VZCZCXRO4672
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #3733/01 1870818
ZNR UUUUU ZZH
R 060818Z JUL 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 8113
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 02 BANGKOK 003733 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EINV ECON TH
SUBJECT: THAILAND ISSUES INDEPENDENT POWER SOLICITATION 
 
REF: A. BANGKOK 727 
     ¶B. 05 BANGKOK 7124 
 
¶1.  Summary:  Thailand has finally issued the Request for 
Proposals for its second round of Independent Power 
Producers, after a two month delay.  The current solicitation 
will award a portion of the country's future capacity to 
investors outside of the state-owned Electricity Generating 
Authority of Thailand (EGAT).  Although the capacity on offer 
is relatively small, the RFP has already generated 
substantial interest from potential investors.  A short 
timetable, institutional weaknesses and political uncertainty 
may make the bid process challenging, but the opening of the 
IPP bid indicates that the momentum for modernization in 
Thailand's power sector has not been completely lost.  End 
summary. 
 
¶2. On June 29, 2007 the RTG Ministry of Energy opened the 
bidding for Thailand's second round of Independent Power 
Producers (IPPs).  Request for Proposal (RFP) packages went 
on sale that day and will be available until July 27.  The 
bid solicitation is for electricity generating capacity to 
come on-line from 2012-2014.  The total capacity available 
for bid is 3,200 megawatts, although individual proposals 
will be limited in size to 800 MW per unit and 1600 MW per 
plant.  Separate packages must be purchased for each project 
proposed.  Interested bidders will be required to purchase 
the RFP package, which contains full instructions for the bid 
as well as a draft power purchase agreement (PPA).  Bids must 
be submitted by October 19, 2007.  Following an evaluation 
process, winning bidders will be announced in December, 2007, 
and PPAs must be signed by June 2008.  It is anticipated that 
very little variance in the draft PPA will be allowed. 
 
¶3. The current round of IPP bidding is open to proposals 
using either gas or coal as a fuel.  Although the Thai MoE 
has repeatedly expressed the desire to diversify away from 
its current 70 percent reliance on gas (projected to increase 
to 90 percent with current trends), the RFP does not contain 
any special incentives for coal-fired projects.  Indeed, 
while the RFP will require all IPPs to pay a fee per 
kilowatt-hour produced to a special community development 
fund, the fee charged to coal-fired projects will be double 
that charged to gas-fired projects.  Despite this 
disincentive, and a history of strong community opposition to 
coal-fired power in Thailand that has effectively blocked 
past investments, it is believed that at least two bidders 
are interested in proposing coal-fired projects. 
 
¶4. To date, roughly two dozen bid packages have been sold. 
Japanese investors are prominent in the list of interested 
bidders, which is believed to include Electricity Generating 
Plc (EGCO), Ratchaburi Electricity Generating Holding Plc 
(Ratchaburi) (both semi-private subsidiaries of state-owned 
Electricity Generating Authority of Thailand - EGAT), 
Glow/Suez, Sumitomo, Gulf Electric, Mitsubishi, J-Power, and 
Kansai Electric.  No U.S. firms are currently known to be 
planning to enter the bidding. 
 
¶5. The current IPP solicitation forms part of Thailand's 
latest Power Development Plan (PDP), which covers the 15 year 
period from 2007-2021.  Under the plan, in addition to the 
3,200 MW available to IPPs for the 2012-14 period, an 
additional 2,800 MW has been set aside for EGAT on a no-bid 
basis.  In the 2015-2017 period, a further 4,000 MW will be 
open for a new round of IPP bids, with 2,100 MW reserved for 
EGAT. 
 
¶6. Although there have been complaints that the capacity on 
offer with this round of IPP bidding is too small, there 
appears to be ample interest from bidders.  The two EGAT 
subsidiaries, EGCO and Ratchaburi, each have projects to 
propose that could account for the entire capacity on offer, 
although EGCO says they may defer proposing some projects 
until the next IPP round.  With numerous other experienced 
power sector bidders interested, the bidding promises to be 
very competitive if it is conducted fairly. 
 
¶7. The current round of IPP bidding has not been entirely 
smooth, and numerous potential problems continue to threaten 
the successful completion of the process.  Ref.A reported on 
a December 2006 public preparatory conference for the current 
IPP round.  A projected second conference never materialized, 
and the anticipated April date for the release of the RFP was 
pushed back by two months.  According to one of the advisors 
hired to prepare the bid documents, the delay was mainly due 
to the inability of the MoE to make critical decisions 
relating to the RFP and make a concerted effort to meet its 
own declared timetable.  The short timetable will make the 
preparation of quality bids, which must account for complex 
variables, difficult.  The evaluation process will similarly 
face a difficult challenge to complete a thorough and fair 
consideration of the proposals in the time available. 
 
BANGKOK 00003733  002 OF 002 
 
 
 
¶8.  Other difficulties the IPP must overcome include a 
significant political risk and the potential for interference 
from EGAT.  According to current timetables, Thailand intends 
to hold elections for a new democratic government to replace 
the coup-installed interim government shortly before the bid 
evaluation is completed and winners are announced.  Winning 
bidders will thus be involved in finalizing financing 
arrangements and final negotiations for the PPA at a time 
when a new government takes office with unpredictable 
commitment to the current PDP and IPP process.  Observers 
have also criticized the role played by EGAT, the sole 
electricity buyer, in the PDP and IPP processes.  EGAT 
projections of power demand in Thailand played a key role in 
the development of the PDP, and it is expected that it will 
serve as a technical advisor to the evaluation committee. 
The fact that the Chair of the EGAT board, who is also the 
MoE Permanent Secretary, will serve as the Chair of the Bid 
Management Committee provides ample reason to question the 
objectivity of the process. 
 
¶9. The MoE itself, including its Energy Policy and Planning 
Office (EPPO), has limited technical capacity to manage the 
IPP.  The advisors contracted to prepare the bid solicitation 
have completed their terms of reference and will not be 
available to oversee or support the remainder of the bid 
process.  New advisors have yet to be hired. 
 
¶10. Comment:  Despite the diverse risks, the success of 
Thailand's previous IPP solicitation, the relatively small 
capacity on offer versus the projected overall new capacity 
needed, and the relatively non-controversial nature of the 
initiative suggest that the IPP solicitation will ultimately 
be completed more or less as planned.  EGAT does have a 
vested interest in the IPP bidding and it will be surprising 
if they do not at least attempt to exert some influence on 
its outcome.  With no independent energy regulatory body (a 
draft energy law contains provisions for one) the MoE will be 
responsible for making sure that the process functions 
properly.  Thus far, despite Minister Piyasavati's personal 
vigor, it has demonstrated a reluctance to exert firm control 
of the process. 
 
¶11. Comment continued:  The limited capacity on offer, 
especially given the capacity set aside for EGAT, is 
disappointing.  The possibility that EGAT subsidiaries might 
capture a portion of that capacity underscores that Thailand 
is a long way from having a truly open and competitive market 
for energy.  Nevertheless, the high level of interest in the 
IPP offer, and the promise of another to come in the near 
future, suggests that Thailand may be inching little by 
little away from the model of complete state control of the 
power sector.  Despite the collapse of the RTG's effort to 
privatize EGAT (Ref.B), the momentum for reform of the power 
sector has not been entirely lost. 
BOYCE