- Information Memorandum - SAHACOGEN (CHONBURI) PUBLIC COMPANY LIMITED (SCG) Head Office: 636 Moo 11 Sukaphiban 8 Road, Nongkharm, Sriracha, Chonburi 20230 Telephone: 0-3848-1552-5 Fax: 0-3848-1551 Factory Location: 636 Moo 11 Sukaphiban 8 Road, Nongkharm, Sriracha, Chonburi 20230 Telephone: 0-3848-1552-5 Fax: 0-3848-1551 Listing Date As at January 7, 2004 (Trading commencement on January 7, 2004) Listing Securities 955,000,000 ordinary shares with par value of Baht 1 per share, totaling Baht 955 million Secondary Market The Stock Exchange of Thailand (Main Market) Offering Price Baht 3.20 per share Type of Business and Nature of Operation Sahacogen (Chonburi) Public Company Limited ("SCG" or "The Company") operates as the Small Power Producer (SPP) who was granted a concession to generate electricity from the Ministry of Interior. The Company is located in Saha Phatana Industrial Park - Sriracha, Chonburi. The Company's facility uses the Cogeneration Technology in electricity and steam generation. The primary fuel used is natural gas supplied by the Petroleum Authority of Thailand ("PTT"). As of December 2003, SCG has total electricity generating capacity of 131.8 MW and steam generating capacity of 61 tons per hour. SCG is under 25-year Power Purchase Agreement (PPA) with the Electricity Generating Authority of Thailand (EGAT) for the sale of 90 MW electricity. The remaining electricity and steam will be sold to Saha Pathana Inter-Holding Public Company Limited (SPI). SPI then sells electricity and steam to factories in Saha Pathana Industrial Park-Sriracha, Chonburi. All factories are considered as companies under Saha Group. Environmental Impacts -None- Summary of Material Contracts 1. Power Purchase Agreement with EGAT: SCG sells up to 90 MW of capacity and electrical output of the facility to EGAT pursuant to a long term PPAs. The PPA has a contract term of 25 year. 2. Electricity System Agreement with SPI: Under the agreement, SCG agree to supply and SPI will purchase and accept electricity up to 32 MW from SCG and resell to users in Saha Pathana Industrial Park-Sriracha, Chonburi. The primary term continues for 15 years and the agreement is extendable for another 25 years. Revenues received from SPI for sales of electricity comprises of the demand charge and energy charge. Demand charge equal the total amount SPI collects from all users. Energy charge equals total amount SPI collect from users deducted by discount. 3. Steam System Agreement with SPI: Under the agreement, SCG agree to supply and SPI will purchase and accept steam up to 40.5 tons per hour from SCG and resell to users in Saha Pathana Industrial Park-Sriracha, Chonburi. The primary term continues for 15 years and the agreement is extendable for another 25 years. Revenues received from SPI for sales of steam comprises of the steam charge and condensate charge. Steam charge equals total amount SPI collect from users deducted by discount. Condensate charge equals the monthly usage rate used by users multiplied by condensate rate. 4. Gas Sale Agreement with the Petroleum Authority of Thailand (PTT): PTT agrees to supply natural gas to SCG for 21 years. The contract can be extended for another 4 years. 5. Operation and Maintenance Agreement with Operational Energy Group Company Limited (OEG): SCG appoints OEG to provide the operator service including all operations and maintenance of the power station and the transmission and pipeline system. The contract termination date is December 31, 2005 provided that this agreement shall only be extended in 7 year increments. Feasibility Study -None- Technical and Management Assistance -None- Future Projects 1. SCG is in the process of expanding the current capacity. The additional generating capacity will be 44 MW of electricity. The construction is expected to begin on the first quarter of 2004 and the Company will be able to supply electricity in year 2005. The funding for expansion project is approximately Baht 1,200 million, comprising of Baht 300 million capital and the rest will be loans from financial institution. 2. Power plant projects in other Saha Pathana Industrial Parks. Currently, The company is assigned to conduct the feasibility study of power plant in Saha Pathana Industrial Park-Kabinburi, Prachinburi. Related Transactions In year 2002 and Q1-Q3 2003, SCG has connected transactions with party that may have conflict of interest with the Company as follow: Party which Relationship Amount (in million Baht) Reasons may have Description 2002 2002 conflict of (Jan-Sep) interest with the Company SPI (1) SPI holds 21.18% of (1) Sales revenue 539.79 469.37 Electricity and Steam SCG sells SCG's fully-paid capital. (2) Raw water fee 0.48 1.28 electricity and steam to SPI instead of It also indirectly holds (3) Management fee 5.50 4.12 selling directly to users because: shares in SCG via SOC, (4) Water treatment cost 2.45 1.83 (1) During the construction of 1st phase S&J, and ICC who are (5) Account receivable 47.27 56.84 of power plant, financial institutions shareholders of the (6) Account payable 0.66 0.88 required that the Company transfer Company. (7) Installation fee 0.13 0.26 right in electricity and steam purchase (2) Some of directors in SPI agreement to creditors. Such transfer are authorized directors involves more than 60 factories in the in SCG. industrial park. Therefore, SPI became the sole counterparty in the agreement. SPI agrees to pay all electricity and steam charges to SCG. Doing so create confidence for creditors concerning the debt service capacity of SCG. (2) SCG had to use the transmission system of SPI. (3) The concession SCG received covers only SPI's area and doesn't cover the total area of industrial park. Raw Water SCG purchases raw water from SPI in case that EASTW is not unable to sell water to the Company. Price of raw water purchased from SPI is at the same rate charged to other factories in Saha Pathana Industrial Park-Sriracha, Chonburi. Water Treatment It is required by law that SCG has to do the water treatment according to standard set. As SCG uses the water treatment system of Saha Pathana Industrial Park, it has to pay water treatment charge to SPI. The rate paid is same as other factories in the park. OEG (1) S&J is shareholders of (1) Account payable 19.04 18.01 As SCG doesn't have experience in SCG and OEG. S&J (2) Operational service 53.64 49.69 power plant operations, it hired OEG to holds 16.26% of SCG's fee do the operations. Fee paid is at the fully-paid capital and same rate OEG charges other clients. indirectly holds shares in the Company via SPC, SPI, and ICC. S&J also holds 25.95% of shares in OEG. (2) Some directors of OEC are authorized directors in SCG, of which one director hold 5% of shares in OEG. Sinparadorn (1) A shareholder in Land cost 11.30 - SCG needed to expand its capacity, Co., Ltd. Sinparadorn holds 2% of thus, in 2002 SCG purchased land shares in SCG. from Sinparadorn to prepare for the (2) A director in Sinparadorn, expansion of power plant. The land holding 10% of cost is at the same rate of land Sinparadorn's shares is purchase in the same area. an authorized director in SCG. Contingencies and Commitments -None- Risk Factors 1. Risk associated with the termination of concession received from the Ministry of Interior: SCG was granted 15-year concession from the Ministry of Interior while having 25-year PPA with EGAT and 15-year electricity and steam system agreement with SPI. In case the extension of concession is not allowed, the Company will be unable to further generate and sell electricity. Thus, SCG faces risk in business operation. Noted that the Ministry of Interior could not allow more than 15 years of concession due to legal limitation which stated that the maximum concession term could only be 15 years. 2. Risk associated with the termination of PPA, and electricity and steam system agreement: SCG has only 2 customers which are EGAT and SPI. As of September 30, 2003, 69.66% and 30.27% of total revenue stem from EGAT and SPI respectively. Therefore, SCG incurs risk from the termination of agreement with EGAT and SPI. However, SCG has made long-term contract with both parties. Thus, such risk is considered low. 3. Risk associated with the reduction of total demand purchased by EGAT: In case SCG is unable to deliver total contract demand and cannot fix the problem within 18 months, it would incur the risk that EGAT lower the total contract demand. However, from the past performance, the Company has always supplied total demand as stated in PPA. 4. Risk associated with the dependence on power plant operator: As SCG appoints OEG to be the sole operator of the power plant, SCG encounter risk if OEG cannot perform all operations and maintenance as specify in the agreement. However, some of OEG's shareholders also hold shares in SCG, therefore, it is highly unlikely that OEG will terminate contract with SCG. 5. Risk associated with the availability of feedstock supply: The primary feedstocks used in electricity and steam generation comprise natural gas, diesel oil, water, and chemicals. In order to mitigate risk incurred from feedstock supply, the Company has entered into the Gas Supply Agreement with The Petroleum Authority of Thailand ("PTT") under a 21-year period, and the long-term raw water purchase agreement with Eastern Water Resources Development and Management Public Company Limited. The Company also has the other raw water source at reservoir located in Saha Pathana Industrial Park- Sriracha, Chonburi. The Company does not have any difficulty in supplying other feedstocks used in the production. Therefore, the level of feedstock supply risk of the Company is minimal. 6. Volatility of Feedstock Price: Natural gas is the primary fuel used in the electrical power and steam generation of the Company. Therefore, any change in the price of natural gas will have a significant impact to the power production cost of the Company. However, the impact from price volatility of natural gas used in the generation of electricity sold to EGAT can be fully compensated since the demand charge specified in the PPA between SCG and EGAT is formulated on the basis of the actual cost of natural gas purchased from PTT. For the electricity price charged to SPI is subjected to fuel cost and foreign exchange rate, which will be announced every four months. Hence, the risk of feedstock price volatility of the Company is considered minimal as it can be compensated by the adjustment of energy charge rate as mentioned above. 7. Risk of Absolute Control of Saha Group: Since the major shareholders of the Company are the companies, and the management and employees of the companies in Saha Group, the Group implicitly has an absolute control over the Company without any balance of controlling power from other group of shareholder. 8. Foreign Exchange Rate Risk: The Company does not currently have debt denominated in a foreign currency. Therefore, the impact of foreign exchange rate change on the Company's expense remains only on the US dollar denominated O&M cost representing only 1.504% of the total operating cost. The effect of foreign exchange rate change on the Company's revenues is relevant only to demand charge sold to EGAT of which 80% of the charge is subject to US dollar exchange rate. However, as the total revenue from demand charge represents approximately 22-23% of total revenues, the impact of foreign exchange rate on total revenues is considered minimal. 9. Interest Rate Risk: As the interest rate of the Company's debt is fixed for the first three years but floating thereafter, the Company will be exposed to the interest rate risk after three-year period of the loan agreement. 10. Volatility of Operating Profit due to Maintenance Cost: In general, the Company will have routine maintenance cost, major maintenance cost, major overhaul cost and unplanned maintenance cost affecting the Company's performance. However, the Company has planned to arrange the major maintenance or major overhaul cost of each set of machinery and equipment in different budgeting year, which will help reducing the impact on the Company's expenses. In addition, the Company has allocated cash from operations in each year in the maintenance reserve account to ensure that the Company will have sufficient cash for each major maintenance and major overhaul and such cost will not affect the Company's cash flow significantly. 11. Risk of Changes in Laws, Regulations and Government Policies: As stated in the Power Purchase Agreement between the Company and EGAT, in case any change in laws causes the Company to make any material improvement of the power plant, or to make any improvement of other matters relevant to the electricity generation or the maintenance of the power plant of the Company which adversely affect the Company's revenues or expenses. Hence, the Company may be exposed to such risk incurred from changes in laws, regulations and the government's policies. Lawsuit -None- No. of Employees As of September 30, 2003 the company has total workforce of 11 persons Company Background Sahacogen (Chonburi) Public Company Limited was established on November 20, 1996 with the initial registered capital of Baht 12 million to operate the electricity and steam generation project in form of a cogeneration power plant located in the Saha Pathana Industrial Park-Sriracha, Chonburi. The project has electricity generating capacity of 122 MW and steam generating capacity of 41 tons per hour. The Company is a joint investment between Zern Asia Company Limited (Zern) and Saha Group, comprising Saha Pathanapibul Public Company Limited ("SPC"), I.C.C. International Public Company Limited ("ICC"), S&J International Enterprises Public Company Limited ("S&J") and Saha Pathana Inter- Holding Public Company Limited ("SPI"). Saha Group had 51% holding and Zern held 49% of the registered capital. Zern Group is the group of companies with experience in developing and operating small power plant in the United State of America. As Thai government supported more private power producers in Thailand, Zern perceived the high potential in power plant operations in Thailand. Thus, Zern and Saha Group grouped a joint venture in power plant construction. In 1999, Zern Group divested its investment in SCG to Odgen Group (later on changed to Covanta). After that in 2002, Covanta Group divested its entire investment in SCG to Sahapat Group resulting in SCG becoming the wholly owned subsidiary of Saha Group. The Company commenced its electricity generation to EGAT and SPI in April 1999 and steam distribution to industrial factories located in Saha Pathana Industrial-Sriracha, Chonburi in May 1999. The Company has been granted the investment promotion from the Board of Investment since March 2001 for the expansion phase of the power plant with the electricity generating capacity of 9.8 MW and steam generating capacity of 20 tons per hour. The expansion phase has commenced the electricity and steam generation to industrial users in Saha Pathana Industrial-Sriracha, Chonburi since November 2002. Later in October 2003, the board of director of the Company approved the 44 MW expansion of the power plant to support the increasing demand for electrical power of industrial factories in the estate. Investment in Subsidiary/Associate d/ Related Companies -None- Change in Capital in the last 3 years In Million Baht Date Capital increase After the increase Note (decrease) (decrease) June 1997 172.00 184.00 To maintain debt to equity ratio September 1997 354.32 538.32 To maintain debt to equity ratio November 1998 214.32 752.64 To maintain debt to equity ratio March 1999 67.36 820.00 To maintain debt to equity ratio October 2003 135.00 955.00 For business expansion Accounting Period January 1 -December 31 Auditor Siraporn Auranankul, CPA registration no. 3844, Ernst & Young Office Limited Registrar Thailand Securities Depository Company Limited Financial Advisor Finansa Securities Limited Dividend Policy SCG's dividend payout policy is set at no less than 80% of available cash after legal debt provision requirement. B.O.I. Certificates SCG was granted for 2 B.O.I privileges, one in respect of phase 1 power plant with e electricity and steam generating capacity of 122 MW and 41 tons per hour respectively. Another in respect of phase 2 of power plant that has electricity capacity of 9.8 MW and steam capacity of 20 tons per hour. The major B.O.I privileges the Company receives include: - Allowed to bring in foreigners to work within the Kingdom of Thailand. - Allowed to own land for the area granted by the B.O.I committee. - Exempt from import tax of machines and equipments. - Exempt from corporate income tax for the period of 8 years from the date of revenue received from operations. No. of Shareholders As of December 25, 2003 No. of No. of % of paid-up shareholders shares capital 1. Strategic shareholders 1.1 Government, state-owned enterprises or public sector - - - agencies 1.2 Directors, manager, and executive management including 15 45,402,020 4.75 related persons and associated persons 1.3 Shareholders who have a holding of above 5% including 5 531,799,980 55.69 related persons 1.4 Shareholders who enter into agreement not to sell their 11 171,900,000 18.00 stocks within a specified period * 2. Non-Strategic shareholders hold > 1 trading unit 2,469 205,898,000 21.56 3. Non-Strategic shareholders hold < 1 trading unit - - - Total Shareholders 2,500 955,000,000 100.000 Note: * Such shareholders are individuals and companies in Saha Group whose shares are restricted to sell (silent period) according to the SET regulations. Major Shareholders As of December 25, 2003 Name No. of shares % of paid-up capital 1. Saha Pathana Inter-Holding Plc. 173,647,030 18.18 2. S&J International Enterprises Plc. 133,306,260 13.96 3. I.C.C. International Plc. 99,432,960 10.41 4. Saha Pathanapibul Plc. 68,013,730 7.12 5. Mr. Veerapat Punsak-Udomsin 57,400,000 6.01 6. Thai Wacoal Plc. 32,800,000 3.43 7. Ms. Pavinee Punsak-Udomsin 24,600,000 2.58 8. Champ Ace Co., Ltd. 20,500,000 2.15 9. International Laboratories Co., Ltd. 20,400,000 2.14 10. Mr. Karmthon Punsak-Udomsin 16,400,000 1.72 11. Mr. Boonsithi Chokwatana 16,400,000 1.72 12. Mrs. Sirina Pawarolanwitthaya 16,400,000 1.72 13. Thanulux Plc. 16,400,000 1.72 (more)