2010 Highlight Financial Status 2008 2009 2010 Total Assets Total Liabilities Total Shareholders’ Equity 153,266 90,234 63,032 154,609 94,292 60,317 137,540 84,905 52,635 Unit : Million Baht Financial Performance 2008 2009 2010 Sales and Service Income EBITDA EBITDA with LCM Net Profit Earnings per Share (baht) 273,767 13,490 13,490 6,343 2.14 225,300 14,858 20,031 9,162 3.09 251,386 (3,833) (9,005) (8,465) (2.86) Unit : Million Baht Financial Ratio 2008 2009 2010 Current Ratio (times) Net Profit Margin (%) Return on Equity (%) Total Debt to Shareholders’ Equity (times) 1.34 2.29 10.28 1.43 1.44 3.98 16.22 1.56 1.05 (3.35) (13.97) 1.61 Unit : Million Baht Note: EBITDA is earnings before interest, tax, depreciation and amortization. LCM is the provision for diminution in value of inventories.
Transcript
2010 Highlight
Financial Status 200820092010
Total Assets
Total Liabilities
Total Shareholders’ Equity
153,266
90,234
63,032
154,609
94,292
60,317
137,540
84,905
52,635
Unit : Million Baht
25522553Financial Performance 200820092010
Sales and Service Income
EBITDA
EBITDA with LCM
Net Profit
Earnings per Share (baht)
273,767
13,490
13,490
6,343
2.14
225,300
14,858
20,031
9,162
3.09
251,386
(3,833)
(9,005)
(8,465)
(2.86)
Unit : Million Baht
25522553Financial Ratio 200820092010
Current Ratio (times)
Net Profit Margin (%)
Return on Equity (%)
Total Debt to Shareholders’ Equity (times)
1.34
2.29
10.28
1.43
1.44
3.98
16.22
1.56
1.05
(3.35)
(13.97)
1.61
Unit : Million Baht
Note:
EBITDA is earnings before interest, tax, depreciation and amortization.LCM is the provision for diminution in value of inventories.
002-003=4c_Y N15.pdf 1 15/3/2011 18:21
Unit : Thousand Barrels/Day
Unit : US$/Barrel
Unit : US$/Barrel
Intake
2010 2009
113
165
2008
58
131116
174
Refinery Business Aromatics Business
Gross Integrated Margin (GIM)
2010
5.91
2009
5.93
2008
0.19
Operating Expensesand Financial Costs
2010 2009 2008
2.49
1.52
0.97
2.28
1.37
0.91
2.55
1.98
0.57
Operating Expenses Financial Costs
Note:- Including Hedging From Risk Management- Including Stock Gain/(Loss)- Excluding LCM
002-003=4c_Y N15.pdf 2 15/3/2011 18:21
1 October 2008: Mr. Chainoi Puankosoom was appointed as President & CEO.
27 December 2007: • PTTAR was registered.• Mr. Permsak Shevawattananon was appointed as CEO.• Mr. Chainoi Puankosoom was appointed as President.
PTTAR Milestones
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
20092007 2008
2 January 2008: PTTAR share trading began on The Stock Exchange of Thailand (SET).
10 January 2009: Aromatics Complex II (AR3) began its commercial operation.
1 February 2009: PTTAR and SPRC ended their Operating Alliance Agreement.
27 March 2009: Construction of Clean Fuel and Upgrading Project Phase I or Condensate Residue Splitter (CRS) project was completed.
31 July 2009: PTTAR signed an agreement for the design and construction of Clean Fuel and Upgrading Project Phase II or the Deep Hydrodesulfurization (DHDS) for Euro 4 diesel.
20 June 2008: PTTAR signed a 31 million US$ agreement for the improvement of its power-generation gas turbines with Dresser-Rand AS.
* Clean Fuel and Upgrading ProjectVapor Recovery Unit (VRU) Installation and Biodiesel Biodiesel ProjectEfficiency Improvement Project of Aromatics Complex Complex I
2010 2011
20 February 2010: PTTAR held a public scoping meeting for Health Impact Assessment (HIA) approaches.*
20 January 2011: PTTAR Board of Directors approved the Vapor Recovery Unit (VRU) construction project for Aromatics Complex I and II (AR2 and AR3) feedstock and aromatics tanks.
25 January 2011: PTTAR received a CSR-DIW certificate for Refinery Plant (AR1) and Aromatics Complex I (AR2).
24 Febuary 2011: Board of Directors of PTT, PTTAR, and PTTCH endorsed an amalgamation plan between PTTAR and PTTCH.
1 October 2010: Mr. Bowon Vongsinudom was appointed as President & CEO.
24 and 31 July 2010: PTTAR held a public reviewing meeting for Environmental and Health Impact Assessment (E/HIA) approaches.*
88
Message from the Chairman
Despite the considerable volatility of the petrochemical and refining businesses over the past year caused by the partial recovery of the US economy, 2010 was a year in which PTT Aromatics and Refining Public Company Limited (PTTAR) has fulfilled many goals as planned. As a result, PTTAR derived anew profit of 6,343 million baht for the year, higher than planned. Company total intake amounted to 95.02 million barrels (2% over the previous year), which resulted in a total output of 76.38 million barrels of petroleum products (2.3% over the previous year) and 1.95 million tons of aromatics (2.4% over the previous year).
Since its first year of business, the synergy derived from running a refinery together with aromatics complexes has benefited PTTAR, and in 2010 it amounted to US$136 million, reiterating our business validity.
As for its financial success, the Company secured 25,700 million baht in additional long-term, revolving loans to support the refinancing of loans maturing in 2011-2012 and/or to serve as a provisional credit line for future businesses, or both, thus extending its average maturity of loans and lowering average interest rates. It also negotiated amendment of conditions under long-term loan agreements worth 9,897.5 million baht. Finally, it repurchased US$59.15 million in dollar debentures to lower its finance costs for 2010.
At year-end 2010, the Clean Fuel and Upgrading Project Phase 2 registered 85.5% progress and completion is expected according to the plan to produce low-sulfur diesel of the Euro IV standard from 2012 onward. Completed environmental investment projects included combustion improvement at the Gas Turbine Unit, the Vapor Recovery Unit at the refinery, and efficiency improvement of heat exchangers and aromatics distillation column including equipment efficiency improvement projects in the plants to lower fuel consumption as well as to
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Annual Report 2010PTT Aromatics and Refining Public Company Limited 9
(Dr. Norkun Sitthiphong)
Chairman of the Board of Directors
lower global warming. PTTAR’s assessment of environmental impacts and health impacts (EIA/HIA) for its construction projects was voluntarily undertaken out of a commitment to do business with responsibility to the environment and society.
It is pleasing to note that during the year PTTAR achieved an Integrated Management System concurrently for 5 systems, also secured certification under the CSR-DIW corporate social responsibility standard of the Ministry of Industry and was voted by the CSR-DIW panel of experts as the most outstanding “Organizational Governance” out of 111 entries in this category as well.
On 5 May 2010, in an effort to elevate its corporate governance to international practices, PTTAR joined the UN Global Compact while expressing its intention to conform to the 10 international principles covering human rights, labor, the environment, anti-corruption, and respect for intellectual properties. Further, it integrated its own business processes among good corporate governance, internal controls, and risk management. Moreover, PTTAR has fostered its personnel excellence in technical areas, leadership, development creativity, volunteering spirit, and stewardship of all communities and stakeholders in a fair and equal manner.
Apar t f rom integrated product ion and comprehensive business management upgrading to international acceptance, PTTAR has laid down a solid foundation for risk management along with diligent identification of synergy partners while relentlessly investigating business possibilities and
opportunities for progress – all these to accommodate sustainable business expansion of current and new businesses.
The variety of successes over the past year illustrated PTTAR’s conformance to its vision, goals, policies, and strategies with such clarity and precision, together with the commitment by the Board of Directors, the Managements, and all employees to do business in a way that stands up to scrutiny while being socially responsible. Therefore, on behalf of the Board of Directors, I wish to thank you our shareholders, customers, financial institutions, business partners, government agencies, and all other benefactors for consistently supporting us. There is no doubt in my mind that PTTAR’s next step is going to be both momentous and strong in the best interests of the shareholders and stakeholders.
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10
To the Shareholders
Consisting of 3 Independent Directors chosen from experts in the auditing of financial management, accounting, management, economics, as well as petroleum and petrochemical businesses, the Audit Committee of PTT Aromatics and Refining Public Company Limited is chaired by Dr. Chokchai Aksaranan, with Dr. Witoon Simachokedee and Mr. Nakarin Virameteekul as members.
In 2010, there were two changes to the Committee. First, Dr. Chokchai Aksaranan (Chairman) and Mr. Nakarin Virameteekul completed their Directors’ terms at the 2010 Annual General Meeting of Shareholders on 5 April 2010. That Annual General Meeting re-appointed Dr. Chokchai Aksaranan to the Board. Then at meeting No. 4/2010 of 21 April 2010, the Board re-appointed Dr. Chokchai Aksaranan as Chairman of the Committee and Mrs. Pannee Sathavarodom as its member in place of Mr. Nakarin Virameteekul.
Second, the entire Committee completed their Audit Committee terms on 27 December 2010. So, the Board, at its meeting No. 11/2010 of 18 November 2010 and No. 12/2010 of 16 December 2010, re-appointed Dr. Chokchai Aksaranan as its Chairman, together with Dr. Witoon Simachokedee and Mrs. Pannee Sathavarodom as its members for another term. In addition, it appointed Police General Sereepisut Temeeyaves as a fourth member, effective from 28 December 2010.
The Committee performed its duties under the Board-assigned scope, duties, and responsibilities and in line with an announcement of The Stock Exchange of Thailand (SET).
Report of the Audit Committee
The Committee held 9 meetings during the year with complete attendance each time together with the Management, Internal Audit, and the external auditor on relevant agenda items. In performing its duties, it proved independent and received excellent cooperation from all departments. The Committee clarified and reported summaries of its performance for the year to the Board on 17 February 2011. Below are the highlights.
• Reviewoffinancialstatements: The Committee reviewed the quarterly and annual financial statements for the year 2010 with the relevant members of the Management and the external auditor to ensure proper preparation in essential details under generally accepted accounting practices. It was found that PTTAR’s information disclosure was adequate, complete, and useful to the users. Monitoring of the readiness for implementation of IFRS (the new accounting standard) in 2011 as well as its impacts on the financial statements was in place; it was also found that such implementation had no significant impact on PTTAR. In addition, the Committee also held a separate meeting with the external auditor for consultation on matters related to their audit of the financial statements.
• Reviewofriskmanagement: After reviewing PTTAR’s risk management practices under the Risk Management Committee’s policy and risk management approaches, the Committee was confident that the Company had commanded risk assessment encompassing key risks, as well as efficient systems and risk management plans that could control or mitigate potential impacts on the acceptable achievement of business objectives. The Management was found to have valued risk management and
Annual Report 2010PTT Aromatics and Refining Public Company Limited 11
defined a policy for instituting an internal control system that linked and aligned with corporate risks. Finally, there is a mechanism to continually monitor risk management progress for plan fulfillment.
• Review of internal controls: Reviewing the internal control system with the external auditor and the head of Internal Audit, the Committee monitored PTTAR’s corrective actions as recommended and concluded that the Company commanded an adequate and efficient internal control system and no significant issue or shortcoming had been identified. PTTAR also recognized the value of a good internal control system and had shown reasonable confidence that its internal controls could support its business execution to fulfill the goals and objectives, apart from conformance to applicable laws and the code of conduct.
• SupervisionofInternalAudit: The Committee reviewed the independence of Internal Audit and supervised its work to conform to international standards. It approved the annual internal audit plan and revised the plan in line with the corporate environment. It also endorsed Internal Audit’s strategic plans and its restructuring to accommodate the role of a skill training and expertise unit that can educate employees on internal control and internal audit, apart from providing helpful recommendations to the efficiency improvement of the internal control system.
• Review of conformance to the law: The Committee monitored findings of Internal Audit’s inspection of PTTAR’s conformance to the law on Stocks and Stock Exchange, SET’s requirements, or laws applicable to its business. It was concluded that there had been no issue related to reporting of avoidance or non-conformance to the law.
• Reviewofconnected transactions: Together with the external auditor and Internal Audit, the Committee reviewed connected transactions between PTTAR’s connected people or businesses of potential conflicts of interest, and concluded that these transactions had been sensibly undertaken in the normal course of business and had disclosed connected transactions in line with SET’s announcement, SEC’s
requirements, and good corporate governance principles. PTTAR prudently and reasonably eliminated such conflicts of interest while treating all shareholders in the same way.
• Self-assessment:Having assessed its own performance against SET’s manual on good practices, the Committee concluded that it had performed its duties under the Board-assigned scope, duties, and responsibilities and in line with an announcement of SET.
• Selection,nomination,andproposaloffeesforthe2011externalauditor: To hire an external auditor that is independent, the Committee nominates Mr. Winid Silamongkol, CPA (Thailand) Registration No. 3378, or Mr. Vairoj Jindamaneepitak, CPA (Thailand) Registration No. 3565, or Mr. Charoen Phosamritlert, CPA (Thailand) Registration No. 4068, all from KPMG Phoomchai Audit Ltd., as the external auditor for 2011. None of the nominees are connected to PTTAR, has no shareholding, and provides no other service apart from auditing. They conducted their previous auditing duties properly, in line with the auditing professional standard, and with a reasonable understanding of PTTAR’s business. Finally, their fees are considered reasonable.
In summary, the Audit Committee views PTTAR as being in full conformance to the good corporate governance policy, resulting in its adequately internal control system, complete with an adequate, suitable risk management system. In addition, the financial statements as of 31 December 2010 showed no problems or transactions that affected its financial standing. The Committee considered the financial statements properly prepared, with adequate information disclosure and conformance to generally accepted accounting principles, as well as applicable laws and regulations.
PTT Aromatics and Refining Public Company Limited (PTTAR) values the internal control system, which the Board has assigned the Audit Committee to review and assess, with a focus on ensuring its adequacy, efficiency, and suitability for business, and its stewardship of properties and prevention of harm, mistakes, or frauds. Also, the accounting system and financial reporting must be accurate and reliable while conforming to applicable laws and regulations. The Audit Committee performs its duties independently.
The Audit Committee reviewed reports on internal controls, particularly to examine the aspects of strategy, finance, and operation to ensure that development of these aspects are consistently efficient and effective. It ensures monitoring and corrective actions, particularly those for key risks affecting job performance, connected transactions leading to potential conflicts of interest, and conformance to applicable laws and regulations to ensure that good corporate governance principles are adequately observed, as is suitable risk management. These practices would result as company overall benefit. The findings of the audit contained no suspected violation by PTTAR Managements of the Securities and Exchange Act and no significant defects. In short, business execution aligns with its policy of valuing internal controls.
The Board’s opinions about the internal control system are identical to those of the Audit Committee, as highlighted below:
1. Organization and Environment
PTTAR is committed to be Asia's leading aromatics and oil refining with integration to intermediate and downstream petrochemical and alternative energy businesses. Its vision, mission, and values are clearly stated to serve as a business framework and direction. Its organization structure is characterized by decentralization of power for the flexibility of job performance, suiting prevailing business circumstances. Strategies and goals are defined along with a 5-year business expansion plan and a clear, measurable annual plan. Processing efficiency is constantly improved. Employees are encouraged to observe corporate governance and the PTTAR code of conduct. A good corporate governance manual and corporate values are promoted among all employees, consisting of key topics like honesty, management and treatment of related parties, human resource management with a focus on skill development and competencies to ensure desired capability aligning with business needs and accommodating future business expansion. Activities are in place to promote Knowledge Management and participation in productivity activities to drive the Company toward future success.
2. Risk Management
PTTAR values conformance to the risk management policy while promoting all employees’ recognition of the value of risk management, which could affect its goal achievement. The Company commands efficiency improvement in analyzing market information, industry movements, and market prices to ensure good results
Annual Report 2010PTT Aromatics and Refining Public Company Limited 13
of risk management and long-term business planning. It also monitors market situations for feedstock, products, and finance every week. External and internal risk factors are identified along with their potential impacts on goal achievement. So that PTTAR’s risks may be acceptable, in place are risk management plans and a clear process to control or mitigate impacts while ensuring preparedness for proper and timely prevention and remedy.
3. Performance Control
The Board appointed 4 Subcommittees (more commonly referred to as ‘Committees’): the Audit Committee, Corporate Governance Committee, Risk Management Committee, and the Nomination and Remuneration Committee. These Committees ensure that PTTAR’s business aligns with standards and good corporate governance principles alike. The Company focuses on work process management for efficiency and unity, with clear policy definition and work procedures to ensure connection to internal controls so that mechanisms may strictly follow processes and support conformance to Company policy to prevent, detect, or minimize risks. Managements review and monitor performances through indicators (at corporate and operating levels), regularly comparing performances against goals. Finally, in place is an advanced, transparent, and credible process to control information processing in support of business management to ensure accuracy and timeliness.
In 2010, PTTAR attained certif ication of 5 management systems from MASCI: IMS (R-100 Rev. 1), ISO/TIS 9001:2008, ISO/TIS 14001:2004, TIS 18001-2542 and BS OHSAS 18001:2007. In addition, it underwent assessment by experts at the Department of Industrial Works under the Corporate Social Responsibility project (CSR-DIW) and named an outstanding company for Organizational Governance based on overall criteria of being complete, accurate, transparent, and open to scrutiny of its practices.
4. Information and Communication System
PTTAR values information and communication systems by instituting internally and externally. Advanced technology is applied to information processing and management for efficient assessment of internal controls, finance & accounting reports, and conformance to assorted policies and regulations. Management data systems are managed concerning business performance and communicated to all parties for acknowledgment, understanding, and receipt of such information completely, accurately, adequately in a timely way so that decision-making may be based on accurate and up-to-the-minute information.
5. Monitoring and Assessment System
The Board held 12 meetings in 2010, whereas Management meetings take place every week to consider and monitor performance against corporate and operating indicators to ensure alignment with corporate goals. The Audit Committee held 9 meetings to consider the financial standing and audit findings of the internal control system every quarter of the year and provide key recommendations that affect PTTAR to Managements. Key issues and shortcomings are strictly monitored for correction to ensure that internal control measures and systems are effective and modifiable in time as circumstances change, so as to keep the Company’s internal controls updated.
The Audit Committee reviewed the internal control system, assessed by Company Managements and Internal Audit Department, and discovered no significant issues or shortcomings, as endorsed by the external auditor, which considered PTTAR’s internal control system adequate and effective.
To the ShareholdersThe Board of Directors of PTT Aromatics and Refining Public
Company Limited (PTTAR) values good corporate governance as a strategic tool for sustainable growth. The Board has assigned the Corporate Governance Committee to oversee its business and ensure that the business is conducted in full and consistent compliance with the good corporate governance policy, PTTAR code of conduct, the regulations of the Stock Exchange of Thailand (SET) and the Securities and Exchange Commission (SEC), and recognized international standards.
In 2010, the Corporate Governance Committee performed its duties as assigned with an emphasis on raising PTTAR’s corporate governance practices to international standards as well as promoting morality among employees. The Committee, in addition, treated all shareholders and all groups of stakeholders equally as can be seen in the summary below:
1. Development and promotion of corporate governance to international standards - This is in line with the good corporate governance principles for SET listed companies in 2006, and the rules and regulations of SEC. Moreover, OECD Principles of Corporate Governance have been adopted and used as another benchmark in this area. In this respect, the Corporate Governance Committee advised PTTAR to acquire a membership in UN Global Compact on 5 May 2010. UN Global Compact, an organization under the United Nations working for the promotion of good governance, labor, and environment, calls for corporate citizens to come into an agreement under 10 international principles. To demonstrate compliance with these 10 principles, with emphasis on human rights, labor, environment, and anti-corruption, PTTAR has integrated these principles into its strategies, corporate culture, and day-to-day operations. A document reporting Communication on Progress (COP), which follows the 10 international principles, was compiled in both Thai and English and posted on the website of UN Global Compact and that of PTTAR to make this development wider known among all stakeholders.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 15
In addition to the above, PTTAR arranged for the continuous promotion and communication of corporate governance principles among management and staff through various medias, such as e-mail, internal electronic newsletters, posters, management and staff meetings, and staff activities. This is to encourage compliance with its corporate governance and the international corporate governance principles and to make its communication on corporate governance more efficient and effective. In this respect, a communication process to promote the compliance with PTTAR’s corporate governance manual was established and incorporated in its ISO 9001 management system, which had already been certified by the Management System Certification Institute (Thailand) in 2010. This was regarded as an assessment on the compliance by both internal and external parties to assure all stakeholders of transparency in all processes.
2. Assurance of the compliance with corporate governance plan - An annual corporate governance plan covering 3 areas – corporate governance, environmental governance, and corporate social responsibilities – was devised to ensure compliance with PTTAR’s good corporate governance policy. The plan requires agreement by the Board, as well as follow up and assessments by the Corporate Governance Committee.
The Corporate Governance Committee is scheduled to meet at least once every 2 months to closely monitor the level of compliance and to provide recommendations for improvements. In 2010, 6 meetings were held, and reports on the results of corporate governance performance were submitted to the Board quarterly to allow the Board to follow up and assess performance.
In 2010, PTTAR also hosted the PTT Group CG Day on 20 September 2010 as part of the PTT Group’s annual activity to promote good corporate governance among its PTT Group staff. 7 listed companies in the PTT Group take turns hosting the event, which was initiated in 2007. Under the theme of ‘CG : The Code to Growth’, the 2010 event focused on the promotion of CG awareness among staff in the PTT Group. Staff members were encouraged to embrace the corporate governance principles in both their work and life.
On the same occasion, a number of the media and outsiders were invited to witness how corporate governance is practiced in the PTT Group. A reporter with a physical disability was well accommodated and was provided the same opportunities as other reporters to carry out interviews with Management, a clear indication of PTTAR’s respect for human rights.
Corporate Governance Policy “The Board of Directors intends to make PTTAR
an effective organization in terms of business operations, corporate governance, and excellence in management, providing maximum benefit to the shareholders and stakeholders. PTTAR conducts business with responsibility and fairness to all parties involved, and is transparent and accountable to build maximum trust and confidence for all shareholders and stakeholders.”
PTTAR’s corporate governance policy covers all six basic elements of good corporate governance, namely:
1. Accountability for own performances – All decisions must be explainable.
2. Responsibility for duties to the maximum capability and efficiency.
3. Equitable treatment of stakeholders – This includes equitable and fair treatment of the environment and natural resources.
4. Transparency in business operations – All operations are open for inspection.
5. Creation of long-term value for the business6. Ethics and moral conduct in business
operations.In 2010, PTTAR continued to work on the
promotion and communication of the principles and practices of good corporate governance so that Management and staff would adopt these principles in their work and daily life. All employees are expected to take responsibility for communicating with all stakeholders, respecting human rights, not violating copyrights, demonstrating awareness of the need for environment protection and energy saving. This includes optimizing the use of resources and acting in compliance with international standards, which will
complete attachments to each item of the agenda, as well as recommendations of the Board, and proxy forms. A list of Independent Directors was also enclosed so that shareholders would have sufficient information of each Independent Director’s stake in each item of the agenda in case they would opt to appoint a proxy to the meeting. The invitation letter also detailed documents all shareholders had to present on the meeting day, meeting procedures to protect each person’s rights, Annual General Meeting regulations, voting rules, and a map showing the meeting venue.
On the meeting day, PTTAR provided convenience for the shareholders and their proxies equally. Staff members were on hand to examine the documents, and registration points were divided using a barcode system, organized by ordinary and juristic shareholders. Ballots were made to cast votes on each meeting agenda item. Also, shareholders were allowed to register for the meeting 2 hours in advance, making the registration process swift, convenient, and accurate. Even after the meeting had started, shareholders could still register and join the meeting to cast their votes on agenda items which had not been voted on.
All members of the Board of Directors, various Committees, Management, external auditor, and legal consultants were on hand during the Annual General Meeting to address questions posed by the shareholders. The Chairman hosted the meeting and obtained approval of the voting procedure, that is, one share, one vote. The voting and counting of ballots were transparently conducted, using the barcode system to ensure speed and accuracy. Voting was carried out in compliance with PTTAR’s rules and the law. Results of each vote count for each item of the agenda were clearly presented in the meeting. A volunteer shareholder was also present and acted as a witness of the vote counting. The Chairman gave shareholders enough opportunities to ask questions and express their opinions freely so that important Company matters could be duly decided, with the assistance of relevant Directors who answered the questions clearly and in enough details. PTTAR’s legal advisors also explained relevant legal considerations to the shareholders. The legal advisors and a volunteer
help PTTAR realize its vision of becoming a leading international organization. PTTAR reviewed and amended the ‘Corporate Governance Manual’ to update the information and to align the procedures with its continuously improved management standards designed to achieve international standards. 2 amendments were made in March 2010 and January 2011. PTTAR followed the 2006 guidelines of SET’s good corporate governance practices for listed companies, summarized below:
1. The Rights of Shareholders
The Company values the rights of shareholders and, therefore, has developed and implemented a set of procedures to ensure all stakeholders that their basic rights are fully protected, as detailed below:
1) PTTAR followed the requirements of the law, combined with guidelines for good corporate governance from SEC and SET, as well as its corporate governance manual when organizing the Annual General Meeting of Shareholders 2010 on 5 April 2010. Shareholders were allowed to exercise their full rights at the meeting. PTTAR received a perfect score of 100 in the assessment of Annual General Meeting 2010, organized by SEC and Thai Investors Association. PTTAR’s operation was regarded as “Excellent”, as it had been in 2009.
Before the meeting, PTTAR announced a Record Date on 18 February 2010, which was 14 days in advance of the Annual General Meeting, which fell on 5 March 2010, and announced the closing of the registry (share roster) book one working day after the Record Date, to notify shareholders of their rights to attend the meeting and receive dividends. PTTAR posted the meeting invitation and appendices, in both Thai and English, on the www.pttar.com website on 5 March 2010, 30 days before the meeting and notified the shareholders of this through SET. This provided shareholders adequate time to study the relevant information before casting their votes in the meeting in advance of receiving the actual documents, which were delivered to the shareholders starting 15 March 2010, 21 days before the meeting.
The meeting invitation and its appendices posted on PTTAR’s website had the same content as those handed to shareholders for use at the meeting. The documents contained the agenda of the meeting,
Annual Report 2010PTT Aromatics and Refining Public Company Limited 17
shareholder acted as referees to ensure the transparency of the balloting process throughout the meeting. PTTAR kept all the ballots of important agenda items, according to SET guidelines, and respected the rights of shareholders by not adding to or changing the order of agenda items, or altering important information during the meeting. The Chairman provided sufficient time for the meeting and conducted the meeting properly and transparently, respecting the sequence of the agenda earlier announced in the meeting invitation. PTTAR also provided opportunities for shareholders to exercise their rights in the meeting and freely express their opinions.
PTTAR submitted the minutes of the Annual General Meeting 2010 to SET within 14 days after the meeting, which fell on 19 April 2010, and posted the document on its website so that all shareholders could receive the minutes quickly and other interested parties could access its information. The minutes of the meeting were, moreover, delivered to shareholders who had expressed their opinions in the meeting for verification/correction. Suggestions and recommendations made by shareholders on the questionnaire on the meeting day were also summarized in the shareholders’ newsletter as information for absentees. The dividends were paid out to shareholders on 29 April 2010.
2) PTTAR allowed shareholders to submit items which they wished to add to the meeting agenda and to nominate qualified persons for consideration for directorship. Shareholders could do so following the criteria earlier set, that is, submissions must be made 60 days in advance, between 24 November 2009 and 22 January 2010. Questions regarding items on the meeting agenda could also be submitted in advance of the Annual General Meeting through SET channels and PTTAR’s website. PTTAR compiled all questions submitted by the shareholders and addressed them in the Annual General Meeting. Minor shareholders could also ask for in-depth information about the business as well as meeting the Corporate Governance Committee and Senior Management in an exclusive meeting ahead of the Annual General Meeting.
The Board meeting no. 1/2011 of 20 January 2011 has approved a modification to adjust the shareholding required to propose additional agenda
items or nominate Directors for election, or both, will now be 4% instead of 5%.
3) PTTAR’s provis ion of informat ion to shareholders exceeds legal requirements. For example, PTTAR routinely provides up-to-date information and posts reports and analyses completed by the management on its website. Shareholders and debenture holders were notified of its developments and information through Shareholders’ Newsletter, sent by mail every quarter. PTTAR allows minor shareholders to directly acquire information from the Company Secretary or Investor Relations Division.
4) A Shareholders’ Company Visit, organized from 29 to 30 November 2010, allowed 500 shareholders to visit PTTAR plants, thereby increasing the confidence of the shareholders regarding the refinery and the aromatics business, and improving their understanding of the management of PTTAR’s environment and community around the refinery and aromatics plants. Based on the assessment, shareholders who participated in this project were 93.57% satisfied with the visit to the operations, compared to 92% in 2009.
2. Equitable Treatment of Shareholders
PTTAR values shareholders and treats them equally through the following procedures:
1) PTTAR gives shareholders opportunities to add items to the meeting agenda and nominate qualified persons for directorships in advance, according to the criteria set by the Board and posted on its website. Shareholders are informed of such criteria through SET. This is to demonstrate that PTTAR treats all shareholders equally and justly. The proposed items to the agenda are screened under its regulations to identify only those topics with true benefits to the business. In addition, nominated persons are selected by the Nomination and Remuneration Committee before submitting the qualified names to the Board for consideration. The Chairman announces the results of the consideration together with the decision rationale at the Annual General Meeting.
2) Shareholders are allowed to submit questions ahead of the meeting through various channels such as mail, fax, or PTTAR’s website.
according to appropriate guidelines, is within the boundaries of the related law, and can efficiently achieve goals which PTTAR has laid out. The outcomes of audits are reported to the Audit Committee at least once every quarter.
6) Recognizing the need for equality and fairness among shareholders, PTTAR drew up a guideline, as part of Corporate Governance Manual, for the use of internal information. The Board, Management, and staff, as well as all stakeholders and related persons possessing undisclosed information significant to PTTAR’s share price are not allowed to use such information for direct or indirect personal benefit from the sale of shares.
7) PTTAR has in place measures to prevent and examine transactions which may cause conflicts of interest and abuse of inside information. Such measures, incorporated in its policy, guidelines, and working procedures, are:
• Thepolicy andguidelinesprohibitDirectors,managers, and staff who are responsible for the budget from buying or selling PTTAR’s shares 30 days before announcing the quarterly budget and 45 days before announcing the annual budget to ensure equal access to information, and require that Directors, managers, and staff strictly comply with this rule.
• TheBoardsetoutguidelinesthatareinlinewith the Corporate Governance Manual. All personnel are required to report cases which may conflict with PTTAR’s interests and gather evidence to prevent unintentional conflicts of interest. PTTAR’s role is to gather information,
3) Proxy forms listing the names of Independent Directors who have no stake in the meeting agenda are also attached to the meeting invitation so that the shareholders can assign a proxy to attend the meeting and cast votes on their behalf. In the Annual General Meeting 2010, 772 shareholders out of 2,325 meeting participants selected this option.
4) PTTAR has an accurate, complete, and transparent code of conduct for disclosing information, which includes minutes of the Annual General Meeting, financial and general information, as well as important information which may affect the price of its shares. This information is distributed through the channels and media of the SET, PTTAR’s website, and news releases by Management. Investor Relations acts as a channel for communicating with investors by telephone at 02-140-4000 extension 4104 and E-mail address: [email protected]. This office provides information and news and also answers any queries regarding PTTAR’s activities to investors, shareholders, and analysts. Corporate Compliance and Communition Department is responsible for providing accurate and up-to-date information to the media and general public.
5) PTTAR has clearly defined its organizational structure and limitations regarding the powers and authority of its Management and Executives. It has also made every effort to define relevant policies, rules, and regulations and has produced a manual which acts as a guideline to create checks and balances. Internal Audit Department is independent and has a clearly defined role (as authorized in its charter) by the Audit Committee on 26 October 2009. The department monitors work to ensure that business is conducted
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• Shareholders: In addition to basic shareholder rights mandated by laws, company regulations, and the corporate governance manual, including voting rights, freedom of opinion in the shareholders’ meetings, the rights to examine the number of shares, and the right to receive fair compensation, PTTAR allows shareholders to directly ask the Chairman, Corporate Governance Committee questions and provide suggestions and recommendations regarding PTTAR’s business. In this regard, channels to communicate with the Chairman, Corporate Governance Committee are provided in all issues of the Shareholders’ Newsletter. All suggestions and recommendations are later submitted to the Board. In 2010, PTTAR arranged to provide more informational content regarding corporate governance in each newsletter.
In addition, PTTAR consistently seeks equitable and fair treatment of shareholders and is determined to best represent the interests of the shareholders through transparent business conduct, keeping in mind the added value to the business in the long term. For example, management successfully negotiated the rental of a condensate storage tank, resulting in a reduction of future rental costs of around 150 million baht per year, thereby creating and protecting key benefits for shareholders.
PTTAR arranged a shareholders’ Company Visit at the Rayong plant on 29 and 30 November 2010 for 500 persons. Invitations were sent to shareholders who were registered at the end of the last closing of the book on 8 March 2010 and had never paid a visit to PTTAR’s plants. The activity was also announced through SET and on its website and was open for interested persons to participate by return mails. A transparent procedure was set up to draw the names of those selected at random to attend. Those selected could check their names on the website and received a notification by phone.
PTTAR allowed shareholders over 65 years of age to appoint a representative to participate in the program, as suggested by shareholders. This year, 3,789 people took part in the activity. Based on the assessment among minor shareholders (holders of 1-100 shares up to one million shares), participants in this project were 93.57% satisfied and also gave useful feedback and suggestions which will be used to improve this project in the future.
report to the Board, and constantly update the information. In Board meetings, if there are any agenda items which may conflict with PTTAR’s interests, each Director who is a stakeholder will not attend the meeting, or will abstain from casting a vote on that agenda item.
• PTTARarrangesforacompletedisclosureofshareholding of the Board, Senior Management and managers or those at equivalent levels working in Finance and Accounting in the annual report, as defined by SEC and SET.
3. Roles of Stakeholders
PTTAR conducts its business with responsibility for all stakeholders aiming for sustainable mutual benefits. The Board ensures that an effective management system is set up to further ensure that the rights of all stakeholders are protected as required by the law, and that these protections and procedures are clearly written in the Corporate Governance Manual and PTTAR code of conduct. PTTAR takes full responsibility for ensuring that the rights of stakeholders are protected and that all stakeholders are treated equally, including shareholders, staff, customers, business partners, creditors, competitors, the community, the society, the environment, as well as all other stakeholders. PTTAR’s business is always conducted with respect for the rights of stakeholders.
In addition, PTTAR encourages participation of all employees in taking care of stakeholders by providing facilitation and information regarding the business to stakeholders and interested parties through telephone, news releases, meetings, exhibitions, and other activities. It is confident that its already-established corporate governance system will lead to sustainable growth. This will consequently create a better understanding about corporate governance among employees, thereby improving their efficiency at work. At the same time, stakeholders also play a part in PTTAR’s sustainable business growth by providing useful suggestions and recommendations, such as shareholders’ suggestions on social responsibilities or conclusions from meetings and seminars with customers and business partners.
In 2010, PTTAR treated all groups of stakeholders as follows:
• Employees:PTTAR values its employees and regards them as a valuable asset. It creates pride and confidence among employees and organized various projects to encourage collective creativity while developing employees’ potential to increase their capability for working and surviving amid the volatile economic situation. It is PTTAR’s policy to raise staff competency to achieve professional levels, to assign the right person to the right job, and to treat all employees equally and fairly, while providing a good and safe working environment. Employees are compensated at a competitive rate when compared to those in a similar business. Activities are constantly organized to instill an awareness and understanding of good corporate governance, and there are regular assessments to test the correct understanding and employee satisfaction on this topic, so that continuous development can occur. In addition, PTTAR promotes the communication of information about its business throughout the organization, while creating clear channels for staff to directly express their opinions to the management, including the following options:
1. Direct to Management (D2M) on the Intranet – This is a two-way communication between the staff and Management, providing an opportunity for staff to ask all sorts of questions, while creating a good understanding between the Management and staff.
2. Safety Walk – Management members take turns meeting staff in person during a weekly safety walk which provides an opportunity for the Management to hear hands-on opinions
and problems from staff, while also being able to answer questions directly.
3. “Brother meets Brothers and Sisters” – President and CEO conducts the quarterly presentation of business results which also provides an opportunity for staff to ask questions and give their recommendations.
4. President and CEO carries out monthly communication with all staff.
5. A welfare committee was established to provide staff representatives to engage in discussions with PTTAR regarding staff welfare. The committee works to assess, monitor, and recommend sufficient and suitable actions to enhance employee welfare.
PTTAR management’s policy is to make it a ‘Happy Workplace’ where employees are encouraged to take leadership both in and outside their workplace, to always learn, and to continuously develop themselves.
• Customers:PTTAR seeks to create the highest customer satisfaction in both quality and price. It is determined to develop and maintain sustainable relationships with all customers by setting up a working unit responsible for providing information about products and solutions to customers’ problems, while receiving complaints to ensure that PTTAR products and services achieve the highest satisfaction among customers. PTTAR honors its commitments to customers by delivering products and services that are high-quality, timely, and fairly-priced. Quarterly
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meetings and visits to customer sites are jointly organized by technical groups, procurement planning, and commercial departments to collect customer opinions and provide customers with clarification about products and services. Moreover, PTTAR does not collude with its competitors to create situations which are unfair to customers. It strictly adheres to contracts, business ethics, and legal requirements. Customer satisfaction reviews are conducted twice a year. In 2010, the assessment result achieved PTTAR’s target score of 100% satisfaction, the same as in 2009.
PTTAR has a good relationship with all customers and encourages all customers and business partners to share responsibility for society. For example, it presented a social responsibility case at the 2010 CSR Awards organized by SET which received compliments for its quick assistance to customers. These customers had a technical problem with their production process which impacted the community and the environment until it was solved with PTTAR’s assistance.
• Business partners: PTTAR respects fair competition in the liberalized market and holds firm to the terms and conditions of contracts as well as code of conduct. It treats its business partners equally and fairly, based on the assumption that business partners also hold similar guidelines for proper business conduct. In addition, PTTAR has, as a template in all procurement, rental, and purchasing contracts, a clause concerning conflicts of interest and audits. This exhibits PTTAR’s attempt to search for contractors who conduct business with transparency and good governance. Good corporate governance will prevent Management and staff from influencing, convincing, or giving or taking benefits dishonestly. In addition, all business partners are required to strictly comply with safety, occupational health, and environmental regulations. PTTAR issued a new procurement regulation for 2011 on 18 January 2011 which stipulates that all procurement must be done with consideration of the business partners’ ethics, fairness, transparency, and positive responsibility for society and the environment. In 2010, PTTAR joined business partners in merit-making activities on various important occasions.
• Lenders:PTTAR honors its commitments to creditors and financial institutions by doing its best in following all contracts. It does not conceal any information or facts which may be harmful to lenders. Should there be any situation that prevents it from performing as required by the contracts, PTTAR will notify and work with lenders to find a solution to the problem together. It, moreover, has a good relationship with lenders and is ready to take part in social responsibility programs organized by lenders, as appropriate.
• Competitors: PTTAR honors and supports free trade. It follows the rules of fair and free competition and proper ethics, and acts within the boundaries of the law. Its business ethics forbids employees to engage in improper practices which may lead to the demise of competitors. In recent years, PTTAR has never had any disputes relating to any of its competitors.
• Community, Society and the Environment: PTTAR greatly values careful business conduct, taking care not to adversely affect the community, society, and the environment. It always aims to support activities that can help upgrade the quality of people’s life while creating a quality community and environment at all operating sites. PTTAR grants particular support to develop the potential of the younger generation in education, culture, religion, sports, and the development of professional skills.
Social responsibility has now been incorporated in PTTAR’s organizational core values (SPEED: S = Social Responsibility). Staff are reminded not to take actions which harm society and the environment. They are also encouraged to respect human rights, bearing in mind the fair use of labor. PTTAR supports its staff to take part in community activities around its plant and in Rayong province. Willingness to participate in community activities has now become part of staff annual performance assessment. In time of natural disasters, the recent domestic floods for example, PTTAR staff members were encouraged to lend a hand by donating relief bags in various provinces. Various groups of staff with public spirit regularly organize activities in various forms.
PTTAR recognizes the usefulness of building a network of stakeholders to acquire collective knowledge and experience, such as in the “Shareholders’ Company Visit” project, in which participants took part in a social responsibility program with students who served as Young Environment Ambassadors. Participants also joined news reporters in Rayong province in releasing fish into a natural water source. “Beach Cleaning” is another example of this community effort. On the International Coastal Cleanup Day, the Management and staff as well as their families completed beach-cleaning activities with their counterparts from other plants in the Map Ta Phut Industrial Estate. In the “Dream School, Map Ta Phut Pan Model” project, PTTAR arranged for media people and staff as well as other operators to jointly carry out activities to provide educational support in Rayong province.
PTTAR’s practice in social responsibility corresponds to the guidelines laid out by the Department of Industrial Works on Corporate Social Responsibility toward society (CSR-DIW), which comprises 7 main elements, namely corporate governance, human rights, labor laws, environmental protection, fair business operations, consumer protection, and community development. In 2010, PTTAR participated in the Department of Industrial Works’s project designed to encourage industrial operators to take responsibility for society in their application for certification under CSR-DIW. PTTAR was not only recognized as a CSR-DIW-certified company, but was also voted an outstanding company for organizational governance for 2010 out of 111 companies included in the assessment process. The recognition was based on effective and enterprise corporate governance based on evidence of transparency and readiness for inspection, a permanent PTTAR corporate value.
In addition, as a corporate citizen of Rayong, PTTAR recognizes its duty to contribute to provincial development for Rayong’s balanced growth. Therefore, its key guidelines are to pay in Rayong its building and land taxes, excise tax, local development tax, and signboard tax, and to change company vehicle registration to Rayong registration. Employees are
also encouraged to register their personal cars and pay related tax in Rayong. All these enabled PTTAR to win honorable recognition from the Provincial Administration Organization as an outstanding operator that pays local taxes to add income to local agencies and local administration organizations to improve the quality of life for Rayong residents.
In compliance with Article 67, Clause 2, PTTAR carried out Environmental Impact Assessments and Health Impact Assessments (EIA/HIA) as part of the Clean Fuel Project and Upgrading Project, Vapor Recovery Unit and Biodiesel Project, and Upgrading Project in Aromatics Complex I (AR2). These projects were carried out voluntarily as they are not categorized as part of the 11 types of projects causing severe damage in Map Ta Phut Industrial Estate. To complete these projects, PTTAR conducted a survey and reviewed opinions from villagers around the plant and revealed the results of the assessment through its website in September 2010.
• The Country: PTTAR’s successful effort to train, promote, and remind all its staff to honor stakeholders and corporate governance created a sense of citizenship in each individual staff with efficiency, transparency, and responsibility, which is beneficial for the country. PTTAR is committed to building an organizational culture and values that staff can adapt to their work, their family, and society in general. It also supports the dissemination of information and principles of corporate governance to the public through all internal and external channels, for instance, the Disclosure Focus publication in the July 2010 issue of SET.
The Board and the Management of PTTAR recognize the need to take part in various activities to share opinions with various stakeholders. For example, the Chairman of Corporate Governance Committee participated in the annual Kathin religious ceremony, and the Corporate Governance Committee and Management met with minor shareholders who actively followed up business movements and issues that may impact PTTAR. The Board closely followed information and opinions from shareholders on various occasions so that PTTAR was able to use these opinions and suggestions in decision-making and
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action-planning. PTTAR also closely followed the issues and solutions to environment problems at Map Ta Phut.
To accommodate the change in Thai accounting standards to the International Financial Reporting Standards (IFRS), enforced from 1 January 2011, PTTAR has investigated the impacts of such change to financial statements, expertise, and skills of personnel, work processes, internal control system, and efficient change management planning. These investigations will make its financial statements clear and transparent while helping financial statements users and regulatory agencies analyze the performance, assess, and compare PTTAR’s financial standing with industry peers and competitors on the same footing. Besides, they would provide PTTAR with opportunities to ease cross-border listing and fund raising.
4. Disclosure of Information and Transparency
Disclosure of information is one of the indispensable principles for good corporate governance. PTTAR, therefore, highly values information that may impact the decisions of shareholders and stakeholders. It recognizes and fully complies with laws regarding information disclosure for listed companies. This includes financial and non-financial information, which is disclosed in a complete, accurate, transparent, and timely manner, and in accordance with regulations. The information is available in Thai and English and is disclosed through accessible channels such as SET and SEC channels, as well as PTTAR’s website (www.pttar.com). PTTAR strictly follows the laws and regulations of SET and SEC, as well as those of other government agencies. There are regular follow-up actions and inspections of amendments of regulations to ensure that these laws and regulations are correct. This will, at the same time, assure shareholders that PTTAR’s business is transparent and appropriate. Investor Relations Division and Corporate Compliance and Communication Department are in charge of proper and complete disclosure of PTTAR information.
In 2010, Senior Managements as well as Investors Relations staff distributed information to investors on various occasions, including at three foreign investors road shows held abroad, 4 financial analysts’ meetings, 75 meetings at PTTAR, 500 conference calls, 3 local
investors’ meetings, 45 disclosures of information through SET channels and PTTAR’s website, 4 shareholders’ newsletters, and exhibitions at the SET in the City and Money Expo.
In addition, PTTAR consistently disclosed information to shareholders and the public through the mass media and through the various channels of social networks, both central and local media. Shareholders, investors, and the general public were able to learn about its movements around the clock. When the President & CEO reached his retirement age, PTTAR, to ensure the correct understanding and confidence in its business, organized four integrated programs with both central and local media, two media visits to the plant, four events with media participation, and 4 CEO Meets the Press sessions to announce the quarterly results. Moreover, reporters from television stations, daily newspapers, magazines, and websites were invited to 50 interviews with the CEO and Senior Managements. 100 photo releases, press releases, scoops, and calendar news were extended to both central and local media for dissemination to the public. PTTAR also released 32 pieces of information regarding social activities and CSR initiatives on Facebook under the name Cozy PTTAR and 4 other pieces on PTTAR’s general information on Wikipedia. PTTAR also released the news about the President & CEO receiving the Second “Fastest-Growing in Asia” awards, from Platts, Singapore.
PTTAR has now increased social network communication channels to facilitate the more diverse internet stakeholders. Through these channels,
information concerning the way of life of the people residing in Map Ta Phut area is presented, and stakeholders are welcome to express their opinions or to share their information on Wikipedia PTTAR, Blog Map Ta Phut with a view: http://pttarsocial.blogspot.com and on Facebook: Cozy PTTAR.
In addition to the various disclosures of information above, PTTAR provides a two-way communication channel which is convenient and fast through an e-mail address, which is included on its website under Corporate Governance. Shareholders, investors, and the general public can file a complaint or forward any news to the Board, and can make enquiries regarding PTTAR by contacting the Company Secretary and the secretary of Corporate Governance Committee at the following e-mail address: [email protected] under Investor Relations, PTTAR can be contacted at [email protected]. In 2010, investors made use of this popular method of communication, with about 1,500 correspondences through e-mail.
PTTAR’s financial report has been presented in detail under “The Board of Directors’ Report on Its Responsibility to Financial Reports”.
PTTAR has a backup system to ensure the security of its information technology in case of an emergency to prevent any loss of information. It announced the application of PTTAR 2010 software to prevent the use of illegal software.
PTTAR has also laid out in its corporate governance manual a set of measures for informing about any rumors of possible damage to itself and measures for protecting the informer. Shareholders and stakeholders can notify PTTAR and the Board through the Corporate Governance Committee or Independent Directors of any potential illegal actions of a person or any event that may cause damage by e-mail or regular mail. PTTAR will keep such information in strict confidence to protect the informer.
Use of inside information and Company securities trading: Since a key policy of PTTAR is to treat all shareholders fairly and equally, it has defined guidelines for the use of inside information by the Directors, Management, and all employees, including their connected and related persons with access to material information that could affect PTTAR’s share
price and has not yet been publicized. Under these guidelines, such data or information must not be exploited for self-gains, whether directly or indirectly, from share trading. The SEC-defined Directors and Managements must strictly report their portfolios of shares under SEC’s rule. In addition, a Board policy requires reports of share transactions, as well as portfolios of Directors and Senior Management, for the Board meeting’s acknowledgment every month.
5. Accountability of the Board
PTTAR has a set of criteria outlining the qualifications of Directors in the corporate governance manual, which has been posted on its website. It must have no less than 5 and no more than 15 Directors, and each Director cannot hold a directorship for more than 3 terms. No less than a third of the total number of Directors and no less than 3 Directors must be Independent Directors. PTTAR’s regulations against shareholding in it by Independent Directors are stricter than those required by SEC and SET, a limit of shares not to exceed 0.5%.
The Chairman is not to be the same person as the President and CEO, so that they are independent of each other in order to maintain a system of checks and balances. There is a separation of roles between the Chairman, Directors, Committees, and Managements.
As mentioned in the corporate governance manual, the Board is qualified and knowledgeable in various fields, and consists of at least 3 Directors with expertise in petroleum or petrochemicals, at least one in law, and at least one in finance and accounting. The election of a Directors must be transparent and must comply with the processes of the Nomination and Remuneration Committee and the Board. The Nomination and Remuneration Committee is tasked with proposing the names of qualified persons, accompanied by their profiles, for consideration at the Annual General Meeting, after carefully reviewing the possible candidates against PTTAR regulations. The nominated candidates, as put forward by minor shareholders, are also considered by the committee. As for the replacement of Directors who resign before their terms are completed, the Board will work on the appointment of their replacements at the next meeting.
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At the end of 2010, the Board was made up of 15 qualified Directors. Of these, 6 were experts in the petroleum or petrochemical industry, 5 in legal and business administration, 2 in finance and accounting, 2 in safety and security, and the other in economics. 8 of the Board are Independent Directors, over half of the total number. The Chairman is not a member of any committee, and the only management on the Board is the President and CEO. This structure enables the Board to conduct their duties with maximum efficiency, as detailed in "Management Structure".
RolesandResponsibilitiesoftheBoard
The Board, in its capacity as the representatives of shareholders, is vital to providing policy and direction to the business. It also monitors PTTAR code of conduct to help the business attain its goals, an arrangement designed to maximize benefits to PTTAR and all shareholders. As a result, the Board is required to carry out more roles and responsibilities than those defined by law in order to set a good example for staff at all operational levels, while also creating confidence among shareholders and investors. Their roles and responsibilities can be summarized as follows:
1) Policyandbusinessstrategies
The Board defines policy vital to the business, such as vision, mission, strategy, financial goals, risk management, business planning, and budget proposals, and is responsible for overseeing the business administration and operation to ensure that the management conforms to the approved plan and manage resources efficiently and effectively.
2) Value creation to the business
The Board is responsible for drawing up a policy on enterprise risk management while ensuring that a system or procedures for risk management are in place in order to strategically add value to PTTAR. There must be measures and methods to reduce impacts on the business. The Board is also required to provide recommendations to enhance business performance.
3) Corporategovernance
The Board must fulfill its duties to the best of its ability and ensure that business operations conform
to the laws, objectives, regulations, and direction decided at the shareholders’ meetings. The Board also makes sure that good corporate governance and code of conduct are being practiced, as well as overseeing the smooth operation and independence of PTTAR’s internal controls. The Board makes sure that essential information about PTTAR is disclosed. At the same time, it is the responsibility of the Board to protect the rights and benefits of shareholders and treat them equally, and to oversee potential conflicts of interest. These are explained under the section “Connected Transactions” to ensure the fair treatment of all shareholders and maximum benefit to PTTAR. In addition to encouraging employees to understand, recognize, and practice good corporate governance, the Board should provide support for the integration of the internal control system and corporate governance.
4) Responsibilitiesforsociety,theenvironment,
and human rights
It is an essential requirement that the Board align all business operations with social and environmental
responsibility to reduce industrial pollution, as well as promoting the sustainable livelihood of Thai society. This starts with improving the livelihood of the local community around the plant, participating in problem-solving to reduce impacts on the community, respecting human rights, and using fair labor practices, so that the community and the plant can co-exist in the long term.
Subcommittees
To ensure that the Directors oversee business operations most effectively, the Board has appointed Committees to study, summarize, and set standards for various business operations, as well as setting guidelines about various aspects of management. This creates checks and balances, which leads to effective management and maximum benefit for PTTAR. Critical issues are raised for the considerat ion or acknowledgement of the Board.
PTTAR has 4 Committees: Audit Committee, Corporate Governance Committee, Nomination and Remuneration Committee, and Risk Management Committee. The Nomination and Remuneration Committee has a procedure for the selection of Committee members and implements this procedure consistently when the need arises. The name list of suitable candidates is then submitted to the Board for official approval.
Information detailing the work of the Board and the Committees, as well as their compensation, is listed under "Management Structure".
Management Directors
These Directors are involved in the management of PTTAR, complying with the Capital Market Supervisory Board declaration No. Thaw Chaw 28/2551, which states that Management Directors are also managers, including Directors authorized to sign binding agreements, with the exception of agreements that have already been decided by the Board and are co-signed with other Directors.
In 2010, PTTAR had 3 Management Directors, namely the President and CEO, and 2 other Directors
authorized to sign binding agreements. Further details are available under "Board of Directors".
President and Chief Executive Officer
In the Board’s extraordinary meeting no.1 on 29 September 2010 and no. 2 on 1 October 2010, the meetings agreed to appoint Mr. Bowon Vongsinudom as Director, President & CEO, and Secretary to the Board with effect from 1 October 2010, replacing Mr. Chainoi Puankosoom, who retired.
Company Secretary
In meeting no. 8/2553 on 19 August 2010, the Board appointed Ms. Monwipa Choopiban, VP - Corporate Compliance & Communication, to be Company Secretary replacing Mrs. Puangchao Nakanart, who retired from the Company on 1 October 2010. This appointment was carried out under the provisions of Article 89/15 of the Securities and Exchange Act (1999), which was amended by the Securities and Exchange Act no.4 of 2009.
Board Meetings
The Board holds meetings once a month and schedules its meetings a year in advance – more than required by PTTAR’s regulations of 1 meeting per quarter. Extraordinary meetings are scheduled as necessary. During 2010, 12 meetings were held for the Board, one for Independent Directors, and one for the Board members without Managements. Each meeting had a clearly defined agenda and contained regular reports of business operations. Board members are required to regularly attend the meetings to acknowledge PTTAR’s development and take part in business decisions.
The Secretary to the Board sends meeting invitations containing the agenda and relevant appendices ahead of the meeting to give the Directors enough time to study the information before the meeting. The President & CEO and the Chairman together consider matters and organize them into the meeting agenda in order of importance and relevance. Other Directors can also propose matters to be added to the agenda. In every meeting, the Chairman allows
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all Directors to express their opinions openly, suggest discussion topics, or ask questions. Senior Managements also attend the meetings when agenda items relate to their responsibilities to answer and explain situations to the best of their ability. If any Directors have a stake in any agenda items being discussed at a specific meeting, they must not be present at the meeting or cast their votes in decisions related to that item. After the meeting, PTTAR produces written minutes of the meeting, which is certified in the next meeting. The meeting documents are stored on PTTAR’s system for filing important documents, ready for examination by the Board or other relevant organizations.
The Independent Directors have provided useful recommendations to the Company and its shareholders, including preparation for the introduction of new accounting standards, knowledge of laws, as well as guidelines and communication channels with minor shareholders.
Further details of the Board meetings are available under "Management Structure".
Board Assessment
It is stated in PTTAR’s corporate governance manual that an assessment of the Board, collectively and individually, must be carried out under the performance assessment procedure after the completion of annual operations. The Board arranged for its performance assessment for 2010 to take place once in order to assess their achievements, problems, and obstacles, and to propose ways for PTTAR to improve its performance. The assessment covered the performance of the Board as a whole and included self-assessments of the 15 individual Directors. The criteria for the assessment are as follows: 5 (100 out of 100) = very good 4 (80 out of 100) = good 3 (60 out of 100) = meets expectations 2 (40 out of 100) = average 1 (20 out of 100) = needs improvement
In summary, the overall assessment score for the Board in 2010 revealed an average score of 96.71%,
which included assessment in 4 main areas (topics) and 38 subtopics:
Performance assessment of individual Directors revealed an average score of 96.85%, which included assessment in 6 main areas (topics) and 22 subtopics:
Directors’ and executives’ personal development
PTTAR’s policy encourages all Directors to attend training courses with the Thai Institute of Directors (IOD) and other relevant institutions, such as the Capital Market Academy, and to attend seminars on various topics to accumulate knowledge about the roles and responsibilities of a Company Director.
If a new Director is selected, the President & CEO is required to explain business operations, business
updates, upcoming projects and business ventures, to summarize the last Board meeting, and to advise him or her regarding good corporate governance practices so that he or she can understand the business and perform his or her responsibilities more effectively. PTTAR has a procedure to prepare a new director so that the person can perform his or her duties without delay. It is also the role of the Company Secretary to coordinate the following matters:
1) Collect necessary information on Directors to facilitate the examination process to ensure compliance with the relevant laws and arrange for the deliveries of essential information on Directors’ performance, such as recommendation letters, Company regulations, corporate governance manual, Directors’ personal history, performance summary, and the annual report.
2) Arrange for meetings with the Chairman, Directors, Senior Management, and Vice President to keep them updated and to equip them with insights of PTTAR’s operations.
3) Provide support for Directors and Senior Managements to attend training sessions considered useful for enhancing their performance. This training could be organized by PTTAR, by the regulators, or by independent agencies, such as IOD, which provides courses designed for directorships. SEC requires Directors of listed companies to take at least one of these courses, as well as seminars on various topics, to enhance the Director’s knowledge of his or her roles and responsibilities.
PTTAR also provides membership in IOD for all Directors, so that they can receive news and information. It also notifies all Directors of possible training courses which they can attend throughout the year. As of the end of 2010, 7 Directors attended the Director Accreditation Program (DAP), 9 attended the Director Certification Program (DCP), 2 attended the Audit Committee Program (ACP), 2 attended the Financial Statements for Directors (FSD)/ Finance for Non-Finance Directors (FN) program, 3 attended the Role of Chairman (RCP) program, 1 attended the Role
of Compensation Committee (RCC), and 12 attended programs conducted by the Capital Market Academy.
As for succession planning, PTTAR has systematically laid down an employee development structure by grooming executives under a leadership competency approach, focusing on cultivating skills in business management and people management. The Company has framed the approach and execution of its succession plans by the designation of capable employees in all groups for grooming into all key positions. Succession plan development for key positions and internal transfers must follow the overall scheme. All others are developed under individual development plans, covering core competency and functional competency. Details on executive development appear under “Performance Review”.
TheBoardofDirectors’sreport
The Board is responsible for proposing PTTAR’s budget. The Audit Committee is assigned to review financial reports and make sure that they are of the highest quality and comply with the generally accepted accounting standards. Company information is disclosed in a transparent and complete manner, and a quarterly report is submitted to the Board. The Board is responsible for the budget as well as financial information appearing in the Annual Report. The financial statements are audited by KPMG Phoomchai Audit Ltd., a licensed auditor. Disclosure of any information, financial or non-financial, is always complete, truthful, and accurate.
Remuneration for Directors and Managements
PTTAR has a transparent policy for the remuneration for Directors and various Committees. The Nomination and Remuneration Committee is in charge of reviewing the remuneration to make sure that it is competitive with companies in the same business group and with leading listed companies. Remuneration considerations are based on the performances of both the individual and the Company, the practices of listed companies of the same scale in the same industry, the scope of
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responsibilities, as well as the overall economic situation. Remuneration for Directors follows the decisions approved by the Annual General Meeting. At the Annual General Meeting 2010, shareholders approved the 2010 remuneration for Directors as proposed by the Nomination and Remuneration Committee. Details of the remuneration for Directors and Managements have been disclosed under "Remuneration for Directors".
According to the Thai IOD’s survey of Directors’ compensation in 2010, PTTAR was categorized under the natural resource group. Comparison of Directors’ compensation was made between PTTAR and the group average, with the following findings:
BoardofDirectors: The Chairman’s compensation was 0.13% lower than the group average, Management Directors 0.03% lower, and non-management Directors on par. The Chairman’s bonus was 0.53% higher than the group average, Management Directors 1.22% higher, and non-management Directors 0.65% higher.
Committeemembers: The compensation for the Chairman of the Audit Committee was found to be 0.31% higher than the group average, while those of the members were 0.24% higher. The compensation for the Chairman of the Nomination and Remuneration Committee was 1.41% higher than the group average, while those of non-management members were 1.92% higher. The compensation for the Chairman of the Corporate Governance Committee was 1.07% higher than the group average, while those of non-management members were 1.65% higher. The compensation for the Chairman of the Risk Management Committee was 1.67% higher than the group average, while those of executive committee members were 1.87% higher and those of non-management members were 1.50% higher.
Based on the latest Directors’ compensation survey conducted by SET in 2009 and taking into account the entire annual remuneration package reported to SET, PTTAR was categorized under the energy and utilities group. The compensation for the Chairman was reportedly 1.40% higher than the group
average, those of the Directors were 0.64% higher, that of the Chairman of the Audit Committee was 0.42% higher, and those of Audit Committee members were 0.10% higher.
The Nomination and Remuneration Committee evaluates the performance of the President & CEO yearly to determine fair compensation rates and to report the findings for the approval of the Board.
In 2010, SET, SEC, and IOD jointly evaluated the corporate governance of listed companies and completed the annual Corporate Governance Report of Thai Listed Companies (CGR). PTTAR was rated in the ‘Excellent’ range, winning a symbolic ‘five stars’ from the National Corporate Governance Committee. Moreover, PTTAR won recognition from SET’s CSR Awards committee for 2010 as a company with satisfactory performance in various areas, including Director and Management levels through to staff level, especially in corporate governance. PTTAR was commended for possessing a vision which values all stakeholders, and highlighting transparency both inside and outside it. Its attempt to promote social responsibility among its business partners was also part of the recognition.
The Corporate Governance Committee is still determined to further develop corporate governance to achieve higher efficiency and effectiveness. This is to ensure that corporate governance brings about the maximum benefit to shareholders, PTTAR, and all stakeholders. The Committee aims to upgrade PTTAR’s corporate governance to the level comparable to international standards and in wider and more diverse dimensions. It is expected that corporate governance could be integrated into other areas of the Company’s operation, such as risk management and internal auditing.
Managing an integrated oil refinery and petrochemical business, PTT Aromatics and Refining Public Company Limited (PTTAR) commands a business structure grouped into the following businesses:
1. Oil Refining and Refined-product Supply Sourcing
As a leader of Thailand’s oil refiners and suppliers of refined products, PTTAR owns and operates a most advanced complex refinery, one of the most energy-efficient in Asia Pacific, thanks to the flexibility of refining processes and the ability to supply refined products in
quantities matching customers’ demand at low costs. Located in Map Ta Phut Industrial Estate in Rayong, the refinery has a capacity of 280,000 barrels per day of crude oil and condensate intake, with a wide range of high-quality refined products, namely:
• Light products, consisting of LPG, light naphtha, and reformate
• Heavy products, consisting of fuel oil.Today, its 3 refining units handle crude oil
and condensate refining:
Refining UnitCapacity
(barrels/day)Detail
Crude Refining Unit 145,000 A complex refinery with hydrocracker and visbreaker units, capable of converting fuel oil into middle distillates. This unit refines crude oil into products, which may include reformate for delivery to the aromatics complex.
Condensate Splitter Unit 1
70,000 This unit produces reformate for delivery to the aromatics complex along with other petroleum products, including light naphtha, LPG, condensate residue, and heavy naphtha. Heavy naphtha is sent to the reformer unit for reformate production for further feeding to the aromatics unit.
Condensate Splitter Unit 2
65,000 This unit produces reformate for delivery to the aromatics complex along with other petroleum products, including light naphtha, LPG, condensate residue, and heavy naphtha. Heavy naphtha is sent to the reformer unit for reformate production for further feeding to the aromatics unit.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 33
2. Production and Distribution of Aromatics and Downstream Products
PTTAR produces and distributes primary aromatics, namely paraxylene, benzene, cyclohexane, orthoxylene, mixed xylenes, toluene with raffinate and heavy aromatics as by-products.
Today the Company runs two aromatics units:
3. Joint-venture Businesses and Associated Companies
To capture business opportunities, PTTAR enteredintojointventureswithothersoperatingvariousprojectsinsupportofitsownbusinesstogenerateprofits while nurturing sustained growth.
As of year-end 2010, here is a summary of PTTAR’sshareholdingstructuresinjointventuresandbusiness affiliates:
Note: PTTAR’S flexible process provide outputs matching market demand
Unit: Ton/Year
Product Aromatics Complex I Aromatics Complex II Total
Paraxylene 540,000 655,000 1,195,000
Benzene 307,000 355,000 662,000
Cyclohexane 200,000 - 200,000
Orthoxylene 66,000 - 66,000
Mixed Xylenes 76,000 - 76,000
Toluene - 60,000 60,000
Total 1,189,000 1,070,000 2,259,000
Company Name Nature of BusinessRegistered
Capital (Million Baht)
Paid-up Registered
Capital (Million Baht)
% Equity
PTT Phenol Co., Ltd. Producer and seller of phenol
9,252 8,350 30% (2,505 million baht)
PTT Utility Co., Ltd. Producer and seller of steam/electricity
6,859 6,859 20% (1,372 million baht)
PTT ICT Solutions Co., Ltd. IT and communication service provider to shareholders
150 150 20% (30 million baht)
Business Services Alliance Co., Ltd. Manpower procurement and contract labor provider for PTT and PTT Group
This was another year of successful execution in various aspects of PTT Aromatics and Refining Public Company Limited (PTTAR), summarized below.
1. Organizational Structuring and Development
1.1 Organizational Structuring
In 2010 PTTAR has restructured organization regarding business growth, appointed and transfered Management as appropriate to new organization structure (Detail in "Organization Structure").
1.2 Employee development
The Company has laid down a framework for systematic employee development while focusing on development of all to be both smart and virtuous.
• Framed the approach and execution ofsuccession plans, with senior executives valuing the designation of people with potential among employees of various levels for further development to take up key positions
• Developed executives under the PTTARLeadership Competency framework with a focus on giving them business and personal skills, acting as a coach and an HR manager
• Developed all employees under IndividualDevelopment Plans (IDP), which cover both Core Competencies and Functional
Competencies in addition to English skills, which form a policy approach for preparing all employees to master English skills to give themselves more prospects for advancement while sustaining future growth for PTTAR
• Besides developing employees to becomesmart, PTTAR encourages them to be people with virtues, volunteering spirit, and selflessness through participating in assorted social responsibility activities organized by the Company and the Employee Volunteer Club, sponsored by the Company.
1.3 Unifying teams under the SPEED values
• Organizedassortedrecreationalactivitiestopromote teams and unity among all employees of the same units and different units alike. Management executives together served as a core for driving all employees to join the activities to blend their cultures into one under a common set of values. The Company’s other activities also engaged employees’ families to promote good family relations.
• Launched employee satisfaction surveys invariousaspects.Fromthesesurveyoutcomes,executives pooled ideas on employees’ views for work process and action plan refinement for all executives to push and execute for the benefit of workplace and work processes.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 37
2. Production and Maintenance
2.1 Production
Company petroleum products for the year 2010 was 76,381,000 barrels and aromatic products was 1,947,000 tons.
With no planned maintenance shutdown in 2010, Refinery Plant (AR1) had a mild output reduction in the first quarter for decoking furnace cleaning at the
Visbreaker Unit (VBU), as well as heat exchangercleaning for long-term efficiency improvement.
Aromatics Complex I (AR2) faced a planned maintenance shutdown, deferred from March to June, since the refining margin for March was considered high because of market demand. Such deferral yielded about 90 million baht. Such maintenance has raised the efficiency of TAC9, resulting in about 13 million baht of benefit each month.
1. Processing of naphtha derived from AR1 into aromatics in favor of domestic sale
3.7
2. Use of jetty and feedstock tank farm at AR1 2.8
3. Use of nitrogen blanket at the reformate tank to provide more aromatics output
4.5
4. Use of heavy aromatics in place of diesel as fuel oil cutter stock 9.8
5. Use of reformate to produce aromatics in favor of export 49
6. Processing of condensate residue at CRS in favor of export 60
7. Hydrogen transfer from AR2&3 to AR1 6.2
Total 136
PTTAR successfully swapped feedstock (heavy vacuum gas oil and hydro-wax) with Star Petroleum Refining Co., Ltd. (SPRC), starting in May for a total synergyvalueofabout200millionbaht.Belowisasummary of processing performance for the year.
2.2 Maintenance
In 2010, PTTAR undertook maintenance work as summarized below:
2.1 Routine maintenance: During the year, it consistently gave top priority to preventive maintenance (PM) and delivered PM work as planned, resulting in 100% in overall PM compliance. As for corrective maintenance (CM), the Company scored 85% in CM Compliance overall. As a result, PTTAR commanded 96.6% in mechanical availability for its 3 plants. In short, the plants ran almost continuously.
2.2 Turnaround management: PTTAR valued this by defining a long-term shutdown plan and had
integrated turnaround teams in place, which gave the turnaround efficiency and flexibility alike amid volatile business circumstances. In June 2010, it registered turnaround success at Aromatics Complex I (AR2) and prepared for another turnaround at Refinery Plant (AR1) inFebruary2011.
2.3 Maintenance development: PTTAR is committed to internationalizing maintenance work while developing skills, expertise, and competency in parallel. It therefore devised a technical progression scheme to give employees opportunities to continuously develop and grow on their career paths. PTTAR took a proactive approach to maintenance by initiating a Maintenance Excellence Project to drive work to greater efficiency and effectiveness while supplementing PTT Group’s core strategies on “Zero Unplanned Shutdown” and “Operation Excellence” for maximum success and benefit.
In 2010, PTTAR derived a total of about US$ 136 million in synergistic value among its 3
processing units, against US$123 million in 2009. These consisted of:
PTTAR secured crude oil and condensate supply through PTT Plc at market prices for a total of 91.7 million barrels for a total value of US$7,235 million.
In 2010, PTTAR introduced crude oil and condensate that yielded higher profits than its business planstoitsrefiningprocesses:Labuan,BungaKekwa,Dar Blend, Songkhla, Pyrenees, Belanak, Penglai,ESPO,Pattani,Benchamas,UmmShaif,andQatarMarine (all crude oil), and North Arthit, Geragai, Muda, Bintulu,andBenjaia(allcondensate).Asaresult,itderived about US$20 million in margin over the business plan. PTTAR’s synergy with other refineries through joint transportation of crude oil with Star PetroleumRefiningPlc,ThaiOilPlc,andBangchakPetroleum Plc trimmed its expenses by about US$10.4 million. A summary of benefit derived in 2010 appears below.
Item Benefit (US$ Million)
1. Crude oil processing at AR1 13.6
2. Condensate processing at AR2/AR3
6.2
3. Joint transportation of crude oil
10.4
Total 30.2
Main feedstock
Volume (Million Barrel)
Average price
(US$/Barrel)
Value (US$ Million)
Crude oil 53.6 79.6 4,266
Condensate 38.1 77.8 2,969
Total 91.7 78.9 7,235
3.2 Product sale
In 2010, PTTAR sold a total of 57.8 million barrels, grossing US$4,884 million in revenue. PTTAR’s domestic sales of its main products (diesel and jet fuels) accounted for 72% of the refinery’s total capacity or a 19% domestic market share. PTT Plc remained its biggest product customer, with its purchase agreement for 70% of the former capacity of the refinery and at least 50% of the additional capacity from Condensate Residue Splitter (CRS) for domestic sale. In addition, PTTAR secured new customers, particularly those of fuel oil, thus giving itself greater flexibility for processing and sale. Petroleum products sold in Asia – China, Singapore, Indonesia, and Vietnam – accounted for about 35% of total petroleum sales.
PTTAR sold a total of 4.04 million tons of aromatics, most of which (79%) PTTAR commanded the highest domestic market shares of 47% for benzene and 54% for paraxylene. The rest was sold to Asian countries (Singapore, Taiwan, Indonesia, Malaysia,China,India,andKorea)andotherregions(including Saudi Arabia and the US).
Hydrodesulfurization, DHDS): This was designed to produce ultra-low sulfur diesel fuel (50 ppm, of the Euro IV standard) under a policy to improve fuel quality, due for enforcement in 2012. At year-end 2010, the project registered 85.55% progress.
5. Financial Performance
This year, PTTAR successfully managed its structural portfolio of loans for greater financial management efficiency, reduction of interest expenses, and greater confidence in its own liquidity to sustain future expansion. To rapidly conduct business under global economic conditions still with dubious recovery, the Company has taken the following steps:
• Secured additional long-term loans from
domestic and foreign financial institutions:
These loans totaled 25,700 million baht in credit line to support refinancing in 2011-2012 or to serve as reserve fund for future business activities, or both. Most of this new credit line is on a revolving basis, which is flexible and aligns with PTTAR’s business structure. Such action has not only extended the average total loan maturity period, but also cut the average interest rates by about 0.5% per year, or an equivalent saving of about 300 million baht per year.
• Negotiated existing loan agreements with
bank syndicate lenders of long-term loans
(Tranche C and Tranche G, totaling 9,897.5
million baht): The main conditions under negotiation dealt with the extension of agreements, adjustment of reference interest rates, and modification of part of the credit line into revolving loans. Such action has not only extended the loan maturity period, but also cut the interest rates by about 0.80% per year, or an equivalent saving of interest payment of about 20 million baht in 2010.
• Buyback of USD Bonds from domestic
and fore ign ins t i tu t iona l investors : This US$59.15 million trimmed financing costs, resulting in about 0.60% per year reduction in interest expenses, an equivalent of saving in 2010 of about 5 million baht.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 43
6. Risk Management and Investment Project Management
6.1 Risk management
While the global economy had probably passed its ebb since 2009, the petrochemical and refining business still remained highly volatile because the US economy had yet to fully recover, while many European Union (EU) countries faced sovereign debts, which stunted their economic growth. In addition, the entry of speculators contributed to the highly volatile prices, potentially causing severe losses through oil stocks.
As for the domestic overview in 2010, political unrest dominated the scene, as did conformance to Article 67, Clause 2 of the Constitution concerning projects with severe impacts, volatile foreign exchange rates, and the looming rise in interest rates.
TheBoardofDirectorshasappointedtheRiskManagement Committee to help it defines a policy and approach for efficient risk management.
In 2010, to ensure that PTTAR’s performance would achieve its goals, the Risk Management Committee closely monitored and supervised risk management practices in various ways apart from regularly reviewing the risk register. Below is anoverview of risk management during 2010:
• Risks from refining margin and oil price
volatility
1. Entered into a crack spread hedging contract to lower the risks from refining margin volatility, involving a total of 7.2 million barrels (9% of all petroleum products).
2. Entered into a forward contract for Dubai crude to nail down margins for aromatics products as planned, involving a total of 1.4 million barrels (roughly 180,000 tons) (10% of all aromatics products).
3. Entered into a forward contract for Dubai crude to manage fuel costs, losses, and LPG (whose price was government-controlled), involving about 25% of the total volume.
4. Converted the costs of feedstock to align with the actual months of production to lower the volatility of each month’s performance.
5. Instituted a risk management policy to accommodate oil price volatility producing stock gains/losses. Under the policy, the management could enter into contracts for maximum on 4.6 million
barrels subject to risks, thus bolstering confidence that the year’s performance would suffer no stock loss.
• Risks from the costs of marine transportation
of crude oil
PTTAR has applied novel tools to manage risks. In 2010, it began conducting partial risk management of its costs of marine transportation of crude oil for 2011, since it had found that over the past couple of years, the costs were highly volatile. PTTAR became the first company in Thailand to manage risks in this way.
• Risks from the volatility of interest rates and
foreign exchange rates
PTTAR has in place risk management practices to ensure suitable interest-rate levels by converting a part of those floating rates into fixed ones to lower the risks of interest expenses with interest rates on the rise. As a result, today the Company commands about 42% of its loans at fixed interest rates as opposed to 38% earlier in the year. Still, when interest rates remain low, PTTAR is actually benefiting from floating interest rates.
As for foreign exchange rates, the committee monitored and provided risk management guidance to ensure that they stayed at suitable levels. To achieve this, PTTAR gradually purchased dollars in advance proportionally with the Company’s expenses while managing its US dollar-denominated loans to make them compatible with its profits and thus lower the volatility of the baht.
• Risks from conformance to Article 67 of the
Constitution
PTTAR has in place an approach for easing the risks arising from this government policy, particularly on conformance to Article 67,
Clause 2 on filing an appeal against temporary injunction of the Central Administrative Court, particularly a contingent plan for the forced shutdown of the power plant run by PTT Utility Co., Ltd. This would ensure no severe impact on the Company. Eventually, on 2 September 2010, the Administrative Court ended the temporary injunction.
• Operation risks
PTTAR values improvement of processing reliability by following up reliability improvement of the PTTUT CUP-2 power plant and planning water supply for its processes, which made its processing reliability in 2010 exceed the goal (99.5% versus 98%). In addition, the Company instituted preventive measures against heavy fires at its plants and accelerated a project to lower Volatile Organic Compounds (VOC) for the benefit of surrounding communities. This project is due for launching in early 2011.
6.2 Notable joint-venture projects
PTT Phenol Co., Ltd. (PPCL)
• PTTARholds30%equity(2,505millionbaht)in PPCL, which buys benzene and processes it into phenol and acetone at 200,000 and 124,000 tons/year. The completed phenol plant began its commercial operation in March 2009.
• ItsbisphenolA(BPA)plantwithitsownphenoland acetone as feedstock is expected to begin commercial operation in March 2011.
PTT Utility Co., Ltd. (PTTUT)
• PTTARholds20%equity(1,372millionbaht)in PTTUT, which produces and sells public utilities, including electricity, steam, and industrial water, to PTT Group and nearby industries.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 45
• PTTUThas3centralutilityprojects(CUPs):- CUP-1: Construction of phase 6 is
completed, with a test run underway since May 2010.
- CUP-2: Commercial production began on 1 January 2009 for this supplier of power and steam to Aromatics Complex II (AR3).
- CUP-3: Phase 1 began supplying steam in December2009.ConstructionofitsBoiler,Power Substation, Demineralized water unit, and control buildings was completed in the first quarter of 2010.
PTT ICT Solutions Co., Ltd. (PTTICT)
• PTTARholds20%equity inPTTICT,whichhas provided information technology and communication services to its PTT Group shareholders.
• PTTARhiredPTTICTundera5-yearcontractbeginning on 1 July 2006, at the end of which the contract could be extended for 5 years at a time.
Business Services Alliance Co., Ltd. (BSA)
• PTTAR holds 25% equity in BSA, whichprovides labor and contractor labor supply services to PTT Group.
7. Information Technology
To accommodate and support business operation and add work efficiency, PTTAR has executed IT and communications tasks as summarized below:
• Modified its mobile-trunk communicationradio system to accommodate communication among plants for greater management flexibility.
• Modified the speed and security of itsinformation networks for faster and safer data transmission.
• Modified, enhanced, and expanded thescope of program applications to encompass more applications for greater management flexibility, including the SAP system, annual budget preparation, feedstock and product logistics management, plant process efficiency monitoring, plant water and air quality measurement monitoring, and efficiency improvement for off-the-shelf software.
In addition, PTTAR organized drills for SAP disaster contingency plans to test the readiness of its back-up SAP system while rehearsing employees’ understanding of the management process during disasters as well as users’ roles and duties.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 49
2. Analysis of Operational Performance Year 2010 and 2009
2.1 Production and Sales Performance
2.1.1 Feedstock Intake
Note: 1. Gain from early settlement of crack spread swap agreements and Gain/(Loss) from the difference of crack spread swap and crude oil spread swap agreements 2. Net Profit/(Loss) from stocking include allowance for decline in value of inventories/reversal allowance for decline in value of inventories 3. Exclude Gain/(Loss) from exchange rate in associated with the purchase of crude/intake, as it is included in the cost of feedstock
Unit: Million Baht
Quarter Year
4/2010 3/2010 4/2009 2010 2009
Net Profit/(Loss) Before Tax 4,977 813 1,951 7,963 12,566
Income Tax (1,170) (118) (453) (1,620) (3,404)
Net Profit/(Loss) 3,807 695 1,498 6,343 9,162
Earnings/(Loss) per Share (Baht) 1.28 0.23 0.51 2.14 3.09
The Company cont inued i ts prevent ive maintenance of the plants to maintain its utmost reliability, which resulted with only 2-day unplanned shutdown maintenance in 2010. The Company’s total
intake of 95.02 M.BBL or 260 KBD increased 2% from 2009. Refinery intake was 63.34 M.BBL or 174 KBD, increasing 5% from 2009 primarily from the intermediate products exchange (HVGO: Hydrowax) with SPRC
which generated additional benefits of approximately 200 million baht. Since May 2009, this cooperation is still carried on throughout 2011. Aromatics intake accounted for 42.51 M.BBL or 116 KBD, increasing by 3% from 2009 with BTX utilization rate of 85%. The increase was mainly from more favorable market
conditions of aromatics compared to the previous year which enabled the Company to maximize aromatics feedstock (both condensate and reformate) despite its 1-month planned turnaround maintenance of Aromatics Complex I (AR2).
2.1.2 Production and Sales
According to additional total intake in 2010, the Company produced 76,381 KBBL of petroleum products and 1,947 KTON of aromatics products, increasing by 1,708 KBBL and 45 KTON, respectively compared to 2009. In addition, increase in product prices resulted in the Company’s total revenues of 273,767 million Baht, increasing from the previous
year by 22%. The Company attempted to maximize high-value products such as jet, diesel, paraxylene and benzene where such petroleum and aromatics products were sold 72% domestically and 28% internationally to China, Singapore and Vietnam, for instance.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 51
1) Crude Oil Price
In 2010, Dubai crude price rose from 2009 by 26 % with yearly average of 78 US$ per barrel (US$/BBL). Dubai crude price continued to move up from the previous year due to stronger demand as reflected in
2010 energy report by International Energy Agency (IEA) that the global oil demand had risen to 87.7 million BBL per day or increased by 2.7% from 2009. The increase was mainly driven by higher demand in Emerging Markets particularly in China and India.
• Gasoline(ULG95)andDubaicrackspread:Gasoline crack spread rose sharply in 1Q/2010 due to supply disruption in Asia as refineries in Vietnam and Indonesia had technical problems. But in 2Q/2010 and 3Q/2010 the spread moved downward as refineries resumed operations from unplanned shutdown. However, the strike in the refineries in France caused supply shortage once again in 4Q/2010.
• Jet/Kerosene-DubaiandDiesel-Dubaispread:JetandDieselcrackspreadincreasedsincethe beginning of 2010 as seen in continuously-strong demand from aviation, transportation, international traveling and industrial sectors in Asia Pacific especially in China, India, Vietnam andIndonesia.Asaresult,Jetcrackspreadincreased from 9.4 US$/BBL in 1Q/2010 to 14.3 US$/BBL in 4Q/2010 and Diesel crack spread went up from 8.94 US$/BBL in 1Q/2010 to 13.03 US$/BBL in 4Q/2010.
• Fuel Oil and Dubai spread: Fuel oil crackspread decreased in 4Q/2010 to -8.2 US$/BBL from -2.8 US$/BBL in 1Q/2010 following a significant increase in Dubai crude price. As a result, users in power and industrial sectors switched to cheaper alternative energy (Natural Gas), causing fuel oil demand to move further down.
Dubai crude price had been volatile in 2010. Price rose sharply in the beginning of 2Q/2010 to over 80 US$/BBL due to stronger demand in many regions worldwide coupled with anticipation of economic recovery as resulted in all positive economic indicators in 3/2010. However, the vulnerability of economic recovery was reflected in concerns that sovereign debt crisis in certain European countries like Iceland, Greece, Portugal and Spain could spread through US and Asia and become double dip recession. The concerns resulted in significantly lower commodities prices including Dubai crude price from its peak at 83.6US$/BBLinAprilto72.5US$/BBLinJuly.Butwith the measure of European Central Bank in cooperation with IMF to establish emergency fund for countries in need of financial support of up to 1 trillion US$, which made most commodities prices higher. Dubai crude price slightly increased in 3Q/2010 to 73.9 US$/BBL.
In 4Q/2010, global oil demand increased in accordance with economic recovery as well as weakening US currency following Quantitative Easing 2 program of 600,000 million US$, resulting in higher prices of all commodities including Dubai crude. In addition, extremely-cold weather in US and Europe increased diesel demand for heating oil. Dubai crude price continued to move upward to above 90 US$/BBL in late 4Q/2010 and it is expected that price sustain at high level until the beginning of 2011. 2) Petroleum Prices
In 2010, prices and crack spread continuously increased from late 2009 as driven by stronger demand from growing economy.
Petroleum crack spreads in 2010 constantly moved upward due to significantly lower inventories in all regions whereas demand for petroleum products increased. Details are as follows:
Annual Report 2010PTT Aromatics and Refining Public Company Limited 53
2.2.2 Aromatics Market
Source: PTT Aromatics and Refining Plc Note: Paraxylene price quote: Spot FOB Korea, Benzene price quote: Spot CFR S/E Asia
In 2010, petrochemical market condition, especially the aromatics, improved following the economic recovery, resulted in significantly growing demand in paraxylene and benzene downstream derivatives such as electronic appliances, computer parts, automobile parts, toys, furniture including polyester fibers and resins and subsequently higher demand for paraxylene and benzene. The demand was derived mainly from China and India with high growth rate, resulting in higher prices especially for paraxylene in 4Q/2010 at 1,263 US$/Ton with yearly average at 1,047 US$/Ton or 7% increase from 2009. benzene price also moved upward to 950 US$/Ton in 4Q/2010 with yearly average of 905 US$/Ton or 34% increase from 2009. Moreover, paraxylene and benzene spreads were volatile in 2010 due to the following factors:
• Paraxylene-CondensatespreadandBenzene-Condensate spread in 1Q/2010 increased to 418 US$/Ton and 338 US$/Ton, respectively, resulted from stronger demand as seen in economic recovery and re-stocking. However, the spread continuously moved down to 295 US$/Ton and 197 US$/Ton respectively in 3Q/2010 due to additional supply from Kuwait and Oman plants with total paraxylene and benzene capacity of 1.64 MTPA and 0.61 MTPA, respectively.
• Aromatics spread increased in 4Q/2010particularly paraxylene spread which increased to 550 US$/Ton, while benzene spread rose to 236 US$/Ton. The increase of paraxylene spread was from the tightening of supply as China’s Urumqi PC delayed its commercial
operation from 3Q/2009 to mid-2011 in addition with Kuwait and Oman plants had unplanned shutdown due to technical problems. Furthermore, the impact from Iran sanction by US and certain European countries prohibited gasoline import and forced the country to redirect reformate from its petrochemical plants to the refineries for
gasoline production (currently Iran has 1 MTPA of aromatics production capacity). As a result, aromatics supply from Iran reduced significantly. Apart from supply disruption factor, seasonal demand at year end also affected price as aromatics inventories were built up for new year season and continue into 1Q/2011.
2.3 Gross Integrated Margin (GIM)
According to production, sales and market conditions as stated earlier, the Company’s gross
In 2010, Market GIM amounted to 16,774 million baht or 5.54 US$/BBL, increasing from 2009 by 3,219 million baht or 1.30 US$/BBL, which was contributed from higher production of 327 million Baht, higher products spreads and operational improvement programs (Market GIM) of 4,257 million baht, and the appreciation of baht reduced the margin by 1,370 million baht.
As crude and products prices rose from 78 US$/BBL at end 2009 to 89 US$/BBL at end 2010, the Company had stock gains net LCM of 1,111 million baht, decreasing 6,231 million baht compared to year 2009.
Hedging gains for the year amounted to 9 million baht, decreasing 3,239 million baht or 1.02 US$/BBL from the previous year.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 55
2.4 Operating Expenses (OPEX) and Financing
Expenses
The Company’s operating expenses amounted to 4,616 million baht or 1.52 US$/BBL (48.6 THB/BBL) increasing from year 2009 at 4,392 million baht or 1.37 US$/BBL (47.34 THB/BBL) due to Aromatics Complex I (AR2) turnaround maintenance cost of 171 million baht. Furthermore, the Company’s net financing expenses slightly increased to 2,930 million baht or 0.97 US$/BBL (30.84 THB/BBL), compared to previous year of 2,906 million baht or 0.91 US$/BBL (31.32 THB/BBL).
Unit: Million Baht
31 Dec. 2010 31 Dec. 2009Increase/ (Decrease)
Assets
Current assets 48,916 49,529 (613)
Non-current assets 104,350 105,080 (730)
Total Assets 153,266 154,609 (1,343)
Liabilities
Current liabilities 36,449 34,349 2,100
Non-current liabilities 53,785 59,943 (6,158)
Total Liabilities 90,234 94,292 (4,058)
Shareholders’ equity
Paid-up capital and share premium 34,329 34,252 77
Retained earning 28,703 26,065 2,638
Total shareholders’ equity 63,032 60,317 2,715
Total Liabilities and Shareholders’ equity 153,266 154,609 (1,343)
3. Balance Sheets
2.5 Share of Gain from Associates and
Foreign Exchange Gain
The Company has share of gain from associates of 868 million baht, most of which was derived from PTT Phenol Co., Ltd. amounting to 802 million baht. In addition, baht appreciation contributed to foreign exchange gains of 1,689 million baht, increasing 1,114 million baht from the previous year, out of which 523 million baht is realized gain and 1,166 million baht is unrealized gain.
As of December 31, 2010, the Company’s total assets of 153,266 million baht, decreased by 1,343 million baht from December 31, 2009 as resulted from;
• Currentassetsdecreasedby613millionbahtor 1% due mainly to cash provided from tax
refund by issuing a bank guarantees for value-added tax of 4,362 million baht and corporate income tax of 2,424 million baht.
•Non-current assets declined by 730millionbaht or 1% mainly from the decline in deferred
Changes in operating assets and liabilities 11,096 (16,554)
Net cash provided by operating activities 24,658 3,427
Net cash used in investing activities (4,748) (5,053)
Net cash provided by (used in) financing activities (19,907) 1,966
Cash and cash equivalents at beginning of period (1 Jan. 2010) 1,362 1,011
Effect of exchange rate changes on balances held in foreign currencies 15 11
Cash and cash equivalents at the end of period 1,380 1,362
4. Statements of Cash Flows
The Company has net cash provided by operating activities of 24,658 million baht.
Net cash used in investing activities of 4,748 million baht was mainly used in the investment of Upgrading Project Phase 2 (DHDS/Euro 4 Project) of 3,617 million baht, purchasing of catalyst of 380 million baht, Vapor Recovery Unit Project at Refinery Plant (AR1) of 129 million baht, and investment used in PTT Phenol Co., Ltd. of 110 million baht.
Net cash used in financing activities of 19,907 million baht includes the cash used in the repayment of loans from financial institutions and debentures of 13,206 million baht, dividend payment of 3,705 million baht, interest expenses of 3,073 million baht, and cash proceeds of 77 million baht from issuing of ordinary shares due to the exercise ESOP warrant program.
Cash and cash equivalents at the end of the period amounting to 1,380 million baht.
income tax assets of 1,595 million baht. Whereas, there was higher investment in associates of 978 million baht, mostly from share of gains of 868 million baht and investment in PTT Phenol Co., Ltd. of 110 million baht.
In addition, the Company’s total liabilities as of December 31, 2010 of 90,234 million baht, declined from end 2009 by 4,058 million baht mainly resulted from lower interest bearing debt of 15,075 million baht due to loans repayment from operating cash flows of 6,676 million baht and cash received from Revenue Department of 6,786 million baht. Moreover, the appreciation of baht
contributed to lower US$ loan by 1,613 million baht while trade account payables and other payables increased primarily from higher feedstock cost.
The Company’s total shareholder’s equity as of December 31, 2010 of 63,032 million baht, increased from December 31, 2009 by 2,715 million baht due to dividend payment to shareholders of 3,705 million baht from 2009 retained earnings. While in 2010, the Company has net profit of 6,343 million baht and cash provided from the issued and paid-up share capital and share premium from the exercised of ESOP warrant of 77 million baht.
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2010 2009
Gross Profit Margin (%) 3.3 5.4
Net Profit Margin (%) 2.3 4.1
Interest Coverage Ratio (Times) 4.9 6.9
As of 31 Dec 2010 As of 31 Dec 2009
Current Ratio (Times) 1.3 1.4
Quick Ratio (Times) 0.7 0.7
Total Debt to Shareholder’s Equity (Times) 1.4 1.6
Non-current Liabilities to Equity ratio (Times) 0.9 1.0
Net Interest Bearing Debt to Equity ratio (Times) 1.0 1.2
5. Financial Ratios
Calculation Formulas:
Gross Profit Margin = Gross Profit/Sales RevenuesNet Profit Margin = Net Profit/Sales RevenuesInterest Coverage Ratio = EBITDA/Interest Expense
Current Ratio (Times) = Total Current Asset/Total LiabilitiesQuick Ratio (Times) = (Cash and cash equivalents + Short Term Investment + Trade account receivables)/Current LiabilitiesTotal Debt to Shareholder’s Equity (Times) = Total Liabilities/Shareholders’ EquityNon-current Liabilities to Equity ratio (Times) = Non-current Liabilities/Shareholders’ EquityNet Interest Bearing Debt to equity ratio (Times) = Interest bearing debt - cash and cash equivalents - Investment) / Shareholders’ Equity
In 2010, Dubai crude price surged by 26% from the previous year, averaging 78 US$ per barrel (US$/BBL) This rise was carried over from late 2009, buoyed by the rising demand. The International Energy Agency (IEA) reported a year-on-year rise in world oil demand of 87.7 million barrels per day, or 2.7% gain, due to the demand of Emerging Markets particularly China and India.
Dubai crude price was extremely volatile throughout 2010, sharply rising at the beginning of the second quarter to over 80 US$/BBL in line with the global rise in demand and the healthier global economy. These resulted in huge across-the-board improvement of all economic indices. Only later did the economic recovery show its fragility, evident in massive public debts of certain European Union (EU) states, including Greece, Portugal, and Spain, which produced concerns that European countries would face an economic downturn, which would also spread to the US and Asia – dealing a double-dip recession to the global economy. Such events brought down the prices of commodities. Dubai plummeted from its peak in April of 83.6 US$/BBL to 72.5 US$/BBL in July. But once such concerns subsided with the actions of the EU’s central bank and the International Monetary Fund (IMF) – which established an emergency loan of up to 1 trillion US$ for countries facing financial problems – the prices of most commodities fared better, resulting in a slight adjustment in Dubai price to 73.9 US$/BBL in the third quarter.
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In the fourth quarter, the crude oil demand in various regions rose steadily with the improved global economy and with the US dollar’s weakening as a result of the US Federal Reserve’s second stimulus measures – the so-called Quantitative Easing 2 – with additional 600-billion US$ cash injection. All commodities, Dubai crude included, gained in price. As the extremely cold weather of the US and Europe contributed to the rise in demand for oil, Dubai gained heavily to 90 US$/BBL at the end of the fourth quarter and trend to remain high until early 2011.
Refined products
In 2010, petroleum spreads continued to rise from the end of 2009, as demand expanded along with global economic growth. Considering the crack spreads of 2010, one noticed a steady rise due to the sharp reduction of refined-product volumes in all regional markets while demand rose steadily, as detailed below:
• SpreadbetweenULG95andDubai:Thehugerise of the first quarter resulted from tight Asian supply, with refineries in Vietnam and Indonesia, among others, facing technical hitches. The spread then narrowed in the second and third quarters, going from 12.63 US$/BBL to 9.36 US$/BBL and 8.6 US$/BBL respectively with the resumption by the refineries in those 2 countries after unplanned shutdowns. Still, the strike by refinery workers in France and the low gasoline reserves in each region contributed to the tight supply of gasoline in the fourth quarter, when the spread rose to 10.69 US$/BBL.
• Spreadbetweenjet/keroseneandDubai:Thiscontinued its rise from the beginning of the year, thanks to the steady rise in demand of the aviation industry – cargo transport and international travel alike – in Asia, notably China, India, Vietnam, and Indonesia. As a result, the spread climbed from 9.4 US$/BBL in the first quarter to 14.3 US$/BBL in the fourth quarter.
• Spread between diesel and Dubai: Thiscontinued to rise all year long in tandem with healthy rises in industrial production and recovery in international trade. The resulting rise in cargo transport widened the spread to 13.03 US$/BBL in the fourth quarter from 8.94 US$/BBL in the first quarter.
• SpreadbetweenfueloilandDubai:Thespreadshrank in the fourth quarter to minus 8.22 US$/BBL from minus 2.8 US$/BBL back in the first quarter as a result of the big hike in the price of Dubai, which induced a price hike for fuel oil, thus consumers’ move to alternative energy like lower-priced natural gas, in power generation and the industrial sector.
Aromatics Price Situation in 2010
The aromatics market for the year tracked the improving global economy, giving rise to big price gains for downstream paraxylene and benzene products, including electronics products, computer and auto-parts, toys, furniture items, and polyester, fiber, and resin products. Paraxylene and benzene saw big demand rises, notably in China and India. In short, aromatics prices remained healthy through the year: paraxylene prices featured a 7% rise to 1,047
US$ per ton, and benzene prices registered a 34% rise to 905 US$ per ton. Below are summaries of the behavior of the spreads between the prices of the two and condensate in 2010.
• Spreadsbetweenparaxylene&benzeneandcondensate: These were remarkably high in the first quarter (418 US$ and 338 US$ per ton respectively), a result of rising demand amid growing economies and re-stocking. However, these spreads steadily eroded in the third quarter to 295 US$ and 197 US$ per ton respectively because newcomers in paraxylene and benzene production from Kuwait and Oman, with total capacities of 1,640,000 and 610,000 tons per year, successfully started up their plants, thus hiking the supply of both.
• Spreadsbetweenaromaticsandcondensate:These climbed during the fourth quarter, especially paraxylene, to 550 US$ per ton; and benzene, to 236 US$ per ton. This was due to the return to a very tight Asian market after China’s Urumqi PC postponed its commercial operation from the third quarter to mid-2011, coupled with the technical hitches faced by Kuwait and Oman plants (followed by unplanned shutdowns) and the sanctions of Iran by the US and Europe. As a result, Iran was unable to import gasoline, and reformate – aromatics feedstock – suddenly found use in gasoline blending for domestic consumption. In short, Iran’s aromatics supply took a nosedive. Today the country’s aromatics capacity is about 1 million tons per year. Besides tight supply, demand rose toward the year-end because of the build inventory for seasonal manufacturing – a routine occurrence.
2011 Outlook for World Prices of Crude and Refined Products
Crude oil
Growth in the global economy looks set to somewhat slow down in 2011. IMF expects growth of 4.2% as opposed to 4.8% in 2010. However, risks lurk in the form of unemployment in the US, public debts and inflation of European countries, and the ‘bubble’ state of the real-estate sector of China.
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2010 (F) As ofOctober 2010
2010 (A) 2011 (P) 2012 (P)
World 4.8 5 4.4 4.5
Advanced Economics 2.7 3 2.5 2.5
Emerging And Developing 7.1 7.1 6.5 6.5
USA 2.6 2.8 3 2.7
Euro area 1.7 1.8 1.5 1.7
Japan 2.8 4.3 1.6 1.8
UK 1.7 1.7 2 2.3
Middle East and North Africa 4.1 3.9 4.6 4.7
China 10.5 10.3 9.6 9.5
India 9.7 9.7 8.4 8
Brazil 7.5 7.5 4.5 4.1
Russia 4 3.7 4.5 4.4
ASEAN-5 6.6 6.7 5.5 5.7
IMF: As of January 2011
Global GDP Growth Forecast (%)
In view of such likely economic growth this coming year, experts foresee growing crude oil demand of about 1.5 million barrels per day to 89.3 million barrels per day. Asia will remain instrumental in driving this demand upward with 0.60 million barrels per day (with 0.40 million barrels per day coming from China and
0.10 million barrels per day from India). These 2 countries will continue to command spectacular economic growth while Europe and North America will see stagnant growth or reduction in oil demand despite their growing economies, thanks to growing energy efficiency and more policies to promote alternative energy.
Modest supply growth of world crude oil looks likely in 2011, coming from Non-OPEC countries, which command an average total output of 53.5 million barrels per day, or roughly 0.7 million barrels per day more than last year. The bulk of the gain will be coming from Latin American countries, North America, Canada, and the former Soviet Union.
Interestingly, OPEC’s capacity for natural gas liquids (NGL) is expected to rise with the climbing natural gas output. As a result, in 2011 the capacity is expected to rise to 5.8 million barrels per day, or 0.5 million barrels per day up from last year, and is around 0.3 million barrels per day below the expected rise in demand.
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In 2010, the oil price was heavily impacted by capital migration, which is expected to repeat in 2011, since the central banks of developed countries – the US, Japan, and Europe – will still retain its policy of historic low interest rates through the year. What is more, the moderated financial policy of the US Federal Reserve will weaken the dollar, thus inducing more investment in commodity markets, which include the oil market, and contribute significantly to higher crude prices. In view of demand and supply fundamentals, capital migration, political uncertainty in the Middle East, and changes in the environment and climate, it is expected that Dubai crude price will rise to about 90 US$/BBL in 2011.
Refined products
The continued growth in the global economy of 2011 will result in growth in the industrial sector and international transport, thus raising the demand for diesel and jet fuels. The year will see the spread between diesel/jet fuels and Dubai crude rising to about 14-15 US$/BBL and would continue to soar through the year with the rising demand for both products. On the other hand, supply from new production will be less significant, which contributes to this widening spread.
The first half of 2011 will still see a remarkable spread between gasoline and Dubai crude of 13-14 US$/BBL because of the continued protest by refinery workers in France, thus a big drawdown in gasoline reserves. The second quarter of the year – the traditional driving season in the US – will see the spread come down to 8-10 US$/BBL in the second half of the year together with the end of the travel season of the US and the size of the spread between refined products and Dubai crude. Finally, the gross refinery margin will be higher in 2011; for a complex refinery in Singapore, this will average 5-6 US$/BBL.
2011 Outlook for World Aromatics Prices
This coming year will accompany a dramatic price rise for paraxylene, a legacy of 2010, when paraxylene cost about 1,000 US$/ton and the spread between paraxylene and condensate is about 350 US$/ton. Some expect 1,400 US$/ton for paraxylene and 600 US$/ton for the above-mentioned spread in 2011. On the other hand, early in the new year, the price of benzene actually rose from 800 US$/ton with the spread between it and condensate registering 150 US$/ton, to 1,000 US$/ton and 200 US$/ton in spread. Accounting for these are seasonal rises in demand to produce festival goods coupled with the emergency maintenance shutdowns of aromatics plants in countries like China, Malaysia, and Oman and Kuwait of the Middle East, thus the high prices of paraxylene and benzene.
In the second quarter, both the prices and spreads for aromatics products are likely to fall with incoming capacities in China and South Korea, to be launched at the end of the first quarter, resulting in higher supply of aromatics in Asia. Yet, in view of the continued global economic growth – notably in Asia – the demand for aromatics is seen as climbing, with the price of paraxylene expected to be 1,300 US$/ton and the spread between paraxylene and condensate expected to be around 500 US$/ton. The corresponding values for benzene are around 1,000 US$/ton and 250 US$/ton, respectively.
PTT Aromatics and Refining Public Company Limited (PTTAR) values the development of a management system for its quality, safety, occupational health, and environment (QSHE) as well as fair treatment of all stakeholders by defining the following policy.
• FocusonTotalQualityManagement(TQM)fortheentirecorporation to make products and provide services of high standards, fitting requirements and addressing customers’ expectations
• Improveworkprocessesforcontinuousefficiencyinlinewith international standards, rules, laws, and agreements related to PTTAR’s business, apart from defining suitable improvement measurement criteria
• Defineacorporateculturetocultivateawarenessamongall employees of safety consideration at work and care for one another’s safety (CARES) in tandem with QSHE management
• Developexpertstoeffectivelyconducttechnicalsafetyinspection for the process and engineering lines and require executives to contribute to safety inspection through the so-called Safety Walk Around to prevent work-related accidents
• ManagePTTARwithcorporatesocialresponsibility(CSR)and responsibility to all stakeholders while consistently valuing environmental stewardship to prevent problems affecting the general public and promoting the quality of life for communities and related parties, thus leading PTTAR toward sustainable development
• Ensureefficientapplicationofresourcesandenergytominimize process losses
Quality, Safety, Occupational Health, and Environment (QSHE) Performance
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•Promote all employees’ understanding ofand participation in assorted management processes, including knowledge management and productivity activities like 5S, experience and knowledge sharing, suggestions for work improvement, and QC for continuous work improvement.
A summary of QSHE performance for the year 2010 appears below.
1. Quality Management
PTTAR achieved MASCI’s simultaneouscertification for 5 management systems, called the IntegratedManagementSystem,whichmerges theISO/TIS 9001:2008 (Quality), ISO/TIS 14001:2004(Environment),TIS18001-2542,BSOHSAS18001:2007(OccupationalHealthandSafety)managementsystemsinto one, and provided training to employees and contractemployeesaboutthenewsystem.Inaddition,PTTARsuccessfullypassedtheauditoftheCSR-DIW2010 standard conducted by the Department ofIndustrialWorksandwasnamedbyanassessmentgroup of the department andMASCI as themostoutstanding plant for corporate governance.
PTTAR consistently promoted productivity activities to bring about self-development, joint learning, and teamwork promotion. This year’s outstandingQCgroup(Boiler005)participatedinthe24th Thailand QC Contest, hosted by the Association ofQCHeadquartersofThailandandtheDepartmentofIndustrialPromotion,MinistryofIndustry.Thegroupwas chosen to represent Thailand for presentation at aninternationalQCeventinIndia,endingupwiththepopular vote awards.
PTTARlaunchedaKnowledgeManagement(KM)andQSHEDayexhibitionforitsvariousdepartmentsto transfer expertise to fellow employees. The event proved quite a success due to active participation.
500 of shareholders were also invited to the event to view the activities and shared company knowledge management.
2. Safety Management
PTTAR values the cultivation of awareness among employees to care for their own safety and colleagues under the so-called CARES safety culture, which stands for Caring, Awareness in safety, Relationship, Everyone goes home safely every day, and Stop if unsafe. CARES was coined by PTTAR to promote accident-freeandinjury-freeoperations.Illustratingitsstringentsafetyperformance, theAromaticsComplex I (AR2)wontheNationalOutstandingBusinessOperatorforSafety,OccupationalHealth,andWorkEnvironmentfor the eighth straight year (2003-2010).
PTTAR twice volunteered to host Rayong province emergencyplandrills:alevel-twoprovincialdrillandthe evacuation drill for the communities around AromaticsComplex II (AR3). Itsexpertshelped thecommunities form their own evacuation plans. Also critical is the ability to retrieve marine oil spills. PTTAR hostedaRayongOilSpillEmergencyResponsedrillwiththeenvironmentalconservationassociation(IESG)and relevant government agencies like theMarineDepartment and the Royal Thai Navy to test thepreparedness for oil spill retrieval.
3. Occupational Health Management
OutofPTTAR’sconcernforitsoperators’healthassociated with new processes, particularly those exposed to hazardous substances, these employees underwent a revised check-up program to proactively guard against health hazards. Besides, PTTARlaunched 3 health caravans to provide health screening and take care of community health, particularly the mother and child target group.
2007 Constitution, PTTAR’s 3 projects underwentvoluntaryEIA/HIArequirementsforprojectswithsevereimpacts – despite the ruling that they were not. These consistedoftheRefineryPlant(AR1)CleanFuelandUpgrading project, Refinery Plant (AR1) Vapor Recovery Unit(VRU)InstallationandBiodieselproject,AromaticsComplexI(AR2)EfficiencyImprovementproject.
4. Environmental Management
Stewardship of the environment and communities around PTTAR’s plants is the duty of all employees. PTTAR values the environment by defining environmental performance as a key performance indicator(KPI).Inaddition,theCompanyvolunteersits representatives to measure the odor around MapTaPhutIndustrialEstateandnearbycommunitiesevery Thursday and Saturday to keep watch of offensive odors from plants. Small groups of employees regularly meet and learn about new knowledge.
Strict conformance to the law and environmental measures is PTTAR’s core mission. The Company invested in an instrument to continuously measure air
Annual Report 2010PTT Aromatics and Refining Public Company Limited 69
quality and effluent quality and send the readings to theenvironmentalmonitoringstationofMapTaPhutIndustrialEstate to illustrate its transparency.Suchstewardshipwon an EIAMonitoring Awards for itstankerproduct loadingbusiness fromtheOfficeofNatural Resources and Environmental Policy and Planning.StrictconformancetoEIAmeasuresandundertaking of assorted projects to cut pollutants contributedto itsEnvironmentalGovernance(WhiteFlag-Green Star) awards for all 3 PTTAR plants,consistently rated very good by representatives of the communities and government agencies.
Ontheabove-mentionedlitigationof76projects,the government appointed a 4-party joint panel to ensure conformance with Article 76, Clause 2, ofthe2007Constitution,ledbyformerPrimeMinisterAnand Panyarachun. PTTAR representatives joined this panel and 2 sub-panels, which illustrated its technical and environmental law expertise, as a part of environmental handling for country. Prominent environmental projects completed by PTTAR in 2010 included the ones below.
• Installation of activated carbon absorbers at
the storage tanks of Aromatics Complex I and
II (AR2 and AR3) totrapVOCvapor,whichproved90%effective.
• Construction of a fuel Vapor Recovery Unit
(VRU) and bottom loading at the lorry-loading unit at Refinery Plant (AR1) to prevent vapor fromspreading,whichproved95%effective.
• Preparation of a VOC inventory in processes and provision of leak detect and repair actions at Aromatics Complex II (AR3), a voluntaryaction before enforcement of the law
• Improvement of combustion at Refinery Plant (AR1) gas turbines to cut the release of the oxides of nitrogen due to gas burning, which proved10%effective;thefirst2unitswerecompletedin2009,andthethirdin2010.
• The Clean Fuel and Upgrading project, phase 1, wascompletedin2009,whichproved30%effectiveforsulfurdioxideemission;aDeepHydrodesulfurization (DHDS) unit is underconstruction to lower sulfur contents in jet fuels and diesel, with a projected start-up in 2012
• Efficiency improvement of Heat Exchangers
and Distillation Trays at Aromatics Complex I
(AR2) was designed to retrieve heat for re-use in processes, lower process fuel requirements, save engine-running expenses, and ease global warming.
Conducting its business with awareness of its responsibility to Thai society, PTT Aromatics and Refining Public Company Limited (PTTAR) values the improvement of the quality of life, social stewardship, and caring of the surroundings of its plants. As a socially responsible company, it executes all aspects of business under corporate governance principles while strictly conforming to laws and public regulations and implementing safety and environmental management systems to prevent impacts on surrounding communities. In addition, PTTAR initiated projects and activities to promote living conditions for communities and society so that they may be sustainably self-reliant, and promoted employees’ awareness of social responsibility both in their job performance and in public services. After all, PTTAR’s first corporate value is Social Responsibility and Caring.
PTTAR has collaborated with public and private agencies to maximize benefit to communities and promoting Rayong social development in an efficient and sustainable way:
• Cooperation among PTTGroup companiesin establishing a steering committee for the execution of social responsibility and communication in Rayong.
• Cooperation among the operators in Map Ta Phut Industrial Estate, known as "the Community Friend".
• Cooperation among the operators in MapTa Phut Industrial Estate and other industrial estates – Hemaraj Eastern, Padaeng, Asia, RIL – and Map Ta Phut Industrial Port Office, known as the Map Ta Phut Public Relations Club, formed to gather ideas and conduct social responsibility work.
PTTAR defines communication plans together with continuing, transparent dialogues with communities to establish credibility and confidence, as well as cordial relations. These are described below:
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• Visited communities everyday to establish rapport and listen to their views.
• Ensured weekly community visits by groups ofoperators, maintenance, and environment, health, and safety personnel to discuss PTTAR’s operations, environment, and safety.
• OrganizedforumsfortheBoardandManagementtoengage in dialogues with community chairpersons and committees to establish familiarity and exchange of views.
• Invited community committees andmembers towitness PTTAR operations to nurture their appreciation.
• Organizedannualseminarsofcommunityleaderstoimplement their recommendations in PTTAR’s current and future action plans to suit community needs and corporate capability.
• Kept communities informed through communitybulletin boards to communicate PTTAR activities and lead to a healthy corporate image.
• Informed communities in advance of scheduledmaintenance or emergency drills.
In addition, PTTAR has encouraged employee participation in social activities, including the Rom Mai Club (with its hobbies of social development in remote areas of the country), the “Three Baht a Day Project” (formed to upgrade needy,underprivileged schools in remote areas of the country), and the “OneFineFridaygroup” (formed toshare thingswithunderprivileged members of society). These exemplify employees’ initiatives in line with PTTAR’s social responsibility policy and values.
• In cooperation with PTT Group, launched ascholarship project for youths and granted scholarships to schools in Map Ta Phut Municipality, MapKhaPhathanaMunicipality,andBanChangMunicipality.
• Launchedthe“PTTARGetReadyfortheUniversityProject”, in which volunteer employees taughtchemistry,physics,andmathematicstograde12students at Map Ta Phut Phan Phittayakhan School after school hours for one school term to prime them for the university entrance examination.
• IncooperationwithPTTGroupandnotabletutorialschools,launchedthe“PTTGroupGetReadyfortheUniversityProject”,underwhichONETsubjectcoachingwas given to grade 12 students of 19Rayong schools to enhance their likelihood of pursuing undergraduate studies.
• IncooperationwithPTTGroup,launchedthe“PetroCamptoPetroChampYouthCamp”forstudentsat 7 Rayong high schools. 4 students were chosen forundergraduatescholarshipsattheDepartmentof Chemical Engineering, Faculty of Engineering, KingMongkut’sUniversityofTechnologyThonburi,which has offered 4 scholarships annually.
• In cooperation with PTT Group, staged anexhibition to widen the world view of petroleum and petrochemicals among Rayong students.
• IncooperationwithPTTGroup,launchedanactivitycalled “Make Your Dreams Come True” on theNationalChildren’sDay.
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Environment
• Volunteeremployeesbuiltusedengine-oilstorageforthesmall-boatfishinggroupatSuchadaBeachtoease environmental problems arising from improper fuel dumping.
• Volunteeremployeesplantedtreeswithcommunitiesto add green areas and for harvesting.
• Volunteer employees cleaned beaches withcommunities, government agencies, and industrial operators every month and on the International CoastalCleanup(ICC)Day.
• IncooperationwithPTTGroup,MapTaPhutIndustrialPort Office, Map Ta Phut Phan Phittayakhan School, TaKuan-AoPraducommunityandsmallfishing-boat group, launched an ecology improvement project at the mouth of the Chak Mak canal by releasing aquatic species, conducting mangrove reforestation, and tree-planting to add green areas and enrich the ecology.
• IncooperationwithPTTGroup,managedtheGreenRayongProjectbyplantingtreesinWatKrokYaiCha area and planning future development of a publicparkinhonorofHMtheKing.
Health Care
• The“SharingwithCommunities”clinicatAromaticsComplex II provided free medical care to community residents.
• Launchedahealthcaravantoprovidefreehealthcare and advice to communities, particularly mothers, children, and the elderly.
• Sponsoredhealthcheckapparatus,includingbloodpressure monitors, to community public health volunteer groups and community health stations.
• In cooperation with PTT Group, continued the“SharingwithCommunities”ClinicatRayongGasSeparation Plant.
• IncooperationwithPTTGroup,sentoutamonthlymobile doctor team to provide community residents with free medical care.
• Promoted occupations in communities, trained,and organized study trips to enhance occupation opportunities, including capability and operating standards, including fishermen’s trips to fish rearing in cages and housewives’ trips to hydroponic vegetable farms.
• Definedguidelinesforsupportinginternalunitsinthe procurement of merchandise and service purchasing to ease community members’ businesses with the Company, such as food and snacks for PTTAR activities gardening tasks, employee commuter vans, drinking water, and machine-cleaning rag.
• Promoted recruitment of community members’children and employment of local labor as employees and contract employees.
Sports
• Promoted community anti-drug soccer matches; “PTTAR Volunteers” soccer team took part in acommunity contest to foster cordial relations.
• IncooperationwithPTTGroup,organizedfriendlysports activities with the surrounding communities, with participation by PTT Group executives andvolunteer employees.
• IncooperationwithPTTGroup,thePTTARRaceClub, and Wat Ta Kuan School, launched aSamathiWisakha Buddhabucha walk-run projectto commemorate a religious day and campaign for sound public health. This activity was held simultaneouslyacrossthenationonWisakhaBuchaDay.
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Religion/Culture/Ethics
• Launched an annual Summer Mass NoviceOrdinationProgramatWatNongSanom,TambonNoenPhra,AmphoeMueang,Rayong,topromotewisespendingoftimebystudyingDharmaVinayadiscipline and practicing concentration to grow into smart and exemplary citizens.
• In cooperat ion wi th the communi t ies of MapTaPhutMunicipalityandMapKhaPhathanaMunicipality,stagedanannualKathinceremonyatWatMapKha,AmphoeNikhomPathana,Rayong.
• Consistently sponsored activities for the conservation and promotion of various customs among the communities,includingtheKhaoLamalms-givingtradition, well-wishing for the elderly on Songkran Day,alms-givingontheendofBuddhistLent,andLoyKrathong.
Safety
• Conducted emergency drills with communities for their reassurance.
• IncooperationwithPTTGroup,supportedactivitiesof volunteer policemen to ensure their preparedness.
16 January 2010: Signed a memorandum of understandingon business cooperation with Map Ta Phut Olefins Co., Ltd.(MOC), to use process offgas derived from AromaticsComplex II, as feedstock for MOC’s plant to add value topetrochemical products.
22 January 2010: Signed a loan agreement with Krung ThaiBank Plc for reserve capital for future business expansionor current operations, or both, and for refinancing parts ofcurrent loans.
20 February 2010: Organized a public scoping session onhealth impacts from various projects, namely Clean Fueland Upgrading Project Phase 2, Vapor Recovery Unit andBiodiesel Project, and Efficiency Improvement Projects ofAromatics Complex I.
16 January 2010
22 January 2010
20 February 2010
2010 Activities
76
5 May 2010: Joined the UN Global Compact and verifiedconformance to the 10 international principles covering4 main areas: human rights, labor, environment, andanti-corruption.
6 May 2010: Joined the 10th Money Expo 2010 event atQueen Sirikit National Convention Center under the theme“The Road to Wealth”.
2 June 2010: Participated in the signing of a memorandumof understanding and took part in a CSR-DIW workshop forindustrial operators to bring their organizations up to theISO26000 standard: Social Responsibility, at Radisson Hotel.
20 July 2010: Signed a contract with ChulalongkornUniversity on cooperation in petroleum and petrochemicalresearch for efficiency improvement of the of the of distillation columnand for value addition to refining process by-products,leading to maximum processing efficiency, efficient use ofnatural resources, energy saving, and friendship with thecommunity.
5 May 2010
6 May 2010
2 June 2010
20 July 2010
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7 August 2010: Joined the Economic Reporters Associationin launching the ‘Dream School : Map Ta Phut Phan ModelSchool’ project at Map Ta Phut Phan Phittayakhan Schoolin Rayong to support learning in Communication, Art, andEnglish while introducing knowledge of corporate of corporate of governanceto school children.
26 August 2010: Signed a GISMO (Group Integrated SupplyChain Management & Optimization) cooperation among PTTGroup’s downstream companies to add value to the Group.
13 September 2010: September 2010: September Signed a 5-year loan worth 200 millionUS$ with Bank of Tokyo, Misuho Bank, OCBC Bank, andSumitomo Bank for refinancing and working capital.
13 September 2010: Signed an 8-year loan worth2,000 million baht with Kasikorn Bank Plc for refinancingand working capital
7 August 2010
26 August 2010
13 September 2010
13 September 2010
78
14 September 2010: September 2010: September Signed a 10-year loan worth 7,000million baht with Krung Thai Bank Plc for refinancingand working capital.
14 September 2010: September 2010: September Signed an 8-year loan worth 3,000million baht with Thanachart Bank Plc for refinancingand working capital.
20 September 2010: September 2010: September Hosted the PTT CG Group Day2010 event under the theme “CG: The Code to Growth”at Energy Complex, site of an exhibition to provideinformation about corporate governance and reflectopinions of PTT Group employees about corporategovernance.
22 September 2010: September 2010: September Signed a 10-year loan and arevolving loan worth 9,898 million baht with KrungThai Bank Plc, Tisco Bank Plc, Government SavingsBank, Bangkok Bank Plc and Thai Military Bank Plcfor loan refinancing.
14 September 2010
20 September 2010
14 September 2010
22 September 2010
Annual Report 2010PTT Aromatics and Refining Public Company Limited 79
14 October 2010: October 2010: October Participated in the 7th PTT Group P&RTechnology Day at Synergy Hall, Energy Complex, wherePTTAR’s 2 pieces of research were presented to illustratethe power of innovation and new technology to alert allparties about balanced development in 3 dimensions:business, society, and the environment.
27 October 2010: October 2010: October Participated in the PTT Group KM Award2010 event at Synergy Hall, Energy Complex, to jointly drivethe creation of knowledge assets to enhance businesscompetitiveness while forging sustainable operationalexcellence in line with PTT Group strategies.
18 November 2010: November 2010: November Participated in the SET in the City 2010event under the theme "SET Your Future", at Royal ParagonHall, Siam Paragon.
29-30 November 2010: November 2010: November Organized a shareholders’ CompanyVisit to the refinery and aromatics complexes to equipshareholders with a view about PTTAR operations. Inaddition, visitors participated in the release of aquaticspecies to the sea in honor of His Majesty the King at PMYBeach Resort, Rayong.
14 October 2010
27 October 2010
29-30 November 2010
18 November 2010
80
Awards and Recognition
12 February 2010: PTTAR won a "CEO with HR Orientation"awards at the World HRD Congress 2010, held in Mumbai, India,in recognition of its success in merging 2 companies withoutreducing the headcount. Besides reflecting excellence inexpertise and management strategies, this represented a rolemodel for corporate administrators amid a highly volatile world.
23 April 2010: PTTAR was ranked 1,555th worldwide in Forbesranking of 2,000 large-capital and influential companies of 2010.14 Thai companies made the list.
8 July 2010: For the 8th straight year, PTTAR won a NationalOutstanding Business Operator in Safety, Occupational Health,and Workplace Environment awards for 2009. This recognitionwas for the I-17 and I-20 area of the Aromatics Complex I (AR2).
12 February 2010
8 July 2010
196
750
767
881
1094
1153
1310
1366
1451
1643
1651
1668
1744
2010
Source:
1555
Thai Listed Companies in Forbes Global 2000 in 2010 Unit: billion US$
23 April 2010
Annual Report 2010PTT Aromatics and Refining Public Company Limited 81
12 July 2010: PTTAR won an "Environmental Governance (WhiteFlag-Green Star) Awards 2009", presented by the Industrial EstateAuthority of Thailand (IEAT) to plants in Map Ta Phut that hadsuccessfully passed 4 assessments per year of environmentaland safety management practices.
5 August 2010: PTTAR received 100 (full) marks on a qualityassessment of annual general meetings of shareholders (AGM)for 2010, sponsored by the Securities and Exchange Commission(SEC) and Thai Investors Association.
18 August 2010: PTTAR won an “EIA Monitoring Awards 2009”,given by the Office of Natural Resources and EnvironmentalPolicy and Planning, Ministry of Natural Resources andEnvironment, for its conformity to measures spelled out in itsenvironmental impact assessment (EIA) and excellence inenvironmental management in 2009, notably its jetty project.
2 November 2010: November 2010: November PTTAR won the “#2 Fastest - Growing AsiaEnergy Companies” awards from Platts based on its outstandingassets, revenue, profit, and return on investment at the PlattsTop 250 Global Energy Company Ranking Awards event.
2 November 2010
5 August 2010
12 July 2010
18 August 2010
82
10 November 2010: November 2010: November PTTAR was voted by experts and a projecttask force for the promotion of Corporate Social Responsibility,Department of Industrial Works (CSR-DIW), as an outstandingcompany in organizational governance. The criteria includedoverviews of complete and accurate corporate governancepractices along with transparent supporting documents; this hadconsistently been PTTAR’s corporate governance guidelines.
24 November 2010: November 2010: November PTTAR was ranked among the excellentgroup under the Corporate Governance Report of Thai ListedCompanies 2010 Project (CGR), adorned with 5 NationalCorporate Governance Committee emblems, which signified a90% score or greater (the top group), conducted by the ThaiInstitute of Directors (IOD).
25 January 2011: PTTAR won the certificate of Corporate SocialResponsibllity, Department of Industrial Works, also known asCSR-DIW 2010 for Refinery (AR1) and Aromatics Complex I (AR2)– signifying their thorough responsibility to stakeholders.
21 December 2010: December 2010: December PTTAR achieved certification of IntegratedManagement System (IMS), which covered every managementsystem : ISO 9001 Quality Management System, ISO 14001Environmental Management System, TIS 18001-2542 and BSOHSAS 18001 Safety and Occupational Health ManagementSystem – by Management System Certification Institute (Thailand).
24 November 2010
10 November 2010
25 January 2011
21 December 2010
Annual Report 2010PTT Aromatics and Refining Public Company Limited 83
84
Connected Transactions
1. Connected Parties with Potential Conflicts of Interest and Relationships
Company Name Business Relationship
1. PTT Plc Petroleum business and promotion of related businesses
*** Thai Petrochemical Industry Plc registered its name change to IRPC Plc at the Ministry of Commerce on 31October2006.
**** PTTAR terminated its Operating Alliance Agreement (OAA) with SPRC for its joint refinery business on 8February2006.This terminationbecameeffectiveon1February2009, terminatingARCbusinesswithaccount liquidationcompletedoverthecourseof2010.
PTTARsignedacondensatepurchaseagreementandapetrochemicalsalesagreementwithPTT, itsmajorshareholder,becauseithadbeensetupunderthePetrochemical IndustryDevelopmentProject tomakeuseofthenaturalresourcesfoundintheGulfofThailand,mainlycondensate(aby-productofnaturalgasproduction).PTTsellscondensatetoPTTARforuse as the main aromatics feedstock under a long-termagreement(to2016).Bothpartiesdecidedthat thefeedstockpricewouldbemarket-based,acommonpetroleum-petrochemicalindustrypractice.
PTTARisobligedbyagassalesagreementwithPTTforitsrefiningprocesses,aswellaspetroleumproductagreements,andthoseforcrudeoilandothermaterials, under regular business pricing and withothertermsandconditionsacceptabletomarketandbusinesspractices,aswellasanagreementforjointmarineoil-spillcombatingserviceaspartofPTTGroupwithOilSpillResponseCo.,Ltd.(OSR),underwhichPTTARpaysanannualfeeatacontractualrate.
2. PTTAR and PTT Chemical Plc
Asonecompany’sby-productscanserveastheother’sfeedstock,thetwoconcludedanagreementfor by-product exchange to add value to their by-productsunderregularbusinesspricingandotherterms and conditions acceptable to market andbusinesspractices.Besides,proximitybetweenthe
two, with a product pipeline system joining them,allowedcostreductionforproducttransport.
3. PTTAR and Thai Tank Terminal Co., Ltd. (TTT)
SinceTTTprovides expert jetty and tank-farmservices near PTTAR, the use of TTT’s servicesreduceditsbusinessexpensesforconstructionandforproviding storage services for feedstock importandproductexport.
4. PTTAR and Bangchak Petroleum Plc (BCP)
Product sales between the two servedmutualinterests, adding value to related products undernormal pricing practices based onmarket prices,underregularbusinesspricingandwithothertermsandconditionsacceptable tomarketandbusinesspractices.
5. PTTAR and Dhipaya Insurance Plc
Toguardagainstbusinessriskstoplantpropertiesandagainstbusinessinterruption,PTTARjoinedPTTunder the same insurance packages provided byDhipaya InsurancePlc, thus lowering its insurancepremium.
6. PTTAR and Energy Complex Co., Ltd.
PTTARrentedthe14thflooroftheEnergyComplex office building fromEnergyComplexCo., Ltd., forcoordination convenience and agility, since thislocationisveryclosetoPTTHeadOffice,theheadofficesofotherPTTGroupcompanies,andtheMinistryofEnergy.Thisbenefitsitsownbusinessandsustainsbusinessexpansion.
7. PTTAR and IRPC Plc
PTTARhasalight-naphthasalesagreementwithIRPCforuseasthefeedstocktoraiseitsflexibilityinproduct sellingunder regular businesspricingandwithothertermsandconditionsacceptabletomarketand business practices.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 89
8. PTTAR and Star Petroleum Refining Co., Ltd. (SPRC)
PTTARandSPRChadbeenunderOperationsAllianceAgreement(OAA)since1999tojointlymanagetheoperationoftheStarRefineryandRayongRefinerythroughAllianceRefiningCo.,Ltd.(ARC),setupforthepurpose.Thetwocompanieseachheld50%ofthesharesinARC,whichfiledforbusinessdissolutionwith theMinistry of Commerce with liquidation ofaccountscompletedin2010.
PTTARendedtheOperatingAllianceAgreement(OAA)withSPRCon8February2006,effectivefrom1February2009.However, itcontinues touse thesingle-point mooring (SPM) crude-oil receivingfacilities,therefined-producttransportsystemlinkingtoThappline’spipelinetransportsystem,LPGjetty,andsulfurpelletizerjointlywithSPRC.Bothcompaniesalso signed a memorandum of understandingconcerningpiperacksonthecompoundofSPRC.
PTTARandSPRCalsosellandbuyintermediateproducts between each other since intermediateproductsfromonecompanycomplementsthosefromtheother,thusaddingvaluetointermediateproductofbothparties.Thesaleofintermediateproductsisbasedonregularbusinesspricingandwithothertermsandconditionsacceptable tomarketandbusinesspractices.Proximitybetweenthetwo,withapipelinejoining them, enables cost reduction for producttransport.
9. PTTAR and Chevron group of companies
PTTARsellsrefinedproductstothegroup,whichhas64%ofthesharesinSPRC.Salesarebasedonnormalbusinessandmarketpractices,withcommonmarket termsandconditionsacceptable tomarketand business practices.
10. PTTAR and Thai Oil Plc (TOP)
PTTAR and TOP also sell and buy productsbetweeneachother,sinceproductsfromonecompanycomplementthosefromtheother,thusaddingvaluetoproductsofbothparties.Productsaleisbasedonnormalbusinessandmarketpractices,withcommonmarket termsandconditionsacceptable tomarketand business practices.
11. PTTAR and PTT International Trading Co., Ltd. (PTTT)
PTTARhadabenzene supply agreementwithPPCL for the latter’suse inproducingphenol andacetoneunderregularbusinesspricingandwithotherterms and conditions acceptable to market andbusiness practices.
14. PTTAR and PTT Utility Co., Ltd. (PTTUT)
PTTUTandPTTARenteredintoanagreementforPTTUTtosupplypublicutilitiesforitsprocessesatAromaticsComplexII,asthiswouldreducePTTAR’sconstruction capital associated with petrochemicalproduction.
15. PTTAR and PTT ICT Solutions Co., Ltd. (PTTICT)
PTTAR entered into an agreement for PTTICTWhichprovideinformationtechnologyandcommunication services.ThiscompanyactuallyprovidesITservicestoallcompaniesunderPTTGroup.PTTARistoderivebenefitsonassetmanagement, services, capabilitybuilding,andefficiencyinvestmentimprovementonthe ICT front, apart from developing businessinformationlinkagewithintheGrouptofosterefficiencyand supply chains, thus leading to businesscollaborationandgreatercompetitiveness,aswellasafoundationforsynergisticsupportinotherareaswithotherPTTGroupcompanies.
16. PTTAR and Business Services Alliance Co., Ltd. (BSA)
PTTAR has entered into a contract with BSAforthelattertoarrangemanpowersupplyandlaborservices.BSAishiredtoprovidesimilarservicesforcompanies inPTTGroup. The contractwasmadeunderregularbusinesspricingandwithothertermsandconditionsacceptable tomarketandbusinesspractices.
2.2 Procedure and Policy for Approval of
Connected Transactions
Observingbusinessintegrity,transparency,andfairness, PTTAR treats external parties equitably inreachingagreementsorbusinesscommitmentswiththem,aswellasconductingtransactionswithpartieswithpotentialconflictsofinterest.Initsregulations,PTTARhasstipulatedfordifferentcasestherelatedprocedures,approvalauthorities,andauthoritylevelsofexecutivesintheManualofDelegatedAuthorities(MODA).Alltransactionsmustreflectprevailingmarketconditions.OpenlyconductedinthebestinterestsofPTTAR,suchstipulation iscommonpractice in thepetroleumandpetrochemical industries, and thesetransactionsareopentoscrutiny.
Itpubliclydisclosesconnectedtransactionswithpartieswithpotentialconflictsof interestunder thecriteria and procedure defined for listed companies as announcedbySET,which has constantly beenobserved.
2.3 Policy for Future Connected Transactions
Future connected transactions will again beconductedinthecourseofnormalbusinesspracticewithout exception or transfer of benefits betweenPTTAR, associated companies, related companies,andshareholders.Thepolicyonproductpurchasesbetween the Company and related companies willlikewiserelyonmarketpricesandwillbeconductedonanarm’slengthbasis.Feedstockpriceswillalsoconformtoagreementsbasedonmarketprices,aswasdoneinthepast.Finally,PTTARwilldisclosethetypesandvaluesofconnectedtransactionswithpartiesasrequiredbytheOfficeofSecuritiesandExchangeCommissionandtheStockExchangeofThailand.
PTTAR’sconnectedtransactionsareundertakeninthebestinterestsofPTTARanditsshareholdersas its prime consideration.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 91
Company Information
Company Name PTT Aromatics and Refining Public Company LimitedRegistration No. 0107550000254Head Office 555/1 Energy Complex, Building A, 14th Floor, Vibhavadi Rangsit Road, Chatuchak, Bangkok 10900 Tel: +66(0)-2140-4000 Fax: +66(0)-2140-4111-2Refinery (AR1) 8, I-8 Road, Map Ta Phut Industrial Estate, Map Ta Phut, Muang District, Rayong 21150 Tel: +66(0)-3897-1000 Fax: +66(0)-3897-1099Aromatics I (AR2) 4, I-2 Road, Map Ta Phut Industrial Estate, Map Ta Phut, Muang District, Rayong 21150 Tel: +66(0)-3897-2000 Fax: +66(0)-3897-2099Aromatics II (AR3) 98/9 Rayong Highway Road 3191, RIL Industrial Estate, Map Ta Phut, Muang District, Rayong 21150 Tel: +66(0)-3897-3000 Fax: +66(0)-3897-3099Tank Farm 11, I-4 Road, Map Ta Phut Industrial Estate, Map Ta Phut, Muang District, Rayong 21150 Tel: +66(0)-3897-2000 Fax: +66(0)-3897-2099Website www.pttar.comInvestor Information [email protected] or +66(0)-2140-4000Nature of Business Petroleum refining and supply of refined products, manufacturing and sale of aromatics and their derivatives, and businesses of associated companiesNumber and Value of As at 31 January 2011, the registered share capital was Baht 29,938,149,690Issued Shares made up of 2,993,814,969 common shares at a par value of Baht 10 per share. The registered share capital is made up of: 1. Paid-up capital of Baht 29,791,061,610 consisting of 2,979,106,161 common shares at a par value of Baht 10 per share 2. Unpaid capital of Baht 147,088,080 consisting of 14,708,808 common shares at a par value of Baht 10 per share.Securities Registrar Thailand Securities Depository Company Limited, The Stock Exchange of Thailand Building, 62 Ratchadaphisek Road, Klong Toey, Klong Toey, Bangkok 10110 Tel: +66(0)-2229-2800, 02-229-2888 Fax: +66(0)-2654-5427Bond Registrar Siam Commercial Bank Public Company Limited 9 Ratchadaphisek Road, Chatuchak, Bangkok 10900 Tel: +66(0)-2544-1000Bond Representative TMB Bank Public Company Limited 3000 Phaholyothin Road, Chompon, Chatuchak, Bangkok 10900 Tel: +66(0)-2299-1111
As of December 31, 2010, PTTAR personnel headcount was 1,117.*
Compensation
Item Amount (Baht)
Salary = 748,776,772/YearContribution to Provident Fund = 75,735,349/Year* Included amount of Company staff, Secondment and Direct Hired
Dividend Policy
The Board of Directors’ policy is to propose to the shareholders’ meeting an annual payment of dividends, in line with Company performance, of no less than 30% of the net profit after tax and capital reserves, subject to investment plans, necessity, and other future factors.
For 2010, at Meeting No. 3/2011 on 24 February 2011, the Board decided to propose to the Annual General Meeting of Shareholders for approval of the dividend payment for the operating results of the year 2010. The dividend will be paid from the retained earnings after legal reserved at the rate of 0.96 Baht per share, amounting to 2,859,941,915 Baht. 0.61 Baht per share derived from tax exemption profit portion according to Board of investment (BOI) privilege and 0.35 Baht per share derived from 25% taxable profit portion.
Rank Name Shares %
1 PTT Plc 1,441,987,368 48.60
2 Chase Nominees Limited 42 164,349,802 5.54
3 Thai NVDR Co., Ltd. 109,487,750 3.69
4 State Street Bank and Trust Company 57,446,044 1.94
Work Experience•DeanofFacultyofEngineering,ChiangMaiUniversity•VicePresidentforResearchandAssetAffairs, ChiangMaiUniversity•VicePresidentforAcademicAffairs,ChiangMaiUniversity•DeputyPermanentSecretary,MinistryofEnergy
Work Experience•SecretaryGeneral, NationalEconomicandSocialDevelopmentBoard•DeputyPermanentSecretary, MinistryofAgricultureandCooperatives(MOAC)•Director-General,TheNationalBureauofAgricultural CommodityandFoodStandards(ACFS)•BoardoftheBankofThailand•MemberoftheNationalLegislativeAssembly
Work Experience•SeniorExpertforFinanceandTaxActingDirector-General, PublicDebtManagementOffice•DeputyDirector-General,FiscalPolicyOffice•Director-General,PublicDebtManagementOffice•Director-General,FiscalPolicyOffice•BoardofDirector,ThaiAssetManagementCorporation•BoardofDirector,BankofThailand•FinancialInstitutionPolicyCommittee•BoardofDirector,GovernmentPensionFund•NationalEconomicandSocialDevelopmentBoard•NationalDebtPolicyCommittee•EconomicandFiscalPolicyResearchInstitution
Work Experience•Director-General,DepartmentofAppellateCourtLitigation, Region3•Director-General,DepartmentofBankruptcyLitigation•Director-General,DepartmentofPeoples’RightsProtection andLegalAid
Work Experience•Commander,CrimeSuppressionDivision•Commanderinchief,CentralInvestigationBureau•AssistantDirector-General, ThailandNationalPoliceDepartment•AssistantNationalPoliceCommander•NationalPoliceInspector-General•Advisor(Level10)•ActingNationalPoliceCommander•NationalPoliceCommander•MemberofCouncilofNationalSecurity
Present Position•RetiredPoliceOfficer
Mr. Permsak Shevawattananon
Director
Age:60PTTARShareholdingbyDirector:76,221sharesor0.00255%PTTAR Shareholding by Related Person : None
Work Experience•SeniorVicePresident,RegionalAssetsDivision, PTTExplorationandProductionPublicCompanyLimited•ExecutiveVicePresident,CorporateBusinessDevelopment, PTTPublicCompanyLimited•SeniorExecutiveVicePresident,CorporateStrategy& Development,PTTPublicCompanyLimited
Work Experience•AssistantSecretary-GeneraltotheCabinet•AdvisoroftheSecretariatoftheCabinet•Inspector-General,OfficeofthePermanentSecretary•DeputyPermanentSecretary,OfficeofthePrimeMinister•PermanentSecretary,OfficeofthePrimeMinister
Work Experience•CommercialManager,ThaiOilPublicCompanyLimited•ProductandQualityManager,ThaiOilPublicCompanyLimited•(Co)ChiefExecutiveOfficer,AllianceRefiningCompanyLimited•SeniorExecutiveVicePresident-Operations ActingExecutiveVicePresident-SupplyPlanning& BusinessDevelopment,PTTAromaticsandRefining PublicCompanyLimited•Director,PTTUtilityCompanyLimited
Work Experience•Director,OfficeofthePermanentSecretaryPolicyand StrategyCoordinationOffice,MinistryofEnergy•DirectorofPublicCommunicationDivision, NuclearPowerProgramDevelopmentOffice(NPPDO)•Spokesperson,MinistryofEnergy
Vice Chairman, Independent Director and Corporate Governance Committee (Resigned on 20 May 2010)
03 Mr. Chainoi Puankosoom
Director, President & CEO, Secretary to the Board of Directors (Authorized Director) (Resigned on 30 September 2010 since retirement age reached)
Directors who retired and resigned during the year 2010
01 Mr. Nakarin Virameteekul
Independent Director, Audit Committee and Risk Management Committee (Completed the term on 5 April 2010)
01 02 03
106
Senior Management
01 Mr. Bowon Vongsinudom
President & CEO (1 October 2010 - Present)
Acting Senior Executive Vice President - Operations (1 October 2010 - Present)
02 Mr. Kun Patumraj
Senior Executive Vice President Technology Engineering & Maintenance (1 May 2010 - Present)
04 Mr. Vanchai Tadadoltip
Executive Vice President - Supply Planning & Business Development (1 October 2010 - Present)
0302
01
Annual Report 2010PTT Aromatics and Refining Public Company Limited 107
04 Mr. Porntep Butniphant
Executive Vice President - Refinery Operations
05 Mr. Prachurn Oneiam
Executive Vice President - Aromatics Operations (1 October 2010 - Present)
06 Mr. Varit Namwong
Executive Vice President - Human Resources & Corporate Administration
07 Miss Duangkamol Settanung
Executive Vice President - Finance and Accounting (1 February 2011 - Present)
04
06
05
07
108
03 Mr. Dumrong Pinpuvadol
Vice President - Corporate Strategy (1 October 2010 - Present)
04 Mr. Saroj Putthathammawong
Vice President - Commercial
05 Mr. Khomson Piyawattanaviroj Project Director - A
06 Mr. Manop Saeng-Ngern Project Director - B
01 Mr. Athavuth Vikitsreth
Senior Vice President - Industry & Independent Organization Management (1 October 2010 - Present)
02 Mr. Siridech Kumvongdee
Senior Vice President - Supply Planning and Business Development (1 October 2010 - Present)
05
04
06
01
03
02
Annual Report 2010PTT Aromatics and Refining Public Company Limited 109
01 Mr. Suwat Suratchaikarn
Vice President - Reliability & Engineering
02 Mr. Anutin Chuarypen
Vice President - Maintenance
03 Mr. Sopon Siriratchatapong
Turnaround Director
04 Mr. Pukpong Wungrattanasopon
Vice President - Technology (1 March 2011 - Present)
05 Mr. Supasit Tongsupachok
Vice President - Aromatics 1 Operations
06 Mr. Sawat Trongdilokrat
Vice President - Aromatics 2 Operations
07 Mr. Ratchada Sawasdirak
Vice President - Refinery Operations
08 Mr. Suthep Grinchan
Vice President - Movement and Dispatching Operations
09 Mr. Sakesiri Piyavej
Vice President - Quality, Safety, Health and Environment
0201
08
05
07
03
0604
09
110
01 Miss Araya Buraskarn
Vice President - Internal Audit
02 Mr. Paupan Srirongmuang Vice President - Human Resources
03 Mr. Surapong Harn-amorn
Vice President - Procurement
04 Mrs. Natchalee Phadungsidh
Vice President - Treasury
05 Mr. Somboon Setsuntipong
Vice President - Financial Planning and Management Information
06 Mrs. Siriluck Phonorthong
Vice President - Corporate Accounting
07 Miss Monwipa Choopiban
Vice President - Corporate Compliance & Communication (1 May 2010 - Present)
Company Secretary (1 October 2010 - Present)
08 Miss Brinda Klasnimi
Vice President - CSR & Government Affairs (1 May 2010 - Present)
04
02 03
08
01
07
0605
Annual Report 2010PTT Aromatics and Refining Public Company Limited 111
Mr. Bowon Vongsinudom
President & CEOActing Senior Executive Vice President - Operations(1 October 2010 - Present)Senior Executive Vice President - Operations and Acting Executive Vice President - Supply Planning & Business Development(1 January 2010 - 30 September 2010)
Senior Executive Vice President - Technology Engineering & Maintenance(1 May 2010 - Present)Executive Vice President - Asset Management (1 January 2010 - 30 April 2010)
Executive Vice President - Supply Planning & Business Development(1 October 2010 - Present)Executive Vice President - Aromatics Operations (1 January 2010 - 30 September 2010)
Former Positions•MaterialandLogisticsManager,RayongRefiningCompanyLimited•Contract&PurchasingManager,AllianceRefiningCompanyLimited•ManagerHumanResources,AllianceRefiningCompanyLimited
Executive Vice President - Aromatics Operations (1 October 2010 - Present)Executive Vice President - Project Management(1 January 2010 - 30 September 2010)
Executive Vice President - Finance and Accounting(1 February 2011 - Present)Senior Vice President - Finance and Accounting (1 October 2010 - 31 January 2011)Vice President - Corporate Strategy(1 January 2010 - 30 September 2010)
Former Positions•Expert,BusinessRelations, NationalPetrochemicalPublicCompanyLimited•OperationsSupportManager, ThaiOilPublicCompanyLimited•Manager,SpecialWork,ThaiOilPublicCompanyLimited
Senior Vice President - Supply Planning and Business Development(1 October 2010 - Present)Vice President – Supply and Planning(1 January 2010 - 30 September 2010)
Former Positions•EconomicsPetroleumSectionManager, PetroleumAuthorityofThailand•SchedulingManager,RayongRefineryCompanyLimited•SchedulingManager,AllianceRefiningCompanyLimited•BusinessDevelopmentManager, AllianceRefiningCompanyLimited•CommercialManager,AllianceRefiningCompanyLimited•VicePresident-SupplyandPlanning, PTTAromaticsandRefiningPublicCompanyLimited
Former Positions•Instrument&ElectricalEngineeringManager, StarPetroleumRefiningCompanyLimited•ProjectEngineeringDivisionManager, AllianceRefiningCompanyLimited•AssetManagementManager, AllianceRefiningCompanyLimited
Former Positions•ShiftOperationsManager, RayongRefineryCompanyLimited•ShiftOperationsCoordinator, AllianceRefiningCompanyLimited•OperationsSpecialist,AllianceRefiningCompanyLimited
Former Positions•TVNewsEditor,ThaiTVChannel9,MCOTRadio, ThaiNewsAgency,TheMassCommunicationOrganization ofThailand(MCOT)•ProgramProducer&NewsEditor,ThaiLanguageService, BBCWorldService,BritishBroadcastingCorporation•MediaCoordinator,CommunicationsDivision,Corporate PublicAffairsDepartment,ShellCompaniesinThailand•HeadPublicRelationsDivision, RayongRefineryCompanyLimited•PublicAffairsManager,AllianceRefiningCompanyLimited•Manager,PublicGovernmentAffairs, AllianceRefiningCompanyLimited•VicePresident-PublicGovernmentAffairs, PTT AromaticsandRefiningPublic&CompanyLimited
Annual Report 2010PTT Aromatics and Refining Public Company Limited 121
01 Mr. Chainoi Puankosoom
President & CEO (1 January 2010 - 30 September 2010)
02 Mrs. Puangchao Nakanart
Vice President - Office of CEO & Company Secretary (1 January 2010 - 30 September 2010)
04 Mrs. Jeeranee Pimthanothai
Vice President - Technology (1 January 2010 - 28 February 2011)
(1 March 2011 - Present) • SecondmenttoPTTPublicCompanyLimited AsVicePresident-RefiningSubsidiaryPlanning& Management
03 Mrs. Nitima Thepvanangkul
Executive Vice President - Finance and Accounting (1 January 2010 - 31 January 2011)
(1 February 2011 - Present) • DeputyManagingDirector-Finance, ThaiOilPublicCompanyLimited
Senior Management who retired during the year 2010
Senior Management who moved to other companies in PTT Group
03 0401 02
122
Management Structure
PTT Aromatics and Refining Public Company Limited (PTTAR) is managed by the Board of Directors and four subcommittees (‘Committees’), namely the Audit Committee, Nomination and Remuneration Committee, Corporate Governance Committee, and Risk Management Committee.
1. Board of DirectorsThe Board consists of at least 5 and up to 15 Directors,
who can be up to 70 years old. The maximum terms for each Director are 3 consecutive ones. Independent Directors must have number at least a third of the Board’s composition or at least 3; for his or her Company shareholding not more than 0.5%, each Independent Director must qualify against a stricter criterion that of Capital Market Supervisory Board.
The Board is empowered to define business policy, strategies, and direction, supervise corporate governance and proper conduct to enable the Company to achieve its goals in line with Company objectives, laws, company's restrictions and resolutions of shareholders’ meetings with integrity, prudence, care, ethics, proper conduct, social responsibility and environment. The key is to safeguard the interests of the Company and all its shareholders. The matters listed below, however, require the prior approval of the shareholders:
1.1 Selling or transferring significant parts or all of PTTAR’s business to other parties
1.2 Purchasing or taking over other public companies or companies
1.3 Signing, amending, or annulling contracts on the leasing of significant parts of all of its operations.
1.4 Assigning other parties to manage Company business or merging business with others to share profits or losses
1.5 Amending or making additions to the memorandum of association or Company regulations
1.6 Increasing or decreasing capital, issuing debentures, merging, or dissolving Company business.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 123
The Board must have the consent of the shareholders’ meeting through at least three-quarters of the total votes of the eligible shareholders in attendance.
As of 31 December 2010, the Board of Directors consisted of 15 people as follows:
1. Dr. Norkun Sitthiphong Chairman
2. Gen. Somjed Boontanom Independent Director
Chairman of Corporate Governance Committee3. Dr. Ampon Kittiampon
Director Chairman of Nomination and Remuneration
Committee 4. Dr. Chokchai Aksaranan
Independent Director Chairman of Audit Committee5. Mr. Prasert Bunsumpun
Director Nomination and Remuneration Committee6. Mrs. Pannee Sathavarodom Independent Director Audit Committee Risk Management Committee7. Mr. Prajya Phinyawat Director Chairman of Risk Management Committee Corporate Governance Committee8. Dr. Wit Jeraphat Independent Director9. Dr. Witoon Simachokedee Independent Director
Audit Committee10. Pol. Gen. Sereepisut Tameeyaves Independent Director Nomination and Remuneration Committee Audit Committee11. Mr. Permsak Shevawattananon
Director12. Mr. Tevin Vongvanich Director Risk Management Committee
13. Mr. Nathi Premrasmi Independent Director14. Mr. Somchai Poolsavasdi Independent Director Corporate Governance Committee15. Mr. Bowon Vongsinudom
Director Risk Management Committee President & CEO Secretary to the BoardDirectors’ profiles and experience related to
PTTAR’s business appear under "The Board of Directors".
2. Independent Directors Independent Directors must have the following
qualifications: 1. Holds no more than 0.5% of all voting shares
in PTTAR, its parent company, subsidiary, associated company, major shareholder, or controller. The percentage of shares held includes shares held by related persons.
2. Has never been a Director, staff, employee, adviser with regular salary, controller of PTTAR, its parent company, subsidiary, associated company, equivalent subsidiary, major shareholder, or controller over the past 2 years. This exclude Independent Directors who were former government officials or advisers to government agencies that are PTTAR’s major shareholder or controller.
3. Is not related by blood or by law as a parent, spouse, sibling, an offspring, or a parent-in-law of a Management, major shareholder, controller, or a person who will be nominated as a Management or a controller of PTTAR or its subsidiary.
4. Has not had business interests with PTTAR, its parent company, subsidiary, associated company, major shareholder, or controller that may prevent unbiased judgment; has never been a significant shareholder, a controller of those with business relations with PTTAR, its parent company, subsidiary, associated company, major shareholder, or controller over the past 2 years.
(This business connection is in line with the requirements for connected transactions under an announcement of the Capital Market Supervisory Board.)
5. Is not appointed to represent PTTAR’s Directors, major shareholder, or shareholder who is related to a major shareholder in PTTAR.
6. Has not been an external auditor of PTTAR, its parent company, subsidiary, associated company, major shareholder, controller, and must not be a significant shareholder, a controller, or partner of an account auditor employing the external auditor of PTTAR, its parent company, subsidiary, associated company, major shareholder, or its controller over the last two years.
7. Has not served as a professional service provider, including legal or financial consultant that commanded over 2 million baht per year in fees from PTTAR, its parent company, subsidiary, associated company, major shareholder, or controller; is not a significant shareholder, controller, or partner of such service provider over the past 2 years.
8. Is not engaged in a similar business in competition with PTTAR or its subsidiary, or is a significant shareholder in a partnership, a Director, staff, employee, adviser with regular salary, or holds more than 1% of the total voting shares of other companies in a similar business in competition with PTTAR or its subsidiary.
9. Does not have any other quality that may prevent him or her from making independent and impartial decisions.
3. SubcommitteesThere are currently 4 subcommittees as
described below.
3.1. The Audit Committee
This committee consists of at least 3 Directors, at least 1 of whom must command enough expertise and experience to review the credibility of financial statements. The term of each member is up to 3 years. The Committee’s Board-assigned duties are as follows:
1. Ensure accurate and adequate financial reports2. Ensure suitable, efficient, and effective internal
control and internal audit system, and deliberate the independence of the internal audit unit, including approval of the appointment, transfer, and employment termination of the head of the unit or any other unit charged with conducting internal audits
3. Ensure compliance with securities and exchange laws of Stock Exchange of Thailand (SET) regulations, or other relevant laws
4. Consider, select, and nominate an independent person as the external auditor together with its fees, and attend at least 1 meeting per year with the external auditor without the presence of the management
5. Consider the disclosure of Company information where connected transactions or potential conflicts of interest are concerned, to ensure compliance with laws and the regulations of SET; it is critical to ensure that such transactions are logical and conducted in the best interests of the Company
6. Prepare a report from the Committee, signed by its Chairman, for publishing in the annual report, with the following contents as a minimum:
6.1 Opinion about the accuracy, completeness, and reliability of financial reports6.2 Opinion about the adequacy of internal control6.3 Opinion about compliance with securities
and exchange laws, regulations of SET, or laws related to Company business
6.4 Opinion about the suitability of the external auditor
6.5 Opinion about potentially connected transactions
6.6 The number of its meetings and individual attendance records
6.7 Overall opinion or remarks by the Committee on performing duties under the charter
6.8 Other items considered good to know for shareholders and investors under the scope
of duties and responsibility assigned by the Board.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 125
7. Review major risk management items to establish a link with internal control
8. Review and propose amendments to the scope, roles, and responsibility of the Committee in line with prevailing circumstances
9. Conduct other duties assigned by the Board with the concurrence of the Committee. In performing such duties, the Committee is directly responsible to the Board.
10. If the Committee detects or wonders whether the following transactions or actions could impact the Company’s financial status and performance significantly, it must report them to the Board for rectification within reasonable time in its opinion:
10.1 Transactions with conflicts of interest10.2 Frauds, irregularities, or significant defects in internal control10.3 Violations of the securities and exchange
laws, regulations of SET, or laws related to Company business.
The Audit Committee is experienced in reviewing financial statements and in serving on audit committees. Dr. Chokchai Aksaranan was a Chairman of Audit Committee of the Aromatics (Thailand) Plc and served as an Audit Committee member of Thai Asset Management Corporation. He is currently the Chairman of the Audit Committee of MFC Asset Management Plc. Pol. Gen. Sereepisut Tameeyaves was Chairman of the Audit Committee of IRPC Plc. Dr. Witoon Simachokedee has undergone the Financial Statements for Directors (FSD), class 4/2009, and Mrs. Pannee Sathavarodom, the finance and accounting expert, has undergone the Audit Committee Program (ACP), class 32/2010, training with the Thai Institute of Directors (IOD).
3.2 The Corporate Governance Committee
The Corporate Governance Committee appointed by the Board, has the following duties:
1. Consider and propose good corporate governance practices to the Board.
2. Formulate a good corporate governance policy and a code of conduct for employees and for PTTAR’s business, and upgrade corporate governance practices to international standards.
Name Position
1. Dr. Chokchai Aksaranan Chairman of Audit Committee
2. Dr. Witoon Simachokedee* Audit Committee
3. Mrs. Pannee Sathavarodom Audit Committee
4. Pol. Gen. Sereepisut Tameeyaves Audit Committee
Ms. Araya Buraskarn, Vice President, Internal Audit, serves as secretary to the Committee.
* Resigned on 11 February 2011.
Name Position
1. Gen. Somjed Boontanom Chairman of Corporate Governance Committee
2. Mr. Prajya Phinyawat Corporate GovernanceCommittee
3. Mr. Somchai Poolsavasdi Corporate GovernanceCommittee
Mrs. Puangchao Nakanart, Vice President, Office of the CEO, and Company Secretary, served as secretary to the Committee from 1 January 2010 to 30 September 2010.
Ms. Monwipa Choopiban, Vice President, Corporate Compliance and Communication and Company Secretary, has served as secretary to the Committee since 1 October 2010.
The Nomination and Remuneration Committee appointed by the Board, has the following duties:
1. Devise transparent criteria and selection procedures for Directors and the President & CEO
2. Recruit and select potentially qualified Directors and the President & CEO
3. Recommend the recruitment of qualified people to serve as Directors for the Board to consider and table for the consideration of shareholders’ meetings
4. Define criteria or procedures for the fair and logical compensation of Directors, Subcommittees, and the Management rank of Executive Vice Presidents upward
5. Submit Directors’ and Subcommittees’ compensation to the shareholders for their approval
6. Appraise the performance and propose compensation for the management rank of Executive Vice Presidents upward for the Board’s approval.
3.4 The Risk Management Committee
The Risk Management Committee has the following duties:
1. Formulate a policy and recommend approaches for risk management concerning Company business in a suitable and efficient way
2. Ensure compliance with the corporate-level risk management framework
3. Recommend practices for significant risk management, particularly financial risks and fluctuation in product prices so that they may be reasonably acceptable
4. Review risk management reporting and track significant risks to ensure that such management is adequate and suitable.
Name Position
1. Dr. Ampon Kittiampon Chairman of Nomination and Remuneration Committee
2. Mr. Prasert Bunsumpun Nomination and Remuneration Committee
3. Pol. Gen. Sereepisut Tameeyaves
Nomination and Remuneration Committee
Mrs. Puangchao Nakanart, Vice President, Office of the CEO, and Company Secretary, served as secretary to the Committee from 1 January 2010 to 30 September 2010.
Ms. Monwipa Choopiban, Vice President, Corporate Compliance and Communication and Company Secretary, has served as secretary to the Committee since 1 October 2010.
Name Position
1. Mr. Prajya Phinyawat Chairman ofRisk ManagementCommittee
* 1 new Director appointment at the 2010 AGM of 5 April 2010: Mr. Nathi Premrasmi 1 Director completed his term: Mr. Nakarin Virametheekul 4 Directors were re-appointed after completing their terms: 1. Dr. Norkun Sitthiphong 2. Dr. Chokchai Aksaranan 3. Mr. Prasert Bunsumpun 4. Mr. Prajya Phinyawat
Directors. Below are the details of these meetings as well as those of the subcommittees.
the Board has approved Mr. Bowon Vongsinudom to be Director in PTT Phenol Co., Ltd., a joint-venture company with PTTAR.
Details about the Company’s structure and management profiles appear under "Organization Structure" and "Senior Management".
5. Recruitment of Directors and Management
PTTAR has implemented a recruitment and selection procedure to identify potential Directors and the President & CEO – according to Company's restriction and corporate governance manual (revealed in www.ptttar.com). In addition, the Nomination and Remuneration Committee has scrutinized qualifications for becoming experts in assorted areas so that the Board’s composition is diversely qualified. The Committee verified these nominees’ qualifications to ensure that they bear no forbidden characteristics for Directors under the Public Company Limited Act and an announcement of the Capital Market Supervisory Board. It has no commitment or pledge concerning the number of Directors representing the major shareholder and, as a rule, will consider the proportion of shares, suitability, and necessity for Company business. It welcomes advance nomination of candidates from all shareholders for election to the Board. In 2010, the Company provided an opportunity
** 2 Directors resigned during the year: 1. Mr. Apai Chandanachulaka (20 May 2010) 2. Mr. Chainoi Puankosoom (retirement age reached, on 30 September 2010)
*** 2 new Directors appointed during the year: 1. Mr. Somchai Poolsavasdi (appointed on 17 June 2010 in place of Mr. Apai Chandanachulaka) 2. Mr. Bowon Vongsinudom (appointed on 29 September 2010 in place of Mr. Chainoi Puankosoom)
Note: Dr. Norkun Sitthiphong was appointed as Chairman of the Board of Directors on 21 April 2010 Dr. Chokchai Aksaranan was appointed as Chairman, Audit Committee on 21 April 2010 Mrs. Pannee Sathavarodom was appointed as Audit Committee and Risk Management Committee on 21 April 2010 Mr. Prajya Phinyawat was appointed as Chairman, Risk Management Committee on 21 April 2010 Mr. Chainoi Puankosoom was appointed as Risk Management Committee on 21 April 2010 Mr. Prasert Bunsumpun was appointed as Nomination and Remuneration Committee on 21 April 2010 Mr. Somchai Poolsavasdi was appointed as Corporate Governance Committee on 17 June 2010 Mr. Bowon Vongsinudom was appointed as Risk Management Committee on 29 September 2010 and was appointed as President & CEO on 1 October 2010
4. Senior ManagementThe 2 extraordinary Board of Directors meetings
on 29 September 2010 and 1 October 2010 appointed Mr. Bowon Vongsinudom as a Director of the Board and Risk Management Committee in place of Mr. Chainoi Puankosoom, who had resigned. The Board then appointed Mr. Bowon Vongsinudom as President & CEO, as well as Secretary to the Board, as recommended by the Nomination and Remuneration Committee.
The President and CEO is empowered with the management of Company tasks. The Board provides in writing the scope of authority on significant matters in assorted Company regulations, including those on personnel administration, supply procurement, finance and accounting, budget, and the supply and distribution of petroleum and petrochemical products.
In addition, the President and CEO must manage tasks assigned by the Board strictly according to approved work plans or budgets with integrity and safeguards the best interests of the Company and its shareholders.
In 2010, for greater efficiency in administration and in support of business execution under PTTAR’s strategic plan, the Company restructured itself by appointing Senior Vice Presidents and Vice Presidents, while rotating Executive Vice Presidents, with effect from 1 October 2010. Moreover, since 1 October 2010
Annual Report 2010PTT Aromatics and Refining Public Company Limited 129
for shareholders to nominate Directors in advance from 24 November 2009 to 22 January 2010. Appointment of each Director requires approval votes exceeding half of the votes of eligible shareholders in attendance.
The criteria and election procedure, spelled out in Company regulations with the consent of the shareholders, are as follows:
1. The number of votes equals the number of shares held by a person
2. Each shareholder must vote by using the entire voting right under (1) to elect one or several Directors but cannot divide up his/her votes
3. Those candidates with the highest votes fill the Director positions open in a given election. Should more than one candidate get the same number of votes, the Chairman of the meeting is to cast the deciding ballot.
4. At every Annual General Meeting (AGM), one-third of the Directors - or if the number is not a multiple of 3, then the number nearest to one-third – is to retire from office. Nevertheless, a Director whose term in the office expires may be re-elected. The names of those to retire during the first and the second year after the Company was registered are to be drawn by lots. For subsequent years, those with the longest terms are to retire.
5. Any director may resign by submitting a resignation letter to PTTAR, and such resignation will take effect on the date it receives the letter. He/she may also inform the registrar about the resignation.
6. Apart from term expiration, the Board may choose qualified persons to assume directorship to fill a void, except when the remaining term is less than two months. Such a fill-in Director may serve only as long as the remaining term of the replaced one.
The Board resolution required in this case must be at least three-quarters of the remaining directors.
7. At a shareholders’ meeting, shareholders may vote for the removal of any Director from office before his/her term expires, in which case a three-quarter vote of eligible shareholders present at the meeting
is required, provided that the number of shares represented by the three-quarter vote is no less than half of the total number of shares represented by the total number of eligible shareholders present at the meeting.
As of 31 December 2010, the Board consisted of 15 Directors, with 8 being independent ones, more than half of its composition: 6 of the Directors are knowledgeable in petroleum or petrochemical matters, 5 in law/administration, 2 in accounting and finance, 2 in security matters, and 1 in economic matters. Details and profiles of Directors appear under "Board of Directors".
One Independent Director is concurrently an Independent Director of a related listed company with the same major shareholder (PTT Plc) as PTTAR: Dr. Witoon Simachokedee serves as an Independent Director and a Corporate Governance Committee of PTT Chemical Plc. No Independent Director has business relationship or provides professional service with the Company, its parent company, subsidiaries, associated companies, or juristic persons with potential conflicts of interest with PTTAR.
6. Management Compensation
6.1 Cash Compensation
6.1.1 Directors: For the period of 1 January 2010 - 31 December 2010, the PTTAR Board met 12 times. The Company compensated Directors for performing their duties as approved by the 2010 Annual General Meeting, held on 5 April 2010, as follows:
Retainer fee:
Chairman, 50,000 bahtDirector, 40,000 bahtMeeting fee (only if in attendance):
Total 27,484,699 7,298,666.66 670,000 750,000 600,000 1,080,000 37,883,365.66
Note: 1. No. 16 completed his term at the 2010 AGM on 5 April 2010 2. No. 1, 4, 5, and 7 were re-appointed at the 2010 AGM on 5 April 2010 3. No. 13 was appointed at the 2010 AGM on 5 April 2010 4. No. 14 and 15 were appointed during the year on 17 June 2010 and 29 September 2010, respectively 5. No. 17 resigned on 20 May 2010 6. No. 18 resigned as of his retirement, on 30 September 2010 7. No. 19 resigned on 30 June 2009 8. No. 20 and 21 completed their terms on 7 April 2009
Annual Report 2010PTT Aromatics and Refining Public Company Limited 131
6.1.2 8 senior executives derived other benefits during the year in salaries, bonuses, accommodation,
Note: * Management, defined by SEC, whose compensation must be disclosed ** Management positions in 2010 as defined by SEC *** Reached retirement age and retired on 30 September 2010 **** Currently Executive Vice President reporting to Senior Executive Vice President (Petrochemicals & Refining Business Unit), PTT Plc, seconded to Deputy MD - Finance of Thai Oil Plc since 1 February 2011 • Mr. Atikom Terbsiri, Executive Vice President, served PTT Aromatics and Refining Plc until 30 May 2009 and currently seconded to IRPC Plc as Senior Executive Vice President, Corporate Strategy & Planning
Name* Position**
1. Mr. Chainoi Puankosoom*** President & CEO (1 January 2010 – 30 September 2010)
2. Mr. Bowon Vongsinudom Acting Executive Vice President, Supply Planning and Business Development (1 January 2010-30 September 2010)Senior Executive Vice President, Operations (Since 1 January 2010)President & CEO (Since 1 October 2010)
3. Mr. Kun Patumraj Executive Vice President, Asset Management (1 January 2010 – 30 April 2010)Senior Executive Vice President, Technology Engineering & Maintenance (Since 1 May 2010)
4. Mrs. Nitima Thepvanangkul**** Executive Vice President, Finance and Accounting (1 January 2010 – 31 January 2011)
5. Mr. Vanchai Tadadoltip Executive Vice President, Aromatics Operations (1 January 2010 – 30 September 2010)Executive Vice President, Supply Planning and Business Development (Since 1 October 2010)
6. Mr. Varit Namwong Executive Vice President, Human Resources and Corporate Administration
7. Mr. Prachurn Oneiam Executive Vice President, Project Management (1 January 2010 – 30 September 2010)Executive Vice President, Aromatics Operations (Since 1 October 2010)
8. Mr. Porntep Butniphant Executive Vice President, Refinery Operations
PTTAR contributes 10-15% of the monthly salary to the Provident Fund for each management employee provided that they are entitled to such contribution when they are released from employment after at least 5 years of service.
In addition, PTTAR issued ESOP warrants transferred from Rayong Refinery Plc (RRC) to allocate to former Directors, Management, and employees,
including PTT Plc’s employees who worked full-time at RRC (secondees), approved by SEC on 15 October 2007 and by the Joint EGM of ATC-RRC on 26 December 2007, totaling 57,999,996 units.
At present (31 January 2011), Directors and employees exercised their rights to buy a total of 15,477,639 common stocks according to ESOP warrants, raising the paid-up capital of the Company from 29,670,721,480 baht to 29,791,061,610 baht.
Directors’ Shareholding as of 31 December 2010
Name Position
Connection
in PTTAR
Deals
PTTAR
Shares
ESOP
Warrant
(Unit)
%
Share
Holding
Shares
as of 31
December
2009
Change
(Shares)
1. Dr. Norkun Sitthiphong Chairman – – – – – –
2. Gen. Somjed Boontanom Director – 194,966 69(0.0001%)
0.00654 30,335 164,631
3. Dr. Ampon Kittiampon Director – – 473,469 (0.82%)
– – –
4. Dr. Chokchai Aksaranan Director – 83,844 – 0.00281 83,844 –
5. Mr. Prasert Bunsumpun Director – 244,631 69 (0.0001%)
0.00821 – 244,631
6. Mrs. Pannee Sathavarodom Director – 92,678 274,769 (0.47%)
0.00311 – 92,678
7. Mr. Prajya Phinyawat Director – 324,742 69 (0.0001%)
0.01090 80,111 244,631
8. Dr. Wit Jeraphat Director – – – – – –
9. Dr. Witoon Simachokedee Director – – – – – –
10. Pol. Gen. Sereepisut Tameeyaves
Director – – – – – –
11. Mr. Permsak Shevawattananon
Director – 76,221 – 0.00255 76,221 –
12. Mr. Tevin Vongvanich Director – – – – – –
13. Mr. Nathi Premrasmi Director – – – – – –
14. Mr. Somchai Poolsavasdi Director – – – – – –
15. Mr. Bowon Vongsinudom Director – 165,361 – 0.00555 10,335 155,026
Note: Details about Directors appear under "Board of Directors"
Annual Report 2010PTT Aromatics and Refining Public Company Limited 133
Management Shareholding as of 31 December 2010
Details about the Management appear under "Senior Management"Note: * The President & CEO was appointed on 1 October 2010 ** Currently Executive Vice President reporting to Senior Executive Vice President (Petrochemicals & Refining Business Unit, PTT Plc), seconded to Deputy Managing Director - Finance, Thai Oil Plc since 1 February 2011 *** See the Directors' Shareholding table for his shareholding in PTTAR • Mr. Atikom Terbsiri, Executive Vice President, served PTT Aromatics and Refining Plc until 30 May 2009 and currently seconded to IRPC Plc as Senior Executive Vice President, Corporate Strategy & Planning
Name PositionPTTAR
Shares
ESOP
Warrant
(Unit)
%
Share
Holding
Shares
as of
31
December
2010
Change
(Shares)
1. Mr. Bowon Vongsinudom* President & CEO Acting Senior Executive Vice President, Operations
*** 486,889 (0.83%)
– – –
2. Mr. Kun Patumraj Senior Executive Vice President, Technology Engineering & Maintenance
The Board of Directors’ Report on Its Responsibility to Financial Reports
The financial statements of PTT Aromatics and Refining Public Company Limited (PTTAR) were prepared in conformance to an announcement of the Department of Business Development, issued under Article 11 (3) of the Accounting Act, B.E. 2543 (2000), the accounting standard of the Federation of Accounting Professions, and the requirements of the Securities and Exchange Commission concerning the preparation and presentation of financial statements under the Securities and Exchange Act, B.E. 2535 (1992).
The Board is responsible for the financial statements to ensure that its financial standing, revenue, expenses, and consolidated cash flows are factual and sensible by requiring accurate, complete, and adequate account entries to retain its properties while preventing frauds and irregularities. The Board has also required PTTAR to consistently adopt and conform to suitable accounting policies in line with the general accepted accounting principles. PTTAR also adequately disclosed material information in the Notes to the Financial Statements together with related comments by the external auditor, as seen in its report.
(Winid Silamongkol) Certified Public Accountant Registration No. 3378
KPMG Phoomchai Audit Ltd.Bangkok24 February 2011
To the Shareholders of PTT Aromatics and Refining Public Company Limited
I have audited the accompanying balance sheets in which the equity method is applied and separate balance sheets of PTT Aromatics and Refining Public Company Limited as at 31 December 2010 and 2009, and the related statements of income, changes in equity and cash flows for the years then ended. The Company’s management is responsible for the correctness and completeness of information presented in these financial statements. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of PTT Aromatics and Refining Public Company Limited as at 31 December 2010 and 2009 and the results of its operations and its cash flows for the years then ended in accordance with generally accepted accounting principles.
Notes to the financial statementsPTT Aromatics and Refining Public Company Limited For the years ended 31 December 2010 and 2009
PTT Aromatics and Refining Public Company Limited Notes to the financial statements For the years ended 31 December 2010 and 2009
Note Contents 1 General information 2 Basis of preparation of the financial statements 3 Significant accounting policies 4 Related party transactions and balances 5 Cash and cash equivalents 6 Trade accounts receivable 7 Inventories 8 Receivables from Oil Fuel Fund 9 Other current assets 10 Investment in joint venture company 11 Investments in associates 12 Property, plant and equipment 13 Intangible assets 14 Deferred tax 15 Other non-current assets 16 Interest-bearing liabilities 17 Trade accounts payable 18 Other payables 19 Other current liabilities 20 Share capital 21 Additional paid-in capital and reserve 22 Segment information 23 Net foreign exchange gain 24 25
These notes form an integral part of the financial statements.
The financial statements were authorised for issue by the Board of Directors on 24 February 2011.
1 General information
PTT Aromatics and Refining Public Company Limited, the “Company”, was formed on 27 December 2007 from the amalgamation of The Aromatics (Thailand) Public Co.,Ltd., “ATC”, and Rayong Refinery Public Co.,Ltd., “RRC”, in accordance with the Public Company Limited Act, B.E. 2535 (1992).
The Company is incorporated in Thailand and has its registered office at 555/1 Energy Complex, Building A, 14th floor, Vibhavadi Road, Chatuchak, Bangkok, 10900, Thailand.
The Board of Governors of the SET approved the listing of the Company on the day that the Registrar accepted the registration of the amalgamation, 27 December 2007.
The Company’s major shareholder during the year was PTT Public Company Limited (48.60% shareholding) which is incorporated in Thailand.
The principal business of the Company is the refining and provision of integrated petroleum products and production and distribution of aromatics products with plans to proceed with the production of aromatics products.
2 Basis of preparation of the financial statements
The financial statements issued for Thai reporting purposes are prepared in the Thai language. This English translation of the financial statements has been prepared for the convenience of readers not conversant with the Thai language.
The financial statements are prepared and presented in Thai Baht. All financial information presented in Thai Baht has been rounded in the notes to the financial statements to the nearest million. They are prepared on the historical cost basis except as stated in the accounting policies.
The financial statements are prepared in accordance with Thai Financial Reporting Standards (“TFRS”); guidelines promulgated by the Federation of Accounting Professions (“FAP”); applicable rules and regulations of the Thai Securities and Exchange Commission; and with generally accepted accounting principles in Thailand.
During 2010, the FAP announced the re-numbering of the following TFRS.
Former no. Revised no. Topic TAS 11 TAS 101 Doubtful Account and Bad Debts TAS 40 TAS 105 Accounting for Investment in Debt and Equity Securities TAS 48 TAS 107 Financial Instruments Disclosure and Presentation
The Company has adopted the revised Framework for the Preparation and Presentation of Financial Statements (revised 2009), which was issued by the FAP during 2010 and effective on 26 May 2010. The adoption of the revised framework does not have any material impact on the financial statements in which the equity method is applied or separate financial statements.
The FAP has issued during 2010 a number of new and revised TFRS which are not currently effective and have not been adopted in the preparation of these financial statements. These new and revised TFRS are disclosed in note 38.
The preparation of financial statements in conformity with TFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
Note 14 Utilisation of tax losses Note 36 Litigation case
Transactions in foreign currencies are translated to Thai Baht at the foreign exchange rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Thai Baht at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in the statement of income.
Non-monetary assets and liabilities measured at cost in foreign currencies are translated to Thai Baht using the foreign exchange rates ruling at the dates of the transactions.
(b) Derivative financial instruments Derivative financial instruments are used to manage exposure to foreign exchange, interest rate and commodity price risks arising from operational, financing and investment activities. Derivative financial instruments are not used for trading purposes.
Derivative financial instruments comprise interest rate swaps, forward exchange contracts and oil refining margin hedge. Initially the Company records the derivative financial instruments at cost. Subsequent to initial recognition, at each settlement date or due date the Company records the payment or receipt, made under the terms of the contract for derivative financial instruments, as expense or income in the statement of income.
(c) Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and highly liquid short-term investments. Bank overdrafts that are repayable on demand are a component of financing activities for the purpose of the statement of cash flows.
(d) Trade and other accounts receivable Trade and other accounts receivable are stated at their invoice value less allowance for doubtful accounts.
The allowance for doubtful accounts is assessed primarily on analysis of payment histories and future expectations of customer payments. Bad debts are written off when incurred.
(e) Inventories
Inventories are stated at the lower of cost and net realisable value, by the following methods:
Finished goods, by products, goods in process and raw materials : Average cost method Stores, supplies and others : Average cost method
Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of production overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to complete and to make the sale.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 151
Allowance is made for all inventories declining, obsolete, slow-moving or deteriorated inventories.
(f) Investments Investments in associates Investments in associates in the separate financial statements of the Company are accounted for using the cost method. Investments in associates in the financial statements in which the equity method is applied are accounted for using the equity method.
Disposal of investments On disposal of an investment, the difference between net disposal proceeds and the carrying amount is recognised in the statement of income.
If the Company disposes of part of its holding of a particular investments, the deemed cost of the part sold is determined using the weighted average method.
(g) Property, plant and equipment Owned assets
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labor, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads.
Where parts of an item of property, plant and equipment have different useful lives, the Company accounts for these as separate items of property, plant and equipment.
Capitalisation of interest cost Interest cost generally is expensed as incurred. Interest costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of interest costs commences when the activities to prepare the asset are in progress and expenditures and interest costs are being incurred. Interest costs are capitalised until the assets are ready for their intended use.
Depreciation
Depreciation is charged to the statement of income on a straight line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
Buildings and leasehold improvements 20-30 years Plant, machinery and equipment (except catalysts which are amortised over their useful lives of 2-10 years) 5-30 years Furniture, fixtures and office equipment 5-7 years Transportation equipment 5-10 years
No depreciation is provided on freehold land or assets under construction.
(h) Intangible assets Intangible assets that are acquired by the Company, which have finite useful lives, are stated at cost less accumulated amortisation and impairment losses. Other intangible assets are amortised in the statement of income on a straight-line basis over their estimated useful lives from the date that they are available for use. The estimated useful lives are as follows:
Deferred loan arrangement fees 5-7 years Deferred technical process royalties 22-30 years Computer system development and software 5-10 years
(i) Impairment The carrying amounts of the Company’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The impairment loss is recognised in the statement of income unless it reverses a previous revaluation credited to equity, in which case it is charged to equity.
Calculation of recoverable amount The recoverable amount of a non-financial asset is the greater of the asset’s value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Reversals of impairment
An impairment loss in respect of a financial asset is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. For financial assets carried at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in the statement of income. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity.
Impairment losses recognised in prior periods in respect of non-financial assets are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(j) Interest-bearing liabilities Interest-bearing liabilities are recognised initially at fair value less attributable transaction charges.
(k) Trade and other accounts payable
Trade and other accounts payable are stated at cost.
(l) Employee benefits Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of income as incurred.
Employee share options No compensation cost or obligation is recognised when share options are issued under employee incentive programmes. When options are exercised, equity is increased by the amount of the proceeds received.
(m) Provisions A provision is recognised when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the
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expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
(n) Revenue Revenue excludes value added taxes and other sales taxes and is arrived at after deduction of trade discounts.
Sales of goods Revenue is recognised in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there is continuing management involvement with the goods or there are significant uncertainties regarding recovery of the consideration due, associated costs or the probable return of goods.
Interest and dividend income
Interest income is recognised in the statement of income as it accrues. Dividend income is recognised in the statement of income on the date the Company’s right to receive payments is established.
Other income is recognised on an accrual basis.
(o) Expenses Expenses are recognised on an accrual basis.
Lease payments Payments made under operating leases are recognised in the statement of income on a straight line basis over the term of the lease. Contingent rentals are charged to the statement of income for the accounting period in which they are incurred. Finance costs
Interest expenses and similar costs are charged to the statement of income for the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to be prepared for its intended use or sale.
Maintenance Expenditures on repairs and maintenance are charged to the statement of income for the period in which the expenditures are incurred. Expenditures of a capital nature are added to the cost of the related plant and equipment.
(p) Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the statement of income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax Current tax is the expected tax payable on the taxable income for the year, using tax enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes and benefit of tax losses recognised. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries and joint venture to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences and benefit of tax losses recognised can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.
4 Related party transactions and balances Related parties are those parties linked to the Company as shareholders or by common shareholders or directors. Transactions with related parties are conducted at prices based on market prices or, where no market price exists, at contractually agreed prices.
Relationships with related parties that control or jointly control the Company or are being controlled or jointly controlled by the Company or have transactions with the Company were as follows : Country of incorporation Name of entities /nationality Nature of relationship PTT Public Company Limited Thailand Major shareholder, 48.60% shareholding, some common directors Thai Oil Public Company Limited Thailand 49.10% holding by major shareholders, some common directors PTT Chemical Public Thailand 48.68% holding by major shareholders, Company Limited some common directors HMC Polymers Co., Ltd. Thailand 41.44% holding by major shareholders, IRPC Public Company Limited Thailand 39.02% holding by major shareholders, some common directors Star Petroleum Refining Thailand 36% holding by major shareholders, Company Limited some common directors Bangchak Petroleum Public Company Thailand 28.29% holding by major shareholders, Limited some common directors Dhipaya Insurance Public Company Thailand 13.33% holding by major shareholders, Limited some common directors PTT International Trading Pte., Ltd. Singapore 100.00% holding by major shareholders Energy Complex Company Limited Thailand 50.00% holding by major shareholders PTT Maintenance and Engineering Thailand 40.00% holding by major shareholders Company Limited Business Services Alliance Thailand 25.00% holding by major shareholders Company Limited PTT Phenol Company Limited Thailand Associate, 30% shareholding PTT Utilities Company Limited Thailand Associate, 20% shareholding PTT ICT Solution Company Limited Thailand Associate, 20% shareholding Thai Tank Terminal Co., Ltd. Thailand 51% holding by PTT Chemical Public Company Limited. Chevron U.S.A. Inc. (Singapore) Singapore Common shareholdings Chevron Singapore Pte., Ltd. Singapore Common shareholdings Other companies in the Chevron Group USA Common shareholdings
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The pricing policies for particular types of transactions are explained further below:
Transactions Pricing policies Revenue from sale of goods Market prices Other income Contract price Purchases of raw materials and utilities Market price Cost of sale of goods Contract price Selling and administrative expenses Market prices /Contract price Finance costs Contract price Directors’ remuneration Determined by the Board of Directors and approved by Shareholders
Significant transactions for the years ended 31 December 2010 and 2009 with related parties were as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Major shareholder Revenue from sale of goods 175,749 168,770 175,749 168,770 Purchases of goods 239,713 195,097 239,713 195,097 Other income 54 51 54 51 Selling expenses 11 - 11 - Administrative expenses 50 68 50 68 Gain from early settlement of crack spread - 1,573 - 1,573 Net gain on crack spread swap and crude oil spread swap agreements 9 1,675 9 1,675 Finance costs 225 287 225 287
Joint venture company Administrative expenses - 7 - 7
Associates Revenue from sale of goods 5,186 3,871 5,186 3,871 Purchases of goods 1,404 1,478 1,404 1,478 Other income 10 13 10 13 Administrative expenses 37 71 37 71
Other related parties Revenue from sale of goods 14,573 10,327 14,569 10,327 Purchases of goods 8,105 6,925 8,102 6,925 Other income 75 30 77 30 Selling expenses 287 291 287 291 Administrative expenses 182 177 182 177 Directors’ remuneration 38 10 38 10
Amendment to crack spread swap agreements On 26 March 2009, the Company and PTT Public Company Limited (“PTT”), a major shareholder, agreed to amend certain terms and conditions of their crack spread swap agreements. Under the amendment, the crack spread swap agreements for 3.2 million Barrels of oil were early settled. As a result, the latter had to make payment to the Company for this early settlement of such agreements amounting to Baht 1,573 million. The Company presented such transaction in the statement of income. Balances as at 31 December 2010 and 2009 with related parties were as follows:
Trade accounts receivable - related Financial statements parties in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Major shareholder PTT Public Company Limited 12,196 14,690 12,196 14,690 Associate PTT Phenol Company Limited 578 477 578 477 Other related parties Star Petroleum Refining Company Limited 1,825 168 1,825 168 PTT Chemical Public Company Limited 979 - 979 - IRPC Public Company Limited 122 - 122 - Bangchak Petroleum Public Company Limited 97 537 97 537 Total 15,797 15,872 15,797 15,872
Other receivables from related parties Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Major shareholder PTT Public Company Limited 56 86 56 86 Associates PTT ICT Solution Company Limited 2 7 2 7 PTT Phenol Company Limited - 1 - 1 Other related parties Other companies in the Chevron Group 1 - 1 - Star Petroleum Refining Company Limited - 1 - 1 Total 59 95 59 95
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Other current assets Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Major shareholder PTT Public Company Limited - 1 - 1 Other related parties Dhipaya Insurance Public Company Limited 124 140 124 140 PTT Chemical Public Company Limited 2 2 2 2 Total 126 143 126 143
Other non-current assets Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Other related parties PTT Chemical Public Company Limited - 2 - 2 Trade accounts payable – related parties Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Major shareholder PTT Public Company Limited 22,341 12,301 22,341 12,301 Associate PTT Utility Company Limited 116 126 116 126 Other related parties Star Petroleum Refining Company Limited 800 377 800 377 PTT Chemical Public Company Limited 330 309 330 309 Thai Tank Terminal Co.,Ltd 66 - 66 - IRPC Public Company Limited 9 - 9 - Total 23,662 13,113 23,662 13,113
Other payables to related parties Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Major shareholder PTT Public Company Limited 167 93 167 93 Associate PTT ICT Solutions Company Limited 8 30 8 30 Other related parties PTT Maintenance and Engineering Company Limited 13 1 13 1 Business Services Alliance Company Limited 10 - 10 - Star Petroleum Refining Company Limited 8 169 8 169 Other companies in Chevron Group 5 - 5 - Dhipaya Insurance Public Company Limited - 1 - 1 Total 211 294 211 294 Subordinated loans from shareholders Financial statements in which the equity Separate financial Interest rate method is applied statements 2010 2009 2010 2009 2010 2009 (% per annum) (in million Baht) Major shareholder PTT Public Company Limited 4.45 4.02 6,928 6,703 6,928 6,703
Movements during the years ended 31 December 2010 and 2009 of subordinated loans from shareholders were as follows:
Subordinated loans from shareholders Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Major shareholder At 1 January 6,703 6,500 6,703 6,500 Increase 225 203 225 203 At 31 December 6,928 6,703 6,928 6,703
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Subordinated loans (Thai Baht) were granted by the Company’s principal shareholders under the Shareholders Support Agreement. The loans bear interest at the rate agreed under the Shareholders Support Agreement. Currently, the interest rate is MLR minus 2% per annum. These loans and related interest will not be repaid unless all the terms and conditions stipulated for such repayment in the debenture deed are met. On 13 November 2009, the Company and major shareholder in the shareholder loan agreements had agreed to amend certain terms and conditions of the shareholder loan agreements. Under the amendment agreements, the Company shall make the repayment of principal and interest if the conditions as specified in the amendment agreements can be satisfied especially certain covenants under any loan agreements of the Company in present. The amendments include changing the payment term prior to 30 December 2010 and changing the interest rate of remaining principal from MLR minus 1% per annum to MLR per annum which is to take effect since 31 December 2010 onwards.
Significant agreements with related parties Operating Alliance Termination Agreement On 8 February 2006, the Company entered into an Operating Alliance Termination Agreement with SPRC to terminate the refinery segment. The Operating Alliance Termination Agreement with effect from 1 February 2009 and to liquidate ARC as described in Note 10. However, The Company has agreed to maintain the usage of jointly owned assets with SPRC including single point mooring (SPM), piping system for refined products supplies, the LPG Jetty, and the Sulfur Palletizer. These assets are managed by SPRC.
Gas purchase and sales agreement The Company has entered into two natural gas purchase and sales agreements with PTT for 10 years starting from 23 May 2008 and 1 January 2009, whereby it is committed to purchase natural gas from PTT. The purchase price is based on gas price as specified in the agreement and on the Thailand Producer Price Index (PPI).
Product Offtake Agreement The Company entered into a purchase and sale agreement with PTT and The Shell Company of Thailand (“SCOT”). According to this agreement, the Company is committed to sell a portion of its refined petroleum products produced to PTT and SCOT. For domestic sales, the product price reflects prices prevailing in Thailand for products of a similar quality that are sold in or imported to Thailand. For export sales, the product price reflects the prevailing international spot price for that product. This agreement will expire on 9 February 2024.
New Complex Product Offtake Agreement
On 9 February 2006, the Company has entered into a new complex product offtake agreement with PTT under which PTT has agreed to purchase 100% of the volume of refined petroleum products actually produced by the proposed reforming and upgrading complexes and declared by the Company up to the production capacity of the proposed reforming and upgrading complexes on the same terms and conditions as apply to the sale of refined petroleum products from the Company’s existing refinery under the terms of the product offtake agreement, provided that at least 50% of such volume will be sold at a competitive domestic market price and the remainder sold at a competitive export market price or other mutually agreed price. Other than as described above, the New Complex Product Offtake Agreement incorporates the provisions of the Product Offtake Agreement with PTT.
Long-term Feedstock Supply Agreement
The Company entered into crude and other feedstocks supply agreement with PTT, under which PTT agreed to supply the Company with crude oil and other feedstocks for the Company’s refinery operations at prices that are based on competitive market prices for the relevant feedstocks. As at 31 December 2010, the Company entered into crude oil purchase agreement for the year 2010 in USD currency with PTT. Under this agreement, PTT has agreed to sell crude oil to the Company in various volumes in each month as specified in the agreement totalling 54 million Barrels amounting to approximately USD 4,312 million (2009: 51.7 million Barrels, approximately USD 3,229 million).
Crack Spread Swap Agreements The Company has entered into crack spread swap agreements with PTT to hedge the Company’s oil refinery margin. Under the agreements the floating amount of the basket refinery margin, (calculated based on the Singapore price of refined petroleum products, Diesel, Gasoil, Kerosene and Fuel Oil and against the price of Dubai crude oil), is swapped for a fixed amount of the basket refinery margin for a fixed quantity per month for various periods. Under the agreement, the Company shall make payment or receive of the crack spread difference according to terms and conditions stipulated in the agreements with PTT. As at 31 December 2010, the 4.8 million barrels of oil were subject to the provisions of the agreement.
Crude Oil Time Spread Agreement The Company has entered into crude oil time spread agreements with PTT to hedge the Company’s crude oil price, calculated based on the difference of the average price for Dubai crude oil of the current month and the following month for specified quantities. The Company shall make payment or receive of the difference according to terms and conditions stipulated in the agreements with PTT. As at 31 December 2010, the 0.85 million barrels of crude were subject to the provisions of the agreement.
Oil Spill Response Joint Service Agreement On 1 January 2006, the Company has entered into an Oil Spill Response Joint Service Agreement with PTT. The agreement allows the Company to utilise the OSR services as a company of PTT Group by paying an annual service fee to PTT at the rate specified in the Agreement.
Memorandum of Understanding on the Construction of Pipe Racks on SPRC’s Area On 21 December 2007, the Company has entered into negotiations for a Memorandum of Understanding on the Construction of Pipe Racks on SPRC’s Area to interconnect its refinery and upgrading complex. The Company agreed to invest in the construction of the pipe racks and has the right to make use of the assets.
Raw material purchase and sale aromatics product agreements The Company and various local companies, including related companies, have entered into raw material and finished product purchase and sale agreements. The purchase and sale prices of raw materials and finished products are based on the prices specified in the agreements. These agreements are in effect for periods from 2 years to 15 years from the agreement date.
Shareholders Support Agreement The Company entered into a Shareholders Support Agreement on 30 March 2001 with its principal shareholders. The parties have agreed, among other things:
a) to extend cooperation in such a way to ensure that all reasonable assistance is given to the Company to enhance its liquidity and continuation of operations;
b) to make available financial support upon request from the Company up to an aggregate amount of USD 210 million. The Company fully obtained financial support from the principal shareholders under this arrangement in 2001.
c) a principal shareholder is committed to provide additional support of USD 90 million if changes in circumstances indicate that the shareholders support under b) may not be adequate.
On 18 June 2004, the Company and the Company’s principal shareholders under the Shareholders Support Agreement entered into shareholder loan agreement to amend the terms of the Shareholders Support Agreement especially the conditions to payment loan under the said Shareholders Support Agreement back to the Company’s principal shareholders.
On 13 November 2009, the Company and each of former shareholders in the shareholder loan agreements had agreed to amend certain terms and conditions of the shareholder loan agreements. Under the amendment agreements, the
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Company shall make the repayment of principal and interest if the conditions as specified in the amendment agreements can be satisfied especially certain covenants under any loan agreements of the Company in present.
On 30 December 2010, the Company made the repayment of principal to the former shareholders which resulted in remaining principal to a major shareholder only.
Shareholders Support Agreement to Associated Company The Company, two principal shareholders and an associated company concluded negotiations with a financial institution regarding loan facilities granted to the associated company in an amount of Baht 8,320 million for a period of 13 years. A condition of the loan facilities requires the parties to enter into the following Shareholders Support Agreement, which was approved by the Board of Directors of the Company on 7 September 2006.
On 26 September 2006, the Company as a shareholder, two principal shareholders and the associated company entered into Shareholders Support Agreement for the associated company in relation to the financing of the development, construction and operation of a Phenol and Acetone project. The parties agreed, among other matters, on the following:
a) Each shareholder under the agreement will subscribe and pay for in cash in addition to the shares held by it so that the long-term debt-to-equity ratio will be maintained as stipulated in the agreement.
b) The share capital of the associated company on the Project Completion Date shall not be less than Baht 4,000 million.
c) The shareholders under the agreement will have to collectively hold not less than 51% of the shares in the associated company until the maturity of the loan.
d) If the associated company does not have sufficient cash to pay its project creditor during construction prior to the project completion date, each shareholder under the agreement has to provide monetary support, according to their percentage shareholding, providing the Project Completion Date occurs no later than 31 December 2008. However, the Lenders have extended the Project Completion Date to 31 March 2009. On 30 April 2009, the associated company received the letter of acceptance from the financial institution to confirm that the Project Completion Date was 31 March 2009.
In connection with this, all shareholders must comply with terms and conditions stipulated in the agreement. Office Lease Agreements On 1 October 2009, the Company entered into lease agreements with related parties for office space. Under the terms of the lease agreements, the Company is committed to pay monthly rental and service charges. The agreement will be terminated in November 2012.
5 Cash and cash equivalents Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Cash at banks - current accounts 12 8 12 8 Cash at banks - savings accounts 1,368 1,354 1,368 1,354 Total 1,380 1,362 1,380 1,362
The currency denomination of cash and cash equivalents as at 31 December 2010 and 2009 was as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Thai Baht (THB) 247 690 247 690 United States Dollars (USD) 1,133 672 1,133 672 Total 1,380 1,362 1,380 1,362
6 Trade accounts receivable Financial statements in which the equity Separate method is applied financial statements Note 2010 2009 2010 2009 (in million Baht) Related parties 4 15,797 15,872 15,797 15,872 Other parties 7,718 5,485 7,718 5,485 Total 23,515 21,357 23,515 21,357
The Company had no bad debt and doubtful debts expenses for years ended 31 December 2010 and 2009.
Aging analyses for trade accounts receivable were as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Related parties Within credit terms 15,797 15,720 15,797 15,720 Over due:
3-6 months - 152 - 152 Net 15,797 15,872 15,797 15,872 Other parties Within credit terms 7,718 5,485 7,718 5,485 Overdue - - - - Net 7,718 5,485 7,718 5,485 Total 23,515 21,357 23,515 21,357
The normal credit term granted by the Company ranges from 19 days to 30 days.
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The currency denomination of trade accounts receivable as at 31 December was as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Thai Baht (THB) 21,550 20,309 21,550 20,309 United States Dollars (USD) 1,965 1,048 1,965 1,048 Total 23,515 21,357 23,515 21,357
7 Inventories Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Raw materials 11,207 10,357 11,207 10,357 Petroleum products 3,104 3,870 3,104 3,870 Petrochemical products 908 1,026 908 1,026 By products 524 603 524 603 Crude oil in transit 5,566 2,941 5,566 2,941 Other supplies 1,475 1,377 1,475 1,377 22,784 20,174 22,784 20,174 Less allowance for obsolete inventories (336) (294) (336) (294) Net 22,448 19,880 22,448 19,880
Under the regulations of the Ministry of Energy, the Company is required to maintain a minimum level of inventory of crude oil and Liquefied Petroleum Gas (LPG) at all times based on the production planned for the year. As at 31 December 2010, the value of this minimum level of inventory amounted to Baht 2,750 million (2009: Baht 2,604 million).
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Inventories recognised as an expense in ‘cost of sales of goods’: - Cost 264,818 218,273 264,818 218,273 - Reversal of write-down - (5,173) - (5,173) Net 264,818 213,100 264,818 213,100
8 Receivables from Oil Fuel Fund Compensation under the price control plan Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) From Gasohal and Biodiesel 44 32 44 32 From Liquefied Petroleum Gas (LPG) - 1 - 1 Total 44 33 44 33
Under the price control plan of the Ministry of Energy, the Company is required to sell LPG at controlled prices (the “Government’s controlled price”) as determined by the Ministry of Energy. The Ministry of Energy is then required to compensate the Company for the difference between a separate controlled wholesale price, also set by the Ministry of Energy, and the Government’s controlled price, through the Oil Fuel Fund. Equally, if the controlled wholesale price is less than the Government’s controlled price, the Company is required to compensate the Oil Fuel Fund for the difference.
9 Other current assets Financial statements in which the equity Separate method is applied financial statements Note 2010 2009 2010 2009 (in million Baht) Prepaid insurance premium - Dhipaya Insurance Public Company Limited 4 124 140 124 140 Other receivables 18 31 18 31 Revenue Department receivable 13 196 13 196 Prepaid expenses 138 49 138 49 Others 28 28 28 28 Total 321 444 321 444
10 Investment in joint venture company The Company had an investment in a joint venture company in the refinery segment with Star Petroleum Refining Company Limited “SPRC” which was managed by Alliance Refining Company Limited, “ARC”. The Operating Alliance Termination Agreement was effective from 1 February 2009 where management of both companies agreed to liquidate ARC. On 18 February 2009, ARC registered for liquidation with the Ministry of Commerce and the liquidation process was completed during 2010. The Company transferred the investment to be disclosed in non-current assets as at 31 December 2009 and consequently stopped preparing consolidated financial statements from the period ended 31 March 2010 onwards.
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The following summarised financial information relates to the interests in the joint venture company which had been included in the consolidated financial statements for the year ended 31 December 2009.
Owner Current Current Total Net ship assets liabilities revenues Profit (%) (in million Baht) 2009 Alliance Refining Company Limited 49.99 10 5 - -
11 Investments in associates Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) At 1 January 3,351 3,122 3,797 3,469 Share of net gain (loss) of investments equity method 868 (99) - - Acquisitions 110 328 110 328 At 31 December 4,329 3,351 3,907 3,797
The following summarised financial information on associated companies which have been accounted for using the equity method is not adjusted for the percentage of ownership held by the Company:
Total Total Total Net profit/ Ownership assets liabilities revenues (loss) (%) (in million Baht) 2010 PTT Phenol Company Limited 30 20,046 10,115 13,420 2,674 PTT Utilities Company Limited 20 23,593 17,046 8,845 331 PTT ICT Solutions Company Limited 20 1,322 1,124 1,181 (48) Total 44,961 28,285 23,446 2,957 2009 PTT Phenol Company Limited 30 19,039 12,147 7,297 (323) PTT Utilities Company Limited 20 20,995 14,778 6,149 22 PTT ICT Solutions Company Limited 20 882 682 854 (32) Total 40,916 27,607 14,300 (333)
As at 31 December 2010 and 2009, the Company had invested in 3 joint projects with associates comprising;
a) The Phenol Project, which uses product of the Company as its feedstock.
b) The Central Utilities Project, the main objective of which is to produce and distribute electricity and steam to the Company and other shareholders and other nearby plants.
c) The ICT Project, which provides ICT services to the Company, other shareholders and related parties.
Depreciation for years ended 31 December 2010 and 2009 was charged to:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Cost of sale of goods 5,103 4,967 5,103 4,967 Administrative expenses 69 74 69 74 Total 5,172 5,041 5,172 5,041
Some properties were pledged or mortgaged as collaterals for the Company’s debt (see note 16). Assets under construction
As at 31 December 2010, the Company is in process of constructing the Deep Hydrodesulfurization (DHDS) project which has an estimated cost of approximately Baht 7,535 million. The cost incurred up to 31 December 2010 amounted to approximately Baht 5,092 million.
Capitalised borrowing costs relating to the acquisition of the construction of assets amounted to Baht 71 million (2009: Baht 77 million), with a capitalization rate of 2.33% (2009: 3.30%-3.40%) (see note 28).
The gross amount of the Company’s fully depreciated property, plant and equipment that was still in use as at 31 December 2010 amounted to Baht 5,105 million (2009: Baht 4,579 million).
13 Intangible assets Financial statements in which the equity method is applied and Separate financial statements Deferred Computer Deferred loan technical system arrangement process development fees royalties and software Total (in million Baht) Cost At 1 January 2009 142 614 342 1,098 Additions - - 103 103 Disposals - - (6) (6) At 31 December 2009 and 1 January 2010 142 614 439 1,195 Additions 115 - 15 130 Disposals - - (3) (3) At 31 December 2010 257 614 451 1,322
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Financial statements in which the equity method is applied and Separate financial statements Deferred Computer Deferred loan technical system arrangement process development fees royalties and software Total (in million Baht) Amortisation At 1 January 2009
100
130
151
381
Amortisation charge for the year 9 29 41 79 Disposals - - (6) (6) At 31 December 2009 and 1 January 2010 109 159 186 454 Amortisation charge for the year 16 28 40 84 Disposals - - (3) (3) At 31 December 2010 125 187 223 535 Net book value At 1 January 2009 42 484 191 717 At 31 December 2009 and 1 January 2010 33 455 253 741 At 31 December 2010 132 427 228 787
14 Deferred tax Deferred tax assets and liabilities determined after appropriate offsetting are included in the balance sheets as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Deferred tax assets 1,758 3,354 1,758 3,354 Deferred tax liabilities (1,598) (1,574) (1,598) (1,574) Net 160 1,780 160 1,780
Movements in deferred tax assets and liabilities during the year were as follows:
Financial statements in which the equity method is applied and Separate financial statements (Charged) / At credited to: At 1 January Statement of 31 December 2010 income (note 29) 2010 Deferred tax assets (in million Baht) Inventories (allowance for decline in value) 88 12 100 Others (general) 15 (1) 14 Loss carry forward 3,251 (1,607) 1,644 Total 3,354 (1,596) 1,758
Net 1,780 (1,620) 160 Financial statements in which the equity method is applied and Separate financial statements (Charged) / At credited to: At 1 January Statement of 31 December 2009 income (note 29) 2009 Deferred tax assets (in million Baht) Inventories (allowance for decline in value) 63 25 88 Others (general) 15 - 15 Loss carry forward 6,859 (3,608) 3,251 Total 6,937 (3,583) 3,354
Deferred tax liabilities Property, plant and equipment (depreciation) (1,505) (69) (1,574) Inventories (allowance for decline in value) (248) 248 - Total (1,753) 179 (1,574) Net 5,184 (3,404) 1,780
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15 Other non-current assets Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Advance payment for purchase of property, plant and equipment 299 455 299 455 Others 22 32 22 30 Total 321 487 321 485
16 Interest-bearing liabilities Financial statements in which the equity Separate method is applied financial statements Note 2010 2009 2010 2009 (in million Baht) Current Short-term loans from financial institutions unsecured 1,856 8,383 1,856 8,383 Bill of exchange unsecured - 5,193 - 5,193 1,856 13,576 1,856 13,576 Current portion of debentures Secured - 308 - 308 Current portion of long-term loans from financial institutions unsecured 7,160 2,028 7,160 2,028 Subordinated loans from other parties unsecured ( including related accrued interest expenses totaling Baht 529 million in 2009) - 2,144 - 2,144 9,016 18,056 9,016 18,056
Non-current Long-term loans from financial institutions Unsecured 22,844 26,349 22,844 26,349 Debentures Unsecured 22,294 25,050 22,294 25,050 Subordinated loans from shareholders unsecured (including related accrued interest expenses totalling Baht 1,878 million in 2010 and
Baht 1,653 million in 2009) 4 6,928 6,703 6,928 6,703 52,066 58,102 52,066 58,102 61,082 76,158 61,082 76,158
The periods to maturity of interest-bearing liabilities as at 31 December were as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Within one year 9,016 18,056 9,016 18,056 After one year but within five years 40,628 51,177 40,628 51,177 After five years 11,438 6,925 11,438 6,925 Total 61,082 76,158 61,082 76,158
Secured interest-bearing liabilities as at 31 December were secured on the following assets:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Buildings and improvements - 327 - 327 Plant, machinery and equipment - 10,718 - 10,718 Total - 11,045 - 11,045
The currency denomination of interest-bearing liabilities as at 31 December was as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Thai Baht (THB) 45,911 56,892 45,911 56,892 United States Dollars (USD) 15,171 19,266 15,171 19,266 Total 61,082 76,158 61,082 76,158
Annual Report 2010PTT Aromatics and Refining Public Company Limited 175
Long-term loans of the Company as at 31 December were as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009
(in million Baht) Long-term loans from a syndicate of financial institutions Tranche A 1,818 2,732 1,818 2,732 Tranche B 6,059 6,485 6,059 6,485 Tranche C - 4,960 - 4,960 Tranche F and G - 5,700 - 5,700 Local financial institutions 9,897 - 9,897 - 17,774 19,877 17,774 19,877 Long-term loans from local financial institutions 12,230
8,500
12,230
8,500
30,004 28,377 30,004 28,377 Less Current portion of long-term loans from financial institutions (7,160)
(2,028)
(7,160)
(2,028)
22,844 26,349 22,844 26,349 Debentures Secured - 308 - 308 Senior unsecured 22,294 25,050 22,294 25,050 22,294 25,358 22,294 25,358 Less Current portion of debentures - (308) - (308) 22,294 25,050 22,294 25,050 Subordinated loans Shareholder 6,928 6,703 6,928 6,703 Other parties - 2,144 - 2,144 6,928 8,847 6,928 8,847 Less Current portion of subordinated loans - (2,144) - (2,144) 6,928 6,703 6,928 6,703 Total 52,066 58,102 52,066 58,102
Short-term loans from financial institutions As at 31 December 2010, the Company had unsecured short-term credit facility agreements with financial institutions and the group financial institutions (“the Lenders”) totalling Baht 15,400 million. These agreements bear different interest rates as specified in the agreements. As at 31 December 2010, the Company had unutilised credit facilities totalling Baht 13,544 million.
Bills of exchange On 8 May 2008, the meeting of the Board of Directors resolved to approve the issuance of a Bills of Exchange line on a revolving basis of Baht 10,000 million with a period of no more than 270 days. Consequently, on 13 November 2008, the meeting of the Board of Directors resolved to increase the Bills of Exchange line from Baht 10,000 million to Baht 20,000 million. The Bills of Exchange will be sold to investors as appropriate. The issuance of the Bills of Exchange was approved by the Stock Exchange of Thailand.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 177
Long-term loans from local financial institutions As at 31 December 2010, the Company had long-term and revolving long-term credit facility agreements with financial institutions totalling Baht 35,930 million. These credit facilities will be used to invest in the expansion projects and improvements in efficiency of synergy projects of the refinery and aromatics business and/or to refinance the debt and/or to repay the debentures and/or to reserve as working capital for general purposes. These agreements are in effect for periods of 3 years to 10 years and bear different interest rates as specified in the agreements. As at 31 December 2010, the utilised credit facilities which amounted to Baht 12,230 million bore interest rates ranging from 1.86% to 4.50% per annum. These agreements had different repayment schedules as stipulated in the agreements. The Company is also required to comply with certain covenants pertaining to maintenance of certain financial ratios, percentage of share held by the major shareholder and other conditions as specified in the agreements.
As at 31 December 2010, the Company had unutilised long-term credit facilities totalling Baht 23,700 million.
Debentures Secured debentures
On 24 June 2003, the Company issued amortised secured debentures to institutional investors for repayment of all principal and accrued interest under a Loan and Credit Facility Agreement and loans under Credit Agreements before maturity of the agreement. The principal (in equal installments) and interest are payable twice a year, on 24 June and 24 December through the terms of each series of debentures. The first interest payment commenced on 24 December 2003 and the principal repayment commenced on 24 June 2004. The debenture series 1 is a five-year-term, maturing on 24 June 2008, at the interest rate of 3.15% per annum, consisting of 8,000,000 debentures at Baht 1,000 face value totalling Baht 8,000 million and the debenture series 2 is a seven-year-term, maturing on 24 June 2010, at the interest rate of 3.40% per annum consisting of 4,000,000 debentures at Baht 1,000 face value totalling Baht 4,000 million. The placement agreement for debentures has certain restrictive covenants pertaining to disposal or transfer of assets, maintenance of certain financial ratios and percentage of shares held by the major shareholder.
On 19 January 2009, the Bondholders’ meeting passed resolutions to amend the terms and conditions of the debentures. The amendments include change in the financial ratio to reflect the Company’s business structure after the merger and change in the interest rate from 3.40% per annum to 4.00% per annum, which has effect from 24 December 2008 onwards.
The above debentures are secured by the mortgage of machinery installed in the plant, plant building and the assignment of the land lease agreements entered into with The Industrial Estate Authority of Thailand. On 24 June 2010, the Company repaid the final instalment and redeemed the mortgaged assets under the debentures.
Senior unsecured debentures US Dollars debentures
On 20 July 2005, the Company completed the issuance and the offering of senior unsecured debentures in the amount of USD 300 million, with a 7-year-term, at the interest rate of 5.50% per annum. The debentures were issued at 99.845% of the principal amount and will be redeemed on 20 July 2012. The interest payments on the debentures are payable semi-annually with the first interest payment to be made on 20 January 2006. The Offering Circular of these debentures has certain covenants pertaining to negative pledge on assets or revenues of the Company and the relevant principal subsidiaries to secure for the benefit of the holders of any International Investment Securities and maintenance of shareholders’ loan. The net proceeds of the debentures will be used to finance the construction of Aromatics II plant as per shareholders’ approval. During 2010, the Company partially purchased the debentures totalling USD 59.15 million. D
Thai Baht debentures On 30 April 2009, the Company issued five-year Thai Baht unsubordinated, unsecured debentures with the name registered and having bond holders’ representative with an amount of Baht 15,000 million which bear interest rate at 5.50% per annum. The proceeds from the debentures will be used for refinancing the existing debts and/or working capital. The principal will be repaid in full on 30 April 2014 (the maturity date) and interest is payable every three months.
The placement agreement for debentures has restrictive covenants pertaining to maintenance of the percentage of shares held by the major shareholder.
Subordinated loans from other parties These loans were formerly subordinated loans in Thai Baht which were granted by the Company’s principal shareholders under the Shareholders Support Agreement. However, some shareholders under this agreement subsequently sold their shares in the Company. The loans bear interest at the rate agreed under the Shareholders Support Agreement. Currently, the interest rate is MLR minus 2% per annum. On 13 November 2009, the Company and each of former shareholders in the shareholder loan agreements had agreed to amend certain terms and conditions of the shareholder loan agreements. Under the amendment agreements, the Company shall make the repayment of principal and interest if the conditions as specify in the amendment agreements can be satisfied especially certain covenants under any loan agreements of the Company in present. The amendments include changing the payment term prior to 30 December 2010 and changing the interest rate from MLR minus 2% per annum to MLR minus 1% per annum which is to take effect from the period from 30 June 2010 to 30 December 2010. On 30 December 2010, the Company repaid subordinated loans to the former shareholders which resulted in remaining principal to a major shareholder only.
17 Trade accounts payable Financial statements
in which the equity Separate
method is applied financial statements
Note 2010 2009 2010 2009
(in million Baht)
Related parties 4 23,662 13,113 23,662 13,113
Other parties 213 179 213 179
Total 23,875 13,292 23,875 13,292
The currency denomination of trade accounts payable as at 31 December was as follows:
Financial statements
in which the equity Separate
method is applied financial statements
2010 2009 2010 2009
(in million Baht)
Thai Baht (THB) 14,062 8,628 14,062 8,628
United States Dollars (USD) 9,813 4,664 9,813 4,664
Total 23,875 13,292 23,875 13,292
Annual Report 2010PTT Aromatics and Refining Public Company Limited 181
18 Other payables Financial statements in which the equity Separate method is applied financial statements Note 2010 2009 2010 2009 (in million Baht) Related parties 4 211 294 211 294 Other parties 665 641 665 641 Total 876 935 876 935
The currency denomination of other payables as at 31 December was as follows:
Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Thai Baht (THB) 360 333 360 333 United States Dollars (USD) 486 589 486 589 Other currencies 30 13 30 13 Total 876 935 876 935
19 Other current liabilities Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Accrued bonus 232 198 232 198 Revenue Department payable : - Withholding tax payable 54 46 54 46 - Value added tax payable - 173 - 173 Account payable to consultant 2 1 2 1 Accrued expenses 85 119 85 119 Others 296 85 296 85 Total 669 622 669 622
20 Share capital Par value 2010 2009 per share Number Baht Number Baht (in Baht) (million shares/million Baht) Authorised At 1 January - Ordinary shares 10 2,994 29,938 2,994 29,938 At 31 December - Ordinary shares 10 2,994 29,938 2,994 29,938 Issued and paid-up At 1 January - Ordinary shares 10 2,964 29,637 2,964 29,636 Issue of new shares 3 34 - 1 At 31 December - Ordinary shares 10 2,967 29,671 2,964 29,637
On 15 October 2007, the Company, under the refinery segment, issued and offered 58 million units of warrants to purchase common shares of the Company (“ESOP Warrants Project”) as approved by the Securities and Exchange Commission. The details of the warrants are as follows:
Type of warrant : Named and non-transferable warrant to buy ordinary shares of the Company, under the refinery segment Number of units : 58 million units Maturity : 5 years Offering : Offer to the Company’s directors, under the refinery segment management and employees Offering price : Baht 0 per unit Exercise price : Baht 12 per share Exercise right per unit : Warrant 1 unit to 1 ordinary share Exercise period One year after the Securities and Exchange Commission approved
On 11 January 2008, the Company revised the exercise price and share swap ratios, with the approval of the SEC, as follows:
Exercise price : Baht 23.22 per share Share swap ration : Original warrant 1 unit to 0.5167553 new ordinary share of the Company
As at 31 December 2010, the holders of 6.5 million units of the warrants had exercised their rights to buy the Company’s ordinary shares. The number of unexercised warrant is 51.3 million units. (2009: 57.8 million units).
Annual Report 2010PTT Aromatics and Refining Public Company Limited 183
21 Additional paid-in capital and reserve Share premium Section 51 of the Public Companies Act B.E. 2535 requires companies to set aside share subscription monies received in excess of the par value of the shares issued to a reserve account (“share premium”). Share premium is not available for dividend distribution.
Legal reserve Section 116 of the Public Companies Act B.E. 2535 requires that a company shall allocate not less than 5% of its annual net profit, less any accumulated losses brought forward, to a reserve account (“legal reserve”), until this account reaches an amount not less than 10% of the registered authorised capital. The legal reserve is not available for dividend distribution.
22 Segment information Segment information is presented in respect of the Company’s business and geographical segments. The primary format, business segments, is based on the Company’s management and internal reporting structure.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest or dividend-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses.
Business segments
The Company comprises the following main business segments:
Segment 1 Petrochemical Segment 2 Refinery
Geographic segments Management considers that the Company operates in a single geographic area, namely in Thailand, and has, therefore, only one major geographic segment.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 185
ns
Elimi
natio
n of
Petr
alse
ofit
2010
2009
2010
2009
2010
2009
2010
2009
(in m
illion B
aht)
Inven
tories
7,798
5,999
14,75
213
,973
(102)
(93)
22,44
819
,879
Prop
erty,
plant
and
equip
ment
53,09
655
,316
43,20
440
,949
--
96,30
096
,265
Othe
r ass
ets19
,136
19,31
015
,382
19,08
8-
6734
,518
38,46
50
838
(102)
66
Othe
r liab
ilities
55,64
653
,800
34,58
840
,492
--
90,23
4To
tal lia
bilitie
s55
,646
53,80
034
,588
40,49
2-
-90
,234
94,29
2
Depr
eciat
ion3,0
022,9
352,1
702,1
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-5,1
725,0
41Am
ortis
ation
8221
468
66-
-15
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in (lo
ss) o
n dis
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rope
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23 Net foreign exchange gain Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) From purchase and sale of raw materials and product 766 793 766 793 Others 1,689 575 1,689 575 Total 2,455 1,368 2,455 1,368
24 Selling expenses Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Tank rental 272 291 272 291 Transportation expenses 49 32 49 32 Customs duty and import expenses 14 4 14 4 Product inspection 4 3 4 3 Others 27 5 27 5 Total 366 335 366 335
25 Administrative expenses Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Employee benefit expenses 429 398 429 398 Rental expenses 103 134 103 134 Consultant fee 53 27 53 27 Others 708 554 708 554 Total 1,293 1,113 1,293 1,113
Annual Report 2010
PTT Aromatics and Refining Public Company Limited 187
26 Employee benefit expenses Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Management Salaries 97 88 97 88 Others 77 63 77 63 174 151 174 151 Other employees Salaries 915 898 915 898 Others 607 569 607 569 1,522 1,467 1,522 1,467 Total 1,696 1,618 1,696 1,618
Management benefit expenses are included in the statement of income as follows:
Financial statements in which the equity Separate method is applied financial statements
2010 2009 2010 2009 (in million Baht) Cost of sale of goods 34 58 34 58 Management benefit expenses 140 93 140 93 Total 174 151 174 151
Registered provident fund
The defined contribution plans comprise provident funds established by the Company for its employees. Membership to the fund is on a voluntary basis. Under the plan, employees in the refinery segment must contribute into the fund between 3% to 15% of the employees’ monthly salaries depending on their years of accredited service. The Company shall make contributions equal to the employees. Employees in the petrochemical segment must contribute into the fund at 5% or 10% of the employees’ monthly salaries. The Company shall make contributions at 10% of the employees’ monthly salaries. The provident fund is registered with the Ministry of Finance as a juristic entity and is managed by a licensed Fund Manager.
2,803 2,969 2,803 2,803 2,969 2,803 2,803 2,969 2,803 2,803 2,969 2,803 2,969 Less capitalised as cost of assets Less capitalised as cost of assets Less under construction 12 (71) (77) (71) (77)Net 2,732 2,892 2,732 2,892
29 Income tax expense Financial statementsin which the equity Separatemethod is applied financial statements
2010 2009 2010 2009 2010 2009 2010 2009 (in million Baht)
Annual Report 2010PTT Aromatics and Refining Public Company Limited 189
Reconciliation of effective tax rate Financial statements in which the equity method is applied 2010 2009
Rate (in million Rate (in million (%) Baht) (%) Baht)
Profit before income tax expense 7,963 12,566 Income tax using the Thai corporation tax rate 30 2,389 30 3,770 Income tax reduction (5) (373) (2) (252) Expenses not deductible for tax purposes (income not subject to tax) (3) (260) - 30 Additional tax deductible expenses (2) (136) (1) (144) Total 20 1,620 27 3,404
Reconciliation of effective tax rate
Separate financial statements
2010 2009 Rate (in million Rate (in million (%) Baht) (%) Baht)
Profit before income tax expense 7,097 12,665 Income tax using the Thai corporation tax rate 30 2,129 30 3,800 Income tax reduction (5) (373) (2) (252) Additional tax deductible expenses (2) (136) (1) (144) Total 23 1,620 27 3,404
30 Promotional privileges By virtue of the provisions of the Industrial Investment Promotion Act of B.E. 2520, the Company has been granted privileges by the Board of Investment relating to manufacturing and distributing Aromatics and Cyclohexane, manufacturing and distributing products from Reformer and Aromatics Complex II, Construction Project of Thappline, Upgrading project, Clean fuel project and GT-Nox Reduction project. The privileges granted include:
(a) exemption from payment of import duty on machinery approved by the Board;
(b) exemption from payment of income tax for certain operations for a period of eight years from the date on which the income is first derived from such operations;
(c) a 50% reduction in the normal income tax rate on the net profit derived from certain operations for a period of five years, commencing from the expiry date in (b) above.
As a promoted company, the Company must comply with certain terms and conditions prescribed in the promotional certificates.
Summary of revenue from promoted and non-promoted businesses:
Financial statements in which the equity method is applied
2010 2009 Promoted Non- Promoted Non- businesses promoted businesses promoted businesses Total businesses Total (in million Baht) Export sales 15,371 61,453 76,824 14,292 48,745 63,037 Local sales 33,418 192,534 225,952 26,255 160,046 186,301 Eliminations - (29,009) (29,009) - (24,039) (24,039) Total Revenue 48,789 224,978 273,767 40,547 184,752 225,299
Separate financial statements
2010 2009 Promoted Non- Promoted Non- businesses promoted businesses promoted businesses Total businesses Total
(in million Baht) Export sales 15,371 61,453 76,824 14,292 48,745 63,037 Local sales 33,418 192,534 225,952 26,255 160,046 186,301 Eliminations - (29,009) (29,009) - (24,039) (24,039) Total Revenue 48,789 224,978 273,767 40,547 184,752 225,299
31 Earnings per share Basic earnings per share The calculations of basic earnings per share for the years ended 31 December 2010 and 2009 were based on the profit for the years attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding during the years as follows:
Financial statements in which the equity Separate method is applied financial statements
2010 2009 2010 2009 (in million Baht / million shares) Profit attributable to equity holders of the Company (basic) 6,343 9,162 5,476 9,261 Number of ordinary shares outstanding at 1 January 2,964 2,964 2,964 2,964 Effect of shares issued on 30 April 1 - 1 - Weighted average number of ordinary shares outstanding (basic) 2,965 2,964 2,965 2,964 Earnings per share (basic) (in Baht) 2.14 3.09 1.85 3.12
Annual Report 2010PTT Aromatics and Refining Public Company Limited 191
Diluted earnings per share The calculations of diluted earnings per share for the years ended 31 December 2010 and 2009 were based on the profit for the years attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding during the years after adjusting for the effects of all dilutive potential ordinary shares as follows:
Financial statements in which the equity Separate method is applied financial statements
2010 2009 2010 2009 (in million Baht / million shares) Profit attributable to equity holders of the Company (basic and diluted) 6,343 9,162 5,476 9,261 Weighted average number of ordinary shares outstanding (basic) 2,965 2,964 2,965 2,964 Effect of exercise of shares options 5 - 5 - Weighted average number of ordinary shares outstanding (diluted) 2,970 2,964 2,970 2,964 Earnings per share (diluted) (in Baht) 2.14 3.09 1.84 3.12
32 Dividends At the Annual General Meeting of the shareholders of the Company held on 5 April 2010, the shareholders approved the appropriation of dividends of Baht 1.25 per share, amounting to Baht 3,705.4 million which was distributed from unappropriated retained earnings and appropriation of legal reserve amounted to Baht 463 million. The dividend was paid to the shareholders on 29 April 2010.
At the Annual General Meeting of the shareholders of the Company held on 7 April 2009, the shareholders approved the appropriation of dividends of Baht 0.50 per share, amounting to Baht 1,481.8 million which was distributed from unappropriated retained earnings. The dividend was paid to the shareholders on 24 April 2009.
33 Significant contractual agreements As at 31 December 2010, the Company had the following significant contractual agreements:
33.1 Land lease agreement The Company entered into three lease agreements with The Industrial Estate Authority of Thailand (IEAT) for two leases of land for a period of 30 years and the lease of land for 27 years and 10 months. Under the terms of the agreements, the Company is committed to pay rental annually.
33.2 Construction operation of the Petroleum Refinery Agreement On 20 November 1992, the Company assumed from The Shell Company of Thailand (“SCOT”) all the rights and obligations related to the construction and operation of a petroleum refinery that had previously accrued to SCOT in accordance with an agreement between SCOT and the Ministry of Industry (“MOI”) dated 30 October 1991 (the “MOI Agreement”). According to the terms of the MOI Agreement, as amended, the Company has to comply with stipulated conditions including the sale of its shares to the public through the Stock Exchange of Thailand (“SET”).
33.3 Technical Services Agreement On 18 October 2006, the Company entered into a Technical Services Agreement with Shell Global Solution (Thailand) Limited (“SGS”). Under the contract, the Company agreed to obtain certain technical advice and service from SGS, limited to 1,040 service hours in each year. The agreement duration is 5 years and the initial service fee amounts to EUR 2.53 million, which will be adjusted in line with the increase in labor cost index. The agreement can be automatically renewed for 5 years.
33.4 Deep Hydrodesulfurization Unit
On 31 July 2009, the Company entered into the supply and construction contract of Deep Hydrodesulfurization (DHDS) Unit to produce diesel, in compliance with Euro 4 standard, with SK Engineering and Construction Company Limited from South Korea and Thai Woo Ree Engineering Company Limited. The Company has commitments to pay for this project approximately USD 221 Million. The project has been approved by the National Environment Board since 2008 and will require 31 months for construction and targeting to complete by the end of 2011.
34 Financial instruments Financial risk management policies The Company is exposed to normal business risks from changes in market interest rates and currency exchange rates and from non-performance of contractual obligations by counterparties. The Company does not hold or issue derivative financial instruments for speculative or trading purposes.
Risk management is integral to the whole business of the Company. The Company has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Company’s risk management process to ensure that an appropriate balance between risk and control is achieved.
Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board monitors the return on capital, which the Company defines as result from operating activities divided by total shareholders’ equity, excluding non-controlling interests and also monitors the level of dividends to ordinary shareholders.
Interest rate risk Interest rate risk is the risk that future movements in market interest rates will affect the results of the Company’s operations and its cash flows because loan interest rates are mainly floating. The Company is primarily exposed to interest rate risk from certain loans at floating interest rates which may be adjusted in the future. The Company mitigates this risk by swapping floating interest rates to fixed interest rates.
The effective interest rates of interest-bearing financial liabilities as at 31 December and the periods in which those liabilities mature or re-price were as follows:
Annual Report 2010PTT Aromatics and Refining Public Company Limited 193
Financial statements in which the equity method is applied and Separate financial statements Effective After 1 year interest Within 1 but within 5 After 5 rates Year years Years Total
(% per annum) (in million Baht) 2010 Current
Short-term loans from financial institutions 1.30 - 2.95 1,856 - - 1,856 Current portion of long-
Foreign currency risk The Company is exposed to foreign currency risk relating to purchases and sales which are denominated in foreign currencies. The Company primarily utilizes forward exchange contracts with maturities of less than one year to hedge such financial assets and liabilities denominated in foreign currencies.
At 31 December, the Company was exposed to foreign currency risk in respect of financial assets and liabilities denominated in the following currencies:
Financial statements in which the equity Separate method is applied financial statements
Note 2010 2009 2010 2009 United States Dollars (in million Baht) Cash and cash equivalents 5 1,133 672 1,133 672 Trade accounts receivable 6 1,965 1,048 1,965 1,048 Trade accounts payable 17 (9,813) (4,664) (9,813) (4,664) Other payables and other liabilities 18 (486) (589) (486) (589) Long-term loans 16 (15,171) (19,266) (15,171) (19,266) (22,372) (22,799) (22,372) (22,799) Other currencies Other payables and other liabilities 18 (30) (13) (30) (13) Gross balance sheet exposure (22,402) (22,812) (22,402) (22,812) Currency forwards 5,961 526 5,961 526 Net exposure (16,441) (22,286) (16,441) (22,286) Credit risk
Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Company as and when they fall due.
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. At the reporting date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.
Liquidity risk
The Company monitors its liquidity risk and maintains a level of cash and cash equivalents and financial ratios according to loan agreements deemed adequate by management to finance the Company’s operations and to mitigate the effects of fluctuations in cash flows.
Determination of fair values A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
Annual Report 2010
PTT Aromatics and Refining Public Company Limited 195
Cash and cash equivalents and short-term investments in fixed deposits - the carrying values are approximate to their fair values due to the relatively short-term maturity of these financial instruments.
The fair value of trade and other short-term receivables is taken to approximate the carrying value.
Trade accounts payable and other payables - the carrying amounts of these financial liabilities are approximate to their fair values due to the relatively short-term maturity of these financial instruments.
Debentures with a fixed rate of interest - the fair value of these liabilities is estimated using the discounted cash flow model based on the average interest rates currently being offered for loans with similar terms to borrowers of similar credit quality, which are presented below:
Financial statements in which the equity Separate method is applied financial statements
Carrying Carrying Fair value value Fair value value
(in million Baht ) 2010 THB Debentures 15,235 15,000 15,235 15,000 USD Debentures 7,868 7,294 7,868 7,294 Total 23,103 22,294 23,103 22,294 2009 THB Debentures 15,452 15,308 15,452 15,308 USD Debentures 10,952 10,050 10,952 10,050 Total 26,404 25,358 26,404 25,358
35 Commitments with non-related parties Financial statements in which the equity Separate method is applied financial statements 2010 2009 2010 2009 (in million Baht) Capital commitments Contracted but not provided for: Buildings and other constructions - 2 - 2 Machinery and equipment 1,244 4,824 1,244 4,824 Total 1,244 4,826 1,244 4,826
Non-cancellable operating lease commitments Within one year 17 40 17 40 After one year but within five years 42 78 42 78 After five years 55 66 55 66 Total 114 184 114 184
As at 31 December 2010, the Company was contingently liable for letters of guarantee issued by certain local financial institutions and a branch of a foreign financial institution for guarantee of income tax and value added tax receivable refund, using of land, and using electricity totalling Baht 6,855 million (2009: Baht 69 million) Interest rate swap agreements
As at 31 December 2010, the Company had various interest rate swap agreements with various financial institutions to reduce the risk of fluctuation in interest rates as follows:
1. Covering U.S. Dollar in an amount of USD 45 million, which is terminating every six months for a period of 4.5 years ending January 2013.
2. Covering Thai Baht in the total amount of Baht 11,400 million divided as follows :
- in an amount of Baht 4,000 million for 1.5 years, terminate in January 2011 - in an amount of Baht 2,000 million for 3 years, terminate in December 2011 - in an amount of Baht 1,500 million for 5 years, terminate in December 2013 - in an amount of Baht 600 million for 8 years, terminate in December 2016 - in an amount of Baht 1,000 million for 7 years, terminate in December 2017 - in an amount of Baht 300 million for 9 years, terminate in December 2017 - in an amount of Baht 1,000 million for 8 years, terminate in December 2018 - in an amount of Baht 1,000 million for 10 years, terminate in December 2018
For the duration of the agreements, the Company is committed to receive payments from or make payments to the other party whenever the interest rates vary from the agreed rates based on the terms and conditions stipulated in the agreements.
Foreign forward contract As at 31 December 2010, the Company had forward contracts covering USD currency with three local financial institutions and branches of two foreign financial institutions for an amount of USD 196.77 million which are used for project investment and repayment USD currency loan. The settlement terms of the forward exchange contracts are commencing in different months and ending within the year 2012.
36 Litigation case On 3 December 2009, a listed company filed for arbitration against PTT and the Company as a producer to perform according to sale and purchase of raw materials agreement, of which the said company has been committed by PTT, or to compensate for damages of approximately Baht 13,805 million. On 8 March 2010, the dispute was thrown out of the case-list by the arbitration ruling that the Company was not a party to the contract.
Subsequently, on 27 August 2010, the said listed company filed a civil suit against PTT and the Company as a producer to perform according to sale and purchase of raw materials agreement, of which the said company has been committed by PTT, or to compensate for damages of approximately Baht 9,380 million. In this regards, the Company filed objections against the indictment with the civil court on the basis that the Company was not a party to the contract. The Company believes that the outcome of the lawsuit will not result in any liability to the Company, and therefore, has not provided against any loss that may result from this matter in the financial statements.
Annual Report 2010
PTT Aromatics and Refining Public Company Limited 197
Dividends At the Board of Directors’ meeting held on 24 February 2011, the Board approved to propose in the Shareholders’ meeting to consider the approval of the appropriation of dividends of Baht 0.96 per share, amounting to Baht 2,860 million.
The amalgamation between the Company and PTT Chemical Public Company Limited At the Board of Directors’ meeting held on 24 February 2011, the Board approved the amalgamation between the Company and PTT Chemical Public Company Limited and will propose this to be approved in the Shareholders' meeting.
38 Thai Financial Reporting Standards (TFRS) not yet adopted
The Company has not adopted the following new and revised TFRS that has been issued as of the reporting date but are not yet effective. The new and revised TFRS are anticipated to become effective for annual financial periods beginning on or after 1 January in the year indicated in the following table.
TFRS
Topic
Year effective
TAS 1 (revised 2009) Presentation of Financial Statements 2011 TAS 2 (revised 2009) Inventories 2011 TAS 7 (revised 2009) Statement of Cash Flows 2011 TAS 8 (revised 2009) Accounting Policies, Changes in Accounting Estimates and Errors 2011 TAS 10 (revised 2009) Events after the Reporting Period 2011 TAS 16 (revised 2009) Property, Plant and Equipment 2011 TAS 17 (revised 2009) Leases 2011 TAS 18 (revised 2009) Revenue 2011 TAS 19 Employee Benefits 2011 TAS 21 (revised 2009) The Effects of Changes in Foreign Exchange Rates 2013 TAS 23 (revised 2009) Borrowing Costs 2011 TAS 24 (revised 2009) Related Party Disclosures 2011 TAS 27 (revised 2009) Consolidated and Separate Financial Statements 2011 TAS 28 (revised 2009) Investments in Associates 2011 TAS 33 (revised 2009) Earnings per Share 2011 TAS 34 (revised 2009) Interim Financial Reporting 2011 TAS 36 (revised 2009) Impairment of Assets 2011 TAS 37 (revised 2009) Provisions, Contingent Liabilities and Contingent Assets 2011 TAS 38 (revised 2009) Intangible Assets 2011 TAS 40 (revised 2009) Investment Property 2011
Management expects to adopt and apply these new and revised TFRS in accordance with the FAP’s announcement and has made a preliminary assessment of the potential initial impact on the financial statements in which the equity method is applied and separate financial statements. Management has presently determined those new standards assessed to have the potential impact on the Company’s financial statements in the period of initial application. These standards are as follows:
TAS 16 (revised 2009) – Property, plant and equipment The principal changes introduced by the revised TAS 16 and affecting the Company are that (i) costs of asset dismantlement, removal and restoration have to be included as asset costs and subject to annual depreciation; (ii) the depreciation charge has to be determined separately for each significant part of an asset; and (iii) in determining the depreciable amount, the residual value of an item of property, plant and equipment has to be measured at the amount estimated receivable currently for the asset if the asset were already of the age and in the condition expected at the end of its useful life. Furthermore, the residual value and useful life of an asset have to be reviewed at least at each financial year-end.
TAS 16 (revised 2009) permits as a transitional provision that these changes may be introduced prospectively from the year of introduction. The Company intends to adopt this transitional provision which the management has already determined that this will not have any material impact on the 2010 financial statements or prior years. TAS 19 – Employee benefits
TAS 19 Employee Benefits will be effective for annual financial periods beginning on or after 1 January 2011. The Company therefore has not presently accounted for the costs of post-employment benefits under defined benefit plan, other long-term employee benefits, and termination benefits until such costs are incurred. The accounting standard includes the requirements to recognise expenses and provision for employee benefits in the period in which the service is performed. The standard requires actuarial assumptions to measure the obligations and expenses of long-term benefits and to measure on a discounted basis due to the settlement of these benefits would incur in the subsequent years of services. The transitional provisions of TAS 19 permit the transaction liability computed from period of service years of employees prior to its effective date, to be recognised and accounted for in four options. The Company has selected to adjust retrospectively.
Management has determined that the Company’s transitional liability as at 1 January 2011 for employee benefit would be increased by approximately Baht 358 million and retained earnings would be decreased by an equivalent amount.
39 Reclassification of accounts Certain accounts in the 2009 financial statements have been reclassified to conform to the presentation in the 2010 financial statements as follows:
2009 Financial statements in which
the equity method is applied Separate
financial statements
Before Reclass.
Reclass.
After Reclass.
Before Reclass.
Reclass.
After Reclass.
(in million Baht) Balance sheet Value-added tax receivable 3,563 371 3,934 3,563 371 3,934 Other current assets 815 (371) 444 815 (371) 444 - - The reclassifications have been made because, in the opinion of management, the new classification is more appropriate to the Company’s business.
Annual Report 2010PTT Aromatics and Refining Public Company Limited 199
Complex Refinery A refinery that has manufacturing processes (conversion units or upgrading units) to upgrade lower value hydrocarbon products to higher value products. The type of processing facilities indicates the degree of complexity of the refinery.
Hydro-Skimming One-step crude oil process yielding clear petroleum products, including gasoline and diesel, at lower proportions than the yields of a complex process.
Condensate Liquefied petroleum (lighter than crude oil).
High Vacuum Unit (HVU) A refinery unit that further fractionates the black fuel oil fraction produced by the CDU, which is also known as long residue, to produce a light fuel oil fraction (light vacuum gasoil and heavy vacuum gasoil) and a heavy fuel oil fraction (short residue). In the HVU, separation occurs in the fractionation column at a high temperature and under vacuum conditions to prevent a cracking reaction.
Light Distillates Lower-gravity petroleum products, including gasoline and LPG.
Middle Distillates Medium-gravity petroleum products, including diesel, jet fuel, and kerosene.
Heavy Distillates Higher-gravity petroleum products, including fuel oil and asphalt.
Naphtha Hydrotreating Unit A refinery unit that removes sulfur from naphtha in the presence of catalysts and hydrogen.
Total Intake Total volume of processed feedstock/crude oil.
Utilization Rate Comparison of the actual to the total capacity in a given period.
Hydrocracking Unit (HCU) Diesel processing unit.
Hydrodesulfurizer Unit Sulfur-removing unit.
Measurement units KBD (Kilo Barrel per Day) : Thousand barrels per dayKMT (Kilo Metric Tons) : Thousand metric tonsM.BBL (Million Barrels) : Million barrels
GRM (Gross Refining Margin) Difference between the price of a given refined product and that of crude oil.
P2F (Product to Feed Margin) Difference between the price of a given petrochemical product and that of its feedstock.
GIM (Gross Integrated Margin) Difference between the prices of refined/petrochemical products and those of crude oil/feedstock.
Stock Gain/(Loss) Difference between the accounting sales cost and the market cost arising from the time lag between the sale of a given petroleum product and the period in which the crude oil feed is imported from the Middle East for refining/processing and sale.
OPEX (Operating Expense) Expense incurred in business execution (exclusive of capital expenses).
EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization)
Income before deduction of interest, taxes, depreciation, and amortization.
Adjusted EBITDA EBITDA exclusive of stock gain/(loss) and LCM.
LCM (Lower of Cost or Market Inventory Method)
Expense arising from the comparison of the expected value and the cost of stock/inventory, whichever is lower, to reflect a sensible value of stock/inventory at the end of a given accounting period.
ROIC (Return on Invested Capital)
Interest derived from investing money in a business.
