JOYCE LEUNG (21) F.4C WINNIE TANG (31) F.4C ASSIGNMENT: NEWS REPORT TITLE: Protests stall Thai privatization plan Agencies FROM: SOUTH CHINA MORNING POST DATE: 23/4/2004 BRIEF DESCRIPTION: Many Thai workers of the Thai’s state electricity company protested again the privatization of EGAT on 22nd April, 2004. EGAT was a state owned company but the government planned to launch an initial public offering of EGAT shares in late April and list the company on Thai stock exchange on May 12. The protesters claimed that the privatization of EGAT would lead to the control of the company’s assets being seized by the foreigner investors. Also, the privatization would lead to layoffs and higher electricity prices. This would seriously affect their daily life. So they strongly disagreed with the project. At last, the government announced that the deal would be postponed. But the postponing of the deal did not mean it had stopped. ANALYSIS: EGAT is a state electricity company. It is an example of secondary production. Secondary production is the process of turning raw material into semi-finished goods and finished goods. The electricity company turning the raw materials coal into finished goods electricity by burning the coal. EGAT privatizes and become a listed company. They sell 25% shares of the company to the foreigners. It is around HK$13billion. They sell the shares because they are run on commercial principles and they are aim at maximizing the profit. EGAT issues shares, it is a way to raise capital. For the people who buy shares, it is another opportunity to invest. They gain when EGAT makes a profit and distributes dividends to shareholders and the when the price of the shares increases. The shares the EGAT issues can be divided into two types. They are preference shares and ordinary shares. The two types of the shares are different. Firstly, there is a fixed rate of dividend for the preference shares but ordinary shares did not. Secondly, Preference shareholders will receive a dividend before ordinary shareholders but ordinary shareholders are the last to receive a dividend. Thirdly, when the company winds up, preference shareholders will get back their capital before ordinary shareholders but ordinary shareholders are the last to get back their capital. Lastly, preference shareholders do not have voting rights in shareholders’ meetings but ordinary shareholders have voting rights in shareholders’ meetings. So preference shareholders had a lower risk than the ordinary shareholders. EFFECT: ROLE PLAY: FROM THE POINT OF VIEW OF WORKERS According to the newspaper cutting, workers of the EGAT Company strongly disagreed with the privatization as the privatization will bring them a series of problems. First, for a public company, shares are freely transferable. If more than 50% of the shares are bought by outsiders, the existing shareholders will lose control of the company. So, workers may face the problem of unemployment. Second, the company is managed by the board of directors who are not the major shareholders. They may be employed managers who have little incentive to make profit for the company. If the company earns less profit, worker may receive a lower wage rate. ROLE PLAY: FROM THE POINT OF VIEW OF EGAT Co. As this stage, our company is a public corporation which is set up by statute and is wholly owned by the government. We run on commercial principal which is aim at making profit. However, our company has to bear own loss. So, we turn our company to limited company in order to enjoy the following advantages. First, the liability of shareholders is limited to the capital they have invested in the company. Our personal properties will not be used to pay off any further debt of the firm. Risk is lower. Second, the low risk attracts investors and there is no limit to the number of shareholders for the public company. This helps raise capital easily for the expansion of firms. Third, shares can be bought and sold easily, especially for public companies. Investor can get back cash without loss. Fourth, a limited company can afford to employ professionals in the board of directors who will run the firm efficiently. Fifth, it the shareholders die or withdrew the running of the limited company will not be affected. Sixth, to maximize profit, our company has to respond to market demand. It will offer consumers a greater variety of goods and services. Seventh, we aim at making profit and faces lots of competition, it always seeks to improve. Effect According to the newspaper cutting, the EGAT Company will layoff the labour in order to reduce production cost. Thus, it leads to unemployment. The demand for labour represents the number of jobs available. Unemployment means that there is a surplus in the labour market. This implies that the wage rate is above the equilibrium level, and the amount of workers supplied exceeds the number of jobs available. At W, there is a surplus in the labour market. P S Excess supply W D 0 Q Workers On the other hand, after privatisation, EGAT Company will aim at making profit and have incentive to reduce cost. So, they will increase the electricity price. However, the degree of necessity of electricity is high, demand tend to be inelastic because consumers can’t live without them. People have to stick to them even when price increases. When demand is inelastic, percentage decrease in quantity demanded is smaller than percentage increase in price. Gain is greater then loss. As a result, the total revenue of the company increases. P S2 Mid-point S1 GAIN LOSS 0 D Q