Anti-

Privatization
of EGAT Pun L. 4502640875
Pauline V. 4502640834
Agenda

Industry Overview
EGAT Terms of Privatization
Arguments against Privatization
Recommendation: Should it be
Privatized
Conclusion

Electricity Generating Authority of Thailand

Agenda

Industry Overview
EGAT Terms of Privatization
Arguments against Privatization
Recommendation: Should it be
Privatized
Conclusion

Electricity Generating Authority of Thailand

Industry Overview
Prior to Privatization

EGAT Generation

EGAT
Transmission

Distribution
MEA PEA

Customers Customers customers

Electricity Generating Authority of Thailand

 Industry Overview
Previous Privatization
1) attract private capital to meet demand growth
2) new technology
3) competitive power pool

IPPs EGCO EGAT SPPs Generation

EGAT
Transmission

Distribution
MEA PEA

Customers Customers customers

Electricity Generating Authority of Thailand

Industry Overview
EGAT Privatization

IPPs EGCO EGAT SPPs Generation

EGAT
Transmission

Distribution
MEA PEA

Customers Customers customers

Electricity Generating Authority of Thailand

Agenda

Industry Overview
EGAT Terms of Privatization
Arguments against Privatization
Recommendation: Should it be
Privatized
Conclusion

Electricity Generating Authority of Thailand

EGAT Privatization Terms

International Monetary Fund (IMF)’s Aid

Package
97 Asian Crisis •Complete Restructuring of Electricity Industry
IMF Terms •EGAT to sell all assets except hydroelectric
facilities

Current EGAT
Government Plans
Privatization EGAT  state-owned
Terms enterprise
-Responsible for Transmission
Network
-Competition at power generation
and retail supply points
Reactions
Under Former Prime Minister Chuan
•Leekpai
Unbundling Utility into 8 Competitive Generation
Companies
•Establishment of Competitive Pool

Electricity Generating Authority of Thailand

EGAT Privatization
Terms
New Government - New Privatization Terms
97 Asian Crisis •EGAT to remain ‘whole’ and monopoly
IMF Terms •Responsible for Transmission and Distribution
Objectives

Current EGAT
Privatization
Maximize
Asset Values + Increase Competitiveness
of SOEs
Terms •List EGAT on the Stock Exchange of Thailand by Nov.
2005
•Ultimately, Government Hold 51% [PARTIAL
PRIVATIZATION]Initial Stage of Privatization
Reactions
•Only 25% of six billion shares floated
•Finance Ministry to hold 70%

Electricity Generating Authority of Thailand

EGAT Privatization
Terms
Resistance
97 Asian Crisis •Upheld by Series of Protest and
IMF Terms Demonstration
•SOEs labor unions demand plan
Higher
+
withdrawal
Job Losses
Prices
Current EGAT
Privatization
•Consumers Confederation and affiliated
Terms
organization joined efforts
•Vowed to appeal to His Majesty the
King

By March 2004
Reactions
•PM Thaksin Shinawatra announced

“Privatization plans put on halt –

indefinitely”

Electricity Generating Authority of Thailand

Agenda

Industry Overview
EGAT Terms of Privatization
Arguments against Privatization
Recommendation: Should it be
Privatized
Conclusion

Electricity Generating Authority of Thailand

EGAT Analysis
Framework
Level 3: Actual Implementation
Concerns
Transparency
Terms
Level 2: Factors to Consider for
Privatization
Nature of Industry
Social

Level 1: Validity of
Increase FDI
Claims
Efficiency
Pay-Off Debt
Countering Government and Pro-Privatization
Claims
Analysis Framework

Electricity Generating Authority of Thailand

Level 1 Analysis
Level 3: Actual Implementation
Concerns
Transparency
Terms
Level 2: Factors to Consider for
Privatization
Nature of Industry
Social

Level 1: Validity of
Increase FDI
Claims
Efficiency
Pay-Off Debt
Countering Government and Pro-Privatization
Claims
Analysis Framework

Electricity Generating Authority of Thailand

Level 1 Analysis
Government and Pro-Privatization Claims

3 Main
Claims:
Increase
Foreign Investment

Pay-Off Debt

Efficiency

Electricity Generating Authority of Thailand

Level 1 Analysis
Government and Pro-Privatization Claims
Increase Claim:
Foreign Investment
participation by foreign investors would be a
major driver for the SET

Counter Arguments

1. Under EGAT’s privatization term

-Foreign shareholding limited to 30%
Concern: SET driver?

2. ’97 Economic Crisis

-collapse of the Thai economy:
the rapid pull-out of the foreign portfolio investment
Concern: benefit country in the long-run?

Electricity Generating Authority of Thailand

Level 1 Analysis
Government and Pro-Privatization Claims
Claim:
Privatisation would “allow it to detach itself
from the debts incurred by EGAT, which
Pay Off Debt have tied up huge amounts of capital.”

Counter Arguments
1. Under EGAT’s privatization term:
- Ministry of Finance holds 70% stake
Concern: still guarantee outstanding debt
2. If Gov. aims to ease public debt should:
- Concentrate privatization on loss-making corp.
BUT Gov.’s privatization efforts on top-performing corp.
EGAT: one of the most efficient + profitable electricity
generator in the world
Concern: agenda behind?

Electricity Generating Authority of Thailand

Level 1 Analysis
Government and Pro-Privatization Claims
Attained by
Competition

Better
Efficiency Service and Profit-Orientation
Quality and
Lower Prices

Rid Corruption

Electricity Generating Authority of Thailand

Level 1 Analysis
Government and Pro-Privatization Claims
Attained by
Competition

Valid Claims for

Better
Efficiency Service and EGAT
Profit-Orientation
Quality and Privatization?
Lower Prices

Rid Corruption

Electricity Generating Authority of Thailand

Level 1 Analysis
Competition
EGAT Privatization Terms
•EGAT to remain ‘whole’ and monopoly
•Responsible for Transmission and
Distribution

No Market Entry
of Competition
•No External Pressure to Enhance
Efficiency
•No incentives to LOWER price or IMPROVE
Service
PUBLIC PRIVATE
MONOPOLY MONOPOLY
Electricity Generating Authority of Thailand
Level 1 Analysis
Profit-Orientation
Advocates -privatized  obliged to work in best interest of
shareholders
for
-Thai Government  little incentives to improve
Privatization
:
Profit-Orientation: Disadvantages > Advantages

Burden on Increase Price

Lack of Gov’t Guarantee
Competition Of Electricity of
Thai 9% Profit Returns
Thai People
People -no incentives for -World Average at 4.2% -Only way to attain profit
efficiency level

Cuts in Hesitant to Expand Hurt Development

Only Serve Those
Essential Able to Pay
To Unprofitable And Well-being
Services Areas Of People
-Especially people in rural
areas

“EGAT is a public service which must be provided to all people in the

nation…should be operated in a sense to provide cheapest electricity
possibly to people.”

Electricity Generating Authority of Thailand

 Level 1 Analysis
Rid Corruption
-Thai Gov’t run inefficiently because of corruption
Advocates -hidden agendas at cost of Thai public interest
for -Increased Transparency and act in shareholder’s
Privatization interest
: an end to corruption?
Does it really put

Lack Transparency Concentration of Wealth

-buyers use ‘insider positions’ •Gov’t Claim: all Thai Citizen maintain
ownership
major shareholders = relatives or “Opportunity to Purchase
members of Government
Shares”
Earlier Failed Privatization Effort Counter Argument:
Example:
•Shares sold out within 1.17
minutes •Only 2000 people or 0.003% able to buy
shares
•To pre-arranged buyers
•3 gov’t members with 11 million •“Connection” Issue
shares

•Profit end up in “Private Pockets” rather than

Common Public
•Further Income Gaps/Social Inequality

Electricity Generating Authority of Thailand

EGAT Analysis
Framework
Level 3: Actual Implementation
Concerns
Transparency
Terms
Level 2: Factors to Consider for
Privatization
Nature of Industry
Social

Level 1: Validity of
Increase FDI
Claims
Efficiency
Pay-Off Debt
Countering Government and Pro-Privatization
Claims
Analysis Framework

Electricity Generating Authority of Thailand

Level 2 Analysis
Factors for Consideration

Nature of Electricity and power generation

Industry “Natural Monopoly”
SHOULD be served by one enterprise

Social Obligation to Serve Public Through Taxes

Concern Collection
 Duty of Gov. to provide the cheapest possible
electricity even if making loss

Electricity Generating Authority of Thailand

 Factors for Consideration

Nature of
Industry

Social
Concern Reduced Support for EGAT’s Financial Position
 Become profit-oriented & work against the public interest

Concern: valid to even talk about privatization?

Electricity Generating Authority of Thailand

Level 2 Analysis
Factors for Consideration

Nature of Protests & demonstrations:

Industry Concern of losing jobs
Social and political instability
EGAT: State-Owned Enterprise
Belongs to public
Social
Seek approval (referendum)
Concern
S-T, Downsizing can:
• Decrease purchasing power
• Hurt economy overall

Electricity Generating Authority of Thailand

EGAT Analysis
Framework
Level 3: Actual Implementation
Concerns
Transparency
Terms
Level 2: Factors to Consider for
Privatization
Nature of Industry
Social

Level 1: Validity of
Increase FDI
Claims
Efficiency
Pay-Off Debt
Countering Government and Pro-Privatization
Claims
Analysis Framework

Electricity Generating Authority of Thailand

Level 3 Analysis
Actual Implementation Concerns
Successful Privatization Implementation Depends
on:
Transparency Terms
“Public’s Trust in the “Whether Terms of
Government” Privatization allow
•Skeptical about Government’s Intentions realization of benefits”
•No Emergence of Competition
•Weak handling of Resistance caused
Public to Lose Trust •Can Efficiency be Attained?
•Lack of Communication Caused •Cost > Benefits
Misunderstanding

Other Criticisms:
•Gov’t rush towards Privatization without
-regulatory board to oversee privatized energy corporation
-only verbal promises with no ‘clear-cut implementation plan’

Electricity Generating Authority of Thailand

EGAT Analysis
Framework
Level 3: Actual Implementation
Concerns
Transparency
Terms
Level 2: Factors to Consider for
Privatization
Nature of Industry
Social

Level 1: Validity of
Increase FDI
Claims
Efficiency
Pay-Off Debt
Countering Government and Pro-Privatization
Claims
Analysis Framework

Electricity Generating Authority of Thailand

Agenda

Industry Overview
EGAT Terms of Privatization
Arguments against Privatization
Recommendation: Should it be
Privatized
Conclusion

Electricity Generating Authority of Thailand

Should EGAT be Privatized?

EGAT
Not Terms of Full
Privatize Privatization Privatization

• Necessity-belong to state •Realize Benefits

• Already Efficient •Considerations:
• If seek to increase efficiency, •Nature of industry
Can be internally done •Development of country
• Implementation plan

Simply a transfer of minority stake

Are there really any benefits to be realized?

Electricity Generating Authority of Thailand

Agenda

Industry Overview
EGAT Terms of Privatization
Arguments against Privatization
Recommendation: Should it be
Privatized
Conclusion

Electricity Generating Authority of Thailand

 Conclusion
Not Denying Merits of Privatization,
BUT Public Gov’t Obliged to Provide to Public
Utility
Is “Profit Maximization Goal” appropriate?

Under EGAT Thai Public Unlikely to Realize Benefits

TERMS Proclaimed [Partial Privatization]
Sacrificing Long-Term Benefits for Short Term Financial
Benefits
Questionable
Successful Lack Transparency and Clear-Cut
Implementati Implementation Plan
on
Forceful Privatization can Lead to Unnecessary Social
Unrest Delaying Benefits Realization (if any)

Electricity Generating Authority of Thailand

Not Denying Merits of Privatization,
BUT Public Gov’t Obliged to Provide to Public
Utility
Is “Profit Maximization Goal” appropriate?

Under EGAT Thai Public Unlikely to Realize Benefits

TERMS Proclaimed [Partial Privatization]
Sacrificing Long-Term Cost for Short Term Financial
Benefits
Questionable
Successful Lack Transparency and Clear-Cut
Implementati Implementation Plan
on
Forceful Privatization can Lead to Unnecessary Social
Unrest Delaying Benefits Realization (if any)

Electricity Generating Authority of Thailand

Conclusion

Who Gains from

Privatization?

Electricity Generating Authority of Thailand

Anti-
Privatization
of EGAT Pun L. 4502640875
Pauline V. 4502640834
Slide Navigator I
Presentation Slide Index Back-up Slides

Industry Overview EGAT

Institutional Framework  Financial Viability
Previous Privatization  EGAT’s Electricity Generation
Current Privatization Effort  Thailand’s Electricity Consumption
EGAT Privatization Terms  Tariffs
’97 Crisis & IMF PTT Privatization
 Current EGAT Terms Shareholders
 Reactions Thus Far
Arguments Against Privatization
Analysis Framework
Level 1 Analysis: Pay Off Loan
Level 1 Analysis: Increase Foreign Investment
Level 1 Analysis: Efficiency
Level 2 Analysis: Nature of Industry
Level 2 Analysis: Social Considerations
Level 3 Analysis: Transparency & Terms
Recommendation
Should EGAT be Privatized?
Conclusion

Electricity Generating Authority of Thailand

EGAT’s Electricity
Generation
By Energy Source (2004)

Electricity Generating Authority of Thailand

Thailand’s Electricity
Consumption

Drop after Asian Crisis, Currently on the Rising

Trend
Electricity Generating Authority of Thailand
ELECTRICITY TARIFFS ACROSS SELECTED
ASIAN COUNTRIES (JUNE 1998)

Tariffs set to provide EGAT with Pre-

Specified level of ROI to sustain
Financial Viability

Electricity Generating Authority of Thailand

Electricity Generating Authority of Thailand
PTT Shareholders

• Ministry of Finance 69.28%

• Morgan Stanley & Co International Limited
2.56%
• HSBC 2.55%
• State Street Bank and Trust Company
2.01%
• Nortrust Nominees 0.61%
• The Bank of New York 0.57%

Gov + Industrial Investors make up approximately 80%

(excluding 3 government members-11 million shares)

Electricity Generating Authority of Thailand