Mega projects fast-tracked to stimulate the economy

Bangkok Condo Finder on November 25th, 2015 with

Thai projects fast-tracked

The government-controlled Public-Private Partnership (PPP) Committee recently announced plans to fast-track five of its mega projects, which will take a total investment of 334.207 billion baht, in an effort to add some serious stimulus to the Thai economy, which has been in sluggish territory for almost two years now.

The government said the process of fast-tracking these five projects, all mass-transit or transport related, would allow bidding from private companies for the various contracts to be completed by the end of June 2016.[1]

The five projects set to be fast-tracked consist of the so-called Pink Line elevated train line, which is valued at 56.725 billion baht; the Yellow Line elevated train project, worth 54.768 billion baht; the Blue Line elevated train project, which is expected to be the most expensive, at 82.494 billion baht; and two motorways: the first from Bangpa-in to Nakhon Ratchasima (Korat), worth 84.6 billion baht and the second, from Bangyai to Kanchanaburi, worth 55.62 billion baht.

At this stage, the Pink and Yellow Line projects have already been approved by the Ministry of Transport, and the other three are expected to gain approval by the end of December.

Once all the projects have been given Transport Ministry approval, they will then be put to the Cabinet by March and by May the bidding process will be cleared to begin.

Under the terms of the PPP Act (1992 and amended in 2013), the private sector was given the opportunity to invest in public projects as a way of reducing the financial exposure of the government. However, approval could take up to 10 years. In 2013, the legislation was amended to reduce approval time to a maximum of two years.

Some in government circles believe two years is still far too long a time for private companies to have to wait to move through the approval process, especially given that major companies are in a position to allocate funds for projects elsewhere in the region and around the world should they so desire. While there is chatter that the approval process may be reduced to just nine months in the near future, no firm commitment has been forthcoming on that front as yet.

As for the five mega-projects currently looking to be fast-tracked, it is expected that all five may be entirely funded by the winning bid companies and the government would repay the investment capital later.

Acquisitions and joint ventures

While mega projects may well help to stimulate some sectors of the economy, other major private enterprise companies are looking to expand their businesses by investment either in takeovers (or mergers and acquisitions) within Thailand or casting a wider net and looking to invest elsewhere in the region or across the world as a kind of hedge against the downturn in this country.

The integrated petrochemical producer Indorama Ventures PCL (IVL), for example, recently announced it had set aside an investment budget of US$4.8 billion for the period between now and the end of 2018, most of which will be spent on acquisitions or forging joint ventures.

Of this, US$1.3 billion has been allocated for acquiring one or two companies next year, including Cepsa Spain, and making needed improvements to the gas cracker it operates in the United States. The gas cracker has a combined annual ethylene and propylene production capacity of 400,000 tonnes per year.

The remaining US$3.5 billion will be used for mergers and acquisitions (M&As), joint ventures, the expansion of local and overseas production capacities and standard maintenance. The company said it is currently considering three M&A opportunities which it hopes to make a move on once due diligence has been conducted by the end of 2017 at the latest.[2]

4G auction proves a financial boon for government coffers

In what can only be described as a truly amazing Thailand auction process, a marathon 30-hour bidding event saw True Move H Universal (or, simply, True Corporation) and Advanced Wireless Network (a division of Advanced Info Service) emerge as the winning bidders for the roll-out of the 4G network. Bidding closed at 80.778 billion baht in the 86th round.

True Move won the first licence at a price of 39.792 billion baht while Advanced Wireless Network, a subsidiary of AIS, took out the second license for 40.986 billion baht. Of the other contenders, Jas Mobile Broadband dropped off at 38.996 billion baht while DTAC Trinet stopped at 17.504 billion baht.

By comparison, the final figures were substantially higher than the base asking price of 15.91 billion baht per licence.[3]

The general-secretary of the National Broadcasting and Telecommunications Commission (NBTC) admitted he was surprised the bidding reached such high levels.

He was adamant that the result would in no way affect customers of either company as the terms of reference for the 4G auction clearly stated that the winning bidders would be required to offer tariffs lower than the current 3G service charges.

In practical terms, this means the maximum 4G rate must be less than 0.69 baht per minute for voice service and 0.26 baht per megabyte for data service.[4]

Under the terms of reference, the winning bidders must stump up half the bidding fee within 90 days of the auction being finalized. Once they obtain their licences, the 4G network must be rolled out to a minimum of half the population within two years and 80 percent of the population within four years.

Analysts said the final bidding amounts were up to twice what had been expected, which will lead to potentially reduced profits over at least the short term for both True and IAS.

IAS, in particular, may be a little vulnerable as it will be looking to obtain a possibly greater than expected loan to cover the initial bidding payment, thereby possibly raising its debt to equity ratio from 1.3 to between two and 2.5. This could effect AIS’s overall net profit by as much as two percent.

[1] http://www.dealstreetasia.com/stories/thai-govt-to-boost-public-spending accessed 16/11/15

[2] http://www.dealstreetasia.com/stories/thailands-indorama-draws-up-4-8b-investment-plan accessed 16/11/15

[3] http://www.dealstreetasia.com/stories/thailands-4g-auction accessed 16/11/15

[4] ibid.

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