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(Translation) No. CK-06-0000-PO-L-0026 January 25, 2006 Re: Clarification on Purchase of Ordinary Shares in Water Flow Co., Ltd. Attn.: The President of the Stock Exchange of Thailand Reference is made to the fact that the Stock Exchange of Thailand informed CH. Karnchang Public Company Limited to clarify the purchase of ordinary shares in Water Flow Co., Ltd. The Company hereby clarifies the details of sale and purchase of such shares as follows: 1. The reason why the Company informed that Thai Tap Water Supply Co., Ltd. would purchase shares from Advance Assets Associates Limited, despite the absence of the name of Advance Assets Associates Limited in the Shareholder Register, is because Thai Tap Water Supply Co., Ltd. informed the Company that it had been informed that Advance Assets Associates Limited wished to sell shares in Water Flow Co., Ltd. Advance Assets Associates Limited had entered into negotiations with the Thames Group and CH. Karnchang Holding Co., Ltd., which were the existing shareholders in Water Flow Co., Ltd., since around July , August 2005. However, subject to the conditions of the existing shareholder agreement of Water Flow Co., Ltd., the Thames Group was first required to sell shares to the existing shareholders. Advance Assets Associates Limited thus purchased shares in Water Flow Co., Ltd. from CK. Office Tower Co., Ltd., (CK. Office Tower Co., Ltd., purchased shares from Mahasiri Siam Co.,Ltd.) one of the existing shareholder group at such time, and the shareholder who executed the sale and purchase agreement with Advance Assets Associates Limited was CK. Office Tower Co., Ltd. Nevertheless, the registration of change of shareholder's name was pending the processing, as the existing shareholder who intended to sell shares would be required to first make the relevant arrangements to seek approval from the institutional lenders so as to comply with the requirements of the credit facility agreement. In this regard, when Thai Tap Water Supply Co., Ltd. so informed the Company, the Company then convened the Meeting of the Executive Board to seek approval for execution of such transaction. 2. As for the reason why Thai Tap Water Supply Co., Ltd. did not purchase such shares directly from Mahasiri Siam Co., Ltd. and CK. Office Tower Co., Ltd., and as it was recently noticed that as at November 22, 2005, Mahasiri Siam Co., Ltd. and CK. Office Tower Co., Ltd. were shareholders, while the Company's Executive Board passed a resolution for execution of such transaction on January 10, 2006, the duration of which was less than 2 months, Thai Tap Water Supply Co., Ltd. did neither receive any contact nor information that Mahasiri Siam Co., Ltd. and CK. Office Tower Co., Ltd. intended to sell their shares in Water Flow Co., Ltd. Subsequently, Thai Tap Water Supply Co., Ltd. informed the Company that Advance Assets Associates Limited contacted Thai Tap Water Supply Co., Ltd. that it had already purchased all shares from the existing shareholders as stated above and intended to sell such shares, and then requested Thai Tap Water Supply Co., Ltd. to consider such offer in and around October, November 2005. 3. Decision of Thai Tap Water Supply Co., Ltd. on purchase of shares in Water Flow Co., Ltd. When Advance Assets Associates Limited contacted Thai Tap Water Supply Co., Ltd., offering to sell shares in Water Flow Co., Ltd. to Thai Tap Water Supply Co., Ltd., the management of Thai Tap Water Supply Co., Ltd. acknowledged such offer and negotiated with Advance Assets Associates Limited in and around November 2005. It was of the view that such purchase would benefit the good management, as holding of all shares in Water Flow Co., Ltd. would cause the optimum benefit to Thai Tap Water Supply Co., Ltd. in respect of the management restructuring in preparation for prompt listing of the company on the Stock Exchange of Thailand. It was therefore proposed to convene the Board of Director's Meeting to consider proposing the matter to the Meeting of Shareholders for approval of the capital increase and the purchase of such shares. In this regard, upon receipt of the offer for sale of such shares, the management then engaged financial advisors to evaluate the share price to be sold and purchased to serve as information in support of consideration by the Board of Directors of Thai Tap Water Supply Co., Ltd. and the Executive Board of CH. Karnchang Public Company Limited. The procedures from negotiations until conclusion of the transaction are as follows: November 23, 2005 A service contract was executed to engage Far East Capital Advisory Co., Ltd. as an independent financial advisor to evaluate the share price. December 6, 2005 Draft report on price evaluation by Far East Capital Advisory Co., Ltd. was received. December 16, 2005 The report on price evaluation by Far East Capital Advisory Co., Ltd. was received. December 9, 2005 Thai Tap Water Supply Co., Ltd. issued a notice of the Meeting of the Board of Directors with the agenda regarding the capital increase and the purchase of shares in Water Flow Co., Ltd. December 19, 2005 The Board of Directors of Thai Tap Water Supply Co., Ltd. resolved to approve the capital increase in the number of 2,500,000 shares and the purchase of shares in Water Flow Co., Ltd., and then issued a notice of the Extraordinary General Meeting of Shareholders No. 1/2006. December 21, 2005 The Board of Directors of CH. Karnchang Public Company Limited resolved to approve the purchase of capital increase ordinary shares in Thai Tap Water Supply Co., Ltd. in the specified proportion, whereby Thai Tap Water Supply Co., Ltd. intended to use the proceeds from the capital increase to purchase shares in Water Flow Co., Ltd. January 5, 2006 A service contract was executed to engage KPMG Phoomchai Business Advisory Limited as an independent financial advisor to evaluate the share price. January 10, 2006 Executive Summary of KPMG Phoomchai Business Advisory Limited was received. January 10, 2006 The Executive Board of CH. Karnchang Public Company Limited resolved to grant approval for Thai Tap Water Supply Co., Ltd. to purchase shares in Water Flow Co., Ltd. January 10, 2006 The date of the Extraordinary General Meeting of Shareholders No. 1/2006 of Thai Tap Water Supply Co., Ltd. January 10, 2006 The Board of Directors of Thai Tap Water Supply Co., Ltd. issued a notice of the Extraordinary General Meeting of Shareholders No. 2/2006. January 16, 2006 Draft report on price evaluation by KPMG Phoomchai Business Advisory Limited was received. January 18, 2006 The report on price evaluation by KPMG Phoomchai Business Advisory Limited was received. February 1, 2006 The date of the Extraordinary General Meeting of Shareholders No. 2/2006 of Thai Tap Water Supply Co., Ltd. 4. Details of Advance Assets Associates Limited as informed by Thai Tap Water Supply Co., Ltd. are as follows: Director :Mr. Apinan Punyapapat Shareholder :Mr. Apinan Punyapapat Business category :Operation of business of investment in various public utilities Date of incorporation:January 5, 1995 Other details and agreements of the sale and purchase transaction are the information as agreed upon by the seller and the purchaser to be treated as the confidential information. The Company thus was not informed by Thai Tap Water Supply Co., Ltd. 5. Assumptions in price evaluation by Far East Capital Advisory Co., Ltd. as independent financial advisor for such evaluation: such evaluation have 5 models 1) Book Value 2) Adjusted Book Value 3) P/E Ratio 4) P/BV Ratio 5) Discounted Cash Flow Thus, it was of the view that the evaluation of share value by way of the net present value of cash flow was the only method to reflect the potential growth of the business in the future. The share value of the business derived from this method would represent the real value in the long term, as this method would include the impact from business operation and impact on all items in the financial statements of the business in the future. The significant assumptions of financial forecast of Water Flow Co., Ltd., can be summarized as follows: 1. Forecast period As per the term of the concession agreement executed by TTW and the Provincial Waterworks Authority, namely 30 years, calculating from the present value of cash flow in the year 2006 until the end of the concession agreement (the total forecast period of 28 years and 165 days) 2. Main income: Fees for management and maintenance of public utilities in tap water project of TTW - As per the management service contract executed by Water Flow Co., Ltd. and TTW with the calculation method and service charge rates based on the inflation rate, in the year 2005, the service charge rate amounted to Baht 3.363727 per cubic meter (according to invoices of the business). The service charge rates would be increased according to the inflation rate*. - In the year 2005, the average production rate was 0.184 million cubic meters per day (based on the average production volume from January 1, 2005 to December 15, 2005) and the production rate would be increased in the subsequent years (as per the forecast by the executives of the business) until reaching the volume of 0.30 million cubic meters per day in the year 2009, as specified by the Provincial Waterworks Authority. 3. Cost of Goods Sold - In the year 2005, the average chemical substance cost was Baht 0.48 per cubic meter and the average energy charge was Baht 1.61 per cubic meter (based on the average chemical substance cost and the energy charge from January 1, 2005 to November 30, 2005). The rates of the chemical substance cost and the energy charge would be increased according to the inflation rate*. 4. Selling and administrative expenses These can be summarized in main expenses as follows: - General administrative expenses in the year 2005 were approximately Baht 24 Million (estimated from the total general administrative expenses from January 1, 2005 to November 30, 2005). The general administrative expenses would be increased by 6 percent per year. - Expenses in raw water quality test were approximately Baht 6 Million (estimated from the total expenses in raw water quality test from January 1, 2005 to November 30, 2005). The expenses in raw water quality test would be increased according to the inflation rate*. - Other expenses were approximately Baht 9 Million (estimated from the total other expenses from January 1, 2005 to November 30, 2005). Such other expenses would be increased according to the inflation rate*. 5. Capital expenditure - In the year 2005, the forecast of additional investment in machinery and equipment was 5 percent of the existing machinery and equipment in the year 2004 (the rate of the additional investment in machinery and equipment would be increased according to the inflation rate*). 6. Current assets and current liabilities turnover - Trade accounts receivable and notes receivable average approximately30 days- Trade accounts payable (expenses in energy) average approximately15 days- Trade accounts payable (expenses in chemical substances)average approximately60 days** * Inflation rate refers to the October 2005 Inflation Report issued by the Bank of Thailand. ** From the year 2024 onwards, the account payable turnover for the expenses in chemical substances was 0 day. Price evaluation by KPMG Phoomchai Business Advisory Ltd. have 2 models 1) Discounted Cash Flow (DCF) 2) Dividend Discount Model (DDM) from 2 models the financial advisor get the valuation about Baht 7,700 -Baht 8,300 per share As the management of Thai Tap Water Supply Co., Ltd. had considered proposing the information on price evaluation to the Board of Directors of Thai Tap Water Supply Co., Ltd. and the Executive Board of CH. Karnchang Public Company Limited, Thai Tap Water Supply Co., Ltd. then engaged two financial advisors for evaluation of the price of shares in Water Flow Co., Ltd., with the resulting price of more than Baht 7,000 per share, namely, at the price range between Baht 7,600 - Baht 9,300 per share and Baht 7,700- Baht 8,300 per share respectively, which is higher than the price for the Company to purchase such shares from Advance Assets Associates Limited. 6. Thai Tap Water Supply Co., Ltd. is subject to a condition precedent to the execution of the transaction for sale and purchase of such shares to transfer the ownership and pay for such shares when the special resolution is passed by Thai Tap Water Supply Co., Ltd. to approve the purchase of such shares. In this respect, the payment for shares and transfer of ownership shall be made by no later than March 3, 2006. 7. The Executive Board of CH. Karnchang Public Company Limited is entitled to grant approval for Thai Tap Water Supply Co., Ltd. to enter into such transaction, as the Board of Directors' Meeting has authorized the Executive Board to do any acts for the benefit of business management and operation in accordance with the Company's objectives. As for the opinion of the Board of Directors on consideration of the suitability for executing such transaction, the Board of Directors has taken into account the optimum benefit to the administration and management of Thai Tap Water Supply Co., Ltd. The purchase of such shares from Water Flow Co., Ltd. would benefit Thai Tap Water Supply Co., Ltd. in preparation for listing of the company on the Stock Exchange of Thailand. Furthermore, the price approved by the Board of Directors for such transaction is considered justifiable because the price of shares in Water Flow Co., Ltd. to be purchased by Thai Tap Water Supply Co., Ltd. from Advance Assets Associates Limited is lower than the price evaluated by the two independent evaluators. Please be informed accordingly. Very truly yours, - Signature - (Mr. Anukool Tuntimas) Executive Vice President Human Resource and General Administration ?? ??f ?? ?? 6