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Public-Private Partnerships in Thailand

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Introduction and Background

In Thailand, the term Public-Private Partnership or the “PPP” has historically been used in a broad sense to cover concession-type private investment in public infrastructure made on the basis of traditional project finance structures. Initial legislation was enacted in 1992 to guide the relevant public-private joint investment to implement public services or public works, the Private Participation in State Undertaking Act of 1992 (the “1992 Act”).

The 1992 Act created uncertainties for potential investors, prompting the recognition to reapproach the PPP regime. To provide better support to PPP development, the Private Joint Investment in State Undertaking Act of 2013 (the “2013 PPP Act”) came into force on 4 April 2013. The 2013 PPP Act repealed the 1992 Act. The 2013 PPP Act clarified many of the previous inconsistencies and shortened the processing time from the initial feasibility study to construction commencement. The 2013 PPP Act also outlined numerous incentives and mechanisms of support for projects through a development fund established by the government. Despite the improvements, after a couple of years of implementation, the 2013 PPP Act was not followed by the long-awaited surge of PPP developments.

To improve the PPP investment framework, a new Public-Private Partnership Act was enacted in 2019 (the “PPP Act”), which replaces the 2013 PPP Act in its entirety. 

The Committee of Public-Private Partnership Policy (the “PPP Committee”), composed of up to 17 members from different government sectors, is empowered to act as a central agency responsible for all facets of PPP projects. The PPP Committee is vested with the following key responsibilities:

  1. approving the PPP project implementation plan prepared by the State Enterprise Policy Office (“SEPO”) and determining the directions for implementing, improving and tracking performance under the plan;
  2. considering the designation of a responsible governmental agency for each PPP project;
  3. approving any PPP project in-principle;
  4. setting forth procedures for projects with a value lower than THB 5 Billion (approx. USD 138.43 million); and
  5. resolving disputes under the PPP Act.

The SEPO, under the supervision of the Ministry of Finance, acts as a secretariat office for the PPP Committee and as a central PPP unit. It shall also be responsible for multi-agency coordination, as may be necessary for the development of PPPs.

The PPP project implementation plan must include a list of PPP projects, goals, policies and appropriate PPP project details, budget, timeline as well as project priority. The SEPO may hire an adviser to assist in preparing this PPP project implementation plan.  

Regulatory Framework

PPP Project Proposal and PPP Project Approval

Pursuant to the PPP Act, the Project-Owner Agency (the “POA”) who wishes to pursue a PPP project must submit a key principle of the project as well as a project appraisal report to the responsible minister for approval. Upon approval of the report by the responsible minister, the POA must then submit the principle of the project and the report to the SEPO. The SEPO must then complete its consideration and, should it approve the report, submit it to the PPP Committee together with the opinion of the Office of the National Economic and Social Development Council and other relevant government agencies for approval. In cases where the proposed PPP project involves any expenditure under the State budget, or any expenditure from public debt by way of a loan for the funding of the project, the approval process should take into consideration the opinion of the Budget Bureau. Once the PPP Committee approves the principle of the project, the responsible minister shall submit it to the Cabinet for final approval. Upon issuance of the final approval by the Cabinet, the POA must prepare an Invitation to Tender (“ITT”), Request for Proposal (“RFP”), and a draft public-private partnership agreement (“PA”) and propose these documents to the Selection Committee (defined below) for approval.

Tendering and Negotiation Process

The selection of the private party can be either by way of bidding or non-bidding (in the case that the Cabinet has approved the non-bidding method). Either way, in preparing the ITT, the RFP and the PA, the POA must hold a public hearing. The selection process includes the following steps: invitation to tender, selection of tenderer, PA negotiation, and PA execution. The ultimate granting of the concession involves approvals from several governmental entities (as detailed below).

(a) Selection Process

Under the PPP Act, the POA shall appoint a Selection Committee to facilitate and evaluate the bidding process which shall comprise representatives from the POA, the responsible ministry, the SEPO, the Office of the Attorney-General (the “OAG”), the Bureau of the Budget (in case the project involves the State budget or public debt) and two qualified independent persons (the “Selection Committee”). The Selection Committee shall be chaired by a representative from the POA and shall have the following duties:

  1. to consider the approval of the draft ITT, draft RFP and draft PA;
  2. to set the fees for selling the RFP, for evaluating the bids and for execution of the PA;
  3. to set the bid bond and performance bond;
  4. to negotiate and select the private entity for participating in the project;
  5. to negotiate the draft PA;
  6. to require the POA or private entity to give an explanation or submit relevant information or documents; and
  7. to consider taking other actions related to the project as deemed appropriate.

The PPP Act does not prescribe the timeframe for the consideration of bids. In practice, the Selection Committee would take approximately 80 – 100 days from the date of submission to complete the selection process. The selection decision made by the Selection Committee will be notified to the bidder; it should be noted though that such selection decision will not constitute a final approval, as the final granting of the concession to the successful bidder will be subject to the approvals by the selected bidder and of the agreed concession agreement by the OAG and by the Cabinet as explained below.

(b) From Selection until Final Execution

Negotiation of the draft PA begins upon conclusion of the Selection Committee’s initial selection decision. The Selection Committee is responsible for negotiations, which last approximately 30 days, although no timeline is prescribed by law. Within 15 days from the date the PA is considered in final agreed form, the POA shall propose the final agreed PA to the OAG. The OAG will have 45 days to review this final agreed draft. Then the POA shall propose the selection result, the draft PA approved by the OAG and other important terms and conditions of the PA to the responsible minister for approval before the final approval by the Cabinet. Should the responsible minister not agree with the proposed selection and the draft PA, the matters will be returned to the POA and the Selection Committee for reconsideration. Alternatively, if the responsible minister as well as the Cabinet approve the proposal, the POA will proceed to execute the PA with the successful tenderer.

PPP Project Supervision

Upon execution of the PA, the responsible minister shall appoint a supervisory committee to, among other things, monitor and supervise the project to ensure that operations are conducted in accordance with the PA. Duties of this supervisory committee also include proposing a solution to potential problems which may arise from the project implementation to the POA, reporting the operation to the responsible minister and giving opinion on the amendment of the PA.

PPP Types and Forms

No specific Thai law or regulation defines specifically or regulates the partnership model. The ownership of assets depends on the particular POA’s establishment act. However, based on our experience, the POA will usually adopt one of the following PPP types:

PPP form
Descriptions
Example uses 2

Build Operate Transfer (BOT)

The PPP project company will build and operate an asset for a fixed term. Upon expiry of such term, the project enterprise will transfer over the facility to the state.

Build Transfer Operate (BTO)

The PPP project company will build an asset. Upon successful construction completion, the PPP project enterprise will transfer the project to the state but will operate the facility for a fixed term.

Build Operate Own (BOO)

The PPP project company will build and operate an asset for a fixed term. Upon expiry of this fixed term, the asset remains owned by the project enterprise.

Operate & Manage

A concession to operate and manage an existing asset for a fixed term.

PPP Net Cost Model vs. PPP Gross Cost Model

Thai governmental agencies have first developed activities and operations on the basis of operation contracts with concessionaires under the “Net Cost” concession scheme. Under this scheme, the concessionaire assumes full responsibilities in operating the infrastructure and the public party simply receives a commission/fee. A “Gross Cost” concession scheme has further been implemented, where the POA directly collects passenger fares/tolls while the concessionaire receives technical fees for the operations.

In Thailand, the different features of the two models are as follows: 

Net Cost
Gross Cost
Example uses 2
Infrastructure

Government provides civil infrastructure and some other infrastructure or none. 

Government provides civil infrastructure and some other infrastructure or none. 

Risk Sharing

Concessionaire assumes all traffic risk and shares extra profits (if any) with the Government. 

Risk is shared between the Government and concessionaire. Optimum sharing of risk will minimize the concession costs. 

Revenue

Concessionaire collects and keeps the revenues.

Revenues are given to the Government.

Services

Concessionaire determines services to be provided on the basis of profitability.

Government sets service standards and the concessionaire determines services based on these standards.

Payments

Concessionaire meets costs from its own revenue.

Government pays the concessionaire for services provided according to the rates set on the basis of competitive tendering and quantity/quality of services.

Government Role

Government invites tenders and establishes a concession; has a limited role during concession; difficult to vary contract conditions.

Government invites tenders and establishes a concession; has a continuing major role in managing the concession agreement; can vary conditions when needed.

Market Snapshot

According to the World Bank’s PPP Database for Thailand[1], there are currently 185 PPP projects in total. PPP projects having reached financial closure since 1990 account for USD 44.076 billion, with a significant portion thereof being in the energy and power generation sectors.

The Thai PPP legislation focuses on a wider range of particular strategic sectors and strategic infrastructure, deemed critical for the future socio-economic development of Thailand. The PPP structure has historically been used in a broad sense to cover concession-type private investment in public infrastructure made on the basis of traditional project finance structures. These traditional forms of investments and project financing have played a major role in the development of the energy, telecommunication and transport sectors in Thailand in the last three decades.

Key Issues for International Investors

We provide below an indicative selection of typical issues we have identified through initial risk assessments conducted for our clients, based on our review of PPP project documentation. 

(a) Tendering process

  • Experience criteria : Tender documents typically do not specify whether any member of the tenderer (assuming the tenderer is a consortium) would be authorized to refer to the experience of its existing subsidiary/affiliated company to fulfill the applicable experience requirement.
  • Disclosure requirements : The level of information to be provided in respect of the disclosure requirements applicable to the members of the tenderer is often unclear.
  • Protection of Technology Owner : PPP projects typically imply the procurement of certain technology/products satisfying internationally recognized standards. Such technology/products are owned by a few suppliers globally. In general, the Thai tender documents do not include a clear protection mechanism with respect to the effective award to such owners by the selected bidders of the relevant supply contracts.

(b) Structuring and financing issues

  • The feasibility of mega-projects such as the high-speed railway (“HSR”) project as initially proposed by the Thai government, has been a topic for skepticism on the part of a number of international PPP experts, noting that it will be challenging for sponsors to raise billions (in USD) of equity and debt funding on the basis of the risk profile of the standard form partnership agreements. In the case of the HSR project, there was no precedent of any rail PPP project of this magnitude, where this level of funding (USD 8 billion) had been raised by a single project company under a PPP structure. We understand that the project structure had to be substantially adjusted to improve its bankability; such process results in significant delays and transaction costs for the private parties and the lenders.
  • Partnership agreements (at least in the pre-negotiation form) usually do not include any commitments from the public party regarding the level of traffic/revenue. This is particularly problematic for transport projects in new areas of development (such as the EEC) where data is only theoretical and where there is no reliable benchmarking. We understand that negotiation towards availability payment arrangements is possible (but subject to the Thai Cabinet’s approval).
  • The private party is usually strictly required to maintain a performance guarantee issued by a qualified bank at a very high amount for the entire project duration, with no step down in the amount of such guarantee post construction.
  • Typically, no cap on liquidated damages payable by the private party in case of delay in the construction.

(c) Concession agreement legal issues

  • Precedents : Per our latest verifications with the SEPO, we understand that the process of standardization of PPP agreements is still in process and that, as of now, every agreement is still heavily negotiated and variable on a per project basis.
  • Joint and several liability of consortium members : The Thai Civil and Commercial Code recognizes the concept of ‘joint and several liability’ in relation to the concept of ‘joint debtor’. The standard Thai government’s position is that all members of the future concessionaire joint venture shall be jointly and severally liable and responsible under the tender and for the performance of the concessionaire’s obligations under the concession contract. This means that any shareholder (even holding a small minority equity stake) might be held liable for any performance default of the concessionaire through the entire term of the CA.
  • Land and site delivery : Typically, the POA will be responsible for the land acquisition process, which will take several years. Under Thai laws, the expropriation of land must take the form of a Royal Decree (from the Prime Minister) specifying the specific plots or part of land expected to be expropriated by the relevant authority. The general administrative principle is that compensation should cover the actual damage of the expropriated owner (while Thai courts seem to have been open to recognizing consequential damages). A delay risk is to be considered, notably due to the following Thai law issues:

i. Compensation process includes potential negotiations with the land owners and possible escalation to the administrative court to seek a revocation of the relevant Royal decrees; and

ii. In practice, expropriation on this type of projects often involves a split of the original plot of land whereby part of the plot remains with the original owner and part of the plot is transferred to the relevant POA. This complicates the process.

  • Ability to claim for compensations: In general, the ability of the private party to claim for compensation (notably for lost revenue) is limited and not aligned with international best PPP practice.
  • Extensive defaults: The list of events of default is extensive, with a number of defaults which may be triggered based on the subjective judgment of the public party. In case of the public party’s default, there is typically no express right for the private party to terminate (on the basis of a Supreme Administrative Court’s precedent which rules that a Private Party may not unilaterally terminate an administrative contract).

The Way Forward

The SEPO PPP Plan for B.E. 2563 – 2570 (A.D. 2020 – 2027) as amended from time to time, is the underlying national policy which sets out a list of PPP projects to be announced and opened for bidding for the years to come. The project list under the SEPO PPP Plan consists of several mega-projects in various sectors, including, for instance, high speed trains, highway and large-scale power generation plants, elderly housing, commercial port, and water management facilities.

Further Reading

This publication is intended to provide a high level overview of PPPs in Thailand. It is provided for general informational purposes only and should not be construed as legal advice. King & Wood Mallesons does not practice Thai law, and works closely with local lawyers to support our clients' needs in Thailand. We are grateful to DFDL for their co-operation on this publication.

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