Dow Jones Asian Power
February 21, 2001

Thaksin Shinawatra’s new Thai-Rak-Thai government shows every sign of attempting to speed up Thailand’sprivatization process, including the sale of thermal generating assets of Electricity Generation Authority of Thailand.

Singapore — But there appears to be indecision over whether to stick to populist election promises to restrict any sale to the Thai public. Add to this an overcommitment to forward electricity purchases, fierce opposition to  privatization from labor unions, and a worsening public image, and EGAT’s reform and privatization process looks fraught with pitfalls.

Union action against privatization last year helped with the election of Thaksin by playing on nationalist sympathies.

But concern that a domestic public sale would mean a lower price for EGAT’s assets could be leading to a compromise on the election promise to sell only to Thais, according to a Bangkok-based analyst.

Some state enterprise union leaders, notably Pornchai Meemark of the telecoms union, have already accused the new government of preparing to offer stakes in some assets to business partners, including overseas companies.

A detailed proposal for the sale of EGAT is still awaited from the new government, but Chanaporn Kridakorn, EGAT’s deputy governor of Policy and Planning, said at a recent industry conference in Singapore, “it will take at least two years to make the necessary preparation and deal with any employee problem.”

Ratchaburi IPO: A Success, But Was It Underpriced?

EGAT has already successfully sold a 40% stake in its flagship asset – the 3,700-megawatt Ratchaburi power plant – through an IPO restricted to the  Thai public for US$500 million. Another 15% went to EGAT employees.

But the Ratchaburi sale was intensively managed, and EGAT sweetened the terms by removing most risk by guaranteeing to buy power for 25 years, while taking on the plant’s fuel price risk.

What’s more, the IPO valuation of just under US$400,000 for each megawatt of capacity was low compared with other regional sales. For example, Malaysia’s Kapar generating company was sold at US$680,000/MW, according to analysts AIDResearch.

AIDResearch expects that Singapore’s sale of generation assets in the second half of 2001 will attract bids of around the US$500,000-US$600,000/MW range.

EGAT plans to sell off its remaining thermal generating assets “over a number of years,” but will hold on to its hydro facilities and transmission network, according to Chanaporn. It has also sold its shares in Electricity Generating PLC, or EGCO (H.EGA). Thailand is scheduled to introduce a power pool in 2003, although this is  expected to be delayed until 2005, according to the Bangkok-based analyst.  The pool will allow privatized generators and Independent Power Producers,  or IPPs, to sell directly to end-users.

IPPs Face Offtake Delays

Lower-than-expected electricity demand means EGAT is keen to delay the  signing of fresh power purchase agreements with IPPs and neighboring  countries.

Local Thai press quoted Siridath Klankwamdee, EGAT’s deputy governor, as  saying contracts that were expected to be signed in 2003-2004 will now be  postponed until 2007, unless there is a rapid acceleration in electricity  demand growth.

Peak demand is now rising steadily – up 8.8% in 2000, to 15,000 MW – following a slump after the region’s financial crisis in 1997. But planners had already lined up forward supply based on rapid growth predictions of the mid-nineties, leaving EGAT overcommitted. EGAT has bilateral deals with Laos for 3,000 MW; with Myanmar for up to 1,500 MW by 2010, as well as with Malaysia and China. When existing deals with IPPs, and expansion of its own capacity are added, Thailand faces surplus capacity of well over 40% over the next few years – far more than it needs to guarantee supply security.

IPPs likely to be affected include Union Power Development Co. Ltd. – a consortium including Finland’s Fortum OYJ (Y.FTM) and U.S. Consolidated Electric Power Asia – Bo Win Power Co. Ltd., Eastern Power Co. Ltd., BLCP Power Co. Ltd. and Gulf Power Generation Co. Ltd. – whose main shareholder  is Edison Mission Energy.

Union Power and Gulf Power have requested delays anyway, as environmental  protests have delayed construction of their plants. Thailand’s first IPP – Tri-Energy, a joint-venture comprising U.S. Unocal  Corp. (UCL), Sweden’s Vattenfall Group (S.VTF) and Thailand’s Banpu PLC  (H.BPU) – began sales to EGAT last July. EGAT’s other commitments include  contracts with Independent Power, a subsidiary of Thai Oil Co. Ltd. (H.TOL).

EGAT has not yet decided how to deal with existing power purchase agreements once it is privatized.

Small is Popular

A notable success in Thailand has been the Small Power Producer, or SPP,  program. In 1998, this sector represented just over 3% of generating  capacity. By 2003, the share is expected to rise to 7.3%, while EGAT’s  share is expected to fall from 84% to 61% over the same period.

The most recent project to be completed is a 110 MW plant run by International Power PLC (IPR) – recently demerged from the U.K.’s National  Power – which opened last October.

SPPs are an approach that appears to be growing increasingly popular among international agencies and banks, both in terms of efficiency and as a more sustainable and less disruptive means of electrification in developing countries.