“In Thailand, High-Speed Train, Low Speed Negotiations” by Sihasak Phuangketkeow

2019/89, 29 October 2019

Thailand’s ambitious high-speed train project, intended to link the country’s three major airports, has finally taken off. The signing ceremony for the contract between the Charoen Pokphand Group (CP), Thailand’s leading conglomerate, and the State Railway of Thailand took place on 24 October at Government House. Witnessing the event were Prime Minister Prayut Chano-cha, key cabinet ministers, senior government officials, the chief executives of the companies involved in the international consortium led by CP, and the ambassadors of the countries in which those companies are based. Also present were a throng of journalists and cameramen. A press conference for the local and foreign was convened separately, directly after the signing.

Following months of protracted and intense negotiations that at times seemed on the verge of breaking down, the fruitful conclusion of those negotiations brought a sense of jubilation and relief, on the part of both Thai authorities and CP, that was very much apparent at the ceremony.

For the Thai government, the construction of the planned railway will be the biggest project ever undertaken in the country through a public-private partnership (PPP) scheme. Its estimated cost will 224 billion baht or about US$7.4 billion at the current exchange rate.

Many other major PPP infrastructure projects are also in the pipeline as part of the “Thailand 4.0” strategy to develop three provinces to the immediate east of Bangkok – Chachoengsao, Chonburi and Rayong—into a regional hub for high-tech industries, innovation and logistics under a flagship initiative called the Eastern Economic Corridor (EEC). All the key infrastructure in the EEC – the new international airport in U-Tapao, the expansion of a deep-sea ports, new motorways, and upgrading of rail transport — is to be undertaken on a PPP basis so that the government will not have to incur a heavy financial burden and so that it can maintain fiscal discipline.

The three-airport high-speed railway, as it has come to be known, will allow passengers to travel a distance of some 220 kilometres in less than an hour. It will link Don Muang Airport, the old Bangkok international airport which now serves budget airlines; Suvarnabhumi Airport, now Thailand’s main international airport; and U-Tapao Airport, a American airbase during the Second Indochina War that is now used for charter flights. Those flights cater mainly to tourists going to the sea-side resort of Pattaya in Chonburi Province. With both Don Muang and Suvarnabhumi airports already operating at full capacity, the plan is to develop U-Tapao as Bangkok’s third international airport of Bangkok. This will be the core of what has been billed as an “aerotropolis”, in which industries and businesses related to aviation and aeronautics will be promoted.

Had there been any further delay in the high-speed train project, it would have adversely impacted plans for the new U-Tapao Airport. And, without those two projects, Thailand’s entire EEC scheme would in turn have been thrown off course. Finally, without the huge infrastructure investments that the EEC will bring, the Thailand 4.0 strategy to revitalize the country’s economy would have been difficult to realize.

For CP, too, much was at stake in the negotiations on the three-airport high-speed railway project. From the very beginning, there were doubts about whether the project would be viable in the eyes of potential investors. In addition, the PPP arrangement structured by the Thai authorities offers no guarantee of ridership, unlike the usual practice for such projects in Europe and Japan. This led some potential investors to back off from the project.

But for CP, the project has always been about the bigger picture. Being able to secure such a mega infrastructure project and to lead an international consortium will certainly go a long way in reinforcing the group’s reputation not just at home but also abroad. Further, it will open up new business opportunities for CP, especially involving the commercial development of prime land along the route of the high-speed railway.

CP won the bidding for the right to undertake the project as far back as December 2018, but negotiations on the terms and conditions of the contract dragged on for months. As stipulated in the terms of reference, the consortium led by CP will shoulder all investment costs including, the government’s share. It is only after construction is completed in six years’ time that the government will begin to reimburse CP for its share of the costs. CP, in turn, will operate the high-speed railway for 50 years, including the construction period, and be entitled to the revenues from the operation of train and related commercial development while paying a certain percentage of its profits to the government.

In the course of the negotiations, and to the surprise of many, CP submitted an extensive list of “requests“ centring on the issue of risk-sharing with the government. Some of these requests seemed to stray from the original terms of reference of the contract.

In the end, the main issue of contention was that of land acquisition for the project. CP’s position was that any delay in this process would mean that it would be impossible to complete the project on schedule and that CP could thus be penalized. It argued that, even if the government extended the timeline, CP would still have to pay additional interest on loans. The government’s concern was that, while most of the needed land could be made available without any problem, more time would be required to acquire certain portions because this will involve the relocation of communities, financial compensation and removal of structures such as water pipes, gas and oil pipelines and electricity cables.
It was only after senior cabinet ministers stepped in to expedite the talks, and to exert some pressure, that the two sides were able to resolve the outstanding issues. An arrangement was worked out to establish a clear-cut timeframe, together with a working group to ensure that everything would proceed as agreed. Both sides were also compelled to conclude the negotiations before the deadline of 5 November. Otherwise, CP would have lost the contract and faced fines. Companies belonging to the consortium would also have been blacklisted. With the agreement reached, construction is expected to begin by the end of next year and the high-speed train is expected to be operational by the end of 2023 or in early 2024.
It has been a long and winding road for all those involved in the negotiations. With the project back on track, anxieties have given way to a sense of relief. On 24 October, it was all smiles on the part of everyone witnessing the signing of the contract. Among those smiling were the Japanese and Chinese ambassadors because their countries, through the Japan Bank for International Cooperation and the China Development Bank, have agreed in principle to co-finance the project. This co-financing is part of a wider diplomatic initiative launched by the leaders of the two countries in May 2018 to promote cooperation in infrastructure projects in third countries.

Now, with the three-airport high speed train project going forward, Thailand’s still bigger and more ambitious Eastern Economic Corridor project has moved a big step closer to reality.

Mr Sihasak Phuangketkeow, former Permanent Secretary of Thailand’s Ministry of Foreign Affairs, is Visiting Senior Fellow in the Thailand Studies Programme of ISEAS – Yusof Ishak Institute. 

The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS – Yusof Ishak Institute.  No part of this publication may be reproduced in any form without permission.