PTT pipeline divestiture:
What next?
By Jon Fernquest |
In the end, both business people and activists all seem to be relatively happy over Friday's PTT decision.
(See photos of activists and PTT president Prasert Bunsumpun smiling and celebrating on right, not together though)
The Supreme Administrative Court appears to have struck another one of those Buddhist middle way [Pali: majjhima patipada] compromises, so typical in Buddhist Thailand.
The fair resolution of the case, in which no side is completely the winner, is probably at the root of this happiness.
PTT will have to transfer gas pipelines back to the state according to Friday's administrative court ruling.
No one is sure yet whether the court ruling applies to PTT's entire 3,000 kilometre pipeline network. The transfer details will be finalised by Tuesday because that is the last cabinet meeting of the Surayud's interim government.
Stock prices had already dropped by 100 baht per share before the ruling and some analysts say that the true impact of the ruling on PTT's stock price should only be about 50 baht.
There are many details to be ironed out:
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Whether the order focuses only on onshore pipelines or also includes offshore pipelines was another issue requiring interpretation, as well as whether the transfer includes assets of PTT subsidiary Thai Petroleum Pipeline Plc. Around 70% of the pipeline network is located offshore in the Gulf of Thailand.PTT also needs to consider that its pipeline assets include assets developed after the company was transformed from a state enterprise into a public company, and thus it would deserve compensation from the government if they were transferred to the Finance Ministry.
At first glance PTT's pipeline assets don't seem to be that important in the overall scheme of things:
Prasert Bunsumpun, the PTT president, said the company's pipeline assets had a book value of 100 billion baht, or more than 10% of total group assets.The pipeline assets generated around 20 billion baht in revenue per year for PTT, a minute portion of the estimated 1.4 trillion baht in revenues projected by the energy conglomerate this year.
The rental rates that PTT will pay for use of the pipelines after the transfer is an issue. Setting the rental rates is complicated by the fact that PTT is a monopoly still owned largely by the government:
"...the Finance Ministry may choose to set a relatively low rate for PTT's use of land and pipeline assets to minimise the impact on end-users....A low rental rate would help PTT keep its operating costs stable. We also need to consider the impact [of the ruling] on gas buyers....
The Finance Ministry, which holds 52% of PTT, also needs to consider that charging commercial rates for pipeline usage would only take funds away from the company and push up energy costs."
There will be large transaction costs incurred including tax liabilities, but these are not expected to put much of a dent in PTT's revenue:
"He estimated total expenses for the transfer could exceed 10 billion baht, which would have little impact on PTT's cash flow. PTT posted nine-month net profits of 73.3 billion baht on revenues of 1.09 trillion."
(Source: Bangkok Post, Business, 15-12-07, temp-link1, temp-link2)
Vocabulary:
divestiture - the required transfer of an asset, here upon government order, the act of divesting (See Webster's dictionary)
an activist - a person who works to bring about social and political change through public campaigns
relatively - to a certain degree, perhaps not completely
a compromise - when people give up and sacrifice something they want in order to reach an agreement with other people (usually the other people also make a compromise)
strike a compromise - make a compromise
the middle way - the Buddhist practice of non-extremism, the path of moderation away from the extremes of sensual indulgence and self-mortification and toward the practice of wisdom, morality and mental cultivation [Pali: majjhima patipada] (See Wikipedia)
a resolution - a solution to a problem (such as a court case)
at the root of - is the main cause of
the ruling applies to x - x is included in the ruling
finalised - the arrangements for an agreement or plan completed and finished
iron out the details - make a final decision and agreement about the details (for example, in an order, ruling, or agreement)
offshore - located in the sea, not on land
a state enterprise - a company owned by the government
a public company - a company owned by stock shareholders (in PTT's case over 50% of these shares are also held by the government)
deserve - receive what it is just and fair to receive
compensation - 1. money received for doing something, 2. salary plus benefits such as health insurance, or 3. money received because of a loss or injury
at first glance - looking quickly at the overall situation (without examining the details)
in the overall scheme of things - considered as part of a larger system (not considered individually or in isolation from other things)
book value - the value of a company's stock on the balance sheet, equal to total assets minus liabilities, preferred stock, and intangible assets such as goodwill, how much the company would have left over in assets if it went out of business immediately (Source: investorwords.com)
a minute portion - a very small part of something
an energy conglomerate - a large company that owns different energy-related businesses
complicated by the fact that... - made more difficult to analyse and understand by the fact that...
transaction costs - the costs of buying something, of carrying out a transaction (costs in addition to the cost of purchase)
incur a cost - when the cost has its effect (sometimes when you buy something expensive like a machine or a factory, the cost is spread out over many years, incurring a little bit of the cost each year)
put a dent in - hurt, injure, cause damage to
