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high proportion of fuel oil production of which the price is always lower than crude price, the Company's gross refining margin was capped to a certain level depending on the fuel oil price. Thus, the Company has to attain the long-term resolution for converting fuel oil production to more value added product to enhance gross refining margin to be at the same level of the industry's. Therefore, the Company has adopted the Product Quality Improvement project (PQI) by installing the hydro-cracking unit as well as other associated units; these will reduce proportion of fuel oil production to the near level of other local and foreign refineries, and hence become a complex refinery. The Company expects that the project will consequently result increasing in EBITDA from average Baht 2,000-4,000 million per year to approximately Baht 6,000-8,000 million after its completion which is subjected to oil price. The project cost (included contingency reserve) is the total of Baht 15,369 million or equivalent to USD 378 million. Concerning to achievement, the Company has appointed CTCI Overseas Corporation Limited and CTCI (Thailand) Company Limited to be contractors of the PQI under fixed price, date certain, and performance guaranteed arrangement. The mechanical parts of the Project including three major units and its equipments - Vacuum Distillation Unit (VDU), Hydrogen Plant Unit (HPU), and Hydro-cracking Unit (HCU) has been completed. On April 25, 2009, the Project has been achieved the Major Provisional Acceptance conforming the major condition under term loan agreement. However, on May 21, 2009, the Company shut down Hydro-cracking Unit for repairing its automatic control valves which were damaged during final test run process. Yet, the project remains under responsibility of the contractor; plus, the damage is well covered by Construction All Risks insurance as well as the Delay in Start up insurance. Presently, the repair work had reached its completion, and the PQI is under the commissioning process. The Company expects to conduct the final performance test run within November 2009 that the EPC contractor must comply in accordance with the contract agreement to unburden itself and deliver the project back to the Company. 4.2 Foreign Exchange Another factor which may have impact on the Company's performance is the foreign exchange volatility (mostly Baht/USD). The Company pays for the feedstock in US dollar term and sells its product on US dollar-linked basis, and subsequently records transactions as trade payable and trade receivable respectively. Since the Company's assets are greater than liabilities', the appreciation of Thai Baht will cause the shrink in net assets value, Baht margin value, and vise versa. However, being aware of that risk, the Company has been managing to mitigate the risk by utilizing some market financial instrument. In addition, as completion of the loan refinancing on July 2, 2008, the Company has performed Cross Currency Swap (CCS) from Thai baht loan to Dollar link amounted USD 200 million following the policy to leverage the differences of US dollar liabilities balancing with revenue (natural Hedge) to protect the business from impact of the exchange rate fluctuations. Therefore, when the Baht depreciates, the Company will record loss from exchange rate and realize the increase revenue in the term of baht. But in the other hand, when the Baht appreciates, the revenue in the term of baht will be reduced however the Company will realize gain from the exchange rate. The referred CCS contracts affected from January 5, 2009 to September 30, 2013. 4.3 Gross Refining Margin Hedging (GRM Hedging) Although the Company has fully adopted PQI project to add long term business value, the oil price is likely to continually fluctuate according to fundamental factors both demand and supply as well as speculating, which directly affects gross refining margin. Being realized such risk, the Price Risk Management Committee (PRMC) consisted of high-level executives and related divisions was set up in 2006. PRMC is responsible in officiate prescribed hedging policy and objective as well as closely monitor the oil price market situation to minimize impact on business operations by utilizing some hedging instruments to determine the appropriate and level satisfied margin between product and crude in advance and/or inventory price management. As of September 30, 2009, the Company has outstanding hedging forward contracts of 5.03 million barrel, for the period of October 2009 to December 2010. 5. Environmental Management Accounting (EMA) Having the environmental concerns and social responsibilities, since 2005, the Company has prepared the environmental management accounting report (production line) and also published in the Sustainability Report. The environmental cost accounting helps the Company to keep track the related information, which is useful for enhancing the environmental management effectiveness, and resource utilization. The Environmental Management Accounting for the third quarter (Unit : Million Baht) 3rd Quarter 3rd Quarter Change 2009 2008 +/- Material Costs of Product Outputs 18,022 28,463 -10,441 : Consist of crude oil, ethanol, bio-diesel, chemical, energy and utilities in production Material Costs of Non-Product Outputs 23 3 +20 : Consist of slop and sludge oil, waste water, chemical surplus Waste and Emission Control Costs 26 23 +3 : Consist of maintenance cost of environmental control equipments and depreciation and other fees Prevention and Other Environmental 2 1 +1 Management Costs : Consist of monitoring and measurement cost, environmental management system expenses Benefit from by-product and waste -1 -4 +3 recycling : The revenue realization from liquid sulfur, glycerin, waste paper The above table shows that total expense in the third quarter of this year was lower than the third quarter of last year caused by the material costs of product outputs. Despite the increase of refining production in the third quarter of this year was higher than that of the same period of last year by 7.4 KBD, the average crude mix price for intake of this period was lower than that of the same period of last year by Baht 9.98 per litre. The material costs of non-product outputs increased by Baht 20 million or 6.7 times, mainly came from higher volume of the slop oil which had to rerun into the refining process since PQI is still commissioning. Waste and emission control costs increased by Baht 3 million or by 13.0% from the third quarter of last year due to higher chemical usage for waste water treatment according to higher production. For the prevention and other environmental management costs increased by Baht 1 million or 100% since the Company has placed an emphasis upon precaution by increasing frequency on the inspection of environmental quality.