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Reform in the pipeline  Market-focused
technocrat Piyasvasti Amranand heads a campaign to lighten the heavy hand
of the state and promote more rational competition by SOONRUTH BUNYAMANEE Thailand’s energy development policy is poised for sweeping reforms under the current interim government, but how much it will accomplish is a matter of debate. 
In line with its zeal to undo most of the policies of the toppled administration of Thaksin Shinawatra, the new government is seeking to reform the oil, gas, electricity and alternative energy businesses, while also reconsidering some of the major initiatives of the Thaksin regime. To implement the changes, Prime Minister Surayud Chulanonthastapped tapped the expertise of Piyasvasti Amranand, who was the country’s top energy technocrat but left the civil service after being shunted aside by the Thaksin government. Dr Piyasvasti made waves a few days after being sworn in as energy minister, overturning a ban on premium gasoline sales that was to have taken effect on Jan 1, 2007. The previous government had intended to phase out premium gasoline in favour of gasohol, a blend of 10% ethanol and 90% gasoline, but it hadn’t counted on two factors: insufficient ethanol supplies and the presence on local roads of hundreds of thousands of older vehicles that could not use gasohol. Dr Piyasvasti says that gasohol will not replace premium gasoline until all carmakers certify that their vehicles can use the new fuel. Changes are planned as well in the status of the country’s largest energy conglomerate, PTT Plc, which is 68% owned by the government. Dr Piyasvasti, who for years has advocated greater liberalisation of the energy business, intends to scrap PTT’s rights to expropriate land for gas pipelines. A legal amendment approved in November would transfer the expropriation rights to a state committee under the Finance Ministry. The issue of land expropriation and eminent domain was highlighted by the Supreme Administrative Court in late 2005 when it scrapped the privatisation plan of the Electricity Generating Authority of Thailand. The court said the authority to expropriate land should rest only with the state, not with a privately held company. Activists emboldened by the Egat decision have raised a similar legal challenge against PTT, which was listed on the Stock Exchange of Thailand in 2001 and is by far the largest company on the market. Among other issues on Dr Piyasvasti’s agenda will be dealing with the huge debts — currently 64 billion baht — incurred by the state Oil Fund from capping petrol prices in 2004 and 2005 on orders from the Thaksin cabinet. Fortunately, global oil prices began easing in the third quarter of 2006, giving policymakers an opportunity to plan some measures. The Committee on Energy Policy Administration, chaired by Dr Piyasvasti, responded in mid-October by raising the levy on retail oil sales that goes to the fund. The new levies are four baht per litre, up from 2.50 earlier, for both gasoline and diesel. The higher rates are to be phased in gradually as local oil prices decline, which means that the prices of fuel sold in Thailand, will decline by slightly less than global prices. Under the plan, Dr Piyasvasti wants the Oil Fund to wipe out its debts within one year, or one year ahead of the original schedule. The fund currently faces interest payments of 450 million baht a month,
on principal around 10 billion baht, while also subsidising the price
of liquefied petroleum gas (LPG) or cooking gas at a rate of 250 million
baht. It earns about three billion baht a month from fuel levies. Once the fuel levy is raised to the four-baht ceiling, the fund will be taking in 20 billion baht a month. As of November, the contribution from premium gasoline sales was 3.40 baht per litre, regular gasoline 3.20 baht and diesel 1.50 baht. However, there’s no guarantee the fund will be able to meet its target, given that world oil prices began to creep up in the fourth quarter of 2006. Viroj Mavichak, managing director of Thai Oil Plc, sees prices remaining at slightly higher levels as Opec may cut production to maintain an appropriate level of crude prices, while the Northern Hemisphere winter supports demand for heating oil. World crude oil forward prices for January delivery rose back above $60 per barrel in late November for the first time in three months. Prasert Bunsumpun, the PTT Plc president, has forecast that oil prices in 2007willremainaroundthesamelevels as in the fourth quarter of 2006, at $55 to $60 per barrel for Dubai crude and $60 to $70 for diesel and gasoline in the Singapore market, resulting in average local gasoline prices of 25-26 baht per litre. On the alternative energy front, Dr Piyasvasti has made an about-turn from the previous government’s drive to expand oil-palm plantations by 700,000 rai in 2007 to accommodate a plan to supply 8.5 million litres of bio diesel a day by 2012. Dr Piyasvasti said he would take bio fuel development seriously and not just throw money at large crop projects that might not produce the desired results. He also said promotion of bio fuel production was unclear under the previous regime, and that investors were dubious about committing to new ventures as a result. He prefers smaller-scale development of bio diesel processed from used vegetable oil, which has a clearer advantage in both time and cost efficiency, to large scale plantation programmes. He added that his ministry would also focus on biomass conversion from sources such as biodegradable domestic waste and wood from rubber trees. In addition, the energy-saving measures imposed by the past government are also under revision. Dr Piyasvasti favours a mix of mandatory and voluntary steps. One edict he has already overturned was the mandatory 10 pm closing of service stations, which he said did nothing to reduce fuel consumption. What would produce a clear result, he said, would be better enforcement of speed limits, with a maximum of 100 km/h on highways. In addition to oil and gas, the electricity business is also poised for a big change. Shortly after the government change, mass resignations took place at the Electricity Regulatory Board, set up by the Thaksin government to supervise electricity affairs. The board had been branded as illegitimate because it was established by a cabinet resolution, not by law, but still played a crucial role in regulating the industry, including privatising Egat and overseeing bids for new independent power projects (IPPs). The national power development plan for 2011-15 is also under revision, aiming to wean the country off natural gas, which currently accounts for 72% of total fuel demand. The new plan will call for natural gas to produce 40% of the country’s electricity, while coal will also produce 40%. This does not sit well with NGOs and environmentalists, who see coal as a big polluter despite the best efforts of power firms to publicise the huge strides made in pollution-control technology. Sairung Tongplon, president of the Federation of Consumers, believes the Energy Ministry should set a long-term timetable for energy reform, realigning development with natural gas. The ministry should first assess the impact of overall energy industry development on society, the environment and economy before outlining the power development plan, he says. Sun setting on solar power Inefficient production costs prompted the government to slash the amount of solar power it had planned to purchase. The state-run Electricity Generating Authority of Thailand (Egat), the sole electricity buyer in the country, recently cut planned solar power purchases from now until 2011 to one megawatt from 10 MW.
‘‘The more solar power is used, the higher the electricity cost burden that is passed to consumers, reflected in the fuel adjustment tariff (Ft),’’ he said. The production cost of solar generated electricity is 14.65 baht per unit (kilowatt/hour). Power from wind costs 5.11 baht, municipal solid waste 3.83 baht, biomass 3.25 baht, hydropower 2.45 baht, and biogas 1.86 baht. According to the original principles of the Renewable Portfolio Standard (RPS) programme, the Energy Ministry required 5% of the electricity generated by new power plants to come from renewable energy sources, said Mr Boonsong. The revised RPS policy under former energy minister Viset Choopiban, however, allowed Egat and IPPs to purchase renewable energy instead of producing the energy at their own renewable power plants. This aimed to help them cut down investment budgets and promote renewable-energy businesses among small and very small power producers. Since Egat’s four new power plants would offer an additional 2,800 MW of electricity, the company must produce 140MWfrom renewable energy sources in order to conform to the RPS scheme. Egat has already announced a plan to produce and purchase 80 MW of renewable energy. Seventy-seven MW would come from hydro-power; one MW from solar power and two MW from wind power, said Mr Boonsong. It also has plans to purchase an additional 60MWof renewable energy in the future, but hasn’t figured out how to split it up. “Egat cannot proportionate the required volume of each renewable energy for
the remaining 60 MW because it does not realise Phichai Tinsuntisook, chairman of the Federation of Thai Industries’ renewable energy club, said that government policy to promote renewable energy was still on the right track. However, he called for Egat to announce the purchasing proportions of each renewable energy source for the remaining 60 MW as soon as possible. Mr Phichai also asked the government to determine a financial penalty if Egat does not purchase renewable energy at the announced proportions. FTI targets to increase overall production capacity of renewable energy to 3,238MW by 2011, compared to 2,058 MW now, according to Mr Phichai. Compounded private investment in renewable business until now was worth about 10 billion baht, mainly from solar panel producers. Mr Phichai expects the investment value in the renewable-energy sector would grow 20% in 2007 due to the expansion of biomass power plants. The changing rules of the power game SOONRUTH BUNYAMANEE Efforts to reform the country’s electricity industry have regained momentum, which had flagged after the Supreme Administrative Court ruled in March 2006 against the privatisation and listing of the Electricity Generating Authority of Thailand (Egat).
Now that Egat’s role as a state enterprise has been reaffirmed, the focus has shifted back to the country’s medium- and long-term electricity demand and the best ways to meet it. Egat, of course, will be a major player in any scenario but finding the funds to keep the juice flowing will become more challenging. Based on the national plan, Egat requires 217.5 billion baht in its 2006-10 investment plan. About half would be allocated for developing four new cogeneration power plants with a capacity of 700 megawatts each, in Bang Pakong, Songkhla, South and North Bangkok. The state utility also needs about 100 billion baht to develop transmission lines and related facilities. The plants are due to be completed by 2011 in order to help meet increased power demand that is forecast togrowby1, 500 MW a year. Now that it cannot raise funds via the stock market, Egat needs to borrow through financial institutions and the debt markets. No matter which option it chooses, the resulting obligations will have an impact on public debt since Egat holds state-enterprise status. Even though Egat is a cash cow for the state, the government no longer guarantees its borrowing. This has pushed up its financial costs and placed limits on the amount of borrowing it can undertake. As a state enterprise, the utility is protected by law from legal suits filed by private parties over asset seizures or liquidation in case of default. To cover this risk, Egat is required to pay higher interest rates on its loans or bonds. As a result, energy experts believe that the privatisation of Egat in some form or another will remain on the national agenda. But the process needs a new procedure and legitimate support. The court took a particularly dim view of the way the last privatisation attempt was carried out. According to Energy Minister Piyasvasti Amranand, the privatisation of Egat will not be undertaken during the one-year term of the military-installed government.
Although Dr Piyasvasti agrees with privatisation, he says the approach taken by the previous government was seriously flawed. In effect, he says, it was simply converting Egat from a state monopoly to a private monopoly. ‘‘If I do [privatisation], I will not do it the way it was done in the past,’’ he said recently. But while privatisation will be for the next elected government to decide, the interim administration is focusing on preparing laws to regulate the electricity and gas industries, as well as laying foundations for cost-efficient renewable-energy development. Currently, the oil industry is the only part of the energy sector for which there are clear legal regulations. Even these have been bent by previous governments that used PTT Plc as both a price- and policy-setting instrument. New legislation will govern the organisations overseeing the electricity and gas businesses now monopolised by Egat and PTT Plc respectively. It would also accommodate the privatisation of Egat in the future. The law would call for a new regulatory body to supervise Egat’s privatisation, something the previous government had been criticised for failing to do. However, the new law could prove difficult and time-consuming to enact. In the meantime, the government will use the National Energy Policy Council law to regulate industry development, which includes promoting new independent power projects (IPPs). Dr Piyasvasti in December decided that Egat should not be allowed to compete in the IPP bids to construct new electricity capacity required for 2011-15, but no matter who takes part, he wants the competition to be fair to all. Egat will still have the right to handle 50% of all new production without bidding, as set out by the previous government, after the new administration reconsidered an earlier proposal to revoke that right. The IPP bids will be open to all private operators—including Egat subsidiaries that had been barred under conditions set by the now-dissolved electricity regulatory board. Based on the revised power development plan (PDP), the national grid needs a total of 10,570MWfrom 2011-15. The new plan calls for natural gas to be used to produce40%of the country’s electricity, compared with about 72% at present. Coal will also produce 40%. Hydropower from local plants and those from Laos will account for the rest. However, the goals might be difficult to achieve. Some consumer-protection activists and academics have questioned whether the future power demand forecast by Egat, which is the basis for IPP bidding, is realistic. They say the figure of 10,570 MW from 2011-15 was based on economic growth projections of 4.8% per year but the projection had been reduced to 4.5%, resulting in up to 5,000 MW of excess demand. The Energy Ministry has acknowledged the concerns and has been taking a second look at the figures. As the year closed, there was also talk that energy planners would shorten the time horizon to 2011-13 in calculating medium-term power needs before setting terms for the IPP bids. Batten down the hatches BUSRIN TREERAPONGPICHIT The turnaround of world oil prices in the last quarter of 2006 will not ensure high prices for petrochemical products in 2007 due to an expected influx of additional supplies from the Middle East. While trying to fit in with the sufficiency economy policy of the interim government, leading local petrochemical players say they have learned from experience to prepare for future volatility.
Industry experts project that millions of tonnes of new capacity output from petrochemical projects in the Gulf region, particularly Iran, will flood into the local market in 2007. This follows a two-year delay of new supplies, which allowed Asia-Pacific petrochemical operators to enjoy bonanza profit. The past year was a good one for petrochemical players as the sharp decline in oil prices in the second and third quarters pushed up earnings. Petrochemical commodity product prices tend to move in line with world oil prices. Aditheb Bisalbutr, the president of PTT Chemical Plc, the olefins flagship of the energy giant PTT Plc, said the petrochemical industry had enjoyed better-than-expected earnings as crude oil prices, the industry’s main feedstock, declined sharply in the third quarter of 2006, with petrochemical product prices dropping at a slower rate. ‘‘Most petrochemical manufacturers will record another year of bonanza profits despite the fact that the industry’s cyclical trend showed a slight downturn,’’ he said.
Cementhai Chemicals Co, the Siam Cement Group’s petrochemical arm, forecasts that the additional supplies from the Middle East will temporarily affect the market because no new petrochemical projects will become commercially operational until after next year, while market demand is constantly rising. ‘‘In 2008, the market will rebound because demand will grow strongly. As a result, the pressure of influx of additional supplies will only occur in 2007,’’ said Cholanat Yanaranop, the president of Cementhai Chemicals. ‘‘Although the market will slow down next year, I’m confident that it will be a soft landing.’’ Thongtip Rattanarat, a senior adviser to the Petroleum Institute of Thailand, also foresees a promising outlook for the petrochemical industry in 2008. In fact, she believes the petrochemical output from Iran would not even affect market prices since demand still outstrips supply. In addition, she points out, Southeast Asia has the lowest production costs in the overall petrochemical industry after the Middle East. However, most producers should be wary of declining margins in the future due to fierce competition and improve their competitiveness by integrating production facilities. ‘‘Integration development may cost a lot of money at first, but such operators will no longer need to be concerned about the industry cycle, since in cyclical downtrend, specialty products will make triple margins compared to commodity products,’’ Mr Aditheb said. He said that although huge investments in petrochemical projects would continue, local operators had learned a lot from past mistakes, particularly in the run-up to the economic crisis in 1997. ‘‘I can say that there is no longer over-investment in the industry. We endured more than five years under the hardest of conditions, so now we have learned much from past suffering,’’ said Mr Aditheb. Mr Cholanat agreed, saying that local petrochemical players were now very cautious in terms of investment and liability engagement, so their debt-to-equity ratios remained low. ‘‘Our current practice complies with the sufficiency economy policy of the
government,’’ he added. |
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supply
capacity of renewable energy producers for the moment,’’ said Mr Boonsong.
In November, the interim government announced a subsidy for re new able energy
producers for seven years. It will offer 30 satang per unit (kilowatt/ hour)
on top of the purchase price for biomass power; 80 satang extra for hydropower
plants smaller than 50 kilowatts (Kw); 40 satang for hydropower plants of 50-200
Kw; 2.50 baht per unit for waste or wind power generation; and eight baht per
unit for solar power.
