Infrastructure Outlook Still In Flux

BMI View: Recent developments in Thailand support our long-held view that a change in regime could lead to a review of infrastructure projects approved by the previous incumbent. This review has already resulted in major delays and revisions to the country's infrastructure plans, and could further limit the country's infrastructure growth potential.

Recent developments in Thailand support our long-held view that a change in regime could lead to a review of infrastructure projects approved by the previous incumbent ( see 'Political Crisis Weighing On Infrastructure', April 15 2014). A change in government typically results in new feasibility studies and financial schemes being conducted and crafted respectively, which could lead to project delays, revisions, or worse, cancellations.

Such a scenario has already taken place in Thailand. A coup by Thai military leaders in late-May resulted in a military junta being installed to run the country, with the junta announcing in June that it would review all of the country's infrastructure programmes made by the former Pheu Thai Party (PTP) government to ensure their transparency, cost-effectiveness and necessity (cited from the Bangkok Post). This was reiterated on June 22, when the military junta ordered state-owned companies to seek its approval before undertaking any project worth more than THB100mn (USD3.1mn).

Underperformance
Thailand - Construction Industry Value Forecasts

Infrastructure Outlook Still In Flux

BMI View: Recent developments in Thailand support our long-held view that a change in regime could lead to a review of infrastructure projects approved by the previous incumbent. This review has already resulted in major delays and revisions to the country's infrastructure plans, and could further limit the country's infrastructure growth potential.

Recent developments in Thailand support our long-held view that a change in regime could lead to a review of infrastructure projects approved by the previous incumbent ( see 'Political Crisis Weighing On Infrastructure', April 15 2014). A change in government typically results in new feasibility studies and financial schemes being conducted and crafted respectively, which could lead to project delays, revisions, or worse, cancellations.

Such a scenario has already taken place in Thailand. A coup by Thai military leaders in late-May resulted in a military junta being installed to run the country, with the junta announcing in June that it would review all of the country's infrastructure programmes made by the former Pheu Thai Party (PTP) government to ensure their transparency, cost-effectiveness and necessity (cited from the Bangkok Post). This was reiterated on June 22, when the military junta ordered state-owned companies to seek its approval before undertaking any project worth more than THB100mn (USD3.1mn).

This review has already negatively affected projects in several infrastructure sub-sectors.

Water Utilities: On June 10, the military junta scrapped the country's THB350bn long-term water management and flood prevention scheme, with the projects under the scheme being reviewed and revised by the junta (cited from the Nation). This took place even though the projects were already awarded to companies in 2013 - we do however highlight that the contracts for these projects have not yet been signed at the time of their cancellation ( see 'Water Scheme Offers High Risks, High Rewards For K-Water', June 19 2013). At present, only THB13bn worth of water-management projects have been approved by the military junta and this approval took place on June 28. There are currently deliberations by the military junta to include some of the remaining water-management and flood prevention projects in its new 2015-2022 infrastructure plan ( see table below).

Thailand - Infrastructure Investment Plan* 2015-2022
Projects Value (THBbn) Funding Source
Railway 900 Fiscal budget for land expropriation and design; Loans to cover construction costs
Roads 290 Fiscal budget for land expropriation and design; Public-private partnerships (PPPs) and loans to cover construction costs
Water Transport And Irrigation 28.8 Fiscal budget
Customs Checkpoints 12.55 Fiscal budget
Advance Payments 8.3 Fiscal budget
Aviation 150 State enterprise investment
Additional Roads And Motorways, Dredging And Irrigation 850-1000 Fiscal budget for land expropriation and design; PPPs and Loans to cover construction costs
Total 2240-2390
*As of June 19 2014. Source: Bangkok Post, Transport and Traffic Policy and Planning Office, BMI

High-Speed Rails: In mid-June, the military scrapped the country's plan to build a THB780bn high-speed railway network, stating that it was not feasible (cited from the Bangkok Post). The high-speed railway project was originally part of the PTP's THB2trn transport infrastructure plan, but is no longer part of the proposed seven-year infrastructure plan, currently valued at THB2.4trn.

Airports: On July 2, the military junta ordered the state-owned airport operator Airports of Thailand to review and put on hold plans to implement the second phase of expansion for the Suvarnabhumi airport, Thailand's principal international airport. The expansion plan, estimated to cost THB62.5bn, was deemed as too costly by the military junta even though the Suvarnabhumi airport is already operating above its design capacity - the Suvarnabhumi airport handled slightly over 51mn passengers in 2013, higher than its design capacity of 45mn passengers per annum. Construction on this second expansion phase was supposed to start in December 2014 and be completed by end-2016, with the tendering process for consultancy companies already underway. If completed, it would boost the capacity of the airport to 60mn passengers per annum.

Underperformance
Thailand - Construction Industry Value Forecasts

Overall, there remains significant uncertainty surrounding the growth outlook for Thailand's infrastructure sector, and this creates significant scope for the sector's growth potential to be further dampened. The proposed THB2.4trn infrastructure plan, completed by the transport ministry and submitted to the military junta for consideration in mid-June, has yet to receive final approval from the head of the military junta General Prayuth Chan-ocha and could be subjected to further revisions. As such, we do not account for the infrastructure plan in our construction forecasts for Thailand, and still expect the sector to underperform against the previous decade over the coming years. We are forecasting real growth for Thailand's construction sector to average 1.8% per annum between 2014 and 2023, compared to an average of 2.5% per annum between 2004 and 2013.

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