Tariff
restructuring and privatisation are key issues facing the
industry
Impacts on IPP projects
The economic recession, the significant slowdown in power demand
growth, a high level of generating reserve margin, and in a few
cases public opposition, have prompted a number of changes in
independent power producer (IPP) projects licensed in Thailand.
The economic problems have caused some delay in obtaining financing
and as a result some of the seven licensed IPPs, with an aggregate
generating capacity of 5,934 MW, sought further deferment of their
commissioning dates.
At the same time, the shareholding structure of some IPP projects
underwent changes as certain Thai companies, hard hit by financial
problems, have significantly diluted their stakes in those ventures
with international power firms.
Underlining this move was the decision of Union Energy, part
of Thailand's Saha Union business group, to reduce its stake in
Union Power Development (UPDC), the sponsor of a $1.2 billion
IPP project, to just 10% from 51%.
Meanwhile, an air of uncertainty continues to shroud two coal-fired
IPP power schemes -- those of UPDC and Gulf Power Generation --
in the light of growing opposition by some residents of the southern
province of Prachuab Khiri Khan where the projects are to be located.
Protesters have been concerned about the environmental impact
these facilities might create in their neighbourhood, similar
to Egat's troubled lignite-fired power station in the northern
Lampang province.
UPDC previously planned to start delivering power from its plant
to Egat in two phases -- the first 700 MW in October 2002 and
700 MW in January 2003.
UPDC's Hin Krut project has been stalled since December 1998
when thousands of protesters staged a violent protest against
the coal-fired power projects of UPDC and Gulf Power Generation.
The riot left about 60 people injured.
Gulf Power Generation (GPG), owned 60% by Gulf Electric, a joint
venture between Lanna Lignite and Siam City Cement of Thailand,
and 40% by Mission Energy of the US, was also forced to put off
the start of electricity sales from its controversial US$820m
coal-fired power project for one year.
Under the new agreement with Egat, GPG will begin power supply
to Egat's grid in two stages, the first half in October 2003 and
then in April 2004.
A public hearing on the GPG case was held recently in the southern
province but the event was boycotted by opponents. The Thai government
has yet to make a decision on whether the Bor Nok project should
proceed.
Egat also agreed to compensate GPG for the delay by absorbing
3% of some of the costs caused by the delay in bringing the facility
on line.
Sarath Ratanavadi, managing director of Gulf Electric, said the
12-month delay is expected to cost GPG an extra $80 million on
top of the original estimate of the project's cost. It means the
company would have to pay an additional 200 million baht in annual
interest, he noted.
GPG has already spent about 2 billion baht on the project for
the purchase of land, environmental consultancy and engineering
work. In spite of the difficulties plaguing the project, Edison
has again vowed to pursue the project, Gulf Electric executives
stressed.
Bowin Power Co, a 50:50 joint venture between Thailand's Hemaraj
industrial and Tractebel SA of Belgium, confirmed it will put
its 713-MW gas-fired IPP project east of Bangkok on line in April
2002 -- one year behind schedule.
Eastern Power & Electric Co, a joint venture of MDX Power
and Marubeni, also delayed the commissioning date of its 350 MW
facility, also natural gas fired, by one year to January 2002.
There is no delay in the supply dates from two other gas-fired
IPPs -- the Independent Power (Thailand) Ltd and Tri Energy Co
-- but BLCP Power consortium which includes Powergen of the UK
has been discussing with Egat exactly how long it wants to put
off commercial operation of its 1,346.5 MW facility.
BLCP's move to delay its $1.4 billion coal-fired IPP project
stems from its plan to switch the type of fuel for its project
in Rayong from black coal to natural gas.
Construction of The Independent Power's 700-MW gas-fired power
house in Chon Buri was due to be complete by December 1999 while
work on Tri Energy's 700-MW gas-fired combined cycle plant is
well underway. Tri Energy, led by Texaco of the US, was due to
start delivering electricity to Egat in September 1999 and then
in July 2000.
Ratchaburi privatisation
The controversial privatisation of the giant state-owned Ratchaburi
power station in Thailand seems to have begun in earnest.
The Thai cabinet on November 30 allowed a smooth passage of the
revamped plan which appeared to be acceptable to all parties apart
from a few hard core labour union leaders of Egat, who refused
to budge from their original opposition.
Though union leaders have threatened to stage a mass rally against
the cabinet approval, no action has been initiated at this stage
as they have been unable to gather support from Egat employees,
now numbering about 30,000.
The method essentially excludes a shareholding by strategic partners,
who almost certainly would have been foreign energy firms, a move
designed to overcome the strong resistance by the xenophobic Egat
labour union.
Under the approved structure, the interests in Ratchaburi, now
wholly owned by the state power utility, will be split among three
groups. Egat will hold 45%, the general public 40%, and Egat employees
and their provident fund the remaining 15%.
The method chosen differs from the structure approved by the
cabinet early this year in two key aspects -- the shareholding
size of Egat and the general public, and the exclusion of strategic
partners.
Previously, Egat and strategic partners were intended to have
a minimum 33.3% stake each in Ratchaburi and at least 15% was
to be kept for the general public, Egat employees and their provident
fund.
The exclusion of strategic partners was originally proposed by
Egat management as they thought it could overcome the xenophobia
among protesting Egat union members and thus allow the stalled
privatisation process to proceed.
The November 30 cabinet approval came shortly after government
officials concerned cleared last-minute disputes over Egat employee
stock options.
It was ruled that Egat employees should be allocated a maximum
of 15% of the shares in Ratchaburi Holding Plc, a firm which will
be set up by Egat to assume the power plant assets from the state
power utility, at par value of 10 baht a piece.
However, this share price could only be offered to Egat employees
if the initial public offering (IPO) price for Ratchaburi Holding
was set at 20 baht a share. If the Ratchaburi stock became more
attractive, thus allowing Egat to set an IPO price at higher than
20 baht a piece, the size of the share offered to Egat employees
would fall below 15%, according to officials.
Egat
employees will be required to hold their shares for a given period,
up to three years before being allowed to sell them, to prevent
them from dumping their shares in the market and thus causing
the Ratchaburi Holding share price to fall.
Savit Bhotiwihok, Minister of the Prime Minister's Office in
charge of energy, said the IPO of Ratchaburi Holding shares is
expected to take place in the third quarter of 2000.
He said the entry of Ratchaburi Holding on the Stock Exchange
of Thailand would help stimulate the investment climate in Thailand
as there has been an absence of large-scale fund mobilisation
in the Thai bourse since the beginning of the economic crisis
in mid-1997. At least 18 billion baht is expected to be raised
from the sale of shares to the public and Egat employees, he noted.
The book value of the 3,645 MW Ratchaburi power station is 55
billion baht.
Egat governor Viravat Chlayon said Egat would start transferring
the Ratchaburi assets to the holding company in November 2000,
after the IPO takes place in September.
Under the plan, Ratchaburi Holding Co will then set up a subsidiary
firm, to be known as Ratchaburi Operating Co, to own and operate
the power plant, located about 120 km southwest of Bangkok in
Ratchaburi province.
The IPO price and details of the offering are being determined
by a Ratchaburi financial advisory team that includes Dresdner
Kleinwort Benson, Lehman Brothers (Thailand) Ltd and SCB Securities
Co.
Viravat said revenues from the sale of Ratchaburi assets will
be used for Egat's operation, investment, and modernising Egat's
existing power plants. It will also go to Egat's debt financing.
Egat's borrowing plan approved
In September, the Thai government acted to avert the short-term
cash flow crisis of Egat by endorsing its long-awaited plan to
borrow 18.12 billion baht.
However, the last-minute approval came with a string attached
-- the state power utility must go ahead with the partial sale
of the Ratchaburi power station which has been resisted by the
Egat labour union. The approval came late, barely one month before
Egat's liquidity problems plunged it into crisis. The government
had held up Egat's borrowing plan for 8-9 months to pressure the
state enterprise to follow the privatisation plan. The postponement
drove Egat into critical financial problems.
The approval, essentially the provision of a guarantee for the
loan by the Finance Ministry, came late. Egat said recently that
it would run into liquidity problems if the government did not
approve new borrowings by September.
According to Boonchoo Direksathaporn, deputy Egat governor for
finance, 14.07 billion baht of the total is the loan required
for the fiscal year ended in September 1998, and 4.04 billion
baht is for the fiscal year ending in September 1999.
The credit earmarked for fiscal 1998 comprised 7.57 billion baht
for investment in 11 projects and another 6.50 billion baht for
a revolving fund. The 4.04 billion baht portion for fiscal 1999
goes to eight projects.
The cabinet has instructed the Finance Ministry and Egat to negotiate
with the World Bank to relax certain financial conditions attached
to earlier loans extended to Egat, now that the utility has vowed
to proceed with the privatisation plan.
Egat has so far failed to meet the minimum self-financing ratio
of 25% imposed by the World Bank, partly because the government
has kept tight control on the base tariff. An increase will help
boost the ratio in order to pressure the state enterprise's union
into allowing the privatisation of Ratchaburi to proceed.
Meanwhile, Egat has moved quickly to raise funds through bond
issues, after approval by the cabinet. Three commercial banks
were mandated to subscribe to the first of a series of Egat bond
issues.
The total amount of the first issue is five billion baht, forming
the initial part of the overall 18 billion baht in debt instruments
through which Egat is seeking to mobilise funds to meet its critical
financial requirements.
At the same time, Egat has proceeded to re-finance an 18.16 billion
baht credit, a move which it said will reduce its financial burden
by 1.6 billion baht. Egat governor Viravat Chlayon said the refinancing
reduces the funding cost for the whole amount by 8.81%.
Loss hit Egat
The Electricity Generating Authority of Thailand (Egat) posted
the first loss in its 30-year history during the fiscal year ending
in September, according to a preliminary financial report.
The loss, amounting to five billion baht, was largely due to
the exchange rate as the baht depreciated to 41.50 baht to the
dollar at the close of the financial year on September 30.
However, the loss was unrealised, said Boonchoo Diresksathaporn,
Egat deputy governor for finance. The foreign exchange loss aside,
the state power utility made an operating profit of 12 billion
baht, he noted. Meanwhile, Egat has resolved to seek Finance Ministry
approval to borrow some 20 billion baht from domestic lenders
to partly refinance its foreign debts totalling 109.23 billion
baht.
According to Egat governor Viravat Chlayon, the refinancing plan
is a short-term measure to ease its financial burdens, especially
to avoid the liquidity problems which were quite severe in the
past fiscal year. The planned borrowing will be in Thai baht to
reduce risks from foreign exchange fluctuations.
Ratchaburi power station ... strenuous privatisation
In the past fiscal year, Egat issued US$134 million worth of
Euro commercial paper to raise money for refinancing purposes.
Egat expects its financial position to improve markedly in the
current fiscal year that began in October as new funds are made
available. The expected increase in electricity sales revenue,
spurred by economic recovery, would also contribute its earnings
which are likely to reach 12.21 billion baht in 2000, Egat officials
said.
Meanwhile, Egat's board approved capital expenditure of 33.85
billion baht for the fiscal year that began in October 1999.
The investment will go towards 18 projects. Among the major ones
are Ratchaburi power station (7.96 billion baht); Wang Noi power
plant (2.1 billion baht); the Lam Takong pumped storage plant
(1.53 billion baht); Krabi power plant (4.75 billion baht); five
transmission schemes (8 billion baht); and the recapitalisation
for Ratchaburi Holding Co (305 million baht).
Promise realised
It seems that the Mitsui-General Electric alliance has now lived
up to its latest promise to complete the long-delayed Ratchaburi
power house within the suggested timeframe.
The first 200-MW gas turbine installed at what will eventually
be Southeast Asia's largest single power station by the Japanese-US
group underwent a trial run on September 29 with the setting of
the 'first fire', 14 months behind schedule.
Natural gas piped from Yadana, Burma's largest known single gas
field in the Gulf of Martaban, was used for the test. With a planned
generating capacity of 3,645 MW, the Ratchaburi power plant is
built to run on the Burmese gas.
Senior Egat officials confirmed that the first gas turbine was
to start supplying the national grid in December as previously
indicated by the Mitsui-GE group.
The subsequent five gas turbines, each of 200 MW capacity, are
expected to come on line in January, April, May, July and August.
Installation of the initial units at the power station, about
120 km southwest of Bangkok, has been delayed by technical problems
involving contractors.
Egat officials said the delay stemmed from Mitsui-GE's putting
in a low bid price for the Ratchaburi supply contract. To keep
within their price range they have components manufactured in
Third World production bases. According to Egat, the result is
that the quality of the product does not meet the specifications
required by the Thai state power authority, requiring frequent
equipment replacement.
The Ratchaburi power station was supposed to come on line in
July 1998, at the same time as the completion of the gas pipeline
laid from the Yadana field to the Thai power house.
The delays meant that the Petroleum Authority of Thailand (PTT)
failed to take delivery of the Burmese gas, sparking a dispute
over gas payments between the state-owned PTT and the Yadana developers
led by Total-Fina. The dispute has been resolved through rescheduling
of payments and concessions by both sides.
The dispute strained relations between Thailand and cash-strapped
Burma, which is desperate for revenue from the Yadana gas sale.
Egat said the completion of the Ratchaburi power station would
enable the state power utility to produce more electricity from
cheaper gas rather than from expensive oil.
By August, Egat will be able to use up to 360 million cubic feet
per day of the Burmese gas. The rate is still short of the 525
million cubic feet that the PTT was committed to receive from
the Yadana developing consortium.
Houay Ho on line
The developer of Houay Ho hydro project in Laos quietly started
electricity sales to Thailand on September 3, in line with the
contract.
It is the second Laotian power project to go on line under the
memorandum of understanding signed, the Thai and Laotian governments
under which the former will purchase 3,000 MW of electrical power
from the latter within 2006-8.
The actual start-up of power delivery from the $220 million scheme
was several months behind the project completion date as Egat
refused to commence purchases ahead of the contractual date as
proposed by the developer due to the excessive power supply in
Thailand.
Egat officials said the Thai state power utility has taken delivery
of electrical power from the group, comprising Daewoo of South
Korea (holding 60%), Loxley Plc of Thailand (20%) and the Laotian
government (20%), under the 30-year contract which involves 126
MW of supply.
The consortium completed construction of the scheme in southern
Laos earlier in 1999 and wanted to begin early sales to generate
early cash. Hit by the Asian economic crisis, both Daewoo and
Loxley have sought to sell their interests in Houay Ho, but have
yet to find buyers.
Nam Thuen exit
Jasmine International Plc, the Thai telecommunications concern,
and Bangkok-based Merril Lynch Phatra Securities Plc, have moved
to offload their interests in the Nam Thuen 2 hydro power project
in Laos.
The firms want to dispose of their stake in the $1 billion scheme
as the chance of the project getting off the ground looks remote.
This is largely because Egat is not prepared to clinch a contract
to purchase power from the 900-MW project soon.
Indeed, Egat has placed Nam Thuen 2 on top of its list of new
power purchases from Laos because it is viewed as the most viable
of all and the consortium is much more prepared to embark on the
project.
Both Merril Lynch Phatra Securities Plc and Jasmine hold a 10%
share in Nam Thuen 2. Other partners are Electricite de France
30%, the Laotian government 25%, Transfield of Australia 10%,
and Italian-Thai Development Plc of Thailand 15%.
Egat
employees will be required to hold their shares for a given period,
up to three years before being allowed to sell them, to prevent
them from dumping their shares in the market and thus causing
the Ratchaburi Holding share price to fall.
