STUDY ON THE SMART COMMUNITY DEVELOPMENT PROJECT IN THE BANGKOK AIRPORT AREA THE KINGDOM OF THAILAND

Transcription

1 STUDY ON ECONOMIC PARTNERSHIP PROJECTS IN DEVELOPING COUNTRIES IN FY2012 STUDY ON THE SMART COMMUNITY DEVELOPMENT PROJECT IN THE BANGKOK AIRPORT AREA THE KINGDOM OF THAILAND SUMMARY February 2013 Prepared for: The Ministry of Economy, Trade and Industry Ernst & Young ShinNihon LLC Japan External Trade Organization (JETRO) Prepared by: Pacific Consultants Co., Ltd. ITOCHU Corporation OSAKA GAS Co., Ltd. FUJI Electric Co., Ltd. OBAYASHI Corporation ORIENTAL CONSULTANTS Co., Ltd.

2 (1) Project Background and Necessity for the Project 1) Project Background In Thailand, the country's economic growth has caused power supply shortage and environmental problems. It needs to maintain the growth and conserve the environment at the same time to achieve sustainable development and social structure. To ensure enough power supply, Thailand has developed plans for energy efficiency and launched efforts for energy conservation. The country is also developing renewable and alternative energy. Electric power providers, EGAT, PEA, and MEA, promote smart grids. In cooperation with Nissan or Mitsubishi Motors, these public organizations have conducted test demonstrations of EV (Electric Vehicle) and undertaken pilot projects for the introduction of AMR (Automated Meter Reading) and AMI (Advanced Meter Infrastructure). In 1992, Thailand approved private investments in electric power business as an incentive to promote technologies for enhanced total energy efficiency, including renewable energy (e.g. photovoltaic power) and cogeneration. The country also promotes development of industrial parks and estates based on the concept of "Eco-Industrial Estates" from 2010 to On the other hand, Japan has gained experience from building 26 ecological towns across the country. In recent years, it has undertaken quite a number of projects, including test demonstrations, for renewable energy, energy conservation, and environmental engineering. In addition, Japan has faced and overcome problems triggered by urbanization and environmental disruption, which emerging countries now face as they grow. Based on these technology and experience, both the public and private sectors aim to meet emerging countries' demand for infrastructure. "New Growth Strategy 2009" and "Industrial Structure Vision 2010" included "exporting infrastructure" to fast-growing economies as one of Japan's strategies. Japan and Thailand signed a memorandum of understanding (MOU) regarding cooperation in research and development associated with energy and the environment for the eco/smart community which this project plans. Both countries consider the project critical as one of their growth strategies. 2) Necessity for the Project Thailand has been working on the development of the automotive industry with the goal of Detroit of Asia. Integrated automotive parts industry has continued until now. It has been a very high rate of local procurement of automotive parts for it. However, in recent years, shifting into the electrical components of automotive parts, so-called car-electronics, there is a significant change in the automotive parts. Percentage of usage of car-electronics parts in luxury cars and hybrid cars is higher than traditional cars. In case of hybrid cars, 47% of the total costs for automotive parts are incurred by car-electronics parts. In addition, conventional gasoline cars, cars using car idling stop technology and/or regenerative deceleration technology, has also been shifting into electronic parts. Thailand s automotive industry would therefore be required to respond to these changes. Also industrial estate that underpins highly value-added industry and where mainly Japanese companies operate are essential to produce high-tech parts and car electronics. (A steady supply of high-quality electric power, industrial water, telecommunications, human resources, etc.)

3 In addition, power consumption has been increasing at an annual rate of 4.4%in Thailand. This indicates that electric power may be in short supply in the future. Also because electricity in Thailand currently depends on natural gas, Thai government's policy defines the use of renewable energy as the key issue. Therefore, the government is focused on smart grids, green technology, eco-industry town concept, development of green technology and environmentally-sensitive industrial parks and estates. These government policies have prompted South Korea, China, and Singapore to make strategic moves to export knowledge of urban smart communities in recent years. To boost economic growth in East Asia, and to demonstrate Japan's presence, it is vital to make detailed suggestions and offer cooperation for the development of smart communities, lead by Japanese technology.

4 (2) Basic Direction to determine Concept of this Project Consider following points in order to determine the contents of the project. Determination of concepts of this project based on conditions of targeted area, GEMOPOLIS; Land price of GEMOPOLIS is more expensive than other industrial estates due to its location closed to capital region area in Bangkok and close to Suvarnabhumi Airport. Also, the area which is for development is limited. Thus, current business model which consists of sales of land lot and continuous development to expand industrial estate is not sustainable for GEMOPOLIS. Therefore, the concepts of this project, targeted GEMOPOLIS, should improve productivity of unit area, should target on value-added industries in Thailand and should be preferable concept which supports overseas advance by Japanese SMEs. Adoption of smart community technology which has productivity; Social significance of reduction of environmental burdens and high efficiency of energy usage can be understood through interview survey to companies located in the industrial estate. However, there are many opinions that increasing cost of infrastructure will prevent development of companies located in the industrial estate who has advanced into Thailand to reduce cost. Thus, adoption of smart community technology will be determined as the concept which correspond to environmental issue and energy issue in Thailand and also preferable to develop industrial estate targeted for this project. Determination of the concepts depends not on technology but on demand; Important point of smart community technology is relationship and absorption of technologies, not from individual optimization but also from entire optimization. However, it will cause increasing development cost due to over-specification for needs or necessity of installment all technologies to utilize function, if the project has been studies only from technical point of view. Therefore, the concepts of the project should be determined based on optimized needs which have been studies essential specification among needs from companies located in the industrial estate. Also, needs from companies in the industrial estate should be considered both hardware point and software point.

5 (3) Contents of this Project 1) Contents of this project Implement the projects described in the figure below, based on the basic direction to determine concepts of this project. Figure 1 Description of business of the project (Total) Scope of business Smart Community Business for Industrial estate Real Estate and Rental Factory (Including value-added Rental Factory Business) Description of business SPP business: Heat and electricity supply by high efficient gas combined cycle co-generation which improves saving energy. Rental smart system: Smart meter, UPS etc. Consulting services taking advantage of CEMS to support saving energy. Rental factory: Small sized rental factory which targets SMEs needs Factory land sales: Real estate business for factories of Tier 1 and 2 Sales of condominium: Condominium which corresponds to housing demand increasing in Thailand Sales of detached house: Provide smart-life taking advantage of urban location Rental commercial buildings: Service for workers at factories and residences in condominium Installment of equipment which save energy: LED light, Inverter, heat shield paint Eco Transportation Management Bus operation: Provide smart-transportation service with EV vehicle and CNG bus Business support (Human Resources Development Service, SME Support Service) Supporting company: Service to support companies for overseas expansion and market development Human Resource Development: Technical/Manager training for workers in Thailand and new graduates Business to provide Infrastructure Services Integrated Administration of Industrial Park Water and wastewater treatment business Uniform management of factories: Integrated management through planning, design, construction and operation with comprehensive infrastructure and energy management platform Source: Prepared by the Study Team

6 In these businesses, core business of this project is the 5 (five) described the figure below. Figure 2 Core business of the Project [Core business Business I] II] Value-added Rental Factory(Mid-rise) [Core Business IV] Human resource Development [Core business IV] Human resource Development [Core business Business II] I] SPP & Integrated Integrated Infrastructure Service Infrastructure Service Provider for Energy Provider for Energy Saving Saving Industrial area (Land for sale) Industrial area (Land for sale) Residence (Low-rise) [Core business V] Supporting and facilities Services and for Services for SMEs [Core business V] Supporting facilities SMEs [Core business III] [Core business III] Eco Transportation Management Management Residence / Commercial building (High Medium rise) Source: Prepared by the Study Team Core Business I: Smart Community Business for Industrial estate Implement business to sell electricity by high efficient power plant targeting entire industrial park, taking advantage of SPP business scheme in Thailand (EGAT and companies in industrial park). Also provide services to realize energy conservation. Figure 3 Summary of smart community for industrial estate 1. High-efficient Combined cycle Co-generation Power Station (SPP) Supplying electricity to I.E. by self-power line Selling electricity to EGAT (up to 90MW) PEA/MEA backs up Supplying steam to I.E. SMART I.E. LED light Clean water supply Waste management High-speed Internet Eco I.E. 4. Energysaving consultation Smart Meter 2. Steam supply and Regional Cooling system 3. Energy management System (CEMS/FEMS) Smart Meter Smart Meter 5. Rental of efficient (energy and productivity) equipment Source: Prepared by the Study Team

7 Core Business II: Value-added Rental Factory Prepare condominium type rental factories with 5 to 7 stories to promote advanced land use, and implement rental factory business targeting SMEs with high technology. It is eco-friendly factories providing high quality infrastructure services. Figure 4 Summary of value-added rental factory What is Value-added rental factory? Ready-made condominium type factory High-rise, 5-7 stories, both for selling and leasing Sate-of-art infrastructure services (stable electricity, air conditioner, clean water, IT, etc.) Full support service to move in, Short term contract. Eco-building (thermal insulation, etc.) Merit Quick and Smooth factory-launching Environmental friendliness Easy response to market trend Save initial and operation cost Sustainable income for investor or operator Targeting tenants High-tech SMEs Demand response based enterprises Repairing shop for high-tech devices, etc. Three Types 1Monthly convenience type 2Semi-order type 3Conventional type Ready-made factory with state-of-art utilities Full supports service to move in, short term contract Semi-order made factory Specific utilities in response to factory s needs Ready-made factory Working space only Source: Prepared by the Study Team Core Business III: Eco Transportation Management Provide public transportation services for commuting for workers in the factories. Core Business IV: Human resource Development Provide Human Resource Development Service for workers (engineers, managers) at SMEs with high technology industry so that they can take advanced education and trainings. Core Business V: Supporting facilities and Services for SMEs Provide support service for SMEs for expansion and business in Thailand. Other than that, provide services for sales of land for industrial park, sales and rental of residential/commercial facilities, infrastructures required as a smart industrial park. Also construct integrated infrastructure management platform which manage and operate these activities of industrial park to realize efficient operation of the park.

8 2) Total Project Cost Total cost of this project is indicated below. Estimated project costs include expenses for land development, installation of facilities for water supply and drainage, construction of factories and residences, construction of SPP plant, facilities related to business support services. Table 1 Total Project Cost Item Project Cost (mil. THB) Project Cost (mil. USD) Project Cost (mil. YEN)) Industrial Estate management 21, ,626 (Reclamation work, Road/Water supply and Drainage work, Factory and Housing) Total Utility management 12, ,777 (SPP plant, Water supply and drainage treatment plant) Purchase of Land 5, ,560 Total 39,601 1, ,963 * 1THB=2.6YEN, 1USD=80YEN Source: Prepared by the Study Team

9 3) Overview of preliminary financial and economical analysis a) Financial analysis This project estimates the following, as the main source of income through SPC (Special Purpose Company) to be set up as a Thai-Japanese joint venture: electric power selling to EGAT through SPP program; steam selling to the companies within the industrial estate, as well as sales of houses and condominiums, and; the rent from the rental factories. The calculation of cash flow is based on NCF (Net Cash Flow), with project period of 20 years. As for the rate of inflation, the current inflation rate in Thailand is fluctuating around 3%. However, as the inflation rate has been experiencing a downward trend in the recent year, reaching 2% in November 2012, the rate of 2% is applied for calculation of base case. Analysis for scenarios using loans from commercial bank and using investment loan from JICA were carried out based on afore mentioned conditions. Both cases aim to improve on the financial situation at an early stage by increasing the profitability through sales of properties such as low-rise and high-rise residential housings and industrial lands in the first 3 years of project. After the first three years, the project as a whole is expected to propel through leasing of factories and SPP. Case 1: Borrowing from commercial bank (assumed interest: 6.5%) Case 2: Investment loan from JICA (assumed interest 3%) As a result of FIRR calculation for the entire project through operating period of 20 years based on afore mentioned assumptions is as follows: 11.56% when using investment loans from JICA, 10.20% when using loans from commercial banks. When looking at SPP business alone, which is the core business of this project, it was confirmed that it would have high profitability (13.48% FIRR) when using investment loans from JICA, and (12.28% FIRR) when using loans from commercial banks. The analysis shows that the FIRR for the overall project exceeds the interest rate for 10-year government bond for Thailand (3.49%) and interest rate for commercial banks (3.3% for 3 year savings account) concluding the project to be feasible on afore mentioned conditions. Total project SPP business (Core business) Table 2 Result of financial analysis Financial Internal Rate of Return (FIRR) Use commercial banks 10.20% Use investment and loans from JICA 11.56% Use commercial banks 12.28% Use investment and loans from JICA * 1THB=2.6YEN, 1USD=80YEN 13.48% Source: Prepared by the Study Team Financial Net Present Value (FNPV) 9,419 (mil. THB) 306 (mil. USD) 24,489 (mil. YEN) 13,649 (mil. THB) 444 (mil. USD) 35,487 (mil. YEN) 5,591 (mil. THB) 182 (mil. USD) 14,537 (mil. YEN) 6,944 (mil. THB) 226 (mil. USD) 18,054 (mil. YEN)

10 Basic conditions for calculation of revenue and operation and management (O&M) costs and Other conditions for calculation of cash flow are summarized below. Table 3 Basic conditions for calculation of revenue and operation and management (O&M) costs (1) Project facilities Specification and quantity Remarks Highly-efficient gas cogeneration facility Cyclic type water supply and drainage facility Land for factory construction (for sale) Power output: 140MW Steam supply capacity: 26t/h Water supply capacity: 10,000m 2 /d Drainage capacity: 8,000m 2 /d 320,000m 2 Rental factory 357,855m 2 Residence (detached houses for sale) Residence (condominiums for sale) 500 houses 840 units Residence (apartments for rent) 1,600 units Floor area of business space (for rent) Business support center Training center 16,770m 2 Unit of water supply amount: 91.5m 3 /ha/day (Assumption based on interview) Estimated number of user company: approximately 300 Estimated number of trainees: Approximately 15/class x 6 90/y classes Source: Data collected by the Study Team Table 4 Basic conditions for calculation of revenue and operation and management (O&M) costs (2) Cost Items Conditions Remarks Cost for land acquisition 4,000THB/m 2 subdivision price offered in Estimate was made based on GEMOPOLIS in the past. Design cost 0.5% of the construction cost Contingency cost 7% Fuel cost 5.5THB/m 3 commercial use (Reference: Price of natural gas for JETRO) Maintenance cost (civil engineering facilities) Maintenance cost (construction/facilities) 7%/y 2.5%/y Insurance rate 0.78% of asset price Source: Data collected by the Study Team Percentage of the total construction cost (road). Assumption based on past domestic projects. Percentage of the total construction cost (factories, water supply/treatment plant, SPP)

11 Table 5 Basic conditions for calculation of revenue and operation and management (O&M) costs (3) Sales condition Specification and unit price Remarks Electricity rate (Purchased by EGAT) 3THB/kWh Electricity rate (business use) Electricity rate (general use) Steam rate 4.5THB/kWh 3.7THB/kWh 1,154THB/t Estimate was based on results from hearing survey at industrial estate(s). Estimate was made by adopting utility rate in Bangkok as a reference. Estimate was made by adopting utility rate in Bangkok as a reference. Assumption based on the rate in Japan Water rate (business use) 20THB/m 3 hearing survey at industrial estate(s). Estimate was based on results from Comparable to Eastern Seaboard etc. Water rate (domestic use) 11THB/m 3 utility rate in Bangkok as a Estimate was made by adopting reference. Sewage charge (business use) 10THB/m 2 hearing survey at industrial estate(s). Estimate was based on results from Comparable level to GEMOPOLIS Sewage charge (domestic use) 8THB/m 2 Estimate based on the charge for business use. Land for factory construction (for sale) 10,000THB/m 2 Rental factory 350THB/m 2 /month Residence (detached house for sale) Residence (condominium for sale) Approximately million THB/house Approximately 7.69 million THB/condominium Residence (apartment for rent) 60,000THB/m Floor area of business space (for rent) 1,500THB/m 2 /m Training fee at the training center 300,000THB/person/y Business support service 10,000THB/company/m Commuter bus 30THB/person/ride Source: Data collected by the Study Team Record of past sales Assumed from interview survey at industrial parks and estates Average rent of apartments in midto- low price range in Bangkok Average rent of business space in low-price range in Bangkok Estimate was based on fee at vocational schools in Bangkok as reference. Fees for renting conference rooms, and consultation service etc.

12 Revenues from industrial estate management In addition to the lease of factories and sales of industrial land, revenue can be expected from sales and leasing of newly constructed housings that are increasing in demand due to ongoing development in the surrounding area. Furthermore, support service for tenant companies will be provided to add value and ensure competitive edge over other industrial estates. Results of revenue calculation and summary of each activity are shown in the table below. Sales of industrial land Sales of land, aiming to sell within 3 years from beginning of the project. Lease of factories Lease of factories with gross floor area of approximately 1000 m 2 over 3 floors, complete with office space. Sales of housings (low rise) Development and sales of detached housings on a large plot, targeted at high income population. Sales aimed to start within 3 years of the project. Sales of housings (high rise) Development and sales of energy-efficient, high-rise residential buildings targeted at high income population. Sales aimed to start within 3 years of the project. Lease of housings (high rise) Development and lease energy-efficient, high-rise residential buildings targeted at medium-to-high income class, as well as manager-class employees of the industrial estate. Lease of commercial buildings Lease of commercial buildings targeted at commercial businesses that provide services to residents and employees of the industrial estate. Revenue from the lease is expected to equal those of low-to-medium price range properties in Bangkok, due to the advantageous location which ensures customers from the industrial estate to certain extent. Training center Provides training up to manager-level personnel which are often lacking in availability. The training will mainly target students in Bangkok. Business support service Provides supports for the Japanese Small and Medium Enterprises (SME) planning to expand to the industrial estate, as well as providing various administrative and human resource services to Japanese tenant companies. Transportation service Provides commuter bus services in the morning and evening, operated by the bus fare paid by the employees commuting to and from the factories within the industrial estate.

13 Revenues from total utility management Revenues expected from the core businesses of the projects; SPP and water supply/treatment plants were examined. Results of revenue calculation and summary of each activity are shown in the table below. Revenue from SPP business The SPP business is expected to gain revenue from supplying steam to factories as well as sales of electricity to the residential housings within the industrial estate, direct sales of electricity to the factories, and sales of 90MW of electricity to DGAT. Revenue related to water supply/wastewater treatment business The water supply business will gain revenue through supply of water to commercial buildings, residential housings as well as factories within the industrial estate. Revenue can also be expected from treatment of waste water from each facility. The volume of waste water for treatment is expected to be 80% of the total water supplied. Fee for the treatment of wastewater from businesses was set based on interviews conducted with other industrial estates in Thailand, whilst the fee for the treatment of wastewater from residential housings was set based on the public utility charge in Bangkok. Furthermore, demand of 350 days per annum was used taking into consideration number of days for factory closures for maintenance, and long-term absence from residential housings.

14 Consideration for Operation and Management (O&M) Costs This section examines Operation and Management (O&M) costs for the project, based on basic conditions for financial and economic analysis. O&M costs of industrial estate management Maintenance cost, labor cost, cost of bus fuel are taken into consideration as main elements of O&M cost. Related costs such as general management cost are included in the maintenance cost. O&M costs of total utility management Costs of fuel for SPP, maintenance costs and labor cost are taken into consideration as main elements of O&M cost. Related costs such as general management cost are included in the maintenance cost. Table 6 Conditions for calculation of cash flow Items Specification and scale Remarks Construction period 3 years Operation period 20 years Years of depreciation 20 years Interest Payback period of construction funds Repayment moratorium of construction funds JICA investment and loan: 3% Commercial bank: 6.5% JICA investment and loan: 15years Commercial bank:10years 3 years Capital-to-asset ratio 30% Inflation rate 2% Fixed asset tax 3.75% Corporation tax and other 27% Based on recent downward trend and 2% rate in November 2012 Rent of land x 12.5/3 (in case of industry) Corporation tax 20% (starting from 2013) Value-added tax 7% Other incentives Specification and scale Remarks Exemption from corporate tax Subtraction of revenue First 8years Subtraction of amount twice th e public utility fee for the first 10 years. Subtraction of 25% of construc tion cost from revenue. Source: Data collected by the Study Team 50% for 5 years after the first 8 years. Investment incentive by BOI (for energy efficiency related project)

15 b) Socioeconomic analysis The socioeconomic analysis was conducted focusing on three (3) elements that are; direct employment, employment by tenant companies, and construction investment. Calculation of consumption trend According to the Japan External Trade Organization (JETRO) website, Personal Consumption Expenditure (PCE) in Thailand in 2011 was 2,392,719 million THB (provisional value), whilst the Gross Domestic Product (GDP) was 4,599,655 million THB (provisional value). From these values, the consumption trend in Thailand was calculated as 52%: Consumption Trend (β) = PCE/GDP = 2,392,719 million/4,599,655 million=52.0% Creation of direct job opportunity through the project Through implementation of this project, 15 manager-class workers, 5 mid-level engineers, 40 unskilled workers are to be directly employed, while 17,545,000THB/y of wages are to be paid. Based on Thailand s long-term consumer propensity (0.52%), approximate estimate of total consumption was made considering multiplier effect. The result was as follows. Total consumption=17,545,000thb/(1-0.52)=36,552,083 THB/y Job creation by tenant SMEs Development of industrial estate is expected to contribute greatly to job creation. To estimate economic effect, total consumption resulting from multiplier effect to wages paid to the employees was calculated. The total annual consumption was estimated to be 3,625,000,000 THB/y. In the case where the project was not to be implemented, the land is likely to be developed as a mid to high rise residential district in response to high demand for residential development in area surrounding the project site, which is unlikely to create employment by SME. Macroeconomic effect of construction investment When assumed that 30% (11,939,853,293 THB) out of the total invested amount (39,799,510,975THB) is to be distributed as wages, estimated total consumption, considering multiplier effect, would be 8,291,564,786 THB as calculated below: 11,939,853,293 THB x 1/(1-β)= 8,291,564,786 THB

16 EIRR under the above mentioned condition is estimated to be 3.97%, confirming the economic effect of the project to exceed the investment amount, through increased personal consumption founded on job creation and construction investment within the industrial estate. As for the difficult elements of currency conversion, one of socio-economic effects caused by the project implementation, it is presented amongst other social impacts. Table 7 Result of economic analysis Economic Internal Rate of Return (EIRR) Project Cash Flow 2,106 (mil. THB) 3.97% 68 (mil. USD) 5,476 (mil. YEN) Source: Prepared by the Study Team 4) Environmental and social impacts Main purpose of this project is to improve the environment by preventing climate change, preventing air pollution, reducing waste generation, and so on, by introducing a large number of technologies that can contribute to a reduction in greenhouse gas emissions by reducing the consumption of energy. Target locations of this project include some natural areas that have not yet been significantly altered by human activities, but are mainly areas that are already built up, so the environmental impacts (emission of air pollutants, discharge of water pollutants, creation of noise and vibration, alterations to the natural environment, etc.) associated with development and construction of industrial estates are expected to be relatively minor. In fact, minimization of negative impacts on the environment as much as possible with advanced environmental technologies at the first stage of development fit with the concept of this project, as the eco-friendly industrial estate. As a result, any environmental impacts on the environmental and social dimensions associated with the implementation of projects will be relatively minor, and creative and forwarding thinking for project design may actually further enhance the positive environmental impacts on those dimensions.

17 (4) Implementing Schedule Indicate implementing schedule in the figure below. Submission of Study Report Figure 5 Implementing Schedule Preparatory stage Consultation and coordination with (1) GEMOPOLIS (2) Study on support contents of the project (3) F/S EIA survey Consultation and coodination on the support (4) contents with the two governments (5) Detemination of project contents (6) Fund procurement (7) Land acquisition (8) Basic design and Construction planning Application for approval of business change (9) to IEAT Application for approval of Smart (10) Infrastructure business Preparation of tender for the selection of (11) contractor for each construction (12) Tender result and Contract 2. Construction Stage (1) Construction preparation period (2) Detailed Desgin (3) Reclamation of industrial park (4) Building work (5) Construction of smart infrastructure facility (6) Test operation of smart infrastructure 3.Operation Preparatory Stage (1) Accept application of tenants (2) Establishment of the management company (3) Preparation to start operation 4. Opening Stage Source: Prepared by the Study Team

18 (5) Feasibility related to Project Implementation 1) Fund Procurement and Feasibility Purpose of this project is to contribute to the promotion of the economic and social development of Thailand and concurrently attract investment from Japanese private enterprises in the development and operation of industrial estates that are expected to serve as foreign industrial infrastructures. For this reason, the PPP scheme has been applied to the project. In order to allow the participants of the projects, which are Japanese SMEs, to fulfill their competitive potential in the international markets, the offer price of the project needs to be held as low as possible. Therefore the low-interest loan program for the business which is operated mainly by private company such as the overseas investment loan program offered by JICA will be applied to PPP will be examined as a means to finance the project. This project is applicable to PPP overseas infrastructure improvement projects supported by the Japanese government, and is also eligible for preferential treatment for energy conservation-related projects granted by the BOI under the Thai government's policy to invite foreign investments. Furthermore, it is expected that Japanese SMEs participating in the project will also be applicable to the BOI's preferential treatment for foreign investment. On the grounds of these conditions, the project is believed to be able to provide profitability as well as the possibility of being approved for the low-interest loan program for the business which is operated mainly by private company such as the overseas investment loan program offered by JICA. Figure 6 Example of operation scheme Thai タイ政府 government Government 政府関連機関 agency NESDB, MOI, BOT BOI, IEAT etc. 等 配当 Dividend 地元開発業者 Local developer サービス提供 Service 投資 Investment 工業団地管理会社 Operator of the Industrial Estate 投資 Specific Purpose 特別目的会社 Company (SPC) (SPC) 利用料 工業団地内に立地する企業 Companies in the Industrial Estate Investment 配当 協力 Cooperation 支援 Support Dividend Service fee Investment 投融資 & loan 保険 Insurance Support for new 新技術紹介の支援 technology 新規事業の支援 Support for new business Source: Prepared by the Study Team Japanese 日本政府 government Government 政府関連機関 authority 支援 Support Japanese trading company Japanese manufacturer etc. 日系商社 製造業者 民間金融機関 Private bank 等 Japan International Cooperation Agency 独立行政法人国際協力機構 (JICA) (JICA) Japan Bank for International Cooperation 国際協力銀行 (JBIC) (JBIC) Nippon 独立行政法人日本貿易保険 Export and Investment Insurance (NEXI) NEDO JETRO

19 2) Cash Flow analysis A cash flow analysis for the project was conducted on the assumption that 30% of initial investment is equity capital, and the other 70% is funded through loans, based on two separate loan scenarios of: commercial bank loans and a long-term low-interest loan available through the overseas investment loan program by JICA. The result of the analysis indicated that by using the overseas investment loan program by JICA, the loan could be repaid by the cash flow generated by the project, with 11.56% FIRR for the participating company. It is therefore estimated that the project has feasibility. An analysis using the Debt Service Coverage Ratio (hereinafter referred to as DSCR), a benchmark for determining a company's ability to service its long-term debt, was also conducted to determine whether the project cash flow would meet the level sufficient for repaying the loan principal and interest. The calculation was made using the following formulae: DSCR = (after-tax profit + depreciation cost) / (current repayment portion of long-term debt principal + long-term debt interest) The calculation yielded smallest DSCR and pointed 1.62 for the fourth year from the start of the project, which is the end of all grace periods for pay back of the debt. Thus, DSCR of on or over 2.0 will be secured after 10 th year. In Japan, it is generally said that DSCR of on or over 1.5 is a normal level. In this project, the level will be secured over an entire period.

20 (6) Advantages of Japanese companies (Technological and economic) Japanese companies have strong advantages over their foreign competitors when introducing technologies to Thailand. A wide range of environmental technologies accumulated over the years, from common technologies well established in society to the world's leading technologies in their validation phase, allow Japanese companies to propose various different technologies according to the needs of the business operations and national life of Thailand. Another strong point of Japanese companies is the ability to, rather than focusing solely on plant exports, make comprehensive proposals that involve consultation for effective utilization of exported facilities based upon field-proven experience. 1) Advantage in Technologies This project will involve the introduction of equipment that requires advanced technology including high-efficiency power plants and energy management systems, to be complemented by consultation services to offer expertise in how to save energy through the use of such equipment. In the technological capability to provide such products and services as a package, Japanese companies with accumulated experience also in the domestic market have an advantage over foreign competitors. 2) Advantage in Economy On the cost competitiveness front, South Korea and China have been increasing their overall strength. As a result, Japanese companies have been struggling in each area of infrastructure export. Nevertheless, even in projects undertaken by competing countries, equipment that requires advanced technology such as power generator turbines and boilers are often purchased from Japanese companies. In an area like power plant, there said to be no significant difference in the cost competitiveness between Japan and these competitors. Since this project intends to introduce highly advanced smart technologies including gas turbines for double combined cycle power generation and energy management systems, differences between Japan and other countries in cost competitiveness are deemed to be small.

21 (7) Detailed Schedule until Realization of the Project and Risks to prevent implementation Indicate schedule until realization of the project in the figure below. Figure 7 Schedule for Realization of the Project Submission of Study Report 1. Preparatory stage Consultation and coordination with (1) GEMOPOLIS (2) Study on support contents of the project (3) F/S EIA survey Consultation and coodination on the support (4) contents with the two governments (5) Detemination of project contents (6) Fund procurement (7) Land acquisition (8) Basic design and Construction planning Application for approval of business change (9) to IEAT Application for approval of Smart (10) Infrastructure business Preparation of tender for the selection of (11) contractor for each construction (12) Tender result and Contract Source: Prepared by the Study Team This project is aimed to realize industrial park type smart community in Thailand. Business model for this project is considered based on the utilization of SPP program which gives incentives and power purchase guarantees to eco-friendly power generation projects. Therefore, whether this project could acquire the license of SPP program, or institutional change for private power generation companies in Thailand may affect the implementation of this project. In addition, because this project is aimed to become a business model of Smart Community in Thailand, it is necessary to appeal to agencies of both Japanese and Thai government so as to be promoted as a cooperative project between both countries. For funding, the key is if private companies can receive the low-interest long-term funds from JICA or JBIC. For detailed information on business entities and business scheme, there is a need to conduct detailed F/S, with the support of Japanese government.

22 (8) Map to indicate project implementing site Figure 8 Project Site Ayutthaya GEMOPOLIS AIRPORT SAMRONG BANGNA-TRAD BAN PHO GATEWAY Welgrow I.E. GEMOPOLIS [Phase 1 (28ha)] Phase 1 has been operated. 130 companies from 25 countries, 20,000 workers Jewely business, Watch business, IT business, Business of medical accurate instulments GEMOPOLIS (Phase1; 28ha) Targeted area Amata Nakhon I.E. [Phase 2 (100ha)] Still under planning Suwvarnabhumi International Airport GEMOPOLIS (Phase 2; 100ha) Laem Chabang GEMOPOLIS (Phase 2) Eastern Seaboard Amata City I.E. GEMOPOLIS (Phase 1) Source: Prepared by the Study Team based on Google picture