SCI Annual Report 2015

use both domestic and international. The Company and the subsidiary will store the iron at the minimal quantity by using
the experience and good relationship with the iron suppliers in making decision to purchase the raw materials and plan
for the production appropriately.
2. Risk from the dependence of main raw material distributor and producer
At present, the Company purchases the iron raw materials from 3-4 distributors. However, SCI purchased the raw
material from the distributor called Eastern Prosperity Co., Ltd. during 2012 – 2014 calculated as the average proportion
of 18.9 per cent and in 2015 in the average proportion of 13.21 per cent of total purchase of raw materials of SCI. AG&SCIMT
purchased the iron raw materials from the distributor called Udom Metal Trading Co., Ltd. (1975) during 2012 - 2014
calculated as the average proportion of 49.52 per cent and in 2015 in the average proportion of 50.10 per cent of total
purchase of raw materials of AG&SCIMT as such company could provide the iron in the quantity and type as demanded
by the Company and in reasonable price. Thus, if such producing company cannot provide the iron to the Company, the
Company’s production will be affected. In the part of zinc, the Company purchased all zinc from Padaeng Industry Public
Co., Ltd., the only one zinc producer in Thailand. Therefore, the Company has the risk from the dependence of such only
one iron and zinc producer and there may be the problem of shortage in iron and zinc if such distributor cannot supply
the raw materials as scheduled and the Company cannot seek for the raw materials from other sources in replacement
to be used in the production.
However, the Company will observe the situation closely and plans for the purchase of raw materials in advance.
There is the list of other distributors who can supply the raw materials. In the past, the Company had never encountered
the problem of severe shortage in the raw materials. There may be the problem of delay which the Company is certain
that the Company will not be affected or damaged from the purchase from such iron distributor. This is because at present
the state of excessive iron will remain in the market and the problem of shortage should not occur in these 3-4 years. For
the case of zinc, if the problem of zinc shortage occurs, the Company prepares the reserve plan in ordering the purchase
from foreign countries which will have higher cost than purchasing zinc domestically and the cost and profits of the Company
may be affected.
3. Risk from the impact of fluctuation of water quantity up above the Tat Slane Dam which will affect the income gained
from the distribution of electricity to Lao’s electricity state enterprise (EDL) following the electricity sale and purchase
contract as the hydroelectric dam power plant. Therefore, water is the main raw material used in the electricity
production. The main water source is from the rain water which has the limitation in the rain water amount. In each
duration, the rain water amount is uncertain and it is unpredictable depending on the climate and seasons in each year.
However, before implementing the construction of dam for producing electricity and before making the electricity
sale and purchase contract with EDL, the subsidiary has studied the water amount flowing into the reservoir area of
Tat Slane Dam really occurring in the past 20 years. This can be calculated to find the productivity of electricity production
of the hydroelectric power plant and can cooperate in specifying the Annual Forecasted Energy Output with EDL in the
electricity sale and purchase contract by using the statistics of water amount occurring in the past as the criteria. Thus,
the Company believes to be able to produce power for EDL in the amount close to the amount of electricity following
the specified objective. Besides, the proportion of income of Tat Slane when compared to the total income of the company
group is still not considered much.
Furthermore, as the electricity sale and purchase contract between TAD and EDL is the long-term contract in the
term of 30 years from COD as well as the electricity charge rate in each period is clearly specified, Tat Slane has the
source of income stably from making the long-term sale and purchase contract. As the water amount for the electricity
production in each month is different, there is the problem in the financial management of EDL and the repayment of
loan of Tat Slane to the bank. Thus, the MOU is made in the period of 3 years from 2014 to 2016. EDL will pay for the fixed
remuneration calculated from the Base Energy at 15 gigawatt – hour/year (GWh/Year) and the electricity charge rate
in such year.
If in 3-year combination, the Company produces the electricity more than the Base Energy or more than 45 GWh,
EDL has to pay for the fixed remuneration plus the excess. The electricity charge will be paid following the excessive electricity
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Annual Report 2015