Thailand Gets Its $37.5bn Show On The Road

[peter991]

Source: Asia Times newspaper

BANGKOK - The shift in Thailand's growth paradigm spells opportunities for investors, and Prime Minister Thaksin Shinawatra's trusted economic advisor Somkid Jatusripitak, who is serving concurrently as deputy prime minister and finance minister, will embark on a roadshow this month to garner financing and bids for contracts from international heavyweights. His itinerary is yet to be finalized, but his sales pitch has already been carefully worked out.

"These are attractive projects, very solid financially," says Kanit Sangsubhan, director of the Fiscal Policy Office at the Ministry of Finance. "They are economically sound. And investing in Thailand is safe." The government is planning projects that will cost about US$37.5 billion over the next four years. That's a hefty price tag for a developing country, even one that has been developing as rapidly and performing as solidly as Thailand. So, rather than government budget, some investment will come from private sources - both local and foreign.

Kanit says the amount of supplemental private financing for each of the projects is still being worked out - his office is crunching the numbers now - but that certainly some money will be raised through securitization, through the sale of bonds. The projects will cover a wide range of industries, from transportation to energy to hospital upgrades and education.

The jewel in the crown, however, will be the massive Mass Rapid Transit Authority (MRTA) underground project to link the existing Bangkok underground and elevated Skytrain commuter rail systems to a network that will cover the entire capital and its surrounding suburbs. The existing lines total just 44 kilometers. The planned network will stretch over 291 kilometers. The highest priority will be the 28.5 kilometer link from downtown to Suvarnabhumi International Airport, now under construction and slated for completion by 2006.

Apart from bonds, Kanit says plenty of contracts will be up for grabs among construction companies and other suppliers. A well-connected Bangkok-based investment banker cautions, however, that Siemens AG, which helped build the Skytrain and subway lines, has a close relationship with some government power brokers, so will have the inside track on big contracts for the rail system.

Ockert Van Zyl, president and chief executive officer of Siemens, has already urged the government to finance the system locally, saying there is plenty of liquidity in the local market and that, as revenue from the project will be in baht, having the project financed in baht makes more sense and will be safer.

Safety is a factor investors should also consider. Thailand's track record on big infrastructure projects has not been very impressive, although none has been undertaken by the present government. "In general, privatized projects in Thailand - whether through build-operate-transfer (BOT), a concession or direct project financing - have little to recommend them. Privatized projects have a bad reputation of attracting cronyism, unscrupulous investment bankers and a lack of clarity and fairness in the rules of the game," says Pana Janviroj, editor of The Nation, an English-language daily.

The Thai landscape is littered with infrastructure projects that either went sour or didn't pay off. Along the road to Don Muang International Airport still stand the pylons of the never-completed Hopewell project. Designed in the late 1980s, the road and rail link between downtown and the current airport was handed to Hong Kong developer Gordon Wu. It didn't take long for disputes to erupt between the developer and Thai ministers. Wu claimed the government was preventing him from completing the project because certain individuals wanted a bigger cut.

Some analysts said Wu lost his appetite for the investment when he realized the real estate he had been granted alongside the route wouldn't generate the revenue he needed to make money. The disaster became commonly referred to as the "Hopeless project".

The Don Muang elevated tollway has also been a money-losing proposition, and even the Skytrain and subway are a long way from turning a profit. Then there's the case in the early 1990s, when the Thais revoked a BOT expressway concession for Japanese construction firm Kumagai Gumi when it realized what a moneymaker it would be. The politicians, it was claimed, wanted the revenue for themselves.

On the bright side, the Thaksin government has announced that it intends to institute legal reforms in a bid to make the laws more coherent, efficient and in line with international standards. But there is no telling how long that will take, or how sincere or effective those reforms will be. And considering how the Thaksin government has allegedly stacked regulatory bodies such as the National Telecommunications Commission and the Election Commission with allies, skepticism abounds.

"Promises of regulatory clarity and other fair terms are not easily bought," Pana says. "The problems look preventable. Advocates of privatization would say that liberalization and competition, level playing fields and timely and practical regulations overseen by independent regulators and not politicians are enough to ensure success - if the execution is professional. The politics of the day has become the dominant risk factor, making it difficult to predict the future with any accuracy. The risks associated with involvement in these projects have increased a lot since the 1990s."

Nonetheless, Thailand will push ahead with its plans. "The government policy is clear. We need to invest in and upgrade our physical infrastructure so we can uplift our competitive platform," says a Finance Ministry source. Kanit agrees, saying that investors in various sectors looking at Thailand would want and support this infrastructure upgrade. "Seven years after the [economic] crisis, we've reached the time where it's appropriate to restart infrastructure investment. We need to do it to stay competitive. It sends the right signal about our country to investors and the outside world. We are determined to keep building our real sector."

That determination is attractive to many investors. If there is one thing that can be said about the Thaksin government, it does deliver on more of its promises than previous Thai governments. And a Bangkok linked by a commuter rail network that could break up the logjam of its notorious traffic jams would definitely give a productivity boost to businesses operating there and make it a more attractive city in which to be based. While there are still plenty of risks in investing in Thailand's infrastructure, the rewards may prove worth it.

[Kringle]

Just all gets back to corruption. Don't pay the right people and you don't do biz. Sad