) Opinion of IFA on the Connected Transections

July 21, 2008 July 20, 2034 (PSA expiry) 300,000 Tap water tariff used in the calculation of the purchase and sale volume in each month shall be determined in the PSA, counting from the first date of actual water purchase and sale, PWA will pay for water supply from the Company monthly. The tariff rate used as the calculation base is water tariff in 1999 at Bt. 13.900000 per cu.m. (currently Baht 22.751945 per cu.m.) exclusive of VAT, adjustable every January 1 of each year. The calculation formula is as below: Pn+1 = Pn x {1+(CPIn-CPIn-1)} x K _________________________________ CPIn-1 N Year before the year of adjustment of water tariff Pn+1 Water tariff as of January 1 in year n+1 with unit in cu.m., and the 7th decimal discarded Pn Water tariff as of January 1 in year n and with value from the beginning until December 31, 1999 being Bt. 13.900000 per cu.m. CPIn-1 General consumer price index (CPI) of central region for December as of year n-1 and with beginning value in December 1998 being 128.1 CPIn General consumer price index (CPI) of central region for December as of year n (*) K Fixed value in adjustment of water tariff (K) which is: 1.030000 for year 1 to year 7 (2000-2006) 1.02500 for year 8 to year 10 (2007-2009) 1.01000 for year 11 to year 14 (2010-2013) 1.00000 for year 15 (2014) onward (*) In case in December of any year (n), the CPI has not yet been announced by the authority for use in water tariff calculation (January 1 of year n+1), the water tariff rate of the month in the following year will be based on the rate of the foregoing year until the CPI has officially been announced and then it would be used for the rate calculation. However, if adjustment can be made as seen proper, the water tariff in each month will be adjusted to the rate justifiable for that month, the shortage of which will be covered by the buyer counting from January 1 of year n+1 until the date of rate adjustment. Value of adjustment to compensate for the water tariff will be equal to the volume of water obtained in year n+1 at the tariff rate equal to Pn multiplied by the difference between Pn and Pn+1 Besides the PSA, the Company obtained a concession from Ministry of Natural Resource and Environment on March 11, 2005 for a concession term of 25 years to produce tap water to serve the above five districts in two provinces. The Company operates its tap water business with engagement of WaterFlow Co., Ltd.("WaterFlow"), its wholly owned subsidiary with a registered and paid capital of Bt. 10 million, to carry out the production operations and distribution to PWA. On June 29, 2007, the Company took up 10,698,283 ordinary shares of Pathum Thani Water Co., Ltd. ("PTW") at Bt. 340 per share, representing 89.15% of PTW's total paid capital. On December 18, 2007, the Company additional bought PTW shares for another 8.85% at Bt. 340 per share. Total equity investment in PTW is Bt. 3,998.3 million. With such equity investment by the Company, PTW has become its subsidiary company. The difference between the share acquisition price and the share fair value has been recorded by the Company as the charge on the right to the tap water production and distribution worth Bt. 3,169.1 million. PTW operates the tap water business in the same manner as the Company. On August 31, 1995, PTW entered into an agreement for the operations of tap water production and distribution to PWA for a contract term of 25 years beginning on October 15, 1998 and ending October 14, 2023 on a Build-Own-Operate-Transfer ("BOOT") basis. That is, PTW carries out construction of the tap water production and distribution systems, and transfers the distribution system to PWA as of the date of operational commencement. The production system will become under the ownership of PWA upon the end of the contract term of 25 years. PWA purchases tap water from PTW for distribution to the public in the service areas of the districts of Pathum Thani - Rangsit in Pathum Thani province. The maximum production capacity as of February 27, 2008 is 308,000 cu.m./day (comprising installed production capacity of 288,000 cu.m./day and additional production capacity of 20,000 cu.m./day), which is the second largest among private tap water business operators in Thailand following the Company. The MOQ is determined by PWA on a yearly basis, each being at least not lower than that in the previous year. During 2007-2008, PTW's MOQ is 260,000 cu.m./day. Water tariff payable by PWA is adjustable annually according to the consumer price index. On September 15, 2006, PTW entered into a PSA with PWA for additional construction of water production system to raise the water production and distribution volume for PWA by 70,000 cu.m./day in response to the higher demand for tap water in the service areas. Besides the agreement for the operations of tap water production and distribution to PWA, PTW obtained a concession from Ministry of Interior on January 13, 2000 for a concession term of 25 years to produce tap water to serve the districts of Pathum Thani - Rangsit in Pathum Thani province.. Since Janaury 26, 2007, PTW has operated its tap water business with engagement of BJT Water Co., Ltd. ("BJT"), its wholly owned subsidiary with a registered and paid capital of Bt. 50 million, to carry out the production operations and distribution to PWA. 2.2 Risk factors The key risk factors in the tap water production capacity expansion project and those in overall are as concluded below: 2.2.1 Risks associated with the expansion project Risk of failure to sign the PSA with PWA As at present the Company is still under the negotiation with PWA regarding the PSA for the expansion project, the Company will be exposed to the risk of failure to sign the PSA. Risk of failure to operate as planned after completion of construction under expansion As construction under the expansion project is construction of medium sized infrastructures, which require expertise and some test-run before the operations, it would be possible that in the initial period some systems may not be able to function smoothly as targeted. Risk of lower-than-projected water distribution volume In the initial period of operations, the number of water consumers or the water distribution volume may not come out as projected before the start of operations, which may impact the Company's operating results, revenues and financial status. 2.2.2 Risks associated with legal documents for business operations Risk of termination of Water Purchase and Sale Agreement ("PSA") The PSA no. 189/2543 between the Company and PWA may be construed as breaching the Act on Private Participation in State Undertaking, B.E. 2535 (1992) ("Private Participation Act") as detailed below: The Council of State in 1997 ruled on PWA's contracting of private entities to invest and build the entire water production system and sell it to PWA for the latter's distribution to the public that it was not required to be undertaken under the Private Participation Act provided that, in such production and sale of water to PWA, only the private company, not PWA, was responsible for the profit and loss to be incurred, and PWA had not transferred any of its legal rights to such private company. Assistance or coordination might be provided by PWA in the private company's procurement of raw water for water production, but payment for such raw water supply must be made by the private company itself. In view of this, the case raised was the undertaking by the private company itself and the procurement of raw water for water production was not made under any state license or permission. Concession awarded or entitlement for the private company to use natural resources or state property, and PWA's purchase of water from the private company were undertaken under the commercial contract in a civil and normal business operation manner. Hence PWA did not put forward the said PSA to the Cabinet for consideration and approval according to the proceeding under the Private Participation Act. The Company may not represent whether the Cabinet would order the Council of State to review the legal issue relating to the PSA to see if it was in compliance with the Private Participation Act, and in case of a review, whether the ruling would change or not. Any change of the ruling may impact the validity of the PSA, hence material effect on the Company's business operations, revenues and financial status. In such case, as PWA is the Company's sole customer, the Company would need a new customer to purchase its water supply, and an amendment to the conditions in the concession would be required to conform with the new PSA. Risk of mismatching of the concession and PSA terms The term of the concession awarded to the Company for its water production business covers only 25 years (ending March 10, 2030) while that of the PSA no. 189/2543 between the Company and PWA is 30 years (ending July 20, 2034). The Company may not represent that the concession term would be extended or whether it would be informed of the extension approval result before the expiry date. If the Company fails to get the concession renewal for its water production during the lapse of the mismatched time, it may be in breach of the PSA being unable to produce and sell water to PWA under the PSA. This would pose significant impact on its operations, revenues and financial status. Even if the concession is renewed, the period allowed for its water production may not match the period of its water sale to PWA under the PSA. Meantime, although the PSA allows the Company to request a renewal upon mutual consent of the contract parties,the Company may not represent whether the renewal would be under the conditions unchanged or changed in salient points from those under the expiring PSA. Moreover, provided that the PSA is not renewed and a new water buyer has to be sought, the Company may have to bear increased expenses and investment in machinery and equipment to respond to the new buyer's requirement, hence impact on its operations,revenues and financial status. Risk of receiving notice to terminate PSA and/or entitlement document The Company and PTW may be subject to any notice to terminate the PSA and/or the entitlement document if there are any incidents as stated in the PSA and/or the entitlement document. Before any termination, PWA shall send a written notice to the Company and/or PTW for the latters to perform in compliance with the relevant agreement within a period prescribed. If the Company and/or PTW fails to do as prescribed, PWA shall then be entitled to terminate the agreement. In exercising its right to terminate the PSA and/or entitlement document, PWA may foreclose the security the Company and/or PTW has placed with PWA. Besides, PWA shall be entitled to demand any damages or expenses arising from the Company's and/or PTW's failure to perform as prescribed. This may materially impair the Company's business operations and financial status. 2.2.3 Risks associated with water business concession Risk of no concession extension or new concession awarding due to service area expansion or production capacity increase requirement by Ministry of Natural Resource and Environment Concession extension or new concession awarding for new service areas or capacity expansion are subject to final judgment and decision solely by the concession awarder. The Company may not represent whether it and/or PTW would be granted concession extension or new concession. Even with concession extension or new concession awarded, no representation may be made as to whether there would be any chages in conditions or any additional conditions, which may impact the Company's and/or PTW's business operation potential, revenues and profitability. 2.2.4 Risks associated with business operations Risk of failure to get permission to use land areas for bulk transmission main (BTM) pipelining The Company may not represent whether each authority units in charge of the areas of the BTM and local distribution network (LDN) pipelining would charge fees for the land utilization at appropriate rates, and whether such authority units would allow third parties to make use of such land areas or construct any buildings covering the pipelining areas, which might damage the BTM pipelines or hinder repair and maintenance thereof. In case the Company and PTW cannot utilize the land areas for pipelining or they have to pay high utilization charges or repair and maintenance of BTM pipelines cannot be made in a proper period of time, there may be negative impacts on the Company's and PTW's business operations, financial status and business prospects. Risk from raw water sources (a) Raw water pumping capacity to serve water production PTW has pumped raw water from the Chao Phraya River in the volume exceeding the limit approved by the Board of National Water Resource since September 2006, and would stop excess pumping once the new water production plan is opened. However, at present, no any government agency is empowered to put a charge on PTW as no legal provisions apply. There is also no provision regarding the power of putting charges on the persons not complying with the conditions pertaining to the permission for water pumping under the Regulation of the Office of the Prime Minister regarding National Water Resource Management B.E. 2550 (2007). The Company may not represent whether the Board of National Water Resource would request cooperation from the authority empowed to oversee PTW's business operations to issue an order for PTW to stop excess water pumping, which would impact its revenues and operatng results. (b) Availability of raw water sources and procurement of back-up sources The volume of raw water in various sources depends on several uncontrollable factors. The Company and PTW have so far not yet acquired any reserve sources as building a system to accommodate such back-up sources would require high investment cost. Although it is provided in the PSA between the Company and PWA that PWA agrees to pay compensation to the Company in case the Company cannot produce tap water in a minimum offtake quantity contracted with PWA as a result of the failure to procure other raw water sources of the similar quality to the existing source, the Company may not represent that the raw water supply from such source would be sufficient to serve the Company's and PTW's tap water production with either the current production capacity and the capacity to be expanded in the future. It may also not represent whether it would be able to acquire any reserve sources, hence material impact on the business operations and business prospects of the Company and PTW. (c) Cost of raw water Although no expenses are currently borne by the Company and PTW in pumping raw water from the existing two natural sources, the Company may not represent whether there would be any future promulgation of law governing the determination and charging of fees on raw water pumping from such sources, which would push up cost of tap water production of the Company and PTW. However, according to a provision in the PSA, in case there are charges on raw water pumping which would raise cost of production of the Company and PTW, the Company may fully collect from PWA for such additional expenses, while PTW may adjust the tap water tariff in the line with the higher cost only upon mutual agreement with PWA. If no agreement can be reached, duspute settlement process shall be applied. Any determination and charging of raw water fees by the authorities may impact PTW's business, financial status, operating results and business prospects if no agreement can be reached with PWA. (d) Risk of dependence on one sole customer The Company and PTW will totally sell their tap water production output to PWA for further distribution to the public. No direct sales to the public through PWA's LDN pipes can be made. Thus, there is a risk of dependence on one sole customer. 2.3 Nature of business operations 2.3.1 Characteristics of service The Company has entered into the Water Purchase and Sale Agreement ("PSA") with PWA for a period of 30 years starting July 21, 2004 and ending July 20, 2034. Under the PSA, PWA will purchase tap water from the Company for distribution to the public in the districts of Sam Phran and Nakhon Chaisi of Nakhon Pathom province, and the entire province of Samut Sakhon. Its tap water production is carried under a concession awarded by Ministry of Natural Resource and Environment on March 11, 2005 covering a 25-year term for its water business operations in the districts of Sam Phran, Nakhon Chaisi and Buddhamonthon of Nakhon Pathom province, and the districts of Krathum Baen and Muang Samut Sakhon of Samut Sakhon province. The Company pumps raw water from the Tha Chin River for use in the tap water production. The tap water produced is distributed by the bulk transmission main (BTM) from the production plant at Banglen district of Nakhon Pathom province to the Company's two distribution stations, i.e. Buddhamonthon distribution station and Mahachai distribution station, and the water will then be pumped through the local distribution network (LDN) for further distribution to the public in the service areas of Sam Phran, Omnoi and Samut Sakhon water offices. Formerly, in the water production, the Company entered into an agreement to engage WaterFlow Co., Ltd. ("WaterFlow") to carry out water production, repair and maintenance, and production control and distribution. On February 27, 2006, the Company took up all the ordinary shares of WaterFlow from Advance Assets Associates Ltd., another juristic person, and thus WaterFlow has become a subsidiary of the Company. On April 1, 2006, the Company amended the agreement between the Company and WaterFlow to reflect the change of WaterFlow's status to a subsidiary of the Company, namely being a production unit of the Company instead. On June 29, 2007, the Company acquired ordinary shares of Pathum Thani Water Co., Ltd. ("PTW") in an amount of 89.15% of the latter's total paid shares. With such share acquisition, PTW has become a subsidiary of the Company. PTW also produces and distributes tap water to PWA in the same manner as the Company. On August 31, 1995, PTW entered into the agreement to produce and distribute tap water to PWA for a contract term of 25 years from October 15, 1998 to October 14, 2023. PWA purchases tap water from PTW for distribution to the public in the service areas of Pathum Thani and Rangsit districts of Pathum Thani province. PTW was awarded a concession for tap water business by Ministry of Interior on January 13, 2000 for a term of 25 years. Tap water production of PTW starts from pumping raw water from the Chao Phraya River into the production plant in Sam Khok district, Pathum Thani province. The water produced is distributed through the BTM to PTW's three distribution stations, i.e. Rangsit, Thammasat and Pathum Thani distribution stations, and the water will then be pumped through the LDN owned by PWA for distribution to the public in the service areas of Pathum Thani and Rangsit water offices. Due to the rising demand for tap water in the service areas, PTW on September 15, 2006 entered into a PSA with PWA to increase the volume of tap water to be purchased by PWA from PTW by another 70,000 cu.m./day, which would serve consumption in the areas of Rangsit water office. PTW formerly entered into an operations and maintenance agreement to engage Pathum Thani Operations Co., Ltd. ("OPCO") to carry out the production. OPCO subsequently subcontracted such production and operations to BJT Water Co., Ltd. ("BJT"). On January 26, 2007, PTW terminated the agreement with OPCO and paid a compensation of Bt. 385 million to OPCO. It then acquired all ordinary shares of BJT worth Bt. 305 million. An operations and maintenance agreement was entered into by PTW and BJT for the latter to carry out PTW's production, maintenance, production control and distribution of tap water. On December 18, 2007, the Company acquired additional ordinary shares of PTW from CK and Capital Rice Co., Ltd., totaling 1,061,452 shares or 8.85% of the issued and paid shares of PTW. At present, the Company's total shareholding in PTW is 98.0%. Group Structure of Thai Tap Water Supply Plc. as of October 31, 2008 Thai Tap Water Supply Registered Cap. Bt. 3,990 M. Paid-up Cap. Bt. 3,990 M. | ______________________|______________________ | | 98.0%* 100% PTW Water Flow Registered Cap. Bt. 1,200 M. Registered Cap. Bt. 10 M. Paid-up Cap. Bt.. 1,200 M. Paid-up Cap. Bt. 10 M. | | 100% BJT Registered Cap. Bt. 50 M. Paid-up Cap. Bt. 50 M. Notes : *The Provincial Waterworks Authority and minority shareholders hold 2 per cent of remaining portion. 2.3.2 Industry situation Of the country's total precipitation of 800,000 million cubic meters (more)