High-speed railway project: China's loan terms rejected

[webfact]

China's loan terms rejected

By Wichit Chaitrong 
The Nation 

 

Minister of Transport Arkhom Termpittayapaisith in an exclusive interview with Thepchai Yong, group editor in chief of the Nation Multimedia Group.

 

High-speed railway project proceeds as Beijing demands high interest rate that thai transport ministry believes unfair
 

BANGKOK: -- FINANCING details of the Sino-Thai high speed train remain unresolved, although the two governments have agreed that the first phase of the new route will be the Bangkok to Nakhon Ratchasima route, said Minister of Transport Arkhom Termpittayapaisith in an exclusive interview with Thepchai Yong, group editor-in-chief of the Nation Multimedia Group. 

 

Negotiation of loan terms continues with both sides holding different views about details related to Thailand borrowing funds from China to finance the 253-kilometre Bangkok-Nakhon Ratchasima route, which will need an estimated Bt179-billion investment. 

 

“China wants to put tough conditions on the loan contract, demanding that the Chinese government could seize other assets of the Thai government if the Thai government defaults on debt repayments,” said Arkhom. Thailand proposes to borrow about 25 per cent of the total project cost. 

 

China’s negotiators argued that it would apply the same conditions agreed to by the Lao government for financing a high-speed rail linking that nation to southern China. The Chinese government will be able to seize five mine assets if Vientiane fails to repay the debt.

 

“We, the Thai government, will not yield to China’s demand, because in our history we’re a very honest debtor and have never failed to pay back foreign debts. If China insists on this asset guarantee, we will not borrow from China,” Arkhom said.

 

China’s government is also demanding a high interest rate from Thailand, higher than it granted Indonesia for a similar project.

 

Given Thailand’s high credit rating for government bonds, the Thai government has been demanding a lower interest rate for the project, while the global financial market could provide relatively cheap loans if the government chooses that route.

 

The international rating agency Moody’s Investors Service has assigned a sovereign credit rating of Baa1 to Thailand and Baa3 to Indonesia. Standard and Poor’s and Fitch Ratings have also assigned an investment grade to Thailand two notches higher than that for Indonesian bonds. 

 

Current yields of 10-year bonds issued by the Thai government are slightly over 2 per cent, comparing favourably with the nearly 7 per cent per annum of Indonesian government bonds.

 

“Our sovereign credit rating is higher than Indonesia and some other countries in the region,” Arkhom said.

 

Thailand needs to import rolling stock, rail tracks and a rail traffic-light system, all made in China. The two sides have put aside the financial issue for the moment, as they still have time for further negotiations. 

 

Arkhom also defended criticism of the government for rushing to yield to Chinese pressure by resorting to the powerful Article 44 of the interim constitution. Prime Minister Prayut Chan-o-cha used the clause to overrule normal laws, allowing the deal to be concluded after several rounds of negotiations.

 

According to the normal legal process, Chinese engineers would first have to pass tests in the Thai language before they could get licences to work in the country, but the Article 44 invocation overruled that condition. However, the government was being very careful in doing the deal with China, Arkhom said. 

 

Arkhom said about 100 Chinese engineers would work on the project, and Thai people should not worry about a large number of Chinese workers taking jobs from Thai workers.

 

The route is divided into four sections, with construction on the first 3.5 kilometres planned to start in October. After the first contract is signed, the two sides will start to work on a construction plan for the second phase, the 355-kilometre section from Nakhon Ratchasima to Nong Khai province, Akhom said. 

 

The high-speed rail service between Bangkok and Nakhon Ratchasima would start around 2021 or 2022, he added. Then the service between Nakhon Ratchasima to Nong Khai province will open in 2022 or 2023, the same year as the route from southern China to Laos starts service.

 

Arkhom said he expected China would transport both goods and tourists via high-speed rail, as it could export its products to deep seaports on the eastern coast of Thailand.

 

He admitted it might take 30 years or longer before financial returns would be positive. However, a fast service would greatly boost economic returns, he said.

 

He added that he expected that the fare between Bangkok and Nakhon Ratchasima would be Bt535 per trip and would take about 90 minutes. The total travel time between Bangkok and Nong Khai would be about three hours.

 

Meanwhile, Suwit Rojanavanich, director-general of public debt management, said the Finance Ministry had recently borrowed Bt1.7 billion on the local market to pay a Chinese firm responsible for detailed construction of the Bangkok-Nakhon Ratchasima portion of the railway. 

 

Source: http://www.nationmultimedia.com/detail/national/30323682

 

-- © Copyright The Nation 2017-08-14

[ChrisY1]

Well this is a surprise.......:))

[mtls2005]

2 hours ago, webfact said:

High-speed railway project proceeds

 

How can it "proceed"? I'm guessing this is one of those Thai words which translates to an English word with a completely different meaning?

 

Time to lash the Chinese with the Article 44 whip?

[Ricardo]

2 hours ago, webfact said:

Arkhom said he expected China would transport both goods and tourists via high-speed rail, as it could export its products to deep seaports on the eastern coast of Thailand.

 

That's actually the first time I've seen any mention, that the Chinese-Thailand medium-speed heavy-freight railway might also carry  international-passengers, if indeed that's what the Minister intended to convey ? Rather than just domestic-passengers to/from Isaan.

 

Won't this be competing with a rapidly-growing charter-airline industry, which can transfer smaller groups (150-200 pax at-a-time) from many points in China, to several points within Thailand ?  Not sure whether that would work ?

 

One can only hope that Immigration will find enough officers to process the arriving Chinese tourists, given several years' warning, of the first arrivals !

 

 

2 hours ago, webfact said:

He admitted it might take 30 years or longer before financial returns would be positive.

 

And that's the whole point, the reason why the project cannot afford to be burdened with too-high financing-costs, and why Thailand has to continue to be firm on this point.

 

Too-high an interest-rate would mean that the whole thing becomes unjustifiable from the Thai point-of-view.

 

China however is now commmited to the line being built all-the-way down to the ports, the section through Laos is underway, but the main benefit to them will be from adding a new export-route across Thailand.  It might be that splitting the Thai-section of the project into three/four sections, is actually a negotiating-ploy by Thailand to keep the pressure up on China, who knows ?

 

I do believe that the project will get built, and I do think it will have a very-long-term benefit to the Thai economy, mainly from the increased opportunities to export agricultural-products & cheaper manufactured-goods back up the line, as the containerised-exports are shuttled down to Laem Chabang.

 

There will also be all sorts of profits to be made, from land-speculation & industrial-estate development, along the line.  But those benefits, while real, are more-likely to go to private-capital than to the project itself.  Unless someone has a clever 'fix' to transfer those gains from private to public-hands ?

[mtls2005]

10 minutes ago, Ricardo said:

transfer those gains from private to public-hands ?

 

As if there's a difference.

 

The Kra Isthmus Canal will be finished before this thing. The goals of Thailand, and of China, are so diverse - local transport vs. belt-road-suspenders - that it will end up being like the horse designed by a committee.

 

 

Edited August 14, 2017 by mtls2005

[Ricardo]

2 minutes ago, mtls2005 said:

 

As if there's a difference.

 

One can only hope that there is, when it comes to a massive project like this one, where the projected-payback is 30-years, this isn't just an expensive plan to enrich some better-off rice-farmers or rich millers & traders, this will absorb a substantial portion of the country's investment-capital for a long time to come, and shape the trading-relationship with China for the future.

 

Will they be a junior-partner or a vassal-state ?

 

2 minutes ago, mtls2005 said:

 

The Kra Isthmus Canal will be finished before this thing. The goals of Thailand, and of China, are so diverse - local transport vs. belt-road-suspenders - that it will end up being like the horse designed by a committee.

 

 

But remember that Thailand likes elephants, even one designed as-a-horse by a committee ! 

 

One can only hope for a good outcome, that the Thai negotiators hold firm, that a fair deal to-both-sides can be agreed, and that both countries walk away happy with the final deal.

[RichardColeman]

Maybe they could swap some subs for a railway ! No, wait, they don't want their junk back !

[Lupatria]

4 hours ago, webfact said:

demanding that the Chinese government could seize other assets of the Thai government if the Thai government defaults on debt repayments

Would be interesting to see what's on the Chinese wish list.

However, this happens, when overly privileged jug heads, who never bought a car or house under normal conditions, enter the wonderful world of business reality. Here, one of the major rules is:

You don’t pay; we seize what you’ve got! Watch out for the Repo Man!

[mtls2005]

4 hours ago, webfact said:

“We, the Thai government, will not yield to China’s demand, because in our history we’re a very honest debtor and have never failed to pay back foreign debts.

 

Hmmm. Tell me again why the Germans seized that plane a few years ago.

 

 

 

 

[hansnl]

1 hour ago, Ricardo said:

 

One can only hope that there is, when it comes to a massive project like this one, where the projected-payback is 30-years, this isn't just an expensive plan to enrich some better-off rice-farmers or rich millers & traders, this will absorb a substantial portion of the country's investment-capital for a long time to come, and shape the trading-relationship with China for the future.

 

Will they be a junior-partner or a vassal-state ?

 

 

But remember that Thailand likes elephants, even one designed as-a-horse by a committee ! 

 

One can only hope for a good outcome, that the Thai negotiators hold firm, that a fair deal to-both-sides can be agreed, and that both countries walk away happy with the final deal.

Think what you like about this project, but the only reason China is so very keen on this line is military and strategic.

There will never be any positive result for Thailand, only for China.

Edited August 14, 2017 by hansnl

[Dave67]

The high-speed rail service between Bangkok and Nakhon Ratchasima would start around 2021 or 2022, 

 

Not a hope of that it will take far for than 4 years. For example, a similar length narrow gauge passenger and freight line took 7 years to complete Civils, Tunnels, viaducts, land formation, drainage ect.Track 250K means 500k of track not including Turnouts (Crossings ) siding and platform loops (loops are a diverge from the Main line mainly in stations to get the train to stop at the station off of the main line to allow a "Through" train to pass)

 

Then the difficult bit comes. OCS overhead catenary system) Signalling. They will use Axel counters for high speed and not standard insulated joints.

 

Comms , I'm not an expert on Comms buts it's pretty clever stuff on a high speed Railway

 

HTH

[Bundooman]

57 minutes ago, mtls2005 said:

 

Hmmm. Tell me again why the Germans seized that plane a few years ago.

 

Yes. Isn't that linked to an 'alleged' enormous, outstanding debt related to Thailand's main International airport, built under German construction?

 

 

 

[mtls2005]

Maybe the 3.5 Km "test bed" will be complete in 20nn? Shortly after the "return to democracy".

 

Honestly, one day it's HSR for passengers, then it;s HSR for freight, then it's dual track for semi-medium speed. SRT stands for Schizophrenic Railways of Thailand.

 

A HSR train should look impressive in this scenario...

 

 

[trainman34014]

A year or so ago i read some Government Bullshit about the Chinese would accept rice against finance for the railway.

 

One thing is for sure, this whole railway shambles will end in tears for a whole range of reasons.

[ajarnmarc]

As Loa has found out the Chinese definition of bring their own Engineers, 

really means labor of their own people to conduct the build.

The Chinese provide the loan, provide the materials, and they also end up providing the labor;

leaving the countries involved to stick with paying back on the loan.

 

It's designed as a win, win for China, 

as it's work force is stagnant for projects to build within it's own country, 

as China has already begun to show off all the development it's built out, 

with no one staying in those places, which were pre-built for the future...

As the government attempted to boast their workforce, 

which by all accounts is huge, certainly bigger than Thailands, 

especially when you consider that Thais don't wish to perform this kind of labor.

Thailand would seek to hire out Burmese to do the grunt work.

Each country has the right to hire who they choose, 

yet dealing with China on this build, ends up taking away that choice, 

as China is seeking employment for their own people, 

while promoting it's materials as well.

The Thai government doesn't need to look far,

to see examples of how China seeks to employ it's own people,

to deal with their tourism coming to Thailand.

China does a great job of covering all resources which come from it's own people, 

keeping the currency within it's own tight circle/ community...

China government Capitalism.

Before we know it,

all of SEA will be under China control...

 

 

[sawadee1947]

I can remember when this project was planned (by T. and Yingluck) it was agreed to pay half with rice. The other half as a loan. A business between good Chinese friends.....(this deal would have worked perfectly with the rice scheme actually but our general interfered. Maybe cancel the subs?

[ExpatOilWorker]

1 hour ago, ajarnmarc said:

As Loa has found out the Chinese definition of bring their own Engineers, 

really means labor of their own people to conduct the build.

The Chinese provide the loan, provide the materials, and they also end up providing the labor;

leaving the countries involved to stick with paying back on the loan.

 

It's designed as a win, win for China, 

as it's work force is stagnant for projects to build within it's own country, 

as China has already begun to show off all the development it's built out, 

with no one staying in those places, which were pre-built for the future...

As the government attempted to boast their workforce, 

which by all accounts is huge, certainly bigger than Thailands, 

especially when you consider that Thais don't wish to perform this kind of labor.

Thailand would seek to hire out Burmese to do the grunt work.

Each country has the right to hire who they choose, 

yet dealing with China on this build, ends up taking away that choice, 

as China is seeking employment for their own people, 

while promoting it's materials as well.

The Thai government doesn't need to look far,

to see examples of how China seeks to employ it's own people,

to deal with their tourism coming to Thailand.

China does a great job of covering all resources which come from it's own people, 

keeping the currency within it's own tight circle/ community...

China government Capitalism.

Before we know it,

all of SEA will be under China control...

 

 

 

Soon Thailand will be forced to lease a chunk of their territory to China, like they did in Sri Lanka.

 

http://www.presstv.ir/Detail/2017/07/30/530131/China-Sri-Lanka-port-Hambantota-deal

[lespaulTV]

It's a devils game.


Sent from my iPhone using Tapatalk

[pookiki]

I seem to recall that the load issue was raised one time before.  I thought it was resolved but this story would appear to indicate that it has been unresolved for quite some time.  I fail to understand how extensive planning can be made when the money to pay for the project is in question.

[Srikcir]

3 hours ago, trainman34014 said:

A year or so ago i read some Government Bullshit about the Chinese would accept rice against finance for the railway.

In December 2015 a Memorandum of Understanding was initially designed to place the dual rail project in the "same package" with the rubber and rice trade deals.

 

However, China asked for change of the company that had been contracted to buy rubber from the Thai government’s price buffer scheme (created by Prayut) in which rubber stocks are both mixed with old and new rubber. The firm would buy only new sheets in the market, not the old ones in the government stockpile as initially agreed. In response Thailand put the railway project on hold.

http://englishnews.thaipbs.or.th/thailand-puts-on-hold-signing-railway-development-project-with-china/

As further negotiation meetings were held, Thailand focused only on loans from China but after 12-13 meetings has failed to conclude loan terms and even total project cost.

[ExpatOilWorker]

4 minutes ago, Srikcir said:

In December 2015 a Memorandum of Understanding was initially designed to place the dual rail project in the "same package" with the rubber and rice trade deals.

 

However, China asked for change of the company that had been contracted to buy rubber from the Thai government’s price buffer scheme (created by Prayut) in which rubber stocks are both mixed with old and new rubber. The firm would buy only new sheets in the market, not the old ones in the government stockpile as initially agreed. In response Thailand put the railway project on hold.

http://englishnews.thaipbs.or.th/thailand-puts-on-hold-signing-railway-development-project-with-china/

 

 

As further negotiation meetings were held, Thailand focused only on loans from China but after 12-13 meetings has failed to conclude loan terms and even total project cost.

Another Hopewell project in the making?

[Srikcir]

11 hours ago, webfact said:

“Our sovereign credit rating is higher than Indonesia and some other countries in the region,”

So finance the project with Thailand Treasury Bonds or Reserves!

After all:

 "Prime Minister Gen Prayut Chan-o-cha clarified that the government has never planned to borrow funds from China as Thailand already has sufficient monetary reserves for the project." June 2017

https://www.thaivisa.com/forum/topic/988808-pm-no-loan-to-be-sought-from-china-for-high-speed-rail-project/?utm_source=newsletter-20170621-1218&utm_medium=email&utm_campaign=news

[Srikcir]

11 hours ago, webfact said:

“We, the Thai government, will not yield to China’s demand, because in our history we’re a very honest debtor and have never failed to pay back foreign debts.

China may be reacting to a problem created by the NCPO in a recently issued an order via Article 44 of the provisional charter to expedite the project by exempting it from many laws.

http://www.nationmultimedia.com/news/national/30318843

 

Some of those laws are procurement laws that relate to examination of project economics to assure that sufficient revenues will be generated by the project to cover debt service, operating costs and cost overruns. Article 44 in part waived such studies! Without such financial assurances, what lender wouldn't demand higher interest rates commensurate with higher financial risk?

[zzaa09]

1 hour ago, Father Fintan Stack said:

The first bare faced lie right there.

 

They still owe for nearly every-megaproject I can think of, including the very first expressways, which they engineered a situation to force the construction company to default on its obligations and thus then the Thais refused payment. It went to international tribunal, the Thais were told to pay, and to my knowledge never have.

....and quite the lovely history they have regarding mega-business projects [not].

 

'Tis wonder why they find difficulty in securing and attracting such business ventures.

The general learning curve is very slow to catch on.

[gummy]

Not enough kick backs to the Junta perhaps

[Dave67]

2 hours ago, pookiki said:

I seem to recall that the load issue was raised one time before.  I thought it was resolved but this story would appear to indicate that it has been unresolved for quite some time.  I fail to understand how extensive planning can be made when the money to pay for the project is in question.

I'd say they haven't even done a survey of ground they are building on. No survey, no alignment design, no idea of how many bridges, tunnels, viaducts required. I'd say if they had actually completed a survey or a feasibility study they would be shouting it from the roof tops. Loooooooooooong way to go

[Ricardo]

1 hour ago, Srikcir said:

So finance the project with Thailand Treasury Bonds or Reserves!

After all:

 "Prime Minister Gen Prayut Chan-o-cha clarified that the government has never planned to borrow funds from China as Thailand already has sufficient monetary reserves for the project." June 2017

https://www.thaivisa.com/forum/topic/988808-pm-no-loan-to-be-sought-from-china-for-high-speed-rail-project/?utm_source=newsletter-20170621-1218&utm_medium=email&utm_campaign=news

 

 

But this is only the first third of the total-project, the others being from Khorat to the border, and from Bangkok down to Laem Chabang port or possibly further to Maptphut & Sattahip  ...  the various announcements aren't too clear.

 

Of course the government would struggle to shoulder the burden of financing it all on their own, plus there are good reasons why the Chinese ought to have a financial-interest in the line, which I covered in an earlier post.

[lonewolf99]

If the LoS gov do not get their poops in a row fast - the Wiley Oriental Gentlemen from up North,

will put a dog leg on the rail route and head down through Burma and by pass this place with

the flooded plains and level crossings, that are ignored by all and sundry that get behind a wheel.

 

From what you read here 6 years ago it might already be happening...https://asiancorrespondent.com/2011/04/burma-china-agree-to-build-rail-link-to-seaport/#3ycTj7Bcl2upk0rO.97

[wakeupplease]

16 hours ago, webfact said:

we’re a very honest debtor and have never failed to pay back foreign debts.

Yes that's right just ask that Hong Kong company Hopewell also a company call Walter Bau AG who waited 30 years for payment went bust and had to grab a certain plane.

 

The BullS>>> never stops does it

 

The Chinese are not stupid people they always keep it in the family, the thais have no chance

[Srikcir]

15 hours ago, Dave67 said:

I'd say they haven't even done a survey of ground they are building on. No survey, no alignment design, no idea of how many bridges, tunnels, viaducts required. I'd say if they had actually completed a survey or a feasibility study they would be shouting it from the roof tops. Loooooooooooong way to go

I think construction was to begin this October.

There will be no feasibility study. That was cancelled by Prayut's Order to expedite the project through Article 44.