Energy: Power Plant

- Gulf found guilty in bidding. Contract to be canceled by Energy Ministry

Permanent Secretary to the Ministry of Energy received a report from the

panel installed by the NCPO to monitor the state budget, notifying that Gulf

Energy Development Company Limited (Gulf JP group) was found guilty as

the sold winner in the bidding of two contracts of a natural gas fired power

plant or the third IPP project (IPP3) with total capacity of 5,000 MW, for the

bidding process had not been transparent and was unfair to other private

bidders. In this regard, the panel requested that the Energy Ministry cancels

the power purchase contract between the Electricity Generating Authority of

Thailand (EGAT) and Gulf JP Group.

- Gulf contract to be voided, bringing hope to power companies

Two scenarios that will happen if the Energy Ministry cancels the power

purchase contract made with Gulf are 1) other bidders in the short list will

be considered for IPP3 project instead, which are EGCO and GLOW or 2) the

natural gas fired power purchase plan will be included in PDP 2015 and the

bidding will be started again. In our view, the second scenario is more

likely, which will benefit all power companies, i.e. RATCH, EGCO, and

GLOW, as they will have an opportunity to join the bidding. However, the

contract cancellation will not affect the security of domestic power use

because initially the Gulf project would not start supplying power into the

system until 2021, which means there is still time for the new bidding.

- EGCO: Top pick

We still select EGCO(Buy:FV@B188) as a top pick. EGCO's earnings are

expected to rebound most remarkably in the next three to five years

because the company is currently working on many power plant projects. It

is also a potential winner of the IPP bid since it already has land and

transmission line system available in Rayong