Search

 

Cablegate: Thailand Issues Independent Power Solicitation

VZCZCXRO4672
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #3733/01 1870818
ZNR UUUUU ZZH
R 060818Z JUL 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 8113
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 02 BANGKOK 003733

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ENRG EINV ECON TH
SUBJECT: THAILAND ISSUES INDEPENDENT POWER SOLICITATION

REF: A. BANGKOK 727
B. 05 BANGKOK 7124

1. Summary: Thailand has finally issued the Request for
Proposals for its second round of Independent Power
Producers, after a two month delay. The current solicitation
will award a portion of the country's future capacity to
investors outside of the state-owned Electricity Generating
Authority of Thailand (EGAT). Although the capacity on offer
is relatively small, the RFP has already generated
substantial interest from potential investors. A short
timetable, institutional weaknesses and political uncertainty
may make the bid process challenging, but the opening of the
IPP bid indicates that the momentum for modernization in
Thailand's power sector has not been completely lost. End
summary.

2. On June 29, 2007 the RTG Ministry of Energy opened the
bidding for Thailand's second round of Independent Power
Producers (IPPs). Request for Proposal (RFP) packages went
on sale that day and will be available until July 27. The
bid solicitation is for electricity generating capacity to
come on-line from 2012-2014. The total capacity available
for bid is 3,200 megawatts, although individual proposals
will be limited in size to 800 MW per unit and 1600 MW per
plant. Separate packages must be purchased for each project
proposed. Interested bidders will be required to purchase
the RFP package, which contains full instructions for the bid
as well as a draft power purchase agreement (PPA). Bids must
be submitted by October 19, 2007. Following an evaluation
process, winning bidders will be announced in December, 2007,
and PPAs must be signed by June 2008. It is anticipated that
very little variance in the draft PPA will be allowed.

3. The current round of IPP bidding is open to proposals
using either gas or coal as a fuel. Although the Thai MoE
has repeatedly expressed the desire to diversify away from
its current 70 percent reliance on gas (projected to increase
to 90 percent with current trends), the RFP does not contain
any special incentives for coal-fired projects. Indeed,
while the RFP will require all IPPs to pay a fee per
kilowatt-hour produced to a special community development
fund, the fee charged to coal-fired projects will be double
that charged to gas-fired projects. Despite this
disincentive, and a history of strong community opposition to
coal-fired power in Thailand that has effectively blocked
past investments, it is believed that at least two bidders
are interested in proposing coal-fired projects.

4. To date, roughly two dozen bid packages have been sold.
Japanese investors are prominent in the list of interested
bidders, which is believed to include Electricity Generating
Plc (EGCO), Ratchaburi Electricity Generating Holding Plc
(Ratchaburi) (both semi-private subsidiaries of state-owned
Electricity Generating Authority of Thailand - EGAT),
Glow/Suez, Sumitomo, Gulf Electric, Mitsubishi, J-Power, and
Kansai Electric. No U.S. firms are currently known to be
planning to enter the bidding.

5. The current IPP solicitation forms part of Thailand's
latest Power Development Plan (PDP), which covers the 15 year
period from 2007-2021. Under the plan, in addition to the
3,200 MW available to IPPs for the 2012-14 period, an
additional 2,800 MW has been set aside for EGAT on a no-bid
basis. In the 2015-2017 period, a further 4,000 MW will be
open for a new round of IPP bids, with 2,100 MW reserved for
EGAT.

6. Although there have been complaints that the capacity on
offer with this round of IPP bidding is too small, there
appears to be ample interest from bidders. The two EGAT
subsidiaries, EGCO and Ratchaburi, each have projects to
propose that could account for the entire capacity on offer,
although EGCO says they may defer proposing some projects
until the next IPP round. With numerous other experienced
power sector bidders interested, the bidding promises to be
very competitive if it is conducted fairly.

7. The current round of IPP bidding has not been entirely
smooth, and numerous potential problems continue to threaten
the successful completion of the process. Ref.A reported on
a December 2006 public preparatory conference for the current
IPP round. A projected second conference never materialized,
and the anticipated April date for the release of the RFP was
pushed back by two months. According to one of the advisors
hired to prepare the bid documents, the delay was mainly due
to the inability of the MoE to make critical decisions
relating to the RFP and make a concerted effort to meet its
own declared timetable. The short timetable will make the
preparation of quality bids, which must account for complex
variables, difficult. The evaluation process will similarly
face a difficult challenge to complete a thorough and fair
consideration of the proposals in the time available.

BANGKOK 00003733 002 OF 002

8. Other difficulties the IPP must overcome include a
significant political risk and the potential for interference
from EGAT. According to current timetables, Thailand intends
to hold elections for a new democratic government to replace
the coup-installed interim government shortly before the bid
evaluation is completed and winners are announced. Winning
bidders will thus be involved in finalizing financing
arrangements and final negotiations for the PPA at a time
when a new government takes office with unpredictable
commitment to the current PDP and IPP process. Observers
have also criticized the role played by EGAT, the sole
electricity buyer, in the PDP and IPP processes. EGAT
projections of power demand in Thailand played a key role in
the development of the PDP, and it is expected that it will
serve as a technical advisor to the evaluation committee.
The fact that the Chair of the EGAT board, who is also the
MoE Permanent Secretary, will serve as the Chair of the Bid
Management Committee provides ample reason to question the
objectivity of the process.

9. The MoE itself, including its Energy Policy and Planning
Office (EPPO), has limited technical capacity to manage the
IPP. The advisors contracted to prepare the bid solicitation
have completed their terms of reference and will not be
available to oversee or support the remainder of the bid
process. New advisors have yet to be hired.

10. Comment: Despite the diverse risks, the success of
Thailand's previous IPP solicitation, the relatively small
capacity on offer versus the projected overall new capacity
needed, and the relatively non-controversial nature of the
initiative suggest that the IPP solicitation will ultimately
be completed more or less as planned. EGAT does have a
vested interest in the IPP bidding and it will be surprising
if they do not at least attempt to exert some influence on
its outcome. With no independent energy regulatory body (a
draft energy law contains provisions for one) the MoE will be
responsible for making sure that the process functions
properly. Thus far, despite Minister Piyasavati's personal
vigor, it has demonstrated a reluctance to exert firm control
of the process.

11. Comment continued: The limited capacity on offer,
especially given the capacity set aside for EGAT, is
disappointing. The possibility that EGAT subsidiaries might
capture a portion of that capacity underscores that Thailand
is a long way from having a truly open and competitive market
for energy. Nevertheless, the high level of interest in the
IPP offer, and the promise of another to come in the near
future, suggests that Thailand may be inching little by
little away from the model of complete state control of the
power sector. Despite the collapse of the RTG's effort to
privatize EGAT (Ref.B), the momentum for reform of the power
sector has not been entirely lost.
BOYCE

© Scoop Media

 
 
 
World Headlines

 

Ramzy Baroud: Year in Review Will 2018 Usher in a New Palestinian Strategy

2017 will be remembered as the year that the so-called ‘peace process’, at least in its American formulation, has ended. And with its demise, a political framework that has served as the foundation for US foreign policy in the Middle East has also collapsed. More>>

ALSO:


North Korea: NZ Denounces Missile Test

Foreign Affairs Minister Winston Peters has denounced North Korea’s latest ballistic missile test. The test, which took place this morning, is North Korea’s third test flight of an inter-continental ballistic missile. More>>

ALSO:

Campbell On: the US demonising of Iran

Satan may not exist, but the Evil One has always been a handy tool for priests and politicians alike.

Currently, Iran is the latest bogey conjured up by Washington to (a) justify its foreign policy interventions and (b) distract attention from its foreign policy failures.

Once upon a time, the Soviet Union was the nightmare threat for the entire Cold War era – and since then the US has cast the Taliban, al Qaeda, and Islamic State in the same demonic role. Iran is now the latest example…More


Catalan Independence:
Pro-independence parties appear to have a narrow majority. More>>