a limited company in Thailand in 1993 and was transformed to a public company in 1996 to engage in refining and distribution of lube base oil. As discussed in Note 9, on October 20, 2004, the Company purchased all shares from the other shareholders of TLB. As a result, the Company became a sole major shareholder of this company holding 99.99% and TLB changed its status from a related company to a subsidiary company. The number of employees of the subsidiary company as at December 31, 2004 and 2003 numbered 142 and 141, respectively. The employee costs for the years ended December 31, 2004 and 2003 amounted to Baht 95.1 million and Baht 65.7 million, respectively. The registered office of the subsidiary company is 163/19 Moo 7, Tungsukla, Sriracha, Chonburi, Thailand.
Thai Paraxylene Co., Ltd. (TPX) was originally incorporated under the shareholders’ agreement dated June 14, 1996, entered into between the Company and MOC Holding (Thailand) Co., Ltd. and the amended shareholders agreement dated September 13, 2000 entered into among MOC Holdings (Thailand) Co., Ltd. (39.29% holding), the Company (16.99% holding), PTT Public Company Limited (34.02% holding) and other companies (9.70% holding). The principal business of this company is to manufacture paraxylene, one of the preliminary upstream petrochemical products. As discussed in Note 9, on October 20, 2004, the Company purchased all shares, both preferred shares and common shares from the other shareholders of TPX. As a result, the Company became a sole major shareholder holding 99.99% of shareholding in this company, and TPX changed its status from a related company to a subsidiary company. The number of employees of the subsidiary company at December 31, 2004 and December 31, 2003 were 57 and 59, respectively. The employee costs for the years ended December 31, 2004 and 2003 amounted to Baht 51.0 million and Baht 46.8 million, respectively. The registered office of the subsidiary company is located at 105/12 Moo 2, Tungsukhla, Sriracha, Cholburi, Thailand.
>> contents Thai Oil Public Company Limited
P.101
Note to Financial Statements (Continued)
Basis of Financial Statement Preparation The financial statements and consolidated financial statements are prepared in Thai Baht in the Thai language in conformity with generally accepted accounting principles in Thailand. Accordingly, the accompanying financial statements and consolidated financial statements are intended solely to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in Thailand.
The accompanying financial statements and consolidated financial statements are prepared under the historical cost convention, except property, plant and equipment.
For the convenience of the readers, an English translation of the financial statements and consolidated financial statements has been prepared from the Thai language financial statements and consolidated financial statements which are issued for domestic financial reporting purposes.
2. Principles of Consolidation
The accompanying consolidated financial statements for each of the years ended December 31, 2004 and 2003 include the accounts of Thai Oil Public Company Limited and subsidiary companies which the Company is holding as follows: Percentage of Ownership (%) 2004
2003
Thaioil Power Co., Ltd.
54.99
54.99
Independent Power (Thailand) Co., Ltd. (indirectly held by Thaioil Power Co., Ltd.)
56.00
56.00
Thaioil Marine Co., Ltd.
99.99
99.99
Thai Lube Base Public Co., Ltd.
99.99
0.02
Thai Paraxylene Co., Ltd.
99.99
16.99
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
The consolidated financial statements for the year 2004 include the financial statements of Thai Lube Base Public Co., Ltd. and Thai Paraxylene Co., Ltd. as the subsidiary companies for the period from October 21, 2004 to December 31, 2004.
>> contents Thai Oil Public Company Limited
P.102
Note to Financial Statements (Continued)
Significant intercompany transactions with the subsidiary companies included in the consolidated financial statements have been eliminated.
3. Summary of Significant Accounting Policies
Revenue Recognition Sales are recognized when delivery has taken place and/or transfer of risks and rewards has been completed. Sales are recognized net of trade discount.
Service income is recognized on the accrual basis principally based on services rendered.
Interest income is recognized on a time proportion basis that reflects the effective yield on the asset.
Cash and Cash Equivalents Cash and cash equivalents comprise cash balances, deposits at banks with a maturity of no more than three months, and investments in promissory notes with a maturity of no more than three months.
Hedging Crack Spread Exposure From time to time depending on the market condition, the Company enters into crack spread swap agreements to lock in margins between benchmark petroleum products and crude including gasoil/dubai, jet fuel/dubai and fuel oil/dubai. The differences between the fixed prices of the agreement and the settlement prices are recognized as gains or losses in current operations. The price differences of the outstanding agreements at the end of the year are accrued as income or expense for the year.
Hedging Interest Rate Exposure The Company entered into interest rate cap option agreements with various investment-grade counter-parties to hedge against its U.S. Dollar floating interest rate loans. During periods where U.S. Dollars LIBOR interest rate does not exceed the caps, the Company pays interest at the prevailing U.S. Dollars LIBOR interest rates. The cap premium is recorded as deferred charges for interest rate hedging, and is amortized based on the straight-line method over the term of the agreements.
Through certain interest rate risk hedging agreements, a subsidiary company has protected its risk of interest rate increase covering U.S. Dollar loans. Gains or losses arising from the difference between the floating interest rate and agreed interest rate at the date of agreements are recorded as assets or liabilities and are amortized over the period of the agreements.
Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are stated at invoice amount net of allowance for doubtful accounts.
>> contents Thai Oil Public Company Limited
P.103
Note to Financial Statements (Continued)
The Company and subsidiary companies provide allowances for doubtful accounts equal to the estimated collection losses that may be incurred in the collection of all receivables. The estimated losses are based on historical collection experience coupled with a review of the current status of the existing receivables.
Inventory Valuation The Company and subsidiary companies value their inventories at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. Cost of inventories is valued by the following methods: - Crude oil and feedstock which mostly belong to the Company are valued using last-in, first-out method. - Finished and semi-finished oil products which mostly belong to the Company are valued using monthly average cost method. - Materials, spare parts and supplies are valued using average cost method. - Gas oil for power plant of the subsidiary companies is valued using last-in, first-out method.
Investments The Company and subsidiary companies account for their investments as follows: Investments in shares of subsidiary companies
-
by the equity method
Investments in shares of related companies
-
by the cost method
In the case where investments are disposed of during the year, cost of investments is determined by the weighted average method.
Valuation of Property, Plant and Equipment The Company values its property, plant and equipment, consisting of refinery plant and machinery and equipment mainly at appraised value as determined by an independent valuer. The subsidiary companies value their property, plant and equipment, mainly consisting of power plants, oil and chemical tankers, lube base refinery plant and paraxylene plant at cost.
The above property, plant and equipment are presented in the balance sheets net of accumulated depreciation and allowance for impairment of assets. Independent property revaluations are performed once every three to five years. Any increase in property, plant and equipment valuation is credited to the property revaluation surplus. Any decrease is firstly offset against an increase on earlier valuation in respect of the same property, and then charged to the operating loss. Upon the disposal of revalued property, plant and equipment, the relevant portion of the revaluation surplus realized in respect of previous valuation is released from the property, plant and equipment valuation surplus directly to retained earnings.
Depreciation and Amortization Depreciation of property, plant and equipment has been computed by the straight-line method over the estimated useful lives of the assets (except the power plant of Thaioil Power Company Limited which is depreciated by the units of production method) as follows:
>> contents Thai Oil Public Company Limited
P.104
Note to Financial Statements (Continued)
Years Buildings Leasehold improvements Refinery plant of the Company (starting from October 1, 1994, depreciated over the remaining estimated useful life)
10 - 25 5 - 20 20
Lube base oil refinery plant of a subsidiary company
16 - 20
Paraxylene plant of a subsidiary company
10 - 25
Power plant of Independent Power (Thailand) Co., Ltd.
25
Transmission facility
20
Machinery and equipment
5 - 20
Oil and chemical tankers
9 - 20
Furniture, fixtures, office equipment and others
5 - 10
Vehicles
5
Deferred charges are amortized over the estimated periods to which the benefits relate, which are principally in line with the agreements to which such deferred charges relate.
Intangible assets Intangible assets are stated at historical cost less accumulated amortization and impairment losses. Amortization is charged on a straight line basis over the estimated useful lives of intangible assets. Years Softwares License fee
5 5-15
Impairment of Assets Assets are reviewed for impairment whenever events or changes in circumstances indicate that the recoverable amount of assets is below their carrying amount. An impairment loss is recognized as an expense in the statement of income for assets carried at cost, or in the case that the asset is carried at revalued amount treated as a deduction of revaluation increment to the extent that the impairment loss does not exceed the amount held in the revaluation surplus. A reversal of impairment loss is recognized as income or treated as a revaluation increment when there is an indication that the impairment loss recognized for the asset no longer exists or is to be decreased. Such a reversal should not exceed the carrying amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in prior periods.
>> contents Thai Oil Public Company Limited
P.105
Note to Financial Statements (Continued)
Borrowing Costs Borrowing costs generally are expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditure and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are ready for their intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, including exchange rate differences arising from foreign currency borrowings used to finance these projects (to the extent that they do not exceed the interest cost assuming that the Company and its subsidiary companies have a loan in Thai Baht from the beginning with the same conditions and repayment terms as the loan in foreign currency).
Foreign Currency Transactions Transactions in foreign currencies are translated to Baht at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet dates are translated to Baht at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation of foreign currency denominated assets and liabilities are recognized in the statement of income. Assets and liabilities covered by forward contracts are translated at the forward rates.
Maintenance Expenditure on repair and maintenance is charged to expense at the time the expenditure is incurred. Expenditure of a capital nature is added to the related plant and equipment.
Income Tax Starting from January 1, 2004, the Company and certain subsidiary companies adopted Thai Accounting Standard No. 56 “Accounting for Income Taxes� issued by The Institute of Certified Accountants and Auditors of Thailand. The Thai Accounting Standard becomes operative for financial statements covering periods on or after January 1, 2007. The Company and its subsidiary companies have fully adopted this Standard before its effective date (Note 21).
The income tax charge includes current income tax on profit and deferred income tax for the year. Deferred income tax reflects the net tax effects of temporary differences between the tax basis of an asset or liability and its carrying amount in the balance sheet. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company and its subsidiary companies expect, at the balance sheet date, to recover or settle the carrying amount of their assets and liabilities.
>> contents Thai Oil Public Company Limited
P.106
Note to Financial Statements (Continued)
Deferred tax assets are recognized when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized. At each balance sheet date, the Company and its subsidiary companies re-assess unrecognized deferred tax assets. The Company and its subsidiary companies recognize a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Company and its subsidiary companies conversely reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.
Due to its registration with the Stock Exchange of Thailand, the Company has a right to reduction of its cooperate income tax rate from 30% to 25% for the taxable income for the years 2005 to 2009.
Operating Lease Lease of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are recognized as expense on a systematic basis over the lease term.
Basic Earnings per Share Basic earnings per share is determined by dividing the net profit by the weighted average number of shares outstanding during the years ended December 31, 2004 and 2003 (1,927,103,010 shares for 2004 and 1,896,527,873 shares for 2003).
4. Transactions with Subsidiary and Related Companies
The Company and its subsidiary companies have extensive transactions with related companies. A substantial portion of the Company‘s and its subsidiary companies’ assets, revenues, costs and expenses and a portion of liabilities arose from transactions with related companies. These companies are related through common shareholdings and/or directorships. The effects of these transactions, which are in the normal course of business on an arm’s-length basis and through negotiated agreements, are reflected in the accompanying financial statements.
The subsidiary companies have various agreements with the Company and related companies. Among others, these include:
4.1
Power and Steam Purchase Agreements
On December 19, 1997 and June 25, 1998, a subsidiary company entered into the 25 years of Power and Steam Purchase Agreements with the Company and two (2) subsidiary companies whereby a subsidiary company will supply electric and steam energy to the said companies at the agreed quantity and price and with a minimum take obligation.
>> contents Thai Oil Public Company Limited
P.107
Note to Financial Statements (Continued)
4.2 Cost Reimbursement Agreements a)
On April 1, 1998, a subsidiary company entered into a Cost Reimbursement Agreement covering the construction costs of natural gas pipeline facilities and the use of the pipeline facilities. Under the terms of the agreement, the subsidiary company agreed to absorb the total investment costs advanced by the Company on the basis and conditions stipulated in the agreement. The agreement will be in effect for a period of 25 years or until the termination of the Power Purchase Agreement detailed at note 22 e) below, whichever is sooner.
b)
On July 28, 1998, a subsidiary company entered into three (3) Cost Reimbursement Agreements with the Company covering the construction costs of natural gas pipeline facilities, raw water pipeline and the use of land for the construction of a transmission line connecting the subsidiary company to the Electricity Generating Authority of Thailand (EGAT). Under the terms of these agreements, the subsidiary company agreed to share these investment costs on the bases and conditions stipulated in the agreements. These agreements will be in effect for a period of 25 years or until the termination of the Power Purchase Agreement entered into by the subsidiary company with EGAT, detailed at note 22 e) below, whichever is sooner.
4.3 Services and Supplies Agreements On December 22, 1997, April 1, 1998, June 25, 1998 and July 28, 1998, four (4) subsidiary companies entered into agreements with the Company for the Company to provide the subsidiary companies with services and supplies on the scope, terms and conditions described in the agreements. Among others, these include the following:
a.
operate, maintain and repair the power generation plant to generate electricity and process steam to the subsidiaries’ customers;
b.
manage, control and arrange for handling, inspection, storage and procurement of materials, spare parts, and equipment necessary for operations and maintenance of plant; and
c.
provide supporting services such as financial and accounting services, personnel resources with training and development of such personnel and managing such personnel to support the business operations of the subsidiary companies.
In consideration thereof, the subsidiary companies agree to pay certain fees based on the terms and conditions stipulated in the agreements.
4.4 Land Lease Agreements
a)
On November 24, 1997, a subsidiary company entered into agreements with the Company to lease/sublease certain parcels of land for
>> contents Thai Oil Public Company Limited
P.108
Note to Financial Statements (Continued)
a period of 25 years and 9 months ending in September 2022 with total annual rental of Baht 1.2 million. This rent will be adjusted every 5 years. Under the terms of the agreements, the subsidiary company paid deposits and front-end fees to the Company totaling approximately Baht 16.1 million.
b)
On February 28, 1997, a subsidiary company entered into an agreement to lease out certain parcels of land to the Company for a period of 3 years starting from the agreement date. Under the terms of the agreement, the Company paid a deposit to the subsidiary company of Baht 37.4 million with total annual rental of Baht 15.2 million. In 2000, the Company entered into an amendment agreement to extend the lease period to give no indication of expiry date. This agreement can be terminated by the Company by giving one month advance written notice. The subsidiary company also entered into another agreement to assign the rights to rental income on such land to a lender finance company as security against a loan obtained.
c)
On July 16, 1997 and November 7, 1997, a subsidiary company entered into agreements with the Company to sublease certain parcels of land for a period of 25 years and 10 months ending in September 2022 with total annual rental of Baht 2.8 million. This rent will be adjusted every 5 years. Under the terms of the agreements, the subsidiary company paid deposits and front-end fees to the Company totaling approximately Baht 31.7 million.
d)
On August 7, 1995 and September 6, 1995, the Company entered into agreements with a subsidiary company to lease/sublease certain parcels of land for a period of 27 years and 8 months ending in September 2022 with total annual rental of Baht 8.6 million. This rent will be adjusted every 5 years. Under the terms of the agreements, the subsidiary company paid deposits and front-end fees to the Company totaling approximately Baht 116 million.
e)
On August 28, 1997 and October 22, 1997, the Company entered into agreements with a subsidiary company to lease/sublease certain land for 25 years and 10 months up to September 2022 with total annual rental of Baht 4.7 million. This rent will be adjusted every 5 years. Under the terms of the agreements, the subsidiary company paid deposits and front-end fees to the Company amounting to
approximately Baht 59.1 million.
4.5 Raw Materials and Finished Product Purchases and Sales Agreements On September 8, 1997, the Company entered into sales and purchases agreements covering raw materials and finished products with a subsidiary company for a period of 20 years. The volume and purchase and sale price of raw materials and finished products will be based on the prices specified in the agreements.
4.6 Sponsors Financial Support Agreement On September 13, 2000, the Company entered into a Sponsors Financial Support Agreement with Thai Paraxylene Company Limited (TPX) and the major shareholder of this company, whereby the Company and the major shareholder agreed to provide financial support (50% sharing each) to this company either in the form of an advance payment and/or a subordinated loan in case this company has inadequate
>> contents Thai Oil Public Company Limited
P.109
Note to Financial Statements (Continued)
cash to repay its debts. The total financial support will not exceed U.S. Dollars 10 million.
As discussed in Note 1, since the Company purchased all shares from the other shareholders of TPX on October 20, 2004, the loan limit under the Sponsors Financial Support Agreement was agreed to be changed from U.S. Dollars 10 million to U.S. Dollars 5 million. A major former shareholder withdrew itself from the Sponsors Financial Support Agreement with TPX and gave up its subordinated loan to TPX in the amount of U.S. Dollars 3 million and its accrued interest.
4.7 Long-Term Maintenance Agreements On October 17, 2001, a subsidiary company entered into two (2) long-term combustion turbine maintenance agreements with two of its related companies. The agreements, named Scheduled Outage Parts and Repairs Agreement, (for the supply and repair parts for the yearly scheduled outage) and Scheduled Outage Service Agreement, (for the provision of maintenance services for the yearly scheduled outage). The subsidiary company is committed to pay for the parts and maintenance service cost as per the price specified in the agreements. These two agreements will begin on the signing date and continue until the second (2nd) Major Scheduled Outage or the twelfth (12th) yearly Scheduled Outage.
As at December 31, 2004 and 2003, amounts of trade account receivables, other receivables, long-term receivables, subordinated loan, trade account payables, other payables and long-term payable to subsidiary and related companies are presented separately in the balance sheets. The details are as follows:
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
3,946,218
3,337,945
3,859,088
3,326,771
Trade account receivables PTT Public Co., Ltd.
Major shareholder
Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
–
664,042
1,314,814
651,353
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
–
49,796
–
–
Thaioil Marine Co., Ltd.
Subsidiary and/or directorship
–
–
450
4,720
3,946,218
4,051,783
5,174,352
3,982,844
Total
>> contents Thai Oil Public Company Limited
P.110
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
–
–
25,265
15,171
–
19,218
17,616
19,218
–
9,441
15,322
9,441
–
–
3,303
4,350
100,543
100,496
–
–
100,543
129,155
61,506
48,180
–
–
194,948
253,256
–
–
153,807
153,807
–
350,430
34,899
38,777
Total
–
350,430
383,654
445,840
Less: portion due within one year
–
(141,841)
(132,726)
(138,608)
Net
–
208,589
250,928
307,232
Other receivables Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
Independent Power
Subsidiary
(Thailand) Co., Ltd.
and/or directorship
Siemens Westinghouse
Related company of
Service Co., Ltd.
subsidiary’s shareholder
Total
Long-term receivables Thaioil Marine Co., Ltd.
Subsidiary and/or directorship
Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
>> contents Thai Oil Public Company Limited
P.111
Note to Financial Statements (Continued)
On July 3, 2000, the Company sold 8 oil tankers to Thaioil Marine Co., Ltd. totaling Baht 805.6 million (including 7% value-added tax amounting to Baht 52.7 million). The associated receivable, which is repayable in monthly equal installments within 15 years commencing on August 31, 2000, bears interest at the interest rate of 12 month-fixed deposit of Krung Thai Bank Public Company Limited plus a margin of 2.9375% per annum since November 2004.
Under the Business Reorganization Plan of Thai Lube Base Public Company Limited (TLB) dated October 16, 2003, TLB was scheduled to repay trade debts to the Company and trade debts and under lifting debts to Thaioil Power Co., Ltd. (TP). After the debt restructuring process of TLB in the Business Reorganization Plan, TP recorded a loss from debt restructuring totaling Baht 200.1 million. The repayable conditions are as follows:
Trade debts
Interest Rate
Year
Portion Repayable
MLR - 1.00%
2004
10 %
2005
20 %
2006
70 %
2004
50 %
2005-2008
12.5 %
MLR - 1.00%
Under lifting debts
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
–
–
120,653
–
Subordinated loan Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
On March 15, 2004, the Company provided financial support of U.S. Dollars 3 million to Thai Paraxylene Co., Ltd. under the Sponsors Financial Support Agreement dated September 13, 2000. This loan bears interest at a rate not exceeding LIBOR plus 2% per annum. The loan and related interest will be repaid after all loans under “the Master Agreement” and “the Credit Agreements” of the subsidiary company have been fully repaid.
>> contents Thai Oil Public Company Limited
P.112
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
2,857,773
2,851,731
2,094,573
1,768,079
–
–
140,088
135,652
–
152,919
176,471
152,919
–
–
143,837
–
2,857,773
3,004,650
2,554,969
2,056,650
319
–
–
–
1,756,738
347,856
–
–
5,700
30,228
–
–
123,000
–
–
–
–
12,898
13,810
12,898
6,412
4,354
6,412
4,354
–
–
6,299
5,244
3,655
–
–
–
1,895,824
395,336
26,521
22,496
Trade account payables PTT Public Co., Ltd.
Major shareholder
Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
Total
Other payables PTT Public Co., Ltd.
Major shareholder
Siemens Westinghouse Power
Related company of
Corporation
subsidiary’s shareholder
Siemens Westinghouse Service
Related company of
Co., Ltd.
subsidiary’s shareholder
Siemens Limited
Related company of subsidiary’s shareholder
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
Thai Petroleum Pipeline
Related company and/or
Co., Ltd.
directorship
Thaioil Marine Co., Ltd.
Subsidiary and/or directorship
Siemens AG Power Generation
Related company of subsidiary’s shareholder
Total
>> contents Thai Oil Public Company Limited
P.113
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
–
277,649
267,061
277,649
Long-term payable Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
Less : portion due within one year
–
Net
–
(6,941) 270,708
(8,902) 258,159
(6,941) 270,708
Under the Business Reorganization Plan of Thai Lube Base Public Co., Ltd. dated October 16, 2003, the Company is required to comply with the conditions outlined in the Claims Settlement Package Agreement. The Company is liable for compensation under the Supplemental Supply and Offtake Agreement amounting to U.S. Dollars 6.9 million which is payable in thirteen (13) installments of varying amounts between March 31, 2004 and March 31, 2010. The installments are payable twice a year, on March 31 and September 30.
Significant transactions with subsidiary and related companies for each of the years ended December 31, 2004 and 2003 are as follows:
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
76,639,369
66,112,527
76,219,111
65,984,105
–
–
1,404
–
–
–
12,576
42,093
5,855,306
6,671,699
7,645,997
6,497,603
378,516
605,818
–
–
Sales and services PTT Public Co., Ltd.
Major shareholder
Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Thaioil Marine Co., Ltd.
Subsidiary and/or directorship
Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
>> contents Thai Oil Public Company Limited
P.114
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
65,941,966
61,385,112
60,855,519
56,127,333
–
–
1,663,475
1,776,608
472,637
495,715
650,401
495,715
1,337,419
–
1,729,466
–
87,585
721
84,691
–
–
–
15,255
22,204
8,216
278,256
10,675
278,256
126,713
95,206
126,713
95,206
–
–
77,247
67,819
123,000
–
–
–
–
13,446
–
–
Purchases PTT Public Co., Ltd.
Major shareholder
Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
Expenses PTT Public Co., Ltd.
Major shareholder
Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
Thai Petroleum Pipeline Co., Ltd. Related company and/or directorship Thaioil Marine Co., Ltd.
Subsidiary and/or directorship
Siemens Limited
Related company of subsidiary’s shareholder
Siemens Westinghouse Power
Related company of
Corporation
subsidiary’s shareholder
>> contents Thai Oil Public Company Limited
P.115
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
10,250
25,111
10,035
25,111
–
–
313,291
435,751
–
–
65,033
63,840
152,426
203,249
194,255
203,135
85,716
42,016
105,875
42,016
238
6,932
–
–
3,274
4,703
–
–
–
–
2,600
2,600
–
–
6,533
5,679
8,070
10,040
10,040
10,040
15,508
19,294
19,294
19,294
Other income PTT Public Co., Ltd.
Major shareholder
Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Independent Power (Thailand)
Subsidiary
Co., Ltd.
and/or directorship
Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
Siemens Westinghouse Service
Related company of
Co., Ltd.
subsidiary’s shareholder
Siemens Limited
Related company of subsidiary’s shareholder
Land lease income Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Independent Power (Thailand)
Subsidiary
Co., Ltd.
and/or directorship
Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
>> contents Thai Oil Public Company Limited
P.116
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Relationship
The Company Only
2004
2003
2004
2003
–
–
7,616
–
–
–
11,539
14,313
2,437
–
3,893
–
16,990
–
1,923
–
–
–
63,866
–
Interest income Thaioil Power Co., Ltd.
Subsidiary and/or directorship
Thaioil Marine Co., Ltd.
Subsidiary and/or directorship
Thai Paraxylene Co., Ltd.
Subsidiary and/or directorship
Thai Lube Base Public Co., Ltd.
Subsidiary and/or directorship
Other (purchase of land) Thaioil Power Co., Ltd.
Subsidiary and/or directorship
5. Cash and Cash Equivalents
As at December 31, cash and cash equivalents consisted of:
In Thousand Baht Consolidated
Cash on hand Savings account and current account Fixed deposit Promissory notes issued by financial institutions Total
The Company Only
2004
2003
2004
2003
1,926
2,335
458
825
5,879,626
3,487,417
4,170,253
1,936,499
3
3
–
–
785,611
3,613,341
–
2,450,578
6,667,166
7,103,096
4,170,711
4,387,902
>> contents Thai Oil Public Company Limited
P.117
Note to Financial Statements (Continued)
Savings deposits, current deposits and fixed deposits of subsidiary companies totaling Baht 1,582 million, in 2004 and savings deposits, current deposits and fixed deposits of the Company and its subsidiary companies totaling Baht 1,936 million and Baht 1,546 million, respectively, in 2003 are pledged as collateral for credit facilities as discussed in Note 15. The Company and its subsidiary companies can withdraw these deposits when needed as specified in the loan agreements.
6. Short-term Investments in Promissory Notes
Subsidiary companies have short-term investments in promissory notes with several local financial institutions. These promissory notes bear interest at rates of 0.50% to 2.00% per annum and 0.75% to 1.125% per annum as at December 31, 2004 and 2003 respectively. These short-term investments in promissory notes are pledged as collateral for subsidiary companies’ credit facilities as discussed in Note 15. Subsidiary companies can redeem the promissory notes when needed.
7. Trade Account Receivables
As at December 31, 2004 and 2003 the outstanding balances of trade account receivables (including trade account receivables from related parties) classified by aging are as follows:
In Thousand Baht Consolidated
The Company Only
2004
2003
2004
2003
9,787,811
9,016,427
9,341,646
8,087,183
43,554
–
–
–
- Over 6 months up to 12 months
174
–
–
–
- More than 12 months
870
–
–
–
9,832,409
9,016427
9,341,646
8,087,183
Current Overdue - Up to 6 months
Total
>> contents Thai Oil Public Company Limited
P.118
Note to Financial Statements (Continued)
8. Inventories - Net
In Thousand Baht Consolidated
The Company Only
2004
2003
2004
2003
Crude oil and feedstock
6,372,723
3,483,675
6,068,514
3,483,675
Finished and semi-finished oil products
4,061,928
2,100,322
3,112,822
2,100,322
876,094
982,898
615,439
631,596
8,096
7,497
–
–
11,318,841
6,574,392
9,796,775
6,215,593
6,296,690
4,097,416
6,296,690
4,097,416
8,628
9,660
8,628
9,660
6,305,318
4,107,076
6,305,318
4,107,076
17,624,159
10,681,468
16,102,093
10,322,669
On hand:
Materials, spare parts and supplies Gas oil for power plant
In transit: Crude oil and feedstock Materials, spare parts and supplies
Total
As at December 31, 2004 and 2003, crude oil and feedstock valued using the last-in, first-out method at the lower of cost or net realizable value, were Baht 349 million and Baht 66 million respectively lower than cost calculated using the first-in, first-out method.
As at December 31,2004 and 2003 the Company’s inventories as stated above included a legal reserve amounting to Baht 5,737 million and Baht 4,457 million, respectively.
>> contents Thai Oil Public Company Limited
P.119
Note to Financial Statements (Continued)
9. Investments in Shares of Subsidiary and Related Companies
Investments in shares of subsidiary and related companies as at December 31, 2004 and 2003 are as follows:
In Thousand Baht
Paid-up capital
Percentage of
(In Million Baht)
Holding
At cost method
Consolidated
The Company Only
Type of Business
2004
2003
2004
2003
2004
2003
2004
2003
2004
2003
Power generation
2,810
2,810
54.99
54.99
1,545,500
1,545,500
–
–
Limited)
Power generation
1,771
1,771
56.00
56.00
–
–
–
–
–
–
Thaioil Marine Co., Ltd.
Transportation
630
630
99.99
99.99
630,000
630,000
–
–
408,567
590,159
Paraxylene plant
4,421
–
99.99
–
2,481,230
811,733
–
–
2,257,442
–
Lube oil refinery
2,833
–
99.99
–
1,978,346
–
–
–
2,625,463
–
Investments recorded by the equity method : - Subsidiary Companies Thaioil Power Company Limited
3,035,719 2,999,840
Independent Power (Thailand) Co., Ltd. (equity included as part of Thaioil Power Company
of oil products and chemical products Thai Paraxylene Co., Ltd. Thai Lube Base Public Co., Ltd.
>> contents Thai Oil Public Company Limited
P.120
Note to Financial Statements (Continued)
In Thousand Baht
Paid-up capital
Percentage of
(In Million Baht)
Holding
Consolidated
The Company Only
Type of Business
2004
2003
2004
2003
2004
2003
2004
2003
Thai Petroleum Pipeline Co., Ltd.
Transportation by pipeline
4,177
2,877
8.69
8.69
362,945
250,000
362,945
250,000
Thai Paraxylene Co., Ltd.
Paraxylene plant
–
4,421
–
16.99
–
811,733
–
811,733
Thai Lube Base Public Co., Ltd.
Lube oil refinery
–
1,757
–
0.02
–
–
–
–
Investments recorded by cost method: - Related Companies
Total
362,945 1,061,733 8,690,136 4,651,732
Less: allowance for loss on impairment of investments Net
(250,000)
(250,000) (250,000) (250,000)
112,945
811,733 8,440,136 4,401,732
The Company received dividend income from Thaioil Power Company Limited of Baht 154.50 million and Baht 123.60 million in 2004 and 2003, respectively.
Thai Petroleum Pipeline Co., Ltd. On January 9, 2004, the Company purchased 1,129,453 preferred shares of Thai Petroleum Pipeline Co., Ltd. with a par value of Baht 100 each, equivalent to Baht 113 million.
Thai Lube Base Public Co., Ltd. In the past, Thai Lube Base Public Co., Ltd. was an associate of the Company. In 1996, the Company recorded an investment of Baht 1,900 million at cost in relation to the acquisition of 38% of Thai Lube Base Public Co., Ltd.’s issued share capital. In subsequent periods, the Company recorded its share of losses in Thai Lube Base Public Co., Ltd. until the carrying value of the investment had been reduced to Baht Nil.
In December 2003, as part of a Business Reorganization Plan approved by the Central Bankruptcy Court, Thai Lube Base Public Co., Ltd. reduced its registered share capital in proportion to the holding of each existing shareholder from 500,000,000 common shares with a par
>> contents Thai Oil Public Company Limited
P.121
Note to Financial Statements (Continued)
value of Baht 10 each, equivalent to Baht 5,000 million, to 100,000 common shares with a par value of Baht 10 each, equivalent to Baht 1 million. Thai Lube Base Public Co., Ltd. then increased its registered share capital to be Baht 2,832 million by issuing 283,195,915
common shares of Baht 10 each. Under the terms of the Business Reorganization Plan, Thai Lube Base Public Co., Ltd. offered 175,581,468 of these newly issued common shares at their par value of Baht 10 each to all of its secured and unsecured financial institution creditors in proportion to the amounts outstanding. The above changes resulted in a dilution of the Company’s shareholding in Thai Lube Base Public Co., Ltd. from 38% to 0.02%.
On December 29, 2003, the Company paid Baht 367,905 to purchase a further 36,790,469 common shares in Thai Lube Base Public Co., Ltd. with a par value of Baht 10 each as part of the Business Reorganization Plan, which included provisions under a Claims Settlement Package Agreement. Title to these shares was transferred to the Company on January 7, 2004, increasing the Company’s shareholding in Thai Lube Base Public Co., Ltd. to 17%. In June 2004, Thai Lube Base Public Co., Ltd. issued further shares to another shareholder as part of the Business Reorganization Plan, reducing the Company’s shareholding to 13%.
On September 16, 2004, the Company entered into a share purchase agreement with the other shareholders of Thai Lube Base Public Co., Ltd. to acquire all of their shares in this company for a total purchase price of U.S. Dollars 47.85 million (Baht 1,977.98 million), which was nearly the fair value. Subsequently on October 20, 2004, the Company completed an acquisition as per conditions stipulated in the share purchase agreement, increasing the Company’s shareholding in Thai Lube Base Public Co., Ltd. to 99.99%. Therefore, this company changed its status from a related company to a subsidiary company.
Thai Paraxylene Co., Ltd. On September 16, 2004, the Company entered into a share purchase agreement with the other shareholders of Thai Paraxylene Co., Ltd. to acquire all of their shares in this company for a total purchase price of U.S. Dollars 40.39 million (Baht 1,669.49 million), which was nearly the fair value. Subsequently, on October 20, 2004 the Company completed an acquisition as per conditions stipulated in the share purchase agreement, increasing the Company’s shareholding in Thai Paraxylene Co., Ltd. to 99.99%. Therefore, this company changed its status from a related company to a subsidiary company.
Independent Power (Thailand) Co., Ltd. On December 16, 2004, the Company entered into agreement to purchase shares of Independent Power (Thailand) Co., Ltd. from Unocal Asia Pacific Ventures Ltd., a former shareholder, in the amount of 42,504,000 shares (equivalent to 24% of total shares of this company) at the price of U.S. Dollars 12,750,000. At the present, it is in the process of achieving the conditions stipulated in the above agreement.
>> contents Thai Oil Public Company Limited
P.122
Note to Financial Statements (Continued)
10. Property, Plant and Equipment - Net
In Thousand Baht Balance as at
Addition from
January 1, 2004
Addition
acquisitions of two subsidiaries
Transfer in/ (Transfer out)
Balance as at
1,820,251
106,166
–
–
–
1,926,417
715,883
–
250,819
61,681
–
1,028,383
4,795
–
–
–
–
4,795
57,108,495
–
6,812,747
223,518
–
64,144,760
–
–
7,232,650
–
–
7,232,650
15,188,418
–
–
123,844
–
15,312,262
192,637
–
–
–
–
192,637
plant equipment
1,711,802
7,524
144,157
114,565
–
1,978,048
Oil and chemical tankers
1,021,173
90,126
–
–
420,635
690,664
377,939
6,427
102,015
9,600
84,569
411,412
21,168
4,530
4,602
-
4,538
25,762
744,865
1,559,569
296
(410,474)
–
1,894,256
78,907,426
1,774,342
14,547,286
122,734
509,742
94,842,046
December 31, 2004
Deduction
Consolidated At Cost Land Buildings Leasehold improvements Refinery plant Paraxylene plant Power plant Transmission facility Machinery, equipment and
Furniture, fixtures, office equipment and others Vehicles Construction in progress Sub total
>> contents Thai Oil Public Company Limited
P.123
Note to Financial Statements (Continued)
In Thousand Baht Balance as at
Addition from
January 1, 2004
Addition
acquisitions of two subsidiaries
Transfer in/ (Transfer out)
Balance as at
393,852
33,950
87,038
–
–
514,840
613
260
–
–
–
873
26,138,294
2,587,072
2,360,321
–
–
31,085,687
–
74,848
1,134,473
–
–
1,209,321
2,494,855
659,284
–
–
–
3,154,139
50,015
8,981
–
–
–
58,996
plant equipment
542,974
153,310
100,458
–
–
796,742
Oil and chemical tankers
176,635
53,434
–
–
76,624
153,445
308,596
16,896
90,914
–
79,105
337,301
10,362
4,269
1,386
–
4,325
11,692
30,116,196
3,592,304
3,774,590
–
160,054
37,323,036
397,176
–
–
–
–
397,176
Buildings
–
–
72,343
–
–
72,343
Refinery plant
–
–
3,056,228
–
–
3,056,228
–
–
453
–
–
453
plant equipment and others
–
–
4,970
–
–
4,970
Vehicles
–
–
295
–
–
295
397,176
–
3,134,289
–
–
3,531,465
December 31, 2004
Deduction
Less accumulated depreciation Buildings Leasehold improvements Refinery plant Paraxylene plant Power plant Transmission facility Machinery, equipment and
Furniture, fixtures, office equipment and others Vehicles Sub total Less allowance for impairment in value Land
Machinery, equipment and plant equipment Furniture, fixtures,
Sub total Net
48,394,054
53,987,545
>> contents Thai Oil Public Company Limited
P.124
Note to Financial Statements (Continued)
In Thousand Baht Balance as at
Addition from
January 1, 2004
Addition
acquisitions of two subsidiaries
Transfer in/ (Transfer out)
Balance as at
242,157
–
–
–
–
242,157
32,564,605
–
–
–
–
32,564,605
561,465
–
–
–
–
561,465
Sub total
33,368,227
–
–
–
–
33,368,227
Less accumulated depreciation
12,949,652
1,880,940
–
–
–
14,830,592
Net
20,418,575
18,537,635
68,812,629
72,525,180
December 31, 2004
Deduction
Revaluation surplus Land Refinery plant Machinery and equipment
Property, Plant and Equipment - Net
In Thousand Baht Balance as at
Balance as at
January 1, 2004
Addition
Transfer in/ (Transfer out)
Deduction
December 31, 2004
1,695,822
169,882
–
–
1,865,704
703,757
–
61,681
–
765,438
57,108,495
–
223,518
–
57,332,013
Machinery, equipment and plant equipment
795,878
–
103,880
–
899,758
Furniture, fixtures, office equipment and others
322,698
–
9,600
77,358
254,940
12,195
–
–
–
12,195
548,230
156,911
(398,679)
–
306,462
61,187,075
326,793
–
77,358
61,436,510
The Company Only At Cost Land Buildings Refinery plant
Vehicles Construction in progress Sub total
>> contents Thai Oil Public Company Limited
P.125
Note to Financial Statements (Continued)
In Thousand Baht Balance as at January 1, 2004
Balance as at Addition
Transfer in/ (Transfer out)
Deduction
December 31, 2004
391,608
32,106
–
–
423,714
26,138,294
2,566,264
–
–
28,704,558
Machinery, equipment and plant equipment
321,355
45,353
–
–
366,708
Furniture, fixtures, office equipment and others
278,638
8,371
–
77,278
209,731
5,190
2,405
–
–
7,595
27,135,085
2,654,499
–
77,278
29,712,306
Less accumulated depreciation Buildings Refinery plant
Vehicles Sub total Less allowance for impairment in value- land Net
397,176
397,176
33,654,814
31,327,028
Revaluation surplus Land
242,157
–
–
242,157
32,564,605
–
–
–
32,564,605
561,465
–
–
–
561,465
Sub total
33,368,227
–
–
–
33,368,227
Less accumulated depreciation
12,949,652
1,880,940
–
–
14,830,592
Net
20,418,575
18,537,635
Property, Plant and Equipment - Net
54,073,389
49,864,663
Refinery plant Machinery and equipment
–
Depreciation charged to the statements of income amounted to Baht 4,535.4 million and Baht 4,474.5 million for each of the years ended December 31, 2004 and 2003, respectively. Depreciation charged to the consolidated statements of income amounted to Baht 5,473.2 million and Baht 5,295.1 million for each of the years ended December 31, 2004 and 2003, respectively. These amounts
included depreciation on the revaluation increment included in property, plant and equipment for each of the years ended December 31, 2004 and 2003 of Baht 1,880.9 million and Baht 1,839.3 million, respectively.
>> contents Thai Oil Public Company Limited
P.126
Note to Financial Statements (Continued)
A portion of a subsidiary company’s machinery and equipment with net book value as at December 31, 2004 and 2003 of approximately Baht 277.6 million and Baht 289.6 million, respectively, was sequestered by the Excise Department for the disputed unpaid excise tax as mentioned in Note 24 e). However, the Excise Department has allowed the subsidiary company to use that machinery and equipment for its operations.
As at September 30, 1995, the Company recorded its land as well as refinery plant, machinery and equipment and furniture and fittings used at the refinery plants at fair value. The fair values were determined by an independent appraiser and the methods used were the fair market value for land, and depreciated reproduction cost method for refinery plant, machinery and equipment. In 1997, another independent appraisal was performed with the same bases being used for the same classes of assets and the fair values were recorded at September 30, 1997.
In 1999, as a result of the sustained economic crisis in Asia, which had a severe impact on the oil refining industry, the Company used the income approach method to determine the value in use and the associated level of impairment to which fixed assets were subject. As a result of this valuation, in September 1999, the Company recognized an impairment loss relating to property, plant and equipment. Since 1999, the Company has continued to use the income approach method to determine the value in use to calculate the fair value of revalued refinery plant, machinery and equipment.
In 2002, the Company engaged an independent appraiser to appraise land (using the fair market value method), and refinery plant, machinery and equipment (using the income approach method to determine the value in use), whose report was dated January 30, 2003. According to this report, the value of land decreased by Baht 544.2 million: Of this, Baht 147.0 million was offset against the existing revaluation surplus of land in equity and the remaining amount of Baht 397.2 million was charged to provision for impairment of assets in the statement of income for the year ended December 31, 2002. The value of refinery plant, machinery and equipment, according to this report, approximated the carrying value of the assets at December 31, 2002.
The Company records revaluation increments in the “Revaluation Surplus of Property, Plant and Equipment” account, which was presented under Shareholders’ Equity in the balance sheets. The revaluation surplus of property, plant and equipment is not available for dividend distribution.
The subsidiary companies’ land, power plant, chemical tankers and certain assets are mortgaged as collateral for long-term loans as discussed in Note 15.
As at December 31, 2004 and 2003, the accumulated balance of borrowing costs capitalized and included as part of fixed assets of two subsidiary companies amounted to approximately Baht 1,189.5 million.
>> contents Thai Oil Public Company Limited
P.127
Note to Financial Statements (Continued)
11. Intangible Assets
In Thousand Baht Balance as at
Balance as at
January 1,
December 31,
2004
Addition
Disposal
2004
539,143
17,160
–
556,303
Softwares
31,630
2,954
–
34,584
Sub total
570,773
20,114
–
590,887
393,063
53,616
–
446,679
Softwares
16,916
6,886
–
23,802
Sub total
409,979
60,502
–
470,481
Consolidated At cost License fee
Less accumulated amortization License fee
Book value License Fee Softwares Total
146,080
109,624
14,714
10,782
160,794
120,406
The Company Only At cost License fee
539,143
17,160
–
556,303
Softwares
24,248
2,954
–
27,202
Sub total
563,391
20,114
–
583,505
393,063
53,616
–
446,679
Softwares
11,779
5,493
–
17,272
Sub total
404,842
59,109
–
463,951
Less accumulated amortization License fee
Book value License Fee Softwares Total
146,080
109,624
12,469
9,930
158,549
119,554
>> contents Thai Oil Public Company Limited
P.128
Note to Financial Statements (Continued)
12. Other Non-current Assets
In Thousand Baht Consolidated
The Company Only
2004
2003
2004
2003
196,843
218,123
–
–
325,836
354,547
164,067
172,857
and registration fees - net
762,336
805,418
762,336
805,418
Deferred charges for interest rate hedging - net
104,306
132,224
104,306
132,224
Other deferred charges - net
351,790
289,061
260,560
195,168
Refundable deposits and others
115,308
45,613
37,810
71,750
1,856,419
1,844,986
1,329,079
1,377,417
Transmission facility transferred to EGAT - net Deferred natural gas pipeline facilities, raw water pipeline and the use of land - net Deferred land lease arrangement
Total
13. Pension Fund
The Company has a retirement gratuity fund plan to provide retirement and gratuity benefits to all of its employees. Benefits are payable upon retirement, disability, death or resignation. Provisions are computed on the benefit formula assuming all employees are terminated at the balance sheet date. The provision for retirement gratuity expense amounted to approximately Baht 97 million and Baht 92 million for each of the years ended December 31, 2004 and 2003, respectively.
14. Registered Provident Funds
The Company and subsidiary companies established contributory provident funds for their employees. Membership to the funds is on a voluntary basis. Contributions are made monthly by the employees at rates ranging from 3% to 15% of their basic salaries and by the Company and subsidiary companies from 5% to 15% of the employees’ basic salaries. The provident funds were registered with the Ministry of Finance as juristic entities and are managed by a licensed Fund Manager.
>> contents Thai Oil Public Company Limited
P.129
Note to Financial Statements (Continued)
The Company’s and subsidiaries’ contributions to the funds total Baht 50.1 million and Baht 47.1 million for each of the years ended December 31, 2004 and 2003, respectively.
15. Other Long-term Debts
In Thousand Baht Consolidated Notes The Company
The Company Only
2004
2003
2004
2003
–
13,639,593
–
13,639,593
15.1
Restructured loans from financial institutions repayable at varying amounts up to March 31, 2010 with the option to extend to March 31, 2014: 1. Thai Baht (interest at MLR*
plus a margin of between 0% and 2.25%)
15.1.1
2. U.S. Dollars 671.4 million in 2003
(interest at LIBOR plus a margin of
15.1.2,
between 1% and 3.25%)
15.1.3
–
26,681,886
–
26,681,886
15.1.3
–
1,325,664
–
1,325,664
5,842,206
–
5,842,206
–
3. Japanese Yen 3,553.3 million in 2003
(interest at TIBM plus a margin of between 1% and 3.25%) 4. Thai Baht repayable in fourteen
(14) semi-annual equal installments commencing on September 30, 2004 to March 31, 2011 (interest at the average Baht 6 months time deposit rate plus a margin of 2.94%)
15.1.1, 15.1.4
* MLR is the average minimum lending rate of four Thai financial institutions.
>> contents Thai Oil Public Company Limited
P.130
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Notes
2004
The Company Only 2003
2004
, ,
–
5 954 154
15 537 357
, ,
–
1 169 900
, ,
–
–
- Tranche A - Tranche B
2003
5. U.S. Dollars 151.9 million in 2004
repayable in fourteen (14) semi-annual equal installments commencing on September 30, 2004 to March 31, 2011 (interest at LIBOR plus a margin of between 2.50% and 3.25%)
15.1.1,
..
15 1 4
, ,
–
15 537 357
, ,
–
1 169 900
, ,
–
37,424
–
–
1,761,953
1,092,750
–
–
–
1,423,750
–
–
5 954 154
6. U.S. Dollars 396.3 million in 2004
repayable in twelve (12) semi-annual equal installments commencing on September 30, 2004 to March 31, 2010 (interest at LIBOR plus a margin of between 1.75% and 2.75%)
15.1.3,
..
15 1 4
7. Japanese Yen 3,088.4 million in 2004
repayable in twelve (12) semi-annual equal installments commencing on September 30, 2004 to March 31, 2010 (interest at TIBM plus a
margin of between 1.75% and 2.75%)
15.1.3,
..
15 1 4
Subsidiary Companies: Thaioil Power Company Limited
15.2
Onshore loans - Loan from a financial institution repayable in 96 monthly installments at Baht 1.2 million per month (including principal and interest ) commencing in April 1997 (interest at MLR plus 0.25%)**
** MLR is the minimum lending rate of Kasikorn Bank PCL
>> contents Thai Oil Public Company Limited
P.131
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Notes
The Company Only
2004
2003
2004
2003
1,223,118
1,335,190
–
–
- Tranche A2
798,342
859,753
–
–
- Tranche A3
729,859
786,002
–
–
- Tranche A5
289,043
311,277
–
–
- Tranche E
199,147
220,676
–
–
3,969,292
4,574,655
–
–
Independent Power (Thailand) Co., Ltd.
15.3
Onshore loans - Tranche A1 (U.S. Dollars 31.2 million in 2004 and U.S. Dollars 33.6 million in 2003)
Offshore loans - Tranche B (U.S. Dollars 101.3 million in 2004 and U.S. Dollars 115.1 million in 2003)
Thaioil Marine Co., Ltd.
15.4
Onshore loans - Loan from a local bank amounting to U.S. Dollars 0.09 million in 2004 and U.S. Dollars 1.11 million in 2003 repayable in 47 monthly installments of U.S. Dollars 40,000 each and the last installment amounting to U.S. Dollars 32,500, commencing May 2002
(interest at LIBOR plus 3%)
..
3 496
44 208
,
–
–
..
–
88 266
,
–
–
15 4 1
,
- Loan from a local bank amounting to U.S. Dollars 2.22 million in 2003 repayable in 48 monthly equal installments, commencing January 2003 (interest at LIBOR plus 3%)
15 4 1
>> contents Thai Oil Public Company Limited
P.132
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Notes
The Company Only
2004
2003
2004
2003
72,955
–
–
–
- Loan from a local bank amounting to U.S. Dollars 1.86 million in 2004 repayable in 57 monthly equal installments amounting to U.S. Dollars 35,800 each and the last installment amounting to U.S. Dollars 35,200 commencing August 2004
(interest at LIBOR plus 2.25%)
Thai Paraxylene Co., Ltd.
15.4.2
15.5
Onshore loans - Tranche A1 (U.S. Dollars 39.6 million in 2004 and U.S. Dollars 43.4 million in 2003)
15.5.1
1,554,319
–
–
–
- Tranche A2
15.5.2
395,167
–
–
–
15.5.3
784,050
–
–
–
Total
40,284,358
52,421,094
28,503,617
41,647,143
Less: portion due within one year
(1,578,782)
(2,601,929)
–
(1,041,179)
Net
38,705,576
49,819,165
28,503,617
40,605,964
Offshore loans - Tranche J (U.S. Dollars 20 million in 2004 and 2003)
>> contents Thai Oil Public Company Limited
P.133
Note to Financial Statements (Continued)
15.1 The Company
In April 2000, the Company signed the Master Restructuring Agreement (MRA) and the Trade Creditors Master Restructuring Agreement with financial institutions and trade creditors. Under the MRA, the Company is required to pledge all bank accounts (other than those holding unsecured cash) and short-term investments as well as to mortgage key refinery equipment, to assign the all risks and loss of profit insurance policy and to conditionally novate the land lease agreement with the Ministry of Finance against restructured loans from financial institutions. In addition, the Company has a commitment not to enter into indebtedness for borrowings exceeding the equivalent of U.S. Dollars 75 million. By March 31, 2003, the Company had fully repaid restructured amounts due to trade creditors.
In September 2003, the Company paid cash to its lenders totaling Baht 3,359.5 million to repurchase principal relating to long-term loans totaling U.S. Dollars 95.5 million and Japanese Yen 335.8 million and accrued interest expense totaling U.S. Dollars 1.1 million and Japanese Yen 4.5 million, as allowed by the debt restructuring agreement. In this connection, the Company has a gain on this debt repurchase before maturity totaling Baht 640 million.
In April 2004, the Company refinanced, repurchased and exchanged long-term loans in Thai Baht, U.S. Dollars and Japanese Yen indebtedness under a Master Restructuring Agreement (MRA) as follows:
15.1.1 Refinanced Thai Baht loans amounting to Baht 13,503.2 million (loan 1. above) into 7 years term loans of Baht 6,654.6 million
(loan 4. above) and U.S. Dollars 173 million (loan 5. above), each maturing in 2011 under the Refinance Facility (Baht) and Refinance Facility (Onshore Dollar) Loan Agreements, respectively, dated April 19, 2004;
15.1.2 Purchased U.S. Dollars 213.3 million of U.S. Dollar-denominated MRA debt in relation to loan. In this connection, the Company has
a gain on this debt repurchase before maturity totaling Baht 314.9 million. This gain was presented separately in the statement of income for the year ended December 31, 2004; and
15.1.3 Exchanged the remaining U.S. Dollar loan amounting to U.S. Dollars 451.4 million (loan 2. above) and Japanese Yen loan amounting
to Japanese Yen 3,517.8 million (loan 3. above) for 6 years term loans, each maturing in 2010 under the Base Facility (U.S Dollar) (loan 6. above) and Base Facility (Yen) (loan 7. above) Loan Agreements, respectively, dated April 19, 2004.
>> contents Thai Oil Public Company Limited
P.134
Note to Financial Statements (Continued)
15.1.4 On June 29, 2004, the Company prepaid some of the outstanding principal on the refinanced loans as follows:
In Millions Facility
Loan No.
Currency
Baht
Refinance Facility (Baht) maturing in 2011
4.
Thai Baht
Refinance Facility (Onshore Dollar) maturing in 2011
5.
U.S. Dollars
21
Base Facility (U.S. Dollar) maturing in 2010
6.
U.S. Dollars
55
Base Facility (Yen) maturing in 2010
7.
Yen
812
429
Since April 28, 2004, the security and covenants over the loans have been changed from those relating to restructured debts to those relating to normal corporate finance loans. The remaining security over loans includes the conditional novation of the land lease agreement with the Ministry of Finance and the assignment of the all risks and loss of profit insurance policy. In accordance with the terms of the loan agreements, the Company is required to maintain certain financial ratios and a certain shareholders’ structure.
15.2 Thaioil Power Co., Ltd.
Onshore Loans On January 29, 2001, Thaioil Power Co., Ltd. entered into a credit facilities agreement with a group of banks and financial institutions to obtain loan and credit facilities to repay its existing debts relating to power plant payables. On October 31, 2002, Thaioil Power Co., Ltd. and the same group of banks and financial institutions entered into an amendment and restatement agreement to the credit facilities agreement in order to revise the interest rates and the repayment schedule. The details as at December 31, 2004 are as follows:
Facilities Tranche Currency A
B
Baht
Baht
Interest
(In Million) Purposes 1,300
1,675
Repay a local bank
Repay the Company
Years
Rates (%)
Repayment Terms
1-3
5.875
Semi-annual installments
4-6
MLR minus 1.00
at varying amounts
7-10
MLR
commencing March 31, 2003
1-3
5.875
Semi-annual installments at
4-6
MLR minus 1.00
varying amounts
MLR
commencing March 31, 2003
7-10
- MLR is the average minimum lending rate of 6 Thai financial institutions.
>> contents Thai Oil Public Company Limited
P.135
Note to Financial Statements (Continued)
On December 25, 2003, Thaioil Power Co., Ltd., a local bank and a local financial institution entered into a new credit facilities agreement to obtain loan and credit facilities to repay its long-term loans and to use it for general business purposes. In January 2004, the Company drew down tranche A from these new credit facilities to repay tranche A and tranche B, which were outstanding as at December 31, 2003. The details are as follows:
Onshore Loans
Facilities Tranche Currency A
Baht
Interest
(In Million) Purposes 1,971
Years
Rates (%)
Repayment Terms
Repay local long-
1-2
4.00
Semi-annual installments at
term loan
3-9
6 month-fixed
varying amounts
deposit rate plus
commencing March 30, 2004
2.75
B
C
Baht
Baht
200
75
Short-term loan for
–
6 month-fixed
general business
deposit rate plus
purposes
3.25
Guarantee for
–
1.50
–
–
cancellation before maturity of the agreement
15.3 Independent Power (Thailand) Co., Ltd. On February 13, 1997 and March 21, 1997, Independent Power (Thailand) Co., Ltd. had entered into a Master Facilities Agreement and other related agreements with a group of banks and financial institutions to obtain the loans and credit facilities to finance the project cost and to use as working capital. As at December 31, 2004 and 2003, the details are as follows:
>> contents Thai Oil Public Company Limited
P.136
Note to Financial Statements (Continued)
Onshore Loans
Facilities Tranche Currency A1
U.S. Dollars
Interest
(In Million) Purposes 40
Project cost
Years 1-7
8-12
Rates (%)
Repayment Terms
SIBOR plus
Semi-annual installments
margin of 1.375
at varying amounts
SIBOR plus
commencing March 21, 2000
margin of 2.75 13-17
A2
A3
Baht
Baht
1,000
920
Project cost
Project cost
1-5
11.75
Semi-annual installments
6-7
7.00
at varying amounts
8-17
MLR
commencing March 21, 2000
1-4
MLR less 0.375
Semi-annual installments
5-8
MLR less 0.25
at varying amounts
9-13
MLR less 0.125
commencing March 21, 2000
14-17
A5
Baht
371.4
Project cost
MLR
MLR
1-4
MLR less 0.375
Semi-annual installments
5-8
MLR less 0.25
at varying amounts
9-13
MLR less 0.125
commencing March 21, 2000
14-17
MLR
D1
Baht
520
Working capital
–
MOR
–
D2
Baht
60
Working capital
–
MOR
–
D3
Baht
20
Guarantee of facilities
–
1.50
–
>> contents Thai Oil Public Company Limited
P.137
Note to Financial Statements (Continued)
Facilities Tranche Currency E
Baht
Interest
(In Million) Purposes 308.6
Years
Baht
620
Repayment Terms
New transmission
1-4
MLR less 0.375
Monthly installments
facility
5-8
MLR less 0.25
at varying amounts
9-13
MLR less 0.125
commencing December 1,
MLR
1999
14-17
F1
Rates (%)
Debt service shortfall of Tranche A and/or
1-7 8-17
MOR less 0.25
–
MOR
–
Tranche E
Offshore loans
Facilities Tranche Currency B
U.S. Dollars
Interest
(In Million) Purposes 144
Project cost
Years
Rates (%)
Repayment Terms
1-3
LIBOR plus 0.75
Semi-annual installments
4-15
LIBOR plus 0.95
at varying amounts commencing March 21, 2000
F2
U.S. Dollars
32
Debt service
1-15
LIBOR plus 0.95
shortfall of Tranche B
- MLR is the average minimum lending rate of 3 Thai banks. - MOR is the average minimum overdraft rate of 3 Thai banks (in the case of Tranche D1). - MOR is the average minimum overdraft rate of each lender (in the case of Tranche D2 and Tranche F1).
–
>> contents Thai Oil Public Company Limited
P.138
Note to Financial Statements (Continued)
15.4 Thaioil Marine Co., Ltd. - Onshore loans 15.4.1 On March 27, 2002 and November 7, 2002, Thaioil Marine Co., Ltd. entered into loan agreements with a local bank to obtain finance
to acquire two chemical tankers. In May 2004, Thaioil Marine Co., Ltd. paid loan principal totaling U.S. Dollars 2.4 million before the maturity of the agreement.
15.4.2 On April 5, 2004, Thaioil Marine Co., Ltd. entered into a loan agreement in the sum of U.S. Dollars 2.04 million with a local bank to
acquire a liquid chemical tanker.
15.5 Thai Paraxylene Co., Ltd.
On September 13, 2000, the Company entered into the Amendment Agreement relating to the Credit Facilities Agreement with two local financial institutions and the JGC Loan Agreement with a foreign company to obtain the following loans:
Onshore Loans 15.5.1 Tranche A1 a U.S. Dollar term loan facility up to the equivalent of U.S. Dollars 54 million and a Baht term loan facility up to
Baht 200 million from a local financial institution to finance the costs of constructing plant. The U.S. Dollar term loan bears interest at the rate of 3.25% per annum over LIBOR. These loans are repayable in 20 semi-annual installments at varying amounts commencing in September 2002.
15.5.2 Tranche A2 a loan facility up to Baht 585 million from a local bank to finance the costs of constructing plant. The loan bears
interest at the rate of 0.75% per annum over MLR and is repayable in 20 semi-annual installments at varying amounts commencing in September 2002.
Offshore loans 15.5.3 Tranche J a U.S. Dollar term loan facility up to the equivalent of U.S. Dollars 20 million from a foreign company to finance the costs
of constructing plant. The loans bear interest at the fixed rate of 8% per annum and are repayable in full within (a) 12 years from date of the first utilization, or (b) the date following the day the Tranche A loans are repaid in full, whichever occurs later.
15.6 Security of subsidiary companies’ loans
As at December 31, 2004 and 2003, the above loans to Thaioil Power Co., Ltd., Independent Power (Thailand) Co., Ltd., Thaioil Marine Co., Ltd. and Thai Paraxylene Co., Ltd. were secured against the following assets of these subsidiary companies:
>> contents Thai Oil Public Company Limited
P.139
Note to Financial Statements (Continued)
In Thousand Baht 2004
2003
Current accounts, savings and fixed deposits at banks
1,582,000
1,546,047
Promissory notes issued by financial institutions
1,250,420
2,139,377
12,571,117
12,693,564
Paraxylene plant - net book value
6,719,359
–
Chemical tankers - net book value
175,825
247,973
Power plant - net book value
16. Other Non-current Liabilities
As at December 31, other non-current liabilities are as follows: In Thousand Baht Consolidated
Construction payable
2004
2003
40,312
-
Debts under Business Reorganization Plan
103,949
Total
144,261
Less current portion presented under other current liabilities
(10,530)
Net
133,731
Construction payable amounted to Baht 40.31 million incurred from plant construction of Thai Paraxylene Co., Ltd. and will be paid in 2012 as stipulated in the construction agreement.
Debts under Business Reorganization Plan amounting to Baht 103.95 million are the remaining debts incurred from debt restructuring under the Business Reorganization Plan dated October 16, 2003 of Thai Lube Base Public Co., Ltd., which debts are due from 3 years to 10 years while having interest rates as stipulated in this Plan.
>> contents Thai Oil Public Company Limited
P.140
Note to Financial Statements (Continued)
17. Share Capital
At the extraordinary shareholders’ meetings held on June 25, 2004 and August 6, 2004, the shareholders unanimously approved the conversion of Thai Oil Company Limited to be a public company. The Company registered this change on August 9, 2004 and changed its name to Thai Oil Public Company Limited from that date.
The shareholders also approved the increase in registered share capital of the Company from Baht 18,965,278,730 (divided into 1,896,527,873 shares with a par value of Baht 10 each) to Baht 20,400,278,730 (divided into 2,040,027,873 shares with a par value of Baht 10 each) by issuing 40,000,000 new common shares to directors, employees of the Company, employees of Thaioil Marine Company Limited and in the case there are some remaining unsubscribed shares to the Provident Fund of the Employees of Thai Oil Public Company Limited Group (Registered) (ESOP) at the offering price of Baht 10 per share, as well as offering 90,000,000 new common shares to the public and 13,500,000 new common shares for the exercise of the over-allotment option by the over-allotment agent, totaling 103,500,000 new
common shares.
Subsequently on September 22, 2004, the Company has received money in the amount of Baht 400 million from new common shares sold to directors, employees of the Company, employees of Thaioil Marine Company Limited and the Provident Fund of the Employees of Thai Oil Public Company Limited Group (Registered) under ESOP.
On October 20, 2004, the Company sold 90,000,000 new common shares and most of the existing shareholders sold all or part of their shares to the public through an Initial Public Offering (IPO) at the price of Baht 32 per share. Later, on November 19, 2004, 13,500,000 new common shares of the Company were exercised at the same price as IPO under the over-allotment option by the over-allotment agent. A directly attributable expense for IPO amounting to Baht 252 million is accounted for as a deduction from the premium on share capital received from this IPO. Proceeds derived from the sale of the Company’s new common shares are expected to partially fund various investments, including an increase in the capacity of its largest crude distillation unit, CDU-3, the integration of Thai Lube Base Public Co., Ltd. and Thai Paraxylene Co., Ltd. into its operations, the expansion of Thai Paraxylene Co., Ltd. and for general corporate purposes.
18. Legal Reserve
Under the provisions of the Limited Public Companies Act B.E. 2535, the Company is required to appropriate at least 5% of its annual net income (after deduction of the deficit brought forward, if any) as legal reserve until the reserve reaches 10% of the authorized share capital.
>> contents Thai Oil Public Company Limited
P.141
Note to Financial Statements (Continued)
19. Cost of Sales and Services
In Thousand Baht Consolidated
The Company Only
2004
2003
2004
2003
128,453,927
102,535,300
127,608,541
102,535,300
Excise duty
23,235,644
22,796,121
23,235,644
22,796,121
Depreciation
5,242,909
5,051,298
4,522,878
4,461,418
Employee costs
1,069,780
881,152
956,687
798,955
Others
6,729,791
8,761,544
2,464,397
4,429,565
164,732,051
140,025,415
158,788,147
135,021,359
Crude oil and feedstock
Total
20. Selling and Administrative Expenses
In Thousand Baht Consolidated
The Company Only
2004
2003
2004
2003
Advisory and legal fee
132,674
48,541
121,596
28,700
Employee cost
199,469
165,349
151,158
130,664
Depreciation
230,334
243,759
12,561
13,106
Loss on disposal assets
147,930
–
57
–
Others
496,754
117,693
373,137
76,916
1,207,161
575,342
658,509
249,386
Total
>> contents Thai Oil Public Company Limited
P.142
Note to Financial Statements (Continued)
21. Income Tax
The charge for income tax for the years ended December 31, 2004 and 2003 is as follows:
In Thousand Baht Consolidated 2004
Current tax for the year
(3,636,822)
Add (less) deferred income tax
669,977
(2,966,845)
Income tax
The Company Only 2003
( 4,318)
2004
(3,636,822)
(437,264) (441,582)
2003
657,808
– (443,648)
(2,979,014)
(443,648)
Deferred Tax Assets and Liabilities Movement of deferred tax assets and liabilities are attributable to the following:
In Thousand Baht Consolidated Balance
Balance
as at January 1, 2003
Statement of income
Pension fund
103,238
(838)
Loss on impairment of assets
119,153
part of cost of land Others
Balance
Equity
as at December 31, 2003
Statement of income
as at December 31, 2004
Equity
–
102,400
(43,945)
–
58,455
–
–
119,153
–
–
119,153
9,056
–
–
9,056
5,785
–
14,841
3,505
50
–
3,555
37
–
3,592
(788)
–
234,164
–
196,041
Assets
Capitalized interest charged as
Deferred tax assets
234,952
(38,123)
>> contents Thai Oil Public Company Limited
P.143
Note to Financial Statements (Continued)
In Thousand Baht Consolidated Balance
Balance
as at January 1,
Statement
2003
of income
Equity
79,434
–
(45,268)
4,906
–
(40,362)
(71,821)
6,384
–
472,065
(527,200)
–
–
Balance
as at December 31,
Statement
as at December 31,
2003
of income
Equity
2004
77,379
–
(1,602,251)
4,920
–
( 35,442)
(65,437)
6,384
–
(59,053)
–
(55,135)
55,135
–
–
–
–
Liabilities Depreciation
(1,759,064)
(1,679,630)
Provision for hedging on foreign exchange and forward contracts Amortization of transmission facility transferred to EGAT Equity loss (gain) on subsidiary and related companies Surplus on revaluation of fixed assets Deferred tax liabilities
(1,404,088)
(436,476)
–
(1,840,564)
564,282
(1,131,273)
(566,991)
708,100
(1,131,273)
(2,263,737)
In Thousand Baht The Company Only Balance
Balance
as at January 1, 2003
Statement of income
Equity
as at December 31, 2003
Balance Statement of income
Equity
Pension fund
103,238
(838)
–
102,400
(43,945)
–
58,455
Loss on impairment of assets
119,153
–
–
119,153
–
–
119,153
3,505
50
–
3,555
37
–
3,592
(788)
–
225,108
–
181,200
as at December 31, 2004
Assets
Others Deferred tax assets
225,896
(43,908)
>> contents Thai Oil Public Company Limited
P.144
Note to Financial Statements (Continued)
In Thousand Baht The Company Only Balance
Balance
as at January 1, 2003
as at December 31, 2003
Statement of income
Equity
79,434
–
(45,268)
4,906
–
(40,362)
472,065
(527,200)
–
(55,135)
–
–
–
–
Balance Statement of income
Equity
as at December 31, 2004
77,379
–
(1,602,251)
4,920
–
(35,442)
55,135
–
–
Liabilities Depreciation
(1,759,064)
(1,679,630)
Provision for hedging on foreign exchange and forward contracts Equity loss (gain) on subsidiary and related companies Surplus on revaluation of fixed assets Deferred tax liabilities
(1,332,267)
(442,860)
–
(1,775,127)
564,282
(1,131,273)
(566,991)
701,716
(1,131,273)
(2,204,684)
22. Agreements
a)
Throughput Agreement
Pursuant to the shareholders agreement entered into among the shareholders of Thai Petroleum Pipeline Company Limited (THAPPLINE), the Company, which currently holds an 8.69% shareholding of THAPPLINE, entered into a “Throughput Agreement” with THAPPLINE. Under the terms and conditions of the agreement, the Company commits to make a tariff prepayment not exceeding an aggregate of Baht 250 million to THAPPLINE at any time as requested by THAPPLINE if the following events occur: (i) THAPPLINE has a cost overrun during pre-completion period; and (ii) THAPPLINE has a cash shortfall during the post-completion period. The tariff prepayment may be redeemed by the Company when the conditions stipulated in the agreement are met.
b)
Technical Services Agreement
On December 7, 2001, the Company entered into a Technical Services Agreement with Shell Global Solutions International B.V. (SGSI) whereby the latter provides technical advice and services to the Company for the operations of the refinery. The agreement is for a minimum period of 3 years and can thereafter be terminated by either party by giving the other prior written notice to that effect of at least 12 months. In consideration thereof, the Company pays a fixed annual fee to SGSI plus additional fees based on the services provided.
c)
Construction/Supply Contract
As at December 31, 2004 and 2003, the Company and a subsidiary company had various contracts with certain companies for additional capital projects with an outstanding contract price equivalent to approximately Baht 141.2 million and Baht 31 million, respectively.
>> contents Thai Oil Public Company Limited
P.145
Note to Financial Statements (Continued)
d)
Gas Supply Agreement
On March 22, 1999, March 17, 1997 and March 1, 1998, the Company and subsidiary companies entered into 15 and 25 years, respectively for Gas Supply Agreement with PTT Public Company Limited (PTT) whereby PTT will supply natural gas to the Company and subsidiary companies in the agreed quantities and at the agreed price.
e)
Power Purchase Agreements
Two subsidiary companies entered into 25 years Power Purchase Agreements with the Electricity Generating Authority of Thailand (EGAT) whereby these companies will supply electric power to EGAT in the agreed quantities and at the agreed price. These agreements will expire on April 1, 2023 and August 15, 2025.
f)
Product Offtake and Crude Oil Supply Agreement
On April 3, 2000, the Company entered into a Product Offtake and Crude Oil Supply Agreement with PTT Public Company Limited (PTT) whereby (a) the Company will sell and PTT will purchase refined petroleum products produced by the refinery for 49.99% of 220,000 barrels of products per day and (b) PTT will supply and the Company will purchase crude oil and/or feedstock for the refinery required to produce 49.99% of 220,000 barrels of products per stream day. The credit term for crude oil and/or feedstock shall be mutually agreed.
g)
Claims Settlement Package Agreement
On September 27, 2000, the Company entered into a Claims Settlement Package Agreement with a subsidiary company (Thai Lube Base Public Co., Ltd.) to settle a dispute concerning alleged damage to Thai Lube Base Public Co., Ltd. suffered as a result of the actions of the Company’s plan administrator. The Claims Settlement Package Agreement has the following significant conditions:
(1) The Company will pay the subsidiary company a total of U.S. Dollars 6.9 million over a ten year period in installments of varying amounts up to March 31, 2010. This amount represents compensation due and owing for 1999 under the Supplemental Supply and Offtake Agreement dated February 16, 1995 between the Company and the subsidiary company. The Supplemental Supply and Offtake Agreement was cancelled by the plan administrator of the Company.
(2) The Company will immediately pay the subsidiary company up to Baht 30.9 million relating to a disputed payment for by-product.
(3) After the completion of the debt restructuring of the subsidiary company, the Company will enter into a ten-year agreement with the subsidiary company whereby the latter will supply by-product to the Company in the agreed quantities and at the agreed price with a premium of U.S. Dollars 4 per ton on the supplied volume.
(4) The Company will enter into a ten-year feedstock supply agreement with the subsidiary company whereby the latter will purchase feedstock from the Company in the agreed volume.
>> contents Thai Oil Public Company Limited
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Note to Financial Statements (Continued)
(5) The Company will receive 13% of the shares in the subsidiary company, up front at par value, which is the same subscription price as for other shareholders, for the amount equivalent to the present value (at a discount rate of 10%) of the consideration paid or contribution by the Company when the conditions as discussed in Items (1), (2) and (3) above are met.
After the finalization of the Business Reorganization Plan of Thai Lube Public Co., Ltd. dated December 16, 2003, the Company complied with items (1) and (2) and received 36,790,463 shares on January 7, 2004. Item (3), the Supply By-product Agreement, is in the process of preparation. The obligation under item (4) has been terminated.
h) Long-Term Leases In 1992, the Company entered into a land lease agreement with the Treasury Department to lease the land where the refinery plant and staff housing compound are located for a period of 30 years expiring on September 10, 2022. The annual rentals for the first five years were set at Baht 111 million and are subject to an escalation adjustment at the rate of 15% every five years. Since April 28, 2004, the land lease agreement has been conditionally novated to lenders as stipulated in the loan agreement.
The Company paid a land lease arrangement fee of Baht 1,220 million, which was recorded as “Deferred Land Lease Arrangement Fee” shown under “Other Non-Current Assets”. This is being amortized over the period of the lease.
The Company obtained a bank guarantee from the Treasury Department totaling Baht 131 million as collateral for the annual rental.
i)
Agreement for Crude Oil Processing
On October 20, 1999, the Company entered into an agreement for crude oil processing with PTT Public Company Limited (PTT) whereby PTT will supply crude oil to the Company and the Company will provide a processing service. In this regard, the Company will either receive payments from or make payments to PTT depending on whether the processing fee for the different amount of products lifted by PTT is higher or lower than the total value of Relevant Crude Intake in the same month, taking into account other expenses plus the cost of funds, if any, incurred by either party. There was no indication of expiry date specified in this agreement.
j)
Feedstock Throughput Agreement
On April 4, 2001, the Company entered into a Throughput Agreement with Esso (Thailand) Public Company Limited (Esso) to jointly participate in the construction of new tie-in facilities which are required for the receipt and carriage of feedstock from the Single Buoy Mooring into the Esso feedstock tanks. The agreement shall be valid for a period of 5 years commencing upon the date on which the tie-in facilities are ready for start-up. Esso shall pay the Company a non-refundable feedstock throughput fee as stipulated in the agreement. The maximum throughput shall not exceed 40 million barrels per year.
>> contents Thai Oil Public Company Limited
P.147
Note to Financial Statements (Continued)
k)
Sale and Purchase Agreements
On August 1, 2001, the Company entered into a sale and purchase agreement with Caltex Oil (Thailand) Limited (Caltex) to sell refined petroleum products to Caltex at domestic market price during the agreement term. The Company is obliged to make available and sell to Caltex and Caltex is obliged to lift and purchase from the Company a Mandatory Volume of refined petroleum products. Moreover, Caltex should attempt to purchase the Best Endeavors Volume in addition to the Mandatory Volume. The agreement is for a period of 4 years or until the aggregate volume has been lifted as per the agreement, whichever is sooner.
On December 26, 2003, the Company entered into a sale and purchase agreement with The Shell Company of Thailand Limited (Shell) to sell refined petroleum products to Shell whereby Shell shall lift and purchase from the Company at domestic market price during the agreement term at the agreement volume, until terminated by not less than six months’ prior written notice given by any one party to the other.
l)
Working Capital Facility Agreement
On June 9, 2003 and November 12, 2003, the Company entered into Separate Working Capital Facility Agreements with The Siam Commercial Bank Plc. and Bangkok Bank Plc. with a principal amount of Baht 2,450 million. These agreements are for a period of one (1) year. Advances under these Working Capital Facilities will be used to pay (i) costs of crude oil purchases; and (ii) operation costs as set out in the Operating Budget. Advances are available in Baht denominated short-term loans to be made for up to ninety (90) days and priced at money market rates.
m) Long Residue Cracking and Fuel Oil Exchange Agreement On June 1, 2002, the Company entered into a Long Residue Cracking and Fuel Oil Exchange Agreement with The Bangchak Petroleum Public Company Limited (BCP) to exchange BCP’s Long Residue for Cracking in the Company’s process and receive Fuel Oil left from the process for selling in BCP’s market. The agreement shall continue indefinitely until terminated by not less than ninety days’ prior written notice given by any one party to the other. Payments shall be made on a net settlement basis as stipulated in the agreement.
23. Promotional Privileges
The subsidiary companies have been granted certain privileges by the Board of Investment Act, B.E. 2520 which include, among other things, the following: a. Three subsidiary companies have been exempted from payment of import duty on machinery as approved by the Board.
b. Four subsidiary companies have been exempted from payment of income tax for promoted operations for a period of 8 years from the date income is first derived from such operations.
The subsidiary companies must comply with certain conditions and restrictions provided for in the promotional certificate.
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P.148
Note to Financial Statements (Continued)
24. Contingent Liabilities and Commitments
a)
As at December 31, 2004, the Company and subsidiary companies were contingently liable to certain banks for letters of guarantee issued to the Treasury Department and others totaling Baht 174 million and Baht 82.5 million, respectively.
b)
As at December 31, 2004, the Company had outstanding contract commitments to purchase crude oil with several foreign suppliers totaling approximately U.S. Dollars 389 million.
c)
The Company had commitments under interest rate knockout cap agreements with 3 foreign banks to hedge interest rate risk in respect of its U.S. Dollars 450 million long-term loans. These loans, which originally had floating interest rates of LIBOR plus margin, are capped under the agreements at maximum interest rates of 6.0% and 6.5% per annum with a knockout rate of 7.5% per annum. Under the terms of the agreements, the Company is entitled to be paid by its hedging counter-parties the excess of LIBOR and the maximum interest rate for each determination interest period for periods of 7 to 10 years.
d)
As at December 31, 2004, a subsidiary company entered into various hedge agreements with a foreign bank to reduce the risk of movement in interest rates covering U.S. Dollar loans obtained to finance the construction of plant, amounting to U.S. Dollars 119.5 million. For the duration of the agreement, the subsidiary company commits to receiving payments from or making payment to the other party whenever the interest rates vary from the agreed rates based on the terms and conditions stipulated in the agreements.
e)
During 2002 and 2001, the Customs Department and Excise Department sent letters to a subsidiary company to claim the payment of excise tax including penalty and surcharge for certain shipments of imported reduced crude oil totaling Baht 253.7 million. The management sent a letter to the Appeal Committee of the Excise Department to appeal a decision for the plea of the claim of excise tax assessment. However, on April 18, 2003, the Appeal Committee of the Excise Department gave a decision to dismiss the subsidiary company’s appeals and order the subsidiary company to pay a penalty according to a decision for the plea of the claim of excise tax assessment. On May 22, 2003, the subsidiary company filed a petition against the Excise Department, the Customs Department and the Revenue Department (the Defendants) to the Central Revenue Court to reclaim excise tax which had been charged and to deny the excise tax assessed by the Excise Department. On July 15, 2004, the Central Tax Court ruled on favor of the subsidiary company and ordered the Defendants to return tax charge plus interest and bank guarantee and to release machinery encumbrance. The Defendants requested and were granted permission from the Court to extend the appeal period to September 15, 2004. On September 14, 2004, the Defendants sent an application to the Supreme Court to appeal of the Central Tax Court’s decision and to suspend the execution of a decision. On October 19, 2004, the management sent a letter to the Supreme Court to object the appeal and plea for the suspension of the execution of the decision. As at December 31, 2004, this matter was in the process of consideration by the Supreme Court.
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P.149
Note to Financial Statements (Continued)
25. Segmented Financial Information - Consolidated
The segmented financial information of the Company and subsidiary companies for the years ended December 31, 2004 and 2003 is as follows: 2004 (In Million Baht)
Net sales and services Cost of sales and services Gross profit
Oil Refining
Lube Base* Oil Refining
Petro-* chemical
Power Generation
Oil and Chemical Products Transportation
176,993
1,792
2,219
7,281
906
(4,390)
184,801
(158,788)
(1,498)
(2,188)
(6,300)
(879)
4,921
(164,732)
18,205
294
31
981
27
337
(12)
144
75
315
–
–
–
–
1,040
Elimination
Total
531
20,069
(1)
–
543
–
–
–
315
–
20
–
–
20
85
5
63
4
(658)
(31)
(25)
(354)
(124)
(15)
(1,207)
(1,619)
(5)
(40)
(644)
(18)
27
(2,299)
–
–
133
–
(156)
–
–
12
–
Gain(loss) on foreign exchange Gain on debt repurchase before maturity Claim on insurance recovery from loss income Other income Selling and administrative expenses Interest expense and financial charges Net profit of minority interest
*
–
Income tax
(2,979)
Net profit (loss)
14,641
331
115
286
Property, plant and equipment - net
49,865
1,570
6,720
Other assets
45,750
2,033
Total assets
95,615
3,603
(575)
–
622
(23) (2,967)
(112)
(188)
15,073
14,505
624
(759)
72,525
1,500
4,928
229
(11,538)
42,902
8,220
19,433
853
(12,297)
115,427
Financial information of Thai Lube Base Public Company Limited and Thai Paraxylene Co., Ltd, which is presented in the above segmented financial information of the Company and subsidiary companies, is the result of their operations from October 21, 2004 to December 31, 2004.
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P.150
Note to Financial Statements (Continued)
2003 (In Million Baht)
Power Generation
Oil and Chemical Products Transportation
139,327
7,719
790
(1,887)
145,949
(135,021)
(6,637)
(764)
2,397
(140,025)
Oil Refining
Net sales Cost of sales and services
Elimination
Total
Gross profit
4,306
1,082
26
510
5,924
Gain on foreign exchange
3,025
579
14
–
3,618
640
–
–
–
640
–
635
–
–
635
1,074
482
3
(544)
(306)
(45)
25
(575)
–
–
(277)
(720)
(22)
14
(2,626)
(477)
–
(485)
Gain on debt repurchase before maturity Claim on insurance recovery from loss income Other income Selling and administrative expenses
(249)
1,015
Compensation under the Supplemental Supply and Offtake Agreement Interest expense and financial charges Net profit of minority interest Income Tax
(277) (1,898) – (444)
–
2
(962)
–
–
(442)
–
–
(200)
Extraordinary item - loss from debt restructuring Net profit (loss)
–
(200)
6,177
1,077
(24)
(480)
Property, plant and equipment - net
54,073
13,872
866
Other assets
31,109
6,157
182
(4,326)
33,122
Total assets
85,182
20,029
1,048
(4,324)
101,935
2
6,750
68,813
Property, plant and equipment of each segment represents the segmented operating assets, while other assets principally represent cash and deposits at financial institutions, short-term investment in promissory notes, trade account receivables, other receivables from subsidiary and related companies, inventories, receivable from Oil Fuel Fund, other current assets, loans to saving co-operative of employees, long-term receivables from subsidiary and related companies, investments in shares and other non-current assets.
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P.151
Note to Financial Statements (Continued)
26. Insurance Policy
The Company has an All Risks and Loss of Profit Insurance Policy (ALOP) from a syndicate of insurers and reinsures for a sum insured value of approximately U.S. Dollars 2,963 million. Such ALOP is renewed on an annual basis. ALOP is assigned to the lenders under the loan agreement.
27. Disclosures of Financial Instruments
Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, short-term investments in promissory notes, trade account receivables, other receivables, long-term receivable, investment in shares, bank overdrafts and short-term loans from financial institutions, trade account payables, other payables, long-term payable and long-term debts. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies in Note 3.
27.1 Liquidity Risk
Liquidity risk arises from the possibility that customers may not be able to settle obligations to the Company and subsidiaries within the normal terms of trade. To manage this risk, the Company requires all parties other than its subsidiaries to provide letters of credit, bank guarantees, bank guaranteed instruments or pledge of oil deposits kept at the Company’s storage tanks as collateral, and periodically assesses the financial viability of customers.
27.2 Foreign Currency Risk
The Company and subsidiaries have long-term loans in foreign currencies, giving rise to significant foreign exchange translation exposure from changes in foreign exchange rates. The Company’s revenue is US dollar linked while a significant portion of expenses are also U.S. dollar linked or in U.S. dollars. This acts as a natural hedge against long-term loan exposure to foreign currencies. The Company and its subsidiaries entered into short-term currency hedging contracts for short term foreign currency exposures to manage the timing difference in the receipt and expenditure of foreign currency linked items when appropriate. As at December 31, 2004 and 2003, the foreign currency assets and liabilities are as follows:
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P.152
Note to Financial Statements (Continued)
Foreign Currency Amount (In Million) Consolidated
The Company Only
2004
2003
2004
2003
62
27
48
27
769
840
572
679
3,088
3,553
3,088
3,553
Assets – U.S. Dollars Liabilities – U.S. Dollars – Japanese Yens
27.3 Credit Risk
Credit risk refers to the risk that a counterparty will default in its contractual obligations resulting in a financial loss to the Company and its subsidiaries. The Company and its subsidiaries have no significant credit risk with any single counterparty or group of counterparties since the Company and its subsidiaries maintain business with large customers in petroleum and power industries and require full first class collateral for the rest.
27.4 Interest Rate Risk
Interest rate risk arises from the fluctuation in money market rates, which may have a negative effect on the current and future operations of the Company and its subsidiaries. Hence, the Company and its subsidiaries have hedging agreements with various investment-grade counter-parties to protect against the risk of rising interest rates.
27.5 Fair Value of Financial Instruments
Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction. Fair values are obtained from quoted market prices, discounted cash flow models or net asset values as appropriate.
The following methods and assumptions are used to estimate the fair value of each class of financial instrument.
Cash and cash equivalents and account receivables - the carrying values approximate their fair values due to the relatively short-term maturity of these financial instruments.
Short-term investments in promissory notes held to maturity in the normal course of business - the redemption amount approximates its fair value.
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P.153
Note to Financial Statements (Continued)
Investments in shares of subsidiary companies, for which there is no quoted market price - a reasonable estimate of fair value has been calculated based on the underlying net asset base of these investments. The fair values approximate their carrying values.
Investments in shares of related companies, for which there is no quoted market prices - fair value cannot be properly calculated.
Bank overdrafts and short-term loans from financial institutions and account payables - the carrying amounts of these financial liabilities approximate their fair values due to the relatively short-term maturity of these financial instruments.
Long-term receivables from subsidiary and related companies, long-term payable and long-term debts carrying a floating rate, which is considered to be market rate - the carrying value approximates their fair value.
Long-term debts with fixed rate of interest - the fair value is estimated using the discounted cash flow analysis based on the average interest rates currently being offered for loans with similar terms to borrowers of similar credit quality as are presented below:
Consolidated (In Million Baht) 2004
2003
Carrying Amount
Fair Value
Carrying Amount
Fair Value
40,284
40,284
49,044
49,044
Long-term debts - at fixed interest rate
–
–
3,377
3,281
Long-term payable - at floating interest rate
–
–
278
278
40,284
40,284
52,699
52,603
Long-term debts - at floating interest rate
Total
The Company Only (In Million Baht) 2004
2003
Carrying Amount
Fair Value
Carrying Amount
Fair Value
384
384
446
446
267
267
278
278
28,504
28,504
41,647
41,647
Long-term receivable from subsidiary and related companies - at floating interest rate Long-term payable to related companies - at floating interest rate Long-term debts - at floating interest rate
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P.154
Note to Financial Statements (Continued)
28. Other
In January 2004, one of the two gas turbines, CT2, of a subsidiary company (Independent Power (Thailand) Co., Ltd.) exploded during normal operation of the generator. The subsidiary company has purchased a new combustion gas turbine to replace its damaged one, but has not yet paid the purchase price. The subsidiary company plans to use insurance proceeds and available cash to pay for the new combustion gas turbine. The subsidiary company has claimed property damage and business interruption compensations from its insurer in relation to the explosion of CT2. However, the subsidiary company and insurers could not reach agreement on insurance settlement through the negotiation process. As a result, on October 15, 2004, the subsidiary company filed the arbitration for insurance claims in the aggregate amount of U.S. Dollars 49 million, comprising U.S. Dollars 18 million for property damage and U.S. Dollars 31 million for business interruption. The subsidiary company believes it has strong grounds to claim from its insurer and expects that when the arbitration process is completed, the subsidiary company will receive the claim amounts as agreed to in such proceeding.
29. Reclassification of Accounts
Certain accounts in the 2003 financial statements and consolidated financial statements were reclassified to conform with the 2004 financial statement and consolidated financial statement presentation.
Audit Fees of the Auditors
1.
Audit Fees
The Company and subsidiaries paid for the audit fees to the audits’ companies for the latest accounting period amounting to Baht 3,614,302 (Three million six hundred fourteen thousand three hundred and two Baht only)
The Company paid for the audit works required for the Company’s IPO to the audits’ companies during the latest accounting period amounting to Baht 9,375,000 (Nine million three hundred seventy five thousand Baht only)
2.
Non-audit Fees
The Company Paid for non-audit fees such as the report for differential between Thai and International Accounting Standards and the comfort letter accompany with the Company’s IPO to audits’ companies during the latest accounting period amounting to Baht 10,749,600 (Ten million seven hundred forty nine thousand and six hundred Baht only)
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Ae r ia l v ie w of T h a io i l R e f i ne r y a nd S u b s id ia r ie s
SPP THAI OIL
TLB IPT
T PX
Thai Paraxylene Company Limited
Thaioil Refinery
Small Power Producer (Thaioil Power Company Limited)
Independent Power (Thailand) Company Limited Thai Lube Base Public Company Limited
Thai Oil Public Company Limited
C o n t e nt s 2 F i na nc i a l H ig h l ig ht s
16 Ke y Ac h ie v e me nt s i n 2 0 0 4
18 Me s s a ge f ro m t h e C h a i r ma n
20 Ma na g i ng D i re c t o r’ s R e v ie w
26 Ma na ge me nt’ s D i s c u s s i o n a nd A na l y s i s
30 I n i t i a l P u b l ic O f f e r i ng - A R e s o u nd i ng S uc c e s s
31 R e p o r t of t he Aud i t C o m m i t t e e
32 G l o b a l Pe r s p e c t i v e
42 C a p i t a l P ro g ra ms
44 R e f i ne r y O p e ra t io ns
46 Hu ma n R e s o u r c e Ma na ge me nt
47 S o c ia l R e s p o ns i b i l i t y
51 R i s k Ma na ge me nt
55 C o r p o ra t e G o v e r na n c e
63 D i re c t o r s, Ma na ge me nt , a nd S u b s id ia r y a nd A f f i l ia t e d C o m p a n ie s
72 O rg a n i z a t io na l S t r uc t u re
74 Ma na ge me nt
76 C o m p a ny I n fo r ma t io n
85 Report of Certified Public Accountant
86 F i na nc i a l S t a t e me nt
155 Abbreviations and Acronyms
156 Aerial view of Thaioil Refinery and Subsidiaries
P.1
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P.2
F i na nc ia l H ig h l ig ht s
(Baht million)
Thai Oil Public Company Limited and Subsidiaries (Consolidated)
2004
2003
2002
7.5
3.4
2.6
184,801
145,949
103,126
EBITDA
25,494
12,662
9,291
Profit before tax
18,040
7,192
451
Tax
(2,967)
(442)
56
Net profit
15,073
6,750
507
7.82
3.56
0.27
115,427
101,935
100,969
53,575
36,277
28,666
Liquidity ratio
2.0
2.2
2.8
Total liabilities to equity ratio
1.2
1.8
2.5
GRM (1) (US$/barrel) Sales revenue
Profit per share (2) (Baht/share)
Total assets Shareholders’ equity - net
(1)
GRM for the refining business.
(2)
Profit per share is calculated from the weighted average number of shares outstanding during 2002 and 2003, which was 1,896.53 million shares, and during 2004, which was 1,927.10 million shares. The number of common shares issued and paid-up as at December 31, 2004 was 2,040.03 million shares.
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P.3
Baht million
115,427 101,935 100,969
Total assets
184,801 145,949 103,126
Sales revenue
15,073
6,750
Net profit 507
2002
2003
2004
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B u i l d i ng O n O u r F o u nda t io n
Following our success in solidifying our base through the refinancing, IPO and acquisition activities, we are now ready to pursue our goal to became a leading oil and petrochemical corporation in the Asia-Pacific region.
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Long-term loans to equity at 0.8 : 1.
Interest expense at US$ 0.4 per barrel.
Interest coverage ratio at 9.5 times.
S t ro ng F i na nc ia l S t r uc t u re
Majority of loans in US dollars matching our revenue stream.
Product pricing structure minimizes foreign exchange exposure.
Interest rate caps are in place to manage interest rate risk.
Prompted by the strategy to consolidate our financial base, Thaioil used operating cash flows of 12,000 million baht to repurchase and prepaid debts in 2004. Debt refinancing was done to reduce financing cost and much of the restrictive conditions that restrained IPO and future business expansion. >> The IPO in October 2004 formed the platform from which Thaioil was able to access the equity market for our long-term expansion activities. >> Thaioil prepaid additional 3,860 million baht in March 2005. Our long term debt decreased to 24,000 million baht, with no debt service under the existing agreements until September 2007. We are in the process of exploring options to strengthen the financial bases of our subsidiary companies.
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PTT supported the IPO and contributed to its success.
Long-term shareholder with 49.54% interest in Thaioil.
PTT declared Thaioil its flagship refinery.
PTT a s Ma j o r S h a re ho l de r
As a key business partner.
PTT supplies half of Thaioil’s crude and feedstock while offtaking similar volume of petroleum products.
PTT sold its shares in Thai Paraxylene and Thai Lube Base to Thaioil to create synergy with the refinery and support our growth strategy.
PTT endorses Thaioil’s drive for a solid financial standing.
PTT’s dual capacity as our major shareholder and key business partner has benefitted Thaioil. It was instrumental in our drive to develop new business and achieve financial stability. >> Assisted by PTT, institutional shareholders agreed to sell their shares at IPO, which contributed to the success of the offering. >> Oversubscribed 30 times, the IPO reflected investors’ confidence in our operations and growth plans underlying Thaioil’s aim to become an integrated oil, petrochemical and base oil company with long-term support from PTT.
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Thaioil Refinery
Infrastructure in place
has a refining capacity
to support future
of 220,000 barrels per day.
growth program.
It is the largest refinery
Adjacent are
in Thailand and
paraxylene plant with
one of the most efficient
348,000 tons per year
in Asia-Pacific.
capacity and a lube base oil plant with
Primarily satisfies
270,000 tons per year
the country’s demand
capacity, mainly for
for petroleum products,
domestic supply.
with 90% sold domestically.
S t ro ng As s e t s Thaioil Marine has
Ideal location offers
a fleet of 7 tankers with
crude and product
combined capacity
transportation flexibility.
of 43,340 tons.
Process management and
118-MW SPP power plant
plant maintenance systems
supplies electricity
are of international standards
and steam to plants within
with Shell Global Solutions
the Thaioil complex as well as
as technical advisor.
for sale to EGAT.
Another 700-MW IPP power plant generates electricity for sale to EGAT.
Refining business contributed 96% to 2004 earnings. >> The plants of Thai Paraxylene and Thai Lube Base, acquired by Thaioil in late 2004, are expected to play greater roles in creating a higher revenue stream as from 2005, bringing greater financial stability to Thaioil and our subsidiaries. >> Our oil and petrochemical transportation business operated by Thaioil Marine, covering domestic and international routes is expected to provide support to the core businesses of Thaioil Group. >> The 118-MW SPP power plant and the 700-MW IPP power plant, in which Thaioil owns 55%, are assets that provide a stable stream of revenue with great potential for future expansions.
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Management has over 20 years of oil industry experience.
Majority of management has been at Thaioil longer than 10 years.
Vision and experience of management contributed to the Company’s success today.
S t ro ng Hu ma n R e s o u rc e s
Great attention is paid to develop an efficient and transparent corporation that offers fairness to all concerned.
More than one-third of employees are university graduates.
Average working tenor is 10 years.
Technical training for employees is provided with support by Shell Global Solutions.
Human resources are Thaioil’s greatest asset. Our talented and skilled management and staff have long experience in the oil industry. This has been key to unlocking 4 decades of continued success. >> To improve and sustain a safe and reliable operation as well as prepare for our future growth opportunities, educational programs on technology and management, as well as on-the-job training, are provided to employees on an ongoing basis.
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Plan underway to
Catalyst replacement
expand refining capacity
to enhance production
by 50,000 barrels per day.
efficiency and capacity of paraxylene
Single-buoy mooring
by 60,000 tons per year
facility extension to reduce
was completed in early
transportation costs
February 2005.
and support refinery expansion.
Capital project to boost paraxylene production capacity
Plan to increase SPP power generation capacity by 34 MW to support refinery
S t ro ng E x p a ns io n Po t e nt ia l
by 60,000 tons per year to a level of 407,000 tons per year is expected to be completed by end of 2006.
and paraxylene plant expansion projects,
Project to produce high-quality
with partial electricity
base oils using feedstock
sales to EGAT.
from Thaioil’s hydrocracker
Thaioil acquired 24%
completed in 2006.
is expected to be
in IPT in March 2005 and is ready to bid
Additional tanker fleet
for 1,400 MW a
investment is planned
new IPP power plant.
for Thaioil Marine.
Acquiring full ownership in Thai Paraxylene and Thai Lube Base, fulfilled our plan to integrate petrochemicals and lube base oil production facilities with the refinery. Refinery expansion and related projects, which includes increasing the petrochemical production capacity in 2006, are consistent with escalated domestic and Asia-Pacific regional demand for oil and paraxylene. >> Infrastructure including a natural gas pipeline, a back-up oil pipeline and a highvoltage transmission line are in place at the site earmarked for a new 1,400 MW IPP power generation unit. We expect to have an advantage in bidding for the new IPP concessions with EGAT in 2005.
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P.16
Key Achievements in 2004
Key Achievements in 2004 June 29th Prepaid US$ 100 million loan to reduce long-term debt to US$ 730 million.
April 29th Completed US$ 830 million loan refinance and US$ 213 million loan repurchase program to reduce long-term debt to US$ 830 million.
Apr i l 2 0 04
August 9th Converted to a public company and changed our name to Thai Oil Public Company Limited.
May 2 0 0 4
J une 2004
Augus t 2004
May 28th Board of Directors resolved to list Thaioil shares on the Stock Exchange of Thailand.
“ The complete turnaround
“ ... a superb IPO
paved the way for what became
that was well structured
Thailand’s largest IPO ”
and incredibly fortuitously timed ... ”
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October 7th Initial share offering to institutional and retail investors.
November 19th Underwriters exercised the green shoe option two days earlier than schedule reflecting their confidence in Thaioil stock.
October 20th Signed agreements to acquire full ownership in Thai Paraxylene Company Limited, and Thai Lube Base Public Company Limited.
P.17
December 8th Board of Directors appointed six new members to replace directors representing financial institutions who resigned after the IPO. December 16th Entered into an agreement to purchase 24-percent interest in Independent Power (Thailand) Company Limited from Unocal Asia-Pacific Ventures Limited for US$ 12.75 million. December Thaioil received the following awards: >> IFR Asia's Thai Capital Markets Deal of the Year award from International Financing Review Asia (IFR Asia)
Octo b er 20 0 4
N ovemb er 2004
October 26th First-day trading of Thaioil shares on SET. Opening price was 42 baht a share, or 31 percent higher than the subscription price of 32 baht per share.
De cember 2004
>> Best Equity Deal, Best IPO, Best Privatization, and Best Thailand Deal for the Year 2004 awards from Finance Asia. >> Triple A, Asset Asian Awards 2004 for Best IPO from The Asset. >> Country Awards - Best IPO Deal in Thailand and Best Newly Listed Company in Thailand from Asiamoney; >> Best Equity Deal in Asia from Euromoney.
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orders poured in, 50% of
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which were from Europe
deal done in tricky
and the US. ”
markets ... ”
>> contents Thai Oil Public Company Limited
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Me s s a ge f ro m t he C h a i r ma n
2004 marked a historical year for everyone involved with Thaioil. Our operating performance was record-breaking, enabling us to declare dividends for the first time in recent history. We took advantage of favorable oil market condition to implement a sweeping loan refinancing and loan repurchase program for Thaioil earlier in the year. Our IPO plan which followed immediately was very well received by domestic and international investors when it closed on schedule in October. The success of these undertakings served as a stepping stone to grow and expand our business base.
In tandem with the IPO in October, we acquired full ownership in Thai Paraxylene Company Limited, and Thai Lube Base Public Company Limited. The integration of refinery operations with the production facilities of these adjacent entities is expected to yield synergies, improve efficiencies through enhanced product streams exchange, as well as diversity earnings to non-refining activities. Our plan in 2005 and 2006 for the integrated complex is to expand paraxylene production by another 118,000 tons per annum, or 41 percent of its design capacity. The oil refinery capacity would also be increased by another 50,000 barrels per day, or 23 percent of its nameplate capacity, by the end of 2006.
On December 16, 2004, we signed an agreement to buy 24-percent interest held by Unocal Asia-Pacific Ventures Limited in IPT. The acquisition raised our total stake to 55 percent, and further secured our competitive foothold in the power sector.
>> contents Thai Oil Public Company Limited
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It is expected that EGAT will be inviting bids for the supply of additional generation capacity under independent power producer program to satisfy growing demand for electricity. The infrastructure in place at Sriracha would give us an advantage in this race.
Even greater challenges await us in the next two years. We must continue to improve the performance of our existing operations while at the same time focus on growing our business base and preserving financial strength. I am convinced that our very capable management team, led by Dr. Piti Yimprasert, would bring to full realization the goals set for 2005 and 2006, and deliver maximum value to our shareholders and customers.
On behalf of the Board, I would like to convey our appreciation to the people who made possible the outstanding achievements in 2004. Firstly, to PTT Public Company Limited, our major shareholder, for your unfailing support for the IPO that earned Thaioil top awards from five leading international financial journals. Next, to the management and staff who demonstrated the integrity and resilience that are characteristic of our Company as we worked together to solidify the business base and financial structure to ensure competitive growth and sustained value. Manu Leopairote Chairman of the Board
>> contents Thai Oil Public Company Limited
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Ma na g i ng D i re c t o r’ s R e v ie w
Outstanding results in the performance of our core operations and successful strengthening of our capital structure through the IPO combined to make 2004 a year of remarkable achievements for Thaioil. Internally generated funds together with the proceeds raised from the IPO would fund our production capacity expansion for petroleum and petrochemical products and investment in our power generation business. The realization of these plans will create a broader business base from which Thaioil and our group of companies can fully transform into a leading integrated refinery and petrochemical complex in Asia-Pacific.
The strengths that characterize Thaioil combine to create immense potential for sustained growth and value fundamental to attracting investor interest and confidence are:
•
Our leadership position in the Asia-Pacific oil refining industry.
•
The strong growth climate of the industry.
•
Our robust financial structure.
•
Significant opportunities exist to broaden our business portfolio.
•
Qualified and experienced workforce.
These five primary characteristics strongly influenced the performances of Thaioil, our subsidiaries companies (Thaioil Group) during the year under review.
1. ROBUST FINANCIAL RESULTS The results posted by Thaioil Group in 2004 were very satisfactory with the bulk of revenues and profits contributed by our refining business. This is due to, firstly, the growth of global demand for petroleum products outstripping the restrained refining capacity expansion, and, secondly, the capability of our refinery to produce high-value products in greater volumes to supply more lucrative domestic market.
2004
2003
Sales revenue
Baht million
184,801
145,949
Net profit
Baht million
15,073
6,750
Profit per share
Baht
7.82
3.56
Total assets
Baht million
115,427
101,935
0.8 : 1
1.4 : 1
Long-term debt to equity
>> contents Thai Oil Public Company Limited
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Surging crude oil and product prices in alignment with the global demand and supply movement, and Thailand’s continued economic growth were the major determinants for heightened levels of production and performance by Thaioil Group. Consolidated sales revenue reached 184,801 million baht in 2004, up 27 percent from 145,949 million baht in the preceding year. The consolidated results of Thai Paraxylene, and Thai Lube Base in the fourth quarter of 2004, after Thaioil completed the acquisition in October, accounted for about 2 percent of total revenue.
Thaioil Group more than doubled our earnings before interest, taxes, depreciation and amortization (EBITDA) from 12,832 million baht in 2003 to 25,494 million baht in the year under review as a result of increased GRM combined with the ongoing focus to control operating costs.
Our consolidated profit before tax amounted to 18,040 million baht. After offsetting the loss carried forward of 7,458 million baht, the Group was subject to 2,967 million baht of income tax, or 16 percent of the pre-tax profit. Consequently, we netted a profit of 15,073 million baht, or a profit per share of 7.82 baht. Beginning January 1, 2005 for the next five years, Thaioil’s income tax rate would be reduced by 5 percentage points to 25 percent as a concession for our listing in the SET within a promotional period.
1.1 Oil Refining Business Thailand experienced accelerated growth in 2004, which was shielded from the full impact of crude pricing movements by the government’s decision to subsidize retail gasoline and diesel prices. The growth drove domestic demand for petroleum products up 9.7 percent, triggering Thaioil to increase production to 228,095 barrels per day, which is equivalent to 104 percent of our nameplate capacity of 220,000 barrels per day.
Surging economies in Asia-Pacific-China in particular-underpinned the expanded demand for petroleum products. Total utilization of regional refining capacity, tightened to 90 percent, thus improving our GRM in 2004 to US$ 7.5 per barrel, up from US$ 3.4 per barrel in the preceding year.
A total of 5,956 million liters, or 45 percent of petroleum products produced by Thaioil were purchased by PTT. PTT also supplied our refinery with 35 million barrels of crude oil, or 41 percent of total throughput. Refined product purchases and crude oil supplies by PTT were based on market prices. Thaioil exported 12 percent of our total sales volume.
>> contents Thai Oil Public Company Limited
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1.2 Petrochemical Business Regional as well as domestic economic expansion was responsible for the increased demand for petrochemicals. Paraxylene is the basic raw material in the production of polyester, a market which was greatly boosted by the growing economy. As a result, paraxylene prices escalated to US$ 1,000 per ton in the last quarter of 2004, reinvigorating the operations of Thai Paraxylene, in which Thaioil previously held a 20-percent interest. The Thai Paraxylene plant subsequently raised production to its full capacity during the last quarter of 2004.
The acquisition of Thai Paraxylene allowed Thaioil to consolidate 116 million baht profit netted by the petrochemical subsidiary in our financial results. Thai Paraxylene, however, reported a net loss of 427 million baht over the year 2004 from depressed margin between prices of mixed xylenes, the feedstock, and paraxylene.
Thaioil further completed the process to raise our 13-percent stake in Thai Lube Base to full ownership on October 20, 2004. The base oil producer turned in excellent results for the year under review, netting a profit of 1,201 million baht. This was attributable to a sharp increase in regional demand while supply was limited by plants shutdowns in region. Utilization rate of the Thai Lube Base plant averaged at 83 percent of its capacity in 2004. Our financial statements for the year include the consolidated results of Thai Lube Base with 331 million baht of net profit.
1.3 Power Generation Business Thaioil Power, a small power producer majority-owned by Thaioil, utilized an average 91 percent of its capacity and had availability of 97 percent during the year. The power plant has a generating capacity of 118 megawatts of power and 168 tons per hour of steam.
IPT, an independent power producer, operated its power plant in 2004 at an average 40 percent of its 700-MW generating capacity. This was due to the shutdown of its second gas turbine generator, CT-2, since the end of January 2004 because of technical problem. After the replacement of a new Siemens generator, we expect the IPT plant to run at its full capacity by March 2005. We expect the insurers to settle the compensation claim for the generator within the first quarter of 2005.
1.4 Petroleum and Petrochemical Transportation Business Tanker demand was stronger in 2004 due to improved petroleum product trading in Thailand and neighboring countries coupled with increased export volumes of petrochemicals by Thailand to Asia-Pacific countries. The impact of the favorable demand,
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however, was only marginally felt by Thaioil Marine, wholly-owned by Thaioil. Its fleet utilization rate rose only slightly from the preceding year to 77 percent of capacity. Other tanker operators were chartered to ship a similar freight volume.
During the year, Thaioil Marine sold two of its 970-ton LPG vessels for 200 million baht. Both were powered by diesel engines which were costly to operate. Proceeds from the sale were partly used to purchase a new 7,000-ton petrochemical tanker to meet the expanded market demand.
As at December 31, 2004, the Thaioil Marine fleet comprised four petroleum tankers and three petrochemical tankers with a combined capacity of 43,340 tons.
2. BROADER BUSINESS PORTFOLIO
2.1 Increasing Refining Capacity Our major capital projects planned for completion in 2006 are: debottlenecking the crude distillation unit 3 (CDU-3); expanding the single buoy mooring system to reduce crude transportation costs; and construction of a power generation facility to provide electricity to the refinery. Bids for the engineering, procurement and construction contracts are scheduled to take place in the second quarter of 2005.
2.2 Consolidating Petrochemical Business After the acquisitions of Thai Lube Base and Thai Paraxylene, we plan to expand the production capacity of the paraxylene plant to enhance feedstock flexibility and reduce production costs. Beginning February 2005, the catalyst in the paraxylene facility was replaced to increase MX production from 289,000 tons per annum to 348,000 tons per annum. The feasibility of extending this expansion program to 407,000 tons per annum is also being studied. Construction is targeted to commence in the third quarter of 2005 and completed by the end of 2006.
Thaioil and Thai Lube Base are also investigating the viability of improving the yield of higher-value products and optimizing the excess capacity of the lube base plant. We expect to initiate these improvements in 2005.
2.3 Investing in Power Generation Business The agreement to purchase the 24-percent interest in IPT from Unocal Asia-Pacific Ventures was signed on December 16, 2004. The
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share transfer is expected to be completed within the first quarter of 2005. This acquisition is consistent with future plans for significant additions to power plant capacity under the independent power producer program to be announced by EGAT later in 2005. EGAT’s power development plan forecasts the country will demand new power generating capacity in 2010. We believe we could provide a competitive bid for this project because we have in place the necessary infrastructure-gas pipelines, water lines, transmission system and land.
2.4 Expanding Petrochemical Transportation Business Thaioil Marine further plans to expand its petrochemical tanker segment of the business to satisfy growing demand in a tight tanker supply market. Used tankers of 6,000-7,000 tons will be acquired to supplement the fleet during 2005-2006 at a relatively low capital cost to grow our market and revenue.
3. STRENGTHENED FINANCIAL STRUCTURE
We refinanced our long-term loans portfolio as well as repurchased and prepaid US$ 313 million of the outstanding. In addition to more favorable terms and conditions, the exercise also reduced interest charges by 26 percent to US$ 0.37 per barrel. The terms of the new loans also added value to the IPO which represented Thailand’s largest market capitalization.
The debt reduction and IPO greatly strengthened our financial structure. PTT’s post-IPO shareholding was relatively unchanged at 49.54 percent. Long-term loans to equity ratio were 0.8:1.
4. FOCUSED HUMAN RESOURCE AND QSHE MANAGEMENT
4.1 Human Resource Management Human resource is critical to the positive performance of an organization. It is a powerful force that generates productivity and drives success through the achievement of corporate goals. To this end, Thaioil continued in 2004 to prioritize human resource management and development. Programs and policies were implemented in different formats. These included adoption of good corporate governance standards, transfer of knowledge and best practices in various areas from sources within Thaioil Group as well as local and international experts. Given our long-term learning goals and focus, Shell Global Solutions International BV established Thaioil as its regional learning hub where technology training is provided to Thai and foreign employees.
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4.2 Quality Management Thaioil adopted a quality management system that was designed to comply with the requirements of ISO 9001:2000. This guarantees that the quality of our petroleum products conforms to customer expectations and needs, with focus on continuous improvement.
We received our first ISO 9001 certification in 1996 from the Management System Certification Institute (Thailand) (MASCI (Thailand)). The Thai Industrial Standards Institute (TISI) further awarded Thaioil our first ISO/IEC 17025 accreditation in the same year for the testing competency of our laboratory.
4.3 Environmental Management We recognize the environmental impact that may occur from our operations and therefore committed to safeguarding and improving the environment. To this end, we have established a management system that will bring environmental benefits to both the community adjacent to our refinery and to our business.
Thaioil has been awarded ISO 14001 certification for our environmental management system from the MASCI (Thailand) since 1999.
4.4 Health and Safety Management International safety practices and procedures were introduced to the workplace since Thaioil began our refinery operations. The health and safety management system that was adopted in 2001 is based on the TIS 18001 standard and focuses on sustainable development, risk control and progressive improvement.
5. GOALS FOR FUTURE GROWTH Thaioil is committed to directing all our resources to realize the objectives identified in our business expansion plans. I have full confidence that we will deliver improved growth and profitability through the creation of an enhanced business portfolio. I further believe that the promising growth opportunities of the resilient refining and petrochemical industry would position Thaioil as an industry leader in the Asia-Pacific region. These focused achievements would ultimately capture greater value for all our stakeholders.
Dr. Piti Yimprasert Managing Director
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Ma na ge me nt’ s D i s c u s s io n a nd A na l y s i s
1. RESULTS OF OPERATIONS OF THAIOIL GROUP
2004
Thaioil
Thai
Thai
Thaioil
Thaioil
Inter-
Paraxylene (1)
Lube
Marine
Power &
company
IPT
transactions
Base (1)
Sales revenue
Total
Change from 2003
176,993
2,219
1,792
906
7,281
(4,390)
184,801
38,852 / 27%
EBITDA
23,623
98
370
(30)
1,479
(46)
25,494
12,832 / 101%
Interest
(1,619)
(40)
(4)
(18)
(644)
26
(2,299)
FX gain
337
144
(13)
(1)
76
0
543
(3,075) / (85%)
17,620
116
331
(112)
274
(189)
18,040
10,848 / 151%
Profit before tax Tax Net profit (loss)
327 / 12%
(2,979)
0
0
0
12
0
(2,967)
(2,525) / (571%)
14,641(2)
116
331
(112)
286
(189)
15,073
8,323 / 123%
(1) Results for the period from October 21 to December 31, 2004. (2) Excludes share of profits from subsidiary companies. Thaioil Results Refined product prices rose by an average of US$ 10 per barrel during the year, improving Thaioil’s sales revenue to 176,993 million baht with EBITDA of 23,623 million baht. Imported crude oil totaled 228,095 barrels per day, of which 75 percent were supplied from the Middle East, 5 percent from the Far East, and 20 percent from domestic sources. GRM reached US$ 7.5 per barrel as compared to US$ 3.4 per barrel in 2003. Low operating costs contributed to the Company’s sustained competitiveness with Thaioil ranked as one of the lowest-cost refineries among a group of some 50 Shell-advised refineries worldwide. Loan refinancing and repurchase enabled us to reduce interest expenses and financial charges to US$ 0.37 per barrel (excluding expenses in securing the new loan, debt repurchase, and long-term debt exchange). Thaioil recorded a foreign currency translation gain of 337 million baht from the appreciation of Baht against US dollar to 39.20 as at December 31, 2004 from 39.74 baht a year earlier. Profit before tax in 2004 amounted to 17,620 million baht, which represented an increase of 10,999 million baht or 166 percent. The strong results contributed to the taxable profit for 2004 being greater than the losses carried forward of 7,458 million baht. Thaioil therefore recorded 2,979 million baht in tax expenses with a net profit (for the refining business only) of 14,641 million baht compared with 6,177 million baht in 2003.
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Subsidiary Results THAI PARAXYLENE During January to September 2004-the period prior to Thaioil’s acquisition of Thai Paraxylene-the margin between mixed xylenes and paraxylene had dropped to US$ 160 per ton. This was due to the high prices of mixed xylenes. The paraxylene plant, therefore, cut down production to 75 percent of capacity. Subsequent to this acquisition, margin recovered to an average of US$ 330 per ton and production was raised to 95 percent of capacity. Utilization of the paraxylene plant in 2004 averaged 79 percent, with 46 percent of the paraxylene sold locally and the remaining 54 percent exported. However, given that paraxylene is sold on the international market based on the CFR Asian Contract Price (cost and freight), there was very little price difference between domestic and exported sales. Thai Paraxylene recorded 8,390 million baht in sales revenue. But with very depressed margin between paraxylene and mixed xylenes during the first nine months of the year, 2004 netted a loss of 427 million baht. Thai Lube Base The plant operated at 83 percent of its capacity during 2004, producing 800,000 tons per year of lube base oil, bitumen and other by-products. Domestic supplies had been outpacing demand and forcing export, which earned less than local sales. The company’s margin, however, was at an attractive level due to low-cost domestic sourcing of feedstock while lube base oil posted favorable prices following plant shutdowns in Japan, Australia and the Philippines. Thai Lube Base sold 60 percent of its lube base oil locally and exported the remaining 40 percent; 30 percent of bitumen was sold locally and 70 percent exported; and by-products were sold solely in Thailand. Thai Lube Base earned 8,484 million baht in sales revenue with a net profit of 1,201 million baht due to improved lube base oil prices. Thaioil Marine The company reported earnings from transportation services of 906 million baht with an operating loss of 38 million baht. Two LPG vessels were sold, to reduce operating costs, resulted in loss from sale of assets of 74 million baht, driving the reported net loss up to 112 million baht.
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Thaioil Power and IPT Thaioil Power operated at 91 percent of its 118-megawatt (MW) capacity. Sales comprised 106 MW of electricity, which was 3 percent higher than in 2003, and 145 tons per hour of steam, which was 8 percent higher than in 2003. Major contributors were the increased refinery utilization at Thaioil and Thai Lube Base returning its plant to operation following the completion of its debt restructuring program in December 2003. Thaioil Power earned 2,942 million baht in sales revenue and 286 million baht in net profit. (IPT’s results were consolidated with Thaioil Power’s financial statements because it holds 56-percent stake in IPT.) IPT reported 4,349 million baht in sales revenue and 301 million baht in net loss. Available capacity of the 700-MW power plant dropped to 40 percent in 2004 due to a technical problem forcing the gas turbine generator, CT-2, to shut down. The generator was subsequently replaced and the plant was expected to return to full capacity in March 2005. We also reached agreement with the insurers for our compensation claim and expect to receive the settlement during the first quarter of 2005. Affiliate Results Thappline The volume of refined products transported by the pipeline network owned and operated by Thai Petroleum Pipeline Company Limited (Thappline) grew 9 percent over the prior year to 8,994 million liters. This constituted 35 percent of total carrying capacity. Revenue earned was 1,285 million baht for the full year, and EBITDA amounted to 1,017 million baht. After deducting financial expenses and depreciation, Thappline netted a reported loss of 802 million baht. Two projects under implementation by Thappline-construction of the aviation fuel pipeline from Lamlukka to Suvarnabhumi airport and extending the pipeline to Map Taput refinery-are slated for completion in 2005. Both projects are expected to improve the performance of Thappline. 2. FINANCIAL CONDITION OF THAIOIL GROUP The results of the two subsidiaries acquired on October 20, 2004, Thai Paraxylene and Thai Lube Base are included in the consolidated balance sheets as at December 31, 2004. A summary of the Financial condition of Thaioil Group for 2004 compared with the preceding year is given below.
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Baht million
December 31, 2004
December 31, 2003
Change
Total assets
115,427
101,935
13,492
Total liabilities
61,852
65,658
(3,806)
Shareholders’ equity - net
53,575
36,277
17,298
As at December 31, 2004, assets of Thaioil Group rose by 13% to 115,427 million baht, from 101,935 million baht in the prior year. This was the result of Thaioil acquiring Thai Paraxylene, with total assets of 8,220 million baht, and Thai Lube Base, with total assets of 3,603 million baht. Another contributing factor was the higher value of accounts receivable and inventories at year-end for Thaioil Group as oil prices rose. Despite Thai Paraxylene and Thai Lube Base having combined total liabilities of 6,982 million baht, the consolidated total liabilities of Thaioil Group as at December 31, 2004 fell below the beginning-of-the-year amount by 3,806 million baht to 61,852 million baht. This was owed to the fact that Thaioil had repurchased and prepaid debts during the year. 3. NET SHAREHOLDERS’ EQUITY The consolidated shareholders’ equity for the Group rose by 32 percent to 53,575 million baht from 36,277 million baht. The key contributors were the operating profit achieved for the year, receipt of 3,460 million baht in paid-up capital increase, and 4,841 million baht in net shareholders’ equity of Thai Paraxylene and Thai Lube Base. 4. LIQUIDITY Our principal sources of liquidity were cash flows from our operations, which provided 14,058 million baht. Paid-up share capital added 3,460 million to the pool. Cash flows spent in investment activities amounted to 3,481 million baht. This included 113 million baht of additional investment in Thappline, and 3,647 million baht on the acquisition of Thai Paraxylene and Thai Lube Base. We spent a further 11,013 million baht on financing activities. Debt repurchasing spending accounted for 7,558 million baht, with another 6,770 million baht spent on long-term loan repayment/prepayment. When combined with the cash recorded at the beginning of the year of 7,103 million baht, the net cash flows at the end of the fiscal year totaled 6,667 million baht. Overall, the Group is in a stronger cash flow position. Our long-term loans to equity ratio were reduced from 1.4:1 in 2003 to 0.8:1 as at December 31, 2004. Interest coverage ratio improved to 9.5 from 5.0 a year earlier.
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I n i t ia l P u b l ic O f f e r i ng - A R e s o u nd i ng S uc c e s s
Following our public share offerings to domestic and international investors, Thaioil shares began trading in SET in October 2004. The IPO was undertaken to allow the Company to restructure our capital base, access equity market for future business expansion as well as provide an exit for institutional investors who were our creditors as per the terms of the shareholders’ agreement. Thaioil issued 1,017.68 million shares in our IPO, of which 914.18 million shares were offered by Thaioil’s creditor-shareholders and 103.5 shares were newly issued ones by Thaioil. The IPO offer price was 32 baht a share. A lock-up period of 3 years (from SET first trading date) was imposed on non-selling shareholders comprising PTT and certain creditor-shareholders. Selling shareholders in the IPO comprising creditor-shareholders who elected to exercise option to subscribe to the IPO shares and selling shareholders of Thai Lube Base and Thai Paraxylene, who used the cash proceeds (from the sale of these companies) to subscribe to Thaioil shares are subject to 2 - 3 years lockup. After giving effect to the foregoing, approximately 826.46 million shares are free float, giving investors greater protection against block sales. Thaioil’s IPO was a resounding success, earning the Company a number of awards from leading financial publications in the region. 1. Finance Asia presented Thaioil with four of its top prizes in 2004: Best Equity Deal, Best IPO, Best Privatization, and Best Thailand Deal for the Year. The prestigious awards recognized the outstanding success of Thaioil’s privatization and initial offering to public and institutional investors both domestic and international. The tightly mapped plan enabled the shares to be traded under favorable market conditions, capturing maximum benefits. Pre-IPO shareholders, which were creditor-shareholders, were presented with an exit strategy. At the same time, Thaioil was able to access equity market to support future expansion. 2. International Financing Review Asia (IFR Asia) named Thaioil the Thai Capital Market Deal of the Year for the success of both our debt refinancing & repurchases program and the IPO, which was evident from the continuing interest in Thaioil shares from domestic and international investors. 3. We were awarded the Triple A, Asset Asian Awards 2004 for Best IPO by The Asset magazine. 4. Asiamoney honored Thaioil with two awards-Best IPO Deal in Thailand, and Best Newly Listed Company in Thailand. 5. Lastly, we won Best Equity Deal in Asia from Euromoney.
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Report of t he Aud i t Committee
On August 11, 2004, the Board of Directors appointed the Audit Committee comprising the following directors: Mr. Manu Leopairote (Chairman), Mr. Cherdpong Siriwit, and Mr. Somchai Wongsawat. The members are knowledgeable in the fields of economics, financial accounting, and law, with experience in the petroleum, petrochemical, and energy industries. We have previously served as high-ranking officials of the Ministry of Industry, Ministry of Energy, and Ministry of Justice respectively. Mr. Chaiwat Damrongmongkolgul, Systems Evaluation Manager, serves as Secretary of the Audit Committee. The Audit Committee met twice in 2004 to approve the Audit Committee Charter, and the Corporate Governance Manual, and to review records of related party transactions, the risk management system, and the annual financial statements. The Committee reviewed the 2004 financial statements and related party transactions in collaboration with the Certified Public Accountant and the Systems Evaluation Department. The purpose of the review was to ensure conformity to generally-accepted accounting standards and compliance with accounting laws, and the regulations of the Office of the Securities and Exchange Commission, and the Stock Exchange of Thailand (SET). In reviewing the effectiveness of Thaioil’s systems for risk management and internal financial control, the Company has formed the Risk Management Committee comprising management members from all departments. The committee is responsible for reviewing and monitoring risks throughout the Company, and all management members are responsible for evaluating the risk management process within their departments. Thaioil has also set up a number of committees charged with oversight of: business and production planning; purchase and sale of options and futures contracts; customer credit; procurement and hiring; safety, health and environment; and quality management systems in various areas of operations. The Company has engaged a consulting firm with expertise in oil refinery risk management to conduct an organization-wide risk assessment. The exercise is under way and due to be completed by the end of 2005. Thaioil and the consultant are working in coordination with the Internal Control Department of PTT Public Company Limited in order to ensure that the Company’s risk management framework is consistent with that of the parent company. The Committee further reviewed randomly selected key business transactions which the Systems Evaluation Department and management collaborated in certifying according to the standard of Internal Audit Code 580: Endorsement of Company Management. The review received full cooperation from management. The Audit Committee recommends that the Board of Directors nominate Mr. Winid Silamongkol of KPMG Phoomchai Audit Ltd. for appointment by the shareholders as the independent auditor for 2005. Manu Leopairote Chairman of the Audit Committee