PTT faces charge of 7.9 billion baht

PTT faces charge of 7.9 billion baht

Prasert : Pipeline fees manageable

WICHIT CHANTANUSORNSIRI & YUTHANA PRAIWAN

PTT Plc will pay an estimated 7.9 billion baht to the government over 30 years for the use of gas pipeline assets ordered transferred to the state, the Treasury Department said yesterday.

Amnuay Preemonwong, the deputy director-general of the department, said the payments would include 1.6 billion baht in retroactive rental fees and interest stemming back to PTT's privatisation in October 2001.

The charges are calculated on a 5% base charge of gas transmission revenues per year, adjusted by a 3% increment per year to account for inflation.

''We believe the rental fees are reasonable and can be absorbed by PTT without any impact on gas prices or consumer energy prices,'' Mr Amnuay said.

Prasert Bunsumpun, the PTT president and chief executive officer, said that while the charge was higher than expected, the company would absorb the cost.

''It is slightly higher than we had earlier estimated. But consumers will not face any additional burden,'' he said.

PTT had earlier indicated that the lease charges would likely be at least 5% of annual pipeline revenues, but that this would be offset by a 3% annual charge for operating and maintenance expenses.

Mr Prasert said the company would book the initial expenses for complying with the court ruling, including back rentals in its fourth quarter financial statements.

The additional charges are expected to have little impact on the largest listed company on the stock market.

PTT, 52% owned by the Finance Ministry, reported nine-month profits of 73.3 billion baht on revenues of 1.09 trillion. Revenues this year are projected to reach 1.5 trillion baht, largely due to higher natural gas and petrochemical consumption.

''The total costs [for the pipelines] will be shouldered by the state. We are majority-owned by the Thai government, and the gas buyer is the Electricity Generating Authority of Thailand, which is fully-state owned. And the taxes are also collected by the state,'' Mr Prasert said.

The Supreme Administrative Court last month ordered PTT to return to the state pipeline assets constructed on property gained through expropriation while PTT was a state enterprise.

PTT, which was privatised and listed on the Stock Exchange of Thailand in 2001, said the ruling would affect about 15 billion baht worth of assets, counting only pipeline segments on land gained from expropriation.

A total of 400 kilometres of pipeline is to be returned to the Finance Ministry. The vast majority of PTT's pipeline network running underwater in the Gulf of Thailand was not affected by the court ruling, although consumer activists have vowed to submit a new legal challenge to have the entire pipeline network declared state assets.

The lease rates finalised yesterday came following a meeting between state officials and PTT executives. The rate must now be approved by Finance Minister Chalongphob Sussangkarn and the cabinet before taking effect.

Mr Amnuay, who chaired yesterday's meeting, said the rate charge was based on a revenue sharing concept that took into consideration PTT's 50-billion-baht investment in the pipeline network.

PTT's pipeline was 75% financed by debt and 25% by PTT cash. Guidelines set by the National Energy Policy Committee call for interest charges to be set at 10.5%, with a return on equity of 18%, resulting in a pipeline transmission rate of 11 baht per million BTU (British thermal units).

But the joint committee considering the rental charges agreed that the interest rate and ROE rate set by the energy policy committee was unreasonably high, and agreed to reduce both to a rate of 7.5%, a calculation similar to that used by Chulalongkorn University in determining lease rates for the Mahboonkrong shopping centre.

Annual revenues for gas transmission through the pipeline segments that would revert to state ownership is estimated at 3.6 billion baht per year, which would serve as the base for the 5% revenue sharing calculation.

PTT's petition to claim an offsetting charge of 3% of annual revenues for operating and maintenance expenses was rejected. Its investments in the pipeline would not be deducted from the revenue charge, which the Treasury Department says was based on formulas for the use of state assets. The base 5% rate would result in a lease charge of 180 million baht for the first year, which would be increased by 3% per year.

Total charges over the 30-year contract dating to PTT's privatisation in 2001 are estimated at 7.8 to 7.9 billion baht. Mr Amnuay said that in the case of Mahboonkrong, of the internal rate of return (IRR) of 13.5%, 6% goes to Chulalongkorn University and the rest to operator MBK Plc.

''For Mahboonkrong, the revenue sharing is based on an IRR model without consideration of the debt and interest paid on the investment,'' he said.

''With PTT, the revenue sharing model does not deduct for debt payments or operating expenses.''

The Treasury Department would be responsible for land taxes of 12.5% of the annual lease revenues, and is considering what asset transfer taxes might be required to comply.

If an interpretation of the Supreme Administrative Court judgment is made that the pipeline assets belonged to the state from the beginning, then no transfer tax liability would be present. But if a judgment was made that ownership has changed hands, then a transfer fee would be required under the law.

PTT shares closed yesterday on the Stock Exchange of Thailand at 360 baht, down eight baht, in trade worth 2.42 billion baht.