Trends in private investments and financing: A case study of Thailand’s energy sector 28 Nov 2007 Chuenchom Sangarasri Greacen, Palang Thai Sairung Thongplon,

Trends in private Trends in private investments and investments and financing: financing: A case study of Thailand’s A case study of Thailand’s energy sectorenergy sector

28 Nov 200728 Nov 2007Chuenchom Sangarasri Greacen, Palang ThaiChuenchom Sangarasri Greacen, Palang ThaiSairung Thongplon, Sairung Thongplon, Confederation of Consumer Organization, Confederation of Consumer Organization, ThailandThailand

Regional Training Workshop “Understanding investments and Regional Training Workshop “Understanding investments and investment treaties and agreements”investment treaties and agreements”FOCUS, Bangkok, ThailandFOCUS, Bangkok, Thailand

OutlineOutline

Privatization trendsPrivatization trends Investment trends Investment trends Financing trendsFinancing trends Implications for civil society Implications for civil society

advocacyadvocacy

Privatization trends:Privatization trends:the defeat of neo-liberal agendathe defeat of neo-liberal agendathe rise of nationalistic monopolistic the rise of nationalistic monopolistic “champions”“champions”

60s-80s: development of state-led, 60s-80s: development of state-led, centralized energy heavily influenced centralized energy heavily influenced by USAID, WB by USAID, WB

90s: Neo-liberal reforms: partial 90s: Neo-liberal reforms: partial privatization of SOE’s assets, IPPs, privatization of SOE’s assets, IPPs, (failed) Power Pool or Third Party (failed) Power Pool or Third Party AccessAccess

2000s: the rise of “National 2000s: the rise of “National Champions”Champions”

The “National The “National Champions”: the case of Champions”: the case of PTT, EGATPTT, EGAT PTT: privatized in 2001PTT: privatized in 2001 EGAT: IPO planned in 2006 but EGAT: IPO planned in 2006 but

aborted and later reversed aborted and later reversed through a court verdict in a through a court verdict in a historic lawsuit brought on by historic lawsuit brought on by consumer groupsconsumer groups

PTT: facing a similar lawsuit, PTT: facing a similar lawsuit, verdict expected next month verdict expected next month

Key features of PTT and Key features of PTT and (aborted)(aborted) EGAT privatizationEGAT privatization

Monopoly with noIndependent regulator

Listing in theStock market

Partial public-private status

To maximize “rent” (corruption revenue) by the ruling politicians in monopoly businesses through direct

shareholding (nominee funds) and policy corruption

Privatization of monopoly Privatization of monopoly utilitiesutilities : : aggression of money aggression of money politicspolitics

Politicians-cum-

businessmen

Cabinet

Parliament

Regulators

Listed companiesw/ ties to politicians

Bureaucracy State-ownedenterprises

Nominees

control

Make favorable policies

A snapshot of PTTA snapshot of PTT Market cap 1 trillion baht ($30bn), Market cap 1 trillion baht ($30bn),

15% of Thailand’s stock market15% of Thailand’s stock market

Modus OperandiModus Operandi to achieve to achieve “Aggressive growth” “Aggressive growth”

PTT as mother PTT as mother company with company with monopoly rights and monopoly rights and captive consumer captive consumer basebase

PTTEP as partially PTTEP as partially private subsidiary with private subsidiary with privileged access to privileged access to state benefits, support state benefits, support and PTT’s financial and PTT’s financial strengthstrength

PTTEP pursues risky, PTTEP pursues risky, high-return projects high-return projects abroadabroad

MOF

PTT

PTTEP

52%

66%

State privilege

sMonop. Consum

ers$ passthru

State privilege

s

Others

Others 34%

48%

Only 33% of PTTEP’s dividends returns to the stateOnly 33% of PTTEP’s dividends returns to the statePTTEP alone accounts for 20% of PTT’s net incomePTTEP alone accounts for 20% of PTT’s net income

กำ�� ไ รสุ�ทธิ� ปตท. (ล้��นบ�ท)

(20,000)

-

20,000

40,000

60,000

80,000

100,000

ชุ�ดข้�อมู�ล2 (6,381) 12,698 21,565 24,507 37,580 62,666 85,521

2542 2543 2544 2545 2546 2547 2548

PTT Net Profit (Million baht)

2006 = 95,2612005

1999

ชื่�� อ ต��แหน�ง กำรรมกำ�รบร�ษั�ท ผล้ตอบแทน ป� 2549 นายพรชุ�ย ร�จิ�ประภา ปล�ดกระทรวงพล�งงาน ประธานกรรมูการ บมูจิ. ปตท .^ 219,863.01 *

ประธานกรรมูการ กฟผ.^ 37500 (เฉพาะ เบ !ยประชุ�มู) กรรมูการ ปตท . เคมู�คอล 865,560

ประธานกรรมูการ บมูจิ. โ รงกล�$นน%!ามู�นระยอง^ ย�งไ มู'มู ข้�อมู�ล นายณอค�ณ สิ�ทธ�พงศ์+ รองปล�ดกระทรวงพล�งงาน กรรการ บมูจิ. ไ ทยออยล+ 85,000 ***

นายค�ร�จิ�ต นาครทรรพ รองปล�ดกระทรวงพล�งงาน กรรมูการ บมูจิ. ผล�ตไ ฟฟ,าราชุบ�ร โ ฮลด�!ง^ ย�งไ มู'มู ข้�อมู�ล (1,600,000

หากครบป/) นายไ กรฤทธ�1 น�ลค�หา อธ�บด กรมูเชุ2! อเพล�งธรรมูชุาต� กรรมูการ บมูจิ. ปตท .สิผ. 2,289,344

นายเมูตตา บ�นเท�งสิ�ข้ อธ�บด กรมูธ�รก�จิพล�งงาน กรรมูการ บมูจิ. ปตท . 2,640,000

นายพาน�ชุ พงศ์+พ�โ รดมูอธ�บด พ�ฒนาพล�งงานทดแทนและอน�ร�กษ์+พล�งงาน กรรมูการ บมูจิ. ผล�ตไ ฟฟ,าราชุบ�ร โ ฮลด�!ง

368,000 **** (~2,000,000 หากครบป/)

นายว ระพล จิ�รประด�ษ์ฐ์+ก�ลผ��อ%านวยการสิ%าน�กงานนโ ยบายและแผนพล�งงาน กรรมูการ บมูจิ. ปตท .สิผ.^

ย�งไ มู'มู ข้�อมู�ล (~2,000,000 หากครบป/)

นายสิ�ชุาต� จิ�นลาวงศ์+ห�วหน�าผ��ตรวจิราชุการกระทรวงพล�งงาน กรรมูการ บมูจิ. อะโ รเมูต�กสิ+^

ย�งไ มู'มู ข้�อมู�ล (~2,000,000 หากครบป/)

นายนเรศ์ สิ�ตยาร�กษ์+ผ��ตรวจิราชุการกระทรวงพล�งงาน กรรมูการ บมูจิ. บางจิาก 360,000

นายพ ระพล สิาคร�นทร+ กรรมูการ บมูจิ. ผล�ตไ ฟฟ,าราชุบ�ร โ ฮลด�!ง^ ย�งไ มู'มู ข้�อมู�ล (1,600,000

หากครบป/) กรรมูการ บจิ. ผล�ตไ ฟฟ,าราชุบ�ร ไ มู'มู ข้�อมู�ล

ท $มูา: รายงานประจิ%าป/ 2549 ^ เร�$มูด%ารงต%าแหน'งชุ'วง รมูต.พน. ป7ยสิว�สิด�1* ด%ารงต%าแหน'งกรรมูการ 31 ว�น *** ด%ารงต%าแหน'งกรรมูการ 10 ว�น** ด%ารงต%าแหน'งครบ 12 เด2อน **** ด%ารงต%าแหน'งกรรมูการ 8 เด2อน

ผ��ตรวจิราชุการกระทรวงพล�งงาน

Conflict of interests: Conflict of interests: public policy vs private profitspublic policy vs private profits

Uneven attention by top-level energy Uneven attention by top-level energy bureaucrats: official duty vs. board meetings of bureaucrats: official duty vs. board meetings of energy companyenergy company

Participation in Participation in meetingsmeetings

PTT Plc. board PTT Plc. board

meetingsmeetings**Ft subcommittee Ft subcommittee

meetings**meetings**

Mr. Cherdpong SiriwitMr. Cherdpong SiriwitEnergy Permanent SecretaryEnergy Permanent Secretary

1313/1313/

4/64/6

Mr. Metta BunterngsukMr. Metta BunterngsukDirector of EPPODirector of EPPO

8/98/9 5/65/6

*2003 Annual Report of PTT Plc. **The subcommittee on automatic tariff adjustment mechanism (Ft charge), from Oct 2003-2004. Gas price charged by PTT was a main cost of the electricity tariff. Mr. Cherdpong and Metta served as the chairman and deputy chairman of the Ft subcommitee respectively.

Government officials look after the private sector’s interests better than

the public’s?

100%

90%

67%

83%

Trends in Trends in privatization:privatization:summarysummary NationalisticNationalistic Monopolistic with regulator to Monopolistic with regulator to

counter-balancecounter-balance Collusion of politicians-Collusion of politicians-

bureaucrats-businesses to bureaucrats-businesses to maximize corruption rent, maximize corruption rent, exploiting private-public identityexploiting private-public identity

Trends in investment:Trends in investment:Unnecessary investmentsUnnecessary investments “cooked “cooked up” by a consortium of “politicians-up” by a consortium of “politicians-technocrats-businesses” to churn technocrats-businesses” to churn profitsprofits Case in point: the 2007 Power Development Plan (PDP) Case in point: the 2007 Power Development Plan (PDP)

calls for a doubling of capacity and calls for a doubling of capacity and ฿฿2trn investment in 2trn investment in power sector alonepower sector alone

Clear gains in energy stocks as a result of business-Clear gains in energy stocks as a result of business-friendly policyfriendly policy

Index Market Cap.

(M Baht) Index

Market Cap. (M Baht)

SET index 732.3 5,398,975 894.34 6,902,455 22.1%Energy - total 1,549,720 2,416,915 55.4% Energy - PDP-related 1,189,947 1,975,093 66.0% Energy- PTT-related* 1,178,612 1,946,230 65.1% Energy - PDP/PTT-related 1,379,886 2,259,729 63.8% Energy-non-PDP/PTT 25,212 22,126 -13.2%Non-energy SET index 3,849,255 4,485,540 8.7%

*"PTT-related" = PTT having more than 25% shares (voting rights) in the company

Share value increase in 1

year (%)

3-Nov-06 2-Nov-07

Too high ?

1,000 MW/yr increase should be sufficient?

Peak Demand Increase Per Year (MW):Actual vs. March-07 Forecast

-500

0

500

1000

1500

2000

2500

1985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015201620172018201920202021

Actual Mar-07 Forecast

15 yr average = 914 MW

14 yr avg = 1,884 MW

Past averages:20 yr = 897 MW10 yr = 808 MW

Investment based on unrealistic demand Investment based on unrealistic demand forecast forecast Increase in peak demand/year (MW)Increase in peak demand/year (MW)

Supply options Supply options considered in PDP2007considered in PDP2007

Only capital Only capital intensive, intensive, centralized centralized gas/coal plants, gas/coal plants, large hydro, large hydro, nuclear considerednuclear considered

DSM/CHP/RE not DSM/CHP/RE not considered as considered as options & very options & very limitedlimited– DSM only 0.2% of DSM only 0.2% of

savingsaving– CHP SPP capped at CHP SPP capped at

1,700 MW1,700 MW– RE/CHP VSPP RE/CHP VSPP

capped at 1,100 MWcapped at 1,100 MW

L = low case B = base case H = high case1=“lowest cost” 2=“probable coal scenario” 3=“LNG + increase power imports”

กำ��ล้�งกำ�รผล้�ตใ หม�ท �ถู"กำบรรจุ�ใ นแผน PDP2007 (MW)

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

L1 B1 H1 L2 B2 H2 L3 B3 H3

SPP Nuclear Gas Coal Gas Turbine Import

No need to build new No need to build new green-field power plants in green-field power plants in 15 years15 years Installed capacity as of May 2007 Installed capacity as of May 2007 27,788 MW27,788 MW

(Reserve margin = 22% )(Reserve margin = 22% )

Planned capacity additions by 2021 (excluding all green-field Planned capacity additions by 2021 (excluding all green-field coal-fired, nuclear, gas power plants, uncommitted hydro coal-fired, nuclear, gas power plants, uncommitted hydro imports) imports)

== 14,876 MW14,876 MW

Substract decommissioned plants Substract decommissioned plants -8,462 -8,462 MWMW If allowing more CHP/cogen If allowing more CHP/cogen == 2,000 2,000 MWMW If implementing additional DSM/EE measuresIf implementing additional DSM/EE measures == 1,500 1,500 MWMW If allowing greater contribution from RE If allowing greater contribution from RE == 500 500

MWMW

Total generation capacity in 2021Total generation capacity in 2021 = = 38,202 38,202 MWMW

2021 peak demand 2021 peak demand (if grows 1000 MW/yr)(if grows 1000 MW/yr) = = 32,568 32,568 MWMW

Reserve margin*Reserve margin* = = 17%17%*Required minimum reserve margin of 15% to ensure system reliability

Secondary problemSecondary problemPrivate participation in Private participation in investmentinvestment

Half of the capacity additions -> Half of the capacity additions -> private sector (IPP bidding & private sector (IPP bidding & imports)imports)

EGAT and its subsidiaries have EGAT and its subsidiaries have similar conflict of interest issues similar conflict of interest issues as PTT’sas PTT’s

Competing IPP projects have Competing IPP projects have cross shareholderscross shareholders

ผล้�ตไฟฟ%�อ�สุระ (IPP)

700 MW

ร�ชื่บ�ร เพ�เวอร* (IPP) 1,400 MW

ผล้�ตไฟฟ%�ร�ชื่บ�ร 3,645 MW

ไตรเอนเนอยี (IPP) 700 MW

น�,�เท�น 2 1,070 MW

ระยีอง1,232 MW

ขนอม824 MW

แกำ�งคอยี Gulf (IPP) 1,468 MW

BLCP(IPP) 1,400 MW

RATCH

Gulf Electric

EGCO

ปตท.สุพ.

Thai Oil Power

CLP

บ��นป"

กำฟน.

กำฟผ.

Thai Oil Plc.

ปตท.

บร�ษั�ท ผล้�ตไฟฟ%� แล้ะน�,�เยี/น

SPPs118 MW

SPPs374 MW

SPPs789 MW

15

%

56

%

50%

5

0%

22.4%

25

.41

%

33

%33%

34%

45

%

1

5%

10%

26

%6

6%

50

%

25

% 10

0%

50% 25

% 10

0% 1

00

%

15

-8

0%

10

0%

55%

5

0%

ต�วเลข้ % แสิดงสิ�ดสิ'วนการถื2อห��น

Cross-shareholding in energy business

ปตท . กฟน . กฟผ . บ�านป�

RATCHThai Oil Plc.

Thai Oil Power

ผล�ตไฟฟ,าอ�สิระ

700 MW

CLP

ผล�ตไฟฟ,าราชุบ�ร

3645, MW

ไตรเอนเนอย

700 MW

BLCP1,400 MW

ระยอง 1,232 MW

ข้นอมู 824 MW

แก'งคอย 1468, MW

ราชุบ�ร เพาเวอร+

1400, MW

EGCOGluf

Electric

Glow Energy

Glow IPP

713 MW

ผล�ตไฟฟ,าและน%!าเย:น

50%

50%

100100

35%

30%

35%

45% 14.99%22.42%25.41%

50%

100

25% 100% 50%100

New IPPs

15%

IPP (ชุลบ�ร ) 735 MW

IPP(ระยอง)

1704 MW IPP (ราชุบ�ร )

1734 MW IPP

นครศ์ร ธรรมูราชุIPP (ราชุบ�ร ) IPP (ระยอง) 1126 MW

IPP โรจินะ(อย�ธยา)

1587 MW

ราชุบ�ร อ�ลล�ยแอนซ์+

100%

สุปป.ล้�ว

ชื่ .กำ�รชื่��ง

ท�งด่�วนกำร�งเทพฯRATCH

ท มคอนซั�ล้

น%!าง<มู 3 440 MW

25% 25% 28

5%125. % 1%

เซ์าอ สิท+ เอเชุ ย เอนเนอจิ

น%!าง<มู 2 454 MW

น%!าบาก 1 น%!าบาก 2

MDX

ห�วยเฮาะ 126 MW

เท�น-ห�นบ�น 220 MW

EGCOอ�ต�เล้ �ยีน

ไทยี กำฟผ.ศู"นยี*อ�ตสุ�หกำรรม

โรจุนะ

น%!าเท�น1 523 MW

น%!าเท�น2 920 MW

น%!าเง >ยบ 260 MW

สุปป.ล้�ว

25% 15%20%25%40%

25%

15% 20%

45%60%

55%20%29%

GMS Power

275

225. %

น%!าโมู 105 MW

MHW

25%

Cross shareholding in hydropower projects

Trends in financing:Trends in financing: IFIs more or less irrelevant in IFIs more or less irrelevant in

Thailand and becoming irrelevant Thailand and becoming irrelevant in Mekongin Mekong

Less debt, more equityLess debt, more equity– PTTEP, PTT -> DE ratio = 1:1PTTEP, PTT -> DE ratio = 1:1– Driven by massive profits, high Driven by massive profits, high

cashflowscashflows Debt: less loan, more bonds issuedDebt: less loan, more bonds issuedGreater reliance on the stock/bond markets for

financing for greater control by energy companies.Savings also shifted from traditional bank deposits

to investment in securities (shares and bonds)

PTT debt profile (2006)PTT debt profile (2006)

Million BahtMillion Baht Debt – BahtDebt – Baht 52,940.73 52,940.73 Debt – foreign currencyDebt – foreign currency 29,315.14 29,315.14 BondsBonds – – BahtBaht 72,181.70 72,181.70 Bonds – foreign currencyBonds – foreign currency 43,327.16 43,327.16 Contracted loansContracted loans 574.58 574.58 TotalTotal 198,339.31198,339.31

Lending by financial institutions being replaced by debt raised directly from disperse investors in bond markets, giving energy companies greater control and bargaining

power over capital

Implications for Implications for advocacy workadvocacy work Much more attention needed on Much more attention needed on

governance of the stock/bond marketsgovernance of the stock/bond markets– Disclosure of foreign fundsDisclosure of foreign funds– Conflict of interestConflict of interest

Not sufficient to focus on governance of Not sufficient to focus on governance of investment/financing (e.g. concession investment/financing (e.g. concession agreement, lending institutions)agreement, lending institutions)

Need to go after policy makers, Need to go after policy makers, monopoly energy companies to improve monopoly energy companies to improve planning process & sector governance, planning process & sector governance, and eliminate unnecessary investmentsand eliminate unnecessary investments