During the Asia Cooperation Dialogue (ACD) Summit 2016 which took place from 8 to 10 October 2016 in Bangkok the importance of public private partnerships (PPP) as a guarantor for growth in Asia was stressed once again.
Thailand is launching huge funds over the next years for infrastructure projects. It has been acknowledged that Thailand is in need of huge infrastructure constructions and various other forms of public services. Private participation in these original duties of the state can help to finance, implement and operate the necessary projects in various forms. This can be highly profitable for both sides: the private party and the public.
Thailand’s new Investment in State Undertakings Act (PISU) and the PPP Strategic Plan 2015-2019 (2558-2562 B.E.) ensure that virtually all major infrastructure project are developed as a public private partnership. According to the PISU each PPP-project has to be appraised by a qualified consultant. Juslaws & Consult holds the required consulting license for PPP-projects. After approval of a certain project as PPP-project the competent state agency will prepare an invitation to tender for private investment, draft terms of reference and draft the PPP-contract. The competent agency may hire a qualified consultant. Juslaws & Consult is one of the few law firms which hold the required consulting license required to assist state agencies with this complex task.
The PISU applies in all cases in which an entity of the private law (e.g. Thai or foreign companies) “invests” in an undertaking which either the state has an obligation to perform, or which requires the utilization of resources of the state or natural resources of the country. However, it does not apply to PPP-projects in sectors which are governed by other laws pertaining to petroleum and mining concessions or as excluded in a Royal Decree.
There are certain activities of the state prescribed by the law which might not be suitable for private engagement, such as police work or the judiciary.
Asia Cooperation Dialogue - ACD Summit 2016 Public Private Partnerships - PPP
How can a private party precisely participate in the various projects? The PISU talks of “investing”. But what does the PISU mean when referring to “investing” activities of the private entity? Section 4 of the PISU contains a legal definition which is rather tautological: “investment” means a public-private joint investment by any means, or designation of a unilateral private investment by way of a license or concession or grant of right of any kind.
This definition does not say what “investing” means in the first place. However, it differentiates between two different kinds of investment: one which is done as a public-private joint investment and the other as a private investment which requires a state license or concession etc. From this one can infer that “investing” is not to be construed in a narrow sense of committing money or capital but also covers the whole range of activities of planning, construction and operation of a project.
Therefore, in practice, PPP-projects are conducted in the form of various contractual models as set forth in the so called “Investment Contract” between the public authorities (the state) and the private “investor”. Juslaws & Consult specializes in drafting these “Investment Contracts”. We will post more in-depth article on this topic in the near future.
The Minister of Finance is empowered by the PISU to issue Ministerial regulations for the implementation of the PISU.
Juslaws & Consult has published an article about the huge potential of these projects for foreign investors, construction companies and consultancy companies in the last issue of the UPDATE magazine of the German Thai Chamber of Commerce: https://issuu.com/germanthaichamber/docs/update_q3-2016_all
However, PPP-projects in Thailand are an extremely complex legal topic, involving various government authorities with shared different competencies, i.e. ministries, provincial administrative organizations, municipalities, tambon administrative organizations, the Bangkok Metropolitan Administration, Pattaya City or other local administrative organizations. Basically, projects with a value of over one million Baht require approval by the central government.
Currently there are many projects at various stages in the areas of
- Transportation/Logistics: toll roads, mass transit trains, ports, depots and cargos
- Utilities: power plants, pipelines and public water
- Telecommunication: fixed lines, mobile and TV networks
- Property Development: convention center, hotels and department stores
The PISU provides a relatively streamlined procedure, precise time frame for project consideration and bidding process and project development fund. It even contains rules which are aiming to provide more transparency in the entire process, – a sensitive issues for this topic. The PISU prescribes a pool of experts for selection and monitoring committees, prohibitions for related persons to serve private counterparts and disqualification criteria for advisors and bidders.
The rules of the PISU are given shape by the Thai government’s PPP Strategic Plan 2015-2019 (2558-2562 B.E.) which comprises a project pipeline of 66 projects in transportation, education, telecommunication and other sector and estimated investment costs of 1.41 trillion Baht.
The PPP Strategic Plan divides sectors into two groups. Group 1 applies a so called “opt-out” model which means private sector investment is generally required (urban mass transit system, toll roads in urban areas, logistic ports, high speed rail systems, telecommunication networks and broadband internet). Group 2 is called “opt-in”, so participation and investment from the private sector is encouraged (intercity toll roads, logistics depots, common ticketing system, airport serving, water treatment management, irrigation system, waste management among others).
The Ministry of Finance establishes a “Private Investment in State Undertaking Promotion Fund” which serves to support the preparation of a Strategic Plan and support a state agency in making a project proposal, preparing the project appraisal report and hiring the PPP-consultant.
The Asia Cooperation Dialogue (ACD) Summit 2016 was indeed a huge success and although Public Private Partnerships also know as PPPs in Thailand have a huge potential for investors and foreign companies, PPPs pose a considerable challenge to foreign companies and require a trustworthy, well-connected and experienced local partner. Juslaws & Consult lawyers are Thailand’s experts for public private partnerships. Our team comprises legal PPP experts, project finance experts and engineers. Juslaws & Consult is one of few law firms with the required license for PPP-consulting. Please contact our Bangkok office for further information.
Mr. Yuthana Promsin, Managing Partner at Juslaws & Consult
Mr. Christian Moser, Senior Associate at Juslaws & Consult