reason, or in the event that we have any disagreement with the Ministry of Energy regarding the agreement, or the agreement is breached or terminated, we may not be able to continue operating the refinery and this could have a material adverse effect on our business, cash flow, financial condition, results of operations and prospects. 1.12 We are engaged in the refining business and aromatics business, which are highly competitive, and competitors that have more extensive retail outlets, or have greater financial resources may have a competitive advantage. The refining industry and the aromatics industries operate in highly competitive markets with respect to the sale of refined petroleum products in the Thai domestic market and with respect to the sale of aromatics and other chemical products in the Thai domestic market and international spot market. We compete principally with six other domestic petroleum refiners for available supplies of crude oil and other feedstocks and for customers for our refined petroleum products. Because of the commodity nature of most of refined petroleum products, competition in the Thai domestic and international markets for refined petroleum products is based primarily on price, adjusted to account for product specifications and transportation costs. As a result, we generally are not able to compete based on product differentiation and may not be able to pass on price increases to our customers. We also face increased competition due to increased refining capacity. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our offtakers, such as natural gas, coal and renewable energy sources. If we are unable to compete effectively with these competitors, both within and outside our industry, our business, cash flow, financial condition, results of operations and prospects may be adversely affected. The retail sector has become increasingly competitive. We compete primarily on price and, to a lesser extent, on other factors such as service standards, product quality, marketing programs, and location of stations. We also compete for dealers. We face strong competition from the other fully integrated oil companies, such as PTT, which is majority owned by the Government, that have increased their efforts to capture retail market share in recent years. PTT, has a significant market share and typically is the first to implement price changes for retail products. We generally have to respond to price reductions made by our competitors, including PTT, to prevent loss of volumes sold. For example, in 2006, our retail gasoline and diesel sales prices did not increase in line with MOPS due to domestic competition, which adversely affected our margins. When we respond to low prices set by our competitors, or to the extent our competitors do not react to increases in crude oil prices by increasing retail fuel prices in a timely fashion or set prices at low levels, our retail margins may decline or become negative. Some of our competitors also have materially greater financial and other resources than we have. Such competitors have a greater ability to bear the economic risks inherent in all phases of our industry. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our commercial and retail customers. 1.13 ExxonMobil is not obligated to provide loans or other financial assistance to us. During and after the Asian financial crisis in the late 1990s, ExxonMobil provided us with unsecured short-term and long-term loans consisting of various zero coupon bonds. On December 7, 2007, all such loans were refinanced with third party loans. ExxonMobil also currently provides us with certain uncommitted credit facilities. ExxonMobil is not obligated to grant loans to us or provide any other type of financial assistance and there can be no assurance that they will do so in the future. We may also not be able to obtain financing from third parties on terms acceptable to us or at all. In the event we are unable to secure required financing on acceptable terms or at all in the future, our business, cash flow, financial condition, results of operations and prospects may be materially adversely affected. 1.14 Our future success depends on our key personnel. Our success may depend on the continued contribution of our senior management and other key personnel, such as personnel with localized knowledge and certain expertise, many of whom may be difficult to replace. These personnel include our Manufacturing Director, Refinery Process Manager and Chemical Manager, who have been trained and developed by ExxonMobil through various training, education and job rotation programs. The services of some of our senior management and key personnel have also been provided or assigned to us by ExxonMobil affiliates as part of the support services provided by ExxonMobil or job rotation programs among ExxonMobil affiliates. Our operations could suffer from the loss of such personnel for any reason, including job rotation or other assignments, if we are unable to replace such personnel. Our success also depends on our ability to attract and retain qualified personnel. Competition for qualified personnel in the refining industry is intense and there are a limited number of people with knowledge of and experience in the refining industry in Thailand. If we are unable to attract or retain our senior management or if members of our senior management are unable or unwilling to continue in their present positions or were to join a competitor or form a competing company, we may not be able to replace them readily or at all. Efforts to retain or attract key personnel may also result in significant additional expenses, which could adversely affect our profitability. Furthermore, we do not carry any "key person" insurance that would provide us with proceeds in the event of the death or disability of any of our personnel. In addition, if we cease to be an ExxonMobil affiliate as a result of ExxonMobil ceasing to have a controlling interest in our Company, we may no longer be able to retain or have access to key personnel from ExxonMobil affiliates overseas. Any of these occurrences may have a material adverse effect on our business, cash flow, financial condition, results of operations and prospects. 1.15 We may be adversely affected by fluctuations in the value of the Baht against foreign currencies, particularly the U.S. Dollar. The reporting currency of our financial statements is Baht and, accordingly, to the extent that our sales and purchases are denominated in a foreign currency, we are exposed to changes in exchange rates. A depreciation of the Baht against foreign currencies, primarily the U.S. dollar, can adversely affect us because, among other things, it causes: - an increase in the amount of Baht required to purchase crude oil, fuel gas, other imported feedstocks, equipment and services, such as transportation from overseas sources, the costs of which are denominated primarily in U.S. dollars; - foreign exchange translation losses on our crude oil accounts payable because we record the estimated cost of crude oil purchases on the bill of lading date using the exchange rate applicable on that date but receive the invoice, which is denominated in U.S. dollars and converted to Baht, typically the fourth working day of the calendar month following the issue of the bill of lading; - an increase in the amount of Baht required to make payments on any foreign currency-denominated debt; and - foreign exchange translation losses on any foreign currency-denominated liabilities. Any adverse economic conditions in Thailand incidental to the depreciation of the value of the Baht could also increase energy prices in Thailand, increase prices of crude oil used in our refining process and reduce overall demand for our products and those of our customers. Although we have in the past been able to pass on to our customers a significant amount of the increases in crude oil costs due to the depreciation of the Baht, we cannot assure you that we will continue to be able to do so in the future, which could adversely affect our business, financial condition, results of operations and prospects. Commercial sales of our refined petroleum and aromatics and other chemical products sold domestically and retail sales of our refined petroleum products are linked to the U.S. dollar- based regional refined product prices but are still quoted and invoiced in Baht. However, if the U.S. dollar appreciates significantly, we may not be able to pass on such higher costs to our customers due to market competition or possible Government intervention. Conversely, a decline in the value of the U.S. dollar against the Baht will have a negative effect on revenue as reported in Baht because the Baht value of our U.S. dollar-denominated revenues will decline. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" Factors Affecting Our Performance" Fluctuations in Foreign Exchange Rates." As of December 31, 2007, we did not have any outstanding foreign currency forward contracts or any foreign currency swap contracts. As a result, fluctuations in the value of the Baht against the U.S. dollar have affected, and will continue to affect, our business, financial condition, results of operations and prospects. 1.16 Our leverage may limit our financial flexibility. As of December 31, 2007, we had total debt of Baht 34,710 million and stockholders' equity of Baht 24,394 million, and our proportion of total debt to total capitalization and current borrowings was 58.7%. We may incur additional indebtedness in the future although our ability to do so may be restricted by existing bank credit facilities. The level of our indebtedness will have several important effects on our future operations. Our ability to meet our debt service obligations and to reduce our total indebtedness will be dependent upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. We cannot assure you that our business will continue to generate sufficient cash flow from operations to service our indebtedness. If we are unable to generate sufficient cash flow from operations, we may be required to sell assets, to refinance all or a portion of our indebtedness or to obtain additional financing. Such refinancing might not be possible and additional financing might not be available on commercially acceptable terms or at all. Certain of our bank credit facilities impose financial and other restrictions on us. Covenants contained in the credit facilities and relating to certain of our other indebtedness limit, among other things, our ability to incur indebtedness and require maintenance of a certain financial coverage ratios. Failure to comply with such covenants may result in a default with respect to the related debt under the credit facilities or such other indebtedness and could lead to acceleration of the payment of such debt or any instruments evidencing indebtedness that contain cross-acceleration or cross-default provisions. In such a case, we might not be able to refinance or otherwise repay such indebtedness and our business, cash flow, financial condition, results of operations and prospects may be materially adversely affected. 1.17 A significant portion of our refinery workforce is unionized and we may face labor disruptions that could interfere with our refinery operations. A significant portion of our refinery workforce is unionized and is covered by a collective labor agreement. We have not previously experienced a work stoppage as a result of industrial action. Labor laws in Thailand provide an established mechanism for orderly resolution of labor disputes in the petroleum business that includes labor arbitration under the supervision of the Ministry of Labor of the Kingdom of Thailand. We went through two such arbitrations with such labor union in 2005 and 2006 to resolve disputes over our collective labor agreement. Both arbitrations resulted in satisfactory resolutions. However, changes in labor trends and perceptions could elicit less favorable rulings in future arbitrations which could significantly impact labor costs. A labor disturbance at our refinery could have a material adverse effect on the refinery's operations which could, in turn, have a material adverse effect on our business, cash flow, financial condition, results of operations and prospects. 1.18 Pending or future litigation could adversely affect us. We are defendants in a variety of cases in the ordinary course of business. For a description of our material outstanding litigation. In particular, we have filed an appeal on a fine for Baht 436 million in connection with a criminal case based on alleged underpayment of duties. Although we believe that we have several strong defenses to the claims asserted in this case and have appealed the judgment in the Thai Appeals Court, we cannot provide any assurance that we will be successful on our appeal. Any significant new litigation with an unfavorable outcome could have a material adverse effect on our business, cash flow, financial condition, results of operations and prospects. 1.19 We are exposed to interest rate fluctuations. As of December 31, 2007, we had Baht 34,710 million of debt, all of which were floating rate obligations. We cannot assure you that interest rates will not increase in the future. A significant increase in prevailing interest rates would substantially increase our borrowing costs under our existing floating rate obligations or any new floating rate loans or any loan at higher fixed interest rates, which may materially adversely affect our business, cash flow, financial condition, results of operations and prospects. 1.20 We rely on a single supplier for natural gas, which is crucial to generating the electricity that we require to operate our production facilities. We use natural gas as a fuel source in our generators to produce electricity and steam. PTT is the only supplier and distributor of natural gas in Thailand and delivers natural gas to us through its gas pipeline system under a contract with us. See "Related Party Transactions" Other Agreements." Our generators are configured to use primarily natural gas. In the event that we experience a disruption of natural gas supply, we can use our internally-produced fuel gas or we can purchase electricity from third parties, such as EGAT Public Company Limited, as an alternative. The use of our internally-produced fuel gas would reduce our revenues because this fuel gas could otherwise have been sold to third parties. The use of electricity purchased from third parties would increase our cost of sales. In addition, we may not be able to run our production facilities at current levels solely on our internally-produced fuel gas or electricity purchased from third parties. Consequently, any disruption in the supply of natural gas to us by PTT may materially adversely affect our business, cash flow, financial condition, results of operations and prospects. 1.21 We rely on the pipeline owned and operated by Thai Petroleum Pipeline Company Limited ("Thappline") and other third parties to distribute our refined petroleum products. Over 50% of our refined petroleum products are distributed throughout Thailand from our refinery through the multi-product pipeline owned and operated by Thappline. The remainder of our refined petroleum products is distributed via coastal vessels or trucks. We distribute our exported fuel oil through a berth owned by a third party, PTT. Any interruption in the use of the pipeline or any damage to distribution terminals could adversely affect our business, cash flow, financial condition, results of operations and prospects. 1.22 We sell refined petroleum products through independent dealers. As of December 31, 2007, we had 374 independent dealers that operated 423 service stations. We have had disagreements with certain of our independent dealers in the past relating to issues such as the provision of rebates and the sale of non Esso products under our brand. Although none of these disagreements in the past have materially affected our business, we cannot assure you that any future disagreements with one or more of our independent dealers would not materially adversely affect our retail fuel operations. 2. Risks Relating to the Ownership of Our Shares 2.1 Future sales of our Company's shares, and the availability of large amounts of our Company's shares for sale, could depress our share price. Upon completion of the combined offering and the listing of our Company's shares on the SET, a total of 845,833,300 of our shares, comprising 25.0% of our outstanding shares, will be freely tradable on the SET, assuming the over-allotment option is not exercised, or 930,416,600 of our shares, comprising 26.8% of our outstanding shares, will be freely tradable on the SET, assuming the over-allotment option is exercised in full. Under rules issued by the SET, shares comprising an aggregate of 55% of the post-offering share capital of our Company cannot be sold for a period of one year from the date of commencement of trading of our shares on the SET. However, up to 25% of these shares may be sold after the period of six months after trading commences on the SET and the rest of these shares may be sold after one year after trading commences on the SET. As these lock-up periods expire, you may be adversely affected by a reduction in the market price as a result of any sales of shares by our principal shareholders. In addition, we and our principal shareholders, namely EMIHI and the Ministry of Finance have agreed with the initial purchaser and the Thai lead underwriter that from the date of this offering circular until the date that is 360 days after the closing date of the combined offering, we and they will not, without the written consent of the initial purchaser and the Thai lead underwriter, offer, sell or otherwise dispose of any securities of the same class as the ordinary shares offered in the combined offering, or any securities convertible into or exchangeable for our securities of the same class as the ordinary shares offered in the combined offering. We cannot predict the effect, if any, that future sales, or the availability of shares for future sale, will have on the market price of our shares prevailing from time to time. Sales of substantial amounts of shares in the public market following the combined offering, or the perception that such sales may occur, could adversely affect the market price of our shares on the SET. 2.2 The over-allotment agent may not engage in stabilization activities and may be required to cease engaging in stabilization activities. In connection with this combined offering, the over-allotment agent, on behalf of the initial purchaser and the Thai lead underwriter, may engage in transactions that stabilize the market price of our shares traded on the SET. Neither we, the selling shareholder, the initial purchaser nor any of the Thai underwriters makes any representation or prediction as to the direction or magnitude of any effect that such transactions may have on the price of the shares. In addition, neither we, the selling shareholder, the initial purchaser nor any of the Thai underwriters makes any representation that the over-allotment agent will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice. 2.3 We may not be able to pay dividends. Our ability to declare dividends in relation to our shares will depend on our future financial performance, which, in turn, depends on successfully implementing our strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand and selling prices for our products, costs of raw materials and other factors specific to our industry or specific projects, many of which are beyond our control. Although on March 28, 2008, our board of directors approved a plan to pay an interim dividend of Baht 1 per share, there is no assurance that this interim dividend will in fact be declared by our board of directors. Lawsuit As of December 31, 2007, we are subject to a variety of claims in the ordinary course of business. In Thailand, several regulatory and other laws carry criminal liability under which our directors and senior management could be liable. Other than as described below, we are not involved in any material litigation or legal proceedings, which, we believe, would negatively affect our total assets of more than 5% of our shareholders' equity as of December 31, 2007. Between 1987 and 1988, we imported non-branded lubricant basestocks for manufacture of lubricants. Customs duty was assessed by the customs department on the imports at the time of import and assessed duties were paid accordingly. Several years later, the customs department claimed that the basestocks should have been declared as branded goods on the basis that they had the same specifications as our branded basestocks, and assessed additional duties on that basis. We have paid a sum of Baht 17 million in civil claims in relation to this matter. A criminal case based on alleged misdescription of the basestocks was filed in 1999 by the public prosecutor and we were fined Baht 436 million. We filed an appeal against (more)