With elections tentatively set for February 2019, time is ticking down on coup-installed Thai Prime Minister Prayut Chan-ocha’s economic transformation plans.
Indeed, questions are already rising whether the centerpiece of that plan, the US$43 billion Eastern Economic Corridor (EEC), will survive the transition back to democracy after four years of military rule.
“The EEC is a flagship initiative of the government,” said Thai Industry Minister Uttama Savanayana, addressing a room full of diplomats on June 7 at an “EEC Taking Off” presentation.
The EEC is an amalgam of ambitious schemes under Prayut’s second signature initiative – Thailand 4.0 – a broad strategy to take the kingdom’s industries up the value-added ladder and the country out of its so-called “middle-income trap” by luring investment into ten designated higher-tech sectors.
The ten sectors include next-generation cars, smart electronics, medical tourism, biotechnology, food, robotics, logistics and aviation, biofuels and biochemicals, digital and medical services. Last year 46%, or US$9.3.billion worth of the new applications filed for tax incentives at the Board of Investment (BOI), were for projects situated in the EEC’s designated area east of the capital, Bangkok.
Another army general, former Prime Minister Prem Tinsulanonda (1980-1988) gave Thailand its original Eastern Seaboard. His two-term administration built two deep-sea ports and adjoining industrial parks and highways in three eastern coastal provinces – Chachoengsao, Chonburi and Rayong – which over the past three decades have served as the kingdom’s export hub for petrochemicals, automobiles and electronics.
Taking a tip from Prem, Prayut and his economic czar Somkid Jatusripitak have staked their economic policy legacies on the EEC, also known as Eastern Seaboard Part II.
On May 15, in a move aimed at reassuring foreign investors on the scheme’s viability, the government pushed through the EEC Act, providing the legal and institutional framework for the program and guaranteeing special privileges such as the right for foreign entities to own land in special economic zones (SEZs).
The EEC Act will work in tandem with a fast-track Public Private Partnership (PPP) process which the government hopes will guarantee that six of the EEC’s most crucial infrastructure mega-projects (worth an estimated US$20 billion) are well underway before the next general election and installment of a new government.
“All these projects have been instructed to finish by December, because if we let them slip to February and there is an election, there will be a lot of problems because the projects might be revised, so everything we have done so far will have been for naught,” said Kobsak Pootrakool, Minister Attached to the Prime Minister’s Office.
“This will be the turning point for the Thai economy. If you come too late, it will be all gone,” Kobsak told the June 7 gathering of foreign diplomats at the “EEC Taking Off” event aimed at drumming up foreign interest in the scheme.
The six priority infrastructure projects include a 220 kilometer high-speed airport rail (linking U-Tapao Airport in Rayong province to Suvarnabhumi and Don Mueang – the two airports serving Bangkok;) the modernization of U-Tapao Airport; a maintenance, repair and overhaul (MRO) facility at U-Tapao; the expansion of Laem Chabang Port and Map Ta Phut Port; and construction of a “Digital Park” in Chonburi.
Thailand has opted to finance these EEC-related projects via PPPs because the government lacks sufficient funds to finance them through the national budget. Government debt hit 5 trillion baht (US$155.8 billion) at end of 2017, up 11.1% year on year, according to Bank of Thailand figures.
Under the existing PPP law, promulgated in 2013, projects usually take around 40 months to reach the contractual stage. Under the fast-tracked PPP system, Kobsak is hoping the process will only take five-six months, allowing two months for the Cabinet to give its final approval of the contracts in early 2019, i.e. before the elections.
While this may seem like an unrealistically optimistic time line, Kobsak claims that much of the groundwork has already been laid, such as the details for the Terms of Reference (TOR) for the airport rail-link project (estimated to cost 220 billion baht, or US$6.9 billion) which is scheduled to be announced on June 18.
Thailand has been gauging international investor interest in the high-speed airport link project for months. One of the responses from potential bidders was that they would only be interested if they were assured a majority equity stake in any joint venture with local firms to build and operate the line.
There are good reasons for such ownership demands. The high-speed airport rail link’s local owner/partner is the State Railway of Thailand (SRT), Thailand’s most indebted state owned enterprise (SOE) with a dubious track record in project management.
Under the government’s EEC-PPP TRACK scheme, majority foreign equity will be allowed, something that would be off the table in a normal PPP project elsewhere in Thailand. The decision to allow for more than 51% foreign ownership was a tough one that would not have been possible without the special provisions allowed under the EEC Act.
“The EEC law has powers vested in it to waive certain laws and regulations,” said Luxman Attapich, senior country economist for the Asian Development Bank’s Thailand mission. “Things like the high speed rail, you will see that we say the joint venture who comes in to bid need not be 51% Thai-owned, for example. That is through the EEC Act, so that’s crucial for the project.”
Others suggest that without that provision, it is unlikely the EEC-PPPs would attract international bidders and without foreign capital the EEC is unlikely to get off the ground.
“The high-speed rail and U-Tapao Airport projects require high-technology and there are no Thai companies that are big enough and knowledgeable enough to do that. That’s why we have international bidding, and if we have international bidding all aspects are really international,” Luxman said.
Another EEC watershed will be the TOR for the high-speed rail now scheduled to be announced on June 18, with the contract to be awarded by year-end.
“The other projects can follow. We can follow the model of the high-speed train, but getting to that decision stage [on foreign majority equity] took a long time to get through the committee,” Kobsak acknowledged.
Although the government hopes to push through all six EEC-PPP projects before year-end, the really crucial ones for the scheme are the rail link and U-Tapao Airport refurbishment, planners admit.
“The deep sea ports, we know how to handle them, but the high-speed train is a new animal for us,” said Kanit Sangsubhan, secretary general of the EEC Office. “The high-speed train and airport will be the crucial ones.”
The ADB’s Luxman concurred, “Without these two projects going ahead the connectivity, logistics and transportation of the EEC would not be appealing to industry.”