2. Risk Factors and Risk Management

IVL and its group of companies manage business risks through
identification and mitigation. It is our endeavor to handle timely and
efficiently risks that may occur from changes in internal and external
environment. The following describes some of the significant risks that
could affect our business operations and financials.

Risks Relating to Our Businesses and Operations

We are parties to litigation that, if decided against us, could have a
adverse effect on our business, financial condition, results of
operations and prospects.

The industries in which we operate are characterized by high levels of
price and other competition. In addition, many of our products are
commodity products, and it may be difficult to have product
differentiation and pass on increased cost to customers. Other
competitive factors include product quality, specifications or product
performance, continuity and reliability of supplies to customers and
sustaining long-term customer relationships. We principally compete with
several large multinational companies in each of our business segments.
We also compete with numerous regional and/or specialized producers in
the markets for our polyester fiber products. Some of these competitors
may have greater market presence and/or financial and other resources
than us. In addition, margin pressure could arise from, among other
factors, limited demand growth and overcapacity in a relevant market
(for example, China whose domestic demand for PET resin may fall short
of the forecasted capacity increase), price reductions by competitors,
new industry players, industry consolidation, the ability of competitors
to capitalize on their economies of scale and create excess product
supply and the access of competitors to new technology which we do not
possess.

The continuous demand growth of the PTA, the PET resin, and polyester
fiber industries could result in overcapacity.

Our operating results reflect the historical cyclical pattern of the
PTA, PET resin, and polyester fiber industries, with periodic
overcapacity and resulting pressure on pricing. This cyclicality arises,
in part, from investments made at the top of the cycle (when margins are
high and funds are available), thereby shifting the balance of supply
and demand by new capacity coming on stream in large quantities.
Consequently, the industry has from time to time experienced periods of
overcapacity, such as when new plants are built and become operational,
and there can be no assurance that this will not recur. In the absence
of sufficient economic growth to generate increased demand or the
closure of facilities to mitigate the effect, new capacity can cause a
period of regional or global overcapacity which may lead to downward
margin pressure.

Our operations are dependent on the availability and cost of raw
materials.

Our operations are substantially dependent on the availability and cost
of our primary raw materials: PTA (limited to merchant purchases
primarily in USA) and MEG for our PET and polyester fiber and yarn
businesses, and PX for our PTA business. PX, PTA and MEG are oil and
natural gas derivatives, and are usually manufactured by large
petrochemical companies. Thus, the costs of production of PTA, PET and
polyester are affected by the international and domestic prices of crude
oil, natural gas and refined petroleum products. Our financial condition
and results of operations are thereby influenced by market prices for
crude oil, natural gas and refined petroleum products, which are subject
to the forces of international, regional and domestic supply and demand,
as well as other factors beyond our control.

The markets and prices for petroleum products may be influenced by
aggregate demand for such products (which can fluctuate with changes in
economic conditions and cycles, seasons and weather patterns), the level
of domestic and regional production, the prices and availability of
imports, the prices and availability of substitute fuels and the extent
and nature of governmental regulation and taxation. Worldwide supply
conditions and the price levels of crude oil may also be significantly
influenced by international groupings, which control the production of a
significant portion of the worldwide supply of crude oil, and by
political developments, especially in the Middle East. In addition,
factors such as domestic and foreign government regulations, weather
conditions, and competition from other energy sources also have an
impact on crude oil and petroleum product prices.

Any increase in raw materials costs without a corresponding increase in
selling price would reduce our operating results. Our ability to pass on
raw materials price increases is dependent upon market conditions and
our relative cost position compared to competitors. There may be periods
of time in which we may not be able to fully recover increases in the
cost of raw materials due to contractual arrangements or to weaknesses
in demand for, or oversupply of, our products.

Increases in our costs could adversely affect our operating results.

As we are unable to influence commodity prices directly, our
competitiveness and long-term profitability are, to a significant
degree, dependent upon our ability to reduce costs and maintain low-cost
and efficient operations. Our inability to maintain our cost structure
and efficiently operate our manufacturing facilities may increase our
costs and adversely affect our operating results. Certain
non-controllable costs may increase by reason of external factors beyond
our control, which may also reduce our operating results. Examples of
non-controllable costs are energy costs, insurance costs, tax costs and
pension costs.

Over the past few years, we have experienced significant cost increases
for energy sources. While we attempt to match energy price increases
with corresponding product price increases. Ultimately, our ability to
pass on increases in our costs to customers is dependent upon market
conditions.

In addition, production in our polyester fiber and yarn business is
labor intensive. Consequently, inflationary pressures, changes in
applicable laws and regulations or other factors resulting in increased
labor costs.

Shortages or disruptions of supplies to our customers due to unplanned
production capacity decreases or shutdowns of production plants may
reduce sales.

Production at our manufacturing facilities or delivery of supplies to
our customers could be adversely affected by technical failures,
strikes, natural disasters, regulatory rulings and other factors.
Unexpected events, such as manufacturing problems, unplanned shutdowns
or loss of supplies, could lead to reduced sales.

If the capacity of one or more material facilities is reduced or the
manufacturing of material products is shut down for a prolonged period
and we are unable to shift sufficient production to other plants or draw
on inventories or if we are unable to run our production facilities at
our typical utilization rates because of a disruption to our raw
material supplies, we may not be able to fulfill our product delivery
obligations and we could be exposed to claims for damages and suffer
reputational harm.

The costs and difficulties of integrating future acquired businesses and
technologies could impede our future growth and adversely affect our
competitiveness.

As part of our strategy, we may seek further growth through acquisitions
of other PET, polyester or PTA companies in order to maintain a
competitive position within the industries in which we operate and to
enhance our position in our core areas of operations. This strategy
entails risks including:

-   unidentified or unanticipated liabilities or risks in the operations
    of the companies which we may acquire;

-   potential failure to achieve the economies of scale, synergies or
    other benefits sought;

-   greater than expected costs and management time and effort involved
    in completing and integrating the acquisitions;

-   inability to successfully integrate the services, products and
    personnel of the acquisitions into our operations or to realize any
    expected cost savings or other synergy benefits from the
    acquisitions;

-   inability to retain employees, customers and supplier relationships;

-   lack of return on our investment.

We may not be able to identify attractive acquisition opportunities or
make acquisitions on attractive terms, or obtain financing necessary to
complete and support such acquisitions. Regulation of merger and
acquisition activity by the European Union, the United States, Thailand
or other national regulators may also limit our ability to make future
acquisitions or mergers.

Significant capital investments including future development of new
facilities have been, and may in the future continue to be, necessary to
achieve our growth plans, which carry project and other risks.

Our growth plans have required, and may continue to require, significant
capital investments to expand, renovate, convert or upgrade existing
facilities, develop new facilities or make major acquisitions or
investment. Projects that require significant capital expenditure carry
risks including:

-   failure to complete a project within the prescribed project
    timetable and/or within budget; and

-   failure of the project to perform according to prescribed operating
    specifications following its completion.

In addition, any significant increases in costs unforeseen in the
project plan and any inability to sell the products produced at volumes
and/or price levels envisaged in the project plan could affect the
success of our projects. Due to the significant amount of capital
required and the long lead time between planning and completion of such
projects, project delays could have an effect on our business and
prospects.

Our production facilities are subject to operating risks that may
adversely affect our operations.

We are dependent on the continued operation of our production
facilities. These production facilities are subject to hazards
associated with the manufacturing, handling, storage and transportation
of chemical materials and products, including pipeline leaks and
ruptures, explosions, fires, inclement weather and natural disasters,
mechanical failure, unscheduled downtime, labor difficulties,
transportation interruptions, remediation complications, chemical
spills, discharges or releases of toxic or hazardous substances or
gases, storage tank leaks and other environmental risks. These hazards
can cause personal injury and loss of life, severe damage to, or
destruction of, property and equipment, environmental damage, fines and
liabilities.

In addition, some of our production facilities, such as our AlphaPet PET
facility, our IRP Rotterdam PET and IRH Rotterdam PTA facilities, our
Indorama Polyester Industries’ Map Ta Phut polyester facility and our
TPT Petrochemicals PTA facility, are co-located at sites where our
neighbors face the same operational risks and, in some cases, they
provide critical supplies and/or services, and any disruption in those
supplies and/or services could affect our operations.

Exchange rate and/or interest rate fluctuations may have a significant
adverse impact on our business, financial condition, results of
operations and prospects.

As a result of the global nature of our business, changes in foreign
currency rates could have an adverse impact on our business, financial
condition, results of operations and prospects. Currency fluctuations
affect us because of mismatches between the currencies in which
operating costs are incurred and those in which revenues are received.
We sell products that are typically priced by reference to prices in
U.S. dollars or Euros, while a portion of operating costs are incurred
in local currencies, including the Baht, Sterling pound and Lithuanian
litas.

Our reported earnings may also be affected by fluctuations between the
Baht, which is our reporting currency, and the non-Baht currencies in
which some of our overseas subsidiaries report their results of
operations. Overseas subsidiaries in Europe and USA represent around 48%
of consolidated sales of Baht 96.8 billion in year 2010. During year
2010, the average Baht has strengthened over year 2009 resulting in
lower revenues and earnings on translation into Baht. In year 2010, the
average Baht strengthened 7.6% viz-a-viz US dollar compared to year 2009
and the average baht has strengthened 12.0% viz-a-viz Euro compared to
year 2009. The same resulted in increase in curreny translation loss to
Baht 2,068.4 million at end of December 31, 2010 from Baht 324.2 million
at end of December 31, 2009 which is recorded under Equity in the
Balance Sheet.

On other side, the company has assets and liabilities in foreign
currency which are recorded on closing Baht rate at end of year. The
foreign currency liabilities in our Thai entities are greater than
foreign currency assets resulting which on strengthening of Baht
resulted in a net foreign exchange gain of Baht 1,178.4 million (of
which net realized foreign exchange gain of Baht 377.5 million) for the
year ended December 31, 2010 which is recorded under Income in the
Statement of Income.

In addition, our operating subsidiaries usually borrow in the principal
currency in which they do their business to minimize currency risks. At
the end of December 31, 2010, the currency exposure for long term loans
is 43% in Baht, 36% in US dollars and 21% in Euros. Generally, the long
term loans are borrowed on floating interest rates and are linked to the
benchmark interst rates for each currency. The floating interest rates
are impacted by macro-economic conditions and monetary policy of each
region therefore floating interest rates leaves us exposed to interest
rate risk and which is mitigated partially from time-to-time by
enetering into fixed interest rate contracts. The net interest expense
for the year ended December 31, 2010 is Baht 1,286.4 million or around
1.3% of consolidated sales.

Litigation

Eastman Chemical Company (“Eastman”) filed a complaint in the Delaware
District Court against AlphaPet, IRP Rotterdam, IRP Workington, IRH
Rotterdam and Indorama Polymers on December 18, 2009 in connection with
commercial production at the AlphaPet PET facility. IRP Rotterdam, IRP
Workington and IRH Rotterdam (the “European Defendants”) entered into a
Technology License Agreement with Eastman in connection with our
acquisition of Eastman’s north-west European PET and PTA businesses in
March 2008, pursuant to which the European Defendants received a license
to use licensed technology secrets to make certain commercial products
as part of the acquired business. In the complaint, Eastman alleges
that:

-   AlphaPet infringes certain patents owned by Eastman;

-   the European Defendants breached the Technology License Agreement;
    and

-   the defendants misappropriated Eastman’s confidential and
    proprietary trade secret information under Delaware statutes.

Eastman’s complaint includes an allegation that the European Defendants
breached the Technology License Agreement, as described above. If the
court were to find that the European Defendants had materially breached
the Technology License Agreement, Eastman may be able to terminate the
agreement and all licenses granted thereunder. In that event, the
European Defendants would be required to either renegotiate the terms of
the license with Eastman or implement suitable substitutes to continue
operation of the plants, which could result in the suspension of
operations until new terms were negotiated with Eastman or a suitable
substitute technology was implemented. We believe that alternative
technologies are readily available in the market for a relatively low
cost; however, we cannot assure you how long it would take to implement
any new technologies at these plants.

We intend to vigorously defend ourselves against these claims. We have
appointed our legal counsel Kirkland and Ellis LLP. The legal counsel is
has submitted response in the courts and the case is in a discovery
process. AlphaPet has purchased the plant and technology for its PET
resins plant from Inventa Fischer, a plant and technology supplier. The
audited financial statements have disclosed the lawsuit as a contingent
liability and at this time not possible to quantify impact. However,
litigation of this nature can take a long time to resolve and we cannot
predict when these legal proceedings will be completed. In the last
quarter of 2010, Eastman announced sale of its PET business in USA to
Dak Americas LLC.

Changes in laws and regulations relating to beverage containers and
packaging could reduce demand for such end use products

Legal requirements have been enacted in various jurisdictions in the
United States and elsewhere requiring that deposits or certain ecotaxes
or fees be charged for the sale, marketing and use of certain
nonrefillable beverage containers. Other proposals relating to
additional beverage container deposits, recycling, ecotax and/or product
stewardship have been or may be introduced in various jurisdictions in
the United States and elsewhere. Consumers' increased concerns and
changing attitudes about solid waste streams and environmental
responsibility and related publicity could result in the adoption of
such legislation or regulations. This has encouraged some of our PET
customers to reduce the amount of PET resin they use in their bottle
production process. This process, known as light weighting, has reduced
the amount of PET resin used in each bottle and has impacted the demand
for PX, PTA and PET resin. PET can be recycled, IVL is making
investments in PET recycling projects in USA and Thailand at its
existing sites.

Environmental regulations may cause us to incur costs and liabilities.

Our operations are subject to environmental laws and regulations by
central and local authorities in the countries in which we operate.
These include laws and regulations pertaining to pollution, the
protection of human health and the environment, air emissions,
wastewater discharges, occupational safety and health, and the
generation, handling, treatment, remediation, use, storage, release and
exposure to hazardous substances and wastes. These requirements are
complex, subject to frequent change and have tended to become more
stringent over time. We have incurred, and will continue to incur, costs
and capital expenditures in complying with these laws and regulations
and in obtaining and maintaining all necessary permits.

We have procedures in place to allow us to comply with environmental
laws and regulations; however, there can be no assurance that we will at
all times be in compliance with all of our obligations in the future or
that we will be able to obtain or renew all licenses, consents or other
permits necessary to allow us to continue to operate our businesses. Any
failure by us to comply with such laws and regulations could subject us
to fines, penalties and other liabilities.

We have activities in certain countries which are subject to sanctions
in the United States and elsewhere and such activities could trigger
these sanctions under relevant legislation.

The U.S. Department of the Treasury’s Office of Foreign Assets Control,
or OFAC, administers certain laws and regulations that impose penalties
upon U.S. persons and, in some instances, foreign entities, for
conducting activities or transacting business with certain countries,
governments, entities or individuals subject to U.S. economic sanctions,
or U.S. Economic Sanctions Laws.

As a globally operating organization, we conduct business with customers
(either directly or indirectly through traders and agents) in various
countries including Iran, Syria, Myanmar and the Ivory Coast. Our
activities with customers in these states, which are predominantly sales
of PET resin, polyester fiber and yarn and wool, are insignificant when
compared to our entire business. We seek to comply fully with
international sanctions to the extent they are applicable to us and will
continue to do so.

Our international presence exposes us to macro economic, political,
legal and regulatory risks in the markets in which we operate and to
other challenges.

International operations present challenges related to operating under
different business cultures and languages. We may experience increased
difficulty in the collection of accounts receivable, including longer
collection periods; we may have to comply with inconsistent, or
unexpected changes in, foreign laws and regulatory requirements which
could negatively impact our operations and ability to manage our global
financial resources; export controls or other regulatory restrictions
could prevent us from shipping our products into and from some markets;
quota requirements, including quotas regulating the composition of our
employee base or promoting local sourcing of raw materials, could have
an adverse effect on our production costs; changes in currency control,
tax regulation and international tax treaties could impact the financial
performance of our international operations and their contributions to
our overall financial performance. Similarly, events beyond our control,
such as political instability or social unrest, could impact consumer
demand in general and increase volatility in price of raw materials and
other costs.

Our business depends, in part, on our informal relationships with other
Indorama group entities in Indonesia and India.

We are a part of an informal Indorama Group, which consists of three
independently managed associate groups, namely ourselves, the S.P. Lohia
Group Indonesia and the O.P. Lohia Group India. The Indorama Group was
founded by Mr. M.L. Lohia in 1976 in Indonesia, and each of the groups
is currently managed by one of Mr. M.L. Lohia’s sons.

The Indorama name does not belong to us, and we have a non-exclusive
license for its use pursuant to a License Agreement with Lohia Global
Holdings Limited, a company controlled by Mr. M.L. Lohia. IVL paid Baht
44.0 million on a consolidated basis for year 2010 to Lohia Global
Holdings Limited for the use of Indorama name under the agreement. The
S.P. Lohia Group and the O.P. Lohia Group also use the Indorama name. We
do not control how the S.P. Lohia Group and the O.P. Lohia Group use the
Indorama name and cannot assure you that their actions will not
adversely impact the reputation associated with the Indorama name.

The Company is a holding company and is dependent on the receipt of
dividends to make dividend payments on our shares

As a holding company, the Company is dependent on the receipt of
dividends from its subsidiaries and associated companies, the payment of
which will depend on their future financial performance, which in turn
depends on successfully implementing their strategies and on financial,
competitive, regulatory, technical and other factors, general economic
conditions, demand and selling prices for their products and other
factors specific to their respective industries or specific projects,
many of which are beyond our control. In the period ended December 31,
2010, IVL company only received dividend income of Baht 3,496.7 million
from its direct subsidiaries.

The ability of our direct and indirect subsidiaries to pay dividends to
their shareholders, including the Company, is subject to applicable law.
Although we intend to pay dividends with respect to the shares, our
ability to pay dividends in the future will depend upon a decision of
the Board of Directors and/or the approval of the shareholders at a
general meeting, our results of operations, cashflows, financial
condition, contractual restrictions and restrictions imposed by
applicable law and other factors the Board of Directors deems relevant.