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Update Q3-2016 FOCUS Juslaw
- 1. Thailand is one of the top 50 economies worldwide and has been ranked third among ASEAN countries in the ease of doing business. According to the Davos World Economic Forum 2016,Thailand is the worlds best place to start a business.Thailand is the gateway to the Association of Southeast Asian Nations (ASEAN) region as its strategic location gives access to a market of more than 625 million people in ASEAN and 2.5 billion consumers in the Asian region. Bangkok is by far the countrys biggest city with a high- spending middle class and it is the countrys economic engine. Due to its fast growth, Thailand is seriously committed to developing its key infrastructure in order to enhance sustainable growth in the long term. The Thai construction industry registered a solid annual growth rate (CAGR) of 6.03 per cent during 2009-2013. Furthermore, after Thailand was proposed by the ASEAN Economic Community (AEC) in 2015 as its regional hub, the construction market was projected to grow at a rate of 3.19 per cent, and a number of independent firms have forecast a 9.15% CAGR. 1 Despite some temporary internal political problems, the Government of Thailand has allocated nearly US$ 100 billion for the ongoing infrastructure development plan (2014-2021).2 Thailandsconstruction industry is expected to increase in value, to reach US$ 19.9 billion in 2019, with construction becoming the second-largest industrial sector. 3 Today, the infrastructure and civil construction sectors are experiencing solid growth in Thailand and in the authors opinion there are two main reasons that explain this tendency. The first reason is the importance of the tourism and hospitality sector to Thailands economy. Basically tourism makes a contribution of 10 per cent to the countrys gross domestic product (GDP) and it is projected to rise to Baht 4,496.7 billion by 2025. 4 The Government needs to modernize the key infrastructure of the country such as airports, ports and motorways in order to prepare for the sheer mass of expected visitors. The regulatory environment is an important factor if the country wants to fully capitalise on its natural attractiveness to visitors from all over the world. The second reason for the solid growth of construction and infrastructure is the policy formed by the Government in May 2014 to consolidate its policy towards modernizing the country. One of the largest infrastructure projects in Asia will begin in 2016, i.e., the double-track railway project that will link China andThailand.The project is part of the Pan-Asia Railway Network's central route, which will connect the countries of China, the Lao Peoples Democratic Republic, Malaysia, Singapore and Thailand. In addition, the Transport Ministry announced that 17 infrastructure mega-projects with a value of Baht 927 billion will be tendered in 2016 and 2017. UPDATE 3/2016 10 BANGKOK MEGA CITY HUGE POTENTIAL OF CONSTRUCTION AND INFRASTRUCTURE SECTORS FORTHAILANDS AEC HUB ROLE Contributed by Jus Laws & Consult (J&C) 1 "Construction inThailand Key trends and opportunities to 2018", Research and Markets, November 2015. 2 Construction market inThailand, 2015-2019,Technavio, July 2015. 3 Growth forecast forThai construction, Mike Hayes, International Construction, November 2015. 4 Travel &Tourism Economic Impact 2015ThailandWorldTravel &Tourism Council, London.
- 2. www.thailand.ahk.de Another example of the infrastructure projects announced by the Government is the Phaholyothin Transportation Hub Area project, which is also an example of public- private-partnership (PPP). The project is intended to attract Baht 20 billion for railway transport, commercial buildings, metro lines and rapid transit bus hub covering an area of 372 hectares in northern Bangkok. 5 Bangkok, as a regional hub for trade and traffic and one of the worlds most attractive tourist destinations, is also at the centre of the current infrastructure projects in Thailand. The Bangkok Mass Transit system, which operates the citys BTS Skytrain system recently announced that it would set aside Baht 60 billion for upcoming investments in the countrys rail system; it has signed purchase agreements for 46 new four-car trains, 22 of which will be provided by Siemens. The projects related to the implementation of new BTS Skytrain and MRT underground lines in Bangkok are tackling the impact of a growing population in Bangkok of currently almost 10 million people. 6 The appropriate management of a mega-city such as Bangkok requires a permanent symbiosis of the private and public sector in order to be able to face future challenges. The growth of Bangkoks population is reflected in a considerable increase in mass transit passenger numbers. Currently, the Skytrain, which now carries an average of 700,000 passengers per day, is constructing new lines. The extension of the Skytrain network will improve the life of commuters and guests in Bangkok and will change the character of huge parts of the city by way of urbanising residential areas on the outskirts of the city. One of the earliest indicators of this evolution of new urban areas outside of the prime areas of Silom, Sukhumvit and Sathorn Roads, in the wake of mass transit expansion, are real estate market prices. Condominium developers are exploring areas where the BTS and MRT are expected to expand in the future. However, condominium developers are not the only ones who are attracted by the areas adjacent to future new mass transit lines; around the new mass transit infrastructure new clusters of businesses and industries are being born. Various service businesses supporting transport maintenance at junctions and stations are being established, while other businesses responding to growing demand from new residents in the vicinity of new lines. Finally, tourism will expand to new urban areas. In Hong Kong, for example, service business revenue has overtaken revenue from fares, making new rail projects profitable within a few years.This is one example of how government spending can induce economic growth. The expansion of Bangkoks mass transit system will result in a ratio of routes-to- population that is close to that of Tokyo. Bangkok as a hub for trade and traffic in the ASEAN region will become more attractive to investors as its inner connectivity improves. The expectation that the mega-infrastructure projects, in particular the projects in the capital, will kick-start the countrys economy are well-grounded. Statistics show that countries with better infrastructure on average see a higher growth in GDP and per capita income. Regarding the regulatory framework in Thailand that applies to infrastructure and civil construction, the following laws should be considered: Private Investments in State Undertakings Act Land Code City Planning Act Building Control Act Building Construction Control Act LandTraffic Act Factory Act National Environmental Quality Act National Energy Policy Council Act Highway Act Provision of Land for Public Transportation Act Land Excavation and Land Filling Act Land Allocation Act Architect Act Engineer Act Industrial Estate Authority ofThailand Act Investment Promotion Act Ministerial regulations and other subsidiary legislation issued under the above law As all the above-mentioned infrastructure projects are being carried out in the form of PPPs it is important to take a closer look at Thailands PPP law. PPPs play a prominent role in the infrastructure projects in the whole country, and especially in Bangkok. BANGKOK MEGA CITY 11 The expansion of Bangkoks mass transit system will result in a ratio of routes-to-population that is close to that ofTokyo. Bangkok as a hub for trade and traffic in the ASEAN region will become more attractive to investors as its inner connectivity improves. 5 Private investment sought for transport hub,The Nation, 23 April 2016. 6 Thailand to launch big infrastructure projects next year, PairatTemphairojana and PanaratThepgumpanat, 30 November 2015, Reuters.
- 3. The Private Investment in State Undertakings Act (PISUA), B.E. 2556 (2013) regulates PPPs in Thailand and supersedes the Private Participation in State Undertakings Act B.E. 2535 (1992). PISUA not only defines the decision-making and supervisory bodies, but also regulates the procedure of invitation to tender and the private entity selection, which is of the highest interest for potential PPP partners from the private sector, whereas the details of the tender are prescribed in Notifications of the State Enterprise Policy Office. According to the Strategic Plan stipulated by PISUA there are two categories of public projects: Projects that always require mandatory private investors par ticipation. For example, development of mass transit systems in cities, toll roads, freight ports, telecommunications networks and high-speed internet systems; Projects in which the State should encourage private investment. For example, developing mass ticketing systems, water management systems, waste management systems, infrastructure for science, technology and innovation. Provisions are contained in PISUA regarding the involved agencies as well as the Strategic Plan and the procedure that applies to all PPP projects, and the following stages are prescribed for the development of PPP projects: The Project Proposal Stage, during which PPP projects are identified; The Project Implementation Stage (Tender Stage), during which private investors submit their tenders, tenders are selected and an investment agreement signed; and The Supervision and Monitoring Stage, during which the project is realised As opposed to its predecessor law, the new PISUA provides more clarity as to the scope of its application, and thus increases investment security.The new PISUA applies to all projects (except petroleum and mining concessions) with a value of Baht 1 billion or more. Such projects will regularly undergo an approval and bidding process, as outlined in the PISUA with clear time limits to encourage the prompt consideration and processing of all projects, and with certain exceptions that allow for fast-track processing and waiving of the bidding process under certain circumstances. Once a PPP project is finally approved and the investment contract signed, it is completed under supervision by a supervisory committee. Recently the PPP procedure, which takes place within defined time limits, has further been fast-tracked for certain projects:The PPP fast-track scheme will shorten the consideration of some projects from 24 months to 8 months.The recent amendments stipulate that non-infrastructure projects with an investment between Baht 1 billion and Baht 5 billion, or infrastructure projects with an investment of less than Baht 1 billion, will not have to go through the PPP Policy Committees approval procedure. From a legal point of view, PPPs should be encouraged.They are beneficial to the public sector as they promote innovation and cost- efficiency and allow for off-balance-sheet financing. In the case of the private sector, PPPs enable access to long-term investments in the area of duties of public administration or areas that used to be in the hands of long- standing contractors. New private investors contribute with their strong motivation, competitiveness, expertise and familiarity with the tasks at hand to the public benefit as well as the countrys modernisation in the long term. PISUA and its related notifications show that the Thai policy-makers understand the benefits of PPPs. However, there is still room for improvement to ensure that the participation barriers for new investors are further reduced and that the rules are transparent. Ideally, the procedural and supervisory rules in the PPP law would ensure that the most competitive and innovative private partner is selected in a transparent procedure. Due to the large number of infrastructure and construction projects, the leading Thai construction companies will not be able to handle all the work themselves.An enormous oppor tunity and potential exists for subcontractors and main contractors (foreign construction companies with a remarkable portfolio of previous works in third countries) through strategic joint ventures with local partners for accessing Thailand, which is one of the main infrastructure markets of ASEAN. From the personal impression of the authors, who are working in Bangkok in this sector, the scenario of infrastructure and civil construction in this country is going to become progressively more dynamic and proactive, and will provide construction companies based overseas with an ideal gateway for entry to the entire region. UPDATE 3/2016 10 BANGKOK MEGA CITY Contact details: Yuthana Promsin, Managing Partner, Jose Herrera, Partner, and Christian Moser, Senior Associate Jus Laws & Consult (J&C) Tel: +66 2 254 4117 jherrera@juslaws.com and christian@juslaws.com www.juslaws.com