Identifier
Created
Classification
Origin
05BANGKOK7124
2005-11-16 09:36:00
UNCLASSIFIED
Embassy Bangkok
Cable title:  

THAILAND: COURT SUSPENDS PRIVATIZATION OF

Tags:  ENRG EINV EPET KPRV TH 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 BANGKOK 007124 

SIPDIS

STATE FOR EAP/MLS, EB, AND EB/ESC/IEC/ENR
STATE PLEASE PASS TO USTR
COMMERCE FOR JEAN KELLY
ENERGY FOR IN AND PI
JUSTICE FOR STUART CHEMTOB
TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ENRG EINV EPET KPRV TH
SUBJECT: THAILAND: COURT SUSPENDS PRIVATIZATION OF
STATE-OWNED POWER PRODUCER EGAT

REF: A. 04 BANGKOK 1504

B. BANGKOK 6761

UNCLAS SECTION 01 OF 03 BANGKOK 007124

SIPDIS

STATE FOR EAP/MLS, EB, AND EB/ESC/IEC/ENR
STATE PLEASE PASS TO USTR
COMMERCE FOR JEAN KELLY
ENERGY FOR IN AND PI
JUSTICE FOR STUART CHEMTOB
TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ENRG EINV EPET KPRV TH
SUBJECT: THAILAND: COURT SUSPENDS PRIVATIZATION OF
STATE-OWNED POWER PRODUCER EGAT

REF: A. 04 BANGKOK 1504

B. BANGKOK 6761


1. (U) SUMMARY: Thailand,s Supreme Administrative Court
has ordered the Minister of Energy and EGAT Plc to suspend
the initial public offering (IPO) of shares of the
state-owned power producer,s stock scheduled for November
16-17, 2005. The Court,s decision represents an unexpected
victory for the Confederation of Consumer Organizations (COO)
and other civic groups currently protesting the privatization
of EGAT on the grounds that the two royal decrees
facilitating the corporatization of the public utility are
against the law and counter to the public interest. The
time-frame for the suspension remains undetermined, and
investors have expressed disappointment at the delay of the
largest share issuance of a state enterprise to date. The
resulting uncertainty sends a negative but accurate message
about the potential risks of investing in Thailand. While
this outcome stands as an example of how the Royal Thai
Government,s rushed implementation of basic economic policy
can turn out badly, the suspension also gives the RTG a
second chance to get its privatization policy right. END
SUMMARY


2. (U) THE PETITION: The Supreme Administrative Court,s
decision arises from the petition of the CCO, led by Rossana
Tositrakul and ten other petitioners. The petition against
the Prime Minister, the Prime Minister,s Office, the Energy
Minister, the Energy Ministry, and the Cabinet alleges damage
as a result of two royal decrees of 2005 that facilitated the
corporatization of the state-owned Energy Generating
Authority of Thailand, which filed for company registration
as EGAT Plc in June 2005, and the transfer of state assets to
EGAT Plc. All shares in EGAT Plc are still held by the RTG.
The petition alleges that the two royal decrees were against
the law because they were issued without public hearings
required by Article 19 (9) of the Corporatization Act of
1999, and that their transfer of state-owned property to EGAT
Plc is against the public interest, particularly the right to
receive public services from the state. The petitioners

asked the Court to suspend enforcement of the two royal
decrees and to suspend EGAT Plc,s share listing and IPO,
scheduled for November 16-17, 2005.


3. (U) THE DECISION: After considering the matter
inconclusively for weeks, the Supreme Administrative Court
was forced to act in view of the November 16 IPO date.
Without making a determination on the legality of the two
decrees in question, the Court ordered the suspension of the
IPO on the grounds that, if the Court finds for the
petitioners on the issue of the two decrees after shares have
been sold, there would be extensive damage to a large number
of buyers of EGAT shares as well as the authorities
concerned. The Court dismissed the request to suspend
enforcement of the two royal decrees, because doing so would
cause problems for the operations of EGAT Plc. While the
Court emphasized in its announcement that there should not be
any effect on investors, confidence from its ordering the
suspension of the IPO, it has not specified a time frame for
its decision on the two royal decrees in question.


4. (U) PUBLIC PROTEST: The daily front-page newspaper
coverage of the court case in recent days highlights the
extent to which protest against EGAT privatization has
suddenly become a highly visible point of contention between
a wide range of civic groups and the government of Prime
Minister Thaksin Shinawatra. On November 15, representatives
from the Confederation of Consumer Organizations of Thailand
and other groups gathered in front of the U.S. Embassy and
presented a letter to the Ambassador warning foreign
investors of their opposition to the sale of EGAT shares.
Econoff accepted the letter on behalf of the Ambassador.
Groups represented included: People Living with HIV & AIDS,
Thailand Four Regions Slum Network, Alternative Agricultural
Network, FTA Watch, and Alternative Energy Project for
Sustainability. These and other groups have conducted
regular demonstrations at EGAT and elsewhere. A major rally
is planned at Sanam Luang this week. While the opposition
Democrat Party has been silent on the matter until this
month, Democrat leader Abhisit Vejjajiva has joined the fray,
promising to renationalize EGAT if the IPO goes through.


5. (U) CONCERNS AT ISSUE: The basic reason why EGAT
privatization is controversial with the Thai public is that
it is expected to result in higher electric power rates. The
RTG has long intervened in one way or another to subsidize
electricity rates. The dramatic rise in world fuel prices in
recent months has in fact raised the cost of such
intervention to the point it is untenable, and one of the
stated aims of privatization is to put electric power pricing
on a sustainable foundation at market-clearing rates. The
Thailand Four Regions Slum Dwellers Network, for example,
counters that slum dwellers would be severely hit by price
increases. The civic groups, arguments in court and in
their public appeals generally anchor their position on EGAT
in a blanket opposition to privatization. For example,
according to Somsak Kosaisuk, advisor to the State
Enterprises Relations Confederation, "People are now aware
that its (EGAT,s) listing is tantamount to selling off the
nation,s property."


6. (U) FOCUS ON THE GOVERNMENT: The public discussion has
also highlighted aspects of EGAT privatization that are of
concern to Thais who, in principle, support privatization as
national policy. These include the RTG,s failure to pass a
basic energy law establishing a National Energy Commission to
serve as an independent regulator and the lack of
transparency in policy-making on the matter to date. Finance
Minister Thanong Bidaya immediately reaffirmed that
privatization remains a key plank in the Thaksin
government,s economic policy, which seeks to raise the
efficiency of state enterprises. If the court sees the laws
as unsuitable, he said, we will amend the laws. Energy
Minister Viset Choopiban commented to similar effect, and
continued his insistence that the IPO process was proper
under the law.


7. (U) INVESTOR REACTION: Investors have expressed their
disappointment over the suspension, as the IPO has been a
much-anticipated event for several weeks. The concern is not
only about the prospects for a future EGAT IPO, but the
impact the suspension will have on investment in other state
enterprises about to float shares. Praphad Phodhivorakhun,
Chairman of the Federation of Thai Industries expects a
significant short-term impact on Thai capital markets as
foreign investors will likely be reluctant to invest in Thai
stocks. Embassy contacts have emphasized that the suspension
heightens uncertainty about the EGAT IPO and the market
generally, but they do not expect the Stock Exchange of
Thailand index to fall dramatically going forward. At
mid-day November 16, the SET index stood at 676.05 points,
down by 5.53 points, with the trading value of 5,445.68
million baht. According to news reports, Worapak Tanyawong,
Managing Director of JP Morgan, EGAT,s financial consultant,
said the immediate loss is about US$ 1 billion, which is the
cost of pre-subscription from foreign investors. The planned
road show in New York, Boston, and San Francisco has been
postponed. Of the 26,000 EGAT employees who planned to buy
shares, those who borrowed money also stand to lose money as
their interest payments come due in December.


8. (U) A SECOND CHANCE TO GET IT RIGHT?: The reaction of
industry experts to the whole question of the EGAT IPO since
its initial failure in March 2004 (see REF A) suggests that
despite being a temporary setback, it does provide a second
chance. Industry insiders such as Piyasvasti Amranand have
sharply criticized the government,s lack of transparency,
and the absence of more competition in the RTG,s plans to
date (REF B). Pointing to prior privatizations, they have
highlighted the failure to improve efficiency or end monopoly
control of the market. Even the EGAT IPO that has been
suspended would have left the government the majority
shareholder. The same experts and even many supporters of
privatization generally have also criticized the government
for not making the case for privatization more forthrightly,
so as to address the concerns raised by the civic groups
rather than stipulating the argument that state management of
the power grid is inherently superior to private
administration. After hearing of the suspension, Mr.
Piyasvasti said that the government should use the
opportunity to go back and do what it should have done
before, namely pass a basic energy law and set up an
independent regulator.


9. (U) COMMENT: While we do not share the petitioners,
blanket opposition to EGAT privatization, we think that the
controversy has focused public attention on real weaknesses
in the RTG,s privatization policy, particularly the lack of
transparency in policy-making, the failure to establish an
industry regulator, a lack of clarity regarding the
price-setting mechanism, and the expected persistence of
EGAT,s monopoly control. The failure to launch an EGAT IPO
represents a setback for the Prime Minister, and we expect
that the attendant uncertainty will result in a short-term
decline in investor confidence as investors see clearly the
risks of investing in Thailand. By demonstrating visibly how
the Thaksin government,s rushed implementation of basic
policy can turn out badly, it also reaffirms our
long-standing concerns about the Thaksin government,s
ability to manage many large-scale endeavors simultaneously
such as the proposed mega-projects. Longer-term, we think
that if the suspension forces the RTG to address legitimate
concerns by enacting a basic energy law and setting up an
independent regulator, the result will be to put EGAT
privatization on a much firmer foundation.
BOYCE