Privatization of profits, socialization of costs & risk: Privatization in Thailand’s Power Sector

1. Privatization of profits, socialization of costs & risk:Privatization in Thailand’s Power Sector Chris Greacen Palang Thai www.palangthai.org 16-17 July 2005 Windsor Hotel, Bangkok

2. Overview • History of power sector privatization • 1950-1990: “Nationalist Era” • 1990-2000: “Neo-liberal Era” • 2001 – present: “National Champion” Era • Problems arising from centralized monopoly control • Rhetoric vs. reality in “Neo-liberal Era” privatization • Concerns about (future) “National Champion” Era privatization

3. History of privatization (1) • 1950-1990: “Nationalist Era” • State-owned utilities • Electricity Generating Authority of Thailand (EGAT) • Metropolitan Electricity Authority (MEA) • Provincial Electricity Authority (PEA) • Self-regulating monopolies • “Cost-plus” structure

4. History of privatization (2) • 1990-2000: “Neo-liberal Era” • Focus on privatization with (problematic) competition • Sale of EGAT’s assets to subsidiary companies (EGCO, Ratchaburi) • Giving “concessions” to private power producers (IPPs, SPPs) to generate & sell power • Plan to create “Power Pool” and privatize the 3 utilities

5. History of privatization (3) • 2001 – present: “National Champion” Era • Focus on privatization but with little focus on regulation or competition • Driven by Thaksin government – not IFIs • EGAT shares to be sold on stock exchange • EGAT already transformed to EGAT Ltd. • Initial share allocation (25%) on stock exchange October • “Enhanced Single Buyer” • “National Champion”

6. Themes • Centralization of decision-making • Rhetoric vs. reality in benefits and risk of (past) “Neo-liberal era” privatization • Concerns about (future) “National Champion” Era privatization

7. Centralized structure of electricity • Interconnected grid in many cases makes economic and technical sense, however… • Social conflicts are often a result of centralized control of grid with no independent regulatory oversight

8. Electricity and social conflicts • Dams: • Pak Moon, Nam Theun 2, Salween, Ta Sang Jing Hong • Power plants: • Mae Moh, Bo Nok, Hin Krud • Coal mines: • Mae Moh, Wiang Hang • Gas projects and pipelines: • Yadana, Yetagun, JDA (Chana) Loss of livelihood/health/forests for local people for the benefits mainly urban commercial and industrial interests

9. Problems with centralized control (2) • Lack of accountability, transparency, participation in centralized planning processes • Political decisions masked in technical language • “Big is beautiful”, fossil fuels dominate • Social and environmental concerns are ignored/dismissed • “Cost plus” incentive structure • The more utilities spend, the more they can charge • “Overcapacity worth 400 billion Baht (US$10 billion)”– Prime Minister Thaksin Shinwatra • passes risks to consumers (fuel price risk, etc.)

10. Given the centralized structure of decision-making, what are the implications of privatization of the electricity sector?

11. Private sector is more efficient Higher efficiency leads to lower costs of electricity Consumers bear lower price risks (no pass-on of construction cost escalation) Efficiency is achieved by leaving excess staff w/ EGAT Price specified by contract, so lower costs = increased profits for investors Long-term contracts shield investors from various risks and guarantee high returns regardless of the need for electricity Rhetoric & Reality in (past) Neoliberal-era privatization (1990-2000) Rhetoric Reality

12. Reduce state’s investment burden Increased transparency Privatization = liberalization Mortgage consumers’ future “Commercial secrets”, less accountability Unrelated, sometimes conflicting concepts Rhetoric & Reality in Thai Neoliberal-era privatization (1990-2000) Reality Rhetoric

13. Concerns about privatization in National Champion era (post-2001) • Electricity changes from a public service to a profit-making commodity • Not just transfer of ownership, but also irreversible transfer of commons, public rights and control to profit-maximizing private monopolies • Management of water behind hydroelectric dams • Public land on which dams are built • Public/private land on which distribution and transmission lines are erected • Rushed process: no deliberation, consultation • Problem of centralized control not addressed, even exacerbated

14. Concerns about privatization in National Champion era (post-2001) • EGAT to be the regional hub of GMS/ASEAN Grid • Risky investments with costs passed on to consumers • “Enhanced Single Buyer” allows EGAT opportunity for a variety of anti-competitive practices • Promised interim regulatory body is weak, staffed by industry insiders • PTT case sets very bad precedents

15. PTT Privatization • PTT was the monopoly gas and oil state-owned enterprise • Privatized in 2001, PTT shares were sold out in 1 minute 17 seconds • Disproportionately large holding by politically connected families • Public assets was sold cheaply at 35 Baht/share to few individuals • The stock price has increased more than 5 folds (220 Baht) at the expense of consumers • Government has so far not kept promise to set up independent regulatory body to protect consumers interests

16. Gloomy prospect. But is there hope? • Yes, but we need to act quickly and with force • Alternatives do exist: • Aggressive energy conservation and efficiency measures can cut down need for new projects • People-ization of the grid to allow small-scale renewable energy generators to connect • Allow local management of energy in forms of cooperatives, municipalities, etc. • Creation of independent regulator to protect consumers’ interests • Structural change is required but won’t happen without support from all levels.

17. Privatization of benefits, socialization of costs

18. For more information Contact: Tel. 02-674-2533 chris@palangthai.org www.palangthai.org Please see: http://palangthai.org/docs/PA77.3Thailand.pdf