Rebuilding the foundation

PLEW TRIVISVAVET

By YUTHANA PRAIWAN

Keeping liquidity as high as possible and continuing to participate in projects with good returns will be crucial for Ch. Karnchang Plc (CK), Thailand's second largest construction company, in the global recession.

President and CEO Plew Trivisvavet said he would apply the lessons learned from overcoming tough challenges in the Asian financial crisis of 1997.

"That was a good lesson to learn. Now we know the importance of the corporate risk management strategy - you cannot survive if you don't do it well,'' said Mr Plew.

"In fact, I could not imagine how bad it could be for the construction industry for the year to come. Fortunately, many senior industry figures had suggested this to me. They advised me to be strict in controlling liquidity and to seriously consider the potential return of each [turnkey] project that we will bid for.''

Yet he remains concerned over the global situation. CK expects its 2008 revenue to drop by a third from the previous year from 15 to 10 billion baht.

"Construction materials prices were highly volatile, so it was difficult to make a profit in the circumstances. This also caused me to give up some projects,'' he said.

While focusing only on turnkey construction is also considered risky, the group has been attempting to contain risk through staying involved with projects after construction is completed.

"Twenty years ago we learned the hard lesson of how much risk we took in making revenue only from turnkey project construction. The economy went downhill and, luckily, getting the Bank of Thailand's construction project enabled us to survive,'' said Mr Plew.

A tap water network operation is part of the company's long-term revenue strategy. CK already earns 15-20% of its revenue from this project and from its expressway project concessions and it aims to increase this percentage to 25% soon.

Thai Tap Water Plc, a CK subsidiary, was set up to manage its tap water producer and provider in Nakhon Pathom. It has acquired a stake in Bangkok Expressway Plc as well as in Bangkok Metro Co and in the South East Asian Co, a power plant operation company.

Four years ago, the group received a concession to operate a power plant in Laos, built to supply power to Thailand. The 32-billion-baht Nam Ngum 2 hydropower plant is expected to operate from 2010 and to generate billions of baht in revenue.

CK has also recently been awarded the concession for another Laos plant, Xayaburi hydropower plant, which is worth 90 billion baht in construction. The 1,260-megawatt Xayaburi should start construction in 2010 and operate from 2018.

The good news for big contractors is that construction material prices are easing.

CK has also been granted the right to conduct a feasibility study for developing Nam Bak and Nam Bak 2 plants in Laos at a cost of US$400 million for a total capacity of 1,080 MW.

"More revenue will be received from those projects. Although they require huge amounts of money for investment they are stable cash cows,'' Mr Plew said.

He said the group was bidding for the Mass Rapid Transport Authority's Purple and Blue rail lines and was waiting for the opening of bidding for the 77-billion-baht expansion of Suvarnabhumi Airport.

Joining with strategic partners is also part of CK's risk management, and it has done this with its megaproject business such as the expressway and underground trains, he said.

CK has been expanding abroad by joining bids for construction projects in countries including Vietnam and India. This is aimed at offsetting shrinking revenue when the domestic construction industry enters its down cycle.

Mr Plew said the long-delayed government megaprojects would definitely start in 2009 since the country's infrastructure had experienced so much disruption to its development for many years.

"Accelerating the state megaprojects will revitalise the economy in the coming year of recession. Unemployment will be reduced since construction requires huge amounts of workers,'' he said.

Despite the estimate by the Federation of Thai Industries (FTI) that almost one million people will lose their jobs in 2009, Mr Plew forecast that around 400,000 graduates would be likely to find work if the government could speed up megaprojects. He said the government should recognise that construction materials will continue to drop in price until 2009, making this a good time to invest in infrastructure.

"I think construction material prices will not rise as the global economic crisis continues or worsens,'' he said.

"Don't be too pessimistic, construction firms may gain huge revenues from the state projects, and that would cure the country's economic ills.''