Public Private Partnership (“PPP”) refers to projects where the government and the private sector have cooperated to construct or invest in a project that would otherwise be a state-undertaking. Typically, the PPP will involve infrastructure development, for example: the power and electricity sectors, telecommunications, ports, water and sanitation, transport (toll-roads and railroads), mining and plantations, etc. The term, as applied under Thai law, may include build-operate-transfer (BOT), build-own-operate-transfer (BOOT), build-transfer-operate (BTO), lease of assets or operations and maintenance agreements.
Recent, well-known PPP projects in Thailand include the BTS Sky Train and MRT Metro, which were cooperation between the private sector and the Bangkok Metropolitan Authority and the Mass Rapid Transit Authority of Thailand, respectively. The MRT Blue Line extension is another example of a PPP project currently under negotiation.
Thailand has a specific law to govern PPP activities, namely the Act on Private Participation in State Undertaking B.E. 2535 (1992) (the “Act”). Whilst co-operation between the government and the private sector is developing and will likely increase substantially in the future, there are a number of issues arising from the current Act.
The current Act is focused on preventing corruption when granting rights to a private developer to operate or develop a project involving state property as its approval process puts the project (and its developers) under scrutiny, particularly for large PPP projects (value over Baht 1 billion). However, this is an obstacle to investment as it emphasizes bureaucratic government internal processes which results in time-consuming procedures. Due to a lack of clarity regarding the definitions and the scope of operation of the Act, some projects fall outside the scope of the Act, such as BOO (Build Own Operate) or turnkey projects since they do not involve any right to operate or use state property. In addition, the act lacks a methodology for project valuation and procurement methods. Nor is there a methodology or basis for risk allocation or private sector burden when projects are not commercially practical. Thus, many project requests have been submitted to the Council of State for clarification and interpretation.
As there is no central agency responsible under the Act, numerous government authorities are involved as different government agencies have jurisdiction over different projects. For example, for a project involving new state assets (to be constructed), the developer must submit the project feasibility study to the National Economic and Social Development Board which is the central planning agency. However, a project feasibility study for a project in relation to existing state assets must be submitted to the Ministry of Finance. Finally, the relevant agencies often lack the necessary technical, administrative and legal support to oversee large complex projects.
The Act also fails to set out the standard terms of agreement applicable to PPP projects and does not specify the amount of supervision to be undertaken by the state agencies i.e. when should the state intervene in the public interest, in what circumstances can the state unilaterally amend the contract terms, when are contracts renewed, termination of contracts and penalties etc.
As such, the government of Thailand has recently revised certain provisions of the current Act to provide a more streamlined process, reduce conflicting interests, and include a broader definition of what constitutes a PPP. It also addresses some concerns for certain types of project. It is therefore anticipated that the new revision will provide for a more systematic and efficient framework for the consideration and implementation of PPP projects.
From reports, some provisions are suggested to be revised.The definition of “Project” would be revised to include an investment in a state undertaking. “Participate” would mean “joint investment with a private individual by any means whatsoever or to entrust a private individual to invest solely by means of licensing or the grant of a concession or the granting of rights in any manner whatsoever”.
The project value of investment in a state undertaking, and the fund or assets may not be changed (one billion baht). However, it is yet to be finalized. Reports suggest amounts ranging from 2 to 5 billion.The project agency would be permitted to propose an amendment to the project agreement terms by submitting a report setting out the need to amend the terms specified in the project agreement.
The project agency may be granted a right to terminate a project early in some occurrences, for example, when a private operator abandons the project or fails to comply with the terms of the participation agreement, forges any document/makes a false statement, fails to make any payment due to the project agency, becomes insolvent (or was previously insolvent), or was sentenced to imprisonment by a final court judgment. Finally, criminal offences may be imposed in relation to any violation of specific provisions under the revised Act.
The amendment to the PPP law will likely be the largest challenge facing Thailand in amending its PPP landscape over the short and long term. The political situation remains unstable and is unable to deliver the top-down political support that will be necessary for a major institutional amendment. We must merely wait and see whether the new government will approve this long awaited draft PPP legislation or whether the bill will see the light of day in the new parliament.
6 September 2011