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1 Table of Content 1. GENERAL INFORMATION TYPES OF BUSINESS AND BUSINESS OPERATIONS PRODUCT CHARACTERISTICS REVENUE STRUCTURE TARGET CUSTOMERS DISTRIBUTION CHANNELS SOURCES OF SUPPLY MARKET COMPETITION ENVIRONMENTAL IMPACT SUMMARY OF THE ESSENCE OF THE CONTRACTS/AGREEMENTS TRANSFERRED FROM PTTAR TO THE COMPANY FEEDSTOCK AGREEMENTS PETROLEUM PRODUCTS AND AROMATICS PRODUCTS OFFTAKE AGREEMENTS UTILITIES AGREEMENTS LAND LEASE AGREEMENTS SUMMARY OF THE ESSENCE OF THE CONTRACTS/AGREEMENTS TRANSFERRED FROM PTTCH TO THE COMPANY AGREEMENTS RELATING TO THE OLEFINS-SHARED FACILITIES SALES AGREEMENTS IN RELATION TO SERVICE BUSINESS AND OTHERS AGREEMENT RELATED TO THE POLYMER PRODUCTS VALUE CENTER LEASE AGREEMENTS FUTURE PROJECTS TECHNICAL AND MANAGEMENT ASSISTANCE CONNECTED TRANSACTIONS DEBTS AND FINANCIAL OBLIGATIONS LONG-TERM CREDIT FACILITIES AGREEMENTS ASSUMED FROM PTTAR WORKING CAPITAL CREDIT FACILITIES AGREEMENTS ASSUMED FROM PTTAR DEBENTURES ASSUMED FROM PTTAR LONG-TERM CREDIT FACILITIES AGREEMENTS ASSUMED FROM PTTCH WORKING CAPITAL CREDIT FACILITIES AGREEMENTS ASSUMED FROM PTTCH DEBENTURES ASSUMED FROM PTTCH LIABILITIES WHICH MAY ARISE FROM TAX ASSESSMENTS WARRANTS

2 9. GENERAL BUSINESS RISKS (SYSTEMATIC RISKS) CORPORATE SPECIFIC RISK DISPUTES EMPLOYEES COMPANY OVERVIEW INVESTMENT IN SUBSIDIARIES, AFFILIATES AND ASSOCIATES BOI INVESTMENT PROMOTION CERTIFICATES BOI INVESTMENT PROMOTION CERTIFICATES TRANSFERRED FROM PTTAR BOI INVESTMENT PROMOTION CERTIFICATES TRANSFERRED FROM PTTCH SHAREHOLDER NUMBER OF SHAREHOLDER MAJOR SHAREHOLDERS FOREIGN SHAREHOLDER BOARD OF DIRECTORS LISTING CONDITIONS SILENT PERIOD SET S WEIVERS OTHER IMPORTANT MATTER (IF ANY) STATISTIC

3 EGAT IEAT Pro forma Financial Statements The Company The New Company PTT PLC Act SEC Act USD or US Dollars AR1 AR2 AR3 API AP ROH ATC BIG Bio Creation Bio Spectrum BPE BSA CH Inter CMAI EA EFT EMERY ESSO Evergreen Basis HMC ICIS Indorama LPG MYRIANT NPC Definition Electric Generating Authority of Thailand Industrial Estate Authority of Thailand The Unaudited Pro Forma Consolidated Financial Information PTT Global Chemical Plc. The new company created as a resulted of the amalgamation between PTT Aromatics and Refining Plc. and PTT Chemical Plc. as per the PLC Act PTT Plc. The Public Limited Companies Act B.E (1992), as amended The Securities and Exchange Act B.E (1992), as amended the United States Dollars, the lawful currency of the United States of America Refinery Plant Aromatics Complex I Aromatics Complex II Alliance and Petrochemical Investment (Singapore) Pte. Ltd. PTT Chemical International (Asia Pacific ROH) Ltd. The Aromatics (Thailand) Plc. Bangkok Industrial Gas Co., Ltd. Bio Creation Co., Ltd. (formerly, Thai Choline Chloride Co. Ltd.) Bio Spectrum Co., Ltd. Bangkok Polyethylene Plc. Businesses Services Alliance Co., Ltd. PTT Chemical International Pte. Ltd. Chemical Market Associates, Inc. Thai Ethanolamines Co., Ltd. Eastern Fluid Transport Co., Ltd. Emery Oleochemicals (M) Sdn. Bhd. ESSO (Thailand) Plc. The agreement that is made on an evergreen basis whereby it will continue to be in effect after the term of such agreement has lapsed, unless terminated by either party by a prior written notice HMC Polymer Co, Ltd. Chemical Industry News and Intelligent Indorama Petrochem Co., Ltd. Liquefied Petroleum Gas Myriant Technologies, Inc. National Petrochemicals Plc. 3

4 NGL NPC S&E OPEC OSA PPCL PTTAR PTTAR US Notes PTTCH PTTCH Group PTTGC PTTES PTTICT PTTME PTTPE PTTPM PTTUT RRC SAKC SCG Chemicals SET SMPC SPP SPRC SSMC TEX TFA TOC TOCGC TOL TPC TPC-PR TPE TPP TPT TSCL TSSC TTT UCHA VNT Natural Gas Liquid NPC Safety and Environmental Service Co., Ltd. Organization of Petroleum Exporting Countries Olefins Sales Agreement PTT Phenol Co., Ltd. PTT Aromatics and Refining Plc. USD 300,000,000 Senior Unsecured Seven-Year Notes of PTTAR PTT Chemical Plc. PTTCH, its subsidiaries and associated companies PTT Global Chemical Plc. PTT Energy Solutions Co., Ltd. PTT ICT Solutions Co., Ltd. PTT Maintenance and Engineering Co., Ltd. PTT Polyethylene Co., Ltd. PTT Polymer Marketing Co., Ltd. PTT Utility Co., Ltd. Rayong Refinery Plc. Sak Chaisidhi Co., Ltd. SCG Chemicals Limited The Stock Exchange of Thailand Siam Mitsui PTA Co., Ltd. Small Power Producer Star Petrolieum Refining Co., Ltd. Siam Styrene Monomer Co., Ltd. Thai Ethoxylate Co., Ltd. Thai Fatty Alcohol Co., Ltd. Thai Olefins Plc. TOC Glycol Co., Ltd. Thai Oleochemicals Co., Ltd. Thai Plastics and Chemicals Co., Ltd. TPC Paste Resin Co., Ltd. Thai Polyethylene Co., Ltd. Thai Polyprolylene Co., Ltd. TPT Petrochemicals Plc. Thai Styrenics Co., Ltd. Tokuyama Siam Silica Co., Ltd. Thai Tank Terminal Co., Ltd. Ube Chemicals (Asia) Plc. Vinythai Plc. 4

5 Information Memorandum PTT Global Chemical Public Company Limited ( PTTGC ) 1. General Information Head Office Location Branch Location 1 Branch Location 2 Branch Location 3 Head Office 555/1 Energy Complex, Building A, 14-18th Floor, Vibhavadi Rangsit Road, Chatuchak, Chatuchak, Bangkok Tel: 66(0) Fax: 66(0) Website Rayong Branch 59 Rachniyom Road, Tambon Noen-Phra, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Olefin Plant I-1 Branch 14 I-1 Road, Map Ta Phut Industrial Estate, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Olefin Plant I-4 Branch 9 I-4 Road, Map Ta Phut Industrial Estate, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Branch Location 4 Aromatics Plant 1 4 I-2 Road Map Ta Phut Industrial Estate, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Branch Location 5 Aromatics Plant 2 98/9 Rayong Highway Road 3191, RIL Industrial Estate 5

6 Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Branch Location 6 Branch Location 7 Branch Location 8 Branch Location 9 Refinery Branch No. 8, I-8 Road, Map Ta Phut Industrial Estate, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Jetty and Buffer Tank Farm Branch 19 Rong-Pui Road, Map Ta Phut Industrial Estate, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Aromatics Tank Farm Branch 11, I-4 Road, Map Ta Phut Industrial Estate, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Lab Service Center Branch 24/9 Pakorn Songkro-Radh Road, Tambon Map Ta Phut, Amphoe Mueang Rayong, Rayong Tel: 66(0) Fax: 66(0) Registered: 19 October 2011 Effective date since 20 October 2011 in the trading system (First day trade on the Stock Exchange of Thailand on 21 October 2011) Type of Registered Capital 4,512,930,269 ordinary shares, with par value of THB 10 totaling to THB 45,129,302,690 6

7 Share Capital: Secondary Market: PTT Global Chemical Plc. ( PTTGC or the Company ) has registered capital of THB 45,129,302,690 divided into 4,512,930,269 ordinary shares, with par value of THB 10. Registered capital of the Company can be divided into 2 portions as follows: 1. Paid-up capital in the amount of THB 45,059,846,380 divided into 4,505,984,638 paid-up ordinary shares, with par value of THB10 par value 2. The unpaid capital of THB 69,456,310 divided into 6,945,631 unpaid ordinary shares, with par value of THB 10 The Stock Exchange of Thailand ( SET ) 2. Types of Business and Business Operations PTTGC is a new resulting entity arising from the amalgamation between PTT Aromatics and Refining Plc. ( PTTAR ) and PTT Chemical Plc. ( PTTCH ) in accordance with the Public Limited Companies Act B.E (1992), as amended ( PLCA ), on 19 October 2011 and assumes all assets, liabilities, rights, duties and obligations from both PTTCH and PTTAR per operation of law. Current Group Structure of the Company is as follows: 7

8 PTTGC 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% BPE PTTPE TOCGC EA Bio Creation TOL NPC S&E 100.0% 100.0% TSCL TFA PTTPM 25.0% VNT 25.0% 22.7% EFT PTTICT 40.0% API 16.7% PTTES 20.0% BSA 25.0% 47.4% 100.0% CH Inter MYRIANT 50.0% EMERY 75.0% Bio Spectrum 100.0% AP ROH 60.0% PTTME 60.0% 60.0% 51.0% 50.0% PPCL PTTUT TTT TEX Subsidiaries BPE = Bangkok Polyethylene Plc. PTTPE = PTT Polyethylene Co., Ltd. TSCL = Thai Styrenics Co., Ltd. TOCGC = TOC Glycol Co., Ltd. EA = Thai Ethanolamines Co., Ltd. Bio Creation = Bio Creation Co., Ltd. (formerly, Thai Choline Chloride Co., Ltd.) TOL = Thai Oleochemicals Co., Ltd. TFA = Thai Fatty Alcohol Co., Ltd. 8

9 NPC S&E = NPC Safety and Environmental Service Co., Ltd. CH Inter = PTT Chemical International Pte. Ltd. EMERY = Emery Oleochemicals (M) Sdn. Bhd. AP ROH = PTT Chemical International (Asia Pacific ROH) Ltd. Bio Spectrum = Bio Spectrum Co., Ltd. PTTME = PTT Maintenance and Engineering Co., Ltd. PPCL = PTT Phenol Co., Ltd. PTTUT = PTT Utility Co., Ltd. TTT = Thai Tank Terminal Co., Ltd. TEX = Thai Ethoxylate Co., Ltd. Associated Companies EFT = Eastern Fluid Transport Co., Ltd. PTTPM = PTT Polymer Marketing Co., Ltd. PTTICT = PTT ICT Solutions Co., Ltd. VNT = Vinythai Plc. API = Alliance and Petrochemical Investment (Singapore) Pte. Ltd. MYRIANT = Myriant Technologies, Inc. PTTES = PTT Energy Solutions Co., Ltd. Other Company BSA = Businesses Services Alliance Co., Ltd. 2.1 Product Characteristics After the amalgamation of PTTCH and PTTAR, the Company will continue to operate the businesses currently engaged by both companies, which can be classified into 3 main types of business as follows: Petrochemicals and Chemicals Business Olefins & Shared Facilities Business Ethylene and propylene are collectively called Olefins, which is the hydrocarbon compound used as a raw material for plastics production. Olefin & Shared Facilities s products comprise: A. Olefins (Ethylene and Propylene): the nameplate capacity of olefins is 2,888,000 tons per year, consisting of ethylene capacity and propylene capacity of 2,376,000 tons per year and 512,000 tons per year, respectively B. By-products from Olefins productions: pyrolysis gasoline, Mixed C4, tail gas, cracker bottom and hydrogen 9

10 C. Shared facilities: electricity, steam and water used for industrial purposes (industrial water, tap water and natural water) Aromatics Products and Downstream Business Aromatics products comprise paraxylene, benzene, cyclohexane, orthoxylene, mixed xylenes and toluene. Such products are used as feedstock in various downstream industries. Details of the Company s Aromatics products are as follows: A. Paraxylene with nameplate capacity of 1,195,000 tons per year B. Benzene with nameplate capacity of 662,000 tons per year C. Cyclohexane with nameplate capacity of 200,000 tons per year D. Orthoxylene with nameplate capacity of 66,000 tons per year E. Mixed Xylenes with nameplate capacity of 76,000 tons per year F. Toluene with nameplate capacity of 60,000 tons per year Polymer Products Business Polymer products business includes the business of plastic pallet, which is a downstream petrochemical product used for producing finished plastics in downstream businesses and everyday life such as packaging, electrical appliance, construction material, and etc. The Polymer products businesses that the Company invested in are as follows: A. High density polyethylene (PE) or HDPE with nameplate capacity of 800,000 tons per year B. Low Density polyethylene (PE) or LDPE with nameplate capacity of 300,000 tons per year C. Linear low density polyethylene (PE) or LLDPE with nameplate capacity of 400,000 tons per year D. Polystyrene (PS) with capacity of nameplate 90,000 tons per year Ethylene Oxide Products Business Ethylene Oxide comprises Ethylene Oxide/Ethylene Glycol, Ethanolamine and Fatty Alcohol Ethoxylate as per the following details: A. Ethylene Oxide / Ethylene Glycol (EO/EG) s core product is Mono Ethylene Glycol (MEG), a raw material for polyester fiber production, with nameplate capacity of 395,000 tons per year B. Ethanolamine s core product is Monoethanolamine (MEA), Diethanolamine (DEA) and Triethanolamine (TEA). Ethanolamine products are used in shampoo production, conditioner, fabric softener, medicine, cement, and etc. Ethanolamine s nameplate capacity is 50,000 tons per year and it is expected to start the commercial operation in

11 C. Fatty Alcohol Ethoxylates, with nameplate capacity of 50,000 tons per year, is raw material for shampoo production, dishwashing liquid and other washing liquid Oleochemical Products Business Details of the Company s Oleochemical products are as follows: A. Methyl Ester with nameplate capacity of 200,000 tons per year B. Fatty Alcohol with nameplate capacity of 100,000 tons per year C. Glycerin with nameplate capacity of 31,000 tons per year D. Base & Specialty Oleochemicals with nameplate capacity of 962,000 tons per year Refining and petroleum products supply sourcing The Company operates refining and supply petroleum products with the nameplate capacity of 280,000 barrels per day of crude oil and condensate intake. The Company has ability to supply various high-quality petroleum products of 228,000 barrels per day, including Light distillates, consisting of Liquefied Petroleum Gas (LPG), light naphtha, and reformate Middle distillates, consisting of jet fuel and diesel Heavy distillates such as fuel oil Services & Others 2.2 Revenue Structure (Unit: THB million) For the Six-Month Ended 30 June 2011 * Consolidated Revenue Structure (Pro-Forma) Revenue % 1. Petrochemicals and Chemicals Business 1.1 Olefin & Shared Facilities Revenue from Sales of Ethylene 8,568 4 Revenue from Sales of Propylene 5,838 2 Others 3, Aromatics Products and Downstream Business Revenue from Sales of Paraxylene 27, Revenue from Sales of Benzene 7,288 3 Others 38, Polymer Products Revenue from Sales of Polyethylene 27, Others 1,

12 (Unit: THB million) For the Six-Month Ended 30 June 2011 * 1.4 Ethylene Oxide Products Revenue from Sales Ethylene Oxide/Ethylene Glycol 5,799 2 Others Oleochemical Products Revenue from sales base and Specialties Oleochemical 9,607 4 Products from PTTCH Inter and EMERY Revenue from Sales Methyl Ester/Fattyalcohol 4, Refining and petroleum products supply sourcing Revenue from Sales of Diesel 50, Revenue from Sales of Jet Fuel 10,278 4 Others 24, Services & Others Services and Others 11,175 5 Total 237, Note: * Source: Pro-forma Financial Statements of the Company for the six-month period ended 30 June Target Customers Petrochemicals and Chemicals Business Olefin & Shared Facilities A. Olefins Sales Agreement (OSAZ) Major customers for Olefin under the Olefin Sales Agreement are Thai Polyethylene Limited ( TPE ) and Bangkok Polyethylene Plc. ( BPE ). Other customers include Thai Plastic and Chemicals Plc. ( TPC ), Siam Styrene Monomer Co., Ltd. ( SSMC ), Vinythai Plc. ( VNT ) and Thai Polypropylene Co., Ltd. ( TPP ) and HMC Polymers Co., Ltd. ( HMC ). Selling prices for such products are per conditions specified in the OSA. B. Olefins Sales Other than OSA Major customers for Olefin other than that of OSA include TOC Glycol Co., Ltd. ( TOCGC ), PTT Plc. ( PTT ). Other customers include VNT and PTT Phenol Co., Ltd. ( PPCL ). Selling prices for such products are per conditions specified in other long-term Olefin sale contracts Aromatics Products and Downstream Business Major customer for Aromatics Products and Downstream Business is PTT. Other customers include SCG Chemical Co., Ltd. ( SCG Chemicals ), Sak Chaisidhi Co., Ltd. ( SAKC ), PPCL, TPT Petrochemical Plc. ( TPT ), Siam Mitsui PTA Co., Ltd. ( SMPC ), Indorama Petrochemical Co., Ltd. ( Indorama ), Ube Chemicals (Asia) Plc. ( UCHA ). The selling prices for such products are per market prices. 12

13 Polymer Products The Company has entered into an agreement to sells HDPE through PTT Polymer Marketing Co., Ltd ( PTTPM ), with the HDPE sale agreement period of 6 months, and can be extended 1 year per time. On 27 September 2006, both parties have changed such contract into a 15 years long-term contract, extendable 5 years per time, with price equaled to the terms of the original contracts Ethylene Oxide Products The Company sales its products mainly to domestic customers through direct sales, brokers and distributors. The remaining products will be export to the international market. The selling prices for such products are per market prices Oleochemical Products A. Methyl Ester Products Major customers for Methyl Ester products are those domestic refinery customers, which include PTT, Chevron (Thai) Co., Ltd., ESSO (Thailand) Plc. ( ESSO ), Thaioil Plc. The selling prices for such products are per market prices. B. Fatty Alcohol Major customer for Fatty Alcohol products is Thai Etoxilate Co., Ltd. ( TEX ). The Company also exports such products to sale in the international market. The selling price for such product is per market price. C. Glycerin Major customers for Glycerin are mainly international customers. The Company s export to domestic sales proportion is 70% and 30% accordingly. Most Glycerin products are sold mainly through distributors. The selling price for such product is per market price Refining and petroleum products supply sourcing The Company s major customer for such products is PTT, and selling price is per market price Services & Others The Company s major customers are petrochemical and shared facilities plants. Currently, such customers include TPE, TPC, HMC and other customers in Map Ta Put Industrial Estate. 2.4 Distribution Channels The Company sells products under the long-term and short-term contracts, as per details in 3.2 Petroleum Products and Aromatics Products Offtake Agreements, 4.1 Agreements relating to the Olefins-Shared Facilities, 4.2 Sales Agreements in Relation to Service Business and Others and 4.3 Agreement related to the Polymer Products Value Center. 13

14 2.5 Sources of Supply The Company sources its supply of feedstock under the long-term and short-term contracts, as per details in 3.1 Feedstock Agreements and 4.1 Agreements relating to the Olefins-Shared Facilities. 2.6 Market Competition Petrochemical and Chemicals Olefin & Shared Facilities Olefin price in first half 2011 had continuously increased from second half of last year. The average ethylene price in South East Asia during the first half 2011 was at USD1,265 per ton, which was higher than that of the same period from previous year by approximately 7%. On the other hand, the average propylene price was at USD1,433 per ton, which was higher than that of the same period from previous year by approximately 24% (Source: ICIS). The increase in ethylene price during the first half 2011 was mainly due to the limited supply, as plants in many countries in the region had reduced/halt their planned production capacity. The limited supply also resulted from unplanned reduced/halt in production as a result from the earthquake in Japan, as well as many fire accidents at the Formosa Petrochemical Corporation s plant in Taiwan. Such incidents decreased the ethylene supply from the market by approximately 1.73 million tons (Source: CMAI). In addition, other Middle East producers, especially those in Iran, reduced the amount of supply exported to Asia, as those producers also faced their own production problems. On the other hand, the demands for products, especially downstream products such as PE and MEG, had been on an increasing trend. The main reason for the increase in the demand was resul from the turnaround of Shell Chemical s cracker plant in Singapore, and as a result, MEG plant of such company needed to find Ethylene from the spot market for its production. The propylene market in Asia during the first half of 2011 was similar to that of Ethylene. However the impact of limited supply was more severe, due to 4 onpurposed propylene production plants (propylene production units that yield propylene as their main products) in Asia with the capacity of 950,000 tons per year had stopped or reduced their operations, for schedule and nonschedule maintenance due to production problems and the above mentioned shutdown of cracker plants. As a result, the production of propylene decreased by 1.04 million tons (source : CMAI). In addition, the demand for such product was still at a high level. These factors contributed to the higher Propylene price in Asia than that of Ethylene. In the second half of 2011, there will be seasonal factors that will increase the demand, as middle and downstream producers require more feedstock for their productions in preparation for Christmas and New Year holidays. On the other hand, 14

15 the supply may also be limited as cracker plants in many countries, such as China, Japan, Taiwan and Singapore, will have turnaround. Moreover, operations of new capacity have been postponed and will, instead, start up their productions next year. Consequently, these factors will result in the Olefin price expected to be at a high level. However, the economic problems in the United States as well as many countries in Europe combined with inflation factors in China may have impacts on the prices of crude oil and petrochemical products, which, in turn, may slow the demand for Olefin s products. As a result, the price of Olefin will not substantially increase in the second half of 2011 due to these important factors Aromatics Products and Downstream Business The price of Paraxylene and Benzene during the first half of 2011 had continuously increased from year ended 2010, especially during first quarter of 2011, where the Paraxylene price was at its highest level in 16 years, due to limited supply as a result of the earthquake in Japan. On the other hand, the demand for such products was still at a high level due to long winter and Chinese New Year. In addition, Aromatic plants in many countries, such as China, Malaysia and the Middle East countries, such as Oman and Kuwait had undertook unplanned shutdown. As a result, the price of Paraxylene and Benzene had continuously maintained at a high level. However, in second quarter of 2011, the price faced a downward pressure from the increase in supply, as a result of Aromatics plants in China and South Korea started their commercial operations, adding 2 million tons of capacity per year. However, in the second half of 2011, the price of Aromatics products will remain at a high level, due to seasonal demand as middle and down-stream Paraxylene and Benzene producers will require more feedstock for their productions in preparation for various holidays. Moreover, Purified Terephthalic Acid plant in China with the capacity of 3.5 million ton per year will start its commercial operation in the second half of Such plant will require paraxylene as its main feedstock, while there will be no new supply of Paraxylene in the market. These factors contribute to the forecast that the demand for the Aromatics Products in second half of 2011 will remain strong Polymer Products Price of Polyolefin products during the first half of 2011 had continuously increased from year ended The average price of HDPE, LDPE, LLDPE and Polypropylene (PP) were USD1,381 per tons, USD1,402 per ton, USD1,707 per ton and USD1,655 per ton accordingly, and such prices had increased from the previous year by approximately 10%, 5%, 18% and 23% respectively. The increase in Polyethylene price during the first half of this year was due to important factors, such as oil price, feedstocks prices and limited supply in the region (resulting from the reduction of HDPE production in China in May and 15

16 June). On the other hand, the demand for such products had decreased due to plastic processing plants reduction in their production capacity (as the demand for end-products decreased during the long Chinese New Year holiday in February), China s stricter policy in extending loan and the inability of PE producers to adjust their prices at the same rate as that of the increased in Ethylene price. For the remaining of 2011, the price of Polyolefins will increase as the demand for products will increase from the downstream producers, who will increase their productions in preparation for various end of the year festivals. In addition, with the price of feedstock remain at a high level and many Olefin plants will stop their operations for maintenance during the second half of this year, the supply of such products will be limited. However, the economic problems in the United States and many countries in Europe, as well as the inflation pressure in China, may decrease the demand for Polyolefin. As a result, the price of Polyolefin may not increase by much during the second half of On the other hand, the overall market conditions for PP and PS will have an upward trend with regard to price, because the price of Propylene and Styrene, which is their feedstock, have been on an increasing trend (similar to that of PE). The demand will also increase during the Christmas and New Year Holiday, but there will be many other factors that may soften the increase in price for such products, similar to that of PE Ethylene Oxide Products The MEG market in the first half of 2011 moved toward the same trend as those of Olefin and Polyolefin. MEG price had increased to USD1,185 per ton, an increased by 33% from the same period of last year. During the first quarter of 2011, the price of MEG products increased from the limited supply, as the demand for products used in Polyester Fiber and PET Resin industries had continuously increased, while there was no new supply capacity in For the second quarter of 2011, MEG s price had slightly decreased due to the inflation problem in China, which resulted in producers producing limited MEG supply, just enough to serve the demand of the consumers with no inventory storage. Such factors slowed the demand for MEG products. In contrast, during the later part of the second quarter of 2011, 4 MEG plants with the capacity of 1.8 million ton per year owned by Nan Ya Plastics shutdown for security inspections per government s orders due to fire accidents at the petrochemical complex owned by Formosa Petrochemical Corporation. However, such incident will not increase the demand by much. For the second half of 2011, the price of the MEG is estimated to be at a high level as a result of a higher demand from Polyester producers due to the seasonality. In addition, the ethylene feedstock price is on an upward trend, as a 16

17 result of crude oil price. Moreover, many of the MEG plants in the region, including Taiwan, China and countries in the Middle East will shutdown for maintenance during the second half of the year, which will, in turn, limit the supply until the end of As for the Ethanolamine market during the first half of 2011, the price had slightly increased from the end of 2010, because the price of feedstock had increased. Moreover, the price of Ethylene Glycol products had significantly increased as compared to year Such increased in prices gave incentive to most producers to use Ethyleneoxide to produce a higher proportion of Ethylene Glycol, and, as a result, might have reduced the supply of Ethanolamine in the beginning of the year. On the other hand, the overall demand for MEA and TEA products was on an increasing trend. However, for DEA products, such demand was still slow due to the laggard Glyphosate market and during the second quarter, there were two new Ethanolamine plants in China started their commercial operations, which resulted in higher supply in the market. In addition, the inflation control policy from the Chinese government had impacted the industry domestically, resulted in the reduction of prices. However, it is foreseen that toward the end of 2011, the price may increase due to higher feedstock price Oleochemical Products A. Methyl Ester Market The price of crude palm oil, which was used in the price calculation formula of Methyl Ester, had fluctuated widely in the first half of During the first quarter of 2011, the domestic crude palm oil price increased significantly due to volatile weather pattern and flooding in the southern part of the country. However, the government had solved such problems by importing crude palm oil from the international market, and the domestic production of palm had gradually improved to the level that is enough for domestic consumption. This later factor resulted in the decrease in price of crude palm oil in March. These fluctuations resulted in the price of Methyl Ester to increase significantly in the early part of the year, and subsequently reduced in March. During the second quarter, the price of Methyl Ester had reduced significantly following the reduction of domestic crude palm oil price. The problem of insufficient amount of crude palm oil supply resulted in an unclear policy regarding the use of crude palm oil as an alternative source of energy. The government had canceled its enforcement of 2 grades biodiesel in January (cancelling the subsidy for biodiesel B5), adjusted to one usage of biodiesel B3 grade in February, and subsequently in March and April adjusted to one usage of biodiesel B2 grade. The adjustment of biodiesel usage resulted in a significant reduction in Methyl Ester demand. However, once the crude palm oil crisis had lapsed, and the crude palm oil inventory had increased, the usage of biodiesel B3 17

18 grade had been enforced in May to June, and biodiesel B4 grade had been enforced after June onwards. B. Fatty Alcohol In 2011, the Fatty Alcohol market had performed well comparing to the year In the first quarter of 2011, the price of Mid-cut Fatty Alcohol had continuously increased, with the price at USD3,500 per ton in March, which was the highest price in the history of such product. Such increase in price was the resulted of higher demand from the down-stream Fatty Alcohol producer, especially personal hygienic products and house cleaning products. In addition, the higher feedstock price was also a factor that contributes to the high price of Fatty Alcohol products. However, the price of Short-chain and Long-chain Fatty Alcohol did not increase similar to that of the Mid-cut. As a result, the average 3 cuts Fatty Alcohol prices were approximately USD2,700 USD2,800 per ton. The overall Fatty Alcohol price in second quarter in 2011 for 3 cuts were at approximately USD2,700 - USD2,800 per ton, which were at the similar level to that of the first quarter. The Mid-cut was still the most demanded Fatty Alcohol with the highest price. However, during the second quarter, the price of the Mid-cut Fatty Alcohol had been reduced following the reduction of feedstock price. As for Shortchain and Long-chain, the prices were adjusted downward, but at the lower rate than that of the Mid-cut. C. Glycerin During the first quarter of 2011, the Glycerin price had decreased as compare to that of December 2010 (the month of which the Glycerin s price was at the highest level of that year). The average price was at approximately USD832 per ton, and such price had gradually decreased during the quarter. During the second quarter of 2011, Glycerin price had significantly decreased from the first quarter with the average price of USD710 per ton. This was due to the lower demand from China and the increase in Glycerin supply resulted from the increase in production of Methyl Ester Palm from Asian producers. Such increased in supply by Asian producers would be used to fulfill the demand from users in Europe, where such users mix Methyl Ester Palm Oil with biodiesel to reduce production cost in the summer. The price of Glycerin is forecasted to be higher in the latter part of the year, especially after the new Epichlorohydrin (ECH) plants in Thailand and China, whose main feedstock is Glycerin, will begin their operations toward the end of this year Refining and petroleum products supply sourcing Crude Oil Price As the global economy continues to expand in 2011, the demand for crude oil is forecast to grow at an average rate from 1.5 million barrels per day in 18

19 2010 to 89.4 million barrels per day in Such growth in global demand will be driven mainly by Asia. On the other hand, demand from countries in Europe and North America will be at the same level or lower in 2011, even if the economies in such region are forecasted to grow as these countries used their energy more efficiently and there are policies that support alternative energies rather than the usage of crude oil. Crude oil supply in 2011 will slightly increase from the Non-OPEC countries, which forecasted to have the production capacity of 53.5 million barrels per day, an increase from 2010 of 0.7 million barrels per day. Most of the production capacity from these countries will be from Latin America, North America, Canada and former Soviet Union countries. On the other hand, the OPEC countries will produce more Natural Gas Liquid (NGL), due to the increase in production capacity of such gas, which will resulted in an increase in NGL production to 5.8 barrels per day in 2011, an increase of 0.5 barrels per day. Such supply is still lower than that of demand in 2011 by 0.3 barrels Middle Distillates Products As the global economy continues to expand in 2011, the industrial production and international logistics will see a positive growth, which, in turn, increase the demand for Diesel and Jet Fuel. In 2011, the spread between Diesel and Jet Fuel as compared to Dubai Crude Oil will be wider than that of 2010, which was, at that time, at USD14 - USD15 per barrels. Such widen spread is forecasted to continue its trend throughout 2011 as a result of higher demand for Diesel and Jet Fuel, while there is limited supply of distillates products entering the market Services & Others Competition in Map Ta Phut Industrial Estate The initial investment is the investment per demand for public facilities. The Company has received concession in the area near the Company s plants from the Department of Public Work and Town & Country Planning, as part of the interior ministry. The Company has a total of 210 Megawatts of electricity production capacity to be used for its own production and sell it to other shared facilities. Subsequently, as the customers of the Company and others operators within the industrial estate have increased their capacity, there are other electricity producers beside the Provincial Electricity Authority, such as Glow Energy Plc., whose concession is outside the Company s area, in/or nearby such industrial estate. The Company has regularly expanded its electricity production capacity as well as steam to fulfill the demand of its customers within their concession area. For steam, there is a limit on the right of way for piping and loss yield due to distanced transfer of such steam. As a result, the competition is limited to the surrounding area only. The Company capacity is at approximately 650 ton per hour. 19

20 Such capacity may differ from the Company s competitors, but the Company operates in the petrochemical industry and shared facilities, and, as a result, has indepth knowledge of the needs and limitations of the petrochemical production. Consequently, the Company can provide public facilities services that match the needs petrochemical business, which help the Company gain a competitive advantage in its business of selling public facilities within the Company s concession estate. 2.7 Environmental Impact The Company emphasizes the important of following the laws and related policies with regard to the environment and corporate social responsibility (CSR). The Company has implemented the Environmental Management System: ISO firm-wide as the standard of operating procedures. In addition, the Company has proactively designed the strategies with regard to the environmental management for companies within the group to follow. Such companies can use this strategy in their productions and services, thereby systematically and continuously increase the efficiency in the environmental management, which, in turn, will resulted in the effective usage of resources, reduction of production cost and the businesses operations that are friendly to the environment. The Company aims to increase its environmental standards so that it can grow its business in a sustainable manner, and focuses on production procedures that have the environmental standards higher than those required by policies or related laws. In order to reach its goal and minimize any impact to the environment, the Company uses the Eco-efficiency philosophy to systematically measure the outcome of the Company s environmental competence, which can be divided into 5 categories, namely the usage of water, the usage of energy, the activities that may contribute to global warming, activities that cause substance that may deplete the ozone and the amount of wastes. As for the employees, the Company has the policy to emphasize their consciousness in their work to ensure that their work will have minimum or no impact to the environment. The Company has set the target to reduce the amount of waste to be secured in the landfill to 0 for the Company s petrochemical plants within The Company will use 3R philosophy and Innovation Technology that will be suitable for the current business environment. The Company also conducted a research and development to add value to such waste, thereby develop the Eco-Industry. In addition, the Company strictly manages its production waste as required by law and adds certain policies beyond those required by law, such as requiring those who are responsible for transfer of the dangerous waste to install GPS system on their trucks in order to prevent such waste to be discarded in an illegal manner. The Company also use certain waste in other industries. As for the Olefin and shared facilities, the Company has conducted studies on carbon footprint on the HDPE with the purpose of obtaining carbon footprint of HDPE, for the HDPE I-1 production unit and will proceed to other products at a later stage. 20

21 The Company also has a Pollution Prevention policies, such as air quality control for refinery and aromatics plants within the Map Ta Phut Estate, thereby controlling volatile organic compounds (VOC) from the storage and transportation tanks. In addition, the Company has kept records the amount of VOC emission and consistently maintains the equipments to ensure minimum VOC emitted to the environment. The Company also uses clean fuel in order to reduce the emission of sulfur dioxide gas, and keeps on improving the system, such as improving the efficiency of the burning of the electricity generating turbine in order to decrease the amount of Nitrogen Oxide emission. Moreover, the Company has the environmental management system that is transparent and auditable by governmental agencies, and the Company has installed the automatic tools that consistently measure air quality release from the plants and submits such information to Map Ta Phut Industrial Estate s Environmental Monitoring & Control Center 24 hours a day. Lastly, the Company is fully aware the important of sources of water and its quality in Rayong. As a result, the Company has installed a system that maximizes and allows waste water to be reused, and reduced the release of waste water from the plants. Such system will reuse the water that is being treated in the Company plants operations. Moreover, the Company has the waste water pool, in which the Company must conduct tests on the quality of such waste water to ensure that they are above the standard as required by law before releasing it from the plants. 3. Summary of the Essence of the Contracts/Agreements Transferred from PTTAR to the Company 3.1 Feedstock Agreements Material feedstock agreements for the production of the aromatics products and petroleum products are as follows: Key Feedstock Party Contract Quantity Termination Year (Barrels per Annum) Crude Oil PTT As designated by the 2024* Company Condensate PTT 40,000,000 51,000, * Note* The agreement is made on an evergreen basis whereby it will continue to be in effect after the term of such agreement has lapsed, unless terminated by either party by a prior written notice. The crude oil agreement will be terminated on 9 February Under this agreement, PTT agrees to supply crude oil and other feedstock according to the types and quantities designated by the Company for the operations of the Company s refinery. The condensate agreement will be expired on 31 December Under this agreement, PTT has an obligation to supply approximately million barrels of condensate per annum. 21

22 3.2 Petroleum Products and Aromatics Products Offtake Agreements The Company has the offtake agreements which cover all of its petroleum products and aromatics products. Most of these agreements are long-term agreements made with PTT. The key terms and conditions of the material products offtake agreements are summarised as follows: Offtake Agreement on Petroleum Products A. Long-term products offtake agreement for petroleum products generated from AR1 i.e. jet fuel, diesel fuel and fuel oils with PTT, under which PTT is obliged to purchase petroleum products from AR1 the minimum amount of at least 70 per cent of the total production amount. The term of the agreement is 18 years (ending on 9 February 2024), after which the agreement will automatically continue to be in effect, unless the agreement is terminated by either party by a prior written notice (on an Evergreen Basis ). B. An offtake agreement for petroleum products generated from the New Complex (New Product Offtake Agreement) with PTT, under which PTT agrees to purchase 100 per cent of the petroleum products of the Company, which is produced from the Condensate Residue Splitter (the Upgrading Complex Project Phase 1). The purchase price for at least 50 per cent of the products shall be the domestic market price and the remaining shall be sold at the export market price or at any other price that would be mutually agreed. This agreement has the same termination period as the products offtake agreement for petroleum products which is generated from AR1. C. The light naphtha offtake agreements with 2 domestic customers, SCG Chemicals and SAKC, with the term of 1 4 years. D. The condensate residue offtake agreement with PTT, with a term of 15 years. This agreement will expire in January However, the Company already sent notice of termination to PTT before the amalgamation. Offtake Agreement on Aromatics Products E. The offtake agreements for most of its aromatics products in the amount of approximately 70 per cent of total production amount to domestic customers. The aromatics products produced from AR2 are sold to domestic customers through PTT under the long-term agreement. In respect of the aromatics products generated from AR3, PTTAR has directly made long-term offtake agreements with domestic customers, such as Indorama Petrochem Limited and PPCL. F. For the offtake agreement for aromatics products which must be exported for sale, in the amount of approximately 30 per cent of the production amount, the Company sells these products to PTT under long-term agreements, and directly supply these products to PTT s customers. The essence of the offtake agreements for these two kinds of products are summarised as follows: 22

23 Product Petroleum Product Petroleum Product from AR1 Petroleum Product from the New Complex PTT PTT -TRANSLATION- Party Contract Quantity (Barrels per Annum) Not less than 70 per cent of the production amount 100 per cent of the production amount Termination Year 2024 * 2024 * SCG Light Naphtha Chemicals 840,000-1,080, **** SAKC 63,360 79,200 Evergreen ** Condenste Residue PTT 585, *** Aromatics Products Benzene PTT 120, , * PPCL 150, , * PTT 430, , * Paraxylene TPT 80, , * SMPC 250, , * Indorama 190, , * Orthoxylene PTT 28,200 55,410 Evergreen ** Cyclohexane UCHA 76,000 81, **** Note *The agreement is made that is on an evergreen basis whereby it will continue to be in effect after the term of such agreement has lapsed, unless terminated by either party by a prior written notice. **The agreement is on an evergreen period where it will be terminated upon a prior written notice by either party. ***PTTAR has given a notice to PTT for a termination of the offtake agreement for Condensate Residue. ****Negotiation is in progress for extension of term. 3.3 Utilit Agreements Tank Farm Storage and Service Agreement Material tank farm storage and service agreements with Thai Tank Terminal Co., Ltd. for the purposes of storing the aromatics products which will be exported and the Condensate feedstock obtained from domestic sources. These agreements will end during a period between Supply Agreement for Power, Steam and Water for Industrial Use A long-term supply agreement with Glow Energy Plc. for the purchase of power, steam and water for industrial use with the term of 25 years ending in April Head of Agreement with PTT Utility Co., Ltd. for the supply of power, steam and water for industrial use with respect to AR3. Gas Supply Agreement PTTAR has entered into 4 gas supply agreements with PTT to be used as feedstock /fuel for refinery plant and aromatics plant. The term of each agreement 23

24 is 10 years, whereby PTTAR is entitled to renew each agreement by giving a notice not less than 6 months prior to termination of such agreement. 3.4 Land Lease Agreements The land lease agreement and agreement on the permission for the use of land with the Industrial Estate Authority of Thailand (IEAT) A. Land plot No. I-20/2 with the leased area of Rai for the term of 30 years from 18 September 1992 to 17 September 2022 B. Land plot No. I-17/2 with the leased area of 97 Rai 1 Ngan and square wah for the term of 27 years and 10 months from 13 January 1993 to 14 November 2020 C. Land plot Nos. I-14/3 and I-24/4 with the leased area of 248 Rai 3 Ngan and square wah for the term of 30 years from 28 March 1991 to 28 March 2021 D. Land plot Nos. I-25/1 and I-25/2 with the leased area of 500 Rai and square wah for the term of 30 years from 10 September 1993 to 9 September 2023 E. Land plot No. I-14/4 with the leased area of 36 Rai 3 Ngan square wah for unlimited term from 22 January 1996 F. Land plot No. G-3 with the leased area of 1 Rai, 3 Ngan and square wah for the term of 3 years from 16 July 2010 to 15 July 2013 G. Land plot No. G-8/1 with the leased area of 1 Rai and square wah for the term of 28 years and 4 months from 20 November 1992 to 28 March 2021 Lease Agreement and Service Agreement with Energy Complex Co., Ltd. H. 555/1 Energy Complex Building A Floor 14, Vibhavadi Rangsit Road, Chatuchak Sub-district, Chatuchak District, Bangkok, for use as head office premises, with the total office area of 2,735 square meters. The agreement term is from 1 October 2009 to 30 September Lease Agreement and Service Agreement with State Railway of Thailand I. The land in the Map Ta Phut train station with the leased area of 15,900 Sq. metres for the term of 3 years from 16 June 2010 to 15 June 2013 The land lease agreement with RIL Co., Ltd. J. The land title deed No with the leased area of 10 Rai 3 Ngan and 79.5 square wah for the term of 30 years from 14 June 2008 to 26 April Summary of the Essence of the Contracts/Agreements Transferred from PTTCH to the Company 4.1 Agreements relating to the Olefins-Shared Facilities Long-term Olefins Sales Agreement (OSA) Long-term OSA were made with downstream petrochemical plants. These OSA were structured on Minimum Contract Quantity, that is, such group of downstream petrochemical plants must buy products in the minimum quantity specified in the agreement. The Company has an 24

25 obligation to sell 576,700 tons of Ethylene per annum and 198,680 tons of Propylene per annum under the OSA. The essence of the agreements are summarised as follows: Product Party Contract Quantity (Tons/Year) Agreement Expiry Year TPE 176, , Ethylene TPC 50, BPE 176, SSMC 61, VNT 69, * 95, TPP 9, Propylene HMC 94, Note *Negotiation is in progress for extension of terms. Olefins Sales Agreements other than the OSA The essence of the agreements are summarised as follows: Product Party Contract Quantity (Tons/Year) 25 Agreement Expiry Year Ethylene VNT 69, TOCGC 300, Propylene PPCL OP,QQQ 2023 Aditya Birla Chemicals (Thailand) Co., Ltd. 10, Sales Agreements in relation to other By-products from the Manufacture of Olefins Agreements for the production of commercial quantities of several kinds of by-products from the manufacture of olefins, viz. mixed C4, pyrolysis gasoline, tail gas, cracker bottom and hydrogen, through the long-term and short-term agreements referencing to the prices of products in the Asian markets. The essence of the agreements are summarised as follows: Product Party Contract Quantity (Tons/Year) Agreement Expiry Year Mixed C4 Bangkok Synthetics Co., Ltd. 70, Pyrolysis Gasoline PTT 150, , Tail Gas TIG Hyco Co., Ltd. 17, TOCGC 4,