Spend, spend, spend: Government promises funds for big-ticket projects

After years of debate about various options to improve and expand transport infrastructure, action is now scheduled to follow the words in a giddying array of directions. In March 2012, Prime Minister Yingluck Shinawatra gave an unequivocal go-ahead to high-speed trains in Thailand, even if the Chinese are not yet ready to proceed with the overall regional plan. Capacities at the busy Laem Chabang port will be boosted and the long-awaited extension of Suvarnabhumi Airport in Bangkok has begun.

The flurry of activity follows a decision by the government to seek parliamentary approval to borrow around BT1.6trn-2trn ($51bn-63.8bn) by the end of 2012 or the early months of 2013 to spend on infrastructure projects. The chairman of the Strategic Committee for Reconstruction, Virabongsa Ramangura, said that the government should at least sign construction contracts for some key projects, having spent almost a year planning them. In fact, much of the planned work has been on the table since well before the current administration.

AIRLINES: Numbers were also on the mind of Tony Tyler, director-general and CEO of the International Association of Air Transport (IATA). While visiting Bangkok in February 2012 he gave a preview of the regional market for airline passengers over the next few years. “By 2015, 37% of all passengers will travel on routes to, from or within Asia Pacific, compared to 29% for Europe and North America,” he said. Globally around 877m more people will fly in 2015 than did in 2010, of whom 212m are expected to be generated by China alone.

Air travel growth brings benefits not only to the airlines. A study commissioned by IATA found that in Singapore, aviation supports 119,000 jobs and contributes 5.4% of GDP. In India, the equivalent figures are 1.7m jobs and 0.5% of GDP. While not matching the GDP ratio of Singapore nor the job numbers of India, the Thai results still provided food for thought. In Thailand, aviation contributes 1.5% of GDP and supports 393,000 “quality jobs” directly, with another 1.8m jobs generated by additional tourism.

CHINA UP: Some of the extra Chinese flyers are expected to head to Thailand, with the 2012 total likely to be around 2m, and even more are expected in 2013. To help cater for the higher numbers, Spring Airlines, China’s only low-cost carrier (LCC), launched a daily service between Shanghai and Bangkok in August 2012, making the Thai capital its sixth foreign destination. Until the entry of Spring Airlines, the only two non-stop flights on that route were operated by Thai Airways International (THAI) and China Eastern Airlines, both of which offer a twice-daily service between the two cities.

THAI also serves Beijing, Guangzhou, Chengdu, Xiamen and Kunming. In fact, airlines in both countries have recently become aware of the vast potential for tourism. From its new Bangkok base at Don Muang Airport, Thai Air Asia flies daily to Chongqing, Shenzhen and Guangzhou.

Current visitors from China number around 5500 a day on average, with the majority arriving on Chinese airlines. These include Air China, which also serves Phuket and plans to double its daily service to Bangkok in October 2012. China Southern Airlines has four daily flights to Bangkok from its home base in Guangzhou, while China Eastern Airlines sends five flights a week from Kunming to Bangkok, in addition to its Shanghai service. The swift rise in the number of Chinese visitors to 2m (see Tourism chapter) and anticipated future growth will see either more frequent services by the existing carriers or the arrival of new entrants to the market.

FRANCE DOWN: At the other end of the flight path, the French national flag carrier, Air France, has slashed its Paris-Bangkok service by more than half. Daily flights from Paris to Bangkok have been cut to three times a week and the flight extension to Phnom Penh has been switched from the Bangkok service to a flight to Ho Chi Minh City. As another sign of the times about the origination of passengers to Thailand, both Qantas and British Airways removed Bangkok as a stopping point from their London-Sydney services, although the two airlines still operate a daily service to the Thai capital.

AIRPORTS: Whatever the identity of the winners and losers in the battle for passengers, Airports of Thailand (AOT) is coming out on top. As the operator of Bangkok’s main airport, Suvarnabhumi – as well as five others – AOT projects the airport will have handled around 52m passengers by the end of 2012, an average of more than 19,000 a day more than its design capacity of 45m. Expansion plans for Suvarnabhumi and Phuket airports are finally to be put into effect to solve the chronic congestion experienced year-round at Suvarnabhumi and during the November-to-April period at Phuket.

The main LCCs at Suvarnabhumi have also agreed to shift their operations to Don Muang Airport 45 km away in 2012 to bring even faster relief to the overcrowding. The move by Thai Air Asia and Air Asia, which will take around 10m passengers a year out of Suvarnabhumi, has been eased with a series of financial incentives on fees offered by AOT.

Altogether some 71m passengers will have moved through AOT’S six airports, Suvarnabhumi and Don Muang at Bangkok, Phuket, Hat Yai, Chiang Mai and Chiang Rai, by the time its financial year ends in September 2012. The extra passengers have brought extra profits. AOT has already announced a 57.2% rise in net revenue to BT4.2bn ($134m) for the first half of 2012 over the same period in the prior year.

Completion of the next expansion phase at Suvarnabhumi, expected in 2017, will lift the airport’s capacity to 64m. However, even with the departure of the LCCs, the expanded facilities may be too small even before they open, given the passenger growth rates. This look at future numbers is the main reason behind the government’s decision to make Suvarnabhumi the sole Bangkok airport in the longer term. Having a single hub would cut airline operating costs and speed up transfers to either domestic flights or international connections and was the option recommended by IATA. However, for the time being, expanding operations at Don Muang and encouraging more airlines to move to Bangkok’s smaller airport may be a necessary step to reduce temporary overcrowding at Suvarnabhumi (see analysis).

THE OTHERS: Although Suvarnabhumi, Don Muang and Phuket airports are probably the best known in the country, there are another 28 airports in Thailand, overseen not by AOT but by the Department of Civil Aviation (DCA). Its director-general, Voradej Harnprasert, told OBG, “Many of the DCA airports are severely under-used. The infrastructure is there but there is often only one flight a day, if that.”

In fact, the airport at Korat (also called Nakhon Ratchasima) currently has no flights at all. The airport is 40 km away from town and in any case is only 200 km away from Bangkok. The plan for Korat is to transform it into a maintenance and repair facility for planes, a proposition that is made more attractive by its 2100-metre runway, which is capable of accepting most large aircraft.

To stimulate new business, the DCA has cut the landing and parking fees at 10 of its airports to half of AOT’s regular charges. These include Chumphon, Ranong, Petchabun and Roi Et. Voradej said he expected more point-to-point services between airports the DCA oversees to develop with the enactment of the ASEAN Economic Community (AEC) in 2015. There are already point-to-point flights between Krabi and Udon Thani, and the next may be between Ubon Ratchathani and Surat Thani to act as a gateway for Koh Samui.

AIR FREIGHT: Definition of Thai government policy to turn the country into a hub for air transport is often restricted to the passenger segment, Voradej told OBG. He added that in terms of a transport hub, cargo was just as important and that, to create an effective logistics system, all airports needed linking together in an efficient network.

The DCA has been given BT35m ($1.1m) by the Ministry of Transport (MoT) to conduct a feasibility study for a Customs-free logistics park associated with Suvarnabhumi. Voradej expects that the study will start in 2013 and take a year and a half to complete. He also said that the park would need to connect the airport’s cargo facilities to the rail network. The DCA will be in charge of only the feasibility study stage of the project and then will pass on responsibility to the appropriate agency, probably AOT.

LOGISTICS: For some in the logistics business, connecting cargo terminals to railway services holds little appeal. Anurat Suvatabhandhu, a sales manager at Avigo Express, told OBG that he would not really be interested in rail links. “It is usually more reliable to truck things by road,” he added. However, Voradej’s comments about improving the freight facilities at Suvarnabhumi found an enthusiastic supporter in Kasem Jaliyawatwong, managing director for Harpers Freight International Air Cargo. Kasem told OBG, “Suvarnabhumi was poorly designed and should have included a dedicated freight terminal. There is not enough space and they need to expand it urgently.”

Airport status was another area where the two men’s view overlapped. Kasem added, “Whereas Hong Kong and Singapore are free ports, Thailand is not, so consequently it cannot be a hub for freight.”

Freight forwarders’ costs will be affected by the lift in the level of the minimum wage to BT300 ($10) a day. “We cannot employ non-Thais because only Thais have the right to access the air side,” said Kasem. The wage increase will have a significant effect, according to Anurat, who is of the opinion that it will add about 10% to his company’s direct costs. Altogether, costs could increase by up to 20%, he believes because the new minimum wage will also push up bills for suppliers, which will in turn pass on the additional cost of labour.

RAILWAYS: Indeed, not passing on extra costs over the years in the form of raising ticket prices is one of the factors that has helped to depress the finances of State Railways of Thailand (SRT) to such an extent it is unlikely ever to be able to pay off its accumulated debt. Even so, the SRT governor, Youdtana Tupcharoen, has pledged to replace all of the dilapidated track throughout the entire country within the next two years (see analysis).

While not as spectacular an announcement as Prime Minister Yingluck’s declaration of faith in the launch of high-speed trains, new track will perhaps have a more profound effect on rail travel. The estimated BT21bn ($669.9m) cost of the new track will see one of the three essential components of rail modernisation complete. Replacing locomotives that are half a century old and installing a modern signalling system are the other two.

The future of the entire rail system may well be determined by a process of partial privatisation in a hybrid system. According to this model, the track and infrastructure would be owned by the state while locomotive and rolling stock would be provided by competing companies, which would pay for access to the track and signalling system.

SHIPPING: Almost inevitably, given the global economic turmoil of the past few years, the shipping industry has had its own share of ups and downs. Warawan Nganthavee, a managing director of Asian Marine Services, told OBG, “Our shipbuilding division was doing very well while oil prices were so high before the 2008 crisis, especially with ships to service offshore operations and rigs.”

When oil prices fell dramatically and demand from the energy sector fell away, Asian Marine switched to other segments, such as building two tugboats for the Port Authority of Thailand (PAT). With labour costs in Thailand rising, the company is beginning to look at more opportunities in Myanmar and Cambodia over the longer term. Other costs are also a major consideration. “China has a lower cost base, around 40% lower than in Thailand, because the steel and equipment is all made locally so we cannot compete for clients who would normally go for Chinese shipyards,” Warawan told OBG.

Yet China and other emerging markets have been the saviour of the dry bulk business. Khalid Hashim, a managing director of Precious Shipping, which is the largest private dry bulk carrier in the global shipping market, told OBG, “The main drivers of growth in the dry bulk industry have come from emerging markets like China and India, whose imports of iron ore, coal and steel remain high.”

GLOBAL CHALLENGES: On the other side of the world it was a completely different story. “The overall macro picture coming out of Europe and the US is troubling,” Hashim told OBG. “The reduced demand for finished products is significantly affecting the container business, but there will also be an impact on the dry bulk business as well.”

The market for freight transport has indeed been suffering, according to Simon Davies, Thailand country manager of Jardine Shipping Services, who said that the past couple of years “had been a disaster for shipping rates”. However, the Thai automotive industry, a segment where Jardine is heavily involved, has come to the rescue. “Confidence is high that auto output will hit 2.1m during 2012,” Davies told OBG. He is also a fan of the high-speed rail possibilities. “Obviously that kind of connection would develop the hinterland even more,” he added.

The situation is complicated by the imminent arrival on the world market of a series of container ships that can carry 10,000 twenty-foot equivalent units (TEUs) and were ordered before the global financial crisis. It is possible that most of these will be placed on East Asia-Europe routes, freeing up vessels of 6000-8000 TEU capacity, some of which may be placed on Thailand routes. That would probably, at least in the short term, create excess capacity, which would put downward pressure on rates again.

PORTS: The plan to wind down Bangkok Port and divert the current container operations to Laem Chabang continues under its own – slow – momentum. Chula Sukmanop, director-general of the Office of Transport and Traffic Policy and Planning, said the idea was to phase out Bangkok and to cut road traffic and pollution and to develop the land. “This year we should not receive more than 1.4m TEUs at Bangkok,” he told OBG. “The total is declining because Laem Chabang is more convenient operationally.” The main constraint to a swifter wind-down is personnel. “We will not increase the number of people who work there and the number will be reduced by attrition,” added Chula. “About 3000 people work there and we don’t want to lay them off.”

A proportion of the workforce is due to retire within the next five years, and the only alternatives being considered are an early voluntary retirement scheme or the offer of a change of occupation to one connected with the development project, the first phase of which is due to start at the end of 2012. Jardine’s Davies recognises that “too many people depend on Bangkok Port for it to be suddenly closed”. He also observes that the ratio of employees to containers is much higher than at Laem Chabang.

GROWTH: The greater efficiency at Laem Chabang has also been reflected in an increase in activity at the port. During 2011 this growth was driven largely by intra-Asian trade and Asian shipping lines, especially niche players. Terminal operators at the port on average earned more in 2011 than in 2010, despite the fact that the government’s tariffs for handling have not changed in recent years. As Chatchawan Ghettalae, the general manager of TIPS, one of the terminal operators at Laem Chabang, told OBG, “Thailand has some of the lowest container handling charges in Asia and the PAT has not increased tariffs for the past two decades.”

While the government is expected to give the financial go-ahead for the extension at Laem Chabang, the project is still in an early study phase, according to Chula. “Local people have strong objections to the extension because they were not well-looked after during the first two stages,” Chula told OBG. “We have to do an environmental impact assessment because to extend it even more could affect the local fishing grounds.” The second phase would raise the port’s capacity to 10m TEUs and a third phase could take it to 18m in around eight years’ time. Laem Chabang could be used to import TEUs for Cambodia, but the practicality of that scenario will depend on improving road – and preferably rail – links.

NEW PORT: The biggest port news of 2011 and early 2012 was the endorsement by both Myanmar and Thailand of the project to build a deep-water port at Dawei in Myanmar, as well as an associated industrial, residential and resort complex and all the attendant infrastructure. The $50bn project is being led by the Italian-Thai Development Company, which is seeking investors to get the massive undertaking on the move. A tentative date of 2018 has been given for the opening of the first phase of the port, but this seems overly ambitious in view of the work still to be done in every direction (see analysis). Far from threatening the future of Laem Chabang, the idea is to build new road and rail links between the Thai port and the new facility at Dawei to forge cooperation rather than rivalry between the two.

OUTLOOK: Whether it be high-speed rail, replacing track on the existing rail network, the mega-project at Dawei, extension to Laem Chabang port or continuing work on other parts of the transport infrastructure like public transport and roads, there is no shortage of potential activity. Yet over the years, many ambitious projects have been announced only to lie fallow for a while.

How many of the current crop will come to fruition quickly is impossible to say. Certainly the Suvarnabhumi Airport extension will go ahead to facilitate the tourism industry’s continued growth. High-speed rail development may depend on the exact nature of any unannounced understanding with the Chinese government for it to be an eventual part of the entire regional network. A wholly independent system, especially for passengers, would be difficult to justify economically. Still, even if some of the planned projects do stall and the timeframe has to be extended, one day the overall plan could transform Thailand’s transportation network beyond recognition.

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The Report: Thailand 2012

Transport chapter from The Report: Thailand 2012

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