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September 23, 2013

Towards Clarity and Precision: Thailand’s New Public-Private Partnership Law

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Southeast Asia Infrastructure

Thailand faces the need for new public infrastructure and expanded public services, for which substantial investment will be required. Investment by the government can have a major impact on public finances, and so it is an attractive option to shift these costs to the private sector, in the form of public-private partnerships (PPPs).

Since 1992, PPPs have been governed primarily by the Private Participation in State Undertaking Act B.E. 2535 (1992). Its provisions were written in a way that allowed for a variety of legal interpretations, thus providing for uncertainty as to which projects were captured within the scope of the law. Regulations were issued under the law, which addressed the selection process. However, many investors perceived difficulties, and this ultimately hindered the development of PPPs in Thailand.

Earlier this year, the Private Investment in State Undertaking Act B.E. 2556 (2013) was enacted, and became effective on April 4, 2013, simultaneously repealing the old PPP law. While the overall content and structure of the new law is quite similar to the old law, the new law provides greater specificity in definitions, procedures, and timeframes, and establishes a new committee—the PPP Committee—to take primary responsibility for PPPs in Thailand.

The new law has a broad scope. New PPP projects with a value of more than THB 1 billion, or as may be prescribed in ministerial regulations, will be subject to the new law. The new law lays out the basic rules and procedures applicable to new PPP projects, though this is to be fleshed out through ministerial regulations.

The PPP Committee will consist of members from the public and private sector. From the government side, these are specified in statute, and include the Prime Minister (Chair), the Minister of Finance, the Permanent Secretary of the Ministry of Finance, the Secretary General of the Council of State, the Secretary of the National Economic and Social Development Board, the Director of the Bureau of the Budget, the Comptroller General, and the Director of the Public Debt Management Office of the Attorney General. The State Enterprise Planning Office (SEPO) will function as the secretariat of the PPP Committee.

The law provides that consideration of PPPs will take account of:

  1. The performance and cost of operation and the use of state resources;
  2. Adherence to fiscal discipline;
  3. The social and economic benefits from each project;
  4. Transparency in the decision making process;
  5. Appropriate risk allocation between the public and private sector projects;
  6. The rights and interests of the client and the service provider; and
  7. The promotion of fair competition amongst private investors who wish to participate.

In terms of procedures, when a government agency wishes to pursue a PPP project, one of the project agency’s first steps would be to hire a consultant to conduct a project study and analysis. Mandatory use of consultants is a new concept introduced by the law and is thus a significant change. The law provides for SEPO to maintain a list of consultants that meets the requirements of the law.

Once complete, the report will be sent for consideration by the responsible minister of the agency, which must be finalized within 60 days. If the minister approves, the matter then passes to SEPO for further consideration and analysis. This should be completed within 60 days, though questions and additional documents can only be posed/requested within the first 30 days after receipt. The matter is then forwarded to the PPP Committee, with SEPO’s recommendation, for consideration in principle. If the project involves government expenditure, Cabinet approval is still required.

Once the PPP project is approved by the Committee or the Cabinet, the law envisages selection of the private partner, according to regulations yet to be issued. A selection committee is to be appointed by the project agency, in order to select a private sector operator to join in the PPP project. Once the selection committee makes its decision, the results are to be sent to SEPO, and the joint venture agreement is to be sent to the Office of the Attorney General. The final decision will ultimately be made by the Cabinet. Regulations will address requirements for invitation letters and agreements, which are to be followed by agencies pursuing PPP projects.

The law also puts in place a mechanism for supervising and monitoring each PPP project, with a committee for each project appointed for that purpose. Among the committee’s roles, it is responsible for proposing solutions to problems that may arise during the course of a project. Later, when the time comes for renewal, the law envisages a mechanism by which the project agency may renew the agreement with the private operator, which is ultimately subject to Cabinet approval. The law allows for amendments to be made at the time of renewal, but these are also subject to Cabinet approval.

In addition to clarifications in terminology and improvements to timelines, the law seeks to guide the development of PPPs in Thailand.  The PPP Committee needs to work with SEPO in preparing a five-year strategic plan for PPPs, for the Cabinet’s consideration. Among other matters, the strategic plan is to identify sectors and specific projects in which PPPs would be of benefit to the Kingdom, the priority of each, and a target for private investment and a time frame for implementation. Five-year strategic plans are to be prepared on a rolling basis to provide for continual guidance. The law has also established a PPP Development Fund, which is to be used for developing the PPP strategic plan, hiring consultants, and helping agencies develop PPPs that are consistent with the plan.

In case there is confusion as to whether the old law or the new law is applicable to a preexisting project, or a potential new project, which is already undergoing review/consideration, the law provides clarity in this space, as well.

Overall, it is projected that the new law allows for the PPP approval timeline to be shortened from two years to only 7-8 months. Though based on the old law, the new law contains several technical improvements. Ultimately, however, the success of the new law, in terms of attracting new private investment in Thai infrastructure and public services, will depend on the ministerial regulations that are ultimately issued. So long as the ministerial regulations provide a solid framework for development of PPPs, this should deliver a needed boost to private investment in infrastructure and public services.

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