Water Plans To Provide Earnings Diversity
The Thai government has approved the six parties selected by the Water and Flood Management Commission to enter the find bidding stage for the projects under Thailand's long-term water management and flood prevention plan. We believe that these projects present an opportunity for Thai companies to achieve some diversity in their future earnings.
The six parties ( see table ) consist of 31 companies. According to Bloomberg, 12 of them are foreign companies and 19 of them are Thai companies. These companies include some of the largest utility companies in Asia such as Japan's Taisei and South Korea's Korea Water Resources (K-Water) as well as some of Thailand's largest construction companies such as Italian Thai Development (ITD) and Ch Karnchang.
|Selected Parties||Consortium Members|
|Source: BMI, Bloomberg, Bangkok Post, Water and Flood Management Commission|
|Korea Water Resources (K-Water)||Korea Water Resources (K-Water)|
|Loxley Joint Venture||Loxley, AGT International|
|Summit SUT Joint Venture||Samprasit Partners, SKY Construction, Union Infartech|
|ITD-Power China Joint Venture||Italian-Thai Development, Power Construction Corporation of China, China International Water & Power|
|Thailand Team Joint Venture||Ch. Karnchang, Team Consulting Engineering & Management, Christiani & Nielsen|
|Thai-Japan Joint Venture||Obayashi, Taisei, Kajima, Shimizu, CTI Engineering, Yachiyo Engineering, Sanyu Consultants, Pacific Consultants|
We believe that the projects offered under Thailand's long-term water management and flood prevention plan present an opportunity for Thai companies to achieve some diversity in their future earnings. Many Thai companies, particularly ITD and Ch Karnchang, are heavily reliant on urban railway projects in Bangkok for future earnings, and on foreign projects with significant potential for delays and cost overruns. For example, Ch Karnchang has an impressive construction backlog - THB124bn (US$4.2bn) at the end of September 2012 - but more than 50% of this value can be attributed to the Xayaburi dam in Laos. The dam continues to face objections from Vietnam and Cambodia as these countries remain concerned about the economic and social effects of the dam ( see our online service, January 25 2013, 'Xayaburi Fate Still Uncertain' ) . Should further delays or even a cancellation of the project occur, Ch Karnchang's future financial performance could be negatively impacted.
ITD also has an impressive backlog - THB179bn at the end of November 2012. However, its key projects (namely, the THB38bn Dhaka Elevated Expressway project in Bangladesh, the THB40bn Mai Khot Coal Mining project in Myanmar and the Dawei port and special economic zone in southern Myanmar) are located in countries with business environments that are poorer than Thailand, making them susceptible to delays. Since ITD was awarded the Dhaka Elevated Expressway in January 2011, it has yet to make any significant progress with the project due to land acquisition and financing issues. Similarly, progress with the Dawei project has been very slow due to financing issues and constant changes to the project design by the Myanmar government ( see our online service, December 20 2012, ' Dawei: Near-Term Prospects Dimmer ' ).
|Diversity From Water|
|Backlog Breakdown By Project Type - Ch Karnchang , % as of end-September 2012 (LHS); Italian-Thai Development ITD, % as of November 20 2012 (RHS)|
At present, the six selected groups have until April 2013 to finalise their designs for the tender, with the successful bidders chosen in the same month. There are a total of 10 projects, with six of them located in the Chao Phraya River Basin and worth THB300bn. The remaining four projects are located in other water basins and are worth THB40bn. The projects include a rehabilitation plan for reservoirs, canals, sluice gates, emergency response plans, water retention and diversion areas, as well as town planning. They are expected to be completed within five years, placing their possible completion date at around 2018.