ENERGY Tariff restructuring and privatisation are key issues facing the industry

Powering ahead with reforms

Boonsong Kositchotethana

The face of Thailand's electricity industry has been changing dramatically, spurred by the worst economic turmoil in recent history, new operating environments and changing government policies.

Sweeping reforms of the country's power supply industry are underway. A more definite pattern for deregulation has emerged and efforts are now geared towards establishing a competitive power market and setting up a power pool by 2003.

Intensive work has also been undertaken this year to revamp the country's power tariff structure so that power authorities will no longer pass on all their costs, some of which arise from their own inefficiency, to the public.

Taking 1999 as a whole, electricity demand continued to drop compared to the previous year, though marginally, suggesting that the economy was still in the doldrums. Power consumption in August and September showed a slight increase, which was regarded as a sign of a rebound in the economy.

Sluggish demand and expansion of generating facilities has resulted in excessive generating capacity in Thailand's system. The surplus is likely to remain relatively high over the next nine years or so, in spite of attempts to defer, downsize or even cancel additional generating capacity.

The recession, the significant slowdown in growth of power demand, a high level of generating reserve and,

in a few case, public opposition, have prompted a number of changes in the independent power producer (IPP) projects licensed in Thailand.

The partial sale of the giant state-owned Ratchaburi power station in Thailand, regarded as a threshold in the reform of the national power supply industry, has made significant headway. Further good news at Ratchaburi is that the Mitsui-General Electric alliance has lived up to its latest promise to complete the long-delayed construction of the mega power house within the suggested timeframe.

An additional power station in Laos -- Houay Ho -- started electricity sales to Thailand on the contracted start-up date -- September 3.

In September, the Thai government acted to avert the short-term cash flow crisis of the Electricity Generating Authority of Thailand (Egat) by endorsing its long-awaited plan to borrow 18.12 billion baht.

Though its critical financial problems were partly resolved, Egat faced the first loss -- five billion baht -- in its 30-year history during the fiscal year ending in September. The loss was primarily due to currency exchanges.

Power industry reforms

A more definite pattern for reforming Thailand's electricity supply industry is emerging as senior Thai energy planners initially agreed to adopt the structure proposed by a consulting team led by Arthur Andersen.

For the time being, the study by the five-company consulting consortium seems to provide a workable basis for achieving sweeping reform of the Thai power industry by the target date of 2003.

The recently-completed preliminary study has also offered solutions to various thorny issues marring the introduction of a competitive electricity market, Thai officials and industry analysts believe.

For instance, it addresses the subject of stranded costs -- the unavoidable costs resulting from investment by utilities prior to the industry restructure.

The proposed structure also drew upon recommendations from Boston Consulting, which was also retained by Egat, to study the reform.

It is likely that the model proposed by the Arthur Andersen-led group, which also includes National Economic Research Associates, Barker, Dunn & Rossi, Cameron McKenna and Presko Shandwick, will largely be adopted by Thailand, with some modifications.

As part of its assignment, the Arthur Andersen group has yet to complete a study to define the specific entities to be created from the existing three state-owned power bodies -- Egat, Metropolitan Electricity Authority (MEA) and Provincial Electricity Authority (PEA). The group will come up with a plan and timetable for the restructuring of these entities.

National Energy Policy Office (Nepo), the de-facto regulatory body, said the proposed structure of the electricity supply industry will be submitted to the cabinet for final approval early next year.

The reforms are aimed at creating a competitive power supply industry, driving the electricity price down, and improving services through breaking the monopoly of state power utilities.

Power use drops slightly

Thailand's electricity consumption for the fiscal year ending in September dropped 0.27% or 214 GWh from the previous year to 80,293 GWh, reflecting the economic doldrums. Peak demand for the year was on March 18 with record 13,712 MW -- 467.50 MW lower than the previous year and 574.60 MW below projections based on the slow economic recovery.

Consumption in the first ten months of the fiscal year showed a gradual decline. Only in the last two months -- August and September -- did demand start to rise, spurred by the economic stimulus package introduced by the government.

Egat said peak demand in September rose 5% over the same period last year, to 13,507 MW.

With economic recovery apparently on the horizon, the state power utility said the country's power demand for the new fiscal year that began in October is expected to grow steadily, both in terms of generation requirements and peak demand.

For the fiscal year ending in September, the combined power supplied to Thailand was 90,385 GWh, 2% or 1,749 GWh lower than the previous year. Egat-operated facilities contributed 76% to the overall supplies with the remaining 24% purchased from private producers.

Supplies from Egat's own system dropped 7% or 5,380 GWh in the year to 68,560 GWh while purchases from private producers soared 20% to 3,630 GWh as additional small power producers' power plants and the Houay Ho hydro power project commenced power sales to the state power utility.

Average power consumption (fiscal year 1999)
Metropolitan Eletricity Authority					Provincial Electircity Authority
.	Oct-Feb	Mar-Cay	Jun-Sep	Avg. Oct-Sep	Oct-Feb	mar-may	Jun-Sep	Avg. Oct-Sep
Resindence	-12.00	-14.02	-3.72	-9.84	-4.57	-8.68	-2.63	-5.10
Small business	-10.99	-10.27	-0.43	-7.32	-10.39	-10.57	-3.31	-8.18
Medium business	-4.61	-2.21	-6.83	-0.19	-3.57	-1.72	8.18	0.90
Large business	-8.67	-4.12	1.65	-4.17	-6.69	-1.67	5.41	-1.37
Specialised business	-9.69	-7.03	2.94	-4.93	-7.96	-10.42	4.41	-4.59

Egat's energy sales in the year slipped 1% or 810 MW from the previous year to 84,584 GWh. The decline was due mainly to the 4% drop in energy sales to the Metropolitan Electricity Authority (MEA), the power distribution agency for Bangkok and two adjacent provinces, which took 30,890 GWh.

However, Egat's energy sales to the Provincial Electricity Authority (PEA), the provincial distribution agency, and direct to customers as well as Electricite du Laos, increased by 1% from the previous year.

Big surplus remains

Thailand's excessive generating capacity is likely to remain relatively high over the next nine years or so in spite of attempts to defer, downsize or even cancel additional generating capacity.

Based on the present official demand forecast, the minimum oversupply capacity, termed 'reserve margins' by Thai officials, will begin to explode to 43.5% in the fiscal year starting in October 1999, up from 20%.

The reserve margins will climb further to 50% in fiscal year 2001, slowing slightly to 46.6% in 2002, before surging to 52% in 2003. It will fluctuate but continue on the high side in the following years.

The reserve margins will not come down to the 25% limit, the level set by the Thai government, until 2006, according to energy planning officials.

The significant oversupply in the country's generating capacity came as a result of planning prior to the mid-1997 economic crisis which drastically reduced power demand by nearly 10% per annum compared to the pre-crisis period.

Under the revised load forecast, the average annual peak demand during 1997-2001 -- the period of Thailand's eighth national plan -- will increase by 4.02% to 16,214 MW from 13,311 MW, an increase of 2,903 MW.

Peak power demand growth in 2002-2006 is projected to be 6.46% a year to 22,168 MW from 16,214 MW, up 5,954 MW. The peak demand growth will then rise further, by 6.65% a year in 2007-2011 to 30,587 MW from 22,168 MW, an increase of 8,419 MW.

The revised forecast shows a decline in the expected peak in generation ranging from 9-17% compared to the earlier forecast.

Egat will not be planning any new power plants except for those already committed. The future additional demand will be served by power projects implemented by private power producers with the backdrop of deregulation and privatisation of the electricity supply industry.

Most of the additional capacity in the national grid will come from committed independent power producers (IPPs) and power purchases from neighbouring countries such as Laos.

Under the government's privatisation policy, some of Egat's projects previously approved by the cabinet will be implemented by IPPs. Examples are the Ratchaburi thermal units 3-4 and Thap Sakae thermal units 1-2.

PricewaterhouseCoopers has suggested that the magnitude of Thailand's reserve margins should be more appropriately reduced to 18% to be in line with other countries in the region and to reduce Egat's financial constraints.

New power tariff structure

The government looks set to put in place by the end of 1999 or early 2000 a revamped electricity tariff structure, which, amongst other things, will force the state generating utility to assume more cost risk.

The new structure also envisages tariffs being adjusted to directly reflect the real costs. Big consumer groups such as commerce and industries will see their power bills dropping significantly and residential users will see an increase.

Overall, the new structure, which will be applied during the fiscal year 2000-2003, will result in a reduction of base electricity charges by about 2%.

That perhaps summarises Thai authorities' new general approach to new national power tariffs, derived largely from a comprehensive study by the London-based PricewaterhouseCoopers.

Though the direction seems clear, there are still at least two controversial issues under hot debate by the de-facto Thai energy regulator the National Energy Policy Office (Nepo), government officials and state power utility executives.

First, whether Egat is allowed to pass on the 95% of costs involved in the fuel adjustment clause, the so-called Ft in the tariff, to the public, and assume the 5% risk itself as advised by the consultant. At present, the entire Ft cost burden is passed on to consumers.

The second is whether the government should, or more specifically dare in a political context, follow the PricewaterhouseCoopers recommendation that the base retail tariff rates now applied to residential consumers be increased by a substantial amount, as much as 29% for small users, while cutting the charges for so-called large general services (LGS) users.

It was proposed that the rate for LGS be trimmed by 11% from the present level. This group has been paying a higher rate than the actual power generating costs while small residential users, using 35 kWh/month, have paid less than cost.

Acknowledging the political sensitivity of the retail tariff issue, Nepo secretary general Piyasavasti Amranand indicated a softer approach to adjusting the base retail tariff structure in the future.

To minimise the social impact on residential users, who would otherwise have seen an increase in power charges, the government may allow a small increase in the residential rate and may allow the tariff for LGS to drop by 4-5% from the present level.

Regarding the PricewaterhouseCoopers' recommendation that Egat absorb the 5% cost of fuel in the Ft mechanism, Egat deputy governor for finance Boonchoo Direksathaporn said the matter is a burden on the state utility. Explaining the logic of its proposal, the consultant said the recommendation is aimed at motivating Egat to resort to better fuel management and more efficient fuel utilisation.

Meanwhile, PricewaterhouseCoopers advised that the impact of the foreign exchange component in the debts should be taken from the Ft mechanism since this factor has already been part of the base tariff pricing.

Mr Piyasavasti said Nepo will forward the final recommendation on the new tariff structure to Savit Bhotiwihok, Minister of the Prime Minister's Office in charge of energy, and the cabinet for subsequent approval.

PricewaterhouseCoopers suggested that Egat enhance its generating efficiency by 5.8% per annum, the Provincial Electricity Authority (PEA) raise its transmission efficiency by 5.1% a year, and the Metropolitan Electricity Authority (MEA) boost its distribution system by 2.8%.

 

.

 

 

 

Top

back

More