Public Private Partnership in Thailand: Past Experiences and Future Prospects

Transcription

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

2 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 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 2

3 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 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 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 3

4 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 (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. 4

5 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). 5

6 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. 6

7 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. 7

8 Annex: A Summary of Thailand PPP Projects Sectors/ Projects Energy Projects Description Cost Operation/ Services EGAT Build-Own- Operate (BOO) PPA Construct power plant IPP: produce at 90 MW, natural gas & coal. SPP: produce between MW, 5,943 MW and sell electricity to EGAT. 1st Phrase ( ): Cogeneration & Renewable Energy 3 projects, VSPP: produce < 10MW, Renewable Energy total of 1,750 MW 2nd Phrase ( ): 4 projects, total of 4,193 MV Mass Transit BTS BMCL Build-Own- Transfer (BOT) Dark Green Line: 17 km Light Green Line: 6.5 km Design-Build-Operate- Maintain (DBOM) Line: Bangsue-Hualamphong,20 km 52 bn baht Construct and operate 126 bn baht Construct and Operate 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 Transportation 47 bn Provincial areas, 1.5 million lines Si Rat Expressway 2 nd Stage (ETA) Don Muang Tollway (DOH) Build-Transfer-Operate (BTO). Consists of 4 sections around Bangkok & urban areas, 37 km Design-Build-Operate- Maintain (DBOM) Central to North Bangkok, 28 km 48 bn baht Construct /collect toll fees and revenue sharing with ETA: BECL ETA % 40% % 50% % 60% 12 bn baht Construct/collect toll fees. 8

9 Sectors/ Projects Ports PAT Projects Description Cost Operation/ Services Lease contracts, Build Transfer Operate 8 deep sea ports nationwide in Bangkok and Eastern Seaboard 8 berths to private operators (5 PAT leasing contracts & 3 to shipping companies). Hutchinson Port Holding to operate 6 new berths 9