0) IFA's Opinion regarding the connected transaction of TTW

the MLR at 7.30% per annum, which is calculated based on the MLR for the previous 10 years of commercial banks in the country (source: Bank of Thailand). Summary Table of Projected Cost and Expenses Unit : Bt. Million 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-2039 1) cost of Sales - Tap Water 3.49 1/ - Variable Cost 11.18 12.03 13.20 16.53 17.49 18.50 19.63 20.71 21.91 23.19 23.95 - 40.66 2.56 1/ - Fixed Cost 8.04 8.41 8.80 9.23 11.67 10.10 10.57 11.06 11.57 14.45 12.67 - 29.35 Page 65 of the total 92 pages The Opinion Report of the Independent Financial Advisor Unit : Bt. Million 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-2039 2) Cost of waste water treatment service 2.62 1/ - Variable Cost 8.46 9.11 10.00 11.82 12.52 13.27 14.10 14.90 15.79 16.73 17.28- 29.34 2.04 1/ - Fixed Cost 6.41 6.70 7.01 7.38 10.71 8.06 8.43 8.82 9.22 13.13 10.08 - 24.50 11.08 1/ 34.78 36.35 38.66 3) Selling and Administration 46.33 47.66 49.04 50.58 51.92 53.43 55.00 55.39- Expenses 62.73 24.33 1/ 87.60 94.90 85.98 4) Financial Expense 75.23 64.48 53.74 42.99 32.24 21.49 10.75 - Note: 1/ Actual expense for 4 months (Sep. - Dec. 2009) 6. Corporate income tax The Company was listed on the Stock Exchange of Thailand in 2008 and has been eligible for corporate income tax reduction to 25% of net profit for a 3-year period during 2009-2011. However, in the projection, such tax privilege will not be included in the calculation, although the Company will get the operating rights to manage the facility and recognize the income from which in its operating results, and in order that the real project returns can be figure out. Thus, corporate income tax of 30% of net profit is set throughout the projected period. 7. Additional investments According to the technical due diligence report, additional investments for the tap water production system and the waste water treatment system are set at Bt. 5.074 million and Bt. 10.303 million, respectively. This aims at improving its facilities for perfection in service and security, such as modification of room partitions, addition of closed-circuit TV system, improvement of water well walkway, improvement of waste water well and facility, and fixing of electricity system for more safety in operations, etc. The Company has agreed to such undertakings with investment cost set at Bt. 15.377 million in 2009, with calculation of depreciation of the additionally invested tap water production system and waste water treatment system by the same methodology for a 30-year period which is in line with the term of the operating rights granted, i.e. variation by production unit, in accordance with the depreciation policy for the Company's tap water production facility, as follows: Depreciation for the period = Net cost of assets additionally invested as of beginning of period X Water production rate for the period Water production rate for the period = Actual water production output for the period (Actual water production output for the period + Projected water production output in future until the end of Operating Rights Agreement) Net cost of assets additionally invested as of beginning of period Page 66 of the total 92 pages The Opinion Report of the Independent Financial Advisor = Total assets additionally invested - Accumulated depreciation up to beginning of period 8. Operating rights purchase price Purchase price of operating rights at Bangpa-in Industrial Estate is set at Bt. 1,400 million, divided into three installments of payment, i.e. Bt. 1,000 million, Bt. 200 million and Bt. 200 million during 2009-2011 respectively. This is in line with the term of payment prescribed in the Operating Rights Agreement. The payment is set to be amortized for a 30-years period on the basis of variation by production unit as in the case of depreciation of additional investments. 9. Working capital Average collection period: 32 days Average payment period: 17 days The projected working capital is based on the Company's actual data in 2008. 10. The Discount rate The discount rate used for calculation of present value of discounted cash flow is derived from the cost of capital (Ke), which is 11.20%. The Indpendent Financial Advisor has adopted the Capital Asset Pricing Model (CAPM) in the calculation of Ke, using the following formula: Ke = Rf + ? * (Rm - Rf) Whereas Risk Free Rate (Rf) = 5.43% based on the 28-year government bond yield (data as of May 28, 2009 from www.thaibma.or.th). Market Return (Rm) = 11.91% as derived from the average return on investments in the SET for the past 30 years, which is in line with the term of the Operating Rights Agreement, up to May 28, 2009. Beta (?) = Beta based on the volatility of the daily return on the SET to the closing price of ordinary shares of reference companies as detailed below: (1) Calculation of average unleveraged Beta of reference companies CGS, the IFA, view that the Company and PTW have made a minimum off-take quantity guarantee of treated water sales and have had clear determination of selling prices of water from PWA throughout the contractual period. Thus, the Company's Beta may not reflect the risk relative to the purchase of Operating Rights. Meantime, EASTW which operates the same type of business as the Company's has recorded very low share trading liquidity on the SET for the previous one year, i.e. trading of around 0.02% of its total issued shares. It may not be a proper reference company for the calculation. For additional disclosure to Page 67 of the total 92 pages The Opinion Report of the Independent Financial Advisor the Shareholders of the Company, if Leverage Beta of the Company and EASTW which are 0.36 times and 0.42 times, respectively are used in calculation with the debt to equity ratio of 1.21 times and 0.54 times respectively, the return on shareholder equity (Ke) would be 7.76% and 8.15%, respectively. The Indpendent Financial Advisor has accordingly figure out Beta of reference companies out of all the listed companies in the energy & utilities sector on the SET, which the Independent Financial Advisor has the Opinion that it should well reflect the risk or sensitivity of the investment in the Operating Rights to a certain extent since the reference companies have to make a large investment to operate their business in energy and utilities sector at the different level of risk and each project needs a length of time to operate the business in order to generage the return on investment. The average unleveraged Beta may be figured out from the average equity raw Beta of the reference companies, i.e. all listed companies in the energy & utilities sector on the SET, with the adjustment of leveraged Beta with debt to equity (D/E) ratio and corporate income tax, as in the following formula: Unleveraged Beta (?U) Leveraged Beta (?L) / (1 + ((1 - tax rate) * D/E ratio)) = Company Tax D/E Ratio Lev. BETA Unlev. BETA 1 BANPU 30% 0.86 1.505 0.939 BCP 30% 1.34 0.796 0.411 2 3 EASTW 30% 0.54 0.422 0.306 EGCO 30% 0.27 0.435 0.366 4 GLOW 30% 1.44 0.535 0.266 5 IRPC 30% 0.51 1.222 0.901 6 LANNA 30% 0.41 1.161 0.902 7 PTT 30% 1.30 1.415 0.741 8 PTTAR 30% 1.73 1.483 0.671 9 10 PTTEP 30% 1.17 1.483 0.815 11 RATCH 30% 0.70 0.450 0.302 12 TOP 30% 1.22 1.394 0.752 13 TTW 30% 1.21 0.357 0.193 14 AI 30% 0.70 0.470 0.315 15 AKR 30% 1.47 0.405 0.200 16 BAFS 30% 1.33 0.258 0.134 17 ESSO 30% 1.61 0.992 0.466 18 MDX 30% 2.32 1.152 0.439 19 RPC 30% 3.00 0.576 0.186 20 SCG 30% 1.46 0.145 0.072 21 SGP 30% 1.01 0.862 0.505 22 SOLAR 30% 0.14 1.152 1.049 23 SUSCO 30% 0.42 0.870 0.672 24 TCC 30% 0.10 0.567 0.530 1.09 0.506 Average Source : Bloomberg for the previous 1 year up to May 28, 2009 (1 day before the date of resolution for the purchase of Operating Rights) Page 68 of the total 92 pages The Opinion Report of the Independent Financial Advisor (2) Calculation of average leveraged Beta of the Company Average leveraged Beta can be figured out by treating the average unleveraged Beta calculated in (1) above at 0.506 with the following formula: Leveraged Beta (?L) = Unleveraged Beta (?U) * (1 + ((1 - tax rate) * D/E ratio)) From the above calculation, leveraged Beta is worked out from the adjustment of the average unleveraged Beta with the Company's corporate income tax at 30% of pre-tax profit and average D/E ratio of reference companies at 1.09. The outcome leveraged Beta is 0.89. Such average leveraged Beta will be used by the IFA for calculation of cost of equity (Ke) here: Ke = 5.43% + 0.89 * (11.91% - 5.43%) = 11.20% From the above assumption and the discount rate, the rate of return on the project is 12.80% and the net present value of discounted free cash flow is positive Bt. 76.80 million. This indicates that the purchase of the Operating Rights will yield higher amount of return than the investment amount by approximately Bt. 76.80 million. The details are given in Appendix 4. Moreover, the Indpendent Financial Advisor has conducted a sensitivity analysis of the projected cash inflow employing the discount rate in the range of 10.20%-12.20%. The outcome of net present value of discounted free cash flow will be as follows: The Discount rate (%) Net present value of discounted free cash flow (Bt. million) 10.20 139.60 11.20* 76.80 12.20 25.75 Note: * The Discount rate for the base case With the discount rate range of 10.20% - 12.20%, net present value of discount free cash flow will come out higher than zero, i.e. ranging from Bt. 25.75 million to Bt. 139.60 million, representing higher return than investment cost. Thus, the Indpendent Financial Advisor has the Opinion that the purchase price of the Operating Rights at Bangpa-in Industrial Estate of Bt. 1,400 million is reasonable. However, the calculated value has not reflected the risk mentioned in Item 2.4 - the Risk Factors to make the Transaction. Hence, to disclouse more information to the Shareholders of the Company, the Independent Financial Advisor has constructed the sensitivity analysis of projected free cash flow by changing factors affected the performance at the increasing and decreasing rate of 1% of the assumption. It could be divided into 3 scenarios: Page 69 of the total 92 pages The Opinion Report of the Independent Financial Advisor Case 1 The Change in growth rate of utilization of tap water by the entrepreneurs in Bangpa-in Industrial Estate, which would change in range of 2%-4% Case 2 The Change in growth rate of selling price of tap water and waste water treatment, which would change in range of 6.5%-8.5% Case 3 The Change in growth rate of cost of sales and expense of tap water production and waste water treatment service, which would change in range of 4.5%-6.5% for employee expense, and 2%-4% for the cost and other expenses. From the sensitivity analysis of the above 3 scenarios at the discount rate of 11.20%, the net present value of free cash flow would be as follows: Case 1 Case 2 Case 3 Change in growth rate of Change in growth rate of selling Change in growth rate of cost and other utilization of tap water price and service price expenses Unit : Bt. Million 2% 3%* 4% 6.5% 7.5%* 8.5% 4.5% and 5.5% and 6.5% and 2% 3%* 4% Net present value of 16.15 76.80 142.39 56.48 76.80 97.49 112.45 76.80 35.43 free cashflow Note : * Base Case From the above sensitivity table, the growth rate of utilization of tap water by companies in Bangpa-in Industrial Estate would mostly effect to the performance and free cash flow. In conclusion, if there is a decrease or increase in 1% on the assumpti0n, the net present value would change from the base case of Bt. 76.80 million to the minimum value of Bt. 16.15 million and the maximum value of Bt. 142.39 million, respectively. 3.2 Appropriateness of conditions of payment for the Operating Rights and the other conditions in the drafted agreement of operating rights The Independent Financial Advisor has the Opinion on conditions of payment for the Operating Rights and the other conditions in the drafted agreement of operating rights, which can be summarized as follows: Details The IFA's Opinion 1. Conditions of payment for the Operating Rights The Company would recive benefit from compensation of Bt. 1,400 million to BLDC, which is divided into 3 installments: The First Installment of Bt. 1,000 million after the date of the execution on the agreement, the second and last installment would be Bt. 200 million and Bt. 200 million within 365 days and 730 days after the date of execution on the agreement. The Company would received the transferred right of producing and distributing tap water, and the right of rendering service on waste water treatment, which could start operating immediately. However, 3 Page 70 of the total 92 pages The Opinion Report of the Independent Financial Advisor Details The IFA's Opinion installment for the right might be considered as normal condition for trading, which is the same as the other agreement such as the construction agreement which the contractor would deliver the completed work but the hirer would deduct some portion of payment of approximately 10-25% of total value for guaranteed work, and later pay to the contractor when the agreement would be due. Therefore, it deems that the conditions of payment by the Company would provide an advantage to BLDC. 2. Purchase of the operating rights This condition is made between the Company and BLDC, such purchase would not grant the title right to the Company, but it would return to BLDC after the expiry of the agreement. However, the right recived by the Company deems that the Company would own the assets during the determined time because the Company can manage, administer, and repair the assets in order to generate the revenue to the Company. Thus, if the Company choose to purchase the assets, the value of the assets might be changed. Furthermore, such purchase of the assets would be rarely happen because of the limitation of the agreement and obligation between BLDC and IEAT. 3. Condition of utilization of the asset for 30 years The duration of the agreement of 30 years would be appropriate because if it's shorten, the Company might lose the opportunity and could not fully utilize the asset. 4. Condition of the minimum guarantee on quantity The Company would receive benefit from BLDC that guarantee the minimum quantity of demand for tap water and waste water treatment for 3 years, and guarantee the commencement of the SPP project within 2013. Hence, the Company would receive the compensation from BLDC if the actual operation would not be in line with the projected operation. 5. Condition that grant BLDC or IEAT to utilize tap water not more This condition is made between the Company and BLDC by than 25,000 cu.m. per annum during the agreement specifying that utilization of tap water deems to the portion of compensation of Bt. 1,400 million. The Company would lose revenue by not charging in approximately Bt. 0.56 million per annum (at the current rate of Bt. 22.50 per cu.m.) 6. Condition that the Company would be responsible to pay This condition is made between the Company and BLDC, which expense that BLDC must pay to IEAT for supervisory fee at 50% the Company would receive benefit because the current of the actual amount paid by BLDC supervisory fee to IEAT was resulted from BLDC's request for the (more)