The forthcoming auction of duty-free concessions at Thailand's major airports is poised to engulf players in a melodrama of twists and turns, with monopoly and transparency as key plot points.
After a series of criticisms and complaints over its single-concession policy, Airports of Thailand Plc (AoT) finally caved to mounting pressure and decided to split the bidding for duty-free shops at Suvarnabhumi and three airports in the provinces into two contracts to end concerns about a monopoly.
The first contract is for Suvarnabhumi and the second is for three provincial airports: Chiang Mai, Phuket and Hat Yai.
Under AoT's criteria to select winners, money gained under the two concessions must not be less than the share of revenue AoT currently receives.
King Power, owner of Britain's Leicester City football club, holds the sole licence for duty-free retail, commercial activity and pickup counters at all of the major airports, but rivals such as Central Group, the Mall Group and South Korea's Hotel Shilla are interested in bidding.
King Power has been the sole duty-free operator at Suvarnabhumi since the airport's opening in 2006, with its licence set to expire in 2020.
"The latest concession split still does not support [duty-free] competition. It still has monopolistic traits," said Deunden Nikomborirak, research director for economic governance at the Thailand Development Research Institute.
Testing the waters
With bidding envelopes for the lucrative concessions sent out on April 1, the duty-free drama is ensuing as a panel considers whether the bidding for duty-free concessions falls under the Public-Private Partnership (PPP) Act. The panel's findings are expected within two weeks.
Chaired by Prime Minister Prayut Chan-o-cha, the panel will also look into whether the auction for non-duty-free commercial operations at Suvarnabhumi, Phuket, Hat Yai and Chiang Mai airports comes under the newly amended PPP Act.
Earlier, the Transport Ministry halted an AoT plan to auction a single concession to run duty-free shops at the four airports after the prime minister raised concerns that the business would be a monopoly.
If the duty-free concessions fall under the PPP Act, every procedure will have to start from scratch again, Ms Deunden said.
"The decision [of bidding for duty-free concessions] rests upon the incumbent government, not solely on AoT's board of directors," she said.
Prapas Kong-ied, director-general of the State Enterprise Policy Office (Sepo), said the terms of reference for duty-free concessions will have to be examined by the panel to assess whether the benefits are appropriate or not.
Deunden: Decision rests with current government
According to Article 7 of the PPP Act, a project considered to offer infrastructure as public utilities must bring itself into the legal process.
Bracket 3 of Article 7 stipulates that airport businesses shall fall under the PPP Act, but the case in point is whether the duty-free business is deemed an ongoing business of airports or not.
Since these are concessions given by the state, the Trade Competition Act of 2017 does not have much influence over the perceived unfair duty-free competition, Ms Deunden said.
In foreign countries, the Customs Department and an agency supervising airport operations have the ultimate responsibility for overseeing duty-free concessions, with the former having greater authority over the latter, she said.
The Finance Ministry owns 70% of AoT shares, according to Stock Exchange of Thailand data. Several Finance Ministry officials have seats on the AoT board. These include finance permanent secretary Prasong Poontaneat, comptroller-general Suttirat Rattanachot and Customs Department director-general Krisada Chinavicharana.
"AoT is testing the waters," Ms Deunden said. "If there had not been a lot of objections over the duty-free concessions, AoT would likely have embarked on the master concession model."
Unfair competition
According to Euromonitor, the average tourist spends just US$47 (around 1,467 baht) on duty-free items in Thailand, compared with $260 in South Korea. As a result, total duty-free sales in Thailand in 2016 were a mere $1.9 billion, compared with $10.1 billion in South Korea.
The main reason behind South Korea's booming duty-free industry, whose growth was 18% in 2017, is the government's promotion of competition in the market, Ms Deunden said.
Twelve duty-free concessions were handed out at Incheon airport, the primary facility serving Seoul. The airport's size is comparable to that of Suvarnabhumi.
King Power’s shop on Rang Nam Road in Bangkok. (Photo by Pornprom Sarttarpai)
"The latest split concessions will turn out to be worse, as a desired outcome should be about five concessions [for each airport], with two for Suvarnabhumi," Ms Deunden said.
Retail operators are also displeased with AoT's latest move, with the crux revolving around unfair competition.
Worawoot Ounjai, president of the Thai Retailers Association (TRA), said he was not quite satisfied with AoT's plan to separate the bidding of duty-free shops at Suvarnabhumi and three airports in the provinces into two contracts.
"As long as AoT allows only one company to operate duty-free shops at Suvarnabhumi airport, it is not really a fair competition," Mr Worawoot said.
He insisted that AoT split the concessions based on product categories, citing how each category of products fetches an unequal profit. For instance, the cosmetics category is normally more profitable than electric appliances.
"The government will be entitled to fewer returns if AoT does not split the concessions based on product categories," he said. "Under AoT's terms of reference, this will make it tough for new players to compete against the existing operator."
Too much weight
According to Mr Worawoot, with information about the bidding process still unclear at large, AoT has given potential bidders just 30 days to make preparations.
Bidders should be given at least 90 days to prepare, he said.
Worawoot: Not quite satisfied with conditions
More importantly, he said AoT has yet to respond adequately to requests for data pertaining to the value of total sales and the nationalities of buyers and types of items they purchase -- disclosures that are considered standard practice at international airports in Hong Kong and South Korea.
"What we're most concerned about in AoT's terms of reference for the bidding is AoT's criteria, which give too much weight to technical merits (80%), with only 20% given to financial returns," Mr Worawoot said. "Participating bidders who offer high returns to the country will be subject to lose. This will lead the country to lose several tens of billions of baht worth of benefits."
The TRA also repeated its call for the embattled AoT to revise its terms of reference to ensure fairness and transparency in the process.
Earlier, the TRA recommended that AoT split the concessions based on product categories and split the operations into three different concessions: one for Suvarnabhumi airport, one for Phuket airport and another for both Chiang Mai and Hat Yai airports.
The association also urged the bidding process to be thoroughly evaluated, with equal weight placed on technical complexity, as well as financial returns.
In addition to coming up with suggestions for the management of duty-free operations, the association called on authorities to clarify whether the bidding process for the concession fell under the recently amended PPP law.
Mr Worawoot urged the next government to pay close attention to the issue, noting that duty-free operations are significant sources of revenue for the country.
The restaurant area at Suvarnabhumi airport. (Photo by Weerawong Wongpreedee)