PPP in Thailand

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Public Private Partnership in Thailand:Past Experiences and

Future Prospects

By H.E. Mr. Chalongphob Susangarn

Minister of Finance, ThailandPresented at the Asia-Pacific Ministerial Conference on PPPs in

Infrastructure, Republic of Korea, 4-5 October 2007

1. Introduction

The growing trend of the provision of public services by private sector around

the globe underscores the increasing importance of Public Private Partnership (PPP)

as an efficient means to tap private sectors management capabilities and innovations

to support the governments works. Where projects are well structured and risks areappropriately allocated, PPP can offer value for money in terms of providing high

quality services at the least cost to users of the services as well as to taxpayers. But in

a lot of cases, the experience with respect to PPP has been rather mixed. The practical

application of the concept is often fraught with difficulties both in terms of allocation

of risk and public perception. In the case of Thailand, PPP has played a role in

providing public infrastructures in many sectors of the economy for more than a

decade, most notably in the power/electricity, telecom and transport sectors. Many of

the PPP projects are considered successful but few are faced with some difficulties.

We however believe that PPP is a way forward as an efficient means to develop

quality public services and as a way to reduce governments burden. We therefore

welcome the First Asia-Pacific Ministerial Conference on PPPs for InfrastructuralDevelopment. The sharing of knowledge and experience with other countries would

help us move up the learning curve as we continue to implement PPP projects. In

this respect, the Government of the Republic of Korea deserves much thanks for her

initiative in organizing and hosting the Conference. We will discuss our experience

with respect to PPP projects and some lessons learned in the past, present the current

development and challenges as well as some issues we face in going forward

2. Thailands experience with PPP

Traditionally, government projects in Thailand have been predominantly

financed through conventional procurement methods. However, due to the high costs

associated with infrastructure procurement, it was difficult for the RTG to deliver

infrastructures without incurring burdens on governments balance sheet. Therefore,

the RTG increased the role of the private sector by introducing PPP in governments

procurement. Since the early 90s, PPP has been used in various sectors, including

power/electricity, telecom, ports, water and sanitation and transport sectors. A

selection of projects is highlighted as follows:1

1 A summary of PPP projects can be found in Annex.

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2.1 Power/ Electricity Sector

The Electricity Generating Authority of Thailand (EGAT), the State Enterprise in

charge of electricity generation carried out Independent Power Producers (IPP) as

well as Small Power Producers (SPP) and Very Small Power Producers (VSPP)

programs. In the case of IPP, EGAT procured power from private power producers inthe form of Build Own Operate (BOO) basis, where private power producers

construct the facilities, becomes the sole owner of the assets without having to

transfer the assets to the government at the end of the contract life. They operate and

produce power in accordance to the agreement with EGAT.

The payment structure is output based and is made under the Power

Purchasing Agreement (PPA) where payment is based on two-parts tariff scheme:

namely: Availability Payment, covering fixed cost, major infrastructures, debt

repayments and dividends; andEnergy Paymentbased on energy cost.

The IPP projects by EGAT has been very well executed and considered as oneof the most successful PPP projects in Thailand. The key to the success was mainly

driven by the efficient allocation of risk between EGAT and IPPs as well as the

payment structure, which collectively provided the right incentives for IPPs to meet

their obligations and deliver high quality power to the public. Consequently, this

allowed EGAT to deliver high quality power by enhancing competition between

power producers without compromising the financial balance of the company. A new

round of IPP bidding is to being launched and attracted a large number of interested

bidders, both local as well a foreign investors.

2.2Telecom SectorIn telecom sector, Ministry of Information and Communication Technology

(MICT) through two state enterprises, namely TOT Corporation Plc., and CAT

Telecom Plc., provides fixed lines and international call services respectively. In

addition, the recently created National Telecommunications Commission (NTC), an

independent regulatory body is responsible for providing license to private service

providers. The private operators include 2 fixed line operators, namely: Telecom

Asia, a private sector service provider in Bangkok areas, and TT&T Plc., service

provider in areas outside Bangkok, and 3 mobile service providers under Built

Transfer Operate concession from TOT/CAT, viz.- Advanced Info Services (AIS),

Total Access Communication (DTAC) and TA Orange (TRUE). These privateoperators help to improve telecom access through increased fixed lines capacity and

exponential increase in mobile users. The number of mobile subscribers has increased

from 2 million in 1997 to 15 million in 2004 and internet subscribers overall rose to

over 6 million people, approximately 10% of population in 2004. Generally, the

private operators in this sector are profitable with increased investment opportunities

both in urban and rural areas.

2.3 Ports

The development and management of all major deep-sea ports in Thailandfalls under the Port Authority of Thailand (PAT), a state enterprise under Ministry of

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Transport. There are 8 international deep sea ports in operation. PAT operates the

principal port, Klong Toey, located in Bangkok. It also has control over Laem

Chabang port on the Eastern Seaboard but has given the operation of all 8 berths to

private operators: 5 of them belonging to PAT under lease contracts and 3 of them

belong to major shipping companies with limited access to others. PAT has

implemented a port expansion plan by developing the second basin in Leam Chabangport and inviting the private participation of Hutchinson Port Holding on a Build-

Operate-Transfer (BOT) basis to construct and operate 6 new berths.

2.4 Water and Sanitation

The two state enterprises responsible for the providing water supply in urban

areas of the country are the Metropolitan Waterworks Authority (MWA) responsible

for water supply in Bangkok Metropolitan Area and the Provincial Waterworks

Authority (PWA) responsible for water supply in the provincial areas outside

Bangkok. Both MWA and PWA has entered into many PPP contracts ranging from

BOO, BOOT, Lease and Management contracts with private sector players for anumber water supply services, including bulk water supply through BOOT

concessions in rapidly growing urban areas as well as industrial estates .

2.5 Transport

2.5.1 Toll Roads/Expressway

The Department of Highway (DOH) a government agency and the

Expressway and Rapid transit Authority of Thailand (ETA), a state enterprise, both

under the Ministry of Transport have been involved in granting concessions to private

sector participants in a form of Built Transfer Operate (BTO). Existing BTO

contracts include the Don Muang Tollway by DOH and the Second Stage

Expressway by ETA, both in north Bangkok. There are a likelihood that more

concessions will be considered for tollroad projects currently under construction.

2.5.2 Mass transit

Currently, there are three major agencies in charge of granting concession to

private participants for development and operation of mass transit system in Bangkok,

the Mass Rapid Transit Authority of Thailand (MRTA) and the State Railway of

Thailand (SRT) both state enterprises under Ministry of Transport and the BangkokMetropolitan Authority (BMA). The first MRT called the Sky Train or Green Line

was opened in 1999 comprising 2 transit lines of total length of 24 kms. Concession

was awarded by the BMA to the Bangkok Transit System Plc., (BTS) on a Build

Transfer Operate (BTO) including the infrastructure and rolling stock investment. The

second MRT is a subway line called the Blue Line contract with a total length of 20

kms. Concession was awarded by the MRTA to the Bangkok Metropo Company

Ltd., (BMCL) on a Build Transfer Operate (BTO) under which the private

concessionaire is required to procure rolling stock and operate the line. In adddion, a

new Airport Link line is currently under construction running parallel to the railway

track providing a mass transit link from the new Suvarnabhume airport to downtown

areas. The SRT is the owner of the line and the rolling stock and the Government is

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reviewing the options for operation and management. A PPP through service contract

to private operator is one option under consideration.

The Government has set out a plan to invest in 7 additional lines in the mass

transit system in Bangkok; three belonging to MRTA, two to SRT and two to BMA.

Further involvement by private operators in PPP concessions will be the majorconsideration.

These are some of the notable example of the existing and future PPP projects

in Thailand. However, there are many more projects have been implemented

especially in property development on the state property which are basically for

commercial purpose. PPP opportunities in the infrastructure investment are likely to

increased substantially in future. Many are in transport and power/electricity sectors

as indicated above. However, many challenges remained to be addressed.

3. Issues and Challenges

Broadly speaking, Thailand has retained a reasonable climate for PPP. The

administrative as well as legal systems are reasonable flexible and adaptable to many

of the modalities with respect to private sector involvement. Private sector is also

strong and has played an important role in infrastructural development of the country,

either through government direct procurement for construction and supply contracts

as well as through PPP contracts. Disputes are settlement in fairly amicable and fair

manner. However, some of the issues need to be tackled to provide fair and

sustainable participation by private sector.

3.1 Unclear Governing Framework

The framework underpinned the PPP activities is derived from the Act on

Private Participation in State Undertaking B.E. 2535 (1992). The Act was intent to

provide appropriate scrutiny process for large PPP projects (valued over Baht 1

billion) to ensure that the projects are viable and contracts are carried out through

proper procedure. It was designed at the time of enactment to prevent corruption in

granting the rights to private investor/operator for operation or use of state properties,

rather than to provide enabling environment for PPP projects. As such, it focuses on a

rather descriptive internal process of the government. Moreover, certain PPP projectsare covered by laws i.e., BOT, BTO. Others are deemed outside the law e.g., Built-

Own-Operate (BOO) or Turnkey projects because they do not involve the rights to

operate or use of state properties. These latter projects are covered by its own laws or

regulations. Furthermore, the 1992 Act does not prescribe the methodology for project

valuation nor procurement methods. It also does not provide for methodology to share

risks nor burden with private sector when projects are not commercially viable. The

law lends itself to frequent clarification and interpretation on several aspects. The fact

that the law itself is not based on PPP principle of sharing burden between public and

private sectors but focusing on granting rights to operate or make use of state assets

limits its usefulness.

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3.2Fragmented AuthoritiesThe current institutional setup is somewhat dispersed with authorities rest with

several agencies. While implementation of the projects should belong to the agencies

proposing the projects, they need to submit the projects feasibility studies to two

different bodies depending on the type of projects: - - for projects involved newassets to central planning agency (National Economic and Social Development Board-

NESDB) and for the projects based on existing assets to Ministry of Finance. This

also creates some confusion over the classification of projects. If the projects are

approved by the agencies concerned and the Cabinet, the bidding process, including

request for proposals, bidding evaluation and contract negotiating are left with a

committee set up by the implementing agency for the purpose. Therefore there are

multiple and dispersed authorities involved which could be time-consuming process.

3.3 Time Consuming Procedure

The time consuming and prescriptive process required by the 1992 Act areseen as a hindrance and often give rise to a need to circumvent the law itself. Direct

procurement procedure is seen as much more convenient process to get projects

implemented. Time and resources spent on getting project approved and private

participant selected discouraged many of potential PPP projects

3.4 Insufficient Institutional Supports

The project then are left to the implementing agencies which propose the

projects with very little support in terms of technical, administrative and legal.

Methodologies for project valuation, risk sharing, bidding methods etc. are unclear

because the absence of a central agency that has institutional knowledge similar to

those of more advanced countries to provide the necessary support, including

documentation, bidding methodology and evaluation, contract formulation and

negotiation. These are left basically to implementing agencies which carry out the

task on a case-by-case basis.

3.5 Lack of Rules and Capacity with respect to Risk Allocation

The rules with respect to risk allocation are unclear because the current law

does not provide any basis for it. Moreover, the capacity of identifying, allocating and

mitigating risks between public and private sectors are needs to be improved. There isalso a need for a body that has the authorities to give regulatory control and able to

provide assurance on pricing of service and other incentives, if need be, to make

project viable. This problems had resulted in some of the projects remained

unfinished ( i.e., Hopewell project), some required large debt workout to remain

viable (i.e., BTS/Sky Train).

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4. Current Development and Future Agendas

The above are some of the issues we faced in going forward. Some of the

issues have been tacked while many remain to be addressed. Given the limit tenure of

the current Government,, Ministry of Finance has proposed some amendments to the

1992 Act to provide a more streamlined process, reduce conflicting interests, includebroader definition of PPP. But much more need to be done. Following provides an

outline of current development and future agendas.

4.1Amendments to the Existing LawThese amendments to the 1992 Act have been approved by the Cabinet and

will be on a fast track consideration by the Parliament. However, due to the limited

scope of the law which was designed only for the projects involved in the granting the

rights to private investor/operator for operation or use of state properties. It only

emphasized the appropriate scrutiny process for certain type of PPP projects. The

amendments that have been proposed including defining clearer the definition, rules

and more streamlined process to reduce some of the past confusion. It also addressed

some of the concerns for certain projects such as Turnkey projects to provide for

similar scrutiny process as other PPP projects. It is therefore expected that the new

revision would provide for more systematic and efficient consideration and

implementation of the PPP projects.

4.2More Streamlined ProcessThe current institutional set-up is also improved to provide for a more

streamlined procedure. The projects will no longer be classified as new or based onexisting assets. All projects are to be reviewed by both NESDB and Ministry of

Finance at the same time. Methods to assess projects value, feasibility and value for

money test will be standardized to reduce confusion.

4.3 Reasonable Risks Allocation

The current situation where there is no scope for sharing burden with

private sector for the case where projects are economically viable but not financially

need to be addressed. In this respect, the Thai Government has introduced a regulation

of Public Service Obligation (PSO) recently and hoped that it would help to meet

some of the gap required to make PPP projects more viable. However, much remainto be done to ensure appropriate risk allocation.

4.4 Future Agendas

Further actions need to be considered in future to ensure that the PPP projects

are well used to support the countrys development:

The current amendments are limited due to nature of the law itself. Infuture a new PPP law may be needed to provide a better framework

for PPP projects to cover broader definition of PPP concept and

provide enabling environment for PPP projects.

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Create central agency to act as clearing house and provide technicaland legal support to projects.

Create a more acceptable rules for risk allocation and mitigation. Develop template documents for use in Request for proposal (RFP),

bidding, contract negotiation, model contract framework etc.

Develop guidelines such as TORs for project development studies,tools for financial assessment and management as well as value for

money assessment PSO etc.

Undertake pre-feasibility studies across various infrastructure toidentify candidates for PPP projects

Create Project Development Fund to finance project developmentstudies and repay by successful tender

There are indeed much to be done and we hope that in coming years, Thailand

would be able to tackle some of these challenges. We therefore hope also learn from

other countries which have greater experiences and knowledge in dealing andsupporting PPP projects. The Asia and Pacific Ministerial Conference on PPP in

Infrastructure is therefore a laudable initiative and should provide us with good

starting point for countries in this region to learn and share this knowledge with one

another.

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Annex: A Summary of Thailand PPP Projects

Sectors/

Projects

Projects Description Cost Operation/ Services

Energy

EGAT Build-Own- Operate (BOO) PPA

5,943 MW

Construct power plant

and sell electricity to

EGAT.

IPP: produce at 90 MW, natural gas

& coal.

SPP: produce between 10-90 MW, 1st Phrase (2539-2543):

Cogeneration & Renewable Energy 3 projects,

: produce


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Sectors/

Projects

Projects Description Cost Operation/ Services

Ports

PAT Lease contracts, Build Transfer

Operate8 deep sea ports nationwide in

Bangkok and Eastern Seaboard

8 berths to private

operators (5 PAT leasingcontracts & 3 to shipping

companies).

Hutchinson Port Holding

to operate 6 new berths

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Documents

PPP in Thailand