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“Public Private Partnership in Thailand: Past Experiences and

Future Prospects”

By H.E. Mr. Chalongphob Susangarn


Minister of Finance, Thailand
Presented 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 sector’s management capabilities and innovations
to support the government’s works. Where projects are well structured and risks are
appropriately 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 government’s burden. We therefore
welcome the First Asia-Pacific Ministerial Conference on PPPs for Infrastructural
Development. 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. Thailand’s 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 government’s balance sheet. Therefore,
the RTG increased the role of the private sector by introducing PPP in government’s
procurement. Since the early 90’s, 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

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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 in
the 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; and Energy Payment based on energy cost.

The IPP projects by EGAT has been very well executed and considered as one
of 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.

2.2 Telecom Sector

In 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 private
operators 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 Thailand


falls 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 Chabang
port 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 a
number 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 Bangkok
Metropolitan 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 major
consideration.

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 projects
are 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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3.2 Fragmented Authorities

The 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 project’s feasibility studies to two
different bodies depending on the type of projects: - - for projects involved new
assets 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 are
seen 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 is
also 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, include
broader definition of PPP. But much more need to be done. Following provides an
outline of current development and future agendas.

4.1 Amendments to the Existing Law

These 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.

4.2 More Streamlined Process

The 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 on
existing assets. All projects are to be reviewed by both NESDB and Ministry of
Finance at the same time. Methods to assess project’s 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 remain
to 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 country’s development:

• The current amendments are limited due to nature of the law itself. In
future 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 technical
and 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 to
identify candidates for PPP projects
• Create Project Development Fund to finance project development
studies 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 and
supporting 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 Description Cost Operation/ Services


Projects
Energy
EGAT Build-Own- Operate (BOO) PPA Construct power plant
IPP: produce at 90 MW, natural gas 5,943 MW and sell electricity to
& coal. EGAT.
SPP: produce between 10-90 MW, 1st Phrase (2539-2543):
Cogeneration & Renewable Energy 3 projects,
VSPP : produce < 10MW, total of 1,750 MW
Renewable Energy 2nd Phrase (2544-2546):
4 projects, total of
4,193 MV
Mass Transit
BTS Build-Own- Transfer (BOT) 52 bn baht Construct and operate
Dark Green Line: 17 km
Light Green Line: 6.5 km
BMCL Design-Build-Operate- Maintain 126 bn Construct and Operate
(DBOM) baht
Line: Bangsue-Hualamphong,20 km

Water &
Sanitation
MWA, PWA Build Own Operate Transfer Urban areas and
industrial states
Telecom
AIS Mobile Build Transfer Operate Concession 40 bn Nation wide project
Telecom Asia 66 bn Fixed line in Bangkok
ThaiCom 10 bn Shin Satellite
TAC Mobile 30 bn Nation wide
TT&T 47 bn Provincial areas, 1.5
million lines
Transportation
Si Rat Build-Transfer-Operate (BTO). 48 bn baht Construct /collect toll
Expressway Consists of 4 sections around fees and revenue sharing
2nd Stage (ETA) Bangkok & urban areas, 37 km with ETA:
BECL ETA
1993-2002 60% 40%
2002-2011 50% 50%
2011-2020 40% 60%
Don Muang Design-Build-Operate- Maintain 12 bn baht Construct/collect toll
Tollway (DOH) (DBOM) fees.
Central to North Bangkok, 28 km

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Sectors/ Projects Description Cost Operation/ Services
Projects
Ports
PAT Lease contracts, Build Transfer 8 berths to private
Operate operators (5 PAT leasing
8 deep sea ports nationwide in contracts & 3 to shipping
Bangkok and Eastern Seaboard companies).
Hutchinson Port Holding
to operate 6 new berths