Let's hear it for free, fair competition, not monopolies

Let's hear it for free, fair competition, not monopolies

A PTT gasoline station in Bangkok. The state-owned conglomerate's acquisition of Glow, an electricity producer, brings into question the effect of checks and balances.  Bangkok Post photo
A PTT gasoline station in Bangkok. The state-owned conglomerate's acquisition of Glow, an electricity producer, brings into question the effect of checks and balances.  Bangkok Post photo

In June 2018 PTT Plc -- Thailand's state-owned oil and gas conglomerate -- announced the acquisition of more than a billion shares or 69.1% in the energy and utility company, Glow. The deal will cost PTT more than 100 billion baht, with more than half that amount coming from taxpayers' money. For the record, I am vehemently opposed to this deal; the following are my reasons why.

First, we need to stand up for the interest of the public. We must not be intimidated or awed by big conglomerates or large state enterprises and must ensure that there are sufficient checks and balances to ensure that the public interest is always protected.

In many ways, surprise at my objection reflects how we have become too used to the creeping influence of large corporations and state-owned monopolies in our economy.

We all complain about the small guys being squeezed, and of the ever increasing income inequality in our society. Yet very little that is tangible is done. Examples of inequality exists in almost every facet of our lives. In education, access and drop-out rates remain much more problematic in the Northeast. While in the field of health care, there are eight times as many doctors per population in Bangkok than in the poorer provinces around the country.

In the meantime, attempts to push through the property and land tax continues to flounder, and the collection of the recently introduced inheritance tax continues to be pitiful.

In business, the environment is no better. Over the past 20 years, the list of most valuable companies on our national stock exchange has remained almost entirely static. During the same period wholesale changes in corporate leadership has been seen in more vibrant economies.

What should be noted is that the Thai economy is increasingly dominated by state-owned, state concessionaires or state protected companies. Privately owned large corporations invariably have excellent government connections. Indeed, this government has even created a special seat at the table for them called "Pracharat" so that they can have direct input on government policy.

The situation is so bad that some actually welcome state-owned enterprises to squeeze out small business operators "because it's better than waiting for private tycoons to do so". This rationale is tragic, defeatist and dangerous.

Free and fair competition is one of the most important conditions to a vibrant and equitable society. That is why we must fight for it.

So when I saw the news of a PTT subsidiary taking over Glow, the electricity producer, alarm bells rang.

Second, the Glow acquisition will deal a big blow to the rule of law and further distort market mechanism.

PTT is a listed company but it also remains a state enterprise, with de facto monopoly rights in the selling of gas. This means that every gas-fired power station in Thailand buys gas from PTT. The obvious potential conflict of interest in PTT moving into electric generation cannot be ignored.

Moreover, I was advised by a group of petrochemical businesses in Map Ta Phut that they have submitted a letter of complaint to the energy regulator (whose duty it is to ensure fair and equitable competition). The gist of their complaint is that through the acquisition of Glow, PTT would have monopoly control of electricity and steam that supplies the petrochemical industry in the area. And given that PTT is itself a petrochemical player, this monopoly could be abused to the disadvantage of the rest of the industry.

One can assume that these concerns are serious, given that in the Thai context it is highly unusual for firms to stand-up to powerful organisations like PTT.

It is also important to point out that successive constitutions have explicitly banned the state from competing against the private sector. In the current constitution, it is in Section 75, the exception being in the case of "need" to ensure national security or the provision of necessary infrastructure.

In the case of Glow, PTT is buying an existing plant at a time when we have a surplus of production capacity of electricity in our system. And, of course, we should not forget that we already have Egat as a state enterprise entrusted with the responsibility of ensuring security of supply of electricity.

Indeed, Egat has for more than two decades been rightly allowing private capital to build power plants to the extent that Egat's market share is now less than 50%. It is ironic therefore that another state enterprise would in effect be "re-nationalising" Glow.

Furthermore, whilst we should be happy that foreigners investing into Thailand can take home substantial profits from their investments, it is nevertheless a pity that more than half of that should be paid with taxpayers' money. I would have hoped that this money was instead put to use in someway that was beneficial to the Thai people.

Third, the insensitive expansion of PTT's other business ventures eg. Amazon coffee, raises questions about the fairness of state-owned enterprises directly competing in the same market as SME's and "mom and pop" operations.

We have also raised questions regarding the appropriateness of PTT's strategy to expand their successful Amazon coffee franchise beyond their petrol stations. The reality is that setting up coffee stalls and independent coffee shops has in recent years become a popular and widespread occupation for small scale entrepreneurs. The arrival of a large scale, financially strong competitor has had a similar effect that the modern convenient stores have had on mom and pop shops around the country. That the protagonist should be the State itself is both unfair and disappointing, especially considering that most of Thailand's firms are classed as being small or medium-sized enterprises (SMEs) and account for more than 80% of the country's total employment.

We are not advocating that the Amazon shops be shut down, not least because most of the shops are owned by franchisees. However, PTT should acknowledge that their ownership is not only unconstitutional but allows Amazon to compete unfairly. PTT should therefore divest it's ownership in Amazon -- to the management, the franchisees and the general public. Even then it's scale would make it a formidable competitor, but at least other private operators would not be having to compete with the state. Existing branches in PTT stations can sign lease agreements, but PTT must also allow other brands to do the same (there are today other brands selling coffee in PTT stations, but with restriction on the way they run their business which makes them less competitive against PTT owned Amazon).

It's time we are serious with the issue of fair competition. In my capacity of chair of the policy unit of the Democrat Party, I am filing a complaint to the prime minister and the minister of energy. I am also filing with the ombudsman on issues related to the law. I am asked if I am hopeful of a positive result. I say I am. However, I am also realistic enough to acknowledge that in Thailand today, the the State sector, and the large corporations are all powerful. To this end, I hope you will all add your voice of concern so that we can be heard.

Korn Chatikavanij was finance minister of Thailand from 2008 to 2011 and is the chair of the policy unit of the Democrat Party.

Korn Chatikavanij

Reporter


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