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Trends in private investments and financing: A case study of Thailand’s energy sector 28 Nov 2007 Chuenchom Sangarasri Greacen, Palang Thai Sairung Thongplon,

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Presentation on theme: "Trends in private investments and financing: A case study of Thailand’s energy sector 28 Nov 2007 Chuenchom Sangarasri Greacen, Palang Thai Sairung Thongplon,"— Presentation transcript:

1 Trends in private investments and financing: A case study of Thailand’s energy sector 28 Nov 2007 Chuenchom Sangarasri Greacen, Palang Thai Sairung Thongplon, Confederation of Consumer Organization, Thailand Regional Training Workshop “Understanding investments and investment treaties and agreements” FOCUS, Bangkok, Thailand

2 Outline Privatization trends Privatization trends Investment trends Investment trends Financing trends Financing trends Implications for civil society advocacy Implications for civil society advocacy

3 Privatization trends: the defeat of neo-liberal agenda the rise of nationalistic monopolistic “champions” 60s-80s: development of state-led, centralized energy heavily influenced by USAID, WB 60s-80s: development of state-led, centralized energy heavily influenced by USAID, WB 90s: Neo-liberal reforms: partial privatization of SOE’s assets, IPPs, (failed) Power Pool or Third Party Access 90s: Neo-liberal reforms: partial privatization of SOE’s assets, IPPs, (failed) Power Pool or Third Party Access 2000s: the rise of “National Champions” 2000s: the rise of “National Champions”

4 The “National Champions”: the case of PTT, EGAT PTT: privatized in 2001 PTT: privatized in 2001 EGAT: IPO planned in 2006 but aborted and later reversed through a court verdict in a historic lawsuit brought on by consumer groups EGAT: IPO planned in 2006 but aborted and later reversed through a court verdict in a historic lawsuit brought on by consumer groups PTT: facing a similar lawsuit, verdict expected next month PTT: facing a similar lawsuit, verdict expected next month

5 Key features of PTT and (aborted) EGAT privatization Monopoly with no Independent regulator Listing in the Stock market Partial public- private status To maximize “rent” (corruption revenue) by the ruling politicians in monopoly businesses through direct shareholding (nominee funds) and policy corruption

6 Privatization of monopoly utilities : aggression of money politics Politicians- cum- businessmen Cabinet Parliament Regulators Listed companies w/ ties to politicians Bureaucracy State-owned enterprises Nominees control Make favorable policies

7 A snapshot of PTT Market cap 1 trillion baht ($30bn), 15% of Thailand’s stock market Market cap 1 trillion baht ($30bn), 15% of Thailand’s stock market

8 Modus Operandi to achieve “Aggressive growth” PTT as mother company with monopoly rights and captive consumer base PTT as mother company with monopoly rights and captive consumer base PTTEP as partially private subsidiary with privileged access to state benefits, support and PTT’s financial strength PTTEP as partially private subsidiary with privileged access to state benefits, support and PTT’s financial strength PTTEP pursues risky, high-return projects abroad PTTEP pursues risky, high-return projects abroad MOF PTT PTTEP 52% 66% State privileges Monop. Consum ers $ passthru State privileges Others 34% 48% Only 33% of PTTEP’s dividends returns to the state PTTEP alone accounts for 20% of PTT’s net income

9 PTT Net Profit (Million baht) 2006 = 95,261 20051999

10 Conflict of interests: public policy vs private profits

11 Uneven attention by top-level energy bureaucrats: official duty vs. board meetings of energy company Participation in meetings PTT Plc. board meetings* Ft subcommittee meetings** Mr. Cherdpong Siriwit Energy Permanent Secretary 13/134/6 Mr. Metta Bunterngsuk Director of EPPO 8/95/6 *2003 Annual Report of PTT Plc. **The subcommittee on automatic tariff adjustment mechanism (Ft charge), from Oct 2003- 2004. Gas price charged by PTT was a main cost of the electricity tariff. Mr. Cherdpong and Metta served as the chairman and deputy chairman of the Ft subcommitee respectively. Government officials look after the private sector’s interests better than the public’s? 100% 90% 67% 83%

12 Trends in privatization: summary Nationalistic Nationalistic Monopolistic with regulator to counter- balance Monopolistic with regulator to counter- balance Collusion of politicians-bureaucrats- businesses to maximize corruption rent, exploiting private-public identity Collusion of politicians-bureaucrats- businesses to maximize corruption rent, exploiting private-public identity

13 Trends in investment: Unnecessary investments “cooked up” by a consortium of “politicians-technocrats- businesses” to churn profits Case in point: the 2007 Power Development Plan (PDP) calls for a doubling of capacity and ฿ 2trn investment in power sector alone Case in point: the 2007 Power Development Plan (PDP) calls for a doubling of capacity and ฿ 2trn investment in power sector alone Clear gains in energy stocks as a result of business-friendly policy Clear gains in energy stocks as a result of business-friendly policy

14 Too high ? 1,000 MW/yr increase should be sufficient? Actual Mar-07 Forecast 15 yr average = 914 MW 14 yr avg = 1,884 MW Past averages: 20 yr = 897 MW 10 yr = 808 MW Investment based on unrealistic demand forecast Increase in peak demand/year (MW)

15 Supply options considered in PDP2007 Only capital intensive, centralized gas/coal plants, large hydro, nuclear considered Only capital intensive, centralized gas/coal plants, large hydro, nuclear considered DSM/CHP/RE not considered as options & very limited DSM/CHP/RE not considered as options & very limited –DSM only 0.2% of saving –CHP SPP capped at 1,700 MW –RE/CHP VSPP capped at 1,100 MW L = low case B = base case H = high case 1=“lowest cost” 2=“probable coal scenario” 3=“LNG + increase power imports”

16 No need to build new green- field power plants in 15 years Installed capacity as of May 2007 27,788 MW Installed capacity as of May 2007 27,788 MW (Reserve margin = 22% ) Planned capacity additions by 2021 (excluding all green-field coal- fired, nuclear, gas power plants, uncommitted hydro imports) Planned capacity additions by 2021 (excluding all green-field coal- fired, nuclear, gas power plants, uncommitted hydro imports) =14,876 MW Substract decommissioned plants -8,462 MW Substract decommissioned plants -8,462 MW If allowing more CHP/cogen =2,000 MW If allowing more CHP/cogen =2,000 MW If implementing additional DSM/EE measures=1,500 MW If implementing additional DSM/EE measures=1,500 MW If allowing greater contribution from RE = 500 MW If allowing greater contribution from RE = 500 MW Total generation capacity in 2021= 38,202 MW Total generation capacity in 2021= 38,202 MW 2021 peak demand (if grows 1000 MW/yr) = 32,568 MW 2021 peak demand (if grows 1000 MW/yr) = 32,568 MW Reserve margin*= 17% Reserve margin*= 17% *Required minimum reserve margin of 15% to ensure system reliability

17 Secondary problem Private participation in investment Half of the capacity additions -> private sector (IPP bidding & imports) Half of the capacity additions -> private sector (IPP bidding & imports) EGAT and its subsidiaries have similar conflict of interest issues as PTT’s EGAT and its subsidiaries have similar conflict of interest issues as PTT’s Competing IPP projects have cross shareholders Competing IPP projects have cross shareholders

18 ผลิต ไฟฟ้า อิสระ (IPP) 700 MW ราชบุรี เพาเวอร์ (IPP) 1,400 MW ผลิตไฟฟ้า ราชบุรี 3,645 MW ไตรเอน เนอยี (IPP) 700 MW น้ำ เทิน 2 1,070 MW ระยอ ง 1,232 MW ขน อม 824 MW แก่งคอย Gulf (IPP) 1,468 MW BLCP (IPP) 1,400 MW RATC H Gulf Electric EGC O ปตท. ส พ. Thai Oil Power CLP บ้าน ปู กฟน. กฟผ. Thai Oil Plc. ปตท. บริษัท ผลิต ไฟฟ้า และน้ำ เย็น SPP s 118 MW SPP s 374 MW SPP s 789 MW 15 % 56 % 50 % 22.4% 25.41% 33 % 34 % 45 % 15%15% 10 % 26 % 66 % 50 % 25 % 100 % 50 % 25 % 100 % 15 - 80% 100 % 55 % 50 % ตัวเลข % แสดงสัดส่วนการถือหุ้น Cross-shareholding in energy business

19 ปตท. กฟน. กฟผ. บ้านปู RATCHThai Oil Plc. Thai Oil Power ผลิตไฟฟ้า อิสระ 700 MW CLP ผลิตไฟฟ้า ราชบุรี 3,645 MW ไตร เอนเนอยี 700 MW BLCP 1,400 MW ระยอง 1,232 MW ขนอม 824 MW แก่งคอย 1,468 MW ราชบุรี เพาเวอร์ 1,400 MW EGCO Gluf Electric Glow Energy Glow IPP 713 MW ผลิตไฟฟ้า และน้ำเย็น 50% 100% 35% 30% 35% 45% 14.99% 22.42%25.41% 50% 100% 25%100%50% 100% New IPPs 15% IPP (ชลบุรี) 735 MW IPP (ระยอง) 1704 MW IPP (ราชบุรี) 1734 MW IPP นครศรีธรรมราช IPP (ราชบุรี)IPP (ระยอง) 1126 MW IPP โรจนะ (อยุธยา) 1587 MW ราชบุรี อัลลัยแอนซ์ 100%

20 สปป. ลาว ช. การช่าง ทางด่วน กรุงเทพฯ RATCH ทีม คอนซัล น้ำงึม 3 440 MW 25% 28.5%12.5%1% เซาอีสท์ เอเชีย เอนเนอจี น้ำงึม 2 454 MW น้ำบาก 1 น้ำบาก 2 MDX ห้วยเฮาะ 126 MW เทิน-หินบุน 220 MW EGCO อิตาเลี่ยน ไทย กฟผ. ศูนย์อุตสาหกรรม โรจนะ น้ำเทิน1 523 MW น้ำเทิน2 920 MW น้ำเงี๊ยบ 260 MW สปป. ลาว 25%15% 20%25%40% 25% 15%20% 45% 60% 55%20% 29% GMS Power 27.5% 22.5% น้ำโม 105 MW MHW 25% Cross shareholding in hydropower projects

21 Trends in financing: IFIs more or less irrelevant in Thailand and becoming irrelevant in Mekong IFIs more or less irrelevant in Thailand and becoming irrelevant in Mekong Less debt, more equity Less debt, more equity –PTTEP, PTT -> DE ratio = 1:1 –Driven by massive profits, high cashflows Debt: less loan, more bonds issued Debt: less loan, more bonds issued Greater reliance on the stock/bond markets for financing for greater control by energy companies. Savings also shifted from traditional bank deposits to investment in securities (shares and bonds)

22 PTT debt profile (2006) Million Baht Debt – Baht 52,940.73 Debt – Baht 52,940.73 Debt – foreign currency 29,315.14 Debt – foreign currency 29,315.14 Bonds – Baht 72,181.70 Bonds – Baht 72,181.70 Bonds – foreign currency 43,327.16 Bonds – foreign currency 43,327.16 Contracted loans 574.58 Contracted loans 574.58 Total198,339.31 Total198,339.31 Lending by financial institutions being replaced by debt raised directly from disperse investors in bond markets, giving energy companies greater control and bargaining power over capital

23 Implications for advocacy work Much more attention needed on governance of the stock/bond markets Much more attention needed on governance of the stock/bond markets –Disclosure of foreign funds –Conflict of interest Not sufficient to focus on governance of investment/financing (e.g. concession agreement, lending institutions) Not sufficient to focus on governance of investment/financing (e.g. concession agreement, lending institutions) Need to go after policy makers, monopoly energy companies to improve planning process & sector governance, and eliminate unnecessary investments Need to go after policy makers, monopoly energy companies to improve planning process & sector governance, and eliminate unnecessary investments


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