Mega projects : mega financing problems…

Bad day for the boiling room.

Do you remember the “mega projects” ? It started with Thaksin, by the end of 2004, as a hilarious saga. They were speaking about HUNDRED OF KILOMETERS of mass transportation lines… Grandiose budget started from 500 billions THB ! Then 270. Then 200. Then… 160.
Anyway. Right after the Coup last september, the Junta decided to board the same boat. But had to reduce the size of it (the boat). Now it’s 3 train lines, worth in total 160 billions THB. Reality principle I guess. But always a good political tool.

From a civil engineering challenge the whole idea has turned therefore into a mystic Holy Grail.

The thai economy needs urgently a fix of public investments… And such projects are always very popular with voters in cities.

However, even though the thai authorities came up with plans, designs for the lines and other very serious impact studies… Nobody was talking about financing… Who will pay, and how.

That’s the problem with mega projects : they cost a lot. 😉

But mai pen rai, the thais knew a very nice guy with large pockets : the JBIC.

This japanese bank finances many projects in Asia. And how convenient : interest rates were virtually at zero in Japan for many years. Free money. And they helped Thailand in the past by giving loans for… Suvarnabhumi airport.

So the thai gvt asked JBIC to finance at least 84 billions THB (2,4 billions USD). Fair enough. JBIC proposed a 30 years loan (in yen) at 0,75 %.

But a problem arises now. The Japanese don’t seem to be very keen anymore..

Deputy Finance Minister Sommai Phasi is trying to negotiate with the Japan Bank for International Cooperation (JBIC) to reduce interest rate for a light rail project construction loan.
The negotiation came after JBIC insisted it can no longer maintain the 0.75% interest rate due to the strengthening of the Yen.

Mr Sommai stated that the Thai government has yet to decide whether the project will accept private investors or whether it will be fully financed by the government.

“Right now, the government has to decide how it wants the project to take shape,” he said, “only after that will we be able to complete negotiations with JBIC.” (Bangkok Post)

Astonishing, right ? We have the confirmation that all the mega projects are… shaddy. They don’t even have a clue about the final financial scheme !

But in may, they were already in negociations with JBIC (Bangkok Post).

And the Finance Minister doesn’t hesitate to lie about the issue : ” ”We have flexibility [in financing] because domestic liquidity is high and local interest rates quite low. If we cannot borrow abroad, or the terms are not favourable, we can borrow locally.” (Bangkok Post)

Local interest rates are low compared to 1,75 % with the Japanese ? Something is wrong here…

Basically, there are 2 schemes.

-100 % public financing. Impossible right now. The gvt is penny less, and had already injected money into the economy (read here). Borrow 100 % ? Difficult as we see with the japaneses. And especially now (because of the credit crisis around the world).

-ask private investors to participate. For how much ? And who ? Locals ? Or foreign investors ? How unfortunate… when the thai gvt is meanwhile pushing for harder laws against… foreign investors (read here).

There is a third possibility : delay once again. Leave the hot potato -or the red herring should I say- to the next… elected government.

And by magic, today the Transport Ministry adds its own voice to this already very large cacophony : “Three railway projects will be considered at cabinet meeting to prepare for bidding by the end of the year, Deputy Transport Minister Sansern Wongcha-um said Friday. It will take about four to five years to complete these projects,” he said. “Our job is to get every thing ready for the next government to continue with them.

Ready, sure. On the paper.

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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.


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