PUBLIC-PRIVATE PARTNERSHIP IN THAILANDstatic1.squarespace.com/static/5577fd8fe4b0372f7246c761/t/558e7a10...PUBLIC-PRIVATE PARTNERSHIP IN THAILAND ... ♦ A Public and Private Participation

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PUBLIC-PRIVATE PARTNERSHIPIN

THAILAND

Convention CCEF ASEANManila

31 January – 2nd February 2013

VOVANwww.vovan-lawgroup.com

Tuesday, 5 February 2013

http://www.vovan-lawgroup.com/


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I. Public and Private Participation in Thailand II. PPP Legal Framework III. Limitations of Current Governing Framework IV. The new legal Framework from 2013 ? V. PPP implementation VI. Thailand’s infrastructure level in AsiaVII. PPP projects in Thailand: Assessment & Outlook

PUBLIC-PRIVATE PARTNERSHIP IN THAILAND

INDEX


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I. Public and Private Participation in Thailand♦ - Concept One of main duties of any government is to provide public services to the people throughout the country

especially the public utilities and facilities as well as the infrastructure. However, with the rapid economic development and the limited budget from the public sector, the private participation is needed in developing infrastructure and services. To facilitate and encourage private participation in public services, a supportive legal framework is required.

♦ - Definition♦ A Public and Private Participation project (PPP project) refers to a government or state enterprise’s project

in which the private sector participates or jointly invests.

♦ PPP investments are a necessity for Thailand:♦ Steady increase of the population;♦ More than half of the population lives in urban areas while Thailand's infrastructure level is lower

than many other Asian countries ;♦ Limited budgetary resources;♦ Difficulties in mobilizing private savings;♦ Decentralization policy since the 1990s: delegation of authority to provincial and local authorities

Insufficient resources of these local administration and heavy bureaucracy outline the need for private sector participation.


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II. PPP Legal Framework

a. Private Participation in State Undertaking Act PPP is governed by a single legislation: the PPSU Act, which has been effective since April 1992 (2535). The main rationale was to prevent corruption by transferring project approval to the Cabinet and create ex‐ante check and balance procedures, curbing discretion of the project agency.♦b. 1st and 2nd Ministerial Regulations dated 1994 (2537) on procedure and details of bidding process: detail the procedure to develop an invitation for private participation, required topics for the Private Sector's proposals, invitation method, selection procedure which is required to be conducted through bidding and the determination of bid guarantee or performance bond.

♦c. Announcements of the Office of the National Economic and Social Development Board (NESDB) on the topics for the submission of the result of project studies and analyses: specify the topics that shall be covered in the feasibility study to be submitted for project approval.

♦d. Guidance provided by the Council of State.

♦e. Government interference : When a project involves funds of less than THB 1 Billion (25 Million EUR), the Cabinet may nevertheless require that the implementation of such project shall proceed in accordance with the PPSU Act (PPSU Act applies to PPP projects which involve funds or assets valued at THB 1 Billion or more).


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II (2). PPP Legal FrameworkCertain project types are covered by the Act, namely the Build-Operate-Transfer (BOT) and the Build-Transfer-Operate (BTO) models, but models which did not exist in 1992 and have since been widely enforced, are not covered. Prime examples of these models are the BOO and turnkey PPP models.

Source: PDMO, Thailand


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II (3). PPP Legal FrameworkThe PPSU Act implements a 3 steps Process: Project initiation, Project implementation and Project monitoring.

a - PROJECT INITIATION- Project study conducted by the project agency;- Project study submitted to the responsible Minister of the project agency for approval;- Project study submitted to the Office of National Economic and Social Development or the Ministry of Finance ; depending on whether the project is a new or existing project (Section 9);- Project study submitted to the Cabinet for approval (Section 10).

b - PROJECT IMPLEMENTATIONOnce project study approved, - Project agency will prepare an invitation letter for private participation in the project (Section 12);- Project agency will appoint a committee for the next stages of selection of the private sector entities (Section 13);- A private sector entity is selected by the committee (Section 14);- An agreement between the project agency and the selected private entity is prepared;- The agreement is submitted to the Office of the Attorney General for approval (Section 20);- Result of the selection, draft agreement and relevant information must be submitted to the Cabinet again for final approval (Section 21).

c - PROJECT MONITORINGOnce project agreements are signed, a Coordinating Committee is established by the project agency (Section 22); The Coordinating Committee supervises the implementation of the project and report to the responsible minister at least twice a year (Section 23).


III. Limitations of Current Governing Framework The current PPSU Act has limited scope for PPPs and it contains only 25 sections while the number of PPP projects is increasing. For many projects requests have been submitted to the Council of State for clarification and interpretation (over 100 requests for Council of State opinions).

a.Governing framework is unclear b.The definitions remains unclear in Thailand. Past experiences of Thai PPP, revealed there have been problems related to the interpretation of “Participation”. With its ambiguous definition, many of PPP projects have circumvented the application of the PPP law.- No provision or clear definition of the terms: “PPP”, “project”, “project’s value or asset”, “new or existing project”, “State Undertaking”, “Participate”… - No provision for the amendment/renewal of a contract between the public and private sector.

Due to the incompleteness of the act, PPP projects that have been developed and implemented in Thailand since 1992 have used several different "interpretations" of the legal framework. This lack of consistency, while it may attract some investors looking to "interpret" their way into a favorable deal, but it has not been a safe environment for the investment climate.

b. Uncertainties regarding a PPP project valuation - No methodology to value of the PPP contract - No formal mechanism for risk allocation

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III (2). Limitations of Current Governing Framework

c. No systematic planning for PPP - No central agency to provide support to PPP projects; - Lack of detail guideline and government advisory center to help support the implementing agency.

d. Lengthy process (up to 2 years to initiate a PPP project) - No time limit for ministry decision; - Dealing with multiple and dispersed governmental authorities; - Time consuming since unclear process which need to interpret on several aspects

Among the consequences, the current PPSU Act leads to a limited number of successful projects with an unknown number of non‐PPSU projects as agencies often prefer conventional procurement procedures to PPSU process.After 18 years since the original Act came into force and many pieces of guidance were given out by the Council of State, there is a need to totally revamp the present law.it becomes increasingly important to have a PPP structure consistent with international best-practicesto remain competitive in the region.


IV. Proposed New Framework

The draft of the New PPP law the “Private Joint Investment in State Undertaking Act” (PJISU Act) will repeal the PPSU Act 1992 and enact a new PPP-conducive law currently containing the following key provisions (10 chapters, 65 sections) :

a. Comprehensive institutional and regulatory framework- Specific definitions of terms will be provided (e.g., “state undertaking”);- Specific provision which indicates types of projects falling under the scope of this Act should also be added;- Projects will no longer be classified as a new or existing project;♦- The Committee of Private Investment in State Undertaking will be appointed to set up policies and strategic plans in connection with PPP projects and to approve PPP projects in lieu of the Cabinet.

b. Methodology for the allocation of risk and project evaluation♦- Conditions and criteria to calculate a project’s value will be provided (VfM Analysis);♦- Rules, conditions and methods used to calculate the total value of the project should be based on Market Approach, Cost Approach and Income Approach so as to create a standard assessment regime widely accepted by both Thai and foreign organizations.


IV (2). Proposed New Framework

c. PPP Help Support Center- Standard Contract / Contract Management (Criteria and Clauses to amend or renew an agreement between the public and private sector will be provided);- Establishment of a Central PPP Agency.

d. Time efficient procedure♦- Consideration procedure will be shortened (entire process for approval of PPP project will be approximately 7 to 12 months instead of 20 to 30 months currently);♦- There should be time frame for the relevant governmental organization to fulfill their duties within a reasonable period. In this regard, private sectors participating in state undertaking can plan their businesses in advance so as to efficiently comply with all procedures under the Act;♦- Only approval from the Cabinet will be required (instead of approval of the draft agreement between the project agency and the selected private entity by the Office of the Attorney General).


IV (3). Proposed New FrameworkThe draft of the new PPP law should also provide the following PPP Compatible Measures:

Transitory provisions put in place to support ongoing existing projects/contracts

♦ Establishment of a ‘Project Development Fund’ to support the PPP projects♦The ministry will establish a venture fund worth 2 billion baht to be used as seed money for investment projects. Private firms can borrow money from the fund to conduct a feasibility study, and are required to pay back the money only when they receive profit from projects.

Requirement for project agencies to consider PPP alternative and justify non-PPP option♦This review should cover all available PPP options, including service contracts, management contracts, lease contracts, build-operate-transfer contracts and similar arrangements, concessions as well as joint ventures. Each contract schemes offer different characteristics that can suit projects from different sectors.

Transparency measures♦The bill has to go further than being just a better version of its predecessor. It should aspire to become a complete legal framework for future PPP projects by laying down hard-and-fast rules on, for example, the methodology for allocation of risk, the procurement methods to be followed, and the regulatory regime covering oversight arrangements for pricing, customer service and operation.


IV (4). A New PPP Law in 2013

So far, the bill has been:♦- Drafted by Ministry of Finance led by State Own Enterprise Office and other relevant agencies;♦- Reviewed by Councils of States;♦- Approved by Cabinet on April 10 2012; and♦- Approved by the House of Representatives;

♦The the bill has been sent to the Senate for final approval. Once approved, the final draft should be signed and be announced in the Government Gazette prior to become effective.♦ ♦The government expects the replacement of the public-private partnership law will become effective by the end of the first quarter 2013, which will affect tollway and motorway investments, part of the infrastructure projects planned over the next 7 years worth 2 trillion baht.

♦A new PPP Law having streamlined procedures and clear guidelines will be a significant development for Thailand’s PPP projects and will definitely facilitate to strengthen not only the country’s infrastructure sector but also the social sectors (Education, Health, Housing PPPs).


V. PPP implementation

Examples of high-profile PPP projects in Thailand include:♦ Energy (Construction power plant and provide power supply to Electricity Generating Authority of Thailand);♦ Telecommunications (AIS Mobile, Telecom Asia, ThaiCom, TAC Mobile, TT&T)♦ Transport (BTS SkyTrain, BMCL Underground Train, Don Muang Tollway, ExpressWay…);♦ Water and Sanitation


V (2). On-going PPP Projects

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Source: NESDB


VI. Thailand’s infrastructure level in Asia


Average Investment in Infrastructure Projects

Source: World Bank

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VI (2). Thailand’s infrastructure level in Asia


VII. PPP projects in Thailand: Assessment & Outlook

PPP projects 1990 to 2011 (*): 43,4 billion dollars (around 32,8 billion euros).

(*) Source: World Bank’s Private Participation in Infrastructure Database.

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Featured Indicator, 1990-2011 (*) ValueInfrastructure Sectors Reported Energy, Telecom, Transport, Water and sewageProjects reaching financial closure 112

Sector with largest investment share Energy

Type of PPI with largest share in investment Greenfield project

Projects cancelled or distressed 3 ( 2% of total investment)


VII (2). Number of Projects by Primary Sector

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Financial Closure Year Energy Telecom Transport Water and

sewage Total1990 0 2 3 0 5

1991 0 2 1 0 3

1992 0 1 1 0 2

1993 6 1 2 0 9

1994 4 0 0 0 4

1995 6 1 2 1 10

1996 12 0 2 0 14

1997 11 1 0 1 13

1998 2 0 1 0 3

1999 2 0 1 3 6

2000 3 0 1 6 10

2001 4 0 1 0 5

2002 0 0 0 0 0

2003 2 0 1 0 3

2004 0 0 1 1 2

2005 2 0 0 3 5

2006 1 0 0 1 2

2007 0 0 0 0 0

2008 2 0 0 0 2

2009 0 0 0 0 0

2010 7 0 0 0 7

2011 7 0 0 0 7

Total 71 8 17 16 112

Source: World Bank


VII (3). Private Participation in Infrastructure Total Investment in Projects by Primary Sector (US$ million)

19Source: World BankSource: World Bank


VII (4). Total Projects by Primary Sector and Subsector (US$ million)

20Source: World Bank


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Source: World Bank


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Source: World Bank


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PUBLIC-PRIVATE PARTNERSHIP IN THAILANDstatic1.squarespace.com/static/5577fd8fe4b0372f7246c761/t/558e7a10...PUBLIC-PRIVATE PARTNERSHIP IN THAILAND ... ♦ A Public and Private Participation