Private concerns
The energy sector in Thailand has long been dominated by two state
monopolies, PTT and EGAT and their subsidiary/ affiliated
companies.
The target date for the major step of corporatization of PTT (conversion from statutory corporation owned by the State to public limited company initially 100% owned by the MoF) is 1 October 2001. There is no plan to corporatize EGAT as a whole. EGAT will remain a state enterprise as a buyer and supplier of power with transmission and hydropower assets; however, other business units and generating assets will be corporatized.
The purpose of this paper is to briefly describe progress towards liberalization which has been made, some details of the proposed corporatization of PTT and liberalization of the energy sector, and some of the issues these developments pose for both existing and future projects. In particular, the paper addresses some of the issues of concern to private sector companies with GSA's with PTT and PPA's with EGAT.
Regulatory Setting
NEPO is the government authority charged with the supervision of all state enterprises involved in energy matters. NEPO is responsible for developing policy guidelines and regulations to govern the private electric power sector.
There are four state enterprises which play key roles in the development of the power industry.
? PTT, the state enterprise responsible for oil and gas, was established in 1978 under the Petroleum Authority of Thailand Act, B.E. 2521 (1978). PTT sponsored the first pipeline to bring offshore gas onshore, owns all of the present natural gas processing and pipeline network, and is the exclusive purchaser of natural gas. PTT is the exclusive gas supplier to gas-fired SPP's, IPP's, REGCO, KEGCO and RGCO.
? EGAT, the state enterprise which is the primary electricity generator, was established by the Electricity Generating Authority of Thailand Act (1967) and until about ten years ago had a monopoly on electricity generation in Thailand. EGAT is the exclusive power purchaser from IPP's, REGCO, KEGCO and RGCO and the government power purchaser from SPP's.
? MEA and PEA are the state enterprises responsible for electricity distribution.
Privatization Policies in the Energy Sector
The current sources of information about the government's privatization policies for EGAT and PTT derive from the following:
RTG Privatization Master Plan
On 1 September 1998, the Cabinet approved a privatization master plan, which systematically deals with policies to develop and implement structural reform or privatization of 59 state enterprises. The energy sector is one of the five major sectors to be addressed by the master plan.
The master plan recognized the need to create or improve the legal basis for independent regulatory bodies in each of the critical infrastructure sectors, including energy.
NEPO Privatization Master Plan: Energy Sector Report
NEPO updated its Energy Sector Report on 2 September 1998 and 29 March 1999. This report describes the future structure of the Electricity Supply Industry (ESI) as follows:
?The future structure will follow the competitive model being implemented in many countries around the world. This competitive model provides for competitive generation companies (GENCOs), which both compete into a power pool as well as have individual bilateral contracts with major customers.
?An independent system operator (ISO) provides for the competitive power market. It is important that the ISO owns no generation, so that it functions as an independent referee over the competitive generation process. With the ISO having no asset ownership, potential and perceived conflicts of interest are avoided. The transmission company is owned and maintained by a company separate from the ISO. The transmission company is regulated by the national regulator because it is a natural monopoly, and regulation will ensure open access as well as a reasonable tariff.
?The distribution companies (DISCOs) will have geographical responsibility for distributing power within sections of Thailand. Since, under this model, distribution acts as a natural monopoly, the regulation of access and tariff levels will be set by the national regulator. The retail supply function can be achieved by DISCOs or by independent supply companies.?
The latest Electricity Supply Industry (ESI) Reform Plan was approved by the Cabinet on 25 July 2000 and 30 October 2000 and published by NEPO in November 2000.
The NEPO Energy Sector Report Redraft also outlined proposed reforms in the Gas Supply Industry. NEPO proposed a market structure for gas supply which includes separation of transmission and trading, third party access, common pipeline tariffs, an independent regulator, competition in trading and competitive tendering for construction and ownership of new transmission and distribution pipelines.
Corporatization Legislation
The Capital of State Enterprise Act, B.E. 2542 (often referred to as the ?Corporatization Act?) was published on December 16, 1999, after the Constitutional Court confirmed its constitutionality.
The Act is an enabling act which provides a regulatory framework for the conversion of state enterprises to either private limited companies or public limited companies, which will initially be 100% owned by the MOF. It sets forth a process, but it does not prescribe which state enterprises will be privatized nor any timetables. It would establish a State Enterprise Capital Policy Committee which would conduct studies and propose to the Cabinet for approval the principles and guidelines to corporatize part or all of specific state enterprises. For each such state enterprise, a second committee, the Company Establishment Preparation Committee, would be established to work out the details of the corporatization and to draft a royal decree to deal with issues requiring legislative solutions. Cabinet approval is required before any state enterprise is corporatized.
The Act does not include any amendment of the PTT Act nor the EGAT Act, both of which remain in full force and effect.
The State Enterprise Capital Policy Committee was appointed on 26 February 2001.
On 24 July 2001, the Cabinet approved a bill to establish the State Investment Corporation (?SIC?). Under the bill, shares in corporatized state enterprises will be transferred to SIC instead of MOF.
Gas Sector Liberalization
PTT is a state enterprise in the form of a statutory corporation without shares owned by the State, under the administration of the Ministry of Industry. Its property is exempt from execution. It possesses statutory powers to survey and use land for pipeline rights of way, and the right to acquire land for refineries, gas separation plants and other facilities by expropriation. Section 42 provides an assurance that in the event of a shortfall in revenues, the State will appropriate funds to meet the shortfall.
PTT is an integrated oil and gas company with a dominant position in the energy industry (except electricity generation)
? PTT Gas: monopoly over natural gas supply, transmission and distribution, with over 2,600 km of pipeline, and 4 gas separation plants. PTT is buyer under 9 GSAs.
? PTT Oil: largest oil retailer, with over 1,500 gas stations, 2 marine terminals, 20 depots, 15 aviation depots, etc.
? Petrochemical: NPC, TOC, ATC, NFC, TPX.
? Refinery: RRC, SPRC, ThaiOil, Bangkok.
? Production: PTTEP.
Major objectives of gas industry reform include:
? Separation of transmission business, and supply & marketing business.
? Introduction of third party access on the transmission pipeline infrastructure.
? Establishment of an independent regulatory agency under the proposed Energy Industry Bill.
? Private investment to be allowed in new pipeline projects.
On 11 July 2001, the State Enterprise Capital Policy Committee approved the plan for the corporatization of PTT by setting up PTT Pcl. The Company Establishment Preparation Committee for PTT was established on 2 August 2001.
On 8 September 2001, a public hearing was held to discuss issues arising out of the proposed corporatization and privatization of PTT. A draft of the royal decree was distributed, which provides that PTT Pcl will have powers, rights and benefits similar to those of PTT. Its property acquired by expropriation or comprising pipeline rights-of-way shall be exempt from execution. It will have statutory powers to survey and use land for pipeline rights of way, and to expropriate land. The decree prescribes penalties to protect the company's pipelines and rights of way. Finally, the decree provides that none of the restrictive policies or rules governing state enterprises shall apply to the operation of the business of the new company. The special powers of the company shall terminate if less than a majority of shares are held by the State or a new law is enacted governing the business of the company. The draft decree does not provide for any assurance of State funds to cover expenses.
The government currently intends to effect the corporatization of PTT on 1 October 2001, at which time PTT Pcl will become the counterparty to all existing GPAs and GSAs. An IPO will be conducted to allow the Thai public to subscribe for up to 35% of the shares of PTT Pcl. See Chart 1 for an unofficial prediction of ownership relationships.
At the time of writing, there remain a number of subjects which have not been clarified. The extent to which the State may still guarantee future indebtedness of PTT is not known. The timing to enact the proposed Energy Industry Bill and the powers of the new independent industry regulator are not known. The rules governing third party access to the gas transmission pipeline system have not been announced.
Power Sector Liberalization
EGAT is a state enterprise in the form of a statutory corporation without shares owned by the State, under the administration of the Prime Minister's Office. Its property is exempt from execution. It possesses statutory powers to survey and use land for transmission line rights of way, and the right to acquire land for electricity generation plants by expropriation. Section 45 provides an assurance that in the event of the shortfall in revenues, the State will appropriate funds to meet the shortfall.
A ?de facto privatization? policy has been at work in the power sector for almost ten years. In the 1980's, small inroads were made into EGAT's monopoly by the petrochemical industry, which was allowed to build power plants for standby power and steam. The EGAT Act was amended in 1992 to allow some forms of privatization by way of establishing limited companies and entering into joint ventures with private power companies.
? EGCO: In 1994, EGAT established a subsidiary EGCO which formed a 100% owned subsidiary, REGCO. EGCO converted to a public limited company and made a public offering reducing EGAT's shareholding to 49%. REGCO purchased the Rayong Power Plant from EGAT. This was the first major step in the privatization of EGAT. EGCO established a second subsidiary, KEGCO, which purchased the Khanom Power Plant in 1996.
? RGCO: In 2000, EGAT established a subsidiary RGCO Holdings which formed a 100% owned subsidiary RGCO. RGCO Holdings converted to a public limited company and made a public offering reducing EGAT's Shareholding to 45%. RGCO purchased the Ratchaburi Power Plant from EGAT in 2000.
? SPP Program: In 1992, Regulations for the Purchase of Power from Small Power Producers were published by EGAT to promote the construction of small power plants to provide power and steam to private industry. EGAT was authorized to purchase excess power from SPP projects. These regulations were amended in 1994 to increase the capacity which EGAT could purchase up to 60 MW (or 90 MW) per SPP project. EGAT has signed power purchase agreements for 1 to 90 MW's with 61 SPP projects (as of 20 July 2001). 45 SPP's are in operation.
? IPP Program: In November 1994, EGAT published a request for proposals for power purchases from IPP's, together with a model PPA and a Grid Code, with a tender deadline of June 30, 1995. PPA's have been signed with seven IPP's for a total of 5,944 MW. Four of the IPP's have achieved financial close, and two IPP's commenced operations in 2000. The Grid Code was intended to provide a mechanism to regulate the purchases by EGAT of electricity generated by both EGAT and independent producers, and will apply to both IPP projects in Thailand and hydro-power plants in Laos.
? EGAT Privatization: EGAT published a Revised EGAT Power Development Plan (1999 ? 2011) as approved by EGAT's Board in May 2000. Chapter 9 (Corporatization/ Privatization of EGAT) sets forth a step-by-step summary of the evolution of EGAT's privatization strategy. EGAT has an updated 2001 Privatization Plan under review, expected to be approved in October 2001.
EGAT adopted a three-stage plan to achieve the new ESI structure.
Stage I (Year 2000-2001) Commercialize EGAT and Privatize Ratchaburi Combined Cycle Plant (CC) 1-3 and Ratchaburi Thermal Plant (TH) 1-2
? Restructure EGAT into 5 autonomous business units comprising of business units of thermal generation, other business units (maintenance, engineer, construction, and fuel procurement), hydro and transmission with system operator (SO), power purchaser and wholesaler, and corporate support function.
? Prepare the readiness of EGAT, as a state-owned enterprise, by transforming its process and developing employees to work in the new environment with respect to the power pool conditions.
? Establish pool rules and regulatory controls to ensure non-discriminatory treatment to all players in the electricity market. [not completed]
? Corporatize Ratchaburi CC 1-3 and Ratchaburi TH 1-2 as an EGAT subsidiary and reduce EGAT's shareholding in these power plants to appropriately 45%.
Stage I has largely been achieved.
Stage II (Year 2002-2003) Corporatize EGAT Thermal Generation
? Establish EGAT Thermal Generation Company as a subsidiary of EGAT and separate the grid business and power pool function, including system operator, market operator, and settlement administration (EO/MO/SA), within EGAT. At this stage, EGAT is a single buyer and a central supplier of power, with gradual introduction of wheeling system.
? Certain business units will be corporatized. Non-power business units prepare their readiness to be established as EGAT subsidiary companies in order to support all EGAT thermal-generating plants. The support businesses will include:
(1) A maintenance company to carry out maintenance work.
(2) An engineering and construction management company to be responsible for engineering work and construction management.
(3) A fuel supply company to be responsible for fuel procurement for all EGAT generating plants.
? By 2003, EGAT Thermal Generation Business becomes an EGAT subsidiary, a holding company ready for offering shares in the SET. The Power Pool function including SO/MO/SA is to be set up within EGAT. EGAT Transmission System will become a single buyer and will be a central power supplier with the introduction of wheeling system. The DebtCo and PPA Traders will be introduced within EGAT in order to support new function of the power pool model.
Stage III (Year 2004 onwards) Privatize EGAT: Reduce EGAT ThermalGen Company shareholding to less than 50% and commence competitive wholesale power pool
EGAT will be responsible for operation of transmission, hydropower, and power pool, and to establish comprehensive pool rules for the electricity market; and further privatize generation facilities and other subsidiaries.
At this stage, the DebtCo and PPA Trader established within EGAT, become operational with a view that the PPA trader will be eventually separated from EGAT. Hydro and Grid business will remain in EGAT.
Risk Management Issues 2001/2002
Sponsors and lenders will need to address many of the above developments in considering investments and project financings in the energy sector in Thailand during 2001/2002. They have commercial, legal and political risk dimensions.
The process of privatization of EGAT, PTT and other government counterparties to major project documents will need to be monitored. It is not possible to predict with certainty the speed of the process or the final results. Major sources of information include NEPO, MOF, EGAT and PTT. The continuing involvement of the IMF, World Bank and recognized international consultants will bring transparency and professionalism to the process.
The decision not to corporatize EGAT as a whole has avoided or postponed having to deal with the following issues:
? Criminalization of unlicensed activities.
? Powers of access and expropriation for plant sites and rights-of-way.
? Access to State funding by EGAT after privatization.
? Restrictions under contractual provisions in existing PPA's.
? Obligations of EGAT to the World Bank.
? Covenants of EGAT in international loans to EGAT.
These powers and obligations will remain with EGAT. On the other hand, counterparties may wish to reexamine the credit rating of EGAT after the stripping of certain generating assets. It is uncertain how renegotiation of PPAs to accommodate the Power Pool will proceed.
The decision to corporatize PTT, on the other hand, requires solutions to similar issues, some of which are addressed in the draft Royal Decree. Private sector companies with GSAs will find themselves dealing with a counterparty with no assurance of government funding to meet its obligations. Certain security arrangements with lenders to IPPs, SPPs and petrochemical projects may need to be amended.
In order to achieve the objectives of the ESI report and Power Pool established, NEPO has undertaken to prepare detailed implementation plans.
NEPO has listed the following key elements of the implementation plans:
1. Development of the Market Rules to govern the operation of the wholesale trading of electricity and maintaining system security.
2. Enactment of the draft Energy Industry bill, which will include establishment of the independent regulator.
3. Drafting secondary legislation under the draft Energy Industry bill
4. Evaluation of alternatives to deal with stranded cost management.
5. Drafting the Grid Code and Distribution Code.
6. Continued corporatization of EGAT commercial business units.
7. Corporatization and privatization of MEA and PEA.
8. Power pool establishment.
Based on recent news reports, Power Pool operation will not commence in 2003 as previously anticipated.
Acronyms
EGAT Electricity Generating Authority of Thailand
EGCO Electricity Generating Pcl
KEGCO Khanom Electricity Generating Pcl
MEA Metropolitan Electricity Authority
MoF Ministry of Finance
NEPO National Energy Policy Office
NESOB National Economic and Social Development Board
PEA Provincial Electricity Authority
PTT Petroleum Authority of Thailand
RGCO Holdings Ratchaburi Electricity Generating Holdings Pcl
REGCO Rayong Electricity Generating Pcl
RTG Royal Thai Government
Websites
EGAT www.egat.go.th
MoF www.mof.go.th
NEPO www.nepo.go.th
PTT www.ptt.or.th
References
1. Dr. Piyasuasdi Amranand, ?Challenges and Plans for Restructuring and Liberalizing the Thai Power Sector?, July 2001.
2. Dr. Prajya Phinyawat, ?PTT's Major Developments of Privatization and Restructuring Plans?, July 2001.
3. M.L. Chanaphun Kridakorn, ?EGAT's Privatization Process Update and Current Developments?, July 2001.
4. NEPO, ?Electricity Supply Industry Reform and Thailand Power Pool?, November 2000.
5. Revised EGAT Power Development Plan (1999-2011) General Information, May 2000.
The target date for the major step of corporatization of PTT (conversion from statutory corporation owned by the State to public limited company initially 100% owned by the MoF) is 1 October 2001. There is no plan to corporatize EGAT as a whole. EGAT will remain a state enterprise as a buyer and supplier of power with transmission and hydropower assets; however, other business units and generating assets will be corporatized.
The purpose of this paper is to briefly describe progress towards liberalization which has been made, some details of the proposed corporatization of PTT and liberalization of the energy sector, and some of the issues these developments pose for both existing and future projects. In particular, the paper addresses some of the issues of concern to private sector companies with GSA's with PTT and PPA's with EGAT.
Regulatory Setting
NEPO is the government authority charged with the supervision of all state enterprises involved in energy matters. NEPO is responsible for developing policy guidelines and regulations to govern the private electric power sector.
There are four state enterprises which play key roles in the development of the power industry.
? PTT, the state enterprise responsible for oil and gas, was established in 1978 under the Petroleum Authority of Thailand Act, B.E. 2521 (1978). PTT sponsored the first pipeline to bring offshore gas onshore, owns all of the present natural gas processing and pipeline network, and is the exclusive purchaser of natural gas. PTT is the exclusive gas supplier to gas-fired SPP's, IPP's, REGCO, KEGCO and RGCO.
? EGAT, the state enterprise which is the primary electricity generator, was established by the Electricity Generating Authority of Thailand Act (1967) and until about ten years ago had a monopoly on electricity generation in Thailand. EGAT is the exclusive power purchaser from IPP's, REGCO, KEGCO and RGCO and the government power purchaser from SPP's.
? MEA and PEA are the state enterprises responsible for electricity distribution.
Privatization Policies in the Energy Sector
The current sources of information about the government's privatization policies for EGAT and PTT derive from the following:
RTG Privatization Master Plan
On 1 September 1998, the Cabinet approved a privatization master plan, which systematically deals with policies to develop and implement structural reform or privatization of 59 state enterprises. The energy sector is one of the five major sectors to be addressed by the master plan.
The master plan recognized the need to create or improve the legal basis for independent regulatory bodies in each of the critical infrastructure sectors, including energy.
NEPO Privatization Master Plan: Energy Sector Report
NEPO updated its Energy Sector Report on 2 September 1998 and 29 March 1999. This report describes the future structure of the Electricity Supply Industry (ESI) as follows:
?The future structure will follow the competitive model being implemented in many countries around the world. This competitive model provides for competitive generation companies (GENCOs), which both compete into a power pool as well as have individual bilateral contracts with major customers.
?An independent system operator (ISO) provides for the competitive power market. It is important that the ISO owns no generation, so that it functions as an independent referee over the competitive generation process. With the ISO having no asset ownership, potential and perceived conflicts of interest are avoided. The transmission company is owned and maintained by a company separate from the ISO. The transmission company is regulated by the national regulator because it is a natural monopoly, and regulation will ensure open access as well as a reasonable tariff.
?The distribution companies (DISCOs) will have geographical responsibility for distributing power within sections of Thailand. Since, under this model, distribution acts as a natural monopoly, the regulation of access and tariff levels will be set by the national regulator. The retail supply function can be achieved by DISCOs or by independent supply companies.?
The latest Electricity Supply Industry (ESI) Reform Plan was approved by the Cabinet on 25 July 2000 and 30 October 2000 and published by NEPO in November 2000.
The NEPO Energy Sector Report Redraft also outlined proposed reforms in the Gas Supply Industry. NEPO proposed a market structure for gas supply which includes separation of transmission and trading, third party access, common pipeline tariffs, an independent regulator, competition in trading and competitive tendering for construction and ownership of new transmission and distribution pipelines.
Corporatization Legislation
The Capital of State Enterprise Act, B.E. 2542 (often referred to as the ?Corporatization Act?) was published on December 16, 1999, after the Constitutional Court confirmed its constitutionality.
The Act is an enabling act which provides a regulatory framework for the conversion of state enterprises to either private limited companies or public limited companies, which will initially be 100% owned by the MOF. It sets forth a process, but it does not prescribe which state enterprises will be privatized nor any timetables. It would establish a State Enterprise Capital Policy Committee which would conduct studies and propose to the Cabinet for approval the principles and guidelines to corporatize part or all of specific state enterprises. For each such state enterprise, a second committee, the Company Establishment Preparation Committee, would be established to work out the details of the corporatization and to draft a royal decree to deal with issues requiring legislative solutions. Cabinet approval is required before any state enterprise is corporatized.
The Act does not include any amendment of the PTT Act nor the EGAT Act, both of which remain in full force and effect.
The State Enterprise Capital Policy Committee was appointed on 26 February 2001.
On 24 July 2001, the Cabinet approved a bill to establish the State Investment Corporation (?SIC?). Under the bill, shares in corporatized state enterprises will be transferred to SIC instead of MOF.
Gas Sector Liberalization
PTT is a state enterprise in the form of a statutory corporation without shares owned by the State, under the administration of the Ministry of Industry. Its property is exempt from execution. It possesses statutory powers to survey and use land for pipeline rights of way, and the right to acquire land for refineries, gas separation plants and other facilities by expropriation. Section 42 provides an assurance that in the event of a shortfall in revenues, the State will appropriate funds to meet the shortfall.
PTT is an integrated oil and gas company with a dominant position in the energy industry (except electricity generation)
? PTT Gas: monopoly over natural gas supply, transmission and distribution, with over 2,600 km of pipeline, and 4 gas separation plants. PTT is buyer under 9 GSAs.
? PTT Oil: largest oil retailer, with over 1,500 gas stations, 2 marine terminals, 20 depots, 15 aviation depots, etc.
? Petrochemical: NPC, TOC, ATC, NFC, TPX.
? Refinery: RRC, SPRC, ThaiOil, Bangkok.
? Production: PTTEP.
Major objectives of gas industry reform include:
? Separation of transmission business, and supply & marketing business.
? Introduction of third party access on the transmission pipeline infrastructure.
? Establishment of an independent regulatory agency under the proposed Energy Industry Bill.
? Private investment to be allowed in new pipeline projects.
On 11 July 2001, the State Enterprise Capital Policy Committee approved the plan for the corporatization of PTT by setting up PTT Pcl. The Company Establishment Preparation Committee for PTT was established on 2 August 2001.
On 8 September 2001, a public hearing was held to discuss issues arising out of the proposed corporatization and privatization of PTT. A draft of the royal decree was distributed, which provides that PTT Pcl will have powers, rights and benefits similar to those of PTT. Its property acquired by expropriation or comprising pipeline rights-of-way shall be exempt from execution. It will have statutory powers to survey and use land for pipeline rights of way, and to expropriate land. The decree prescribes penalties to protect the company's pipelines and rights of way. Finally, the decree provides that none of the restrictive policies or rules governing state enterprises shall apply to the operation of the business of the new company. The special powers of the company shall terminate if less than a majority of shares are held by the State or a new law is enacted governing the business of the company. The draft decree does not provide for any assurance of State funds to cover expenses.
The government currently intends to effect the corporatization of PTT on 1 October 2001, at which time PTT Pcl will become the counterparty to all existing GPAs and GSAs. An IPO will be conducted to allow the Thai public to subscribe for up to 35% of the shares of PTT Pcl. See Chart 1 for an unofficial prediction of ownership relationships.
At the time of writing, there remain a number of subjects which have not been clarified. The extent to which the State may still guarantee future indebtedness of PTT is not known. The timing to enact the proposed Energy Industry Bill and the powers of the new independent industry regulator are not known. The rules governing third party access to the gas transmission pipeline system have not been announced.
Power Sector Liberalization
EGAT is a state enterprise in the form of a statutory corporation without shares owned by the State, under the administration of the Prime Minister's Office. Its property is exempt from execution. It possesses statutory powers to survey and use land for transmission line rights of way, and the right to acquire land for electricity generation plants by expropriation. Section 45 provides an assurance that in the event of the shortfall in revenues, the State will appropriate funds to meet the shortfall.
A ?de facto privatization? policy has been at work in the power sector for almost ten years. In the 1980's, small inroads were made into EGAT's monopoly by the petrochemical industry, which was allowed to build power plants for standby power and steam. The EGAT Act was amended in 1992 to allow some forms of privatization by way of establishing limited companies and entering into joint ventures with private power companies.
? EGCO: In 1994, EGAT established a subsidiary EGCO which formed a 100% owned subsidiary, REGCO. EGCO converted to a public limited company and made a public offering reducing EGAT's shareholding to 49%. REGCO purchased the Rayong Power Plant from EGAT. This was the first major step in the privatization of EGAT. EGCO established a second subsidiary, KEGCO, which purchased the Khanom Power Plant in 1996.
? RGCO: In 2000, EGAT established a subsidiary RGCO Holdings which formed a 100% owned subsidiary RGCO. RGCO Holdings converted to a public limited company and made a public offering reducing EGAT's Shareholding to 45%. RGCO purchased the Ratchaburi Power Plant from EGAT in 2000.
? SPP Program: In 1992, Regulations for the Purchase of Power from Small Power Producers were published by EGAT to promote the construction of small power plants to provide power and steam to private industry. EGAT was authorized to purchase excess power from SPP projects. These regulations were amended in 1994 to increase the capacity which EGAT could purchase up to 60 MW (or 90 MW) per SPP project. EGAT has signed power purchase agreements for 1 to 90 MW's with 61 SPP projects (as of 20 July 2001). 45 SPP's are in operation.
? IPP Program: In November 1994, EGAT published a request for proposals for power purchases from IPP's, together with a model PPA and a Grid Code, with a tender deadline of June 30, 1995. PPA's have been signed with seven IPP's for a total of 5,944 MW. Four of the IPP's have achieved financial close, and two IPP's commenced operations in 2000. The Grid Code was intended to provide a mechanism to regulate the purchases by EGAT of electricity generated by both EGAT and independent producers, and will apply to both IPP projects in Thailand and hydro-power plants in Laos.
? EGAT Privatization: EGAT published a Revised EGAT Power Development Plan (1999 ? 2011) as approved by EGAT's Board in May 2000. Chapter 9 (Corporatization/ Privatization of EGAT) sets forth a step-by-step summary of the evolution of EGAT's privatization strategy. EGAT has an updated 2001 Privatization Plan under review, expected to be approved in October 2001.
EGAT adopted a three-stage plan to achieve the new ESI structure.
Stage I (Year 2000-2001) Commercialize EGAT and Privatize Ratchaburi Combined Cycle Plant (CC) 1-3 and Ratchaburi Thermal Plant (TH) 1-2
? Restructure EGAT into 5 autonomous business units comprising of business units of thermal generation, other business units (maintenance, engineer, construction, and fuel procurement), hydro and transmission with system operator (SO), power purchaser and wholesaler, and corporate support function.
? Prepare the readiness of EGAT, as a state-owned enterprise, by transforming its process and developing employees to work in the new environment with respect to the power pool conditions.
? Establish pool rules and regulatory controls to ensure non-discriminatory treatment to all players in the electricity market. [not completed]
? Corporatize Ratchaburi CC 1-3 and Ratchaburi TH 1-2 as an EGAT subsidiary and reduce EGAT's shareholding in these power plants to appropriately 45%.
Stage I has largely been achieved.
Stage II (Year 2002-2003) Corporatize EGAT Thermal Generation
? Establish EGAT Thermal Generation Company as a subsidiary of EGAT and separate the grid business and power pool function, including system operator, market operator, and settlement administration (EO/MO/SA), within EGAT. At this stage, EGAT is a single buyer and a central supplier of power, with gradual introduction of wheeling system.
? Certain business units will be corporatized. Non-power business units prepare their readiness to be established as EGAT subsidiary companies in order to support all EGAT thermal-generating plants. The support businesses will include:
(1) A maintenance company to carry out maintenance work.
(2) An engineering and construction management company to be responsible for engineering work and construction management.
(3) A fuel supply company to be responsible for fuel procurement for all EGAT generating plants.
? By 2003, EGAT Thermal Generation Business becomes an EGAT subsidiary, a holding company ready for offering shares in the SET. The Power Pool function including SO/MO/SA is to be set up within EGAT. EGAT Transmission System will become a single buyer and will be a central power supplier with the introduction of wheeling system. The DebtCo and PPA Traders will be introduced within EGAT in order to support new function of the power pool model.
Stage III (Year 2004 onwards) Privatize EGAT: Reduce EGAT ThermalGen Company shareholding to less than 50% and commence competitive wholesale power pool
EGAT will be responsible for operation of transmission, hydropower, and power pool, and to establish comprehensive pool rules for the electricity market; and further privatize generation facilities and other subsidiaries.
At this stage, the DebtCo and PPA Trader established within EGAT, become operational with a view that the PPA trader will be eventually separated from EGAT. Hydro and Grid business will remain in EGAT.
Risk Management Issues 2001/2002
Sponsors and lenders will need to address many of the above developments in considering investments and project financings in the energy sector in Thailand during 2001/2002. They have commercial, legal and political risk dimensions.
The process of privatization of EGAT, PTT and other government counterparties to major project documents will need to be monitored. It is not possible to predict with certainty the speed of the process or the final results. Major sources of information include NEPO, MOF, EGAT and PTT. The continuing involvement of the IMF, World Bank and recognized international consultants will bring transparency and professionalism to the process.
The decision not to corporatize EGAT as a whole has avoided or postponed having to deal with the following issues:
? Criminalization of unlicensed activities.
? Powers of access and expropriation for plant sites and rights-of-way.
? Access to State funding by EGAT after privatization.
? Restrictions under contractual provisions in existing PPA's.
? Obligations of EGAT to the World Bank.
? Covenants of EGAT in international loans to EGAT.
These powers and obligations will remain with EGAT. On the other hand, counterparties may wish to reexamine the credit rating of EGAT after the stripping of certain generating assets. It is uncertain how renegotiation of PPAs to accommodate the Power Pool will proceed.
The decision to corporatize PTT, on the other hand, requires solutions to similar issues, some of which are addressed in the draft Royal Decree. Private sector companies with GSAs will find themselves dealing with a counterparty with no assurance of government funding to meet its obligations. Certain security arrangements with lenders to IPPs, SPPs and petrochemical projects may need to be amended.
In order to achieve the objectives of the ESI report and Power Pool established, NEPO has undertaken to prepare detailed implementation plans.
NEPO has listed the following key elements of the implementation plans:
1. Development of the Market Rules to govern the operation of the wholesale trading of electricity and maintaining system security.
2. Enactment of the draft Energy Industry bill, which will include establishment of the independent regulator.
3. Drafting secondary legislation under the draft Energy Industry bill
4. Evaluation of alternatives to deal with stranded cost management.
5. Drafting the Grid Code and Distribution Code.
6. Continued corporatization of EGAT commercial business units.
7. Corporatization and privatization of MEA and PEA.
8. Power pool establishment.
Based on recent news reports, Power Pool operation will not commence in 2003 as previously anticipated.
Acronyms
EGAT Electricity Generating Authority of Thailand
EGCO Electricity Generating Pcl
KEGCO Khanom Electricity Generating Pcl
MEA Metropolitan Electricity Authority
MoF Ministry of Finance
NEPO National Energy Policy Office
NESOB National Economic and Social Development Board
PEA Provincial Electricity Authority
PTT Petroleum Authority of Thailand
RGCO Holdings Ratchaburi Electricity Generating Holdings Pcl
REGCO Rayong Electricity Generating Pcl
RTG Royal Thai Government
Websites
EGAT www.egat.go.th
MoF www.mof.go.th
NEPO www.nepo.go.th
PTT www.ptt.or.th
References
1. Dr. Piyasuasdi Amranand, ?Challenges and Plans for Restructuring and Liberalizing the Thai Power Sector?, July 2001.
2. Dr. Prajya Phinyawat, ?PTT's Major Developments of Privatization and Restructuring Plans?, July 2001.
3. M.L. Chanaphun Kridakorn, ?EGAT's Privatization Process Update and Current Developments?, July 2001.
4. NEPO, ?Electricity Supply Industry Reform and Thailand Power Pool?, November 2000.
5. Revised EGAT Power Development Plan (1999-2011) General Information, May 2000.
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