VZCZCXRO8844
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #0727/01 0370701
ZNR UUUUU ZZH
R 060701Z FEB 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 4576
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 BANGKOK 000727 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EINV TH
SUBJECT: RTG INVITES FEEDBACK ON POWER SOLICITATION 
 
¶1.  SUMMARY.  Thailand is moving closer to issuing its second 
solicitation for Independent Power Producers (IPPs) in 2007. 
The new solicitation is designed to minimize the cost and 
risk for the RTG throughout the bid process and up to the 
point the new capacity comes on line.  Bidders will face 
numerous stringent bid requirements, but the Ministry of 
Energy (MOE) seems to be striving for a transparent process 
limiting the amount of subjectivity in the bid evaluations. 
Significantly, state owned enterprises (SOEs) will not be 
permitted to participate in the bidding.  Despite the MOE's 
desire to diversify Thailand's energy supplies, and use the 
country's coal reserves, it seems likely that there will be 
few, if any bidders proposing coal-fired projects, if any. 
Even as the IPP round moves forward potential bidders will be 
conscious of the risk posed by Thailand's unsettled political 
situation.  End summary. 
 
--------------------------------------------- --- 
Thailand Moves Closer to Second IPP Solicitation 
--------------------------------------------- --- 
 
¶2.  In December 2006, the Energy Policy Planning Office 
(EPPO) of Thai Ministry of Energy held a conference to 
discuss the upcoming bid solicitation for Independent Power 
Producers (IPPs).  The target audience was principally 
potential bidders for the new IPP awards.  The draft plan for 
the IPP solicitation was presented and feedback from industry 
was solicited. 
 
¶3.  The timetable for the second IPP round projects an RFP 
issuance in March 2007, bid submission in October 2007, 
preferred bidders named in April 2008, Power Purchase 
Agreements (PPA) signed in October 2008, and financial close 
and notice to proceed in April 2009.  EPPO claims that this 
schedule is generous, with selection of preferred bidders and 
signing of PPAs possibly occurring earlier than scheduled. 
 
¶4.  The current round of IPP bidding will be Thailand's 
second.  The first round was conducted in 1994 and drew 88 
proposals, of which seven were awarded, for 6,675 megawatts 
of capacity.  All seven eventually achieved financial close, 
despite the 1997 financial crisis, and are now operational. 
 
¶5.  This round of IPP bidding will award 3,000-4,000 megawatt 
(MW) of capacity, with scheduled commercial operation between 
from 2011 through 2013.  The Ministry will announce annual 
capacity amounts in early 2007 following the finalization of 
the new load forecast and power development plan. 
Additionally, in order to mitigate excess capacity risk, the 
Ministry will require each bidder to provide a option to 
extend the bidder's scheduled commercial operation date by up 
to 24 months, at a fixed price, which option the MOE can 
exercise at any time prior to the scheduled commercial 
operation date. 
 
¶6.  The RTG's objective for the new round of IPP solicitation 
is to encourage high quality, low cost bids for the private 
sector to develop, finance and construct the next expansion 
of Thailand's energy generating capacity.  In addition to 
seeking the lowest cost proposals, the process itself has 
been designed to impose the lowest expense on the RTG, using 
a pay-to-play format. 
 
¶7.  Much of the financial burden of the bid process will be 
placed on the bidders themselves.  The bid package itself 
will cost 100k baht, and each bidder will be required to 
submit with the bid an evaluation fee of 1m baht, and a bid 
bond of 500 baht/kilowatt of proposed capacity.  The funds 
will help finance an independent bid management committee 
(BMC), appointed by the MOE, that will evaluate the bids and 
recommend preferred bidders. 
 
------------------------- 
The Bid Process Explained 
------------------------- 
 
¶8.  Bids will comprise separate sealed technical and price 
proposals and will be evaluated in two separate phases.  The 
first phase will be a pass-fail evaluation of compliance 
requirements and non-price factors, including acceptance of 
the mostly non-negotiable PPA, the PTT gas sales agreement 
(for gas-fired projects), and a guaranteed bid validity of 9 
months.  Bids will also be evaluated on the use of proven 
technology, submission of an environmental impact analysis 
(EIA), and fuel supply and price risk.  Bids that 
successfully pass the technical review will be evaluated and 
ranked based on price.  The price will comprise two 
components, and Availability Payment (including capital 
recovery), and an Energy Payment.  As part of the evaluation 
process EPPO states that the BMC may request meetings, which 
may be private, with any bidders to clarify (but not 
negotiate) terms. 
 
BANGKOK 00000727  002 OF 003 
 
 
 
¶9.  Once preferred bidders have been named they will be 
required to submit an additional non-refundable fee of 4m 
baht at the commencement of the contract finalization phase. 
Nevertheless, EPPO anticipates that PPA negotiations will be 
of very short duration (weeks) due to previous PPA precedent 
and the pre-acceptance of large sections of the PPA. 
 
¶10. EPPO notes that Thailand's power sector is heavily 
dependent upon limited supplies of natural gas and a single 
generating technology.  In 2005 over 75% of Thailand's 
electricity was generated by gas-fired power plants, and this 
figure is expected to increase slightly in the next few 
years.  The Ministry of Energy (MOE) is consequently 
considering placing capacity award limits on gas-fired 
projects, and/or offering additional incentives to developers 
of coal-fired projects.  At the same time the Renewable 
Portfolio Standard (RPS), which would have required each IPP 
to provide 5% of capacity from renewables, has been canceled 
in favor of a future, separate, solicitation targeting 
renewable energy. 
 
¶11.  Each IPP will be required to submit a community 
development program (CDP) providing benefits to the project's 
host community.  At a minimum, each IPP must commit funds 
equal to 30 THB per kilowatt of project capacity for CDP 
start-up, and 1/100 THB per KWh of deliveries for continuing 
programming.  Submission of a satisfactory CDP will 
constitute one of the pass/fail elements of the bid 
evaluation. 
 
¶12.  Bidders are also required to submit their projects for 
an Environmental Impact Assessment (EIA), and must obtain EIA 
approval prior to the execution of the PPA.  Failure to 
obtain approval after a maximum six month extension from the 
scheduled signing date will result in the rejection of the 
bid and the retention of the 15% bid bond. 
 
------------------- 
SOEs Need Not Apply 
------------------- 
 
¶13.  State owned enterprises (SOEs) will not be permitted to 
directly participate in the bid solicitation, although they 
may do so indirectly through subsidiaries or consortiums in 
which the SOE holds less than 50% equity interest and/or 
control.  Notably this minority limit applies from the bid 
date through the end of the PPA. 
 
¶14.  Significantly, EPPO also stated that it had not yet been 
decided that the Energy Generating Authority of Thailand 
(EGAT, the state-owned power company) should be allotted any 
share of new capacity for the 2011-13 time period.  (Comment: 
 Previous rumors had suggested that as much as 50% of new 
capacity might be reserved for EGAT, with the possibility 
that EGAT might also be allowed to bid for IPP capacity. 
This no longer appears to be the case, although notably EPPO 
did not definitively state that EGAT would NOT be awarded a 
share of capacity.  End Comment.) 
 
 
-------------------- 
Participants Respond 
-------------------- 
 
¶15.  EPPO's presentation generated considerable feedback from 
industry representatives.  One clear theme was the need for 
transparency, and the appearance of transparency, in the bid 
and evaluation process.  In this regard participants objected 
to the possibility of closed-door clarification meetings 
between the BMC and individual bidders.  There was also 
uneasiness about EGAT's involvement in the bid process, 
forcing the EPPO representatives to reiterate that EGAT would 
serve only as a technical resource. 
 
¶16.  Another recurring theme was the size of the 
solicitation, with multiple comments suggesting an expansion 
of the capacity available, or an extension of the time frame, 
or both.  One participant questioned whether 3-4 thousand MW 
was too small to be worth the trouble.  EPPO pointed out that 
Thailand was proposing the largest current public 
solicitation in the region.  They also noted that it was the 
intention of the EPPO and the MOE to hold solicitations on a 
more regular basis, ensuring that unsuccessful bidders would 
have an opportunity to try again in the near future. 
 
¶17.  There was considerable comment regarding how the 
proposed bid parameters would make accurate pricing 
difficult.  Prices for critical materials (such as copper and 
steel) vary greatly, any fixed price quote beyond three 
months will need to include a price risk premium.  The MOE's 
requirement for an option to delay commercial operations will 
 
BANGKOK 00000727  003 OF 003 
 
 
also introduce a risk cost.  One respondent complained this 
option price could skew the overall bid price and the 
competitiveness of the bid, even though the option might 
never be exercised. 
 
¶18.  Multiple participants were also uneasy about the EIA and 
CDP elements of the bid requirements.  Some wondered if the 
RTG's Office of Environmental Policy and Planning (OEPP) had 
the capacity to handle numerous EIA applications in a timely 
manner, although EIA approval will only be required for 
winning bidders. 
 
¶19.  A number of participants pointed out the special issues 
involved for coal proposals, including a higher fuel cost 
risk, and the significant risks associated with obtaining EIA 
approval and popular opposition to coal plants.  One 
participant involved with a coal project from the first IPP 
spoke about the significant difficulties faced with bringing 
the project to completion.  Indeed, the overwhelming 
sentiment seemed to be one of great reluctance to submit a 
bid involving a coal-fired plant; no one seemed to want to 
take on the headaches associated with coal.  Some speakers 
supported the possibility of a separate solicitation 
targeted exclusively towards coal-fired projects. 
 
------- 
Comment 
------- 
 
¶20.  As presented by EPPO the structure of Thailand's next 
IPP solicitation is designed to minimize the cost and risk 
assumed by the RTG.  At the same time the extensive EAI and 
CDP provisions of the bid requirements seem designed to 
ultimately make the completion of projects by successful 
bidders politically smoother.  While the MOE is clearly 
determined to maintain tight control of the development of 
Thailand's energy sector (e.g. by reserving the option to 
delay the operational start of IPPs if they feel the capacity 
is not yet needed), EPPO is also clearly committed to 
considering the perspectives of potential bidders. 
Considerable effort has gone into developing the IPP 
solicitation and it is likely that the RFP will result in 
numerous bids, despite the requirements that bidders will be 
required to meet.  From the general lack of enthusiasm 
expressed  by participants for coal projects, however, it is 
hard to see how the MOE will achieve its objective of 
reducing Thailand's reliance on natural gas without further 
incentives, or a separate solicitation.  The limits on SOE 
participation, and the absence of an EGAT set-aside are 
encouraging signs for increased competition in Thailand's 
energy sector.  Also, the RTG's Chief Economic policymaker, 
Deputy Prime Minister and Finance Minister Pridiyathorn, is 
an enthusiastic supporter of the relatively open bidding 
arrangments.  Yet despite all of the positives any optimism 
must be tempered by a realization of the political 
uncertainty, with elections and a new government due in early 
fall (or about when IPP bids are due).  A new administration, 
or a deterioration of the situation under the interim 
government, could yet derail the entire process. 
BOYCE