Pipeline Rental rates
to be revised upwards for PTT
By Jon Fernquest |
Pipeline rental charges for PTT after the recent pipeline divestiture are still up in the air.
(See photo on right of two happy poodles taking a pit stop at a PTT station during a long cross country car ride)
A compromise solution that is "fair to all sides" (consumers, PTT, the government) looks likely:
"The principle is that after maintenance costs, debt payments and other charges, the revenues will be split between PTT, the Finance Ministry and public consumers"
Power prices could actually decline under the compromise solution rather than being passed onto consumers in the form of higher power prices as PTT originally claimed might be necessary.
The key problem: Accurately assessing PTT's revenues is critical for determining rental charges for the gas pipeline.
A formula for rental charges was proposed last week:
The Treasury Department last week indicated that lease charges to PTT for gas pipeline assets ordered transferred to the state could amount to 7.9 billion baht over a 30-year period, including 1.6 billion baht in retroactive fees dating back to PTT's privatisation in October 2001.Rates under the preliminary proposal would be set at 5% of PTT's gas transmission revenues per year, adjusted for a 3% annual increase to account for inflation.
However, this "original formula" was erroneously "based on 2001 estimates of average pipeline transmission." Current revenues rather than 2001 revenues needed to be used to calculate rental charges:
"...gross pipeline revenues for PTT were 5.7 billion baht per year, or significantly higher than the 3.6 billion in annual revenues originally estimated last week...
Some of the details were given of the calculations used to determine fair rental rates for PTT. Apparently the original 18% Return On Equity (ROE) guaranteed to PTT on its equity investment in the pipeline is being reduced to 12.5%:
"Return on equity for the [pipeline] investment should be around 12.5%. We are looking at the figures to see what the most suitable rate should be," Mr Amnuay said.PTT invested 50 billion baht in the pipeline, with 25% financed from cash and the rest through loans.
Pipeline transmission rates have been set based on an assumed 18% return on equity for PTT's equity investment and a 10.5% interest rate for the debt component. The preliminary plan used an ROE and debt financing cost of 7.5%, resulting in the earlier rental charge of 5% of revenues over a 30-year period.
Vocabulary:
divestiture - taking away something from someone
up in the air - not decided yet, people do not know what is going to happen
a pit stop - stopping for a short during a car race for refuelling and repairs
a compromise - accepting less than you want to satisfy the wishes of others
passed onto consumers - consumers have to pay for it instead of it coming out of company profits
the key problem - the most important problem
is critical for - is important for
a formula - a procedure for calculating a number
preliminary - before the final one
a lease - a legal agreement that allows a person to use something for a period of time in exchange for money
transferred - moved from one place to another place
retroactive - a decision made now applies to all cases starting from some date in the past
dating back to X - from the time in the past X
privatisation - making a government owned company privately owned
adjusted - changed
increase to account for inflation - increase price because inflation has made things more expensive
erroneously - done in error
transmission - sending something to a different place
gross revenues - revenues before expenses have been subtracted out
equity investment - stock investment, became owner, didn't just lend money
Return On Equity (ROE) - "Return on equity measures how much a company earns within a specific period in relation to the amount that's invested in its common stock. It is calculated by dividing the company's net income before common stock dividends are paid by the company's net worth, which is the stockholders' equity." (Source: Morgan Stanley Dictionary of Financial Terms, also see Wikipedia)
