OBG talks to Chanin Vongkusolkit, CEO, Banpu, and Chairman, Thai Listed Companies Association

Interview: Chanin Vongkusolkit

In your opinion, what does the future look like for international coal prices?

CHANIN VONGKUSOLKIT: Demand in the past five years has been driven mainly by growth in Asia, especially in India, China and Indonesia. Traditionally big importers like South Korea, Japan and Taiwan have also seen expansion.

The global situation may cause emerging economies like India and China to focus on domestic growth as exports slow. During the 2008 crisis, the anticipated drop in regional demand for coal did not actually occur. In fact, in countries like South Korea consumption actually went up. This was because the marginal cost of coal usage is cheaper than alternatives such as oil and gas.

Thus, I think demand and supply will stay in balance, and that any price drop will be limited to the next one or two years, due to the growth we expect in India, China and Indonesia in the long term. These nations have a growing middle class that is purchasing vehicles and other consumer goods. In places with the absence of nuclear capacity there will be strengthened demand for coal. I expect a scenario that will be more or less in line with what the Energy Information Administration forecasts for coal demand growth through 2030.

What role do you see hydropower playing for Thailand’s energy consumption mix?

CHANIN: I think hydropower is going to become an increasingly important source of power for Thailand, especially the hydropower coming from neighbouring countries. We are seeing more and more hydro projects in Laos and I think we could replicate the model of cross-border sales with regards to Myanmar, where the situation looks to be improving.

Projects can be developed under the framework of long-term power purchase agreements. This would, however, make it difficult to establish a regional spot market because at the moment the framework is designed largely for long-term bilateral supply contracts. For example, about 95% of the electricity coming from our hydro project in Laos is sold to Thailand.

What opportunities exist in alternative energy?

CHANIN: Thailand has not been a very big consumer of energy outside of the automotive sector. Thus, there is room for growth in the gasohol, ethanol and other biofuel industries, especially as we improve agriculture yields. The positive side of new measures like Australia’s carbon credits is that proceeds can be used to fund further development in alternative fuels. We are hoping the present government will continue to support progress already made on biofuels and associated infrastructure. It is very challenging and time-consuming to build a whole supply chain, from the field to the final product. Banpu is also looking into the use of alternative energy, such as oil palm-based fuels in certain areas of our mining projects in Indonesia. In Thailand we are continuing to study ethanol production in collaboration with Mitr Phol sugar.

What financing challenges do Thai corporations face with regard to international expansions?

CHANIN: It has been more difficult for Thai corporations to raise funds internationally since 2008. However, when Banpu bought Australia’s Centennial Coal in 2010 we were mainly backed by Thai banks. Domestic banks have started to look for opportunities outside Thailand. Recently we have used local financing on deals in Indonesia, China and Australia. Funds are still available for companies with good fundamentals.

So, in a sense, there is a flight towards quality for strong corporations. In fact, recent financial trouble has been good for Thai and other Asian companies, as there are now some considerable takeover options in places like Europe and the US. The financial unrest will probably lower the price of certain assets, making them more reasonable. But we also need to structure our financing to be more resilient over the long term.

Not many medium-sized coal players are going beyond their home borders. As we expand into Mongolia, for instance, we need to build significant associated infrastructure, import labour and tackle the financing issue.