In June or July 2007 the government is expected to announce the 2007 IPP solicitation for about 4,000 MW, using a form of power purchase agreement (PPA) similar to that used in its successful 1994 solicitation. Seven projects were awarded PPAs in that round, all achieved financial close, and all but one have commenced production.
However, potential investors will have several concerns on their due diligence checklists:
Suit against PTT
PTT pcl is the sole buyer of natural gas from petroleum concessionaires, and the sole seller of gas to gas-fired power plants.
A suit was filed in September 2006 against PTT seeking to reverse the 2001 corporatization of the Petroleum Authority of Thailand. Special interest groups filed a suit in the Administrative Court, following their success in reversing the corporatization of EGAT in March 2006. The government has taken several steps to forestall that result, including enactment of a Royal Decree published on February 16 2007 withdrawing special powers, rights and benefits granted to PTT in 2001, and establishing an interim regulatory body for the electricity industry. The facts that PTT conducted an IPO, listed its shares, and has the largest market capitalization on the SET would make any reversal of corporatization a serious event.
Ceilings on foreign ownership
The Foreign Business Operations Act (FBOA) prohibits companies conducting 43 restricted businesses if foreigners own 50% or more of the shares, unless (in the case of lists 2 and 3) a foreign business licence is obtained. An amendment to the FBOA is pending in the National Assembly that would introduce voting rights (under law, articles of association or agreement) as an additional factor in determining the number of shares held by foreigners, when administering the ceiling in the FBOA. The amendment addresses the practices of issuing preference shares with diluted voting rights to Thai shareholders, and/or using Thai nominees, to circumvent ceilings on foreign ownership. The FBOA does not apply to electricity-generating business or holders of petroleum concessions. Service companies providing services to these businesses can obtain foreign business licences as a matter of routine, or have exemptions under bilateral treaties.
The Company Registration Office adopted a policy in July 2006 to scrutinize Thai shareholders in new companies in which:
- foreigners hold at least 40% but less than 50% of the shares; and
- foreigners own less than 40% of the shares, but a foreigner is a director with power to bind the company.
The Land Department adopted policies in 2006 to scrutinize more thoroughly foreign direct and indirect shareholdings in companies purchasing land.
Petroleum concessionaires and generators are not subject to statutory ceilings on foreign ownership, and have rights to purchase land under the Petroleum Act and the Investment Promotion Act (BOI).
After the September 19 2006 coup, an interim government was installed and an interim National Assembly appointed. A draft constitution is under review and will be put to a referendum. A general election is expected in December 2007. Meanwhile, the business of the Ministry of Energy (which administers the Petroleum Act and is responsible for the electrical power sector) is being conducted normally.
The government is expected to announce in May 2007 the 20th round of bidding for petroleum concessions, offering 56 blocks onshore and nine in the Gulf of Thailand. It is expected that bids will be accepted on the 15th day of each month for one year, and that bids both from Thai and foreign companies will be accepted.
The National Assembly is expected to make amendments to the Petroleum Act later this year. The proposed amendments (together with four new ministerial regulations) will provide financial incentives for marginal and declining fields, provide for faster decisions by the government in administering concessions, and update provisions applicable to operations, and environmental and social impact.