1. ARGC Task Force on Corporate Governance of SOEs The Case of Thailand State Enterprise Policy Office, Ministry of Finance, Thailand 20 May 2005 Dr. Pallapa Ruangrong

2. I. Thailand Economic Outlook II. The Roles of SOEs in Thai economy III. SOEs Financial Snap Shot IV. SOEs Governance Structure in Thailand V. Future Governance Structure of SOEs CONTENT State Enterprise Policy Office, Thailand : 2

3. Thailand Real GDP Growth, GDP and Public Debt % of GDP Source: NESDB, BOT, SEPO *Real GDP I. Thailand Economic Outlook Thailand GDP* is represented approximately 157,000 M.USD in 2004 that increasing at average 5% during 1999-2004 Real GDP Growth in 2004 is 6.3%,slightly decreasing from previous year. Public debt is approx. 75,000 M.USD in 2004 that slightly increasing about 0.8% per year since 1999 The proportion of Public Debt and GDP is 47.67% in 2004 that reduce from 62.5% in 1999 since Thai government has released the Fiscal sustainability Obligation to keep this rate not exceed than 50%. Million USD State Enterprise Policy Office, Thailand : 3

4. II. The Roles of SOEs to Thai Economy After Thailand economic recovery began in 1999, State Owned Enterprises (SOEs), One of the economic stimulator, has performed as the key role for Thai government to recover its economy. Apparently, the developing SOEs performance has become one of economic development strategy as a substantial provider for the fundamental economic infrastructure in order to regain the prosperity of Thai economy, to contribute the competitiveness for private sector and to ensure the sustainable in Thai economy. State Enterprise Policy Office, Thailand : 4

5. II. The Roles of SOEs to Thai Economy SOEs are now playing the important roles to contribute both minimizing damage from economy recession and maximizing prosperity of Thai economy. Thus the roles of SOEs have many several issues as followed: 1. Providing fundamental economic infrastructure: such as Transportation, Energy, Water Supply and Telecommunication. 2. Contributing for the country competitiveness: provide the basic strength for private sector and real sector productivities with both economic and social values. 3. The Source of Funds for supporting fiscal budget: Both remittance and income tax from SOE is contributed for the sustainable prosperity of fiscal budget. 4. The enormous source of employment: approximately 280,000 employees represented as 12% of total government employees. State Enterprise Policy Office, Thailand : 5

6. III. Thailand’s State Owned Enterprises Structure There are 9 sectors and 60 SOEs with 6 Listed companies in 4 sectors State ownership is classified into three categories:  Full ownership (100%)  Majority Shareholder (more than 51%)  Minority Shareholder (less than 51%)/Portfolio Investor State Enterprise Policy Office, Thailand : 6 MOF Energy Transportation Infrastructure Telecomm. State Enterprise Policy Office Industry Agriculture Service Social& Technology Social& Technology Financial

7. III. SOEs Financial Performance Asset and Debt in 1999-2004 Million USD SOEs Asset value 135,000 M.USD. in 2004, increasing at average 7% per year since 1999 SOEs Debt value 103,000 M.USD. in 2004, increasing at average 5% per year since 1999 State Enterprise Policy Office, Thailand : 7 Revenue,Expense and Net Income in 1999-2004 Million USD Source: SEPO SOEs Revenue value 45,000 M.USD. in 2004, increasing at average 8% per year since 1999 SOEs Debt value 38,000 M.USD. in 2004, increasing at average 8% per year since 1999 SOEs Net Income value 4,300 M.USD. in 2004, increasing at average 4% per year since 1999 Million USD

8. III. Thailand’s State Owned Enterprises listed companies State Enterprise Policy Office, Thailand : 8 Thai (Transport.) KTB (Bank) PTTEP (Energy) BCP (Energy) PTT (Energy) TOT (Telecom)* CAT (Telecom)** AOT (Transport) MCOT (Telecom) Thailand SOEs Privatization History There are 6 SOEs listed in Stock Exchange of Thailand (SET) SOEs Portfolio represented 25,000 M.USD. or 21% of Thailand Stock market Capitalization (110,000 M.USD) at the end of 2004 Source: SEPO,** TOT & CAT are planning to distribute shares in 2005 BCP status is no longer SOE

9. III. Thailand’s State Owned Enterprises listed companies State Enterprise Policy Office, Thailand : 9 Thai Airways International (THAI) PTT Public Limited Company (PTT) AOT Public Limited Company (AOT) MCOT Public Limited Company (MCOT) PTT Exploration and Production Company Limited or PTTEP, has the mission to explore, develop, and produce petroleum reserves to maximize Thailand’s highest possible benefit from energy resources. Krung Thai Bank Public Limited Company (KTB) PTTEP Public Limited Company (PTTEP) PTT is Thailand’s fully integrated oil&gas and petrochemical complex, with a fully-fledged operation covering upstream (exploration and production), midstream (refining and production of olefins feedstock) and downstream (retail oil distribution). Thai Airways International Public Company Limited is the national carrier. It operates domestic, regional and intercontinental flights radiating from its home base in Bangkok. Airport Authority of Thailand is the operator of national airports of Thailand. There are 5 airports under AOT, locating in Bangkok, Chiang Mai, Hat Yai, Phuket and Chiang Rai. Krung Thai Bank is financial assistance service provider. MCOT is a mass communication operator. Its service include Television operators, Global television network, radio and news & entertainment.

10. III. Thailand’s State Owned Enterprises listed companies State Enterprise Policy Office, Thailand : 10 Name of SOEsMajor shareholder Par value (USD) No. of Paid up capital (Million share) Stock price (USD/share) Mkt. Cap.@ 31 Dec 04 (Million USD) 1. PTTMOF 52% 0.25 2,797.25 4.33 12,098.11 2. PTTEP*PTT 64% 0.13 653.33 7.25 4,736.64 3. KTBFIDF 56% 0.13 11,179.75 0.23 2,515.44 4. THAIMOF 54% 0.25 1,692.08 1.21 2,051.65 5. AOTMOF 70% 0.25 1,428.57 1.29 1,839.28 6. MCOTMOF 77% 0.13 687.10 0.56 381.34 Market capitalization of 6 SOEs @ 31 Dec 0423,622 Total Market capitalization of the Stock Exchange of Thailand @ 31 Dec 04113,047 * Holding by PTT

11. IV. Current Governance Structure SOEs Committee NESDB Budget Bureau Audit Office MOF Line Minis try Ministry of Labor These entities exercise state ownership through different laws and registrations governing them. There are three areas of monitoring 1.Employment 2.Finance and Accounting 3.Management State Enterprise Policy Office, Thailand : 11

12. IV. Current Governance Structure : Rules and Regulations (Full Ownership) Employment: Act on Standards Qualifications for Directors and Employees of State Enterprises Act on State Enterprise Labour Relations Act on Offense of Employee in State Organization or State Agency Cabinet Resolutions Finance and Accounting: Act on Public Debt Management Organic Law on State Audit Regulation on Accountency and Finance of State Enterprise Regulation on State Enterprise Investment Policy Regulation on State Enterprise Internal Audit Cabinet Resolutions State Enterprise Policy Office, Thailand : 12

13. IV. Current Governance Structure : Rules and Regulations (Full Ownership) Management: Law on State Enterprise Establishment Act on Private Participation Regulation on Procurement Regulation on the Disposal and Purchase of Shares of the Government Cabinet Resoultions State Enterprise Policy Office, Thailand : 13

14. IV. Current Governance Structure : Rules and Regulations (Majority Shareholder) Continue to follow some of the State Enterprise Laws and Regulations such as Organic Law on State Audit, Act on Standards Qualifications for Directors and Employees of State Enterprises, Regulation on State Enterprise Investment Policy, etc. Comply with Corporatization Act and Commercial Act SEC Rules and Regulations (Minority Shareholder) Follow Commercial Act and SEC Rules and Regulations State Enterprise Policy Office, Thailand : 14

15. IV. Current Governance Structure : Roles of Ministry of Finance State Enterprise Policy Office, Thailand : 15 Issues Full Ownership (100%) Majority Shareholder (<51%) Minority Shareholder (>51%) Board & DirectorAppoint Depending on % hold CEO Selection ProcessApprove Select by Board Remuneration (Director,CEO andEmployees) Review and approve Approve by the Board Performance Evaluation Secretariat: set up KPI and monitor SOEs performance NA Reports Review NA Strategic Plan and Investment Plan Review and propose to the cabinet NA

16. V. Future Governance Structure We are studying the possibility of establishing a State Holding Company to centralize decision making process. Controlling SOEs with more efficient and effectiveness, (there are different objectives of SOEs) Achieving of synergies through integration within a given sector or activities Being as “the tangible arm-length” management of SOEs Increasing financial returns to government’s investment in SOEs Entrusting the task of rescuing loss-making SOEs Increasing general public ownership in SOEs Undertaking the state’s representative in SOEs until their divestiture to private owners State Enterprise Policy Office, Thailand : 16

17. V. Future Governance Structure The government has ranked good governance as its top priority agenda. Thailand has conducted Report On Standard and Codes (ROSCs): self- assessment Questionaire on Fiscal Transparency issued by IMF. Good Governance will be used as one of the criteria of selection for SOE Awards Night. State Enterprise Policy Office, Thailand : 17