PPP LAW: WHERE HAVE ALL THE PROJECTS GONE?

Japan has called for an extension of the planned U-tapao-Suvarnabhumi-Don Mueang high-speed rail link to Ayutthaya, where a large concentration of Japanese factories is located. The province is also home to a sizeable Japanese expat community, a modern legacy of the historical Japanese village that flourished during the time of King Songtham in the early 17th century.

The ambitious rail project, together with the conversion of U-tapao airport into a modern international aviation hub and the expansion of the Laem Chabang deep-sea port, among other infrastructure projects in the strategic Eastern Economic Corridor (EEC), is slated for a public-private partnership investment.

Collectively the projects are worth billions of dollars, and authorities are hoping that work will start this year on some of them within the framework of the current PPP Act (or the Act on the Private Sector Participating in Joint Investments in Public Services 2013, to give its full official name).

But will the law live up to the challenge?

The current PPP Act came into being because the first PPP Act of 1992 proved so ineffective. In some cases it drove away privately funded infrastructure projects and brought an end to the boom in such ventures in the late 1980s to early 1990s, dubbed the golden period of Thai PPPs.

Leaving aside the ability of the country to mobilise funds from the private sector locally and abroad for massive projects, it took anywhere between five and seven years under the old law for a concession agreement to be signed. Little wonder so few projects were realised during its two decades of existence. Some in the private sector even called for the law to be scrapped, and for a return to the arrangements that had worked so well during the earlier golden era.

The government decided instead that the most appropriate fix was a new PPP law that would eliminate red tape and bottlenecks. Under the new system, the project-review process has been streamlined, with specific time frames for each step, and 30 or 60-day compulsory periods for certain tasks to be completed. Grey areas in the old law have also been revamped for clarity, and detailed steps made transparent.

However, four years into the life of the new law, only one project of significance has materialised. The cabinet last month awarded a contract for the US$2.8-billion (95 billion baht) Pink and Yellow monorail lines in Bangkok to a local three-company consortium that will soon embark on fundraising.

Four years to get a project started under the new law is not that much better than the five to seven years it took under the first PPP Act.

In the well-marketed EEC, meanwhile, there is little interest in PPP arrangements among foreign investors and their financiers. Even with the special fasttrack power of Section 44 of the interim charter, kept alive by the new constitution, at the current pace we are not likely to see PPPs within the EEC materialise before the end of the current five-year social and economic plan in 2021.

The Board of Investment (BoI) is offering super-attractive incentives to prospective investors in a high-speed rail line to serve the EEC, with a deadline of Dec 29 this year for applications. Since international bidding has yet to be called, this deadline seems optimistic and will probably be pushed back.

The fact is, the current PPP Act is almost as ineffectual as its predecessor, mainly because its drafters were focused more on how it could be adapted to the state bureaucracy than whether it would actually help investors. It’s no match for the more flexible and responsive BoI Act of 1977.

Unlike the BoI Act, the PPP Act calls for strict regulatory compliance by government agencies and state enterprises, with non-compliance carrying criminal liability; it is not an investment promotion law.

A large chunk of the law is devoted to the bureaucracy of appointing the PPP committee, its functions, qualifications for and prohibitions on committee members. The role of the State Enterprise Policy Office as the administrator of the law is also spelled out in detail.

Browsing the chapter on the strategic plan, we note many provisions related to reports on implementation, problems, obstacles and recommended solutions to take place within three years of its announcement. One cannot help but imagine a report packed with reasons why the PPP projects planned have not been achieved, some incidental recommendations on how to move forward, and how to deal with projects postponed to the next strategic plan.

The section on project proposals is heavy on compliance requirements for the project-owning state agency to follow, with details tightly regulated and controlled by the PPP Committee and no room for innovation, even though some PPP ventures by their very nature require novelty.

The same section also spells out project risks and risk management. Here we see a ray of hope, in the form of guidelines on risk-sharing between the private sector and the government. They suggest a level of fairness not seen before in Thai government contracts, which invariably emphasise protection of the state interest at the risk of the private sector. Thai investors and bankers have long been accustomed to this state-centric view, but foreign investors and offshore financial institutions shun such arrangements.

The value of projects subject to the full weight of the Act is also contentious. Those worth 5 billion baht or more are categorised as major projects subject to approval of the PPP Committee and the cabinet. Other conditions exist for medium-sized (1-5 billion baht) and small projects (below 1 billion baht). But virtually all PPPs — large, medium or small, from the national down to the subdistrict level — must be processed through a restrictive law that has crippled local development.

The fear factor in the PPP Act is criminal liability for non-compliance, either expressly provided in the Act or linked to malfeasance by government officials in the Penal Code or another law on offences by state employees, often enforced and widely reported. This gives rise to negative sentiment because of the possibility of the private sector being implicated in wrongdoing — a stark contrast to the pristine perception of the purely economic BoI Act.

Wirot Poonsuwan is a practising lawyer and can be contacted at wirot@brslawyers.com