Identifier
Created
Classification
Origin
06BANGKOK1861
2006-03-28 09:06:00
CONFIDENTIAL
Embassy Bangkok
Cable title:  

THAILAND: SUPREME ADMINISTRATIVE COURT QUASHES

Tags:  EINV EPWR ENRG KPRV TH 
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VZCZCXRO3899
RR RUEHCHI RUEHDT RUEHHM
DE RUEHBK #1861/01 0870906
ZNY CCCCC ZZH
R 280906Z MAR 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 7495
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHCHI/AMCONSUL CHIANG MAI 1558
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 BANGKOK 001861 

SIPDIS

SIPDIS

STATE FOR EAP/MLS, EB, AND EB/ESC/IEC/ENR
STATE PLEASE PASS TO USTR BWEISEL
ENERGY FOR IN AND PI
COMMERCE FOR JKELLY

E.O. 12958: DECL: 03/28/2016
TAGS: EINV EPWR ENRG KPRV TH
SUBJECT: THAILAND: SUPREME ADMINISTRATIVE COURT QUASHES
POWER PRODUCER EGAT LISTING

REF: A. 05 BANGKOK 7124

B. 06 BANGKOK 538

C. 05 BANGKOK 6761

BANGKOK 00001861 001.2 OF 003


Classified By: Ambassador Ralph L. Boyce. Reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 03 BANGKOK 001861

SIPDIS

SIPDIS

STATE FOR EAP/MLS, EB, AND EB/ESC/IEC/ENR
STATE PLEASE PASS TO USTR BWEISEL
ENERGY FOR IN AND PI
COMMERCE FOR JKELLY

E.O. 12958: DECL: 03/28/2016
TAGS: EINV EPWR ENRG KPRV TH
SUBJECT: THAILAND: SUPREME ADMINISTRATIVE COURT QUASHES
POWER PRODUCER EGAT LISTING

REF: A. 05 BANGKOK 7124

B. 06 BANGKOK 538

C. 05 BANGKOK 6761

BANGKOK 00001861 001.2 OF 003


Classified By: Ambassador Ralph L. Boyce. Reasons 1.4 (b) and (d).


1. (U) SUMMARY: On March 23, the Supreme Administrative Court
(SAC) ruled that the procedure by which the Royal Thai
Government (RTG) privatized state power producer EGAT Plc was
illegitimate. This ruling quashes plans for an initial
public offering of shares anytime soon. One of the few
institutions that has demonstrated independence from the
government of Prime Minister Thaksin Shinawatra, the SAC
issued the decision after considering a petition against
privatization and listing filed by consumer advocacy groups.
Petitioners argued that privatization benefits a few close to
the PM rather than the nation as a whole, a message that
resonates with consumers facing rising electricity bills
resulting from high fuel prices.


2. (U) While the court's decision was worded to reflect
specific problems with the EGAT privatization process, the
decision is a blow to the RTG,s plans for privatization in
general. Due to the opposition's using privatization and
other market liberalizing policies of the PM as additional
tools with which to attack Thaksin has turned these issues
into highly-charged political questions. The ability of any
government to pursue privatization is doubtful until
sufficient time passes to let the heat out and people regain
confidence in the ability of independent institutions to
protect the interests of the general public. END SUMMARY.

THE RULING


3. (U) On March 23 the Supreme Administrative Court (SAC)
ruled in favor of petitioners seeking to block the partial
privatization of state-owned electric power producer EGAT Plc
(EGAT). The SAC annulled the two royal decrees that
transformed the state agency into a public company. The
ruling is retroactive to June 24, 2005, when the two decrees
came into effect.


4. (U) The most important issue was the transfer of state

assets to a public company. In its prior status as the
Electricity Generating Authority of Thailand, EGAT had
expropriated large tracts of villagers, lands, for example,
to build dams and other facilities. The SAC ruled that the
two royal decrees facilitating the corporatization process
were &illegitimate8 because they transferred public assets
into the hands of a private company. Even though the Royal
Thai Government (RTG) planned to sell only a 25-percent stake
in EGAT, partial privatization of a public company that held
public assets as a state enterprise was nevertheless ruled
inappropriate because the RTG's majority share could be
diluted should more shares be sold in the future.


5. (U) Other aspects of the decision announced pointed to
conflicts of interest and missteps in preparing for
privatization:

--A board member of Shin Corporation and member of the RTG
privatization committee was not suitable to sit on the
committee because EGAT had plans to expand into telecom
services. Note: Shin Corporation subsidiary AIS is the
leading provider of mobile phone services in Thailand. End
note.

--The chair of the public hearing panel on the EGAT listing
is also assistant to the Minister of Natural Resources and
Environment.

--The public hearing procedure was incomplete because the RTG
announced the venue, date, and time in the newspapers for
fewer than the three days required by law. Details of the
decrees were not disclosed and the hearing involved only 3.87
percent of EGAT employees.

--Consolidation of EGAT assets required for the privatization
was not completed before the decrees went into effect.


6. (U) The SAC, which has made previous rulings contrary to

BANGKOK 00001861 002.2 OF 003


Thaksin administration policies, had ordered the suspension
of EGAT,s initial public offering (IPO) on November 15,
2005, the day before the IPO subscription began (REF A). The
purpose was to consider the petition filed by the Federation
of Consumer Organizations (FCO) and other representatives of
consumer groups. That suspension is now final until such
time as the government devises a plan that takes into account
the substance of the court decision.

CRITICISMS OF EGAT PRIVATIZATION PLANS


7. (U) The FCO and other opponents of the EGAT IPO have
raised several concerns in what has been a highly public
campaign against a basic policy of the Thaksin government.
Their general argument is that privatization of state-owned
enterprises (SOEs) is not in the national interest because it
benefits PM Thaksin and those connected to him rather than
the Thai people as a whole. They point to the huge profits
made by investors who received share allotments of previous
IPOs of former SOEs such as the petroleum company PTT Plc.
Critics have also raised questions about national security
and pricing policies for key public services. In February,
after the Temasek buyout of Shin Corporation (REF B),
Chai-anan Samudavanija resigned as the chairman of the EGAT
board, citing fears that "EGAT could fall under foreign
control" in the future. Note: Chai-anan is closely
associated with media tycoon Sondhi Limthongkul, a leader of
the current campaign to oust PM Thaksin. End note.


8. (U) Public interest in plans for EGAT privatization has
been particularly pronounced in part because rising fuel
prices have recently led to increases in retail electricity
prices (tariffs). There is widespread suspicion that a
private entity seeking to maximize shareholder value would
boost tariff rates. Arguments that privatization amounts to
the sale of national assets for the benefit of a few thus
carry special weight.


9. (U) Experts such as Dr. Deunden Nikomborirak, Research
Director for Economic Governance, Sectoral Economics Program,
at the Thailand Development Research Institute (TDRI),have
also emphasized that a critical weakness of RTG plans for
EGAT privatization is the failure to establish an independent
regulator beforehand (REF C). The power sector is currently
regulated by the National Energy Policy Committee, officially
chaired by the Prime Minister and delegated to a Deputy PM.
Its two component bodies are the Power Generation Commission
and the Electricity Review Board (ERB). Parliamentary
passage of a basic law establishing a regulator for the
sector is not imminent. Dr. Vichit Lorchirachoonkul, head of
the ERB, told Econoff that he expects a wait of 2-3 years.
In the interim, there is no entity separate from the
government with the authority to regulate the sector.

A BLOW TO THE GOVERNMENT


10. (U) The Thai press immediately billed the EGAT ruling
&a blow to the government8 at a time full of setbacks for
PM Thaksin. The EGAT IPO would have been the largest in Thai
history*1.245 billion shares floated at 25 to 28 baht each,
expected to boost the overall capitalization of the Stock
Exchange of Thailand (SET) by 300 billion baht (US$7.7
billion). Much of the proceeds were to be used by EGAT to
build new power generating facilities and invest in nearby
countries.


11. (U) Government Spokesman Surapong Suebwonglee accurately
responded that &the court,s ruling did not say that
privatization was illegal, only that in EGAT,s case it was
done improperly.8 Other RTG officials noted that the EGAT
privatization process was overseen by former Chairman (lately
Thaksin foe) Chai-anan. He reaffirmed the RTG,s basic
policy of pursuing privatization of SOEs and cited the postal
service as a successful example. PM Thaksin said that his
government respected the court ruling but shrugged off the
setback as a &technical blunder.8 The PM charged the
Ministry of Energy with considering next steps, but said that
he had not yet decided whether to press on with EGAT
privatization if re-elected in the election scheduled for
April 2.


BANGKOK 00001861 003.2 OF 003



12. (U) In the context of the ongoing standoff between the PM
and his opponents led by Maj. Gen. Chamlong Srimuang and the
People,s Alliance for Democracy (PAD),the EGAT ruling
provided another issue for PAD and others to bash the PM.
Unsurprisingly, Chamlong called for Thaksin to resign, an
appeal which the PM promptly rebuffed.

IMPACT ON PRIVATIZATION


13. (U) Potentially more significant than the momentary
impact on the immediate political climate, the SAC ruling has
influenced the thinking of SOE union leaders, some of whom
see in the decision an opportunity to resist other plans for
privatization of state enterprises. The Port Authority of
Thailand union's leader, for example, has called for the
review of all previous privatizations of state enterprises,
including Thai Airways and PTT Plc. The union leader at the
state-owned Metropolitan Electricity Authority (MEA) -- who
is also President of the Anti-Privatization Network -- has
likewise called for reassessing previous privatizations.


14. (U) The likely impact on future privatization of SOEs is
difficult to assess at this point, but outside of the energy
area it is likely to depend on the overall political strength
of the Thaksin government. Industry observers expect delay
in privatizing EGAT,s sister organizations ) The Provincial
Electricity Authority (PEA) and the MEA*because the issues
are similar to those that tripped up the EGAT privatization.
The caretaker status of the Thaksin government has itself put
all major policy initiatives on hold, thereby delaying the
IPOs of other SOEs, particularly the state-owned telecom
firms TOT Plc and CAT Telecom Plc.

COMMENT:


15. (C) The SAC decision is a setback for EGAT privatization,
forcing the RTG to go back and put the IPO preparations on
firmer legal ground. At the same time, it provides an
opportunity to address concerns that have fueled popular
opposition to privatization, including the creation of an
independent regulator and transparency regarding the issuance
of shares. The delay also provides the opportunity for the
RTG and others to make the case for how efficient management
offers a way to keep a lid on prices, points conspicuous for
their absence in recent debate. One of the ironies of the
current situation is the spectacle of popular reform groups
lobbying for maintaining the status quo of EGAT, widely
viewed here as being among the most corrupt and inefficient
of Thailand's large number of SOEs which have traditionally
provided cushy sinecures for the politically well-connected.
Whether any government in the near term will be willing or
able to press for privatization of EGAT or any other SOE
remains an open question. Privatization of other non-energy
SOEs is not necessarily on hold, but owing to RTG weakness it
is likely that sectoral liberalization has hit a rough patch
that will last for a while, with all of the implications that
has for the stock market, competitiveness of certain economic
sectors, and the opportunities for foreign companies to
invest in Thailand.
BOYCE