"This English translation of the Information Memorandum has been prepared solely for the purpose of facilitating the comprehension of foreign investors and shall not in any event be construed or interpreted as having effect in substitution for or supplementary to the Thai version thereof. The Thai version is the definitive and official document and shall prevail in all respects in an event of any inconsistency with this English translation.”
Information Memorandum
BANGKOK EXPRESSWAY AND METRO PUBLIC COMPANY LIMITED
Contents 1.
General Information .............................................................................................................................1
2.
Type of Business and Nature of Operation ........................................................................................2
3.
Summary of Key Contracts and Terms Transferred from BECL .......................................................20
4.
Summary of Key Contracts and Terms Transferred from BMCL .......................................................22
5.
Feasibility Study ..................................................................................................................................27
6.
Technical and Management Assistance .............................................................................................27
7.
Future Projects ....................................................................................................................................28
8.
Related Transactions...........................................................................................................................28
9.
Commitments.......................................................................................................................................39
10.
Risk Factors .........................................................................................................................................41
11.
Lawsuit .................................................................................................................................................49
12.
Number of Employees .........................................................................................................................53
13.
Company Background .........................................................................................................................53
14.
Investment in Subsidiary / Associated / Related Companies ............................................................54
15.
Change in Capital in the Last 3 Years .................................................................................................55
16.
Accounting Period ...............................................................................................................................55
17.
Auditor .................................................................................................................................................55
18.
Registrar ..............................................................................................................................................55
19.
Financial Advisor .................................................................................................................................55
20.
Dividend Policy ....................................................................................................................................55
21.
BOI Certificate......................................................................................................................................55
22.
Shareholder Information .....................................................................................................................56
23.
Board of Directors ...............................................................................................................................57
24.
Listing Conditions ...............................................................................................................................60
25.
Silent Period ........................................................................................................................................60
26.
Relaxation ............................................................................................................................................60
27.
Others (if any) ......................................................................................................................................60
28.
Statistical Summary.............................................................................................................................61
Definitions Amalgamation
means
The amalgamation in accordance with the PLC Act
EXAT
means
Expressway Authority of Thailand
Pro Forma
means
Pro Forma Consolidated Financial Information
Siemens
means
Siemens (Thailand) Company Limited
SET
means
The Stock Exchange of Thailand
CH. Karnchang
means
CH. Karnchang Public Company Limited
SEC Act
means
Securities and Exchange Act B.E. 2535 (1992) and as amended
PLC Act
means
Public Limited Company Act B.E. 2535 and as amended
MRTA
means
Mass Rapid Transit Authority of Thailand
The Office of the SEC
means
The Office of the Securities and Exchange Commission
BECL
means
Bangkok Expressway Public Company Limited
BMCL
means
Bangkok Metro Public Company Limited
BMN
means
Bangkok Metro Networks Limited
BOI
means
Board of Investment
CKP
means
CK Power Public Company Limited
NECL
means
Northern Bangkok Expressway Company Limited
TTW
means
TTW Public Company Limited
XPCL
means
Xayaburi Power Company Limited
- Information MemorandumBangkok Expressway and Metro Public Company Limited (the “Company” or "BEM") 1.
General Information Head Office: Tel: Fax: Website:
587 Sutthisanvinitchai Rd., Din Daeng, Din Daeng, Bangkok 10400 02 641 6411 / 02 534 2000 02 641 6410 / 02 534 2040 www.bemplc.co.th
Branch Address (1): Tel: Fax:
238/7 Asoke-dindaeng Rd., Bangkapi, Huai Khwang, Bangkok 10310 02 641 6411 02 641 4610
Branch Address (2):
189 Rama IX Road., Huai Khwang, Bangkok 10310
Branch Address (3):
189/1 Rama IX Road., Huai Khwang, Bangkok 10310
Branch Address (4): Tel: Fax:
189/2 Rama IX Road., Huai Khwang, Bangkok 10310 02 534 2000 02 534 2040
Listing Date
30 December 2015 (trading commencement on 5 January 2016)
Listing Securities
Number of common shares 15,285 million shares Par value of Baht 1 per share Total value of Baht 15,285 million
Capital
As at 5 January 2016 (trading commencement) Registered Capital Common Shares 15,285 Paid-up Capital Common Shares 15,285
Secondary Market
The Stock Exchange of Thailand (SET)
1
million baht million baht
2.
Type of Business and Nature of Operation
Bangkok Expressway and Metro Public Company Limited (“BEM”) is the result of the Amalgamation between BECL and BMCL on 30 December 2015, which assumed all assets, obligations, rights, duties, and responsibilities of both BECL and BMCL by operation of law. Overview of business operations of BEM can be summarized as follows. (1) Construction and Operation of Expressway Business: BEM is the concessionaire of expressway construction and operation, namely, (1.1) the Si Rat Expressway (Second Stage Expressway) under the Second Stage Expressway Project Agreement with EXAT, for a concession period of 30 years, from 1 March 1990; and the Extension of the Second Stage Expressway (Sector D) under the Extension of the Second Stage Expressway (Sector D) Agreement with EXAT, for a concession period of 30 years from 17 April 1997, (1.2) the Si Rat-Outer Ring Road Expressway Project under the Concession Agreement of Investment, Design, Construction, Operation, and Maintenance Services of such project with EXAT, for a concession period of 30 years from 15 December 2012, and (1.3) the Udon Ratthaya Expressway (Bang Pa-in-Pak Kret Expressway) by operating through a subsidiary, NECL, under the Bang Pa-in-Pak Kret Expressway Project Agreement with EXAT, for a period of 30 years from 27 September 1996. (2) Operation Management of Mass Rapid Transit System Business: At present, BEM is the concessionaire under 2 concessions granted by the MRTA, namely (2.1) the MRT Chaloem Ratchamongkhon Line Project (Blue Line) (Hua Lamphong StationBang Sue Station) (the "MRT Blue Line Project"), whereby BEM has the exclusive rights to collect fares and undertake activities and commercial development, including advertising, space leasing in the project area, and telecommunications services in the stations and in the trains, for 25 years from 2 July 2004, and (2.2) the MRT purple line project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Section (Khlong Bang Phai Station-Tao Poon Station) (the "MRT Purple Line Project") Contract 4: Concession for Supply of M&E Systems and O&M Services, whereby the MRTA invests in all civil work costs, and BEM invests in the M&E Systems and rolling stock. In addition, BEM will provide operation and maintenance services according to the service standards prescribed in the conditions of the agreement. The MRTA will be entitled to collect fare box revenues and commercial revenues from the use of all civil infrastructures and the M&E Systems, and will compensate BEM in the form of operation and maintenance service fees, and M&E System equipment throughout the concession period of 30 years starting from the signing date of the concession agreement. 2
Besides, BEM is selected to be an operator of the MRT Purple Line Project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Section (Tao Poon Station-Bang Sue Station, excluding the stations) Contract 5: Concession for Supply of M&E Systems and O&M Services (the “Concession Agreement Contract 5”), as per the Cabinet’s resolution on 28 October 2014 approving to proceed in accordance with the procedures under Section 16 of the Act on Private Participation in State Undertaking B.E. 2535 (1992) (the “PPP Act”) through direct negotiation with BEM. BEM shall be responsible for the design, supply, installation, and testing of the M&E Systems and other related systems, including conducting the test runs on providing services to the public, until the systems can start to operate successfully in connection with the MRT Blue Line Project within a given period, as well as securing the source of financing for the works under Phase 1 of the Concession Agreement Contract 5. The works under Phase 1 shall be completed within 15 months, and for the works of Phase 2, the operation and maintenance services shall be provided for a period of 12 months after the commencement of operation date of the MRT Purple Line Project under the Concession Agreement Contract 5. At present, the draft of the Concession Agreement Contract 5 is in the process of obtaining approval from the Cabinet. (3) Commercial Development Business: (3.1) BEM and its subsidiary, BMN, are the operators of commercial development business of the MRT Blue Line Project under the following scope of duties: procuring and/or producing advertising media in the trains and the stations, leasing retail spaces in the MRT Blue Line stations and spaces in the basement level of the Lat Phrao park and ride facility, and providing services and maintenance of telecommunications system equipment inside the metro stations. (3.2) For the Expressway, BEM and its subsidiary, NECL, lease spaces to private companies and individuals for the purpose of installation of variable-message signs (VMS) and advertising boards, set up of shops at toll plazas, and other businesses, such as installing 3G telecommunications signal systems. In addition, BEM also has investments in companies which operate in the infrastructure business, namely, (1) CKP, whose core business is investing in other companies (Holding Company) that engage in the business of generating and distributing electricity from various types of energy, (2) TTW, who produces and distributes tap water to the Provincial Waterworks Authority, and invests in companies that operate in other infrastructure businesses, and (3) XPCL, whose core business is developing and operating the Xayaburi Hydro Power Project, located on the Mekong River, with a total installed capacity of 1,285 megawatts.
3
As at 30 December 2015, the shareholding structure of BEM can be summarized as follows. CK Group 28.54%
Others 71.46% Construction and operation of expressway business Operation management of mass rapid transit system business Commercial development business
BEM
99.99%
65.19%
19.57%
19.40%
7.50%
NECL
BMN
TTW
CKP
XPCL
Construction and operation of expressway business
Commercial development business
Tap water production and distribution business
Investment in electricity generation and distribution business
Development and operation of the Xayaburi Hydro Power Project
Note: CK Group consists of 1) CH. Karnchang, 2) CH. Karnchang-Tokyu Construction Co., Ltd., 3) Mahasiri Siam Co., Ltd., and 4) CH. Karnchang Holding Co., Ltd.
BEM’s business operation after the Amalgamation will be the same as previously operated by BECL and BMCL, with the following revenue structure. Operated by Revenue Structure (Pro Forma1)) Revenue from construction and operation of expressways Toll revenue Toll revenue Revenue from operation management of mass rapid transit system Fare box revenue Revenue from commercial development Commercial development revenue Commercial development revenue Gain on Investments3) Other Income4) Total Revenues Remark:
BEM Subsidiary
Pro Forma Consolidated Financial Information For the nine-month For the year ended For the year ended period ended 31 December 2014 31 December 2014 30 September 2015 Baht mm % Baht mm % Baht mm % 6,550 74.4 8,485 71.4 8,040 57.9
% Held by BEM
2)
5,666 884 1,774
64.4 10.0 20.1
7,352 1,133 2,248
61.9 9.5 18.9
6,990 1,050 2,106
50.4 7.6 15.2
65.19
1,774 410 250 160 51 19 8,804
20.1 4.7 2.8 1.8 0.6 0.2 100.0
2,248 501 285 216 537 113 11,883
18.9 4.2 2.4 1.8 4.5 0.9 100.0
2,106 451 256 195 334 2,9455) 13,875
15.2 3.3 1.8 1.4 2.4 21.2 100.0
99.99
BEM BEM Subsidiary BEM BEM
1) The pro forma consolidated financial information for the nine-month period ended 30 September 2015, and for the year ended 31 December 2014 and 2013 has been prepared from the financial information of BECL and BMCL, as if the Amalgamation had taken place on 1 January 2013 and is regarded as an amalgamation under common control. 2) BEM (previously BECL) purchased additional shares of NECL in November 2015. As a result, BEM’s shareholding in NECL increased from 53.33 percent to 99.99 percent of NECL’s registered capital. 3) Gain on investments includes gain on sale of investments in TTW and/or CKP, amounting to Baht 274 million, Baht 506 million, and Baht 11 million in 2013, 2014 and the nine-month period of 2015, respectively. 4) Other income consists of interest income, gain on fair value adjustment of investment from changing status of investment, and compensation for flood damages. 5) Includes gain on fair value adjustment of investment from changing status of investment of Baht 2,808 million.
4
2.1
Construction and Operation of Expressway Business 2.1.1
Nature of Services
BEM and its subsidiary, NECL, are the constructors and operators of Expressway, namely, the Si Rat Expressway (Second Stage Expressway), the Si RatOuter Ring Road Expressway, and the Udon Ratthaya Expressway (Bang Pa-in-Pak Kret Expressway), whose details can be described below. 1.)
The Si Rat Expressway (Second Stage Expressway) The Si Rat Expressway (Second Stage Expressway) is Thailand’s first large construction project established from the cooperation between the public and private sectors to help reduce traffic congestion in Bangkok and its vicinity. The project is implemented on a Build Transfer and Operate (BTO) basis, where BEM (previously BECL) is responsible for investment in the construction and operation of the Si Rat Expressway (Second Stage Expressway) consisting of 4 sectors, namely, Sector A (Rama 9-Ratchadapisek), Sector B (Phayathai-Bangklo), Sector C (Ratchadapisek-Chaeng Watthana) and Sector D (Rama 9-Srinagarindra), covering a total distance of 38.5 kilometres, while the title to various permanent constructions relating to or for the benefits of the Si Rat Expressway shall be vested in EXAT. In this regard, EXAT invested in the construction and operation of the Chalerm Mahanakhon Expressway (First Stage Expressway), covering a distance of 27.1 kilometres, and BEM assumed the rights to operate the Si Rat Expressway and became entitled to receive the toll revenue sharing from both the Chalerm Mahanakhon Expressway and the Si Rat Expressway based on the ratio specified in the Second Stage Expressway Agreement, for a period of 30 years from 1 March 1990, and in the Extension of the Second Stage Expressway System (Sector D) Agreement, for a period of 30 years from 17 April 1997.
2.)
The Si Rat-Outer Ring Road Expressway BEM assumed the Concession Agreement of Investment, Design, Construction, Operation, and Maintenance Services of the Si Rat-Outer Ring Road Expressway Project. BEM has a duty to design, construct, supply and install various related equipment and systems, and the duties to operate and provide services and maintenance of the expressway, together with toll collection, in an exchange for rights to collect toll revenues and other revenues (if any). The route starts from Kanjanapisek Road and connects with the Si Rat Expressway in the north of Mo Chit 2 Bus Terminal, for a total distance of 16.7 kilometres. BEM is responsible for investment and all operations expenses and shares consideration with or 5
provides benefits to EXAT as prescribed in the Agreement, with a concession period of 30 years from 15 December 2012, and the construction period shall not exceed 48 months from such date. 3.)
The Udon Ratthaya Expressway (Bang Pa-in-Pak Kret Expressway) BEM holds shares in NECL, which operates the business of construction and operation of the Udon Ratthaya Expressway which connects with the Si Rat Expressway at Chaeng Wattana Road and ends at Bang Pa-in district, Ayutthaya province, covering a total distance of 32 kilometres. This project is implemented on a Build Transfer and Operate (BTO) basis, the same as the Si Rat Expressway, i.e. NECL is responsible for the investment in the design, construction and operation of the Udon Rattaya Expressway, whilst the title to various permanent structures shall be vested in EXAT. EXAT is responsible for collection of all tolls, and then shares such toll revenue with NECL, as specified in the Concession Agreement with a concession period of 30 years from 27 September 1996.
2.1.2
Target Customers and Characteristics
Target customers of the Chalerm Mahanakorn Expressway and the Si Rat Expressway are the motorists who desire for a convenient and rapid transportation, or those who would like to shorten travel distance to their destinations, as well as those who desire to avoid congested traffic on the normal roads of Bangkok and its vicinity. The customers can be categorized by the types of vehicles that use the Expressways, which are four-wheeled vehicles, six-to-ten-wheeled vehicles, and more-than-ten-wheeled vehicles; with proportions as at 30 September 2015 of 97.83 percent, 1.92 percent and 0.25 percent, respectively. The traffic volume, during the period from 1 January to 30 September 2015, of vehicles using the Expressways can be described by areas as follows: Expressway Systems 1. Chalerm Mahanakorn Expressway (First Stage Expressway)(1) (Bang Na-Din Daeng-Dao Khanong) 2. Si Rat Expressway (Second Stage Expressway) 2.1 Urban Network (Prachachuen-Phayathai-Bangkhlo-Asoke) 2.2 Suburban Network (Prachachuen-Chaeng Watthana and Asoke-Srinagarindra) 3. Udon Ratthaya Expressway (Bang Pa-in-Pak Kret) 6
Average traffic volume (trips/day)
%
373,741
22.05
322,813 365,736
19.04 21.57
73,375
4.33
Expressway Systems
Average traffic volume (trips/day)
%
4. Chalong Rat Expressway (Ramindra-At Narong and RamindraOuter Ring Road) (1)
198,017
11.68
5. Burapha Withi Expressway (Bang Na-Chonburi)(1)
137,612
8.12
6. Kanjanapisek Expressway (Bang Pli-Suksawad)(1) and Highway No. 37 (Suksawad-Bang Khun Thien Section)
223,934
13.21
1,695,228
100.00
Total Traffic Volume Remark : (1) Source: EXAT
Due to the fact that Expressway services are considered a form of public services provided to the motorists who desire for a convenient, rapid and safe transportation, who are the target customers of the Expressway Systems, such customers are located in different areas depending on their destinations, residences and workplaces. In this respect, the revenue of the Expressway Systems does not depend on any particular group of customers. 2.1.3
Distribution Channels
The motorists can enter the Expressway system after paying tolls at the toll plazas located at the on-ramps or off-ramps areas, which cover the major areas, both in urban and suburban. The expressway users may choose to pay the tolls by cash or make a payment via the Electronic Toll Collection system (Easy Pass), as the case may be. 1.) Chalerm Mahanakorn Expressway and the Si Rat Expressway Users of the Chalerm Mahanakorn Expressway and the Si Rat Expressway may choose to enter the Expressway system from various on- and off-ramps that cover major areas in Bangkok throughout the total distance of 65.6 kilometres, both in the urban and the suburban areas. The Expressway users shall pay tolls at the toll plazas located at the on-ramps areas, and may pay tolls in two channels, either in cash or via the Electronic Toll Collection system (Easy Pass). 2.) Udon Ratthaya Expressway Users of the Udon Ratthaya Expressway which connects with the Si Rat Expressway System heading towards the North of Bangkok, with a total distance of 32 kilometres, shall pay tolls at the on-ramps for the inbound 7
direction and at the off-ramps for the outbound direction; and the tolls must be paid in cash only. 3.) Electronic Toll Collection System BEM, in association with EXAT, introduces the Electronic Toll Collection system in the toll collection, in order to serve as a channel for motorists and to facilitate and speed up the toll payment at the front of the toll plazas during the rush hours, as well as to accommodate the increasing traffic volume expected in the future. 2.1.4
Procurement of Products and Services
EXAT is a government authority responsible for the construction of expressways to provide services aiming for a convenient, rapid and safe transportation by vehicles, as well as to mitigate traffic problems. In this regard, EXAT invited parties who show interests to submit investment proposals, BEM hence conducted feasibility studies and submitted its proposals for investments in projects that have appropriate levels of returns and conditions. The Expressway Projects under the Second Stage Expressway Agreement, the Bang Pa-in-Pak Kret Expressway Agreement, the Agreement for Extension of the Second Stage Expressway (Sector D), and the Concession Agreement for the Si Rat-Outer Ring Road Expressway Project are implemented on a BTO basis. The essence of the Agreements is that EXAT shall determine the characteristics of the Expressways, Expressway routes and areas to be used for construction, and arrange for land expropriation for delivery to BEM for construction within the time specified in the Agreements. Thereafter, BEM shall carry out construction in accordance with the designs approved by EXAT, under the supervision on the quality of construction work by EXAT’s Consulting Engineer, Independent Certification Engineer and Independent Design Checker. Upon the completion of the construction, the Independent Certification Engineer shall inspect the work and issue Certificate of Completion to evidence that the construction work is completed in accordance with the specified standards and ready for service, at which time, BEM shall be entitled to receive toll revenue under the conditions prescribed in the Agreements. In previous constructions, BEM engaged project managers to carry out construction and operate the Expressway Projects on a lump sum turnkey basis. Due to the fact that the Expressway Projects are large-scale projects, of which the developers may suffer from the cost overrun and delayed completion of the construction; the lump sum turnkey engagement could help prevent such risks. In engaging the project 8
managers, BEM will select those who have expertise and experience to be the project managers and construction contractors in order to ensure the accomplishment of quality work within the specified time. With respect to the Si Rat-Outer Ring Road Expressway Project, BEM and EXAT executed the Concession Agreement for Investment, Design, Construction, Operation, Service and Maintenance of the Project on 14 September 2012, for a concession period of 30 years from 15 December 2012 to 14 December 2042, and with a construction period of not exceeding 48 months. EXAT shall determine the Expressway route and areas to be used for construction, and arrange for land expropriation for delivery to BEM within the specified time. BEM shall have a duty to carry out the design and construction in accordance with the designs approved by EXAT, under the supervision on the quality of construction work by EXAT’s Engineer and Independent Certification Engineer. Upon completion of the construction, the Independent Certification Engineer shall inspect the work and issue Certificate of Completion to evidence that the construction work is completed in accordance with the specified standards and ready for service. BEM engaged CH. Karnchang, who has expertise and experience in construction and project management of all Expressway projects under the concessions granted to BEM, to be the project manager and construction contractor as well as operator of the Project on a lump sum turnkey basis. Under this Concession Agreement, BEM shall have the right to operate and provide services, namely, toll collection, rescue operation and maintenance; whereby BEM shall be entitled to receive all tolls throughout the concession period. 2.1.5
Industry Outlook and Market Competition
During the first half of 2015, overview of Thai economy still remained in slow growth in all industrial sectors, especially in automotive sector due to the change in commercial production lines of pick-up cars in preparation for new models of major car producers. As a result, consumers decided to wait for the new models, which affects the growth of traffic volume using the Expressways. According to the information from the Department of Land Transport, during the first and second quarter of 2015, the number of new cars registered (all types) in Bangkok area is 206,173 vehicles, which is less than 245,781 vehicles registered during the same period in 2014, thereby bringing the cumulative number of cars in Bangkok to a total of 5,502,337 vehicles at the end of the second quarter. Despite the fact that an increase in new cars registered is less than that of the previous year, when considering the road space in Bangkok which has a total
9
distance of only 5,400-5,500 km., the available road space capacity to accommodate the volume of vehicles in Bangkok becomes lower. Regarding the indirect competition from other public transport systems, at present, the fact that the Bangkok Mass Transit System of the Bangkok Metropolitan Administration (BTS) and the metro of the Mass Rapid Transit Authority of Thailand (MRTA) also provide the services does not affect the number of vehicles using the Expressways. This is because most of customers using mass rapid transportation systems are those who previously have been using the public transport systems; which are not the same group as those who are the customers of the Expressway Systems. 2.1.6
Environmental Impacts
BEM and its subsidiary have been operating the Expressways construction and operation business with awareness of environmental impact, in which BEM has adopted the practice guidelines of BECL and its subsidiary to keep on implementing. The practice guidelines to operate the Expressways construction and operation business with awareness to environmental impact of BEM and its subsidiary can be summarized as follows. To begin with, during the Expressways construction period, BEM and its subsidiary comply with the measures to prevent pollution in accordance with the regulations of the National Environment Committee and other relevant laws, which is considered an integral part of the Agreements. BEM and its subsidiary have implemented the measures and procedures as appropriate. For the construction carried out in the urban areas where the population is dense, by employing the Segmental Box Girder construction technique, BEM can complete the construction faster than others who used the techniques that were widely used during the relevant periods, in order to prevent any social impact in the neighbourhood, as well as to have the least effect on the at-grade traffic during the construction. Furthermore, BEM has no records of committing any offenses causing environmental impact. Even during the course of operation of the Expressway Systems, BEM acknowledges the importance of the quality of life of its employees, motorists and communities surrounding the Expressways. In addition, since 2008, BEM has improved its internal procedures to conform with the environmental requirements to apply for the certification of ISO 14001:2004 Environmental Management System. Eventually, BEM has obtained such certification from SGS (Thailand) Limited since 14 November 2008, and has been continuously renewing of the certificate of such Environmental Management System. 10
In addition, BECL has been providing trainings to its employees and executives, in order to educate them regarding the knowledge and techniques in environmental management in accordance with the ISO 14001: 2004 Environmental Management System, as well as arranging various activities to raise an awareness within the organization and activities related to environmental preservation in collaboration with the communities in vicinity. 2.2
Operation Management of Mass Rapid Transit System Project Business 2.2.1
Nature of Services
BEM has two main sources of revenues, namely, fare box revenue and revenue from O&M services. 1.)
Fare Box Revenue Pursuant to the Concession for the MRT Blue Line Project between BEM and MRTA, BEM has the exclusive right to operate the train and collect fare box revenue and undertake commercial development for a period of 25 years from 2 July 2004, which was the date that the MRTA issued the Notice of No Objection to commencement of revenue service. BEM is obliged to make payment of remuneration from fares and commercial development to the MRTA at the rates as prescribed in the Concession Agreement. BEM charges fares according to the number of stations travelled by passengers. The fare rates of the metro as of the commencement date would be in accordance with the basic reference fare rates enforced at the time of the revenue service commencement date. Under the Concession Agreement, the reference fare rates would be adjusted every 24 months based on the actual changes in the Bangkok Non-Food Consumer Price Index compared to the basic reference fare rates. BEM has been adjusting the fare rates in accordance with the terms prescribed in the Concession Agreement. The current effective fare rates were adjusted on 3 July 2014, and will remain effective until 2 July 2016.
2.)
Revenue from O&M Services At present, BEM is entitled to receive O&M service fees from train operation and maintenance service under the Concession Agreement of MRT Purple Line, Contract 4: Concession for Supply of M&E Systems and O&M Services (Khlong
11
Bang Phai Station-Tao Poon Station), Phase 2, for a period of approximately 27 years. It is expected to start recording revenue from such services in 2016. 2.2.2
Target Customers and Characteristics
Target customers of BEM comprise of 2 groups, namely the people residing in the areas surrounding the train routes and the people who are not residing in the areas surrounding the train routes but need to commute through or have destinations along the train route. Customers can also be categorized by the purpose of commuting as follows: 1. People whose purpose of commuting is to go to work. 2. People whose purpose of commuting is to go to school or educational institution. 3. People whose purpose of commuting is to travel or take vacation. 4. People whose purpose of commuting is to participate in activities, such as seminars or meetings. 5. People whose purpose of commuting is to carry on other businesses. 2.2.3
Distribution Channels
BEM can increase the number of sales outlet, in addition to the token vending machine and the ticketing office, through direct sales with organization such as banks, educational institutions, hotels, and private companies, by putting on designs customized for institutions/organizations on tickets, which can be used in a variety of occasions, such as giving to employees to increase morale, giving to clients to express gratitude, as well as building brands and being used as a platform for communication purposes to promote the MRT ticket. 2.2.4
Procurement of Products and Services
The Mass Rapid Transit System Projects concessions were granted to BEM by the MRTA, whereby BEM, with its expertise in mass rapid transit systems, conducted feasibility studies and submitted its proposals in order to acquire projects that have appropriate returns and conditions. The past projects are the concessions for the supply of M&E Systems and O&M Services, whereby the MRTA invests in all civil work costs such as stations, facilities, tunnels, ventilation systems, and track systems; whilst BMCL invests in the M&E Systems such as rolling stocks, signaling systems, communication and SCADA systems, power supply systems, automatic fare collection systems, platform screen door systems, and depot workshop systems, and etc.
12
MRT Chaloem Ratchamongkhon Line Project (the “MRT Blue Line Project”) (Hua Lamphong Station-Bang Sue Station) BEM engaged Joint Venture CKET as the project manager for the MRT project (Project Manager) (from August 2000 to July 2009) to manage technical operations, such as, procurement of the M&E Equipment as ordered from manufacturers and liaison with contractors and relevant authorities regarding the installation of the M&E Equipment. Upon expiration of the engagement agreement of CKET for project management, BEM was able to efficiently administer and manage the MRT Project, as well as to improve and develop the efficient service provision on its own. BEM engaged Lincas and Siemens to be manufacturers of the M&E Equipment. Lincas and Siemens are responsible for the design, manufacture, supply, installation, testing and commissioning of the M&E Equipment. BEM also engaged Siemens as a contractor for maintaining the M&E Equipment for a period of 10 years (July 2004 to July 2014). In addition, BEM has extended the agreement for another 10 years (to end in July 2024). MRT Purple Line Project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Section (Khlong Bang Phai Station-Tao Poon Station) BEM entered into the concession agreement for the MRT purple line project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Section on a PPP Gross Cost basis. The MRTA invests in all civil work costs, and BEM invests in the M&E Systems and rolling stock for which the MRTA shall reimburse BEM in installments after the transfer of ownership. BEM shall provide operation and maintenance services according to the service standards prescribed in the conditions of the agreement. The MRTA is entitled to collect fare box revenues and commercial revenues from the use of all civil infrastructures and the M&E Systems, and compensate BEM in the form of service fees for operation and maintenance services. The term of the Concession Agreement is 30 years. 2.2.5
Industry Outlook and Market Competition
Mass Transportation System in Bangkok and its Vicinity Bangkok is a large capital city, with various modes of transportation systems, such as, personal cars, public buses, metro, micro buses, and taxis. The traffic problem in Bangkok has intensified due to the rising travel demand of people, a major problem which is not different from the problem in other highly populated capital cities around the world. The government has a policy focusing on developing various public mass transit networks to resolve traffic problems in order to accommodate economic growth of the country.
13
Modes of transportation in Bangkok can be divided into 2 systems, namely the Personal Transportation System and the Public Transportation System. (1) Personal Transportation System Due to the structure of residences of Bangkok and its vicinity that spreads out in different areas, travelling by personal cars is popular. The growing number of high-income and middle-income individuals, together with the inadequacy of existing transport systems, as well as the service quality and safety, contribute to the fact that personal cars are still essential and convenient for travelling. However, the expansion of traffic areas in Bangkok is still limited and inadequate, and cannot accommodate the volume of vehicles which continues to rise every year. (2) Public Transportation System Considering the average number of passengers travelling via various modes of land transport systems, public bus service remains the most popular choice of travelling, although the number of public bus service users has continuingly decreased, whereas the numbers of passengers travelling via the mass rapid transit rail system has substantially increased. This is because of the congested traffic, especially during the rush hours, the growth in the number of population in Bangkok, and the growth of real estate development projects along the MRT route, resulting in a substantial increase in the demand for the use of mass rapid transportation system. The transportation systems which are considered BEM’s direct competitors are personal cars, public buses, micro buses, public vans and taxis. In the past, the fare rates of public transportation services, especially normal or air-conditioned public buses, have not been changing significantly. This was because fare rates were controlled and subsidized by the government, and there remained in effect the government’s free-journey train and bus campaigns, which were initiated on 1 August 2008. However, in late 2014, taxi fares and tolls were revised, which affected the public transportation service users, in addition to the impact from traffic congestion, air and noise pollution, and potential accidents. Therefore, the electric train system represented a travelling mode which helped improve the quality of life of city residents and helped reduce usage of the nation’s resources.
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2.2.6
Environmental Impacts
BEM’s Operation Management of Mass Rapid Transportation System Business has been committing to the environment in accordance with ISO 14000 standards, by implementing pollution prevention and control measures, mitigating environmental impacts and sustainable use of resources on the basis of three aspects of sustainable development, namely, society, economy, and environment. In addition, BEM reported its results of operations in line with the index on the results of operations regarding energy conservation and environmental preservation in accordance with the Energy Conservation Promotion Act (No. 2) B.E. 2550 (2007), the ministerial regulations on standards, criteria and procedures for energy management in designated factories and buildings B.E. 2552 (2009), as well as the energy management manual for sustainable development. Regarding the energy conservation and environmental preservation of operation and management of mass rapid transportation system business, BEM strictly complies to the relevant laws governing energy conservation and the environment, and has adopted the Energy Management Systems-Requirements with guidance for use or ISO 50001, as well as the International Environmental Management System ISO 14001 since the opening date of its train operation services. In addition, BEM organises activities for participation and hearing stakeholders’ opinions to ensure proper understanding, of which will lead to sustainable development. In addition, BEM has been paying attention to the potential environmental impacts from the MRT service on the environment, quality of life, and lives of people and nearby communities, by strictly monitoring, preventing and mitigating the environmental impacts that may arise during the implementation of the MRT Projects (Environmental Impact Mitigation Measures and Monitoring Program-EMP), as well as submitting reports on its compliance with such measures to the Office of Natural Resources and Environmental Policy and Planning (ONEP) for consideration twice a year. In addition to the environmental quality measurements, maintenance vehicles used in the depot area meet the EURO IV Standard, an emission standard for vehicles, which provides assurance that the use of such maintenance vehicles and the maintenance operations will in no way give rise to pollution at a hazardous level.
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2.3
Commercial Development Business 2.3.1
Nature of Services
Commercial Development Related to Mass Rapid Transportation System With respect to the revenue from commercial development of the MRT Blue Line Project, BEM is the operator and also grants rights to operate to its subsidiary, BMN, as follows: 1 . Procure and/or produce various advertising media Procure and/or produce various advertising media in all 18 stations and within all 19 trains (MRT metro), comprising advertising media of various forms and sizes, e.g., light boxes, sticker media, platform billboard, advertising media via the Passenger Information Display Systems (PIDs), and digital media. 2 . Lease retail spaces in MRT stations Lease retail spaces in 11 MRT stations, comprising Khlong Toei Station, Queen Sirikit National Convention Centre Station, Sukhumvit Station, Phetchaburi Station, Phra Ram 9 Station, Thailand Cultural Centre Station, Ratchadaphisek Station, Lat Phrao Station, Phahon Yothin Station, Chatuchak Park Station and Kamphaeng Phet Station, and spaces in the basement level of the Lat Phrao park and ride facility, covering the total commercial lease spaces of approximately 14,236 square metres (spaces for retail shops and sale promotions). To date, the retail shops are opened in five stations, namely, Sukhumvit Station, Phahon Yothin Station, Chatuchak Park Station, Kamphaeng Phet Station and Phra Ram 9 Station. 3. Provision of service and maintenance of telecommunications system equipment Provide service of and maintain telecommunications system equipment, particularly mobile phone network, inside the metro stations and tunnels, as well as Hi-speed Internet, the Wi-Fi services, and the telecommunications signal systems in the metro stations and tunnels on 2G and 3G, to be upgraded to a 4G network signal and internet technology in the future. Commercial Development Related to Expressway System With respect to commercial development in the vicinity of the Expressway System, BEM and its subsidiary, NECL, leases spaces to private companies and individuals for the following purposes: 1 . Install variable-message signs (VMS) and advertising boards Allows private companies to install variable-message signs (VMS) on main routes and in front of the toll plazas, and install advertising boards in areas such as in front of toll plazas and toll booths, and on the foundation pillars and walls. 16
2 . Set up shops at toll plazas Allows private companies and individuals to lease spaces for setting up shops to serve motorists at the toll plazas at Prachachuen, Srinagarindra, and Bang Pa-in. 3. Provide services of and maintain telecommunications system equipment Allows private companies to utilize spaces around the Expressways to install 3G telecommunications signal systems, and etc. 2.3.2
Target Customers and Characteristics
Commercial Development Related to Mass Rapid Transportation System Since the commercial development of the MRT Blue Line Project comprises of procuring and/or making various advertisement media, leasing retail spaces in MRT stations, and providing services of and maintaining telecommunications system equipment, each of which has different target customers and characteristics depending on the type of service. The target customers and characteristics can be categorized as follows: 1 . Procure and/or produce various advertising media Procure and/or produce various advertisement media, as a means to communicate between the product’s owner or service provider and the MRT passengers. Main MRT passengers comprise of students and corporate employees. Therefore, main customers comprise of businesses such as telecommunications, food and beverages, entertainment media, beauty products, clothes and accessories, property development, tourism, life and general insurance, technological products, consumer goods products, and financial institutions. All of which are products and services which regularly use budgets for advertisement in the media industry. 2 . Lease retail spaces in MRT stations Target customers vary from station to station depending on the concept of each station, which is laid out to match the distinguishing features of the station’s location, the passengers’ behaviour of desiring convenience and , and external physical factors. Therefore, current lessees range from SME businesses to businesses with well-known brands, which are able to capture the life styles of passengers. 3. Provide service of and maintain telecommunications system equipment Customers are service providers for mobile phones. Thus, target customers are mobile phone operators that have a license to provide mobile phone services, namely AIS, DTAC, TRUE MOVE, TOT, and CAT. All of which are currently BEM’s customers. 17
Commercial Development Related to Expressway System With respect to commercial development in the vicinity of the Expressway System, BEM leases spaces to private companies and individuals for various operations. Thus, target customers include businesses such as media advertisement, telecommunications service providers, and also individuals who wish to set up shops. 2.3.3
Distribution Channels
Distribution channels vary by the characteristics of commercial development, which can mainly be divided into directly approaching and contacting with customers who show interests, and selling through business partners of BEM. 2.3.4
Procurement of Products and Services
BEM and its subsidiary operate in commercial development business of the MRT Blue Line Project. Operations including 1) procure and/or produce various advertising media, 2) lease retail spaces in MRT stations, and 3) provide service of and maintain telecommunications system equipment. For Expressways, BEM and its subsidiaries lease spaces in the vicinity of the Expressway Systems to private sectors for the installation of variable-message signs (VMS) and various types of advertising boards, for setting up shops at the toll plazas, and for other purposes such as the installation of the 3G telecommunications signal systems, and etc. 2.3.5
Industry Outlook and Market Competition Advertising Media In 2015, the economy of Thailand shows signs of slight recovery while investment in the advertising industry continues to grow. For the first nine months of 2015, advertising expenditures amounted to Baht 91,536 million, as published by the Nielsen Company (Thailand), increasing from the same period in 2014 of Baht 86,170 million. The advertising media which gains more popularity is the digital television where advertising expenditures spent on analog TV amounted to Baht 43,565 million for the first nine months of 2015, decreasing from the same period in 2014 amounting to Baht 48,197 million. On the contrary, advertising expenditures spent on digital TV amounted to Baht 15,787 million in the first nine months of 2015, increasing from the same period in 2014 of Baht 11,478 million. This particular trend is caused by companies’ prioritization of new advertising media, which is able to efficiently and easily integrate with the daily lives of 18
viewers. Examples include watching movies in movie theatres, spending time on roads due to traffic, commuting by MRT or public buses. Due to the uncertainty of the economic condition, businesses focus more on spending their limited advertisement budget as productively as possible. This shall benefit BEM, who is the operator of the MRT, since higher ridership and train routes in the future will result in higher viewers of mobile advertising media on MRT trains. In addition, the advertisement in MRT stations, being visibly separated from the outside, will be able to draw more attention from passengers since there will be minimal distractions from other media, especially the digital TV, and also expand customer base for BEM’s subsidiary. Space for Lease and Service Retail space projects in Thailand comprise of shopping centres, department stores, super store malls, specialty stores, entertainment complexes, community malls and supporting retail space. The retail industry in Bangkok and its vicinity tends to involve high competition, as evidenced by the increased community malls in town which are considered the most fast-growing, especially those shopping centres and community malls that are launched since the beginning of 2015, which now exceeds 1 million square meters. Bangkok still remains one of the top cities in Asia that international brands and stores are interested in, as shown by the continuous opening of stores or branches in Bangkok and other major cities. This trend is expected to continue in the future. Furthermore, take-up rates of many retail space projects in Bangkok and surrounding cities are considered high. 2.3.6
Environmental Impacts
BEM strictly monitors environmental impacts in the shops’ areas and train systems in order to mitigate any environmental impact on quality of life and livelihood of people and communities as per the details in 2.2.6.
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3.
Summary of Key Contracts and Terms Transferred from BECL 3.1
Second Stage Expressway Agreement
Date of agreement:
22 December 1988
Counterparty:
EXAT
Summary:
BEM is responsible for investment in the construction and operation of the Si Rat Expressway (Second Stage Expressway), including related businesses under the Second Stage Expressway Agreement for a concession period of 30 years from 1 March 1990 to 29 February 2020, in accordance with the term and agreement between two parties. Second Stage Expressway is composed of Sector A (Rama 9-Ratchadapisek), Sector B (Phayathai-Bangkhlo), Sector C (Ratchadapisek-Chaeng Watthana) covering a total distance of 29.8 kilometres. BEM is entitled to receive toll revenue sharing throughout the concession period from both Si Rat Expressway and the Chalerm Mahanakorn Expressway (First Stage Expressway, which is constructed and operated by EXAT).
3.2
Extension of the Second Stage Expressway System (Sector D) Agreement
Date of agreement:
17 April 1997
Counterparty:
EXAT
Summary:
BEM is responsible for investment in the construction and operation of the Si Rat Expressway (Second Stage Expressway) for the Extension of the Second Stage Expressway, Sector D (Rama 9-Srinagarindra) covering a total distance of 8.7 kilometres for a concession period of 30 years from 17 April 1997 to 16 April 2027. BEM is entitled to receive toll revenue throughout the concession period.
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3.3
Concession Agreement of Investment, Design, Operation, and Maintenance Services of the Si Rat-Outer Ring Road Expressway Project
Date of agreement:
15 September 2012
Counterparty:
EXAT
Summary:
BEM has a duty to design, construct and operate the Si Rat-Outer Ring Road Expressway (starting from Kanjanapisek Road and connecting with the Si Rat Expressway in the north of Mo Chit 2 Bus Terminal) covering the total distance of 16.7 kilometres, for a concession period of 30 years from 15 December 2012 to 14 December 2042. BEM is entitled to receive the toll revenue throughout the concession period. The Concession period is divided into 2 phases as follows. • Phase 1 Design and construction of the expressway, supply and installation of electrical and mechanical system equipment, toll collection system, communications system and traffic control system, and other systems related to the expressway, for the construction period of not exceeding 48 months from 15 December 2012. • Phase 2 Operation and provision of services, such as toll collection, rescue operation and maintenance of the expressway.
3.4
Bang Pa-in-Pak Kret Expressway Project Agreement
Date of agreement:
27 September 1996
Counterparty:
NECL and EXAT
Summary:
NECL has a duty to construct and operate the Udon Ratthaya Expressway (Bang Pa-in-Pak Kret Expressway), of which connecting with the Si Rat Expressway around Chaeng Wattana Road and ending in Bang Pa-in district, Ayutthaya province, covering a total distance of 32 kilometres, for a concession period of 30 years from 27 September 1996 to 26 September 2026. 21
3.5
4.
Service Agreement for Project Management of the Si Rat-Outer Ring Road Expressway Project
Date of agreement:
15 September 2012
Counterparty:
CH. Karnchang
Summary:
BEM engaged CH. Karnchang on a Lump Sum Turnkey basis to be a project manager, whose duties are to design and construct the Si Rat-Outer Ring Road Expressway, supply and install equipments for electrical and mechanical systems, toll collecting control systems, communications systems and traffic control systems, rescue systems and other systems including the management of construction to be completed within a construction period of 48 months starting from 15 December 2012 until no later than 14 December 2016, with a contract value of Baht 22,500 million.
Summary of Key Contracts and Terms Transferred from BMCL 4.1
Concession Agreement of the MRT Chaloem Ratchamongkhon Line System Project
Date of agreement:
1 August 2000
Counterparty:
MRTA
Summary:
The MRTA granted BEM exclusive rights to operate as follows: a) design, produce, supply, install, test and use of the system and carrying out testing and trying out the overall system for opening the train system to the public; b) operate and maintain the train system for commercial operations with its purpose to provide a public transportation system; and c) secure sources of financing to support the performance of BMCL under this agreement. BEM entered into the agreement for the MRT Blue Line Project with the 22
MRTA, which officially commenced operation on 3 July 2004. BMCL has the exclusive right to collect fares and undertake activities and commercial development, including advertising, leasing space in the project area, and telecommunications services in the stations and in the trains, for 25 years starting from 2 July 2004 to 1 July 2029. 4.2
Concession Agreement of the MRT Purple Line Project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Sections (Khlong Bang Phai Station-Tao Poon Station) Contract 4: Concession for Supply of M&E Systems and O&M Services
Date of agreement:
4 September 2013
Counterparty:
MRTA
Summary:
This agreement is a concession agreement for the investment, design, construction, and operation of train system on a PPP Gross Cost basis with a term of 30 years starting from 4 September 2013 to 3 September 2043. The MRTA invests in all civil work costs, and BEM invests in the M&E Systems and rolling stock. BEM shall provide operation and maintenance services according to the service standards prescribed in the conditions of the agreement The main duties of BEM under this concession agreement are as follows: • Phase 1: Design and Construction Design, supply, installation, and testing the train systems including 21 trains with 3 bogies, signal controlling system, communication system, electrical power system, automatic fare collection system, maintenance equipment, platform doors, and other related equipment in all 16 train stations for a total distance of 22 kilometres and in the maintenance center at Khlong Bang Phai, the construction of accommodation and training building and other infrastructure in the maintenance center at Khlong Bang Phai, including the management of the phase 1 construction, preparing personnel for train operations and virtual simulation of train operations until they are ready to be transferred to the MRTA and ready for opening to the public under the terms and 23
conditions specified in the agreement. • Phase 2: Operation and Maintenance Provide operation and maintenance services on the MRT Purple Line Project (Khlong Bang Phai Station-Tao Poon Station), throughout the concession period, effectively and safely to meet the standards set forth by MRTA in the agreement. BEM also has a duty to provide maintenance and improvement of equipment and materials related to both civil infrastructure work and system work equipment. This includes providing personnel who have knowledge and skills which are necessary and sufficient for the performance under the agreement throughout the concession period. The work in this phase 2 does not include the management and maintenance of all 4 park-ride buildings. 4.3
Project Management Agreement for Supply and Installation of M&E Systems in the MRT Purple Line Project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Sections (Khlong Bang Phai Station-Tao Poon Station) Contract 4: Concession for Supply of M&E Systems and O&M Services
Date of agreement:
4 September 2013 (as amended on 17 November 2015)
Counterparty:
CH. Karnchang
Summary:
The main duty of CH. Karnchang under this Project Manager Agreement is to operate and finish the work of phase 1 of the concession agreement in order for the train system to be ready for providing the services. The work of phase 1 combined with the design, supply, installation, testing the train systems including 21 trains with 3 bogies, signal controlling system, communication system, electrical power system, automatic fare collection system, maintenance equipment, platform doors, and other related equipment in all 16 train stations for a total distance of 22 kilometres and in the maintenance centre at Khlong Bang Phai, the construction of accommodation and training building and other infrastructure in the maintenance centre at Khlong Bang Phai, including the management of the phase 1 construction, preparing personnel for train operations and virtual simulation of train operations. CH. Karnchang shall complete its duty within 1,200 days starting from the signing date of the 24
concession agreement, or no later than 17 December 2016. The contract value is not exceeding Baht 20,011 million. In addition, CH. Karnchang will be the manager for finding the financial support for the operation of Phase 1 of the concession agreement and receive the repayment of the equipment system cost from BMCL under the repayment plan which BMCL will receive from the MRTA under the concession agreement. Thereafter, on 17 November 2015, the contract has been amended to include the scope of maintenances services for CH. Karnchang, whose main duties this contract amendment are as follows: • Maintenance of Civil Infrastructure including stations, elevated structures, and Depot • Maintenance of E&M Systems in the stations, elevated structures, and Depot • Maintenance of lifts and escalators within the stations and Depot • Supply of spare parts, special equipment, tools, and personnel for providing the maintenance services CH. Karnchang will provide such maintenance services for the period of 8 years starting from 17 November 2015 to 16 November 2023. The contract value is not exceeding Baht 1,520 million. 4.4
Contract for Engineering Services and Commissioning for Operation Service in the MRT Purple Line Project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Sections (Khlong Bang Phai Station-Tao Pooon Station) Contract 4: Concessions for Supply of M&E Systems and O&M Services
Date of agreement:
2 May 2014
Counterparty:
CH. Karnchang
Summary:
The main duties of BEM under this agreement are as follows: • Support with the documentation and provide specialist to participate and select the subcontractors/ train system suppliers, including preparation of the bidding documents, bid evaluation, and negotiation of terms and conditions 25
• Provide specialist to participate and operate in design, supply, installation and testing the train system for CH. Karnchang to support the performance under the agreement. • Prepare procedural manual, regulations, and train operation service and maintenance plan, including training of personnel for operation and maintenance services in order to be ready for the services within the time specified in the agreement. BEM shall complete the works under this agreement within the period of not exceeding 32 months after the signing date of this agreement, or no later than 1 January 2017. The contract value is not exceeding Baht 450 million. 4.5
Contract to Engage CH. Karnchang to be a Project Manager, for Supply and Installation of M&E Systems, and for Maintenance Services on Civil Infrastructure and E&M Systems of the MRT Purple Line Project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Section (Bang Sue Station-Tao Poon Station, excluding the stations) Contract 5: Concession for Supply of M&E Systems and O&M Services and for Supply and Installation of Equipment to Improve Communication Systems of the MRT Blue Line Project
Date of agreement:
5 November 2015
Counterparty:
CH. Karnchang
Summary:
The main duties of CH. Karnchang under this contract are as follows: • Perform works under phase 1 of the concession agreement whereby CH. Karnchang is responsible for the supply of M&E Systems, including Signaling Systems, Power Supply Systems, SCADA System, Communication Systems, Automatic Fare Collection System, and Graphic and Signage System, and also securing source of financing for the works under phase 1. • CH. Karnchang has a duty to improve the Communication Systems of the MRT Blue Line Project to be compatible with those being used in the MRT Purple Line Project • CH. Karnchang has a duty to provide maintenance services on civil infrastructure and E&M Systems in order for the performance of such 26
systems to meet the requirements prescribed in phase 2 of the concession agreement. CH. Karnchang shall complete the works under Phase 1 within the period of not exceeding 15 months after the date when MRTA Issue the Notification to Proceed, and the work under Phase 2 for the period of 12 months starting from the commercial operation date. The contract value is not exceeding Baht 1,056 million. 4.6
Contract to Engage CH. Karnchang to be a Project Manager for Maintenance Services on Civil Infrastructure and E&M Systems of the MRT Chaloem Ratchamongkhon Line Project (Blue Line) (Hua Lamphong Station-Bang Sue Station)
Date of agreement:
17 November 2015
Counterparty:
CH. Karnchang
Summary:
The main duties of CH. Karnchang under this contract are as follows: • Maintenance services of Civil Infrastructure including stations, tunnels, and Depot • Maintenance of E&M Systems in the stations, tunnels, and Depot • Maintenance services of lifts and escalators within the stations • Supply of equipment, tools, spare parts and personnel for maintenance services CH. Karnchang will provide such maintenance services for the period of 8 years starting from 17 November 2015 to 16 November 2023. The contract value is not exceeding Baht 1,270 million.
5.
Feasibility Study - None -
6.
Technical and Management Assistance - None -
27
7.
Future Projects The MRT Purple Line Project Bang Yai-Rat Burana, Bang Yai-Bang Sue Section (Bang Sue Station-Tao Poon Station) Contract 5: Concession for Supply of M&E Systems and O&M Services with the Mass Rapid Transit Authority of Thailand On 28 October 2014, the Cabinet resolved to proceed in accordance with the procedures under Section 16 of the Act on Private Participation in State Undertaking B.E. 2535 (1992) (the “PPP Act”), and as negotiated directly with BEM regarding the Concession Agreement Contract 5 on a PPP Gross Cost basis, whereby the MRTA proceeded in accordance with the procedures of the PPP Act and appointed the Committee with a duty to consider selecting a private individual to participate in the undertaking, to make negotiations with BEM, and to consider and approve in concept. On 20 August 2015, the Board of Directors of BEM (previous BMCL) considered it appropriate that BEM enters into the Concession Agreement Contract 5 with MRTA. BEM expects to receive the following benefits from the implementation in accordance with the Concession Agreement Contract 5: 1) BEM shall generate more revenue from providing O&M services for the MRT Purple Line Project, Bang Yai-Rat Burana, Bang Yai-Bang Sue Section (Bang Sue Station-Tao Poon Station, excluding the stations), which is an interconnecting operational services between the MRT Blue Line Project and the MRT Purple Line Project under the Concession Agreement Contract 4 that BEM is currently the concessionaire for. 2) The MRT Purple Line Project under the Concession Agreement Contract 5 will interconnect the MRT Purple Line Project with the MRT Blue Line Project at Tao Poon Station, and since BEM is the operator for the interconnecting services between Bang Sue Station and Tao Poon Station, the MRT Blue Line Project operated by BEM will have more ridership and generate more revenue. At present, the draft Concession Agreement Contract 5 is pending the approval from the Cabinet.
8.
Related Transactions
Related transactions for the nine-month period ended 30 September 2015 and for the year ended 31 December 2014 are presented with reference to the pro forma consolidated financial information for the nine-month period ended 30 September 2015 and for the year ended 31 September 2014, which were prepared to illustrate the financial position and the financial result of BEM as if the Amalgamation had taken place on 1 January 2013. The related transactions are of details as follows:
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Related Transactions between BEM and the Subsidiary and Persons who May Have Conflict of Interest for the Nine-month Period Ended 30 September 2015 and for the Year 2014 Persons who May Have Conflict of Interest
1. CH. Karnchang - CH.Karnchang is a major shareholder of BEM with 27.47% of shares in BEM as at 30 December 2015. - Mr. Plew Trivisvavet, the Director, Executive Committee member, and executive of CH. Karnchang, is the Director, and the Chairman of the Executive Committee of BEM. - Mrs. Payao Marittanaporn, the spouse of Mr. Prasert Marittanaporn who is Director and Senior Executive Vice President of CH. Karnchang, is the Director, Executive Committee member, and Managing Director of BEM, and Acting Managing Director of NECL. - Mr. Phongsarit Tantisuvanitchkul, the executive of CH. Karnchang, is the Director and Executive Committee member of BEM.
Transaction
BEM - Advance payment
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015 587,250,000
1,235,250,000
- Project management fee
6,480,000,000
7,650,000,000
- Inspection and repair of the structure of expressway
-
55,005,476
29
Description/necessity
Opinions of the Audit Committee
- Advance payment and fee for management of the Si Rat-Outer Ring Road Expressway Project: On 14 September 2012, BEM engaged CH. Karnchang as Project Manager of the Si Rat-Outer Ring Road Expressway Project, in the total value of Baht 22,500 million, with a construction period of not exceeding 48 months, commencing on 15 December 2012. This transaction has been approved by the 2012 Annual Ordinary General Meeting of BECL’ Shareholders
- CH. Karnchang has expertise, experience and know-how in the Segment Box Girder construction methodology in accordance with the terms of reference of the Si Rat-Outer Ring Road Expressway Project, together with experience in administering the lump sum turnkey contracts for BEM with good quality of work and low maintenance costs as well as construction completion according to schedule and within the fixed budget; and its strategic investment partnership with BEM, which would assure its responsibility and commitment for the successful operation of the Project.
- Inspection and repair of the structure of the Si Rat Expressway, No.3, Phase 2: On 1 September 2013, BEM executed a contract engaging CH. Karnchang to carry out an inspection and repair of the structure of the Si Rat Expressway, No. 3, Phase 2, in the total value of Baht 67,238,525 with a contract term of 12 months from the date of the contract signing, and BEM issued a Notice of Variation in a total amount of Baht 3,311,532.
- The price of the work is reasonable and lower than the price assessed by the independent consulting company. In addition, the contractor has expertise and experience in the construction of the Si Rat Expressway, and as such, it should be capable of carrying out the work properly and is well-prepared to promptly start the work.
Persons who May Have Conflict of Interest
1. CH. Karnchang (cont’d)
Transaction
BEM - Inspection and repair of the structure of expressway
- Gain on sales of investments - Interest income - Receivables from sales of investment net of accrued interest income
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015
Description/necessity
14,644,976
12,126,349
1,235,536,377
-
32,961,527
-
1,308,816,731
-
30
Opinions of the Audit Committee
- Inspection and repair of the structure of the Si Rat Expressway, No.3, Phase 3: On 1 September 2014, BEM executed a contract engaging CH. Karnchang to carry out an inspection and repair of the structure of the Si Rat Expressway, No. 3, Phase 3, in the total value of Baht 26,771,325 with a contract term of 10 months from the date of the contract signing.
- The price of the work is reasonable and lower than the price assessed by the independent consulting company. In addition, the contractor has expertise and experience in the construction of the Si Rat Expressway, and as such, it should be capable of carrying out the work properly and is well-prepared to promptly start the work.
- The sales of common shares of BMCL: On 2 July 2015, BEM sold 2,050,134,895 of BMCL’s shares to CH. Karnchang, at Baht 1.79 per share, receiving payment on the selling date, totaling Baht 2,000 Million with the rest of the payment being gradually paid within August 2017. This transaction has been approved by the 2015 Annual Ordinary General Meeting of Shareholders
- The price of the shares was reasonable as it was close to the market price. The price was negotiated and settled with reference to the weighted average of BMCL’s share prices during 60-day period less approximately 5% discount, as it was a big lot transaction and the terms of payment are in a manner that BEM would be able to sell the shares in one lot at the price negotiated.
Persons who May Have Conflict of Interest
1. CH. Karnchang (cont’d)
Transaction
BEM - Other receivables
- Advance payment received under the Engineering and Operation Service Agreement, which is included in the Advance Payment for the MRT Purple Line Project item on the statement of financial position
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015 16,050,000
12,840,000
322,000,000
260,000,000
31
Description/necessity
Opinions of the Audit Committee
- CH. Karnchang engaged BEM for the Engineering and Operation services for the MRT Purple Line, Contract 4: Concession for Supply of M&E systems and O&M services (Klong Bang Phai Station-Tao Poon Station). This transaction has been approved by the 2014 Annual Ordinary General Meeting of Shareholders - The total contract value of Baht 450 million detailed as follows: down payment Baht 192 million, 1st–4th installment of Baht 11 million each, 5th-10th installment of Baht 6 million each, 11th-16th installment of Baht 7 million each, 17th-20th installment of Baht 8 million each, 21st-26th installment of Baht 9 million each, 27th installment of TBH 10 million, 28th-29th installment of Baht 11 million each, 30th-32nd installment of Baht 18 million each, recorded as the advance payment for the MRT Purple Line Project, and BEM billed the 10th installment of work cost in February 2015 amounting Baht 6.42 million (VAT included), 11th installment in March 2015 amounting Baht 7.49 million, 13th-14th installments for May and June 2015 amounting Baht 14.98 million, and 16th-17th installments for August and September 2015 amounting Baht 16.05 million (VAT included) to CH. Karnchang.
- The contract was made with clear terms of payment, and CH. Karnchang is an experienced and specialized company in this type of work and was responsible for the civil infrastructure work in relation to each train station. In addition, CH. Karnchang has information of electric systems and civil work, which would enhance the efficiency in the construction of such project.
Persons who May Have Conflict of Interest
1. CH. Karnchang (cont’d)
Transaction
Bangkok Metro Networks Limited (“BMN”) (Since 25 February 2009, 3 Subsidiaries, namely Metro Mall Development Limited, Triads Networks Company Limited and BMCL Network Limited, were amalgamated.) - Intangible assets under the concession agreement for the MRT-Chaloem Ratchamongkhon Line (only the portion of project costs in relation to BMN hiring CH. Karnchang to be a contractor in accordance with the agreement)
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015
192,288,851
192,288,851
- Accrued interest
-
230,387
- Interest expenses
-
3,323,386
32
Description/necessity
Opinions of the Audit Committee
- Metro Mall Development Limited hired CH. Karnchang for a project value of Baht 292.5 million to construct the interior of the train stations to support the lease of retail shops. However, since Metro Mall Development Limited had insufficient revenue from commercial development, it was not yet able to pay for the construction cost. CH. Karnchang charged interest to Metro Mall Development Limited at the rate of MLR+1 %per annum. After 25 February 2009, Metro Mall Development Limited was amalgamated with two subsidiaries (Triads Networks Company Limited and BMCL Network Limited) into BMN. BMN then accepted the transfer of all obligations under the existing agreement. Later, in December 2013, the payment of partial construction cost was made to CH. Karnchang in the amount of Baht 70 million. In 2014, the payment of all the construction cost was made to CH. Karnchang. Additionally, in 2013 and 2014, the payment of the accrued interest was gradually made in the average amount of Baht 0.9 million/month and Baht 0.3 million/month respectively. In December 2014, BMN has an accrued construction interest of Baht 0.2 million and interest expenses of Baht 3.3 million.
- The contract was made with clear terms of payment. CH. Karnchang is an experienced and specialized company in this type of work and was also responsible for the civil infrastructure work in relation to each train station. CH. Karnchang has information of electric systems and civil work, which would enhance the efficiency in the construction of such project. A memorandum of agreement, dated 3 June 2005, was executed amending the original contract stipulating certain conditions and the interest rate arising from the delay in payment. The interest rate charged by CH. Karnchang is in line with the rate that CH. Karnchang charges other customers and is close to the rate that BMN may borrow from commercial banks. In 2013, the payment of partial construction cost was made, and in 2013 and 2014, the payment for accrued interest was made.
Persons who May Have Conflict of Interest
1. CH. Karnchang (cont’d)
Transaction
BMN - Administrative expenses (Office rental and services)
2. CKET Joint Venture (“CKET”) BEM - CKET is an associated company, and is a - Advance payment for the MRT Purple Line joint venture between CH. Karnchang and Project Expert Transport Company Limited at 99.99% and 0.01%, respectively. As at 30 December 2015, CH. Karnchang holds 27.47% of shares in BEM. - Mahasiri Siam Company Limited holds 90% of shares in Expert Transport Company Limited. The Trivisvavet Family holds 93% of shares in Mahasiri Siam Company Limited. - Mr. Plew Trivisvavet, the Director, Executive Committee member, and executive of CKET, is the Director and the Chairman of Executive Committee of BEM. - Mr. Phongsarit Tantisuvanitchkul, the executive of CKET, is the Director and Executive Committee member of BEM.
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015
Description/necessity
Opinions of the Audit Committee
4,958,394
6,659,842
- BMN entered into the office space lease agreement in Viriyathavorn Building with CH. Karnchang, with a term of three years ending on 9 February 2016, on the 12th floor, covering a total area of 651.24 square meters, and on the 9th floor, covering a total area of 640.16 square meters. The rental rate and service charge is Baht 350 per square meters per month.
- This rental rate is comparable to the rental rates charged by the lessor to third party lessees, which range from Baht 320-370 per square meter per month.
11,500,000
11,500,000
- BEM engaged CKET, for a total contractual value of Baht 7 million, as consultant for the MRT Purple Line Project, with a contract term of 6 months (September 2010-February 2011): Baht 2 million for September 2010 and Baht 1 million per month for October 2010-February 2011. Moreover, BEM executed an additional contract to hire CKET, for a total contractual value of Baht 4.5 million, with a contract term of 3 months (March 2011-May 2011): Baht 1.5 million per month. The provision of consulting services covers the preparation for submission of the tender documents for the supply of the M&E Systems and O&M Services to the MRT Purple Line Project, Bang Yai-Bang Sue Section.
- The contract was made with clear terms of payment, considered an ordinary course of business with general commercial terms, and approved by the Audit Committee and the Board of Directors.
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Persons who May Have Conflict of Interest
3. Mass Rapid Transit Authority of Thailand (“MRTA”) - MRTA is a shareholder of BEM with a holding of 8.22% of shares, as at 30 December 2015. - Mr. Tana Janusorn, the Director of the MRTA, is the Director of BEM. - Mr. Theeraphan Tachasirinugune, the executive of the MRTA, is the Director of BEM.
Transaction
BEM - Deferred project remuneration
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015
Description/necessity
Opinions of the Audit Committee
728,665,213
288,628,285
- Deferred project remuneration of fare box revenue from the 11th year of the concession agreement (July 2014-September 2015) amounting to Baht 1,159.60 million (excluding value-added tax), and project remuneration was recorded as expenses in accordance with the actual ridership (for the period from July 2014-December 2014) amounting to Baht 169.78 million, for the period January 2015-September 2015 amounting Baht 262.26 million, and the remuneration for the right to operate PID advertising as specified in the agreement (for the period 1 July 2015-2 July 2029) amounting to Baht 1.14 million and BEM amortized the remuneration for the right to operate PID advertising (for the period July 2015-September 2015), amounting to Baht 0.02 million.
- The transaction is in accordance with the conditions of the Concession Agreement, which BEM is required to comply with.
- Account payable and other payables (remuneration from revenue and others)
96,839,753
89,555,950
- The transaction is in accordance with the conditions of the Concession Agreement, which BEM is required to comply with.
- Remuneration from fare revenue
278,842,120
190,790,671
48,770,403
63,322,871
- BEM paid remuneration to the MRTA for the fare box revenue and commercial development revenue amounting to Baht 94.39 million, payables of property tax on commercial development for January-September 2015 of Baht 2.43 million, and payables of electric charges for elevators at the park and ride building, and the basement of the Lat Phrao Station, for August-September 2015, amounting to Baht 32,892.17.
- Remuneration from commercial development revenue
34
Persons who May Have Conflict of Interest
3. MRTA (continued)
Transaction
BEM - Property taxes (costs of commercial development)
BMN - Cost of commercial development (remuneration from commercial development revenue)
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015
Description/necessity
13,766,345
-
361,760
1,524,148
35
Opinions of the Audit Committee
- Property taxes on commercial development during 2005 to 2014 of Baht 11.34 million and payables of property tax on commercial development for January-September 2015 of Baht 2.43 million
- The transaction is made and paid under the Agreement.
- In In 2014, BMN leased an area covering 112.12 square meters in the interchange building at MRT Sukhumvit Station for installation of advertising board. In December 2014, the agreement has been amended to cover an area of 12 square meters. BMN paid the remuneration for the usage of the area from January 2014-August 2014 and in December 2014 totaling Baht 1.5 million. Also, BMN paid remuneration for the usage of the area from January-September 2015 totaling Baht 0.36 million.
- The rental rate of the advertising media is reasonable.
Persons who May Have Conflict of Interest
Transaction
4. CK Power Public Company Limited (“CKP”) BEM - Financial Support in - BEM holds shares in CKP, representing the Form of Cash 19.40% of its registered capital. Deficiency Support - BEM and CKP have CH. Karnchang as (CDS) their common major shareholder, whereby as at 30 December 2015, CH. Karnchang holds shares in BEM representing 27.47% of the paid-up capital and holds shares in CKP representing 30.25% of its registered capital - Mr. Plew Trivisvavet, the Chairman of the Executive Committee of CKP, is the Director and the Chairman of the Executive Committee of BEM. - Mr. Supong Chayutsahakit, the Director of CKP, is the Director and the Executive Committee member of BEM.
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015 -
Description/necessity
-
36
- BEM has provided the financial support by way of guarantee to CKP, whereby BEM agrees to provide the financial support in case any subsidiary of CKP is unable to comply with the conditions of the loan, including any default on payment to the lending bank of such subsidiary, according to the shareholding proportion in an amount not exceeding Baht 154 Million.
Opinions of the Audit Committee
- The amount of the financial support is based on reasonable calculation and is under the shareholding proportion.
Persons who May Have Conflict of Interest
5. CH. Karnchang-Tokyu Construction Co., Ltd - BEM and CH. Karnchang-Tokyu Construction Co., Ltd. have CH. Karnchang as their common major shareholder, whereby CH. Karnchang holds shares in BEM representing 27.47% of the paid-up capital as at 30 December 2015 and CH. Karnchang holds shares representing 55% of CH. Karnchang-Tokyu Construction Co., Ltd.’s registered capital - As at 30 December 2015, CH. Karnchang -Tokyu Construction holds shares in BEM representing 1.03%
Transaction
BEM - Construction of connecting road between sector D of the Si Rat Expressway and Chaturathit Road (Section C)
Transaction Value (Baht) For Nine-month For the Year Period Ended 2014 30 September 2015 -
90,684,233
37
Description/necessity
Opinions of the Audit Committee
- On 1 February 2013, BEM executed a contract engaging CH. Karnchang-Tokyu Construction Co., Ltd. to construct a connecting road between Sector D of the Si Rat Expressway and Chaturathit Road (Section C), in the total value of Baht 254,000,000 with a contract term of 16 months, starting from the date of the contract signing. BEM issued a Notice of Variation in a total amount of Baht 3,743,759.
- The connected transaction is considered an ordinary course of business with general commercial terms, in accordance with the principles approved by the Audit Committee and the Board of Directors.
Necessity and Justification of Related Transactions The transactions between BEM and persons or juristic persons who may have conflict of interest are reasonable and necessary for BEM’s operations. In this regard, BEM complies with the principles for the approval of related transactions as follows: Principles Transactions with persons who may have conflict of interest are subject to the conditions and criteria in the ordinary course of business. The execution of connected transactions and transactions with conflict of interest are in accordance with the regulations of the Stock Exchange of Thailand and the Securities and Exchange Commission. In the consideration and approval of any related transaction, BEM shall propose such matter to the Board of Directors Meeting, in which the directors having any involvement that may give rise to a conflict of interest shall not be entitled to attend and vote on such matter. Furthermore, the Audit Committee, as assigned by the Board of Directors, shall consider the disclosure of BEM’s information in respect of the connected transaction or the transaction which may have conflict of interest, to ensure accuracy and completeness. In respect of connected transactions with general commercial terms which BEM and its Subsidiary have or may have in the future, BEM already requested approval in principle from the Board of Directors’ Meeting. Policy or Future Trend of Related Transactions BEM shall comply with the rules and regulations of the Securities and Exchange Commission and the Stock Exchange of Thailand, including the rules on the disclosure of related party transactions as well as acquisition and disposition of significant assets of BEM or its Subsidiary and the accounting standards as prescribed by the Federation of the Accounting Professions. If there are transactions which may give rise to conflict of interest in the future, such as, hiring a group of persons who may have conflict of interest to carry out construction, project management, project maintenance, the Board of Directors, with the Audit Committee, shall consider the necessity and justification of such transactions, including the pricing and terms of the transactions, which must be based on the ordinary course of business. The price must also be compared with the price applicable to third parties or the market price. A person who has any interest shall not be allowed to participate in the consideration and approval of the transactions. BEM has no policy to extend or guarantee a loan for a person who may have a conflict of interest under the definition of the SEC. In case that the Audit Committee does not have expertise to consider any particular related party transaction which may take place, BEM shall arrange for an independent expert or BEM’s auditor to opine on such related party transaction to support the decision-making of the Board of Directors and/ or the Audit Committee or the shareholders, as the case may be. BEM will disclose the related party transactions in the notes to the financial statements that have been reviewed or audited by BEM’s auditor.
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9.
Commitments 9.1
Commitments transferred from BECL
BEM has commitments and liabilities that may arise in the future, which are transferred from BECL as described in the notes to the BECL’s financial statements as at 30 September 2015: 9.1.1
Commitment of compensation for site acquisition cost
According to the Second Stage Expressway Agreement, BEM is committed to make payments totaling Baht 16,816 million to compensate the EXAT for site acquisition costs through a following series of payment commencing from the fifteenth year to the thirtieth year of the contract, or year 2004 to year 2019. As at 30 September 2015, BEM had a commitment of compensation for site acquisition cost of Baht 6,216 million (31 December 2014: Baht 7,716 million) and had already recorded the provision for compensation for site acquisition cost in the account. 9.1.2
Other commitments Consolidated financial statements 30 31 September December 2015 2014
Commitments in respect of the uncalled portion of investments Northern Bangkok Expressway Company Limited Xayaburi Power Company Limited Commitments in respect of undertaking to provide equity contribution to CK Power Public Company Limited Commitments in respect of various service contracts Project management agreement for the Si RatOther commitments Bank guarantee
9.2
Separate financial statements 30 31 September December 2015 2014
750 1,158
750 1,315
750 1,158
750 1,315
154
154
154
154
513
513
513
513
Commitments Transferred from BMCL
BEM has commitments and liabilities that may arise in the future, which are transferred from BMCL as described in the notes to the BMCL’s financial statements as at 30 September 2015:
39
9.2.1
Capital commitment
As at 30 September 2015, BEM had capital commitment of Baht 20 million, USD 5 million, CNY 1 million, relating to upgrade the farebox collection system (31 December 2014: Baht 21 million, USD 5 million, and CNY 2 million) and Baht 3 million, related to reform the server room at administration building (31 December 2014: Nil). As at 30 September 2015, the subsidiary of BEM has capital commitment of Baht 0.3 million, relating to the purchase and installation of telecommunication system (31 December 2014: Baht 3 million). 9.2.2
Long-term service commitments
BEM has commitments in respect of the Procurement of M&E equipment and Maintenance of M&E equipment and trackwork contracts for the MRTA Initial System Project-Chaloem Ratchamongkhon Line with two companies, dated 19 December 2001, and five supplemental agreements dated from 3 July 2007 to 30 September 2013. These contracts will expire in 2024. In addition, BMCL has commitments in respect of the M&E Systems and trackwork contract for the MRT Purple Line Project, dated 1 November 2013. This contract has a term of 10 years from the date specified in the commencement as notified in writing by BEM in the Notice to Proceed. Future minimum service fees payable under these contracts, excluding escalation in accordance with the general consumer price index, are as follows: (Unit: million) The MRTA Initial System ProjectChaloem Ratchamongkhon Line
The MRT Purple Line Project
30 September
31 December
30 September
31 December
2015
2014
2015
2014
Baht
EUR
Baht
EUR
Baht
EUR
SGD
YEN
Baht
EUR
SGD
YEN
372
3
263
2
32
-
-
63
-
-
-
-
In over 1 year and up 1,475
12
1,512
13
756
1
5
1,518
567
1
4
1,139
9
1,460
10
1,102
1
8
2,214 1,323
1
9
2,656
Payable within Less than 1 year to 5 years In over 5 years
1,188
40
9.2.3
Commitments under contracts to repair and maintain of infrastructure and civil works
BEM has commitments under two contracts with the two companies to repair and maintain infrastructure and civil works of the MRTA Initial System Project-Chaloem Ratchamongkhon Line, dated 6 November 2003 and dated 31 May 2010, with two additional contracts dated 1 March 2007 and 17 February 2010. These contracts will expire in 2018. Future minimum maintenance fees payable under these contracts are as follows: (Unit: Baht million) 30 September 2015
31 December 2014
Payable within
9.3
Less than 1 year
131
120
In over 1 year and up to 3 years
197
297
Liabilities arising from Tax Assessments
BECL and BMCL could be subject to a tax audit before their dissolutions under the Amalgamation procedures. The Revenue Department has the authority to perform such tax audit, even though the PLC Act does not require the two companies to liquidate their accounts before the registration of the Amalgamation. This means any assessments from the tax audit of BECL and/or BMCL would have to be assumed by BEM. BECL and BMCL have engaged a tax advisor to investigate the key issues of tax liabilities and tax risks for the past 2 years, in respect of each company, to determine whether there are any tax issues or obligations which may materially affect the tax privileges in the Amalgamation. According to the report of the accounting and tax advisor, there is no material tax liability, when compared with size and nature of business operations of both companies. 10.
Risk Factors
BEM is aware of the significance of the management of risks faced by business that operates under the changes in internal and external factors, which affect the financial result of BEM. In this regard, the management of risk is deemed the key instrument in the management of business to achieve goals with efficiency and effectiveness, as it enhances competitiveness, and serves as an importance element of BEM’s good governance. Therefore, BEM established a risk management that is systematized, with monitoring activities and procedures to constantly mitigate risks. The Board of Directors has appointed the 41
Corporate Governance and Risk Management Committee to consider the adequacy and the suitability in the policy level, while Management is responsible for overseeing the overall risk management process, and performing daily duties on behave of the Corporate Governance and Risk Management Committee, including following up, assessing, and preparing the report of results of the risk management, which is presented to the Board of Directors for acknowledgement. In addition, BEM will prepare the annual risk management plan and the risk management manual, to serve as guidelines for operations, as well as the follow-ups, the assessment, and the review of risks, so that they are in accordance with changing internal and external environment. In addition, BEM prepared contingency plans, which will be used in the cases of emergency, to facilitate the responsiveness to problems and the collaboration between related business units when needed. The risk factors that may cause a significant impact on BEM’s ability to achieve its missions are as follows: 10.1
General Business Risk (Systematic Risk) 10.1.1 Risk Relating to Business Operating under Agreements with Government Agencies and Government’s Policies BEM operates under concession agreements, which are under the supervision of government agencies i.e. MRTA and EXAT. Different interpretations of the contents and conditions of the agreements between contractual parties may occur in various matters; for example, adjustment of toll or fare rates and responsibility for costs under the agreements, which may require a certain period of time to arrive at a solution, and could have a negative impact on the operation of BEM. Moreover, the uncertainty and changes in government administration from each ruling political faction may result in changes in policies, relevant laws or regulations, thereby rendering EXAT or MRTA to be unable to perform their obligations under the agreements or may require BEM to perform beyond those specified in the agreements or undertakings. In order to minimize such risk, BEM will establish a joint operation system with the government agencies both at the administrative and operational levels by means of sharing sufficient information to ensure mutual understanding towards each other, as well as closely and regularly monitoring the political situation and changes in policies. BEM will routinely review the strategy and operation plan to be reasonably suitable for the situation in order to ensure long-term mutual benefits of the parties.
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10.1.2 Risk from Fluctuation of Income BEM will provide both services, namely the expressway and the mass rapid transit system. Therefore, BEM’s main sources of income will come from both toll and fare revenues, which may be affected by external factors that are beyond the control of BEM; for example, the expansion of the mass rapid transit network, the availability of connecting transportation systems, the fare rates of other transportation systems from which passengers can choose, the density of traffics, the petrol price, the expansion of real estate industry, the condominiums business, and the businesses around the train routes which create traveling destinations for the public, etc. These factors may have an impact on the number of expressway and mass rapid transit system users. In addition, BEM will have revenues from commercial development which may be influenced by domestic and overseas economic conditions, competition in the media business, and leasing retail space business, and the duration of shop’s opening time in the stations. Many of the factors are beyond BEM's control. Thus, if BEM's revenues are different from the projection, the liquidity and ability to pay obligations of loans may be affected, e.g. interests payable, payment of due loans, cost of the implementation of the agreement, including compensation for site acquisition or remunerations paid to the MRTA, etc. To mitigate such risks, BEM will set up a unit to closely monitor the impact which may affect to the fundamental factors and modified suitable strategies accordingly. Additionally, BEM can limit the impact of potential risk factors, i.e. petrol price, density of traffics and fares of other transportation systems of which passengers can choose because BEM has a full range of services both via expressway and metro, and these 2 types of transportation are considered substitute products. In respect to commercial development, BEM will develop new advertisement media to increase revenues from commercial development, such as advertising management through the passenger information display system (PIDs), advertising on platform billboard and digital media, as well as having plans to further develop shopping areas. 10.1.3 Risk from Fluctuation of Interest Rates and Foreign Exchange Rates Since BEM assumed interest-bearing liabilities of BECL and BMCL and also has many investment project plans in the future, it may need to use a large amount of longterm loans. In this regard, interest expenses may become a considerable expenditure for BEM. The changes of interest rates may affect the operation of BEM because the interest cost with respect to certain credit facilities are floating rates, thereby exposing BEM to a risk from interest rate fluctuations or increasing interest rates in the money market. However, BEM will have to manage the fluctuations of interest rates by structuring the 43
loans by separating the ratio of floating rate and fixed rate loans as appropriate for the economic situation and according to BEM's views on future interest rates. Additionally, BEM will have its expenses in foreign currencies, namely, the purchase of trains from abroad, the maintenance of electric system cost and the insurance premium. Therefore, if the Baht value depreciates, BEM’s expenses would increase accordingly. However, the ratio of foreign currency cost is low and BEM will establish risk management policies to reduce cost from foreign currency exchange rates such as reduce ratio of expenses in foreign currency; for example, negotiating to reduce the foreign currency expenses portion and buying of Forward Contracts etc. 10.1.4 Risk from Serious Accident, Political Unrest and Natural Disasters The new businesses of BEM, both the construction and management of expressway and mass rapid transit system, are subject to risks of events or external factors which result in emergency situations such as disasters, serious accidents, earthquakes, and events which may be caused by terrorism or sabotage such as explosion and riots, including gathering of groups for inciting public unrest which may cause BEM to suspend services and subject to a loss of income. According to this, BEM will prepare contingency plans in response to any events which may occur; for example, removal of various significant and essential equipment used for management of the Expressway for safe keeping, including arranging for staffs training to ensure that the staff in charge would be able to immediately respond to resolve such emergency situation whether inside or outside BEM e.g. by simulations in the underground train stations from the threat of a bomb explosion and the underground train station bombings, the underground trains suspension in tunnels, fire in the trains, underground train stations, or tunnels, and establish a unit to follow up alerts and coordinate with the relevant authorities to prevent fatal accidents and prepare for rescue operations. BEM also obtained property all risks insurance, business interruption insurance, public liability insurance, including terrorism risk insurance with respect to the business of MRT operation services. 10.1.5 Risk relating to Personnel Risk from shortage of qualified personnel is one of the main risks of BEM. Personnel is a key factor which can drive the organization to success, therefore it is important to give priority to the management of personnel risk, starting from the nomination and selection of good and qualified personnel suitable for BEM. BEM will continuously hold staff training courses to provide and improve knowledge, skills and 44
abilities in various fields necessary for performance of work based on each staff's position and designated duties in order to enhance the potential and opportunity, and to encourage the staffs. The consideration of remuneration payment and welfare are appropriate and fair. The operation process and work system are to be reviewed and revised to ensure preparedness at all times, as well as arranging for a succession plan by establishing a succession plan and a working group consisting of high-level executives to set up guidelines in the selection to ensure the availability of personnel, both in the executive and supervisory levels, in order to prevent the risk from shortage of personnel having knowledge, expertise and technical skills for specific work. BEM will arrange for collection of specific knowledge and extend the results to the knowledge management projects in order to continuously improve the work process. 10.1.6 Risk from Construction and Project Execution that are not in line with Plans BEM assumed the Concession Agreements of BECL and BMCL, namely, the Concession Agreement for Design, Construction, Operation, service and maintenance of the Si Rat-Outer Ring Road Expressway Project and the MRT Purple Line project in the Bang Yai-Rat Burana and Bang Yai-Bang Sue Sections (Klong Bang Pai-Tao Poon Stations) Contract 4: the Concession for Investment, Supply of Train System, Operation Service and Maintenance. BEM is obliged to comply with the terms of the concession agreements, which have specified construction periods and the costs of construction, therefore if there is a delay in construction resulting in failure to complete work as scheduled or, in the future, if the actual value of hardware, mass rapid transit systems or other construction costs are different from the cost specified in the agreements, BEM will be at risk to be responsible for the additional costs. To mitigate the above risk in the case of delayed performance and the case that additional costs from the costs and expenses of actions are higher than anticipated, BEM will engage CH. Karnchang, which has expertise and experience to carry out such operations and assume responsibility as the project manager on a lump sum turnkey basis by providing scope of work, period of service and the contract value in accordance with the conditions specified in the concession agreements.
45
10.2
Corporate Specific Risk 10.2.1 Legal Dispute Risk BEM and NECL have 11 disputes with EXAT, which occur from different interpretations of agreements in various matters, e.g. adjustment of toll and fare rates and the party responsible for costs under the agreements. The cases were referred to the consideration of the arbitral tribunal in accordance with the dispute settlement procedures under the agreements. At the Administrative Court level, the cases are divided into the disputes that BEM and NECL referred to the dispute settlement proceedings under the agreements to claim damages until the dates of submission of the disputes for an amount of approximately Baht 28,179.8 million; and the disputes submitted by EXAT claiming damages until the dates of submission of the disputes for an amount of approximately Baht 3.3 million. The main disputes with high amounts of claims are the claims made by BEM for damages against EXAT, therefore the decision will not provide significant risks which would have a negative impact on BEM's operation. 10.2.2 Risk of Return on Investments in Other Companies which is not in accordance with the Projections BEM assumed the investments in other companies which BECL and BMCL previously held the shares. Therefore, BEM may have risks of return on investments in other companies which may not be in accordance with the projections, when the performance of such companies deviates from the projections. To minimize such effect, BEM will consider the investment ratio in each company in accordance with the investment policies of BEM which will result in BEM being involved in the policy making process and being able to monitor the invested companies. 10.2.3 Risk relating to the Fluctuation of Costs of Farebox and Operating Expenses Costs of farebox are recognized as the main expenditures in the business operation of the mass rapid transit system of BEM, which comprises of repair and maintenance costs of the train system cost and civil infrastructure cost, utility costs, personnel costs, and remuneration costs. BEM will assume from BMCL the cost of maintaining the train system (M&E Contract) under long-term contracts. The cost in Euro is adjusted according to the consumer price index of Germany and the cost which is paid in Baht will be adjusted 46
according to the consumer price index of Bangkok. Thus, BEM will have a risk from the change in such price index. For utilities expense, which includes cost of electricity used in the stations and for the operations will be adjusted according to the electricity cost of the Metropolitan Electricity Authority which may result in BEM having a higher cost. The annual remuneration costs are recorded in 2 parts i.e. the costs of farebox and the deferred mass rapid transit project remuneration and the deferred expenses, which will be consistent with the future farebox revenues. Thus, the costs of farebox of BEM will fluctuate according to the above expenses. Excluding the annual remuneration costs, the costs of farebox have been relatively under control. Additionally, the nature of the costs of farebox are mainly fixed costs and are not directly affected by the increasing number of passengers provided that the number of passengers does not significantly change to a point that there is a need to increase the number of the service trains to increase the ability to accommodate passengers. According to the concession agreement of the MRT Purple Line Project, the costs of operation service and maintenance which the MRTA has to pay to BEM will be determined based on the projected expenses for operation as estimated by BEM. The costs may be changed depending on the rate of inflation and actual electricity cost, which methods are specified in the concession agreement. Thus, the profit from the mass rapid transit service is based on BEM's ability to manage costs and actual expenses to be close to the projection. If the operating costs and actual expenses are different from the projection, this will affect BEM's operation in the case that BEM cannot seek compensation or a fare raise from the MRTA. However, with the expertise and experience in the management of the MRT Blue Line, BEM will be confident that it can effectively manage the costs and expenses to be in line with the projection. 10.2.4 Risk from the Operation in Construction Business and Expressway Management BEM will consider the risks from the operations in construction business and expressway management which may occur due to many factors, including personnel, operating system and external factors which may cause the failure or inadequacy of workflow, staff, working systems or information technology system including corruption of employees and external events or factors that could cause monetary or nonmonetary damage such as reputational damage or the stability of BEM. Therefore, it is necessary to 47
have a thorough system for monitoring, carefully and cautiously. BEM will establish a specific agency to oversee and maintain the routes and toll revenue collection in accordance with performance standards, and is confidently believed that the experience and expertise of the responsible staffs from all units will bring the quality and availability of efficient services, completely and without interruption. Additionally, BEM will determine the preventive maintenance measures to protect significant structure of the expressway systems so that they will always be available for use. BEM will determine the examination of the structure of both the Si Rat Expressway and Udon Rataya Expressway to be consistent with the review results of JMI Pacific Limited Company, a company specializing in designing and monitoring structures. BEM will monitor and survey and maintain the structures in order to prevent any interruptions to the expressway usage. For the toll revenue collection systems, communication system and traffic control system which are all important for the operation of BEM, BEM will have a preventive measure, information backup system, power backup systems and backup spared equipments. Moreover, BEM may have risks from non-functional toll collection system equipment which may arise from various causes, such as non-functional electrical system due to power outage from the Metropolitan Electricity Authority, error processing by the operating system or computer virus infection in the system which destroys data in the operating system, including hackers destroying data and information, thereby causing damage to the system, etc. In this regard, BEM will give high priority to such risk management by arranging for power backup system, security system for access to significant systems by third parties, determination of authorization levels of access to information and equipment, and installation of virus scan software and data backup system in the operating system to ensure instant substitution. 10.2.5 Risk from Hiring Siemens to be the Main Contractor to Procure and Maiantain the System Equipment of BEM BEM assumed an agreement for procurement of the M&E Equipment and an agreement for maintenance of the M&E Equipment with Siemens AG Germany and Siemens Limited Thailand, maturing in 2024. Thus, in the event where the Siemens group is unable to provide the services under the contract to BEM or there is any change in the maintenance agreement, BEM’s operations may be affected. According to the study of members of the International Federations of Public Transport Operations, e.g., UITP, APTA, NOVA Group of Metros, and Lloyd’s Register Rail, who are experienced, it is possible to select and procure the M&E Equipment from 48
other manufacturers of the equipment which can also be used in the existing systems. BEM will have a policy to improve the quality of its personnel to be capable enough to work with equipment manufacturers and contractors, both domestic and abroad, for the maintenance and repair of the equipment systems, as well as work on the rail systems to improve its efficiency without relying on the sole existing manufacturer 11.
Lawsuit
BEM and NECL had a total of 11 disputes with EXAT, which were referred to the Arbitral Tribunal in accordance with the dispute settlement procedures under the Agreements and in the Administrative Court, divided into the disputes that BEM and the subsidiary referred to the dispute settlement proceedings under the Agreements and demanded for damages with the total amount until the date of submission of the disputes of approximately Baht 28,179.8 million; and the disputes that EXAT submitted claims for damages with the total amount until the date of submission of the disputes of approximately Baht 3.3 million. The essence of each dispute was as follows: 11.1
Disputes submitted by BEM and the subsidiary claiming for damages 11.1.1 Priority Component Opening Date under the Second Stage Expressway Agreement BEM completed the construction of the “Priority Component” of the Si Rat Expressway on 13 November 1992, in respect of which the Agreement specified that the date on which the Construction Completion takes place in respect of the Priority Component should be deemed as the Priority Component Opening Date, and BEM would then be entitled to receive the toll revenue sharing, but EXAT just commenced sharing the toll revenue with BEM on 2 September 1993, thereby rendering BEM to lose such revenue which should have been received under the Agreement. EXAT and BEM had different opinions as to which date was the Priority Component Opening Date, from which EXAT was obliged under the Agreement to commence sharing the toll revenue with BEM onwards. On 15 December 2008, the Arbitral Tribunal rendered its arbitral award on the dispute requiring EXAT to pay the toll revenue sharing, which should have been received by BEM for the period from 13 November 1992 to 2 September 1993, amounting to Baht 1,974.6 million, including interest amounting to Baht 1,856.8 million, totaling Baht 3,831.4 million, including the interest until the payment would be made in full to BEM. EXAT submitted a petition to the Central Administrative Court requesting the Court to revoke the arbitral award, and BEM submitted a petition to the Central
49
Administrative Court requesting a judgment to enforce compliance with the arbitral award, with the disputed amount of Baht 5,021.1 million. On 13 September 2013, the Central Administrative Court adjudged to dismiss EXAT’s petition requesting the Court to revoke the arbitral award and adjudged to enforce BEM’s petition by requiring EXAT to pay the toll revenue sharing which should have been received by BEM amounting to Baht 1,974.6 million, with interest under the Agreement amounting to Baht 3,046.5 million, thereby bringing a total of Baht 5,021.1 million to BEM. On 11 October 2013, EXAT lodged an appeal against the Central Administrative Court’s judgment with the Supreme Administrative Court. At present, it is pending the Supreme Administrative Court’s consideration. 11.1.2 Competing road with the Udon Ratthaya Expressway The Agreement specified that during the term of the Agreement, should EXAT or the Government put into effect any arrangements for the construction or substantial improvement of any road or highway of an expressway standard within the primary catchment area of the Expressway, which has the effect of reducing the actual volume of traffic using the Expressway or the revenue arising therefrom from the projections, EXAT shall compensate the subsidiary for such effect. Given that the Government granted permission for construction of the Extension of the Don Muang Tollway Project, from the National Memorial to Rangsit Section, which constituted a competing road under the Agreement, and affected the financial position of the subsidiary, the subsidiary therefore demanded EXAT to compensate for such effect as per the Independent Certification Engineer’s letter certifying the effect upon the subsidiary. On 27 November 2008, the Arbitral Tribunal rendered its arbitral award on the dispute requiring EXAT to compensate for the deficient revenue from the projection to the subsidiary for the year 1999 in the amount of Baht 730.8 million, with interest, and for the year 2000 in the amount of Baht 1,059.2 million. EXAT submitted a petition to the Central Administrative Court requesting the Court to revoke the arbitral award, and the subsidiary submitted a petition to the Central Administrative Court requesting a judgment to enforce compliance with the arbitral award, with the disputed amount of Baht 3,296.7 million. On 3 May 2013, the Central Administrative Court adjudged to dismiss EXAT’s petition requesting the Court to revoke the arbitral award, and issued a judgement to enforce compliance with BEM’s petition, thereby requiring EXAT to compensate for revenue reduced from the projection to the subsidiary for the year 1999 in the amount of 50
Baht 730.8 million and for the year 2000 in the amount of Baht 1,059.2 million together with interest until the said payment would be made in full. On 31 May 2013, EXAT lodged an appeal against the Central Administrative Court’s judgment with the Supreme Administrative Court. At present, it is pending the Supreme Administrative Court’s consideration. 11.1.3 Issuance of variation orders by EXAT EXAT issued additional variation orders for certain construction work of the Si Rat Expressway and confirmed that EXAT would be responsible for such costs as actually incurred by such variation orders. The Independent Certification Engineer subsequently issued a letter certifying the additional costs in the total amount of Baht 209.1 million (excluding interest). EXAT refused to make such payment as certified by the Independent Certification Engineer. On 20 December 2013, the Arbitral Tribunal unanimously rendered its arbitral award requiring EXAT to pay the construction costs and expenses as per such variation orders in the total amount of the principal with interest of Baht 382.5 million, including the interest on the principal in the amount of Baht 209.1 million, until the said payment would be made in full to BEM. On 26 March 2014, EXAT submitted a petition to the Central Administrative Court requesting the Court to revoke the arbitral award. At present, it is pending the Central Administrative Court’s consideration. 11.1.4 Revision of toll rates of the Chalerm Mahanakorn Expressway and the Si Rat Expressway for the year 2003 BEM requested to revise the toll rates under the Second Stage Expressway Agreement which stipulates that the toll rates shall be revised every five year interval. In this regard, EXAT and BEM had different opinions in respect of the calculation of the tolls to be revised, and as such, EXAT issued the toll rate notification which did not increase the toll rates as proposed by BEM. On 14 May 2008, BEM submitted the statement of claim to the Thai Arbitration Institute, demanding EXAT to compensate BEM for damages caused by the revision of toll rates for 2003, which was not in accordance with the Agreement, amounting Baht 4,368 million. The hearing for examination of EXAT’s witness was completed on 16 October 2015, and it has been rescheduled that both parties shall submit the closing statements on 30 December 2015.
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11.1.5 Revision of toll rates of Sector D of the Si Rat Expressway for the year 2003 BEM requested to revise the toll rates under the Agreement for the Extension of the Second Stage Expressway System (Sector D) which stipulates that the toll rates shall be revised every five year interval. In this regard, EXAT and BEM had different opinions in respect of the calculation of the tolls to be revised, and as such, EXAT issued the toll rate notification which did not increase the toll rates as proposed by BEM. On 24 July 2008, BEM submitted the statement of claim to the Thai Arbitration Institute, demanding EXAT to compensate BEM for damages, including the interest, caused by the revision of toll rates for the year 2003, which was not in accordance with the Agreement, in the total amount of Baht 1,048.2 million. At present, it is in the process of the hearing for examination of witness, which will be completed in January 2016. 11.1.6 Revision of toll rates of the Chalerm Mahanakorn Expressway and the Si Rat Expressway for the year 2008 BEM requested to revise the toll rates under the Second Stage Expressway Agreement which stipulates that the toll rates shall be revised every five year interval. In this regard, EXAT and BEM had different opinions in respect of the calculation of the tolls to be revised, and as such, EXAT issued the toll rate notification which did not increase the toll rates as proposed by BEM. On 13 June 2013, BEM submitted the statement of claim to the Thai Arbitration Institute, demanding EXAT to compensate BEM for damages, together with interest, caused by the revision of toll rates for the year 2008, which was not in accordance with the Agreement, in the total amount of Baht 9,091.8 million. At present, it is in the process of the hearing for examination of witness, and the Thai Arbitration Institute has scheduled a hearing for examination for BEM in January 2016. 11.1.7 Revision of toll rates of Sector D of the Si Rat Expressway for the year 2008 BEM requested to revise the toll rates under the Agreement for the Extension of the Second Stage Expressway System (Sector D) which stipulates that the toll rates shall be revised every five year interval. In this regard, EXAT and BEM had different opinions in respect of the calculation of the tolls to be revised, and as such, EXAT issued the toll rate notification which did not increase the toll rates as proposed by BEM. On 28 June 2013, BEM submitted the statement of claim to the Thai Arbitration Institute, demanding EXAT to compensate BEM for damages, together with interest, caused by the revision of toll rates for the year 2008, which was not in accordance with the 52
Agreement, in the total amount of Baht 4,062.8 million. At present, it is pending selection of candidates for appointment as the Chairman of the Arbitral Tribunal. 11.1.8 Revision of toll rates of Udon Ratthaya Expressway for the year 2003 The subsidiary requested to revise the toll rates under the Bang Pa-in-Pak Kret Expressway Agreement which stipulates that the toll rates shall be revised every five year interval. In this regard, EXAT and the subsidiary had different opinions in respect of the calculation of the tolls to be revised, and as such, EXAT issued the toll rate notification which did not increase the toll rates as proposed by the subsidiary. On 22 October 2013, the subsidiary submitted the statement of claim to the Thai Arbitration Institute, demanding EXAT to compensate the subsidiary for damages, together with interest, caused by the revision of toll rates for the year 2003, which was not in accordance with the Agreement, in the total amount of Baht 908.7 million. At present, it is pending selection of candidates for appointment as the Chairman of the Arbitral Tribunal. 11.2
Disputes submitted by EXAT claiming for damages EXAT referred three disputes to the Arbitral Tribunal requiring BEM and its subsidiary to be held liable for costs, in the total amount of Baht 3.3 million, which BEM and its subsidiary were of the view that such costs claimed by EXAT were not within their scope of responsibility under the Agreements. In this regard, the Arbitral Tribunal rendered its arbitral awards on two disputes, two disputes of which were referred by EXAT to the Administrative Court for enforcement of the arbitral award.
However, given that all of the remaining cases are not yet final, BEM did not record such entries in the financial statements. 12.
Number of Employees As of 30 December 2015, BEM has a total of 2,362 employees; 740 of which are transferred from BECL and 1,622 of which are transferred BMCL.
13.
Company Background Significant Changes and Development of BEM in 2015 21 Jan 15
Board of directors of BECL and BMCL resolved to propose to the shareholders’ meeting for consideration and approval on the Amalgamation.
2 Apr 15
Shareholders’ meetings of BECL and BMCL resolved to approve the Amalgamation.
53
14.
2 July 15
BECL sold all of its 2,050,134,895 shares held in BMCL to CH. Karnchang
11 Aug 15
Board of directors of BECL and BMCL resolved to propose to the joint shareholders’ meeting between BECL and BMCL for consideration and approval of the extension of the period for the Amalgamation by 6 months.
29 Sep 15
The joint shareholders’ meeting between BECL and BMCL resolved to approve the extension of the period for the Amalgamation by 6 months.
5 Nov 15
Board of directors of BECL and BMCL resolved to propose to the joint shareholders’ meeting between BECL and BMCL for consideration of various matters relating to the new company resulting from the Amalgamation.
28 Dec 15
Joint shareholders’ meeting between BECL and BMCL resolved to approve various matters relating to the new company resulting from the Amalgamation.
30 Dec 15
Registered the Amalgamation with the Ministry of Commerce
Investment in Subsidiary / Associated / Related Companies
BEM has a policy to invest in the infrastructure business or businesses supporting its operations and to open up opportunities and generate returns in the long run for BEM. BEM’s investments as at 30 December 2015 are as follows: Unit : Baht million Company’s Name
Nature of Business
Paid-up Capital
Shareholding
Investment Cost
Construction and operation of Udon Ratthaya Expressway Commercial development
5,250
99.99%
2,604
254
65.19%
166
Investing in other companies (Holding Company) engaging in electricity generation and distribution business Tap water production and distribution
7,370
19.40%
3,223
3,990
19.57%
4,303
Operation and development of the Xayaburi Hydro Power Project
12,175
7.50%
913
Subsidiaries NECL BMN Associates CKP
TTW Other Company XPCL
54
15.
Change in Capital in the Last 3 Years
BEM has no change in capital in the last 3 years since BEM is an entity resulting from the Amalgamation between BECL and BMCL on 30 December 2015. 16.
Accounting Period 1 January-31 December
17.
Auditor Name
18.
Company
1. Ms. Siraporn Au-anankul
EY Corporate Services Limited
2. Ms. Varaporn Prapasirikul
EY Corporate Services Limited
3. Ms. Rungnapa Lertsuwankul
EY Corporate Services Limited
Registrar Thailand Securities Depository Company Limited
19.
Financial Advisor Finansa Securities Limited
20.
Dividend Policy
BEM has a policy to pay dividend at not less than 40 percent of the net profit of each year, taking into account the operational results, financial structure and obligations, investment, as well as regular payment of dividend to shareholders. 21.
BOI Certificate
The promotional privileges for the MRT Chaloem Ratchamongkhon Line (Blue Line Initial System) under Promotional Certificate No. 1029(1)/2003 Type 7.2 Mass Transportation and Logistics will be transferred from BMCL to BEM. The privileges include reduction of import duty on imported machinery according to specified conditions and exemption from corporate income tax on net profit from the promoted operations for a period of 8 years commencing from the date of first earning operating income (July 3, 2004). Such privileges have been extended to 31 December 2020.
55
22.
Shareholder Information 22.1
Number of Shareholders As of 30 December 2015: Number of Shareholders
1. Strategic shareholders
Number of
% of Paid-up Capital
Shares
33
6,721,960,902
43.98
27
56,579,422
0.37
1.2 Shareholders who have a holding of above 5% including related persons
6
6,665,381,480
43.61
1.3 Controlling shareholders
-
-
-
2. Non-Strategic shareholders hold > 1 trading unit
35,943
8,562,962,169
56.02
3. Non-Strategic shareholders hold < 1 trading unit
1,700
76,929
0.00
37,676
15,285,000,000
100.00
1.1 Directors, manager, and executive management including related persons and associated persons
Total Shareholders
22.2
Major Shareholders As of 30 December 2015:
No. 1
2 3 4 5 6 7 8 9 10
Shareholders
Number of shares
CK Group CH. Karnchang CH. Karnchang-Tokyu Construction Co., Ltd. Mahasiri Siam Co., Ltd. CH. Karnchang Holding Co., Ltd. MRTA Krung Thai Bank Public Company Limited Thai NVDR Co., Ltd. Hicrete Products & Technology Co., Ltd. Bangkok Bank Public Company Limited Mr. Wichai Wachiraphong Uob Kay Hian (Hong Kong) Limited - Client Account State Street Bank Europe Limited Mr. Min Tieanworn
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4,362,096,721 4,199,031,529 156,659,952 4,327,949 2,077,291 1,256,259,584 1,047,025,175 752,983,201 615,238,318 432,872,909 427,346,348 256,752,503 185,166,052 180,900,005
% of paid-up capital 28.54 27.47 1.02 0.03 0.01 8.22 6.85 4.93 4.03 2.83 2.80 1.68 1.21 1.18
22.3
Foreign Shareholders
As of 30 December 2015, BEM has 141 foreign shareholders, holding 1,619,976,809 shares, representing 10.60 % of total paid-up capital. Note: BEM has a limitation on the percentage of equity shares held by foreign shareholders as stipulated in the Articles of Association, Section 2, Clause 7: “BEM’s shares are transferrable without any limitations, except in the case that the share transfer would result in BEM’s shares held by Thai nationals comprising less than 51 percent of shares sold. For the transfer that would result in BEM’s shares held by Thai nationals comprising less than the said proportion, BEM has the right to reject such transfer.” 23.
Board of Directors 23.1
Members of the Board of Directors As of 30 December 2015:
1.
Name Dr. Virabongsa Ramangkura
2.
Prof. Suphachai Phisitvanich*
3.
Gen. Sampao Choosri
4.
Gen. Chetta Thanajaro
5.
Mr. Vitoon Tejatussanasoontorn*
6.
Mrs. Vallapa Assakul
7.
Mr. Supong Chayutsahakij
8.
Mr. Plew Trivisvavet
9.
M.L. Prasobchai Kasemsant
Position Chairman of the Board of Directors and Independent Director Director, Independent Director, and Chairmen of the Audit Committee Director, Independent Director, Member of Audit Committee, and Chairman of the Corporate Governance and Risk Management Committee Director, Independent Director, Member of Audit Committee, and Chairman of the Nomination and Remuneration Committee Director, Independent Director, Member of Audit Committee, and Member of Nomination and Remuneration Committee Director, Independent Director, Member of Corporate Governance and Risk Management Committee Director, Member of Executive Committee, and Member of Nomination and Remuneration Committee Director, Member of Nomination and Remuneration Committee, and Chairman of Executive Committee Director
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Start Date 30 December 2015 30 December 2015 30 December 2015
30 December 2015
30 December 2015
30 December 2015
30 December 2015
30 December 2015
30 December 2015
Name 10. Mr. Phongsarit Tantisuvanitchkul
11. Dr. Sombat Kitjalaksana
12. Mrs. Payao Marittanaporn
13. 14. 15. 16. 17.
Mr. Werapong Suppasedsak Mr. Panit Dunnvatanachit Mr. Tana Janusorn Mr. Theeraphan Tachasirinugune Mr. Prasit Dachsiri
Position Director, Member of Corporate Governance and Risk Management Committee, Member of Executive Committee Director, Member of Corporate Governance and Risk Management Committee, Member of Executive Committee, and Managing Director Director, Member of Corporate Governance and Risk Management Committee, Member of Executive Committee, and Managing Director Director Director Director Director Director
Start Date 30 December 2015
30 December 2015
30 December 2015
30 December 2015 30 December 2015 30 December 2015 30 December 2015 30 December 2015
* the Audit Committee who has knowledge and experiences suitable for performing duties of reviewing the creditability of financial statements.
23.2
Audit Committee
BEM’s Board of Directors Meeting No.1/2015 on 30 December 2015 has resolved to appoint the Audit Committee. 23.2.1 Members of Audit Committee Name
Position
1.
Prof. Suphachai Phisitvanich
Chairman of Audit Committee
2.
Gen. Sampao Choosri
Member of Audit Committee
3.
General Chetta Thanajaro
Member of Audit Committee
4.
Mr. Vitoon Tejatussanasoontorn
Member of Audit Committee
Ms. Vasana Wattananukulchai is an Audit Committee Secretary
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23.2.2 Scope of Authorities, Duties, and Responsibilities of Audit Committee 1.
Review BEM’s financial reporting process to ensure accuracy and adequacy;
2.
Review BEM’s internal control system and internal audit system to ensure that they are suitable and efficient, to determine an internal audit unit’s independence, as well as to approve the appointment, transfer and dismissal of the chief of an internal audit unit or any other unit in charge of an internal audit;
3.
Review the performance of BEM to ensure its compliance with the securities and exchange laws, the regulations of the SET or the laws relating to the business of BEM;
4.
Consider, select and nominate an independent person to be BEM’s auditor, and to propose such person’s remuneration, as well as to attend a non-management meeting with an auditor at least once a year;
5.
Review connected transactions, or transactions that may lead to conflicts of interest, to ensure that they are in compliance with the laws and the SET’s regulations, and are reasonable and primarily benefit BEM;
6.
The committee shall prepare an annual written report of information, signed by the Committee Chairman, for use in BEM’s annual report, including the following: (a)
An opinion on the preparation and information disclosure of BEM’s financial report and its accuracy, completeness and creditability;
(b)
An opinion on the adequacy of BEM’s internal control system;
(c)
An opinion on the compliance with the Public Limited Companies Act, Securities and Exchange Act, SET and SEC listing rules as well as other laws pertaining to BEM’s business;
(d)
An opinion on the suitability of an external auditor;
(e)
An opinion on the transactions that may lead to conflicts of interests;
(f)
The number of Committee meetings, and the attendance of such meetings by each committee member;
(g)
An opinion or overview comment by the Committee of its performance of duties in accordance with the Committee Charter;
(h)
Other matters deemed necessary to report to shareholders and investors under the scope of authorities, duties, and responsibilities as assigned by the Board of the Directors 59
7.
Supervise internal audit work by reviewing missions, scope of duties, independence, and development plan; give training to internal audit personnel to be adaptable to changes in business, as well as to facilitate ongoing improvements, in order to support business directions and comply with international standards; consider and give approvals on annual internal audit plan.
8.
Take other actions assigned by the Board of Directors, independently contributing opinions and advice, in accordance with the rules, and good practices for Audit Committee imposed by the SET.
9.
When under duties, if Audit Committee finds that, or suspects to have found that, there are following transactions or following acts that may cause significant impact on financial position and financial result of BEM, it shall report to the Board of Directors, who shall take further actions to amend and improve such transactions or acts within the period that Audit Committee deems appropriated. (a)
Transactions that lead to conflicts of interests
(b)
Corruptions, irregularities, or significant defectives in the internal control system
(c)
Violations of the securities and exchange laws, the regulations of the SET, or the laws relating to the business of the Company.
23.2.3 Term
24.
Chairman of Audit Committee
3
years
Audit Committee
3
years
Listing Conditions - None -
25.
Silent Period - None -
26.
Relaxation - None -
27.
Others (if any) - None -
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28.
Statistical Summary Bangkok Expressway and Metro Public Company Limited
Pro Forma Consolidated Financial Information*
Thousand Baht
Baht/Share***
%
Revenues from Sale and Net Income Service**
Dividend Paid
Dividend Paid /Net Income
Net Income
Book Value
Year 2013
10,597,236
4,399,484
0.29
0.08
1.83
27.65
Year 2014
11,233,896
2,744,543
0.18
0.09
1.92
47.69
8,304,435
1,811,162
0.12
0.09
1.87
72.27
Nine months period ended 30 September 2014
Nine months period ended 8,733,259 1,660,302 0.11 0.13 1.90 115.94 30 September 2015 * The pro forma consolidated financial information for the nine months period ended 30 September 2015, and for the year ended 31 December 2014 and 2013 has been prepared from the financial information of BECL and BMCL as if the Amalgamation had taken place on 1 January 2013 and regarded as an amalgamation under common control ** Revenues from Sale and Service consist of 1) toll revenue, 2) fare box revenue, and 3) commercial development revenue *** Par value of Baht 1 per share
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Bangkok Expressway and Metro Public Company Limited Statement of Financial Position (Unit : Baht thousand) Statement of Financial Position Assets Current assets Cash and cash equivalents Current investments Receivable from sales of investment-due within 1 year Trade and other receivables Other current assets Total current assets Non-current assets Receivable from sales of investment-due over 1 year Investments in associates Other long-term investments Investment properties Building and equipment Construction in process Rights to operate completed expressway sectors Rights to use sites for expressway construction Intangible asset under concession agreement of the MRTA Initial System Project-Chaloem Ratchamongkhon Line Intangible assets Deferred of project remuneration Advance payments under construction contracts Deferred tax assets Other non-current assets Total non-current assets Total assets
Pro Forma Financial Statement As at 30 September 2015 Amount %
Pro Forma Financial Statement As at 31 December 2014 Amount %
Pro Forma Financial Statement As at 31 December 2013 Amount %
527,531 4,077,825 561,250 82,317 257,359 5,506,282
0.69 5.35 0.74 0.11 0.33 7.22
4,373,771 2,347,869 561,250 101,815 198,264 7,582,969
5.96 3.20 0.77 0.14 0.27 10.34
5,029,328 774,541 561,250 82,723 197,504 6,645,346
7.32 1.13 0.82 0.12 0.29 9.68
747,566 9,698,311 856,087 120,357 147,766 17,592,613 21,051,805 1,394,619
0.98 12.72 1.12 0.16 0.19 23.07 27.61 1.83
747,566 8,893,835 699,337 120,357 152,079 10,744,376 23,146,990 1,611,877
1.02 12.13 0.95 0.16 0.21 14.65 31.56 2.20
747,566 9,464,971 434,231 120,357 146,757 2,901,839 25,564,276 1,894,676
1.09 13.78 0.63 0.18 0.21 4.23 37.23 2.76
16,975,824 37,718 779,593 798,659 456,908 87,903 70,745,729 76,252,011
22.26 0.05 1.02 1.05 0.60 0.12 92.78 100.00
17,245,679 34,592 308,832 1,372,114 622,209 48,690 65,748,533 73,331,502
23.52 0.05 0.42 1.87 0.85 0.07 89.66 100.00
17,554,960 35,529 2,362,408 728,331 64,908 62,020,809 68,666,155
25.57 0.05 0.00 3.44 1.06 0.09 90.32 100.00
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(Unit : Baht thousand) Statement of Financial Position (continued)
Pro Forma Financial Statement As at 30 September 2015 Amount %
Pro Forma Financial Statement As at 31 December 2014 Amount %
Pro Forma Financial Statement As at 31 December 2013 Amount %
Liabilities and shareholders' equity Current liabilities Short-term loans from financial institutions Trade and other payables Payable from purchase of investment-due within 1 year Current portion of long-term loans Current portion of debentures Income tax payable Current portion of provision for compensation for site acquisition cost Other current liabilities Total current liabilities Non-current liabilities Construction payable to related party Payable from purchase of investment-due over 1 year Long-term loans, net of current portion Debentures, net of current portion Provision for compensation for site acquisition cost, net of current portion Provision for long-term employee benefits Other non-current liabilities Total non-current liabilities
4,994,601 2,018,141 93,042 3,000,000 43,498 1,500,000 561,110 12,210,392
6.55 2.65 0.00 0.12 3.93 0.06 1.97 0.74 16.02
2,000,000 1,982,728 313,695 40,573 3,000,000 308,734 1,500,000 491,407 9,637,137
2.73 2.70 0.43 0.06 4.09 0.42 2.05 0.66 13.14
1,464,316 400,000 843,486 2,700,000 203,546 1,200,000 370,477 7,181,825
0.00 2.13 0.58 1.23 3.93 0.30 1.75 0.54 10.46
17,157,554 13,390,369 3,990,599 236,107 36,507 34,811,136
0.00 0.00 22.50 17.56 5.23 0.31 0.05 45.65
12,293,552 16,384,595 5,262,382 211,263 28,448 34,180,240
0.00 0.00 16.76 22.34 7.18 0.29 0.04 46.61
60,186 313,695 11,076,069 15,386,251 6,419,522 168,465 41,009 33,465,197
0.09 0.46 16.13 22.41 9.35 0.25 0.05 48.74
Total liabilities
47,021,528
61.67
43,817,377
59.75
40,647,022
59.20
63
(Unit : Baht thousand) Statement of Financial Position (continued) Shareholders' equity Share capital Issued and paid-up Premium on ordinary shares Retained earnings Appropriated-statutory reserve Unappropriated Other components of shareholders' equity Equity attributable to shareholders of the Company Non-controlling interests of the subsidiaries Total shareholders' equity Total liabilities and shareholders' equity
Pro Forma Financial Statement As at 30 September 2015 Amount %
Pro Forma Financial Statement As at 31 December 2014 Amount Amount
Pro Forma Financial Statement As at 31 December 2013 % Amount
15,285,000 15,285,000 5,816,938
20.05 20.05 7.63
15,285,000 15,285,000 5,816,938
20.84 20.84 7.93
15,285,000 15,285,000 5,816,938
22.26 22.26 8.47
800,000 7,230,040 (102,471) 29,029,507 200,976 29,230,483 76,252,011
1.05 9.48 (0.14) 38.07 0.26 38.33 100.00
800,000 7,489,619 (34,443) 29,357,114 157,011 29,514,125 73,331,502
1.09 10.21 (0.04) 40.03 0.22 40.25 100.00
800,000 6,058,766 (32,688) 27,928,016 91,117 28,019,133 68,666,155
1.17 8.82 (0.05) 40.67 0.13 40.80 100.00
64
Bangkok Expressway and Metro Public Company Limited Statement of Income (Unit: Baht thousand) Statement of Income
Revenues Toll revenue Fare box revenue Commercial development revenue Gain on investments Gain on fair value adjustment of investment from changing status of investment Other income Total revenues Expenses Costs of toll Costs of fare box Costs of commercial development Selling expenses Administrative expenses Loss on write-off of fixed assets Total expenses Profit before share of profit from investments in associates, finance cost and income tax expenses Share of profit from investments in associates Profit before finance cost and income tax expenses Finance cost Profit before income tax expenses Income tax expenses Profit for the period
Pro Forma Financial Statement For the nine-month period ended 30 September 2015 Amount %
Pro Forma Financial Statement For the nine-month period ended 30 September 2014 Amount %
Pro Forma Financial Statement For the year ended 31 December 2014 Amount %
Pro Forma Financial Statement For the year ended 31 December 2013 Amount %
6,549,649 1,773,815 409,795 51,466
74.39 20.15 4.65 0.58
6,258,134 1,680,068 366,233 50,503
74.00 19.87 4.33 0.60
8,485,018 2,247,827 501,051 536,651
71.40 18.92 4.22 4.52
8,039,910 2,106,357 450,969 333,532
57.94 15.18 3.25 2.40
19,428 8,804,153
0.00 0.23 100.00
102,375 8,457,313
0.00 1.20 100.00
112,852 11,883,399
0.00 0.94 100.00
2,808,341 136,380 13,875,489
20.24 0.99 100.00
2,543,587 1,641,740 184,054 896,760 668,257 5,934,398
28.89 18.65 2.09 10.19 7.58 0.00 67.40
2,458,470 1,377,259 156,688 827,135 635,873 5,455,425
29.07 16.28 1.85 9.78 7.53 0.00 64.51
3,326,865 1,910,597 217,438 1,135,875 889,121 7,479,896
28.00 16.08 1.83 9.56 7.47 0.00 62.94
3,422,224 1,651,287 198,198 1,186,171 797,070 103,012 7,357,962
24.66 11.90 1.43 8.55 5.75 0.74 53.03
2,869,755
32.60
3,001,888
35.49
4,403,503
37.06
6,517,527
46.97
344,457 3,214,212 (1,059,053) 2,155,159 (450,893) 1,704,266
3.91 36.51 (12.03) 24.48 (5.12) 19.36
393,627 3,395,515 (1,095,651) 2,299,864 (442,673) 1,857,191
4.66 40.15 (12.96) 27.19 (5.23) 21.96
546,427 4,949,930 (1,437,191) 3,512,739 (702,302) 2,810,437
4.59 41.65 (12.09) 29.56 (5.91) 23.65
400,610 6,918,137 (2,029,221) 4,888,916 (467,466) 4,421,450
2.89 49.86 (14.63) 35.23 (3.36) 31.87
65
(Unit: Baht thousand) Statement of Income (continued)
Profit attributable to: Equity holders of the Company Non-controlling interests of the subsidiaries
Earnings per share Basic earnings per share Profit attributable to equity holders of the Company (Baht)
Pro Forma Financial Statement For the nine-month period ended 30 September 2015 Amount % 1,660,302 43,964 1,704,266
18.86 0.50 19.36
Pro Forma Financial Statement For the nine-month period ended 30 September 2014 Amount % 1,811,162 46,029 1,857,191
0.11
0.12
66
21.42 0.54 21.96
Pro Forma Financial Statement For the year ended 31 December 2014 Amount % 2,744,543 65,894 2,810,437
0.18
23.10 0.55 23.65
Pro Forma Financial Statement For the year ended 31 December 2013 Amount % 4,399,484 21,966 4,421,450
0.29
31.71 0.16 31.87
Prepared by
Bangkok Expressway and Metro Public Company Limited BEM certifies that information reported in this information memorandum is correct
Bangkok Expressway and Metro Public Company Limited
- Signature -
- Signature -
Mr. Supong Chayutsahakij
Mrs. Payao Marittanaporn
Director
Managing Director
67
