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Thai conglomerate says high-speed rail on track to success

Despite daunting costs, CP Group eyes lucrative real estate development along line

Construction progresses on Bangkok's Bang Sue Grand Station, which will serve as a hub for the high-speed rail line linking three airports. (Photo by Akira Kodaka)

BANGKOK -- Thailand has officially awarded the contract to build a high-speed rail line connecting three airports to a consortium led by Charoen Pokphand Group, the country's largest conglomerate, despite CP possessing minimal expertise in trains.

The first section of the 224.5 billion baht ($7.42 billion) project is due to open in 2023.

"We will do our best to complete construction within five years," CP Group CEO Suphachai Chearavanont said during a signing ceremony on Oct. 24.

The 220 km route will link Don Mueang and Suvarnabhumi airports in the Bangkok area with U-Tapao airport farther south along the seaboard. The train will snake through Thailand's Eastern Economic Corridor, an industrial development zone that has attracted the likes of Japan's Toyota Motor.

Many critics say the rail operation will face a daunting task in turning a profit. But CP is not relying solely on train tickets, as the group intends to develop valuable real estate along the tracks.

CP's core segments are in food, retail and telecommunications. Group operations are spread across 22 countries and generate over $60 billion in revenue, with about one-third of the turnover derived domestically.

A shifting business landscape drove CP to take a risk in rail. Charoen Pokphand Foods, the crown jewel of the group, attained rapid growth by using Thailand's cheap labor to process poultry and other meats. But a recent worker shortage has raised labor costs, eroding CP Foods' competitive advantage.

Furthermore, the nation's population growth has slowed to 0.3% a year. Seniors 65 and older will make up over 14% of the population by 2022.

Ridership on the rail line is not expected to be high, based partly on the number of people living in areas along the route.

"It may lose money the longer it stays in operation," a rail industry insider said.

Itochu, the Japanese trading house that holds capital ties with CP, decided early on against joining the project.

Yet amid the doubts hanging over the enterprise, the Thai conglomerate thinks it can secure a path to success.

CP's consortium includes state-owned China Railway Construction Corp. Project partner Ferrovie dello Stato Italiane, Italy's government-controlled rail operator, will assist in running the high-speed trains. The specifications of the trains and how many cars will serve the line are to be determined later.

But "CRCC is rich in system management experience, and operations will leverage Italian know-how," Suphachai said.

CP seeks to recoup its investment by developing land along the rail line. The contract contains plans to develop areas around multiple stations. The consortium will pour 140 billion baht into real estate projects surrounding Makkasan Station in central Bangkok. The location will be home to a multipurpose complex incorporating a shopping mall along with hotel and convention space.

The Thai group also is believed to own copious tracts of land along the planned route. Property within an hour's train ride from Bangkok would become prime locations for resorts or commuter housing.

Political factors come into play as well.

"The rail development is Prime Minister Prayuth Chan-ocha's proposal," CP Group's top leader, Senior Chairman Dhanin Chearavanont, told Nikkei in June. "If you look at it from the surface, it may be difficult to generate a profit. But for CP, it is a contribution to Thailand."

Prayuth aims to develop infrastructure that paves the way for industrial innovation, a vision known as Thailand 4.0. The high-speed rail line forms the centerpiece of the economic vision. Prayuth, who came to power in a 2014 military coup before being elected as prime minister this year, wields outsized influence in government.

More than a few high-speed rail projects in Southeast Asia have suffered setbacks and lengthy delays, and CP will not gain expertise on train operations and safety overnight. But the company remains confident it will overcome the obstacles.

"We will definitely achieve success in this project together with our capable partners," Suphachai said.

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