Ashurst London March 2009 March 2009

Thailand's new PPP framework

Business impact
In response to the current economic climate, the Royal Thai Government has announced a number of steps that will encourage increased investment in infrastructure projects in Thailand. It is expected that this will generate significant opportunities for those involved in infrastructure development.

for the public and private sectors to work together to fund and build infrastructure projects. In particular, the aims of the framework are to:

encourage transparency; ensure consistency in government policy and regulation; provide guidance for government agencies in relation to governance and process; and provide a methodology for the appropriate allocation of risks between the public and private sectors.

The Royal Thai Government's Ministry of Finance endorsed a new PPP policy framework for the procurement of major infrastructure projects.

The Royal Thai Government announced its plans to spend 1.9 trillion Thai baht (US$52bn) primarily on infrastructure projects in the next 3-4 years.

Potential issues
A key factor in the level of success of the new PPP framework will be the scale of government support for PPP versus traditional procurement methods. Early indications are that top level government is very much in favour. For example, in a recent interview with the Bangkok Post, Prime Minister Abhisit Vejjajiva was quoted as saying that the PPP initiative will be "instrumental in propping up the country's economy" (The Bangkok Post, 18 February 2009). Historically in Thailand, the implementation of PPP projects has been hindered by a fragmented bureaucracy with a number of different bodies assuming responsibility for the implementation of a project. This has resulted in valuable time and resources being spent on co-ordinating efforts and in a lack of consistency between projects. It is anticipated

Krung Thai Asset Management announced its plans to set up two new infrastructure funds.

This briefing considers the key features of the new PPP policy in Thailand, the potential issues that it raises and the new project opportunities that may follow these announcements. The new policy framework
Thailand has had in place a legal framework for largescale PPP projects since 1992 when the Act of Private Participation in State Undertakings, B.E. 2535 (1992) (Act) was passed. However, as the main aim of this Act is to prevent corruption, it focuses on the internal processes of government and does not provide a comprehensive institutional and regulatory framework for PPP projects. In particular, the Act does not provide a methodology for the allocation of risk or project valuation, it only covers certain types of PPP projects and does not prescribe the procurement methods to be followed. Although a full copy of the new policy framework is not yet publicly available, it is understood that it will only apply to projects valued at more than 1 billion Thai baht (US$28m) where PPP has been identified as the most efficient procurement method. The intention is that it will provide a more comprehensive framework

New PPP policy may increase infrastructure projects

ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO WASHINGTON DC

New infrastructure funds

Krung Thai Asset Management, a unit of the majority state-owned Krung Thai Bank, has announced that it plans to set up two 10 billion Thai baht (US$276m) infrastructure funds to invest in local expressways. Each fund is likely to begin at five billion Thai baht, with the option to extend to ten billion in the future. Although Krung Thai has indicated that the funds may invest in both existing assets and new greenfield projects, it is thought likely that any initial investments will be in existing assets, especially given that the Thai Securities Exchange Commission has yet to approve infrastructure funds that are based on investments in incomplete or future projects. It is understood that the Securities Exchange Commission intends to form a working group to begin drafting regulations relating to infrastructure funds sometime in 2009 and that related public hearings have already begun.

(BTO) PPP model), expansion of Laem Chabang Port (again, on a BOT basis), the construction of the Don Muang Tollway in North Bangkok (on a BTO basis) and the Electricity Generating Authority's power projects (executed under a Build-Own-Operate model). Although a firm pipeline of projects to be developed under the new PPP framework has yet to be announced, an indication of the likely project pipeline came from the Royal Thai's Government's announcements in relation to its proposed 1.9 trillion Thai baht economic stimulus package to be spent mainly on infrastructure projects. The Prime Minister indicated that funding for these projects, which will be overseen by Deputy Prime Minister Korbsak Sabhavasu, will be obtained from the fiscal budget, the private sector (through PPP and infrastructure funds) and loans from local and international institutions. The areas to be targeted for development are:

water-supply management; utilities and logistics; information technology; mass transit; tourism; healthcare; food; and alternative energy and "green" industry.

that the new framework will address these issues through the establishment of a central PPP unit, along the lines of the Private Investment Center of Korea or Partnerships UK, to facilitate the PPP procurement and delivery process and provide technical and legal support to the procuring authorities. Such a unit could assist the procuring authorities in ensuring that risks are appropriately allocated and that PPP projects remain consistent with the Royal Thai Government's overall objectives. It is expected (and hoped) that the new framework will provide procuring authorities with tools for assessing value for money and template documents for RFPs, bidding and contract negotiation and will also include a model concession agreement. This will help provide consistency in implementation and achieve the new framework's aim of ensuring transparency in procurement and implementation processes.

The recent announcements indicate that the Royal Thai Government is placing a high priority on infrastructure projects and internal investment in response to the current economic climate. The timely endorsement of a new PPP framework, which

"the PPP initiative will be 'instrumental in propping up the country's economy'."

is expected to address past issues encountered in PPP

Opportunities for future PPP projects

Thailand already has a history of utilising PPPs for major infrastructure development in sectors such as power, telecoms and transport. Past PPP projects include the Bangkok Skytrain (executed on a BuildOperate-Transfer (BOT) basis), the Blue Line MRT project (implemented by a Build-Transfer-Operate

projects in Thailand, is a sign that the Royal Thai Government values the PPP model as having a key role to play in the implementation of its infrastructure programme and wishes to refine its PPP model. Hopefully, this renewed impetus will generate significant opportunities for those involved in infrastructure development going forward.

Ashurst and infrastructure

"Ashurst's project finance practice has a phenomenal reputation. It has consistently won instructions to advise on some of the biggest projects throughout Asia." The Asia Pacific Legal 500 Ashurst is one of the world's leading infrastructure law firms and has an excellent reputation in the sector, including:

a global network of expertise within our first-class projects, finance and M&A practices; a team of specialists with in-depth expertise and experience in delivering complex and innovative projects, financings and acquisitions; and a strong track record in infrastructure asset acquisitions, including portfolios of assets across multiple jurisdictions.

In Asia, we have a dedicated team of lawyers with expertise in both the energy and non-energy infrastructure sectors and have been involved in many landmark infrastructure projects across Asia. We have won many awards for the excellence of our legal advice, including:

Deal of the Year 2008 Asian-Counsel Magazine for the ITE College West PPP project PPP Deal of the Year (Asia Pacific) 2008 Project Finance International Awards Project Finance Law Firm of the Year (Singapore) 2008 ACQ Finance Magazine Law Awards

Further information
For further information on the issues raised in this briefing or on any other aspects of infrastructure, please contact: Matthew Bubb Partner Singapore T: +65 6416 0272 E: matthew.bubb@ashurst.com Harvey Weaver Counsel Tokyo T: +81 3 5405 6209 E: harvey.weaver@ashurst.com

Joss Dare Partner Dubai T: +971 (0)4 365 2000 E: joss.dare@ashurst.com

Mark Elsey Head of global infrastructure London T: +44 (0)20 7859 1721 E: mark.elsey@ashurst.com

Abu Dhabi Suite 101, Tower C2 Al Bateen Towers Bainunah (34th) Street Al Bateen PO Box 93529 Abu Dhabi United Arab Emirates T: +971 (0)2 406 7200 F: +971 (0)2 406 7250 Brussels Avenue Louise 489 1050 Brussels Belgium T: +32 (0)2 626 1900 F: +32 (0)2 626 1901 Dubai Level 5, Gate Precinct Building 3 Dubai International Financial Centre PO Box 119974 Dubai United Arab Emirates T: +971 (0)4 365 2000 F: +971 (0)4 365 2050 Frankfurt Oberlindau 54-56 60323 Frankfurt am Main Germany T: +49 (0)69 97 11 26 F: +49 (0)69 97 20 52 20 Hong Kong Suites 1601-6, 16/F ICBC Tower Citibank Plaza 3 Garden Road Central, Hong Kong T: +852 2846 8989 F: +852 2868 0898

London Broadwalk House 5 Appold Street London EC2A 2HA UK T: +44 (0)20 7859 3888 F: +44 (0)20 7859 3880

Paris 18, square Edouard VII 75009 Paris France T: +33 (0)1 53 53 53 53 F: +33 (0)1 53 53 53 54 Singapore

Madrid Alcal, 44 28014 Madrid Spain T: +34 91 364 9800 F: +34 91 364 9801/02

55 Market Street #07-01 Singapore 048941 T: +65 6221 2214 F: +65 6221 5484 Stockholm

Milan Via Sant'Orsola, 3 20123 Milan Italy T: +39 02 85 42 31 F: +39 02 85 42 34 44 Munich Prinzregentenstrae 18 80538 Munich Germany T: +49 (0)89 24 44 21 100 F: +49 (0)89 24 44 21 101 New Delhi Liaison Office 6 Aurangzeb Road, D-1 New Delhi 110011 India T: +91 11 2301 4054 F: +91 11 2301 4089 New York 1 Penn Plaza, 36th Floor New York, NY 10119 USA T: +1 212 245 4540 F: +1 212 245 4335

Birger Jarlsgatan 6B Box 55564 102 04 Stockholm Sweden T: +46 (0)8 407 24 00 F: +46 (0)8 407 24 40 Tokyo Shiroyama Trust Tower, 30th Floor 4-3-1 Toranomon, Minato-Ku Tokyo 105-6030 Japan T: +81 3 5405 6200 F: +81 3 5405 6222 Washington DC 1725 I St NW, Suite 300 Washington, DC 20006 USA T: +1 202 349 1111 F: +1 202 349 3838

This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions. For more information please contact us at Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA T: +44 (0)20 7638 1111 F: +44 (0)20 7638 1112 www.ashurst.com Ashurst LLP and its affiliated undertakings trade under the name Ashurst. Ashurst LLP is a limited liability partnership registered in England and Wales under number OC330252. It is regulated by the Solicitors Regulation Authority of England and Wales. The term "partner" is used to refer to a member of Ashurst LLP or to an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Ashurst LLP's affiliated undertakings. Further details about Ashurst LLP and its affiliated undertakings can be found at www.ashurst.com. Ashurst LLP 2009 Ref:12368369 11 March 2009