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Banpu Public Company Limited

Annual Report


Contents

2008 Highlights

Financial Highlights

003

Board of Directors’ Review

004

Chief Executive Officer Review

006

Key Financial Results

010

Summary of Major Changes and Developments in 2008 and Major Current Events

012

Vision & Mission

014

Banpu Group Structure

016

Organization Chart

018

Management Structure

019

Industrial and Marketing Outlook

030

Operational Results During the Previous Year

040

Revenue Structure

042

Risk Management

044

Internal Control

051

Sustainable Development

056

Human Resources Management

059

Corporate Governance and Supervision on the Use of Internal Information

060

Corporate Culture and Corporate Social Responsibility

Banpu Spirit & The Organization of Innovation

072

Corporate Social Responsibility

074

Other Relevant Information

Board of Directors and Management

080

Shareholdings of the Board of Directors and Management

089

Remuneration of the Board of Directors and Management

090

Major Shareholders

092

Connected Persons and Transactions

093

Other References

100

Details of the Company and Its Subsidiary and Associated Companies

101

Report of the Board of Directors’ Responsibility in the Financial Statements

106

Report of the Audit Committee to Shareholders

107

Management’s Discussion and Analysis of the Consolidated Financial Statements

109

Auditor’s Report

113

Company and Consolidated Financial Statements

114

Corporate Information

Banpu Management

Financial Statements


2008 Annual Report

02

2008 Highlights

003 03

Financial Highlights

004 4

Board of Directors’ Review

006

Chief Executive Officer Review

010

Key Financial Results

012 0 12

Summary of Major Changes and Developments in 2008 and Major Current Events


003 03

Banpu Public Company Limited

Financial Highlights

For the year ending 31 December 2008

Financial Position

Operational Results

Financial Ratios

Data per Share

2007

2006

Total Assets

(THB million)

89,362

65,051

49,386

Total Liabilities

(THB million)

43,828

26,554

27,043

Total Shareholders’ Equity

(THB million)

45,534

38,497

22,344

Issued and Paid-up Share Capital

(THB million)

2,717

2,717

2,717

Sale Revenues

(THB million)

50,530

32,442

33,378

Cost of Sales

(THB million)

28,110

20,964

20,838

Gross Profit

(THB million)

22,419

11,478

12,541

Selling and Administration Expenses

(THB million)

6,158

5,114

4,447

Export Tax

(THB million)

-

-

706

Royalty Fee

(THB million)

5,537

3,247

3,238

Other Revenues

(THB million)

1,855

2,491

1,755

Other Expenses

(THB million)

1,828

390

659

Profit from Operation

(THB million)

10,751

5,217

5,246

Share of Gain/(Loss) of Joint Ventures and Asso. (THB million)

4,946

4,504

801

Interest Expenses

(THB million)

1,240

1,160

953

Corporate Income Tax

(THB million)

3,768

1,492

1,122

Net Profit

(THB million)

9,228

6,654

3,610

Gross Profit Margin

(%)

44.37

35.38

37.57

Net Profit Margin

(%)

17.62

19.05

10.28

Returns on Assets

(%)

11.95

11.63

7.64

Returns on Equity

(%)

21.96

21.87

16.36

Interest Coverage Ratio

(times)

8.70

3.89

3.02

Net Debt to Equity

(times)

0.36

0.14

0.66

Earnings per Share

(THB)

33.96

24.49

13.29

Book Value per Share

(THB)

167.56

141.67

82.22

Dividend per Share

(THB)

12.00

8.50

7.50

* The Company announced dividend payments of THB 12 per share, of which an interim dividend worth THB 7 per share was paid on 31 October 2008. The remaining dividend of THB 5 per share, which will be paid out of the Company’s retained earnings and operating results during the period between 1 July 2008 and 31 December 2008, is scheduled on 30 April 2009. Remark : Financial figures are based on the consolidated financial statement.


2008 Annual Report

004 04

Board of Directors’ Review

Last year saw both severe oil price volatility and the beginning of a global financial crisis. Banpu’s satisfactory performance in this context was partly a consequence of higher average coal selling prices - but was also the result of good corporate governance, prudent financial management and the rapid deployment of risk mitigation measures. Banpu’s long term resilience to crises and external volatility is strengthened first and foremost by the careful and sustained investment in the Company’s corporate governance culture and systems. In 2008, Banpu started implementing corporate governance systems to its China business, including the launch of a Chinese version of Banpu’s ‘Code of Conduct’, following the successful release of the Thai and Indonesian versions. Going forward, we will continue to expand the implementation of our governance policies to all new countries and subsidiaries in line with the Company’s growth. In addition, last year, we aimed at deepening the understanding of Banpu’s governance policies amongst our management and staff through a variety of activities ranging from inter-departmental workshops to the distribution of information through bulletin boards and email. The bottom line here is to ensure that our employees embrace the main governance and conduct principles as part of their everyday decisions and behavior. I am pleased to see that Banpu is still considered as one of the leaders in corporate governance amongst listed Thai companies. In 2008, the Stock Exchange of Thailand ranked Banpu amongst twenty-two listed companies considered to have ‘excellent’ corporate governance based on a survey by the National Corporate Governance Committee of the Securities & Exchange Commission (‘SEC’). Aside from supervising the Company’s compliance with principles of good corporate governance, the Board also puts emphasis on ensuring that management achieves the Company’s main strategic goals. During the past year, we asked management to review and update the Company’s ‘vision’ and ‘mission’ statements to reflect the way in which Banpu has evolved in recent years. Our new vision is “to be an energetic Asian energy provider of quality products and services – and to be recognized for its fairness, professionalism and concerns for society and environment”. To realize this vision, we have set the following five missions: 1. To develop businesses in the fields of energy in pursuit of Asian leadership position. 2. To diversify and invest in strategic businesses to enhance competitiveness. 3. To provide a variety of quality products and services with commitment, reliability and flexibility. 4. To conduct our business in a socially, ethically and environmentally responsible manner. 5. To build sustainable value for shareholders, customers, business partners, employees and local communities – and to be a good citizen for host governments.


Banpu Public Company Limited

005 05

Mr. Krirk-Krai Jirapaet Chairman of the Board of Directors

The Board will supervise management to ensure that these corporate goals are achieved and that corporate strategies are properly implemented. The Board meets at least once a month to review and approve the main activities of the Company, including policy decisions, investments and risk management procedures. We also review the performance of the Company more generally. At every Board meeting significant external issues such as economic, political and energy sector trends are raised and discussed in relation to how they might influence Banpu. In particular, we discuss the probability and potential impact of different risks – and what Banpu should do to divert, mitigate, eliminate or accommodate such risks. The Board convenes extraordinary meetings in the case where there are any especially urgent or important matters requiring an opinion or an approval. The recent global financial crisis is one such example. We have been monitoring closely the extent and possible impact of the crisis and have invited reputable financial experts to give us analysis, advice and information in this regard. We are also keeping a close eye on Banpu’s cash flows, liquidity and debt status – while being aware that the Company needs to be in a position to seize new value-creating growth opportunities as they arise. The world’s economy is still in trouble and it is not clear yet when the downturn will bottom-out. The Board will do all it can to ensure that the negative impact of the crisis on Banpu is minimized by focusing on risk management, rapid response to changing circumstances and best practice corporate governance standards. Finally, the Board would like to thank its patrons and all other stakeholders who have continued to give us their support. In return, the Board would like to reassure all stakeholders that in the years ahead we will continue to take care of them in a just and transparent manner, and will seek to ensure that Banpu remains a good corporate citizen in all countries where it does business. And above all, we will continue to foster social, community and environmental development in tandem with commercial and operational expansion as the means to sustainable value growth for all.


2008 Annual Report

006 06

Chief Executive Officer Review

Adding AACI to our portfolio last year marked a significant milestone in the history of Banpu. The move constitutes the last main piece of the strategic plan we set out to deliver five years ago. It also comes almost exactly a quarter of a century after the Company was first established in 1983. Banpu today offers investors a sustainable pan-Asian coal-focused thermal energy play, with a strong trackrecord in pioneering and value-creating growth – and a demonstrated commitment to best practice governance.

Summary of our financial performance in 2008 Net earnings increased 39 per cent from THB 24.5 per share in 2007 to approximately THB 34 per share in 2008 – or in absolute terms from THB 6,654 million to THB 9,228 million. Total dividends for the year have been announced at THB 12 per share, up from THB 8.5 in 2007. Banpu’s EBITDA1 increased 80 per cent to THB 18,772 million in 2008. In contrast to the previous year, the Company’s coal business accounted for over three quarters of total EBITDA in 2008 at THB 14,720 million. The Company’s EBIT was up 89 per cent at THB 16,951 million. The earnings performance was driven primarily by the strength of the coal market and a higher share of AACI’s earnings in the second half of the year, post-acquisition. The EBIT for our coal business increased by more than three times to THB 13,350 million in 2008, while the power business EBIT fell to THB 3,601 million. Coal business earnings growth was achieved in spite of a slight fall in production thanks to higher coal selling prices, up 75 per cent to an average of about USD 72 per tonne versus USD 41 per tonne in the previous year. Total equity income from the China coal business for the year was THB 1,781 million, including 56 per cent of Daning’s earnings from July onwards. Inevitably, higher coal prices had the opposite effect on earnings from Banpu’s Power Business. BPIC’s EBITDA fell 55 per cent to USD 17.9 million while equity income from BLCP fell 22 per cent to THB 3,165 million.

Coal sales in 2008 and the outlook Banpu’s total consolidated coal sales volume in 2008 was approximately 18.5 million tonnes, down about 4 per cent from 2007. This was less than what we had targeted for the year and was a consequence of lower output, due mainly to heavy rains in Kalimantan and an unexpected geological problem at one of the operations. Output from our Thai mines was also less as our operations came to an end there. In 2008, we sold approximately 10 million tonnes of high grade Indonesian coal to the east Asian markets (including China), representing just over half our total sales. Another 7 million tonnes of both mid-grade and high grade coals were sold into the south-east Asian markets (including domestic sales in Indonesia and Thailand). The rest was sold mainly to customers in Europe. Note: 1 Earnings before interest, tax, depreciation and amortization


Banpu Public Company Limited

007 07

Mr. Chanin Vongkusolkit Chief Executive Officer

The Barlow Jonker spot benchmark for high grade coal from Australia to Japan (the ‘BJI’) rose from about USD 90 per tonne in January to just over USD 190 per tonne in July, stimulated by coal export supply constraints in Australia and South Africa, fears of further Chinese export cutbacks and oil market speculation. During the second half of the year the BJI fell back heavily, ending the year at around USD 80 per tonne. The BJI average for the whole year was about USD 128 per tonne, roughly double the average in 2007 (of USD 61 per tonne). Due to the normal quality discounts and contract related time-lags, Banpu achieved an average price of coal sales equivalent to 56 per cent of the BJI average in 2008. Going forward, in 2009, the global recession will continue to impact thermal coal demand. Although there is evidence of some reduced supply pressures, the lower demand levels combined with increased quantities of metallurgical coal entering the thermal coal market, fewer short term logistics constraints and a depressed oil price may result in further price weakness this year. Due to extensive forward contracts secured in early and mid-2008, however, we expect the average coal selling price for our Indonesian coals in the year ahead to be a much higher percentage of the average BJI spot price in 2009 versus 2008.

Indonesian coal operations: focus on productivity improvements We had originally planned for about 19.5 million tonnes of saleable coal output from our Indonesian mines in 2008 but achieved only 17.7 million tonnes. All mines in Kalimantan, experienced heavy rainfall causing problems such as flooding, slippery road conditions and equipment breakdowns. A split seam at the West Block in Indominco also slowed production and the total output for the year at this operation was 10.8 million tonnes versus 11.5 million tonnes in 2007. Although Indominco and Jorong were both down on the previous year, Trubaindo’s production grew from 3.6 million tonnes in 2007 to 4.5 million tonnes in 2008. The investment programme at Bontang Coal Terminal continued with the objective of increasing ship-loading capacity to over 20 million tonnes per annum (from 12.5 million tonnes per annum) in addition to stockyard, barge and truck logistics capacity expansions. In 2008 the port stockyard expansion and in-loading systems were completed. This coming year will see the final phase of the terminal expansion with completion of the barge loader and unloader systems and the captive coal-fired power project (14 megawatts). The various improvements at Bontang are intended to enhance the service to customers, reduce costs and enable Trubaindo coal to be handled through the terminal. The year ahead should see the first output from East Block as well as trial output from the West Block underground mine and the South Block at Trubaindo. While these new developments will bring higher costs and some additional operational risks, they should help us to achieve our target output of 20.5 million tonnes in 2009. At Jorong we are developing a better approach to water management including the purchase of multi-flow pumps. This combined with other improvements should reduce the impact of adverse weather conditions in future years. Looking beyond 2009 we are seeking to expand output further from our existing Indonesian assets, including 4 million tonnes per annum from Bharinto. We will be working on the infrastructure developments of Bharinto this year with a view to commissioning the mine by the end of 2010.


2008 Annual Report

008 08

Major expansion of our China Coal Business In June last year we finalized the acquisition of an additional 78.4 per cent of Asian American Coal, Inc. (‘AACI’) for a consideration of USD 420 million in cash via our fully-owned subsidiary BP Overseas Development Company (‘BPOD’). We had previously owned 21.6 per cent of AACI and have been a major shareholder since 2003. The acquisition took BPOD’s shareholding to 100 per cent and was funded via a loan from Banpu. Funding at the Banpu level also came mainly from debt finance. The deal puts Banpu firmly on the map in the Chinese coal sector and establishes both critical mass and asset diversity to our overall China strategy. The acquisition has added around 100 million tonnes in additional equity reserves and brings with it majority control of a mid-sized underground mine, built and operated to US standards, as well as significant growth opportunity through a strategic stake in a greenfield mine project. AACI has shareholdings in two Chinese coalmining joint ventures: 56 per cent in Shanxi Asian American-Daning Energy Company Limited (‘SAADEC’) and 45 per cent in Shanxi Gaohe Energy Company Limited (‘SGEC’). The joint ventures have coal concessions in the southeast of Shanxi province in China: Daning and Gaohe. Shanxi is China’s largest coal producing region, accounting for one quarter of the country’s total coal output. The Daning mine was commissioned in 2006 and last year had run-of-mine output of approximately 3.4 million tonnes. This was lower than its capacity due to two longwall machine relocations during the year. Daning’s anthracite coal is sold as lump coal to fertilizer plants and as thermal coal to power plants in Shanxi and neighboring provinces. We are targeting output of 4 million tonnes in 2009 and sales of 3.2 million tonnes after washing losses. Safety management and planning will remain paramount and I am pleased to note that SAADEC was awarded a certificate for first class safety and efficiency by the Coal Industry Association of China last year. Gaohe obtained a business license in 2006 and construction of the mine is underway. The new mine is scheduled to commission its first underground longwall mining system by 2010. Full run-of-mine production of towards 6 million tonnes per annum should be reached by 2013. Gaohe coal will be sold mainly as thermal coal to the power sector and as PCI coal to the steel sector. Together with Banpu’s 40 per cent shareholding in Hebi Zhong Tai Mining in Henan province, with output capacity of around 1.5 million tonnes per annum, we are targeting total equity output from China of over 5 million tonnes per annum by 2013.

Banpu’s Power Business in 2008 Through BPIC (previously known as PPIC), Banpu has run three combined heat and power plants in China since 2006: two in Hebei Province (Luannan and Zhengding) and one in Shandong Province (Zouping). All plants have recently been upgraded. The total power capacity of BPIC is now just under 250 megawatts with towards 800 tonnes per hour of steam capacity. BPIC suffered in 2008 from higher coal prices and restrictions on the ability to pass on the higher costs in power and steam tariffs. Total EBITDA from the three operations was USD 17.9 million in 2008, down from USD 32.8 million in 2007. In Thailand, BLCP, the 1,434 megawatt coal-fired power operation in Rayong province, performed well in 2008, with total revenues up slightly at THB 20,430 million and dispatch up at 89 per cent. EBITDA was down slightly on the previous year, however, at THB 10,825 million. Banpu’s 50 per cent equity-accounted earnings from BLCP fell to THB 3,165 million due to lower EBITDA and a foreign exchange loss of THB 202 million.


Banpu Public Company Limited

009 09

The 1,800 MW lignite-fired Hongsa power project in Laos, in which we have a 40 per cent stake in partnership with RATCH and the Lao government, was originally targeted for commissioning by 2013 but may now be delayed by up to two years. Whether the project is delayed or not, we still intend to finalize tariff and EPC negotiations in the year ahead. If we are successful in completing the project, Banpu will have been instrumental in bringing nearly 5 gigawatts of new electricity supply capacity to the Thai grid since the mid-1990s. Needless to say, the Hongsa project will also make a major contribution to the Lao economy.

HR, governance and stakeholders Our Indonesian coal business was restructured into PT. Indo Tambangraya Megah (‘ITM’) and listed on the Indonesian Stock Exchange in December 2007. Last year therefore represented ITM’s first full year as a listed company. The implementation and correct functioning of ITM’s new governance related committees, management systems and investor relations programme were given priority last year. The objective is to establish a best practice approach similar in standard to what has been achieved at the Banpu level. With the acquisition of AACI, we have again brought a new influx of staff to the Banpu group - this time with a mix of Chinese and international backgrounds and a wealth of underground mining expertise. The second half of 2008 saw the beginning of an integration programme for the new employees. I would personally like to welcome all of them to the Banpu group. As the group gets bigger, our responsibilities grow, not only in terms of employee welfare, but also in terms of a whole range of other stakeholder relationships. Giving careful attention to environmental responsibilities, fostering a transparent and mutually rewarding relationship with local communities and establishing constructive dialogue with local governments are all critical, in my view, to sustainability. With all stakeholders, our approach going forward should continue to be guided by the Banpu Spirit principles of care, integrity, innovation and synergy.

A quarter century of growth The acquisition of AACI in the middle of last year marks an important milestone in the history of our Company. The deal came almost exactly a quarter century after we first established Banpu to develop a small lignite mine with the same name in the north of Thailand. And it came in the same year that our Thai coalmining operations finally came to an end (at least for the timebeing). The deal has brought critical mass and a solid foundation for future growth for our China business. The transaction can therefore be seen as marking the end of long transition from being a small and predominantly Thai company, to becoming a mid-sized regional energy group. It is also, I believe, the last main piece of the strategic plan we set out to deliver as the fog of the last macroeconomic crisis began to clear. Banpu today can legitimately be described as a ‘pan-Asian coal-based thermal energy player’. And, of course, just as we completed our own corporate growth cycle, it seems that the world economy was also coming to the end of its own cycle. The global economic collapse since the second half of 2008 has brought new challenges for us, as it has for everyone. But Banpu has already weathered one major economic storm – and the decisions we took as we came out of the last storm set the scene for several years of exceptional growth. We will again endeavor to take an innovative approach to the new crisis – and will seek to come out stronger again, than when we went in. It won’t be easy, but I have confidence in the management and staff of Banpu and in the resilience and sustainability of the culture, business model and systems we have established. I look forward to another challenging year ahead.


2008 Annual Report

010

Key Financial Results

Total Revenues

06

07

32,442

0.36

06 08

(Year)

The Company’s total assets as of 31 December 2008 reported at THB 89,362 million - increased by 37 per cent or THB 24,311 million compared to the same period last year. The increase was mainly from the additional investment of Coal Business in China, profit sharing of Power Business in Thailand as well as Coal Business in China and accrued dividends from related parties.

(THB Million)

(Times)

(THB Million)

(THB Million)

0.14

22,344

49,386

33,378

65,051

38,497

0.66

45,534

89,362

Net Debt to Equity

50,530

Total Shareholders’ Equity

Total Assets

07

06 08

(Year)

Shareholders’ equity reported at THB 45,534 million - an increase of THB 7,037 million or 18 per cent compared to last year. The increase was due to net profit for the fiscal year of 2008 at THB 9,228 million, deducted by dividend payment to shareholders of THB 4,239 million.

07

06 08

(Year)

The Company’s net debt reported at THB 16,224 million - an increase of THB 11,007 million. This was due to borrowing to fund acquisition of Asian American Coal, Inc. in China. Net debt to equity stood at 0.36 times increasing from 0.14 times.

07

08

(Year)

The total revenues reported at THB 50,530 million, increased 56 per cent or THB 18,088 million compared to previous year. The increase was mainly due to higher average coal selling prices which rose 75 per cent to USD 72 per tonne, while coal sales volume decreased 4 per cent to 18.5 million tonnes.


Banpu Public Company Limited

Net Profit

6,654

24.49

9,228

18,772

07

06 08

(Year)

The Company’s gross profit recorded at THB 22,419 million an increase to THB 10,942 million. This was due to the higher average coal selling price. Gross profit margin increased to 44 per cent from 35 per cent from the previous year. The gross profit margin from Coal was 48 per cent (increased from 37 per cent) while gross profit margin from Power was 9 per cent (decreased from 25 per cent).

07

13.29 (THB/Share)

(THB Million)

(THB Million)

3,610

7,547

10,432

11,478

12,541 (THB Million)

06

Earnings per Share

33.96

EBITDA

22,419

Gross Profit & Gross Profit Margin

011

06 08

(Year)

Earnings before interest, tax, depreciation and amortization (EBITDA) reported at THB 18,772 million - an increase by THB 8,340 million or 80 per cent compared to last year, divided into EBITDA from Coal of THB 14,720 million and EBITDA from Power of THB 4,052 million.

07

06 08

(Year)

The Company’s 2008 net profit was THB 9,228 million increased by THB 2,573 million or 39 per cent compared to the same period last year.

07

08

The Company’s earnings per share (EPS) for 2008 was THB 33.96 per share, a 39 per cent increase from the previous year of THB 24.49 per share.

(Year)


2008 Annual Report

012

Summary of Major Changes and Developments in 2008 and Major Current Events

Coal Business • On 4 February 2008, BP Overseas Development Company Limited (“BPOD”), one of Banpu’s wholly-owned subsidiaries, sold all of its 32,530,590 shares in Asian American Gas, Inc., (“AAGI”) or 17.03 per cent of AAGI’s total offered shares, to China CBM Investment Holdings Limited (the “Buyer”). AAGI was incorporated under the laws of the British Virgin Islands and it invested in an exploration and production project of methane at two coal-mining projects in China. • On 6 June 2008, BP Overseas Development Company Limited (“BPOD”), signed an agreement to buy 32,084,882 shares, which accounted for 78.40 per cent, of Asian American Coal, Inc. (“AACI”), for USD 432.84 million or approximately THB 14.396 billion. As a result, BPOD’s holding in AACI rose from 21.60 per cent to 100 per cent of all shares being offered. Incorporated in British Virgin Islands, AACI is a developer and co-investor in coal mines in China. AACI is also holding 56 per cent of Shanxi Asian American-Daning Energy Company Limited’s (“SAADEC”) total shares offered and 45 per cent of Shanxi Gaohe Energy Company Limited’s total shares (“SGEC”) sold. On 26 June 2008, the purchase of AACI shares between a group of existing shareholders of AACI and BPOD was completed, which 32,084,882 shares were transferred and the amount of USD 432,838,316 (or equivalent to THB 14.396 billion) was paid at the same date.

Others • On 1 October 2008, the Board of Directors’ Meeting approved to pay an interim dividend from the Company’s retained earnings and its six-month performance as of 30 June 2008 to shareholders holding 271,747,855 shares at THB 7 per share or a total of THB 1,902,234,985. This payment was made out of profits exempted from corporate income tax payment. As a result, those receiving the dividend were not entitled to a tax credit. The interim dividend was paid on 31 October 2008. • On 25 February 2009, the Board of Directors’ Meeting approved to pay the 2009 annual dividend at THB 12 a share. As THB 7 per share was paid as an interim dividend on 31 October 2008, there remains THB 5 per share to be paid. The Board recommends that the Company pay the dividend from its retained earnings and its performances between 1 July 2008 and 31 December 2008 at a rate of THB 5 per share. This payment will be made out of profits exempted from corporate income tax payment. As a result, those receiving the dividend will not be entitled to a tax credit. The interim dividend will be paid on 30 April 2009.


Banpu Public Company Limited

013

Corporate Information

014

Vision & Mission

016

Banpu Group Structure

018

Organization Chart

019

Management Structure


2008 Annual Report

Vision

To be an energetic Asian energy provider of quality products & services and be recognized for its fairness, professionalism, and concerns for society and environment.

014


Banpu Public Company Limited

Mission

To develop businesses in the fields of energy in pursuit of Asian leadership position.

To diversify and invest in strategic businesses to enhance competitiveness.

To provide varieties of quality products and services with commitment, reliability, and exibility.

To conduct business in a socially, ethically and environmentally responsible manner.

To build sustainable value for shareholders, customers, business partners, employees, local communities, and to be a good citizen to host governments.

015


2008 Annual Report

016

Banpu Group Structure As of 31 December 2008 (Entities with 10 per cent or more shares held by Banpu)

Banpu Public Company Limited

7.61%

99.80%

99.99%

100.00% BP Overseas Development Co., Ltd.

Banpu Power Ltd.

7.38%

99.99%

39.99%

0.20%

100.00%

Ratchaburi Electricity Generating Holding Plc.

Banpu Coal Power Ltd.

Power Generation Services Co., Ltd.

Banpu Power International Ltd.

Asian American Coal, Inc.

49.99%

100.00%

45.00%

100.00%

100.00%

100.00%

100.00%

BLCP Power Ltd.

Banpu Power Investment Co., Ltd.

Shanxi Gaohe Energy Co., Ltd.

Asian American Coal Holdings, Inc.

AACI SAADEC

AACI Gaohe HK Holdings

AACI Gaohe

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

Luannan Peak Pte. Ltd.

Pan-Western Energy Corporation LLC

Banpu Power Investment (China) Co., Ltd.

Zouping Peak Pte. Ltd.

Peak Pacific Investment Company (L) BHD

Shijiazhuang Chengfeng Cogen Co., Ltd.

AACI SAADEC HK Holdings

87.92% Tangshan Banpu Heat and Power Co., Ltd.

12.08%

70.00%

56.00%

Zouping Peak CHP Co., Ltd.

Shanxi Asian AmericanDaning Energy Co., Ltd.


Banpu Public Company Limited

100.00%

99.99%

Banpu China Pte. Ltd.

Banpu Minerals Co., Ltd.

017

40.00%

49.00%

98.87%

99.96%

99.99%

99.99%

100.00%

50.00%

100.00%

Hebi Zhong Tai Mining Co., Ltd.

Chiang Muan Mining Co., Ltd.

Ban-Sa Mining Co., Ltd.

Silamani Marble Co., Ltd.

Silamani Corp. Ltd.

Banpu International Ltd.

Banpu Singapore Pte. Ltd.

Banpu Minerals (Singapore) Pte. Ltd.

Banpu Coal Investment Co., Ltd.

51.00%

50.00%

95.00%

73.72%

95.00%

PT. Centralink Wisesa International

PT. Indo Tambangraya Megah Tbk

PT. Nusantara Thai Mining Services

99.67%

99.00%

99.99%

99.99%

99.99%

PT. Jorong Barutama Greston

PT. Bharinto Ekatama

PT. Trubaindo Coal Mining

PT. Kitadin

PT. Indominco Mandiri


2008 Annual Report

018

Organization Chart As of 1 January 2009

Board of Directors

Compensation Committee

Audit Committee

Corporate Governance and Nomination Committee

Chief Executive Officer

Internal Audit

Chief Operating Officer

Coal Business Unit

Power Business Unit

Coal Indonesia

Power Indonesia

Coal China

Power China

Coal Thailand

Power Thailand

Technical Development & Services

Power Engineering Services

Coal Business Office

Power Business Management

Marketing, Sales & Logistics

Company Secretary & Governance

Strategy & Business Development

Strategic Planning & Analysis Business Development New Energy Development

Corporate Affairs

Corporate Services

Corporate Finance

Corporate Communications

Treasury

Community Development

Quality, Safety & Environment

Finance

Managerial Accounting Investor Relations Financial Accounting Tax Planning Finance Indonesia Finance China

External Relations

Legal Human Resources Information Technology Procurement & General Administration Corporate System


Banpu Public Company Limited

019

Management Structure

The Company’s management structure as of 31 December 2008 consisted of the Board of Directors and executive officers. The Board of Directors consists of independent directors, non-executive directors and executive directors. Independent directors meanwhile account for half of the total directors. The Board of Directors has set up three sub-committees; namely, the Audit Committee, the Corporate Governance and Nomination Committee and the Compensation Committee. The Board has required Chairman of the Board, Chairman of the Audit Committee, Chairman of the Corporate Governance and Nomination Committee, Chairman of the Compensation Committee and all members of the Audit Committee to be independent directors. 1. The Board of Directors consists of the following: 1. Mr. Krirk-Krai Jirapaet Chairman of the Board of Directors / Independent Director 2. Mr. Soonthorn Vongkusolkit Vice Chairman 3. Mr. Rutt Phanijphand Independent Director 4. Mr. Montri Mongkolswat Independent Director 5. Mr. Kopr Kritayakirana Independent Director 6. Mr. Somkiat Chareonkul Independent Director 7. Mr. Anothai Techamontrikul Independent Director 8. Mr. Vitoon Vongkusolkit Director 9. Mr. Sawatdiparp Kantatham Director 10. Mr. Chanin Vongkusolkit Director 11. Mr. Metee Auapinyakul Director 12. Mr. Ongart Auapinyakul Director Notes: • Mr. Krirk-Krai Jirapaet has become Chairman of the Board of Directors since 11 April 2008. • Mr. Soonthorn Vongkusolkit has become Vice Chairman of the Board of Directors since 11 April 2008.

Directors with Authority to Sign on Behalf of the Company Two of the following six; namely, Mr. Soonthorn Vongkusolkit or Mr. Vitoon Vongkusolkit or Mr. Chanin Vongkusolkit or Mr. Sawatdiparp Kantatham or Mr. Metee Auapinyakul or Mr. Ongart Auapinyakul, shall jointly sign a document together with the Company’s seal. Duties and Responsibilities of the Board of Directors The Board is accountable to shareholders in regard to Banpu’s operations and by ensuring that Banpu is managed according to a goal and directions that will maximize the interests of its shareholders within a Code of Conduct framework and by taking into consideration the interests of all stakeholders. The Board has a duty to strictly comply with the laws, the Company’s objectives, the Articles of Association and resolutions of shareholders’ meetings by performing its duty with integrity, overseeing short- and long-term interests of shareholders and complying with rules and regulations of the Stock Exchange of Thailand (SET), the Office of the Securities and Exchange Commission (SEC) and the Capital Market Supervision Commission to be established under the Securities and Exchange Act (No. 4), B.E. 2008 (2551).


2008 Annual Report

020

To perform its duties, the Board of Directors has appointed a Chief Executive Officer (CEO) to be responsible for running the Company’s businesses. To supervise Banpu’s management, the Board of Directors has required that it is the Board’s duty and responsibility to consider and approve the following: 1. The Company’s policy, business strategy, business plan and annual budget 2. Monthly and quarterly performance report in comparison to the Company’s plan, budget and business outlook in the following period of the year. 3. Investment in a project worth more than THB 600 million. 4. Investment, which exceeds 10 per cent of the total investment budget of an approved project, and which exceeds 10 per cent of the total non-project investment budget. 5. Purchase and disposal of assets and an acquisition and participation in a joint venture project, which is not conflicting with the SEC’s and SET’s rules, for an amount that exceeds CEO’s authority. 6. Transactions with material effects to the Company’s financial status, liabilities, business strategy and reputations. 7. Entering into a contract not related to a normal course of business and a contract related to an important normal business. 8. Parts of a connected transaction between Banpu, its subsidiaries or affiliates and related individuals according to the Securities and Exchange Act (No. 4), B.E. 2008 (2551). 9. Any transaction which may cause the Company’s Debt-to-Equity Ratio to exceed 2.5 : 1. 10. Payment of an interim dividend. 11. Net borrowing that exceeds a maximum amount stated in a budget or that exceeds an annual estimate of more than THB 1 billion. 12. Changes in policy and practices with material implications to accounting, risk management and reserves. 13. Significant changes in financial and management control. 14. Determination and review of authorization granted to CEO, Executive Officers (EO) and Chief Operating Officer (COO) as well as a table of Delegation of Authorization and operations in various business units. 15. Recruitment of CEO, approval to recruit and employ EO and COO as proposed by the CEO, approval of budget, salary, bonus or bonus formula and formula to adjust annual remuneration packages of senior executives and employees. 16. Nomination, appointment and termination of directors and the Company Secretary or Secretary of the Board of Directors. 17. Authorization given to Chairman of the Board of Directors, CEO or any director, and amendments to such authorization. 18. Appointment and determination of duties of committees. 19. Establishing and supervising the management on the basis of the Corporate Governance policy and practices. 20. Appointment of directors or executive officers as directors of subsidiary and affiliated companies. 21. Registration of a new company and dissolving the company.


Banpu Public Company Limited

021

22. Directors have a duty to keep corporate information strictly confidential especially internal information not to be disclosed to the public or information that may affect its business or share price. In case the information is a report based on an accounting period such as an operating result, financial statements and an annual report, directors must refrain from trading Banpu’s shares no fewer than 30 days prior to the information disclosure to the public. In case the information is a report of Banpu’s action in a particular situation, such as acquisition/disposal of assets, connected transactions, joint venture/cancellation of joint venture, capital increase/capital reduction, issuance of new securities, repurchase of own shares, payment or non-payment of dividend or incidents that affect Banpu’s share prices, in such cases, directors shall refrain from trading the Company’s shares from the period he/she learns of the information to the day Banpu discloses the information to the public. 23. Amendment of the Board of Directors’ scopes of approving power as described in Clause 1 - 22. The Board of Directors requires new directors to attend an orientaion session to learn about the Company’s expectation from their roles, duties and responsibilities and what its corporate governance policy and practices are. The orientation will also help them understand the Company’s business better as well as provide a chance to visit the Company’s operations as a preparation for their tasks. The Board of Directors has a policy to educate all directors about corporate governance, industrial outlooks, business prospects and innovations where it urges directors to attend seminar or coursework organized by the Thai Institute of Directors Association (IOD) and other reputable institutes to promote effective performances of the directors. The Board of Directors also holds a joint meeting between independent directors and non-executive directors at least twice a year to allow them to discuss and exchange ideas regarding management issues that are in their interest independently. The Company Secretary will produce a summary report of the meeting for every director. The Board of Directors also organizes a Board Retreat every year to allow all directors to present interesting points and to express opinions or make recommendations for the benefit of the Board as well as for the management to determine its managing directions. The Board requires that its performance and the independence of its independent directors be evaluated by the Corporate Governance and Nomination Committee on an annual basis. 2. The Audit Committee consists of the following: 1. Mr. Somkiat Chareonkul Chairman of the Audit Committee 2. Mr. Montri Mongkolswat Member of the Audit Committee 3. Mr. Anothai Techamontrikul Member of the Audit Committee The Audit Committee’s term of office is three years each. The Committee has been in office from April 2007 and its term will end in April 2010.


2008 Annual Report

022

Duties and Responsibilities of the Audit Committee The Audit Committee has a duty to review the Company’s financial statements, its adequacy of internal control and risk management systems, and compliance with applicable laws and regulations as well as to report or express its opinions to the Board of Directors to seek approval or for further submission to the shareholders’ meeting, as the case may be. Details of its authority are as follows: 1. To review the Company’s financial reporting process to ensure that it is accurate and adequate. 2. To review the Company’s internal control system and internal audit system to ensure that they are appropriate and efficient, to determine an internal audit unit’s independence, as well as to approve the appointment, transfer and dismissal of the chief of an internal audit unit. 3. To ensure that the Company has duly complied with the laws on securities and exchange, the Exchange’s regulations, and the laws relating to the Company’s business. 4. To consider, select and nominate an independent person to be the Company’s auditor, and to propose such person’s remuneration, as well as to attend a non-management meeting with an auditor at least once a year. 5. To review the connected transactions, or the transactions that may lead to conflicts of interests, to ensure that they are in compliance with the laws and the Exchange’s regulations, and are reasonable and for the highest benefit of the Company. 6. To prepare and to disclose the Company’s annual report, an audit committee’s report which must be signed by the Chairman of the Audit Committee and consist of at least the following information: 6.1 an opinion on the accuracy, completeness and creditability of the Company’s financial report, 6.2 an opinion on the adequacy of the Company’s internal control system, 6.3 an opinion on the compliance with the law on securities and exchange, the Exchange’s regulations, or the laws relating to the Company’s business, 6.4 an opinion on the suitability of an auditor, 6.5 an opinion on the transactions that may lead to conflicts of interests, 6.6 the number of the audit committee meetings, and the attendance of such meetings by each committee member, 6.7 an opinion or overview comment received by the audit committee from its performance of duties in accordance with the charter, and 6.8 other transactions which, according to the audit committee’s opinion, should be known to the shareholders and general investors, subject to the scope of duties and responsibilities assigned by the Company’s Board of Directors; 7. To audit cases informed by the Company’s auditor when he/she discovers any suspicious circumstance that the director, manager or any person responsible for the Company’s operational commits an offence, which is specified under the Securities and Exchange Act (No. 4) B.E. 2551 and report the result of preliminary inspection to the Securities and Exchange Commission and the auditor within thirty days;


Banpu Public Company Limited

023

To ensure that the Audit Committee efficiently performs its duties, the Audit Committee shall do the following: 1. To review and continue monitoring major risk management procedures after Risk Management Committee did; to review financial derivatives transactions, commodity hedging with contractual parties for linkages with the internal control; 2. To express opinions regarding the operational plan and operational results, budgeting and manpower of the Internal Audit Department; 3. To revise the Audit Committee Charter at least once a year; 4. To review and approve the Internal Audit Charter; 5. To submit an operational report to the Board of Directors at least once a year; 6. To invite executive officers or supervisors to attend its meeting for clarification purpose or to submit relevant documents based on the scopes of its authority; 7. To obtain appropriate consultations from the independent specialist relating to its scope of duties and responsibilities with the Company’s expenses; and 8. To perform any other tasks as assigned by the Board of Directors upon the Audit Committee’s consent. 3. The Corporate Governance and Nomination Committee consists of: 1. Mr. Kopr Kritayakirana Chairman of the Corporate Governance and Nomination Committee 2. Mr. Soonthorn Vongkusolkit Member 3. Mr. Sawatdiparp Kantatham Member 4. Mr. Somkiat Chareonkul Member Note: Mr. Soonthorn Vongkusolkit was appointed as member of the Corporate Governance and Nomination Committee in April 2008.

The Corporate Governance and Nomination Committee’s term is three years, starting from April 2007. Its term will end at the 2010 Annual General Meeting of Shareholders. Duties and Responsibilities of the Corporate Governance and Nomination Committee As its name suggests, the Corporate Governance and Nomination Committee has two major duties; namely, to review the Corporate Governance policy and the Code of Conduct and to monitor compliance of the policy and practices so that it remains within an ethical framework and, secondly, to nominate directors, Chief Executive Officer and Executive Officers, to review a succession plan in order to nominate appropriate persons to fill management positions (from Department Vice Presidents and over), and to report to the Board of Directors for approval or for submission to the shareholders’ meeting, as the case may be. The Corporate Governance and Nomination Committee has the following duties and responsibilities: 1. To consider and review whether the Company’s Corporate Governance policy and its Code of Conduct are appropriate and adequate and to regularly update the Corporate Governance policy. 2. To monitor and supervise directors and staff’s compliance with the Corporate Governance policy and the Code of Conduct so that it is in line with those determined by the Board of Directors and to arrange a system where Banpu can receive grievance with regards to the Corporate Governance and Code of Conduct from stakeholders.


2008 Annual Report

024

3. To review the structure and components of the Board of Directors, to monitor the term of office of its directors, CEO and Executive Officers (EO), and to prepare a succession plan of senior executives (starting from Department Vice President and over). 4. To recruit and nominate persons as Directors, Chief Executive Officers and Executive Officers when the term is due or whenever there is a vacancy as entrusted by the Board. 5. To recommend how to evaluate performances of directors and the Board of Directors to the Board of Directors; to participate in the evaluation and to monitor improvements based on results of such evaluation. 6. To review and recommend an amendment to scopes of work, duties and responsibilities of the Corporate Governance and Nomination Committee to respond to changing circumstances. 7. To submit an operational report to the Board of Directors at least once a year. 8. To do any other tasks as designated by the Board of Directors. To ensure that the Corporate Governance and Nomination Committee effectively performs its tasks, the Committee must do the following: 1. Within the scopes of its authority, inviting executive officer or supervisor to attend its meeting for clarification purpose or to submit relevant documents. 2. Hiring consultants or spending money in any other ways relating to its job at the Company’s costs. 4. The Compensation Committee consists of: 1. Mr. Rutt Phanijphand Chairman of the Compensation Committee 2. Mr. Vitoon Vongkusolkit Member of the Compensation Committee 3. Mr. Montri Mongkolswat Member of the Compensation Committee The Compensation Committee’s term of office is three years, starting from April 2007. Its term will end at the 2010 Annual General Meeting of Shareholders. The Compensation Committee’s Duties and Responsibilities The Compensation Committee’s duty is to provide suggestions related to compensation management to the Board of Directors for approval or for submission to the shareholders’ meeting, as the case may be, as follows. 1. To recommend guidelines on how to compensate, methods of compensation payments and other benefits to the Board of Directors and other committees appointed thereby. 2. To consider and recommend compensation amounts and other benefits by taking duties and responsibilities of the CEO and Executive Officers into consideration and by reviewing evaluation criteria to determine a right annual remunerations. 3. To review a compensation structure, compensation rules and regulations as stated in Clause 1 and 2 to suit the person’s duties and responsibilities, Banpu’s operating results and market conditions. 4. To review overall budgets for salary increase, annual bonus payments and provisions of other staff’s fringe benefits. 5. To review and propose recommendations to amend scopes of work, duties and responsibilities of the Compensation Committee to respond to changing circumstances. 6. To submit an operational report to the Board of Directors at least once a year. 7. To do any other tasks as designated by the Board of Directors.


Banpu Public Company Limited

025

To ensure that the Compensation Committee effectively performs its tasks, the Committee must do the following: 1. Within the scopes of its authority, inviting executive officer or supervisor to attend its meeting for clarification purpose or to submit relevant documents. 2. Hiring consultants or spending money in any other ways relating to its job at the Company’s costs. 5. The Management* consists of: 1. Mr. Chanin Vongkusolkit Chief Executive Officer 2. Mr. Rawi Corsiri Chief Operating Officer 3. Ms. Somruedee Chaimongkol Chief Financial Officer 4. Mr. Sathitpong Watananuchit Assistant Chief Executive Officer - Corporate Services 5. Mr. Akaraphong Dayananda Vice President (Senior) - Strategy and Business Development 6. Ms. Udomlux Olarn Vice President (Senior) - Corporate Affairs

Note: * The first four executives after Chief Executive Officer are in accordance with Banpu’s organization chart announced on

1 January 2009. They consist of those being appointed to manage Coal Business Unit, Power Business Unit, Finance,

Corporate Services, Strategy and Business Development and Corporate Affairs. (At present, Mr. Rawi Corsiri, COO,

is also responsible for Coal Business Unit and Power Business Unit.)

Duties and Authority of Chief Executive Officer 1. To review an annual operating plan where he can approve an amount not exceeding 5 per cent of the total operation budget already approved. 2. To approve an investment which altogether does not exceed 10 per cent of the total investment budget approved; and to approve the use of other investment budgets which however do not exceed 10 per cent of the total non-project investment budget. 3. To approve new investment items where no budget has been set aside for no more than THB 100 million

a transaction. 4. To approve an increase of a total operation budget resulted from an adjustment of the stripping ratio (S/R) for no more than THB 500 million. 5. To invest in projects with a total investment value within THB 600 million. 6. To review and submit budgets for annual salary increase, staff bonus payment and provision of major staff welfare. 7. To consider and approve the signing of a purchase agreement, a lease agreement or a service agreement as follows: 7.1 Service agreement to remove overburden and transport coal for no more than five years and not exceeding THB 4 billion. 7.2 Land transport agreement of coal for no more than five years and not exceeding THB 4 billion. 7.3 Transport service agreement for no more than five years and not exceeding THB 2.4 billion. 7.4 Purchase agreement, hiring agreement, service agreement and lease/hire-purchase agreement for no more than five years and not exceeding THB 1.6 billion. 7.5 Approval to sign a coal purchase agreement for no more than five years and with a value of no more than USD 150 million.


2008 Annual Report

026

8. To approve the sales of permanent assets (land and the upgrade thereof) which, at the market price as of the sales date, do not exceed THB 300 million. 9. To approve the sales of permanent assets (building and construction) which, at the market price as of the sales date, do not exceed THB 300 million. 10. To borrow a net loan, which exceeds the maximum amount stated in an annual budget or an annual budget estimate already approved, but it must not exceed THB 1 billion in a year. 11. To sign a major contract (based on contract value) for equipment of Coal and Power Businesses of which the value is not exceeding THB 300 million. 12. To approve acquisitions of lands and properties for the Company’s businesses under an unplanned budget of which the value does not exceed THB 300 million. 13. To set and review approval authority granted to Assistant Chief Executive Officer and Group Senior Vice President and below. The Board of Directors sets operation goals for the CEO and will evaluate his performances every year. The CEO will then evaluate performances of executive officers and senior executive officers by using goals and evaluation rules linked closely with Banpu’s strategic plan and annual operating plan to come up with appropriate and attractive pay packages and incentives. 6. Independent Directors, who account for 50 per cent of the Company’s Board of Directors, consists of: 1. Mr. Krirk-Krai Jirapaet Independent Director 2. Mr. Montri Mongkolswat Independent Director 3. Mr. Kopr Kritayakirana Independent Director 4. Mr. Somkiat Chareonkul Independent Director 5. Mr. Rutt Phanijphand Independent Director 6. Mr. Anothai Techamontrikul Independent Director Rules regarding the qualification of “Independent Directors” under the Notification of Capital Market Supervisory Board No. TorJor. 4/2552 dated 20 February B.E. 2552 are as follows: 1. Holds shares not exceeding 1 per cent of the total shares with voting right of the applicant, its parent company, subsidiaries, associates, major shareholders, and controlling parties of the applicant, provided that the shares held by the related parties of such independent director shall be included. 2. Is not or has never been an executive director, employee, staff, advisor who receives salary, nor controlling parties of the applicant, its parent company, subsidiaries, associates, same-level subsidiaries, major shareholders, or controlling parties of the applicant unless the foregoing status ended at least 2 years prior to the date of submitting the application to the Securities and Exchange Commission (SEC), provided that such prohibition shall not include the case that such independent director has ever been official or advisor of the government sector that is the major shareholder or controlling party of the applicant.


Banpu Public Company Limited

027

3. Is not the person who has relationship by means of descent or legal registration under the status of father, mother, spouse, brothers and sisters, and children. The prohibitive persons also include spouses of daughters and sons of management, major shareholders, controlling party or the person who is in the process of nomination to be the management or controlling party of the applicant or its subsidiary. 4. Have no or never had business relationship with the applicant, its parent company, subsidiaries, associates, major shareholders, or controlling parties of the applicant in respect of holding the power which may cause the obstacle of the independent decision, including not being or never been the significant shareholder, or controlling parties of any person having business relationship with the applicant, its parent company, subsidiaries, associates, major shareholder, or controlling parties of the applicant unless the foregoing status ended at least 2 years prior to the date of submitting the application to the SEC. The business relationship mentioned under the first paragraph shall include business transaction in ordinary business manner of rent, or lease the immovable property, transaction related to assets or services, or the financial support regardless of being lent or borrowed, guaranteed, secured, by assets, debt, and any otherwise similar performance which causes liability or obligation to the applicant or counter party, have provided that such liability is equal to or exced 3 per cent of the net tangible assets of the applicant or equal or above THB 20 million, whichever is lower. In this regard, the calculation of such liability shall be in accordance with the calculation method of the value of connected transaction under the Notification of Capital Market Supervisory Board governing the conditions of connected transaction mutatis mutandis. The liabilities incurred during a period of 1 year prior to the date of having business relationship with the above party shall be included on calculation of such liabilities. 5. Is not or has never been the auditor of the applicant, its parent company, subsidiaries, associates, major shareholders, or controlling parties of applicant, and is not the significant shareholder, controlling parties, or partner of the auditing firm which employs such auditor of the applicant, its parent company, subsidiaries, associates, major shareholders, or controlling parties of the applicant unless the foregoing status ended at least 2 years prior to the date of submitting the application to the SEC. 6. Is not or has never been the professional service provider, including but not limited to legal service or financial advisor with received the service fee more than 2 million per year from the applicant, its parent company, subsidiaries, associates, major shareholders, or controlling parties, and is not the significant shareholder, controlling parties, or partner of the above mentioned service firms unless the foregoing status ended at least 2 years prior to the date of submitting the application to the SEC. 7. Is not the director who is nominated to be the representative of directors of the applicant, major shareholders, or any other shareholder related to the major shareholders. 8. Do not operate the same and competitive business with the business of the applicant, or its subsidiaries, or is not a significant partner of the partnership, or is not an executive director, employee, staff, advisor who receives salary, nor holds share for more than 1 per cent of the total shares with voting right of any other company which operates same and competitive business with the business of the applicant, or its subsidiaries. 9. Is not any otherwise which is unable to have the independent opinion regarding the business operation of the applicant.


2008 Annual Report

028

After being appointed as the independent director in accordance with the conditions under the article (1) - (9), such independent director may be assigned by the board of directors to make decision in respect of collective decision on business operation of the applicant, its parent company, subsidiaries, associates, same-level subsidiaries, major shareholder, or controlling parties of applicant. The provision under the article (2), (4), (5) and (6) related to the consideration of qualification of independent director of the applicant during the period of 2 years prior to the date of submitting the application to the SEC shall be applied to the application submitting as from 1 July 2010 onwards. Where the person appointed by the applicant to be the independent director is the person who has or ever had the business relationship with or ever rendered professional service with higher service fees specified under the article (4) and (6), the applicant shall be relaxed from such prohibition related to the conditions of having the business relationship with or ever rendered professional service with higher specified service fees if only the applicant has provided the opinion of the board of directors of the company showing that the board has considered the issue in accordance with the Section 89/7 and found that there is no interference in the independent opinion, and the following information shall be disclosed in the notice of shareholders meeting under the agenda considering the appointment of independent director. (a) the business relationship or the professional service providing which cause such person being unqualified (b) reasons and necessity to insist the appointment of such person as the independent director (c) the opinion of the board of directors of the applicant to propose such person to be the independent director For the benefit of the article (5) and (6), wording “partner” shall mean the person who is assigned by the auditing firm, or the professional service provider to be the signatory in the audit report or the report of rendering the professional services (as the case may be) on the behalf of the firm.

Note: * The Company has acknowledged the qualification of “Independent Director” which was amended in accordance with

the Notification of Capital Market Supervisory Board No. TorJor. 28/2551 dated 15 December B.E. 2551 and TorJor.

4/2552 dated 20 February B.E. 2552, respecctively, and is on the process of proceeding.

Nomination of Directors and Executives The Corporate Governance and Nomination Committee will nominate new directors who shall replace those retiring on rotation or otherwise based on the following procedures: 1. The Committee will review the Board of Directors’ entire structure and components with a purpose to strengthen its position. 2. The Committee will review general and specific qualifications of independent directors and add new qualifications deemed suitable for circumstances at the time, the Company’s requirements and to the SET’s terms and conditions. The Corporate Governance and Nomination Committee will then submit its nomination to the Board of Directors, who will submit it to the Annual General Meeting of Shareholders for approval and appointment. To nominate an executive officer, the Corporate Governance and Nomination Committee will draft

a succession plan covering CEO, COO and senior executive officers to ensure that the Company will have competent executives with proper expertise and experiences to succeed in its important positions in the future.


Banpu Public Company Limited

029

Banpu Management

030

Industrial and Marketing Outlook

040

Operational Results During the Previous Year

042

Revenue Structure

044

Risk Management

051

Internal Control

056

Sustainable Development

059

Human Resources Management

060

Corporate Governance and Supervision on the Use of Internal Information


2008 Annual Report

030

Industrial and Marketing Outlook

Industrial Outlook Coal is a natural resource with reserves in various countries around the world. Coal reserves are much higher than oil and natural gas, making it extremely crucial for human being. Coal we use can be divided into two main categories; namely, steam coal/thermal coal and coking coal. Most coal being used is steam coal/thermal coal and most is used in power plants to generate electricity. Coal can be said to be the cheapest commercial fuel. 1. Thermal Coal Trade in the World Market In 2008, imports of steam coal/thermal coal in the world’s markets continued to rise. Thermal coal imports were around 700 million tonnes or a 2.1-per cent increase from the year before due largely to rising demands in power plants for coal especially in Asia where imports of coal were as high as 54 per cent of the total imported thermal coal. Major importers were Japan, South Korea, Taiwan and China. Thermal coal exports in 2008 were around 691 million tonnes or a 2.5-per cent increase from last year. Indonesia remained the world’s largest exporter of coal as it exported roughly 200 million tonnes although the country suffered heavy rainfall throughout the year. The second rank was Australia with total coal exports of 124 million tonnes. Australia, too, suffered heavy rain especially during the first quarter of 2008 when Queensland saw major floods that slowed down its coal production. In addition, coal transportation facilities in Australia was inadequate; therefore, coal exports from Australia in this period was still lower than expected. Other coal exporters

Historical of World Thermal Coal Imports by Region

Historical of World Thermal Coal Exports by Countries Million Tonnes

Million Tonnes Central Asia

800

Rest of the World

800

Australasia 700

Carib. & C. America Africa

600

Venezuela 700

Poland Vietnam

600

South Africa Middle East

500

Kazakhstan USA

500

North America 400

Europe (Other) Europe (EU27)

300

China 400

South Africa Colombia

300

South Asia 200

SE Asia North Asia

100

Australia Indonesia

100

2008

2007

2006

2005

2004

2003

2002

2001

2000

2008

2007

2006

2005

2004

2003

2002

2001

0 2000

0

Russia 200

Source : Barlow Jonker Pty. Ltd.


Banpu Public Company Limited

031

such as South Africa also suffered heavy rainfalls while Russia found it ran out of train carriages to transport coal. China also found itself restricting its coal exports due to rising domestic demands. All of these resulted in a tight coal market in 2008. The situation however improved in the latter half of the year after the economic crisis, which started in the US, expanded to the rest of the world. This in effect lowered demands for coal. With production capacity of several coal exporters back to normalcy, the coal business in the end was instead in an oversupply mode. The Australia-Japan Reference Price for the period between April 2008 and March 2009 set the price of coal at USD 125 a tonne, which was 125 per cent higher than the year before. The FOB coal price in spot markets from Newcastle, Australia, in 2008 continued to rise during the first half of 2008 to nearly USD 200 a tonne due to problems in major exporting countries while demands for coal continued to rise due to cold weather. However, coal prices were plummeting due to a financial crisis in the US and fallen oil prices. Coal price at Newcastle, Australia, fell to be lower than USD 80 a tonne at the end of 2008. Yet, an average coal price at Newcastle Port throughout 2008 was at USD 128 a tonne, or USD 63 a tonne higher than the year before. Market expansion in 2009 is likely to be slower due to the global financial crisis and world economic downturn, which results in lower demands for coal in developed countries while demands for coal in developing countries also tend to fall. However, overall, the world will continue to demand for coals, albeit at a lower rate. Coal price at Newcastle in 2009 will be much lower than the previous year. Still, the price is expected to be higher than USD 70 a tonne due to higher production costs.

Top 10 Exporters of World Thermal Coal in 2008

Thermal Coal Export Price FOB Newcastle USD/Tonne

Million Tonnes 250

Barlow Jonker

250

Index Australia-Japan

Source: Barlow Jonker Pty. Ltd.

Jan-09

Jul-08

Oct-08

Jan-08

Apr-08

Jul-07

Oct-07

Jan-07

Apr-07

Jul-06

Oct-06

Jan-06

Apr-06

Jul-05

Oct-05

Jan-05

Reference Price

Apr-05

Poland

0 Vietnam

0 USA

50

Kazakhstan

50

China

100

South Africa

100

Russia

150

Colombia

150

Australia

200

Indonesia

200

Source: Barlow Jonker Pty. Ltd.


2008 Annual Report

032

2. Thermal Coal Trade in Thailand Coals consumed in Thailand are those produced from local mines which are usually low-graded lignite as well as imported coal which is usually bituminous. Coal used in Thailand is mostly steam coal/thermal coal. In 2008, the country consumed a total of 34.6 million tonnes or a 8.6-per cent increase from the year before. Of this, 18.7 million tonnes were coals from domestic mines, representing an increase by 0.8 million tonnes from the year before. At the same time, the country imported 16 million tonnes of coal from overseas or a rise by 1.9 million tonnes. Most domestic coal was used by the Electricity Generating Authority of Thailand (EGAT), to generate power. EGAT consumed a total of 16 million tonnes of coal in 2008 or 47 per cent of the country’s total coal consumption. During the past year, the industrial sector consumed a total of 18.4 million tonnes of coal, or an increase of 32 per cent from the previous year. Most were in cement, pulp and paper, petrochemicals, food and other industries. Only 2.4 million tonnes of locally-produced coal were used in the industrial sector. The rest was imported from overseas. One of the main reasons was that local coal reserves had greatly depleted and Lampang Mine, which was one of Banpu’s major mines, was shut down in late 2008. This resulted in more coal import substitution. Cement was the industry that consumed the highest amount of coal as the sector used a total of 7.2 million tonnes in 2008 or a 10-per cent increase. Power plants under Small Power Producers (SPP) and Independent Power Producers (IPP) projects consumed a total of 5.5 million tonnes of coal in 2008, or a 1.5-per cent rise. The remaining 5.7 million tonnes were utilized by other industries but this signified a sudden jump of as many as 36.7 per cent mainly because several factories switched their machinery from oil-dependent to coal instead at the time the oil price was exorbitant. That’s why demands for coal under this category rapidly rose. In 2009, expansion of demands for coal as fuel in Thailand will be much lower due to the economic recession as the economy is expected to expand by 0 - 2 per cent only. Although this can be translated to lower demands for coal, yet, the power generation sector’s demands for coal this year will be more or less the same as compared to the previous year as coal is the cheapest source of fuel when compared to others.

Coal Consumption in Thailand Million Tonnes Domestic Coal

40

Imported Coal

34.67

35

31.91

16.01

25

14.08

Private Sector

30

20 2.02

2.39

15.81

16.27

2007

2008E

5

EGAT

10

Domestic Coal

15

0

Source : Energy Policy and Planning Office


Banpu Public Company Limited

033

3. Power Generation Business in Thailand (Source: The Energy Policy and Planning Office: EPPO) The Thai economy in 2008 expanded by 4 per cent with inflation recorded at 5.6 per cent and the country also suffered a current account deficit due to lower domestic demands and exports in the third quarter, which is a result of the global financial meltdown. In addition, Thailand also suffered from its own political turmoil which crippled its economic growth during the third and the fourth quarters. This in return lowered demands for electricity in various sectors especially in November and December 2008, when the rise of electricity consumption rate was negative compared to the same period a year before. However, although the Thai economy was slower during the second half of 2008, the total electricity consumed by the country remained at 136,025 gigawatts per hour, or a 2.5-per cent increase from the year before. The slower growth rate of 2008 yet was in line with a weaker economic expansion in 2008. The highest demand of power was recorded on 21 April 2008, at 22,568 megawatts, which was still lower than 2007’s highest of 22,586 megawatts. The load factor was at 75.6 per cent while the reserved margin was at 23.8 per cent. Of this, 42,245 gigawatts per hour was recorded as electricity consumed in metropolitan areas or a hike by 0.5 per cent; 90,944 gigawatts per hour was recorded as electricity consumed in provincial areas or an increase of 3.6 per cent and 2,850 gigawatts per hour was recorded as consumed by direct customers of Electricity Generating Authority of Thailand (EGAT), or an increase of 5.5 per cent. The industrial sector remained No. 1 electricity user as it consumed 45 per cent of the total electricity consumed by the entire country or a 2.2-per cent increase from the previous year, which however was lower than the year before. The business sector’s consumption of electricity also rose by 1.6 per cent. The same applied to the household sector which saw its demands rise by 4.1 per cent. Demands for electricity in the agricultural sector and other sectors rose 3.7 per cent. With regard to power generation, in 2008, the country generated 29,892 megawatts of electricity. Of this, EGAT generated and purchased a total of 148,790 gigawatts per hour of electricity, or a 1.2-per cent increase from the year before. Power generated can be categorized based on sources of energy as follows: 70 per cent of power was generated from natural gas, 21 per cent from lignite/coal; 1 per cent from oil; 5 per cent from hydropower and 3 per cent was imported. It is expected that in 2009, EGAT will be able to generate and buy additionally power by 2.2 per cent with a higher proportion of its power coming from natural gas since PTT Public Company Limited will be able to supply more natural gas to EGAT while power generated from hydropower, bunker oil and by importing will decline according to EGAT’s Power Development Program (PDP).

Marketing Outlook 1. Coal Production and Distribution Business 1.1 Overseas Coal Market Coal markets in 2008 were quite volatile. During the first half of the year, demands for coal in the world market were high especially in China. This was due to unusually cold weather there and China’s preparation to host Beijing Olympics 2008. The Chinese government restricted coal exports to accommodate the country’s domestic demands. At the same time, the world’s major coal exporters suffered various production problems. In Australia, major floods were reported in Queensland. Indonesia and South Africa also suffered flooding. Russia ran out of train carriages to transport coal. Vietnam reduced its coal exports due to higher domestic demands. This resulted in a very tight market situation during the first half of 2008, forcing coal prices in the world market to hike rapidly. The Barlow Jonker Index (BJI) price of coal at Newcastle, Australia, rose to nearly USD 200 a tonne in July 2008 before falling down after the world’s production of coal went back to normalcy. Demands for coal during the second


2008 Annual Report

034

half of the year however were falling due to the US economic crisis and the falling of price. The BJI coal price at Newcastle, Australia, fell to lower than USD 80 a tonne in late 2008. Competition strategies In 2008, Banpu continued to sell coals to markets which offered the highest price. It also focused its efforts in keeping long-term customers and increase customer satisfactions. Banpu’s major competition strategies are as follows: • Customer relations management Realizing how important to respond to customer demands, Banpu has set up a unit to manage its relationships with customers. The unit interviews major customers of Banpu by sending questionnaires to measure their satisfactions towards the Company’s products and services. Results of the survey are later used to improve our products so that we can respond more to their demands. • Customer satisfaction Results of customer satisfactions are used to improve our internal work process so that we can timely respond to customer demands and to increase their satisfactions. • Reliability and stability in coal delivery Based on our opinion survey conducted with customers, we have found that reliability and stability when it comes to delivering coal is their priorities. Banpu therefore uses the result to improve our logistics and loading processes to ensure both stability and reliability in delivering coals to our customers. So far, what we have done is: - Improving coal terminal We have refurbished the Bontang Coal Terminal in Indonesia, which is our largest coal terminal, to be able to handle 14.5 million tonnes of coal annually. At present, we are at a stage to expand the Bontang Coal Terminal’s capacity to handle 18.5 million tonnes of coal a year to widen our service to customers. - Expansion of coal stockyard at the Bontang Coal Terminal We have expanded stockyard at Bontang from 350,000 tonnes of coal to 650,000 tonnes to ensure reliability and consistency in delivering coals to our customers. - Improving the barge circuit network Banpu has signed a long-term barge rental agreement so that we can plan their uses in an effective manner. In addition, we also develop a monitoring and checking system of our barges so that we can regularly transport coals from mines to our port while keeping our competitive costs. • Delivery flexibility With a coal terminal of our own, Banpu therefore can offer flexibility for customers who want to berth their own barges at our terminal. This not only facilitates customers by allowing them to rent their own barges or to change them but it also helps customers to better manage their barges and their transportation costs. • Speedy service Banpu has installed a computerized system to monitor its production, coal transportation and documentation such as invoices, cost calculation and coal quality information so that we can track a status of goods and services offered to each customer. This in turn helps us respond more quickly to customer’s needs while reducing documentation errors, which should help reducing customer’s costs and times spent on communicating with each other. • Technical supports The Company has hired coal utilization experts to offer advice and assistance to customers so that they can use our coal more efficiently, which should therefore reduce their costs.


Banpu Public Company Limited

035

• Sophisticated quality control system The Company has upgraded its quality laboratories at every mine and standardized its coal quality analysis manual to ensure that not only all of our labs will operate on the same standards but also run according to international standards. In addition, Banpu also sets up a quality control unit to monitor the quality of our coal at every production stage until the product is in customer’s hands to ensure that the coal delivered to customers is constant in terms of quality and is in line with all the terms and conditions previously agreed. The Company is currently building a central laboratory at its Bontang Coal Terminal. It plans to hire an outside coal quality analysis firm to run this central laboratory especially in testing the quality of coal to be delivered to customers. This is to ensure that customers will receive an analysis report more quickly and that they will be more confident in our products. • Selling more high-ended products The Company has combined medium-quality coal having low level of sulfur and ash with high-quality coal. The end result is high-quality product that can be sold in the market at a higher price, which in turn, expanding our high-price product ranges. • Focusing on long-term customers The Company continues to focus at maintaining our long-term relationship with customers. This has allowed us to have a lot of long-term customers whose purchases cover most of coals sold by us. Although some customers may not sign a long-term coal purchase agreement with us, they continue to buy coals from us on a regular basis. We continue to maintain our good relationships with them through various activities such as giving them information on the coal market situations, inviting them for a company visit, interviewing them and asking them for recommendations and providing them with technical support, to ensure that we remain in closed proximity to them. • Geographical spreads The Company’s major customers are spreading in various countries both in Europe and Asia to reduce our dependency risk in having to overly dependent on one market over another. Besides, when one market has a problem, we can still switch our effort to other markets that are still free from trouble. This in return helps stabilize our incomes. Pricing policy In general, Banpu negotiates a price deal with each customer once a year. The price deal is distributed across a time line within a year based on agreements signed with customers, which can be either fixed price or index-linked price. Fixed-price agreements guarantee our incomes and also reduce possible effects from volatility in the coal market. Banpu has adjusted the ratio of our fixed-price agreements and index-linked price agreements according to the market situations. During the past year, Banpu’s sales prices of coal were up due to increases of coal prices in the world’s markets. Normally, sales prices of coal in Indonesia are lower than the BJI coal price in Newcastle, Australia, due to a less sophisticated coal transportation system in Indonesia. However, during the past year, because of the tight market situation for coal all over the world, Banpu succeeded in reducing a price gap between Australia and Indonesia and it even managed to sell some high-quality coal at a higher price that sold at Newcastle. So far, Banpu has continued to upgrade its Indonesian coal terminal in order to reduce the pricing gap and to improve all the weak points there while pursuing a pricing policy aimed to reduce the gap between prices quoted by the Company and at Newcastle, Australia.


2008 Annual Report

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Distribution and distribution channels The Company sells coals directly to customers and indirectly through agents. Direct sales mostly occur in countries where Banpu has offices such as Indonesia and Thailand. In countries where Banpu does not have any presence, it uses agents in that country to facilitate customers including handling all documentation. Agents also help the Company gathering energy data as well as information about coal, customers and competitors in the country to formulate a future business plan. In addition, the Company also sells coal through trading companies in order to reach target customers and limit its own marketing costs. Customers Most Banpu’s customers are power generators who need a lot of coals to generate power. They are in various countries such as Japan, South Korea, Taiwan, China, Malaysia, the Philippines, Indonesia and some European countries. Banpu also sells coals to cement, petrochemicals, pulp & paper, plastic and chemical industries. However, as we continue to focus at power generation, a major customer, since their demands are stable and high, we will also expand our customer base to several industries and to maintain our relationships with them. Major competitors Banpu’s major competitors are major producers in Australia, China, Indonesia and South Africa. 1.2 Coal Markets in Thailand Demands of coal in the industrial sector in 2008 rose 12 per cent from the previous year. Of this, demands for coal in small industrial factories jumped by 47 per cent due to rising oil prices, which forces oil-dependent factories to switch their machinery to coal. The cement industry also saw its demands for coal rising by 12 per cent from the year before. At the same time, local coal production steadily fell. Some mines were shut down because their coal reserves were depleted. Users must import coals from overseas instead. That’s why demands for imported coal increased quite significantly and this in turn induced several new players into the market. As a result, competitions in the coal market in Thailand in 2008 were quite intensive. New coal dealers set up coal distribution centers and dressing plants to address the needs of smaller factories with high growth rate. They also sold some of their coals to major industries such as cement or factories with large boilers. The past year therefore can be said to be a golden year for coal distributors since coal prices in the world markets were rising fast especially during the first half of the year. Coal distributors who signed an agreement with coal producers in late 2007 were able to enjoy high profits from the rising prices in the market at that time. However, the financial crisis in late 2008 caused coal prices to plummet and this also affected coal sellers who signed a contract in advance in the same manner. Competition strategies • Locally-produced coal Most coals Banpu produced in Thailand are already covered by long-term agreements to be sold to customers. That’s why Banpu is focusing at producing quality coal and delivering it according to contracts signed with customers, with an emphasizing on after-sales service, on-time delivery and responsibility to environment and communities.


Banpu Public Company Limited

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• Imported coal • Thanks to the Company’s long-term relationships with its customers and its ability to show to customers that Banpu is accountable to all the obligations it has with customers whether it’s about quality that responds to their needs, quantity and on-time delivery, so far, the Company has been trusted by customers who continue to buy imported coal from us. • The Company has coal reserves of its own in Indonesia and this has created reliability in terms of delivery from its customer’s viewpoint. Banpu is therefore quite prepared in signing both short and long-term agreements with customers. • The Company continues to put priority to its long-term customers by seeking additional coal reserves to ensure that customers will have continued and enough supply of coal. In addition, Banpu also dispatches both technical and marketing teams to maintain its relationship with valued customers. • The Company creates strategic partnership by using its agents to reach out new customer base and to ensure that existing customers are well taken care of. • The Company has set up a coal distribution center where coals are piled up before being delivered to customers. The center is set up to reduce Banpu’s burden in managing stockyard as well as to reduce customer’s costs in managing its stock inventories. In addition, the center is also used to improve Banpu’s coal quality by screening size and heating values to suit unique needs of each customer. Banpu focuses on on-time delivery, quality control of its coals to meet customer’s terms and conditions, and operation control to be in compliance with environmental requirements and to reduce impacts to nearby communities. This is to ensure customer’s confidence in our long-term delivery. Pricing policies • Locally-produced coal The Company’s locally-produced coal prices are bound under the long-term agreements and most were already done with our major customers. For retail customers, sales prices of coal will likely be in the same direction as coal prices in the world markets where purchasing prices will be determined on an annual basis. • Imported coal Sales prices of imported coal will be based on the world market mechanisms. This will largely depend on a period coal is offered to a customer where an agreement with a customer may either be signed each time coal is delivered or for a year or more than a year depending on customer’s requirement. Since Banpu will also transport imported coal to customers, most of the offered prices also include freight. The Company will sign an agreement to rent enough ocean liners to deliver coal within a period stated in the agreement. Customers Customers in the industrial sectors are as follows: 1) Cement industry – they use cement in their production process and they are the largest group of private customers in Thailand. They are not many but each is in need of a huge amount of coal. 2) Coal-fired power plant under the Independent Power Producer – so far, there has been only one, which is BLCP Power Plant.


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3) Power and steam generation industry – They are paper, petrochemicals and textile industries which use coal to generate heat in large boilers. 4) Other industries that rely on coal to heat smaller boilers or use coal to burn, heat or boil in their production processes – are small industries such as pulp and paper factories, small chemical, food and lime industries. While they do not need a lot of coal, their numbers are many and their demands for coal are much more specific than the previous three groups. Major competitors • Local coal – major competitors are Siam Cement Industry Co., Ltd. (who produces coal for the Siam Cement Group). • Imported coal – during the past year, there were around 15 major coal suppliers who imported coal into the country. Most of them are trading companies, who buy and sell coals without their own production sources, and thus are facing delivery uncertainty and quality fluctuation. However, with increasing demands for imported coal, this is an opportunity for newcomers to enter this business. 2. Power Generation and Distribution Business 2.1 Power Business in China Power industry in China China’s power industry continued to grow in 2008 but with a slower rate. In 2008, its growth was as follows.

Growth rate of total consumption

Unit

2008

2007

2006

Per cent

5.23

14.42

14.00

Growth rate of industrial sector consumption

Per cent

3.83

15.66

14.30

Growth rate of production capacity

Per cent

5.18

14.67

20.30

Megawatt

792,530

713,290

622,000

Total production capacity

In general, demands and supply in China’s power market during the first two quarters of 2008 remained in balance since demands continued to be high as expected and therefore were able to accommodate new productions. However, in the fourth quarter, China started to suffer from the global financial meltdown. As a result, the overall demands for power in 2008 were rising at a lower rate compared to the previous year. In 2008, the Company managed its power generation capacity based on volatile market conditions. To elaborate, during the first half of the year, it increased its production capacity and sales but during the second half of the year, it turned to manage its production costs instead by reducing both the production capacity and sales volumes. That’s why the total sales and production capacity for the entire year were lower than 2007. At the same time, the Company negotiated with customers and local governments to increase steam price and was allowed to raise its power price. Increasing incomes therefore were used to compensate higher costs of fuel. This made us go through a crisis and has been able to run our business quite well so far.


Banpu Public Company Limited

039

The year 2008 was a volatile year for coal. Coal prices steadily rose in early 2008 to early of the fourth quarter due to high demands for coal and high transportation costs as a result of higher oil prices at the time. However, coal prices fell during the last two months of 2008 because of declining demands as a result of the global financial slump. The Company adjusted its purchasing strategies based on the prevailing situations. To elaborate, it reserved more coals at a time the price was up and reduced its reserves at a time the price was down to keep its fuel costs as low as possible. Customer Relationship Management (CRM) Banpu continues to focus at CRM for customers in both public and private sectors. This includes the local power authority, which remains the only buyer of its power, and other steam customers. The Company monitors customer satisfactions and maintains a good relationship with local governments. Through its cooperation and supports to the local authorities, Banpu is recognized as a model company there. This can be clearly seen from the fact that both the Company’s steam customers and the local government agreed and strongly supported us in increasing steam price as a result of a higher coal price of during the past year. 2.2 Power Business in Laos Banpu is conducting a feasibility study to develop a 1,800-MW coal-fired power plant in the northern part of Laos where part of the power will be sold to Thailand’s EGAT while the rest will be consumed in Laos by 2015. At present, the project is negotiating the power purchase agreement. 2.3 Power Business in Thailand Banpu has invested 50 per cent in the BLCP coal-fired power plant, which accounts or 717 megawatts of power; and 14.99 per cent in the gas-fired power plant of Ratchaburi Electricity Generating Holding Public Company Limited which accounts for 590 megawatts of power. All power generated from the two are sold to EGAT under long-term IPP (Independent Power Producer) power purchase agreements. Competition strategies • Coal-fired power plant in Thailand Banpu’s priorities are environment and community recognition. In recent years, as there has been an increasing awareness in an environmental issue among Thais that leads to amendments of laws and regulations and upgrades of standards, this also means more investments in environmental activities. Imbalance between policy directions and assurance from the government and protests against the power plant projects makes an investment in a project riskier. Major competitors • Major power producers in Thailand are The Electricity Generating Public Company Limited, Ratchaburi Electricity Generating Holding Public Company Limited and Glow Energy Public Company Limited. • Overseas power producers and investors


2008 Annual Report

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Operational Results During the Previous Year

In 2008, Banpu’s performances were clearly improving especially in the coal business thanks largely to higher coal prices in Indonesia and China as well as its successful acquisition of Asian American Coal, Inc. (AACI) in June 2008, which contributed to profits of Banpu’s Coal Business in China. The major two factors enabled us to record a net profit of THB 9.228 billion or 39 per cent higher than the previous year.

Coal Business In 2008, coal prices rapidly increased amid volatility that no one had ever seen before. Regional coal prices continued to hike from USD 90 a tonne in January 2008 to as high as USD 100 a tonne in July. Like other commodities, coal prices started to ease down to USD 80 a tonne in December. However, during this highly-volatile period, an average coal price measured from the Barlow Jonker Index (BJI) doubled to USD 128 a tonne from merely USD 61 a tonne in the previous year. This directly affected Banpu’s average sales price of coal, which ended up rising 75 per cent from USD 41 a tonne a year ago to USD 72 a tonne. Regarding its coal production in Indonesia, Banpu recorded lower-than-expected coal production capacity, which also affected its coal sales volumes. Coal mines in Kalimantan Island suffered one of the wettest years of production due to heavy rainfalls especially in areas to the south of the island, where Jorong Mine is located. In addition, Indominco Mine not only faced with heavy rainfalls but must also adjust its production to accommodate a new production plan in deeper new mining areas to correspond to higher sales price. Yet, Trubaindo Mine was hardly affected by the rain, which prompted its sales volume to increase from 3.7 million tonnes during the previous year to 4.6 million tonnes. Together with sales volumes of coal during the past year from coal mines in Thailand at 0.66 million tonnes, Banpu’s coal sales volumes totaled 18.5 million tonnes, or a 4-per cent decline from 2007. Higher prices of coal were a major factor in driving up Banpu’s gross profit margin from its Coal Business, which rose to 48 per cent from 37 per cent during the previous year. This took place amid higher costs of production both in terms of diesel price and mining costs as diesel in Indonesia rose to USD 1.02 a litre from USD 0.67 a litre the previous year. In addition, higher sales price of coal also led to mine much deeper at Indominco and Trubaindo Mines. This was also translated to higher production costs as more overburden at the two mines must be removed. With regards to Banpu’s coal business in China, Daning and Hebi Mines were able to generate a total of THB 1.781 billion profits or four times higher than the year before. This was a result of higher domestic sales price of coal and a successful consolidation of AACI’s financial statements starting from July.

For the year ending 2008

2007

2006

18.49

19.29

21.69

10.64

11.55

10.37

Trubaindo

4.61

3.73

4.11

Jorong

2.46

2.70

3.21

Coal Sales Volume (Million Tonnes) Indominco-Bontang

Kitadin-Embalut

-

0.12

1.58

Thailand

0.66

1.16

2.42

Other Sources

0.11

0.03

-


Banpu Public Company Limited

041

For the year ending 2008

2007

2006

50,530

32,442

33,378

Indominco-Bontang

25,817

18,758

16,638

Trubaindo

16,361

6,126

6,971

3,095

2,616

3,035

-

175

2,123

Thailand

377

717

1,667

Other Sources

325

38

-

45,976

28,429

30,434

Total Revenues (THB Million) Coal Business

Jorong Kitadin-Embalut

Total incomes from Coal Business Power Business

4,460

3,865

2,808

Other Businesses

94

148

136

Gross Profit Margin (%)

44

35

38

Indominco-Bontang

40

39

39

Trubaindo

63

38

41

Jorong

41

30

36

-

32

33

(8)

10

37

3

(30)

48

37

38

9

25

29

42

28

35

Kitadin-Embalut Thailand Other Sources

Coal Business Power Business Other Businesses

-

Power Business In 2008, the Power Business provided less support to the overall earnings. The Company booked a total of THB 3.165 billion equity income from BLCP Power Limited, down from THB 4.076 billion a year ago. This was mainly due to Thai Baht depreciation, which resulted in THB 202 million foreign exchange loss as compared to THB 591 million foreign exchange gain recognized during the previous year. Regarding its Power Business in China, as BPIC’s power price was controlled by the government at a time, while coal price, which was its production cost, kept rising according to market conditions. BPIC’s net profit therefore fell from THB 593 million the previous year to THB 160 million.


042

2008 Annual Report

Revenue Structure For the previous 3 years ended 31 December

Banpu Public Company Limited Products / Services

(Unit: THB Million)

% Conducted of Shareby holding

2008 Revenue

2007 %

Revenue

2006 %

Revenue

%

Sales Revenues 1. Domestic Coal

BP

100

273

12.10

575

32.51

1,443

76.36

2. Imported Coal

BP

100

1,890

83.65

1,066

60.29

369

19.54

3. Other Revenues

BP

100

96

4.25

127

7.20

78

4.10

2,259

100.00

1,768

100.00

1,890

100.00

Total Sales Revenues Participating Profit (Loss) from Investment in Associated Companies (Equity Method) Total Revenues

4,946

4,504

801

7,205

6,272

2,691

Banpu Public Company Limited and Its Subsidiaries Products / Services

% Conducted of Shareby holding

(Unit: THB Million) 2008

Revenue

2007 %

Revenue

2006 %

Revenue

%

Sales Revenues - Thailand 1. Domestic Coal

2. Imported Coal

3. Other Revenues Total Sales Revenues - Thailand

BP

100

272

0.54

476

1.47

900

2.70

BPI

100

-

-

77

0.24

555

1.66

CMMC

99.42

105

0.21

163

0.50

213

0.64

BP

100

1,890

3.74

937

2.89

200

0.60

BMC

100

-

-

7

0.02

350

1.05

BPS

100

992

1.96

1,353

4.17

1,245

3.73

BPI

100

1,291

2.55

977

3.01

1,081

3.24

SLM

100

-

-

-

-

659

1.97

Trubaindo

73.71

485

0.96

-

-

-

-

419

0.83

148

0.46

136

0.41

5,454

10.79

4,139

12.76

5,339

16.00


043

Banpu Public Company Limited

Banpu Public Company Limited and Its Subsidiaries (continued) Products / Services

% Conducted of Shareby holding

(Unit: THB Million)

2008 Revenue

2007 %

Revenue

2006 %

Revenue

%

Sales Revenues - Overseas 1. Coal - International Trade

2. Power

Indominco

73.71

24,209

47.91

18,271

56.32

16,045

48.08

Kitadin

73.71

-

-

110

0.34

1,707

5.11

Trubaindo

73.71

14,946

29.58

5,107

15.74

6,380

19.11

Jorong

73.48

1,461

2.89

912

2.81

1,099

3.29

BPIC

100

4,460

8.83

3,865

11.91

2,808

8.41

-

-

38

0.12

-

-

45,076

89.21

28,303

87.24

28,039

84.00

50,530

100.00

32,442

100.00

33,378

100.00

3. Industrial Minerals Total Sales Revenues Overseas Total Sales Revenues Participating Profit (Loss) from Investment in Associated Companies (Equity Method) Total Revenues

4,946

4,504

801

55,476

36,946

34,179

Notes: 1. Other incomes consisting of other services. 2. The Company did not recognize sales incomes derived from the Power Business since its shareholding ratio is less than 50 per cent therein.

Division of Responsibility Policy among Companies within Banpu Group This policy applies to operations of companies engaging in the production and sales of coal where the Company and its subsidiaries in Thailand will produce and distribute coal to markets in Thailand only. On the other hand, foreign subsidiaries will produce and sell coal overseas whereby part of their production might be sold to Thailand as well through the Company and/or other subsidiaries through a sales price set according to the market rates normally transacted among customers in general.


2008 Annual Report

044

Risk Management

Banpu and its group of companies manage business risks through various committees to cover every area that risks may occur. This is for efficient and timely risk management based on internal and external changes. Banpu’s mechanisms include the Risk Management Committee which convenes on a quarterly basis; a monthly meeting of each business unit for risk monitoring; and the Financial Management Committee that meets every month. In addition, the Company also monitors, analyzes and supervises risk management activities at an operational level with progress being reported on a monthly basis. 1. Financial Risk 1.1 Exchange Risk The Company manages foreign currencies to prevent exchange risk both at the Company level and at the Group level through a natural hedging policy where it strives to create a balance between its foreign-currency assets and liabilities in Thailand, Indonesia and China. Other financial instruments are also implemented from time to time based on circumstances. As of 31 December 2008, 82 per cent of the Company’s loans were in Thai Baht currency; 10 per cent in US dollars and 8 per cent in Chinese RMB. Banpu also adjusted its forwarding contracts to properly reflect a proportion of its foreign currency assets and liabilities. At the same time, it naturally hedged foreign exchange incomes for overseas re-investments. By doing so, Banpu managed to make its risk management flexible while reducing foreign exchange impacts. Banpu’s subsidiaries in Indonesia manage their exchange risk by exchanging US dollars and Indonesian Rupiah within the Group and also by dealing US dollars in advance based on their estimated incomes and expenses to reduce the exchange risk between US dollars and Indonesian Rupiah. 1.2 Interest Risk Banpu manages an interest risk with a goal to have the level of risk appropriate with an intensity of a situation at the time. It closely monitors current and future interest rates in the world’s markets and in Thailand and mixes its short- and long-term loan portfolios with fixed and floating interest rates that correspond to different types of Banpu’s investments. Financial instruments such as interest rate swap are also used to reduce the interest risk, depending on the case. As of 31 December 2008, Banpu’s proportion of fixed-and floating-rate loans were at 28 per cent and 72 per cent, respectively.


Banpu Public Company Limited

045

1.3 Risk from Coal and Oil Prices Banpu Group has managed risk from coal prices that affect its incomes and risk from oil prices that affect its operating costs by partly using coal swaps and gas oil swaps. A Commodity Risk Management Committee has been set up to manage risk from volatile coal and oil prices. 2. Risk in Coal Business 2.1 Risk from Coal Price Volatility Coal prices in the world’s markets have increasingly been volatile especially in mid of 2008 when coal price was historically high and its prices rapidly fell towards the end of the year due to the global financial crisis. Coal prices in the world’s markets have not been driven by supply and demand only, but also by coal futures traded in derivatives markets. Such volatility has greatly affected incomes of coal producers. So far, the Company has managed its risk by monitoring and evaluating market situations and price trends in order to choose a right moment to make a deal with major customers who sign contracts with us so that the pricing deals are distributed at various dates. At the same time, the Company also adjusts its coal sales between those sold at a fixed price and those sold at an index-linked price to reflect a market situation at the time in order to sell coals at the appropriate price and to gain a steady income flow. 2.2 Delivery Risk Delivery risk mostly occurs as a result of force majeure, something that beyond our control; such as heavy rain that impedes a mine from producing coal and huge accident that hinders a machine from working, which, in the end, means there is no coal to deliver. A possible risk can be a fine the Company has to pay for demurrage. Yet, this is a risk that can be limited. Most of the time, Banpu will ask its clients to have their barges pick up coal at other coal terminals first and postpone a delivery schedule until its production resumes. At present, the Company has set up a system to monitor production and coal transportation information so that it can get access to production, coal quality and inventory information all the times. That’s why Banpu can designate and change its delivery schedules in advance and therefore can reduce its delivery risk. 2.3 Operation and Transportation Risk from Bontang Coal Terminal in Indonesia The Company has taken out a risk insurance against a suspension of coal transportation at the Bontang coal terminal due to accidents. In other words, the Company will be compensated by an insurance company if the terminal suffers from accident that prevents it from functioning. Banpu also formulates a maintenance plan by emphasizing at a preventive maintenance, giving regular skill trainings to maintenance staff and stocking enough critical spare parts to minimize repair time and impacts to its operations. However, if there is any force majeure that disrupts the coal terminal, Banpu has already prepared an emergency plan to handle the situation. Under this plan, coal will be loaded to smaller barges before being loaded onto a larger barge floating in the sea or the Company will use other terminals temporarily to minimize impacts to its customers.


2008 Annual Report

046

2.4 Risk from Volatility in Production Costs Diesel is a major cost of production since it fuels major mining and stripping equipment. That’s why oil price volatility in the world’s markets has a lot of effects on the cost of production. To manage this risk, the Company closely monitors and analyzes movements of oil prices in the world’s markets so that it can effectively plan its purchase of oil as well as its coal production activities to reduce its oil dependence and to increase its efficiency. In the long run, Banpu plans to study on how to reduce its dependence on oil-based machines. Diesel is also a major cost in transporting coals from Banpu’s mines to its coal terminal. At present, Banpu is studying on how to replace diesel with bunker oil in its coal barges because bunker oil is cheaper and is less volatile compared to diesel. This should help reduce its transportation costs and volatility in the Company’s long-term transportation costs. 2.5 Risk from Changes in Coal Reserves Coal reserves depend on exploration information. Additional exploration and information could mean that the Company’s reserves either increase or decline. But the Company continues to explore new reserves especially in its concession but not yet mined areas while searching for new coal resources to ensure that it can continue serving its customers for a long time. 2.6 Risk from Contractor’s Operations The Company hires contractors to strip off soil surface and to hurl coal. If contractors cannot do their jobs due to problems such as machines do not arrive on time, substandard maintenance, ineffective operation or labor problem, this will affect the Company’s operation. To prevent this, Banpu selects only reliable contractors with a good history of work experiences with whom it signs medium and long-term agreements so that contractors feel it is worthy enough to invest in brand-new machines. In addition, Banpu also does part of the stripping and hurling job itself to reduce its dependency on contractors, which in effect will lower risks from contractor’s operation. 3. Risk in the Power Business The Company’s investment risk in Power Business in Thailand is considered low as long as Banpu continues to manage its contracts well. This is because a rate of return is stable. There is no risk in marketing and sales prices because everything is clearly stated in the long-term Power Purchase Agreement (PPA) with the Electricity Generating Authority of Thailand (EGAT). An amount of power to be purchased is also fixed (based on the existing production capacity) while electricity price can also be adjusted based on costs of fuel and the changing exchange rate. Risk in the Power Business in China however is higher than the prevailing risk of the same business in Thailand. However, as the Company’s co-generation power plant will receive an investment promotion from the Chinese government and will be more efficient than other power plants in general, it therefore enjoys a privilege to sell heat and stream to designated areas and is guaranteed to sell electricity to local authorities.


Banpu Public Company Limited

047

Other risks in the Power Business are business risks in general such as requirements to maintain machines and equipment to maximize the plant’s efficiency, cost management of fuel, overall management efficiency, security of its stream customers and relationships with local communities and local authorities. In addition, the Chinese government’s policy to increase energy use efficiency may lead to changes of rules and regulations and this can somewhat affect Banpu’s Power Business in China. In 2008, there were a lot of risks from prices of coal used as an energy source at the time the electricity price could not be raised according to the higher costs of fuel. That’s why almost all power producers in China suffered from a loss. However, the situation was getting better especially during the last two months of 2008 when the Chinese government allowed the electricity price to rise twice. At the same time, coal prices were also weakening. 4. Risk from Political Changes in Indonesia The Company has taken out an insurance worth USD 200 million against its investments in Indonesia. This will protect Banpu’s assets in its Indonesian subsidiaries. Assets covered by the insurance are investments in the following companies: 1. PT. Centralink Wisesa International (Holding company) 2. PT. Indo Tambangraya Megah (Holding company and coal distribution company) 3. PT. Jorong Barutama Greston (Produce and sell coal for the Jorong Mine) 4. PT. Trubaindo Coal Mining (Produce and sell coal for the Trubaindo Mine) 5. PT. Kitadin (Produce and sell coal for the Kitadin-Embalut Mine) 6. PT. Indominco Mandiri (Produce and sell coal for the Indominco Mine) 7. PT. Bharinto Ekatama (Produce and sell coal for the Bharinto Mine) 5. Risk from Regulatory Changes in Countries where Banpu Has Investments As most of the Company’s operations are overseas; namely, Indonesia and China, the Company has to confront with risks from regulatory changes in these countries. Regulatory changes may affect the Company’s operation. During the past year, rules and regulations in these countries were changed. Some of the examples are: • Indonesia The Indonesian Government has issued a new mining law, which may lead to additional tax regulations or changes in coal contract of work that can possibly be translated into additional expenses to coal producers in the future. In addition, the Indonesian Government is also preparing to issue a new Domestic Market Obligation (DMO) law, which requires local coal producers to sell a certain amount of coal locally to meet local demands for coal. There is also a law on price regulation, which will determine a minimum price of coal for export overseas. The goal is to prevent coal producers from selling coal at a too low price as it means the government can collect fewer royalty fees. These laws, if implemented, will not have any material effect to the Company because Banpu plans to increase the ratio of its coal being sold locally in Indonesia. Regarding the price regulation law, the Company perceives that the coal purchasing price agreement of each year will be done appropriately with the market situations at that time.


2008 Annual Report

048

• China Chinese government is constantly updating its rules and regulations to respond to economic growth of the country. That’s why there have been a lot of changes. The Chinese government has formulated the following policies for the energy business where coal is China’s main energy resource: • Safety policy against coal mines and environment measures: measures that have been put in place are closure of inefficient and unsafe small-and medium-sized coal mines whose production capacity is less than 30,000 tonnes a year while requiring operating mines in Shanxi and Henan Provinces to have a production capacity of at least 90,000 tonnes a year. In addition, new safety standards are announced to control accidents and limit death. Besides, the government also increases reserves to be put into a mine safety fund and plans to collect an environment tax. • Maximization of natural resource use: coal mine must improve its production capacity and efficiency. The government has required that a new mine must have a production capacity of at least 300,000 tonnes a year with an exception of new mines in Shanxi, Shaanxi and Inner Mongolia, where their production capacity must be no less than 1.2 million tonnes a year. The government also encourages smaller mines to be merged with larger mines and it also charges more fees in using resources in provinces considered China’s coal strategic production base. In addition, the government also increases a ratio of money to be put into a sustainable coal development fund. • Aside from closing small mines, the Chinese government creates a balance between supply and demand by stopping auctioning a rights for coal exploration until the end of 2008. • Reducing international trade conflicts and conserving domestic energy resources by terminating import duties for coal, increasing a coking export tax from 5 per cent to 10 per cent and by collecting export taxes from other types of coal at 10 per cent. Aside from energy policies and measures mentioned above, which increase production costs and operating costs of every coal mine, the Chinese government has also terminated an income tax privilege previously granted to foreign joint venture companies. Starting from 1 January 2008, foreign joint venture firms are to pay the same 25 per cent income tax that local business is paying. But foreign firms that have enjoyed the privilege will still do so until the privilege expires. As a result, Banpu’s Hebi Mine and Daning Mine will continue to enjoy this tax privilege until 2010 and 2011, respectively. Aside from all the aforementioned risks, the Company also assigns a responsible person to monitor regulatory changes in each country both at the federal and local government levels. Banpu also hires a local law firm to help interpreting the laws and its practices to ensure its compliance. 6. Environmental and Safety Risk • Environmental Risk Realizing a need to protect and restore nature, the Company has formulated “Sustainable Development Policy”. The policy clearly commits to reduce and minimize environmental impacts resulted from the Company’s operations. The Sustainable Development Committee has supervised environmental performances of the Company and so far has assigned the QSE Development Center to coordinate and assist various units to comply with environmental standards and ensure operation efficiency. The Company not only pays a strict attention to environmental compliance but also aims to utilize resources effectively to preserve natural resources and reduce impact on climate change and biodiversity.


Banpu Public Company Limited

049

• Environmental Compliance The Company complies with legal environmental standards and conditions stated in its environmental impact assessment and management plan. In 2008, Banpu’s environmental compliance standards remained high and continued to expand. However, to further control its impacts to the environment, the Company focuses on managing major risks as follows. • Measurement of quality control of water released from the Company’s mines to public waterways – this is determined by PH/alkaline value and quality of sludge. For mines that boast acid soil and minerals such as Indominco, Trubaindo and Jorong in Indonesia and projects currently being developed such as Bharinto in Indonesia and Hongsa Lignite in Laos PDR, the Company implements measures to prevent and resolve water that becomes acid due to its mining activity. This starts at land exploration and production planning stage to managing land and to the rehabilitation stage after the production ends. For all open-pit mines, the settling ponds are built so that sludge from soil erosion can be effectively rested. In addition, Banpu’s prevention method is to make sure that as much land is filled back into a mine. If it is necessary to remove soil out of a mine pit, a measure to restore the soil will be implemented. In this regard, reforestation will start as soon as the soil dumping ends. • Dust from mining activities such as pit opening and coal mining, improving coal quality and transporting coal – due to vast mining areas and changing weather conditions, it is impossible to perfectly control dust particles. But the Company has implemented several measures that are suitable to each operation area. For example, a wind-blocking dike is built in a high-risk area to avoid dusting; speed of vehicles is limited in mining areas and roads are regularly water-sprayed. • Resource Utilization Although resource utilization is not a direct risk to Banpu’s business, ineffective utilization of resources can unnecessarily cause environmental impacts from waste or pollution. It also increases production costs due to a conflict for limited natural resources. The Company focuses at the following two points in managing the resource: • Land use – although the Company has got a lot of concessions to mine vast areas of land, it carefully plans its mining activity to minimize geographic and ecological impacts based on its environmental master plan and a mine-closure plan. In 2008, Banpu has 65,560 hectares of land in its control but only 12,690 hectares or 19.36 per cent of the total land was used. As of end of October 2008 Banpu already restored 6,765 hectares or 53.31 per cent of the total land being used. The remaining lands have been kept in its pre-mining conditions. In addition, the Company has developed a geographic information system and remote sensing (GIS-RS) database to support a collaborative management between production, transportation and environmental management. The system is now completely installed and running at Indominco Mine. This will be later expanded to cover Trubaindo Mine in 2008 and other mines in the following years. • Energy use – energy is one of the Company’s major costs of production. Reducing energy use such as reducing a greenhouse effect will benefit the environment. Realizing its role in mitigating the problem, the Company has put this in its Sustainable Development Policy Re: Establish and maintain greenhouse gas inventory data and publicly report our emissions. The Company also runs an energy conservation project at every mine and office. Reducing the use of energy will also reduce air pollution resulted from energy combustion such as sulfur dioxide and oxide of nitrogen.


2008 Annual Report

050

• Occupational Health and Safety Risk As mining activity is associated with the use of vehicles and machines, safety risk remains accordingly probable. Although it is normal to have an accident in an open-pit mining, the Company strives to minimize injuries and deaths from work. This also covers work by its contractors. In 2008, Banpu managed and control contractors to ensure that their work was safe and to reduce health problems resulted from work while minimizing environmental impacts according to its measures. The Company also introduces the Business Continuity Management at its Bangkok and Jakarta Offices with an annual simulation exercise. Banpu also formulates an emergency preparedness and response plan in every office and tests are conducted on a regular basis to reduce impacts from emergency and crisis that may occur to the Company. 7. Risk from Social and Community Impacts Banpu has been aware of its impacts to communities, whether they are impacts to the environment, safety and/or to the economy or the society. It has formulated a risk management plan to handle these impacts as follows. • Setting up the Community Consultative Committee (CCC) consisting of representatives from the local government, local communities and the Company. • Initiating community development projects that help solve community problems based on a collaboration process on the concept of Go Together, Grow Together, and Sustainability for Life. • Communicating between communities and the Company’s mines with community development officers acting as a direct point of contact. • Conducting a community perception survey and formulating a social mapping to provide a database to each CCC so that they can effectively plan and monitor developments in the communities. • Initiating the CSR Master Plan to meet the ISO 26000 standard in the near future; this helps creating a criteria to promote community development work in Indonesia. 8. Environmental and Safety Risk in Power Generation • Environmental Risk The main environmental issue of a power plant is air quality resulted from emission of sulfur dioxide, oxide of nitrogen and dust particles of a turbine generator. The Company emphasizes at controlling and reducing impacts by (a) preventing – this can be done by choosing a appropriate fuel; for example, high-quality coal with low sulfur; and (b) eradicating – an electrostatic precipitator and a flue gas desulphurization have been installed as a standard of practice at the Company’s power plants in Thailand, China and in the Hongsa Project in Laos PDR. The BLCP power plant also installs a Continuous Emission Monitoring System (CEMS) and four units of real-time monitoring system around the plant. Banpu also formulates a plan for its Chinese power plants to be certified by ISO 14001 environmental management assurance standards and the Total Productive Maintenance (TPM) by 2008. • Occupational Health and Safety Risk As every power plant has to deal with heat and pressure, each has to comply with strict safety standards. The BLCP power plant has been certified of meeting the OHSAS 18001 occupational health and safety standards since last year where an emergency plan has been conducted every year. Last year, there was no report of injuries from work or casualty among staff or contractors. Power plants in China also strictly comply with safety regulations issued by the state. During the previous year, there was no report of serious accident or death among those working there either.


Banpu Public Company Limited

051

Internal Control

In 2008, the Board of Directors convened 14 times at which the Audit Committee attended every time to give opinions about an adequacy and soundness of the internal control system. The Audit Committee summarized and reported internal audit activities in 2007 to the Board of Directors on 25 January 2008. In 2008, the Audit Committee convened eight times. These meetings were held with the management, auditor and the Internal Audit Department. The Audit Committee reviewed audit plan, internal control system and a risk-based audit, which focused at assessing internal control activities in relations to finance, operations, compliance with applicable laws and regulations, to ensure the effectiveness and efficiency with the International Standards (COSO Integrated Internal Control and the COSO Enterprise Risk Management.) In addition, the Audit Committee also monitored and improved significant risk factors that could affect the Company’s management and operations or connected transactions that may cause conflicts of interest as well as actual transactions carried out during a normal course of business to ensure that they were proper and corresponded to the Company’s policy. The Audit Committee also ensured that corporate assets, human resources, management and operations attached importance to the internal control with a reasonable prevention system being set up. Results of the review were in accordance with what had been required and in compliance with the government’s legal requirements as well as the Corporate Governance Policy. The internal control was efficiently carried out. With regard to suggestions, the management was regularly informed. With regard to its discussions with external auditors to evaluate the internal control system, things were appropriately carried out according to the generally-accepted accounting principles. The internal control system was adequate. There was no material defect and it was in compliance with the Company’s policy, which gave a priority to the auditing. The Board of Directors expressed the same opinions as the Audit Committee in this matter, which can be summarized as follows: 1. Organization Structure and Controlling Atmosphere • Organization Structure Banpu restructured its internal organization to increase flexibility in response to current business conditions as follows: 1.1 Banpu Power has been divided into four departments; namely, (1) China Power Business; (2) Engineering & Project Development; (3) Strategic Planning & Asset Management; (4) Hongsa Project 1.2 Hongsa Project has been restructured into five divisions as follows: (1) Finance & Accounting; (2) Corporate Service; (3) External Relations; (4) Engineering and Construction; and (5) Contract Management 1.3 Corporate Strategic Planning Department has been restructured into four divisions as follows: (1) Corporate Planning & Analysis; (2) Economy Research; (3) Risk Management; (4) Coal Business Planning & Analysis 1.4 Information Technology Department has been newly divided into six divisions as follows: (1) Portfolio Management; (2) Quality Assurance & IT Change Management; (3) Demand Management; (4) Service Delivery Management; (5) Technical Operations; (6) Application Maintenance 1.5 Legal Department has also restructured itself into three new divisions as follows: (1) Corporate Practices; (2) International Practices; (3) Off-shore Corporate Secretarial Practices 1.6 QSE Development Center has also revamped its structure, which results in the following new divisions: (1) QSE Assurance; (2) Quality System; (3) Safety System; (4) Environmental System; (5) QSE Management System Development


2008 Annual Report

052

1.7 Procurement & General Administration Department is divided into three new divisions as follows: (1) Procurement; (2) Insurance & Assets Management; (3) General Administration 1.8 A Banpu subsidiary, PT. Indo Tambangraya Megah Tbk (ITM), has been listed in the Indonesia Stock Exchange. As its major shareholder, Banpu set up a Board of Commissioners, consisting of commissioners and independent commissioners at a ratio of 2 : 1 to ensure its transparency and accountability. In addition, ITM also formed two sub-committees; namely, the Audit Committee and the Corporate Governance, Nomination and Remuneration Committee. 1.9 Internal Audit Department has restructured itself into two new divisions; namely, the General Audit and the IT Audit. The new structure covers the auditing and inspection of key internal control system. 1.10 Marketing and Logistics Department, too, revamps its structure and sees seven new divisions as follows: (1) Coal Technology; (2) Marketing Commercial (Thailand & West Asia); (3) Logistics; (4) Customer & Competitor Analysis; (5) Shipping & Scheduling; (6) Planning; (7) Commercial Relations Banpu’s commitment to be an energetic Asian energy company has led it to restructure its entire organization structure since mid of 2008 for the purpose of effective integration and synergy in response to its overseas business expansion whether in terms of revenues, costs, services and long-term business strengthening. The Board of Directors approved the new organization structure, which has been enforced since 1 January 2009. The new structure also covers the restructuring of Banpu’s subsidiaries and affiliates in Indonesia and China to ensure that the accountability, management of Banpu’s Coal and Power businesses and their financial management are efficiently carried out. 2. Operations • Corporate Culture The Board of Directors has a clear policy to promote Banpu Spirit activities in order to create an environment that will benefit both Banpu and the society. Banpu Spirit, which is actively promoted for tangible outcomes, is practiced across the board within Banpu organization. Staff have been encouraged to be innovative, to commit to integrity, to exercise care and to collaborate for synergy. In 2008, Banpu organized innovative activities based on a concept that innovation led to new creations, which not only benefited Banpu’s business but also created competitive advantage at a time the Company was facing a financial crisis and fierce competitions. Banpu urged staff to be creative and to initiate new ideas, a major factor in driving its business forward in a sustainable development. Banpu also actively supported innovation projects leading to the improvement of its work efficiency and systems such as the Total Productive Management (TPM) system, administration work and human resources management. In addition, Banpu also put an emphasis on integrity where the management was encouraged to become a role model by committing to obligations and reliability it owed to related parties and by urging everyone to exercise ethics and integrity while working in a transparent and reliable manner with the public.


Banpu Public Company Limited

053

• Corporate Governance Banpu supports clear and transparent Corporate Governance policy and the Code of Conduct to be updated and met international standards practices. The policy and operation plans have been designed by taking into consideration fair treatment to staff, customers, competitors as well as responsibilities to shareholders, society and the environment. Banpu attaches an importance to the nurturing of both Corporate Governance and Code of Conduct concepts for fruitful and effective practices. This applies to the management and staff of all levels in the organization. A seminar entitled “Corporate Governance Workshop for Management” was held as part of Banpu’s promotion of its corporate culture and corporate governance concept to clarify the management’s roles according to the Corporate Governance principles. In addition, a seminar entitled “CG in My Department” was organized to allow the management to assess an understanding of their subordinates in their departments about good corporate governance where each department was offered an opportunity to submit their plans for actual implementation. The seminar was intended to be another communication channel for parties to learn how the business could be operated in an ethical manner and by taking into consideration all stakeholders’ interests for the sustainability of Banpu and the public. At the same time, Banpu also raised everyone’s awareness about the society and the environment by pursuing the Sustainable Development Policy. The Company also adheres to Corporate Social Responsibility (CSR) projects as one of its main and long-lasting missions, with public and private agencies. 3. Risk Management Banpu commits to pursue a risk management policy. There have been constant attempts to monitor overall and detailed risk assessment and risk management plans of various departments. In addition, Banpu has formulated its reporting and risk management monitoring procedures for fast and appropriate responses to constant changes. Banpu’s management has reviewed its risk policy and plans and reported it to the Risk Management Committee. The management and all staff have also been encouraged to be aware of the importance of risk and the significance of risk management so that everyone is prepared to prevent and fix any problem accurately in a timely fashion. In addition, one of the corporate cultures being promoted is that risk management is everyone’s responsibility. A risk management structure has been systematically created. Risk management plans and measures have been formulated where both internal and external risk factors possibly affecting Banpu’s businesses and targets as well as operations are assessed. In addition, risk management monitoring plans of several units inside Banpu are carefully reviewed before being reported to the Risk Management Committee on a quarterly basis so that the Board of Directors is constantly updated. In 2008, trainings were organized to staff in Thailand and Indonesia for better understanding of risk management and assessment techniques. The Online Risk Management System was introduced so that related parties could access information to make a better decision. In addition, the Key Risk Indicators (KRI) were formulated. Risk Management Division was also publishing their standard operating procedures to set criteria among themselves. Plans, including a risk quantification system, were drafted to develop risk management strategies and techniques so that business units in Banpu could use them for sustainable benefits.


2008 Annual Report

054

4. Control of the Management’s Operations The Board of Directors has appointed three sub-committees; namely, the Audit Committee, the Corporate Governance and Nomination Committee and the Compensation Committee. The three sub-committees have strictly performed their duties based on their scopes of duties, authorities and responsibilities. Banpu has also formulated scopes of duties, authorities and responsibilities of the management and operating staff at each level. In 2008, Banpu updated a table of Delegation of Authorization of its executives at each level to appropriately correspond to the situation. In addition, Banpu has published formal operating procedures while constantly monitored the operations of its subsidiaries and affiliates. This included reviewing legal compliance procedures, formulating an important measure to ensure that our operations were according to the laws and producing a standard practice manual of corporate fraud management to meet new criteria set by the SEC and the SET. The Internal Audit Department also planned its auditing process to cover an operation having major risks and to cover stakeholders’ expectation. As a result, Banpu is confident that various departments are equipped with efficient and effective internal control systems. In addition, the Internal Audit Department and external auditors also reviewed important issues while problems were closely monitored before being reported to the management and of respective departments to improve the efficiency and effectiveness of its operations. 5. Information Technology and Information Communications Banpu also considers information technology and information communications because business decision making required the accurate and precise information. Information are accurate and adequate for making a decision, updated, presented in an easy-to-understand manner and well kept. Banpu has introduced an information technology to help it communicate more easily with staff at all levels both in and outside the organization. Banpu has assigned the Company Secretary to be responsible for providing important information such as directors registration, Board of Directors documents and minutes of meeting covering precise and sufficient information. These would support effective performance of the Board of Directors. Moreover, information disclosure are fully complied with rules and regulation of the SEC, SET and related laws. In terms of accounting and finance, Banpu has organized a meeting between the Audit Committee, Certified Public Accountant and its Accounting Division to review accounting policies based on the generally accepted accounting policies. In addition, it has reviewed material contents of the auditor’s report as well as modernized its accounting system to comply with the IFRS standards ensuring the accuracy and reliability of financial reporting credible for facilitating the management’s decision-making process. Banpu also keeps all supporting documents for accounting procedures as required by the law. In 2008, Banpu introduced the COGNOS system to help supporting a systematic data management and to accelerate its communications. COGNOS helps the Company prepare and control budgets, accelerate workflows for transaction approvals and store related information. It also promotes the Global Best Practice designed to control and plan an operation process as well as Knowledge-Based Management to promote staff’s self-learning process. Banpu improves its communication system with its subsidiaries and affiliates using modern technology such as IP-Phone and Online Risk Management for effective coordination and supervision with its affiliated and subsidiary companies.


Banpu Public Company Limited

055

6. Monitoring System • Monitoring at the Management Level Banpu organized 14 Board of Directors’ Meeting in 2008. The management meeting was convened on a monthly basis to monitor the executives’ performances that they met operation goals. At the Board of Directors’ Meeting or at the management/department meeting, should an outcome differ from the goal, the management would be asked to fix it and report back to the Board. In addition, Banpu also introduced the KPI to monitor performances of staff at all level to meet our business plan. The Audit Committee meanwhile met eight times in 2008 to review Banpu’s financial performance and operational results and to offer advice with possible impacts to the organization to its executives on a periodical basis. An internal control review has been constantly conducted and improvement is immediately made to reflect the emerging changes. The Board of Directors was given a report of financial statements on a quarterly basis and a risk management report on a bi-annually basis. At the same time, an audit report and an internal control report system were submitted to the Board of Directors on an annual basis. • Monitoring at the Operation Level Policies and practices were updated while authority was reviewed to make sure that it corresponded to our growing business and changes. Each department has had a clear control and monitoring system. In addition, the independent Internal Audit Department has a duty to plan its auditing activities based on major business risks that must cover important operational process of Banpu itself and its subsidiaries. The Department also monitors major risk management activities as a follow-up from what the Risk Management Committee has left as well as review financial derivatives transactions including commodity hedging and compliance with applicable laws and regulations every six months for integrating the practice mentioned with the internal control before reporting results of the auditing to the Audit Committee on a quarterly basis. Practice based on these mechanisms must be strictly complied. It must be evaluated and in line with Banpu’s policy and plans to ensure that the management and supervision of the organization remains efficient and effective for best interest and long-term benefits of shareholders and those relating to the Company.


2008 Annual Report

056

Sustainable Development

Banpu has been committed to run a long-term business and to share interests with all stakeholders ranging from shareholders, staff, customers, government agencies, financial institutions, contractors and suppliers as well as communities. Our goal is to be a good corporate citizen with responsibility to the society while complying with rules, regulations and business ethics and by treating everyone on a fair manner. This, we believe, is a practice for us to achieve a sustainable development in an international level. To set up a clear framework for both management and staff of all levels to practice, Banpu announced the Sustainable Development Policy in 2006 by assigning the Quality, Safety and Environment (QSE) Development Center to communicate it and create a right understanding among Banpu staff. We drafted an operation plan to develop supervisory guidelines and monitoring activities for tangible sustainable development results. In 2008, Banpu set up the Sustainable Development Committee chaired by the CEO and another committee consisting of senior executives such as Chief Operating Officer (COO), Group Senior Vice President – Corporate Services to examine management efficiency, review our Sustainable Development Policy, other related policies and the supervision system to ensure that the Company’s operation is based on fair and competitive principles. The Committee’s other duties include promoting and encouraging every department to develop policies and practices in a corresponding manner to the Sustainable Development Policy. In addition, the Company appointed a Sustainable Development Working Committee, which consists of representatives from various departments to translate this policy into actual implementations under a principle of everyone’s participation. The Working Committee’s duties range from formulating a specific policy to developing a proper indicator that can evaluate Banpu’s performance under its Sustainable Development Policy. In 2008, the Company formulated a five-year business strategy. In this regard, the Sustainable Development Committee has assigned the Working Committee to gather and analyze work plans and activities in Banpu in order to present Banpu’s overall strategies that are currently in line with its Sustainable Development Policy’s direction. In addition, Banpu also sets up a goal to drive the Sustainable Development Policy in 2009 whereby performance indicators will be developed, data will be gathered and reports of sustainable development will be made for the management to make a better decision and for staff to understand the policy better so that Banpu can step forwards according to its vision and Sustainable Development Policy’s objectives.


Banpu Public Company Limited

057

Sustainable Development Policy To achieve the Policy, the Company actions to be done are as follows: • minimise and responsibly manage environmental impacts, arising from our activities across the value chain. • set and achieve targets that promote efficient use of resources and include reducing and preventing pollution by assessing and considering ecological value and land use aspects in investment, operational and closure activities. • establish and maintain greenhouse gas inventory data and publicly report our emissions. • care for occupational health and safety of our employees and contractors by taking all practical and reasonable measures to eliminate fatalities, injuries and occupational illnesses. • take pride in fundamental human rights and respect people of all races, nationalities, cultures and religions. We will ensure that our employees are provided with fair remuneration, fair management and opportunities for learning and professional development. • bring sustainable benefits to our host communities and society, we seek to understand their needs, engage in open dialogue to build trust, and take their views and concerns into account in our decision making. • operate efficiently and profitably by maximising revenue, minimising costs and investing to achieve long-term growth and value creation. • conduct or support research and innovation that promotes the use of our products and technologies that are safe, environmentally sound and efficient in their use.

Quality, Safety and Environmental Management The Company has put an emphasis on effective performances that are in line with quality, safety and environmental standards. It also focuses at indicating, assessing and managing risks resulted from its operations that may occur to staff, contractors, communities and the environment as a whole. Quality Management The essence of quality is customer satisfaction. For Coal Business, the Company focuses at delivering a product corresponding to customer’s needs with on-time delivering whereby an international quality management system has been introduced in its production process to ensure the highest quality. In 2008, Jorong Mine was certified ISO 9001:2000 by SGS while Kitadin-Tandung Mayang was awarded Level 1 (out of five levels) for its Total Productive Maintenance by the Center for TPM Australasia (CTPM). At Indominco-Bontang Mine, it has continued to maintain its quality assurance standards under ISO 9001, ISO 14001 and OHSAS 18001. For Power Business, Banpu continues to push for higher quality considered appropriate for each operation area. BLCP Power Plant has recently been granted the ISO 14001 environmental assurance standard by Bureau Veritas aside from the OHSAS 18001 it received in 2007. Our power plants in China; namely, the Zhengding, Luannan and Zouping, are now starting the 6S Quality System.


2008 Annual Report

058

Occupational Health and Safety Management For Banpu, staff is always a factor of our business development and success. That’s why we pay a lot of attention to staff’s safety and health. We have implemented international practices in preventing risks resulted from businesses and the environment by incorporating them as part of our occupational health and safety development system. In 2008, Banpu revised its Emergency and Crisis Preparedness and Response Plan to cover the entire corporation, starting from Banpu’s Head Office to offices, mine sites and power plants in various countries where we have operations, in order to reduce corporate impacts should there be emergency. We do not limit our occupational heath and safety practice to Banpu’s staff only. In our coal business in Indonesia, we extend this by investing in an environmental, health and safety management system for contractors or called Contractor’s EHS Management System. The system has been uniquely designed for us to systematically reduce injuries and death resulted from works done by our contractors. For our Coal Business in Thailand and Indonesia, a frequency rate of injury occurred every million working hours has steadily declined from 10.18 in 2006 to 4.88 and 3.25 in 2007 and 2008, respectively. However, it is unfortunate that two deaths occurred due to work-related accidents in 2008. The two were employees of our contractors at Trubaindo Mine. This sad incident was not overlooked and, so far, we have already introduced shortterm measures (such as improving contractor’s management system and infrastructure) as well as long-term measures (such as monitoring and examining the efficiency of contractor’s performance in environment, occupational health and safety management). In the Power Business, 2008 is also a year we continue to report no casualty. Environmental Management Banpu has given importance to environmental standards and we have strictly complied with them. This refers to; for example, environmental quality required by the laws, terms and conditions stated in the Environmental Impact Assessment (EIA) report and targets set by us to avoid environmental law violations and to prevent major accidents that may result in significant environmental effects. In 2008, there was no environmental grievance being filed, nor regulation violation. To ensure that Banpu is able to achieve environmental goals stated in its Coal Business, we have set up the Rehabilitation Fund. Having been here since 1993, the Fund receives part of revenues generated from coal sales to organize annual environmental activities and to rehabilitate mines at the end of their production life cycle. Aside from environmental compliance as required by the laws, Banpu also focuses its energy on effective resource utilization. This includes our investment in projects to increase energy use efficiency and to reduce greenhouse effects. To cite an example, we build a small-scaled coal-fired power plant to substitute the use of diesel in order to generate power for our coal production process at Indominco-Bontang Mine, Indonesia. We also extract methane from coal to generate power at Daning Mine, China. In this project, last year, we signed a carbon credit deal with Credit Suisse, one of the world’s leading financial institutions.


Banpu Public Company Limited

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Human Resources Management

The Company is an equal opportunity employer. In other words, we equally treat our employees and we offer our staff an equal opportunity regardless of their races, languages and gender to work according to our visions and to achieve our goals. Based on the current changes in the world’s economy, the Company considers that it is our duty to prepare our staff so that they are keen to adaptability, flexibility and mobility and that they have positive creativity while boasting professionalism. The Company has put an emphasis on its human resources management and development. It has applied international standards in its human resource management system, which relies on three principles as follows: • Equitability • Performance Base • Competency Base Equitability Emphasis on the recruitment of the most capable and competent people and rewarding them in a way that is seen as internally fair and externally competitive. Performance Base All staff participates in the performance management system, which entails the setting of agreed business goals, monitoring and evaluating assigned tasks in a way that is intrinsically linked to compensation and annual bonus payments. Competency Base It is the Company’s belief that every individual’s capability can be developed and enhanced. That’s why the Company not only hopes but also actively encourages staff to fully develop themselves whether through self-development, on-the-job training, coaching and attending training courses based on their levels. Staff is also encouraged to job rotation in order to create a learning society within the Company and to experience sharing among staff across departments. The Company has also introduced the competency management system so that its human resources development direction is heading towards the same direction since in the end, Banpu wants its staff to have values, knowledge and capability that is in line with our visions and strategic plans. The competency-based principle is also critical in development of a succession plan to ensure solidity and stability in our organization. In addition, the Company also pays a great attention to the work-life balance where it encourages staff to work from home. Banpu is eager to provide technology and facilities to staff on a belief that if our employees work happily and achieve a proper work-life balance, they will be working more efficiently while having a quality family life. The Company promotes good corporate governance in the organization and manages its human resources based on the Corporate Governance policy. Banpu has set up the Compensation Committee, the Corporate Governance and Nomination Committee, the Job Evaluation Committee and the Organization Development Committee to promote transparency in human resources management and to take our human resources into the future in a sustainable manner.


2008 Annual Report

060

Corporate Governance and Supervision on the Use of Internal Information

Corporate Governance 1. Corporate Governance Policy The Board of Directors believes that Corporate Governance is an important factor that will bring success and maximum benefit to its shareholders. As such, Banpu has announced its Corporate Governance policy and Code of Conduct since 2002. The corporate governance policy and code of conduct booklets have been provided since then. The current Corporate Governance policy and Code of Conduct is the second edition revised in 2005 and announced in 2006. Published in Thai, English and Bahasa Indonesia, the updated version of Corporate Governance and Code of Conduct are well-responded to evolving times and circumstances and covered international practices. The Corporate Governance and Code of Conduct have been distributed to directors, executives, and staff to use as a reference and a practice guideline. They are also disclosed to public in Banpu’s website under “Corporate Governance” topic. In 2008, Banpu announced its Chinese version of the Corporate Governance policy and the Code of Conduct. In this regard, Banpu has set a principle of Corporate Governance implementation in companies which it has major shareholders or management authority. This principle will be applied as standard of business ethic in the countries Banpu plans to operate its business in the future. To implement the Corporate Governance, Banpu also takes into consideration of legal, economic and social conditions as well as corporate culture of related companies. Banpu also evaluates the effectiveness of its Corporate Governance Policy implementation by using Key Performance Indicator (KPI) in the part of Behavioral Factor under “integrity” value. The result, classified by staff levels and operation sites, revealed a satisfactory outcome. In 2008, Banpu organized a promotion of corporate cultural and corporate governance best practices with its aim to strengthen awareness in the adoption and implementation of principles of corporate governance and best practices of code of conduct. To communicate to Banpu staff at all level, the following activities were held: 1) A Workshop for Management (Vice President level and higher) was held under the title of “Good Corporate Governance for Executives.” The guest speaker for this session was Mr. Yuth Worachatthan, Advisor to The Stock Exchange of Thailand’s Corporate Governance Center. The workshop is aimed at strengthen better understanding for management of best practices and principles of CG in order to perform expected practices to best-suit the management role and also become “role model”. Another workshop entitled “CG in my Department” was held to allow management to assess themselves in CG best practices among staff in their departments as well as to present actions planned for actual implementation with their stakeholders. The workshop was designed to add another communication channel to enhance understanding of business ethics while taking best interest of stakeholders into account for sustainability of business and society as a whole. 2) The launch of a mascot called “Mr. CG”, a corporate governance communicator, through Banpu’s internal information board called “CG Corner” and through its intranet under the topic of “CG Talk of the Town,” which was designed to communicate up-to-date CG related news while allowing staff to participate in the quiz. A feedback survey results revealed a satisfactory level for this activity by Banpu staff.


Banpu Public Company Limited

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3) The organizing of “CG Day” - an event to encourage engagement of staff on Banpu’s Corporate Governance policy and code of conduct and to foster corporate governance best practices as part of Banpu’s corporate culture. In 2008, Banpu was awarded the “Best Managed Company (Large Cap)” by Asia Money Magazine and was one of 22 listed companies receiving Excellent CG Scoring from the 2008 CG Report of Listed Companies Throughout 2008, Banpu duly complied with the Principles of Good Corporate Governance for Listed Companies 2006 in these following five principle: Rights of Shareholders Banpu has fully complied with the best practices on shareholders’ right. For the 2008 Annual General Meeting of Shareholders (AGM), the Company allowed minor shareholders to propose agendas in advance between December 2007 and January 2008. In addition, it also notified shareholders through the Stock Exchange of Thailand (SET) and posted it on its website at www.banpu.co.th/eng/investor/news in which clear and transparent procedures were indicated. At the 2008 AGM, no shareholder proposed any agenda. For the upcoming 2009 meeting, Banpu already arranged for minor shareholders to propose the meeting’s agendas in advance between December 2008 and January 2009. It also notified shareholders through the SET and its own website at www.banpu.co.th/ eng/investor/news. Equal Treatment to Shareholders Banpu fully complied with the best practices in regard to shareholder’s rights especially when it allowed minor shareholders to propose the agendas of the 2008 AGM, a practice considered an equal treatment to all shareholders. Banpu is in the process of studying a procedure for the nomination of directors by minority shareholders. Roles of Stakeholders Banpu has formulated a policy indicating the way it treats all groups of stakeholders in its Corporate Governance policy. In addition, customers can file a complaint through the Marketing & Logistics Department while investors can file the same through the Investor Relations Division. Staff, too, may file a grievance through the Corporate Governance and Nomination Committee’s secretary. All complaint reports will be submitted to the Corporate Governance and Nomination Committee on a quarterly basis while summary is also submitted to the Board. As of the end of 2008, there was no single grievance. Banpu also commits to the best practices on environment and social activities through its Sustainable Development Policy. Disclosure and Transparency Banpu discloses its information and policies which are regularly updated in both Thai and English through the SET and the Company’s website, through its financial statements and an auditor’s report, an annual report and a report of the Board of Directors’ responsibilities. In addition, remunerations paid to its directors and senior executives are disclosed. No remuneration is paid to directors who also sit as directors of its subsidiaries. Investors can reach Banpu’s Investor Relations Division at 0 2694 6744 or by email to investor_relations@banpu.co.th. In 2008, it held an analyst’s meeting every quarter, plus eight overseas road shows and two local road shows. Banpu also discloses information for investors under the “Investor News” topic, which is regularly updated in its website.


2008 Annual Report

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Responsibility of the Board of Directors The Company has complied with the best practices in regard to Board of Directors, which include the board’s roles and responsibilities, meetings, self-assessment, remunerations and development of directors and senior executives. Of Banpu’s 12-member Board, six are independent directors. At the moment, Banpu is studying how it can determine a number of companies each director could sit on. So far, there is no limited term a director can stay in his office but has set a retirement age of director at 72 years old. Banpu has also appointed Mrs. Boonsiri Charusiri as the Company Secretary effective from 27 August 2008. 2. Shareholders: Rights and Equality Treatment The Board of Directors gives a priority to the rights and equality of shareholders. This has been clearly stated in Banpu’s Corporate Governance policy under the topic of “Policy Related to Shareholders: Rights and Equality of Shareholders and Shareholders’ Meeting,” where it states that Banpu’s shareholders are equally entitled to basic rights to receive share certificates, transfer their shares and access adequate information in a timely, appropriate and adequate manner for them to make a decision. In addition, the Board of Directors also insists that shareholders have rights to attend and vote at a shareholders’ meeting to amend the Company’s major policies, to elect and remove directors, approve appointment of auditors and right to share in profits. The Board of Directors also facilitates shareholders attending the shareholders’ meeting by sending adequate information in time for the meeting, urging shareholders to exercise their rights at the meeting or appointing a person or an independent director as a proxy to vote on his behalf. In addition, shareholders are equally allowed to express their views, request an explanation or ask a question. In 2008, Banpu held the 2008 AGM on Friday, 4 April 2008, at Grand Ballroom, Amari Watergate Hotel, No. 847 Petchaburi Road, Rachathewi, Bangkok, where 10 directors attended. Mr. Vitoon Vongkusolkit could not attend the meeting due to his business engagement overseas. In 2008, Banpu designated Thailand Securities Depository Co., Ltd., which was its share registrar, to submit an invitation letter to shareholders 15 days in advance. Banpu also posted the letter at www.banpu.co.th/eng/investor/news 30 days prior to the meeting date. The Minutes of the 2008 AGM were posted at the website 14 days after the meeting. Shareholders failing to attend the meeting could appoint independent directors as their proxy. At the 2008 AGM, 54.52 per cent of shareholders exercised this right. Banpu also allows minority shareholders to propose meeting agendas. 3. Rights of All Stakeholders Banpu is eager to treat all stakeholders on a fairly basis. Banpu’s policy to stakeholders has been part of its Corporate Governance policy where it promotes collaboration between itself, stakeholders and other related parties such as staff, customers, suppliers, creditors, government agencies, communities where Banpu operates and the society in general. Banpu’s Code of Conduct also describes best practices for directors, executive and staff to perform to ensure fair and balance dealing with stakeholders. These practices cover major topics such as conflicts of interest, responsibility to shareholders and policy and treatment of staff, customers, suppliers, creditors, business competitors and the society. Directors, executives and staff are to learn, understand and strictly comply with these guidelines so that all stakeholders are fairly protected and treated.


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In addition, Banpu reports its operations and performances to stakeholders and those entitled to know in its annual report and the Company’s website. A two-way communication channel has been set up for stakeholders and parties to voice their opinions and file grievance in case they are unfairly treated by Banpu. So far, the Company has set up a grievance system to receive complaints from three groups of people; namely, shareholders, investors and Banpu’s own staff. There was no grievance in 2008. Regarding Banpu’s staff, a policy about Banpu’s staff and staff treatment has been written in Banpu’s Code of Conduct. It’s our policy to treat our staff fairly in regard to job opportunity, remunerations, appointments, transfer and skill development. We make sure our work environment is safe. With a concern over staff’s well-being, Banpu strictly complies with appropriate safety and occupational health measures to prevent accidents, injuries and job-related diseases. We offer equal opportunity to staff regardless of their race, language and gender. We commit to our vision and goal through the bond of Banpu Spirit, which consists of Innovation, Integrity, Care and Synergy. In 2008, Banpu announced its Human Resources Philosophy based mainly on three principles; namely, equitability, performance based and competency based. Based on current business and economic conditions, Banpu perceives that it is our duty to promote adaptability, flexibility, mobility, positive creativity and professionalism among Banpu staff. In short, Banpu intends to build its staff to be those committed to Banpu Spirit and professional workers. To confirm its Corporate Governance in its HR management, Banpu also commits to pay a fair compensation including salary, welfare and other fringe benefits closely linked to a creation of long-term value for our shareholders to our staff. Banpu promotes a fair human resources management system and will fully offer opportunities to all staff to develop themselves. So far, it has set up the Job Evaluation Committee, the Organization Development Committee, the Compensation Committee, the Governance and Nomination Committee to promote transparency and drive resources for its sustainable future. In terms of customers, Banpu realizes that customer’s satisfaction is crucial and intends to respond to customer’s needs. The Code of Conduct includes a policy and practices on how Banpu should treat its customers. Banpu will honor a promise it makes to customers by delivering quality products and services at a fair price, giving accurate and appropriate information to customers in a timely fashion, strictly complying with customer’s requirements, providing customers a grievance system to complain about quality, volume and safety of Banpu’s products and services, speedily responding to customers and doing everything to make sure that customers will be promptly responded, advising customers on how to effectively use Banpu’s products and services for their benefit and keeping customer’s secrets without exploiting them. For suppliers and/or creditors, Banpu has written a policy announcing that it will equally and fairly treat them by taking into consideration Banpu’s maximum benefits and by making sure that suppliers and creditors are enjoying a fair return. Banpu will do everything to avoid a situation that may lead to a conflict of interest and will honor any commitment it has made. Regarding business competitors, in its Code of Conduct, Banpu commits to treat competitors according to international principles and within a legal framework of a fair trade competition without violating their secrets or acquiring their secrets in a fraudulent way. During the past year, it had no dispute with competitors.


2008 Annual Report

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Regarding communities and the society, Banpu has a policy to do a business that benefits the economy and the society, safeguard local customs in areas where it has operations, be a good corporate citizen by complying with all rules and regulations. The Company tries to improve people’s quality of life either by itself or by collaborating with government agencies, communities or non-governmental organizations. Banpu has translated its Sustainable Development Policy into practices, which will work as criteria in an issue such as greenhouse effect in power plant. Due to the belief that an industries will be strong only when it is developed in tandem with social and environment responsibility, Banpu is committed to social development, playing by rules and treating everyone fairly. So far, Banpu has formulated an effective Quality, Safety, Environment (QSE) practices based on its Sustainable Development Policy. To support the Sustainable Development Policy, one of Banpu’s CSR practices is to regularly return something back to the society. Budget has been allocated for CSR activities while an awareness campaign is regularly carried out to urge staff at all levels to feel responsible for the society they are members. Banpu has conducted social responsibility projects both at the local and corporate levels especially in three countries; namely, Thailand, Indonesia and China. Details of the projects and Banpu’s CSR activities in 2008 could be viewed under the topic of “Corporate Social Responsibility.” Regarding environmental activities, Banpu has continued to put an emphasis at environmental conservation by installing pollution prevention, control and eradication tools and equipment in every power plant to ensure that our operation is fully complied with the government’s environment regulations. 4. Shareholders’ Meeting In 2008, the Company organized one Annual General Meeting of Shareholders (AGM) on Friday, 4 April 2008 at Grand Ballroom, Amari Watergate Hotel, of 847 Petchaburi Road, Rachathewi, Bangkok. The Board urges shareholders to participate in a decision-making process and makes sure that shareholders receive complete and adequate information in a timely fashion to make decision. In this regard, Banpu sent out invitation letters and supporting information to shareholders 15 business days prior to the meeting date. Each agenda contained Board of Directors’ opinions. Ten directors including Chairman of the Audit Committee, Chairman of the Corporate Governance and Nomination Committee and Chairman of the Compensation Committee attended the meeting. All independent directors attended the meeing. Chairman of the AGM allowed shareholders to equally inquire about the Banpu’s operations and give advice. Banpu facilitated the voting and proxy appointment. Banpu also asked shareholders to express their opinions and ask about Banpu’s operations. In addition, the Board posted its Minute of Meeting at the Company’s website 14 days after the meeting date for shareholders to check without having to wait until the next meeting. 5. Leadership and Vision The Board oversees the Company’s vision, mission, goals, policies, operation directions, long-term strategic plan, operation plan and annual budget to be formulated where the management is entrusted to propose them. The Board then fully expresses its opinion ideas with the management to reach a mutual approval before granting permission. The Board of Directors also appoints Chief Executive Officer (CEO) to develop and implement the Company strategies. It also clearly differentiates roles, duties and responsibilities between the Board of Directors, the Committees and Banpu’s executive officers.


Banpu Public Company Limited

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In 2008, Banpu revised its vision and mission statements to be in line with the current business direction, status and current market conditions. Its newly-revised vision is as follows: To be an energetic Asian energy provider of quality products and services and be recognized for its fairness, professionalism and concerns for society and environment. Its newly-revised five missions are as follows: • To develop businesses in the fields of energy in pursuit of Asian leadership position. • To diversify and invest in strategic businesses to enhance competitiveness. • To provide varieties of quality products and services with commitment, reliability, and flexibility. • To conduct business in a socially, ethically and environmentally responsible manner. • To build sustainable value for shareholders, customers, business partners, employees, local communities, and to be a good citizen to host governments. During the past year, the Management submitted a strategic plan for the next five years (2009-2013) after the current strategic plan ended in 2008 in order to lay down business directions. Banpu will pursue, to evaluate risks and to prepare the Company into a business direction under future circumstances. 6. Conflicts of Interest Banpu considers it very important to prevent its directors, executives and staff from exploiting their status to gain personal benefits. The Code of Conduct booklet clearly states that directors, executives and staff must refrain from conducting a connected transaction that may lead to a conflict of interest with Banpu. If it is necessary to do so for Banpu’s benefit, the Board must comply with the SET’s rules and regulations, where a transaction be made at a price and under a condition as if it is done with the third party at an arm’s length and a director or staff with such an interest must not be involved in an approval process. If it is indeed a connected transaction under the SET’s rules, one must strictly comply with the rules, procedures and information disclosure methods of connected transactions by listed companies. In addition, the Board of Directors also clarifies in its duties and responsibilities to prohibit directors from using an opportunity or information acquired from their work to seek personal interest. This includes a ban from using insider’s information to buy or sell the Company’s shares for staff’s personal interest or from giving insider’s information to the third party to buy or sell Banpu’s shares. If an executive or a staff is involved in a special operation of which information has not yet been released to the public and a negotiation is ongoing where the information must be kept confidential to prevent an effect to the Company’s share price, such executive or staff must sign a confidentiality agreement with the Company until the information is disclosed to the Stock Exchange of Thailand (SET) and the Securities and Exchange Commission (SEC). 7. Code of Conduct To maximize shareholders’ benefits, the Board of Directors has a policy to equally treat success and a modus operandi to achieve that success. That’s why the Board sets both the corporate goals and how to reach these goals in Banpu’s vision, mission statements, values, Corporate Governance principles and policy. In addition, it clearly states in the Code of Conduct that Banpu expects its directors, executive officers and staff to use it as a guideline when they are doing their jobs. This includes equal treatments of fellow staff, shareholders, customers, suppliers, creditors, business competitors and the society in general.


2008 Annual Report

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Banpu requires its directors, executives and staff to understand and strictly comply with policies and practices stated in the Code of Conduct. Executives of all levels must make sure that their supervisees know, understand and comply with the Code of Conduct, and that regular meetings are held and PR materials are distributed to inform staff in Thailand and aboard. In this regard, supervisors of all levels must be a good role model and urge their staff to comply with the practices. As Banpu embarks on its Corporate Shared Values to promote good corporate culture among staff that everyone can share aside from the standard of practices stated in its Code of Conduct, during the past year, Banpu constantly organized PR activities to promote the following four shared values to enhance staff understandings in Thailand and abroad: 1) Innovation – this refers to initiatives, being creative and dare to express for ongoing development. 2) Integrity – this refers to being ethical, honest and transparent manner. 3) Care – this refers to open and sincere, accepting and accommodating, honoring others, respectful, warm and solicitous. 4) Synergy – this refers to cooperative and collaborative, supportive and sharing, teamwork and strive for win-win. Staff is advised what they should do or otherwise, which is in line with the policy stated in the Code of Conduct to ensure tangible practices. 8. Balancing of Power by Non-Executive Directors The Board of Directors ensures that the number of its existing directors is proportional to Banpu’s size. At present, Banpu’s Board of Directors consists of 12 members, three of whom are executive directors and the other nine are non-executive directors. Of all the members, six are independent directors. During the past year, the Corporate Governance and Nomination Committee reviewed the proportion between non-executive directors and independent directors of the Board and found the existing ratio of non-executive directors appropriate. 9. Consolidation or Separation of Office The Board of Directors requires its Chairman not being the same person as Chief Executive Officer (CEO). Role and responsibility, power and duty are clearly separated for a healthy balance between management and good corporate governance. The current Chairman of the Board is an independent director. 10. Remunerations of Directors and Executives The Board of Directors has assigned the Compensation Committee to review a compensation structure as well as remunerations of Banpu’s executive. The policy is that remunerations must be competitive with offers made by a similar business of a similar size in the same industry after taking into consideration duties and responsibilities of each director and executive. This however is subject to approval of the Shareholders’ Meeting. Details of remunerations Banpu paid in 2008 to its directors and executive officers could be seen under the topic of Remunerations.


067

Banpu Public Company Limited

11. Board of Directors’ Meetings The Board of Directors convenes at least once a month on the last Wednesday of the month. An additional meeting may be held if necessary. At each meeting, there are clear meeting agendas, both for acknowledgement and for consideration. In addition, there are a complete set of supporting documents sent to the Board of Directors at least seven days in advance so that the Board has enough time to study before attending the meeting. Each meeting lasts approximately 3.5 hours. At the meeting, all directors can openly voice their opinions while Chairman of the Meeting summarizes comments and opinions from the meeting. If a director has a material interest in an issue discussed by the Board at the moment, he must leave the room when the matter is considered. A minute of meeting is subsequently made in writing and after seconded by the meeting and will be certified true and correct by Chairman of the Board of Directors and Secretary of the Board. Documents to be kept include minutes of meeting, of which the original copy is kept in the form of a document file, a scanned file of the original file for directors and other parties to use as reference and an electronic file, and all supporting documents. In 2008, the Board of Directors convened 14 times. Each director attended the meeting as follows: Meeging Attendance Name

Title

Term of Office Ordinary Meeting Special Meeting

1. Mr. Krirk-Krai Jirapaet 2. Mr. Soonthorn Vongkusolkit 3. Mr. Montri Mongkolswat

Total

Chairman

Apr. 2008 - Apr. 2011

9

2

11/11

Vice Chairman

Apr. 2006 - Apr. 2009

12

2

14/14

Independent Director

Apr. 2008 - Apr. 2011

12

2

14/14

4. Mr. Sawatdiparp Kantatham

Director

Apr. 2007 - Apr. 2010

12

2

14/14

5. Mr. Vitoon Vongkusolkit

Director

Apr. 2006 - Apr. 2009

12

2

14/14

6. Mr. Kopr Kritayakirana

Independent Director

Apr. 2007 - Apr. 2010

12

2

14/14

7. Mr. Somkiat Chareonkul

Independent Director

Apr. 2007 - Apr. 2010

12

2

14/14

8. Mr. Rutt Phanijphand

Independent Director

Apr. 2008 - Apr. 2011

12

2

14/14

9. Mr. Anothai Techamontrikul

Independent Director

Apr. 2006 - Apr. 2009

11

2

13/14

10. Mr. Chanin Vongkusolkit

Director

Apr. 2008 - Apr. 2011

11

2

13/14

11. Mr. Metee Auapinyakul

Director

Apr. 2008 - Apr. 2011

12

2

14/14

12. Mr. Ongart Auapinyakul

Director

Apr. 2006 - Apr. 2009

11

1

12/14

Note: Banpu resolved to appoint Mr. Krirk-Krai Jirapaet as Chairman of the Board and Mr. Soonthorn Vongkusolkit as Vice Chairman of the Board effective from 11 April 2008.


2008 Annual Report

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12. Sub-Committees • The Audit Committee The Audit Committee consists of three independent directors. It is responsible for reviewing Banpu’s financial statements, an adequacy of Banpu’s internal control and risk management systems, its financial derivative transactions and its commodity hedging and compliance with applicable laws and regulations, selecting and appointing the Company’s auditor, proposing an auditing fee and considering about the disclosure of Banpu’s information in case of connected transactions or transactions with possible conflict of interest in a complete, accurate and transparent manner. The Committee’s other tasks include reviewing significant risk management measures, which, if found appropriate, will be proposed to the management for further review. The Committee has a duty to express opinions towards the Internal Audit Department’s plans, performances, budgeting and manpower. In 2008, the Audit Committee convened eight times, each of which was attended by all Audit Committee members. Further coordination and monitoring were also carried out to ensure compliance with the Audit Committee’s opinions clearly expressed in its meeting agendas. • The Corporate Governance and Nomination Committee In 2008, the Corporate Governance and Nomination Committee consisted of four members chaired by an independent director and Mr. Soonthorn has joined the Committee since 11 April 2008. All members of the Committee were non-executive directors. The Corporate Governance and Nomination Committee had two major responsibilities: to review Banpu’s Corporate Governance policy and its Code of Conduct and monitor its compliance based on its policy; and to recruit and nominate candidates as director, CEO and executive, to recruit executive starting from department head and over as part of a succession plan, to seek the Board of Directors’ approval or to submit the matter to the Shareholders’ Meeting, as the case may be. In 2008, the Corporate Governance and Nomination Committee convened four times, all of which were attended by all members. • The Compensation Committee The Compensation Committee consists of three members chaired by an independent director while all its members are non-executive directors. The Committee’s duty is to submit a compensation policy and details how Banpu would pay remunerations and fringe benefits to the Board of Directors, members of the committees, CEO and executive officers. The Compensation Committee is also responsible for setting up criteria to evaluate performances of Banpu’s CEO and executive officers and to review a compensation system and a payment structure to directors and remuneration rates to directors and executive officers. In 2008, the Compensation Committee convened five times, all of which were attended by all members. 13. Internal Control and Auditing The Board of Directors sets up an internal control system that covers every aspect of Banpu’s operation, ranging from finance to operation and legal compliance in compliance with relevant rules and regulations. The Board also makes sure that there is enough and effective check-and-balance mechanism to protect shareholders’ equities and Banpu’s assets. Banpu has also set up the Internal Audit Department to monitor the internal control process of all Banpu’s business units. The Department gives advice on how to set up a standard internal control system,


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formulate an internal control plan that focuses at Banpu’s major risks, corporate governance and assess the efficiency and adequacy of the internal control to develop the Company’s operation processes. The department also closely monitors the internal control for the management and performs its tasks based on the COSO Internal Control Integrated Framework. The Board of Directors has ensured that the Internal Audit Department remains independent and that the department directly and timely reports to the Audit Committee so that Banpu’s internal control and internal audit systems are major mechanisms to drive our business to a sustainable growth. 14. Board of Directors’ Report The Board of Directors is responsible for Banpu’s consolidated financial statements and financial information appeared in Banpu’s annual report. The financial statements are prepared under the Generally Accept Accounting Principles (GAAP) in Thailand where an appropriate accounting policy has been selected and implemented on a regular basis. The Audit Committee and auditors jointly review the accounting policy to see if it remains practical. While preparing the financial statements, the Board of Directors insists that the working team carefully exercise its discretion and that important information is adequately disclosed in notes to the financial statements, if any. In addition, the Board of Directors entrusts the Audit Committee to monitor quality of Banpu’s financial statements and its internal control system. The Audit Committee’s opinion in the matter has been stated in the Report of the Audit Committee to Shareholders published in this Annual Report. The Board of Directors is of the opinion that the financial statements of both Banpu and its subsidiaries as of 31 December 2008 are complete, accurate and reliable. 15. Investor Relations The Board of Directors makes sure that both financial and non-financial information relating to the Company’s business and performance is revealed in a complete, adequate and regular manner. In addition, the information must reflect the Company’s actual performance and its true financial status as well as its business future while strictly complying with the laws, rules and regulations relating to information disclosure of both the Securities and Exchange Commission (SEC) and the SET. Aside from disclosing information as required by the SET and the SEC, Banpu also communicates with shareholders and investors through other channels, ranging from the Investor Relations Devision, which directly communicates with shareholders, investors and securities analysts here and abroad, to the Corporate Communications & Public Affairs Department, whose duty is to disseminate corporate information to shareholders, investors and the public through local and international press. In 2008, Banpu organized eight international road shows, four analyst meetings to report its quarterly and annual performances, 83 company visits for analysts and investors wishing to learn more about Banpu’s operation results and three press conferences to inform Banpu’s operation results. Banpu regularly released its press release every time there was an important investment or business event. Banpu discloses its information through its website at www.banpu.com so that other groups of stakeholders can equally access the information. Those interested in Banpu’s information can contact the Investor Relations Division at Tel. 0 2694 6744, or Fax. 0 2207 0557 or send email to investor_relations@banpu.co.th.


2008 Annual Report

070

Supervision on the Use of Internal Information Banpu attaches importance to the disclosure of information and transparency. As such, it has formulated a policy governing information disclosure, transparency, financial statements and related actions in its Corporate Governance policy to ensure that accurate, complete, reliable financial and other business information is disclosed to shareholders, investors, securities analysts and the public in a timely fashion. The Board commits to comply with related rules and regulations with regards to information disclosure and transparency. Sales or purchase of shares by any director or executive have been reported to a supervision agency according to the Securities and Exchange Commission’s requirements. In addition, status of director’s securities holder is also reported each month at the Board of Directors’ Meeting. To supervise the use of its internal information, Banpu has formulated preventive measures of internal information in its Code of Conduct under the topic of “Conflict of Interest and Keeping Confidential Information” particularly if it is related to the use of Company information. Banpu considers that it is a responsibility of directors, executive and staff to keep its information strictly confidential especially if it’s internal information not yet released to the public or any data or information that may affect Banpu’s operation or share price. The following are practices in regard to the use of Company information: 1. Directors, executives and staff must not use information they receive from their directorship or employment for personal benefit or for conducting business or other activities in competition with the Company. 2. Directors, executives and staff in possession of Company information which is not generally known and which may influence the share price (“inside information”) must refrain from dealing in the share of the Company. Inside information shall not be given to any third party for the purpose of their dealing in the shares of the Company. 3. Business secrets shall not be disclosed to any third party especially to competitors even after a director, executive or staff member has left the Company. For the use of Company information, Banpu has stipulated in its work regulations under the topic of “disciplinary action” that anyone not complying with or violating such regulation will be subject to disciplinary action and liable to punishment based on the nature of offence as follows: anyone “disclosing the Company’s secret with an intention to destroy its reputation, credibility or its products, resulting in Banpu losing or suffering from a loss of business opportunity” can be dismissed.


Banpu Public Company Limited

071

Corporate Culture and Corporate Social Responsibility

072

Banpu Spirit & The Organization of Innovation

074

Corporate Social Responsibility


2008 Annual Report

072

Banpu Spirit & The Organization of Innovation

Our business expansion means Banpu is boasting staff from all corners of the world starting from Indonesia, to China, Thailand, Australia, the UK, India and the Philippines who have tirelessly worked in Indonesia, China and Thailand. The fact that people from various culture, races and beliefs are here to turn Banpu into Asia’s leading energy company with sustainable growth means we need to have a mechanism to unify our differences so that everyone understands the same rules, lives harmoniously without conflict under the same roof as well as accepts and walks forward in the same direction. That mechanism is Banpu Spirit. Banpu Spirit is a result of a combination between corporate values that led us to our success in the past and brainstorming sessions from our staff and executive officers to come up with values that would lead us to success in the future in response to our existing goals and directions. These following four values of “Banpu Spirit” have been promoted as part of our drive to success since 2005.

Innovation Banpu intends to constantly improve our work process, tackle problems and be initiative and proactive when it comes to our performances. Banpu staff is resilient and highly adaptable to change. We focus at our ability to think out of the box, to think in advance and to be brave in handling challenges. That’s why Banpu is promoting creativity as part of our corporate culture under the “Innovation” value.

Integrity Banpu staff is committed to integrity and our contractual obligations. We work within a framework of integrity on the basis of our Corporate Governance Policy and the Code of Conduct. That’s why we are highly disciplined and stick to the principles of integrity and transparency.

Care Banpu encourages our staff to be open-minded, kind, friendly and respect each other. This “care” value also extends to all stakeholders and the third party.

Synergy All Banpu staff collaborate as a team to achieve our common success. We are fair. We are a closely-knitted network and we look to create the value of “synergy” in every piece of work we do.


Banpu Public Company Limited

073

To ensure that the nurturing of Banpu Spirit is sustainable, we put an emphasis on staff participation of all levels to determine our corporate shared values and we also rely on our executive officers and staff to be a good role model by actively implementing the four Banpu Spirit values. A driving mechanism of Banpu Spirit is a working committee consisting of staff of various departments known as Banpu Spirit Change Leader (BCL). The working committee is supervised by the Organization Development Committee, who formulates policies, provides support and regulates its work to ensure the integration of Banpu Spirit into staff’s daily life. In addition, staff opinions are evaluated annually through a survey. There are also attempts to incorporate Banpu Spirit in human resource management such as in the selection of staff based on the four values of Banpu Spirit and in an annual staff performance evaluation where Banpu Spirit accounts for 40 per cent of the overall evaluation. In 2008, Banpu organized several Banpu Spirit activities for staff ranging from the “Banpu Spirit Unity & Charity” activity, which not only promoted care among Banpu staff but was designed to raise social responsibility awareness. In addition, we also organized the “Impressive Experiences Sharing by Management” event where executive officers were invited to share successful experiences with staff to enhance their understanding in each Banpu Spirit value. Staff not only learned from actual experiences and actual success resulting from practicing the values but the activity also gave pride in Banpu and showed how staff could effectively adapt the values in their work. The final activity we held was called “Banpu Spirit Best Example,” where we searched for a true star in each Banpu Spirit category with a hope that they will be our role model. Today’s technological advancement means an access to information is easier than ever. This however changes the way one does a business and produces even more competitions. To ensure that Banpu can adapt and grow amid competitions and economic volatility, the Board of Directors and executive officers decide to put an emphasis on innovation, one of the Banpu Spirit values, to drive Banpu into a full-fledged “The Organization of Innovation.” In 2008, we organized the “Power Up Your Innovation” event on 2 May 2008 at Banpu Bangkok Office to officially launch the Innovation Quality (IQ) Campaign. Under the “Innovation Quality” concept, staff will be encouraged to create quality products, services or work processes. In addition, we also offer incentives for selected innovation projects through the Innovation Award Campaign where the Innovation Committee will review and support a creation process of innovations in three levels as follows: 1. Silver Award – will be granted to a concept proven innovative or brand-new for Banpu or for the coal mining or power business. 2. Golden Award – is given to a concept enjoying the Silver Award that has been transformed into an actual implementation plan by an owner of the idea or those submitting a project plan to the Innovation Committee. 3. Platinum Award – is a review of the project following its completion at the final stage of implementation. The Innovation Committee consists of executive officers from various departments who are appointed to supervise, promote and support innovative actions in order to achieve Banpu’s innovation goal. Banpu has organized a series of knowledge enhancement activities to give staff a means to think creatively and to turn the creativity into real and effective implementation. With everyone’s collaboration, being an innovative organization will help Banpu achieve its business excellence. In the long run, Banpu plans to expand its “The Organization of Innovation” goal from Banpu Bangkok Office to the overseas offices of its power and coal businesses.


2008 Annual Report

074

Corporate Social Responsibility

Social and environmental sustainability is Banpu’s major goal in pursuing its corporate social responsibility (CSR) activities throughout the past 25 years. We have conducted CSR activities at the corporate level and the local level in areas we have presence whether it is in Thailand, Indonesia and China from day one of our operation. We emphasize in community development, education, environment and youth. Most importantly, we emphasize in people participation either from our side or communities we are involved with. In 2008, the Company’s CSR projects at the corporate level and the local level were as follows:

Thailand Social Responsibility Programs at the Corporate Level Educational Support Program • ICT Development for Education • Banpu donated THB 2.3 million to schools in Lamphun, Lampang and Phayao Province to upgrade their ICT equipment and to enhance capacity of their teachers and students. Banpu has continued to support this project for the fifth consecutive year (2004 - 2008). So far, we have already given away more than THB 10 million. • A workshop entitled “Learning Process for Thinking Development” was held for 145 teachers working at Banpu-supported schools at Bunyawat Witthayalai School in Lampang Province. • An Ethical lecture by monks from the Dharma Delivery team for students in schools in the three provinces so that they would have Dharma as a means of living contentedly in this high-risk and rapidly changing society. • E-Learning Classroom Project Banpu donated THB 300,000 to the Chit Aree Welfare School under the patronage of H.R.H. The Princess Mother to support its E-Learning room project where computers and IT were used as learning media. The goal was to upgrade teaching quality of the Lampang-based school for under priviledged students and encourage students to learn by themselves. 2008 was the second consecutive year that the Company extended support to the school. • Financial support to schools in the South The Company donated THB 1.2 million to 15 schools under the Bureau of Education Development for Administrative Zone in southern provinces of Songkhla, Narathiwat, Pattani, Yala and Satun Provinces currently affected by the unrest problem. The objective was to provide moral support to students and teachers in risky areas and to allow schools to continue teaching their students. This has been the second year that the Company has provided this support. Environmental Support Programs • The “Power Green Camp 3”: Envi-Science Learning Through Actions Together with the Faculty of Environment and Resources Studies, Mahidol University, Banpu organized the “Power Green Camp” for the third consecutive year during 13 - 19 October 2008 at Mahidol University, Salaya Campus. Under the theme of “Fighting Global Warming with Our Hands,” the camp was attended by 62 children who had a chance to learn theories and actual practices on climate change with reputable environment scientists. They had a chance to work on an environmental science operations under the topic of “Together We Make Change” where they studied climate change through tree rings using the most sophisticated scientific equipment in Thailand. Students analyzed weather patterns in the past and the present as well as forecasted climate change in the future. They also learned how to use the Google Earth program to find geological information from satellite photos and to learn immediate phenomena of climate change. At the end of the project, the Power Green Camp 3 campers presented their final environmental projects at Tesco Lotus, Salaya Branch, Nakhon Pathom Province.


Banpu Public Company Limited

075

The “Power Green Camp” organizers also initiated “The Power Green Leader Camp” for the first time this year where students from the “Power Green Camp” 1 and 2 were selected to attend this event. This youth leader camp is designed to expand a network of “Power Green Camp” youths and to nurture and strengthen a new generation of environmental leaders so that they not only possess leadership skills but also are ready to lead in the future. • GLOBE Animation – Media for the Learning of Environmental Science Banpu provided support to the Institute for the Promotion of Teaching Science and Technology (IPST) to produce GLOBE animation VCDs and seven bi-lingual storybooks (Thai/English). The CDs and the books were designed to support the learning of environmental science and natural science for primary school students. The media was already given to more than 20,000 primary schools under the Office of Basic Education and the Border Patrol Police as well as the interested public. • GLOBE Project’s Season and Biomes Workshop Banpu provided support to the IPST to organize the Season and Biomes Workshop during 15 - 18 November 2008 at Mae Rim, Chiang Mai Province. The workshop was held for scientists, teachers and students from all over the country to learn more about changes in the ecological system resulted from seasonal changes from world-class scientists and to exchange information and strengthen networks. Banpu’s support to the GLOBE project in Thailand has continued for the third consecutive year. Youth Support Programs • “Youth Innovation Marketplace 4” or “YIM 4” Banpu continues to extend support to the Youth Innovation Marketplace (YIM) project to create new generations of entrepreneurs in the Thai society and to build a long-term, sustainable system for Thai children to initiate and pursue community and social development projects based on their interests. Youths of 15-25 years old from all over the country are invited to submit a social development project that is innovative and can be translated into a real practice to seek the YIM Project’s support. Selected projects will not only receive financial support but also training, network and consultancy support from the “YIM”. This year, the YIM 4 project selected eight social development projects of Thai young adults nationwide. They included 1) Take kids to the swamp to save the world project 2) Archaeological Volunteering project 3) Youth Leadership project 4) Leaf Bank 5) Sweet Smile Caravan 6) Youth Network for Social Development 7) Moral tales for kids and 8) Esarn Dialect Network. • Banpu Table Tennis Club The Company established Banpu Table Tennis Club with a goal to enhance Thai children’s table tennis skills. The club is also a linkage that binds CSR activity at Banpu’s HQ in Thailand with that of its overseas subsidiary in China. In addition, the club is also a means to use Banpu Table Tennis Club at Zhending, Hebei Province, China, which has been set up by Banpu Power Investment (China) (BPIC), and Zhengding National Table Tennis Training Center, one of the highly-reputable table tennis training camps for China’s national athletes, to train Banpu Table Tennis Club athletes in Thailand. The club is currently training 50 athletes from all over the country having a former Thai national table tennis coach as its instructor. In 2008, the club organized various activities ranging from sending athletes to train at Zhengding National Table Tennis Training Center and, with China’s Banpu Table Tennis Club, sending athletes to the 4th Thailand Open Table Tennis Championship in 2008 and other major domestic tournaments & abroad.


2008 Annual Report

076

Other Activities • Employee Volunteering Program More than 100 Banpu executive officers and Banpu staff took part in the “Employee Volunteering Program” event held for the second consecutive year at the Maharaj Foundation Home for Boys at Khlong 5, Pathum Thani Province where everyone helped building a basketball court and planted mango trees. Banpu also organized recreational activities as well as donated necessary supplies to the foundation to improve the wellbeing of the underprivileged children. This event allowed Banpu executive officers and staff to volunteer in a project keen to the society and the environment. Social Responsibility Programs at the Local Level Public Health Lampang Mine donated money to build a gymnasium for Mae Tha Police Station, Lampang Province, to promote healthy lifestyle among police officers, their family and the public. Education Lampang Mine, Chiang Muan Mine and Lamphun Mine donated THB 380,000 to support students from various schools in the three provinces. Since 2001, the three mines have provided more than THB 2 million education supports to schools in their areas. Occupational Enhancement Lampang Mine supported a project called the “school to relieve Lampang people from the poverty by living in a self sufficient way” at Mae Gua Sub-District, Sobprab District, Lampang Province. The project is one of strategic programs of Lampang Province intended to provide vocational training to the poor so that they can stand on their own feet. In addition, Banpu also supported a center promoting sufficiency economy according to H.M. the King’s philosophy. The center has been set up by local people who are local sources of knowledge at Mae Tha District, Lampang Province, in response to H.M. the King’s sufficiency economy philosophy. Meanwhile, Chiang Muan Mine also provided support to Baan Saa Klang community bank at Baan Saa Klang, Moo 12, Saa Subdistrict, Chiang Muan District, Phayao Province. This prototype has been developed as a model of financial institution operated under the sufficiency economy philosophy. Chiang Muan Mine also supported the cow husbandry project of the Ban Saa Community. Environment The Charity Club of Banpu Bangkok organized “Help Conserving Sea Turtle” activity at the Sea Turtles Conservation Center at the Royal Thai Navy Base, Sattahip, Chon Buri Province. Participated by Banpu staff and their family members, the event also gave money to the Royal Thai Navy to help conserving turtles. Lampang Mine took part in “Forest Conservation and Check Dam Construction” project at the Huay Mae Than watershed. Its staff also helped building a reservoir in the village.


Banpu Public Company Limited

077

Religion and Customs Lampang Mine took part in the annual-held-life-enhancing ceremony of Baan Mae Gua’s reservoir at Sobprab District, Lampang Province. Lamphun Mine together with people from various communities in Li District, Lamphun Province mobilized money for Wat Banpu, Wat Bannaklang and Wat Ban Hong located around the mine. Aside from various CSR projects in corporate and local levels in Thailand, Banpu also pays a lot of attention to its CSR activities at the corporate level and local level in countries it has presence; namely, in Indonesia and China. Details are as follows:

Indonesia Banpu has put an emphasis on its social and environmental responsibilities since the start of its business there. Today, all Banpu mines in Indonesia ranging from Indominco, Kitadin, Jorong, Trubaindo and its Indonesian subsidiary - ITM continue to conduct their CSR projects with a special emphasis on community development projects and people participation as well as support to local communities. Community development projects in Indonesia cover activities in infrastructure, education, religion, public health, economic and cultural areas. Major projects in 2008 included the following: Job Creation Aside from supporting community-based products, Indominco-Bontang Mine also promoted food-processing activities done by communities around it. This refers to the making of powdered ginger, dry banana and sweetened pineapple. The products have been certified Halal Food by relevant agencies and are currently sold in local supermarkets. The mine also trained communities to grow seaweeds in areas near the Bontang Coal Terminal. Trubaindo also trained farmers to plant rubbers while Kitadin-Embalut promoted the breeding of freshwater fish. At present, quality of these products is being enhanced while more distribution channels are sought. Education ITM has given away eight scholarships worth 22,750,000 Indonesian Rupiah (IDR) each to university student in Indonesia per semester. The scholarship will last for two years (or four semesters). After graduating, all students will work at ITM or a company in the group. The firm has also published a storybook entitled “The Journey in a Coal Mine,” which provides basic information of how coal is mined, to primary schools around Jakarta as part of its CSR activity to educate children. Indominco-Bontang together with Indonesia-Australia Partnership in Basic Education also held a teacher’s training workshop to enhance teachers’ skills at Bontang’s Akbar Hotel. The event was attended by 74 teachers from East Kutai and Kutai Kartanegara Administrative Zones. Environmental Conservation To conserve the environment, the Community Consultative Committee (CCC) in each mine closely monitored conservation activities within the mine whether it’s about soil restoration, maintenance of natural waterways and repair work and reforestation.


2008 Annual Report

078

Public Health Each mine organized a mobile medical unit with local health officers to provide free healthcare services to the public, give nutritional food to children less than five years old in communities and take care of pregnant women. Capacity-Building Training was held for community leaders and members of the Community Consultative Committee to learn how to write a community development program and collect community data for future work. Community Development and CSR Master Plan and Database Banpu started to formulate a CSR master plan and the CD MIS project to ensure that community development, its monitoring and Banpu’s CSR activity was carried out with transparency and met international standards.

China Although Banpu has been in China only recently, yet, its CSR policy applies to all production locations of itself and of its subsidiaries. While a CSR master plan and strategies of its China unit remain in its infancy, as a good corporate citizen, Banpu has actively supported the public sector’s social and community development and environmental conservation activities. We not only try to minimize our impacts but also want to improve the wellbeing of our neighbors and maintain a good relationship with communities and the local government for better understanding and trust and for sustainable development of everyone. During the past year, our coal business in China and BPIC, which operates a power business there, supported the following activities of local communities in China: • Financial support to earthquake victims in Sichuan Province • Our coal business in China also supported cultural conservation activities and attended investment promotion events in Henan and Shanxi Provinces. This included its participation of the Abor Day with Zhengzhou local government and its attendance at the 5th China Henan International Investment & Trade Fair at Henan Province and the 2nd China Taiyuan International Coal & Energy New Industry Expo 2008 of Shanxi Province. • BPIC provided financial and other supports to Zhengding’s Table Tennis Club, a well-recognized training club of future table tennis athletes. The place also trains table tennis coaches from all over the world. The Club sent a team of Chinese athletes to participate in the 4th Thailand Open Table Tennis Championship 2008 with athletes from Banpu Table Tennis Club in Thailand. It was such a great opportunity to exchange experiences and maintain good relationships between athletes from the two countries. • BPIC also provided financial and other supports to a school for the disabled in Luannan City of Hebei Province. 76 students with hearing and speech impairment and mental and physical disability were taken care of by 30 teachers at the school. Because of BPIC’s continual support, the school changed its name to the “Banpu School for Special Students of Luannan County” to express appreciation to the firm.


Banpu Public Company Limited

079

Other Relevant Information

080

Board of Directors and Management

089

Shareholdings of the Board of Directors and Management

090

Remuneration of the Board of Directors and Management

092

Major Shareholders

093

Connected Persons and Transactions

100

Other References

101

Details of the Company and Its Subsidiary and Associated Companies


2008 Annual Report

080

Board of Directors and Management

Name/Position

Age

1. Mr. Krirk-Krai Jirapaet

65

• Independent Director • Chairman

Education

% Share held

• B.A. (Hons) Political Science,

0.00

Work experience in the last five years Period Present

Chulalongkorn University

Position Independent Director / Member, Council of the

Australia

University of the Thai

• Certificate in Economic Developments, Japan

Vice Chairman Minister of Commerce

Ministry of Commerce

2005 - 2006

Chairman of the Board

Banpu Public Company Limited

of Directors Executive Director

• Role of Chairman (RCP) #11/2005,

(Public Organization) 2003 - 2006

Committee

Monetary Policy Committee,

2003 - 2005

Vice Minister

Ministry of Tourism and Sports

2001 - 2003

Advisor to the Prime

Office of the Prime Minister

#61/2005, Thai Institute of Directors

Bank of Thailand

Thai Institute of Directors Association (IOD) 2. Mr. Soonthorn Vongkusolkit 70 • Vice Chairman • Member of the Corporate Governance and Nomination Committee * An older brother of persons number 10 and 12

• Honorary Ph.D. in Business Administration, 0.66

Minister Present

Vice Chairman /

University of the Thai Chamber

Member of the

of Commerce

Corporate Governance

• Chairman 2000 Program #7/2002,

Committee

• Directors Accreditation Program

Honorary Chairman

Mitr Phol Sugar Corp., Ltd.

2006 - 2008

Chairman

Banpu Public Company Limited

2004 - 2006

Member of the

Banpu Public Company Limited

(DAP) #19/2004, Thai Institute of Directors • Modern Managers Program (MMP),

Banpu Public Company Limited

and Nomination

Thai Institute of Directors Association (IOD)

Association (IOD)

International Institute for Trade and Development

Thai Institute of Directors Association (IOD)

• Audit Committee Program #8/2005,

Thai Garment Development

2006 - 2008

• National Defence College (Class 37)

Association (IOD)

Chamber of Commerce

Foundation

Practices Federal, Republic of Germany

• Director Certification Program (DCP)

The University of the Thai

Chamber of Commerce

• Certificate in Project Appraisal, Oxford University, UK

Banpu Public Company Limited

Chairman

• Master of Economics, Sydney University,

• Certificate in Commercial Counseller

Organization

and its affiliates

Chulalongkorn University

Corporate Governance

• Mattayomsuksa

and Nomination Committee 1983 - 2006

Vice Chairman

1983 - Present

Chairman

Banpu Public Company Limited TME Capital Co., Ltd.

1981 - Present

Director

City Holding Co., Ltd.

2002 - 2007

Chairman

United Standard Terminal

1974 - 2008

Chairman

Mitr Phol Sugar Corp., Ltd.

Public Company Limited and its affiliates


Banpu Public Company Limited

Name/Position

3. Mr. Rutt Phanijphand

Age

61

Education

• M.S. in Business Ad.,

• Independent Director

Fort Hays Kansas State University,

• Chairman of the

Hays, Kansas, U.S.A.

Compensation Committee

% Share held -

Work experience in the last five years Period 2005 - Present

Position Independent Director

Banpu Public Company Limited

Chairman of the

Banpu Public Company Limited

Committee

• Directors Accreditation Program:

Chairman of Executive

Governance Training for Listed

Directors

Company Directors (DAP),

Land and Houses Retail Bank Public Company Limited

Director

Land and Houses Retail Bank

Director

IRPC Public Company Limited

Member of the Audit

IRPC Public Company Limited

#4/2003, Thai Institute of Directors

Public Company Limited 2006 - Present

• Directors Certification Program (DCP) #61/2005, Thai Institute of Directors Association (IOD)

Organization

Compensation

• B.S. Kasetsart University

Association (IOD)

081

Committee 2001 - Present

• National Defence College (Class 388)

President / Chief Executive Officer

Quality Houses Public Company Limited

Director

Home Product Centre

Chairman of the

Home Product Centre

Public Company Limited 2007 - Present

Nomination and

Public Company Limited

Compensation Committee Executive Director

Home Product Centre

2004 - 2005

Executive Director

Krung Thai Bank Public

2003 - 2004

Member of the Audit

Krung Thai Bank Public

Committee

Company Limited

2002 - 2008

Chairman of

Kasetsart University

Public Company Limited Company Limited

the Activities Promotion Committee Member, Council of Kasetsart University

Kasetsart University


2008 Annual Report

Name/Position

4. Mr. Montri Mongkolswat

Age

65

Education

• B.A. (Commerce), Thammasat University

• Independent Director

• B.A. (Accountancy), Thammasat University

• Member of

• National Defence College (Class 355)

the Audit Committee

% Share held -

Work experience in the last five years Period 1999 - Present

Position Independent Director /

Organization Banpu Public Company Limited

Member of Audit Committee

• Chairman 2000 Program #3/2001,

• Member of the

082

2002 - Present

Thai Institute of Directors Association (IOD)

Member of the

Banpu Public Company Limited

Compensation

Compensation Committee

Committee 2004 - 2005

Member of the Corporate Banpu Public Company Limited Governance and Nomination Committee

2003 - 2004

Chairman of the

Banpu Public Company Limited

Compensation Committee Present

Director / Member of the Nomination

The Deves Insurance Public Company Limited

Committee and Compensation Committee / Advisor to the Executive Committee 5. Mr. Kopr Kritayakirana

69

• B.Sc. (Physics), Chulalongkorn University

• Independent Director

• Ph.D. (Physics), Harvard University

• Chairman of the Corporate

• Directors Certification Program

Governance and

(DCP) #11/2001, Thai Institute of

Nomination Committee

Directors Association (IOD)

-

2003 - Present

Independent Director

Banpu Public Company Limited

2004 - Present

Chairman of the

Banpu Public Company Limited

Corporate Governance and Nomination Committee 2003 - Present

Director

Thai Institute of Directors

Present

Director

Thai Reinsurance

Director

Siam Panich Leasing

Director

Sicco Securities

Member, Council of

Chulalongkorn University

Association (IOD) Public Company Limited Public Company Limited Public Company Limited Chulalongkorn University


Banpu Public Company Limited

Name/Position

6. Mr. Somkiat Chareonkul • Independent Director • Chairman of the Audit Committee

Age

67

Education

• Bachelor of Commerce,

% Share held -

Work experience in the last five years Period 2005 - Present

Thammasat University

Independent Director,

Organization Banpu Public Company Limited

the Audit Committee 2005 - 2007

• Certificate in “Strategic Alliance

Member of the Corporate Banpu Public Company Limited Governance and

Seminar”, The Wharton School, University of Pennsylvania, U.S.A.

Position

Chairman of

• Bachelor of Law, Sukhothai Thammathirat University

083

Nomination Committee 2006 - Present

Director

Oishi Group Public Company

Director

Oishi Ramen Company Limited

• Certificate in “Selected Problems

Limited

of Tax Auditing and Investigation” ,

Director

Oishi Trading Company Limited

• Certificate in “Seminar on Taxation

Germany and Singapore 2004 - Present

Director

Chantaburi Resort and Spa Co., Ltd.

(Indirect Tax Course)”, JICA (Japan

2003 - Present

Director

Mueng Kit Co., Ltd.

International Cooperation Agency), Japan • Certificate of Training “The Management Program”, Sasin Graduate Institute of Business Administration, Chulalongkorn University • Certificate of Training “Senior Executive, Class 30” Civil Service Training Institute, Civil Service Commission • Directors Certification Program (DCP) #79/2006, Thai Institute of Directors Association (IOD) • Directors Accreditation Program (DAP), #21/2004, Thai Institute of Directors Association (IOD) • Audit Committee Program, Class 1/2004, Thai Institute of Director Association (IOD)


2008 Annual Report

Name/Position

Age

7. Mr. Anothai Techamontrikul 65 • Independent Director • Member of the Audit Committee • Member of the Corporate Governance and Nomination Committee

Education

• B.A. (Accounting),

% Share held -

084

Work experience in the last five years Period 2006 - Present

Chulalongkorn University

Position Independent Director /

Organization Banpu Public Company Limited

Member of

• Diploma in Advanced Vocational

the Audit Committee

Training, Germany

2007 - Present

• Directors Accreditation Program

Member of the Corporate Banpu Public Company Limited Governance and

(DAP) #5/2003, Thai Institute of

Nomination Committee

Directors Association (IOD)

Present

• Directors Certification Program

Chairman (Executive Board)

(DCP) #89/2007, Thai Institute of)

D.T.C. Industries Public Company Limited

Vice Chairman

Alcan Packaging Strongpack

Vice Chairman

United Auditing PKF Limited

Director

Safety Steel Industry Company

Director and

The Industrial Finance Corporation

Directors Association (IOD)

Public Company Limited 1998 - 2004

Limited General Manager 8. Mr. Sawatdiparp Kantatham 69 • Director • Member of the Corporate Governance and Nomination Committee

• B.A. (Economics), Hanover College, Indiana, U.S.A.

0.26

1983 - Present

Director

2001 - Present

Member of the Corporate Banpu Public Company Limited

• Program on Investment Appraisal

Nomination Committee 2001 - 2004

Administration, Massachusetts, U.S.A.

Member of the

Banpu Public Company Limited

Compensation

• National Defence College (Class 35) • Directors Certification Program

Banpu Public Company Limited

Governance and

and Management, Harvard University Graduate School of Business

Of Thailand

Committee Present

Selective Committee

(DCP) #31/2003, Thai Institute of

(Selecting the

Directors Association (IOD)

Chairman and experts

Bank of Thailand

for the B.O.T. Board) Director

Ufinves Co., Ltd.

1995 - Present

Director

TME Capital Co., Ltd.

2005 - Present

President

The Phrae People Association

1988 - Present

Vice President

The American University Alumni

2000 - 2006

Senator

The Senate

Association


Banpu Public Company Limited

Name/Position

9. Mr. Metee Auapinyakul

Age

55

• Director

Education

% Share held

• B.SC. (Management),

0.09

Work experience in the last five years Period 1983 - Present

St. Louis University, Missouri, U.S.A.

• Executive Officer

Position Director / Executive

2008 - Present

Honorary Advisor

Harvard University John F. Kennedy

to Sign on Behalf of

Director

Thai Agro Energy Public Company

2004 - Present

Advisor

GENCO Public Company Limited

2005 - 2006

Sub-Committee

The Board of Investment

Limited

• National Defence College, College of

number 11

Energy Committee,

2007 - Present

• National Defence College (Class 377) #7

* An older brother of person

Banpu Public Company Limited

House of Representatives

School of Government, Boston, U.S.A.

the Company

Organization

Officer

• Infrastructure for the Market Economy,

• Director with Authority

085

Management, Mahidol University (Mini MMM Class 1)

of Board of Investment

• Directors Certification Program

2001 - 2008

(DCP) #61/2005, Thai Institute of

Sub-Committee for

National Safety of Thailand

Public Relations

Directors Association (IOD)

2001 - 2006

Specialist

Energy Committee,

2003 - 2006

National Science

Ministry of Science and Technology

House of Representatives and Technology Development Board Committee 2004 - 2005

Committee for Project

The Board of Investment

Consideration 2003 - 2005

Advisor

The Board of Investment

2003 - 2004

Chairman, Customer

Thai Airways International

Services Quality

Public Company Limited

Assurance Committee Member of the Customer Thai Airways International Services Quality 2002 - 2004

Assurance Committee

1984 - 2005

Director

Advisor

Public Company Limited Academic Committee, National Defence College Royal and Sun Alliance Insurance (Thailand) Limited

10. Mr. Chanin Vongkusolkit • Director • Chief Executive Officer * A younger brother of persons number 2 and 12

56

• Honorary Ph.D. in Economics,

0.65

1983 - Present

Chiang Mai University • M.B.A. (Finance), St. Louis University,

Director / Chief

2004 - Present

Director

Missouri, U.S.A. • B. Economics, Thammasat University

Banpu Public Company Limited

Executive Officer The Erawan Group Public Company Limited 2003 - Present

Director

Ratchaburi Electricity Generating

(DCP) #20/2002, Thai Institute of

1983 - Present

Director

Mitr Phol Sugar Corp., Ltd.

Directors Association (IOD)

2005 - Present

Vice Chairman

Thai Listed Companies Association

• Directors Certification Program

• DCP Refresher Course #3/2006, Thai Institute of Directors Association (IOD)

Holding Public Company Limited


2008 Annual Report

Name/Position

11. Mr. Ongart Auapinyakul

Age

52

• Director

Education

% Share held

• B.S. (Mechanical Engineering),

0.17

Work experience in the last five years Period 1983 - Present

University of Missouri, Columbia, U.S.A.

• Executive Officer

086

Position Director /

Organization Banpu Public Company Limited

Executive Officer

• Senior Executive Program 3

• Director with Authority

Sasin Graduate Institute of Business

to Sign on Behalf of

Administration of Chulalongkorn University

the Company

• National Defence College (Class 4414)

* A younger brother of person

• Directors Certification Program

number 9

(DCP) #23/2002, Thai Institute of Directors Association (IOD)

12. Mr. Vitoon Vongkusolkit • Director • Member of the Compensation Committee

67

• B.Sc. (Pharmacology), Chulalongkorn University

to Sign on Behalf of

• Senior Executive Program #6,

number 2 * An older brother of person

Director

Banpu Public Company Limited

2001 - Present

Member of the

Banpu Public Company Limited

Compensation

(DCP) #17/2002, Thai Institute of Directors Association (IOD)

the Company

1983 - Present

• Director Certification Program

• Director with Authority

* A younger brother of person

1.32

Committee 2004 - Present

The Erawan Group

of the Financial

Sasin Graduate Institute of Business

and Risk Management

Administration of Chulalongkorn University • Chairman 2000 #11/2005,

Director / Chairman

Committee 1987 - Present Director

Thai Institute of Directors Association (IOD)

Mitr Phol Sugar Corp., Ltd. and its affiliates

number 10

Director

Erawan Hotel Public Company

1983 - Present

Chairman

IAG Insurance (Thailand) Co., Ltd.

1977 - Present

Director

United Standard Terminal

1989 - 2007

Director

Erawan Ploenchit Co., Ltd.

1998 - 2006

Chairman

United Securities Public

2001 - 2004

Member of the

Banpu Public Company Limited

Limited

Public Company Limited

Company Limited Corporate Governance and Nomination Committee 1987 - 2004

Managing Director

Amarin Plaza Public Company Limited


Banpu Public Company Limited

Name/Position

13. Mr. Rawi Corsiri

Age

58

• Chief Operating Officer

Education

% Share held

• M.B.A., Sasin Graduate Institute of

-

087

Work experience in the last five years Period

Position

2001 - Present

Chief Operating Officer

Organization Banpu Public Company Limited

Business Administration of

Director

Banpu Minerals Company Limited

Chulalongkorn University

Director

Banpu Singapore Pte. Ltd.

• B.Sc., Chulalongkorn University

Director

Banpu International Limited

• Directors Certification Program

Director

Banpu Power Limited

(DCP) #32/2003, Thai Institute of

Director

Banpu Coal Power Limited

Directors Association (IOD)

Director

Banpu China Pte. Ltd.

• Capital Market Academy Leader

Director

Banpu Power International Limited

Program (CMA) #2/2006,

Director

BLCP Power Limited

Capital Market Academy

Director

Power Generation Services Co., Ltd.

• Executive Leadership Program

Director

Banpu Power Investment Co., Ltd.

NIDA-Wharton, Co-program

Director

Peak Pacific Investment (L) BHD

between National Institute of

Director

Silamani Corp. Ltd.

Development Administration (NIDA)

Director

Silamani Marble Company Limited

2006 - Present

Chief Finance Officer

Banpu Public Company Limited

2001 - 2006

Senior Vice President -

Banpu Public Company Limited

and The Wharton School, University of Pennsylvania, U.S.A. 14. Ms. Somruedee

47

Chaimongkol

• B.Sc. (Accounting), Bangkok University

0.08

• Program for Global Leadership,

• Chief Finance Officer

Harvard University Graduate School

Finance

of Business Administration,

Present

Boston, U.S.A. • Directors Certification Program

Director

Banpu Singapore Pte. Ltd.

Director

Banpu Minerals Company Limited

Director

Banpu International Limited

(DCP) #78/2006, Thai Institute of

Director

Silamani Corp. Ltd.

Directors Association (IOD)

Director

Silamani Marble Company Limited

Director

Banpu China Pte. Ltd.

Director

BP Overseas Development Co., Ltd.

15. Mr. Sathidpong Wattananuchit • Assistant Chief Executive Officer Corporate Services

50

• Doctor of Philosophy in Strategic

-

2007 - Present

Management, University of Northern

Corporate Services 2006 - Present

Leadership, IOU of Netherlands

• Philosophy Training, Saint Gabriel’s Institution, India • Directors Certification Program (DCP) #74/2006, Thai Institute of Directors Association (IOD)

Banpu Public Company Limited

Corporate Services 2004 - 2005

Senior Vice President -

1998 - 2003

Senior Vice President -

• B.A. (English), Nakhon Ratchasima Rajaphat University

Group Senior Vice President -

• B.A. (Administration), Sukhothai Thammathirat University

Banpu Public Company Limited

Executive Officer -

Washington • M.B.A., Strategic Management

Assistant Chief

Banpu Public Company Limited

Internal Audit Human Resources

Banpu Public Company Limite


2008 Annual Report

Name/Position

16. Mr. Akaraphong

Age

50

Dayananda

Education

% Share held

• B.S. (Engineering),

-

Work experience in the last five years Period Present

Chulalongkorn University

• Senior Vice President

Ohio, U.S.A.

Development

• Executive Program in Strategy

Position Senior Vice President -

Organization Banpu Public Company Limited

Strategy and Business

M.B.A., Bowling Green State University,

Strategy and Business

088

Development 2004 - 2008

Director

2001 - 2008

Senior Vice President -

and Organization, Stanford University,

Corporate Strategic

California, U.S.A.

Planning

Synergy Power Co., Ltd. Banpu Public Company Limited

• Director Certification Program (DCP) #91/2007, Thai Institute of Directors Association (IOD) • Director Diploma Examination #22/2007, Thai Institute of Directors Association (IOD) 17. Ms. Udomlux Olarn • Senior Vice President Corporate Affairs

49

• B.A., Journalism and Mass Communication 0.00

Present

Senior Vice President -

2007 - 2008

Senior Vice President -

(Advertising and Public Relations), Thammasat University

Banpu Public Company Limited

Corporate Affairs Banpu Public Company Limited

Corporate Communications & Public Affairs 2001 - 2007

Vice President Corporate Communications

Banpu Public Company Limited


089

Banpu Public Company Limited

Shareholdings of the Board of Directors and Management

As of 30 December 2008 Ordinary Share (Units) Name 30 December 2008 31 December 2007

1. Mr. Krirk-Krai Jirapaet

+ / (-)

3,000

-

1,798,196

1,948,296

-

-

-

700,745

662,745

38,000

3,590,911

3,590,911

-

6. Mr. Kopr Kritayakirana

-

-

-

7. Mr. Somkiat Chareonkul

-

-

-

8. Mr. Rutt Phanijphand

-

-

-

9. Mr. Anothai Techamontrikul

-

-

-

1,764,971

1,688,071

76,900

11. Mr. Metee Auapinyakul

251,599

221,599

30,000

12. Mr. Ongart Auapinyakul

459,300

710,500

(251,200)

-

-

-

212,628

212,628

-

2. Mr. Soonthorn Vongkusolkit 3. Mr. Montri Mongkolsawat 4. Mr. Sawatdiparp Kantatham 5. Mr. Vitoon Vongkusolkit

10. Mr. Chanin Vongkusolkiit

13. Mr. Rawi Corsiri 14. Ms. Somruedee Chaimongkol

3,000 (150,100)

15. Mr. Sathidpong Wattananuchit

-

-

-

16. Mr. Akaraphong Dayananda

-

-

-

11,000

11,651

17. Ms. Udomlux Olarn

Note: From report of securities held by the Company’s directors as of 30 December 2008.

(651)


2008 Annual Report

090

Remuneration of the Board of Directors and Management

1. Remuneration in Cash for the Year Ending 31 December 2008 1.1 Remuneration in cash for Board members in the forms of meeting allowance and gratuity was THB 33,404,492.00 which details are as follows. Meeting Allowance (THB/year) Name/Position Director

Audit Committee

Corporate Governance and Nomination Committee

Compensation Committee

Total Remuneration (THB/year)

Gratuity (THB/year)

1. Mr. Krirk-Krai Jirapaet Chairman / Independent Director

650,000.00

-

-

-

-

650,000.00

2. Mr. Soonthorn Vongkusolkit Vice Chairman / Member of the Corporate Governance and Nomination Committee

770,000.00

-

50,000.00

-

2,761,062.00

3,581,062.00

3. Mr. Montri Mongkolswat Independent Director / Member of the Audit Committee / Member of the Compensation Committee

650,000.00

240,000.00

-

125,000.00

2,123,893.00

3,138,893.00

4. Mr. Sawatdiparp Kantatham Director / Member of the Corporate Governance and Nomination Committee

650,000.00

-

100,000.00

-

2,123,893.00

2,873,893.00

5. Mr. Vitoon Vongkusolkit Director / Member of the Compensation Committee

650,000.00

-

-

125,000.00

2,123,893.00

2,898,893.00

6. Mr. Kopr Kritayakirana Independent Director / Chairman of the Corporate Governance and Nomination Committee

650,000.00

-

130,000.00

-

2,123,893.00

2,903,893.00

7. Mr. Somkiat Chareonkul Independent Director / Chairman of the Audit Committee

650,000.00

312,000.00

-

-

2,123,893.00

3,085,893.00

8. Mr. Rutt Phanijphand Independent Director / Chairman of the Compensation Committee

650,000.00

-

-

162,500.00

2,123,893.00

2,936,393.00

9. Mr. Anothai Techamontrikul Independent Director / Member of the Audit Committee / Member of the Corporate Governance and Nomination Committee

625,000.00

240,000.00

100,000.00

-

2,123,893.00

3,088,893.00


Banpu Public Company Limited

091

Meeting Allowance (THB/year) Name/Position Director

Audit Committee

Corporate Governance and Nomination Committee

Compensation Committee

Total Remuneration (THB/year)

Gratuity (THB/year)

10. Mr. Chanin Vongkusolkit Director

625,000.00

-

-

-

2,123,893.00

2,748,893.00

11. Mr. Metee Auapinyakul Director

650,000.00

-

-

-

2,123,893.00

2,773,893.00

12. Mr. Ongart Auapinyakul Director

600,000.00

-

-

-

2,123,893.00

2,723,893.00

Total

33,404,492.00

Notes: The Company’s resolution to appoint Mr. Krirk-Krai Jirapaet to be the Chairman of the Board and Mr. Soonthorn Vongkusolkit to be the Vice Chairman was effective from 11 April 2008 onwards.

1.2 Remuneration in cash for the Company’s executives in the forms of salary and bonus Number of executives

2008

Number of executives

2007

Total salaries

6

40,147,320.00

5

35,005,020.00

Total bonuses

6

27,068,695.00

5

16,351,480.00

Unit: THB

Total

67,216,015.00

51,356,500.00

Notes: • In 2007, there were five executives namely, Mr. Chanin Vongkusolkit, Mr. Rawi Corsiri, Mr. Chanchai Jivacate, Ms. Somruedee Chaimongkol and Mr. Sathidpong Wattananuchit. • In 2008, there were six executives namely, Mr. Chanin Vongkusolkit, Mr. Rawi Corsiri, Ms. Somruedee Chaimongkol, Mr. Sathidpong Wattananuchit, Mr. Akaraphong Dayananda and Ms. Udomlux Olarn.

2. Other remunerations 2.1 Contributions to the Provident Fund In 2008, the Company paid the following contributions to its executives. Unit: THB Contributions to the Provident Fund

Number of executives 6

2008 2,416,982.40

Number of executives 4

2007 1,757,901.60

Notes: • In 2007, there were four executives namely, Mr. Chanin Vongkusolkit, Mr. Rawi Corsiri, Ms. Somruedee Chaimongkol and Mr. Sathidpong Wattananuchit. • In 2008, there were six executives namely, Mr. Chanin Vongkusolkit, Mr. Rawi Corsiri, Ms. Somruedee Chaimongkol, Mr. Sathidpong Wattananuchit, Mr. Akaraphong Dayananda and Ms. Udomlux Olarn.


2008 Annual Report

092

Major Shareholders

Ten Major Shareholders as of 31 December 2008 Major Shareholders

Number of Shares Hold

1. The Vongkusolkit Family and related companies*

43,019,741

15.84

2. Thai NVDR Co., Ltd.

32,178,013

11.84

3. State Street Bank and Trust Company

18,813,170

6.92

4. Littledown Nominees Limited 9

Percentage

13,723,000

5.05

5. State Street Bank and Trust Company for London

6,748,210

2.48

6. Chase Nominees Limited

6,041,000

2.22

7. HSBC (Singapore) Nominees Pte. Ltd.

4,443,213

1.64

8. Government of Singapore Investment Corporation C

4,292,600

1.58

9. Norbax Inc.,13

3,853,035

1.42

3,500,000

1.29

No. of Shares

Percentage

22,556,207

8.30

8,053,808

2.96

6,101,600

2.25

2,080,965

0.77

1,779,445

0.65

681,905

0.25

615,200

0.23

600,611

0.22

480,000

0.18

70,000

0.03

10. Fortis Global Custody Services N.V.

Notes: * The Vongkusolkit Family and related companies comprise of 1) The Vongkusolkit Family 2) Mitr Phol Sugar Corp., Ltd.

Mitr Siam Sugar Corp., Ltd. holds 99.99 per cent of its paid-up capital. 3) TME Capital Co., Ltd.

The Vongkusolkit Family holds 54.23 per cent of its paid-up capital. 4) MP Particle Board Co., Ltd.

United Farmer and Industry Co., Ltd. holds 99.99 per cent of its paid-up capital. 5) United Farmer and Industry Co., Ltd.

Mitr Phol Sugar Corp., Ltd. holds 87.56 per cent of its paid-up capital. 6) Pacific Sugar Corporation Ltd.

The Vongkusolkit Family holds 45.12 per cent of its paid-up capital. Mitr Phol Sugar Corp., Ltd. holds 25.00 per cent of its paid-up capital. 7) Mitr Phu Viang Sugar Co., Ltd.

United Farmer and Industry Co., Ltd. holds 99.99 per cent of its paid-up capital. 8) Ufinves Co., Ltd.

TME Capital Co., Ltd. holds 100.00 per cent of its paid-up capital. 9) Mitr Kalasin Sugar Co., Ltd.

United Farmer and Industry Co., Ltd. holds 99.99 per cent of its paid-up capital. 10) City Holding Co., Ltd.

The Vongkusolkit Family holds 92.00 per cent of its paid-up capital.

The Limited of Foreign Shareholders The foreign shareholders can be able to hold not more than 40 per cent of its paid-up capital as of 31 December 2008, which now have been holding 40.00 per cent of its paid-up capital.


Banpu Public Company Limited

093

Connected Persons and Transactions

Connected Persons Connected Persons / Type of Business 1. Mitr Phol Sugar Corp., Ltd. (Production and distribution of sugar and molasses)

2. TME Capital (Investment Company)

3. United Farmer and Industry Co., Ltd. (Production and distribution of sugar and molasses)

Description of Relationship

Major Shareholders

List of Board of Directors

1) Being one of the major shareholders of Banpu Plc., holding 2.96 per cent of its paid-up capital 2) The major shareholder is the Vongkusolkit Family, which is also one of major shareholders of Banpu Plc. 3) There are 2 joint directors as follows: 1. Mr. Vitoon Vongkusolkit 2. Mr. Chanin Vongkusolkit

As of 31 December 2008 Mitr Siam Sugar Co., Ltd.

1) Being one of the major shareholders of Banpu Plc., holding 2.25 of its paid-up capital 2) The major shareholder is the Vongkusolkit Family, which is also one of major shareholders of Banpu Plc. 3) There are 6 joint directors as follows: 1. Mr. Soonthorn Vongkusolkit 2. Mr. Vitoon Vongkusolkit 3. Mr. Chanin Vongkusolkit 4. Mr. Metee Auapinyakul 5. Mr. Ongart Auapinyakul 6. Mr. Sawatdiparp Kantatham

As of 31 December 2008 1. The Vongkusolkit Family 2. The Auapinyakul Family 3. Ufinves Co., Ltd. 4. The Kantatham Family 5. The Karnchanakamnerd Family 6. The Putpongsiriporn Family

1) Being one of the shareholders of Banpu Plc., holding 0.65 per cent of its paid-up capital 2) The major shareholder is Mitr Phol Sugar Corp., Ltd. 3) There is 1 joint director namely: Mr. Vitoon Vongkusolkit

As of 31 December 2008 Mitr Phol Sugar Corp., Ltd. 87.56%

99.99%

1. 2. 3. 4. 5. 6. 7.

9. 10. 11.

Mr. Vitoon Vongkusolkit Mr. Isara Vongkusolkit Mr. Chanin Vongkusolkit Mr. Banthoeng Vongkusolkit Mr. Choosak Vongkusolkit Mr. Phadung Dechasarin Mr. Taweewat Thaweepiyamaporn Wg. Cmr. Laksami Putpongsiriporn Mr. Kritsada Monthienvichienchay Mr. Werajet Vongkusolkit Assoc. Prof. Dr. Jeeradej Usawat

1. 2. 3. 4. 5. 6. 7. 8. 9.

Mr. Soonthorn Vongkusolkit Mr. Vitoon Vongkusolkit Mr. Chanin Vongkusolkit Mr. Metee Auapinyakul Mr. Ongart Auapinyakul Mr. Sawatdiparp Kantatham Mr. Prachuab Trinikorn Mr. Werajet Vongkusolkit Ms. Jintana Karnchanakamnerd

1. 2. 3. 4. 5.

Mr. Vitoon Vongkusolkit Mr. Isara Vongkusolkit Mr. Banthoeng Vongkusolkit Ms. Chayawadee Chaianan Mr. Taweewat Taweepiyamaporn Ms. Jintana Karnchanakamnerd Sukkan Wattanawekin Mr. Kritsada Monthienvichienchay Mr. Werajet Vongkusolkit

8.

54.23% 24.16% 10.50% 3.17% 2.58% 0.63%

6. 7. 8. 9.


2008 Annual Report

094

Connected Persons (continued) Connected Persons / Type of Business

Description of Relationship

Major Shareholders

4. Ufinves Co., Ltd. (Holding Company)

1) Being one of the shareholders of Banpu Plc., holding 0.22 per cent of its paid-up capital 2) The major shareholder is the Vongkusolkit Family, which is also one of major shareholders of Banpu Plc. 3) There are 6 joint directors as follows: 1. Mr. Soonthorn Vongkusolkit 2. Mr. Vitoon Vongkusolkit 3. Mr. Chanin Vongkusolkit 4. Mr. Metee Auapinyakul 5. Mr. Ongart Auapinyakul 6. Mr. Sawatdiparp Kantatham

5. Mitr Kalasin Sugar Co., Ltd. (Production and distribution of sugar and molasses)

1) Being one of the shareholders As of 31 December 2008 of Banpu Plc., holding United Farmers and Industry 99.99% 0.18 per cent of its paid-up Co., Ltd. capital 2) The major shareholder is United Farmer and Industry Co., Ltd. 3) There are 1 joint director namely: Mr. Vitoon Vongkusolkit

6. City Holding Co., Ltd. (Holding Company)

1) Being one of the shareholders of Banpu Plc., holding 0.03 per cent of its paid-up capital 2) The major shareholder is the Vongkusolkit Family, which is also one of major shareholders of Banpu Plc. 3) There are 3 joint directors as follows: 1. Mr. Soonthorn Vongkusolkit 2. Mr. Vitoon Vongkusolkit 3. Mr. Chanin Vongkusolkit

As of 31 December 2008 TME Capital Co., Ltd.

100.00%

As of 31 December 2008 1. The Vongkusolkit Family 92.00% 2. The Putpongsiriporn 2.00% Family 3. The Karnchanakamnerd 6.00% Family

List of Board of Directors 1. 2. 3. 4. 5. 6. 7. 8. 9.

Mr. Soonthorn Vongkusolkit Mr. Vitoon Vongkusolkit Mr. Chanin Vongkusolkit Mr. Metee Auapinyakul Mr. Ongart Auapinyakul Mr. Sawatdiparp Kantatham Mr. Prachuab Trinikorn Mr. Werajet Vongkusolkit Ms. Jintana Karnchanakamnerd

1. 2. 3. 4.

9.

Mr. Vitoon Vongkusolkit Mr. Isara Vongkusolkit Mr. Banthoeng Vongkusolkit Mr. Taweewat Taweepiyamaporn Ms. Jintana Karnchanakamnerd Mr. Sukkan Wattanawekin Ms. Chayawadee Chaianan Mr. Kritsada Monthienvichienchay Mr. Werajet Vongkusolkit

1. 2. 3. 4. 5. 6. 7. 8. 9.

Mr. Kamol Vongkusolkit Mr. Soonthorn Vongkusolkit Mr. Vitoon Vongkusolkit Mr. Isara Vongkusolkit Mr. Chanin Vongkusolkit Ms. Jintana Karnchanakamnerd Mr. Werajet Vongkusolkit Mr. Amnuay Karnchanakamnerd Ms. Arada Vongkusolkit

5. 6. 7. 8.


Banpu Public Company Limited

095

Other Connected transactions between the Company, subsidiaries, affiliated companies and other related companies, including a price-setting policy and applicable interest rates. Details of Banpu’s connected transactions with subsidiaries, affiliates and related companies are in Clause 8 of Notes to Financial Statements Connected transactions between businesses with the following relationships were executed: Connected Transactions Banpu Public Company Limited 1. The Company executed the following connected transactions with Chiang Muan Mining Co., Ltd.: • In 2008, incomes of THB 1.09 million were generated from coal sale to Chiang Muan Mining Co., Ltd. • Related advanced worth THB 0.05 million.

Related Companies

Transaction Value

Chiang Muan Mining Co., Ltd.

THB 1.14 million

2. The Company conducted connected transactions with Banpu International Co., Ltd. as follows: • As of 31 December 2008, there was a related advance of THB 0.50 million. • An accrued management fee income of THB 30 million.

Banpu International Ltd.

THB 30.50 million

3. Connected transactions with Banpu Minerals Co., Ltd.: The Company extended a loan in a form of P/N to Banpu Minerals Co., Ltd. at an interest rate calculated from an average cost of lending plus 0.5 per cent per annum. The Company had connected transactions with Banpu Minerals Co., Ltd. as follows: • As of 31 December 2008, the outstanding loan was THB 2,214.05 million. • In 2008, interest incomes were THB 123.77 million.

Banpu Minerals Co., Ltd.

THB 2,337.82 million


2008 Annual Report

Connected Transactions

Related Companies

Transaction Value

4. Connected transactions with BP Overseas Development Co., Ltd.: The Company extended a loan in a form of P/N to BP Overseas Development Co., Ltd. at an interest rate calculated from an average cost of lending plus 2 per cent per annum. The Company had connected transactions with BP Overseas Development Co., Ltd. as follows: • As of 31 December 2008, the outstanding loan was USD 184.59 million. • In 2008, interest incomes were THB 185.31 million. • As of 31 December 2008, the outstanding advance was THB 222.69 million.

BP Overseas Development Co., Ltd.

USD 184.59 million and THB 408 million

5. Connected transactions with Banpu Singapore Pte. Ltd.: The Company extended a loan in a form of P/N to Banpu Singapore Pte. Ltd. at an interest rate calculated from an average cost of lending plus 2 per cent per annum. The Company had connected transactions with Banpu Singapore Pte. Ltd. as follows: • As of 31 December 2008, the outstanding loan was USD 1.88 million. • In 2008, interest incomes were USD 4.03 million. • Incomes from management fees was THB 34.81 million.

Banpu Singapore Pte. Ltd.

USD 1.88 million and THB 38.84 million

6. Connected transactions with PT. Jorong Barutama Greston: Banpu’s connected transactions with PT. Jorong Barutama Greston were as follows: • In 2008, interest incomes were THB 3.03 million. • As of 31 December 2008, the outstanding advance was THB 0.39 million.

PT. Jorong Barutama Greston

THB 3.42 million

7. A connected transaction with PT. Kitadin: Banpu’s connected transactions with PT. Kitadin were as follows: • As of 31 December 2008, the outstanding advance was THB 0.29 million.

PT. Kitadin

THB 0.29 million

096


Banpu Public Company Limited

Connected Transactions

Related Companies

Transaction Value

8. Connected transactions with PT. Indo Tambangraya Megah Tbk: Banpu’s connected transactions with PT. Indo Tambangraya Megah Tbk were as follows: • As of 31 December 2008, the outstanding advance was THB 1.41 million. • Incomes from management fees were THB 938.54 million.

PT. Indo Tambangraya Megah Tbk

THB 939.95 million

9. Connected transactions with Banpu Power Ltd.: The Company extended a loan in a form of P/N to Banpu Power Ltd. at an interest rate calculated from an average cost of loan plus 2 per cent per annum. Banpu’s connected transactions with Banpu Power Ltd. were as follows: • As of 31 December 2008, the outstanding loans were THB 800 million. • The outstanding advance was THB 2.30 million. • In 2008, interest incomes were THB 84.10 million. • Incomes from management fees were THB 50 million.

Banpu Power Ltd.

THB 936.40 million

10. Connected transactions with PT. Trubaindo Coal Mining: Banpu’s connected transactions with PT. Trubaindo Coal Mining were as follows: • In 2008, interest incomes were THB 21.01 million. • As of 31 December 2008, the outstanding advance was THB 0.39 million.

PT. Trubaindo Coal Mining

THB 21.40 million

11. Connected transactions with PT. Indominco Mandiri: Banpu’s connected transactions with PT. Indominco Mandiri were as follows: • As of 31 December 2008, the outstanding advance was THB 106.64 million.

PT. Indominco Mandiri

THB 106.64 million

12. Connected transactions with Banpu Power International Ltd.: The Company extended a loan in a form of P/N to Banpu Power International Ltd. at an interest rate calculated from an average cost of lending plus 0.5 per cent per annum. In 2008, Banpu Plc. had the following connected transactions with Banpu Power International Ltd.: • As of 31 December 2008, the outstanding loans were THB 228.43 million. • The outstanding advance was THB 5.48 million. • In 2008, interest expenses were THB 3.41 million.

Banpu Power International Ltd.

THB 237.32 million

097


2008 Annual Report

Connected Transactions Banpu Minerals Co., Ltd. 1. Connected transactions with Silamani Corp., Ltd.: Banpu Minerals Co., Ltd. extended a loan in a form of P/N to Silamani Corp., Ltd. at an interest rate calculated from an average cost of lending plus 0.5 per cent per annum. Banpu Minerals Co., Ltd. had the following loans and interest expenses with Silamani Corp., Ltd.: • As of 31 December 2008, the outstanding loans were THB 81 million. • In 2008, interest expenses were THB 4.33 million.

Related Companies

Transaction Value

Silamani Corp., Ltd.

THB 85.33 million

2. Connected transactions with Chiang Muan Mining Co., Ltd.: Banpu Minerals Co., Ltd. extended a loan in a form of P/N to Chiang Muan Mining Co., Ltd. at an interest rate calculated from an average cost of lending plus 0.5 per cent per annum. Banpu Minerals Co., Ltd. had the following loans and interest expenses with Chiang Muan Mining Co., Ltd.: • As of 31 December 2008, the outstanding loans were THB 163 million. • In 2008, interest incomes were THB 7.28 million.

Chiang Muan Mining Co., Ltd.

THB 170.28 million

3. Connected transactions with Banpu International Ltd.: Banpu Minerals Co., Ltd. extended a loan in a form of P/N to Banpu International Ltd. at an interest rate calculated from an average cost of lending plus 0.5 per cent per annum. Banpu Minerals Co., Ltd. had the following transactions with Banpu International Ltd., • As of 31 December 2008, the outstanding loans were THB 97 million. • In 2008, interest expenses were THB 0.80 million.

Banpu International Ltd.

THB 97.80 million

4. Connected transaction with Banpu Minerals (Singapore) Pte. Ltd. as follows: Banpu Minerals Co., Ltd. extended a loan in a form of P/N to Banpu Minerals (Singapore) Pte. Ltd. at an interest rate calculated from an average cost of loan plus 0.5 per cent per annum. Banpu Minerals Co., Ltd. had the following connected transactions with Banpu Minerals (Singapore) Pte. Ltd.: • As of 31 December 2008, the outstanding loans were THB 34.81 million. • In 2008, interest incomes were THB 4.83 million.

Banpu Minerals (Singapore) Pte. Ltd.

THB 39.64 million

098


Banpu Public Company Limited

Connected Transactions

Related Companies

099

Transaction Value

5. Connected transactions with Silamani Marble Co., Ltd.: Banpu Minerals Co., Ltd. extended a loan in a form of P/N to Silamani Marble Co., Ltd. at an interest rate calculated from an average cost of lending plus 0.5 per cent per annum. Banpu Minerals Co., Ltd. had the following loans and interest expenses with Silamani Marble Co., Ltd.: • As of 31 December 2008, the outstanding loans were THB 32.93 million. • In 2008, interest expenses were THB 2.25 million.

Silamani Marble Co., Ltd.

THB 35.18 million

6. Connected transactions with BP Overseas Development Co., Ltd.: Banpu Minerals Co., Ltd. extended a loan in a form of P/N to BP Overseas Development Co., Ltd. at an interest rate calculated from an average cost of loan plus 0.5 per cent per annum. Banpu Mineral Co., Ltd. had the following connected transactions with BP Overseas Development Co., Ltd.: • As of 31 December 2008, the outstanding loans were THB 9,397.38 million. • In 2008, interest incomes were THB 238.40 million.

BP Overseas Development Co., Ltd.

THB 9,635.78 million

Necessity and Soundness of Connected Transactions In case the Company signs an agreement or conducts a connected transaction with a subsidiary company, affiliated company, related company and/or the third party, Banpu will consider the necessity and soundness of such contract based mainly on Banpu’s interests.

Approval Measures or Procedures of Connected Transactions If the Company is to execute a contract or if there is any connected transaction between itself and its subsidiary, affiliated company, related company, the third party and/or anyone with possible conflicts of interest, the Board of Directors requires Banpu, for the purpose of its benefits, to comply with the rules stated in the Stock Exchange of Thailand’s (SET) Announcement Re: Information disclosure and practices of listed companies in connected transactions. Meanwhile, prices and other conditions shall be as if the transaction is at an arm’s length where directors or staff having an interest in such transaction must not participate in any approval process.

Policy or Outlook for Future Connected Transactions None

Report of the Audit Committee Regarding the Connected Transactions None


2008 Annual Report

Other References

1) Ordinary Share Registrar

Thailand Securities Depository Company Limited for Depositors 62 The Securities Exchange of Thailand Building, Ratchadapisek Road, Khlong Toei, Bangkok 10110 Tel. 0 2229 2800

2) Debenture Registrar

Thai Military Bank Public Company Limited 3000 Paholyothin Road, Jatujak, Bangkok 10900 Tel. 0 2299 1111

3) Auditor

Ms. Nangnoi Charoenthaveesub Authorised Auditor No. 3044 PricewaterhouseCoopers ABAS Ltd. 15th Floor, Bangkok City Tower, No. 179/74-80 South Sathorn Road, Bangkok 10120 Tel. 0 2286 9999, 0 2344 1000

4) Financial Advisor

-None-

5) Advisor or Manager under Management Agreement

The Company hired neither advisor nor manager under any permanent management agreement. Rather, advisors (such as financial advisor) were hired on a case-by-case basis a necessary to help with its operation from time to time. The Company’s daily management is mainly supervised by the Board of Directors.

6) Financial Institutions Frequently Contacted

Around 30 local and international commercial banks and financial institutions.

0100 100


Banpu Public Company Limited

0101 101

Details of the Company and Its Subsidiary and Associated Companies

Name

1. Banpu Plc.

Type of business Energy

Authorized capital

Paid up capital

3,540,504,790

2,717,478,550

THB

THB

No. of paidup capital (shares)

Par value per share

271,747,855

10

% of holding

Head Office

- 26-28th Floor, Thanapoom Tower,

Telephone

0 2694 6600

1550 New Petchburi Road, Makkasan, Ratchathewi, Bangkok 10400

Subsidiary Companies 2. Banpu Minerals Co., Ltd.

Coal mining

40,000,000

40,000,000

and trading

THB

THB

40,000

1,000

99.99% 58/1 Moo 1, Soi Thungkwao 1,

0 2694 6600

Yontrakijkosol Road, Tambon Thungkwao, Amphoe Mueang Prae, Prae Province

3. Banpu Singapore

Coal trading

No authorized

1,500,000

shares*

SGD

No authorized

17,670,002

shares*

SGD

Coal mining

4,500,000,000

4,500,000,000

in Indonesia

IDR

IDR

Pte. Ltd. 4. Banpu Minerals (Singapore) Pte. Ltd.

Investment in coal

1,500,000

17,670,002

No par

100.00% One Marina Boulevard, #28-00

value*

Singapore 018989

No par

100.00% One Marina Boulevard, #28-00

value*

Singapore 018989

65 6890 7188

65 6890 7188

mining 5. PT. Jorong Barutama Greston

300

15,000,000

99.67% 3rd Floor, Ventura Building,

6221 750 4390

Jalan R.A. Kartini No. 26, Cilandak, Jakarta 12430, Indonesia

6. PT. Nusantara Thai Mining Services

Mining

541,750,000

541,750,000

services

IDR

IDR

250,000

2,167

95.00% 3rd Floor, Ventura Building,

6221 750 4390

Jalan R.A. Kartini No. 26, Cilandak, Jakarta 12430, Indonesia

7. PT. Centralink Wisesa International

Services

110,000,000,000

109,473,000,000

& trading

IDR

IDR

109,473

1,000,000

Mining,

Tambangraya

construction,

Megah Tbk

transportation,

6221 750 4390

Jalan R.A. Kartini No. 26, Cilandak,

in Indonesia 8. PT. Indo

95.00% 3rd Floor, Ventura Building, Jakarta 12430, Indonesia

1,500,000,000,000

564,962,500,000

IDR

IDR

1,129,925,000

500

73.72% 3rd Floor, Ventura Building,

6221 750 4390

Jalan R.A. Kartini No. 26, Cilandak, Jakarta 12430, Indonesia

workshop, plantation, general trading, industry, services in Indonesia 9. PT. Indominco Mandiri

Coal mining

20,000,000,000

12,500,000,000

in Indonesia

IDR

IDR

12,500

1,000,000

99.99% 3rd Floor, Ventura Building,

6221 750 4390

Jalan R.A. Kartini No. 26, Cilandak, Jakarta 12430, Indonesia

10. PT. Kitadin

Mining,

1,000,000,000,000

377,890,000,000

IDR

IDR

contractor & trading in Indonesia

Remark: * under Singaporean Corporate Law

188,945

2,000,000

99.99% 3rd Floor, Ventura Building, Jalan R.A. Kartini No. 26, Cilandak, Jakarta 12430, Indonesia

6221 750 4390


2008 Annual Report

Name

11. PT. Trubaindo Coal Mining

Type of business

Authorized capital

Paid up capital

Coal mining

100,000,000,000

63,500,000,000

in Indonesia

IDR

IDR

No. of paidup capital (shares)

Par value per share

63,500

1,000,000

% of holding

0102 102

Head Office

Telephone

99.99% 3rd Floor, Ventura Building,

6221 750 4390

Jalan R.A. Kartini No. 26, Cilandak, Jakarta 12430, Indonesia

12. PT. Bharinto Ekatama

Coal mining

68,000,000,000

17,000,000,000

in Indonesia

IDR

IDR

17,000

1,000,000

99.00% 3rd Floor, Ventura Building,

6221 750 4390

Jalan R.A. Kartini No. 26, Cilandak, Jakarta 12430, Indonesia

13. Banpu International Ltd.

Investment

250,000,000

250,000,000

THB

THB

in coal

25,000,000

10

Coal trading

0 2694 6600

1550 New Petchburi Road, Makkasan,

mining 14. Silamani Corp., Ltd.

99.99% 26-28th Floor, Thanapoom Tower, Ratchathewi, Bangkok 10400

75,000,000

75,000,000

THB

THB

7,500,000

10

99.99% 26-28th Floor, Thanapoom Tower,

0 2694 6600

1550 New Petchburi Road, Makkasan, Ratchathewi, Bangkok 10400

15. Silamani Marble

Coal trading

50,000,000

50,000,000

THB

THB

Co., Ltd.

500,000

100

99.96% 26-28th Floor, Thanapoom Tower,

0 2694 6600

1550 New Petchburi Road, Makkasan, Ratchathewi, Bangkok 10400

16. Ban-Sa Mining Co., Ltd.

Investment

60,000,000

60,000,000

THB

THB

in coal

600,000

100

98.87% 26-28th Floor, Thanapoom Tower,

0 2694 6600

1550 New Petchburi Road, Makkasan,

mining

Ratchathewi, Bangkok 10400

and trading 17. Chiang Muan Mining Co., Ltd.

Coal mining

100,000,000

100,000,000

and trading

THB

THB

10,000,000

10

99.42% 26-28th Floor, Thanapoom Tower,

0 2694 6600

1550 New Petchburi Road, Makkasan, Ratchathewi, Bangkok 10400

18. BP Overseas

Investment

Development

in coal

Co., Ltd.

mining

19. Banpu Power Ltd.

Investment

15,533,002

15,533,002

USD

USD

6,021,995,000

6,021,995,000

THB

THB

in power

15,533,002

1

100.00% Level 11, One Cathedral Square,

230 210 4000

Port Louis, Mauritius

602,199,500

10

99.99% 26-28th Floor, Thanapoom Tower,

0 2694 6600

1550 New Petchburi Road, Makkasan, Ratchathewi, Bangkok 10400

20. Banpu China Pte. Ltd.

Investment

No authorized

14,272,642

shares*

SGD

Investment

No authorized

84,177,391

in electrical

shares*

USD

in power 21. Banpu Power Investment Co., Ltd.

power business

Remark: * under Singaporean Corporate Law

14,272,642

No par value*

77,132,663

No par value*

100.00% 1 Temasek Avenue #27-01,

65 6338 1888

Millenia Tower, Singapore 039192 100.00% 1 Temasek Avenue #27-01, Millenia Tower, Singapore 039192

65 6338 1888


Banpu Public Company Limited

Name

Type of business

Authorized capital

Paid up capital

22. Zouping Peak

Investment

No authorized

2

Pte. Ltd.

in electrical

shares*

SGD

No. of paidup capital (shares)

Par value per share

2

No par

% of holding

Head Office

100.00% 1 Temasek Avenue #27-01,

value*

0103 103

Telephone

65 6338 1888

Millenia Tower, Singapore 039192

power business 23. Luannan Peak

Investment

No authorized

2

Pte. Ltd.

in electrical

shares*

SGD

Investment

30,000,000

30,000,000

in electrical

USD

USD

2

No par

100.00% 1 Temasek Avenue #27-01,

value*

65 6338 1888

Millenia Tower, Singapore 039192

power business 24. Banpu Power Investment (China) Co., Ltd.

0

NA

100.00%

2nd Floor, Sunflower Tower,

(8610) 85275162

No. 37 Maizidian Street,

power

Chaoyang Dist, Beijing 100026, PRC

business 25. Zouping Peak CHP Co., Ltd.

26. Shijiazhuang Chengfeng Cogen Co., Ltd.

Power

261,800,000

261,800,000

RMB

RMB

and heat

0

NA

70.00%

Xiwang Industrial Region,

production

Zouping Binzhou City 256209,

and sales

Shandong Province, PRC

Power

15,125,000

14,000,000

USD

USD

and heat

(86543) 4615655

Handian Town,

1,125,000

NA

100.00%

North Beiguan, Zhengding County,

(86311) 85176918

Shijiazhuang City 050800,

production

Hebei Province, PRC

and sales 27. Tangshan Banpu Heat and Power Co., Ltd.

Power

47,504,000

47,504,000

USD

USD

and heat

0

NA

100.00%

West of Gujiaying Village,

production

Tangshan City 063500,

and sales

Hebei Province, PRC

28. Pan-Western Energy

Investment

Corporation LLC

in power

100,000

100,000

USD

USD

(86315) 4168274

Bensi Road, Luannan County,

1,000,000

0.01

100.00% Maples and Calder, Ugland House,

1 345 949 8066

South Church Street, P.O. Box 309, George Town, Grand Cayman, Cayman Islands

29. Peak Pacific Investment Company

Investment

1,000

1,000

in power

USD

USD

1,000

1

International Ltd. 31. Banpu Coal Power Ltd.

60 87 443 118

Financial Park, 87000 Labuan FT,

(L) BHD 30. Banpu Power

100.00% Level 15 (A2), Main Office Tower, Malaysia

Investment

50,000

50,000

in power

USD

USD

5,921,587,160

5,921,587,160

THB

THB

Investment in power

50,000

1

100.00% Level 11, One Cathedral Square,

592,158,716

10

99.99% 26-28th Floor, Thanapoom Tower, 1550 New Petchburi Road, Makkasan, Ratchathewi, Bangkok 10400

Remark: * under Singaporean Corporate Law

230 210 4000

Port Louis, Mauritius 0 2694 6600


2008 Annual Report

Name

32. Banpu Coal Investment

Type of business Investment

Authorized capital

Paid up capital

11,050,500

11,050,000

USD

USD

50,000,000

40,917,026

USD

USD

in coal mining

No. of paidup capital (shares)

Par value per share

11,050,000

1

% of holding

Head Office

100.00% Level 11, One Cathedral Square,

0104 104

Telephone

230 210 4000

Port Louis, Mauritius

Company Limited 33. Asian American Coal, Inc.

Investment in coal mining

40,917,026

1

100.00% Geneva Place, 2nd Floor,

(284)-494-4388

Wickham’s Cay, Road Town, Tortola, British Virgin Islands

34. AACI Gaohe (BVI) Holdings Limited

Investment in coal mining

50,000

1

USD

USD

1

1

100.00% P.O. Box 957,

(284)-494-2233

Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands

35. AACI Gaohe (HK)

Investment

10,000

10

in coal mining

HKD

HKD

36. AACI SAADEC (BVI)

Investment

50,000

1

Holdings Limited

in coal mining

USD

USD

Holdings Limited

1

10

100.00% 1401 Hutchison House,

(852) 2846 1932

10 Harcourt Road, Hong Kong 1

1

100.00% P.O. Box 957,

(284) 494 2233

Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands

37. AACI SAADEC (HK)

Investment

10,000

10,000

Holdings Limited

in coal mining

HKD

HKD

30,016,000

30,016,000

USD

USD

Investment

1,000

1,000

in coal mining

USD

USD

53,600,000

53,600,000

USD

USD

670,250,000

670,250,000

RMB

RMB

12,000,000,000

12,000,000,000

THB

THB

38. Asian American Coal Holdings, Inc. 39. Shanxi Asian American-Daning

Coal mining in China

1

10 HKD

1

100.00% 1401 Hutchison House,

(852) 2846 1932

10 Harcourt Road, Hong Kong

30,016,000 USD

1,000

1

100.00% P.O. Box 3443, Road Town, Tortola,

(284) 494 5800

British Virgin Islands NA

NA

56.00% Daning Yangcheng County,

(8610) 5820 3663

Jincheng, Shanxi Province, PRC

Energy Co., Ltd.

Associated Companies 40. Shanxi Gaohe Energy Co., Ltd. 41. BLCP Power Ltd.

Investment in coal mining Power production

NA

NA

45.00% Changzhi County, Changzhi City,

(8610) 5820 3663

Shanxi, PRC 120,000,000

100

49.99% 9 i-8 Road,

0 3892 5100

Map Ta Phut Industrial Estate,

and sales

Maeung Rayong District, Rayong

42. Power Generation

Operate and

10,000,000

10,000,000

Services Co., Ltd.

maintenance

THB

THB

100,000

100

39.99% 9 i-8 Road,

0 3892 5100

Map Ta Phut Industrial Estate,

for power

Maeung Rayong District, Rayong

plant 43. Hebi Zhong Tai Mining Co., Ltd.

Investment

783,330,000

783,330,000

RMB

RMB

in coal mining

Remark: * under Singaporean Corporate Law

NA

NA

40.00% No. 98, Hongqi Street, Hebi, Henan Province, PRC

(86) 392 291 7401 (86) 392 291 7402


Banpu Public Company Limited

105

Financial Statements

106

Report of the Board of Directors’ Responsibility in the Financial Statements

107

Report of the Audit Committee to Shareholders

109

Management’s Discussion and Analysis of the Consolidated Financial Statements

113

Auditor’s Report

114

Company and Consolidated Financial Statements


2008 Annual Report

106

Report of the Board of Directors’ Responsibility in the Financial Statements

The Board of Directors’ priority is to supervise the Company’s operations that they are in line with the good corporate governance policies and that financial statements and financial data appeared in the Company’s annual report contain accurate, complete and adequate information. Its duty is also to make sure that the financial statements are in line with the generally-accepted accounting principles practiced in Thailand where an appropriate accounting policy is being chosen and carefully pursued on a regular basis. In addition, the Board of Directors must also ensure that the Company has an effective internal control system to guarantee the credibility of its financial statements, that a protection system is in place to prevent unusual transactions, that a connected transaction that might lead to possible conflicts of interest is in fact an actual transaction reasonably carried out during a normal course of business for the Company’s maximum benefits and that relevant laws and regulations are complied. The Audit Committee has already reported the result of its action to the Board of Directors and has also reported its opinions in the Audit Committee’s Report as seen in the annual report. In this regard, the Board of Directors is of the opinion that the Company’s internal control system is proven satisfactory and contributes to the Company’s credibility as of 31 December 2008. The Company’s auditor has already audited it according to the generally-accepted accounting standards and has an opinion that the financial statements show an accurate financial status and operation result in its essence as per the generally accepted accounting principles.

(Mr. Krirk-Krai Jirapaet)

(Mr. Chanin Vongkusolkit)

Chairman of the Board

Chief Executive Officer


Banpu Public Company Limited

107

Report of the Audit Committee to Shareholders

Dear Shareholders of Banpu Public Company Limited, The Audit Committee of Banpu Public Company Limited consists of Mr. Somkiat Chareonkul, Chairman of the Audit Committee, Mr. Montri Mongkolswat and Mr. Anothai Techamontrikul, members of the Audit Committee. The Audit Committee performs its duty based on scopes of responsibility entrusted by the Board of Directors which complies with Audit Committee Charter and the Stock Exchange of Thailand’s (SET) Announcement, “Qualifications and Scopes of Work of the Audit Committee, B.E. 2551 (2008)” dated 9 June 2008. In 2008, the Audit Committee meetings were held eight times, having all members attend all meetings. Senior executives, Head of Internal Audit Department and auditors also attended the meetings if there were relevant agendas. The results of the Audit Committee’s performance can be summarized as follows. • Financial Statements Review – The Audit Committee reviewed a quarterly financial statement and the 2008 financial statement with executives and auditors to ensure that the financial statements of both the Company and its subsidiaries were in accordance with the Generally Accepted Accounting Principles (GAAP) and that information was adequately and completely disclosed in a reliable manner. In addition, the Audit Committee also expressed its observations and acknowledged solution guidelines for the Company’s benefit. • Internal Control System – The Audit Committee oversaw the Company to ensure effective and efficient internal control system was in place by taking into consideration the Internal Audit Department’s independence and the restructuring of the Internal Audit Department’s organizational structure to increase its efficiency. The Audit Committee also expressed its opinions in regards to budgets, workforce, work programs, operating results and the 2008 risk-based auditing while assessing the internal control system of each business unit in the Company and its subsidiaries to ensure compliance with the COSO’s internal control integrated framework and to support other business endeavors. Significant audit issues were regularly followed-up to ensure adequate and suitable internal control system existed and was able to drive the Company to achieve its objectives. Performances meanwhile were based on the Internal Audit Charter and Corporate Fraud Management Framework in Banpu, which were in line with the best practices based on the SET’s requirements. • Law and Regulations Compliance – The Audit Committee reviewed the Company’s compliance according to the laws governing securities and exchange, requirements of both the SET and the SEC and other legislations related to the Company’s business and found that they were fully complied. • Connected Transactions or Transactions with Potential Conflict of Interest – The Audit Committee reviewed connected transactions between the Company and its subsidiaries and affiliate companies as well as transactions with potential conflict of interest and found that they were actual transactions carried out during a normal course of business. The Company also carried it out according to a good corporate governance policy. The Audit Committee was confident that the Company had complied with business conditions and the SET’s rules and regulations. • Risk Management – The Audit Committee was confident that the Company had an appropriate risk management policy and system that were constantly updated for maximum efficiency so that the Company could attain its goals. The Board and its executive officers also paid a lot of attention to risk management and risk management practices based on the Company’s risk management policy. Risk factors and risk prevention practices of various business units were evaluated on a monthly basis to mitigate negative impacts to the Company’s business. The Committee also consulted with the Risk Management Committee in regards to the risk management policy and guidelines. It actively monitored changes and kept updating Banpu’s risk management policy and work plans with the Risk Management Committee while coordinating with and raising awareness regarding risk management to those in related business units to establish a linkage between the internal control system and ongoing implementations to realize the Company’s business plans.


2008 Annual Report

108

• Corporate Governance – The Company’s priority was to manage its business according to the principles of good corporate governance. The Company has formulated the “CG in Action” Plan for tangible outcomes in each business unit and to encourage all staff to comply with rules, regulations and the Code of Conduct for transparency purpose. So far, our Corporate Governance Policy and practices have been well recognized. This helps increasing confidence among our shareholders, investors and related parties to the point that we have enjoyed several accolades as a result of our corporate governance practice. • Activities and Participation – The Audit Committee actively participated in corporate activities such as training sessions of new and revised rules and regulations of the authorities and attending seminars with others from the energy, mining and geological business to acquire more information for preparation of the Company future business expansion. The Audit Committee, having reviewed the operation, is of the opinion that the Company was actively committed to the Corporate Governance Policy. This in turn resulted in an effective and adequate internal control system with no significant weaknesses. The risk management was efficiently carried out. Connected transactions that may lead to conflict of interest were actual transactions carried out during a normal course of business for the Company’s maximum benefit. No unusual transaction with material essence was found. All rules and regulations were fully complied. For the financial statements during an accounting period that ended 31 December 2008, there was no indication of problems or items with material effects to Banpu’s financial statements. The financial statements were duly prepared in accordance with the GAAP and adequate information was disclosed.

Appointment of auditors and auditing fees for 2009 The Audit Committee reviewed and selected auditors based on Banpu’s evaluation criteria by looking into their qualifications, their quality and standards of work, teamwork, expertise and their independence. The auditors were excellent in their work. When compared with the scope of work together with the auditing fee, the Audit Committee deems appropriate to appoint the following: Ms. Nangnoi Charoenthaveesub, C.P.A. (Thailand) No. 3044; and/or Mr. Prasit Yuengsrikul, C.P.A. (Thailand) No. 4174; and/or; Mr. Vichien Khingmontri, C.P.A. (Thailand) No. 3977 of PriceWaterhouseCoopers ABAS Limited (PwC) as Banpu’s auditor because PwC’s auditing performances has been quite satisfactory throughout the years, while PwC is having an extensive network with a well-recognized status internationally together with the fact that qualifications of these auditors are in line with the SET’s Announcement. In 2009, the total auditing fee of THB 1,840,000 will be submitted to the Board of Directors to subsequently seek an approval from the Shareholders’ Meeting. 18 February 2009 On behalf of the Audit Committee

(Mr. Somkiat Chareonkul) Chairman of the Audit Committee Banpu Public Company Limited


Banpu Public Company Limited

109

Management’s Discussion and Analysis of the Consolidated Financial Statements

The Company’s management would like to explain its fiscal year financial statements ending 31 December 2008 in comparison with the fiscal year financial statements ending 31 December 2007. Details of financial statements have been made in the attached note stated in the consolidated financial statements as of 31 December 2008. 1. The Consolidated Profit and Loss for the fiscal year ending 31 December 2008 in comparison with the Consolidated Profit and Loss for the fiscal year ending 31 December 2007 1.1 Sales revenue reported at THB 50,530 million, an increase of THB 18,088 million or 56 per cent compared to last year. The increase was mainly due to higher coal selling price. Details of the Company’s sales revenue are as follow: • Revenue from coal sales of THB 45,976 million accounted for 91 per cent of total sales revenue. This represents an increase of THB 17,547 million or 62 per cent. The revenue from coal sales includes: • Sales revenue from Indonesian coal mines of THB 45,599 million; • Sales revenue from domestic coal mines of THB 377 million. • Sales of power and steam (from BPIC) of THB 4,460 million accounted for 9 per cent of total sales revenue and increasing 15 per cent compared to the previous year. • Sales from others of THB 94 million. • Coal sale volume totaled 18.487 million tonnes, decreasing 4 per cent due to lower production at Indonesian mines and nearly depleted output of Thai mines. The coal sales volume consists of: • Coal from domestic mines 0.664 million tonnes. • Coal from Indonesian mines 17.708 million tonnes. • Coal from other sources 0.114 million tonnes. • Average coal selling price was USD 72 per tonne, increasing 75 per cent due to increased coal market price and a higher portion of sale volume from high quality coal. 1.2 Cost of sales THB 28,110 million, increasing THB 7,147 million or 34 per cent due to the higher unit cost associated with higher portion of good-quality coal sale, increases in diesel price, and increases in mining ratio. 1.3 Gross profit reported at THB 22,419 million, an increase of THB 10,942 million or 95 per cent. Gross profit margin is calculated at 44 per cent in this period. The gross profit margin from coal is 48 per cent and from power is 9 per cent. 1.4 Selling expenses reported at THB 2,684 million, an increase of THB 571 million or 27 per cent due to an increase in port rental, demurrage charges as a result of port maintenance and coal quality management. 1.5 Administrative expenses reported at THB 3,474 million, an increase of THB 473 million or 16 per cent due to an increase in general expenses, employee compensation and consolidation of Asian-American Coal, Inc. (AACI) since July 2008. 1.6 Royalty fees reported at THB 5,537 million, an increase of THB 2,290 million due to the higher selling price of coal. 1.7 Gain on investment held for sale THB 80 million, from partial divestment of a listed coal company while in last year reported a gain of THB 452 million.


2008 Annual Report

110

1.8 Loss on divestment of subsidiaries and associates THB 82 million, from selling of 2.4 per cent share capital of a subsidiary in Indonesia, compare to gain of THB 1,167 million in last year. 1.9 Gain on foreign exchange of THB 383 million, compared to a loss of THB 361 million reported in last year. 1.10 Dividend income of THB 490 million from a listed power company. 1.11 Loss from financial derivatives of THB 1,713 million from coal swap and oil hedging contracts under the subsidiary in Indonesia while in last year reported a gain of THB 68 million. 1.12 Equity income from subsidiaries and affiliates reported at THB 4,946 million, derived from equity income from BLCP of THB 3,165 million, and equity income from China Coal Business of THB 1,781 million. 1.13 Interest expenses of THB 1,240 million increased THB 80 million, mainly from new borrowings to fund capital increase of Coal Business in Thailand and power plant expansion in China. 1.14 Corporate income tax amounted to THB 3,768 million, increasing THB 2,276 million from the higher operating profit of Indonesian subsidiaries while tax expenses were incurred from unrecognized gain on fair value of coal swap and oil hedging. 1.15 Net profit for the fiscal year of 2008 reported at THB 9,228 million, an increase of THB 2,573 million or 39 per cent. 1.16 Earnings per share (EPS) for the fiscal year 2008 reported at THB 33.96 per share compared to THB 24.49 per share last year, an increase of 39 per cent. 2. Consolidated Balance Sheet as of 31 December 2008 in comparison with Consolidated Balance Sheet as of 31 December 2007 2.1 Total assets of THB 89,362 million reported an increase of THB 24,311 million or 37 per cent with details described below: • Cash and cash equivalents of THB 12,850 million decreased THB 455 million or 3 per cent due to cash outflow for investment in machinery and equipment of Indonesia Coal and China Power Business. • Accounts and note receivable of THB 6,029 million increased THB 2,373 million due to 65 per cent increase in coal selling price in December 2008 compare to the same period of last year. • Accrued dividends from related parties of THB 3,890 million from accrued dividend of BLCP. • Investment in subsidiaries, joint venture and associates of THB 26,373 million increased THB 15,070 million or 133 per cent due to the consolidation of recently acquired AACI in mid-2008, profit sharing of Power Business in Thailand net from dividend payment and profit sharing from Coal Business in China. • Other investments of THB 9,528 million decreased THB 914 million or 9 per cent from mark-to-market adjustment. • Property plant and equipment of THB 17,580 million increased of THB 2,861 million due to machinery investment in subsidiaries in Indonesia and power plant expansion in China. The accounting values of these assets also increased by the depreciation of Thai Baht.


Banpu Public Company Limited

2.2

111

Total liabilities of THB 43,828 million increased THB 17,274 million or 65 per cent with details described

below: • Bank loans and overdrafts of THB 4,768 million increased THB 2,490 million or 109 per cent from short-term borrowing to fund acquisition of AACI in China. • Current portion of long-term loans and current portion of Baht debenture of THB 6,475 million increased THB 4,667 million from long-term loans and Baht debenture reclassification. • Accrued overburden and transportation expenses of THB 2,029 million, decreased THB 37 million mainly from the Indonesian operations. • Long-term loans of THB 10,547 million increased THB 4,692 million due to partial transfer to current portion. • Baht debenture of THB 7,285 million decreased THB 1,296 million from partial transfer to current portion. 2.3 Shareholders’ equity of THB 45,534 million increased THB 7,037 million or 18 per cent mainly from • Net profit for the fiscal year of 2008 at THB 9,228 million. • An increase in retained earning of THB 1,167 million from negative goodwill adjustment according to accounting standard TAS 43 (revised). • Dividend payment to shareholders of THB 4,239 million. • A decrease of THB 897 million from a lower mark-to-market value of investment in listed companies. • The decrease from affiliates’ foreign exchange translations loss of THB 58 million. 2.4 Net debt-to-equity as of 31 December 2008 reported at 0.36 times for the consolidated balance sheet and 1.16 times for the parent company. As of 31 December 2007, the ratio were 0.14 times for the consolidated balance sheet and 1.34 times for the parent company. 3. Statement of Cash Flow for the fiscal year ending 31 December 2008 in comparison with the previous year ending 31 December 2007 Banpu’s statement of cash flow for the fiscal year ending 31 December 2008 recorded a decrease in net cash flow of THB 1,568 million compared to last year. The Company’s net cash flow is divided into: 3.1 Cash flow from operation of THB 7,939 million; net from interest expenses and corporate income tax of THB 1,232 million and THB 1,552 million respectively. 3.2 Cash flow from investment recorded a deficit of THB 15,883 million; • Cash payment for Coal China acquisition of THB 14,472 million. • Cash payment for investment in machinery and mining equipment of THB 3,960 million, project in progress of THB 892 million. • Cash received from other company in China THB 448 million, partial divestment of investment in coal company and unsubordinated debenture of THB 147 million, interest received of THB 404 million and dividend income of THB 2,561 million. 3.3 Cash flow from financing THB 6,376 million, from cash received from drawdown of bank loan and long-term loan of THB 28,104 million. Cash outflows were for repaying bank loan, long-term loan and debenture of THB 17,785 million and dividend payment of THB 4,216 million.


2008 Annual Report

112

4. Management Discussion and Analysis The financial statement for year 2008 was highlighted by strong improvement in the coal operation led by favorable increases in coal selling prices from coal mines in Indonesia and China. The successful acquisition of Asian American Coal, Inc. (AACI) in June 2008 further added earnings contribution from China. Together the strong income from coal business led to an increase in consolidated net profit to THB 9,228 million, or 39 per cent higher than the previous year. An unprecedented rally, yet highly volatile thermal coal price was the main earnings driver. The surge in regional coal price during the first seven months (from USD 90 per tonne in early January to the peak of about USD 190 per tonne in July) was swiftly followed by continued fall along with other key commodity prices (to USD 80 per tonne in December). Nevertheless the average spot coal price, as measured by the Barlow Jonker Index (BJI), doubled to USD 128 per tonne in 2008 from USD 61 per tonne in the previous year. This was translated into an increase in the Company’s average coal selling price to USD 72 per tonne from USD 41 per tonne in 2007 (up 75 per cent). On the operation front, volume of coal sale was weaker than expected due to disappointing production. The Company’s coal mines in Indonesia encountered one of the wettest rainy season in Kalimantan. Impact from rainfall was the most severe in South Kalimantan, where Jorong mine is located. Indominco, apart from facing weather difficulty, also had to cope with geological challenge as it started to mine at a new and deeper area to take advantage of the higher price. Trubaindo was less affected by rain with sale volume rose to 4.6 million tonnes (3.7 million tonnes in 2007). Together with small and final-year shipment from Thailand of 0.66 million tonnes, the Company’s total sales volume in 2008 was recorded at 18.5 million tonnes, lower 4 per cent from 2007. Gross profit margin from Coal Business improved to 48 per cent from 37 per cent in 2007 despite significant increase in diesel price and mining cost. Diesel price in Indonesia rose to USD 1.02 per litre from USD 0.67 per litre in 2007. In 2008 the Company made strategic increase in mining ratio at Indominco and Trubaindo to optimize production cost under the higher coal price environment, resulting in higher mining cost at both mines. Coal Business in China, Daning and Hebi, contributed equity income of THB 1,781 million, roughly quadrupled from 2007. This was mainly attributed to the accounting consolidation of AACI since July 2008, in addition to rising domestic coal prices that improved cash flows from their operations. The Power Business, unlike the previous year, provided less support to the overall earnings. Despite smooth operation at the 50 per cent-owned BLCP, the power plant contributed a lower equity income of THB 3,165 million compared to THB 4,076 million in 2007. This is mainly due to the weakened Thai Baht which caused a foreign exchange loss of THB 202 million versus a gain of THB 591 million registered in 2007. In China, the three power plants under BPIC struggled in coping with controlled electricity tariffs on the back of rising coal prices for most of the year. Its net profit reduced to THB 160 million compared to THB 593 million in the previous year. The EBITDA for 2008 totaled THB 18,772 million, increasing 80 per cent from previous year. Coal Business contributed THB 14,720 million (78 per cent of total) while Power Business generating THB 4,052 million.


Banpu Public Company Limited

113

Auditor’s Report

To the Shareholders of Banpu Public Company Limited I have audited the accompanying consolidated and company balance sheets as at 31 December 2008 and 2007, and the related consolidated and company statements of income, changes in shareholders’ equity and cash flows for the years then ended of Banpu Public Company Limited and its subsidiaries and of Banpu Public Company Limited, respectively. The Company’s management is responsible for the correctness and completeness of information 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 an 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 and company financial statements referred to above present fairly, in all material respects, the consolidated and company financial position as at 31 December 2008 and 2007, and the consolidated and company results of operations and cash flows for the years then ended of Banpu Public Company Limited and its subsidiaries and of Banpu Public Company Limited in accordance with generally accepted accounting principles.

(Nangnoi Charoenthaveesub) Certified Public Accountant (Thailand) No. 3044 PricewaterhouseCoopers ABAS Limited

Bangkok 25 February 2009


2008 Annual Report

114

Balance Sheets As at 31 December 2008 and 2007

Consolidated

Company

2008

2007

2008

2007

Notes

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Cash and cash equivalents

5

12,849,682

13,304,348

1,138,809

3,222,320

Trade accounts receivable, net

6

6,028,654

3,655,600

384,288

381,132

Trade accounts receivable from subsidiaries

31

-

-

-

16,417

Amounts due from related parties

31

321,667

9,004

918,498

626,868

Dividend receivables from related parties

31

3,889,866

2,074,500

6,940,715

3,124,201

Advances to related parties

31

21

122

341,611

110,117

Short-term loan to a joint venture

31

640,414

-

-

-

7

1,651,032

1,850,900

338,828

504,762

402,768

318,226

22,283

22,363

1,587,885

1,799,223

365,804

584,083

27,371,989

23,011,923

10,450,836

8,592,263

14,165

15,063

7

3

31

-

-

9,504,220

5,331,183

9

298,019

341,774

298,019

341,774

10

26,372,753

11,302,562

6,846,203

7,966,674

Other investments, net

11

9,528,372

10,442,019

4,858,555

5,375,556

Property, plant and equipment, net

12

17,579,885

14,718,593

217,744

291,475

13

3,446,589

2,746,461

-

41,231

Mining property rights, net

14

1,469,230

248,885

-

-

Projects under development

15

1,809,509

897,012

173,262

252,881

Other non-current assets

16

1,471,290

1,326,513

265,292

265,791

61,989,812

42,038,882

22,163,302

19,866,568

89,361,801

65,050,805

32,614,138

28,458,831

Assets Current assets

Inventories, net Spare parts and machinery supplies Other current assets

8

Total current assets Non-current assets Loans to employees Long-term loans to subsidiaries Long-term loans to other companies Investments in subsdiaries and associates and interests in joint venture

Other non-current assets Deferred exploration and development expenditures and deferred overburden expenses/stripping costs, net

Total non-current assets Total assets

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


Banpu Public Company Limited

115

Balance Sheets (continued) As at 31 December 2008 and 2007

Consolidated

Company

2008

2007

2008

2007

Notes

THB Thousand

THB Thousand

THB Thousand

THB Thousand

17

4,767,687

2,278,143

3,820,124

993,546

1,518,562

939,743

-

-

-

113,481

873,246

Liabilities and shareholders’ equity Current liabilities Short-term loans from financial institutions Trade accounts payable Advances from and short-term loan from subsidiaries

31

-

Current portion of long-term loans, net

19

5,174,672

408,016

1,000,000

-

Current portion of debentures, net

20

1,300,000

1,400,000

1,300,000

1,400,000

2,029,212

2,066,614

1,590

16,313

Accrued interest expenses

118,575

111,057

117,633

122,179

Accrued royalty expenses

2,020,457

985,571

3,410

5,501

Accrued income tax expenses

2,718,870

503,111

-

-

4,834,996

3,096,280

332,389

283,065

24,483,031

11,788,535

6,688,627

3,693,850

31

-

-

228,435

1,218,019

Long-term loans, net

19

10,546,696

5,854,409

3,997,857

4,363,094

Debentures, net

20

7,284,860

8,580,547

7,284,860

8,580,547

1,133,005

-

-

-

362,226

268,155

90,415

14,134

Other current liabilities Accrued overburden and coal transportation costs

Other current liabilities

18

Total current liabilities Non-current liabilities Long-term loans from subsidiaries

Provision from acquisition of investment Employee retirement benefits obligation Other liabilities Total non-current liabilities Total liabilities

21

17,947

61,863

497

497

19,344,734

14,764,974

11,602,064

14,176,291

43,827,765

26,553,509

18,290,691

17,870,141

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


2008 Annual Report

116

Balance Sheets (continued) As at 31 December 2008 and 2007

Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

3,540,505

3,540,505

3,540,505

3,540,505

23

2,717,479

2,717,479

2,717,479

2,717,479

23

5,058,329

5,058,329

5,058,329

5,058,329

7,667,014

7,886,746

-

-

608,966

1,109,364

-

-

Notes

Liabilities and shareholders’ equity (continued) Shareholders’ equity Share capital Registered share capital 354,050,479 ordinary shares of THB 10 each Issued and paid-up share capital Premium on share capital Surplus on dilution of investments in a subsidiary Fair value reserve of available-for-sale securities

22

6,013,034

6,909,652

Translation adjustment

22

(1,683,988)

(1,742,428)

Retained earnings Appropriated Legal Reserve Unappropriated Total parent’s shareholders’ equity Minority interests

30

1,055,400

744,376

354,051

354,051

19,659,697

12,734,861

5,584,622

1,349,467

40,486,965

34,309,015

14,323,447

10,588,690

5,047,071

4,188,281

-

-

Total shareholders’ equity

45,534,036

38,497,296

14,323,447

10,588,690

Total liabilities and shareholders’ equity

89,361,801

65,050,805

32,614,138

28,458,831

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


Banpu Public Company Limited

117

Statements of Income For the years ended 31 December 2008 and 2007

Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

50,529,835

32,441,789

2,259,284

1,767,837

Cost of sales

(28,110,423)

(20,963,896)

(2,089,034)

(1,606,743)

Gross profit

22,419,412

11,477,893

170,250

161,094

Selling expenses

(2,683,962)

(2,113,246)

(79,672)

(50,373)

Administrative expenses

(3,474,352)

(3,001,016)

(981,785)

(1,022,564)

Royalty fee

(5,536,808)

(3,246,604)

Profit (loss) from sales

10,724,290

3,117,027

-

-

7,143,853

4,352,136

Dividend income from others

489,653

478,877

252,126

252,565

Interest income

403,931

123,377

466,787

865,996

80,423

451,520

80,423

451,520

1,167,240

11,663

-

Notes

Sales

Dividend income from subsidiaries

31

(7,584)

(16,014)

(898,791)

(927,857)

Gain on disposal of investments in available-for-sale securities Gain (loss) on disposal of investments in subsidiaries

(82,459)

Net gain (loss) on exchange rate

383,487

Net gain (loss) from financial instruments

(1,712,595)

(360,995)

223,563

(424,851)

68,391

1,078

(1,295)

1,100,411

Management fee and others

31

497,906

201,157

Directors’ remuneration

29

(33,382)

(29,364)

Operating profit

24

10,751,254

5,217,230

8,347,731

4,765,231

Share of profit of associates and interests in joint ventures

10

4,945,813

4,504,372

-

-

Profit before interest and income tax

15,697,067

9,721,602

8,347,731

4,765,231

Interest expenses

(1,239,929)

(1,160,392)

(854,705)

(971,919)

(99,258)

(116,740)

Financial expenses

(33,382)

226,381 (29,364)

(128,382)

(146,383)

(3,767,677)

(1,491,668)

10,561,079

6,923,159

7,393,768

3,540,276

Equity holders of the parent

9,227,666

6,654,423

7,393,768

3,540,276

Minority interests

1,333,413

268,736

-

-

33.96

24.49

27.21

13.03

Income taxes

25

Net profit for the year

-

(136,296)

Attributable to:

Earnings per share for profit attributable to the equity holders of the parent (THB) Basic earnings per share

26

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


2008 Annual Report

118

Statements of Changes in Shareholders’ Equity For the years ended 31 December 2008 and 2007

Consolidated 2008 Fair value Surplus on

reserve of

dilution of

available-

paid-up Premium on investment in

for-sale

Issued and

Notes

Opening balance of 2008

share capital share capital

a subsidiary

securities

THB

THB

THB

THB

Thousand

Thousand

Thousand

Thousand

2,717,479

5,058,329

7,886,746

Unappropriated retained

Translation

Minority

adjustment Legal reserve

earnings

Total

interests

THB

THB

THB

THB

THB

THB

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

6,909,652 (1,742,428)

744,376 12,734,861 34,309,015

Total

4,188,281 38,497,296

Adjustment from change in accounting policy

2.3

Opening balance after adjustment Reclassification Fair value adjustment

11

Translation adjustment

-

-

-

2,717,479

5,058,329

7,886,746

-

-

-

-

(219,732)

-

219,732

-

-

-

-

-

-

-

-

(896,618)

-

-

-

(896,618)

-

(896,618)

6,909,652 (1,742,428)

-

1,166,807

1,166,807

744,376 13,901,668 35,475,822

-

1,166,807

4,188,281 39,664,103

-

-

-

-

(161,292)

-

-

(161,292)

606,518

445,226

Legal reserve

30

-

-

-

-

-

311,024

(311,024)

-

-

-

Dividend paid

28

-

-

-

-

-

- (3,158,613) (3,158,613)

-

-

-

-

-

-

-

-

-

-

9,227,666

Dividend paid of a subsidiary Net profit for the year Closing balance of 2008

-

-

-

2,717,479

5,058,329

7,667,014

- (3,158,613)

- (1,081,141) (1,081,141) 9,227,666

1,333,413 10,561,079

6,013,034 (1,683,988) 1,055,400 19,659,697 40,486,965

5,047,071 45,534,036

Company 2008 Fair value reserve of Issued and paid-up Premium on

Opening balance of 2008 Fair value adjustment

11

Dividend paid

28

Net profit for the year Closing balance of 2008

Unappropri-

for-sale

ated retained Total

securities Legal reserve

earnings

THB

THB

THB

THB

Thousand

Thousand

Thousand

Thousand

Thousand

2,717,479

5,058,329

1,109,364

354,051

-

-

(500,398)

-

share capital share capital Notes

available-

THB

THB

Thousand

1,349,467 10,588,690 -

(500,398)

-

-

-

- (3,158,613) (3,158,613)

-

-

-

-

2,717,479

5,058,329

608,966

354,051

7,393,768

7,393,768

5,584,622 14,323,447

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


Banpu Public Company Limited

119

Statements of Changes in Shareholders’ Equity (continued) For the years ended 31 December 2008 and 2007

Consolidated 2007 Fair value Surplus on

reserve of

dilution of

available-

paid-up Premium on investment in

for-sale

Issued and

earnings

Total

interests

THB

THB

THB

THB

THB

THB

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

6,491,683 (1,315,039)

414,514

a subsidiary

securities

THB

THB

THB

THB

Thousand

Thousand

Thousand

Thousand

2,717,479

5,058,329

-

11

-

-

-

-

-

Legal reserve

30

-

-

Dividend paid

28

-

-

-

Opening balance of 2007 Fair value adjustment Translation adjustment

Minority

adjustment Legal reserve

share capital share capital Notes

Unappropriated retained

Translation

-

8,564,169 21,931,135

Total

412,783 22,343,918

417,969

-

-

417,969

-

417,969

-

-

(427,389)

-

-

-

-

-

(427,389)

(80,266)

(507,655)

329,862

(329,862)

-

-

-

-

-

-

- (2,153,869) (2,153,869)

- (2,153,869)

-

7,886,746

-

-

-

-

7,886,746

-

7,886,746

-

-

-

-

-

-

-

-

3,587,028

3,587,028

-

-

-

-

-

-

6,654,423

6,654,423

268,736

6,923,159

2,717,479

5,058,329

7,886,746

Surplus on dilution of investment in a subsidiary Increase from dilution of investment in a subsidiary Net profit for the year Closing balance of 2007

6,909,652 (1,742,428)

744,376 12,734,861 34,309,015

4,188,281 38,497,296

Company 2007 Fair value reserve of Issued and paid-up Premium on

Opening balance of 2007 Fair value adjustment

11

Dividend paid

28

Net profit for the year Closing balance of 2007

Unappropri-

for-sale

ated retained Total

securities Legal reserve

earnings

THB

THB

THB

THB

Thousand

Thousand

Thousand

Thousand

Thousand

2,717,479

5,058,329

983,047

354,051

-

-

126,317

-

share capital share capital Notes

available-

THB

THB

Thousand

(36,940) 9,075,966 -

126,317

-

-

-

- (2,153,869) (2,153,869)

-

-

-

-

2,717,479

5,058,329

1,109,364

354,051

3,540,276

3,540,276

1,349,467 10,588,690

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


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120

Statements of Cash Flows For the years ended 31 December 2008 and 2007

Consolidated

Notes

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

14,328,756

8,414,827

7,393,768

3,676,572

1,821,139

1,455,859

71,894

108,189

Cash flows from operating activities Net profit for the year before income tax Adjustment to reconcile net profit for cash receipts (payments) from operations Depreciation Write-off spare parts and machinery supplies Write-off projects under development

15

Write-off property, plant and equipment Allowance for impairment of deferred overburden

13

-

11,987

-

-

8,389

-

8,389

-

50,517

52,880

18,710

512

31,117

101,152

(867)

87,204

Allowance for doubtful accounts

6

(20,747)

(20,609)

(20,609)

(20,609)

Allowance for net realisable value of inventories

7

177,129

228,203

(215,039)

224,185

1,239,929

1,160,392

854,705

971,919

Interest expenses Interest income Finance costs

(403,931)

(123,377)

(466,787)

(865,996)

128,382

146,383

99,258

116,740

-

-

Share of net profit of associates and interests in joint ventures Dividend received from subsidiaries Dividend received from other investments

10 31

(4,945,813) -

(4,504,372) -

(7,143,853)

(4,352,136)

(489,653)

(478,877)

(252,126)

(252,565)

22,643

(24,856)

(4,682)

(22,550)

(1,281,899)

(11,665)

(Gain) loss on disposal of property, plant and equiptment Gain on disposal of investments in subsidiaries Gain on disposal of other investments Net unrealised (gain) loss on exchange rate Cash flow before changes in working capital

(71,550)

-

(80,423)

(451,520)

(80,423)

(451,520)

(577,664)

(1,195,069)

(214,163)

369,304

3,491,104

36,510

(410,751)

11,218,220

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


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Statements of Cash Flows (continued) For the years ended 31 December 2008 and 2007

Consolidated

Notes

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

(2,352,307)

369,132

33,870

(178,585)

(40,584)

2,354

(246,327)

(25,232)

380,973

(153,381)

Changes in working capital (exclude effect from acquistion and disposal of subsidiaries) Trade accounts receivable Amounts due to related parties Inventories

22,739

(433,256)

Spare parts and machinery supplies

(84,542)

Other current assets

351,890

(266,474)

4,148

170,476

80

(377,140)

175

(579,822)

347,713

42,098

78,271

Trade accounts payable

578,819

576,608

Accrued overburden and coal transportation costs

(37,402)

52,822

(14,723)

(10,832)

1,034,886

(14,122)

(2,091)

(2,140)

94,071

(142,810)

69,649

(65,040)

Deferred exploration and development expenditures and deferred overburden expenses

Accrued royalty fee Employee retirement benefits obligation Other current liabilities

-

-

516,873

695,579

26,208

10,722,841

4,682,798

496,723

(1,091,421)

Interest paid

(1,232,411)

(1,203,404)

(852,619)

(1,018,175)

Income tax paid

(1,551,918)

(2,166,360)

(9,599)

(136,296)

7,938,512

1,313,034

(365,495)

(2,245,892)

Cash generated (used) from operating activities

Net cash receipts (payments) from operating activities

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.

53,234


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Statements of Cash Flows (continued) For the years ended 31 December 2008 and 2007

Consolidated

Notes

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

101

(101)

Cash flows from investing activities Cash receipts (payments) for advances to related parties

(160,219)

6,477

(2,639)

412,198

Cash receipts (payments) for advances from related parties

-

-

Cash receipts from loans to related parties

-

54,504

2,744,636

11,718,333

Cash payments for loans to related parties

-

(55,047)

(5,963,521)

(3,856,033)

Cash receipts from long-term loans to other companies

43,927

-

Cash receipts (payments) from loans to employees, net

898

2,545

447,917

1,593,297

43,927 (4)

35

Cash receipts from disposal of investments in subsidiaries

285,793

-

Cash payments for purchase of investments in subsidiaries and interests in joint ventures

10

Cash receipts from disposal of other investments Cash payments for purchase of other investments

11

Cash payments for projects under development

(14,472,424)

(3,329,657)

-

(4,199,643)

147,026

596,426

147,026

(50,000)

(13,431)

(50,000)

596,426 (6,465)

(892,427)

(402,110)

(16,175)

(78,549)

(3,959,608)

(2,983,853)

(19,267)

(37,096)

Cash payments for purchase of property, plant and equipment

12

Cash receipts from disposal of property, plant and equipment

27,413

73,050

13,996

24,062

Other non-current assets

(140,917)

170,495

13,147

124,032

403,931

123,377

409,969

1,170,716

2,071,464

1,222,938

3,529,064

1,227,935

489,653

478,877

252,126

252,565

1,227,859

7,354,993

Interest received Cash receipts from dividends from investments in subsidiaries, joint ventures and associates Cash receipts from dividends from other investments Net cash receipts (payments) from investing activities

(15,883,046)

(2,468,690)

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


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Statements of Cash Flows (continued) For the years ended 31 December 2008 and 2007

Consolidated

Notes

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Cash flows from financing activities Cash receipts from loans from banks

15,882,359

9,484,161

15,607,421

4,001,536

Repayment of loans from banks

(14,111,963)

(10,371,882)

(13,500,000)

(5,474,993)

(760,128)

(507,231)

Repayment of short-term loan from related parties Cash receipts from short-term loans from related parties

-

-

317,963

-

Repayment of long-term loans from related parties

31

-

-

Cash receipts from long-term loans

19

12,221,360

2,898,288

Repayments of long-term loans

(2,273,415)

(803,166)

(969,816) 3,000,000 (1,794,961)

709,440 (1,194,502) 2,600,270 (100,000)

Cash payments for deferred financing service fee for long-term loans Repayments of debentures

19 20

Other liabilities

(1,400,000) (43,916)

(10,031) (1,600,000) 23,655

(1,400,000) -

(3,015) (1,600,000) -

Cash receipts from additional share capital of a subsidiary Dividend paid

28

Dividend paid of a subsidiary

(1,080,667)

Net cash receipts (payments) from financing activities Net increase (decrease) in cash and cash equivalents Increase from purchase of investments Adjustment from foreign exchange translation

(3,135,535)

10

12,304,928 (2,153,869) -

(3,135,535) -

(2,153,869) -

6,376,186

9,772,084

(2,953,019)

(3,722,364)

(1,568,348)

8,616,428

(2,090,655)

1,386,737

943,117 170,565

(107,949)

7,144

(41,386)

Cash and cash equivalents at beginning of the year

13,304,348

4,795,869

3,222,320

1,876,969

Cash and cash equivalents at end of the year

12,849,682

13,304,348

1,138,809

3,222,320

The notes to the consolidated and company financial statements on pages 124 to 168 are an integral part of the financial statements.


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Notes to the Consolidated and Company Financial Statements For the years ended 31 December 2008 and 2007

1. General information Banpu Public Company Limited (“the Company”) is a public limited company incorporated and resident in Thailand. The address of the Company’s registered office is 1550 New Petchburi Road, Makkasan, Ratchthewi, Bangkok. The Company is listed on the Stock Exchange of Thailand. For reporting purpose, the Company and its subsidiaries, associates and joint ventures are referred to as the Group. The Group is engaged in coal mining and power businesses. The Group has operations in Thailand and overseas which are mainly in Indonesia and China. These consolidated and company financial statements were authorised by Board of Directors on 25 February 2009.

2. Accounting policies The principal accounting policies adopted in the preparation of these consolidated and company financial statements are set out below. 2.1

Basis of preparation The consolidated and company financial statements have been prepared in accordance with Thai generally accepted accounting

principles under the Accounting Act B.E. 2543, being those Thai Accounting Standards issued under the Account Profession Act B.E. 2547, and the financial reporting requirements of the Securities and Exchange Commission under the Securities and Exchange Act B.E. 2535. The consolidated and company financial statements have been prepared under the historical cost convention except certain accounts as disclosed in the accounting policies below. The preparation of financial statements in conformity with Thai generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses in the reported periods. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates. An English version of the consolidated and company financial statements has been prepared from the consolidated and company financial statements that are in the Thai language. In the event of a conflict or a difference in interpretation between the two languages, the Thai language consolidated and company financial statements shall prevail. 2.2

New accounting standard and amendments to accounting standards During 2008 and 2007, the Federation of Accounting Professions (“FAP”) has announced new standard and amendments to Thai

Accounting Standards (“TAS”) as follows: Revised standards TAS 25 “Cash Flow Statements” TAS 29 “Leases” TAS 31 “Inventories” TAS 33 “Borrowing Costs” TAS 35 “Presentation of Financial Statements” TAS 39 “Accounting Policies, Changes in Accounting Estimates and Errors” TAS 41 “Interim Financial Reporting” TAS 43 “Business Combinations” TAS 49 “Construction Contracts” New accounting standard TAS 51 “Intangible Assets”


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The amendments to accounting standards and the new accounting standard are effective for the period beginning on or after 1 January 2008 except TAS 29 which is effective for the lease contract started on or after 1 January 2008. The Group’s management has determined that the revised standards and new standard will not significantly impact the financial statements being presented except. • TAS 35 “Presentation of Financial Statement” (revised 2007) which has an effect on the presentation of minority interest and other disclosures as mentioned in Note 3 and Note 4. • TAS 43 “Business Combination” (revised 2007) which has an effect as disclosed in Note 2.3. • TAS 51 “Intangible Assets”. Intangible assets which have indefinite useful life are not allowed to be amortised but an impairment test is required annually. However, the Group has considered that its intangible assets are determined as limited useful life assets. Therefore, the Group continues to amortise intangible assets according to their expected useful life. The amendments to accounting standards are effective for the period beginning on or after 1 January 2009 and have not early adopted by the Group. TAS 36 “Impairment of Assets” TAS 54 “Non-current Assets Held for Sale and Discontinued Operations” The Group’s management has determined that those two standards are not expected to have a material impact on the financial statements being presented. 2.3

Change in an accounting policy TAS 43 “Business Combinations” (revised 2007) requires an entity which is the acquirer to reassess the identification

and measurement of the acquirer’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination if, at the acquisition date, the acquirer’s interest in the net fair value of those items exceeds the cost of the combination. Any excess remaining after that assessment must be recognised by the acquirer immediately in the income statements. The reused standard is mandatory from 1 January 2008. The Group has adjusted the effect of this change against retained earnings brought forward as at 1 January 2008 as follow: 2008 THB Thousand

Consolidate balance sheet at 1 January Decrease in negative goodwill, net

(1,166,807)

Increase in retained earnings brought forward

1,166,807

2.4

Group accounting - Investment in subsidiaries and associates and interests in joint ventures Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and

operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases.


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The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instrument issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets and liabilities assumed in an acquisition are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill (See Note 2.10 the accounting policy on goodwill). If the cost of acquisition is less than the fair value of net assets of subsidiary acquired, the difference is recognised directly in the statement of income. Intercompany transactions, balances and unrealised gains or losses on transactions between group companies are eliminated, except unrealised losses which the Group considers when there is the factor of indicating that an asset might be impaired. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. In case that a subsidiary in which the Group hold an investment increase its share capital and the Group does not participate, either fully or partially, in the increase of share capital. Non participation, either fully or in part, in the share capital increase of a subsidiary reduces the Group’s shareholding in that subsidiary and is considered to be a deemed disposal of interest on dilution. A deemed disposal on dilution changes the Group’s interest in the net assets of the subsidiary and therefore a difference arises between the pre and post dilution share of net assets of the subsidiary. Dilution gains or losses that arise on share issued by the subsidiary to other investors are not recognised in the statement of income. The change in net assets of the investment in subsidiary is taken to the shareholders’ equity. On disposal of this investment to third party, such changes are transferred to retained earnings. In the Company’s separate financial statements, investments in subsidiaries are reported by using the cost method. A list of the Group’s subsidiaries and the effects acquisitions and disposals of subsidiaries are shown in Note 10. Associates and joint ventures Associates and joint ventures are entities over which the Group has significant influence or joint control, but which it does not control. Investments in associates and interests in joint ventures are accounted for by the equity method of accounting in the consolidated financial statements. Under this method the Group’s share of the post-acquisition profits and losses of associates and joint ventures is recognised in the statement of income and its share of post-acquisition movements in fair value reserve is recognised in fair value reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate or interest in a joint venture equals or exceeds its interest in the associate and joint venture, the Group does not recognised further losses, where necessary, the comply with those of the Group. Unrealised gains or losses on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interests in the associates and joint ventures, except unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. In the Company’s separate financial statements, investments in associates and interests in joint ventures are reported by using the cost method. A list of the Group’s principal associates and joint ventures are shown in Note 10. 2.5

Foreign currency translation Items included in the financial statements of each entity in the Group are measured using the reporting currency of that entity.

The consolidated financial statements are presented in Thai Baht. Foreign currency transactions are translated into the reporting currency using the exchange rates prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the reporting currency at the exchange rates prevailing at the balance sheet date. Gains and losses resulting from the settlement of foreign currency transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income.


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Statements of income and cash flows of foreign entities are translated into Thai Baht at the weighted average exchange rates for each month and balance sheets are translated at the exchange rates ruling on the balance sheet date. Currency translation differences arising from the retranslation of the net investment in foreign entities are taken to shareholders’ equity. On disposal of such foreign entity, accumulated currency translation differences are recognised in the consolidated statement of income as part of the gain or loss on disposal. 2.6

Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with

original maturities of three months or less and bank overdrafts. Bank overdrafts are included in current liabilities on the balance sheet. 2.7

Trade accounts receivable Trade accounts receivable are carried at original invoice amount and subsequently measured at the remaining amount less allowance

for doubtful receivables based on a review of all outstanding amounts at the year end. The amount of the allowance is the difference between the carrying amount of the receivable and the amount expected to be collectible. Bad debts are recognised in the statement of income within selling and administrative expenses. 2.8

Inventories, spare parts and machinery supplies Coal inventories are valued at the lower of cost or net realisable value. Cost is determined by the weighted average method.

The cost of coal comprised direct labour, other direct costs and related production overhead to mine activities. Spare parts and machinery supplies are valued at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of purchase comprises both the purchase price and costs directly attributable to the acquisition of the spare parts and machinery, such as import duties and transportation charge, less all attributable discounts, allowances or rebates. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. Allowance is made, where necessary, for obsolete, slow-moving and defective inventories, spare parts and machinery supplies. 2.9

Other investments Investments other than investments in subsidiaries and associates and interests in joint ventures are classified into the following three

categories: 1) held-to-maturity, 2) available-for-sale and 3) general investments. The classification is dependent on the purpose for which the investments were acquired. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. • Investments with fixed maturity that the management has the intent and ability to hold to maturity are classified as held-tomaturity and are included in non-current assets, except for maturities within twelve months from the balance sheet date which are classified as current assets. • Investments intended to be held for an indefinite period of time, which may be sold in response to liquidity needs or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has expressed the intention of holding the investment for less than twelve months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. • Investments in non-marketable equity securities are classified as general investments. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the investments. Cost of investment includes transaction costs. Available-for-sale investments are subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of investments classified as available-for-sale are recognised in equity. Held-to-maturity investments are carried at amortised cost using the effective yield method.


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The fair value of investments are based on quoted bid price by reference to the Stock Exchange of Thailand. When investments classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the statement of income as gains and losses from investment in securities. General investments are carried at cost less impairment. A test for impairment is carried out when there is a factor indicating that an investment might be impaired. If the carrying value of the investment is higher than its recoverable amount, impairment loss is charged to the statement of income. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is recognised to the statement of income. When disposing of part of the Group’s holding of a particular investment in debt or equity securities, the carrying amount of the disposed part is determined by the weighted average carrying amount of the total holding of the investment. 2.10 Other non-current assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary, joint venture or associated undertaking at the date of acquisition. Goodwill on acquisitions of subsidiaries is reported in the consolidated balance sheet as an intangible assets. Goodwill on acquisitions of interest in joint ventures or associates are included in investments in associates and joint ventures and are tested for impairment as part of the overall balance. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose if impairment testing. The allocation is made to those cash generating units or group of cash generating units that are expected to benefit from the business combination in which the goodwill arose. Mining property rights Mining property rights represent the excess of the cost of an acquisition over the fair value of net assets, which in managements’ view represents future economic benefits attributable to the mining rights held by subsidiaries. Mining property rights are amortised using the units of coal production. Projects under development The Group has searched the new reserve to replace the old one and invested in new project so as to extend the future business. The development expenditures are recognised as expenses as incurred. Costs incurred on development projects are recognised as intangible assets when the projects have been approved by the Sounding Committee to perform the feasibility study and it is probable that the project will be success considering its commercial and technological feasibility and only if the cost can be measured reliably. Deferred exploration and development expenditures Exploration expenditures are capitalised on an area of interest basis. Such expenditures comprise net direct costs such as license, geology and geophysics expenditures and do not include general overheads or administrative expenditures not directly attributable to a particular area of interest. Exploration expenditures are capitalised as deferred expenditures when the following conditions is met: a) Such costs are expected to be recouped through successful development and exploitation of the area of interest or, by its sales; b) Exploration activities in the area of interest have not yet reached the stage which permits a reasonable assessment of the existence of economically recoverable reserves, and active operations in the area are continuing. Recoupment of exploration expenditure carried forward is dependent upon successful development and commercial exploitation, or sale of the respective area. Each area of interest is reviewed at the end of period. Exploration expenditures in respect of an area of interest, which has been abandoned or for which a decision has been made by the Group against the commercial viability of the area of interest, are written-off in the period the decision is made.


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Development expenditures and incorporated costs in developing an area of interest prior to commencement of operations in the respective area, as long as they meet the criteria for deferral, are capitalised. Deferred exploration and development expenditure is principally amortised using the units of coal production of each area of interest starting from the commencement of the commercial operations. Stripping costs/Overburden costs For certain mining areas, stripping costs are recognised as production costs based on the average life of mine stripping ratio (the ratio of waste to coal produced). When the actual stripping ratio exceeds the life of mine average, the excess stripping costs are deferred. When the actual stripping ratio is lower than the life of mine average, the difference is adjusted against the amount of deferred costs. Change in estimated for average life of mine stripping ratio are accounted for on a prospective basis over the remaining of mine life. For other mining areas, stripping cost are recognised as production costs based on the actual stripping ratio for the period. During the period, if stripping costs incurred for overburden without exposing the coal are deferred and will be recognised as production costs when the coal has been exposed. Deferred costs are written-off during the period in which the coal is determined to be not available and/or not economic to be mined. 2.11 Property, plant and equipment Property, plant and equipment are initially recorded at cost. All plant and equipment are stated at historical cost less accumulated depreciation. Depreciation is calculated on the straight-line method to write off the cost of each asset, except for land as it is deemed to have an indefinite life, to their residual values over their estimated useful life as follows: Land improvement Buildings, infrastructures, construction and building improvement

10 years shorter period of the mine or 5 to 20 years

Machinery and equipment

2 to 20 years

Furniture

4 and 5 years

Office equipment and tools

4 and 5 years

Motor vehicles

4 and 5 years

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Repairs and maintenance are charged to the statement of income during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in statement of income. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised as part of cost of the asset during the period of time required to complete and prepare the property for its intended use. Borrowing costs include: • interest on bank overdrafts and short-term and long-term borrowings, and related taxes; • amortisation of discounts or premiums relating to borrowings; • amortisation of ancillary costs incurred in connection with the arrangement of borrowings; and • finance lease charges. All other borrowing costs except for the listed above are expensed in the statement of income.


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2.12 Impairment of assets Property, plant and equipment and other non-financial assets, including goodwill and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. Assets other than goodwill that suffered an impairment are reversed for possible impairment loss of the estimation of the recoverable amounts were changed in subsequent period after the Group’s recognition of impairment. 2.13 Leases - where a Group is the leassee Leases of property, plant or equipment which substantially transfer all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated to the principal and to the finance charges so as to achieve a constant rate on the finance balance outstanding. The outstanding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the statement of income over the lease period. Property, plant or equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease term. Leases not transferring a significant portion of the risks and rewards of ownership to the lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. 2.14 Borrowings Borrowings are recognised initially at the fair value of proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the statement of income over the period of the borrowings. 2.15 Employee benefits The Group operates a provident fund that is a defined contribution plan, the assets of which are held in a separate trust fund. The provident fund is funded by payments from employees and by the relevant Group companies. Contributions to the provident fund are charged to the statement of income in the year to which they relate. Employees are entitled to receive benefits on reaching normal retirement age under the labour law applicable in Thailand and countries, which the Group has the operation, or such other dates of entitlement as may be agreed between the Group and employees. The defined benefit obligation on the Group is measured, using the projected unit credit method in accordance with actuarial as the present value of the estimated future cash outflows, based on employee wages, turnover rate, retirement ages, mortality, length of service and others, and using the interest rates of government securities, which have terms to maturity approximating the term of the related obligations. Actuarial gains or losses arising from changes in actuarial assumptions, when exceeding 10 per cent of the present value of defined benefit, are recognised as income or expenses over the average remaining service lives of the related employees.


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2.16 Provisions Provisions, which excluded employee benefits, are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Provision for environmental rehabilitation (if any) is recognised by units of sale at the rate determined by the Company’s geologist. The provisioning rate is based on the estimated cost for mine rehabilitation through to the end of the mine. The Group reviews and revises the rate to reflect the actual expenses incurred on a regular basis. 2.17 Share capital Ordinary shares with discretionary dividends are classified as equity. Incremental external costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. 2.18 Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates, discounts and transportation. Revenue from sales of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Sales of coal are quantified by weight at the front mine. The increment or reduction of coal values as a result of quality and weight noticed by customers will be recorded in the month of goods delivery. Sales of electricity and steam are shown net of output tax and discount. Sales will be recognised upon transmission of electricity and steam at delivery points stipulated in Power Purchase Agreement (“PPA”) and Steam Purchase Agreement (“SPA”). Service income is recognised when services are rendered. Other revenues earned by the Group are recognised on the following bases: • interest income - accrual basis. • dividend income - when the Group’s right to receive payment is established. 2.19 Dividends Dividends payable are recorded in the consolidated and company’s financial statements in the period in which they are approved by the Board of Directors or Shareholders. 2.20 Financial risk management Financial risk factors The Group’s activities expose it to a variety of financial risks, including the effects of changes in foreign currency exchange rates, interest rates, coal price and oil price. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as forward foreign exchange contracts, currency swaps contracts, interest rate swap contracts, coal swap contracts and oil hedging contract to hedge certain exposure. Risk management is carried out by a central treasury department under policies approved by the Board of Directors. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units.


2008 Annual Report

132

Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to US Dollars. The Group uses forward foreign exchange contracts and currency swaps contracts to hedge their exposure to foreign currency risk in connection with their measurement currency. Group Treasury is responsible for hedging the net position in each currency and external forward foreign exchange contracts or currency swap contracts. Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. All interest rate derivative transactions are subject to approval by the Financial Management Committee before execution. The Group’s policy is to maintain borrowings in both fixed and floating rate instruments. Coal price fluctuation risk The Group is exposed to coal price risk from substantial fluctuations in coal price in world market. The Group uses coal swap contracts to minimise its exposure to fluctuations in coal price in its business operations and maintains on emphasis on a balance of overall coal price in the Group by entering into both short-term and long-term sales agreements. Oil price fluctuation risk The Group is exposed to oil price risk from substantial fluctuations in oil price in world market. The Group uses oil hedging contract to minimise its exposure to fluctuation in oil price in its business operations of the Group. Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of goods and services are made to customers with an appropriate credit history. Derivative counter parties and cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying business, Group Treasury aims at maintaining flexibility in funding by keeping credit lines available. Accounting for derivative financial instruments and hedging activities The Group is party to derivative financial instruments, which mainly comprise forward foreign currency contracts and foreign currency swap contracts. These are recognised in the financial statements on inception. Interest rate swap contracts, coal swap contracts and oil hedging contract are not recognised on the inception date of each contract. Forward foreign currency contracts and foreign currency swap contracts protect the Group from movements in exchange rates by establishing the rate at which a foreign currency asset will be realised or a foreign currency liability settled. Any increase or decrease in the amount required to realise the asset or settle the liability is offset by a corresponding movement in the value of the related contracts. The gains and losses on the derivative instruments and the underlying financial asset or liability are therefore offset for financial reporting purposes and are recognised in the financial statements. The fee incurred in establishing agreement is amortised over the contract period.


Banpu Public Company Limited

133

Interest rate swap contracts protect the Group from movements in interest rates. Any differential to be paid or received on interest rate swap contracts is recognised as a component of interest expenses in the statement of income. Coal swap contracts protect the Group from movements in coal price by establishing the agreed price, which is not recognised at inception. The difference between the price at contract settlement date and agreed price will be recognised as realised gains and losses in the statement of income at settlement date. Oil hedging contract protects the Group from movements in oil price by establishing the agreed price, which is not recognised at inception. The difference between the price at contract settlement date and agreed price will be recognised as realised gains and losses in the statement of income at settlement date. Disclosures about derivative finance instruments to which the Group is a party are provided in Note 33.

3. Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Critical accounting estimates and assumptions are as follows: (a)

Fair value of derivatives The fair value of publicly traded derivatives is based on quoted market prices at the balance sheet date. The fair value of forward

foreign exchange contracts and of the interest rate swap contracts is determined by market rate of each agreement which is calculated by the Group’s financial institutions. The fair value of coal swap contracts and oil hedging contracts are calculated by the offering selling and buying price quoted by the financial institutions of the Group. (b)

Reserves and resources The Group estimates reserves and resources based on its best estimate of product that can be economically extracted from

the relevant mining area. Estimates are supported by geological studies and drilling samples to determine the reserves and resources. (c)

Provision for environmental rehabilitation Provision for environmental rehabilitation is recognised by units of sale at the rate determined by the Company’s geologist.

Provision recognition represented management’s best estimate of the costs that will be incurred, but significant judgement is required as many of these cost will not crystallise until the end of the life of mine. Estimates are reviewed annually to reflect the liabilities expected to be paid. (d)

Deferred overburden expenses Management measures the value of deferred overburden expenses and stripping ratio on a regular basis, considering its future

economic benefits and writes off as expenses in the statement of income when management considers that they will not or receive less economic benefits. 4. Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares of sell assets to reduce debt.


134

2008 Annual Report

5. Cash and cash equivalents Consolidated

Cash on hand

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

5,704

790

71

155

Deposit held at call with banks

8,301,023

9,374,905

933,781

487,901

Fixed deposit

4,542,955

712,132

204,957

584,264

Bills of exchange Total cash and cash equivalents

-

3,216,521

-

2,150,000

12,849,682

13,304,348

1,138,809

3,222,320

The weighted average of interest rate on deposit held at call with banks was 0.50% - 3.50% per annum (2007: 0.50% - 3.25% per annum). The weighted average of interest rate on fixed deposit with banks was 2.88% - 3.00% per annum (2007: 4.80% - 5.12% per annum). Bills of exchange represent original maturities less than three months and the weighted average of interest rate was 3.26% - 8.00% per annum (2007: 3.20% - 8.00%).

6. Trade accounts receivable, net Trade accounts receivable consist of: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Trade accounts receivable • Subsidiaries (Note 31) • Third parties Less Allowance for doubtful accounts Trade accounts receivable, net

-

-

-

16,417

6,135,638

3,783,331

457,426

474,879

6,135,638

3,783,331

457,426

491,296

(73,138)

(93,747)

384,288

397,549

(106,984) 6,028,654

(127,731) 3,655,600


Banpu Public Company Limited

135

Trade accounts receivable balance are aged as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

3,605,803

3,426,124

245,084

267,136

2,417,273

223,757

133,626

124,834

• Over 3 months but less than 6 months

-

142

-

1

• Over 6 months but less than 12 months

-

-

-

-

18,752

18,889

6,583

6,583

Trade accounts receivable under credit term Trade accounts receivable due for payment • Less than 3 months

• Over 12 months • Trade debtor under the Central Bankruptcy Court Total trade accounts receivable Less Allowance for doubtful accounts Trade accounts receivable, net

93,810

114,419

72,133

92,742

6,135,638

3,783,331

457,426

491,296

(106,984) 6,028,654

(127,731) 3,655,600

(73,138)

(93,747)

384,288

397,549

As at 31 December 2008, trade accounts receivable of an overseas subsidiary amounting to THB 658.87 million (2007: THB 168.81 million) have been used as collateral for long-term loans (Note 19).

7. Inventories, net Consolidated

Coal inventories Less Allowance for net realisable value Inventories, net

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

1,690,672

2,082,338

347,974

728,947

(39,640) 1,651,032

(231,438) 1,850,900

(9,146) 338,828

(224,185) 504,762

As at 31 December 2008, inventories of an overseas subsidiary amounting to THB 400.68 million (2007: THB 405.91 million) have been used as collateral for long-term loans (Note 19).


2008 Annual Report

136

8. Other current assets Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Prepayments

153,662

150,485

88,247

125,437

Advances for business

488,858

369,737

695

14,490

Value added tax

134,541

66,973

3,066

2,545

Withholding tax

274,701

411,991

157,243

203,508

Other accounts receivable

446,199

715,845

31,990

165,057

89,924

84,192

84,563

73,046

1,587,885

1,799,223

365,804

584,083

Accrued income Total other current assets

9. Long-term loans to other companies Long-term loans to other companies represent loans to two companies in US Dollars of USD 0.15 million (2007: USD 0.15 million) and in Thai Baht of THB 292.80 million (2007: THB 336.73 million) bearing interest at the rates of 4.88% - 7.22% per annum (2007: 4.88% - 7.21% per annum).

10. Investments in subsidiaries and associates and interests in joint ventures Investments in subsidiaries and associates and interests in joint ventures are as follows: Consolidated

Company

(Equity method)

(Cost method)

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Banpu Minerals Co., Ltd.

-

-

39,994

39,994

Universal Exploration Co., Ltd.

-

-

-

778,931

Banpu Power Ltd.

-

-

6,197,890

6,197,890

BP Overseas Development Co., Ltd.

-

-

606,566

606,566

Banpu China Pte. Ltd.

-

-

-

341,540

Banpu Power International Ltd.

-

-

1,753

1,753

5,997,864

5,997,864

-

-

4,000

4,000

-

-

1,631,649

1,631,649

-

-

Subsidiaries

Joint ventures BLCP Power Ltd. Power Generation Services Co., Ltd. Hebi Zhong Tai Mining Co., Ltd. Shanxi Asian American-Daning Energy Co., Ltd.

7,767,178

-

-

-

Shanxi Gaohe Energy Co., Ltd.

8,561,319

-

-

-


Banpu Public Company Limited

Consolidated

Company

(Equity method)

(Cost method)

137

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Asian American Coal, Inc.

-

1,820,214

-

-

Asian American Gas, Inc.

-

194,421

-

-

23,962,010

9,648,148

6,846,203

7,966,674

2,410,743

1,654,414

-

-

26,372,753

11,302,562

6,846,203

7,966,674

Associates

Investments in subsidiaries and associates and interests in joint ventures - cost method Add Cumulative equity account of associates and interests in joint ventures Investments in subsidiaries and associates and interests in joint ventures

As at 31 December 2008, under the condition of loan for project finance of a joint venture and long-term loan agreement of subsidiaries, the Group uses its investments in two subsidiaries and a joint venture with a cost of THB 12,630 million (2007: THB 12,630 million), as collateral for a long-term loans from financial institutions of such subsidiaries and a joint venture (Note 19). Movement of investments in subsidiaries and associates and interests in joint ventures for the years ended 31 December are as follows: Consolidated

Company

(Equity method)

(Cost method)

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

11,302,562

6,832,666

7,966,674

3,767,031

Addition of investments in subsidiaries

-

-

-

4,199,643

Decrease from divestment of subsidiaries

-

-

(1,120,471)

-

16,328,497

3,262,962

-

-

Opening balance

Addition of interests in joint ventures from the acquisition of subsidiaries and associates Change from an associate to a subsidiary

(2,122,868)

-

-

-

Disposal of investment in an associate

(194,421)

-

-

-

Dividend received from joint ventures

(3,886,830)

(3,297,438)

-

-

4,945,813

4,504,372

-

-

26,372,753

11,302,562

6,846,203

7,966,674

Add Share of profit of associates and interests in joint ventures during the year Ending balance


2008 Annual Report

138

Changes in investments in subsidiaries and associates and interests in joints ventures are as follows: Disposal of investment In February 2008, the Group disposed the investment in Asian American Gas, Inc. (an indirect associate) in the amount of USD 13.66 million or equivalent to THB 447.92 million. The Group recognised gain from the disposal of THB 226.85 million in the consolidated statement of income. Disposal of subsidiaries During the year 2008, the Company received the proceeds, in relating to the closure of Universal Exploration Co., Ltd. and Banpu China Pte. Ltd. (direct subsidiaries) on 1 July 2008 and 27 August 2008, respectively. Additional of investment During the year 2008, the Group incorporated Banpu Coal Investment Company Limited which is registered in Mauritius Islands for investment in coal mining business. Its share capital is USD 11.05 million and is held by Banpu Minerals Co., Ltd. (a direct subsidiary) at the percentage of shareholding 100%. Dividend received from joint ventures Dividend income which were received from joint ventures consisted of dividends from BLCP Power Ltd. of THB 3,640.36 million, Power Generation Services Co., Ltd. of THB 47.60 million and Hebi Zhong Tai Mining Co., Ltd. of THB 198.87 million. Restructuring of investment In December 2008, the Group restructured the investments in PT. Indo Tambangraya Megah and its subsidiaries by changing the shareholder from PT. Centralink Wisesa International to Banpu Minerals (Singapore) Pte. Ltd. Due to investments restructuring, the Group disposed some investments in PT. Indo Tambangrava to third parties. The Group recognised loss from the disposal of THB 96.88 million in the consolidated statement of income. Acquisition On 26 June 2008, the Group acquired the additional share capital of Asian American Coal, Inc. (“ACCI”), which has investments in coal mining and trading business in Republic of China, to increase the percentage of shareholding from 21.73% (formerly classify as an investment in an associate) to 100%. ACCI is incorporated in British Virgin Islands and holds the interests in joint ventures as follows:

Name of company

Percentage of shareholding (%)

Country

Business

British Virgin Islands

Coal mining and trading

56

Republic of China

Coal mining and trading

45

Shanxi Asian American-Daning Energy Company Limited (“SAADEC”) Shanxi Gaohe Energy Company Limited (“Gaohe”)


139

Banpu Public Company Limited

Details of net assets acquired at acquisition date are as follows: THB Thousand

Cash and cash equivalents

943,117

Property, plant and equipment (Note 12)

10,402

Loan to a joint venture

958,377

Interests in joint ventures - equity method

4,330,149

Other assets less liabilities

(1,701,464)

Net book value of net assets

4,540,581

Net book value of net assets in the proportion of the acquisition of 78.27%

3,553,913

Total purchase consideration • cash

14,472,424

• provision from acquisition of investment

1,079,837

Excess from acquisition

15,552,261 11,998,348

Provision from acquisition of investment amounting to USD 32.30 million or equivalent to THB 1,079.84 million arisen from the additional investment in AACI according to Share Purchase Agreement. Under the agreement, the Group has a commitment to pay an additional amount of USD 32.30 million subject to the earnings before interest expenses, depreciation and amortisation for twelve-month periods ending 30 June 2009 and 2010 of SAADEC. The Group has estimated that the additional amount is likely to be paid, and has therefore recognised the provision for this obligation in these consolidated financial statements for the year ended 31 December 2008. The management determined the excess (purchase price over the net book value) from acquisition represents the value assigned by the company related coal reserves/resources of two joint ventures which are operating in coal mining and trading business. The management presents the excess from acquisition in interests in joint ventures account as detailed below. Investments in joint ventures Book value

Excess from acquisition

Investments in joint ventures Fair value

THB Thousand

THB Thousand

THB Thousand

Shanxi Asian American-Daning Energy Company Limited (“SAADEC”)

2,915,388

4,851,790

7,767,178

Shanxi Gaohe Energy Company Limited (“Gaohe”)

1,414,761

7,146,558

8,561,319

4,330,149

11,998,348

16,328,497

Commencing from the third quarter of 2008, the Group has amortised the excess from acquisition by using the unit of coal produced.


140

2008 Annual Report

Assets, liabilities and net profit of associates and joint ventures by percentage of shareholding consist of: Property,

Name of company

Profit

Profit

plant and

Current

Total Long-term

Accrued

Current

Total

Net

(loss)

Income

(loss)

Percentage equipment

assets

assets borrowings

expenses

liabilities

liabilities

assets

Sales before tax

tax

after tax

of share-

THB

THB

THB

THB

THB

THB

THB

THB

THB

THB

THB

THB

holding

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

Thousand

18,561,392 9,118,508 27,679,900 15,847,286

573,004

31 December 2008 Joint ventures BLCP Power Ltd.

50

Power Generation Services Co., Ltd.

40

-

101,085

101,085

-

2,519,340

55,967

4,433,357 20,853,647 18,797

74,764

293,417

342,985

Hebi Zhong Tai Mining Co., Ltd.

40

863,566 1,655,774

-

49,568

Shanxi Asian American-Daning Energy Co., Ltd.

56

3,186,968 3,506,269

6,693,237 1,191,032

730,456

701,297 2,622,785

Shanxi Gaohe Energy Co., Ltd.

45

26,687 4,866,317

4,893,004 1,973,109

-

1,234,867 3,207,976

22,638,613 19,247,953 41,886,566 19,011,427 1,408,995

6,826,253 10,127,391 3,116,260 26,321

- 3,116,260

261,213

69,296

(20,317)

48,979

2,176,355 1,720,831

525,045

(47,251)

477,794

4,070,452 2,496,595 1,058,020

- 1,058,020

1,685,028

-

162,387

124,217

6,681,735 27,102,157 14,784,409 14,768,417 4,892,838

124,217

(67,568) 4,825,270

31 December 2007 Associates Asian American Coal, Inc.

21.73

1,091,803

908,465

2,000,268

451,272

91,988

425,830

969,090

1,031,178

501,859

212,045

(11,178)

200,867

Asian American Gas, Inc.

17.03

132,295

85,064

217,359

64,712

-

42,736

107,448

109,911

-

(60,134)

-

(60,134)

1,224,098

993,529

2,217,627

515,984

91,988

468,566 1,076,538

1,141,089

501,859

151,911

(11,178)

140,733

19,357,110 9,244,032 28,601,142 15,573,780

604,763

5,072,241 21,250,784

Joint ventures BLCP Power Ltd.

50

Power Generation Services Co., Ltd.

40

Hebi Zhong Tai Mining Co., Ltd.

40

-

7,350,358 10,052,168 4,025,587

- 4,025,587

85,986

85,986

-

64,726

11,579

76,305

9,681

239,971

72,848

(21,590)

51,258

803,098 1,349,925

2,153,023

-

184,816

113,406

298,222

1,854,801

496,270

286,794

-

286,794

20,160,208 10,679,943 30,840,151 15,573,780

854,305

5,197,226 21,625,311

9,214,840 10,788,409 4,385,229

(21,590) 4,363,639


Banpu Public Company Limited

141

List of subsidiaries, associates and interest in joint ventures are as follows: Percentage of direct shareholding Name of company

Country

Direct shareholding Banpu Minerals Co., Ltd. Universal Exploration Co., Ltd. BP Overseas Development Co., Ltd.

Thailand Thailand British Virgin Islands

Banpu Power Ltd. Banpu China Pte. Ltd. Banpu Power International Ltd.

Thailand Singapore Mauritius Islands

Indirect shareholding Banpu Minerals Co., Ltd. Subsidiary companies are as follows: 1. Ban-Sa Mining Co., Ltd. and subsidiary • Chiang Muan Mining Co., Ltd. 2. Banpu International Ltd. 3. Silamani Corp., Ltd. 4. Chiang Muan Mining Co., Ltd. 5. Silamani Marble Co., Ltd. 6. Banpu Singapore Pte. Ltd. 7. Banpu Minerals (Singapore) Pte. Ltd. and subsidiaries • PT. Nusantara Thai Mining Services • PT. Centralink Wisesa International and subsidiaries • PT. Indo Tambangraya Megah and subsidiaries • PT. Trubaindo Coal Mining • PT. Indominco Mandiri • PT. Kitadin • PT. Bharinto Ekatama • PT. Jorong Barutama Greston • PT. Indo Tambangraya Megah and subsidiaries • PT. Trubaindo Coal Mining • PT. Indominco Mandiri • PT. Kitadin • PT. Bharinto Ekatama • PT. Jorong Barutama Greston

Business

2008

2007

%

%

Coal mining and trading Drilling & exploration Investment in coal mining and trading Investment in power Investment in power Investment in power

99.99 100.00

99.99 99.99 100.00

99.99 100.00

99.99 100.00 100.00

98.87

98.87

Thailand Thailand Thailand Thailand Thailand Singapore Singapore

Investment in coal mining and trading Coal mining and trading Coal trading Coal trading Coal mining and trading Coal trading Coal trading Coal trading

51.00 99.99 99.99 49.00 99.96 100.00 100.00

51.00 99.99 99.99 49.00 99.96 100.00 100.00

Indonesia Indonesia

Mining services Investment in coal

95.00 95.00

95.00 95.00

Indonesia

Investment in coal

-

77.60

Indonesia Indonesia Indonesia Indonesia Indonesia Indonesia

Coal mining and trading Coal mining and trading Coal mining and trading Coal mining and trading Coal mining and trading Investment in coal

73.72

100.00 100.00 99.99 99.00 100.00 -

Indonesia Indonesia Indonesia Indonesia Indonesia

Coal mining and trading Coal mining and trading Coal mining and trading Coal mining and trading Coal mining and trading

99.99 99.99 99.99 99.00 99.67

-

Thailand


2008 Annual Report

142

Percentage of direct shareholding Name of company

And a joint venture as follow: Hebi Zhong Tai Mining Co., Ltd.

Country

Business

British Virgin Islands

%

40.00

Investment in coal

100.00

21.73

Hong Kong British Virgin Islands

Investment in coal Coal mining and trading

100.00 56.00

-

Republic of China

Coal mining and trading

45.00

-

Banpu Power Ltd. Subsidiary and joint venture companies are as follows: 1. Banpu Coal Power Ltd. and a joint venture • BLCP Power Ltd.

Thailand Thailand

100.00 50.00

100.00 50.00

2. Power Generation Services Co., Ltd.

Thailand

Investment in power Power production and trading Operating power plant service

40.00

40.00

Banpu Power International Ltd. Subsidiary and joint venture companies are as follows: 1. Synergy Power Co., Ltd. • Banpu Power Investment Co., Ltd. and subsidiaries • Shijiazhuang Chengfeng Cogen Co., Ltd.

Coal trading

2007

%

40.00

BP Overseas Development Co., Ltd. Subsidiary and joint venture companies are as follows: 1. Asian American Coal, Inc. subsidiary and joint ventures • SAADEC-HK and a joint venture • Shanxi Asian American-Daning Energy Company Limited • Shanxi Gaohe Energy Co., Ltd.

Republic of China

2008

Mauritius Islands Singapore

Investment in power Investment in power

-

99.99 100.00

Republic of China

Power production and trading Investment in power Investment in power

-

100.00

-

100.00 100.00

Power production and trading Investment in power

-

87.90

-

100.00

Power production and trading Investment in power Power production and trading Investment in power

-

12.10

-

100.00 70.00

-

100.00

• Luannan Peak Pte. Ltd. and subsidiaries • Pan-Western Energy Corp. and subsidiary • Tangshan Banpu Heat & Power Co., Ltd. • Banpu Power Investment (China) Co., Ltd. and subsidiary • Tangshan Banpu Heat & Power Co., Ltd.

Singapore Cayman Islands

• Zouping Peak Pte. Ltd. and subsidiary • Zouping Peak Heat & Power Co., Ltd.

Singapore Republic of China

• Peak Pacific Investment Co., Ltd.

Labuan

Republic of China Republic of China Republic of China


Banpu Public Company Limited

143

Percentage of direct shareholding Name of company

2. Banpu Power Investment Co., Ltd. and subsidiaries • Shijiazhuang Chengfeng Cogen Co., Ltd.

Country

Business

2008

2007

%

%

Singapore

Investment in power

100.00

-

Republic of China

Power production and trading Investment in power Investment in power

100.00

-

100.00 100.00

-

12.10

-

100.00 70.00

-

100.00 100.00

-

87.90

-

• Luannan Peak Pte. Ltd. • Banpu Power Investment (China) Co., Ltd. and subsidiary • Tangshan Banpu Heat & Power Co., Ltd.

Singapore Republic of China

• Zouping Peak Pte. Ltd. and subsidiary • Zouping Peak Heat & Power Co., Ltd.

Singapore Republic of China

• Peak Pacific Investment Co., Ltd. • Pan-Western Energy Corporation LLC and subsidiary • Tangshan Banpu Heat & Power Co., Ltd.

Labuan Cayman Islands

Republic of China

Republic of China

Power production and trading Investment in power Power production and trading Investment in power Investment in power Power production and trading

11. Other investments, net Consolidated

Investments in available-for-sale securities General investments Total other investments

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

3,376,029

3,392,633

4,158,183

4,174,786

332,017

332,442

120,412

120,412

3,708,046

3,725,075

4,278,595

4,295,198

6,013,034

6,909,652

608,967

1,109,365

Add Changes in fair value for investments in available-for-sale securities Less Allowance for impairment of general investments Other investments, net

(192,708) 9,528,372

(192,708) 10,442,019

(29,007) 4,858,555

(29,007) 5,375,556


2008 Annual Report

144

Movements of other investments for the years ended 31 December are as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

10,442,019

10,156,783

5,375,556

5,387,680

50,000

13,431

50,000

6,465

(67,029)

(146,164)

(66,603)

(144,906)

(896,618)

417,969

(500,398)

126,317

Opening net book value Acquisitions Disposals Changes in fair value of investments Closing net book value

9,528,372

10,442,019

4,858,555

5,375,556

12. Property, plant and equipment, net Consolidated

Land Land improvement THB THB Thousand Thousand

Building and infrastruc- Machinery & tures equipment THB THB Thousand Thousand

Furniture & ofďŹ ce equipment THB Thousand

Tools THB Thousand

Vehicle THB Thousand

Construction in progress THB Thousand

Total THB Thousand

As at 31 December 2007 Cost

123,092

2,750,011

4,498,948 11,733,952

479,283

392,963

133,655

2,386,119 22,498,023

(702,256) (1,788,695) (4,615,814)

(357,124)

(232,982)

(68,076)

- (7,764,947)

(1,136)

-

-

-

2,708,053

7,117,002

122,159

159,981

65,579

2,386,119 14,718,593

2,047,755

2,708,053

7,117,002

122,159

159,981

65,579

2,386,119 14,718,593

Less Accumulated depreciation

-

Allowance for impairment

(11,147)

-

(2,200)

111,945

2,047,755

111,945

Net book amount

-

(14,483)

Year ended 31 December 2008 Opening net book amount Additions

-

114,403

34,400

804,188

43,750

46,061

88,500

2,828,306

3,959,608

(612)

(1,498)

(1,325)

(31,821)

(5,653)

(898)

(8,249)

-

(50,056)

Increase from investment in subsidiary

-

-

-

-

4,193

-

6,209

-

10,402

Reclassification

-

10,596

301,220

1,105,843

(2,161)

30,320

(14,933) (1,481,297)

(50,412)

Write-off

-

-

(18,814)

(685)

(4,415)

(1)

Translation adjustment

-

68,947

270,963

484,287

14,601

Depreciation charge

-

(286,900)

(316,313) (1,037,330)

(53,610)

111,333

1,953,303

2,978,184

118,864

122,480

2,964,329

5,057,819 14,267,031

484,509

- (1,011,026) (2,077,435) (5,824,411)

(365,645)

Disposals - Net book value

Closing net book amount

8,441,484

-

(26,601)

(50,516)

(30,268)

3,429

51,446

863,405

(56,461)

(70,525)

- (1,821,139)

148,734

70,010

3,757,973 17,579,885

393,418

203,984

3,757,973 27,251,543

(244,684)

(133,974)

- (9,657,175)

As at 31 December 2008 Cost Less Accumulated depreciation Allowance for impairment Net book amount

(11,147)

-

(2,200)

(1,136)

-

-

-

111,333

1,953,303

2,978,184

8,441,484

118,864

148,734

70,010

-

(14,483)

3,757,973 17,579,885

As at 31 December 2008, the gross carrying amount of fully depreciated plant and equipment that are still in use totalled THB 2,982 million (2007: THB 2,214 million).


Banpu Public Company Limited

145

Company Land Land improvement THB THB Thousand Thousand

Building and infrastruc- Machinery & tures equipment THB THB Thousand Thousand

Furniture & office equipment THB Thousand

Tools THB Thousand

Vehicle THB Thousand

Construction in progress THB Thousand

Total THB Thousand

20,462

1,413,723

As at 31 December 2007 Cost

64,383

Less Accumulated depreciation Net book amount

99,759

251,870

725,586

164,666

41,401

45,596

(81,393)

(154,431)

(681,946)

(140,175)

(40,062)

(24,241)

64,383

18,366

97,439

43,640

24,491

1,339

21,355

20,462

291,475

64,383

18,366

97,439

43,640

24,491

1,339

21,355

20,462

291,475

-

11,951

19,267

-

- (1,122,248)

Year ended 31 December 2008 Opening net book amount Additions Disposals - Net book value Reclassification Write-off Allowance for impairment Depreciation charge Closing net book amount

-

-

-

-

7,293

23

(612)

-

(757)

(782)

(558)

-

3,843

-

10,462

1,895

5,710

436

73

(14,637)

7,782

-

-

(17,385)

-

-

-

-

(1,325)

(18,710)

-

-

-

-

-

-

-

(405)

(405) -

(6,605)

-

-

(9,314)

(6,749)

(19,803)

(27,521)

(12,220)

(903)

(5,155)

67,209

11,617

69,956

17,232

24,716

895

9,668

16,451

217,744

(72,351)

67,614

99,759

224,507

704,668

176,400

41,675

34,942

16,451

1,366,016

(88,142)

(154,551)

(687,436)

(151,684)

(40,780)

(25,274)

As at 31 December 2008 Cost Less Accumulated depreciation

-

Allowance for impairment

(405)

-

-

-

-

-

-

-

67,209

11,617

69,956

17,232

24,716

895

9,668

16,451

Net book amount

- (1,147,867) (405) 217,744

As at 31 December 2008, the gross carrying amount of fully depreciated plant and equipment that are still in use totalled THB 1,035 million (2007: THB 500.96 million). As at 31 December 2008, property, plant and equipment in the consolidated financial statements amounting to USD 153.03 million or equivalent to THB 5,326.11 million (2007: USD 157.69 million or equivalent to THB 5,306.15 million) have been used as collateral for a long-term loans (Note 19). During the year 2008, borrowing cost of THB 4.72 million (2007: THB 38.45 million) arising from financing specifically of an overseas subsidiary is included in “Additions” of construction in progress. As at 31 December 2008, the Group has capital commitments which are shown in Note 32.


2008 Annual Report

146

13. Deferred exploration and development expenditures and deferred overburden expenses/stripping costs, net As at 31 December consist of: Consolidated

Deferred exploration and development expenditures Deferred overburden expenses/stripping costs

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

676,908

974,789

-

12,429

2,769,681

1,771,672

-

28,802

3,446,589

2,746,461

-

41,231

Consolidated

Company

THB Thousand

THB Thousand

15,359,352

4,783,444

Less Accumulated amortisation

(12,511,739)

(4,655,009)

Allowance for impairment

(101,152)

(87,204)

As at 31 December 2007 Cost

Net book amount

2,746,461

41,231

For the year ended 31 December 2008 Opening net book amount

2,746,461

41,231

Additions

13,836,866

-

Amortisation

(13,257,044)

(42,098)

Allowance for impairment

(31,117)

867

Translation adjustment

151,423

-

3,446,589

-

Net book amount As at 31 December 2008 Cost

30,073,872

4,783,444

Less Accumulated amortisation

(26,495,014)

(4,697,107)

Allowance for impairment

(132,269)

(86,337)

Net book amount

3,446,589

-

During the year 2008, the majority of additions and amortisation represents overburden expenditure. The Group presents the amortisation which is incurred during the period under cost of sales in the statement of income. For presenting in the statements of cash flows, net balance of additions and amortisation of THB 579.82 million (2007: Additions THB 8,855 million, Amortisation THB 9,203 million and net THB (348) million) presented under operating activities.


147

Banpu Public Company Limited

14. Mining property rights, net Consolidated

Mining property rights, net Negative goodwill, net Net balance

2008

2007

THB Thousand

THB Thousand

1,469,230

1,415,692

-

(1,166,807)

1,469,230

248,885

Mining property rights, net Movement of mining property rights for the years ended 31 December are as follows: Consolidated

Opening net book amount Amortisation during the year Decrease from divestment of an indirect subsidiary Translation adjustment Closing net book amount

2008

2007

THB Thousand

THB Thousand

1,415,692

1,632,081

(83,729)

(42,454)

-

(58,372)

137,267

(115,563)

1,469,230

1,415,692

Negative goodwill, net Movement of negative goodwill for the years ended 31 December are as follows: Consolidated 2008

2007

THB Thousand

THB Thousand

Opening net book amount

1,166,807

1,264,887

Adjustment from change in accounting policy (Note 2.3)

(1,166,807)

-

Amortisation during the year

-

(38,913)

Translation adjustment

-

(59,167)

Closing net book amount

-

1,166,807


2008 Annual Report

148

15. Projects under development Movement of projects under development for the years ended 31 December are as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Opening balance

897,012

554,420

252,881

172,561

Additions

955,900

405,664

19,865

80,320

Reclassification

(91,095)

-

(91,095)

-

(8,389)

-

(8,389)

-

-

-

Write-off during the year Decrease from divestment of an indirect subsidiary Translation adjustment Closing balance

-

(22,472)

56,081 1,809,509

(40,600) 897,012

-

-

173,262

252,881

As at 31 December 2008, projects under development of THB 967 million represented Hongsa Lignite Mining Project (Note 32).

16. Other non-current assets Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

386,375

373,548

-

-

249,724

223,381

199,313

223,381

Advance for business - land compensation for development of coal mine Machinery and spare parts pending for disposal Others Total other non-current assets

835,191

729,584

65,979

42,410

1,471,290

1,326,513

265,292

265,791

Machinery and spare parts at the net book value of THB 249.72 million (2007: THB 223.38 million) have not been in use and pending for disposal. However, the Company’s management has already considered the adequacy of its allowance for impairment.

17. Short-term loans from financial institutions Consolidated At 31 December 2008, short-term loans represent Thai Baht loans from financial institutions amounting to THB 1,400 million and US Dollar loans amounting to USD 96 million (2007: THB 993.55 million and USD 37.91 million). The loans bear interest at the rate of 3.05% - 3.52% per annum and 4.88% - 7.25% per annum, respectively (2007: 3.45% per annum and 7.29% - 9.48% per annum, respectively) and are due for repayment within one year.


Banpu Public Company Limited

149

Company At 31 December 2008, short-term loans represent Thai Baht loans from financial institutions amounting to THB 1,400 million and US Dollar loans amounting to USD 69 million (2007: THB 993.55 million). The loans bear interest at the rate of 3.05% - 3.52% per annum and 4.88% per annum, respectively (2007: 3.45% per annum) and are due for repayment within one year.

18. Other current liabilities Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Accrued expenses

1,413,737

551,214

177,351

144,396

Other accounts payable

2,826,827

1,848,695

95,422

76,791

Withholding tax payable

405,101

472,366

9,857

11,555

Value added tax payable

102,459

96,442

14,633

18,189

Retention payable

43,532

89,249

241

291

Unearned income

413

16,798

201

298

Others Total other current liabilities

42,927

21,516

34,684

31,545

4,834,996

3,096,280

332,389

283,065

As at 31 December 2008, other accounts payable amounting to THB 454 million is advance from Ratchaburi Electricity Generating Holding Company Limited for Hongsa Lignite Mining Project (Note 32).

19. Long-term loans, net Consolidated

Baht loans Foreign currency loans Less Deferred financing service fee

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

14,000,180

2,000,180

5,000,000

2,000,000

1,723,331

4,277,875

-

2,371,950

(2,143) 15,721,368

Less Current portion of long-term loans

(5,174,672)

Long-term loans, net

10,546,696

(15,630) 6,262,425 (408,016) 5,854,409

(2,143) 4,997,857 (1,000,000) 3,997,857

(8,856) 4,363,094 4,363,094


150

2008 Annual Report

Long-term loans amounting of the Company to THB 5,000 million are unsecured liabilities (2007: THB 2,000 million). Detail of loans are shown as follows: • Loan, which is unsecured liabilities, amounting to THB 2,000 million bears the interest at the rate of THBFIX 3 months plus applicable fixed margin (2007: THBFIX 3 months plus applicable fixed margin). The principle of loan is repayable every 6 months starting from 31 May 2010. • Loan, which is unsecured liabilities, amounting to THB 3,000 million bears the interest at the rate of BIBOR plus applicable fixed margin. The principle of loan is repayable 3 installments, every 12 months starting form 31 December 2009. Long-term loan of a subsidiary amounting to THB 9,000 million is unsecured liabilities, bears the interest at the rate of BIBOR plus applicable fixed margin. The principle of loan is repayable every 6 months starting from 25 December 2009, until 25 December 2013. Long-term loans from banks of two overseas subsidiaries amounting to USD 49.12 million are secured liabilities (2007: USD 126.08 million). Detail of loans are shown as follows: • Loan from bank, which is secured liabilities, amounting to USD 11.11 million bears the interest at the rate of LIBOR plus applicable fixed margin (2007: LIBOR plus applicable fixed margin). The principle of loan is repayable 11 installments, every 6 months starting from 30 December 2005, until 30 December 2010. • Loan from bank, which is secured liabilities, amounting to USD 38.01 million bears the interest at the rate LIBOR plus applicable fixed margin (2007: LIBOR plus applicable fixed margin). The principle of loan is repayable within 2013. The foreign currency long-term loans are secured over the assets of such two overseas subsidiaries according to long-term loan agreements (Note 7, 10 and 12). After taking account of interest rate swap, the weighted average effective interest rate of long-term loans of the Group are as follows:

2008

2007

%

%

Baht loans

4.58

8.00

Foreign currency loans

5.48

6.11

Interest rate risk of long-term loans of the Group are as follows: Consolidated

• at fixed rates

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

180

180

-

-

• at floating rates

15,723,331

6,277,875

5,000,000

4,371,950

Total long-term loans

15,723,511

6,278,055

5,000,000

4,371,950


Banpu Public Company Limited

151

Movement in long-term loans of the Group for the years ended 31 December are as follows: Consolidated

Opening net balance

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

6,262,425

4,727,073

4,363,094

2,009,991

Reclassification

(541,872)

-

(541,872)

-

Additional loans

12,221,360

2,898,288

3,000,000

2,600,270

Repayment of loans

(2,273,415)

(803,166)

(1,794,961)

(100,000)

Payment for deferred financing service fee Amortisation of deferred financing service fee (Gain) loss from exchange rate Closing net balance

-

(10,031)

-

(3,015)

6,713

4,642

6,713

4,400

46,157 15,721,368

(554,381) 6,262,425

(35,117)

(148,552)

4,997,857

4,363,094

Maturity of long-term loans are as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Within 1 year

5,174,672

408,016

1,000,000

-

Between 1 years and 5 years

9,336,993

4,053,561

4,000,000

3,621,950

Over 5 years

1,211,846

1,816,478

-

750,000

15,723,511

6,278,055

5,000,000

4,371,950

Total long-term loans

The Group is required to comply with certain procedure and conditions; for example, maintain net value of shareholders’ equity, maintain debt to equity ratio, maintain ratio of debt coverage and trading debt with security guarantee not exceeding a limited amount, etc.

20. Debentures, net Consolidated

Local debentures Less Deferred financing service fee

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

8,600,000

10,000,000

8,600,000

10,000,000

(15,140)

(19,453)

(15,140)

(19,453)

8,584,860

9,980,547

8,584,860

9,980,547

Less Current portion of debentures

(1,300,000)

(1,400,000)

(1,300,000)

(1,400,000)

Debentures, net

7,284,860

8,580,547

7,284,860

8,580,547

The weighted average effective interest rate of debentures of the Group after recognised effect from interest rate swap contracts is 5.23% per annum (2007: 5.43% per annum).


2008 Annual Report

152

The interest rate on the debentures of the Group are as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

• at fixed rates

7,600,000

8,750,000

7,600,000

8,750,000

• at floating rates (MLR plus applicable fixed margin)

1,000,000

1,250,000

1,000,000

1,250,000

Total debentures

8,600,000

10,000,000

8,600,000

10,000,000

Movement in debentures for the years ended 31 December are as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Opening net balance

9,980,547

11,573,946

9,980,547

11,573,946

Repayment of debentures

(1,400,000)

(1,600,000)

(1,400,000)

(1,600,000)

Amortisation of deferred financing service fee Closing net balance

4,313

6,601

4,313

6,601

8,584,860

9,980,547

8,584,860

9,980,547

Maturity of debentures are as follows: Consolidated

Within 1 year

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

1,300,000

1,400,000

1,300,000

1,400,000

Between 1 year and 5 years

4,800,000

6,100,000

4,800,000

6,100,000

Over 5 years

2,500,000

2,500,000

2,500,000

2,500,000

Total debentures

8,600,000

10,000,000

8,600,000

10,000,000

Debentures are unsecured liabilities. However, the Company is required to comply with certain procedure and conditions; for example, maintain net value of shareholders’ equity, maintain debt to equity ratio, maintain ratio of debt coverage and trading debt with security guarantee not exceeding a limited amount, etc.


153

Banpu Public Company Limited

21. Provision for employee retirement benefits Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Opening balance

268,155

333,967

14,134

79,174

Expenses

137,135

89,101

78,090

4,812

Payment during the year

(52,936)

(142,810)

(1,809)

(69,852)

9,872

(12,103)

-

-

90,415

14,134

Unrealised (gain) loss from exchange rate Closing balance

362,226

268,155

Principal actuarial assumptions are as follows:

Discount rate

5.30% - 12.25%

Salary increases

4% - 10%

Withdrawal rate

1% - 8%

Normal retirement age

55 - 60 years

22. Changes in fair value reserves - available-for-sale securities and translation adjustment of overseas subsidiaries Movements in fair value reserves-available-for-sale security for the years ended 31 December are as follows: Consolidated

Opening balance Changes in fair value (Note 11) Closing balance

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

6,909,652

6,491,683

1,109,364

983,029

(896,618) 6,013,034

417,969 6,909,652

(500,398)

126,335

608,966

1,109,364

Movements in translation adjustment of subsidiaries for the years ended 31 December are as follows: Consolidated

Opening balance Translation adjustment arising in the year

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

(1,742,428)

(1,315,039)

-

-

45,073

(432,176)

-

-

Reclassification from divestment of subsidiary

45,675

4,787

-

-

Reclassification from acquisition of subsidiary

(32,308)

-

-

-

(1,683,988)

(1,742,428)

-

-

Closing balance


2008 Annual Report

154

23. Share capital Issued and paid-up share capital Number Ordinary shares of shares THB Thousand As at 31 December 2006

271,747,855

Issued shares As at 31 December 2007

Total THB Thousand

5,058,329

7,775,808

-

-

-

-

271,747,855

2,717,479

5,058,329

7,775,808

Issued shares As at 31 December 2008

2,717,479

Premium THB Thousand

-

-

-

-

271,747,855

2,717,479

5,058,329

7,775,808

As at 31 December 2008, there are 271,747,855 ordinary shares (2007: 271,747,855 shares) at par value of THB 10 per share (2007: THB 10 per share). All issued shares are fully paid-up.

24. Expense by nature Consolidated

Staff costs

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

2,057,525

1,915,736

592,269

397,857

Depreciation on property, plant and equipment

1,359,545

1,455,859

75,912

108,189

Amortisation of deferred over burden expenses

13,257,044

9,201,964

42,098

200,378

690,133

635,478

43,106

38,051

-

329,355

-

311,389

652,900

564,343

-

6,710

Operating leases Allowance for impairment of assets Demurrage expense

25. Income tax The Group does not recognise corporate income tax payable or receivable in future periods in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Corporate income tax for the year ended 31 December 2008 are calculated based on the net profit (tax base) which excluded the share of net profit of associates and interests in joint ventures. The rates are as follows: Thailand

25% - 30%

Indonesia

28% - 30%

China

7.5% - 15%

For the year ended 31 December 2008, the Group recognised the income tax expenses of THB 809.80 million which relates to unrecognised gain from changes in fair value of coal and oil swap contracts.


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155

The Company is entitled for reduction in corporate income tax according to the Royal Decree No. 475, B.E. 2551 from applying tax rate at 30% to 25% for the amount of net taxable profit which is not over THB 300 million on the accounting period begin in or after 1 January 2008 for three consecutive accounting periods. During the year 2008, House of Representative of Indonesia approved the amendments of the income tax low. It stipulates that the income tax for corporations will be set at a rate of 28% commencing 1 January 2009 and further reduced to 25% from 1 January 2010.

26. Earnings per share Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Consolidated

Net profit attributable to ordinary (THB Thousand) Weighted average ordinary shares (Shares)

Company

2008

2007

2008

2007

9,227,666

6,654,423

7,393,768

3,540,276

271,747,855

271,747,855

271,747,855

271,747,855

33.96

24.49

27.21

13.03

Earnings per share (THB)

There are no potential dilutive shares in issue for the years ended 31 December 2008 and 2007.

27. Segments information For the year ended 31 December 2008 Power

Coal and Minerals

Net sales Profit (loss) from sales

Elimination entries THB Thousand

China THB Thousand

Thailand THB Thousand

China THB Thousand

4,771,722 44,237,584

-

-

4,459,729

(2,939,200) 50,529,835

(76,795) 11,291,026

(226,508)

-

130,290

1,006,139 12,124,152

Thailand THB Thousand

Indonesia THB Thousand

Total THB Thousand

Unallocated expense

(1,399,862)

Unallocated income

1,358,108

Net loss from derivatives exchange rate and disposal of investment

(1,331,144)

Interest expenses and other financial expenses Share of profit of associates and interests in joint venture

(1,368,311) -

-

1,780,575

3,165,238

-

-

4,945,813

Net profit before tax

14,328,756

Corporate income tax

(3,767,677)

Net profit for the year

10,561,079

Total segmented assets

4,472,203 34,314,092 19,544,838 10,155,277

8,193,609

(107,048) 76,572,971

Total unallocated assets

12,788,830

Total assets

89,361,801


156

2008 Annual Report

For the year ended 31 December 2007 Power

Coal and Minerals Thailand THB Thousand

Net sales Profit from sales

Indonesia THB Thousand

4,403,877 26,862,558 70,053

Thailand THB Thousand

China THB Thousand

-

-

3,865,116

-

-

698,960

China THB Thousand

3,504,477

Elimination entries THB Thousand

Total THB Thousand

(2,689,762) 32,441,789 130,654

4,404,144

Unallocated expense

(1,287,117)

Unallocated income

774,047

Net gain from derivatives, exchange rate and disposal of investment

1,326,156

Interest expenses and other financial expenses Share of profit of associates and interests in joint venture

(1,306,775) -

-

427,527

4,076,845

-

-

4,504,372

Net profit before tax

8,414,827

Corporate income tax

(1,491,668)

Net profit for the year

6,923,159

Total segmented assets

5,181,612 20,361,723

4,007,577

7,457,889

8,207,998

(78,847) 45,137,952

Total unallocated assets

19,912,851

Total assets

65,050,803

28. Dividends At the Annual General shareholders’ meeting on 4 April 2008, the shareholders approved a payment of remaining interim dividend of 2007 of THB 4.75 per share and at the Board of Directors’ meeting on 1 October 2008, the board approved a payment of interim dividend of 2008 of THB 7 per share of 271,747,855 shares, totaling of THB 3,158.61 million which was paid on 24 April 2008 and 31 October 2008, respectively. At the Annual General shareholders’ meeting on 28 March 2007, the shareholders approved a payment of remaining interim dividend of 2006 of THB 4.25 per share and at the Board of Directors’ meeting on 29 August 2007, the board approved a payment of interim dividend of 2007 of THB 3.75 per share of 271,747,855 shares, totaling of THB 2,153.87 million which was paid on 18 April 2007 and 28 September 2007, respectively.

29. Directors’ remuneration At the Annual General shareholders’ meeting on 4 April 2008, the shareholders approved the payment of director’s remuneration of 2007 amounting to THB 33.38 million (2007: THB 29.36 million). The director’s remuneration of overseas subsidiaries of USD 4.88 million or equivalent to THB 162.81 million (2007: USD 3.74 million or equivalent to THB 124.78 million) has been included in administrative expenses. This amount includes compensation of the directors in the capacity of management role.


157

Banpu Public Company Limited

30. Legal reserve As at 31 December, legal reserve consist of: Consolidated 2008 Beginning balance

Appropriation

Ending balance

THB Thousand

THB Thousand

THB Thousand

354,051

-

354,051

390,325

311,024

701,349

744,376

311,024

1,055,400

Legal reserve • Company • Subsidiaries

Consolidated 2007 Beginning balance

Appropriation

Ending balance

THB Thousand

THB Thousand

THB Thousand

354,051

-

354,051

60,463

329,862

390,325

414,514

329,862

744,376

Legal reserve • Company • Subsidiaries

Under the Public Company Act, the Company is required to set aside as a statutory reserve of at least 5% of its net profit after accumulated deficit brought forward (if any) until the reserve reaches not less than 10% of the registered capital. The legal reserve is non-distributable. At present, the Company set aside legal reserve at 10% of registered capital.

31. Related party transactions Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the company, including holding companies, subsidiaries and fellow subsidiaries are related parties of the company. Associates and individuals owning, directly or indirectly, an interest in the voting power of the company that gives them significant influence over the enterprise, key management personnel, including directors and officers of the company and close members of the family of these individuals and companies associated with these individuals also constitute related parties. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form.


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The following significant transactions were carried out with related parties: Transactions during the years ended 31 December are as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Sales of goods and services to subsidiaries

-

-

1,090

111,186

Purchases of goods and cost of services from subsidiaries

-

-

859,985

677,817

Dividends received from subsidiaries

-

-

7,143,853

4,352,136

-

-

1,053,346

145,447

• Joint ventures

28,443

28,437

-

-

Total

28,443

28,437

1,053,346

145,447

-

-

-

4,962

Management fee • Subsidiaries

Sales of fixed assets to subsidiaries Interest income from subsidiaries

-

-

420,376

815,788

Interest expenses to subsidiaries

-

-

29,956

54,833

Commencing on 1 January 2008, the Company has entered into the service agreement with an overseas subsidiary to provide certain management and advisory services, which have been divided into general services and marketing and logistics advisory services. Under such agreement, the subsidiary pay the Company a fixed fee of USD 2 million per quarter for general services and a variable fee of 1.5% of such subsidiary’s gross coal sales for marketing and logistics advisory services. The pricing policies for transactions between subsidiaries, joint ventures, associates and related parties are set out below: • The prices of sales and services charged between the Company and subsidiaries approximate to those charged to third parties. • Management income represents fee charged to subsidiaries, joint ventures and associates for rendering the management services in the normal course of business. The fees are based on the service provided and agreed rate in accordance with the condition in agreement. • For loans, borrowings, interest income and interest expenses, the Group charges interest by considering to average cost of borrowings plus 0.5% per annum for local subsidiaries and plus 2% per annum for overseas subsidiaries.


159

Banpu Public Company Limited

Amounts due from related parties as at 31 December consist of: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

-

-

-

16,417

Trade accounts receivable - subsidiaries (Note 6) Interest receivable • Subsidiaries • Joint ventures

-

-

506,706

461,116

316,561

6,248

-

1

316,561

6,248

506,706

461,117

-

-

411,792

165,751

Other receivable • Subsidiaries • Joint ventures Total amounts due from related parties

5,106

2,756

-

-

5,106

2,756

411,792

165,751

321,667

9,004

918,498

626,868

Dividend receivable from related parties • Subsidiaries

-

-

6,940,715

3,124,201

• Joint ventures

3,889,866

2,074,500

-

-

Total dividend receivable from related parties

3,889,866

2,074,500

6,940,715

3,124,201

Advances and long-term loans to related parties as at 31 December consist of: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Advances to related parties • Subsidiaries • Joint ventures • Associates

-

-

341,590

109,995

21

21

21

21

-

101

-

101

Total advances to related parties

21

122

341,611

110,117

Short-term loans to subsidiaries

640,414

-

-

-

Long-term loans to subsidiaries

-

-

9,504,220

5,331,183

Short-term loans to joint venture represent US Dollar loan amounting to USD 18.40 million, bearing interest at rates of 7.47% per annum. Long-term loans to subsidiaries represent US Dollar loan amounting to USD 186.47 million and Thai Baht loan amounting to THB 3,014.05 million (2007: USD 59.88 million and THB 3,316.37 million) bearing interest at rates of 4.71% - 6.40% per annum (2007: 6.00% - 7.50% per annum). The repayment term is at call. However, the Company will not request for repayment until these subsidiaries have ability to pay.


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160

Movement of long-term loans to subsidiaries for the years ended 31 December are as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Opening balance

-

-

5,331,183

13,730,051

Increase for the year

-

-

5,963,521

3,856,033

Reclassification

-

-

Repayment for the year

-

-

(2,744,636)

(11,718,333)

Unrealised gain (loss) from exchange rate

-

-

244,260

(536,568)

Ending balance

-

-

9,504,220

709,892

-

5,331,183

Advances and loans from subsidiaries as at 31 December consist of: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Advances from subsidiaries

-

-

8,234

10,873

Short-term loan from a subsidiary

-

-

105,247

862,373

Long-term loans from subsidiaries

-

-

228,435

1,218,019

Short-term loan from a subsidiary represents US Dollar loan amounting to USD 3 million (2007: USD 25.45 million) bearing interest at the rate of 2.5% per annum (2007: 2.5% per annum). The repayment term is in 2009. Long-term loans from subsidiaries represent Baht loan amounting to THB 228 million (2007: USD 8 million and THB 938 million) bearing interest at the rates of 1.49% per annum (2007: 1.49% - 2.5% per annum). The repayment term is at call. However, the subsidiaries will not request for repayment within 12 months. Movement of long-term loans from subsidiaries for the years ended 31 December are as follows: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

Opening balance

-

-

1,218,019

1,698,430

Increase for the year

-

-

-

714,488

Repayment for the year

-

-

(969,816)

(1,194,502)

Unrealised gain on exchange rate

-

-

(19,768)

(397)

Closing balance

-

-

228,435

1,218,019


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161

32. Commitment, significant contracts and contingent liabilities As at 31 December, the Group has obligations with banks as follows: Consolidated

Company

2008

2007

2008

2007

Million

Million

Million

Million

(Original currency)

(Original currency)

(Original currency)

(Original currency)

11.01

14.16

-

-

Letters of Guarantee • US Dollar • Thai Baht • Indonesian Rupiah

102.91

105.58

50.30

53.86

114,788

3.77

-

-

10.60

5.90

-

-

Letters of Credit • US Dollar

Significant contracts a) A subsidiary in Thailand has entered into contract regarding the service of coal ash removal from the area under the silo in the area of the power plant of Glow SPP3 Co., Ltd. for which a subsidiary is responsible for any damage possibly incurred from the service. Payment is determined in accordance with the removed quantity. The contract duration lasts for 15 years commencing from date of operation, 17 March 1999. b) A subsidiary in Thailand has entered into contract for mining and disposal of lignite coal at Ban-sa Mine, Amphoe Chiang Muan, Phayao Province, with the Energy Development and Promotion Department for which a subsidiary is granted subrogation right for 22 years commencing on 10 January 1996. Moreover, such subsidiary has to comply with various requirements specified in the contract. c) Mining and transportation services contracts of Indonesian subsidiaries are as follows: Area 1. West Block of PT. Indominco Mandiri 2. East Block of PT. Indominco Mandiri

Expired date 22 October 2010 or at the end of open pit production of West Block. Three years as of commencement date and may be extended for additional minimum two years

3. Muaru Lawa mine site of PT. Trubaindo Coal Mining 4. Muaru Lawa mine site of PT. Trubaindo Coal Mining

30 June 2009 29 April 2009 or after the contractor has mined coal of 11.98 million tonnes, which ever is earlier.

5. Muaru Lawa mine site of PT. Trubaindo Coal Mining

30 June 2009

6. North Block and Dayak Besar site of PT. Trubaindo Coal Mining

Three years and five months from 1 August 2007

7. Muaru Lawa mine site of PT. Trubaindo Coal Mining

31 December 2010

8. Mine site of Jorong Bariatama Greston

31 December 2011

9. Mine site of Jorong Barutama Greston

30 June 2009

10. Mine site of Jorong Barutama Greston

30 June 2009

11. Mine site of Jorong Barutama Greston

30 June 2010

12. Mine site of Jorong Barutama Greston

May 2011

13. Mine site of Jorong Barutama Greston

31 December 2009


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162

d) Four Indonesian subsidiaries have entered into a fuel purchase agreement with another company in Indonesia with total contact quantity of 180 million litre (price on delivery). As at 31 December 2008, the remaining contract quantity is 30 million litre. Such subsidiaries are required to provide a guarantee of 105% of one-month’s fuel requirement, at a minimum. e) Indonesian subsidiaries have entered into contract for production sharing with the Government of Indonesia to share 13.50% of coal produced to the Government. f)

An Indonesian subsidiary, holds the mining rights, has an obligation to pay an exploitation fee ranging from 5% to 7% of sales, net of

selling expenses. g) Under the Coal agreement, an Indonesian subsidiary is required to spend minimum of USD 10 per hectare on exploration activities. If, after 36 months from the date of commencement of the exploration period, an subsidiary has not met its obligations with respect to minimum expenditures, an subsidiary maybe required to deliver a guarantee of an amount not exceeding the total outstanding expenditure obligations. The management believes that it has met the obligations as required by Coal agreement. h) Under Coal agreement, an Indonesian overseas subsidiry shall pay the Government deadrent fee during the terms of the agreement. Deadrent is calculated by reference to the number of hectares in the Coal agreement, in accordance with the rates stipulated in the Coal agreement. Land and building tax payable for the pre-production period is equal to the amount of deadrent. During the production period, an overseas subsidiary is required to pay land and building tax equal to the deadrent plus 0.15% of gross revenue from the mining operations. i)

Four Indonesian subsidiaries who have the activities in production and protected forest area but not related to forestry activity will

have obligation to pay a forestry fee ranging from Rupiah 1,200,000 to Rupiah 3,000,000 per hectare. j)

Three Indonesian subsidiaries have agency agreements with third party agents to market their customer. The agents will receive

commissions based on a percentage of sals to those customers. k) Chinese subsidiaries have entered into the Power Purchase Agreement (“PPA”) and Steam Purchase Agreement (“SPA”) with its local bureau at the agreed quantity and price according to such agreements. The agreement term is annually. l)

The Lignite Mining Project and the Lignite Fired Power Project (Hongsa Lignite Project) On 18 December 2006, Banpu Power Ltd. (a subsidiary) and the Government of Lao PDR (“GOL”) entered into Head of Agreement

(“HOA”) in order to develop and construct a mine-mouth power plant in Hongsa District, Xayabury Province, Lao PDR. The agreement shall be effective for a period of 24 months from the agreement date. The power plant project shall comprise a mining operation of approximately 13 million tonnes per year and 1800 MW coal-fired power plant to be supplied to Electricity Authority of Thailand (“EGAT”) and Electricite du Laos. Under the agreement, the subsidiary has to obtain and maintain a bank guarantee in the amount of USD 500,000 from the agreement date through the date of signing of the Concession Agreements. The guarantee has been provided to GOL as a guarantee against the subsidiary’s unreasonable termination of the project according to the terms and conditions hereof during the development period. According to the fluctuation of economy, which is impact to the costs of Hongsa Lignite-Fired Power Plant Project, a subsidiary has submitted, a letter to EGAT concerning the need to make a corresponding adjustment to the tariff. This has resulting in the postponement of the process in obtaining the Concession Agreements from GOL. However, GOL has approved the extension of HOA period for another one year. On 11 December 2007, Banpu Power Ltd. (a subsidiary) entered into the Joint Development Agreement (“JDA”) and Supplementary Agreement with Ratchaburi Electricity Generating Holding Public Company Limited (“RATCH”) with the objective to study and develop the Lignite Mining Project and the Lignite-Fired Power Project which located in Hongsa District, Xayabury Province, Lao People’s Democratic Republic.


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163

According to the JDA, the both parties and Lao Holding State Enterprise (“LHSE”) agree to establish two new companies, one is to have a holding in the Lignite Mining concession and another is an operator of Lignite-Fired Power plant. Three joint developers will have interests in the Lignite Mining Project for 37.5%, 37.54% and 25%, respectively, and in the Lignite-Fired Power Project for 40%, 40% and 20%, respectively. In addition, if the new comer, Chinese investor, agrees to join these projects, the interests of the Group and RATCH will be reduced to 28.125% and 30.00% for the interests in Lignite Mining Project and Lignite-Fired Power Plant, respectively. On 10 January 2008, JDA has been approved by GOL. According to JDA, RATCH agrees to pay a Joint Development Right Fee on the participation of the Honga project at a maximum amount not exceeding USD 16 million and a minimum amount of no less than USD 10 million depending on the Levelised Tariff as agreed with EGAT. The Tariff Memorandum of Understanding has been agreed with EGAT and RATCH has to pay the Joint Development Right Fee to a subsidiary of USD 10 million. On 29 April 2008, a subsidiary entered into the agreement with RATCH for entering into the agreement in favour for RATCH to access such project’s information with the fee of USD 6 million. A subsidiary has received an initial payment for USD 1 million. Next instalment payment is after the signing of Power Purchase Agreement between the project company and EGAT with the last payment occurring upon the Financial Close. In August 2008, such subsidiary and RATCH submitted letters to EGAT to terminate the Tariff Memorandum of Understanding dated 27 December 2007 so that a subsidairy and RATCH could renegotiate the tariff to make it in line with the current project construction costs. On 29 December 2008, a subsidiary received formal letter from EGAT agreed with the termination of the Tariff Memorandum of Understanding dated 27 December 2007. The renegotiation process of the new tariff for the the project is underway. On 1 December 2008 and 31 December 2008, a subsidiary and RATCH entered into the First and Second Amendments to the JDA dated 11 December 2007. Litigation a) A subsidiary has provided land, property, factory, machineries and diverse equipment under lease to another company. The lessee company has been overdue in respect of its payments for a long period. Such subsidiary has, therefore, ceased to recognise rental revenue from May 1998 and has raised allowance for doubtful lease receivables in the whole amount of THB 6.63 million. The subsidiary has cancelled the contract and exercised its contractual right to occupy the leased asset and prosecuted a claim for overdue lease payment plus fines in an amount of THB 70.76 million. Apart from this, the lessee has also breached the granite coal contract with another subsidiary in amount of THB 24.78 million. Because they are the litigants in the lawsuit, the lessee company has prosecuted the Company and its subsidiary which occupied the leased asset for breach of the lease contract and infringement, claiming an indemnity in the amount of THB 204 million. The cases are currently under the judgment of the court. The final judgment may not be known for the time being. The management is of the view that the Company has no responsibility for the damage as claimed by the plaintiff. As a result, the Company and its subsidiaries have not yet provided for any losses from such litigation. b) An Indonesian subsidiary has been sued and asked for the compensation of land amounting to Indonesian Rupiah 196,900 million from 4 plaintiffs. These claims related to a plot of land in an overseas subsidiary area which the plaintiffs claim the Government had promised to provide to them. Two cases were decided by the court in favour of a subsidiary. Another two, the court rejected their claims. However, one of them has appealed against the court decision. As at 31 December 2008, the case is currently under the judgment of the court. The final judgment may not be known for the time being. As at 5 February 2009, the appeal court decided the appealed claim in favour of such subsidiary.


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c) An Indonesian subsidiary has been sued and asked for the compensation of land amounting to Indonesian Rupiah 1,070 million. On 24 April 2007, the court rejected the claims. However, the plaintiffs have appealed against the court decision. As at 31 December 2008, the cases are currently under the judgment of the court. The final judgment may not be known for the time being. The management is of the view that a subsidiary has no responsibility for the damage as claimed by the plaintiffs. As a result, such subsidiary has not yet provided for any losses from such litigation. d) During year 2007, a person and related group of companies, the plaintiff, who were a previously joint partner with the Company and subsidiaries in developing the coal mining and power plant project in Laos (“Hongsa project”), have filed a Civil Court case against the Company and the two subsidiaries which transgressed them in the development of the Hongsa project. They have a claim against the Company and subsidiaries for damages totalling THB 63,500 million plus interest. The Company has defended the case and lodged a counterclaim against the plaintiff in the amount of THB 4,488 million plus interest. The management and the Company’s legal counsellor are of the view that the Company have no responsibility for the damages as claimed by the plaintiff. As a result, the Group has not provided for any losses from such litigation. e) An overseas subsidiary has been sued by the plaintiff. The plaintiff is the former director of the company (the Buyer) who bought the investment from the subsidiary. The plaintiff alleged that the purchase was not lawful then he requested the court to invalidate this transaction and claimed such subsidiary and the Buyer to jointly pay damages amounting to USD 302.55 million. The subsidiary has defended the case which is currently under the judicial process. The management is of the view that the subsidiary has no responsibility for the damages as claimed by the plaintiff. As a result, the subsidary has not provided for any losses from such litigation. Other As at 31 December 2008, three Indonesian subsidiaries are being audited by the tax office. However, they have not yet received the audit results. The management believes that the results will not have a significant impact on the financial statements. One of an Indonesian subsidiary’s contractor commenced arbitration in Singapore against a subsidiary for a claim worth a total of USD 1.42 million. As of 31 December 2008, the arbitration has not even progressed beyond the notice. However, the management believes that the results will not have a significant impact on the financial statements. Capital commitments As at 31 December 2008, the Group had capital commitments in relation to mine development of a group of overseas subsidiaries which includes Bontang Coal Limited and Bontang Coal-Fired Power Station but not recognised in the consolidated financial statements in the amount of USD 28.62 million (2007: USD 66.66 million). Coal Supply Agreement commitments As at 31 December 2008, the Group had coal supply commitments in accordance with Coal Supply Agreement in the amount of 77.6 million tonnes at the market price (2007: 72.05 million tonnes), such coals will be delivered within 2019. Under the Coal Supply Agreement of an overseas subsidiary, such subsidiary must provide 775,000 tonnes of coal per year until 31 December 2019 to the customer. It is estimated that the coal reserves as at 31 December 2008 may not be sufficient to fulfill this obligation and a subsidiary is currently attempting to amend the agreement. However, the management is confident that such subsidiary will be able to fulflll such obligation because a subsidiary has another reserve in near area which is in the plan to be mined.


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33. Financial instruments The principal financial risks faced by the Group are interest rate risk, foreign exchange rate risk, coal price fluctuations risk, oil price fluctuations and credit risk. The Group manages these risks as follows: a) Interest rate risk The Group manages its exposure to interest rate risk through a variety of measures, including the use of both fixed and variable instruments with different activities and entering into interest rate swap contract on a specific basis where management consider it appropriate to do so. The Group has established a Financial Management Committee which holds monthly meetings for consideration and discussion of how to protect or reduce financial risks which might be incurred. Interest rate swap contract Interest rate swap contract is entered into to manage exposure to fluctuations in interest rate. As at 31 December 2008, the Group has no remaining interest rate swap contract. As at 31 December 2007, the interest rate for outstanding debentures of THB 1,250 million has been converted from the rate of average MLR at 2 days before maturity date of 4 commercial banks minus 0.375% per annum to a multiple of the 1.25 fixed bank deposit (THB FIX) for 6 months plus 2.58% per annum. This contract was expired on 4 April 2008. Net fair value The net fair value of interest rate swap contract at the balance sheet date was: Consolidated

(Unfavourable) interest rate swap contract

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

-

(1,772)

-

(1,772)

Fair values of interest rate swap contract has been calculated using the information from the financial institutions of the Group as if the contract was terminated at the balance sheet date. b) Foreign exchange risk In order to reduce exposure to fluctuations in currency exchange rates, the Group uses natural hedges of its business operations, both in Thailand and overseas, through emphasis on a balance of foreign currencies in the Group and sometime through the use of financial instruments. The Group has both foreign currency denominated assets and liabilities and uses natural hedges between these assets and liabilities to manage certain its exposures. The Group will also enter into forward foreign exchange contracts in specific circumstances. The objectives in using financial instruments are to reduce uncertainty over future cash flows arising from movements in exchange rate. The following strategies are employed to achieve these objectives. Forward foreign exchange contracts are entered into to manage exposure to fluctuations in foreign currency exchange rate on general transactions.


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Forward foreign exchange contracts As at 31 December, the settlement dates on open forward foreign exchange contracts were within 1 year. The local currency amounts to be received and contractual exchange rates of the outstanding contracts were: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

1,728,000

-

1,728,000

-

693,950

-

-

-

2,421,950

-

1,728,000

-

-

1,407,117

-

1,407,117

-

1,407,117

-

1,407,117

Selling 2008: USD 50.00 million at the average rate of THB 34.56 : USD 1 and USD 20 million at the average rate of THB 34.70 : USD 1 (2007: Nil) Buying 2008: Nil (2007: USD 41.48 million at the average rate of THB 33.92 : USD 1)

Net fair values The net fair values of forward foreign exchange contracts at the balance sheet date were: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

(Unfavourable) forward foreign exchange contracts - Selling

(29,694)

-

(23,166)

-

(Unfavourable) forward foreign exchange contracts - Buying

-

(9,891)

-

(9,891)

Fair values of forward foreign exchange contracts have been calculated using the information from the financial institutions of the Group as if the contracts were terminated at the balance sheet date. c) Coal price fluctuations risk The Group manages its exposure to coal price fluctuations risk from its business operations, both in Thailand and overseas, and to achieve a balance of overall coal price in the Group by entering into both short-term and long-term sales agreements and sometimes through the use of financial instruments. The objective in using financial instruments is to reduce uncertainty over future cash flows arising from movements in coal price. The following strategy is employed to achieve these objectives. Coal swap contracts Coal swap contracts are entered into to manage exposure to fluctuations in coal price on general transactions.


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167

As at 31 December 2008, the Group has entered coal swap contracts with no physical delivery of selling side amounting to 4,355,000 tonnes at the average rate of USD 98.73 per tonne (2007: 1,512,000 tonnes at the average rate of USD 52.35 per tonne) and buying side amounting to 420,000 tonnes at the average rate of USD 106.14 per tonne (2007: 1,512,000 tonnes at the average rate of USD 65.92 per tonne). Such contracts are due within 2 years. Differences between coal swap contracts price and market price specified by API 4 Index and NEWC. Net fair values The net fair values of average coal swap contracts at the balance sheet date were: Consolidated

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

(Unfavourable) favourable coal swap contracts - Selling

2,877,319

(1,940,162)

-

(1,940,162)

(Unfavourable) favourable coal swap contracts - Buying

(379,215)

1,244,603

-

1,244,603

Fair values of coal swap contracts have been calculated using the information from the financial institutions of the Group as if the contracts were terminated at the balance sheet date. d) Oil price fluctuations risk The Group manages its exposure to oil price fluctuations risk from its business operations in overseas and to achieve a balance of overall oil price in the Group by sometimes through the use of financial instruments. The objective in using financial instruments is to reduce uncertainty over future cash flows arising from movements in oil price. The following strategy is employed to achieve these objectives. Oil hedging contracts Oil hedging contracts are entered into to manage exposure to fluctuations in oil price on general transactions. As at 31 December 2008, the Group has entered oil hedging contracts of buying side amounting 240,000 barrels at the average rate of USD 85.79 per barrel. Such contract is due within 1 year. Differences between oil hedging contract price and market price specified by Gasoil 0.5%S. As at 31 December 2007, the Group has no remaining oil hedging contract. Net fair values The net fair value of oil hedging contracts at the balance sheet date was: Consolidated

(Unfavourable) oil hedging contract - Selling

Company

2008

2007

2008

2007

THB Thousand

THB Thousand

THB Thousand

THB Thousand

(191,574)

-

-

-

Fair value of oil hedging contract has been calculated using the information from the financial institutions of the Group as if the contract was terminated at the balance sheet date.


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e) Credit risk The Group has no significant concentrations of credit risks. Derivative counter parties and cash transactions are limited to high credit quality financial institutions. f)

Fair values The carrying amounts of the following financial assets and financial liabilities approximate to their fair values: cash and cash at banks,

investments, trade receivables and payables, other receivables and payables, short-term loans to and from related parties and short-term loans due to the short maturity period. The carrying amounts of long-term loans to and from related parties approximate fair value due to floating interest rate. The Group has the fair values information of long-term loans and debentures as follows:

2008

Long-term loans Debentures

2007

Contract amount

Fair values

Contract amount

Fair values

THB Million

THB Million

THB Million

THB Million

15,724

15,724

6,262

6,262

8,600

8,259

10,000

10,429

The fair values of derivative are disclosed above in (b) and (c). g) Other risks - Indonesian economic conditions Indonesia has been experiencing a prolonged period of economic difficulty which has been compounded by a downturn in the global economy and its domestic political situation. Indonesia’s return to economic stability is dependent to a large extent on the effectiveness of measures taken by the government and decisions of international lending organizations. However, the Group has entered into insurance policies with overseas insurance companies to protect its investment risk which may occur through law and order or administrative actions of Indonesian government.

34. Subsequent events On 5 February 2009, Banpu Power Ltd. (a subsidiary) entered into Shareholders’ Agreements among RATCH and Lao Holding State Enterprise to set up two companies 1) Hongsa Power Company Limited with registered share capital of USD 100,000 for electricity generation concession. Three joint developers will have interests in this project company for 40%, 40% and 20%, respectively, 2) Phu Fai Mining Company Limited with registered share capital of USD 50,000 for lignite mining concession. Three joint developers will have interests in this project company for 37.5%, 37.5% and 25%, respectively. On 12 January 2009, the President of Indonesia gave an assent of a new Law on Mineral and Coal Mining which was passed by the Indonesian Parliament on 16 December 2008. According to the new Law, the Coal Co-operation Agreement (“CCA”), which the group of Indonesian subsidiaries is currently operating, will remain effective until its expiration with certain adjustment to its terms, but new CCA will be no longer available to new investors. However, the transition provisions are unclear in respect of the adjustments, and will require clarification in yet-to-be-issued government regulations by the Indonesian government. The Group is currently analysing the impact of this situation on its operations, and believes that these will be no impact in the near term. The Group is closely monitoring the progress of the implementing regulations.


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Banpu Public Company Limited

26th-28th Floor, Thanapoom Tower, 1550 New Petchburi Road, Makkasan, Ratchathewi, Bangkok 10400, Thailand Tel. +66 (0) 2694 6600 Fax +66 (0) 2207 0695-8 www.banpu.com