) IFA's Opinion regarding the connected transaction of TTW

treatment plant. For conservative projection, however, the treatment charge for September-December 2009 is set to be Bt. 7.20/cu.m., being the average rate charged during January-May 2009, and is expected to increase by 7.50% every five years, the same as the tap water charge, throughout the projected period. The projected waste water quantity and treatment fee for 2009-2039 are illustrated in the below table: 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020- 2039 Waste water 10,542 11,032* 11,532* 12,256* 14,100 14,505 14,922 15,352 15,794 16,250 16,719 16,719 volume (cu.m./day) Growth rate -10.8% 4.7% 4.5% 6.3% 15.0% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 0.0% Treatment fee 7.20 7.20 7.20 7.20 7.20 7.74 7.74 7.74 7.74 7.74 8.32 8.32 - (Bt./cu.m.) 10.34 Remark: * The above demand for tap water are projected by the assumption of the Independent Financial Advisor. In the financial projection assume that BLDC must compensate for the income shortfall caused by an unmet minimum quantity guarantee in the following year according to the drafted agreement of the operating right. 2. Cost of sales of tap water BLDC formerly used groundwater-based tap water system in its production of water for distribution to industrial plants in Bangpa-in Industrial Estate. Tap water cost structure in 2007 and 2008 was mainly composed of groundwater fee at around Bt. 15 per cu.m., while costs of chemicals and electricity charge were combinedly about Bt. 1.06 and Bt. 1.25 per cu.m. respectively. However, at present, BLDC has switched to surface water-based tap water system pumping water from natural resources, hence no more cost of groundwater, but higher costs of chemicals and electricity. This is because electricity is principally required for the pumping of such surface water using the pumping station which is located outside Bangpa-in Industrial Estate, through transmission piplining of about 1.8 km. distance. Moreover, the surface water is of lower quality than the groundwater and subject to seasonal variations. More chemicals are subsequently needed to improve the water quality to meet the required standards. Thus, past structure of cost of sales may not be used for the comparison or as the basis in this projection. Page 59 of the total 92 pages The Opinion Report of the Independent Financial Advisor CGS, the IFA, has taken into account data from various sources comprising technical due diligence report prepared by EEC Engineering Network Co., Ltd. In June 2009 which covers projection of cost of water production, BLDC's internal data on tap water production during February-May 2009 which was the period when BLDC started its own surface water-based production of tap water (January 2009 was the system test-run by the contractor), and data of PTW which is the Company's subsidiary and uses raw water from the Chao Phraya River, hence the same type of water system as BLDC's, during quarter 4 of 2008 and quarter 1 of 2009 (PTW's data of quarters 1-3 of 2008 not brought into consideration due to its over- utilization of capacity during such period, hence use of chemicals in the proportion deviated from that under normal-capacity production). Cost structure is composed of variable cost and fixed cost as follows: 2.1 Variable cost Variable cost comprises that of chemicals, electricity, spare parts and supplies, as well as other cost items, as below: 1) Chemicals used for water production include alum, lime and liquefied chlorine. Actual cost of chemicals, based on BLDC internal data during February-May 2009, was in the range of Bt. 0.22-Bt. 0.28 per cu.m., while actual cost of chemicals of PTW during quarter 4/2008-quarter 1/2009 was in the range of Bt. 0.51-Bt. 0.57 per cu.m. Meantime, the projected average cost of chemicals according to the technical due diligence report is Bt. 0.63 per cu.m., which is higher than the actual costs mentioned above. Both the Company and BLDC have given relevant explanation that such projected average cost is proper and feasible. The actual costs during such periods were lower than the projection because the raw water quality was then rather good, hence less use of chemicals, while during rainy season, the raw water quality will deteriorate, thus requiring more use of chemicals. The Independent Financial Advisor have thus set cost of chemicals in 2009 at Bt. 0.63 per cu.m., and to be adjusted to rise 3% per year throughout the projected period. Such increase rate is close to the average growth rate of consumer price index (CPI) for the previous 30 years, i.e. 3.19% (Source: Bank of Thailand (BOT)) 2) Electricity charge is the charge for electricity used at the raw water pumping station and tap water production system. Actual electricity charge, based on BLDC internal data during February-May 2009, was in the range of Bt. 0.58-Bt. 0.70 per cu.m., while actual electricity charge of PTW during quarter 4/2008-quarter 1/2009 was in the range of Bt. 1.16-Bt. 1.23 per cu.m. Meantime, the projected average electricity charge according to the technical due diligence report is Bt. 1.05 per cu.m., which is higher than the actual charge borne by BLDC but lower than that by PTW. Both the Company and BLDC have given relevant explanation that such projected average cost is proper and feasible. PTW's higher electricity charge is due to its higher power capacity utilization for the transmission and distribution of tap water to the end-users in all the Pathumthani-Rangsit areas, compared with BLDC's lower power capacity utilization as Page 60 of the total 92 pages The Opinion Report of the Independent Financial Advisor its tap water distribution network covers only the Bangpa-in Industrial Estate area. The Independent Financial Advisor have thus set electricity charge in 2009 at Bt. 1.05 per cu.m., and to be adjusted 3% up per year throughout the projected period, which is close to the average growth of CPI. Normally, electricity charge will vary to value of FT, which is determined by Provincial Electricity Authority. When considering FT during December of 2006-2008, it found that FT Value were Baht 0.7842 in 2006, Baht 0.6611 in 2007 and 0.7770 in 2008, which was the decreasing rate of 0.46% per annum. BLDC clarified that FT was decreasing because BLDC utilized electricity during the off-peak time; therefore, for the conservative reason, the Independent Financial Advisor assume electricity charge would increase according to CPI, which is the same assumption as the other expenses. 3) Spare parts and supplies as well as other production cost items, such as sediment removal expense covering truck/heavy equipment rental and petrol expenses, etc. As this expense item is not fixed expense, the use of the statistical data thereon arising in some certain months or periods may not be proper and may not reflect the actually arising expense. The Indpendent Financial Advisor has accordingly based our study on the actual data of average expenses in 2008, which also involved other expense items, thus from which the Indpendent Financial Advisor cannot sort out the specific data on the expense item in subject. Both BLDC and PTW recorded this expense item in combination with other expenses. BLDC combined it with cost of chemicals, totaling about Bt. 0.20 per cu.m., which is very low, as BLDC formerly pumped raw water from groundwater wells, which required low chemical treatment. PTW combined the expense item in subject with labor and repair and maintenance costs, which in 2008 totally amounted to Bt. 0.63 per cu.m., but only Bt. 0.44 per cu.m. in quarter 4/2008 and quarter 1/2009. Meantime, the projected average expense according to the technical due diligence report is Bt. 0.25 per cu.m. and repair and maintenance cost is separately itemized as fixed cost of Bt. 2.46 million per year. However, pursuant to the Operating Rights Agreement, compensation for variable profit from tap water sales is prescribed in the event that the start of operations under the SPP project is delayed from the schedule. This item of variable cost is set at Bt. 0.27 per cu.m. Thus, to ensure correspondent cost calculation principle, the Indpendent Financial Advisor has set this cost item to be Bt. 0.27 per cu.m. in 2009 and to increase 3% per year throughout the projected period which is in line with the average growth of CPI. Based on the above assumption of variable cost of the tap water production system, the total variable cost will be Bt. 1.95 per cu.m. in 2009, which is set to rise 3% per year throughout the projected period. Besides, according to the Operating Rights Agreement, the Company shall supply tap water to the buildings or offices of BLDC and IEAT or staff stationed therein in the volume up to 25,000 cu.m. per year, which is considered part of the consideration payable to BLDC. Thus, variable cost is determined in line Page 61 of the total 92 pages The Opinion Report of the Independent Financial Advisor with the above principle for the water sales volume of up to 25,000 cu.m. per year throughout the projected period, which is the water sales volume not recognized as income by the Company. 2.2 Fixed cost Fixed cost items comprise personnel expenses, pipe and meter repair and maintenance cost, machinery overhaul cost, land space rental and permit application fee. The details are given as follows: 1) Personnel expenses comprise salary, bonus, staff welfare and other relevant expenses to the tap water production and distribution system. In 2008, BLDC recorded personnel expenses relevant to its tap water distribution system in the amount of Bt. 4.13 million, an increase of around 6.49% from 2007. Meantime, according to the technical due diligence report, number of personnel is projected at 13 involving personnel expenses of Bt. 4.77 million per year. Thus, average personnel expenses in 2009 are set at Bt. 4.77 million per year (using the run-rate of 4-month period of the Company's operations during September-December 2009) and to increase 5.50% per year throughout the projected period, which is the increase rate close to the average increase rate of the Company's employee remuneration during 2006- 2008, i.e. 5.67% per year. 2) Pipe and meter repair and maintenance cost, which based on the technical due diligence report's projection of the pipe and meter installation cost of Bt. 61.385 million and under the assumption of the pipe and meter's useful life of 25 years, is estimated by the IFA to average Bt. 2.46 million per year. As such, pipe and meter repair and maintenance cost in 2009 is set at Bt. 2.46 million per year (using the run- rate of 4-month period of the Company's operations during September-December 2009) and to increase 3% per year throughout the projected period which is close to the average growth of CPI. 3) Machinery overhaul cost of the tap water production and distribution system is projected in the technical due diligence report at Bt. 1.74 million, with the overhaul set to be undertaken every five years of operations. However, as the tap water production system just started operations in 2009, the first machinery overhaul is scheduled to be in 2014. The overhaul cost is set to start from Bt. 1.74 million in 2009 and to increase 3% per year throughout the projected period which is close to the average growth of CPI. 4) Land space rental and permit application fee are the cost incurred due to the Company's requirement for the rent of land space for its pipelining between the raw water pumping station and the tap water production plant and for the application for permits to use groundwater as the backup raw water source in case of shortfall of natural surface water supply. It is set to be Bt. 0.36 million in 2009 (using the run-rate of 4-month period of the Company's operations during September-December 2009) and to increase 3% per year throughout the projected period which is close to the average growth of CPI. Page 62 of the total 92 pages The Opinion Report of the Independent Financial Advisor 3. Cost of waste water treatment service BLDC formerly provided waste water treatment service to industrial plants in Bangpa-in Industrial Estate with the maximum treatment capacity of 12,000 cu.m. per day. However, at present, BLDC is in the process of improving its waste water treatment system to boost the treatment capacity to 18,000 cu.m. per day, which is scheduled to be completed by July 2009. Thus, its former service cost structure may not perfectly represent the real structure for the comparison and projection. The Indpendent Financial Advisor has thus mainly based our projection on the service cost structure in the technical due diligence report, comprising two elements i.e. variable cost and fixed cost as below: 3.1 Variable cost Variable cost is composed of electricity charge, cost of chemicals, cost of spare parts and supplies, and other waste water treatment service costs, as summarized here: 1) Electricity charge of BLDC for its waste water treatment system in 2007, 2008 and the first five months of 2009 was in an average of Bt. 1.02 per cu.m., Bt. 1.09 per cu.m. and Bt. 0.96 per cu.m. respectively. However, with the treatment capacity rising to 18,000 cu.m. per day, consumption of electricity for the entire system is expected to go up. Thus, electricity charge is projected to be equal to that in the technical due diligence report of Bt. 1.71 per cu.m. and to increase 3% per year throughout the projected period which is close to the average growth of CPI, which is the same reason explained in the part of electricity charge of variable cost of the cost of sales of tap water. 2) Cost of chemicals for waste water treatment involves cost of liquefied chlorine. For the past few years, BLDC recorded no cost of chemicals for waste water treatment as the waste water inflow to its system was of good quality. However, according to the technical due diligence report, cost of chemicals is projected at Bt. 0.06 per cu.m. Thus, Bt. 0.06 per cu.m. is used in the projection for 2009 and set to rise 3% per year throughout the projected period which is close to the average growth of CPI. 3) Cost of spare parts and supplies and other waste water treatment service costs, such as truck/heavy equipment rental and petrol expenses, etc., were recorded by BLDC at around Bt. 0.10 per cu.m. in 2008. However, in the technical due diligence report, this cost item is projected to be Bt. 0.27 per cu.m. viewing that the waste water treatment system has been used for a long time to date, hence possible increase in this cost item. For conservative projection, the Indpendent Financial Advisor set cost of spare parts and supplies and other waste water treatment service costs to be Bt. 0.27 per cu.m. in 2009 and to increase 3% per year throughout the projected period which is close to the average growth of CPI. From the above assumption of variable cost of the waste water treatment system, the total variable cost is projected to be Bt. 2.04 per cu.m. in 2009 and set to increase 3% per year throughout the projected period. Page 63 of the total 92 pages The Opinion Report of the Independent Financial Advisor 3.2 Fixed cost Fixed cost items are composed of personnel expenses, pipe repair and maintenance cost, machinery overhaul cost, and environmental inspection and analysis cost, as follows: 1) Personnel expenses comprise salary, bonus, staff welfare and other relevant expenses to the waste water treatment system. In 2008, BLDC recorded personnel expenses relevant to its waste water treatment system in the amount of Bt. 1.49 million, an increase of around 2.74% from 2007. Meantime, according to the technical due diligence report, number of personnel is projected at 9 involving personnel expenses of Bt. 3.69 million per year. Thus, average personnel expenses in 2009 are set at Bt. 3.69 million per year (using the run-rate of 4-month period of the Company's operations during September-December 2009) and to increase 5.50% per year throughout the projected period, which is the increase rate close to the average increase rate of the Company's employee remuneration during 2006-2008. 2) Pipe repair and maintenance cost, which based on the technical due diligence report's projection of the new pipe installation cost of Bt. 23.76 million and under the assumption of the pipe's useful life of 25 years, is estimated by the IFA to average Bt. 0.95 million per year. As such, pipe repair and maintenance cost in 2009 is set at Bt. 0.95 million per year (using the run-rate of 4-month period of the Company's operations during September-December 2009) and to increase 3% per year throughout the projected period which is close to the average growth of CPI. 3) Machinery overhaul cost of the waste water treatment system is projected in the technical due diligence report at Bt. 2.59 million, with the overhaul set to be undertaken every five years of operations. However, as the new waste water treatment system is scheduled to start operations in August 2009, the first machinery overhaul is set to be in 2014. The overhaul cost is set to start from Bt. 2.59 million in 2009 and to increase 3% per year throughout the projected period which is close to the average growth of CPI. 4) Environmental inspection and analysis cost in 2008 was recorded by BLDC at Bt. 1.23 million, and is set to be Bt. 1.27 million in 2009 (using the run-rate of 4-month period of the Company's operations during September-December 2009), a rate adjusted up 3% from 2008, and to increase 3% per year throughout the projected period which is close to the average growth of CPI. 4. Selling and administrative expenses Selling and administrative expenses are composed of office staff expenses and other expenses, which are estimated in the technical due diligence report at Bt. 3.6 million per year. CGS, the IFA, have worked out the breakdown of such estimated expenses as follows: 1) Office staff expenses comprise salary, bonus, staff welfare and other expenses relevant to the supporting staff. Number of personnel is projected at 15 (totaling 3 shifts) involving total expenses of Bt. 2.04 million in 2009 (using the run-rate of 4-month period of the Company's operations during September- Page 64 of the total 92 pages The Opinion Report of the Independent Financial Advisor December 2009) and projected to increase 5.50% per year throughout the projected period, which is the increase rate close to the average increase rate of the Company's employee remuneration during 2006- 2008. 2) Other expenses, comprising fee payment to IEAT, insurance cost and other administrative expenses, etc., are projected at Bt. 1.56 million in 2009 (using the run-rate of 4-month period of the Company's operations during September-December 2009), of which Bt. 0.85 million is fee payment to IEAT, pursuant to the Operating Rights Agreement, thereby BLDC and the Company shall jointly be responsible for the fee payment to IEAT in a 50:50 proportion. For 2009, BLDC has agreed to fee payment to IEAT at Bt. 1.7 million and insurance cost on the assets transferred from BLDC expected at Bt. 0.60 million, together with other administrative expenses set at Bt. 0.11 million, which are set to increase 3% per year throughout the projected period in line with the average growth of CPI. 5. Financial expenses In June 2009, the Company has been offered loans amounting to Bt. 1,500 million from two financial institutions. Its management has expected to borrow the entire amount offered for use to pay for the operating rights. Thus, the Indpendent Financial Advisor has projected loans of Bt. 1,400 million will be borrowed by the Company, with loan drawdown to be made in line with the fee payment periods in the Operating Rights Agreement and principal repayment period of 10 years beginning from 2010 onward. In view of the interest rate chargeable, we consider the rate offered is very attractive compared with the general market rates. However, in the financial projection with the objective of working out the real project return, the Indpendent Financial Advisor will not take into account the above offer by the financial institutions. Instead, we will use the minimum lending rate (MLR) as the interest rate chargeable on the Company throughout the loan period. The MLR of commercial banks in Thailand as of May 28, 2009 is averagely around 6.55% per annum. However, there may be fluctuations in the MLR during the 10-year loan repayment period. We have thus, for conservative purpose and to be in line with the loan period, set (more)