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Backroom deals between Egat and private investors should be replaced with rules for competition and public accountability in the power business if the Thai public are to reap any benefit at all.

Thailand is not alone with its string of stalled coal-fired plants that citizens do not want and cannot afford. For the last decade, the World Bank has encouraged independent power producer deals between its client-utilities and private investors and, in so doing, has generated far more political and economic chaos than cheap kilowatts for consumers.

Even the World Bank’s energy experts now admit that independent power producer, or IPP, contracts — whereby governments offer guaranteed revenues to private investors to build power plants and sell their output to a state-owned monopoly — were designed to protect private investors at public expense.

According to World Bank energy specialist Laszlo Lovei, IPP deals have not only imposed huge liabilities on governments, they have invited corruption wherever they were tried in Asia, Africa and Eastern Europe.

The now-discredited IPP model was first promoted by the World Bank as a fast way to add new generating capacity at a time when many of its client-utilities were technically bankrupt. As World Bank energy finance experts Karl Jechoutek and Ranjit Lamech saw it, when “the lights are going out, incumbent [World Bank-funded] power enterprises are financially unviable, and the public purse is nearly empty”, deals guaranteed by the government with private investors were deemed the way to go.

In Thailand, just as in Indonesia and the Philippines, the World Bank led the way. It advised the National Energy Policy Office to invite IPP proposals in the early 1990s, while allowing the Electricity Generating Authority, or Egat, to retain its monopoly buyer position and thus its influence over which companies would invest, where, using which fuels and technologies, and at what cost.

IPP or “take-or-pay” contracts were designed to give private investors fixed-price, long-term revenues, while shielding them from the financial and market risks associated with their proposed schemes. Private investors, in turn, could reduce their financing costs or make an otherwise high-risk investment “commercially bankable.”

If anything went wrong, if demand fell short of Egat’s projections, if consumers decided they wanted to buy power from cheaper suppliers, if the local currency collapsed, or if local residents demanded tighter pollution controls, Egat’s captive ratepayers, not the IPP investors, were on the hook for the added costs. And if Egat couldn’t pay its IPPs, the IPP contracts obliged the government to step in, thus putting taxpayers on the hook for risks the private investors refused to bear.

For consumers, Thailand’s IPP deals promise increased rates. If, for example, there is not enough demand for the IPPs’ output, rates have to go up because Egat is contractually obliged to pay the IPPs, but spread over a shrinking volume of electricity purchases. (Ideally, if there is not enough demand, electricity prices should fall and any revenue losses would be allocated to private investors, not to captive ratepayers.)

With the promise of guaranteed risk-free revenues came a flurry of over-sized, over-priced and politically influenced deals pushed by US and Japanese power companies all too willing to cut corners on pollution controls and public acceptability if it meant maximising returns to shareholders. Whatever the project costs, Egat would be there to pass them along to its captive ratepayers.

No wonder Thailand’s IPPs have paid scant attention to winning public approval prior to signing deals: They were contracting with a powerful state utility accustomed and empowered to make investment decisions without regulatory or public oversight. And because decisions about adding generation capacity were made by government officials who did not have to bear the financial consequences of their actions, they assumed financial and environmental risks on behalf of the private investors that Thai consumers and citizens are unwilling to bear.

Thus Thailand’s coal-fired controversy was created, undermining the very reason for introducing private power in the first place: to cap public liabilities and force private power producers to take financial responsibility for their projects.

There is a better way. Thailand’s electricity csars must quit offering guaranteed revenues to private power companies.

Decisions about constructing new power plants — and the associated market risk — should be left to private investors, without the protection of government guarantees. Let private power producers sell electricity directly to local distributors or large consumers.

And to protect small consumers from unfair deals between private companies and local distributors, government regulators must spell out rules for procuring new supply on a competitive basis — rules and criteria designed by and for consumers, not just private investors — before distributors can pass on the costs of their power purchases to captive consumers.

Without government protection, private investors would opt for lower-cost, smaller-scale, environmentally friendly power generation. Only when power producers are financially independent of the state, forced to take responsibility for their investments, forced to compete for access to customers, and forced to win public approval for their proposals, will Thai consumers get the best generating technologies and services the private sector — local or multinational — can provide.

Gràinne Ryder is policy director of Toronto-based Probe International, a Canadian foreign aid watchdog and division of the Energy Probe Research Foundation.