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