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Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 THAILAND – ANNEX 7 1. Introduction This Annex sets out our findings in relation to the current status of implementation of the IPP Principles in Thailand. In relation to each Principle the current status of implementation is described. Where possible and appropriate, we have identified potential barriers or impediments to improved implementation of the Principles. These findings reflect research carried out in the period January – April 2000. A wide range of persons were interviewed in Thailand, including representatives from the Australian embassy in Bangkok; EGAT; EGCO; foreign investors; the Ministry of Finance; financiers; and independent consultants. 2. Background 2.1 Recent developments in the Thai electricity sector In 1992, the Government of Thailand announced the commencement of a policy of encouraging a greater level of private sector participation in the generation sector of the electricity industry. In 1994, in response to the Government’s policy, the State owned electricity company Electricity Generating Authority of Thailand (“EGAT”) launched an Independent Power Producers (“IPP”) program which incorporated certain IPP projects into EGAT’s Power Development Plan which allows the private sector to therefore construct, own and operate large scale power projects and sell the electricity to EGAT. The “First Solicitation” was issued on 15 December 1994 by EGAT for the purchase of 3,800 MW of power from IPPs. The First Solicitation was divided into two stages: (a) stage1, in which 1,000 MW was expected for operation within the Year 2000; and (b) stage 2, in which 2,800 MW was to be available to EGAT in the period 2001 to 2002. In April 1995, following the resolutions of the National Energy Policy Council (“NEPC”) and the load forecast issued in June 1994, EGAT announced an increase of the power purchase of the First Solicitation by 10%. In July 1996, EGAT announced a further 1,600 MW increase bringing the total power purchase of the First Solicitation to 5,800 MW. In addition, in 1992, EGAT announced plans to purchase electricity from Small Power Producers (“SPPs”). The maximum capacity to be purchased from each SPP being 50 MW with the total power purchase from SPPs being 300 MW. In November 1995 the power purchase from SPPs was increased from 300 MW to 1,444 MW and in July 1996 the power to be purchased from SPPs was increased again from 1,444 MW to 3,200 MW. In addition, the power purchase from each 1 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 individual SPPs was increased from 50 MW to 60 MW or up to 90 MW if the capability and reliability of the system is acceptable. However, like most countries in Asia, Thailand suffered economic decline as a result of the 1997 Asian economic crisis. The decline in the Thai economy has resulted in a decline in domestic demand for electricity. Thailand has around 17,500 MW of electric generation capacity and, in 1996, it generated approximately 82 billion kWh of electricity. The decline in the Thai economy has resulted in a decline in domestic demand for electricity. This situation compelled EGAT to revise its electricity demand projections. EGAT’s projections indicate that demand for electricity from 1997-2001 will increase on average 7.3%, or 1,200 MW, per year. Previous estimates projected annual growth rates of 8%-9%. By 2001, peak load demand is expected to be 19,049 MW or 11% below previous estimates.1 In response to the slower growth projections, EGAT has postponed or delayed a number of projects including the commissioning of the third and fourth 300 MW thermal units of the Ratchaburi power complex by 3 years to 2004 and 2005, respectively; postponing the start up of the second 300 MW thermal unit at the Krabi power plant from 2001 to 2005; reducing power purchases from SPPs from 3,200 MW to 2,000 MW for the period 1997-2003; delaying the next solicitation for power purchases from IPPs from 1998 to 1999 and reducing purchases from 3 Laotian projects.2 2.2 The role of IPPs in Thailand Currently, there are 6 IPPs that have agreements with EGAT to supply more than 5000 MW to Thailand’s national grid. 3 In addition, there are 7 IPP projects currently planned or under negotiation in Thailand; these projects, and the parties to those projects, are set out in Appendix A. IPPs are part of the Thai Government’s overall policy of privatisation and the encouragement of a greater level of private sector participation in the development of power. EGAT believes that privatisation encourages a greater level of competition in the choice of technology, fuel type and plant location, thus reducing construction costs and arriving at an electricity tariff that benefits consumers.4 Following the sudden depreciation of the Baht in July 1997, IPPs were left with projects that were no longer profitable. The IPPs originally agreed to sell power to EGAT at prices denominated in Baht, but most of their costs and financing are in foreign currency. However, in September 1997, EGAT agreed to absorb most of the increased costs incurred by the IPPs as a result of the Baht depreciation and agreed to raise the purchase price of electricity accordingly. The new terms have effectively saved the IPPs from collapsing by reason of foreign exchange risk. 1 EIA Energy Information Administration, Thailand, U.S., January 1999 and Power in Asia, ‘Thailand/Demand/Utilities Project’, 1 November 1999. 2 EIA Energy Information Administration, Thailand, U.S., January 1999, p. 5. 3 EIA Energy Information Administration, Thailand, U.S., January 1999, p. 6. 4 Taken from the IPP Section of the Electricity Generating Authority of Thailand’s website. 2 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 3. Institutional and Regulatory Structures 3.1 Principle 1: Energy sector policies 3.1.1 Energy sector policies formulated to create a stable framework for power sector reform (a) Clear, published and consistent energy sector policies Domestic energy sector policies in Thailand are published and clearly stated. The current energy policies are based upon a number of resolutions of the National Energy Policy Council (“NEPC”) and the Thai Cabinet. The most recent resolutions are: NEPC resolution dated 16 September 1997 that speeded up privatisation of the energy sector; Cabinet resolution on 4 November 1997 which approved the sale of shares in Electricity Generating Public Company Limited (“EGCO”) and PTT Exploration and Production Plc; Cabinet resolutions on 1 September 1998 and 30 November 1999 which approved the Master Plan for State Enterprise Sector Reform (the “Master Plan”); Cabinet resolution on 16 February 1999 that approved the privatisation of the Ratchaburi power plant and the natural gas deregulation program; Cabinet resolution on 30 November 1999 which approved the revised plan to privatise the Ratchaburi power plant by selling shares to the Thai public as opposed to selling to strategic investors; and Cabinet resolution on 25 July 2000 which approved the Thailand Power Pool and Electricity Supply Industry Reform Plan (the “Reform Plan”). The Reform Plan was based on the final report of a study conducted by a group of consultants led by Arthur Andersen.5 The Master Plan The primary document which outlines Thailand’s domestic energy privatisation policy is the Master Plan which encompasses the communication, water, transportation, energy and other sectors of the Thai economy. The purpose of the Master Plan is to “provide the framework and guidelines for reforms to effectively increase private sector participation in the economy”.6 The Master Plan states that it is 5 This report is available on the NEPO website (www.nepo.go.th). 6 Thailand, Ministry of Finance Privatisation Master Plan, page 1. The Master Plan is available on the Ministry of Finance website (www.mof.go.th). The paper entitled “Privatisation and Liberalisation of the Energy Sector in Thailand” is available on the National Energy Policy Office (“NEPO”) website (www.nepo.go.th). 3 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 to “serve as a reference document for the government, ministries, enterprises, investors, employees and the general public as SOE privatisation plans, and legal, regulatory and institutional reforms are prepared, approved and implemented in the years ahead”.7 It is clear what the objectives of energy policy are. The Master Plan states that the main objectives in promoting greater private sector participation in the energy sector are: to increase competition in the energy industry to bring about more efficiency within the industry and the provision of adequate energy at reasonable prices for consumers; to reduce the investment burden of the government as well as the private sector debt; promote the more efficient use of energy such as that demonstrated by SPP projects using the generation system; to ensure power users are given the best possible services, price levels and safety standards; and to encourage the general public’s participation in the energy industry development through the development of the capital market.8 On 2 September 1998, NEPO (the national policy making body for energy in Thailand) issued the “Privatisation Master Plan Energy Sector Report Redraft” (“The Master Plan Redraft”). The Master Plan redraft sets out the three stages of the proposed reforms to the electricity industry in Thailand (the three stages of power market reform are detailed in paragraph 3.1.2(a). In addition, NEPO, in its publication entitled “Privatisation and Liberalisation of the Energy Sector in Thailand” issued on 29 March 1999, listed the same set of objectives as listed in the Master Plan with the notable addition of a sixth objective, being the development of the capital market. Energy policy is consistent with the other sector policies. As noted above, the Master Plan proposes sweeping changes to most of the major utilities. The central aim of the proposed changes to all of the other sectors is stated in the Master Plan as being to increase private sector participation in the economy. 7 Thailand, Ministry of Finance Privatisation Master Plan, page 1. 8 Thailand, Ministry of Finance Privatisation Master Plan, page 20 - 21. 4 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 (b) Environmental policy objectives Thailand’s environmental polices are contained in: The Enhancement and Conservation of National Environmental Quality Act B.E. 2535 (which is the primary piece of environmental protection legislation); The National Environment Quality Act BE 2535 NEQA (1992); The Factories Act BE 2535 (1992); and The Hazardous Substances Act BE 2535 (1992). In addition, the National Environmental Board has published various environmental standards. The standards applicable to power plants are: (a) Atmospheric Ambient Air Quality Standards; (b) Water Quality Standards; and (c) Emission Standards for SO2, NO2 and participate. The main thrust of this legislation is that thermal power projects with a generating capacity greater than 10 MW, must complete an Environment Impact Assessment (“EIA”). This is applicable to all new projects meeting these criteria, regardless of ownership. The EIA must study: the existing environment; the economic value estimated of all available natural or man made resources; the comparative impact of the construction and operating the plant at that particular site; the extent of damages that may occur; and the mitigation measures.9 The Office of Environmental Policy and Planning (“OEPP”) and an Expert Committee (established under the National Environmental Board) reviews the EIA before being submitted to the National Environmental Board (“NEB”) for final approval. The Thailand Power Pool and Electricity Supply Industry Reform Study by Arthur Andersen dated 1 March 2000 (“the Arthur Andersen Report”) contains a comprehensive review of Thailand, existing environmental laws and policies. The Arthur Andersen Report concludes that more study needs to be undertaken on how renewable power producers can be integrated into the competitive market with a subsidy arrangement that is transparent, provides for efficiency incentives and does not distort market out comes. 9 APEC, ERF, Electricity Regulatory Arrangements, Summary Submission, Thailand, April 1999. 5 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 NEPO has a policy to provide subsidies of no more than 0.60 baht/kWh to new renewable Small Power Producers (SPP). The source of funding, to come from the Energy Conservation Fund, has been approved by the government. The total generating capacity to be accepted under the program is 300 MW. In addition, the policy to promote small renewable SPPs by allowing them to sell power into the distribution network is pending approval by the National Energy Policy Council (‘NEPC’). There appear to be no effective policies in Thailand to place energy efficiency and conservation options on an equal basis with supply-side options, such as through all-source bidding programs. (c) Established legislative framework The primary electricity laws in Thailand are: the National Energy Policy Council Act B.E. 2535 (1992), which establishes the NEPC and provides it with its powers and functions which include determining the rules and conditions for prescribing the price of energy and monitoring and supervising the operation all other committees with energy related functions; the Electricity Generation Authority of Thailand Act B.E. 2501, which establishes EGAT; the Metropolitan Electricity Authority Act, which establishes the MEA; the Provincial Electricity Authority Act B.E. 2503, which establishes the PEA; the Energy Conservation Promotion Act B.E. 2535 (1992), which gives NEPO certain functions and powers with regard to energy conservation; and the Royal Decree Organising the National Energy Policy Office, B.E. 2535 (1992). Section 6 of the National Energy Policy Council Act provides that the National Energy Policy Council must “lay down rules and conditions for prescribing the price of energy in accordance with the National Energy Policy and the National Energy Management and Development Plan”. In effect, tariffs and related regulatory matters are determined by the NEPC with advice from NEPO. These decisions are then carried out by NEPO. Apparently, these arrangements have generally worked in the past. However, there is no legislative basis for them to continue to operate whilst there is private participation in the electricity sector given that there is no general legislation relating to utility regulation that confers powers on NEPC or NEPO to enforce tariffs. 6 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Thus, there is at present no comprehensive and coherent legislative regime in place to regulate the roles, functions and responsibilities of the various parties (government, private sector interests government-owned utilities) in the electricity sector. (d) Independent regulatory body The regulatory bodies in the Thai electricity sector are not independent. Independence from government All regulatory bodies are formally independent from the government (although both EGAT and NEPO are organs of government). Separation is achieved to the extent that EGAT and NEPO are established under their own Acts and are separate organs of government - see paragraph 3.1.1(c) for a list of the Acts establishing EGAT and NEPO. However the bodies having regulatory responsibilities are not independent from direct government control. NEPO which, as detailed above, is the primary “regulatory body” responsible for electricity, gas and petroleum policy, is chaired by the Prime Minister with ministers from related Ministries as committee members and the Secretary General of the NEPC as committee member and secretary. Independence from industry The entities responsible for the functioning of the sector are also regulation are also responsible for the regulation of the sector; in other words they are self-regulating. (e) Consistency among regulatory structures When arranging the permits and authorisations, IPPs may have to deal with both provincial government offices and central government offices. However, provincial governments do not have a separate set of laws or rules (provincial governments act as a branch of the central government, administering and enforcing rules and regulations of the central government). Thus IPPs only have to deal with one set of laws, but two levels of government. Given that EGAT is the utility that IPPs supply the vast bulk of their electricity to, EGAT is the primary central government agency with which IPPs deal. However, NEPC is responsible for the approval of Power Purchase Agreements (“PPAs”) between EGAT and IPPs. NEPC is also responsible for the approval of the guidelines for the solicitation of power purchase from IPPs. Although NEPC is not involved with the selection of IPP projects, NEPO is directly involved with the selection and negotiation process (the approval process is further discussed in paragraph 3.3 below). A draft Energy Industry Act is now under consideration by NEPC and the Cabinet. The main purposes of this proposed legislation are to establish an independent regulatory body, comprising a National 7 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Energy Regulatory Commission and a National Energy Regulatory Office, and to set up the Power Pool of Thailand. (f) Transparency of regulations In general terms, the regulations in the electricity sector are transparent. The National Assembly is Thailand’s legislative body, which comprises the House of Representatives and the Senate. Members of the House of Representatives are elected by popular vote. Senators are appointed by the King upon recommendation by the Ministers in the form of the cabinet. Bills are introduced into the House of Representatives by either the cabinet or ordinary members of parliament and must enjoy the support of 20 members of the same political party. The Prime Minister presents bills that pass both houses of the National Assembly to the King for signature. Upon the King’s signature and publication in the Royal Gazette, the Bill becomes law. In addition to the passing of laws by Parliament, the King may issue decrees in the case of emergencies. Such decrees must be submitted to the National Assembly for consideration at the next session (or if the decree relates to taxation within 3 days of its appearance in the Government Gazette) but, nevertheless, the decree has the force of law from the time it is issued by the King. The House of Representatives may disapprove of an emergency decree in which case the decree will lapse unless the House of Representatives reaffirms the decree by more than one half of its total members. Further to the emergency decrees and Acts of parliament, the executive government has the power to issue regulations. With regard to the development of electricity policies, as discussed under paragraph 3.1.1(b), such policies are developed by the NEPC in consultation with the NEPO. NEPO places its policies and plans on its website. However, there does not appear to be a formal mechanism for obtaining and incorporating public comment. (g) Equal regulatory treatment of utilities and the business sector There are a number of fundamental differences between the way that the public utilities are regulated and the regulatory scheme applicable to IPPs. Regulation applicable to public utilities only As noted earlier, the NEPC is the government body in charge of the supervision of all government agencies and State enterprises involved in energy matters. In particular, the NEPC is responsible for: the approval of wholesale and retail of tariffs as well as any change in the automatic adjustment formula; 8 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 the approval of the investment plans of EGAT, the Metropolitan Electricity Authority (“MEA”) and PEA; the approval of the guidelines for the establishment of utility revenue requirements; the approval of the power purchase agreement between EGAT and IPPs; and the approval of the guidelines for the solicitation of power purchased from IPPs and SPPs. Although NEPC is not involved with the selection of IPP projects, NEPO is directly involved with the selection and negotiation process. It should be noted that decisions of NEPC are issued in the form of directives. However, directions issued by NEPC only apply to government agencies (ie EGAT, MEA and PEA) and do not apply to IPPs or SPPs. Technical and safety standards related to the construction, operation and connection of the power system by EGAT, MEA and PEA are issued by EGAT, MEA and PEA with authorities from their respective legislation. In other words, they are self-regulated government enterprises. Thus, IPPs and SPPs are only regulated by the NEPC to the extent that the NEPC is responsible for the approval of PPAs and the guidelines for solicitation of PPAs. Regulation applicable to private sector utilities only The Grid Code, which prescribes: the transmission system development planning procedures; the transmission connection procedures; the operating procedures; the scheduling and dispatch procedures; and the general condition, is issued by EGAT and is applicable to IPPs and SPPs only. Regulation applicable to both public and private entities The Department of Energy Development and Promotion (“DEDP”) is responsible for the technical and safety standards for private generators including the IPPs and SPPs. Technical and safety standards for the sale of power by private power producers is the responsibility of the Public Works Department, which is part of the Ministry of Interior. 9 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 (h) Conclusions Implementation difficulties that there is no established regulatory framework under which private utilities operate; that apart from the Master Plan (and Master Plan Redraft) there are no set objectives of the NEPC; that there is no separation between the regulator and utility ie. EGAT, MEA and PEA (all of which are government utilities) are self regulated; that whilst there is a limited competitive market for generation (through the IPP and SPP application process) the government still holds a monopoly over the supply, transmission and sale of electricity; and that there appears to be no private sector investment in the transmission grid. 3.1.2 Energy sector policies formulated to facilitate competition (a) Policies for power sector reform and restructuring The Master Plan Redraft sets out the proposed future structure of the electricity industry in Thailand. In particular, the report identifies three stages of power market reform. Stage 1: EGAT as primary purchaser/provider (commencing from the passage of the Corporatisation Law - 2001) The Master Plan Redraft states that stage 1 will involve: corporatising EGAT as a whole, with autonomous business units operating as profit centres; and privatising the Ratchaburi power plants, with regulatory controls established to ensure non-discriminatory treatment of all regulators by transmission companies. In this stage, EGAT would retain its virtual monopoly in the bulk purchase and supply of power, with MEA and PEA retaining their franchise customer base (other than that which is served directly by SPPs). The Master Plan Redraft identifies the key attributes and issues associated with stage 1 as: limited private sector participation in generation providing for a portion of the capital needs of EGAT; long term central responsibilities; power planning under EGAT’s 10 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 limited accountability or incentives to gain productivity efficiencies, due to a lack of competition between the generators; no customer access to competitive power, except through SPPs; and introduction of an independent regulatory regime for electricity. Stage 2: EGAT as the central supplier of power, with a gradual introduction of wheeling (from Year 2001 to 2003) Stage 2 of the Master Plan Redraft provides that it is intended that IPPs will be able to sell power directly to large customers rather than directly to EGAT. EGAT would retain its position as central supplier of power (EGAT will be a holding company, with a transmission operator (EGAT - T as a subsidiary)). Other functions of EGAT will be established as profit centres and then subsequently corporatised. Third party access will also be gradually introduced to allow power producers to sell directly to users, using the wheeling services of EGAT - T and MEA’s or PEA’s distribution lines. The Master Plan Redraft identifies the key attributes and issues associated with stage 2 as: EGAT would face competition in the bulk purchase and supply of power; enhanced private sector participation in both the generation and retail supply of electricity by permitting generators to sell electricity directly to larger customers; generators will be required to compete for sales to large customers, thus enhancing the efficiency drivers on the generation sector; a regulatory framework will be required for transmission and distribution pricing, this would include the establishment of an independent regulator and implementing an incentive regulation scheme; an alternative mechanism for funding subsidiaries would be implemented enabling MEA and PEA to be placed on a level playing field with new competitors. The most likely mechanism will be a levy on generation, which would produce a pool of funds to be used to provide the target subsidies; and a continued role for EGAT as the central agency for long-term planning and system operation. 11 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Stage 3: Competitive wholesale power pool/introduction of retail competition (from Year 2003 onwards) In the long term, the Master Plan Redraft envisages that a competitive wholesale power pool will be developed with power trading taking place within this pool. Retail competition will be introduced initially for certain consumers and gradually expanded to cover a wider group of consumers. Generation companies (“GENCOs”) would bid into the wholesale pool and be dispatched in accordance with the lowest bid offered which satisfies demand for that period. To implement government energy policy, such as fuel diversity, and maintain adequate competition amongst GENCOs may require the regulation of generators. This may entail a fuel preference in fuel licensing or fuel allocation for pool purchase. An Independent System Operator (“ISO”) would be responsible for economic merit order dispatch, as well as system security and financial settlements for bulk power purchases. The ISO will be formed as a government corporation funded by use charges on power purchases and sales. Retailers (which may or may not be a combined distribution and retail enterprise) will have non-discriminatory access to the transmission and distribution network, with a regulated transmission and distribution access tariff paid to the relevant network service provider. As a transitional matter, Distribution Companies (“DISCOs”) would retain a customer franchise base. Only large customers will be given access to the competitive market at first. Franchises will be gradually unwound as the market matures, and certain commercial and regulatory issues are resolved such as vesting of PPAs and a treatment of subsidiaries. EGAT in this stage would remain a holding company with TRASCO (EGAT-T) as its subsidiary, hydrogenation plus minority interest in some GENCOs and additional supporting functions. The Master Plan Redraft notes that accomplishing the long-term structure of the electricity supply industry will require extensive restructuring of existing electricity entities in Thailand as follows: generation owned by EGAT would be spun off into separate groups of GENCOs (with the possible exception of hydrogenation); an ISO would be established; PEA may be split into corporatised DISCOs (the Master Plan Redraft notes that a future study is required to determine the optimal structure and that the key factors to be considered are the energy consumption in each area and the impact on the performance of new distribution entities and their customers); and 12 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 a separate supply function will be established and corporatised either owned or independent of the DISCOs. The Master Plan Redraft notes that the key attributes and issues associated with the competitive electricity structure are: private sector participation in both generation and retail supply; competitive neutrality between state-owned and private sector generation companies, fostering competition in bulk and retail supply of power; strong efficiency drivers to empower generation and retail supply; and market signals to replace central planning - larger customers will have direct access to generators, new capacity will only be added as economically justified by competitive supply and demand relationships. As mentioned earlier, to date, none of the reforms have been implemented and it is unlikely that the proposed timetable will be met. As an example of some of the problems being encountered, the sale of the Ratchaburi power plant has resulted in strong protests being conducted by employees of EGAT. These protests are consistent with the ongoing opposition by state enterprise employees generally. Vested interests range from concerns on environmental grounds to concern at the loss of revenues to the local area.10 Nonetheless, EGAT recently announced that the government will soon establish a wholesale trading group to purchase and distribute electricity from IPPs, SPPs and the Lao People’s Democratic Republic. The Thailand Power Pool and Electricity Supply Industry Reform Study by Arthur Andersen dated 1 March 2000 (“the Arthur Andersen Report”) provides a workable basis for reforming the Thai power industry by a targeted date of 2003. Under the structure proposed in the Arthur Andersen Report, MEA and PEA will be disaggregated into one or more Regulated Electricity Delivery Companies (“RedCos”), non-core service businesses (NSMs) and Network Businesses (for PEA). All but a few large consumers will pay for their electricity (plus delivery-related services) either through the RedCo supply company division or through a competitive retailer. There will be a power pool consisting of an ISO/Market Operator (“MO”) and a Settlement Administrator (“SA”). A Grid Company (“GRIDCO”) will be independent of the ISO and, in the end, GENCO’s. 10 David Took, Department of Foreign Affairs and Trade, Crisis Affected Asia: Recovery Prospects and Opportunities, Thailand, 6 January 2000, p 11. 13 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 According to Piyasvasti Amranand, Secretary-General of NEPO, the proposed structure of the electricity supply industry has been delayed from early 2000 to mid 2000 (probably July). A fast track method of privatising EGAT was put forward in a preliminary report by Arthur Andersen, which called for present and future subsidiaries as well as business units of the state oil firm being partially privatised while leaving the core structure of state power utility as the state-owned enterprise untouched. This approach is meant to overcome obstacles stalling the passing of the State Enterprise Corporatisation Act. The Constitutional Court is still considering a petition from opposition parties as to whether the Act violates the new constitution. Passed into law after approval from the upper and lower houses, the government had hoped that the Act would allow the government to quickly restructure and privatise state-owned enterprises.11 None of the reforms outlined in the Master Plan or suggested by Arthur Andersen have been implemented. (b) Separation between generation and transmission As noted earlier, the electricity industry is divided into the following sectors: generation entities: IPPs, SPPs and EGAT; transmission, power purchase and system operation: EGAT; and distribution and retail supply: PEA and MEA. Whilst EGAT and the IPPs and SPPs are all separate entities, there is no separation between generation, power purchase, transmission and system operation to the extent that EGAT is involved in all four functions. At the distribution level, whilst there appears to be functional separation between EGAT and the distribution and retail sector (even though EGAT, PEA and MEA are all Government owned entities), there appears to be no separation between the distribution and retail functions of PEA and MEA. (We are unaware of whether the distribution and retail functions are ring-fenced.) As noted under paragraph 3.1.2(a), the Master Plan Redraft anticipates introduction of competition that includes the privatisation of EGAT and the separation of the transmission functions of EGAT along with the establishment of DISCOs. At present, apart from any tariffs and regulatory matters determined by NEPC and licences and permits required, there is no independent regime for third party access to the transmission grid; IPPs are only able to access the transmission and distribution systems pursuant to their 11 Power in Asia, Thailand/Policy/Utility etc, 15 November 1999. 14 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 PPA with EGAT and the Grid Code. However, under stage 3 of the Master Plan Redraft, it is envisaged that a wholesale pool of electricity will be established and GENCOs will bid into the wholesale pool and be dispatched in accordance with the lowest bid offered which satisfies the demand for that period. It is also envisaged in stage 3 of the Master Plan Redraft that GENCOs will be regulated and licensed. Stage 3 of the Master Plan Redraft also provides that the transmission system will become a common carrier and that generators will be able to sell directly through the use of the transmission and distribution line services. It is proposed that an independent regulatory body will be established to regulate the electricity supply industry. (c) Complementary development of transmission grids The current policy approach to the development of the transmission and distribution grids is unknown. All such planning is undertaken by EGAT and it appears that EGAT will retain this role until at least stage II of the privatisation plan. It is unknown how much development of the transmission grid and distribution system is being undertaken. At present, there is no private sector involvement in transmission and distribution planning. (d) Autonomy, accountability and commercial operation of public utilities As noted earlier, none of the government enterprises (EGAT, PEA or MEA) have been corporatised. However, in accordance with stage 1 of the Master Plan Redraft, privatisation of EGAT will commence with the sale of Thailand’s largest power plant in Ratchaburi. In response to union demands, the Ratchaburi plant, still to be completed by the Mitsui-General Electric Alliances, will no longer be sold to strategic Thai or foreign partners, but to the general public (40 per cent) and the EGAT employees and their provident fund (15 per cent), with EGAT retaining the remaining 45 per cent (or more). EGAT will establish Ratchaburi Holding PLC to assume the power plant Assets. The initial public offering of Ratchaburi Holding is expected to take place later this year when the company has been listed in the stock exchange of Thailand. Revenues from the sale will be re-invested in EGAT for debt re-financing and to enable EGAT to modernise some of its existing power plants. Stage 2 of the Master Plan redraft appears to anticipate the corporatisation of MEA and PEA. None of the government businesses are subject to performance targets. However, as noted earlier, the Arthur Andersen Report proposes that MEA and PEA be: (a) internally reorganised into RedCo, Network and NSB business units with self contained management structures, financial accounting, staffing etc; 15 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 (e) (b) ring-fenced from the core activities to minimise the potential for conflicts of interest; and (c) subject to clear performance targets in 2000 and performance against these targes should be reviewed in 2003. Competitive market in generation and supply At present, there is only limited competition in the electricity generation market. The only competition is between the various IPPs, though this is limited given that EGAT is committed under the respective PPAs to purchase a certain level of capacity anyway. Thus, competition in the generation market between IPPs does not exist in any meaningful way. With regard to the distribution and supply of electricity, MEA is responsible for distributing and retailing electricity in Bangkok, Nonthaburi and Samut Prakan Provinces. PEA is responsible for distributing and supplying electricity in 73 provinces in the North, Northeast, Central and Southern Regions of Thailand. Given that a consumer cannot elect to purchase electricity from a retailer other than the retailer servicing the consumer’s geographic location, there is no currently no competition in the supply of electricity. (f) Cross-border interconnection Thailand is currently progressing towards the power purchase of electricity from: the Lao Peoples Democratic Republic (“Lao PDR”); the Union of Myanmar (“Myanmar”); and the Peoples Republic of China (“the PRC”). Purchase of Electricity from the Lao People’s Democratic Republic On 4 June 1993, Thailand entered into a Memorandum of Understanding (“MOU”) with the Lao PDR (“Lao PDR”) expressing their intention to cooperate on the development of a 1,500 MW electric power sale by Lao PDR to Thailand by the Year 2000. On 19 June 1996, a second MOU was signed for the export of an additional 1,500 MW of power to Thailand by the Year 2006. In June 1999, the Lao PDR and Thailand agreed to adjust the power purchase plan in line with EGAT’s revised Power Development Plan 1999 - 2011. The agreed dates for the power purchases have been deferred such that 1,600 MW of power will be available for purchase by Thailand from the Lao PDR in 2006 and 1,700 MW of power will be available for purchase by Thailand from Lao PDR in March 2008. In March 2000, EGAT agreed to purchase 5,354 million units from the Nam Thuen 2 hydro project in Laos. EGAT’s power purchase represents 95% of the capacity of the 920 MW project. 16 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Nam Thuen 2 is scheduled to start deliveries to Thailand in 200612 Power purchase from Myanmar Thailand and Myanmar entered into an MOU on 4 July 1997 in which they agreed to co-operate on the development of 1,500 MW of electric power, for sale by Myanmar to Thailand by the Year 2010. On 13 January 1999, Myanmar agreed to purchase 100 to 150 MW of electricity from Thailand. It was agreed that the electricity would be transmitted through the Thai/Myanmar transmission line interconnection between Tak-Mae Sod-Myawaddy-Pa-an and Bago. Thailand and Myanmar are also considering the feasibility of a transmission interconnection between the Mae Sod substation and the Bago substation. Power purchase from the People’s Republic of China An MOU between Thailand and PRC was signed in November 1998 for a purchase of 3,000 MW from PRC by 2017. With recovery in the domestic power demand, discussion between EGAT and the Yunnan Electric Power began in May 2000 and has been tentatively agreed that the purchase of power from the Jinghong project would take place in 2013 with the remaining 1,800 MW to be purchased in 2014, probably from the Nuozhatu hydroelectric project (approximately 4,000 MW in capacity) (g) Conclusions There is effectively no competition within the electricity supply industry in Thailand (other than the limited competition that occurs between IPPs and SPPs). As discussed in paragraph 3.1.2(a), the Master Plan Redraft proposes a series of market reforms that are designed to introduce competition into the electricity supply industry. In particular, EGAT has stated that a wholesale electrical pool will soon be established. Part 4.3.2.2 of the Arthur Andersen Report recommends that existing PPAs be incorporated into the market by establishing new institutions called ‘PPA Traders’. The proposal involves EGAT establishing ‘EGAT DebtCo’ to whom EGAT’s obligations under the PPAs would be transferred. ‘EGAT DebtCo’ would then use a ‘Contract Manger’ known as a ‘PPA Trader’ who would supply electricity into the pool at the pool price. EGAT DebtCo would also charge a Competition Transition Charge to customers which would be based upon EGAT DebtCo’s projected need for revenue to pay stranded costs. In such a scenario, consumers absorb any losses (or gains) in accordance with 12 Bangkok Post, 9 March 2000. 17 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 fluctuations in the pool price and the IPP would continue to receive the revenue stream defined by the PPA Other options include: (a) legislating the termination of the PPAs or deeming that the PPA is an agreement for the supply of electricity into the wholesale pool (this would be a very harsh step to take); or (b) negotiating the amendment of the PPAs such that on the commencement of the pool, the IPP would sell its electricity into the pool and enter into a contract for differences whereby the Government (or the buyer) would absorb the variation between the pool price and the price under the PPA and, conversely, the IPP would pay the Government (or buyer) the gains due to the pool price being greater than the price under the PPA. Part 4.3.2.5 of the Arthur Andersen report also recommends that any PPAs that are entered into in the future should be of a short-term duration and should contain provisions which explicitly allow for adjustment upon the commencement of a competitive electricity market. This approach is aimed at providing a greater degree of flexibility so that future PPAs can be transformed into alternative mechanisms, such as Contracts For Differences, which are better aligned with the structure of the wholesale pool. In addition, it is recommended that all future PPAs contain a clause which provides that on the commencement of the wholesale electricity pool, the PPA may be assigned by consent (and that consent should not be unreasonably withheld). The Reform Plan (based on the Arthur Andersen report) which was adopted by the Cabinet on 25 July 2000 contains detailed proposals for achieving competition in three stages, commencing with the enactment of a new Energy Industry Act, and culminating in retail competition from 2003. 3.2 Principle 2: Commercial viability of electric utilities (a) Commercial wholesale tariffs The prices received by IPPs for the electricity they generate are set in accordance with the PPA that they enter into with EGAT. The terms of the PPAs to which the various IPPs are a party are confidential as between the parties. It is therefore unknown whether the PPAs: allow an adequate return on capital; are reflective of negotiations or are imposed; or vary as between themselves. 18 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Point 3 of the Proposal Instructions contained in the Request for Proposals for Power Purchases13 states that: “exceptions to the Model Power Purchase Agreement, if any, must be provided with the Proposal. Exceptions will be considered, but may result in unfavourable evaluation of the Proposal.” It is highly likely, given the identity and commercial reputation of the generator owners, that the PPAs do provide an adequate return on capital and are reflective of negotiations with EGAT. (b) Fuel supply market There are no regulatory instruments that prescribe the cost of inputs for IPPs or restrict the freedom of IPPs to purchase fuel. IPPs, which use gas as their fuel supply, purchase their natural gas from the Petroleum Authority of Thailand, the state owned monopoly supplier of natural gas. IPPs that use coal as their fuel supply source their coal on a commercial basis. It should be noted that if an IPP enters into a Fuel Purchase Agreement whereby the IPP is required to take a Minimum Quantity of Fuel, (provided that the terms of the Fuel Purchase Agreement are accepted by EGAT), section 7 of the model PPA provides that EGAT will share the costs incurred by the IPP if the IPP fails to take the Minimum Quantity of Fuel as provided by the Fuel Purchase Agreement. However, if the failure to take the Minimum Quantity of fuel is due to causes other than the dispatching instructions by EGAT, then under the model PPA, EGAT is not liable to share in the costs incurred to the IPP. (c) Access issues and treatment under tax regime There appear to be no significant differences between EGAT and IPPs in terms of the ability to access sites, fuel markets or system operation procedures. IPPs may, however, receive favourable treatment under the taxation regime in Thailand. IPPs (unlike EGAT) receive an exemption from the payment of corporate income tax (currently 30% of net profits) for the first eight years of the project. In addition, IPPs receive an exemption from import duty on machinery. Under the Investment Promotion Act, BE 2520, an IPP may be entitled to special privileges and exemptions. The Board of Investment (“BOI”), the body that administers the Investment Promotion Act, considers whether to grant privileges to a particular project on a case by case basis based upon criteria and according to set criteria Investment Promotion Zones.14 13 As part of Request for Proposals for Power Purchases (bid solicitation process) from IPPs, EGAT provides a bundle of materials including a Model PPA. See paragraph 5.3 for a discussion of pricing under the Model PPA. 14 Board of Investment, Thailand, BOI Policies and Criteria for Investment Promotion, Announcement No. 1/1993, pp. 71-73. 19 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Set out below are the BOI Investment Zones: 15 15 Projects located in Bangkok, Samut Prakan, Samut Sakhon, Pathum Thani, Nonta Buri and Nakhon Pathom, (Zone 1) No tax exemption or reduction on machinery, except projects which export not less than 80% of total sales or locate their factories in industrial estates or promoted industrial zones. Such projects will receive a 50% import duty reduction on machinery which is not included in the tariff reduction notification of the Ministry of Finance (Notification No. C13/25533) and is subject to import duty greater than equal to 10%. No corporate income tax exemption, except for projects that export not less than 80% of total sales and locate their factories in industrial estates or promoted industrial zones, in which case a three-year exemption will be granted. Exemption of import duty on raw or essential materials used in export products for a period of one year for projects exporting at least 30% of total sales. Projects located in Samut Songkhram, Ratchaburi, Kanchanaburi, Suphanburi, Angthong, Ayutthaya, Saraburi, Nakhon Nayok, Chachoengsao and Chonburi (Zone 2) 50% import duty reduction on machinery which is not included in the tariff reduction notification of the Ministry of Finance (Notification no. C13/2553) and which is subject to import duty greater than or equal to 10%. Corporate income tax exemption for 3 years extendable up to 7 years, for projects that locate their factories in industrial estates or promoted industrial zones. Exemption of import duty on raw or essential materials used in export products for a period of one year for projects exporting at least 30% of total sales. The remaining Provinces plus Laem Chabang Industrial Estate (Investment Promotion Zones or Zone 3). Exemption of import duty on machinery. Corporate income tax exemption for 8 years. Exemption of import duty on raw or essential materials used in export products for a period of 5 years for projects exporting at least 30% of total sales. 75% reduction of import duty on raw and essential materials used in production for domestic sales for five years, renewable Board of Investment, Thailand, BOI Policies and Criteria for Investment Promotion, Announcement No. 1/1993, pp. 73-73. 20 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 on an annual basis, provided that raw or essential materials comparable in quality are not being produced or are not originating within the kingdom in sufficient quantity to be acquired for use in such activity. The BOI may also grant special privileges are granted as follows: reduction of corporate income tax by 50% for 5 years after the exemption period; double deduction from taxable income of water, electricity, and transport costs for 10 years from the date of first sales; and deduction from net profit of 25% of the costs of installation or construction of the IPPs’ infrastructure facilities. The Board has identified projects in the following five areas to be priority activities: (d) Basic transportation systems; Public utilities; Environmental protection and/or restoration; Direct involvement in technological development; and Basic industries. Foreign ownership and control Foreign ownership and control of IPPs is permitted. However, the bidding company must be a limited company organised and registered in Thailand. The business of generating and selling electricity does not fall with any of the restricted businesses under the Alien Business Act B.E. 2542 (“the Alien Business Act”) and consequently alien participation in an IPP is not restricted. The Land Code prohibits ownership of land by aliens. However, an alien company may enter into and register a real property lease for up to 30 years. If the IPP is 49% or less owned by aliens (and therefore not an alien entity), the IPP is permitted under the Land Code to either lease or own the land on which the Project will be located. However, regardless of the ownership structure of the IPP, it is anticipated that the IPP will not own the property. 21 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 (e) Conclusions The individual PPA under which the IPP operates largely determines the regulatory environment for IPPs. There is no standard commercial environment for IPPs which includes “across the board” performance targets or policies to provide for a competitive and stable market in fuel supply. However, the reform proposed by the Master Plan Redraft, if executed, will address most of these issues. Nevertheless, as discussed under Principle 1, one of the issues to be addressed in the progress to a wholesale market is imposing market “behaviour” forces and market prices on IPPs that currently operate under a long term PPA. See Principles 1 and 10 for a discussion of how this issue may be addressed. 3.3 Principle 3: Regulatory framework and process for IPP approvals (a) Consistent regulations and approvals processes Before a power producer is allowed to produce and sell electricity in Thailand, the documents and/or licenses/permits that must be obtained are: a PPA with buyers and/or EGAT; a permit by the Department of Industrial Works, Ministry of Industry to operate a power plant; an EIA Report by the Environmental Policy and Planning Office, Ministry of Science, Technology and Environment; a concession to operate an electricity business issued by the Public Works Department, Ministry of Interior (concession is valid for twenty-five years); a permit to produce controlled energy issued by the Energy Development and Promotion Department, Ministry of Science, Technology and Environment; a certificate of boiler safety issued by the Industrial Safety Division, Department of Industrial Works, Ministry of Industry; a permit to connect to EGAT’s system issued by EGAT; and a permit to sell electricity issued by the Public Works Department, Ministry of Interior. Normally, it takes one to two years to obtain all of the above permits/approvals. It may take longer if the project is encountering opposition from non-government organisations. (b) Regulation and approval processes There appears to be some degree of overlap in the approval process between various levels of Government. For example, a permit is required by the Department of Industrial Works, Ministry of Industry to operate a power plant and a permit is required to produce controlled energy issued by the Energy Development and Promotion Department, Ministry of Science, Technology 22 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 and Environment. A further permit is then required by the Public Works Department, Ministry of Interior to sell electricity. Whilst a variety of regulatory approvals are required by an IPP, EGAT, as part of the Request for Proposal (“RFP”), provides a comprehensive list of permits and approvals required by an IPP. Accordingly, there should be minimal impact on administration costs. (c) Published guidelines There are published guidelines as to the permits required for a power project, including details of the relevant approving authorities and the scope of their jurisdiction. Guidelines regarding the individual permits are available from the relevant issuing Departments (it is unknown whether such guidelines consistently detail the scope of the relevant Department’s jurisdiction). In addition, the RFP package produced by EGAT in each solicitation includes very comprehensive information on connection costs, preferred fuels, preferred sites, mandatory requirements, environmental quality standards and regulations, applicable legal and regulatory issues and government permits and licences and authorisations required. (d) Incorporation of pre-approvals in tender process It would appear that no consideration has been given to incorporating in tender processes mechanisms for granting pre-approvals of projects put out to bid. The most recent EGAT solicitation contained no mechanism for granting pre-approvals of projects put out to bid. There is nothing to indicate that EGAT has considered the incorporation of such a process. (e) Presence of central coordinating agency for approvals Apart from the role played by EGAT when issuing Requests for Proposals, there is no central agency where all approvals may be granted or coordinated. There are no apparent barriers to the creation of such an agency other than that the market is not established in such a way whereby entry into the market is coordinated by one agency. The Master Plan Redraft contemplates the establishment of an independent regulator. Provided that the independent regulator is not also responsible for system operation, the independent regulator may be an appropriate body to coordinate the approval of applications by IPPs for access to the wholesale electricity market. (f) Conclusions Principle 3 is satisfied to the extent that there is a clear path by which IPPs may apply for a PPA to sell electricity to EGAT. There are a number of other approvals and licenses that must be obtained, yet there is nobody to coordinate this process. 23 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 The process could be made speedier, more consistent and transparent if a significant number of necessary permits and approvals could be channelled through, or facilitated by, a central co-ordinating agency. 4. Tender/Bid Processes and Evaluation Criteria 4.1 Principles 4,5,6,7 and 8: Tender/Bid Processes and evaluation criteria (a) Tendering approach and evaluation Approach to tendering “Tendering” is done in the form of a RFP. The RFP is a document provided to bidders which contains: a Model PPA which specifies the operating characteristics, tariff structure, developments connection arrangements, construction schedule, contract milestones, liquidated damages, force majeure, etc relating to the purchase by EGAT of capacity and electrical output from an IPP plant; guidelines, terms and conditions and instructions regarding the preparation and submission of proposals along with the proposal evaluation criteria; and the Grid Code, which identifies the connection procedures, power plant operation and that IPPs are subject to merit order dispatch.. The RFP also contains information on connection costs, preferred fuels, preferred sites, mandatory requirements, environmental quality standards and regulations, applicable legal and regulatory issues and government permits and licences and authorisations required. Evaluation Evaluation criteria are published. As noted above, the RFP also contains the evaluation criteria. Evaluation is based upon a scoring structure with a maximum score of 1000 points. The points are composed of Price and Non Price Factors. (i) Price Factors Price Factors make up a maximum score of 600 points. Scoring is based upon the present value of levelised generation costs. Using the “Short Form Life Cycle Model (“SFLCM”) to calculate generation costs per kWh based on a bidder’s proposed pricing in terms of: Availability Payments; Fuel Costs; Operation and Maintenance Costs; and Connection Costs. 24 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Assumptions with regard to the project generation costs are: the cost escalation factor - for fuel and operation and maintenance costs; the capacity factor: 80% for the annual energy charges; and available hours for Availability Payments accepted at 92% for combined cycle plants and 88% for coal fired plants; and the foreign exchange rate: major currencies each with sensitivity assumptions; and proportions of currency indexed proposals converted to Baht for SFLCM analysis. (ii) Non Price Factors A maximum of 400 points is awarded for Non-Price Factors. These include: Project Development Progress (0 - 110 points); Sponsor's creditworthiness and finance ability (0 - 70 points); bidder’s experience (0 - 70 points); fuel (0 - 40 points); site (0 - 60 points); and exceptions to the Model PPA. Pre-qualification process Apart from the bid security (see below), there is no specific pre-qualification process. Size of bid security Bid security of 500 Baht per KW must be submitted at a time of submission or proposal. The bid security is valid for 18 months. (b) Conclusions With regard to the tender bid process the following difficulties are anticipated: whilst the IPPs are required to prepare an EIA, the evaluation scoring model and assumptions do not include consideration of environmental concerns; the bidding process is not a public process and there is no published timetable or independent scrutiny (it appears that the only bodies involved in the bid process are government bodies and external consultants); and there is no pre-qualification of bidders mechanism. 25 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 5. Power Purchase Agreements (PPAs) and Associated Tariff Structures 5.1 Principle 9: Retail tariffs (a) Nature and structure of retail tariffs Tariff structure The retail electricity tariffs in Thailand are controlled by NEPO and require prior approval from the NEPC and final acknowledgment from cabinet. Retail electricity tariffs are divided into seven groups as set out below: Residential Applicable to electricity used in dwellings, monasteries and churches of any religion (including compounds) though a single watt-hour. The charges are divided into two categories, namely: charges not exceeding 150 kWh per month; and consumption in excess of 150 kWh per month. Small general service Applicable to electricity used for business, industrial, state enterprises, government industrial institutions or others (including compounds) with a maximum 15-minute integrated demand of less than 30 kW through a single wattmeter. Medium general service Applicable to the electricity used for business, industrial, state enterprises, government industrial institutions or others (including compounds) with a maximum 15-minute integrated demand of at least 30 kW but less than 2,000 kW, and average consumption in the last 3 consecutive months not exceeding 355,000 kWh is a two part tariff (demand/energy). This tariff includes non-industrial government institutions that have an average consumption in the last three consecutive months exceeding 250,000 kWh per month through a single demand meter. Large general service Applicable to the electricity used for business, industrial, government institutions, state enterprises or others (including compounds) with a maximum 15-minute integrated demand of 2,000 kW and over or average consumption in the last 3 consecutive months exceeding 355,000 kWh per month through a single demand meter use Time of Use Tariff (“TOU”). There are two forms of TOUs: TOU with peak, partial peak and off peak period apply to original customers before the new TOU came into effect in January 1997; and 26 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 new Time of Day (“TOD”) with daily peak and off peak periods for Monday-Saturday and Sunday being off peak applies to all new customers and original customers who would prefer TOU than TOD. Specific business service Applicable to electricity used for hotels, guesthouses or other facilities offering lodging to customers (including compounds) with a maximum 15-minute integrated demand of at least 30 kW through a single demand meter. Government institutions and non-profit organisations Applicable to government institutions or those established by the Local Administration Act with average consumption in the last three consecutive months not exceeding 250,000 kWh per month, and to non-government organisations offering free-of-charge service and places holding religious ceremonies (including compounds) through a single watt-hour meter. Not applicable to state enterprises, embassies or office buildings of international organisations. Agricultural pumping service Applicable to government agricultural agencies, officially recognised farmer groups, agricultural cooperatives of farmers operating water pumps for agricultural pumping through a single watt-hour meter. Nature of tariffs Tariffs to a large extent reflect the economic costs of supply and provide for a financial return. The basic principle of Thailand’s pricing policy covers three main factors: to provide utilities with sufficient revenue requirement; to reflect marginal cost; and to serve certain social objectives particularly the support of the rural electrification program. Under the existing retail tariff structure the revenue required of the utilities is based on an 8% return of the revalued asset. The overall tariff reflects almost 90% of the marginal cost. The main distortion in the retail tariff structure is the cross subsidiary received by residential customers that use less than 150 kWh/month.16 The tariff for this group of customers is approximately 20% of marginal costs. Given that these customers are mainly in the PEA areas and the tariff structure is uniform throughout the country, there exists a cross subsidiary from MEA to PEA through the difference in the bulk supply tariffs, which they buy from EGAT. 16 APEC Working Group, APEC Energy Regulators Forum - Electricity Regulatory Arrangements, Thailand, April 1999, p 8. 27 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 To maintain this uniform tariff policy, EGAT’s bulk supply tariff to PEA is much lower than that charged to MEA as the costs of supplying electricity to PEA are higher. The bulk supply tariff to MEA and PEA that is currently applied comprises a flat energy charge. Without a demand charge or a variation depending on time use, the tariff does not reflect the costs of supply and is therefore inadequate to give correct signals to the distribution utilities to improve their load factor, load shape and the power factor of foster quality of services and energy conservation.17 Three forms of retail tariff are used in Thailand. These are: energy charges alone which apply to residential, small general service, government and agricultural pumping customers; energy plus demand charges which apply to medium and certain large general services; and TOD which apply to approximately 1,300 of the largest users whose demand exceeds 2,000 kW or whose energy consumption exceeds 355,000 kWh per month. In 1992, the government put in place an Automatic Adjustment Mechanism, which adjusts the retail tariffs in line with changes in costs of fuels and uncontrolled costs of the three utilities (including value added tax and the cost of the Demand Site Management Program)18. The retail and wholesale tariff structure is reviewed by the government every 4 to 5 years. Following the review in 1994/1995 the government decided to adjust the wholesale tariff by narrowing the differential between prices EGAT sales to MEA and PEA. It was also concluded there was no need to adjust the average retail tariff because charges, fuel costs and certain types of costs outside the control of the three utilities are able to automatically pass through without seeking approvals from the government.19 The tariffs only appear to deal with community services obligations to the extent that there is a cross subsidiary received by residential customers that use less than 150 kWh/month. Transparency Tariffs are transparent. In January 2000, PricewaterhouseCoopers released its final report “Review of Electricity Power Tariffs - National Energy Policy Office of Thailand”.20 The Report contains a detailed review of the tariff levels, structure and adjustment mechanisms. 17 APEC Working Group, APEC Energy Regulators Forum - Electricity Regulatory Arrangements, Thailand, April 1999, p 8. 18 APEC Working Group, APEC Energy Regulators Forum - Electricity Regulatory Arrangements, Thailand, April 1999, p 8. 19 APEC, ERF, Electricity Regulatory Arrangements, Summary Submission, Thailand, April 1999. 20 The Report is available on the NEPO web site (www.nepo.go.th). 28 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 (c) Conclusions It is proposed that the new tariff structure will be implemented by the end of 2000. If so, the tariff structure recommended by Pricewaterhouse Coopers should reflect what might occur in light of more competitive arrangements that are planned for the electricity supply industry. However, the proposed tariff structure continues to provide for a certain level of cross subsidisation and, as such, is not purely reflective of the economic cost of supply. 5.2 Principle 10: Transition to competitive markets (a) PPA tariff structures that promote competition The actual terms of concluded PPAs are confidential and, therefore, unknown. It is unlikely that these PPAs expressly make provision for the introduction of a competitive wholesale market. However, as noted earlier, the tariff structure is composed of two parts namely: (a) a capacity charge; and (b) an energy charge. This structure is consistent with merit order dispatch (which is prescribed by the Grid Code) allowing EGAT to meet demand at the lowest cost by bringing generators on stream in order of marginal cost. They would to that extent be consistent with competition between generators. At present, a wholesale electricity pool does not exist. However, Stage III of the Master Plan Redraft contemplates the establishment of a wholesale electricity pool. Longer-term impact of traditional PPAs on the development of competitive markets The primary disadvantages of PPAs on the development of competitive markets are: that the PPA ‘locks in’ assumptions regarding funding costs and other fixed costs which may change over the life of the contract; that the take or pay capacities committed to under the PPA may not be easily incorporated into a power pool which is traded on a daily basis; and the incurring of wasted costs for which the IPPs would have to be compensated if the PPA were to be unwound to facilitate the wholesale electricity pool. See discussion under Principle 1 regarding how PPAs may be dealt with in the transition to a competitive market. (b) Conclusions It appears likely that the existing PPAs do not contain an agreed mechanism for allowing for transition to a competitive wholesale market. The PPAs do provide for amendment by agreement to include provision for transition to a 29 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 wholesale market (see recommendations under Principle 1 for a discussion of suggested amendments to the Model PPA). However this could be time-consuming and difficult. 5.3 Principle 11: Allocation of risks (a) Allocation of risks under PPAs The primary risks associated with a PPA are: construction/completion risks in the development/construction phases; ‘market risk’, the risk that EGAT may not purchase all of the electricity or will not purchase the electricity at a reasonable price; foreign exchange risk, the risk of an adverse movement in interest rates; a lack of inputs required for production (ie. unavailability of fuel, water, electricity, raw materials etc); changes in fuel prices; a lack of management capability, that is, the inability to ensure that the project is operated correctly; changes in law; a ‘force majeure event’, that is, the risk of natural disasters, acts of God etc; governmental force majeure event or change in law risk, that is, the risk of a fundamental change in the legal or regulatory environment; ‘credit risk’, that is, the need to ensure continued support of creditors; “political risk”; the risk of a ‘termination event’ occurring, that is, the risk that the agreement may be terminated by EGAT; and a lack of Sovereign support, that is, the project needs the support of the government. Risks borne by government The precise terms of the individual existing PPAs are unknown. Nevertheless the Model PPA provides that: market risk is borne by EGAT to the extent that EGAT is obliged to make capacity payments regardless of whether dispatch occurs; foreign exchange risk is borne by EGAT to the extent that EGAT adjust the availability payments and other non-price matters (see paragraph 5.1(e) for further details); and fuel risk is borne by EGAT to the extent that EGAT accepts the risk of interruption in the supply of natural gas; and 30 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 political risk and change in law risk is borne by EGAT. Changes in law and certain political risks (such as the expropriation or compulsory acquisition of the IPP facility or any material assets or rights of the generator) are defined as force majeure events and result in the obligations of the affected party being suspended or excused to the extent of the force majeure. It should be noted that section 14.1 of the Model PPA provides that during any force majeure, EGAT shall not be obliged to make Availability Payments to the IPP. However, in the event of a ‘Governmental Force Majeure’ (which includes the expropriation or compulsory acquisition of an IPP facility or material assets or rights of a generator), EGAT must make Availability Payments at a rate based upon an average of the Availability Payment made during the 6 months preceding the applicable Governmental Force Majeure. (b) Conclusions The risks are, generally, allocated under the Model PPA to the party that is most able to manage them. However, it is unknown how flexible EGAT may be when negotiating the allocation of risk. These negotiations are highly confidential and remain so. Current provisions under the Model PPA are adequate to ensure this principle is met. No reform seems to be necessary. 6. Financing and its implications 6.1 Principle 12: Regulatory, taxation and foreign exchange regimes (a) Transparency of taxation regime Thailand imposes a uniform corporate tax rate of 30% of net profits on companies. However, IPPs enjoy an exemption from the payment of corporate tax for the first eight years of the project. In addition, IPPs receive an exemption from import duty on machinery. (b) Conversion of local currency to foreign currency Efficient and reliable processes are in place for the conversion of local currency to foreign currency. The Exchange Control Act B.E. 2485 (A.D. 1942) governs all matters concerning foreign currency. Generally speaking all foreign currency matters require the permission of the Bank of Thailand. However, in 1990, exchange restrictions were relaxed and many transactions no longer require the approval of the Bank of Thailand. 31 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 (c) Restrictions on the availability and transferral of foreign exchange There are restrictions on the availability of foreign exchange, and its ability to be transferred overseas. If an IPP borrows money from abroad and needs to remit foreign currency back to its lender, the IPP may purchase foreign currency from a commercial bank and seek approval to send the foreign currency overseas. The primary requirements are that the IPP displays a copy of: (d) the loan agreement; and the documentation showing the initial sale of foreign currency and purchase of Baht. Protection against exchange rate changes There is protection against exchange rate changes. Following the adjustment of currency exchange system from basket of currency to managed Baht float in 1997, EGAT: (e) introduced the Tariff Adjustment Mechanism (TAM), an indexed adjustment of certain portions of the availability payments with a base exchange rate 27 Baht to 1 USD; and modified certain non-price matters, i.e. equity ownership structure, installed capacity, commercial operation date, etc. Conclusions There is a clear and simple taxation regime and there appears to be no impediment to: the ability to convert local revenues into foreign currency; nor the transferability of foreign currency, both of which are essential to the facilitation of private investment in the power sector. In addition, following recent amendments to the PPAs, as referred to above, EGAT now takes a portion of the foreign exchange risk. Although some restrictions do exist, overall the present foreign exchange regime is adequate to meet this principle. No reform seems to be necessary. 6.2 Principle 13: Security over project assets (a) Legal framework for creating security over project assets The legal framework for creating security over project assets in favour of lenders includes step-in rights and rights to assign (as security). Section 23.4.1 of the Model PPA provides that either party may assign its rights and obligations under the PPA with the consent of the other party and the other party must not withhold consent if it can be demonstrated to the reasonable satisfaction of the other party that the assignee has adequate legal, financial and technical ability to perform the obligations of the assignor. 32 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Section 23.4.4 of the Model PPA also provides that section 23.4 does not apply to assignment by the IPP of its right, title and interest in the PPA by way of security in favour of a financial institution. Thus, an IPP doe not require the consent of EGAT when assigning or creating a security interest over the any right, title or interest in the PPA. Furthermore, section 12.3.1 of the Model PPA provides that the step-in-rights, exercisable by EGAT following an Event of Default by the IPP, are subject to the right of the Lenders under the Financing Documents. Thus, the PPA does not prevent a Lender from assuming operational responsibility for an IPP (if provided for in the Financing Documents). (b) Conclusions Whilst there is nothing in the PPA to prevent the taking of a security interest or the exercise of step-in rights, the lenders need to be aware that, in practice, the exercise of such rights may be difficult if the IPP is not properly licensed. It may be necessary to ensure that the licences and permits granted to the IPP are transferable to the lender. This would involve the entry into direct agreement between licensees and lenders. Lenders are also exposed to the risk of licences being revoked or not renewed or being made subject to conditions. Lenders may wish to seek to have their position recognised on the licence by the licensor so that they are advised in advance of any proposal to modify or revoke the licence and given an opportunity to remedy the cause for the proposed action on the part of the licensor. A direct agreement will resolve this problem. In each case, lenders need to be aware of the limitations of their security and to ensure that their security is structured so that it is as effective as possible within the constraints of the PPA and the Thai licensing and permit framework. The exercise of step-in rights is a difficult issue. It can only be achieved by difficult and expensive negotiations driven by lenders. 6.3 Principle 14: Bankability of IPPs (a) Project structure providing determined income stream The existing PPAs are confidential documents. While some information has become generally available, the precise terms of the PPAs remain undisclosed. From the information available to us, principally the Model PPA, we understand that the income stream of the IPPs is protected by the terms of the PPAs as follows: Term Section 10.1 of the Model PPA leaves the term of the PPA blank. Thus, presumably, the term may be subject to negotiation. However, most PPAs are for a term of 20-25 years, which, from a lender’s perspective, would generally be more than sufficient for the repayment of the loan. However, it should also be noted that section 12.1 provides that the IPP may, by notice in writing to EGAT, terminate the agreement if: 33 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 EGAT defaults on the payment of any amount due and payable to the IPP under the PPA, and the default continues unremedied for more than 30 days after the IPP gives written notice of the default to EGAT; EGAT dissolves or liquidates, (other than voluntary dissolution or liquidation as part of a reconstruction); EGAT makes a general assignment of the PPA or any of its rights under it or of its interest in the IPP’s power plant for the benefit of its creditors; or EGAT enters insolvency proceedings and is adjudicated bankrupt under any insolvency law as a debtor. Section 12.2 of the Model PPA also provides that EGAT may, by notice in writing to the IPP, terminate the PPA if: the IPP defaults in the payment of any amount payable under the PPA and the default continues unremedied for more than 30 days after EGAT gives notice of the default to the IPP; the IPP’s power plant is destroyed or damaged (including in connection with any force majeure) to such an extent as to be incapable of generating electricity and, prior to any material works being carried out by the IPP to remedy the damage, it is agreed between the parties or, in the absence of such agreement it is determined by an expert in accordance with section 15 that it is unlikely that the IPP’s power plant will be restored to at least 75% of the Contract Capacity within 24 months of the date of which such destruction or damages occurs; the IPP dissolves or liquidates, other than voluntary dissolution or liquidation as part of a reconstruction or reincorporation; the IPP makes a general assignment of the PPA or any of its rights or its interest in the power plant for the benefit of its creditors; the IPP enters insolvency proceedings and is adjudicated bankrupt under any insolvency law as debtor; the IPP fails to comply with or operate in accordance with any material provision of the PPA; or the IPP fails to commence Commercial Operation by the scheduled Commercial Operation Date. Whilst the rights of termination of each party appear to be reasonably similar, the PPA makes it clear that EGAT’s rights to terminate the PPA are in addition to the IPP’s liability to EGAT for liquidated damages. Indeed, the PPA makes it clear that following any termination of the PPA, EGAT may exercise any rights or remedies it has at law, including compensation for monetary damages, injunctive relief and specific performance. No such similar statement is made with regard to the IPP. 34 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Section 14.4 also provides that, following 60 days notice in writing, either party may terminate the Agreement if a Force Majeure (other than a Governmental Force Majeure) remains unremedied for more than one year. Responsibilities during construction Section 2 of the Model PPA generally provides that the IPP undertakes to construct, test and commission the power plant and associated systems and EGAT undertakes to construct, test and commission the New Transmission Facilities required to connect the IPP’s power plant and associated systems to EGAT’s System. Terms of purchase Section 6.1 of the Model PPA provides that the IPP is entitled to receive energy charges related to the electricity dispatched. Schedule 3 sets out the calculation of the energy charge. Section 6.1 also provides that neither: operations carried out without a dispatch instruction; nor dispatched operations not carried out, shall receive a payment in accordance with Schedule 3. Section 4.1 also provides that the IPP is entitled to receive Availability Payments from EGAT calculated in accordance with the provisions of schedule 2. In other words, the IPP is entitled to receive payments in respect of the Availability of the IPP’s power plant and associated systems (while in compliance with the Contractor Operating Characteristics) regardless of whether EGAT takes the available capacity. Pricing formula The energy charge is based on the energy charge equations set by EGAT that essentially covers both ‘fixed’ and variable costs. EGAT has separated the energy charge payments into two components. These are: a payment to cover variable fuel costs (“Fuel Payment”); and a payment to cover variable operation and maintenance costs (“VOMP”). The payments are calculated in accordance with allowances agreed in the PPA. The allowances are expressed in Baht per unit of output (kW hours) or time (hours). The Availability Payment is set in accordance with Schedule 3 of the Model PPA for the contract year (as defined in the Request for Proposals) and the hours that the IPP is available. In essence, the Availability Payment is a take-or-pay obligation imposed on EGAT such that the IPP may recover its capital/fixed costs regardless of the electricity produced. 35 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Penalties for non-delivery of power Section 14 of schedule 2 of the Model PPA details the penalties for uninstructed reductions in the MW output. The penalty applied is intended to reflect the additional costs incurred to the system for: the additional cost of providing operating reserves due to significant losses of generation output; and the start up cost involved in resynchronising the unit, if the unit has desynchronised. A penalty is also applied for the uninstructed reduction in the reactive power of the Unit. Finally, a penalty is also implied for failure to provide spinning reserve. The penalties applied by EGAT under the PPA are risks to the IPP income stream, but are also matters that the IPP ought to be able to minimise procedurally and via insurance. Force majeure Section 14.1 of the Model PPA provides that a party’s obligations under the agreement are suspended for the period of a Force Majeure event. Force Majeure Event is broadly defined under section 14.1 as circumstances beyond the reasonable control of the affected party. Section 14.2 provides that the party suffering an event of Force Majeure must give reasonable notice as soon as reasonably practicable following he occurrence of the Force Majeure event. As discussed in paragraph 5.3(a), section 14.1 of the Model PPA provides that during any force majeure, EGAT is not obliged to make Availability Payments to the IPP. However, in the event of a ‘Governmental Force Majeure’ (which includes the expropriation or compulsory acquisition of an IPP facility or material assets or rights of a generator), EGAT must make Availability Payments at a rate based upon an average of the Availability Payment made during the 6 months preceding the applicable Governmental Force Majeure. Section 14.3 provides that neither party is relieved of its obligations under the Agreement due to increased costs or adverse economic consequences that may be incurred through the performance of the party’s obligations. Section 14.3 also provides that obligations what are required to be completely performed prior to the occurrence of the Force Majeure are excused due to the Force Majeure. Finally, section 14.4 provides that, following 60 days notice in writing, either party may terminate the Agreement if a Force Majeure (other than a Governmental Force Majeure) remains unremedied for more than one year. The Force Majeure provisions generally cover the standard occurrences that are beyond the control of the IPP. The events not covered by the Force Majeure provisions (events caused by an IPP), would be risks that the IPP ought to be able to insure against. 36 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 (b) Creditworthiness and track record of all parties It is unknown whether IPPs (or their financiers) are able to obtain financial information regarding purchasers (EGAT) with whom they are entering into a PPA. It is difficult to ascertain the perception of EGAT’s creditworthiness is unknown. However, as described below, NEPO has stated that financial institutions retain some significant concerns about the future capacity of EGAT to service its debt obligations. It should be noted that, as far as we are aware, there is no provision in the PPA (or any other agreement) which provides a guarantee by the Thai Government of the obligations of EGAT. With regard to the obligations of the IPP, schedule 12 of the Model PPA contains a template letter of guarantee by the Commercial Bank in Thailand in which the Commercial Bank in Thailand agrees to unconditionally and irrevocably guarantee as primary obligor the payment to EGAT of the prescribed amount in the event that the obligations of the IPP during the Development Phase are not fulfilled by the IPP. The letter of guarantee also gives EGAT the right to claim a penalty, damages, liquidated damages or any expenses for which the IPP may become liable to EGAT under the contract. In addition, the Government (that is, NEPO and EGAT) has been providing a number of Letters of Comfort to the IPPs and potential financiers in the following areas: (c) EGAT’s financial performance; Government’s policy regarding retail tariffs; General government support on IPP policy; and Government policy regarding the scaling down in EGAT’s investment plans to cope with the lower power demand and uncertainties. Support from international lending agencies NEPO, in its publication entitled Privatisation and Liberalisation of the Energy Sector in Thailand, issued on 29 March 1999, states that the main concern of the financial institutions in providing financing is related to the ability of EGAT to uphold its commitment under the PPAs as EGAT’s financial position could deteriorate if: the economic slow down causes significant slow down in power demand growth resulting in a very high level of reserve margin of the system; or the government, due to political reasons, does not allow EGAT to adjust the retail power tariff. It is unknown what form this support takes, but it is probably in conventional form. 37 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 (d) Commercial and political risk insurance It is unknown what commercial insurance is available in Thailand. It is probably reasonably available in accordance with international best insurance practices. (e) Conclusions There is no provision in the Model PPA (or any other agreement) which provides a guarantee by the Thai Government of the obligations of EGAT. 6.4 Principle 15: Development of domestic capital (a) IPP financing techniques There is relatively little capital available in the domestic market for these projects. At least one IPP has entered the domestic capital market to raise finance. EGCO partly financed its debts with local currency bonds at fixed interest rates. (b) Policies to encourage the development of domestic capital markets The Stock Exchange of Thailand (“SET”) was established in 1974 and lists a range of equity and debt instruments including securities, ordinary shares, preferred shares, bonds and debentures, warrants and covered warrants and unit trusts. As discussed in paragraph 3.1.1(a), one of the objectives of the Master Plan Redraft is the encouragement of the general public’s participation in the energy industry through the development of the capital market. It is unknown how this policy is being implemented. (c) Conclusions The domestic capital market appears to be well developed and provides limited opportunities for domestic investment in the electricity sector. The main difficulties for the capital market are: developing both domestic and international investor confidence in the market; and fluctuation in the value of the Baht and its impact on international investments. Whilst the Government has taken a position of promoting participation of the general public in the energy sector through the development of the capital market, it is unclear what polices the Government is employing to achieve this aim. 38 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Appendix A IPP projects currently planned or under negotiation Independent Power (Thailand) Company Limited (to be called ‘IPT’) Commitment: To supply 700 MW of electricity to EGAT. Plant Location: Sri Racha, adjacent to the Thai Oil refinery on the Eastern Seaboard of Thailand. Plant Configuration: The combined cycle plant consists of two gas turbine generators (each has a 230 MW capacity), and one 240 MW steam turbine generator. Total investment of the plant: 9.6 billion Baht (approximately US$270 million). Ownership: 56% by Thai Oil Company, 24% by Unocal of the United States and 20% by Westinghouse Electric (now Siemens) of the United States. The generators are to be designed and supplied by Westinghouse. Project Status: The facility started commercial operation on 15 August 2000. Tri Energy Company Limited (“TECO”) Commitment: To supply 700 MW of electricity to EGAT by July 2000. Plant Location: Ratchaburi Province, approximately 100 kilometres southwest of Bangkok. Plant Configuration: Natural gas-fired combined cycle facility. General Electric of the United States will supply two gas turbines and one steam turbine. Total investment of the plant: Estimated at more than US$400 million. Ownership: 37.5% by Banpu Gas Power Limited of Thailand, 37.5% by Texaco (Thailand) Energy Company of the United States and 25% by Edison Mission Energy of the United States. Equipment/Engineering Procurement Contractor: General Electric and Black & Veatch. Turbines supplied by General Electric. Project Status: The facility started operation on 1 July 2000. Eastern Power & Electric Co, Ltd (“EPEC”) Commitment: To supply 350 MW of electricity to EGAT by July 2002. Plant Location: Gateway City Industrial Estate, Cha Choeng Sao Province, approximately 50 kilometres east of Bangkok. Plant Configuration: Natural gas-fired, combined cycle power plant. Ownership: 60% by GMS Power Company of Thailand, 28% by Marubeni Corporation of Japan and 12% by China Development Industrial Bank Inc of China. Equipment/Engineering Procurement Contractor: ABB of Switzerland. 39 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Project Status: EPEC has selected ABB of Switzerland as the EPC contractor for construction of its power plant. To comply with the new Thai constitution, EPEC held a public hearing on 17-18 June 2000. EPEC plans to begin construction of its plant in May 2000, and to test run the plant by March 2002. Bo Win Power Co, Ltd Commitment: To supply 713 MW of electricity to EGAT by April 2002. Plant Location: Bowin District of Chonburi Province, about 100 kilometres east of Bangkok. Plant Configuration: Natural gas-fired, combined cycle power plant. Ownership: 50% by H-Power Company of Thailand and 50% by Tractebel of Belgium. Equipment/Engineering Procurement Contractor: ABB of Switzerland. Project Status: To be constructed. ABB of Switzerland is the EPC contractor for construction of the power plant. Gulf Power Generation Co, Ltd Commitment: To supply 367 MW of electricity to EGAT by October 2003 and an additional 367 MW by April 2004. Plant Location: Bo Nok District, Prachuab Khiri Khan Province in Southern Thailand. Plant Configuration: Two coal-fired power generating facilities of 367 MW each,. Total investment: US$800 million. Ownership: 60% by Gulf Electric of Thailand, 40% by Edison Mission Energy of the United States. Equipment/Engineering Procurement Contractor: Joint venture of Black & Veatch and Mitsui. Project Status: As a result of the environmental impact assessment, the company plans to install a Fabric Filter (a dust precipitator) and a cooling tower. Gulf power is awaiting the final approval for a US$150 million loan from the US Export Import Bank and a US$270 million loan from the Japan Bank for International Cooperation (“JBIC”). To comply with the Thai Constitution, a public hearing on the project was held on September 10-12, 1999. To date, as the Thai Government has not found a solution to the opposition from the non-government organisations (“NGOs”), the start of construction of the plant is pending. Union Power Development Co, Ltd (“UPDC”) Commitment: To supply 700 MW of electricity to EGAT by October 2003 and an additional 700 MW by January 2004. Plant Location: Hin Krut District in Prachuab Khiri Khan Province in Southern Thailand. 40 EWG20/10.3-Att A-Ann 7 Agenda Item 10.3-Micro Eco Reform-Att A-Ann 7 Plant Configuration: Two units of 700 MW coal-fired generating facilities, using imported coal from Australia as fuel. Total Investment: US$1.2 billion. Ownership: 34% by Tomen Power Singapore Pty Ltd (a Japanese company), 28% by Consolidated Electric Power Asia Ltd of British Virgin Island, 28% by Fortum Group of Netherland, and 10% by Union Energy Company of Thailand. Project Status: UPDC is awaiting final approval from the JBIC for a US$593 million loan, from other Japanese banks for another US$198 million loan, and from local banks for a US$137 million loan. The company submitted an environmental impact assessment report to the Office of Environmental Policy and Planning of Thailand for consideration and revised the report twice. To date, the Office of Environmental Policy and Planning has not been satisfied with the report and instructed UPDC to revise the report again. A public hearing on the project was held on February 24-25, 2000 at Prachaub Kiri Khan Province’s City Hall. The start of construction of the plant is pending. BLCP Power Limited Commitment: To supply 673.25 MW of electricity to EGAT by October 2005 and an additional 673.25 MW by February 2006. Plant Location: Map Ta Phut, Rayong Province in Eastern Seaboard of Thailand. Plant Configuration: Two units of 673.25 MW. Proposed investment: US $3.6 billion. Ownership: 47.5% by Banpu Gas Limited of Thailand, 47.5% by PowerGen Holding of the United Kingdom and 5% by Loxley Public Company of Thailand. Equipment/Engineering Procurement Contractor: Mitsubishi. Project Status: BLCP has selected Mitsubishi as EPC contractor. The company is doing an environmental impact assessment for the project. 41 EWG20/10.3-Att A-Ann 7