ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Politics

Thai companies contend with govt pressure in big-ticket projects

Officials not shy about leaning on private sector to score political goals

Prime Minister Prayut Chan-o-cha, center, back row, presides over the signing ceremony for a huge high-speed rail project on Oct. 24.

BANGKOK -- Thai Deputy Prime Minister Anutin Charnvirakul's patience was at its limit. Negotiations over a 224.5 billion baht ($7.43 billion) high-speed railway had dragged on nearly a year past schedule.

In September, he upped the pressure on the group that won the initial bid for the project, an international consortium led by Charoen Pokphand Group, Thailand's largest conglomerate.

He gave the group an Oct. 15 deadline to sign the deal, and threatened to seize the 2 billion baht bid bond and ban the companies from future state projects. The consortium would also have to pay for damages incurred by its failure to sign.

"It's agreed that we've given the CP-led group sufficient time to negotiate and the conditions are as good as possible under the procurement regulations," he said. "There's nothing left to negotiate."

The consortium had concerns about risk-sharing related to acquiring land for the project. CP Group and its partners ultimately gave in after the government promised to secure the land without offering details of how and when.

CP Group CEO Suphachai Chearavanont said the negotiations were "tough."

The episode is the latest instance of the Thai government's new approach to transportation infrastructure projects. Officials now are not shy about leaning on private companies to accept government demands. But too much interference increases the risks for businesses, and may scare off prospective investors.

The government's tough approach toward public works projects began to surface after the quasi-civilian coalition government was installed in July.

Lower house elections held in March to replace the junta that had been in power since a 2014 coup gave no party a majority. The pro-junta Palang Pracharat Party only won 116 of the 500 lower house seats. This led Anutin's Thai Pride Party to join with the PPP to help form a majority, after which Anutin assumed the deputy prime minister post and appointed a senior party member as transport minister.

Since July, the government has pushed a number of high-profile initiatives, such as plans for a second terminal at Suvarnabhumi Airport and reviewing aircraft procurement at Thai Airways International, the nation's flag carrier.

The most lucrative of these projects are overseen by senior administration officials that often have close ties to business.

The new high-speed railway is the centerpiece of the government's Eastern Economic Corridor project, which aims to promote investment in the country's industrial east. Bangkok was clear that it wanted to see the rail line finished quickly.

CP Group and a dozen other companies, including China Railway Construction and Bangkok Expressway and Metro, took part in bidding in November 2018.

Initially, an agreement was expected by the end of 2018, but negotiations dragged on for nearly a year due to concerns over land acquisitions.

About 30% of the required land is not owned by State Railway of Thailand, and prospects for acquiring it remain murky. Any delays could cause construction costs to swell.

"There are big risks involved in projects with these kind of uncertainties," an executive at a Japanese company said of the Thai government's approach. "We need to be careful about bidding for government projects."

The consortium will operate the railway line for 45 years and have development rights to adjacent properties, but still risks hefty losses.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media