Capital Projects & Infrastructure in Thailand

Regional Outlook for Public Procurement

      For over three decades, the ASEAN region has thrived and pursued a path of economic development, becoming one of the world’s most attractive regions for FDIs. In order to stimulate economic growth and improve connectivity, both Thailand and ASEAN have promoted the use of public private partnerships as a way to meet demand for quality infrastructure while circumventing the problems that plague conventional procurement; for instance, public infrastructure is capital-intensive and requires governments to bear the risks of life-cycle costs. PPPs offer governments the means to meet the funding gap and mitigate residual risk by leveraging off-balance sheet financing provided by the private sector, while simultaneously encouraging innovation in construction and design.

Figure 1: ASEAN PPP Investments 1990-2018

Private Participation in Infrastructure in ASEAN

      Opportunities for PPI in ASEAN have grown rapidly over the past few decades. The number of PPP projects in developing Asia has risen by a compounded annual growth rate of 11% and, in aggregate, the number of PPPs in developing Asia accounts for half of all PPPs in the World’s emerging and developing economies. PPPs have gained considerable ground in Southeast Asia, predominantly in the larger economies of Indonesia, Malaysia, the Philippines, Thailand and Vietnam. In the period 1990-2018, PPPs in ASEAN exceeded $261 billion, distributed as follows: 1.60% in Cambodia, 25.62% in Indonesia, 6.83% in Lao PDR, 19.79% in Malaysia, 1.51% in Myanmar, 21.72% in the Philippines, 15.94% in Thailand and 6.99% in Vietnam.

Thailand Public-Private Partnership Act

      The Public-Private Partnership Act B.E. 2562 (2019) (PPP Act) came into force on March 11, 2019, governing PPP projects exceeding a value of THB 5 billion, as outlined in Section 8 of the Act, and certain projects that meet prescribed criteria that are valued at less than THB 5 billion.

Figure 2: Thailand’s 12 categories of infrastructure projects and public services

Preparation and Implementation of a Project

      Chapter 4, Part 1 of the PPP Act governs the submission of a Project Proposal to the relevant contracting authority. While formulating a Joint Investment Project (JIP), the project owner must prepare a feasibility study and project analysis report that include all of the details required by Thailand’s Public-Private Partnership Policy Committee. To this end, the project owner must engage a consultant to jointly prepare the report. Subsequently, the JIP proposal is submitted, together with the feasibility study and analysis report, to the responsible ministry or government agency as well as the Committee, for consideration and approval. Once approved, the responsible government entity will submit the JIP proposal to the Cabinet for approval.

      The selection of the Private Party is made by competitive bidding, unless the Cabinet has approved other selection methods, which are outlined in Section 25 and Section 34. An unsolicited proposal can be accepted if both the following conditions occur: (1) the feasibility study and project analysis demonstrate that competitive bidding is not a suitable method for selection of the Private Partner (Section 25) and (2) both the project owner and the Committee agree on not utilizing competitive bidding (Section 34).

Public-Private Partnership Promotion Fund

      A Public-Private Partnership Promotion Fund under the Ministry of Finance was established to support public investment in state undertakings. The purpose of the Fund is to cover retainer fees of consultants. Where the project owner does not have a budget provision specifically reserved to retain consultants, it can submit a fund appropriation request with the PPP Promotion Fund.

Project Finance

      Project finance transactions are non-recourse or limited recourse lines of credit, whereby lenders rely on the future cash-flows of the projects to be built for debt servicing. Generally, legal and financial consultants would prepare the due diligence documents that the mandated lead arranger would review to assess a project’s long-term financial viability. The consultant would also prepare an informative memorandum containing the project’s financial model, which includes information such as the Debt-Service Coverage Ratio (DSCR). Project financing mostly relies on debt, and partially on equity and mezzanine finance.

Table 1: Sources of financing for PPP projects

Equity represents financial resources provided by the project sponsors, which are normally injected into a Special Purpose Vehicle (SPV) in return for an ownership interest. Equity ranges between 10%-30% of the total project capitalization. Hybrid sources of financing—such as mezzanine finance, subordinated loans, convertible bonds and preferred stock—are characterized by an equity-like feature, bridging between equity and debt and ranging between 0%-20% of capitalization. Debt accounts for the largest portion of infrastructure finance, ranging between 60%-90%, and it is provided by a multitude of instruments.

Thailand Expands Activities Subject to the Thai PPP Act

The Thailand Public Private Partnership Act B.E. 2562 (2019) (“PPP Act”) came into force on 11 March 2019, governing PPP projects exceeding a value of THB 5 billion, as well as projects valued at less than THB 5 billion that meet prescribed criteria.

Section 7 of the PPP Act itemizes 12 categories of infrastructure projects and public services that are subject to its requirements, namely: 

?  Roads, highways, special ways and land-transportation;

?  Trains, electric trains and other rail-transportation;

?  Airports and air-transportation;

?  Ports and water-transportation;

?  Water management, irrigation, waterworks and wastewater treatment;

?  Energy works;

?  Telecommunications and general communications;

?  Hospitals and public health;

?  Schools and education;

?  Housing and facilities for low or medium wage earners, the elderly, the underprivileged, or disabled;

?  Exhibition centers and conference centers; and

?  Other projects to be announced by Royal Decree.

The Public Private Partnership Committee has recently augmented the scope of the PPP Act to include private-sector activities which are crucial to realizing several categories of infrastructure projects itemized in Section 7. Three notifications published in the Government Gazette on 9 November 2020 delineate business activities related to rail, land, and water transportation. As of 10 November 2020, the following activities are now subject to the PPP Act: