OBG talks to Yuthachai Charanachitta, President & CEO, ITALTHAI Group

Interview: Yuthachai Charanachitta

How dependent will Thai contractors be on government projects in 2014?

YUTHACHAI CHARANACHITTA: I fully support the government’s policy of allocating funds for big infrastructure projects, especially those related to logistics that can boost trade and mobility. This includes the high-speed train and new roads to link south China with Malaysia and Singapore.

There are, however, a number of challenges to getting these big-ticket projects started. Even some of what I call “blitz projects” – infrastructure initiatives triggered by disaster recovery, such as the water drainage systems built after major flash floods a couple of years ago – have stalled. If these quick-fix, emergency-driven projects face delays from lack of financing, or from political hiccups leading to changes in the personnel who authorised them, this does not bode well for more long-term projects taking off. The government has committed to a number of competing outlays, such as allotting a big chunk of the budget to rice guarantees. With the political climate less and less clear, we are not relying much on government work moving forward.

What are the biggest factors pressuring margins?

YUTHACHAI: When evaluating costs, one has to factor in not just those in the operational phase. In the initiation and bidding phase, many state entities are using unit prices that are decades old, making margins rarely adequate to begin with. This is causing many big-name contractors to turn down government work as the bidding price is unrealistic and unmanageable.

Thailand has almost zero unemployment, and all sectors are facing stiff labour pressures. Workers from neighbouring countries – there are many in construction – are noticing higher competition for labour and demanding above minimum wage. As a result, we are paying more but not getting the same productivity or yield, as foreign hires need more teaching and oversight. Even when it comes to middle management and engineers, we struggle to find enough Thais to fill positions. In some ways this is good for the country as, like Singapore and Hong Kong, we stand to benefit from a more diverse labour pool and are able to attract skilled labour from abroad since Thailand is considered an appealing place to live. It is up to us as Thai companies, who have become accustomed to homogeneity, to adapt and embrace a multilingual and diverse workforce.

How do you assess the regulations on public-private partnerships (PPPs)?

YUTHACHAI: PPPs are of course good in principle, and private firms in Thailand are sitting on lots of liquidity.

They are eager to invest, become co-owners in infrastructure, then convert the cash generated from construction projects into an equity stake. However, there have been cases where some large projects, such as the BTS skytrain, were financed and built by the private sector only to be taken over later by state creditors.

This has made some players reluctant to take on big risks in future. Another concern is the sheer size of some of these projects. The market capitalisation and spending power of Thai enterprises is only a fraction of their peers in Singapore and Malaysia. Many of the biggest Thai firms deal mainly in consumer products and lack a track record in building and managing infrastructure.

How do you rate the awarding and monitoring of renewable energy concessions in Thailand so far?

YUTHACHAI: The main challenge so far with the many big concessions awarded for solar farms has been land speculation. About half of those who hold concessions are doing so as a speculation play, looking to flip them for profit later rather than develop the farms themselves.

Due to corruption, some holders may find it hard to be sure that outlays are going to the right channels, slowing fund flows and concession development.

All told, a number of solar projects have been successful despite the challenges, and we have every confidence that if more concessions are made available to companies, there are a host of reputable and committed players with the competence to deliver on them.