ASEAN People Forum

Thailand’s Perspectives on Energy Industry and Investment

in ASEAN

19 October 2009 Chuenchom Sangarasri Greacen

Palang Thaiwww.palangthai.org

ASEAN Plan of Action for Energy Cooperation

( -20102015APAEC )Program Area Ownership

1. ASEAN Power Grid Heads of ASEAN Power Utilities/Authorities (HAPUA)

2. Trans-ASEAN Gas Pipeline ASEAN Council on Petroleum (ASCOPE)

3. Coal and Clean Coal Technology ASEAN Forum on Coal (AFOC) (ACE as Secretariat)

4. Energy Efficiency and Conservation (EE&C)

EE&C-Sub-sector Network(ACE as Secretariat)

5. Renewable Energy (RE) RE- Sub-sector Network(ACE as Secretariat)

6. Regional Energy Policy and Planning (REPP)

REPP Sub-sector Network (ACE as Secretariat)

7. Civilian Nuclear Energy (ACE as Secretariat)

*ACE = ASEAN Center for Energy

Indicative Master Plan on Power Interconnection in the GMS

• Benefits :– Exchange energy e.g.

during different peak periods

– Reduce shared reserve margin

– Maximize efficient utilization of resources in the GMS

Reality of GMS Power Grid:expensive, risky investment

• Based on unrealistically cheap hydropower costs – NT2 power at 1.4 US cents/kWh

• Costs excluded in analysis:– Control center– Water usage– Regulator & reliability

coordination– Transitional costs

• Increased vulnerability: events in Laos/Cambodia determine reliability of Thai Grid

US$billion

Project cost 43.50 - 44.96

Cost savings*

0.45 - 0.91

% benefit of total cost

1.0 – 2.1%

*Cost savings of extended power cooperation scenarios over base case

Source: Comments on Indicative Master Plan on Power Interconnection in GMS Countries by Bretton W. Garrett, P.Eng., Ph.D.

ASEAN Power Grid Projects

Projects under construction:

1. Thailand – Lao PDR– Roi Et – Nam Theun 2 – Udon Tani – Nabong

2. Lao PDR – Vietnam 3. Lao PDR – Cambodia

Projects under design or study1) Sarawak – Peninsular Malaysia2) Peninsular Malaysia – Sumatra3) Batam - Bintan - Singapore4) Sarawak - West Kalimantan5) Philippines - Sabah6) Sarawak - Sabah - Brunei7) Thailand - Myanmar8) East Kalimantan - Sabah

Source: APAEC 2010-2015

Trans-ASEAN Gas Pipeline Projects

Source: APAEC 2010-2015

Thailand’s perspectives

Projects within Thailand implemented with government’s force

Example of the Thai-Malaysian Gas Pipeline

When resistance is tough at home, ASEAN “Grid” allows cross-border exports of environmental, social and HR problems of securing energy

Nam Theun 2 (1000 MW)• Mainly to serve Thailand• 6,200 people in Laos

resettled• Dam will dry Nam Theun

River and swell Xe Bung Fai River

• Endangered species, elephant habitat to be flooded

ASEAN framework is used to explore and expand business opportunities for Thai

energy corporations• Power projects by

Electricity Generating Authority of Thailand (EGAT)’s subsidiaries– RATCH– EGCO– EGAT International– Activities in Laos,

Burma, Cambodia, Indonesia

• Gas/petroleum projects by– PTT (partially privatized

gas/petroleum utility)– PTTEP and its various

subsidiaries– Activities in Burma,

Malaysia, Indonesia, the Philippines

EGAT

PTT

Energy plan and policy decisions (at national or ASEAN levels) dominated

by business interests

• Power and gas utilities are main drivers– EGAT– PTT

• Support by Government

Program Area Ownership

1. ASEAN Power Grid

Heads of ASEAN Power Utilities/Authorities (HAPUA)

2. Trans-ASEAN Gas Pipeline

ASEAN Council on Petroleum (ASCOPE)

3. Coal and Clean Coal Technology

ASEAN Forum on Coal (AFOC) (ACE as Secretariat)

4. Energy Efficiency and Conservation (EE&C)

EE&C-Sub-sector Network(ACE as Secretariat)

5. Renewable Energy (RE)

RE- Sub-sector Network(ACE as Secretariat)

6. Regional Energy Policy and Planning (REPP)

REPP Sub-sector Network (ACE as Secretariat)

7. Civilian Nuclear Energy

(ACE as Secretariat)

Source: APAEC 2010-2015

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ยงไ ม&ม�ข้(อม)ลั (~2,000,000 หากครบป1)

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ผ)(ตรวจิราชัการกระทรวงพลังงาน

Conflict of interest : policy v business

Permanent secretary of ministry of energy

Board of directors

Chairman of PTTChairman of EGATBoard member of PTT chemicalChairman of Rayong refinery

Dep. permanent secretary Board member of Thai oil

Board member of RATCH

Board member of RATCH

Board member of Aromatics PLC

Board member of PTTEP

Director general,Energy fuel

Board member of PTTEP

Director general of energy business Board member of PTTDirector general of Department of Alternative Energy Development and Efficiency energy

Director of Energy Policy and Planning official

Senior official of ministry of energy

Senior official of ministry of energy

Senior official of ministry of energy

Board member of RATCHBoard member of Ratchaburi generation company

Board member of Bang chak

Dep. permanent secretary

Dep. permanent secretary

Energy policy and its impacts on share prices of energy companies in the stock

market• The coup-installed government announced its policy

on energy investment opportunities on 3 Oct 2006• Energy policy, PDP approval and IPP bidding resulted

in significant windfall benefits for selected companies

• 1 year later, the share prices of companies benefiting from the PDP jumped 66% (other companies had a 8.7% rise)

Index Market Cap.

(M Baht) Index

Market Cap. (M Baht)

SET index 732.3 5,398,975 894.34 6,902,455 22.1%Energy - total 1,549,720 2,416,915 55.4% Energy - PDP-related 1,189,947 1,975,093 66.0% Energy- PTT-related* 1,178,612 1,946,230 65.1% Energy - PDP/PTT-related 1,379,886 2,259,729 63.8% Energy-non-PDP/PTT 25,212 22,126 -13.2%Non-energy SET index 3,849,255 4,485,540 8.7%

*"PTT-related" = PTT having more than 25% shares (voting rights) in the company

Share value increase in 1

year (%)

3-Nov-06 2-Nov-07

18,000

20,500

23,000

25,500

28,000

30,500

33,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month

MW

Actual

installed capacity

20082007

22,56822,586

28,153

30,305

Forecast_Mar07 (Base case)

Source : EGAT

Generation capacity in excess of demand (2007-2008)

More investments NOT equal to greater benefits for Thais

Excess gas/ pipeline capacity/

generation capacity

economic waste + excess burden for

consumers

Under centralized monopoly structure

MW

8,000

12,000

16,000

20,000

24,000

28,000

32,000

36,000

40,000

44,000

48,000

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

ม�.ย.-93

ธ.ค.-94

ต.ค.-95

เม.ย.-96

ต.ค.-96

ม�.ย.-97

ก.ย.-97

Sep-98(MER)

ก.พ.-01

สิ.ค.-02

Jan-04(LEG)

Jan-04(MEG)

Apr-06 (MEG)

ม�.ค.-07

ACTUAL

ธ.ค.-08

Power Demand: Projections vs. Actual 1992 – 2009

Repeated number errors with real consequences for

affected ecology, communities and

consumers

• Financial criteria for utilities link profits to investments– Thailand uses outdated

return-based regulation– WB’s promoted financial

criteria such as self financing ratio (SFR) also have similar effects

• ROIC (Return on Invested Capital means: the more you invest, the more profits

Incentive structure for utilities:the more expansion, the more

profits

ROIC = Net profit after tax Invested capital EGAT 84. %

MEA PEA

48.%

Result : Demand forecast have systemic bias toward over-

projections Too many expensive power projects get built

Cycle of over-investment

Power demand (over-)projections

Deterministic planning basedon demand forecast leads

to over-investmentin capital-intensive

power projects

Tariff structure that allows pass-through of unnecessary investments

Utilities’

Profits

11

22

33

Energy security (or handsome profits) at the expense of ???

Electricity productionand consumption(GWh)

1700 families relocated

Loss of livelihood for > 6200 families

Loss of 116

fish species 44( %)

Fishery yield down 80%

65MaeHongSong

Sou

rce: M

EA

, EG

AT, S

earin

, Gra

ph

ic: Gre

en

World

Fou

nd

atio

n

Dams Malls Province

Pak

Mun

Impacts of Pak Mun Dam alone

MBK

123

81

75

Siam Paragon

Central World

การกระจิายข้องจิ$านวนผ)(ใชั(ไฟแลัะปร�มาณการใชั(ไฟฟ.าDistribution of number of power users & energy

consumed

73%

8%

19%

13%

7%

10%

0%

22%

0%

40%

0%

3%

1%4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

лѼѥьњьяѬҖѲнҖѳђ юі ѧєѥц дѥі ѲнҖѳђђґѥ

юқҠєьѸѼѥѯёѪѷѠдѥіѯдќші

ўьҕњѕкѥьіѥндѥі

ыѫідѧлѯмёѥѣѠѕҕѥк

ыѫідѧл/ѠѫшѢеьѥчѲўр ҕ

ыѫідѧл/ѠѫшѢеьѥчдј ѥк

ыѫідѧлеьѥчѯј Ѷд

эҖѥьѠѕѬҕѠѥћѤѕ (>150 ўьҕњѕ/ѯчѪѠь)

эҖѥьѠѕѬҕѠѥћѤѕ (<150 ўьҕњѕ/ѯчѪѠь)

ท�#มา : รายงานการปรบโครงสิร(างอตราค&าไฟฟ.า (มต� ค.ร.ม. วนท�# 3 ตลัาคม 2543)

Small houses (<150 kWh/mo)

Large houses (>150 kWh/mo)

Small industrial/commercial

Small industrial/commercial

Large industrial/commercial)

Specific businesses

Government

Agricultural pumping

Number of customers Electricity consumption

"Nature has enough for our need,"Nature has enough for our need,but not enough for our greed." but not enough for our greed."

- Gandhi

In conclusion

• ASEAN = expanded ground ??– to which Thailand can export its envi, social &

human rights problems from securing energy?– from which Thailand’s centralized energy

corporations can grow and profit?– In which Thailand’s cycle of over-investment

and excess consumer burden is aggravated?

• ASEAN energy decisions dominated by utilities and senior officials with conflict of interests

What to do?• Need to empower the grassroots• Need to reform the centralized monopoly

structure and liberate decentralized solutions (local planning & control, energy efficiency and conservation, small-scale renewable energy)

• Need to democratize national governments as much as ASEAN (Can we democratize ASEAN without democratizing our own governments?)

MEDITATE, CONNECT, EMPHATIZE, BE GENTLER, BE KINDER