Financial Risk Foreign Currency Exchange Risk The exchange rate volatility of the Baht against the USD directly and indirectly affected IRPC’s revenue and expenditure to a considerable extent. The company’s petroleum and petrochemical products as well as procurement of feedstocks, mainly crude oil, are settled in Baht while still being tied to USD-linked world market prices as is the case of project loans. The Company has adopted a risk management approach using natural hedge techniques to mitigate risks associated with exchange rate fluctuation by structuring its foreign currency-denominated loans and debentures proportional to income in foreign currencies. This risk management activity comes under the oversight, approval and monitoring of the Risk Management Committee to ensure it conforms to the risk management policy and remains within the company’s risk appetite. The company also engages in FX swaps to reduce its exchange rate risk exposure associated with export revenue in USD and USD-denominated expenditure on feedstocks. Funding & Liquidity Risk IRPC has devised a capital spending plan for ongoing business expansion and thus incurred a repayment burden for loans and maturing debentures. The company needs to secure adequate capital to meet the obligations at a reasonable cost of funds. The ability to obtain external funding depends on factors, such as operating results, financial status, credit rating of the company, petroleum, and petrochemical industry outlook as well as economic climate and money market conditions, domestic and international, etc. The company may be exposed to liquidity risk unless it continues to find external funding to maintain adequate working capital. IRPC’s risk management approach seeks to ensure adequate capital to fund its business plan. Capital is structured to keep key financial ratios at an appropriate level under good corporate governance while the company closely monitors factors affecting or related to financing options or its ability to secure funding at reasonable costs. At present, IRPC’s credit lines from financial institutions consist of a short-term loan of Baht 21,305 million for use as working capital, and a credit line of Baht 10,000 million that IRPC can borrow under a loan agreement with PTT, and a credit line of Baht 1,500 million that IRPC can lend to companies within the PTT Group for liquidity management. Capital Projects Risk IRPC stresses the importance of strategic investment projects, taking into account all aspects of risk. Special consideration is given to assessing the risks of new businesses within the company’s appetite framework. In 2022, a landmark project, Ultra Clean Fuel (UCF), to upgrade diesel quality from Euro 4- to Euro 5-standard compliance as required by the government in 2024. There are other potential projects being studied as part of the exploration of investment opportunities for synergy and diversification into new businesses. The company has since developed capital projects risk as follows: • To establish supervisory oversight with a view to rapidly develop competitive advantage while accelerating investment decision-making on new business opportunities for diversification. • To develop marketing and sales plans to accommodate product line extensions with suitable sales channels, marketability, and sufficient market demand. • To provide needed resources, such as personnel, financing, construction sites and utility systems, to support and drive projects to successful completion with a high level of efficiency. • To put in place progress tracking system and processes so that problems that arise can be solved promptly. 56-1 One Report 2022 96 IRPC PUBLIC COMPANY LIMITED
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