Hydro Electricity In Thailand - What Went Wrong?

[ExpatOilWorker]

Electricity generated by hydro power went from 21.8% in 1986 to 3.3% in 2010 Generation capacity have been flat for the past 25 years at around 5,400 GWh.

Thailand is fast becoming dangerously reliant on cheap natural gas (72% - 2010) for electricity generation. This at a time when the transport sector also is starting to consume large amount of natural gas.

Most gas well in the Gulf of Thailand are "throw away wells", drill, produce for 18-24 month then plug and abandon.

Although more drilling rigs are coming to Thailand in 2012 and they are building a pipeline to Burma, I am sure natural gas will generate more headlines than the relative modest price increase in CNG just did.

Source: http://www.eppo.go.th/info/5electricity_stat.htm (Table 5.2-4)

[aussiebebe]

Political instability is the principle reason, Egat has continuously made proposals but various governments have held wildly different policies. The Pak Mun Dam is still, nearly 2 decades later, a focus of environmental activism due to the impact it has on fisheries and although electricity production of established dams like Bhumibol is demonstrably cheaper than coal or natural gas, Pak Mun was a harsh lesson in hidden costs such as relocation settlements and failure to meet the expected generation capacity.

The current mess regarding gas (LPG and CNG) for transport was again borne of political instability, PM Samak's government pushed subsidies as a populist measure to help consumers during the oil shock in 2008 and it escalated from there. The latest I read was that the price will gradually float this year to around 18baht, so at least that nonsense is being addressed.

[hhgz]

Thailand is buying hydroelectric power from Laos.

[ExpatOilWorker]

Thailand is buying hydroelectric power from Laos.

Right, which reminds me that Laos also have a pretty good 3G cellphone network. What an advanced and forward thinking country.

[ExpatOilWorker]

I thought there were a lot of CNG vehicles in Thailand, but actually Thailand is only number 9 on the list, but fast expanding CNG in the transport sector.

Pakistan is number 1 on the list and so what you might say?

Well, certainly not and apple-apple comparison, but if you depend too much on cheap gas, this is what you get:

(http://www.economist.com/node/21546882)

Lights off

Shortages of electricity and credit are bad for growth

KAMRAN, A TAILOR in Rawalpindi, is enjoying a little boom. He and his staff—two men perched on a platform above the counter in his tiny shop—have increased production fivefold this year, to five or six suits a day. They charge 300 rupees (about $3.30) each, with the customers supplying the material. The secret of their success is simple. They have access to credit, in the form of a 15,000-rupee loan from Tameer Bank, a microcredit lender, and, thanks to that, to a reliable supply of electricity. They have invested the money in a battery that enables them to keep sewing through the power cuts that bedevil Rawalpindi, and indeed most of Pakistan, for much of the day and night.

Multiply Kamran’s experience across the Pakistani economy, and the common estimate that power cuts knock about three percentage points off the growth rate seems extremely conservative. To make matters worse, natural gas, widely used for heating and cooking and to fuel buses and cars, has been in short supply. The shortages have become a serious deterrent to investment and a big cause of social unrest.

At the other end of the economic scale from Kamran, Asad Umar, who besides his role at the Pakistan Business Council is boss of Engro, a big Pakistani conglomerate, also has access to credit. Even so, Engro’s ammonia-urea fertiliser plant in northern Sindh—the biggest in the world and the largest private-investment project in Pakistan—shut down only four days after it started production in December 2010 and was closed for half of last year because its feedstock, natural gas, was unavailable. Yet Engro’s fertiliser business is profitable, so subsidised is the price it pays for the gas. Engro has promised to cut its fertiliser prices as soon as it has a reliable supply of gas.

Neither gas nor generating capacity need be in such acutely short supply. The power cuts are largely the result of bad policy and mismanagement. What started as a financial problem is now crippling the real economy. The electricity industry is beset by “circular” debts. Fuel suppliers are owed money by generators who are owed money by distributors who cannot get consumers to pay. At the end of November last year unpaid electricity bills reached 326 billion rupees. Among the big defaulters were the railways, the prime minister’s secretariat, the army and the ISI

A lot of the electricity used is never billed in the first place. Estimates of “transmission and distribution” losses—in large measure a euphemism for theft—vary from 11% to 37% of total supply, according to the central bank, the State Bank of Pakistan (SBP). About two-thirds of generation comes from inefficient, high-cost oil-fired plants. Generating costs have doubled in the past two years. In the long run much hope is invested in the planned Diamer Bhasha dam and hydropower plant in the north of Pakistan-held Kashmir, backed by the Asian Development Bank (ADB). But it will be hugely expensive, at an estimated $12 billion, and worries some observers because of the risk of earthquakes. And it is opposed by India (because of where it is).

Neither gas nor generating capacity need be in such acutely short supply. The power cuts are largely the result of bad policy and mismanagement

For Mr Umar, the solution to both the gas and electricity crises are obvious: deregulate and finish privatising the energy market. He points out that there is never a shortage of phosphate-based fertiliser because it is in the private sector, with prices set by the market. He also cites two examples of privatisation working in Pakistan: telecommunications, where the cost of a call from Karachi to Lahore is now 5% of what it used to be; and banking, where some 85% of assets are now held in private banks, compared with only 10% in 1990.

It is true that the government’s performance in running businesses is poor. Government-owned companies are piling up losses of about 600 billion rupees a year. Besides the state-owned electricity distributors, the railways, the national airline and a steel company are all bleeding cash. Most are seen as corrupt. The chief justice, Iftikhar Chaudhry, started an investigation into the non-payment of salaries and pensions by Pakistan Railways. He asked why it was so interested in buying new locomotives, and why it had retired 104 out of the 204 it had acquired since 2008. The implication was that the purchase of new rolling stock brought lavish commissions.

Can lend, won’t lend

Not everyone agrees with Mr Umar that the privatisation of the banks has been a success. Most of the big ones are indeed doing very well. But they are doing so by indulging in what Rakesh Mohan, a former deputy governor of India’s central bank, dubbed “lazy banking”: simply investing their deposits in government bonds. Mian Mohammad Mansha, chairman of MCB, a large and highly profitable commercial bank, says it is lending less than half its deposits. Most of its assets are in treasuries, which he understandably sees as a better investment than loans to state-owned companies. For small businesses—which means 70% of Pakistan’s firms—credit is hard to come by.

So Kamran the tailor is lucky to have made contact with Tameer, which is backed by Britain’s aid agency, DFID. With the formal banking sector doing well by lending to the government and big companies, small business is neglected. The economy does not collapse, says Werner Liepach of the ADB, because so much activity is shifting into the informal sector. Moneylenders—usurers—are having a field day. According to Yaseen Anwar, the governor of the SBP, 56% of Pakistan’s adult population have no access at all to financial services, with a further 32% served only informally—among the lowest levels of financial penetration in the world.

There is a crying need for microfinance, and not just for its traditional purpose of providing seed money for the poor starting their first, tiny business but as working capital for small firms. Just over the road from Kamran, Tahir Mahmud has borrowed 30,000 rupees, like Kamran at an annual interest rate of 20%, to expand his thriving business of designing and decorating customised motorcycle petrol tanks. But so far the number of active microfinance borrowers stands at just 2m or so.

What enables banks to be lazy is the government’s appetite for borrowing. Its deficit in the fiscal year that ended in June 2011 was 6.6% of GDP, if electricity subsidies are included. The budget for the current fiscal year sets a target of a deficit of 4%, but that is likely to be missed by a wide margin for the third year running. The target had been agreed with the IMF, which in November 2008 approved a standby arrangement of $11.3 billion for Pakistan. The arrangement was put on hold in May 2010, by when $7.6 billion had been disbursed, and terminated in September 2011.

The IMF withdrew because the government failed to meet its fiscal targets. In particular, it needs to raise taxes. Government tax revenues as a proportion of GDP are about 10%, among the lowest in the world. In 2010 and 2011 floods hindered efforts to raise more taxes, but the fundamental problem is political. No democracy finds it easy to raise taxes, and in Pakistan that difficulty is compounded by the main parties’ perception of their support bases. The PML(N) does not want to alienate business, which opposes indirect taxes, and the PPP rejects land or other taxes that would hurt its landowner friends.

So the government does not have much to spend and, as the SBP noted in its annual report, risks being caught in a debt trap because it is borrowing for recurrent as well as capital spending. Spending on health, welfare and education is further constrained by a big outlay on defence, which accounts for nearly 20% of the 2011-12 budget expenditure, compared with less than 8% for education.

Some analysts worry that the fiscal deficit is about to take a dire toll on Pakistan’s external accounts. This month the first repayment to the IMF, of $1.2 billion, falls due. Fears that this is going to precipitate a crisis seem overblown. But Pakistan’s current account—in a small surplus last year—is likely to tilt into deficit. The healthy flow of repatriated income from overseas workers may be reduced by the deterioration in the world economy and by Saudi Arabia’s plan, if implemented, to cap remittances.

Exports did surprisingly well in 2010, despite the floods, thanks in large measure to a rise in the price of cotton. That trend has reversed, and with the power shortages plaguing the textile industry, and falling global demand, exports are unlikely to maintain their growth. It is possible that Pakistan, which has foreign-exchange reserves to cover four to five months of imports, will run into balance-of-payment difficulties in the next couple of years.

GDP growth may pick up slightly from the 2.4% seen in 2010-11, but will remain far below that achieved by Pakistan’s neighbours, and well below the 7% per year that Pakistan’s Planning Commission says is necessary to absorb a bulge in the working-age population. In 1971, when East Pakistan seceded to form Bangladesh, its population, of about 70m, was 9m-10m bigger than Pakistan’s. Now Bangladesh has about 156m people and Pakistan somewhere between 180m and 200m. Its population is growing at nearly 2% a year, and is expected to reach 350m by 2050. Family planning has never been a government priority. The number of children per woman is falling, from 6.1 in 1990 to 3.9 now, but is still the highest in continental Asia outside Afghanistan.

In an enlightened “Framework for Economic Growth”, published last year, the commission sought to pinpoint the reason for Pakistan’s persistent failure to grow fast. The problem, it concluded, was not the “hardware”—Pakistan’s infrastructure, though deficient, was no worse than India’s, for example—but the “software”. Markets were not well developed because of lack of competition, policy distortions, entry barriers and poor regulation. And efficient public-sector management was lacking, meaning that “security of life, property, transaction and contract” cannot be guaranteed.

[PattayaParent]

Thailand's main reason for importing gas is to fuel power stations, not vehicles.

[Briggsy]

Laos will continue to increase its hydroelectric power output over the next few years. The customer is Thailand.

[samran]

Thailand is buying hydroelectric power from Laos.

Right, which reminds me that Laos also have a pretty good 3G cellphone network. What an advanced and forward thinking country.

...and that is about all they have.

The reason why Laos has all the hydro is two fold....firstly there are more mountains there where you can dam, and secondly, and probably more importantly, civil society groups which are hugely influential in Thailand are near non-existant in Laos, so it is much easier to build a dam.

There is a huge proportion of Thai money which goes to fund the dams, and Thai companies such as Ital-Thai are one of the largest contractors. Most of the electricity is sold back into Thailand to EGAT, so none of these projects would have gotten up without the Thai demand. But, even in Laos, you can only build so many dams.

In terms of natural gas, well the usage of that fuel for electricity generation has kind of been the settlement/stalemate which has been reached in Thailand, depending on how you wanted to look at it.

It was Thailand's good fortune that when Chevron came looking for oil back in the 1980's that they found natural gas instead. It was cleaner than the indigiounous lignite coal that was being used.

Coal as an alternative has been a political nightmare. The BLCP plant imports high CV low emmissions coal from Australia sold to them via Rio-Tinto. More could be built, but is always political tricky unless you go with the high CV coal, which is incredibly expensive and increasinly harder to source. It is well known that BLCP locked Rio into a good cheap long term contract, probably 50% of todays spot price for high CV thermal coal.

So gas is what we have for now and probably for a while to come, given the LNG import terminal which has just been completed and another planned for mid this decade I believe is already being fast tracked.

Edited February 14, 2012 by samran

[ExpatOilWorker]

Laos will continue to increase its hydroelectric power output over the next few years. The customer is Thailand.

OK, so Thailand is importing about 4% of electricity consumption, Laos saved the day again...not!

The LNG plant, with a capacity of 5 million tons/year will make up for any domestic shortfall, but make Thailand even more dependent on foreign oil & gas.

Edited February 17, 2012 by ExpatOilWorker

[samran]

Laos will continue to increase its hydroelectric power output over the next few years. The customer is Thailand.

OK, so Thailand is importing about 4% of electricity consumption, Laos saved the day again...not!

The LNG plant, with a capacity of 5 million tons/year will make up for any domestic shortfall, but make Thailand even more dependent on foreign oil & gas.

So what if Thailand is dependent on foreign oil and gas? It has never been the case that Thailand has been self sufficient in providing its energy needs. It isn't as if this is going to change anything...

Edited February 17, 2012 by samran

[ExpatOilWorker]

I agree on a day-to-day basis, it is just business as usual and Thailand certainly have the foreign reserves to import energy.

Gas is a domestic commodity sold at local prices, that is until the moment you start importing LNG.

I will take a wild guess and say that landing cost for LNG is the same in Thailand as Korea, Japan and India. $15/MMBTU or about 21.5 baht/kg. Then you have to add distribution, storage, profit, tax, VAT and it is starting to look like 27-28 baht/kg is the real cost of CNG. A little help from the government to keep public transportation like busses and trains going is OK, but why should the Thai taxpayers pay when I take a taxi or Somchai go on a road trip in his new Mercedes E200 NGV?

[necronx99]

Can you ever imagine Thailand building and safely running reactors?

[PattayaParent]

I agree on a day-to-day basis, it is just business as usual and Thailand certainly have the foreign reserves to import energy.

Gas is a domestic commodity sold at local prices, that is until the moment you start importing LNG.

I will take a wild guess and say that landing cost for LNG is the same in Thailand as Korea, Japan and India. $15/MMBTU or about 21.5 baht/kg. Then you have to add distribution, storage, profit, tax, VAT and it is starting to look like 27-28 baht/kg is the real cost of CNG. A little help from the government to keep public transportation like busses and trains going is OK, but why should the Thai taxpayers pay when I take a taxi or Somchai go on a road trip in his new Mercedes E200 NGV?

The LNG landed in Thailand doesn't go into vehicles it goes into the gas distribution network.

[ExpatOilWorker]

I agree on a day-to-day basis, it is just business as usual and Thailand certainly have the foreign reserves to import energy.

Gas is a domestic commodity sold at local prices, that is until the moment you start importing LNG.

I will take a wild guess and say that landing cost for LNG is the same in Thailand as Korea, Japan and India. $15/MMBTU or about 21.5 baht/kg. Then you have to add distribution, storage, profit, tax, VAT and it is starting to look like 27-28 baht/kg is the real cost of CNG. A little help from the government to keep public transportation like busses and trains going is OK, but why should the Thai taxpayers pay when I take a taxi or Somchai go on a road trip in his new Mercedes E200 NGV?

The LNG landed in Thailand doesn't go into vehicles it goes into the gas distribution network.

That is great, then we can use expensive imported LNG to produce cheap subsidized electricity and pretend CNG used for NGV come from domestic produced gas.

I will go back to sleep and dream about some more hydro-electric dams to free up some domestic gas from electricity generation to be used in the transport sector. ZZZzzzzzz

[Briggsy]

Can you ever imagine Thailand building and safely running reactors?

I have the pleasure to be working with some managers in the electricity generation business in Thailand. (Very nice people they are too, but that's off topic)

According to them, nuclear power plants in Thailand are not something we are going to see in our lifetimes. The plans are indefinitely shelved.

[samran]

I agree on a day-to-day basis, it is just business as usual and Thailand certainly have the foreign reserves to import energy.

Gas is a domestic commodity sold at local prices, that is until the moment you start importing LNG.

I will take a wild guess and say that landing cost for LNG is the same in Thailand as Korea, Japan and India. $15/MMBTU or about 21.5 baht/kg. Then you have to add distribution, storage, profit, tax, VAT and it is starting to look like 27-28 baht/kg is the real cost of CNG. A little help from the government to keep public transportation like busses and trains going is OK, but why should the Thai taxpayers pay when I take a taxi or Somchai go on a road trip in his new Mercedes E200 NGV?

The LNG landed in Thailand doesn't go into vehicles it goes into the gas distribution network.

That is great, then we can use expensive imported LNG to produce cheap subsidized electricity and pretend CNG used for NGV come from domestic produced gas.

I will go back to sleep and dream about some more hydro-electric dams to free up some domestic gas from electricity generation to be used in the transport sector. ZZZzzzzzz

I don't quite see what the problem is here. I think most people agree that subsidies are counter productive. But this government is a populist government, so they aren't necessarily going to get rid of subsidies.

A case could be made that taxi's are public transport, but the real reason they continue subsidise them is that Taxi's are a political force and they happen to support PT over most.

You could also argue subsidies on environmental grounds, but it is hard to weigh those benefits against the cost of subsidies.

It is a problem most countries struggle with, whether it is a straight out subsidy, some sort of tax benefit.

Thailand is far from the position you show Paksitan. Sure, there are the rent seekers, but energy policy has been one of the better managed sectors in the country, largely under the watch of excellent bureacrats such as Dr Piyasvasti Amranand and to my understanding it has the strongest O&G sectors in the region.

[PattayaParent]

I agree on a day-to-day basis, it is just business as usual and Thailand certainly have the foreign reserves to import energy.

Gas is a domestic commodity sold at local prices, that is until the moment you start importing LNG.

I will take a wild guess and say that landing cost for LNG is the same in Thailand as Korea, Japan and India. $15/MMBTU or about 21.5 baht/kg. Then you have to add distribution, storage, profit, tax, VAT and it is starting to look like 27-28 baht/kg is the real cost of CNG. A little help from the government to keep public transportation like busses and trains going is OK, but why should the Thai taxpayers pay when I take a taxi or Somchai go on a road trip in his new Mercedes E200 NGV?

The LNG landed in Thailand doesn't go into vehicles it goes into the gas distribution network.

That is great, then we can use expensive imported LNG to produce cheap subsidized electricity and pretend CNG used for NGV come from domestic produced gas.

I will go back to sleep and dream about some more hydro-electric dams to free up some domestic gas from electricity generation to be used in the transport sector. ZZZzzzzzz

I don't know where the CNG / NGV comes from unless the gas stations take a feed from the main gas line and recompress it to put into vehicles, or from a local compressor station. I just know it doesn't come from the LNG terminal by tanker......yet.

[gregb]

The long term cost of NGV is going to have to go up. I don't think anyone doubts that Thailand will eventually fail to produce enough domestically to meet demand. However, looking ahead, an alternative fuel to add redundancy to the transport network is going to be critical, and that requires subsidies right now in order to make sure that it has a significant penetration in the event the liquid fuels market becomes unstable.

A war in the Middle East would leave the whole world struggling for oil, while LNG could be sourced from areas that didn't require going anywhere near the Straits of Hormuz. Stable supplies are going to become much more important than cost at some point.

So I have no problem with the government taking a proactive approach to try and get people to switch to NGV. Even that Mercedes owner is helping in his own way to reshape the country's essential mobility. But the government also needs to be actively moving their electric grid away from this soon to be critical transportation fuel and onto other renewable options. This could all be done by subsidizing the industries that need to be nurtured and taxing petroleum based fuels to pay for it. There is a distinct lack of solar thermal power stations in Thailand despite having a climate that can take advantage of them. And I still see tons of biomass being burned uselessly in the fields everyday. A domestic, small scale gassifier industry could take a big chunk out of the necessary capacity for fossil fuel generating plants. Unfortunately, this would require everyone to pay more today so that the country can be better prepared to weather the difficulties tomorrow.

Do you think any government in the present political climate will ask the voting public to sacrifice now for the sake of the future?

So instead they will continue bumbling along on their erratic, destructive course. One can hardly expect anything else. The history books are filled with exactly this kind of behavior by now collapsed societies.

[PattayaParent]

^Qatar is the worlds largest LNG producer (and is expanding at such a rate that it's not likely to be challenged in the medium term) and is where Thailand imports it's supplies from (UK, USA and China also), probably because they are the cheapest supplier.

Last time I looked Qatar is close to the straits of Hormuz.

Edited February 19, 2012 by PattayaParent