Report No. 13132-TH Thailand Sector Report Increasing Private Sector Participation and Improving Efficiency in State Enterprises (In Three Volumes) Volume ll-Annexes October 11, 1994 Industry and Energy Operations Division _, Country Department I %' - East Asia and Pacific Regional Office ,,~~~~~~~~~~~ . . , - * - .-..-'- z> rrer.*Y.wr; ,~.w U~~~~~~~~~~~~~~~~~~~~~~~~~~~ 4~~~~~~~~~~~~~~~~~~~~& -'- ~~~~~~~~~~~~4 ~ ~ ~ ~ ~ ~ ~ ~ ~ ' - s., , . u>s ,, ,, , ~ ,,;e , , - . . .* ._ ^ - -." " ' Document of the World Bank 4 ~~9 4. ~ 44 4. _4~- 4 ' ' - , .s :~. . CURRENCY EQUIVALENTS Average Jan-Jun 1994 = US$1.00 = B 25.30 Average 1993 USS1.00 = B 25.32 Average 1992 = US$1.00 = B 25.40 Average 1991 US$1.00 = B 25.52 Average 1990 = US$1.00 = B 25.59 Average 1989 = US$1.00 = B 25.70 Average 1988 US$1.00 = B 25.29 .\verage 1987 US$1.00 = B 25.72 ABBREVIATIONS AND ACRONYMS AAT Airport Authority of Thailand ADB Asian Development Bank BMTA Bangkok Mass Transit Authority BOO Build-Own-and-Operate BOOT Build-Own-Operate-Transfer CAT Communications Authority of Thailand EGAT Electricity Generating Authority of Thailand ETO Expressway Transportation Organization of Thailand ERTA Expressway and Rapid Transit Authority GDP Gross Domestic Product IDF Infrastructure Development Facility MCOT Mass Communication Organization of Thailand MEA Metropolitan Electricity Authority MOF Ministry of Finance MWA Metropolitan Water Authority NEPO National Energy Planning Office NESDB National Economic and Social Development Board NHA National Housing Authority PAT Port Authority of Thailand PEA Provincial Electricity Authority PTT Petroleum Authority of Thailand PWA Provincial Water Authority RTG Royal Thai Government SE State Enterprise SED State Enterprise Division SEIC State Enterprise Improvement Committee SEID State Enterprise Improvement Division SRT State Railway Authority TOT Telephone Organization of Thailand FISCAL YEAR October 1 to September 30 Thailand Increasing Private Sector Participation and Improving Efficiency in State Enterprises Table of Contents ANNEXES 1. Private Sector Participation and Privatization Plans for State Enterprises ........... 1 2. The State Enterprise Sector ............ .. .. .. ... .. ... I. .. .. .. .. .. . 58 3. Successfully Contracting Private Sector Infrastructure ....... . . . . . . . . . . . . . . . 70 4. Legal Issues ........................ ..... ..... ..... ..... .. . 77 5. Privatization - Capital Market Aspects ......... .. . . .. . . . .. . . .. . . . .. . . . 84 6. Legislative Strategy for the Telecommunication Sector ...... . . . . . . . . . . . . . . . 94 7. Privatization Studies ................ .. ... ... ... ... ... .. ... ... . 100 8. Performance Evaluation and Incentive Determination ....... . . . . . . . . . . . . . . . 104 9. State Enterprises' Financial Results and Indicators ....... . . . . . . . . . . . . . . . . 118 10. Financial Results and Indicators for the 15 Public Utility State Enterprises ..... . . . . 139 11. Pension Systems ................. ... ... ... ... ... ... ... ... . . 147 12. Government Guidelines for Improving the State Enterprises ...... . . . . . . . . . . . 163 13. A Regulatory System for Thailand ......... .. . . . .. . . .. . . .. . . . .. . . . 171 14. Key Legislation on Privatization .......... . .. .. . .. . .. . .. . . .. . .. . . . 188 The mission was led by Messrs. Claudio Femandez and Ismail Dalla, and included Mrs. Fiona Woolf and Messrs. Bernard Tenenbaum, Peter Kyle, Ahmed Galal, John Arnold, Shyamadas Baneri and Hafeez Shaikh. Specific inputs for the report were received from Messrs. Jeremias Paul (power supply), Harvey Ludwig (water supply), Leroy Jones (performance indicators), Keat Tian (pension funds) and Martin Edmonds (state enterprises). Joost Polak edited the report. 1 Annex 1 - Page 1 Thailand Private Sector Participation and Privatization Plans for State Enterprises AIRPORT AUTHORITY OF THAILAND (AAT) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 10,173 11,551 12,958 14,071 14,824 Liabilities 6,036 5,867 6,558 6,411 6,864 Net Worth 4,137 5,684 6,400 7,660 7,960 Net Profit 2,004 2,541 2,780 2,690 2,688 Employees 2,584 2,652 2,875 3,128 2,365 Debt/Equity Ratio 1.46 1.03 1.03 0.84 0.86 Remittance to GOT(%) 50% 50% 47% 52% 50% ROA 19.7% 22.0% 21.5% 19.1% 18.1% Wage Component 36.9% 35.0% 33.2% 27.1% Productivity 2. Main Objective: KEY PERFORMANCE INDICATORS Operate and manage airports and (PROFIT IN MILLION 1993 BAHTS) related businesses. 120% 3. Recommendations of 1009 the WVhite Paper: (a) Corporatize and register with the SET to improve f 8 om 709 efficiency and develop the domestic 2_ stock market; (b) Achieve a broad 1 ownership of shares. 409 4. Actions taken by 209 AAT: (a) Hiring private sector to implement some services; (b) AAT 199S 1919e1989 19 199 19 1993 has minority equity in many airport related businesses as follows: airport PROFIT/STAFF-U.BsAT a RFETN ON ASSETS X % RETL'H ON EOUITY hotel 9% (B10.8 million), catering Figure 1 7% (B5.6 million), ground services 28.5% (B14.25 million), duty free 10% (B20 million), pipeline 10% (B20 million), transport 15% (B45 million) and restaurants 5% (B1 million). 5. AAT's Response. (a) Plans to increase private participation as follows: (i) subcontract most commercial activities like cleaning, security, maintenance, etc. (ii) provide long-term franchises -2- Annex 1 - Page 2 for major commercial activities such as restaurants and duty free shops; (b) Upgrade the airport facilities to international standards; (c) For the new airport: (i) set up a committee to increase private sector participation both domestic and foreign; (ii) list the new airport on the SET; (iii) build a state-of- the-art airport that would become a regional hub. 6. Cabinet Decision. NA. SEID considers that AAT should be upgraded to Class A status to facilitate private financing and enable AAT to list on the stock exchange. 7. AAT's Status and Issues 7.1 Thailand has four international airports and a number of domestic airports. The largest airport, Don Muang, handles more than 12 million international passengers per year and nearly 5 million domestic passengers. These volumes are expected to more than double by the end of the decade, thus requiring additional capacity. Of the other international airports, Phuket has been the most successful, handling about 2 million passengers per year. Chiang Mai has experienced relatively slow growth and serves a little over 1 million passengers a year, while traffic at Hat Yai has declined to about 0.5million. The government has proposed that a fifth airport, Chiang Rai, be upgraded to an international airport to accommodate the growing tourist activity in the Golden Triangle. 7.2 Airport capacity will receive a major boost when the Second Bangkok International Airport (SBIA), now under design, becomes operational by the year 2000. The new airport will be a regional hub and will accommodate both international flights and connecting domestic flights. Don Muang will be left with high-density regional "shuttle" flights and unscheduled charter flights. The site for the new airport at Nong Ngu Hao has been under consideration for nearly a quarter century. It had originally been proposed as the site for the first Bangkok airport, but delays in its development resulted in the gradual expansion of commercial facilities on the site of the military airport at Don Muang. The second airport is estimated to cost $4 billion for the first phase, with a total investment of $13 billion. The first phase terminal, which is planned to be operational by 2000, will have a capacity of 30 million passengers. 7.3 Land access to the new airport remains uncertain, although a number of plans are under consideration. These include: (a) the proposed Bangkok-Chonburi Highway, which would cross over both the first and second expressways and pass to the north of the airport; (b) the extension of the outer ring road to the east of the airport; (c) the rail facilities at Lat Krabang located just north of the airport. 7.4 What is missing in these schemes is an effective connection between Don Muang and the SBIA for passenger transfers. A highway connection would be possible using the Don Muang Highway, the third expressway and the Bangkok-Chonburi Highway, assuming all of these are available; however, vehicles transferring passengers between the airports would have to pass through congested areas of Bangkok, which would adversely affect travel times. Coordinated planning of this interconnection must begin soon if the airport is to function effectively by the year 2000. 7.5 The airports in Thailand are developed by the Department of Civil Aviation within the Ministry of Transport and Communications. When converted to international airports, they are transferred to the Airport Authority of Thailand (AAT). The authority operates them in a commercial manner similar to that used throughout the world. Landing and takeoff slots are assigned by the AAT 3 Annex 1 - Page 3 in conjunction with Thai Airways.- Gates are assigned on a flexible basis by the AAT because of the high level of utilization of the gates, but many of the gates are used on a regular basis by individual airlines. 7.6 Ticketing and other areas within the terminal for processing passengers are leased to the airlines or their agents. Retail space for restaurants and shops is leased to private companies for periods of three years. Terminal cleaning is performed by a private company. Airport parking is provided by private concessions. Ground services, including services to the airplanes and baggage handling, are provided by Thai Airways. In Don Muang, two other companies, TAGS and United Airlines, also provide these services. TAGS is a joint venture between the AAT and the airlines that use the service. United Airlines, which imported equipment duty-free under an earlier bilateral agreement, continues to handle its own aircraft and baggage, as well as that of some other airlines. All airlines may choose between these three companies. 7.7 Air traffic control and communications at the international airports are provided by the recently formed state enterprise Aero Thai. It was previously provided by the Civil Aviation Department. The runways are maintained by the AAT through contracts with the private sector. Fuel is provided by a private company that is granted a franchise by the AAT. Aircraft maintenance services are provided by the national carrier, Thai Airways, a relatively common arrangement. Thai Airways provides air cargo services at all airports. TAGS also provides these services at Don Muang. 7.8 AAT has been a profitable organization primarily because of the revenues generated by Don Muang. These revenues have provided a reasonable return on investment and generated the surplus needed to pay for the development of the other international airports, which were developed at the request of the government to promote tourism. At present, only Phuket has sufficient traffic to provide a reasonable return on its investment. The traffic through Chiang Mai is only marginally profitable, while that through Hat Yai is insufficient to cover costs. 8. Private Status and Recommendations 8.1 AAT is an effective SE, and one of the most profitable. It is equal in capabilities and experience to airport authorities in developed countries and has been successful in developing the international airports in Thailand. The principal airport, the Bangkok International Airport (BIA), is well run by international standards, and the involvement of the private sector in its operations is comparable to that of other developed countries. The government should strengthen AAT and improve its capability through consultancy support for management information systems, operating procedures and employee training. 8.2 With the gradual privatization of Thai Airways and the corporatization of Aero Thai, it can be argued that virtually the only option for increasing the role of the private sector is outright ownership of the airport. This could be accomplished in steps, by first corporatizing AAT, followed by the sale of shares to the public (as is being done in Malaysia), or by an outright sale to a private operating company (as was done in the UK). Since the land on which the BIA is located is owned by the Air Force, it can only be rented, not sold. Moreover, since the BIA is the only airport serving Bangkok, fees and access would have to be regulated if it were privatized. This regulation would be 1/ At Don Muang there is relatively little competition for these slots since the bulk of the European flights arrive and depart at different times (early morning and late evening) from the bulk of the North American flights (late evening and early morning). Neither of these conflict with the midday arrivals and departures of regional flights. Annex 1 - Page 4 limited because the BIA already competes for transit passengers with Singapore and other large regional airports. Since the domestic and non-transit international passengers and their airlines do not have any alternatives, regulation would be required to ensure that their charges are reasonable. 8.3 Improvements in overall management through an increased role by the private sector could also be achieved through a management contract with a private operator, as is used in the Lester Pearson Airport in Toronto. The strengthening of the AAT's technical capabilities could offer similar benefits. 8.4 The performance of the AAT could also be improved by unbundling and deregulating. In the past, the AAT has been able to cross-subsidize the development of the smaller international airports from the surplus generated by the BIA. Now that these airports are developed, their operation could be strengthened by making each airport an authority or a subsidiary company of the AAT. This would allow for more rigorous planning and evaluation of investments, more careful design of airport tariffs and stronger management control of activities within the airports. These subsidiaries could participate in joint ventures with the private sector or could be corporatized, and their expansion could be financed through the sale of shares. These companies would be given franchises to operate the airports and would contract with private companies for ground services and for the maintenance of the terminal and runways. Land ownership would remain with the Government. These changes would allow the AAT to focus on marketing the services of the BIA and in attracting additional demand to justify the construction of the SBIA. 8.5 With or without the creation of these subsidiaries, it is important that AAT be corporatized. Since its inception 14 years ago, AAT has targeted the reduction of its work force. It has accomplished this through attrition, contracting out services and using annual contracts for some employees. These efforts should continue and be strengthened by converting AAT to a publicly traded conmpany. This will give AAT greater autonomy, particularly in the recruitment and remuneration of staff. The corporation would be responsible for the operation, maintenance, renewal and expansion of Don Muang and the SBIA. Aero Thai should also be corporatized and then converted into a private company. 8.6 The competition for the business already performed by the private sector could be increased. Ground services are typically provided by the airlines or designated companies. The airlines provide these services where they have a high level of activity, e.g., Narita and most large US airports. Smaller airports (as well as some larger airports such as Hong Kong and Singapore) grant concessions for these services to a private operator or to the domestic airline. With the development of a second airport and the projected growth in passenger traffic, it will be possible to allow the larger airline companies to provide their own ground services. 8.7 The air freight business should also be more competitive. Currently, this business is controlled by Thai Airways. All-freight operations such as Federal Express and DHL should be given the opportunity of establishing bonded freight terminals with direct access to their airplanes. Alternatively, freight forwarders should be able to own and operate these freight terminals and offer competing services with the airlines. 8.8 While the role of the private sector in the airport system could be greatly increased, there are certain functions that should remain with the government. These include the responsibility for contracting the construction of major expansions and new airports, developing the transport links to these airports and overseeing the competition for the use of Don Muang between the AAT and the Air 5 Annex 1- Page 5 Force. In addition, all the regulatory activities related to safety of navigation will be under the government's Civil Aviation Department. Second Bangkok International Airport (SBIA) 8.9 At present, it is proposed to allocate all international and feeder services to the SBIA and all non-sclheduled and shuttle services to the BIA. There is considerable scope for involvement of the private sector in the development of the SBIA, particularly considering the large investments needed. Although a BOT contract is being considered, this is unlikely because the airport will not be fuiancially viable for several years.' Moreover, BOT arrangements in the sector are rare, and when these arrangements exist or are being negotiated (Prague or Antalya), they are limited to the passenger terminal. Management contracts are more common. 8.10 In lieu of a BOT arrangement, SBIA would be constructed by the Civil Aviation Departmenit and turned over to AAT for operation. Since cross-subsidies would be needed for several years, it is recommended that AAT retain control of both Don Muang and SBIA for at least the first five years of operation. The management of SBIA's terminal could then be nndertaken by a joint venture between AAT and a private company. This arrangement would not preclude private sector financing for the new airport, since Built-Lease-Transfer arrangement could be used, and would be compatible with AAT control of the airport, at least during its first five years of operation. 2/ Current estimates for the cerms of financing required to make the terminal financially viable are a 7% loan with a grace period for repayment of principal combined with a 20% increase in the airport fees. - 6 - Annex 1 - Page 6 BANGKOK MASS TRANSIT AUTHORITY (BMTA) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 769 871 6,709 9,410 8,210 Liabilities 10,895 9,849 11,770 13,205 11,990 Net Worth (10,025) (9,080) (5,061) (3,796) (3,780) Net Profit (884) (969) (262) 64 (591) Employees 22,703 22,973 22,452 23,941 23,506 Debt/Equity Ratio NA NA NA NA NA Remittance to GOT(%) 0% 0% 0% 0% 0% ROA -115% -111% -3.9% 0.7% -7.2% Wage Component 25.8% 27.4% 41.1% 35.9% Productivity 2. Main Objective: KEY PEPFOPMANCE INDICATOPS Provide bus services in Bangkok (PROFIT IN WILLION 1993 EAI4TS) Metropolitan region. 00 / - 10X 01 -003 3. Recommendations of -_0__ the White Paper: (a) Increase -0e private sector participation to reduce -L= losses and increase efficiency through a' -3 - _ franchising selected routes; (b) ___ _1_ 7__ Subcontract certain activities such as -120%_ maintenance with the private sector. -140X Allow private sector to compete on -160 certain routes. - ox= - 1908 - 200V 1906 1997 1988 1989 1990 1991 1992 1999 4. Actions taken by BMTA: (a) Granted route POVF IT/ STAFF-A BAHO 0 RETLRN ON ASSETS concessions to the private sector, with Figure 2 BMTA-operated vs privately-operated routes already at a ratio of 55:45; (b) Proposed joint investment in some bus operations to private sector; (c) Contracted some bus maintenance with the private sector. 5. BMTA's Response: (a) BMTA is further encouraging private sector participation to provide microbuses to suburban areas, with BMTA as a joint partner owning 20%, private sector 70% and Crown Property 10%; (b) BMTA has already franchised both standard and air-conditioned buses; (c) BMTA has created three separate units, each with 7,000 employees and 1,000 buses, to improve performance and create profit centers. The ultimate objective is to list the company on the stock exchange. 6. Cabinet Decision. NA. SEID considering: (a) Accelerating private sector participation; (b) Limiting BMTA to no more than 20%-30% of the shares; (c) Corporatizing BMTA 7 -- Annex 1 - Page 7 and consider its listing to allow private participation; (d) Allow private microbuses in central Bangkok to reduce traffic problems. 7. BMTA Status and Issues 7.1 Bangkok intracity bus transportation is provided by a mix of public and private services. The principal supplier is the Bangkok Metropolitan Transit Authority (BMTA), which operates a variety of bus services throughout the metropolitan area. BMTA was established nearly a decade ago by nationalizing the private bus companies to improve the quality of service provided to the public. At that time, fierce competition among private bus companies had resulted in deteriorated equipment and services. 7.2 BMTA is a well-managed and innovative company with a fleet of about 4,425 buses. It operates three levels of services on routes throughout the city. These include the basic service (Blue- white) using the oldest buses, the standard service (Red-white) using slightly better buses and the air- conditioned service. In addition, it operates a fleet of 4,646 minibuses. The bus routes on the major streets include a large number of bus-only lanes, including some reverse bus lanes. Articulated buses have been introduced on the more heavily-traveled routes. 7.3 Because fares have been held at an artificially low level for a number of years, BMTA has been unable to invest in new buses. The result has been a slowdown in replacement of the fleet and a deterioration in the quality of service. Only recently has BMTA embarked on a large investment program to renew and expand the fleet. In 1992, it procured 2,464 buses, of which 560 were air- conditioned. Many of the remainder were designed to European standards. At the same time, BMTA decommissioned 1,887 older buses, about half of its fleet. A fleet of 80 buses fueled with natural gas has been introduced on an experimental basis. 7.4 BMTA operations are efficient by international standards. The drivers and fare collectors work relatively long hours and there are few restrictive work rules. The high ratio of employees to buses is the result of putting a fare collector on each bus. It is now proposed to begin retraining the fare collectors to be drivers and to introduce fare boxes on buses that have appropriate entry configurations. BMTA maintains only its oldest buses, while the rest are maintained through maintenance contracts with the suppliers. BMTA selects its new buses based on the purchase price for the buses plus the maintenance contract. These contracts are performance based, using the percentage of the fleet that leave the sheds each morning (about 95%) as the principal criteria, and assessing a penalty for buses that break down during operations. 7.5 The routes, fares, level of service and the extent of competition are regulated by the government. However, farebox revenues are not adequate to pay for operation (the operating ratio in 1992 was 115%), much less for fleet expansion. Even the private sector is unable to operate profitably at these fare levels. In order to be profitable, private operators have had to purchase inexpensive buses and restrict their operations to peak hours. Because of this, nearly half of their buses are out of service after two hours of operation. 7.6 The operating deficit of BMTA, which has reached BO.9 billion, is covered by other income and government subsidies. The inability of BMTA to cover its debt service resulted in the government assuming responsibility for all existing long-term debt in 1991. In addition, increased subsidies will now be required to pay the interest charges of B5.8 billion on 8% bonds issued to finance new bus purchases. In 1992, the total government subsidy amounted to about B1 billion. To improve -8-- Annex 1 - Page 8 BMTA's financial performance, the Departtment of Land Transportation allowed an increase in fares, but only BO.5 on non-air-conditioned services and Bl.0 on air-conditioned services. These increases were insufficient to produce a reasonable return on investment. 7.7 BMTA's expenses could be reduced by eliminating the fare collector positions and by restricting capital investments in office buildings and employee housing. However, these reductions would not allow BTMA to cover its debt service unless fares are further increased. As a result, the private sector could help in improving BMTA's efficiency, but could not assume its financial control. 7.8 Improving BMTA's Operations. The key problem for BMTA is that the government-set fares are insufficient to cover the costs of both operation and fleet renewal. BMTA is able to cover its operating and maintenance costs by using the surpluses from the air-conditioned services to cross- subside unprofitable basic services, but it is unable to cover overhead and capital costs. Although the government has allowed competition by the private sector, the fare levels do not allow the private sector to earn a profit and provide an acceptable quality of service. The government should consider irnproving the quality of BMTA's services - that is, travel time and comfort - rather than maintaining artificially low tariffs. 7.9 The second problem is a failure to integrate BMTA's operations with other mass transit services. The bus system in the metropolitan area should not only provide basic transportation, but should also encourage automobile drivers to switch to buses to reduce the extreme traffic congestion in Bangkok. To reduce door-to-door travel time, it is necessary to consider how the various parts of the transit system are integrated. Collection/distribution services that bring riaers from low density routes should quickly and comfortably transfer them to the line haul services. A distribution/collection service in downtown, as provided by the minibus service, should also provide efficient transfer to the line haul services. Minimal waiting times are generally more important than comfort at the transfer points. 7.10 The third problem is that the government specifies the level of services. The government's objective is to ensure a seat for all bus riders, but it cannot achieve this objective during peak hours. Greater efficiency could be achieved if BMTA had greater freedom to adjust the headways of the buses to match the changing level of demand during the day. Private operators accomplish this by running their full fleet during peak hours and only a small portion of their fleet during off-peak hours. 7.11 The fourth problem is the general problem of Bangkok traffic and the lack of enforcement of the traffic laws. The average speed of buses is extremely low, even though Bangkok has one of the most extensive bus lane systems in the world. The density of buses on some routes, delays in crossing intersections, the frequency of stops, and interference from private cars and taxis using the bus lanes for turning have lead to severe congestion on many of the bus lanes. The failure to enforce traffic laws results in congested intersections and in opposing flows of traffic at the center of major roads. 7.12 The fifth problem is one of managing a system with both profitable and unprofitable routes. The government requires, through its regulation of tariffs and level of services, that many of the routes be operated as public service obligations - PSO's - rather than as commercial activities. At present, BMTA does not use its accounting data to differentiate these activities, but this should be possible. 9 Annex 1- Page 9 7.13 A combination of policies is needed to provide better mass transit services, while increasing the costs for using private automobiles in the downtown area. The latter can be accomplished tlhrough a variety of strategies including: (a) taxing passenger cars operating in the metropolitan area and parking lots within the downtown area; (b) restricting the number of vehicles allowed to enter the downtown area; and (c) increasing the travel time of vehicles by increasing the number of bus lanes. 7.14 Reconunended Changes in Sector Structure. BMTA's financial position could be improved through the introduction of fare boxes. This would significantly reduce labor costs that represent about 40% of its operating costs. This would require modifications of existing buses to ensure a rapid flow of passengers on and off the buses and the enforcement of fare collection with minimal effort. Another option is converting buses into larger articulated buses, which is already being studied, and the introduction of fast-loading bus stops such as those being introduced in Brazil. 7.15 The current program to upgrade the quality of the fleet should give a balanced emphasis to improving the quality and reliability of the air-conditioned services, while providing European-standard buses on the standard and eventually the basic routes. The operation of the bus routes should be adjusted to allow full fleet operation during peak hours and reduced fleet operation during off-peak periods. 7.16 While it will be necessary to continue setting a maximum fare and minimum level of service for those routes that BMTA must operate as a public service obligation, the other routes should be deregulated. Specifically, BMTA should be allowed to adjust the tariff for air-conditioned services to increase ridership, improve the quality of the buses and recover the costs for the services. Where the private sector competes with BMTA, the tariff charged by the private sector should be regulated by establishing only the minimum tariff. Furthermore, to promote competition, the government should establish the minimum tariff at a level that allows the recovery of capital cost of the bus. For the PSO services, BMTA should be granted a subsidy that compensates for the losses attributable to those services. 8. Status of Private Sector Participation and Reconunendations 8.1 In recent years, there has been a steady increase in the role of the private sector in the provision of public bus services. BMTA licenses private operators to provide competing services using smaller, non-air-conditioned buses (Green Buses) on certain routes, while competing with them at the same fares. The private sector also operates 1,729 buses (of which 260 are air-conditioned) in a joint venture with BMTA. Another joint venture provides a downtown circulation service with a new fleet of 400 minibuses. 8.2 Four approaches are available for restructuring BMTA and increasing the role of the private sector. These changes should target the reduction of BMTA's operating losses while maintaining an acceptable quality of service. The first approach is to corporatize BMTA, which would require the government to assume (as it actually doing) the responsibility for existing debt. The corporation would then be divided into a subsidiary that provides the basic PSO services and two or Annex 1 - Page 10 - 10 - more subsidiaries (possibly joint ventures with private companies) that provide the commercially viable services. 8.3 The PSO subsidiary would focus on providing a basic quality of service, as specified by the government, at minimum cost. This would require government compensation for the cost of these services. The objective of the commercial subsidiaries would be to increase ridership by providing new and/or better services. They would produce profits that could be shared with the loss-making subsidiary through agreed levels of cross-subsidy. 8.4 The planning and operation of the feeder routes for other mass transit modes would be coordinated by a joint committee of the BMA, MRTA, BMTA, and Land Transport Department. The same committee would identify new routes to be developed within the metropolitan area. 8.5 The second approach would be to break BMTA into two operating corporations. One of them would be assigned profitable routes and would eventually become a publicly held company. The other corporation, to be operated through a management contract, would be a PSO subsidiary providing services on unprofitable routes. This management contract should minimize the cost of providing PSO services. As proposed above, the government would provide subsidies to cover the losses on these routes. Since this service would reduce the number of cars on the streets and provide substantial benefits to those traveling by car, it would be logical to fund these services from fuel taxes collected on petrol and from vehicle licensing fees. 8.6 The third approach to be considered is to rationalize and downsize BMTA and give up market share to the private sector by offering concessions for all routes that could be profitably operated by the private sector. BMTA would use the revenues from these concessions to subsidize the operation of loss-making routes. Stringent cost-cutting measures would be adopted to reduce the operating deficits. Fares would be set in proportion to the actual cost of providing service, even though they might not cover the full cost of these services. 8.7 For routes and services that are commnercially viable, regulation could be substantially reduced and improved by: (a) allowing the private sector to provide the higher quality services, including air- conditioned, reserved-seat and door-to-door services without regulation; (b) allowing open competition on air-conditioned routes that are commercially viable at current fares, and, (c) providing franchises to private sector companies on those routes with standard and air- conditioned services that are marginally viable at the current tariff, and permitting fare escalations according to a fixed formula. 8.8 The fourth approach would be to fully deregulate the sector and to allow open competition on all routes. BMTA and its private sector competitors would differentiate the types of services provided and collect different fares for peak and off-peak fares and for express and local services. The operators would adjust their fares to ensure an acceptable level of ridership and would adjust the quality of the service to ensure that the revenues covered at least the capital and direct operating costs. A residual state enterprise would be maintained to operate the PSO routes at rates that the riders are willing to pay. Annex 1 - Page 11 - 11 - 8.9 BMTA together with the Land Transport Department would then monitor the level of service, including the size and condition of the vehicles, and the operating headways both peak and off- peak, provided by the private operators. Tariffs would be regulated only for PSO services and for those marginal routes operated under franchises to the private sector. In all cases, the government would retain the responsibility for enforcing laws with regards to safe bus operation and annual vehicle inspections. 8.10 The analysis of potential efficiency improvements in BMTA, one of the largest bus companies in the world (23,000 employees and 5,300 vehicles) requires a detailed rationalization and privatization study, which should review BMTA's role in the context of the overall metropolitan transport requirements, and seek alternatives for private sector participation in the delivery of urban bus services. The study should examine ways to improve BMTA's service and workforce efficiency and productivity. The study should also provide recommendations on the following areas: (a) Financing of public transportation and its development. The role of BMTA will be defined in light of the overall need for a transit system in Bangkok, particularly following the opening of future rail-based systems (Hopewell, Tanayong and MRTA). Consideration will have to be given to the environmental and social benefits (in terms of air pollution and transit time of an adequate public transportation system), taxes on automobiles/gas or other fiscal measures to discourage the use of individual vehicles, while providing additional support to the development of such a system; (b) Increasing the competitive environment by enhancing delivery of private bus services and eliminating BMTA's current responsibility of controlling the entry of private operators; (c) Coordinating the planning, policy making and budget allocation for the citywide transit services. This activity should be channelled through an independent agency at the local level; and (d) Encouraging private sector entry into public transport, particularly for air-conditioned bus service. Measures to improve private sector participation could include not charging license fees and reducing revenue sharing arrangements with BMTA. Annex 1 - Page 12 - 12 - COMMUNICATION AUTHORITY OF THAILAND (CAT) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 12,558 15,602 19,109 22,413 24,737 Liabilities 1,910 2,342 2,500 2,842 3,566 Net Worth 10,648 13,259 16,609 19,571 21,172 Net Profit 3,659 4,634 6,043 5,996 5,469 Employees 21,964 22,852 23,679 24,752 25,107 Debt/Equity Ratio 0.18 0.18 0.15 0.15 0.17 Remittance to GOT(%) 50.0% 50.1% 50.1% 55.0% 50.0% ROA 29.1% 29.7% 31.6% 26.8% 22.1% Wage Component 42.1% 38.5% 37.0% 37.5% 38.3% Productivity 31.5% 25.3% 12.7% 11.7% 10.3% 2. Main Objective: (a) KEY PERFORMANCE INDICATORS To provide telecommunication and CPFFIT IN WILLtON 1993 BAKrS) postal services in an efficient manner; 4. DX (b) To conduct other complementary ___ services for the telecommunication 3- . business. CAT is an extremely 3.f profitable SE as it is the monopoly 25_ provider of international telecommunication services in 0 20% Thailand. At the governmnent's request, CAT has been involving the _ private sector in various value-added 1 X services in telecommunications such 5. as radio paging, VSAT, and data transmission services. CAT also 1988 1987 1988 1999 1990 1991 1992 1993 operates postal services, which have YEAAS been loss-making. CAT has made PROFIT/STAFF-W.BAHT P X RETLUN ON ASSETS x J PETURN ON EOOITY considerable efforts to use private Figure 3 firms in the provision of postal services. 3. Recommendations of the White Paper: Telecommunications: (a) Consider the merits of merging TOT and CAT. In this connection, the role of the private sector should be considered to improve the overall efficiency of the sector; (b) The following modes of privatization should be considered: (i) issuing of CAT's shares to the public; (ii) issuing shares of a combined company; (iii) establishing a joint venture between CAT and the private sector to increase competition; (iv) abolishing monopolies in the sector and allowing maximum competition; (c) Improve the overall structure of the sector, including amending the relevant laws to protect the interest of consumers and create an appropriate regulatory agency; (d) Expand the CAT policy encouraging private sector companies in paging services to cover other telecommunication services; (e) Separate the accounting of telecommunications and postal services since postal related activities are subsidized by Annex 1 - Page 13 - 13 - telecommunication services; (f) Create a regulatory system for the telecommunications that will coordinate between CAT and TOT. 3.1 Post Office: It is recommended that: (a) A study be conducted to analyze if postal services should be separated from telecommunications and if the postal saving and money transfer activities should be organized under a separate organization; (b) To reduce financial losses, private sector participation could be subcontracted for some activities; (c) Certain activities of the post office should be privatized, such as the printing of stamps and mail transportation. 4. Actions taken by CAT: (a) joint investments with the private sector; (b) private sector to take part in services. 5. Cabinet Decision. NA. SEID opinion: (a) Private participation should be encouraged; (b) CAT law should be amended to increase this participation; (c) Merger of CAT and TOT is not desirable since it will create a monopoly and reduce competition. 6. CAT's Response: A broad study of CAT's future strategy has been completed by TDRI. 7. World Bank Comments and Recommendations (a) In other countries, postal services are generally separated from other activities; there are a few instances of private postal services, but private sector participation is mainly in express mail. Therefore, although there are substantial cross-subsidies, it would be desirable to separate these services in the future; (b) A major problem affecting the separation of postal and telecommunication services in CAT is that postal workers fear loss of bonuses if the profitable telecom activities are separated. However, as recommended in this report, the performance evaluation and bonus system should be changed to reflect not simply financial profits but other criteria for physical and managerial performance and the improvement over time in financial performance rather than absolute results in a given year. (c) CAT should compete with TOT in domestic long distance. Private operators should be allowed to provide international long distance services. This will help CAT face international competition after the GATS agreements are implemented. (d) CAT should not be allowed to enter into equipment manufacturing. (e) Sharing and resale of leased circuits may allow competition without wasteful duplication of facilities. (f) CAT should reorganize itself only after taking into account long-term structural changes likely to result from competition in services. (g) CAT needs to develop its privatization strategy taking account of competition. (h) A regulatory body should be established soon to rule on tariffs and rates, interconnection charges, franchising and concessions arrangements, technical and network standards, and dispute resolution. - 14 - Annex 1 - Page 14 ELECTRICITY GENERATION AUTHORITY OF THAILAND (EGAT) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 122,465 148,178 175,309 193,060 212,798 Liabilities 79,050 96,995 113,824 124,409 131,591 Net Worth 43,415 51,183 61,485 68,650 81,207 Net Profit 10,423 12,368 11,704 12,339 9,279 Employees 31,732 33,070 34,990 35,065 34,505 Debt/Equity Ratio 1.82 1.89 1.85 1.81 1.62 Remittance to GOT(%) 15.1% 15.0% 8.07% 21.2% 26.6% ROA 8.51% 8.36% 6.68% 6.39% 4.36% Wage Component 13.11% 13.18% 12.81% 12.57% Productivity 6.34% 3.57% 2.18% 2. Main Objective: Generate and transmit electricity in Thailand. 3. Recommendations of KEY PERFORMANCE INDICATORS the 'Vhite Paper: (a) Amend (PFOFIT iN MILLION 1993BHT) appropriate laws and draft required ._l regulations to enable private sector __ . participation in power generation and 0 sale to EGAT and reduce its foreign 35 borrowing burden; (b) Set a fair power price among the electric 25K utilities; (c) Promote joint ventures in 2_ the form of BOTs or BOOTs. The government should select one major t5S power plant as a pilot; (d) When such *E_ bidding criteria are defined, open bids5 should take place for some of the attractive projects; (e) In the longer 1988 1987 1989 1909 1990 1991 1992 1993 run, increase public participation YEAPS through sale of EGAT's shares. However, this should be contemplated Figure 4 after a careful study of the power sector and regulatory framework for the sector; (f) Increasing private sector participation in lignite mining should be considered separately, including separating the lignite mining into an independent company and selling its shares to the public. The private sector will benefit from technology transfers from EGAT. However, this should be done in accordance with the government's lignite mining policy. 4. Actions taken by EGAT: (a) On March 13, 1992, EGAT set up a wholly owned subsidiary with the objective of transferring a plant to it from EGAT and, once the plant is operating, selling 51% of the shares to the public. A public offering is planned in late 1993; (b) EGAT already amended the EGAT Royal Act to enable private joint ventures; (c) Most of the lignite mining activities are operating as separate profit centers. -15- Annex 1 - Page 15 5. EGAT's Response: (a) EGAT is agreeable to the proposal to increase private sector participation in power generation provided that all the power will be sold to EGAT and that system security is protected; (b) BOO or BOOT projects should be included only gradually because: (i) Negotiations of such projects generally take a long time and could adversely affect production of power in the country; (ii) The cost of power will go up; (iii) Technology transfer is limited; (iv) Power production may not be responsive to the needs of the economy and may not optimize the benefits for the country; (c) EGAT recommends proceeding gradually due to the low reserve capacity (15%) being imposed by NESDB, which could create outages if the construction of any plant is delayed. 6. Cabinet Decisions 6.1 1992/93: (a) EGAT should improve its efficiency and become a Class A enterprise in order to have more flexibility, more efficiency and set its own salaries; (b) Establish a commercial base for purchase agreements with MEA and PEA; (c) Establish contracts for fuel purchase; (d) Adopt an automatic tariff adjustment mechanism; (e) Identify cross subsidies in tariffs and eliminate the uniform tariff policy and/or establishing transparent government's subsidies for PEA; (f) Create a subsidiary (EGCO) to purchase the Rayong combined cycle plant and issue shares to the public, with EGAT retaining not more than 49% ownership. EGCO may then bid for the Khanom thermal plant. 6.2 1993/94: (a) EGAT is to invite the private sector to submit proposals for independent power producers for the Khanom thermal plant; (b) Prepare notification to invite private sector participation in accordance with the Concession Law of 1992; (c) Reorganize EGAT by separating transmission and production and creating profit centers; (d) Set the percentile participation of the private sector in the 1995-2001 long-term plan; (e) Implement tariff charges based on marginal cost; (f) Restructure EGAT into business units; (g) Diversify MEA and PEA; (h) EGAT to achieve good SE status; (i) Restructure PEA into business units responsible for electricity sales in each region. 6.3 1994/95: (a) Convert EGAT, MEA and PEA into a public limited company by amending its law; (b) Register EGAT as a public company in the stock exchange; (c) Encourage independent power producer involvement in new power plants between 1995-2001. 6.4 1995/96. (a) EGAT to sell shares on SET, with government retaining a majority stake; (b) Diversify PEA into regional electricity companies; (c) Sell shares of the companies to obtain financing, while retaining majority ownership. 7. World Bank Comments and Recommendations (a) EGAT's plan for gradual private sector participation - already approved by the Cabinet - is the most advanced and detailed of all the SEs. The plan is satisfactory. EGAT should prepare a detailed implementation program, including all critical activities, to ensure the milestones agreed are complied with. (b) A regulatory system should be established as soon as possible. It should be noted that the viability and financial performance of each of the energy enterprises depend on their relative prices (gas from PTT to EGAT and electricity from EGAT to PEA and MEA). (c) Due to the size of the investments needed and the importance of the energy sector to the Thai economy, it would be convenient to place the four energy enterprises (PTT, EGAT, - 16 - Annex 1 - Page 16 MEA and PEA) under the same supervising ministry. A separate Ministry of Energy deserves to be considered. (d) The studies for corporatization, particularly the valuation and ownership certification of land, should be started soon. (e) The automatic tariff increase is an excellent initiative; however, in case of errors, the forecasted costs may result in a shortage/surplus at the end of the year among EGAT, PEA and MEA. Therefore, it would be convenient to set an end-of-year adjustment to correct for such changes. (f) BOO/BOOT financing has proven successful in other countries and EGAT's concerns (location, capacity of transmission lines, frequency control, etc) can be addressed in the bidding specifications. BOO/BOOTs should be able to finance an significant part of EGAT investments. (g) The study of the avoided cost under commercial conditions should be accelerated to allow the comparison of proposals by independent producers. (h) EGAT's planned reserve capacity seems very low (15%) and may result in outages if there are even minor delays in completing new plants. While maintaining NESDB/EGAT's plans, the reserve capacity could be increased by allowing BOO/BOOT projects to exceed this limit, as planned for the 300 MW Mae Kharon lignite plant. (i) The sale of one or more plants to the private sector could be considered to provide funds more quickly to EGAT, while alleviating its concerns about the standards and location of private BOOT plants. (j) Cogeneration could reduce the need for government investments, but its limit (50 MW) is low. This limit could be increased in areas where the transmission system is adequate. - 17 - Annex 1 - Page 17 EXPRESSWAY AND RAPID TRANSIT AUTHORITY OF THAILAND (ERTA) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 13,076 15,145 23,847 30,346 82,259 Liabilities 9,328 11,006 19,148 23,958 69,638 Net Worth 3,749 4,139 4,699 6,387 12,621 Net Profit 366 534 773 1,009 603 Employees 1,531 1,567 2,264 2,145 3,359 Debt/Equity Ratio 2.5 2.7 4.1 3.8 5.5 Remittance to GOT(%) 4.9% 35.0% 24.2% 50.1% 58.7% ROA 2.8% 3.6% 3.2% 3.3% 0.7% Wage Component 18.9% 23.6% 22.9% 30.2% Productivity 0.88% 1.05% -38.0% KEY PERFORMANCE INDICATORS 2. Main Objective: (PROFIT IN MILLION4 1993 E11TS) Build or cause to build or maintain expressways (in four 0 2 stages) to relieve the serious 04 traffic congestion problems in 4__ Bangkok. a30% 3. Recommendations in 20% the White Paper: Endorsed the authority's plans to seek private sector a ce involvement in building, financing and operating (i) the second stage of the Did199a 1987 r1988 1989 1990 1991 1992 1993 Bangkok Expressway; (ii) a mass YEapS transit system for Bangkok. COST/STAFF-M BAK{T PAOFIT/STAFF~-M BANT a % E7LRN O ASSETS X % PET UON ON E-OVI TY Figure 5 4. Status of Private Sector Participation and Recommendations 4. 1 The first stage expressway was completed a number of years ago. The second stage system is being built by private firms on a concession basis. It is par-tially completed, but the remaining sections have been held up due to land disputes along the right-of-way. Under the terms of the concession, the private concessionaire builds and operates the system for 27 years and shares the revenues from the first and second expressways with ETA in a decreasing proportion over the life of the agreement. The third stage road system is not yet under construction. 4.2 The development of urban expressway systems in Bangkok is being accomplished by maximizing the participation of the private sector through the use of BOT agreements. A major - 1s - Annex 1- Page 18 constraint to the development of the system is the high cost of acquiring land, which has to be funanced by the government. To solve the issue of financing the high land costs in addition to existing payment systems, it may be useful to consider giving the displaced landowners securities in the concessionaire's company, i.e., the project company, in compensation for land. The landowner should be in a position to readily sell these shares to other investors if an immediate cash settlement is desired. This may facilitate the financing of land acquisition. 4.3 As with the rapid transit systems, the key concern is not how to expand the role of the private sector, but how to increase the economic and social benefits from their participation. The experience with the construction of the first and second expressways provides valuable lessons for structuring the relationship between the government and the private sector. 4.4 The difficulties experienced with the Second Expressway are shared by most urban highway construction projects. These include: (a) These roads increase the volume of traffic entering the inner city without increasing the capacity of the city streets, thereby resulting in greater congestion at the points of access and egress. (b) The roads require taking land supporting commercial and housing activities, whose owners are increasingly resistant to such expropriation. (c) The initial reduction in traffic in other parts of the road network due to the diversion to the expressway are quickly lost, as additional land development increases the total volume of traffic. (d) The environmental impact is negative because the total volume of traffic on city streets will not be reduced and the expressway acts as a source of air and noise pollution as well as an eyesore along the right-of-way. 4.5 The failure to consider the transport network as a whole has lead to investments in expressways that have not adequately increased network capacity. More importantly, these investments have ignored the relationship between urban transport and land use. In particular, the relentless increase in the density of office and retail space within the core area will lead to a continuing increase in traffic congestion. Consequently, any increase in capacity resulting from greater reliance on mass transit will be quickly utilized by additional development. 4.6 The use of BOT agreements has allowed ETA to develop these links without considering options for a more efficient allocation of network investments. Therefore, ETA is not focusing on broader urban transport problems and is not considering the use of alternative modes of transportation or demand side management to accommodate increasing demand. These results are consistent with experiences in other countries. 4.7 Additional problems have arisen from the allocation of risks to the private sector. The completion risk was partially transferred to the private sector, even though the government was responsible for acquiring the right-of-way (since it has expropriation rights). Difficulties in obtaining some rights-of-way for the Second Expressway required alignment changes as well as delays in completing core sections of the expressway, and contributed to the breakdown in the BOT agreement with a large foreign investor. The perception of country risk has increased because ETA entered into a - 19- Annex 1- Page 19 BOT contract with a foreign investor when it did not have the legal authority to make commitments regarding toll rates and land acquisition. (This also indicates a failure of the contractor's legal advisors to perform due diligence on these commitments.) 4.8 The BTO agreement transferred the commercial risk to the private sector, but also reduced this risk by including part of the revenues from the first expressway. Since the agreement specified the level of the tolls during the period of the agreement and the contractor's share of the revenues from these tolls, the investors assumed that the commercial risk was limited to the future volume of traffic. The BTO agreement could have been restructured with the government guaranteeing a certain revenue per vehicle regardless of the toll, but the lenders would have been concerned about the long-term viability of the concession. Alternatively, the government could have transferred the full commercial risk to the contractor by allowing hi,n to set the tariff. However, this would have resulted in a tariff policy that maximized the contractor's net income rather than one that achieved the maximum utilization of the roadway. 4.9 Since the toll issue is critical to ensure that the roadway maximizes the general benefit to society, the government should assume this commercial risk. For this purpose, the government should use a build-lease-transfer (BLT) or similar arrangement rather than a BTO agreement. Although this may eventually require government subsidies (given the political pressure to maintain low tolls), it would allow the government to set tolls to achieve broader objectives with regard to the use of the transport network. Furthermore, land restrictions based on vehicle occupancy and other demand management techniques could be introduced to provide additional economic benefits. 4.10 As explained above, the key issue for urban transportation is how to obtain the greatest benefit from private sector involvement. ETA should improve its arrangements with the private sector to continue the expansion of the express system. The options should include loan financing, BLT and extended co-financing arrangements. Given proper supervision, the private sector can design, construct and maintain roads more efficiently than the public sector. 4.11 These roadways should be part of the public transport network, and their price and optimal utilization should be a public policy concern. This requires the government to regulate tolls based on economic costs. In the future, a better arrangement is needed for the allocation of completion and commercial risks. More importantly, the mechanism for choosing and coordinating alternative investments in the urban transport network needs to be improved. 4.12 There is no compelling reason to believe that privatizing ETA would increase the pace of private sector participation since it plays a management role in attracting private sector participation for the construction and operation of expressways. - 20 - Annex 1 - Page 20 EXPRESS TRANSPORT ORGANIZATION (ETO) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 471 480 458 448 445 Liabilities 763 699 755 911 1,002 Net Worth (291) (219) (297) (463) (558) Net Profit 44 72 -42 -166 -121 Employees 2,858 3,901 4,688 4,137 2,973 Debt/Equity Ratio NA NA NA NA NA Remittance to GOT(%) NA NA NA NA NA ROA 9.3% 15% -9.1% -37.0% -27.1% Wage Component NA NA NA 27.3% NA Productivity NA NA NA NA NA KEY PEPFOPMANCE INDICATORS 2. Reconunendations of CPROFIT N MILLION 1992 BAKTS) the White Paper: (a) Since the 20% _ objectives of privatization are to increase efficiency and eliminate further losses, ETO will be divested; (b) The government might consider retaining a minority share in ETO. A 3. ETO's Status and - - __ __ Issues 30x 3.1 ETO operates a large 3 / fleet, about 1,850 trucks of varying _40% . 1 sizes, of which 1,100 are leased to 19B6 *987 198 1989 1990 1991 1992 1993 private owners. ETO's franchise to m TPFIT/STAFF-M.E AJ17 % RE7L0QN ON ASSETS handle cargo between Thailand and Laos has now been given to a private Figure 6 company, ThaiLaos trucking, but it still has the exclusive franchise to handle all inbound cargo being transported from Bangkok Port; however, this franchise is not rigorously enforced. Instead, about 15% of the inbound cargo is off- loaded overside to barges and moved by water to its destination, and about half of the remaining cargo is transported by private sector haulers contracted by the cargo owners. Of the remaining cargo, most is carried through single trip contracts between ETO and private haulers. 3.2 Compared to the private sector in Thailand, ETO handles relatively little freight traffic. Moreover, its fleet of trucks is in relatively poor condition since revenues have been too low to finance new equipment. As a result, ETO has had to hire private trucks at market rates. The rates paid by the users of ETO's service are set by the Department of Land Transport. Until recently, these rates were very low and ETO lost money because of the higher rates charged by private operators. ETO losses in 1992 were $4.6 million. Recently, the tariff applied to 6-10 wheelers was increased by 50%, which should allow ETO to become profitable in 1994. However, this move will not reduce ETO's - 21 - Annex 1 - Page 21 indebtedness nor its negative net worth of about one-half billion Baht, the result of accumulated past losses. ETO employs 4,754 persons, and so, by private sector standards may be overstaffed by about 30%. Freight haulage fees are fixed by the Board of Transportation at low levels. 3.3 ETO also operates freight forwarding services in competition with the private sector. Although its only market is ocean freight, it benefit from their nominal monopoly over inbound Bangkok Port cargo. ETO also operates a parcel delivery service that takes advantage of ETO's presence in three Thai regions (North, Northeast and South); it allows ETO to make region-to-region deliveries, whereas competitors tend to operate within a single region. At present, about 300 trucks in the ETO fleet are assigned to parcel delivery, many of which are smaller vans meant specifically for this service. 4. Status Private Sector Participation and Recommendations 4.1 There is no sound rationale for the operation of a freight forwarding/trucking company by the government, and ETO should be privatized as soon as possible. The trucking sector in Thailand is almost completely private, and quite efficient. There is no advantage accruing to the government from its involvement in trucking services; in fact, there are a number of negative examples associated with the impact of government involvement in the operation and licensing of trucking operations. Experience elsewhere shows that, due to inefficient operations and rent-seeking driver unions, restricting a major portion of trucking activities to SEs results in a poorly maintained fleet of trucks, a low quality of service, and relatively high, regulated prices. government involvement may also work to slow the development of the middle class by denying small scale entrepreneurs entry into trucking. 4.2 Even limited government involvement in trucking may be detrimental. For example, the Malaysian government has regulated the haulage of containers by franchising this activity, initially to an SE, and later to a limited number of competitors. The objectives were to ensure adequate capacity, provide safe transport and prevent destructive competition and over-investment. Actual results indicate that consumers pay relatively high prices for a low level of service in what would otherwise be a dynamic, market-driven sector of the economy. 4.3 The initial objectives for ETO were to improve the safety and quality of transport, but these are unobtainable given the condition of the ETO fleet. The imposition of a franchise for inbound cargo movements from Bangkok Port is also hard to understand given the considerable role already played by the private sector in this business. The only effect of the regulated rates for these services is to provide ETO a commission for subcontracting the private sector to haul the cargo at lower rates. In previous years, the situation was worse, since ETO rates were lower than market trucking rates and ETO suffered significant losses. 4.4 The options available for ending the government's involvement in trucking are limited by the financial and physical condition of ETO. ETO's liquidation would yield low values given the condition of the fleet, and would result in the need to redeploy a large work force. Similarly, a private company is unlikely to absorb the existing truck fleet and labor force unless it is given the monopoly over the Bangkok Port inbound traffic. Conversion of ETO into a corporation would require significant financial restructuring given its negative net worth. A restructuring of ETO, including its finances, would require several years in order to eliminate losses, reduce excessive labor and scrap obsolete vehicles. The success of this restructuring would determine how rapidly it could be converted into a publicly held company. -22 - Annex 1 - Page 22 4.5 The above measures would allow ETO to be corporatized. Although it would lose its license, ETO would be free to pursue business activities where it can compete effectively with the private sector. The current management of ETO has already demonstrated a strong entrepreneurial spirit in looking for new businesses, but ETO's status as a SE creates competitive disadvantages, owing to its limited flexibility to make investments and reduce costs. 4.6 A better approach would be to divide ETO into a number of subsidiaries, each pursuing different services and markets. This alternative would also require financial and physical restructuring, as explained above, and the closing of unprofitable activities like freight forwarding. Other subsidiaries such as package delivery and freight haulage could be divested. This would be accomplished principally by selling them to ETO employees, who would be financed by severance payments and bank loans. 4.7 The government would be responsible for the safe operation of trucks carrying the country's imports and exports. It would enforce regulations on safety, axle loading and traffic management. This would require vehicle inspections and the enforcement of traffic laws. Once ETO is restructured, the government should abolish ETO's monopoly on handling imports at the port, lift price controls over freight charges and encourage free entry of trucking companies. The Department of Land Transportation should then only monitor freight rates to ensure that price fixing through cartels does not occur. - 23 - Annex 1 - Page 23 METROPOLITAN COMMUNICATIONS ORGANIZATION OF THAILAND (MCOT) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 955 1123 1348 1677 2846 Liabilities 46 59 62 91 61 Net Worth 909 1064 1286 1586 2785 Net Profit 239 259 343 437 623 Employees 798 857 911 949 980 Debt/Equity Ratio 5.0 5.5 4.8 5.7 2.2 Remittance to GOT(%) 98/239% 96/259 104/343 137/437 175/623 ROA 25.0% 23.1 25.5 26.1 21.9 Wage Component % Productivity % KEY PERFORMANCE INDICATOPS (COOT IN WW IT LtI0" In) 4TS) a~~~~~~~~~~~2a - asT' rATl-M SI) E I3 flAflM TS_, . IId - 24 - Annex 1 - Page 24 METROPOLITAN ELECTRICITY AUTHORITY (MEA) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 21,135 25,451 31,560 35,874 39,989 Liabilities 15,560 18,570 22,280 24,840 26,488 Net Worth 5,575 6,881 9,280 11,034 13,501 Net Profit 870 1,644 2,535 2,295 2,867 Employees 11,649 12,858 13,824 13,760 13,625 Debt/Equity Ratio 2.79 2.70 2.40 2.25 1.96 Remittance to GOT(%) 15.05% 15.06% 15.02% 16.60% 18.84% ROA 4.12% 6.46% 8.03% 6.40% 7.17% Wage Component 7.65% 7.65% 7.88% 8.38% Productivity 2.96% 3.00% 0.06% 2. Main Objective: KEY PERFORMANCE INDICATORS Distribute electricity in Bangkok (PAOFIT IN WLLI ON 1993 BAHTS) metropolitan region. _0_ _ 2e% 3. Recommendations in __X the White Paper: (a) In the short 22% _ run, private sector participation in 20% == - l6% MEA's operations is difficult, and the 1 ___ focus should be on trying to further o ~ increase its efficiency; (b) A share E offering to the public is to be < considered at a later stage; (c) MEA 6% should subcontract certain activities with the private sector; (d) BOTs and BOOs should be considered. 1866 1997 1968 198 16990 1991 1992 1993 YEARS E PPOFJT/STAFF-M.8AN4T a % PRTURN ON ASSETS X X PETUAN ON EOUJITY 3.1 Recommnendation of KPMG Peat Marwick, New Figure 8 Zealand. MEA hired Peat Marwick to conduct an audit of its operations. Peat Marwick recommended that MEA privatize certain non- related activities such as hospital, public relations, engineering and wiring, and improve efficiency in other areas (accounting, billing). These recommendations were endorsed by MOF, and MEA has been asked to implement them. 4. Actions taken by MEA: (a) MEA's main concern is to increase its efficiency, effectiveness and revenues; (b) MEA is already contracting several services with the private sector; (c) MEA is amending laws to enable joint ventures with other partners; (d) KPMG Peat Marwick (New Zealand) completed a study to increase private sector participation, including partial privatization. - 25 - Annex 1- Page 25 5. MEA's Response: (a) Certain activities such as bus transport, cleaning and car maintenance are already subcontracted to the private sector; (b) BOOTs or BOOs are not feasible because of the monopolistic characteristics of MEA's primary service, but it will consider contracting out light transmission construction, metering and maintenance; (c) MEA would study the possibility of a share offering; (d) MEA has already amended its law to be able to set up joint ventures as needed to increase private sector participation; (e) MEA will raise more money locally through the issuance of bonds to reduce its reliance on external borrowing; (f) The maintenance workshop would be a profit center before deciding if its better to privatize; (g) The repair of motorcycles and cars would be transferred to the private sector, but it would retain the repair of heavy equipment, which is better done at MEA; (h) MEA plans to reduce management costs in the enterprise, which have increased recently. 6. Cabinet Decision. 6.1 1992/93: (a) Effectively implement the automatic tariff adjustment formula; (b) Abolish the uniform tariff for the entire country. 6.2 1993/94: (a) Implement efficiency improvements to be rated a Class A enterprise and operate on a fully commercial basis. 6.3 1994/95: (a) Convert MEA into a public limited company by amending its law; (b) Establish a subcommittee with the same composition and responsibilities as in the EGAT case. 7. World Bank Comments and Recommendations 7.1 MEA is an efficient and well run SE. However, the present evaluation system for productivity may not reflect this since wages are less than 20% of costs. 7.2 Recommendations (a) The plans and actions approved by the Cabinet are feasible and satisfactory. (b) MEA's planned separation of non-essential activities is good (concrete poles, engineering and wiring), but could be implemented sooner if adequate compensation is given to the affected staff. Given their low capital-to-staff ratio, these activities could be considered for privatization by an employee buy-out. If this is not done, MEA's option for a gradual absorption of these employees would be a second best alternative; given the high rates of MEA's growth, most of these jobs can be easily absorbed. (c) Although MEA prefers to retain the hospital, the consultant's recommendation to sell or lease it seems preferable since it would both reduce costs and improve staff benefits. (d) MEA is already using, and should further expand, contracts with the private sector to install transmission lines and meters, maintain some works and offices, and provide security and staff transportation. (e) MEA should further expand collection of electricity bills through banks. (f) Develop a detailed Gant analysis for steps needed to ensure commercialization by 1995. - 26 - Annex 1 - Page 26 METROPOLITAN WATER AUTHORITY (MWA) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 19,399 19,847 21,924 23,748 26,668 Liabilities 13,885 12,713 12,946 13,236 14,200 Net Worth 5,514 7,133 8,978 10,513 12,468 Net Profit 950 1,436 1,842 1,670 2,319 Employees 5,852 5,748 5,827 6,011 5,638 Debt/Equity Ratio 2.5 1.8 1.4 1.3 1.1 Remittance to GOT(%) 9.50% 9.93% 11.69% 16.55% 10.80% ROA 0.48% 7.23% 8.4% 7.03% 8.69% Wage Component 26.52% 28.0% 30.27% 27.62% Productivity 2. Main Objective: KEY PERFORMANCE INDICATORS Production and distribution of potable (PP3FiT IN WILLICJ 1993 BfHTS) water in the Bangkok Metropolitan 45X Region, namely BMA (City of _0_ Bangkok) and Samutprakarn and Nonthaburi provinces. 357 30%0 3. Recommendations of X5 the White Paper: Private 20__ participation to be encouraged in all forms, including BOTs and 1 subcontracting. ,% 5% 4. Actions taken by 1907 1990 1991 199291999 MWA: (a) Both approaches lEAPS recommended by the White Cover PPOF I T/STAFF-. ANT a PSRETLN ON ASSeTS X x PETUPN ON EQUITY Book are being implemented; (b) Figure 9 Private sector may jointly invest or produce water for areas distant from production centers unable to be served by MWA, and one such system already implemented, namely Bang Phli; (c) MWA will contract and finance an in-depth study by consulting group beginning about April 1994 to explore further privatization potentials for MWA. 5. MWA's Response: (a) MWA has so far subcontracted a water system for a new town system (Bang Phli 10,000 cubic meters), which has been operated by the private sector for two years (under a 15-year contract). However, results are discouraging because of an unanticipated shortage of raw water supply (the Chao Phya river basin is now in a drought period and the supply situation for the entire basin is critical); (b) More projects of this type could be considered if recommended by the study, including the Mahasawad water supply system (400,000 cmd, expandable to 3,200,000 cmd), for which construction has just begun (MWA financing); (c) MWA plans to continue funding its investment -27 - Annex 1 - Page 27 programs for the next few years through internal cash generation, external and domestic borrowing; (d) At present, MWA is not considering becoming a public limited company. 6. Cabinet Decision. NA 7. MWA Status and Issues 7.1 Over the past decade, MWA has made substantial strides in improving its overall efficiency and performance, as reported in the 1982 post-audit evaluation of ADB's loans. This includes billing and collections, unaccounted-for-water and its planning capacities. However, MWA is seeking technical assistance for improving internal accounting operations. 7.2 MWA will require investments of about B30 billion between 1993and 1996. Most of the MWA service area is still unserved (partly because of low densities and isolated communities). The Bang Phi project (10,000 cmd per day) was intended to demonstrate the feasibility of private sector participation (BOO/BOOT) for water treatment projects; however, an unanticipated raw water shortage is causing serious financing difficulties. 7.3 A primary concern for MWA is over water shortages in the Chao Phya River Basin, especially in dry years (like 1993). These shortages result from continuing upstream and lowland development without any meaningful master plan for water utilization of the Chao Phya River. The problem is magnified for MWA, which is at the tail end of the basin, and it has already had to ration services. Moreover, in Thailand (unlike Western countries), urban/domestic water needs do not have the first priority. 7.4 Raw water shortages have become a major problem for the first private water company at Ban Phlii. Such raw water shortages, unanticipated two years ago when the company was established, have resulted in revenue losses and a deteriorated financial situation. MWA is exploring additional privatization opportunities (particularly for the Mahasawad water system), and will contract technical assistance (about $1 million) for this purpose by mid-1994. Sewerage Systems 7.5 Sewerage systems (SSs) are the responsibility of the local governments but, given their limited resources, little has been accomplished and most communities do not have separate sanitary sewerage systems. PWA has the authority to undertake community SSs but, because of the priority given to water supply, PWA has yet to define its role in SSs, which are a major priority for the future. Several studies have been completed, but the lack of financing has resulted in minimum implementation. Since enactment of the new Environmental Quality Protection Act/1992 and the establishment of a Pollution Control Department (PCD) within the new Ministry of Science, Technology and Environment (MOSTE), this is changing rapidly. PCD has the authority and funds to undertake critical pollution control by declaring an area a special Pollution Control Zone. Accordingly, PCD now has prepared studies for four key urban centers (Pattaya, Phuket, Hat Yai, Songkhla) to be implemented in 1994, and a study for Samutprakarn Province is to be initiated soon. Moreover, PCD is now sponsoring regional (sub-river basin) water pollution control planning in several basins in the country, which will delineate priority SS needs and, with World Bank support, is defining optimal management arrangements for water pollution and for implementing a comprehensive SS for the Lower Chao Phya in the Bangkok region. - 28 - Annex 1 - Page 28 8. Status of Private Sector Participation and Recommendations 8.1 Since water supply is the most monopolist infrastructure service, it is still a SE in most countries (although it is private in France and partially private in USA). Recent efforts have given preference to the privatization of new water systems and the privatization of the management of water (Buenos Aires and a couple of cities in Africa) or sewerage (Malaysia) treatment plants. However, the Bang Phli project has demonstrated the feasibility of BOO/BOOT schemes for water treatment projects. 8.2 Land acquisition for the government is complex (because of the taxation situation), and is a bottleneck for projects (currently an issue for the treatment plants at Suksawat and Rangsit). These problems could be improved by private sector participation. 8.3 The privatization study for MWA should prepare standard specifications for BOO/BOOT tenders as well as management contracts for the operation of existing plants. BOT contracts may be for 25 years, in order to guarantee price, quality, and competent O&M. The initial documents should be prepared for the Mahasawad BOOT water treatment plant, and used as a model for the sector to ensure transparency in bidding and avoid prolonged negotiations. Other plants could then be contracted by BOOT. 8.4 At present, water and sewerage services are provided separately by MWA and the municipality. However, waterworks and sewerage (including sewage treatment) are components of the same service (water in and out), which would benefit from an integrated approach by keeping both services under the same agency, as is the present practice in many cities in other countries. This is especially important for revenue collection (which would be mainly through water usage charges), and there are further advantages in economies of scale in management. However, this option would not be feasible under the present narrow focus by the SEs on financial profits, since sewerage (and particularly sewage treatment) is unlikely to be highly profitable, and will cause a deterioration in the financial indicators of MWA. Moreover, MWA already has its hands full in coping with water supply problems. 8.5 East Water Company (EW). The government made a critical and innovative move towards private sector participation in the sector by establishing the EW in 1992 to provide water services to the Eastern Seaboard area. EW is substantially free of the legal constraints applicable to SEs. EW stock is expected to be sold to the private sector in the future, with PWA retaining a minority stake. EW would maintain and expand raw water transmission lines (costing about B4 billion). EW is considering operating in other areas in the Eastern Seaboard, including Chachoengsao and Prachinburi, where EW's flexibility to develop area wide systems is desirable. However, this new company is still feeling its way and developing its role in the sector, and so will require technical assistance in engineering and financial areas. 8.6 Since 1992, MOSTE's Pollution Control Department (PCD) has underataken and impressive program that offers privatization potential, including the implementation of four major municipal SSs and a proposed industrial waste management operations in Samutprakarn. With World Bank support, PCD is studying the management of water pollution in the Bangkok region. This would offer numerous privatization opportunities, but will require technical assistance and advice in evaluating and promoting them. - 29 - Annex 1 - Page 29 8.7 Regarding privatization, it is recommended to: (a) Privatization by management contracts, which offer particular advantages for water supply, needs to be explored. (b) Revise the Ministry of Industry's procedures to enable the private sector to own/operate WSSs. Under existing constraints, the private sector could hardly own and operate WSSs, except on a joint venture basis with PWA. (c) The East Water Company privatization deserves government support for its development and expansion, particularly for the success of its stock sale. (d) The EW and the Ban Phlii privatization models could be expanded to other cities. (e) The government is now evaluating the feasibility of establishing a new Lower Chao Phya Water Pollution Control Agency (with World Bank technical assistance). This regional approach has been found successful in UK and could provide a viable solution for pollution improvements. (f) Bidding documents for the Mahasawad BOOT water treatment plants are likely to be a model for the sector and deserve special review to ensure transparency in bidding and to avoid prolonged negotiations. Other plants could also be contracted by BOOT. (g) MWA should critically review contracting all services (security, billing and house connections), and particularly increase its billing through banks. (h) Standard specifications for BOO/BOOT tenders should be prepared soon to implement a transparent tender system. MWA is planning a BTO contract (rather than BOOT), with the proponent operating the system for only two years. It seems preferable to seek a long- term BOT contract, which would guarantee the price, quality, maintenance and reliability of the equipment for, say, 25 years. (i) At present, water and sewerage services are provided separately by MWA and the different municipalities. However, water, sewerage and sewage treatment are basically the same service (water in and out), and would benefit from an integrated approach by keeping these services under the same company, as is the present practice in most other countries. This is important not only for integrated planning (for example, for digging the streets and simultaneously installing water and sewerage pipes), but also for revenue collection (which would be mainly through water usage charges and, due to economies of scale, in using equipment, engineering and management). This option should be considered for the future. However, this would not be feasible under the present narrow focus by the SEs on financial profits, since sewerage (and particularly sewage treatment) is unlikely to be highly profitable, and will cause a deterioration in the financial indicators of MWA - even if such an approach would be preferable for the health and welfare of the people Bangkok. - 30 - Annex 1 - Page 30 PETROLEUM AUTHORITY OF THAILAND (PTT) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 37,649 44,349 45,604 51,958 63,969 Liabilities 24,399 28,432 25,731 27,635 35,370 Net Worth 13,250 15,917 19,873 24,323 28,599 Net Profit 1,747 3,080 6,100 7,143 7,413 Employees 3,718 3,728 3,813 3,662 3,900 Debt/Equity Ratio 1.84 1.79 1.29 1.14 1.24 Remittance to GOT(%) 41.6% 24.6% 26.3% 29.9% 29.8% ROA 4.6% 6.9% 13.4% 13.8% 11.6% Wage Component 11.6% Productivity 2. Main Objective: KEY PEPFOPMANCE INDICATOPS Production of energy and oil refining (PFOFIT IN MILLION 1993 EAHTS) and retailing (Petroleum Act of 1978). 220# 210% _ 2003% 1.9 190% 2.1 PTT is now a B248 billion company, employing 3,900 150_ 130 _ _ _ _ _ _ _ _ _ _ _ _ staff, with 1993 forecast revenues and ' 120% profit before tax of B287 billion and o '0X B7.43 billion, respectively. Its profits § ,0# per employee increased almost 3.5 times between 1988 and 1993, while its cost (and profit) per employee and return on assets doubled during the10 same period. It is the only SE ranked 1986 1987 1988 1989 1990 1991 1992 1993 as Class A in Thailand, and its YEARS performance indicators compare P8OFIT/STAFF-M.BAHT a PETL8N ON favorably with similar institutions in Figure 10 other countries. 2.2 The normal reason for privatization - improvement of state enterprise efficiency - is not a compelling one for PTT. The major issue facing PTT is how to fund its investment program without government assistance in the form of loans or guarantees. PTT has an ambitious investment program of over $2.5 billion over the next five years as part of its corporate plan, of which 45% is for gas infrastructure projects, 25% for oil distribution and marketing, and the balance for other chemical and petrochemical projects. Internal cash generation is projected to provide a substantial part (about 40%- 45%) of these investments. PTT has a prudent capital structure, maintaining a long-term debt/equity ratio of 60/40. 2.3 PTT reorganized itself in 1991 into four strategic business units - downstream oil, natural gas, petrochemicals and central services - each under its own president. PTT has 14 subsidiary companies, but owns less than 49% of the shares in 13, is the operator in none of them, and - 31 - Annex 1 - Page 31 owns only one company, PTTEP 100% (which was set up because PTT could not take concessions). Deregulation of the petroleum products distribution and marketing market in 1991 changed the environment of PTT, which increased its market share from 23% to 25%, in competition with Shell, Esso and Caltex. The 9.5% energy growth rates and paucity of investment funds are the main concerns for PTT's future. 3. Recommendations of the White Paper: (a) PTT/PTTEP are suitable for listing on the SET and for partial divestiture; (b) The primary step would be to restructure PTT; (c) After restructuring, the scale and timing of partial floatation will be determined; (d) Divestiture will not commence for at least two years, and is likely to be gradual. 4. Actions taken by PTT: (a) PTT has 13 subsidiaries with the private sector, in which PTT is a minority shareholder; (b) PTT is planning to sell shares of its PTT Petroleum Exploration (PTTEP) subsidiary to the private sector, public and employees. Shares of PTTEP would be sold in two steps, 15% starting in March 1993 and the balance by 1994; (c) PTT has commissioned an organization and privatization study to be completed by November, 1993. 5. PTT's Response: (a) PTT was restructured in 1991 into four business units, clearly divided into profit and cost centers; (b) PTT would like to maintain this organizational structure for at least two years (end of November, 1993) to evaluate the impact of this reorganization on its performance. PTT is also studying the option of making PTT a holding company; (c) PT'T intends to dilute its share in its subsidiaries and other companies (PTTEP, Bangchak Refinery, NPC-I, TOC) when their shares are listed in the stock market. 6. Cabinet Decision: NA. 7. World Bank Comments and Recommendations (a) PTT is an efficient, well-run SE. Its benefit to the country will be enhanced when PTT moves towards greater commercialization and corporatization, as envisaged in its corporate plan presently under implementation. This program includes converting its oil and gas units into independent subsidiaries. (b) PTT commissioned a $450,000 detailed organization/ strategic planning options study (financed by ADB) with McKinsey and Goldman Sachs to be completed by November 1993. The study should provide detailed recommendations for PTT's privatization strategy and corporatization (including an analysis of the benefits of separating or not separating the oil and gas activities). (c) The ADB study focuses primarily on PTT, but needs to be supplemented by a study on Thailand's petroleum laws and taxes, and the development of the petroleum market and regulatory system. The relationship of PTT with the government also needs to be clearly defined to separate policy making and monitoring from PTT operations. (d) As recommended for other monopolistic services, it would be particularly important to establish an independent regulatory agency to set prices for gas, allow adequate financial returns for PTT, protect the consumer and ensure compliance with best industry practices in terms of safety, waste and environmental protection. - 32 - Annex 1 - Page 32 (e) The government should consider a dilution and divestment of PTT's shares in its 13 subsidiary companies, particularly those which are not in its core areas of operations (such as fertilizer and chemical companies) over a period of time, depending upon market conditions. This would, however, require cabinet approval. (f) Dilution of 30% of PTTEP shares by 1994 has already been planned, with 15% being offered in March 1993. Divestment of a higher percentage has not been contemplated since the government cannot guarantee loans if its share in PTT falls below 70%, resulting in higher financial charges and shorter terms for loans. The government should reexamine this policy to avoid discouraging the further sale of shares. (g) While PTT enjoys considerable freedom in its operations, the government continues to restrict access to loans and to approve loans/borrowing over B20 million (subject to a country-wide ceiling). If PTT is to implement an investment program of $2.5 billion over the next five years, this limit will have to be adjusted upwards. 33 Annex 1 - Page 33 PORT AUTHORITY OF THAILAND (PAT) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 6,712 8,773 11,465 12,159 13,614 Liabilities 1,952 3,021 3,021 3,537 3,719 Net Worth 6,821 8,443 8,443 8,622 9,895 Net Profit 2,177 2,580 3,028 2,429 2,490 Employees 6,134 6,260 6,688 6,642 6,796 Debt/Equity Ratio 1 0.22 0.28 0.36 0.41 0.38 Remittance to GOT(%) 60% 60% 60% 75% 59% ROA 32.4% 29.4% 26.4% 20.0% 18.3% Wage Component 73.4% 81.5% 72.2% 54.3% Productivity 0.4% 11.5% 3.4% 2. Main Objective: To KEY PERFOPMANCE INDICATORS develop, manage and operate port CCOST & PAOFIT IN MILLION 1993 RAHTS) facilities. __K _ 3. Recommendations of I _7 a _ the White Paper: (a) Enable _-' private sector to participate through subcontracts; (b) Allow private sector i 30X o 21 to urdertake new activities such as warehousing; (c) Allow private sector 20_ to manage all new ports. 4. Actions taken by 19O1N 99 9919 99 9~19 PAT: (a) Private sector to rent and 1986 1987 tses 1989 1990 1991 1992 1993 operate most ports; (b) Hire private COST/STA.FF-AT PIFITSYTAFF-MS aAT a TLQI ON ASSETS sector to implement some activities; x % RETUFN ON ECJI TY (c) Amend setup laws to allow more Figure 11 private participation; (d) Future ports management policy to allow increased private operations. 5. PAT's Response: (a) Two ports are managed by the private sector and two more would be managed sirnilarly in the future; (b) The PAT law should be amended to enable full participation by the private sector. 6. Cabinet Decision. NA. SEID opinion: (a) PAT has made good progress in subcontracting ports, it should consider franchising additional activities like security, civil works, etc; (b) The amendment of the law would only apply to the existing facilities and therefore PAT should be able to establish joint ventures for new ports. 34 - Annex 1 - Page 34 7. PAT's Status and Issues 7. 1 The port system of Thailand has expanded rapidly over the last decade with the development of both the public and private ports. Laem Chabang has been developed as a deep water port to serve both line haul and feeder container traffic. Songkla and Phuket have been established to serve the exports produced in Southern Thailand, including rubber, seafood and tin. The increase in traffic has resulted in major private sector participation, both in container handling at the three private terminals on the Chao Phya near to Bangkok Port and in a number of private terminals constructed along the Eastern Seaboard. The largest of these is the port of Sri Racha, which is designed to have two deep water berths as well as two coastal berths for handling bulk and breakbulk cargoes. 7.2 Bangkok Port located at Klong Toey is the major port in Thailand, and handles the majority of cargo, including 80% of the containers. However, the port's draft is limited to 26 feet and the operation at the wharf is relatively inefficient.Y Although Laem Chabang has been in operation for only two years, it is projected to handle 300,000 TEUs in 1993 and to exceed 500,000 TEUs by 1995. This increase will be due not only to overall traffic increases, but also to a significant amount of cargo diverted from Bangkok Port. It is expected that before the end of the decade, Laem Chabang will be the major container port in the country and will receive calls from line-haul vessels (2000-3200 TEU), while Klong Toey will have been relegated to a feeder port with a volume of boxes less than half that of today. Table 1 - Bangkok Port Throughput (mm tons and 000's TEU) Inward Tonnage Outward Containers in TEU Wharf Stream Tonnage Inward Outward Wharf 1988 6,318 1,123 4,948 398 394 1989 6,400 1,233 5,778 453 471 1990 8,156 1,754 7,589 500 520 1991 7,987 1,823 546 625 1992 8,315 1,637 8,327 615 686 7.3 A variety of management systems, including substantial private sector involvement, have been established to operate these ports. The Port Authority of Thailand (PAT) manages Bangkok Port and Laem Chabang as departments within their organization. The former is managed as an operating port, while the latter is managed as a landlord port. Bangkok Port provides cargo-handling services at its common-user berths, but has also established a system of five preferential berths on the East Quay for container vessels. These berths are assigned to specific shipping lines on a preferential basis. PAT provides the gantry crane operators at the East Quay, but allows the shipping lines to provide container- handling equipment and labor for the movement of the cargo between vessels and the storage yard, and between the storage yard and the gate. The container lines have been allowed to establish private operating terminals along the Chao Phya River, but these are each limited to handling 50,000-75,000 3/ Box handling rates at the berth are about half those achieved by the private operators at Laem Chabang even with informal incentive payments to the gantry crane operators. - 35 - Annex I - Page 35 TEUs per year, and in 1992 handled about 150,000 TEU (versus 1,300,000 at Klong Toey). Although small, they provide more efficient service that the main port. 7.4 Breakbulk and bulk cargo vessels calling at Bangkok port transfer their cargo at the berths along the West Quay or in the stream. The berths continue to be operated as common-user facilities with PAT providing the cargo-handling services on the wharf and private stevedoring companies on the ship. The operations in the stream are provided by private barge operators and currently account for about one-sixth of the inbound cargo. 7.5 At Laem Chabang, PAT has leased out the three container berths and their backup areas to a consortia of ship operators. It continues to operate its multi-purpose berth as a common user facility for general cargo. PAT plans to establish a bulk-handling terminal and additional container facilities which will also be leased out to the private sector. The first two container berth leases were similar to management contracts in that PAT continued to collect the tariffs and to pay the terminal operators for the services provided. The third lease went to Evergreen Shipping Lines, which negotiated a flat annual rental to be paid to PAT for the use of the berth without having PAT continuing to collect tariffs from the vessel. Since this arrangement is less costly to the shipping lines and allows greater autonomy, it is likely that the other two consortia will seek a renegotiation to obtain similar terms. The construction of the berths required over the next five years will be accomplished either with PAT funding in return for a long-term lease agreement, or as a concession, with the concessionaire paying for the construction of the facility. 7.6 The ports of Songkla and Phuket are owned by MOF, but their operations have been turned over to the Chao Phya Port Operating Company under a concession agreement. The level of services provided and the tariffs charged by this company have been competitive with the other ports. The future growth of these ports is uncertain due to cargo imbalances, since very few imports are received at these ports. Penang offers the shipping lines a much better balance of cargo and offers shippers much more frequent departures. This competitive advantage is expected to continue at least through this decade. With substantial development of the growth triangle centered on Penang, it is likely that a majority of the southern cargoes will continue to be shipped through Penang and transferred by rail to/from Southern Thailand. 7.7 System Improvements. The rapid growth of the country's economy will require an increasingly efficient ocean transport system. While considerable improvements have been made in the efficiency of the intermodal transfer between water and land transport, additional improvements are needed to improve the logistics of movement between the inland origin/destination and ocean transport. 7.8 The problems of improving efficiency differ for each port. For Bangkok Port, the concern is with labor productivity and with the availability of space. PAT has excessive labor, including about 500 staff in the Marine Department (which is responsible for dredging some 8 million cubic yards per year), about 1,000 in its Engineering Department (which is responsible primarily for operation and maintenance of automobiles), and some 3,500 in the two departments of the Bangkok Port Division (which provide towage, pilotage and some of the cargo handling services on the wharf). In addition to the problem of excess labor, the port's backup area is small and difficult to work, and the landside access is congested. 7.9 For Laem Chabang, the major constraint on efficiency, the landside access, is being improved. The road connection to Bangkok is being widened. The rail connection to the inland container deport at Bang Su is being expanded to include a new facility at Lat Krabang. The remaining Annex 1 - Page 36 - 36 - problem is to establish efficient operation of the inland container depots serving both the road and rail links and to insure timely expansion of capacity. For Songkla and Phuket, inefficiency is due largely to the imbalance of import versus export cargoes. 8. Status and Recomnmendations for Private Sector Participation 8.1 The private sector has substantial involvement in the port sector of Thailand. This involvement is comparable to other countries, but PAT should continue with its efforts to amend its legislation and permit more port functions to be undertaken by private sector companies. Examples from other countries provide some useful insights as to the range of options available. 8.2 In Hong Kong, the port sector is entirely private. The Harbor Department has general responsibility for the development of the port, but all services are provided by private sector companies. Bids by competing companies for the operation of each new container terminal site are approved by the government. 8.3 In Malaysia, the ports were autonomous port commissions (SEs) for several decades. Recently, they were corporatized into port operating companies, while land ownership remains with a residual port commission. For Port Kelang, two different operating companies (joint ventures between the port commission and other state corporations) were created to operate most of the container and general cargo facilities, and another company will be established to operate the new West Port berths. In Penang and Johore, single operating companies were established by corporatizing the existing port management. 8.4 In Chile, all cargo operations are performed by private stevedoring companies that compete freely for the business of each shipping line. Existing facilities were developed by the government, except for some bulk facilities that were built as private concessions. All new facilities are to be built through private finance using concession arrangements. Once there is adequate competition, the ports are expected to become autonomous, with little or no government regulations. 8.5 The sale of waterfront land to the private sector is not recommended given the scarcity of land suitable for port operations. The existing landlord arrangements could be extended to provide the users with greater control over their operations and to allow them to increase efficiency and competitiveness. The leasing of individual berths would not create problems of access since there are sufficient facilities to guarantee competition among the users. The government should provide access for the smaller shipping lines, which might otherwise be at a competitive disadvantage, by maintaining common-user facilities. These could then be operated through management contracts with a private terminal operator. 8.6 An important change would be to convert Bangkok and Laem Chabang ports into separate corporations. These would act primarily as landlords. The two ports would compete for cargoes, but the overlap in the hinterlands would be limited by the natural split between deep draft, line haul vessels and shallower draft feeder services. The residual PAT organization would maintain ownership of the land. The non-cargo-handling services of PAT could also be transferred to the private sector through management contracts or other mechanisms. In this case, the organization of PAT could be similar to that shown in Chart 1. Proposed Restructuring of the Port Authority of Thailand Port Auth of Thailand Regulation, Land, Pilotage Bangkok Port Inc. Laem Chabang Port Inc Dredging Corporation Towage Co. Corporatize and Corporatize and Corporatize and Corporatize and than Privatize then Privatize then Privatize then Privatize Preferential Berths - Leased Terminals Shipping Lines Shipping Lines - Common User Berths Concession Terminals Port operated Shipping Lines or Shippers - Container Yard - Common User Berths Privately Operated Under Management > Contract _ Port Warehouse* Port Opeated - 38 - Annex 1 - Page 38 8.7 Additional capacity would be constructed by PAT or the port authorities. They would contract the design and construction of the basic infrastructure. The cost of the infrastructure would be recovered over the life of the facility through lease payments or through financing arranged through the terminal operator in exchange for payment of the rental for the facility. The development of the superstructure and the procurement of the cargo-handling equipment would be left to the terminal operating companies. 8.8 PAT is currently considering converting its dredging and towage functions into wholly- owned subsidiaries. This would provide better information on the costs and productivity of these activities. Jt allows the managers to formulate clearer objectives. Once the effectiveness of these subsidiaries is established, the private sector should be involved in these businesses. 8.9 Towage could be transferred to the private sector in a number of ways: (a) The towage business could be sold, but this would be advantageous only if there was adequate competition; (b) The tugboats could be sold to local entrepreneurs who would compete for business; (c) The business could be divided into a limited number of concessions to private companies. These concessions would then compete for the PAT tugboats. 8.10 The dredging activity could be sold to the private sector along with all dredging equipment for a 3-5 year concession for dredging the entrance to the Chao Phya and PAT port facilities along the river. Thereafter, the PAT should open up the contracting of these services to international competitive bidding.4' Although the local company would have some advantage in this tendering, international competition should bring prices down. 8.11 Once the operating divisions of PAT responsible for Bangkok Port, Laem Chabang, towage and dredging have been transferred to the private sector, the PAT residual authority should be downsized. Its responsibility would be limited to the ownership of the port land, provision of pilotage5' and any required residual regulatory functions (including the review of port tariffs but would only apply for the common-user facilities in Bangkok and Laem Chabang). PAT should reduce its manpower through a combination of attrition, labor buyouts and the transfer of staff to subsidiaries or private companies. 8.12 PAT has been a profitable state enterprise because of its monopolistic power to collect economic rents. Although most of its operational responsibilities have been transferred to the private sector, its tariffs have not been reduced to reflect such productivity gains. With the increased involvement of the private sector, the number of tariffs collected by the port should be reduced. Most of PAT's revenues would then be derived from lease payments by private sector operators. PAT's rates should be set according to its costs and the price and quality of services offered in competing ports. The published rates would be maximums and the ports could charge lower rates. The rates charged by the terminal operators would be a combination of the rates specified in the tariff or in the lease contract as well as rates negotiated directly with the user. 4/ The procedure as described represents a very cautious approach. It could be simplified and accelerated by starting with a joint venture rather than a wholly-owned subsidiary. 5/ While it is possible to privatize the pilotage service, this would create a private monopoly. Experience throughout the world indicates that monopolistic pricing results to the detriment of both trade and the growth in port activity. 39 -Annex 1 - Page 39 PROVINCIAL ELECTRICITY AUTHORITY (PEA) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 43,416 51,215 58,395 69,904 80,315 Liabilities 35,249 39,036 40,578 44,867 39,607 Net Worth 8,167 12,179 17,818 25,037 40,708 Net Profit 2,462 3,849 5,809 7,661 9,030 Employees 43,738 45,213 28,244 29,733 30,847 Debt/Equity Ratio 4.32 3.21 2.28 1.79 0.97 Remittance to GOT(%) 15.0% 15.0% 15.0% 11.4% 18.5% ROA 5.67% 7.52% 9.95% 10.96% 11.24% Wage Component 10.5% 10.5% 10.5% 11.62% Productivity 10.2% 8.3% 9.4% 2. Main Objective: KEY PERFOPMANCE INDICATORS Provision of electricity nationwide, CPROFIT IN uILLION 1993 AH7S) outside of Metropolitan Bangkok. 35- 3. Recommendations of the White Paper: (a) Privatization 25%___ or public participation is difficult in the near term; (b) PEA should focus on improving its operating efficiency; __ (c) Issuance of shares to the public is / to be considered later once a working 10 regulatory framework for the power sector is in place. 5 4. Actions taken by 1996 1997 1998 1989 1990 1991 1992 1993 4. Actions taken by PEA: (a) PEA is contracting PPOFIT/STAFF-M AHT YPASSETS X N RETN ON UITY services like maintenance, cleaning, Figure 12 feasibility studies, and the construction of 105 kV transmission lines; (b) Amending laws to enable joint investment with other parmers to form a limited company and a public company to increase the possibility of distributing shares. 5. PEA's Response: (a) PEA is basically in agreement with the approach recomnmended; (b) PEA has concerns about the impact of privatization on the cost of electricity to rural areas (54% of the population uses less than 35 kWh per month); (c) Certain services would be subcontracted to the private sector; (d) PEA is awaiting a decision on its upgrade to Class A status before deciding on privatization; (e) PEA does not agree with a uniform tariff or a reduction in subsidies to PEA's customers. -40- Annex I - Page 40 6. Cabinet Decision 6.1 1992/93: (a) Implement an effective automatic tariff adjustment formula to increase the confidence of potential investors; (b) The policy of a uniform tariff for the entire country should be abolished. 6.2 1993/94: (a) PEA is to operate on a more commercial basis, improve its efficiency and become a Class A enterprise (expected once the 1992 results are audited); (b) PEA should be reorganized to create a regional focus and improve efficiency. 6.3 1994/95: (a) Convert PEA into a public limited company by amending PEA's Law. 6.4 1995/96: (a) Separate PEA into four regional power companies; (b) Set up a subcommittee (similar to EGAT and MEA) to define regulatory matters. 7. World Bank Comments and Recommendations (a) The plan approved by the Cabinet to convert PEA into a public limited company by 1994- 95 is sound. (b) The establishment of four separate units would allow better monitoring of costs and identify the need for subsidies in different regions. The establishment of separate corporations, however, deserves more analysis; although some countries have divided the sector into regional or even provincial corporations, it is not clear if the benefits of measuring their comparative performance and the decentralized management would compensate for the economies of scale and provide the adequate cash generation needed for investments. A consultant study should then be initiated soon to examine alternatives for private sector participation, take steps towards corporatization and analyze the benefits of establishing, for example, four subsidiaries. (c) PEA should consider privatizing all services (security, cleaning, billing and collecting, construction of transmission lines, etc.). (d) PEA expects to be graded a Class A enterprise after the 1992 audit. Soon after that, PEA could be corporatized. However, this will require a transparent system to define the government's subsidies that will replace the present cross-subsidies provided to PEA by MEA and, to a lesser degree, by EGAT. (e) PEA is serving only about 80% of the population under its jurisdiction. Thus, targets to increase service coverage for 2000 and beyond should be proposed. (f) As in the case of EGAT, the establishment of an adequate regulatory framework for the sector will be critical for the corporatization of PEA. - 41 - Annex 1 - Page 41 PROVINCLAL WATER AUTHORITY (PWA) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 6,902 7,491 8,237 8,656 11,440 Liabilities 1,814 1,837 1,857 1,696 3,043 Net Worth 5,087 5,655 6,380 6,960 8,397 Net Profit 368 459 473 219 95 Employees 5247 5,680 5,950 6,091 7,137 Debt/Equity Ratio 0.36 0.32 0.29 0.24 0.36 Remittance to GOT(%) 61.8% 40.0% 36.4% 86.5% NA ROA 5.3% 5.7% 5.7% 2.5% 0.8% Wage Component 43.2% 44.9% 39.5% 33.5% Productivity 2. Main Objective: KEY PERFOPMANCE INDICATOPS Produce and distribute potable water CPPOFIT IN MILLION 1993 BAHTS) in all provinces of Thailand (excepting lo% only the City of Bangkok and 9X Samutprakarn Province), including ex source development, conveyance, pumping, treatment, storage, and distribution facilities, for all urban and rural communities in the provinces. 4% 3. Recommendations of 2% the White Paper: (a) PWA should consider subcontracting services to the -19 93- -19 9019 9219 private sector, such as maintenance 1996 1987 1999 1999 1990 1991 1992 1993 and revenue collection; (b) PWA's PEP0F1T/STAFF-M.BAHT A # PETLFN O ASSETS X X AETURN ON ITY effort in planning future investments, FiISS rO13 both master planning by regions and Figure 13 feasibility studies for particular projects, is quite limited due to staffing constraints, and assistance for strengthening this effort is critically needed; (c) PWA should increase its effort for evaluation of the potential for private sector participation for joint investment/ownership/management of new systems. 4. Actions taken by PWA: Over the past year, PWA has taken definitive steps regarding privatization, including (a) Establishing a PWA Steering Committee in June 1992 for exploring privatization potentials; (b) Implementing, beginning in December 1993, under an ADB technical assistance grant, evaluation of privatization opportunities for two selected water supply systems (WSSs); (c) Exploring the potential for private sector participation in PWA's new East Water Company subsidiary for serving the Eastern Seaboard regional development zone. A special sub- committee of the PWA Board visited France and England in October 1993 to explore privatization practices in Western Europe. -42 - Annex 1 - Page 42 5. PWA's Response: PWA has expressed willingness to consider further options to increase private sector participation as recommended by technical assistance studies, and has agreed to increase private sector participation through BOO contracts. 6. Cabinet Decision: NA. SEID opinion: PWA should accelerate private sector participation through BOOTs to improve the sector. 7. PWA's Status and Issues 7.1 PWA is presently operating some 220 waterworks and supplying about 1.8 million cubic meters per day to about one million families. PWA has significantly improved its performance in recent years by a substantial decrease in unaccounted-for-water and by doubling the number of customers per employee. However, potable water is provided to less than one-third of the population under PWA's jurisdiction, which is much lower than countries with similar income levels (Brazil, Colombia and Korea have service levels between 80% and 90%). This requires further effort and huge investments estimated at almost B100 billion during the next decade. 7.2 Most of PWA's customers have low incomes and 80% of its sales are for domestic users. Further, existing cross-subsidization is opposed by the industrial and commercial users (20% of customers, but 40% of the water sold); reduced water charges would endanger PWA's fmancial performance and its capacity to undertake needed investment. In addition, water is extremely scarce and expensive in the north, and nationwide tariffs do not provide incentives to reduce water wastage in such areas. Under these conditions, the minimum monthly subsidized consumption level should be reduced (perhaps to 6 m3 per month/connection), and since water is a local good that cannot be transported for long distances, differential and highly progressive rates should be applied for excessive consumption, particularly in water scarce areas. 7.3 PWA's Developing Issues. The combined industrial ard population growth (particularly in urban areas) has resulted in greatly increased demands for WSSs, but PWA has been unable to keep up with these needs. Existing demand will require a dramatic expansion of about 20% p.a., compared with an actual growth of about 12%. PWA's major problem is the lack of adequate experiencedlskilled technical staff throughout its organization, due to the relatively low salary levels, as compared with the private sector, which are two to three times higher. These deficiencies are especially critical for PWA's O&M, and even more irnportant for its Planning Division (PD), responsible for PWA's expansion program. As a result, the PD's staff of 16 engineers one year ago has been eroded to 4 now, while 15 engineer positions remain vacant. PWA's most critical need at this time is for strengthening the PD (which is hampering its planning for the 10 regions), as well as the preparation of feasibility studies (of which 15 have been prepared, but another 30 are needed within a year for regions undergoing the fastest development). 7.4 PWA's Strengthening. The following actions are recommended to strengthen PWA by: (a) Providing technical assistance (two waterworks experts in financial and engineer planning) for supporting the PD in carrying out a master plan for priority regions and required feasibility reports. Such plan will focus on: (i) rehabilitating existing systems; (ii) constructing new systems; (iii) improving rural WSSs; (iv) promoting water resources development. The PD should give priority to providing a counterpart for these studies. 43 Annex 1 - Page 43 (b) Providing on-the-job training for O&M, by furnishing a senior waterworks engineer to each regional office. (c) Increasing PWA's 10 regions to include five rather than seven provinces by region. This request from PWA is justified, but efforts will be needed to restrain staff increases. 8. Private Sector Participation Status and Recommendations 8.1 A consultancy study on the privatization of PWA (financed by ADB) is to be completed by mid-1994 and will identify and evaluate privatization possibilities. PWA's planning for increased private sector participation is commendable and should be a major factor in increasing the present relatively low percentage of the population with potable water. These efforts deserve support. PWA plans to call for BOO proposals for five large water supply and distribution systems (Pathum Thani- Rangsit, Omn Noi, Omn Yai, Bang Pakong and Chachoeggao) that will cost about Baht 3,000 million each. However, BOO projects should not include investments that require a long time to achieve full utilization (like reservoirs or long transmission lines). 8.2 PWA lacks the experience to negotiate for BOO offers. Thus, transparent, standardized documents should be issued to avoid protracted negotiations. This would allow PWA to compare proposals based only on minimum costs. Further, water supply BOO contracts are complex due to the need to control water quality and to deal with the problems of payments during prolonged drought periods. 8.3 PWA's role in privatization should include: (a) Use of the private sector for management of systems (including O&M and revenue collection); (b) Joint sharing of investment in projects, especially new projects. 8.4 PWA's efforts on moving ahead with its national program could be greatly accelerated by strengthening PWA's PD, both for master planning and for project feasibility studies, and technical assistance is recommended for this purpose. This would include (a) Continuing evaluation of privatization projects in PWA, including the potential for participating in PWA's recently established East Water Company subsidiary for serving the Eastern Seaboard economic development zone; (b) Arranging for visits by PWA officials to evaluate privatization in other countries such as Malaysia and the United States. 8.5 To successfully implement the above plans, PWA should establish a Privatization Unit within PWA's Corporate Planning Department. 8.6 Many rural governments would like PWA to own and operate their water and sewerage systems. However, a better alternative would be to establish packages of several water and sewerage systems that would be suitable for privatization. - 44 - Annex 1 - Page 44 STATE RAILWAY OF THAILAND (SRT) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 20,762 21,449 22,666 24,709 27,845 Liabilities 13,287 14,345 15,380 18,091 19,641 Net Worth 7,475 7,103 7,286 6,618 8,204 Net Profit (592) (795) (778) (1,178) (929) Employees 25,019 25,769 25,864 25,284 21,004 Debt/Equity Ratio 1.78 2.02 2.1 2.7 2.4 Remittance to GOT(%) 0% 0% 0% 0% 0% ROA -2.9% -3.7% -3.4% -4.8% -3.3% Wage Component 49.6% 49.6% 50.4% 51.1% Productivity 2. Main Objective: KEY PERFORMANCE INDICATORS Operate railroad and related services. (CPFIT IN UwILLIC 1993 BAHTS) 3. Recommendations of the White Paper: (a) Promote - private investments in railroad cars - and other equipment for railroads: (i) 5 -, allow users to buy their own wagons - _91 .== for transportation; (ii) encourage lo% private sector to develop cargo * -139 handling facilities. Subcontract some -14K activities to reduce costs; (b) Amend -t _X the law enabling SRT to create limited - companies as subsidiaries to develop - business around train stations to tse6 tsG7 19eg 1sss 1990 t991 1992 t993 increase revenues. The subsidiaries PEARDFIT/STAFFSM.BAHT YOAS X % AETURN ON ITY may be all kind of joint ventures. Decisions on this should be based on Figure 14 the BOT's Law. 4. Actions taken by SRT: (a) Joint investment in the project to install fiber optics on rails with Telephone Organization of Thailand and Com Link Co., Ltd., a private company; (b) Private sector to develop prime land for some projects; (c) Amending setup laws to permit joint venture with private sector; (d) Granting concession to construct elevated railways (Hopewell project); (e) Hiring private sector to irnplement some activities; (f) Customers to buy containers for transport of goods; (g) Devising a policy to encourage private operations of plants and locomotive shop to make wagons and some parts. 5. SRT's Response: (a) SRT fully agrees with the recommendations; (b) SRT Law is being amended to enable the implementation of the above recommendations; (c) SRT has employed TDRI to study the role of the railroad in the next decade; (d) SRT has a joint venture with Fuel 45 - Annex 1 - Page 45 Pipeline Transportation Company to transport oil through pipelines with a 5% equity participation (822 million). 6. Cabinet Decision. NA. SEID opinion: (a) SRT should accelerate private sector participation through joint ventures; (b) SRT should give franchises for high speed trains; (c) SRT should accelerate the construction of the Hopewell project; (d) Establish a joint venture with the private sector to produce railroad cars; (e) Conclude the TDRI study and develop a business plan as soon as possible. 7. SRT's Status and Issues 7.1 SRT provides a range of services, including inter-city passenger and freight rail trains, urban commuter trains, and a planned light rail system and urban expressway (through a concession). SRT's primary business is its inter-city rail service that operates on a single track network covering some 3,728 kilometers, and that connects to the Malaysia Railway and continues south to Singapore. The passenger traffic accounts for three-quarters of the train-kilometers and slightly less than two-thirds of SRT's revenues. The railroad had a relatively large workforce in 1990 of 26,500 persons, of which about 85 % were permanent employees. This is equivalent to one employee per 1,300 train-kilometers. The rolling stock is relatively old; the diesel locomotives and passeager cars average about 22 years of age and the freight wagons over 30 years of age. The track is in fair-to-poor condition with failures occurring almost daily. The condition of the track and rolling stock, together with the single track configuration, limit train speeds to an average of about 50 kph for passenger trains and 30 kph for freight trains. 7.2 SRT has been operating at a loss for the last 20 years. During the last ten years, net losses averaged about B0.5 billion per year and the operating ratio has been about 110%. Labor accounts for nearly 60% of the direct operating cost of SRT, while fuel and material account for most of the remainder. The poor condition of the assets and the advanced age of the rolling stock result in relatively high maintenance costs, equal to about half of the total operating cost. A large proportion of these costs are assigned to infrastructure (track, signaling and stations), which, even at the current low level of maintenance, represent one-quarter of total operating costs. 7.3 SRT's consolidated losses require subsidies of nearly one billion Baht every year (for operating losses and debt service). If maintenance standards were raised, the amount of subsidies would increase to B4 billion per yearY', which, if allocated in proportion to revenues, would be equal to BO.4 per ton-km of freight and BO.25 per passenger km. 7.4 Improvements to the System. The problems that the railroad faces are not unique to Thailand. The relatively short trip distances and low operating speeds put the railroad at a disadvantage relative to truck and bus transport, and limit the railroad to a relatively small share of the total freight transport market. The government regulates tariffs and the quality of passenger services. As a result of the artificially low fares, passenger traffic (including the inter-city and commuter train operations) constitutes the primary source of both revenues and losses. Moreover, losses are likely to increase as a result of decreasing market share due to diversions to inter-city bus services, which provide faster and more convenient service. 6/ Based on the TDRI projections for 1993 excluding the additional investments needed to meet the projected growth in demand. - 46 - Annex I - Page 46 7.5 A potential area of growth for freight services is the international haulage of freight. If unit train movements are permitted across Thailand and Malaysia uninterrupted, SRT could provide a non-water link for the international movement of freight. The railroad could carry containers directly to and from Singapore, thereby avoiding the double handling costs, and remaining competitive with the all-water route. At present, most of the waterborne container services are feeder services, transferring their cargo at Singapore, Hong Kong or Kaoshiung. A considerable amount of cargo from Southern Thailand is already moved across the border to Penang. With the expansion of the growth triangle of Southern Thailand, Northern Peninsular Malaysia and Northern Sumatra, these movements will become more important. Cooperation with the Malaysian railroads would also offer significant economies of scale in the form of joint ordering of rolling stock, supplies, locomotive maintenance and track maintenance. 7.6 The railroad also has the potential to play a major part in the development of Laem Chabang by providing efficient, large-volume transportation to inland container depots. This will require efficient transfer of boxes between rail and truck for a variety of carriers at the proposed ICD in Lat Krabang.2' 7.7 The priority given to passenger trains results in relatively long travel times for freight trains, which causes further erosion of their market share. The distances travelled by freight average a little more than 400 km. Trucks are cost competitive up to 100 to 200 kms but, when travel time is taken into account, this competitive distance is extended considerably. As the value of the cargo transported increases, the railroad's market share for medium value cargo movements will decrease dramatically. Even now, the principal cargoes carried by the railroad are low value bulk commodities such as cement, petroleum products and gypsum. 7.8 The recent Master Plan prepared by the Thailand Development Research Institute made a number of recommendations for improving the operation of the railroad. The principal recommendation was the establishment of a Public Sector Obligation (PSO) agreement with the government, which would contract for the unprofitable passenger services it requires, and compensate SRT for providing these services. Other recommendations include: (a) Establishing commercially-oriented real estate activities along rights-of-way and other parcels owned by SRT. (b) Developing these parcels and other complementary railroad business through joint ventures with the private sector. (c) Increasing investment in trackage maintenance and in new locomotives. (d) Improving coordination of SRT's Bangkok commuter services (especially the Hopewell project) with other rapid mass transit and urban expressway systems being developed. (e) Extending the Hopewell network to provide service to the new airport and to new residential areas to the west of Bangkok. 7/ This suggests that a unified operation of the ICD would be more appropriate than the divided operation that is currently planned. It also suggests that the major shipping lines should be involved in both handling and storage of boxes. - 47 - Annex 1 - Page 47 7.9 SRT's proposed increase of the average operating speed and capacity by double tracking the network does not appear to be financially justified even with the high volume of traffic projected by TDRI. However, this may be justified for certain sections of the network (like the section from Chachoengsao to Laem Chabang). 8. Status Private Sector Participation and Recommendations 8.1 The private sector provides numerous services to SRT. Freight operations are primarily unit trains hauling the major cargoes (e.g., cement, petroleum products and containers), with the private shippers providing most of the wagons and the shunting locomotives. SRT provides the main locomotives and the engine crews. Private contractors also provide the materials and some of the labor for maintenance of the track. The catering and cleaning services on the passenger trains and in the stations are also private. Formerly, the private sector operated three of the commuter lines with considerable success, but this arrangement was discontinuedY' 8.2 Two models to be considered in increasing the role of the private sector are the rail systems in Chile and Malaysia. In Chile, the railroad system was subdivided into separate companies providing trackage and operating services. In addition, the private sector was allowed to own its own rolling stock and organize the movement of its own unit trains. 8.3 In Malaysia, efforts to fully privatize the railroad met with little interest from the private sector, so the government has converted the SE into a corporation with the objective of eventually selling shares to the public, with the government retaining a minimum percentage of the shares and a golden share, thereby giving it control over key policy matters. The government would also assume responsibility for the maintenance of the track. 8.4 An outright privatization of SRT is not possible given its financial condition. Three options (possible structures for each of these options are shown in Chart 2) available to SRT are to: (a) Reorganize according to functional units that would be wholly-owned subsidiaries and could eventually be spun off into private companies. (b) Reorganize into regional operating subsidiaries, each with profit and loss making activities. (c) Transfer the profitable activities to joint ventures or separate corporations and reduce SRT to a core set of unprofitable activities that would require subsidies but could then be performed through management contracts. 8.5 If SRT were to be corporatized, it would first have to be re-capitalized so that future operations would be capable of servicing its future level of indebtedness. The SRT corporatization would also require converting existing government subsidies into a contractual relationship, with the 8/ The private operators were able to integrate the train movements with the movements of the bus fleets that they also operated. This resulted in significant improvements in ridership, quality of service and profitability on these routes. These gains were lost when the SRT reasserted control over the commuter services. The reason for ending these contracts is obscure, but the reluctance of the labor unions and the government officials to allow this activity to be performed by the private sector are commonly mentioned reasons. - 48 - Annex I - Page 48 government covering the losses on services that it regulates. Under this arrangement, SRT would be able to operate other railroad services on a for-profit basis. 8.6 The issue of organizational restructuring is one of the most important issues facing SRT. Since the traditional monolithic organization for railroads is no longer effective, other railroads throughout the world have restructured their system accordingly, to enable them to operate in a more commercial environment. Therefore, it is important to hire experienced consultants to develop an organizational restructuring program for SRT that will enable SRT to effectively meet its future role in the Thai transportation system. 8.7 Separating the infrastructure and the operating equipment would allow the management of each company to focus on their own operations and investments. The infrastructure, which includes trackage, yards and stations, could be maintained and operated by separate companies, which would charge for their use. Charges for the use of the track should be set proportional to the estimated maintenance costs. Since the level to which the track has to be maintained depends on the desired operating speed, higher costs are incurred in maintaining tracks for passenger trains than for freight trains. In addition, to ensure acceptable maintenance levels, the SRT board of directors should include major users. 8.8 Alternatively, the infrastructure could remain under the control of an SE, which would then cover the costs of maintaining the network through a combination of user charges and government funding from earmarked general revenues. 8.9 The rolling stock could be managed by an operating company, which would be responsible for selling transport services. The company could have subsidiaries for freight, inter-city passenger and commuter services, and would contract with the trackage company for scheduling slots and yard space. Cross-leasing arrangements could be established for the locomotives in order to ensure efficient utilization. 8.10 Alternatively, private leasing companies could be allowed to purchase the rolling stock and then lease it back to SRT. These companies would also purchase additional equipment as required by SRT, again under long-term lease arrangements. This same concept could be applied to locomotives. This would allow the continuation of the current practice of having the major shippers provide their own wagons (a practice that should be extended to the haulage of containers). The role of the major shippers in the operation of unit train services could also be extended to marketing the extra capacity on those trains, especially for backhauls. The yard operations in the ICDs could be contracted to a terminal operator. Similar arrangements could then be established for other yard operations. 8.11 If SRT retains ownership of the rolling stock, the freight operations of SRT, which are potentially profitable, could be transferred to a joint venture subsidiary or fully privatized. The private operator would manage loading and unloading, and the train consist but SRT would provide the locomotives and crews according to a pre-arranged schedule. It does not appear feasible to have the private sector operate the locomotives because of the need to ensure high levels of utilization for this equipment. However, leaseback arrangements with the private sector could be used to provide newer and more reliable locomotives, thereby ending shortages due to the age, condition and size of the existing fleet. 8.12 A separate corporation could also be established to manage SRT's real estate under long- term concessions. Land ownership would remain with the government. Since much of the real estate - 49 - Annex 1 - Page 49 is associated with the right-of-way and has implications for changes in the amount of trackage, this company might also be responsible for the infrastructure. Professional management of these assets would ensure SRT acceptable profits, which should be used for maintaining and upgrading the network, instead of subsidizing existing operations. 8.13 The residual organization of the SRT would continue to provide PSO functions. It would also provide central scheduling of train movements and provide coordinated planning for expansion of the network. It might also have responsibility for track maintenance. The residual state enterprise would also include Hopewell until the conclusion of the BOT agreement. Thereafter, the light rail transit system and urban expressway should be transferred to the MRTA, or whatever agency is ultimately given responsibility for the rapid transit services in the metropolitan area. 8.14 Joint venture partners might include major supp!iers for the infrastructure and major users of the transport services and real estate and land development firms for the real estate company. For the sale of shares, a decision would be needed on the pace of the sale and the residual amount to be held by the government. Finally, consideration should be given for concessions for specific services such as the commuter train operations. 8.15 It is important to choose among these options based on the clear objectives of improving the efficiency, reliability, utilization and productivity of the railroad, and increasing or at least maintaining market share. Objectives related to providing minimum levels of service or keeping rates affordable to the poor cannot be addressed directly by the private sector, which should be concerned with the efficient operation of these services. These concerns should be addressed by implementing SRT's proposal to establish a Public Service Obligation entity. Proposed Restructuring of the SRT to Promote Efficiency and Private Sector Participation SRT Public CorporaUon Functional Option Rogional Option Corporate Option Subsidiaries and Subsidiaries Comp&nl*s,Subeldlaries Real Estate Management Northern Railroad Roiling Stock and JV Subsidiary Locomotives Develop SRT Properties Leasing Companies Passengor Railroad Northeast Railroad Freight Service PSO Subsidiary Operating Company Subsidized Rail Serv. Loemo.tive Operations Southern Railroad Commuter Train S4lbajdiary Operating Company Commuter Train Company Southeastern Raliroad Passenger Railroad Subsidiary P50 Subsidlry Mana"g Concessione Freight Seohduling Trackage Subsidiary Dopt - Coordinate Unit Train Movements DTracage and Signals Hopeweil System Department Subsidiary Maintenance,improvmnte Hopeeil System _ Train Scheduling Projoct Office Department * Overseas Concession LA - 51 - Annex 1 - Page 51 TELEPHONE ORGANIZATION OF THAILAND (TOT) 1. Financial Highlights 1989 1990 1991 1992 1993 (Million Baht) Assets 50,373 62,472 72,800 81,973 87,567 Liabilities 37,491 44,154 45,268 49,598 47,697 Net Worth 12,882 18,318 27,532 32,375 39,870 Net Profit 5,788 8,041 10,453 11,534 8,004 Employees 18,186 18,727 18,941 20,787 19,151 Debt/Equity Ratio 2.91 2.41 1.64 1.53 1.20 Remittance to GOT(%) 30.0% 30.0% 30.0% 36.3% 72.0% ROA 11.5% 12.9% 14.4% 14.1% 9.1% Wage Component 34.7% 35.1% 39.1% 34.6% Productivity 1.61% 1.85% 7.53% 2. Main Objective: KEY PEPFOPMANCE INDICATORS Provide telephone and related services CPPOFIT ,, MILLION 1993 EAHTS) to support government and business 70% activities. TOT is profitable with monopoly rights to provide basic telecommunication services to the __ __ _ public. International services are E provided by sister SOE-CAT. Since 0 1989, TOT has been allowing private _ sector participation in basic and value EXV added services - cellular telephones, 20% paging services, portable telephones (CT-2) systems, magnetic phone cards, mobile trunk radio telephony, and video text. Private sector 1996 1997 1909 1999 1990 1991 1992 1993 participation involve construction of YEARS assets by a private firm (as a BTO [Z~3 PROFIT/STAFF-M BAHT A # PETUIPN ON ASSETS X % RETLURN ON EOUlTY project) and subsequent transfer to Figure 15 TOT. The private firm operates the service and obtains a share of the revenues. 2.1 The larger BTO schemes include a fiber optic network along railway lines, a submarine cable and a network of three million lines involving a total investment of 120 million Baht. Future programs call for an additional six million lines between 1997-2001. 3. Recommendations of the White Paper: (a) Increase private sector participation to improve the availability and quality of services; (b) Reduce external borrowing; (c) Consider the merger of TOT and CAT to improve service efficiency. A detailed study would provide recommendations for this purpose; (d) Decide on the mechanism for increased private sector participation based on the following alternatives: (i) issuance of shares by TOT; (ii) issuance of shares of a combined organization (TOT and CAT); (iii) joint ventures; (iv) amendment of the Telecommunication Act to enable private sector participation; (e) Improve the organization of the telecommunication sector. Create a regulatory - 52 - Annex 1 - Page 52 framework for the sector to protect consumer interests; (f) Approve various joint ventures such as the three million lines contracted with the private sector. l 4. Actions taken by TOT: (a) TOT cited various advantages, but mainly disadvantages, for merging TOT and CAT; (b) Private participation alternatives should be carefully considered by concerned agencies, given the impact of the alternatives and the time required for their approval, this would include: (i) Granting private concessions; (ii) Contracting activities; and (iii) Joint investments with the private sector. 5. TOT's Response. (a) TOT has hired an international consulting firm to undertake a review of its privatization strategy and how to deal with the issues posed by the large BTO contracts; and (b) TOT staff is being trained on development and implementing the privatization program. 6. Cabinet Decision. NA. SEID opinion: (a) Supports the contracting of three million lines; (b) Study is being conducted by the Ministry of Telecommunication to study the merger. The Committee does not think it is desirable because of the large size of the resulting company. 7. World Bank Comments and Recommendations 7.1 In recent years, telecommunications had been privatized successfully in many countries. It would be desirable to convert both TOT and CAT into public joint stock companies and list them on the stock exchange. Gradual privatization through the sale of new and existing shares in tranches of 10% may be appropriate. The transfer of control, even without transferring majority share ownership, may provide the dynamism required in this sector. This may include transferring a small block of shares to a foreign telephone company to obtain modern technology. A major step has been taken by awarding to the private sector 3 million lines that will more than double the existing capacity by 1993. This is an impressive achievement. 7.2 The privatization of TOT (and CAT) would require three stages: (a) Enactrnent of changes to the Telegraph and Telephone Act (BE 2477), the Communication Authority Act of Thailand (BE 2519), and the Telephone Organization of Thailand Act (BE 2497). (b) Corporatization of TOT and completion of a study of restructuring TOT's organization. (c) A privatization study, including valuation of TOT (based on projections of earnings), preparation of prospectus, advertising, allocation of shares, etc. The terms of reference and a flow chart for this purpose were provided by the Bank to TOT. 7.3 Recommendations (a) A regulatory body should be established soon to rule on tariffs, interconnection charges, franchising and concession agreements to be financed by a charge on telecommunication suppliers. (b) In telecommunications, the legal framework is a major constraint to private sector participation, as it does not allow ownership of any assets by the private sector. However, - 53 - Annex 1 - Page 53 the explosive expansion of telephone services requires massive investments and further private sector involvement. (c) It is recommended that a major revision of the Telecommunications Laws be set in motion to eliminate the state monopoly on telecommunications, implement the corporatization of the TOT and establish adequate regulatory mechanisms. (d) policies should be adopted to enhance competition in long-distance and basic services and allowing CAT and TOT to broaden their service base. Greater competition should be fostered between private firms and between TOT and CAT in the provision of services and possibly network facilities. This will require changes in sector polices and a reduction or elimination of entry barriers. - 54 - Annex 1 - Page 54 TRANSPORT COMPANY LIMITED (TCL) 1. TCL's Status and Issues 1.1 The Transport Company Limited (TCL) was established as a private company in 1930. Its original mandate was the operation of the domestic commercial airways and inter-city bus services for Bangkok and the surrounding area. It was later transformed into an SE, and its domestic air operations were spun off into Thai Airways. In 1960, TCL was given the concession for the inter-city bus routes between Bangkok and 25 provinces with the mandate to invite private bus companies to participate in these routes. TCL then constructed three bus terminals in Bangkok to serve the routes to the North, South-East and South-West and, during the last 15 years, expanded its fleet of buses from 550 to 875 covering 315 routes. 1.2 Other companies operating on these routes are controlled by licenses issued by TCL and approved by a joint committee that includes the Ministry of Interior and the Land Transport Department. Each license specifies the number of buses and the level of service on a designated route. Licensees are selected by giving first preference to TCL, second preference to operators currently serving the same route, and third preference to operators on other routes. If none of these is interested, then a new company is selected. Although TCL is given first priority in the allocation of these routes, it has limited its market share, and most of the licenses are given to the private sector. TCL's market share, which was 25% initially, has declined, and has fluctuated between 14% and 8% during the last 15 years. TCL also operates on inter-provincial (not including Bangkok) and inter-district routes within these provincial areas, with market shares of 18.5% and 1.5%, respectively. 1.3 The bus fares are established by the same committee that issues licenses. Rates are set for each route and apply to all the buses operating on that route. The only differentiation is for the class of service that allows premiums for air-conditioned buses (40% for second class and 80% for first class). Since prices are fixed, the operators would normally compete on the basis of the quality of service; however, the licensing of the routes limits route capacity, thereby guaranteeing market share to the participants. Consequently, private operators maximize their profit by reducing the quality of their service, subject to TCL's regulated limits on quality. The result is a market that neither delivers the lowest price nor provides a range of services at different prices to meet the requirements of the market. 1.4 TCL is a profitable company. In 1992, it had an operating ratio of 85% and a net income of about B350 million. It derives about three-fourte' of its revenues from fares and the remainder from licensing fees. TCL earns revenues from renting space in bus terminals, but the bus operators are not charged for slots, and the revenue from retail/commercial activities in the terminal are minor. Deregulation 1.5 There is no longer a justification to regulate inter-city bus transportation. The original justification was the deterioration in quality and service that resulted from excessive competition. Regulation can further be justified in preventing monopoly pricing, guaranteeing access to small fleet operators and maintaining a certain quality of service. However, undue concern regarding monopolies is not warranted given the volume of traffic and the level of competition provided by the private sector. For some routes, demand is too low to sustain significant competition, in which case the operators could charge monopolist prices or significantly reduce the quality of service provided, requiring regulation to ensure an acceptable level of service and price. It is unclear whether the current system of licensing and rate setting is appropriate for this task. - 55 - Annex 1 - Page 55 1.6 The concern regarding the survival of the operators of small bus fleets in an unregulated market is very real, but unavoidable, since fleets lack economies of scale. With open competition, it is unusual to find owners with only a few buses operating on inter-city routes. They are competed out of business unless they provide specialty services, join with the larger operators or form cooperatives. Such consolidations occur throughout the world. 1.7 The concern for the quality standards of inter-city bus services does not justify regulation. The current requirements are to provide a seat for each passenger, maintain clean and comfortable buses and operate safely. The present system offers little incentive to private operators to improve the quality of their services. Instead, by protecting market share and regulating price, it provides incentives to reduce quality. If the fares were not regulated, then there would be a broader range of services offered. 1.8 The fare for services with quality similar to TCL could easily be increased if more basic services were provided at a lower fare. For the latter, the operators would compete solely on price. Since this competition would depress rates to a level that would not cover the cost of renewal of the buses at regular intervals, there would be a deterioration of the quality of service provided at this level. For. the more expensive services, there would also be competition in terms of the quality of service at the higher price. In this market, TCL would be the natural price setter (not by regulation but by virtue of its size and capabilities). Improved services would be offered to attract additional riders diverted from automobiles. 1.9 The only area of inter-city bus transport in which government regulation might be appropriate is on those routes where traffic levels are so low as to permit a single operator to exercise monopoly power. However, the burden of proof for such an assertion must rest with the government rather than be based on current traffic levels. The government should continue bearing the responsibility for minimum standards of quality and safety; however, these regulations should be enforced by non-operating agencies. Traffic laws should be used to limit the occasions in which passengers must stand or sit in the aisles. Inspections should be conducted to ensure that the buses are not beyond a maximum age or below a minimum physical condition. The regulation of safety is best left to the traffic police or other agencies concerned with public safety. 2. Private Sector Participation Recommendations 2.1 In order to increase privatization, it is important to minimize the regulation of entry and pricing of services. Such deregulation would allow TCL to charge a higher rate for providing better quality services in competition with other operators. Other operators would provide a lower quality service at lower rates. As a result, the consumer would be better off. In most countries with private sector inter-city bus services, the allocation of routes is determined by market forces. One or two large operators tend to dominate each trunk route. These companies benefit from lower average costs and the ability to offer more frequent service. Small operators can survive by serving niche markets, including specialty services or direct services to specific towns. At least two types of service are commonly provided on the major routes, an air-conditioned service with "tourist quality" buses and a basic non-air-conditioned service. Bus terminals are typically located on land provided by the city or province. These are operated primarily by the private sector. 2.2 Since private bus operators already dominate the inter-city bus services, the transfer of TCL's bus operations to the private sector should be relatively simple. The most difficult task will be to eliminate the regulation of route licenses (except those with relatively low demand and no direct - 56 - Annex 1 - Page 56 competition). Prices for the different classes of service would be allowed to find their own level. The condition of the buses would be regulated through annual inspections. The safety of bus operations would be monitored directly by the traffic police. Two alternatives are available to effect this transition. The first is for TCL to liquidate its bus service and sell off the vehicles to private bus operators. The second and better alternative would be to become a provider of premier services by setting up a separate company under TCL that would own the buses and be responsible for bus operations. This company could be a joint venture with a private company or a wholly-owned subsidiary that would then be corporatized and finally converted into a private company through offering shares in the market*. The conversion of the company to a corporation and then to a publicly held company should present little difficulty given the financial condition of the company, the effectiveness of the company in supplying quality service and the quality of its management. Deregulation would provide an opportunity for TLC to expand and rationalize its work force with little or no dislocations. 2.3 Currently, the various bus companies are allowed to use the loading gates at the bus terminals without paying a fee. In an unregulated environment with a privatized TCL, it would be necessary for the government to grant a concession to one or more private companies to operate the three inter-city bus terminals. These companies could be a consortium of the bus companies, a third party responsible to provide a common user facility or a subsidiary spun off from TCL. The ownership of the land on which the bus terminals are located would be transferred to the Department of Land Transport. - 57 - Annex 1- Page 57 THAI AIRWAYS (TG) AND 1.1 Thai Airways and Thai Maritime Navigation are currently being transferred to the private sector. For Thai Airways, the principal objective is to acquire professional management familiar with commercial aviation to guide the development of routes and services during a period of increased competition and tighter margins. This objective should be achieved through a rapid transfer of ownership to the public and the elimination of the role of government and governmental appointees in its operations and marketing. Unfortunately, only 7% of the shares in Thai Airways have been offered so far to the public. 1.2 There is little justification for continued regulation of this activity. International competition has increased dramatically, bringing down the price for both passenger and freight transport. The liberalization of the domestic services in many countries has lead to improved services, lower prices and increased air travel. The results of this liberalization have been to provide more competitive services throughout Asia. This includes not only developed countries such as Taiwan, but also the larger developing countries of India and Indonesia. 1.3 The recent experience in India is particularly relevant. The Indian government recently opened the major air corridors to Delhi to domestic competition. Within a year, at least three companies had established operations to compete with Indian Airlines. The result has been a dramatic improvement in quality of services and a reduction in prices. Despite the continuing support of government regulators in favor of the traditional carrier, the new companies have prospered. Some of the state governments have now transferred their business to the private operators in order to ensure that their employees arrive on time for their appointments in Delhi. The only need for continued regulation of airline activities is to ensure safe operations. This function should be performed by the Civil Aviation Department. THAI MARITI1E NAVIGATION (TMN) 2.1 TMN was due to be privatized through a sale to the Jutha Maritime Co. However, the government changed its policy and is now considering a more gradual privatization, together with a plan to invest in vessels. This go-slow approach is unwarranted. The country already has a major flag carrier, RCL, and many smaller flag carriers. There is absolutely no need for a government-controlled fleet. 2.2 There are few successful national shipping corporations. A notable exception is the Malaysian Shipping Corporation, which has been allowed to compete with the private sector as a commercial company. More common are the experiences of the shipping corporations of India and Pakistan, which have relatively old ships that are over-manned and expensive to operate. These corporations have their governments reserve a share of the market for them. As in India, the Government of Thailand has allowed private operators to compete on both domestic and international routes, but has failed to divest itself completely of its fleet. The government should therefore accelerate the privatization of TMN and eliminate subsidies for this activity. - 58 - Annex 2 - Page I Thailand Private Sector Participation and Increased State Enterprise Efficiency The State Enterprise Sector (A) State Enterprise Performance 1. As of early 1993, there were 63 state enterprises, including the recently established Rapid Transit Metro. Data available for the 55 main SEs are analyzed in this annex !'. Detailed tables for the SEs during the period 1989-93 are presented in Annex 9, with the SEs classified by major group (public utilities, financial commercial, etc). 2. Classification of the SEs. SEs RAT IOS AS PERCENT OF GDP The SE Division categorizes the SEs into five groups, mainly by their legal status FDs (Fiscal Monopolies, Public Utilities and Public Services, SEs Established under 50% Government Policies, SEs Originally 40% Established for National Security Purposes, and SEs Established for Other Purposes). 3__ However, for the purpose of conducting an analysis of these SEs, it is preferable to 20% classify the SEs by their main functions and characteristics. Therefore, this study 1 classifies the 55 state enterprises for _ which data are readily available into five 90 91 92 93 main groups based on their primary r functions, including 6 financial SEs (banks O ASSETYGOP and insurance companies), 24 commercia REVENUES/GOP CAPEX/GP SEs (mainly commercial or manufacturing Figure 1 SEs, such as the Playing Cards Factory, Bangkok Dock etc.), 15 public utilities that have been shortlisted for private sector private sector participation, 3 other public utilities (National Housing Authority, Aeronautical Radio of Thailand and Industrial Authority of Thailand) and 7 other SEs engaged in promotional and non-commercial activities (like the Tourism Authority of Thailand and the Sports Organization of Thailand).Y 3. The data available from MOF for these SEs include total assets, liabilities, equity, revenue, costs, profit before tax, subsidies, remittances to government (in lieu of taxes), and the number of employees. More detailed accounts are available in their annual audit reports. 4. Dermitions. Assets include total assets net of depreciation, but there has been no revaluation or adjustment made for replacement costs. Moreover, asset (and equity) figures are overstated, as the enterprises treat unrealized exchange losses as assets, rather than deducting from equity. Foreign debt is reported at the current exchange rate at the end of each year. Revenues and 1/ Data was not collected for three extremely small provincial SEs; Bangchak Petroleum, PTTEP, Preserved Food Organization and United Hotel and Tourist Co. Ltd., for a number of different reasons. 2/ A list of SEs and their financial results and indicators are presented in Annex 9. Further details for the 15 public utilities are presented in Annex 10. 5 59 ~ Annex 2 - Page 2 costs include all operating and non- REAL AND NOMINAL CAPITAL EXPENDITURE operating revenues and expenditures. , is PLcbllI Lilitv SE. Profit before tax is the difference between 250 all revenues and costs (excluding taxes). 240 Remittances are payments to the RTG as a 220 proxy for taxes. The number of employees 200 _ include all full-time employees, casual workers and staff for construction ___ = _ 140 activities. 120 10c 5. A series of financial and s0 physical indicators has been computed for 40 each of the SEs, but the need for 20 compatible and comparable indicators 0 greatly limits their number. These include 912 93 Y... the ratio of profits to assets (return on g I -IB.r assets, ROA), to equity (return on equity E In 1993 Pr-- ROE), to sales (return on sales, ROS) and the debt/equity ratio (computed as total Figure 2 liabilities to equity). The use of these global indicators has several limitations but, nevertheless, indicates the trends, problems and strengths of the SEs. Several other indicators of efficiency (in current and constant prices) were also computed, such as revenue per employee, cost per employee, profit per employee and the operating ratio (computed as total costs to total revenues). Some of the revenues and expenditures were converted into constant US dollars at average exchange rates for each year, or at constant prices using the consumer price index. The financial data and indicators for the 15 SEs for the period 1986-93 are presented in Annex 9. Importance of the SEs to the Thai Economy 6. The state enterprise sector is very important in the economy (Table 1 and Figure 1). In 1993, the revenue of the sector was equal to 16.3% of the GDP, which has remained at about that level for the period 1989-93. The assets of all SEs (including the financial SEs) as a percentage of GDP, have been slowly increasing from 48.6% in 1989, and are expected to reach almost 52.9% in 1993. 7. Particularly important have been the SEs' capital expenditures (CAPEX), which stood at about 4% of GDP during 1989-90, increased to about 6% in 1991-92, and are expected to reach 9.1% in 1993, due primarily to the impact of the expressways and rapid transit systems. The fast pace of the Thai economy, growing at the rate of 8% per annum, has demanded an even faster growth in capital expenditures (due to increased unit costs and compensation for previous deficiencies). Therefore, capital expenditures have growing at extremely high rates (14% p.a. for power supply), and will require increased funding from the private sector, given limited government financing. Capital expenditures for all SEs almost quadrupled during the period 1989-93, from $2.7 billion to $11.4 billion. The total capital expenditures for the 15 SEs utilities tripled from B50.7 billion ($2.0 billion) in 1989 to B243.2 billion ($9.7 billion) in 1993 (Figure 2). Capital expenditures for these enterprises are expected to continue at rates of more than 10% p.a. in the immediate future. In relation to GDP, capital expenditures were about 23% of total investment in 1992. -60- Annex 2 - Page 3 SE EMPLOYMENT ON COUNTRY TOTAL RATES OF RETURN OF 55 SEs 2OX / v " - LX : X30% 2 1% 21% 84% 12%~~~~~~~~~~~~~~~~~~~~~6 1 8%~~~~~~~~~~~~~~~~~~~~~~~2 1 6% 22~~~~~~~~~~~~~~~~~~~~~% 1 .% 1~ ~ 18 486373%37 .1 1 ~ 19 48.3%__________________________ 177%40%0.4 41 5% 15 03% ~~~~~~~~~~~~~~~~~~~~~~~2% 02% Et 5. 12 9 02%8.g0 99221 On ak 0 0% FIscal~~~~~~~~~~~0 t -e V.sr * ~~~~~~~Pet-t o Eqo ty p Pet-r onPe-n. Figsure 3 Figure 4 (a) thereturoTable 1 - Importance of SEs to the Thai Economy j Year Assets/GDP Revenues/GDP CAPEX/GDP % of Employ. 1989 48.6% 17.3% 3.7% 0.91% 1990 48.3% 17.7% 4.0% 0.94% 1991 50.1% 18.3% 5.8% 0.90% 1992 50.7% 17.4% 5.7% 0.91% 1993 Est. 52.9% 16.3% 9.3% 0.91% 8. On an aggregate level, some key indicators for the 55 SEs, although still quite satisfactory, declined somewhat between 1989-1993 (Figure 4). In particular: (a) the return on assets, (ROA, defried as net profit on total assets) declined from 5.1 % to 4.0%, mainly due to the substantial increase in new assets during recent years; (b) the return on equity (ROE, defined as net profit on equity) continues to be high, although it declined from 25.7% to 16.6%; and (c) the retur-n on sales (ROS, defined as net profit on total revenues) experienced a net decline from 14.4% in 1989 to 13.0% in 1993. 9. The operating ratio, computed as total costs to total revenues, has been stable at about 86% between FY 1989-93, but this resulted from improvements in the 15 public utilities and the increase from 68% to 90% in the operating ratio of the other public utilities. - 61 - Annex 2 - Page 4 10. Particularly significant is the PPOF I T PER EMPLOYEE FOR 55 SEs increase in profits before taxes (Figure 5) MILLIC. 81.T 1993 P.C5S and productivity per employee, which 0 25 increased from BO.20 million ($8,00) in 1989 to BO.22 million ($8,800) in 1993. 0 25 __ . M M _ . There are, however, substantial differences 0 \ among the SEs, and while as a group the 24 _ t \\ 15 public utilities provided revenues of / \ B0.24 million (about $9,600) per employee, the other SEs showed a loss of 0 22 X \ _ BO.03 million ($1,200) per employee. CO 21 11. Employment. While SE revenues amounted to about 16% of GDP 0 20 _ _/ _ in 1993, the total employment of these 55 _ enterprises was about 300,000 persons in 1 990 91 92 93 1993. As shown in Figure 6, the largest Year employers are the 15 public utilities, which in 1993 employed 200,000 persons, two- Figure 5 thirds of total SEs. The commercial SEs were the second largest (about 50,000 or one-sixth of the total). The number of employees in the SEs as a percentage of total employment in the country (about 30 million in 1993) has remained practically constant at 0.9% during the last five years. 12. The employment opportunities EMPLOYEES OF SEs generated by the SEs were very important in the 1970s. However, government policies to improve the efficiency of the 30_ _ SEs limited staff growth to only 5.6% for 29 0 _ the period 1989-93. This is praiseworthy, 260 considering the growth of the SEs in this 220 20 period (319% in capital expenditures, 200 122% in equity, 108% in remittances to the 160 RTG and 84% in assets). Less laudatory, 120 however, was the deterioration in 1ce E00 employment conditions in comparison with 6 M the private sector - salaries for technical 4_ 20 staff are presently about half the levels of__ the private sector. 90 9 FIScal Year ..AaiUonly COrcCISI FInancil Irst 3 Other Pub Utl IIC Ot her SE. E PbII1C UtIlittif Figure 6 - 62 - Annex 2 - Page 5 Table 2 - Percentage of Each Group on Total SEs Year | Assets | Liabi- | Equity | Revenues | Costs | Profit | Capital | Remit. Subsidy | Number | lities I I _ _ | Bef.Tax I Expend. | to RTG J | Employ. 15 PUBLIC UTILITIES 1989 40.7% 34.6% 65.1% 59.0% 58.2% 64.1 % 74.5% 47.3% 61.3% 71.6% 1990 41.1% 34.5 % 66.4% 59.7% 57.6% 72.5% 74.8% 58.2% 58.6% 71.2% 1991 40.8 % 32.7% 69.6% 60.5% 57.7% 77.0% 76.3% 62.1% 63.1% 68.8% 1992 40.9% 32.5 % 68.7% 61.1 % 58.6 % 75.1 % 72.4% 64.5% 65.4% 68.6% 1993 42.0% 32.9% 70.6% 58.3% 56.2% 72.5% 85.3% 67.7% 51.3% 66.8% MAINLY COMMERCIAL SEs 1989 10.4% 8.8% 16.9% 24.2% 24.2% 24.6% 8.5 % 27.8% 10.8% 15.1% 1990 10.1 % 8.5% 16.0% 23.2% 23.7% 20.2% 17.6% 19.4% 12.1 % 15.0% 1991 9.2% 7.8% 14.3% 21.5% 22.5% 15.6% 17.3% 19.2% 8.2% 16.5% 1992 10.2% 8.9% 14.5% 20.5% 21.9% 12.6% 21.3% 17.9% 0.0% 15.7% 1993 9.2% 7.9% 13.3% 20.9% 21.3% 18.4% 8.7% 16.0% 9.8% 16.6% FINANCIAL SEs 1989 46.9% 55.1% 13.8% 12.1% 12.9% 7.1% 13.9% 5.1% 0.0% 10.2% 1990 46.7% 55.3% 13.8% 13.5% 14.5% 7.1% 0.6% 5.5% Y 0.0% 10.7% 1991 47.6% 57.3% 12.7% 14.5% 15.9% 6.6% 0.0% 0.6% 0.0% 11.6% 1992 46.3% 56.2% 13.4% 14.4% 14.9% 11.7% 1.3% 1.4% 0.0% 12.3% 1993 46.0% 56.3% 13.3% 16.5% 17.6% 8.9% 0.6% 1.8% 0.0% 13.0% OTHER SEs 1989 0.8% 0.2% 3.0% 4.1% 4.3% 2.9% 0.6% 19.7% 20.1% 1.9% 1990 0.7% 0.2% 2.4% 3.0% 3.7% -0.9% 0.5% 16.7% 20.2% 1.9% 1991 0.6% 0.2% 2.0% Y 3.0% 3.5% -0.2% 0.8% 17.7% 22.4% 1.7% 1992 0.6% 0.2% 1.8% 3.5% 4.1% 0.0% 0.5% 15.8% 25.9% 2.0% 1993 0.5% 0.2% 1.4% 3.5% 4.1% -0.5% 1.0% 14.3% 17.5% 2.1% OTHER PUBLIC ENTERPRISES 1989 1.3% 1.3% 1.1% 0.6% 0.4% 1.2% 2.5% 0.1% 7.8% 1.2% 1990 1.4% 1.4% 1.4% 0.6% 0.5% 1.2% 6.6% 0.2% 9.1% 1.2% 1991 1.8% 1.9% L15% 0.5% 0.4% 0.9% 5.6% 0.4% 6.3% 1.3% 1992 2.1% 2.2% 1.6% 0.6% 0.6% 0.7% 4.5% 0.5% 8.7% 1.5% 1.w3 2.4% 2.7% 1.4% 0.7% 0.8% 0.6% 4.5% 0.2% 21.4% 1 1.6% - 63 - Annex 2 - Page 6 (B) Performance of the SEs by Categories 13. In order to compare the relative performance of the various groups, Table 2 shows a summary of SE financial data for 1989-93. In this table, key financial variables of these enterprises are presented as a percentage of the entire SE sector for 1989-93. 14. In terms of assets and liabilities, the five financial SEs have the largest share of the total (46% and 56, respectively) in 1993 (Figures 7 and 8). The relative importance of each group in terms of total assets is shown in Figure 7, with financial SEs representing about half of total assets (46%), followed by the 15 public utilities (42%). The financial SEs have 56% of all liabilities of the SEs, followed by the 15 SEs (33%). The commercial SEs, which are a priority for divestiture, follow with 9% and 8%, respectively. Therefore, these three groups collectively represented 97% of the assets and 97% of the liabilities of all SEs in 1993. ASSETS OF STATE ENTERPRISES EQUITY OF STATE ENTERPRISES T X10,LLO CAT R 1LL ACd5 OF CAN 1045 14 ~~~~~~~~~~~~~~~~~~~~~~~~350 10 ~~~~~~~~~~~~~~~~~~~~~~~~~300 10 25 00 100~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1 05~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 90 ~~92 90 92 F-l I F-eAl Y** 90,10 C0,.al0.l 11110nl cA..rl. Figure 7 Figure 8 15. A major concern for the 15 SEs - CAPITAL EXPENDITURES Government, and a key reason to seek 01LLIOAS OF US DOLLAPS private sector financing, is the extremely 11 high growth of capital expenditures by the . SEs. In particular, the investments of the 15 , SEs are particularly important (and critical for the economy), and aggregated to about 85% of total SE investments, reaching almost $10 billion in 1993 (Figure 9). 16. The distribution of these capital investments is also heavily concentrated in a few of these 15 SEs. This can be seen in 2 Table 2, which shows the 15 SEs sorted by I the magnitude of relative capital expenditures. The group is dominated by Ye four SEs: ERTA, EGAT, TOT and PTT (66.5% of the total). Figure 9 - 64 - Annex 2 - Page 7 Table 3 - Financial Results of 15 SEs for 1993 (Sorted by Capital Expenditures) Acronyms Capex-B.Baht ROA ROE ROS Debt/Equity CAPEX ERTA 58,503 24.1% 0.7% 4.8% 34.3% 551.8% EGAT 54,167 22.3% 4.4% 11.4% 16.6% 162.0% TOT 30,313 12.5% 9.1% 20.1% 53.2% 119.6% PT!' 18,520 7.6% 11.6% 25.9% 8.3% 123.7% PEA 16,987 7.0% 11.2% 22.2% 19.7% 97.3% CAT 11,446 4.7 % 18.7% 21.6% 27.9% 15.4% MEA 10,973 4.5% 7.2% 21.2% 7.2% 196.2% SRT 10,943 4.5 % -3.3% -11.3% -19.8% 239.4% PWA 8,312 3.4% 0.8% 1. I% 2.8% 36.2% MWA 6,294 2.6% 8.7% 18.6% 36.0% 113.9% PAT 6,037 2.5% 18.3% 25.2% 44.4% 37.6% AAT 5,545 2.3% 18.1% 33.8% 54.2% 86.2% BMTA 4,133 1.7% -7.2% NA -9.3% NA MCOT 997 0.4% 21.9% 22.4% 60.6% 2.2% .ETO 45 0.0% -27.1% NA -6.9% NA 17. Capital Expenditures. In PROFIT PER EMPLOYEE 1992, the capital expenditures of the SEs U 195 were essentially financed through internal 0 35 cash generation (43.6%) and borrowing 0 30 - (41.6%), of which 17% was domestic and 025 \ 24% was foreign. The budgetary 20 = contribution of the Government was 14%, but this was concentrated in a few SEs, 0 05 which are kept unprofitable due to low 0 00 tariffs on their respective services. Capital -o \ expenditures increased at an incredible a la annual rate of 39% over 1989-93 (the -015 U1 92 average yearly increase between 1989 and 1992 was 30%). It should be noted that c, c..n-r utIle this includes large BOT contracts for telephones and the rapid transit system. Figure 10 The capacity of the RTG to continue undertaking such huge investments, or even to maintain comparably sized BOTs, is critical to maintaining the accelerated growth being experienced by the economy. In any case, private sector participation will have to be further increased, and innovative ways will have to be found to ensure private sector participation and additional external financing for most SEs. - 65 - Annex 2 - Page 8 18. Annex 9 shows key financial ratios and efficiency and profitability indicators for the five groups of SEs during the period 1989-93. These indicators should be expanded and improved over time to better measure the financial performance of SEs (as recommended under the proposed performance evaluation system) and would require a more comprehensive database, which should be maintained by MOF. 19. Figure 10 shows the profit per employee in 1993 constant Baht, to estimate the profitability and efficiency of these groups. As shown in the graph, all groups show improvements in relation to 1990 (but there is a slight decrease in the profit/employee for other public utilities). All groups, except the Other SEs, show positive net profits per employee, with commercial and public utilities showing the best results. Figures 11 and 12 show the ROA and ROE for each group of SE, which highlight the good performance of the 15 public utilities. (C) Trends 20. Commercial SEs. These SEs perform functions that are no longer needed to be undertaken by the Government. The profitability and efficiency of these SEs have improved during the last two years (Figures 10 and 11) after a decline of several years. In any case, these SEs have reasonable rates of return and could easily be sold at good prices and, given the lack of rationale for the Government to compete with the private sector in these commercial (or industrial) activities, these enterprises should be a priority for divestiture. Since they account for only 9.2% of total SE assets, 13.3% of total equity, and employ only 16.6% of total SE employment, the macroeconomic impact from privatization in terms of the resulting unemployment and the ability of the private sector to purchase these enterprises would be marginal. However, measures should be taken in advance to protect the employees concerned. There are clear indications of the potential for efficiency gains, given the declining efficiency of these SEs. % RETURN ON ASSETS OF SEs % RETURN ON EQUITY OF SEs + influ Ie o 01 P*. ml 12 o0r _ P. Ul1. l 0K St Eo liea . O -o Tl trX 111 11t1- Figure 11 Figure 12 21. Financial SEs. These SEs had relatively low ROA and ROE levels (about 0.8% and 11.1%, respectively) in 1993, which are lower than the levels for other private sector financial institutions. This is partially the result of their development role through the provision of directed credits and some subsidized loans. - 66 - Annex 2 - Page 9 (D) The 15 Public Utilities SEs 22. The 15 SEs are generally profitable and efficient. In 1993, these SEs accounted for 42% of total SE assets, 71% of total SE equity, 73% of profits, and 85% of total capital expenditures. The employment in this group accounted for 67% of total SE employment. Since these SEs are capital intensive and capital expenditures are expected to grow at a rapid pace, these enterprises are the most likely candidates for private sector participation, opening the way for private financing to satisfy the explosive demand for infrastructure services. As shown in Table 4, the performance of each SE is quite different (for example, BMTA and ETO have negative equity as a result of the RTG maintaining low rates for transportation services). Table 4 - Financial Results of 15 SEs for 1993 (Sorted by Equity) ACR Equity % of ROA ROE Debt to Profitl Operating Equity Profit Equity Employee Ratio EGAT 81,207 28.9% 19.3% 4.4% 11.4% 162.0% 0.27 83.4% PEA 40,708 14.5% 18.8% 11.2% 22.2 % 97.3% 0.29 80.3% TOT 39,870 14.2% 16.7% 9.1% 20.1% 119.6% 0.42 46.8% PTT 28,599 10.2% 15.4% 11.6% 25.9% 123.7% 1.90 91.7% CAT 19,582 7.0% 8.8% 18.7% 21.6% 15.4% 0.17 72.1% MEA 13,501 4.8% 6.0% 7.2% 21.2% 196.2% 0.21 92.8% ERTA 12,621 4.5% 1.3% 0.7% 4.8% 551.8% 0.18 65.7% MWA 12,468 4.4% 4.8% 8.7% 18.6% 113.9% 0.41 64.0% PAT 9,895 3.5% 5.2% 18.3% 25.2% 37.6% 0.37 55.6% PWA 8,397 3.0% 0.2% 0.8% 1.1% 36.2% 0.01 97.2% SRT 8,204 2.9% -1.9% -3.3% -11.3% 239.4% -0.04 119.8% AAT 7,960 2.8% 5.6% 18.1% 33.8% 86.2% 1.14 45.8% MCOT 2,785 1.0% 1.3% 21.9% 22.4% 2.2% 0.64 39.4% ETO -558 -0.2% -0.3% -27.1% NA NA -0.04 106.9% BMTA -3,780 -1.3% -1.2% -7.2% NA NA -0.03 109.3% 23. The total equity of the 15 public utilities totaled B281.5 billion ($11.3 billion) in 1993. (ETO and BMTA recorded negative equity of B-0.5 billion and B-3.8 billion, respectively.) However, 80% was represented by the six largest SEs, and the percentage of the total equity of these 15 SEs increases rapidly as follows: EGAT 29%, TOT 43% (cumulative of EGAT and TOT), MEA 57%, PTr 68%, CAT 75% and MEA 80%. 24. Similarly, the return on equity for the 15 SEs is uneven. Nine of the 15 SEs achieved large returns on equity between 18% and 35% (AAT, PTT, PAT, MCOT, PEA, CAT, MEA, TOT, and MWA), while one (SRT) had a negative return, see Table 5. - 67 - Annex 2 - Page 10 Table 5 - Financial Results of 15 SEs for 1993 (Sorted by Return on Equity) Acronyms ROE ROA Debt to Profit/ Operating Equity % Equity Equity Employee Ratio Mill. B. AAT 33.8% 18.1 % 86.2% 1.14 45.8% 7,960 2.8% PTTF 25.9% 11.6% 123.7% 1.90 91.7% 28,599 10.2% PAT 25.2% 18.3% 37.6% 0.37 55.6% 9,895 3.5% MCOT 22.4% 21.9% 2.2% 0.64 39.4% 2,785 1.0% PEA 22.2% 11.2% 97.3% 0.29 80.3% 40,708 14.5% CAT 21.6% 18.7% 15.4% 0.17 72.1% 19,582 7.0% MEA 21.2% 7.2% 196.2% 0.21 92.8% 13,501 4.8% TOT 20.1 % 9.1 % 119.6% 0.42 46.8% 39,870 14.2% MWA 18.6% 8.7% 113.9% 0.41 64.0% 12,468 4.4% EGAT 11.4% 4.4% 162.0% 0.27 83.4 % 81,207 28.9% ERTA 4.8% 0.7% 551.8% 0.18 65.7% 12,621 4.5% PWA 1.1% 0.8% 36.2% 0.01 97.2% 8,397 3.0% SRT -11.3% -3.3% 239.4% -0.04 119.8% 8,204 2.9% BMTA NA -7.2% NA -0.03 109.3% -3,780 -1.3% ETO NA -27.1% NA -0.04 106.9% -558 -0.2% 25. As indicated earlier, the 15 Public Utilities are dominated by six large enterprises, which represent 80% of the group's equity, 77% of its capital expenditures (Figure 13), 78% of its assets (Figure 14) and 87% of its profits (Figure 15) (see also Figures 13 and 14). These six enterprises are therefore a priority for private sector participation. The relative importance and performance of these six SEs is presented below: - 68 - Annex 2 - Page 11 6 OF THE 15 SEs CAPITAL EXPENDITURES % OF THE 15 SEs ASSETS (AT T993) (EC 1993) 2EA AEGr Ef CAT SAT LA rAT uCOT TOT PEA A AA fAr PWA ACT STATE ENTEAPA SES STArS FNPRAPA.l':S Figure 13 Fiqure 14 (i) EGAT accounts for 28.9% of PERCENT OF PROFIrTS OF 15 SEs the group's equity, 30.6% of 19 the assets, 19.3 % of the20 profits, and 22.3% of the (ii) TOT represents 14.2% of the e_ .. group's equity, 12.6% of the assets, 16.7% of the profits, es _ _ K an 25%o2heCPX (iii) PEA accounts for 14.5%S of 6 the group 's equity, 1 1.5 % of = .iE the assets, 1 8.8 % of the - 22 profits, and 7.0% of the - ~~~~~~~~~~~~~~~~~~E&AT TOT| CAT | AT | I | EPTA| ETO | ART T; CAT TT CTTor PEPEA PTT AA PAT ICT PVA aETA SIATE E~~~~~~~~~TE- SES~~~SAT ENTA,T FEARSE s (iv) PTT represents 10.2% of the Figure 15 group's equity, 9.2% of its assets, 15.4% of the profits, and 7.6% of the CAPEX; (v) CAT's equity as a percentage of the group's equity was 7.0%, its assets were 3.3%, profits were 8.8%, and CAPEX 4.7%; and (vi) MEA represents 4.8% of the total equity, 5.8% of total assets, 6.0% of total profits, and 4.5% of the CAPEX. 26. A final but important aspect of the 15 public utilities is that they have consistently provided large remittances to the RTG and, in fact, the size of these remittances has been increasing rapidly (at a compound rate of about 30% p.a. during the period 1989-93), and reached almost $800 million in 1993 (Figure 16). Moreover,oas a percentage of net profits, remittances increased from 22% in 1989 to 41% in 1993r -higher than the 35% tax on private enterprises (the net profits after -69 - Annex 2 - Page 12 privatization are likely to be lower if legal TOTAL REM I TTANCES OF 15 SEs devices for avoiding taxes are used, like C 90 S.C'S IE-TT.NCES DN FET PFDFITS accelerated depreciation). With the incentive to be declared a 'good BOO corporation", it is expected that several other SEs will start remitting at least 35% 700 of their net profits, and so remittances to 600 the RTG are likely to increase. 600 23 500235 3000 2000 100 0 ag g0 61 92 93 rEAPS Figure 16 - 70 - Annex 3 - Page 1 Thailand Private Sector Participation and Improved Efficiency of SEs Successfully Contracting Private Sector Infrastructure Private Sector Contracting in Infrastructure 1. In developed as well as in developing countries, the public and the private sectors provide a broad range services, particularly for infrastructure (including highways, metro systems, railroads, communications, mail, electricity, water supply, etc). This mixture of public and private involvement is also prevalent in the education and health sectors. Political ideology and historical development generally dictate whether a sector is largely (or even exclusively) in public or private hands. To serve the public good, it may be desirable to access large financing sources, knowhow, training, new technologies and better prices by introducing competition by contracting separate packages of services with the private sector. 2. Private sector participation includes an almost infinite range of possibilities, from simply delegating some component services to the private sector (accounting, computers, billing, security, maintenance, etc.), to the commissioning and operation of large investrnents for power plants, telecommunications, highways or water supply systems. Private involvement in large-scale projects is becoming very important. For example, independent power producers are now generating much the new generation capacity in the United States, and have contracted new power plants equivalent to about 80% of existing capacity in the Philippines. The adequate use and optimization of private sector contracts (PSCs) is a major concern for many countries. Adequately used, PSCs are less controversial than privatization of existing assets, may increase private sector participation at different speeds, can free the government from substantial responsibilities in the investment and operation of different services, would promote additional competition, and would provide additional financial resources in the form of equity and of loans not directly guaranteed by the government. The key elements for the successful use of PSCs are explained below. 3. The success in attracting private capital at reasonable costs depends not only on the project itself, but also on the perceived business environrment for the country. Key areas are: (a) the relative creditworthiness of the country (facilitating and defining the terms of loans); (b) the existence of clear legislation and guidelines allowing and regulating PSCs; (c) constraints on the private sector in carrying other activities (therefore a successful first project may greatly facilitate other projects); (d) restrictions on foreign ownership; (e) government willingness to provide guarantees for sovereign risk; (f) clear and transparent procedures for the evaluation and award of proposals; and (g) the existence of clear guidelines for the contracting utility in recovering the PSC from consumers. No withstanding of government guarantees there will be serious problems if the utility is unable to comply with its payment obligations. 4. Of these, perhaps the most critical factor is the existence of clear legislation for private sector participation that would: (a) promote private sector participation; (b) define the role of different government agencies in approving PSCs; (c) define ownership rights for the PSCs; and (d) establish the rights for easement of land (a critical component of power and transportation projects). - 71 - Annex 3 - Page 2 Comparison of PSCs 5. A common assumption of all PSCs is that the private sector will need to receive a financial return to compensate for any real or perceived risks on the project, while guaranteeing the desired return on equity. However, unless the bidding and awarding process is well-defined and allows for sufficient competition and a transparent system is used for evaluating proposals, the costs of PSCs may be quite higher than if the work had been done by the government. A system that fails to adequately compare PSCs could result in public opinion problems or the possibility that cost- recovery expenses of a PSC may be found to be lacking (and so dis-authorized by the regulator) - a move that could damage the prestige of the PSC. Since the PSCs have been used more frequently in power, some of the following comments are more applicable to that sector, but the basic principles are the same for other infrastructure sectors. 6. The main PSCs, in increasing order of private sector participation (based on length of contract or financial involvement) are: (a) Turnkey Contracts. This is a construction contract with substantial penalties guaranteeing the timely completion of a fixed-cost contract. Both the utility and the BOT contractors can use turnkey contracts to be insured for these risks. The turnkey has a premium cost over normal construction contracts, but this cost is normally less than the administrative burden for managing different subcontracts and particularly the impact of any of them in the project completion and cost; (b) Engineering, Procurement and Construction Contract (EPC). This is a turnkey contract where the engineering design and specifications are also the responsibility of the contractor. Although it requires low initial involvement by the utility, it will require very competent review to ensure functionality and operationality; (c) Management Contract (MC). With an MC, the utility delegates the operation (but not the ownership) of some assets with a view towards increasing the efficiency of operation and the delivery of services; (d) Build-Transfer-Operate (BTO). The contractor will obtain financing and construct the project facilities, will transfer the assets and liabilities to the government and will thereafter operate the project for several years. The key disadvantage is that there is no equity financing; therefore, if the contract were to fail, the government would be less protected than under a BOT. In Thailand, upon the completion of a BTO project, its assets are transferred to the government, which would pay the agreed fee, while the liabilities would be retained by the private sector; (e) Build-Operate-Transfer (BOT). In a BOT, the contractor should provide about 15%- 30% equity, obtain the remaining financing, construct the project facilities and operate the project for an agreed number of years; and (f) Build-Own-Operate (BOO). In a BOO, the contractor should also provide about 15 %- 30% equity, obtain the remaining financing, construct the project facilities, but will own and operate thereafter the project facilities. - 72 - Annex 3 - Page 3 Risk Allocation 7. It is reasonable to assume risks provided that the expected return for assurning these risks is adequate. However, unless each risk is allocated to the party most able to manage it, the cost for assuming risk could be very large. However, a diversification strategy that allows risks to be shared or insured among several parties can mitigate the cost of assuming risk. 8. The risks that should normally be taken by a PSC include: (a) Cost Overrun. This risk is often remedied by a turnkey or EPC contract, which, under severe penalties and guarantees, establishes a fixed price, completion time and operational performance. The impact of force majeure is insured. Increases in financing costs (due to changes in interest rates or exchange rates) would be covered by standby finance or a tariff reopened; (b) Delay in Completion. The completion is ensured by daily penalties from the turnkey contractor; (c) Failure to meet specifications is also guaranteed by a turnkey or EPC contract. The procedures for testing the works before their acceptance should be specified in the contract and would require a one-time penalty in case of non-compliance. This is assured by a performance bond (about 10% of the construction value); (d) Operation and maintenance and compliance with minimum operating parameters and the guarantee availability are guaranteed by a subcontract with a proven operator. The contract would specify the spare parts and costs included, the procedures for additions or improvements, and the damages that a performance bond should cover in case of non-compliance; and (e) Fuel supply and availability (covered by an implementation agreement). 9. The risks that normally are taken by the contracting utility are: (a) Demand for services; (b) Fuel and additives cost. This would specify very precisely fuel quality and efficiency. Particularly important would be the heat rate, sulphur and solid content; and (c) Payment of charges for services. 10. Although some of the following risks may be negligible in some countries, they may be sufficiently important in others as to require a government guararntee: (a) Access to foreign currency or currency convertibility, as needed to pay foreign financing and return on equity. This risk can be partially compensated by insurance; (b) Changes in laws, regulations, taxes, duties and levies that can change over time and - 73 - Annex 3 - Page 4 will have to be passed on to consumers. In many countries, tax holidays are used to promote important infrastructure projects; (c) Inflation, to be covered by charges adjusted by indexes; (d) Land acquisition (only the government normally has the right to expropriate land); (e) Compliance with contractual payments; (f) Changes in environmental requirements; and (g) Political turmoil and expropriation. 11. The force majeure risks are normally covered by the government, or added as an insurance cost. 12. In addition, the use of infrastructure capacity will be dependent on other complementary facilities. This includes power projects items like transmission lines (including wheeling charges), expansion of distribution systems, metering and interconnection points, communications and protection equipment. Similarly, for transportation systems, this would include feeder roads, interconnection with other transportation systems, tolls booths, etc. The responsibility for completing and operating such facilities should be clearly spelled out in the contract. Contracting Conditions 13. The Purchase Agreement (PA) is the key contract setting all the obligations of the parties. It should. ensure that, when the supplier of the service complies with its obligations, the respective payments, typically in foreign currency, would be paid in the agreed way. The draft PA should be included in the invitation for bids (IFB), and since the relationship between the utility and the supplier may last for 20 or more years, it requires very careful drafting. The assistance to the utility of specialists with ample legal and technical experience with such contracts would be highly desirable for the utility. 14. The PA is normally ten or more years. In the case of project finance, since the maturity of most loans would only be for 7-10 years after the grace period, the full cost and debt service would be recovered during the first ten years, and extending the contracting period may not result in better prices after that period. With these conditions, it would be preferable to include an option for extending the terms of the PA. 15. The PA should clearly specify the: (a) Milestones for completing each of the facilities (and penalties for non-compliance); (b) Responsibility for key project risks (as explained above) and the definition of force majeure; (c) Operation and dispatch of power plants and the procedures for emergencies; - 74 - Annex 3 - Page 5 (d) Contractor's insurance and the guarantees and indemnities for each party; (e) Payment system and its indexation over time; (f) Provision, easement and use of land; (g) Provision of other complementary services (fuel, utilities, interconnection); (h) Governing laws to be used and the provision of a system for resolution of disputes (by discussion, referral to an expert or arbitration); and (i) Transfer of ownership of the assets and the end of the agreement. Project Preparation 16. Although a PSC requires a much lower level of engineering work than a turnkey or construction contract, it still requires considerable analysis, and experienced advice is highly important. The lack of adequate preparation and specifications have been the key factors for serious conflicts and even large overpayments in PSCs valued at billions of dollars - which could have been avoided by using a fraction of I % of the project cost for adequate preparation of the specifications and the IFB. The key parameters that require defining are: (a) adequate location and land availability. This may involve complex environmental and social problems that can create substantial delays and would be desirable to solve in advance; (b) demand analysis: this would require, for example, a sound analysis of traffic and destination, power supply and demand, are optimal and feasible completion times, interconnection with other systems under construction or preparation, etc.; (c) technology required, including the number of lines, elevated vs ground level transportation, optimal fuel for power plants (based on the lead time available, a least-cost plan or a desire to establish a robust power system less vulnerable to increases or shortages of one fuel). However, care should be taken to avoid detailed technologies that may unnecessarily restrict competition. Prequalification of Bidders 17. The success on PSCs is often dependent on the adequacy of equity contributions by project proponents. This is because these projects are generally financed on a project finance basis, and the loan repayments are guaranteed only by recourse to the project's assets (non-recourse or limited recourse financing). However, many infrastructure assets are permanent, cannot be sold for other purposes, and typically do not include land ownership - so recourse may be more on paper than on the reality. The assessment of the bankability of such projects is not based on the strength of the balance sheet of the owner as in traditional loans (in fact, a new company without any previous financial history may be established for a PSC), but in the risks associated with the future cash flows. 18. A well-designed qualification process would substantially enhance the quality of proposals, since the bidders would be assured that the process would be thoughtful and that the cost associated with tendering a serious proposal would be worthwhile. A prequalification would require the proponents to detail their experience in constructing similar contracts, describe how the proposed system would be operated, and identify the proposed equity sources. The amount of equity should normally exceed 20%, but is larger (30%) for longer construction projects (given the need to pay interest during construction). However, the prequalification, being partially subjective, may require - 75 - Annex 3 - Page 6 the establishment of a multi-agency committee or the support of independent consultants. Invitation for Bids 19. One of the major problems facing the government is the presentation of unsolicited proposals, which do not correspond to an official request. The primary concern in such cases revolves around their technical viability and the fairness of their price (which cannot be compared with other proposals). Such proposals should therefore be rejected and converted into a formal IFB. 20. A recent phenomenon in (for example, in the Philippines) has been the presentation of well-intentioned, low-price proposals from proponents that may have the technical capacity to do the works, but lack the required equity to obtain the additional financing. This can create serious problems to the utility because other proponents may be deterred by frivolous but low-cost proposals. These proposals are generally presented by promoters who hope that - once they obtain a signed contract - they will be able to extract rents and commitments from other interested parties. In addition, since it is impossible to get the financial package ready at the time of the contract award', it may take months to confirm the financing, resulting in substantial delays in the required projects. 21. Therefore, a prudent period (three to six months) will have to be given for the contract to become effective and for providing substantial guarantees and penalties (for example $15- 20/kW for low-cost power generators or 10% of the value) in case the project is not completed in the agreed timetable. The contractor, however, will not provide these bonds until it is rather sure that it will be able to achieve a financial closing. As a result, there may be requests for postponement and, in case that the contractor is unable to provide the performance guarantee, another contractor would be needed. However, this may require another bid, and could result in a delay of more than one year in completing the project, with serious implications in the needed services. To further ensure that only serious bidders participate, a performance bond guaranteeing the proposal should be added to the conditions (0.5% to 2% of the estimated cost of the contract). 22. In the United States some utilities conduct consecutive negotiations with the three top proponents - a strategy designed to exact a better price and to facilitate changes that would be mutually beneficial. However, such negotiations do not necessarily yield the best proposal, could promote corruption, and would in most cases result in accusations of preferential treatment by the losing bidders. A more transparent strategy would be to conduct a question and answer period about one month before receiving the proposals. In such a forum, questions and suggestions from proposed bidders could be considered and, if convenient, used to clarify or modify the specifications. Evaluation of Proposals 23. The most critical component of the IFP is the selection and evaluation criteria. If the bidding conditions are clear and the draft PSC contract has been prepared carefully, there is going to be little or no need for negotiations. The IFB should include a simple format for presentation of the proposals, which would allow their clear comparison and evaluation. It is therefore very important to establish an optimal payment system; otherwise, each bidder will request a different system, making comparisons impracticable. The requirement for using dollars for foreign expenditures and local IIn fact, the award and the conditions of the contract will become the major instrument in getting financing. - 76 - Annex 3 - Page 7 currency for local expenditures would largely reduce the uncertainty in comparing proposals in different currencies to be paid during a 10-30 year time frame. Typical systems include: (a) For Power or Water Supply: (i) monthly capacity fee/kW covering the debt service and normally not indexed; (ii) monthly fixed O&M fee/kW; and (iii) variable cost per kWh delivered. Items (ii) and (iii) are normally indexed with consumer prices for local costs and with an international index for the foreign costs; and (b) For Transportation: (i) fixed fee; and (ii) variable fee per passenger (or car) or passenger-km. 24. If the project requirements are clearly defined, the evaluation of proposals would simply require the comparison of the present value of the charges during the contract period as well as other separated operational expenses (for example fuel cost at the specified heat rate), using the discount rate used for project analysis in that country. 25. If the project requirements have not been defined clearly, and there has not been a prequalification, it may be necessary to complete a combined technical/economic evaluation, giving about 50% of the points to technical and financial matters and 50% to the present value of the payments. In any case, it is very important to ensure that critical specifications are complied with (for example minimum heat rate (a lower or higher performance will affect the cost and ranking of proposals), required insurance, performance bonds and guarantees). In this case, the evaluation would equal weighting to technical aspects (experience with the proposed equipment and in the operation and construction of similar plants) and financial aspects (financing capacity, proposed equity level, degree of financial commitment, credibility of proposed financial plan). 26. The minimum rate of return that a bidder will consider acceptable varies for each country, but will generally be higher (20%-30%) than the discount rate acceptable to the government. In addition, it is likely that the interest rate for project finance in a country is higher that the interest rate for the government. Therefore, unless the proposed efficiency of the PSC is much higher than the utility, the price for the PSC would be higher and, if competition is limited, it may be much higher that say a turn-key contract followed by a management contract for operation. - 77 - Annex 4 - Page 1 Thailand Private Sector Participation and Improved Efficiency of SEs Legal Issues Legal Issues 1. There are a number of legal issues affecting the government's plans to promote greater private sector participation in the state enterprise sector. In this annex, attention is focussed on some key aspects of the macro legal framework for private sector participation and divestiture. Regulatory issues are treated in Section 6. This analysis is not intended to be exhaustive, and specific legal issues affecting individual enterprises will be analyzed in the respective privatization studies. (A) Proposals for a Corporatization Law 2. Thailand's Seventh Plan includes plans to convert the state enterprises (SEs) into corporate forms. The conversion process is typically effected by means of a corporatization law. The rationale for and general principles upon which a corporatization law could be based are explained below. 3. Rationale. The fundamental purpose of a corporatization law is to provide the legal structure to convert the SEs from their current statutory form into a company constituted under Thailand's Civil and Commercial Code. The corporatization process is typically based on the following principles: (a) Non-commercial responsibilities (i.e., policy, social and other non-profit oriented) should be separated from trading SEs; (b) The principal objective of SE managers should be to operate them as successful business enterprises; (c) Managers should be given responsibility and be kept accountable for decisions on the use of inputs and on the pricing and marketing of outputs within the performance objectives agreed with the Council of Ministers; (d) The special advantages (or disadvantages) that SEs have, including unnecessary barriers to competition, should be removed so that commercial criteria may be used to provide a fair assessment of managerial performance; and (e) Individual SEs should be reconstituted on a case-by-case basis in a form appropriate for their commercial purposes, under the guidance of boards of directors comprising, where possible, members appointed from the private sector. 4. On the basis of these principles, corporatization legislation should provide for: (a) The establishment of SEs as separate legal entities constituted as ordinary companies under - 73 - Annex 4 - Page 2 Thai company law; (b) Ownership of shares in these new entities to be held by the governement (including the right to subscribe for and hold new shares). The legislation may also need to incorporate restrictions on the power of the company or the directors to sell or dispose of the shares except with Cabinet approval; (c) Transfer of assets, liabilities, contract rights, powers and privileges previously held by the state or the SE to the new state companies; (d) Provisions relating to accountability; (e) Provisions relating to the separation of social services (e.g., education and welfare) from business activities; (f) Provisions relating to the state's power as owner of the business and its relationship with management; and (g) In certain matters, effective discrimination against SEs (in contrast with the public sector) by subjecting them to audits by the government Audit Office (sometimes jointly with private sector auditing firms) and exposure to parliamentary questions and criticism. Form and objectives of corporatization law 5. Corporatization legislation typically takes one or other of the following forms: (a) Case-by-case corporatization in which the statute, decree or other founding document is individually amended so as to effect the conversion of that SE into company form; and (b) Umbrella legislation in which a comprehensive legal framework for the conversion of SEs generally into corporate form is provided for. 6. In countries where there are a large number of SEs -such as Thailand - experience suggests that the umbrella approach is preferable. Its advantages are: (a) It tends to reduce potential elements of controversy. Debate is issue, rather than enterprise, specific. Attention is focussed on what is essentially a technical framework for facilitating legal change rather than on the merits and demerits of corporatizing individual enterprises; (b) The umbrella approach enables the government, at whatever time of its choosing, to bring a particular SE or group of SEs within the scope of the legislation. The corporatization law is a facilitating statute. It provides a mechanism for allowing corporatization to take place, but says nothing about the specific entities to be corporatized or when or how or why this process should occur; and (c) The umbrella corporatization law approach encourages similar treatment for all SEs. It results in a harmonization of principles relating to objectives, directors and accountability across the state sector and, therefore, leads to efficiencies in public sector management. - 79 - Annex 4 - Page 3 It should also serve to create an expectation or a climate of opinion as to what a SE should be working towards. 7. Particular objectives that should be pursued in the corporatization process include: (a) Labor reform, which is generally regarded as difficult if not impossible within existing general state employment structures, but is frequently made more achievable by the separation of the government itself from the decisions of the boards of directors and management of SEs as employers; (b) The separation of employer functions into business units and the devolution of authority to boards of directors with full business responsibility helps to insulate politicians from the inevitable protests that will accompany the reform of labor practices and the elimination of excess employment situations. The corporatization process will also enable substantial internal level reorganizations to be carried out within SEs without turning each local or business dispute into a national political dispute; (c) Removal of the government from the subsidy and capital injection requirements and exposure of the businesses formally carried out by placing those entities under the more independent legal and financial footing of a separate corporation. Subsidies will need to be specifically approved for mandated activities that are not profitable, and capital injections would, in time, be replaced by internal cash generation and loans; (d) Improved scrutiny of returns on investment and requirements for new capital or subsidies is facilitated by the creation of normalized capital structures and management information systems, enabling analysis of business performance and justification for new investments; (e) Introduction of new management information systems, management systems and accounting for assets; (f) Additional expertise at the policy level through the appointment of boards of directors supported by the business community and senior management; and (g) Establishment of enterprises or functions into discrete elements suitable for sale as business units. A corporatization law is not a privatization law 8. It is important to note that privatization should not be viewed as an objective of corporatization. In fact, the corporatization law should specifically prohibit ministers as owners of the shares in the new state-owned companies and the company and its directors from selling such shares except on such terms as the government may determine. At the same time, the corporatization process should be implemented in a way that will not frustrate subsequent decisions to divest, either wholly or partially, a particular state entity if such divestiture is regarded as desirable. The corporatization law should also avoid undermining the regulatory regime - particularly any sector-specific regulation. Hence, the corporatization law should avoid undermining the fundamental principles of a divestiture program, which include: - 30 - Annex 4 - Page 4 8.1 an assessment on a case-by-case basis of the benefits and desirability of transferring government businesses and commercial assets to private ownership; and 8.2 as an overriding objective of business sales, the need to obtain the maximum contribution to the economic welfare of citizens by ensuring that any statutory restrictions on competition are removed and that sales revenue is maximized. 9. The three criteria against which the government might wish to measure any proposal to divest itself of an SE might be: 9.1 the government should receive or benefit more from the sale or disposal of the business than it would from retaining ownership, bearing in mind the risks attached to continued ownership; 9.2 the sale of a particular business should not impede the government's economic and policy goals, but should contribute to them; and 9.3 the sale of a particular business should not impede the government's social goals, but should contribute to them. 10. The framework against which the circumstances of individual sales should be assessed include: 10.1 all SE businesses after corporatization should be managed on the basis that they are to be made ready for the possibility of transfer to private ownership in due course; 10.2 where it is decided to transfer SE businesses and commercial assets to private ownership, a high degree of ownership and control (preferably majority ownership and control) should be transferred; 10.3 shares in any SE business sold to private owners should have full and normal shareholders rights attached to them; 10.4 competitive strengths imposed on, and advantages granted to, state-owned businesses should, as far as possible, be removed before they are sold to the private sector, unless they are necessary for the normal operation of the business. The nature and extent of any remaining constraints or advantages should be announced as part of the specifications for sale; 10.5 where commercial activities have not been formed into businesses, the transfer of individual assets should be considered so that the government may avoid the risks and costs associated with reconstruction of such commercial activities; and 10.6 the timing and method of the transfer of the state's interest in any business or commercial asset should be determined by the government, which will also undertake each sale. A competitive sales process should be employed in selling businesses or commercial assets. - 31 - Annex 4 - Page 5 Content of a Corporatization Law 11. The corporatization law should include at least the following four parts: 11.1 Part I, Principles. This includes the key objectives of a SE (other than its principle sectoral objective), the role and qualifications of directors, responsibility of share holding ministers, and provisions relating to the conduct of non-commercial activities; 11.2 Part II, Formation and Ownership of New State Entities. Provision should be made for the subscription of and the holding on behalf of the state entity by the Minister of Finance and/or other appropriate officials of shares in the new companies to be formed. It would also include a prohibition or restriction on the sale of the shares and powers of the new shareholders by the ministers or directors in relation to the corporatized state enterprises; 11.3 Part III, Accountability. This part would require the preparation of a statement of corporate intent or similar planning document setting forth the information required for a corporate business plan. In addition, provisions relating to the publication of annual reports and accounts, issue of dividends and the type of information that should be laid before Parliament; and 11.4 Part IV, Miscellaneous Provisions. Provision should be made for the formal transfer of assets and liabilities from existing SEs to the new state-owned companies and other miscellaneous consequential provisions. This includes a mechanism whereby the government can, by regulation or order, cause a SE to be brought under the scope of the law, and thereby be subjected to the process of corporatization. (B) Amendment of SE Laws to Allow Private Sector Participation 12. One of the features of several of the laws governing individual SEs is the provision of monopolistic rights and the prohibition on private sector participation in the sectors in which such SEs presently operate. This required, for example, amending the EGAT law so as to permit private sector participation in the power sector under certain terms and conditions. With other SEs, other methods to avoid such restrictions have been adopted but, in the long-term, all SE sectors should be opened up to the private sector. 13. As in the case of corporatization, there is considerable merit in enacting a general law that would essentially provide that, notwithstanding any provision to the contrary in any law, the restrictions on private sector participation are repealed. Such a law could be drafted quickly and should be relatively non-controversial. It could also be drafted in such a way as to apply only to those SEs that the government from time to time considered appropriate for freeing up to the private sector. (C) BOO and BOT Projects 14. In March 1992 the government passed the Royal Act on Private Participation in State Affairs. The effect of this legislation was to formalize the internal government approval process required for projects valued at one billion baht or more in which private sector participation was desired. In - 82 - Annex 4 - Page 6 essence, it regulated the approval of BOO- and BOT-type projects. The process appears satisfactory, but it is important to ensure that the approval procedures set out in this Act are applied efficiently and fairly so as not to discourage participation by the private sector. 15. It appears from Article 8 that the Act only applies to those projects in which the SE, Ministry, or other project owner/initiator desires private participation. The implication appears to be that if the concerned SE does not wish to involve the private sector in its operations, it need not do so. This assumption, if it is correct, is unfortunate. It should be the other way around. We recommend that when projects are requested for NESDB approval, a justification should be given of why it may not be desirable to involve the private sector by joint venture, concession or other means. (D) Competition Law 16. A general competition law is an important element in the overall regulatory framework. A number of countries have adopted such laws recently (New Zealand, Mexico, Jamaica). Although Thailand has price-fixing and anti-monopoly legislation, the provisions of the relevant Acts do not apply to goods and services provided by the SE sector. As there was no competition within the SE sector, there was no need for legislation to protect the consumer from the excesses of competition. This state of affairs may change when competition between utilities or from the private sector begins. If the government's initiatives to free up the SE sector are successful, private independent operators will emerge and an element of competition will be introduced, requiring the enactment of a competition law. To some extent, existing and future regulatory controls will check anti-competitive behavior, but it may be necessary to go further. At this stage, it is not suggested that the government should take any particular steps, but it would be prudent to flag this issue for the future. (E) Labor Issues 17. In many countries, the main resistance to privatization has come from SE employees. Their concern centers around the perceived risks of unemployment and to the threats to their salary levels, pension entitlements and severance payments. These issues would be very important for any substantial divestiture. We recommend a strategy that would identify and resolve such concerns before they become too divisive and intractable. Opposition by employees and trade unions to privatization can be significantly reduced if the government has the foresight to put in place, ahead of the privatization of a SE, measures that will ensure the fair treatment of employees and further ensure that displaced or transferred employees do not suffer financially from the process. 18. This is very important for designing severance packages, w,hich should ensure that all employees whose employment is terminated receive fair and equal treatment, and that employees of one SE are not perceived to be treated more favorably than others. A policy that anticipates such difficulties, and provides appropriate solutions and that can be introduced well in advance, will be critical for the success of the government's strategy for increasing private sector participation. At present, upon termination of employment, all employees in the SE sector receive one month's salary for each year of service. In addition, where the termination results from retirement or occurs without fault on the part of the employee, a lump sum equal to six months salary is also payable. In this content, the government might consider a number of measures such as: - 33 - Annex 4 - Page 7 (a) Increasing the present severance pay basis from one month to, for example, one-and-one- half months per year of service; (b) Guaranteeing retention of the bulk of SE employees (which should be easy in several cases given rapid SE expansion). Staff close to retirement may be given a "golden handshake"; and (c) Grandfathering existing salaries and benefits. 19. Pension Benefits. At present, it appears that there is no right to transfer service among SEs. This is another issue that could be usefully explored with solutions proposed well in advance. The recent example of the creation of a provident fund scheme by Thai Airways and Krung Thai Bank is instructive. Existing employees of those institutions were given the option of remaining within the existing pension scheme or transferring to the new provident fund, while all new employees were required to join the fund. This seems applicable to other SEs. In th.s context, another issue that needs to be addressed concerns the funding of existing pension entitlements. It appears that SE pension obligations are not fully funded. This is not yet a problem since the government stands behind such obligations. Once the SEs become substantially privately-owned, however, it will be essential to ensure that the SE/company is able to meet its pension obligations. Given the financial implications and potential sums involved, it is highly desirable that this issue be addressed in the near future and that the financial statements of SEs obtain an actuarial analysis of these liabilities. This should be incorporated in the general accounting for all SEs. A detailed analysis of pension issues is provided as Annex 11. Annex 5 - Page 1 - 84 - Thailand Private Sector Participation and Improved Efficiency of State Enterprises Privatization - Capital Market Aspects (A) Introduction 1. Thailand has one of the most dynamic stock exchanges in the Asia region. Markcet Capitalization As of May 31, 1994, the total market capitalization of the Stock Exchange of Thailand (SET) amounted to Baht 3,063.5 billion, $121.1 billion, compared with $1.0 2 5 billion in 1980 (Figure 1). As of December 31, 1993, market capitalization stood at Baht 3,325.4 billion, more than double the market capitalization of a year earlier - Baht 1,485.0 billion. The dramatic growth of the Thai stock market is all the more remarkable given the fact that stock exchange was formed only in 1974. Not only is the SET one of the IssIes S 1,92 largest emerging markets, it is also the eighteenth largest market in the world when measured in ter-ms of market capitalization, FiGre 1 and seventeenth largest in terms of listed companies. 2. The dynamic growth of the stock market is due to several factors, including rapid economic growth during the 1980s, a favorable environment for foreign investment (both direct and portfolio), a relatively stable political climate for investment, prudent fiscal and monetary policies, and an open economy. The liberalization of the foreign exchange market in recent years has also played a key role in attracting foreign portfolio investment. Despite the recent sharp increase of share prices, future prospects for capital market in Thailand are Number of Listed Companies bright. The Thai economy is projected to grow twice as fast as OECD economies, and Indo-China represents a new opportunity for further grovth. In addition, the capital 3_ market has not yet fully realized its potential. Measured by a ratio of stock market _ ___l capitalizationlGNP, Thailand reached 100% 0l - putting the country on a par with other developed markets such as the USA, Japan .oc and the UK - only in 1993. A year earlier, so this ratio in Thailand was only 56%. The bond market, contractual saving institutions 0 '00 9990 1992 (insurance, provident funds, and social securities), and mutual fund industry are still in the early stages of development. At the Figure 2 end of 1992, total assets of the insurance industry amounted to Baht 63.0 billion. Total assets managed by eight fund management companies stood at Baht 84.3 billion. Total assets of the 708 provident funds were Baht 20.6 billion (see para. 15). With Annex 5 - Page 2 - 85 - rising incomes and the appropriate policy changes, Thailand should be able to mobilize substantial long- term domestic resources through contractual savings institutions. A growing capital market and an increase in the number of institutional investors will facilitate the privatization of the major state enterprises (SEs). Because of the lack of government bonds (due to fiscal surplus), there is a demand for fixed income securities which can be tapped by the SEs. (B) The Capital Market 3. The capital market in Thailand is robust and relatively broad based. Da i I y Average Turnover Va I ue The main segments of the capital market are the: (a) stock market, wvhich is the largest _ and most developed segment; (b) mutual fund . industry, which has become a major player with the licensing of new fund managers in early 1992; (c) bond market; and (d) contractual savings industry (provident funds and insurance companies). These are discussed below. Stock Market ,90s '908 1s90 1192 5'1994 4. As of December 31, 1993, market capitalization stood at $130.5 billion. The number of listed companies on the SET Figure 3 rose from 77 in 1980 to 347 in 1993 (Figure 2). Eleven new companies were listed during January-May 1994, increasing the total number of listed companies to 358. The annual turnover on the SET in 1993 reached Baht 2,201 billion ($87 billion), and daily average turnover of over Baht 9,000 billion per day is quite common (Figure 3). The SET Index on May 31, 1994 stood at SET Index 1,356.9, which represents a slight fall from the end of 1993 (1,683), but a substantial la_: increase over the end of 1992 (893) (Figure _ __l__ _= 4). The latest run-up in the index was due _ _ __ mainly to the influx in foreign portfolio 1 2__ investment from the USA, Japan, and __' European countries. Net foreign portfolio investment has increased dramatically from $118 million in 1992 to $2.2 billion in 1993. o Foreign portfolio investment reportedly increased further during October 1993. It is02 estimated that abouj 25% of the shares of C 2 a 4af _ listed companies are held by foreign 1906 1900 1990 1992 52-994 investors. The stock market has become a major source of investment capital for Figure 4 companies in Thailand. The capital mobilized by the listed companies in 1993 amounted to about $1.2 billion, compared with $25 million in 1980 (Figure 5). 5. The following table compares the performance of Thai stock market with that of several neighboring countries as of December 31, 1993: Annex 5 - Page 3 - 86 - Table 1: Market Indicators Country Market Listed Valuation Capitalization Companies ($ bil) P-E Ratio P-BV Ratio Div Yield Thailand 130,510 347 27.5 4.7 1.5 Indonesia 32,953 147 28.9 3.1 1.3 Korea 139,420 393 25.1 1.4 0.6 Malaysia 220,328 410 43.5 5.4 1.0 Taiwan 195,198 285 34.7 3.9 0.8 Source: International Finance Corporation. Bond Market CapitaI Mobilized by Quoted Companies 6. Unlike the stock market, the size of bond market in Thailand is small (Figure 6). This is due to several reasons. so_.__ The main reason is that conservative fiscal policy management has resulted in a fiscal 0 surplus amounting to $10 billion over the last five years. Robust economic growth has also contributed to a surge in government revenues. As a result, the government has not been issuing new securities, and has retired more than half of the outstanding issues (Figure 6). The outstanding debt of the 1966 166 196 169 9 1 central government (both domestic and - external) has declined steadily. Until late 1992, the issuance of debt instruments by Figure 5 corporations listed on the stock exchange was restricted by the Public Company Law, and private companies were prohibited from issuing bonds to the public. As a result, the total volume of bonds outstanding has been declining since 1989. 7. The amendments to the Public Company Law and Commercial Codes in late 1992 enabling the corporate sector (both listed and private) to issue fixed income securities have led to an increase in the issuance of bonds and convertible bonds. In 1993, 16 firms issued debentures with warrants attached totalling Baht 21.8 billion to local investors. Another 23 firms have issued convertible debentures in the Euro-market totalling about Baht 69.3 billion. In addition to the regulatory changes, the other main factor contributing to the recent interest in the bond market has been the demand for fixed income securities by the mutual fund industry. Some of these funds have been set up as fixed income funds and therefore need to invest in either bank deposits or other fixed income securities. Furthermore, the overall decline in interest rates has made it more attractive for the corporate sector to issue straight bonds or convertible debentures rather than to borrow from domestic banks (Figure 6). 8. The market for the bonds of corporations and SEs in Thailand has good growth potential. In comparison with countries like Korea, Taiwan, and Singapore, the corporate bond market in Thailand is just beginning to gain momentum. Preliminary data indicate that corporate bonds account for about 50% of total bond issues in Korea and 20% in Taiwan. Recent trends indicate that the market is gaining momentum and that the policy measures undertaken by the Royal Thai Government - such as the establishment of the Thai Rating and Information Services, Co., Ltd. - will facilitate the appropriate Annex 5 - Page 4 - 87 - pricing of new issues in the future and contribute to the overall development of the Government 6Dnds Outstanding bond market. 9. While the total bond market '°o _ _ __i has shown little growth over the last few years, the composition of the bond market has changed dramatically (Figure 7). As recently /- as 1991, government bonds constituted the overwhelming majority of bonds outstanding. However, in that year, state enterprises issued so __ bonds worth Baht 37.0 billion, and their share of the bond market began increasing. Consequently. by June 1994, state enterprise bonds outstanding amounted to Baht 171.2 billion, or 54% of the total outstanding of Baht 312.6 billion. By contrast, government Figure 6 bonds outstanding fell have been falling steadily and stood at Baht 92.3 billion in June 1994, or about 30% of total bonds outstanding. Domestic corporate bonds have become significant only in the last year or so, rising from almost nothing in 1992 to Baht 49.2 billion by June 1994, or 16% of total outstanding bonds. 10. By encouraging SEs to issue more bonds, the government can reduce its budgetary outlays required to finance the rapidly increasing capital expenditure of the SEs - particularly the public utility SEs - in the next few years. In addition to meeting the funding requirements of the above- mentioned SEs, the securitization of the debt of these SEs can enhance their market exposure (in the areas of accounting, auditing, and disclosure requirements) and prepare them for future privatization. An added benefit for accelerating the growth of the bond market through SE bonds would be the additional flexibility for the Bank of Thailand in conducting its monetary policy through open market operations. 11. Although the primary market for Bond Market Breakdown corporate bond market has begun to develop, there is practically no secondary market in these instruments. In order to fully develop the bond 100 market, the government will need to create an active secondary market. This will include the 220 creation of a broker/dealer network for SE | securities. Consideration should be given to a mechanism for providing liquidity to market makers, as the amounts involved could become 0 H / >l sizeable. The availability of timely market information will also be essential. Furthermore, a secondary market will require an efficient clearing and settlement system for trading securities. These a .-*c* are areas which require further study. Figure 7 Mutual Fund Industry 12. As of October 30, 1993, total funds managed by the mutual fund industry in Thailand amounted to Baht 125 billion, consisting of 29 local funds (Baht 84.4 billion) and 14 foreign funds (Baht 41 billion). Until February 1992, the mutual fund industry consisted solely of the Mutual Fund Company of Thailand (MFCT), a subsidiary of the Industrial Finance Corporation of Thailand (IFCT). MFCT was established with the assistance of the International Finance Corporation (IFC) and has been a pioneer in Annex 5 - Page 5 - 38 - this industry, especially in the flotation of the foreign funds in the early years. In 1992, the mutual fund industry was deregulated and seven new fund managers were licensed under the following conditions: (a) the applicant must be a financial institution with a sound financial condition with joint ventures with other companies; (b) a minimum registered capital of Baht 100 million; (c) the funds must be of the closed-end type with a maturity of 5 years; and (d) the fund must be able to mobilize no less than Baht 1.0 billion. The mutual fund industry comes under the supervision of the SEC. Funds are also required to have Trustees and Custodians that are approved by the SEC. 13. Within a period of one year, seven new fund managers have been able to launch 20 new funds and to mobilize Baht 61.6 billion from the public. This success stems from the ownership structure, which comprises major commercial banks and international fund managers. The tax benefits for the mutual fund industry are pirobably the most generous in the world. Both dividend and capital gains are tax exempt and the mutual funds also pay a lower brokerage commission (0.3% vis-a-vis 0.5% for others). Initially, these funds were not popular with Thai investors and most of them sold at a discount as large as 20% below net asset value (NAV). However, these funds are considered local funds and are not subject to the 25 % foreign ownership limit for most of the listed companies. The liberal ownership limits and deep discounts made mutual funds attractive to foreign portfolio investors. With the recent increase in stock market prices and greater public awareness about the advantages of mutual funds, the discount has narrowed and, in most cases, the funds are trading close to their NAVs. Given that only 400,000 Thais own securities, the potential growth for the mutual fund industry is tremendous, and it is likely to become the third largest type of financial segment after commercial banks and finance and securities companies. Contractual Savings Industry 14. While the mutual fund industry has experienced dramatic growth, the growth of the contractual savings industry (pension funds, provident funds, and insurance companies) has been fairly modest and has thus far played only a modest role in capital market development. The mission was able to carry out an analysis of the pension and provident funds which is presented below. The coverage of the insurance industry is limited, and comments are based on the review of secondary information. 15. Pension and Provident Funds. Pension plans in Thailand consist of defined benefit plans (pension plans of the government and SEs which have not been corporatized) and defined contribution plans (the Provident Fund (PF) for the private sector and some SEs which have been corporatized or partially privatized). The government's pension plan is not funded and the annual pension payments have been met from the budget. The SEs are required to allocate 10% of their revenues and keep these funds in separate bank accounts for meeting pension liabilities. The investment of these funds is restricted to bank deposits in approved banks. The private sector pension plan is governed by the Provident Fund Act of 1987. Employers and employees are required to make contributions, with employers typically contributing 10% and employees 3.5%. Annex 6 discusses the pension plans in detail and makes specific recommendations for their improvement. Jn this Annex, we will discuss the role of the pension plans in developing capital markets and privatization. 16. As of September 30, 1993, there were 708 provident funds covering about 400,000 employees. Total assets of the funds amounted to Baht 20.6 billion. The size of the provident funds has increased 20 fold since 1985, reflecting growth in the number of plans and rising income. Contributions of up to Baht 10,000 are free from tax. Although the number of PFs and the size of their assets have increased dramatically, there is ample potential for further growth. At present, PFs cover only 400,000 Thai workers, or 3% of the active work force. By comparison, 10% of Filipino workers are covered - and the Philippines has only half the per capita income of Thailand. Therefore, the potential growth of PFs and the role which they can play in the equity market could be substantial if policy changes were made in the PF Act and in the number of fund managers. 17. The composition of assets as of September 30, 1993 was as follows: (i) bank deposits Annex 5 - Page 6 - 89 - and CDs issued by banks (60%); (ii) CDs of finance companies (25%); (iii) stocks (9.9%); and (iv) government securities (5.1 %). The total amount invested in the stock market amounted to about Baht 2.0 billion ($800 million), or about 1 % of the market capitalization. The Provident Fund Act allows for investment of up to 25 % of the portfolio in equity, but plan sponsors and provident fund managers have opted for a more conservative allocation and for low risk instruments of financial institutions. Given the long-term requirements of the PFs, a higher allocation in equities (40-50%) would be more logical. It is recommended that asset allocation decisions be left to the plan sponsors and asset managers. The PFs are currently managed by 16 approved managers, but three managers account for about 75% of total assets. The rationale for limiting the number of fund managers is not very clear under present market conditions since other actors such as mutual fund managers, banks, and insurance companies are capable of performing this role. It is therefore recommended that the Ministry of Finance consider relaxing this regulation and allow other institutions wnich meet the stipulated criteria. There will be more incentives for new managers to promote PFs. Another operational matter which should also be left to the market participants is the level of fees for fund managers (currently stipulated at 10% of revenues of the funds). The setting of fees should be left completely to the market. One strong fiscal incentive is the amount of contribution that can be deducted by an employee. This amount is currently set at Baht 10,000 and is not indexed to inflation. If the objective of the government is to accelerate the increase of long-term savings, then it may wish to consider raising this limit to say 15% of earned income with a total ceiling of Baht 30,000. This threshold should be reviewed within the overall fiscal context. (C) Regulatory Framework i 8. The passage of the Securities and Stock Exchange Act (SEA) paved the way for fundamental changes in the way companies raise funds and in the way that the stock exchange is run. The SEA was enacted by the Thai government on March 16, 1992, and became effective on May 16, 1992. The Act provides for more transparent, efficient, and effective enforcement and supervision of the securities business in an effort to enhance investor protection. The SEA changes the securities environment in the following ways: (i) The supervision of securities activity is now unified under one institution, the Securities and Exchange Commission (SEC). This provides for more effective and efficient supervision; (ii) The SEC is now responsible for regulating and supervising the primary market, while the secondary market is left to the SET. All companies that offer shares to the public must file for and gain SEC approval before an issuance of securities and then must also disclose sufficient information; (iii) The SEA recognizes instruments like convertibles and warrants. It further clarifies the definition of both short- and long-term debentures. Furthermore, the concepts of investor representatives and trustees are introduced. The SEA also recognizes the futures and options markets, but a separate bill will be required for the supervision and regulation of these activities; (iv) The SEA lays the foundations for various securities related organizations; (v) The mobilization of funds from the public by the issuance of equity instruments is limited to only public companies, while debt instruments can be issued by both public and private companies; and (vi) The SEA has introduced the concept of private funds as a new type of securities business. It also allows non-securities companies, especially commercial banks, to conduct limited securities business. Commercial banks are allowed to underwrite debt instruments issued by both government and private corporations. Annex 5 - Page 7 - 90 - 19. Public offerings may be made following approval from the SEC. Those wishing to make the offerings must disclose information as required by the SEC. Public offerings are supervised by using the "Approval and Filing System", as follows: (i) Those wishing to make public offerings must submit an application form rzquesting permission to make public offerings; (ii) A firm may proceed with a public offering if the SEC has not made an objection within 45 days of filing information regarding the reasons for offering new or existing shares; (iii) A prospectus is needed for public offerings; and (iv) The SEC has the authority to grant exemptions to certain rules. Issuers making private placements for institutional investors or for investors not exceeding 35 persons are exempted from an issuance of a prospectus. 20. Private companies. As for private companies, the regulations under the Civil and Commercial Code apply. In most cases, these require that all new shares of private companies are issued in the form of a rights issue. Shares are offered solely to the existing shareholders in accordance with the number of shares held, and the issue price must not be lower than the par value. (D) Institutional Aspects Organization and Administration 21. According to the SEA, the SET is a non-profit juristic organization under the supervision of the SEC. The SET is the only stock exchange in Thailand and has a single trading floor in Bangkok. It is composed of 40 securities companies. The SET's operation is chiefly financed by listing fees, member payments, and fees or charges for acting as the securities registrar of listed and other companies. In addition to administering the trading floors and monitoring the activities of all traded securities, the SET processes all listing applications, and can act as paying agent for dividends and issues, acting as registrar. 22. An 1 1-member Board of Governors presides over the SET. Five members are appointed by the SEC and another five are elected. The president of the SET is appointed by the Board and serves as an ex officio member of that body. The Board formulates policies and supervises the Exchange's operations. Certain rules and regulations prescribed by the Board have to be approved by the SEC. Only member companies of the SET are authorized to buy or sell securities on the SET. Membership is limited to securities companies licensed by the SEC to engage in the securities business as stock brokers, and membership must be approved by the Board of Governors of the SET. As of May 31, 1992, there were 40 members of the SET. 23. There are two types of companies that trade on the SET: listed and authorized. Listed shares are generally for larger and long established firms, while authorized shares are for relatively small companies. There are significant requirements both prior to and after listing. The SET replaced its floor trading system in April 1991 with a fully computerized trading system named ASSET in an effort to make trading more orderly, equitable, liquid and efficient. This has facilitated the rapid expansion of the trading volume of the SET. Stocks traded on the SET are cleared and settled by the SET. The SET has employed a multilateral netting system since 1982. For the settlement system, all traded securities in the SET are settled by a rolling settlement on T+3 days in accordance with the recommendations of the Group of Thirty, where T is the trading day. Annex 5 - Page 8 - 91 - (E) Foreign Portfolio Investment 24. Foreign portfolio investment has increased substantially since 1986, and accelerated during 1993. In 1993, net foreign portfolio investment increased to US$2.2 billion from $118 million in 1992 (Table 2). Thailand has been officially encouraging portfolio investment since 1988. Foreign investors may invest directly in the SET or invest through on-shore or off-shore funds. According to the SEA, on- shore funds are foreign funds registered abroad; however, their investment plans are registered and approved by the SEC. Fund managers of on-shore funds must be Thai companies. On-shore funds are not subject to foreign ownership restrictions. Off-shore funds are mainly foreign funds registered aborad and are treated as general foreign institutional investors and, therefore, are subject to foreign shareowner restrictions. However, due to restrictions on foreign ownership, foreign demand for certain Thai securities has far exceeded the shares available for foreign investors. 25. The placement of equities by Thai entities in industrial country financial markets has been limited. Although international equity placements by developing countries surged from $1.2 billion in 1990 to $9.4 billion in 1992, the issuances by Thai entities have remained at around $100-200 million in recent years. Selling a portion of the shares of the large public utility SEs in the American private placement market or listing them on several industrial country financial markets through Global Depository Receipts could reduce the burden on the domestic capital market. The growth of international placements has been greatly facilitated by rule 144A of the U.S. Securities and Exchange Commission (SEC) enacted in June 1990. 26. Direct foreign investment is permitted in most economic activities. Foreign portfolio investment is generally limited by a particular company's memorandum or articles of association. Consequently, foreign ownership is limited to 25% - the limit established for most listed companies - f- almost every issue. 27. Foreign exchange controls have been liberalized since 1988. At present, foreign capital inflows need not be registered as previously required. Repatriation of investment funds, dividends and profits as well as loan repayments and interest payments thereon, net of all taxes, may be made freely. Commercial banks are authorized to approve the purchase of foreign exchange for remittance abroad without limit. Upon a sale of securities, the stockbroker or custodian bank will calculate the capital gains tax payable based upon the purchase information, debit and credit contract note, as specified in the BOT Notices to be announced. 28. Income from investing in the SET is subject to both capital gains and withholding tax. However, for individual investors (both domestic and foreign), capital gains from securities traded on the SET are exempt from income taxes. Foreign institutional investors, in general, are subject to withholding tax on the dividend and interest income earned from securities investment unless they are exempted under double taxation treaties. As of May 31, 1992, Thailand had tax treaties with 25 countries. Through the tax treaties, some foreign institutional investors can enjoy the privilege of tax-free capital gains. The United States does not have a tax treaty with Thailand. However, most country funds are registered in a country with a tax treaty. Annex 5 - Page 9 - 92 - Table 2: Foreign Investment in Financial Instruments (US$ million) 1991 1992 1993 Jan-Jun 1994 Net foreign portfolio investment 22.8 117.6 2,245.0 657.2 Inflow 225.2 333.5 3,108.0 821.7 Outflow 202.5 215.9 863.0 164.5 Net private capital flow 9,920.3 7,607.9 12,562.9 112.6 Inflow 31,734.8 46,437.8 110,792.5 110,099.6 Outflow 21,814.5 38,829.9 98,229.6 109,987.0 Source: Bank of Thailand. (F) Privatization 29. Although the government has selected 15 SEs for privatization, it probably would be more effective to start with four or five SEs which are efficient, profitable and attractive to both local and foreign investors. The potential candidates are EGAT, MEA, TOT, and PTT. As of September 30, 1993, the combined net worth of these four companies amounted to Baht 147.0 billion ($5.9 billion). Assuming a price/book value of 4, total market capitalization of these four companies would be roughly Baht 588.0 billion ($23.5 billion), or 19.2% of the capitalization of the stock market. The Thai Airways issue of 95 million shares in 1992 was offered at 2.9 times book value and a 16 times P/E ratio based on 1992 projected earnings. However, the market valuation has recently increased sharply, with average price/book value of 4.7 in 1993. Table 3: Selected Indicators for 4 SEs Profit Net Worth Price Market (mil Baht) (bil Baht) /book Value (bil Baht) EGAT 12,412 68.7 4.0 274.8 MEA 2,041 19.1 4.0 76.4 PTT 6,824 24.1 4.0 96.4 TOT 11,254 35.1 4.0 140.4 Total 147.0 588.0 Market Cap (5/30/94) 3,063.5 Total as Percent of Market Capitalization 19.2% Note: Financial inforn.ation of the SEC as of September 30, 1993. 30. As the amount involved for the four SEs is very large, the market (notwithstanding its recent sharp increase) may not be able to absorb such a large amount of new securities in one go. However, it should be able to absorb 5-10% of the securities of the above companies with proper preparation of the Annex 5 - Page 10 - 93 - market and its participants. Consequently, an alternative approach such as the simultaneous offering of shares of these companies internationally and the issuance of bonds will ensure the success of such an offering and help expand the market for Thai securities. The offering of preferred shares and convertible securities should also be considered to attract foreign institutional investors. The 15 utilities should be encouraged to raise resources from the market through the issuance of bonds and reduce their reliance of commercial bank financing. The availability of the SE fixed income securities will facilitate indirect monetary policy management, i.e., open market operations. (G) Conclusions and Recommendations 31. The mission carried out a review of potential problems in offering securities of these companies in the market. Since all four companies are operating profitably, they will most likely meet all the listing requirements of the SET and should have little difficulty in complying with the disclosure requirements stipulated by the SEC. The basic problem is that these enterprises have to be converted into corporate entities under the Public Company Act. This may take time, as all associated issues will need to be addressed. Some of the key issues are discussed here. First, these companies will have to be audited by independent auditors in accordance with generally accepted accounting standards. Most of these enterprises do not follow geDerally accepted accounting principles concerning the treatment of foreign exchange gains/losses. Unrealized foreign exchange losses are shown as other assets on the books of some enterprises. Accurate valuations by market participants without the benefit of independent audits of the SEs would be a difficult task. Second, the valuation of the underlying assets of these enterprises to reflect prevailing market prices may need to be considered to adequately reflect the value of the enterprises. Third, contingent liabilities related to pension obligations would need to be properly reflected. It is recommended that an actuarial analysis be carried out for each enterprise by qualified actuaries. Once the SEs are converted into public companies and, with proper audits carried out, the underwriters should be able to handle the offerings. Fourth, the treatment of present employees could be partly addressed in the offering of shares. The case of Thai International Airways and the Krung Thai Bank can be used as models with some modifications. Up to 5% of shares were offered to the employees at par. Such an arrangement appears reasonable provided that the employees are required to hold the shares for a certain period of time (two years). 32. EGAT has recently set up a subsidiary company, EGCO, to take over a 1,200 MW power plant in Rayong. Total investment is estimated $800 million. With a debt/equity ratio of 3: 1, the equity base of the EGCO would be about $200 million. Fifty-one percent of the shares (about $100 million) will be offered to the public in late 1993. EGCO will be managed by ex-EGAT staff. The experience to be gained under the EGCO transaction will be useful for pricing future issues. 33. In order to meet the main objectives of its privatization effort, Thailand should take additional measures to accelerate the development of a domestic mutual fund industry, bond market, and contractual saving industry, especially a provident fund industry. There is also strong demand for fixed income and equity-linked securities of Thai companies in the international market. Therefore, a combination of domestic and international financing would enable the effective privatization of the SEs. Loncerted efforts should be made to further develop the bond market.' The Thai bond market is being studied as part of the Asian Bond Study expected to be completed in June 1995. - 94 - Annex 6 - Page 1 Thailand Private Sector Participation and Improved Efficiency of SEs Legislative Strategy for the Telecommunication Sector 1 There is a need to restructure the telecommunications sector and supersede the 1934, 1954, and 1976 acts to make the sector more competitive and efficient. 2. The 1934 act gives the government exclusive rights to provide telephone and telegraph services in Thailand. The need to provide adequate value-added services has led to the adoption of BTO (build-transfer-operate) contracts, which are of uncertain validity. 3. Legislation should be enacted to: (i) eliminate the reservation to the government. Sections 5 and 6 of the 1934 act should be superseded by a statutory provision making it illegal for any person to provide telecommunications services for hire within the territorial jurisdiction of the kingdom (land, water, and space) without a license from the government.' Government communications for the sole use of government entities would not be within this prohibition; (ii) centralize the enfranchising authority in that regulator; and (iii) supersede Chapter 5 of the 1934 act with a new statutory chapter establishing an independent regulator, who would succeed generally to the remaining powers of the Director-General (Governor) in Chapter 2 of the 1934 act. 4. Regulation. The independent regulator - whether an individual or a collegial body, i.e., a commission - should be so constituted as to have the attributes of: (a) independence; (b) objectivity; (c) stability; (d) finality; (e) transparency; (f) timely response to competitive forces; and (g) subject to judicial control. 5. To assure independence from political influence, the commission should be composed of individuals appointed for fixed, staggered terms from outside the government. They should be removable from office only for cause, and their salaries should be protected from diminution or curtailment during their respective terms of office. As a transitional measure, it might be deemed politically desirable to have a minority of commissioners from the government serving ex officio. This transitional device should terminate no later than the privatization of TOT and CAT, and preferably should terminate no later than their corporatization. The non-governmental members should be nominated by the government and approved (confirmed) by the parliament or an appropriate body thereof. 6. The commission should be empowered to hire staff experts at pay levels competitive with private industry. The commission's budget would be approved by the government, and its operations would be financed by a charge fixed annually, for say, 0.05%, against the annual gross revenues of i/ Section 7 should be amended to require a license from the regulatory authority for telephone or telegraph service not for hire only beyond the operator's own premises. - 95 - Annex 6 - Page 2 licensed providers of telecommunications services for hire and by any fees for processing applications charged by the commission. 7. Transparency would be effected by applying the principles of "government in the sunshine" to the commission's operations. These principles imply that the commission would act only after notice to the public, for example, in the Royal Gazette, giving interested parties an opportunity to offer their views orally and/or in writing, as determined by the commission. The commission would be required to decide questions and adopt regulations based on the public record and to disclose the reasons for its decisions, and parties with financial interests in adjudicatory decisions of the commission would be barred from attempting to influence the commissioners "off the record," i.e., in private. The commission would be precluded from enforcing unpublished procedures, policies, orders, or rules. government policies would be conveyed to the commission only on the record, and the legislation might provide for a designated individual, viz., a public advocate, to argue or otherwise advance the government's policies before the commission. 8. Actions of the commission would not be limited to orders affecting single parties. The commission should have the option of proceeding by regulation or by order on any given issue, whichever it deems more efficient and effective. Commission regulations would become effective upon adoption by the commission and their resultant publication in the Royal Gazette. 9. Decisions of the commission would be final, except in instances where the statute provided otherwise. As an example, it might be deemed politically necessary for the statute to provide that certain evolutions in sectoral structure or manner of regulation - prior to privatization - be a recommendation of the commission to the government, with the Cabinet having the power to approve or to reject, but not to modify the commission's recommendation. Any decision or rule of the commission could be appealed to the courts by a person with a legally cognizable interest therein. Upon such an appeal, the court would be limited to determining whether the procedure and decision of the commission was not arbitrary and conformed to the law. The court could dispose of the appeal only by affirming or reversing the commission's decision and not by modifying it. The taking of an appeal would not delay implementation of the commission's order or rule, unless the commission or the court so ordered in a specific appeal. 10. Franchises. The commission would have the power to issue and enforce franchises or licenses for all telecommunications services. Assignment or transfer of control of these authorizations would be subject to prior approval by the commission. In consonance with the spirit of Section 77 of the 1991 Constitution, the commission would not issue exclusive concessions, although it might defer the issuing of multiple franchises in certain sub-sectors in accordance with a planned progression toward open competition throughout the sector. The matter of a staged progression is discussed more fully below. 11. TOT and CAT would also require franchises from the new commission, since their existing authority derived from Section 5 of the 1934 act would be invalidated by its supersession. TOT and CAT would be required to apply for franchises from the new commission, but their existing operations would be grand-fathered, i.e., they would hold continued interim authority until the commission had acted on their applications for new franchises. In any event, they would require new franchises as part of corporatization. - 96 - Annex 6 - Page 3 12. The rights of value-added providers now in operation under existing BTO agreements would be preserved until their expiration, but the statute would give such providers the right to elect to substitute a franchise from the new commission. Since it is contemplated that the franchises issued by the commission would have no revenue-sharing requirement, the existing operators would presumably elect to take new franchises from the commission. The commission would succeed, in any event, to the regulatory powers of TOT and CAT under the BTO agreements. 13. Rules of Competition. A principal duty of the new commission would be to adopt rules of competition. The most important of these rules of competition would be for non-discriminatory interconnection of networks. While providers would be encouraged to negotiate appropriate terms and conditions of interconnection, the commission would have the ultimate power to prescribe terms and conditions to foster expansion of competition and to protect the public interest in widely available telecommunications services at reasonable prices. This power is particularly necessary in the absence of a well-formed body of antitrust law. Where necessary to enforce the non-discrimination requirement, the commission should have the power to require that the terms and conditions of sales of services be published. 14. To further aid competition, the commission would have the power to adopt structural regulations to prevent cross-subsidization of competitive services by dominant providers such as TOT, to prescribe accounting safeguards, and to prohibit or regulate transactions with affiliates of dominant providers. 15. To implement its strategy for, and the progression toward, open competition, the commission should have the power to modify from time-to-time the restrictions on the use of leased lines, e.g., to allow resale and sharing, to prescribe charges for access by providers to the switched public network (PSTN), to advance public purposes, and to adjust restrictions on the interconnection of leased lines to the PSTN. The commission would also have the power to adjudicate complaints and disputes involving service providers and to issue judicially enforceable orders to its franchisees or licensees to implement such orders. The commission should be given the power to prescribe operational standards for telecommunications. The commission may also be given the power to promulgate and enforce technical standards with respect to equipment to be connected to the PSTN, although, alternatively, this power could be left with the Ministry's Post and Telegraph Department. The legislation should empower whichever agency has the power to enforce equipment standards to call upon other agencies of the government, e.g., the customs service, for aid in enforcement. The legislation would endorse international homologation of equipment standards. The telecommunications legislation should provide for transfer to the commission, or coordination with the commission, of pertinent frequency management responsibilities under the 1955 Radio Act. 16. The provisions of the 1954 and 1976 acts concerning tariff approval should be superseded by legislation giving the commission the power to regulate the prices for non-competitive services. Otherwise, the commission's only power to force reductions in, or rebalancing of, tariffs would be through the issuance of additional franchises. The transfer of authority should occur no later than the commission's issuance of franchises to TOT and CAT. 17. The intention would be for the commission to establish a track record in responsibly, stability, and predictably, exercising its full range of powers prior to privatization. In that way, upon - 97 - Annex 6 - Page 4 reaching the privatization stage, prospective strategic investors would have confidence in the operation of the regulatory scheme and would not be deterred from investing or would not discount their bids due to uncertain political risk. 18. Corporatization. The 1954 and 1976 acts should be repealed to effectuate corporatization in the near-term and ultimately privatization. Corporatization of TOT and CAT should be accomplished by reincorporation under the general law of civil corporations. These corporatizations would not necessarily be accomplished simultaneously, since CAT is likely to encounter competitive challenges sooner than TOT. The assets of TOT and CAT would be transferred to the respective successor corporations. It is the view of the mission that CAT cannot be successfully privatized with the postal operation attached, and it is recommended that the new telecommunications legislation provide that CAT's operations and assets under the 1934 Postal Act be separated out before or upon corporatization. 19. The stock of each corporation would be held by the Ministry of Finance as an investor. The new telecommunications statute, however, would provide for independent boards of directors - appointed to fixed, staggered terms, subject to removal only for cause - charged with preparation for privatization, and independent of micro-management by the Ministry. Privatization would be accomplished by amendments of the respective certificates or articles of incorporation in accordance with privatization plans prepared by the government according to the new telecommunications law in light of each corporation's need for a strategic investor at the time. Considerable flexibility would be retained as to how each certificate of incorporation should be amended with respect to the sale of additional shares to raise additional capital and with respect to the transfer of control de facto and de j1r. The commission would be required to approve any transfer of control of a franchise to any qualified operator pursuant to such a privatization plan. 20. The new legislation should contain specific provisions for the regulation of cable television, recognizing (i) the medium's emerging dual nature as both communications (mass media) and telecommunications; and (ii) the perception of a growing competitive convergence between cable and telecommunications services. 21. With the corporatization of TOT and CAT, some provision for their exercise of the power of eminent domain to obtain rights-of-way, etc., as now provided for in Chapter 3 of the 1934 act, would have to be transferred to TOT and CAT. The government might conclude that such power should be exercisable only on certificate of necessity from the new commission or from the PTD. New definitions and penalties would supersede those in Chapters 1 and 4 of the 1934 act.2 22. The mission strongly urges that a single legislative bill with provisions sufficient to enable the phased implementation of a comprehensive plan for sectoral restructuring and privatization be promptly enacted. While it might be theoretically possible to implement comprehensive sectoral restructuring and privatization through a succession of incremental legislative enactments, the mission perceives this approach as a highly risky one. The on-set of competition will likely follow an essentially pre-ordained progression of liberalization, which will result in liberalization of value-added 2/ The draftsman might resort to the ITU regulations and to paragraph 3 of the GATT annex on telecommunications for suggestive definitions. - 98 - Annex 6 - Page 5 services (VSATs), use of leased lines, and international services. These changes will come about through irresistible changes in technology in Thailand, in the international telecommunications market, and needs for private investment in the sector. The government of Thailand will not be in control of the timing of the extrinsic events. 23. The danger in enacting a limited 'fix" of only the acute legal problems of the present moment is that, later on, further legislation to deal with the on-rushing changes in the sector will become delayed in parliament, with the result that the government loses control of the situation or that the sectoral structure fails to adapt to market forces, to the detriment of the telecommunications infrastructure needed to achieve the nation's strategic objectives at the time. Psychologically, the contingency of future legislation will cause the state entities, that must be changing their organizations and operations in order to adapt to competition, to be distracted from the objective onslaught of competition, and will drag their feet in preparing for the inevitable changes until each successive legislative stage is passed. 24. The mission firmly believes that the only way to prepare for competition is by competing. Prices must be aligned with costs, and enterprise efficiency will increase only through competitive impetus. We reject as misconceived the proposition advanced in some quarters that strengthening state enterprises for competition can be predicated on an aggregation of market share through joint ventures. 25. The political objections to comprehensive legislation can be somewhat relieved, we suggest, by providing in the bill for a staged progression toward the inevitable endpoint of competition. Such staging is legitimately the subject of political control. It is important, however, that such political control respond to objective reality. One device that might be employed to achieve these ends is to provide legislatively at the outset for the entire progression of stages up to and including open competition, but provide that each phase become effective only upon decisions of the commission based on objective criteria or upon recommendations of the commission to the Cabinet. Objectivity might be enhanced in the latter case, as previously suggested, by narrowing the Cabinet's response to such recommendations to approval or rejection but not modification thereof. - 99 - Annex 6 - Page 6 Checklist of Legislative Elements Article 1 - Purposes of Act Article 2 - Definitions Article 3 - Creation of independent regulatory commission Article 4 - Powers and duties of commission re-licensing, tariff review, equipment approval, frequency management, right to gather information Article 5 - Appointment of commissioners, management, and staff compensation Article 6 - Funding of commission, e.g., by license fees Article 7 - All telecommunications services to be licensed; types of licenses; exemptions Article 8 - Application for licenses; processing; public notice and comment Article 9 - License terms and conditions Article 10 - Modification of licenses; assignrnent, suspension, revocation, and renewal Article 11 - Transfer of rights and liabilities of government operators to new companies; share issues; employee shares Article 12 - Licenses to be granted basic service providers; price control Article 13 - Transfers of employees to corporatized companies; condition of service; price control Article 14 - Rights-of-way; access to private property Article 15 - International agreements; non-discrimination; overriding national security interests Article 16 - Enforcement of act; violations; criminal and civil penalties; forfeitures and seizures; cooperation from other governmental departments Article 17 - Jurisdiction of courts Article 18 - Repeals of and amendments to existing laws; other transitional provisions. Source: Adapted from World Bank Discussion Paper, Telecommunications Sector Reform in Asia: Toward a New Pragmatism, by Peter Smith and Gregory Staple (1993 draft) - 100 - Annex 7 - Page 1 Thailand Private Sector Participation and Improved Efficiency of State Enterprises Privatization Studies 1. The government has undertaken several privatization studies for SEs (generally supported by ADB's grants). The status of these studies is summarized below. In general, these studies have looked at some privatization possibilities, but have not started by defining an appropriate sector structure or the interaction with the privatization plans for other SEs closely related to each other. Table 1: Status of Privatization Studies Name of State Enterprise Not Yet Being Ongoing Completed Started Contracted I 1. Airport Authority of Thailand (AAT) x 2. Bangkok Mass Transit Authority of Thailand (BMTA) x 3. Communications Authority of Thailand (CAT) x 4. Electricity Generating Authority of Thailand (EGAT) x x 5. Express T ransport Organization (ETO) x 6. Expressway and Rapid Transit Authority (ERTA) x 7. Mass Communications Organization of Thailand (MCOT) x 8. Metropolitan Electricity Authority (MEA) x 9. Metropolitan Waterworks Authority (MWA) x 10. Petroleum Authority of Thailand (PTT) x 11. Port Authority of Thailand (PAT) x 12. Provincial Electricity Authority (PEA) x 13. Provincial Waterworks Authority (PWA) x 14. State Railway of Thailand (SRT) x 15. Telephone Organization of Thailand (TOT) 2. Privatization studies should be conducted for each of the SEs. It is intended that most of the studies with regard to privatization or SE performance be completed by consultants hired by the respective SEs, in several cases financed by foreign grants. However, this may result in a conflict of interest (particularly when the SEs oppose the reforms) if the consultants are to be supervised and receive their instructions only from the SEs. It would be highly desirable that these studies be executed by the SEs in close collaboration with the respective ministry and MOF. Without such participation, the studies - 101 - Annex 7 - Page 2 may reflect only the views of the SEs and may not incorporate other macro considerations. In particular, there are three critical levels of participation: (a) reviewing the terms of reference to ensure that the required sectoral structure analysis is included; (b) reviewing the consultants' draft final report; and (c) participating in all meetings discussing the consultants' recommendations. For this purpose, it would be important that MOF contract two or three high-level specialists in the sector and its privatization to provide a review and comments on the consultant's studies. To assume this function, the SEID would require adequate staff. To date, only three studies (CAT, EGAT and MEA) have been completed, which are summarized below. (A) Communications Authority of Thailand 3. Key Findings. The Thailand Development Research Institute (TDRI) completed a privatization study in September 1993. The main findings are: (a) the present laws are not supportive of private sector participation in the sector; (b) the present build-transfer-operate (BTO) schemes are not efficient, resulting in higher costs to consumers; (c) CAT's tariff structure is not related to its cost structure and should therefore be rationalized; (d) CAT investments in advanced technology, especially those relating to its postal equipment, are low compared to investments in developed countries; (e) CAT's development planning capabilities are inadequate and should be strengthened; (f) CAT's main strengths are its good image in postal services, loyal, honest and competent staff and a strong financial position; and (g) CAT's main weaknesses are its bureaucratic rules and regulations, its lack of marketing skills, and inappropriate and obsolete technology. 4. Key Recommendatiorns to CAT. The recommendations to CAT management are: (a) strengthen CAT's marketing capability; (b) increase profitability by instituting financial management and accounting reform; (c) strengthen development planning by restructuring CAT's corporate planning, developing a comprehensive Master Plan, improving human resource quality, introducing automation and streamlining the organizational structure; (d) motivate CAT employees through an appropriate incentive structure; (e) invest in state-of-the-art technology where economically justifiable; and (f restructure CAT's tariff structure to reflect true costs. 5. Key Recommendations to the Government. The study's recommendations to the government are as follows: (a) develop a comprehensive long-term plan for the commnunications sector with a fixed time frame and clear targets; (b) the government should review its criteria for evaluating state enterprise performance. It should not tie CAT's bonus system to its profit making, but should re- establish the performance criteria of each SOE based principally on service quality; (c) establish a regulatory body to oversee competition and liberalize the telecommunications sector; (d) modernize the laws governing CAT to foster competition. 6. Schedule of Implementation. Within one year, CAT has to: (a) agree with MOF on an improved performance evaluation system and employee incentives; (b) strengthen marketing capabilities; and (c) hire consultants to advise CAT on cash management, financial planning and tariff structure review. 7. Within the next three years, CAT has to: (a) institute changes in its organizational structure to make it more competitive; (b) draw up a comprehensive Master Plan; and (c) restructure its tariff structure. - 102 - Annex 7 - Page 3 8. Within the next five years, CAT has to: (a) make its human resource development more proactive and businesslike; (b) improve its level of technology; and (c) reorient its management practice to accommodate private sector practices. 9. Pending Issues. Some major issues in the restructuring of CAT are: (a) Separation of postal and telecommunications services. This will likely to require some subsidies for postal services until sufficient investments are made in advanced technology, human resources are improved and tariffs are adjusted; (b) Relations between CAT and TOT. A new law should clarify the responsibilities of CAT and TOT and establish a regulatory body. Merger of CAT and TOT is not recommended; and (c) Corporatization of CAT. CAT should be corporatized as soon as possible to provide more flexibility to its management. (B) Electricity Generating Authority of Thailand 10. Key Findings. Ernst and Young completed an initial report in September 1991 that provided background information and recommended commercializing EGAT. The main findings of the report were: (a) the existing industry structure in Thailand is reasonable and there is no need to restructure the industry; and (b) however, three alternative organizational models were analyzed: (i) maintaining the status quo; (ii) establishing a corporate subsidiary. This was a transitional step to establish a basis for contracting power purchases from independent suppliers; and (iii) corporatizing EGAT, which was recommended as the most appropriate model in the long-run. l. Issues for Implementation. An additional report by Ernst and Young provided recommendations for the implementation of the commercialization of EGAT. Key issues identified (some of which had already been addressed) include: (a) Legal requirements: (i) repeal of the EGAT Act; (ii) ownership, transfer of assets and finances of the successor company; and (iii) legal framework for the successor company; (b) Regulatory issues include: (i) mode and objectives of the regulation; (ii) balance between simplicity, regulatory burden, clarity of objectives and economic incentives; (iii) adequate price restraint; (iv) rules to ensure fair competition in generation; and (vii) responsibilities of the regulator; (c) Contractual Issues and Agreements. The form and conditions for new key agreements have to be defined, as follows: (i) bulk power supply; (ii) power sales/purchase (with the utilities); (iii) energy exchange; (iv) large power sales; (v) gas purchase; (vi) coal purchase; (vii) heavy fuel oil agreement; (viii) HV connection agreement; and (ix) power purchase agreement (generators). These agreements include the sharing of risks regarding fuel needs, costs and supplies, environmental requirements and technological changes; - 103 - Annex 7 - Page 4 (d) Financial Issues. EGAT has to ensure that the finances of the EGCO subsidiary would allow raising the necessary non-recourse debt, while maintaining EGAT's financial viability; and (e) Organizational Issues. Changes in the unyielding employment conditions, functions of the Board of Directors in a commercialized EGAT, and potential revisions to EGAT's organizational structure. 12. Phase II Study. Two ongoing studies are dealing with increased private sector participation in EGAT: (a) an Operational Efficiency Study, in which Swedpower will provide recommendations for improvements in: (i) corporate planning; (ii) systems dispatch; (iii) organization; (iv) economic and financial systems; (v) human resources; and (vi) power system planning in the overall context of privatization; and (b) a study by Ernst and Young to prepare EGAT for conversion to a share-owned company and privatize it by floating its shares on the stock exchange, including: (i) improving EGAT's core organization structure; (ii) identifying subsidiaries to take over EGAT's non-core business activities; (iii) reviewing staffing requirements; (iv) analyzing financial implications of different of planned actions; and (v) assisting in contractual arrangement and implementation. (C) Metropolitan Electricity Authority 13. MEA commissioned KPMG Peat Marwick to conduct a privatization strategy study. The study, completed in December 1992, sought to examine MEA's operational efficiency and performance to: (a) provide recommendations for its total or partial privatization; (b) establish parts of MEA as joint public/private companies listed on the Stock Exchange of Thailand; (c) provide recommendations for increasing efficiency, productivity and revenues; and (d) identify areas where the private sector has lower cost structures or better incentive systems. 14. Key Recommendations. The recommendations of KPMG Peat Marwick are to: (a) divest the MEA Hospital; (b) establish a joint venture with the private sector for concrete pole production; (c) establish a subsidiary company for electrical design and contract wiring; (d) establish profit centers and cost centers with the support of a management organization; (e) rationalize billing and collection procedures; (f) reduce administrative staff; and (g) contract out services such as transport, security, cleaning, legal, public relations and building maintenance. 15. Schedule for Privatization. The timetable for the recommended changes was as follows: (a) Hospital - Divest operations in six months; (b) Concrete Products - Establish joint venture in 12 months; and (c) Commercial Department - Establish joint venture and list on the SET in 36 months. However, MEA has not been fully agreeable to the recommendations and this has delayed the implementation. - 104 - Annex 8 - Page I Thailand Private Sector Participation and Improved Efficiency of SEs Performance Evaluation and Incentive Determination 1. The criteria established for a performance evaluation system (PES) are critical to its success. Thailand has three performance evaluation and incentive determination systems: the basic bonus, good enterprise, and CEO base pay determination systems. 2. Basic Bonus System. The basic bonus system for Thai public enterprises, provides a maximum of 5 months salary as a bonus for all employees. For most enterprises the criterion is a very simple single- indicator system, with the bonus pool set at a maximum of 9% of accounting profit. That is, if 9% of profit is equal to 1/12 of the wage pool, employees receive a one month bonus; if 4/12 then they get 3 months; if 5/12 or greater, then they get 5 month. Six enterprises, however, are on a negotiated fixed bonus scheme, and two enterprises - The Bank of Agriculture and Agricultural Cooperatives and the Bangkok Mass Transit Authority - are evaluated under a multiple-indicator system (Figure 1). Figure 1: Variants of Basic Bonus System 1 Fixed Bonus System Months of Salaries 1. Govemrnment Lottery Bureau 3.75 2. Metropolitan Electricity Authority 2.00 3. Krung Thai Bank 4.00 4. Thai Airways International 3.00 5. Dhipaya Insurance Co. 3.00 6. Aeronautical Radio of Thailand 3.00 Multiple Indicator System 1. Bank of Agriculture and Agricultural Cooperatives a. The number of small and poor farmer customers b. The number of normal farmer customers c. The amount of loans given to customers d. Ratio of interest received to loans outstanding for each year e. Ratio of total cost (excluding interest paid) to average loans outstanding f. Net profits 2. Bangkok Mass Transit Authority of Thailand a. Target for revenue per bus per day for red buses b. Target for revenue per bus per day for air-conditioned buses c. Target for reduction of expenses per bus per day for operating buses d. Target for reduction of the number of operating buses (including reserves) e. Target for operational employees and non-operational employees f. Target for overall reduction of employees. - 105 - Annex 8 - Page 2 3. Figure 2 gives the bonuses earned by all enterprises for the four latest fiscal years.' There is high variance across companies and bonuses range from zero to five months; there is also low variance across time for most companies.2 That is, year after year, companies tend to earn very much the same bonus, be it low or high. These properties suggest a weak evaluation system. The high variance across companies - which is generally desirable - may be bad if it merely reflects differences in the external environments (technology, markets, prices faced by the enterprises). The stability of the company bonuses over time suggests a system that does not have strong incentive properties, as employees get the same bonus year-in and year-out. Shaikh notes problems with this list. The mean of the standard deviations by company is only .54, but the mean of the standard deviations by year is 1.63. - 106 - Annex 8 - Page 3 Figure 2: Performance Bonuses Earned (months) Enterprise 1989 1990 1991 1992 1. The Electricity Generating Authority of Thailand 5.0 5.0 4.0 3.5 2. The Mass Communication Organization of Thailand 3.0 2.7 2.9 3.0 3. The Textile Organization 1.0 0.0 0.0 4. The Glass Organization 0.9 1.0 0.7 5. Bangkok Dockyard Co., Ltd. 1.0 1.9 1.9 1.0 6. Krung Thai Bank Ltd. 4.0 4.0 4.0 4.0 7. The Government Savings Bank 3.3 2.3 1.9 8. Bank for Agriculture and Agricultural Cooperatives 2.0 2.7 3.1 3.9 9. The Government Housing Bank 5.0 5.0 5.0 5.0 10. Liquor Distillery Organization, Excise Department 5.0 5.0 0.0 5.0 11. Thailand Tobacco Monopoly 3.2 3.2 4.4 3.5 12. Playing Cards Organization, Excise Department 0.0 1.0 0.0 1.3 13. The Dhipaya Insurance Co., Ltd. 3.0 3.0 3.0 3.0 14. The Port Authority of Thailand 3.7 3.8 1.0 2.7 15. The Airports Authority of Thailand 5.0 5.0 5.0 16. The Communications Authority of Thailand 1.1 1.8 5.0 1.7 17. The Telephone Organization of Thailand 4.1 4.7 5.0 4.7 18. The Express Transportation Organization of Thailand 1.0 1.0 2.1 19. Thai Airways International Ltd. 3.0 3.0 3.0 3.0 20. The Transport Company Limited 2.2 1.6 1.0 1.0 21. Thai Maritime Navigation Co., Ltd. 5.0 5.0 5.0 5.0 22. Aeronautical Radio of Thailand Ltd. 2.3 2.3 2.3 23. The Forest Industry Organization 1.2 1.0 0.0 24. The Fish Marketing Organization 1.0 1.0 0.0 25. The Thai Plywood Company Limited 1.4 1.4 1.0 1.0 26. The Metropolitan Electricity Authority 2.0 2.0 2.0 2.1 27. The Provincial Electricity Authority 1.7 2.1 2.7 2.9 28. The Metropolitan Waterworks Authority 2.2 2.6 2.8 2.1 29. The Provincial Waterworks Authority . 1.0 1.0 1.0 1.0 30. The National Housing Authority 2.5 1.8 0.0 1.5 31. The Expressway & Rapid Transit Authority of Thailand 5.0 5.0 5.0 5.0 32. The Marketing Organization 1.3 1.1 1.5 33. The Police Printing Press 1.2 3.2 1.1 1.0 34. The Public Warehouse Organization 1.0 0.0 0.0 35. The Industrial Estate Authority of Thailand 3.4 5.0 0.0 36. The Petroleum Authority of Thailand 5.0 5.0 0.0 37. Sugar Factories Inc., Department of Industrial Works 1.6 2.2 0.0 1.4 38. The Government Pharmaceutical Organization 1.9 1.8 1.6 1.4 4. "Good Enterprise" System. The second performance evaluation system was designed to assist transition to privatization by giving the best performing enterprises the incentives of additional autonomy and prestige. The key dimension of autonomy is the authority granted to the managements to set the salaries of the staff. To qualify for "Good" or "Class A" status, the criteria are: (a) Remittances to the government in lieu of dividends of at least thirty percent of net profit for - 107 - Annex 8 - Page 4 public corporations3 and 40% for limited liability companies.4 Since the latter also pay corporate taxes, while the former do not, the asymmetry is even greater. (b) Return on investment (net profit over total assets at replacement cost) greater than six percent for other state enterprises and greater than 0.8 percent for financial institutions. (c) Labor's share of total costs (total costs include labor costs plus intermediate inputs plus depreciation) no more than: 10% for financial institutions; 15% for service and miscellaneous institutions; 20% for capital intensive firms; and 30% for promotional agencies such as the Tourism Authority. (d) Annual productivity increments greater than two percent. This is calculated as: (percentage change in output) - ((percentage change in number of employees) x (share of labor in total cost of labor, depreciation and long-term interest)) - ((percentage change in total assets) x (share of capital in total costs as above)). (e) Steps taken towards privatization. 5. System for Determining Base Salary of CEOs. The final evaluation system is that used to determine the base salary of chief executive officers. this again is a multiple indicator system, with the criteria and weights displayed in Figure 3. Improving the Performance Evaluation System 6. The key elements for improving Thailand's state enterprise performance evaluation system include unifying the existing systems, overcoming potential resistance by managers who may view the proposed changes as welfare reducing, changing the structure of incentives and the principles for selecting indicators for enterprises, and giving greater autonomy to better performing managers to set wage levels. 7. Strengths of the Existing Systems. Foreign observers are generally impressed with the performance of Thai public enterprises. There are many reasons for this performance, including: pricing policies, the quality of the people in the enterprises and the government, and the rapid growth of the economy as a whole. There is reason to believe, however, that the evaluation systems also play a role. Because of the Basic Bonus System, workers and managers in many companies have a pecuniary incentive to show a profit and it is not surprising that one results. Those organized under a special law. 'Those organized under the general commercial law like any other company, except that the government is the shareholder. - 108 - Annex 8 - Page 5 Figure 3: Criteria Determining Base Pay for Chief Executive Officers Criteria Weights (%) Financial Factors - Assets 10 - Revenue 10 - Net Profits 5 Sub-total 25 Non-financial Factors - Employees 10 - Monopoly/Competition/Semi 10 - Promotional/Non-promotional/Semi 5 - Area of Service Coverage 10 - Importance and Impact on Society 10 - Technology Intensity 10 - Rate of Expansion 10 - Number of Managed Subsidiaries 5 - Quality of Corporate Plan 5 Sub-total 75 Total 100 8. The "Good Enterprise" System is too new to have had an impact on the accounts, but it is clearly an intelligent and innovative step. It further sharpens the linkage between performance and incentives, particularly the grant of additional autonomy to the better performing managers. For years, students of performance contracting have been recommending that non-pecuniary incentives should be offered in addition to pecuniary ones, but Thailand is one of the very few countries to actually implement this idea. 9. Problems with Existing Systems. The present systems, though they represent a good start have certain weaknesses. The main limitations are explained below. 10. Indicators. (i) The same indicators are used for all PEs, (generally not a major problem, so long as the criterion values reflect different circumstances; however having five common indicators may be too rigid). Thus firm-specific issues are not reflected. (ii) Certain key indicators are excluded, particularly those related to quality of service, which is very important in monopolistic utilities. (iii) Certain indicators are duplicative: here the problem is compounded because the indicators are not weighted, which would reduce the negative behavioral implications of duplicative indicators. - 109 - Annex 8 - Page 6 11. The establishment of financial indicators is a critical component of any PES. Thus, it is important to apply generally accepted accounting principles (particularly for the valuation of existing assets, to reflect losses in foreign exchange and account for pension liabilities); also, with regard to SEs for which some divestiture is considered, it would be important to involve the private sector for audit purposes. It is important that the initial financial indicators be improved and revised over time: For example, total assets include current assets, but they may be financed by current liabilities. In addition, the return on assets is calculated after interest payments are made, which already include the interest remuneration for loans, and may be widely different because of government policies to force indebtedness instead of raising user charges. 12. Other indicators may also be reviewed: The return on assets is also highly dependent on the type of business and may not be meaningful for all SEs. For this reason, it is preferable to improve the profitability analysis by eliminating non-operational revenues (interest on unused cash deposits could distort the SEs profitability), and interest payments (which may be out of management's control and reflect excessive debts in lieu of subsidies or adequate fares). Similarly, investments and their depreciation are decided by the Government and cannot be controlled by management (this would also avoid penalizing new plants, with high depreciation or creating incentives for longer depreciation periods). If the opportunity cost of capital is then added to overall costs and results are divided by the fixed assets in operation, this would provide the public profitability and a better indication of SEs' performance. It may also be necessary to analyze the profitability by main subsidiaries or separate business units (PTT gas or EGAT lignite mining), to examine whether it is desirable to privatize separately. Therefore, the public profitability will require to add to the private profits the taxes, interest and depreciation, and to deduct non-operating income (interest, capital gains, foreign exchange losses) and an estimated opportunity cost of working capital. If inflation is relatively high (above 10%), it would be preferable to show profits in constant prices. As an alternative, it would be useful to use the rate of return on fixed assets used by public utilities. In this case, the rate of return is found by dividing the difference between operational revenues and costs (including depreciation) by the rate base. The rate base is the average of net fixed assets at the beginning and at the end of the year (gross fixed assets less accumulated depreciation). Typically the rate of return (using revalued assets) would be around 6%-9%. 13. Similarly, the wages-ratio component should be measured in relation to operational costs to avoid including non-operational and extraordinary expenses that may be beyond the control of SEs. The ratio of wages to operational expenses depends highly on the type of business and, while it may be lower than 10% for very capital intensive SEs (such as oil and power generation), it may be impossible to reduce them below, say, 40% for those that are more labor intensive such as water supply and telecommunications, or below 60% for the postal office. Further, the return on equity and the debt- equity ratio would be substantially affected if the unrealized portion of exchange losses is included as an asset, rather than deducted from equity, and it would be useful to separate long-term debt from current liabilities in computing the debt-equity ratio. In addition, the productivity index only measures labor, depreciation and interest (but the last two are almost beyond the control of management) and disregards other more important inputs for some SEs such as the cost of fuel (which may account for half of EGAT expenses) or purchased energy (which is three-quarters of MEA or PEA expenses). All these improvements are simple, but require additional data. 14. A main concern is that the proposed PES focuses only on financial indicators, which are - 110 - Annex 8 - Page 7 the key variables for private, profit-oriented enterprises, but are somewhat less justifiable for SEs, which should achieve other important objectives (which may constitute the only reason for the Government retaining them). For example, although the water, telephone and power companies should be financially viable, they should also provide reasonable services to the general public. While providing water or power to low income or rural areas is not profitable, it may be desirable for social reasons. Similarly, the housing authority may have an objective to make housing available to the low-income population and the bus company may have to accept lower fares in order to promote higher use of mass transportation and reduce air pollution. In other cases, lower levels of investments may reduce operational and capital expenditures and improve the financial indicators at the cost of system reliability. For example, a lower power reserve resulting from lower capital expenditures would improve financial results, but may cause power outages that could cost the economy many times the value of the forgone investments. 15. Measurement of Indicators: In some instances the manner in which the indicators are being measured is problematic. As currently measured there is not necessarily a link between the changes in the indicators and the underlying changes in efficiency, the ultimate objective of the scheme. For example, the indicators also hold managers accountable for events beyond their control e.g. net profitability (because based on purely accounting ways of measuring) and productivity (because includes long term interest and depreciation). On the other hand, managers can increase some indicators without actually increasing efficiency e.g. productivity can be increased by excessive use of inputs excluded from calculation. 16. Weights. No explicit weights are attached to distinguish the relative importance of the fine criteria for gradnating into category A. All five criteria are "minimum conditions" and need to be fulfilled absolutely. Once inside the system the implicit weights are equal as the bonus is reduced by 1/3 for non fulfillment of any of the indicators. 17. Targets (Criterion Values). Target setting is the scheme's key problem of the scheme. By fixing the Return on Assets (ROA) at 6 percent % there is no incentive for improvement once a company is ranked grade A. A firm with a ROA of 12% can decrease its performance and continue to remain in the A category. Similarly, by excluding firms that do not fulfill these requirements from the "Good Enterprise" system, there is limited incentive for turnaround. Typical Indicators 18. Although the evaluation of commercial SEs should rely mainly on financial indicators, a more comprehensive PES should be established for the SE utilities, based on four factors explained below for which typical indicators are listed: (a) Achievenment of the Government Goals for the Enterprise. Typical indicators include: the percentage of the population receiving services (water, power, telephones), number of houses built, percent of capital investment targets met, production of key services (water, number of passengers, number of lines and cargo, etc.), passenger-kilometers, kilometers per vehicle, percentage of the fleet availability, tons of cargo-kilometers. Other indicators are number of outages, percent of water samples passing sanitary criteria, percent of pending requests for connections on present customers, and percent power reserve capacity. - 111 - Annex 8 - Page 8 (b) Efficiency and Productivity. Typically these include the achievement of targets for unaccounted-for water, power or telephone calls (losses or non-billed services), availability (in working order) of buses or locomotives, number of days or percentage of accounts receivable, number of customers or items produced (tons of water produced, kWh generated) per staff, quality of service (duration of water or power outages, water quality, call completion ratio, wagon turnover) changes in the cost per unit of output (water, houses, kwh, main telephone lines, ton-km, passenger-km, etc), percent wages or administrative expenses to costs or revenues, net fuel efficiency for thermal plants. (c) Financial Performance. The financial indicators (which should try to exclude factors beyond management control, like the approval or denial of a tariff increase). In addition, it is better to use ratios that are substantially self-adjusted for inflation (like the working ratio). Typical indicators include the operating ratio (operating costs divided by operational revenues), the working ratio (operational costs excluding depreciation divided by operational revenues), rate of return on average fixed assets in operation (normally on revalued terms), percent of the investments that are self-financed, number of days of accounts receivable, debt service ratio and remittances to the Government. (d) Qualitative Objectives. These may include outlays in research, improvements in administration and training, adequate and timely financial projections and long-term planning. 19. Unification of Systems. Are three systems necessary? Or, should they be merged? A minor point here involves the Managerial Compensation Scheme. It is of course necessary to differentiate CEO base compensation by the size and importance of the enterprise being run. Most of the indicators address this issue, but several (profits, rate of expansion, quality of corporate plan) are really performance indicators. Our recommendation is that the latter indicators be dropped, thus maintaining a clear distinction between the determinants of base pay (size, importance and complexity) and those of the bonus (an increment to base pay, varying with performance). 20. The more important question is whether it is desirable to merge the Basic and Good Enterprise Systems. The Basic Bonus System is the most important, because it provides large enterprises monetary incentives for their entire labor forces. However, its criterion (profit) is a bit too simple and its performance indicators could be usefully expanded along the lines of the more sophisticated Good Enterprise System. On the other hand, the Good Enterprise System lacks direct monetary incentives and is a discrete "Pass/Fail" system that only provides useful motivation to a handful of firms at the top. 21. We, thus, recommend that the two systems should be merged into one, with "A-Grade" the highest of a five-step ranking. The merger would take advantage of the stronger features of each system, while eliminating the weaker. Each step would be associated both with higher bonuses and greater autonomy. The details of how this would be accomplished are spelled out in the next section (tactics), after discussion of additional "big picture" strategic issues. 22. Political Feasibility. Merging the two systems and making bonuses sensitive to performance would increase the variance of the bonus payments so that some enterprises and their employees would earn more than at present, but others could earn less. In most countries it would be - 112 - Annex 8 - Page 9 politically difficult to introduce a new evaluation system that makes a significant number of workers worse off. If so, then solution is to raise the mean. This can be accomplished by adding the new bonus to the historic bonus (say, the average of the previous three years). Alternatively, the old bonus could be converted to a one-time wage increment. Either way, the important factor is not the mean, but the variance with performance. Workers who receive pretty much the same bonus year in and year out soon began to view it not as an incentive for special performance, but as part of normal compensation for normal performance. A well designed system puts continual pressure on even the best enterprises to do even better. Further, it places equal attention on the enterprise at the top and the bottom of the performance distribution. If one firm reduces losses by $10 million that is as good as another increasing profits by $10 million. 23. In sum, the critical need is to motivate all employees in all firms to do better every year. If it is necessary to raise the base wage a bit in order to make this acceptable, it is a small price to pay. 24. Incentives. Incentives are central to any contracting system; without them contracting is just a paper exercise. The three forms of incentives now in use should be incorporated into the new system and consideration given to adding two new ones. 25. Under the proposed system the first incentive would, as now, be monetary, with A-rated firms receiving, for example, 5 months bonus and E-rated firms 0 or I month (the precise details would need to be worked out). The CEO and board members would receive a percentage of their base pay. The rest of the bonus would go into a bonus pool which the CEO could distribute uniformly or individually, depending on his/her management style. 26. A second, non-monetary, incentive would instill professional pride by recognizing jobs well done. Annual rankings should be published in the newspapers, with special recognition for the CEOs of the best firms. One difference from the existing system is that all firms would be affected, thus spreading the incentive much more widely. Note that this and other non-monetary incentives are probably more effective at the higher levels of enterprises, while the monetary incentives have relatively more impact at the bottom. Both are necessary to motivate the entire workforce. 27. The third incentive would mix monetary and non-monetary factors by granting increased autonomy to higher ranking enterprises. The non-pecuniary incentive is that good managers are happier with more autonomy. If this autonomy is used to increase wages, then there is a pecuniary element as well. Unfortunately, granting increased autonomy is not as simple as granting bonuses or recognition. We will therefore have more to say about this in the next section on Tactics. 28. Two additional forms of incentives should also be considered. First, after firms issue shares on the stock exchange, stock options should replace bonuses for senior managers. There is a danger that managers rewarded primarily for this period's performance may not pay enough attention to the long-run health of the company. Although the evaluation system described below attempts to deal with the problem, offering stock options is superior. The other critical incentive is that the enterprise's ranking should be a major factor in hiring, firing, and transferring senior managers. 29. Principles for Selecting Indicators. If something like the strategy suggested above is adopted, the next step would be to develop a detailed Performance Reward System. This will entail a - 113 - Annex 8 - Page 10 considerable amount of work. A host of questions currently being asked in Thailand need to be answered. Four general principles should be followed in developing the system: Fairness to Enterprises: The measures should be fair to the nation in that they only go up when the nation is better off. Fairness to Management: The measures should be fair to management in that they respond primarily to factors within their control. Parsimony: Only primary, bottom-line criteria that measure what the owner really cares about (e.g. profit) should be included. Secondary criteria that have no independent value outside of their contribution to a primary indicator (e.g. sales) should be excluded in the Performance Reward System. However, these indicators are valuable for establishing the targets and for ex-post review of performance. Violation of this precept means unwarranted intervention in management prerogatives because it means going beyond setting goals to telling managers how to achieve those goals. Synunetry (Non-duplicative): In selecting criteria, all benefits and all costs should be included once and only once. A dollar saved from cutting costs is just as good as a dollar gained from increasing output and should be rewarded equally. 30. These very simple rules have proven to be quite powerful in deciding the indicators to use and how to measure them; they lead to four types of indicators: Static Efficiency: measures such as profit and productivity that measure the operating efficiency of the enterprise during the period in question). Dynamic Efficiency: planning, training etc., whose costs occur now but whose benefits occur in the future and thus would be neglected if only profit were rewarded. Project Implementation: in instances where enterprises have major on-going projects. Other non-duplicative indicators such as: non-operating returns, privatization, restructuring, quality of service, etc. 31. While criteria other than profit and productivity certainly have a role, that role is limited by two considerations. First, profit/productivity should receive the bulk of the weight for all but promotional institutions. Second, anything that is already rewarded because it is included in current profit, should not be further rewarded by giving additional credit. This would violate the principle of symmetry. 32. Autonomy Specification. A legitimate concern with the current Thai system is the potential for abuse of autonomy. Thus, an important technical task will be specifying autonomy levels in a way that does not create perverse behavioral incentives. To take an extreme example, what if an A-rated firm used its autonomy to raise wages by 50 % and this then dropped the firm to a D-rating the following year? - 114 - Annex 8 - Page I 1 This problem is significantly reduced by moving to five autonomy categories rather than two, because gradations are smaller. However, difficulties remain. What is needed is careful specification of autonomy levels with due consideration to the problem of time consistency. 33. Figure 4 identifies possible autonomy levels for each of three different wage setting decisions. The first row says that an E-rated firm receives no wage concessions, but is governed by the existing system. Column 1 then shows how autonomy might increase for the setting of the average annual wage increment. D-rated firms can raise wages at the rate of increase of the consumer price index (CPI), with prior approval of the government. C-rated firms can raise wages at the sum of the rate of CPI increase plus the increase in total factor productivity (TFP), again with the ex-post approval of the government. B-rated firms can raise wages at the CPI plus TFP rates, without government approval. Finally, an A-rated firm can raise wages freely, but increases beyond the CPI plus TFP rate are temporary raises that are removed if the firm falls by one rating class in subsequent years (they might be made permanent if the firm retains its rating for three years). The second column shows autonomy levels for the structure of wages (the first column only dealt with the level of average wages, not how they are distributed amongst different classes of employees. Here, considerably more autonomy is warranted for all classes of enterprises. D-rated firms might be free to redistribute the annual increment; C-rated firms might be free to restructure wages with government approval: and B & A-rated firms should be free to restructure wages as they see fit. l__________________ Figure 4: Possible Wage Control System Grade Limiit on Average Structure One Time Annual Increase of Wages Realignrment E Existing System Existing System Existing System D CPI Redistribute Increment Existing System Pre-Approval C TFP + CPI FREE With Study Post-Approval B TFP + CPI FREE Wth Study Post-Approval A FREE but excess over FREE Not Applicable CPI + TFP temporary (already granted in until A grade column 1) maintained for 3 subsequent years Notes: CPI Consumer price increase (rate of increase) TFP Total Factor Productivity (rate of increase) 34. The final column of Figure 4 deals with the issue of allowing a one-time increase in the basic wage for firms that have fallen well behind the market. Here the figure suggests that D-rated firms remain under the existing system; C-rated firms can raise wages with a study and government pre- approval; and B-rated firms can do so with post-approval. A-rated firms are already granted freedom - 115 - Annex 8 - Page 12 in this regard by column 1. 35. It should be stressed that these suggestions are only suggestions and should be modified after careful study. They nonetheless provide a starting point for the analysis. Other categories of autonomy need to have similar matrices developed. For most decisions considerable autonomy should be granted to all enterprises (e.g. procurement). For a very limited number of other decisions, some government control would be desirable even for A-rated firms (e.g. major investment decisions). There is considerable international experience with multi-divisional and multi-national firms that suggests that decision areas should have more and less control. However, consideration of local conditions would lead to modifications by a Thai committee. 36. Next Steps. How are these various elements of the strategy to be developed, operationalized and implemented? The following steps would need to be undertaken: The first step would be a high-level policy decision on general principles, at the level of detai! of this report. The second step would be the establishment of a unit at the Ministry of Finance with sole responsibility for performance contracting. International experience suggests that this is a full time job, even though there are seasonal peak periods. How large should such a unit be? The current "Good Enterprise" system relies on outside consultants to do much of the actual evaluation work and this precedent should be adopted in the new system so as to allow the core staff to be of modest size. Six to twelve well trained professionals should be adequate. Their jobs would be to develop and maintain a Performance Contracting Policy Manual, to negotiate contracts on behalf of the government, to select and control consultants to do the intermittent work, to monitor performance and to produce periodic reports. The third step would be to train unit members and selected enterprise and consultant staff in Performance Contracting methodology. There is a lot to be learned from international experience and no reason to rediscover the wheel. This training would have to be organized by the Ministry of Finance and cover the whole range of issues such as: specification of objectives; identification and measurement of the different classes of indicators for specific enterprises; an approach to assigning of weights; informational requirements and rules for target-setting; adjusting for price controls and non-commercial objectives; monitoring and review; award of incentives; publication and dissemination of results, etc. Tlae training workshops will be organized by the Performance contracting Unit and conducted by international experts. In addition, the higher level staff of the Unit may visit countries with on-going performance evaluation systems such as Korea, Mexico, Pakistan ,etc. The fourth step would be to integrate international experience with Thai conditions and produce detailed Performance Contracting Manual Guidelines for the selection of company-specific indicators, weights, targets, specify various dimensions of autonomy, structure of incentives, etc. This work will be performed by the newly established Performance Contracting Unit with the help of international and local consultants. - 116 - Annex 8 - Page 13 The fifth step in the process (simultaneous with the fourth step) will be the preparatory work undertaken by the enterprises for the performance contract negotiations. This work, undertaken by the enterprises, possibly with the assistance of the Finance Ministry Unit (and consultants) will update the information base (that is already quite good in Thailand) and prepare corporate plans that reflect the medium-term goals and possibilities of the enterprise and form the basis of the negotiations for the annual performance targets. The sixth step would be negotiation of contracts with relevant enterprises. The preliminary negotiations will be conducted by the Unit staff, supported by outside consultants (at least in the initial years) and the representatives of the enterprises. In the final round of the negotiations, depending upon the importance of the enterprise, higher level officials (e.g. Minister or Secretary) will complete the negotiations with the Chief Executive of the company. A seventh step might be the introduction of a standardized performance information system to monitor progress, do all quantitative computations on a standardized basis, and produce comparable reports for all enterprises. If this approach were chosen, the staffing pattern would be closer to 12 rather than 6 individuals for the unit. 37. Timing and Coverage. Equity requires that an evaluation system be in place prior to the year being evaluated. In order to accomplish this before FY1995, a great deal of work must be accomplished in a short period of time. To make this feasible, it would be desirable to include only a limited number of enterprises in the first year. It takes almost as much work to evaluate a small enterprise as a large enterprise, so most of the benefits can be obtained5 with only a fraction of the work. For example, including only the largest 14 companies would generate 855 of the benefits, with only about 30% of the work.6 Remaining companies could be added in the following year. ' As measured by sales. 6 Fourteen enterprises constitute 23 percent of the number of companies, but because they are large will take a little more work, say 30% of the total. 9~~~~ 2-~~~~ - 4 OD Li I~~~~~~~L 2~~~~~~~~~~~~~~~~~~~~~~~~~o Annex 9 - Page I Thailand Private Sector Participation and Improved Efficiency of State Enterprises SEs' Financial Results and Indicators - (Million Baht) Consolidated Financial Results by Categories for 1989-93 Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. 15 PUBLIC UTILITIES 1989 366839 249874 116965 189826 160202 29624 50670 6580 3013 203355 1990 433995 288853 145142 230255 190539 39716 64522 9335 4545 211773 1991 512390 321679 190711 277280 226477 50803 111861 11696 5558 200803 1992 580406 355328 225078 297492 243351 54141 114711 17295 6007 205924 1993 695396 413938 281458 296944 248940 48004 243216 1,537 11181 200242 COMMERCIAL/INDUSTRIAL SEs 1989 93610 63322 30288 77916 66548 11368 5783 3867 533 42899 1990 106161 71282 34879 89555 78489 11066 15170 3114 940 44519 1991 115563 76437 39126 98623 88356 10267 25296 3624 723 48228 1992 144801 97377 47424 99895 90836 9059 33670 4801 2 47007 1993 152491 99504 52987 106534 94333 12193 24687 4629 2137 49646 FINANCIAL SEs 1989 422792 397946 24846 38784 35506 3278 9448 711 0 28917 1990 492984 462788 30197 51972 48092 3880 506 877 0 31894 1991 597730 562988 34742 66689 62309 4380 25 104 0 33994 1992 657942 614182 43760 70111 61678 8433 2126 367 0 36878 1993 760908 707780 53128 84039 78117 5922 1639 513 0 38918 OTHER SEs 1989 7224 1787 5437 13177 11835 1342 430 2733 986 5374 1990 7121 1846 5275 11758 12267 -509 461 2678 1566 5545 1991 7588 2116 5472 13703 13823 -119 1148 3338 1968 4986 1992 8070 2164 5906 16859 16895 -36 787 4230 2381 5984 1993 7793 2221 5572 17861 18163 -302 2717 4131 3824 6412 OTHER PUBLIC ENTERPRISES 1989 11583 9535 2049 1809 1237 572 1690 7 385 3381 1990 14593 11524 3069 2129 1497 632 5654 34 706 3716 1991 23218 19098 4121 2358 1752 606 8232 82 555 3796 1992 29255 23921 5334 2934 2425 510 7129 121 799 4455 1993 39120 33351 5769 3772 3405 367 12945 63 4671 4671 TOTAL ALL SEs 1989 902048 722463 179585 321512 275328 46184 68022 13898 4917 283926 1990 1054854 836293 218561 385669 330884 54785 86314 16039 7757 297447 1991 1256490 982318 274173 458653 392716 65937 146562 18844 8804 291807 1992 1420474 1092972 327502 487291 415184 72107 158424 26815 9189 300248 1993 1655708 1256794 398914 509150 442957 66184 285204 28874 21812 299889 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -_-- - - - - _- - - - - - 119 - Annex 9 - Page 2 Consolidated Indicators by Categories for 1989-93 - Million ROA ROE ROS Debt to --------- In 1993 Prices -Operating Equity Revenue/ Cost/ Profit/ Ratio (1) (1) (S) Employee Employee Employee COST/REV 15 PUBLIC UTILITIES 1989 8.1% 25.3% 15.6% 213.6% 1.13 0.96 0.18 84.4% 1990 9.2% 27.4% 17.2% 199.0% 1.24 1.03 0.21 82.8% 1991 9.9% 26.6% 18.3% 168.7% 1.49 1,22 0.27 81.7% 1992 9.3% 24.1% 18.2% 157.9% 1.50 1.23 0.27 81.8% 1993 6.9% 17.1% 16.2% 147.1% 1.48 1.24 0.24 83.8% COMMERCIAL/INDUSTRIAL SEs 1989 12.1% 37.5% 14.6% 209.1% 2.20 1.88 0.32 85.4% 1990 10.4% 31.7% 12.4% 204.4% 2.30 2.02 0.28 87.6% 1991 8.9% 26.2% 10.4% 195.4% 2.21 1.98 0.23 89.6% 1992 6.3% 19.1% 9.1% 205.3% 2.21 2.01 0.20 90.9% 1993 8.0% 23.0% 11.4% 187.8% 2.15 1.90 0.25 88.5% FINANCIAL SEs 1989 0.8% 13.2% 8.5% 1601.7% 1.63 1.49 0.14 91.5% 1990 0.8% 12.8% 7.5% 1532.6% 1.86 1.73 0.14 92.5% 1991 0.7% 12.6% 6.6% 1620.5% 2.12 1.98 0.14 93.4% 1992 1.3% 19.3% 12.0% 1403.5% 1.98 1.74 0.24 88.0% 1993 0.8% 11.1% 7.0% 1332.2% 2.16 2.01 0.15 93.0% OTHER SEs 1989 18.6% 24.7% 10.2% 32.9% 2.97 2.67 0.30 89.8% 1990 -7.1% -9.7% -4.3% 35.0% 2.43 2.53 -0.11 104.3% 1991 -1.6% -2.2% -0.9% 38.7% 2.28 3.00 -0.03 100.9% 1992 -0.4% -0.6% -0.2% 36.6% 2.93 2.94 -0.01 100.2% 1993 -3.9% -5.4% -1.7% 39.9% 2.79 2.83 -0.0S 101.7% OTHER PUBLIC ENTERPRISES 1989 4.9% 27.9% 31.6% 465.4% 0.65 0.44 0.21 68.4% 1990 4.3% 20.6% 29.7% 375.5% 0.66 0.46 , 0.19 70.3% 1991 2.6% 14.7% 25.7% 463.4% 0.67 0.50 0.17 74.3% 1992 1.7% 9.6% 17.4% 448.5% 0.68 0.57 0.12 82.6% 1993 0.9% 6.4% 9.7% 578.1% 0.81 0.73 0.08 90.3% TOTAL ALL SEs 1989 5.1% 25.7% 14.4% 402.3% 1.37 1.18 0.20 85.6% 1990 5.2% 25.1% 14.2% 382.6% 1.48 1.27 0.21 85.8% 1991 5.2% 24.0% 14.4% 358.3% 1.70 1.46 0.24 85.6% 1992 5.1% 22.0% 14.8% 333.7% 1.69 1.44 0.25 85.2% 1993 4.0% 16.6% 13.0% 315.1% 1.70 1.48 0.22 87.0% - 120 - Annex 9 - Page 3 Public Utilities Sorted by Equity (1993) ACR Equity Assets Liabi- Revenue Cost Profit Capital Remit. Subsidy lities Before Expend. to Tax Govt. EGAT 28.9% 30.6% 31.8% 55772 46492 9279 54167 2468 202 PEA 14.5% 11.5% 9.6% 45837 36807 9030 16987 1670 393 TOT 14.2% 12.6% 11.5% 15049 7045 8004 30313 5767 0 PTT 10.2% 9.2% 8.5% 89527 82114 7413 18520 2212 0 CAT 7.0% 3.3% 0.7% 15192 10957 4235 11446 3298 0 MEA 4.8% 5.8% 6.4% 39555 36689 2867 10973 540 0 ERTA 4.5% 11.8% 16.8% 1755 1152 603 58503 354 5851 MWA 4.4% 3.8% 3.4% 6436 4118 2319 6294 251 41 PAT 3.5% 2.0% 0.9% 5603 3113 2490 6037 1458 125 PWA 3.0% 1.6% 0.7% 3381 3286 95 8312 0 1385 SRT 2.9% 4.0% 4.7% 4705 5634 -929 10943 0 2984 AAT 2.8% 2.1% 1.7% 4962 2274 2688 5545 1345 0 MCOT 1.0% 0.4% 0.0% 1029 406 623 997 175 0 ETO -0.2% 0.1% 0.2% 1751 1871 -121 45 0 0 BMTA -1.3% 1.2% 2.9% 6390 6982 -591 4133 0 199 100.0% 100.0% 100.0% 296944 248940 48004 243216 19537 11181 Public Utilities Sorted by Return on Equity (1993) ACR ROE ROA ROS Debt to Assets Liabi- Equity Equity lities (M) (%) AAT 33.8% 18.1% 54.2% 86.2% 14824 6864 7960 PTT 25.9% 11.6% 8.3% 123.7% 63969 35370 28599 PAT 25.2% 18.3% 44.4% 37.6% 13614 3719 9895 MCOT 22.4% 21.9% 60.6% 2.2% 2846 61 2785 PEA 22.2% 11.2% 19.7% 97.3% 80315 39607 40708 CAT 21.6% 18.7% 27.9% 15.4% 22607 3025 19582 MEA 21.2% 7.2% 7.2% 196.2% 39989 26488 13501 TOT 20.1% 9.1% 53.2% 119.6% 87567 47697 39870 MWA 18.6% 6.7% 36.0% 113.9% 26668 14200 12468 EGAT 11.4% 4.4% 16.6% 162.0% 212798 131591 81207 ERTA 4.8% 0.7% 34.3% 551.8% 82259 69638 12621 PWA 1.1% 0.8% 2.8% 36.2% 11440 3043 8397 SRT -11.3% -3.3% -19.8% 239.4% 27845 19641 8204 BMTA NA -7.2% -9.3% NA 8210 11990 -3780 ETO NA -27.1% -6.9% NA 445 1002 -558 17.1% 6.9% 16.2% 147.1% 695396 413938 281458 Public Utilities Sorted by Capital Expenditures (1993) ACR Capital Assets Liabi- Equity Revenue Cost Profit Expend. lities Before Tax ERTA 24.1% 82259 69638 12621 1755 1152 603 EGAT 22.3% 212798 131591 81207 55772 46492 9279 TOT 12.5% 87567 47697 39870 15049 7045 8004 PTT 7.6% 63969 35370 28599 89527 82114 7413 PEA 7.0% 80315 39607 40708 45837 36807 9030 CAT 4.7% 22607 3025 19582 15192 10957 4235 MEA 4.5% 39989 26488 13501 39555 36689 2867 SRT 4.5% 27845 19641 8204 4705 5634 -929 PWA 3.4% 11440 3043 8397 3381 3286 95 MWA 2.6% 26668 14200 12468 6436 4118 2319 PAT 2.5% 13614 3719 9895 5603 3113 2490 AAT 2.3' 14824 6864 7960 4962 2274 2688 BMTA 1.7% 8210 11990 -3780 6390 6982 -591 MCOT 0.4% 2846 61 2785 1029 406 623 ETO 0.0% 445 1002 -558 1751 1871 -121 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 121 - Annex 9 - Page 4 Mainly Commercial Enterprises - Results and Indicators for 1989 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Thai Plywood Co.,Ltd. MOA TP 971 238 733 938 794 144 174 0 0 1,567 Rubber Estate Organization MOA REO 425 226 199 223 238 -16 32 12 0 689 The Marketing Organization Farmers MOA MOF 4612 6261 -1648 1227 1379 -153 118 0 0 593 Fish Marketing Organization MOA FMO 411 138 273 97 79 19 38 a 0 323 Forestry Industry Organization MOA FIO 2538 220 2317 1175 786 389 312 296 0 3,237 Dairy Farm Promotion Organization MOA DFO 512 429 83 1067 1058 9 96 1 0 1,062 Cold Storage Organization MOA CSO 351 846 -495 107 183 -76 8 0 0 407 Thai Maritime Navigation Co., Ltd. MOC TMN 88 318 -230 147 115 32 NA 0 0 26 Thai Airways International Co., Ltd. MOC THAI 63584 47669 15914 44807 37386 7421 4154 665 0 14,123 Transport Co., Ltd. MOC TC 1089 266 823 1225 810 415 439 64 0 2,950 Public Warehouse MOCM PW 3997 3348 649 970 956 14 3 7 533 445 Textile Organization MOD TXO 553 334 220 409 411 -2 2 0 0 3,353 Tanning Organization MOD TNO 330 220 110 315 302 13 6 0 0 857 Battery Organization MOD BO 197 42 155 150 149 1 3 4 0 422 Bang-Na Glass Organization MOD BNG 381 287 94 426 415 11 18 0 0 1,568 Bangkok Dock Co.,Ltd. MOD BDC 185 38 147 141 125 16 2 3 0 163 Thailand Tobacco Monopoly MOF TTM 9997 1834 8163 21344 18765 2579 173 2595 0 7,472 Playing Cards Factory MOF PC 17 3 14 22 20 2 0 1 0 194 Liquor Distillery Organization MOF LDO 715 136 578 461 265 196 17 97 0 532 The Police Printing Press MOI PP 75 2 73 49 38 10 3 4 0 128 Marketing Organization MOI MO 74 2 72 138 132 7 0 4 0 53 Sugar Factory, Inc. MOID SF 656 257 400 823 740 82 23 17 0 742 Offshore Mining Organization MOID OMO 266 36 230 172 154 18 0 0 0 264 Government Phamaceutical Organization MOPH GPO 1585 171 1414 1483 1247 236 164 89 0 1,729 TOTAL MAINLY COMMERCIAL SEs 24 93610 63322 30288 77916 66548 11368 5783 3867 533 42,899 Mainly Commnercial Enterprises - Results and Indicators for 1990 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Thai Plywood Co.,Ltd. MOA TP 945 132 813 1187 1022 166 141 0 0 1,513 Rubber Estate Organization MOA REO 432 240 192 293 304 -10 7 0 0 727 The Marketing Organization Farmers MOA MOF 3346 5065 -1719 1545 1615 -71 0 0 0 589 Fish Marketing Organization MOA FMO 826 126 00 102 84 19 12 6 0 357 Forestry Industry Organization MOA FIO 2698 313 2385 1486 1182 304 131 274 174 3,190 Dairy Farm Promotion Organization MOA DFO 521 423 99 1328 1312 16 30 0 0 1,214 Cold Storage Organization MOA CSO 394 955 -561 172 238 -66 0 0 0 349 Thai Maritime Navigation Co., Ltd. MoC TMN 120 286 -166 280 215 66 0 0 0 33 Thai Airways International Co., Ltd. MOC THAI 77939 58945 18993 51200 44446 6754 14009 665 0 17,264 Transport Co., Ltd. MOC TC 1282 329 952 1402 1022 380 313 64 0 3,448 Public Warehouse MOCM PW 1229 572 656 1016 1009 7 5 0 766 427 Textile Organization MOD TXO 516 337 179 397 426 -29 1 0 0 1,962 Tanning Organization MOD TNO 333 221 113 284 281 3 4 0 0 839 Battery Organization MOD BO 198 46 152 148 148 0 21 3 0 417 Bang-Na Glass Organization MOD BNG 406 302 104 478 460 19 0 9 0 1,547 Bangkok Dock Co.,Ltd. MOD BDC 200 40 160 148 121 27 3 3 0 164 Thailand Tobacco Monopoly MOF TTM 11004 2304 8700 24118 21313 2805 342 1820 0 6,870 Playing Cards Factory MOF PC 19 4 14 27 24 4 0 0 0 186 Liquor Distillery Organization MOF LDO 771 129 642 .499 264 235 22 157 0 542 The Police Printing Press MOI PP 101 3 99 70 41 29 4 3 0 127 Marketing Organization MOI MO 76 1 75 165 158 7 3 4 0 58 Sugar Factory, Inc. MOID SF 691 179 512 1328 1179 149 36 12 0 722 Offshore Mining Organization MOID OMO 263 58 204 84 101 -17 1 12 0 253 Government Phamaceutical Organization MOPH GPO 1852 271 1581 1796 1526 270 85 83 0 1,721 TOTAL MAINLY COMMERCIAL SEs 106161 71282 34879 89555 78489 11066 15170 3114 940 44,519 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -122 - Annex 9 - Page 5 Mainly Commercial Enterprises - Results and Indicators for 1991 MTN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Thai Plywood Co.,Ltd. MOA TP 941 80 861 1095 969 127 74 0 0 1,518 Rubber Estate Organization MOA REO 432 184 248 339 315 23 27 2 0 2,276 The Marketing Organization Farmers MOA MOF 3215 4967 -1752 1406 1439 -33 11 0 2 590 Fish Marketing Organization MOA FMO 817 113 704 104 92 12 15 6 0 353 Forestry Industry Organization MOA FIO 2616 380 2237 1209 1174 35 572 31 0 3,203 Dairy Farm Promotion Organization MOA DFO 442 362 80 1356 1335 20 104 4 0 1,231 Cold Storage Organization MOA CSO 387 1007 -619 88 159 -71 4 0 0 353 Thai Maritime Navigation Co., Ltd. MOC TMN 231 317 -86 444 362 81 57 0 0 39 Thai Airways International Co., Ltd. MOC THAI 84797 63416 21381 57345 52259 5086 21502 665 0 18,823 Transport Co., Ltd. MOC TC 1337 367 970 1553 1319 234 352 83 0 3,684 Public Warehouse MOCM PW 2964 2317 648 729 714 15 10 7 721 422 Textile Organization MOD TXO 607 364 243 389 395 -7 15 1 0 1,920 Tanning Organization MOD TNO 361 229 132 316 297 19 18 0 0 841 Battery Organization MOD B0 190 44 147 124 132 -8 19 0 0 407 Bang-Na Glass Organization MOD BNG 397 296 101 519 507 12 4 3 0 1,543 Bangkok Dock Co.,Ltd. MOD BDC 202 30 172 195 162 33 13 6 a 166 Thailand Tobacco Monopoly MOF TTM 11590 1349 10241 27494 23493 4001 1940 2488 0 7,069 Playing Cards Factory MOF PC 28 3 25 37 25 13 4 1 0 186 Liquor Distillery Organization MOF LDO 853 136 716 565 286 279 72 188 0 548 The Police Printing Press MOI PP 107 3 104 73 57 16 30 7 0 133 Marketing Organization MOI MO 81 1 80 207 198 9 4 0 59 Sugar Factory, Inc. MOID SF 660 106 554 895 796 99 0 34 0 874 Offshore Mining Organization MOID OMO 233 56 177 71 98 -27 27 0 0 250 Government Phamaceutical Organization MOPH GPO 2075 312 1763 2071 1772 298 428 95 0 1,740 TOTAL MAINLY COMMERCIAL SEs 115563 76437 39126 98623 88356 10267 25296 3624 723 48,228 Mainly Conmmnercial Enterprises - Results and Indicators for 1992 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities lities before Expend. to to of Tax Tax Govt. Govt. Employ. Thai Plywood Co.,Ltd. MOA TP 1043 135 907 981 879 103 48 0 0 1,426 Rubber Estate Organization MOA REO 412 204 208 327 308 19 12 0 0 677 The Marketing Organization Farmers MOA MOF 3080 4672 -1592 1218 1171 47 4 0 2 572 Fish Marketing Organization MOA FMO 775 95 681 119 111 8 11 0 0 351 Forestry Industry Organization MOA FIO 2603 464 2139 627 704 -77 349 30 0 3,052 Dairy Farm Promotion Organization MOA DFO 569 499 70 1281 1279 1 128 0 0 1,262 Cold Storage Organization MOA CSO 345 971 -626 84 156 -72 6 0 0 349 Thai Maritime Navigation Co., Ltd. MOC TMN 182 226 -44 357 294 63 65 0 0 35 Thai Airways International Co., Ltd. MOC THAI 114888 85804 29084 59756 55375 4381 31065 1115 0 20,132 Transport Co., Ltd. MOC TC 1562 485 1077 1725 1430 295 420 54 0 3,758 Public Warehouse MOCM PW 822 73 749 1005 955 50 8 5 0 56 Textile Organization MOD TXO 576 328 248 451 432 19 12 1 0 1,875 Tanning Organization MOD TNO 415 289 127 363 368 -5 10 0 0 827 Battery Organization MOD BO 209 55 154 136 135 1 32 0 0 393 Bang-Na Glass Organization MOD BNG 359 296 63 463 494 -31 40 5 0 1,492 Bangkok Dock Co.,Ltd. MOD BDC 253 77 176 161 141 20 7 6 0 152 Thailand Tobacco Monopoly MOF TTM 12298 2071 10226 26679 23177 3501 763 3202 0 6,940 Playing Cards Factory MOF PC 87 6 81 41 30 11 0 3 0 174 Liquor Distillery Organization MOF LDO 805 43 761 576 301 275 69 223 0 548 The Police Printing Press MOI PP 113 7 106 67 59 7 7 5 0 122 Marketing Organization MOI MO 80 1 80 241 233 8 8 5 0 56 Sugar Factory, Inc. MOID SF 757 86 671 883 708 175 69 45 0 706 Offshore Mining Organization MOID OMO 219 69 150 63 .94 -31 0 0 0 231 Government Phamaceutical Organization MOPH GPO 2350 420 1930 2291 2000 291 536 104 0 1,821 TOTAIL MAINLY COMMERCIAL SEs 144801 97377 47424 99895 90836 9059 33670 4801 2 47,007 - 123 - Annex 9 - Page 6 Mainly Commercial Enterprises - Results and Indicators for 1993 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities lities Before Expend. to to of Tax Tax Govt. Govt. Employ. Thai Plywood Co.,Ltd. MOA TP 1118 188 930 1420 1304 116 79 12 0 1,477 Rubber Estate Organization MOA REO 412 204 208 327 308 19 0 7 29 1,915 The Marketing Organization Farmers MOA MOF 2959 4535 -1577 1043 1028 6 14 0 86 528 Fish Marketing Organization MOA FMO 759 67 692 158 138 20 10 2 0 399 Forestry Industry Organization MOA FIO 3081 850 2231 1210 1189 21 371 0 0 2,907 Dairy Farm Promotion Organization MOA DFO 550 457 94 1499 1492 7 0 0 7 560 Cc,ld Storage Organization MOA CSO 346 1037 -690 96 160 -64 9 0 0 352 Thai Maritime Navigation Co., Ltd. MOC TMN 282 173 109 485 385 100 65 0 0 60 Thai Airways International Co., Ltd. MOC THAI 120740 86496 34243 64438 56417 8021 18583 1300 0 21,876 Transport Co., Ltd. MOC TC 1408 356 1052 1965 1869 96 44 64 0 2,604 Public Warehouse MOCM PW 1446 760 686 832 822 10 14 13 2015 420 Textile Organization MOD TXO 600 412 188 417 414 3 14 6 0 1,875 Tanning Organization MOD TNO 424 293 130 343 339 3 77 0 0 835 Battery Organization MOD BO 212 57 156 183 180 3 18' 0 0 405 Bang-Na Glass Organization MOD BNG 395 301 94 528 526 1 57 0 0 1,470 Bangkok Dock Co.,Ltd. MOD BDC 238 36 203 460 436 24 34 3 0 162 Thailand Tobacco Monopoly MOF TTM 12797 2512 10284 26862 23726 3135 4087 2869 0 7,163 Playing Cards Factory MOF PC 74 5 69 44 38 6 8 9 0 175 Liquor Distillery Organization MOF LDO 840 37 804 601 318 284 201 208 0 658 The Police Printing Press MOI PP 127 9 118 118 72 46 20 3 0 130 Marketing Organization MOI MO 82 0 82 238 232 6 53 4 0 44 Sugar Factory, Inc. MOID SF 780 164 616 772 736 35 245 52 0 1,351 Offshore Mining Organization MOID OMO 209 70 140 157 170 -13 3 0 0 244 Government Phamaceutical Organization MOPH GPO 2611 483 2127 2339 2033 306 679 77 0 2,036 TOTAL MAINLY COMMERCIAL SEs 152491 99504 52987 106534 94333 12193 24687 4629 2137 49,646 TOTAL MAINLY COMMERCIAL SEs 89 93610 63322 30288 77916 66548 11368 5783 3867 533 42899 TOTAL MAINLY COMMERCIAL SEs 90 106161 71282 34879 89555 78489 11066 15170 3114 940 44519 TOTAL MAINLY COMMERCIAL SEs 91 115563 76437 39126 98623 88356 10267 25296 3624 723 48228 TOTAL MAINLY COMMERCIAL SEs 92 144801 97377 47424 99895 90836 9059 33670 4801 2 47007 TOTAL MAINLY COMMERCIAL SEs 93 152491 99504 52987 106534 94333 12193 24687 4629 2137 49646 - 124 - Annex 9 - Page 7 Financial Enterprises - Financial Results for 1989 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Krung Thai Bank MOF KTB 221203 211562 9640 18359 17270 1089 251 0 0 13163 Government Savings Bank MOF GSB 125703 116552 9151 12702 11018 1684 5824 679 0 7645 The Government Housing Bank MOF GHB 25973 24406 1567 2336 2152 184 13 20 0 594 Dhipaya Insurance Co.,Ltd. MOF DIC 1325 1219 106 577 551 26 NA 4 0 248 Bank of Agriculture and Agricultural MOF BAAC 48091 44044 4046 4737 4471 266 3354 0 0 7037 Office of the Public Pawnshop MOI OPP 498 162 336 74 44 30 7 12 0 230 TOTAL FINANCIAL INSTITUTIONS 422792 397946 24846 38784 39506 3278 9448 711 0 28917 Financial Enterprises - Financial Results for 1990 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Krung Thai Bank MOF KTB 267300 254623 12677 27874 25914 1960 432 0 0 14411 Government Savings Bank MOF GSB 132810 122783 10026 13365 12277 1087 0 826 0 8280 The Guvernment Housing Bank MOF GHB 34681 32680 2001 3781 3312 469 55 35 0 769 Dhipaya Insurance Co.,Ltd. MOF DIC 943 836 107 689 664 25 0 4 0 296 Bank of Agriculture and Agricultural MOF BAAC 56728 51691 5036 6185 5875 309 0 0 0 7896 Office of the Public Pawnshop MOI OPP 523 174 350 78 49 29 19 12 0 242 TOTAL FINANCIAL INSTITUTIONS 492984 462788 30197 51972 48092 3880 506 877 0 31894 Financial Enterprises - Financial Results for 1991 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Krung Thai Bank MOF KTB 338890 324207 14683 38805 36880 1926 0 0 0 15685 Government Savings Bank MOF GSB 140169 128960 11209 14002 12647 1355 0 0 0 8778 The Government Housing Bank MOF GHB 44282 41729 2553 5579 4924 656 0 90 0 883 Dhipaya Insurance Co.,Ltd. MOF DIC 908 794 114 961 932 29 4 0 312 Bank of Agriculture and Agricultural MOF BAAC 72860 67039 5822 7249 6859 390 0 0 0 8069 Office of the Public Pawnshop MOI OPP 621 259 362 93 68 25 25 9 0 267 TOTAL FINANCIAL INSTITUTIONS 597730 562988 34742 66689 62309 4380 25 104 0 33994 Financial Enterprises - Financial Results for 1992 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Krung Thai Bank MOF KTB 364157 344025 20133 40808 36219 4589 367 229 0 16657 Government Savings Bank MOF GSB 150910 137665 13245 14087 11928 2159 538 0 0 9174 The Government Housing Bank MOF GHB 55977 52572 3405 5816 4872 944 191 131 0 1047 Dhipaya Insurance Co.,Ltd. MOF DIC 1314 1188 127 1350 1313 37 9 4 0 337 Bank of Agriculture and Agricultural MOF BAAC 84964 78509 6455 7947 7282 666 976 0 0 9391 Office of the Public Pawnshop MOI OPP 619 224 395 103 64 39 45 2 I 272 TOTAL FINANCIAL INSTITUTIONS 657942 614182 43760 70111 61678 8433 2126 367 0 36878 Financial Enterprises - Financial Results for 1993 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Krung Thai Bank MOF KTB 444600 420273 24327 52474 49749 2725 0 303 0 17205 Government Savings Bank MOF GSB 173696 158817 14879 14732 12662 2070 1028 0 0 9719 The Government Housing Bank MOF GHB 62336 58640 3696 7055 6329 726 544 196 0 1262 Dhipaya Insurance Co.,Ltd. MOF DIC 962 833 129 1046 1028 18 18 4 0 380 Bank of Agriculture and Agricultural MOF BAAC 78641 68944 9696 8628 8270 357 0 0 0 10006 Office of the Public Pawnshop MOI OPP 674 274 400 105 79 26 49 10 0 346 TOTAL FINANCIAL INSTITUTIONS 760908 707780 53128 84039 78117 5922 1639 513 0 38918 TOTAL FINANCIAL INSTITUTIONS 89 422792 397946 24846 38784 35506 3278 9448 711 0 28917 TOTAL FINANCIAL INSTITUTIONS 90 492984 462788 30197 51972 48092 3880 506 877 0 31894 TOTAL FINANCIAL INSTITUTIONS 91 597730 562988 34742 66689 62309 4380 25 104 0 33994 TOTAL FINANCIAL INSTITUTIONS 92 657942 614182 43760 70111 61678 8433 2126 367 0 36878 TOTAL FINANCIAL INSTITUTIONS 93 760908 707780 53128 84039 78117 5922 1639 513 0 38918 - 125 - Annex 9 -Page 8 Other Public Enterprises - Financial Results for 1989 MON ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Rapid Transit Metro MOC RTM Aeronautical Radio of Thailand MOC ART 494 459 35 261 261 0 253 0 0 869 National Housing Authority MOI NNA 8719 7093 1625 1267 788 478 520 7 385 2175 industrial Estate Authority of ThailanNMOIDJ IEAT 2371 1982 388 281 187 94 917 0 0 337 TOTAL OTHER PUBLIC ENTERPRISES 11583 9635 2049 1809 1237 572 1690 7 385 3381 Other Public Enterprises - Financial Results for 1990 MON ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number litiea Before Expend. to of Tax Govt. Employ. Rapid Transit Metro MOC RTM Aeronautical Radio of Thailand MOC ART 664 629 35 334 334 0 244 0 0 1024 National Housing Authority MOO NHA 9865 7822 2043 1316 921 395 2552 34 461 2299 Industrial Estate Authority of ThailanMOID TEAT 4063 3073 991 480 243 237 2858 0 246 393 TOTAL OTHER PUBLIC ENTERPRISES 14593 11524 3069 2129 1497 632 5654 34 706 3716 Other Public Enterprises - Financial Results for 1991 MON ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Rapid Transit Metro MOC RTH Aeronautical Radio of Thailand HOC ART 994 844 150 450 450 0 508 0 0 1175 National Housing Authority MOO NRA 15803 13468 2336 1317 1001 316 4407 72 375 2191 Industrial Estate Authority of ThailanMOID IEAT 6422 4786 1635 591 300 290 3317 10 180 430 TOTAL OTHER PUBLIC ENTERPRISES 23218 19098 4121 2358 1752 606 8232 82 555 3796 Other Public Enterprises - Financial Results for 1992 MON ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Rapid Transit Metro HOC RTM Aeronautical Radio of Thailand HOC ART 1777 1116 660 743 743 0 4'70 0 0 1321 National Housing Authority MOO NRA 19995 17422 2573 1557 1323 234 5341 71 656 2560 Industrial Estate Authority of ThailanM40ID TEAT 7483 5383 2101 634 359 276 1318 50 143 574 TOTAL OTHER PUBLIC ENTERPRISES 2 92S55 2392 1 5 3 34 2 934 24 25 510 7 12 9 121 799 4455 Other Public Enterprises - Financial Results for 1993 MON ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Rapid Transit Metro HOC RTM Aeronautical Radio of Thailand HOC ART 2358 1698 660 944 1011 -67 992 0 1507 1507 National Housing Authority MOO NHA 28121 25311 2810 1778 1620 158 10998 21 2605 2605 Industrial Estate Authority of ThailanMOID IEAT 8641 6342 2299 1050 774 276 955 42 559 559 TOTAL OTHER PUBLIC ENTERPRISES 39120 33351 5769 3772 3405 367 12945 63 4671 4671 TOTAL OTHER PUBLIC ENTERPRISES 89 11583 9535 2049 1809 1237 572 1690 7 385 3381 TOTAL OTHER PUBLIC ENTERPRISES 90 14593 11524 3069 3129 1497 632 5654 34 706 3716 TOTAL OTHER PUBLIC ENTERPRISES 91 23218 19098 4121 2358 1752 606 8232 82 555 3796 TOTAL OTHER PUBLIC ENTERPRISES 92 29255 23921 5334 2934 2425 510 7129 121 799 4455 TOTAL OTHER PUBLIC ENTERPRISES 93 39120 33351 5769 3772 3405 367 12945 63 4671 4671 - 126 - Annex 9 - Page 9 Other SEs (Promotional and Non-Commercial)- Financial Results for 1989 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Office of The Rubber Replanting Aid FuMOA ORR 4318 305 4013 2571 1421 1150 61 0 1 2140 Promotion of Teaching Science and TechMOE PTS 49 14 35 53 49 4 9 0 52 195 Government Lottery Bureau MOF GLE 1654 1168 486 9662 9505 157 33 2733 0 714 Scientific and Technological Research MOS STR 182 95 87 240 236 5 20 0 155 747 Zoological Park Organization PMO ZPO 151 1 150 49 47 2 12 0 7 424 Tourism Authority of Thailand PMO TAT 594 162 432 486 467 19 29 0 526 719 Sports Organization of Thailand PMO SOT 276 42 235 115 111 4 267 0 244 435 TOTAL OTHER STATE ENTERPRISES 7224 1787 5437 13177 11835 1342 430 2733 986 5374 Other SEs (Promotional and Non-Commercial)- Financial Results for 1990 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Govt. Subsidy Employ. lities Before Expend. to of Tax Govt. Employ. Office of The Rubber Replanting Aid FuMOA ORR 3877 245 3632 895 1644 -749 35 0 49 2200 Promotion of Teaching Science and TechMOE PTS 63 18 45 70 60 10 5 0 66 200 Government Lottery Bureau MOF GLB 1626 1171 455 9680 9506 174 4 2678 0 720 Scientific and Technological Research MOS STR 235 140 95 303 295 8 105 0 234 766 Zooloaical Park Organization PMO ZPO 165 2 164 61 58 2 25 0 8 484 Touri3m Authority of Thailand PMO TAT 713 208 505 628 580 48 22 0 825 743 Sports Organization of Thailand PMO SOT 441 62 379 121 124 -3 266 0 384 432 TOTAL OTHER STATE ENTERPRISES 7121 1846 5275 11758 12267 -509 461 2678 1566 5545 Other SEs (Promotional and Non-Commercial)- Financial Results for 1991 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Office of The Rubber Replanting Aid FuMOA ORR 3729 303 3426 1293 1706 -413 56 0 261 1518 Promotion of Teaching Science and TechMOE PTS 65 19 46 81 80 1 11 0 73 198 Government Lottery Bureau MOF GLB 1971 1451 520 11297 11146 151 43 3338 0 875 Scientific and Technological Research MOS STR 289 175 114 207 179 28 40 0 186 757 Zoological Park Organization PMO ZPO 203 2 201 71 73 -2 40 0 28 432 Tourism Authority of Thailand PMO TAT 633 96 537 597 511 86 104 0 987 755 Sports Organization of Thailand PMO SOT 698 70 628 159 128 30 854 0 433 451 TOTAL OTHER STATE ENTERPRISES 7588 2116 5472 13703 13823 -119 1148 3338 1968 4986 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -_-- - - - - - _-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 127 - Annex 9 - Page 10 Other SEs (Promotional and Non-Commercial)- Financial Results for 1992 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Office of The Rubber Replanting Aid FuMOA ORR 3187 312 2875 1892 2164 -271 248 0 443 2371 Promotion of Teaching Science and TechMOE PTS 75 22 53 108 107 1 2 0 100 230 Government Lottery Bureau MOF GLB 2256 1554 702 13555 13298 258 10 4230 0 807 Scientific and Technological Research MOS STR 741 188 554 237 217 20 138 0 220 726 Zoological Park Organization PMO ZPO 261 3 259 62 63 -1 31 0 31 565 Tourism Authority of Thailand PMO TAT 747 71 676 847 883 -36 124 0 1250 833 Sports Organization of Thailand PMO SOT 803 14 789 158 164 -6 235 0 337 452 TOTAL OTHER STATE ENTERPRISES 8070 2164 5906 16859 16895 -36 787 4230 2381 5984 Other SEs (Promotional and Non-Commercial)- Financial Results for 1993 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Civil Aviation Organization MOC CAO Botanical Garden Organization PMO BGO Office of The Rubber Replanting Aid FuMOA ORR 2033 346 1686 1830 2417 -587 430 0 391 2630 Promotion of Teaching Science and TechMOE PTS 85 24 61 147 147 0 9 0 139 218 Government Lottery Biureau MOF GLB 2350 1598 753 13546 13320 226 161 4131 0 857 Scientific and Technological Research MOS STR 793 194 599 256 231 25 51 0 277 609 Zoological Park Organization PMO ZPO 327 3 324 65 79 -15 71 0 60 769 Tourism Authority of Thailand PMO TAT 1080 49 1032 1817 1762 55 190 0 1479 862 Sports Organization of Thailand PMO SOT 1124 7 1117 200 207 -7 1804 0 1479 467 TOTAL OTHER STATE ENTERPRISES 7793 2221 5572 17861 18163 -302 2717 4131 3824 6412 TOTAL OTHER STATE ENTERPRISES 89 7224 1787 5437 13177 11835 1342 430 2733 986 5374 TOTAL OTHER STATE ENTERPRISES 90 7121 1846 5275 11758 12267 -509 461 2678 1566 5545 TOTAL OTHER STATE ENTERPRISES 91 S88 2116 5472 13703 13823 -119 1148 3338 1968 4986 TOTAL OTHER STATE ENTERPRISES 92 8070 2164 5906 16859 16895 -36 787 4230 2381 5984 TOTAL OTHER STATE ENTERPRISES 93 7793 2221 5572 17861 18163 -302 2717 4131 3824 6412 - 128 - Annex 9 - Page 11 Public Utilities - Financial Results for 1989 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Telephone Organization of Thailand MOC TOT 50373 37491 12682 13739 7951 5788 11812 819 0 18186 State Railway of Thailand MOC SRT 20762 13287 7475 4036 4628 -592 1817 0 1431 25019 Port Authority of Thailand MOC PAT 6712 1205 5507 3745 1568 2177 1408 742 270 5841 Express Transportation Organization MOC ETO 471 763 -291 1186 1143 44 53 0 0 2858 Communications Authority of Thailand MOC CAT 12558 1910 10648 10568 6909 3659 1801 1086 8 21979 Bangkok Mass Transit Authority of ThaiMOC BMTA 789 9849 -9060 3840 4723 -884 46 0 0 22703 Airports Authority of Thailand MOC AAT 10173 6036 4137 3237 1233 2004 1296 690 0 2505 Provincial Waterworks Authority MOI PWA 6902 1814 5088 1750 1382 368 1139 222 412 5247 Provincial Electricity Authority MOI PEA 43416 35249 8167 25591 23128 2463 3856 206 332 43738 Metropolitan Waterworks Authority MOI MWA 19399 13885 5514 4532 3581 950 4718 91 303 5852 Metropolitan Electricity Authority MOI MEA 21135 15560 5575 27596 26727 870 2105 756 4 11649 Expressway and Rapid Transit AuthorityMOI ERTA 13077 9328 3749 1111 745 366 2625 84 67 1535 Petroleum Authority of Thailand MOID PTT 37649 24399 13250 45744 43996 1747 4154 726 0 3713 Mass Communications Organization of ThPMO MCOT 955 46 909 500 261 239 301 98 0 798 Electricity Generating Authority of ThPMO EGAT 122466 790S1 43415 42650 32226 10424 13540 1061 186 31732 TOTAL 15 PUBLIC UTILITIES 366839 249874 116965 189826 160202 29624 50670 6580 3013 203355 Public Utilities - Financial Results for 1990 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Telephone Organization of Thailand MOC TOT 62472 44154 18318 17221 9180 8041 9976 1737 0 18727 State Railway of Thailand MOC SRT 21449 14346 7103 4545 5340 -795 1542 0 1452 25769 Port Authority of Thailand MOC PAT 8773 1952 6821 4580 1999 2580 1719 1307 75 6184 Express Transportation Organization MOC ETO 480 699 -219 1427 1355 72 146 0 0 3901 Communications Authority of Thailand MOC CAT 15602 2342 13259 13295 8661 4634 1381 1830 0 22833 Bangkok Mass Transit Authority of ThaiMOC BMTA 869 10844 -9976 4066 5040 -974 16 0 0 22973 Airports Authority of Thailand MOC AAT 11551 5867 5684 4008 1467 2541 1069 1002 0 2650 Provincial Waterworks Authority MOI PWA 7491 1837 5655 1982 1553 429 1224 147 602 5680 Provincial Electricity Authority MOI PEA 51215 39036 12179 31034 27185 3849 6233 370 550 45213 Metropolitan Waterworks Authority MOI MWA 19846 12713 7133 5412 3976 1436 2371 143 384 5748 Metropolitan Electricity Authority MOI MEA 25451 18571 6881 32419 30775 1644 3931 253 0 12858 Expressway and Rapid Transit AuthorityMOI ERTA 15145 11006 4139 1251 717 534 2407 128 314 1582 Petroleum Authority of Thailand MOID PTT 44349 28432 15917 58047 54968 3080 3624 757 912 3728 Mass Communications Organization of ThPMO MCOT 1123 59 1064 559 300 259 85 96 0 857 Electricity Generating Authority of ThPMO EGAT 148178 96995 51183 50410 38024 12386 28800 1564 256 33070 TOTAL 15 PUBLIC UTILITIES 433995 288853 145142 230255 190539 39716 64522 9335 4545 211773 Public Utilities - Financial Results for 1991 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Telephone Organization of Thailand MOC TOT 72800 45268 27532 20355 9902 10453 27754 2413 0 18941 State Railway of Thailand MOC SRT 22666 15380 7286 5489 6268 -778 8198 0 1646 25864 Port Authority of Thailand MOC PAT 11465 3021 8443 5248 2219 3028 4119 1548 400 6688 Express Transportation Organization MOC ETO 458 755 -297 1609 1650 -42 152 7 G 4688 Communications Authority of Thailand MOC CAT 19109 2500 16609 16272 10229 6043 3751 2320 0 23604 Bangkok Mass Transit Authority of ThaiMOC BMTA 6709 11770 -5061 4828 5087 -258 10 0 0 22469 Airports Authority of Thailand MCC AAT 12958 6558 6400 4500 1719 2780 4035 1300 0 2875 Provincial Waterworks Authority MOI PWA 8237 1857 6380 2238 1765 473 2460 172 800 5950 Provincial Electricity Authority MOI PEA 58395 40578 17818 37149 31342 5807 6792 578 1292 28244 Metropolitan Waterworks Authority MOI MWA 21925 12946 8978 6128 4286 1842 3983 215 119 5865 Metropolitan Electricity Authority MOI MEA 31560 22280 9280 36749 34214 2535 4503 247 0 13824 Expressway and Rapid Transit AuthorityMOI ERTA 23847 19148 4699 1598 825 773 6478 187 1300 2264 Petroleum Authority of Thailand MOID PTT 45604 25731 19873 77190 71090 6100 3792 1605 0 3813 Mass Communications Organization of ThPMO MCOT 1348 62 1286 691 348 343 478 104 0 911 Electricity Generating Authority of ThPMO EGAT 175309 113824 61485 57235 45532 11704 35356 1000 0 34803 TOTAL 15 PUBLIC UTILITIES 512390 321679 190711 277280 226477 50803 111861 11696 5558 200803 - 129 - Annex 9 - Page 12 Public Utilities - Financial Results for 1992 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Telephone Organization of Thailand MOC TOT 81973 49598 32375 23336 11802 11534 26068 4181 0 20787 State Railway of Thailand MOC SRT 24709 18091 6618 5852 7031 -1178 2104 0 2689 25284 Port Authority of Thailand MOC PAT 12159 3537 8622 5218 2788 2429 926 1817 207 6642 Express Transportation Organization MOC ETO 448 911 -463 1542 1708 -166 0 1 0 4137 Communications Authority of Thailand MOC CAT 22413 2842 19571 18097 12102 5996 9585 3030 0 24589 Bangkok Mass Transit Authority of ThaiMOC BMTA 9410 13205 -3795 6400 6336 64 4909 0 100 23941 Airports Authority of Thailand MOC AAT 14071 6411 7660 4670 1981 2690 5910 1391 0 3128 Provincial Waterworks Authority MOI PWA 8656 1696 6960 2587 2368 219 6043 189 858 6091 Provincial Electricity Authority MOI PEA 69904 44867 25037 42212 34550 7661 9016 871 216 29733 Metropolitan Waterworks Authority MOI MWA 23748 13236 10513 6109 4439 1670 3504 276 98 6011 Metropolitan Electricity Authority MOI MEA 35874 24840 11034 39622 37328 2295 7275 381 0 13760 Expressway and Rapid Transit AuthorityMOI ERTA 30346 23958 6387 1911 902 1009 2693 271 1349 2145 Petroleum Authority of Thailand MOID PTT 51958 27635 24323 76400 69257 7143 12933 2135 0 3662 Mass Communications Organization of ThPMO MCOT 1677 91 1586 835 397 437 507 137 0 949 Electricity Generating Authority of ThPMO EGAT 193060 124409 68650 62702 50363 12339 23238 2614 491 35065 TOTAL 15 PUBLIC UTILITIES 580406 355328 225078 297492 243351 54141 114711 17295 6007 205924 Public Utilities - Financial Results and Indicators for 1993 MIN ACR Assets Liabi- Equity Revenue Cost Profit Capital Remit. Subsidy Number lities Before Expend. to of Tax Govt. Employ. Telephone Organization of Thailand MOC TOT 87567 47697 39870 15049 7045 8004 30313 5767 0 19151 State Railway of Thailand MOC SRT 27845 19641 8204 4705 5634 -929 10943 0 2984 21004 Port Authority of Thailand MOC PAT 13614 3719 9895 5603 3113 2490 6037 1458 125 6796 Express Transportation Organization MOC ETO 445 1002 -558 1751 1871 -121 45 0 0 2973 Communications Authority of Thailand MOC CAT 22607 3025 19582 15192 10957 4235 11446 3298 0 24456 Bangkok Mass Transit Authority of ThaiMOC BMTA 8210 11990 -3780 6390 6982 -591 4133 0 199 23506 Airports Authority of Thailand MOC AAT 14824 6864 7960 4962 2274 2688 5545 1345 0 2365 Provincial Waterworks Authority MOI PWA 11440 3043 8397 3381 3286 95 8312 0 1385 7137 Provincial Electricity Authority MOI PEA 80315 39607 40708 45837 36807 9030 16987 1670 393 30847 Metropolitan Waterworks Authority MOI HWA 26668 14200 12468 6436 4118 2319 6294 251 41 5638 Metropolitan Electricity Authority MOI MEA 39989 26488 13501 39555 36689 2867 10973 540 0 13625 Expressway and Rapid Transit AuthorityMOI ERTA 82259 69638 12621 1755 1152 603 58503 354 5851 3359 Petroleum Authority of Thailand MOID PTT 63969 35370 28599 89527 82114 7413 18520 2212 0 3900 Mass Communications Organization of ThPMO MCOT 2846 61 2785 1029 406 623 997 175 0 980 Electricity Generating Authority of ThPMO EGAT 212798 131591 81207 55772 46492 9279 54167 2468 202 34505 TOTAL 15 PUBLIC UTILITIES 695396 413938 281458 236944 248940 48004 243216 19537 11181 200242 TOTAL 15 PUBLIC UTILITIES 89 366839 249874 116965 189826 160202 29624 50670 6580 3013 203355 TOTAL 15 PUBLIC UTILITIES 90 433995 288853 145142 230255 190539 39716 64522 9335 4545 211773 TOTAL 15 PUBLIC UTILITIES 91 512390 321679 190711 277280 226477 50803 111861 11696 5558 200803 TOTAL 15 PUBLIC UTILITIES 92 580406 355328 225078 297492 243351 54141 114711 17295 6007 205924 TOTAL 15 PUBLIC UTILITIES 93 695396 413938 281458 296944 248940 48004 243216 19537 11181 200242 - 130 - Annex 9- Page 13 Mainly Commercial SEs - Financial Indicators for 1989 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%1 (%) (%) Thai Plywood Co.,Ltd. 14.9% 19.7% 15.4% 32.5% 0.60 0.51 0.09 Rubber Estate Organization -3.7% -7.8% -7.0% 113.3% 0.32 0.35 -0.02 The Marketing Organization Farmers -3.3% NA -12.5% NA 2.07 2.33 -0.26 Fish Marketing Organization 4.5% 6.8% 19.1% 50.7% 0.30 0.24 0.06 Forestry Industry Organization 15.3t 16.8% 33.1% 9.5% 0.36 0.24 0.12 Dairy Farm Promotion Organization 1.8% 11.1% 0.9% 517.6% 1.00 1.00 0.01 Cold Storage Organization -21.6% NA -71.4t NA 0.26 0.45 -0.19 Thai Maritime Navigation Co., Ltd. 36.6% NA 21.8% NA 5.67 4.43 1.24 Thai Airways International Co., Ltd. 11.7% 46.6% 16.6% 299.5% 3.17 2.65 0.53 Transport Co., Ltd. 38.1% 50.4% 33.9% 32.3% 0.42 0.27 0.14 Public Warehouse 0.4% 2.2% 1.5% 515.8% 2.18 2.15 0.03 Textile Organization -0.4% -0.9% -0.5% 151.9% 0.12 0.12 -0.00 Tanning Organization 3.9% 11.7% 4.1% 199.5% 0.37 0.35 0.02 Battery Organization 0.7% 0.8% 0.9% 27.2% 0.36 0.35 0.00 Bang-Na Glass Organization 2.9% 11.8% 2.6% 306.8% 0.27 0.26 0.01 Bangkok Dock Co.,Ltd. 8.6t 10.9% 11.4% 25.8% 0.86 0.76 0.10 Thailand Tobacco Monopoly 25.8% 31.6% 12.1% 22.5% 2.86 2.51 0.35 Playing Cards Factory 11.7% 13.9% 8.9% 18.3% 0.11 0.10 0.01 Liquor Distillery Organization 27.4% 33.9% 42.5% 23.6% 0.87 0.50 0.37 The Police Printing Press 13.7% 14.2% 21.2% 3.0% 0.38 0.30 0.08 Marketing Organization 9.0% 9.2% 4.8% 2.1% 2.61 2.49 0.13 Sugar Factory, Inc. 12.5% 20.6% 10.0% 64.2% 1.11 1.00 0.11 Offshore Mining Organization 6.9% 8.0% 10.7% 15.8% 0.65 0.58 0.07 Government Phamaceutical Organization 14.9% 16.7% 15.9% 12.1% 0.86 0.72 0.14 TOTAL MAINLY COMMERCIAL SEs 12.1% 37.5% 14.6% 209.1% 1.82 1.55 0.27 Mainly Commercial SEs - Financial Indicators for 1990 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Thai Plywood Co.,Ltd. 17.5% 20.4% 13.9% 16.3% 0.78 0.68 0.11 Rubber Estate Organization -2.4% -5.3% -3.5% 124.9% 0.40 0.42 -0.01 The Marketing Organization Farmers -2.1% NA -4.6% NA 2.62 2.74 -0.12 Fish Marketing Organization 2.3% 2.7% 18.3% 18.0% 0.29 0.23 0.05 Forestry Industry Organization 11.3% 12.7% 20.5% 13.1% 0.47 0.37 0.10 Dairy Farm Promotion Organization 3.0% 16.0% 1.2% 428.2% 1.09 1.08 0.01 Cold Storage Organization -16.6% NA -38.0% NA 0.49 0.68 -0.19 Thai Maritime Navigation Co., Ltd. 54.5% NA 23.4% NA 8.49 6.50 1.99 Thai Airways International Co., Ltd. 8.7% 35.6% 13.2% 310.4% 2.97 2.57 0.39 Transport Co., Ltd. 29.6% 39.9% 27.1% 34.6% 0.41 0.30 0.11 Public Warehouse 0.6% 1.1% 0.7% 87.2% 2.38 2.36 0.02 Textile Organization -5.6% -16.1% -7.2% 188.6% 0.20 0.22 -0.01 Tanning Organization 0.8% 2.3% 0.9% 195.3% 0.34 0.34 0.00 Battery Organization 0.2% 0.2% 0.2% 30.4% 0.35 0.35 0.00 Bang-Na Glass Organization 4.6% 17.8% 3.9% 239.6% 0.31 0.30 0.01 Bangkok Dock Co.,Ltd. 13.6% 17.1% 18.4% 25.1% 0.90 0.74 0.17 Thailand Tobacco Monopoly 25.5% 32.2t 11.6% 26.5% 3.51 3.10 0.41 Playing Cards Factory 19.5% 25.4% 13.3% 30.4% 0.15 0.13 0.02 Liquor Distillery Organization 30.5% 36.6% 47.1% 20.1% 0.92 0.49 0.43 The Police Printing Press 28.8% 29.6% 41.6% 2.6% 0.55 0.32 0.23 Marketing Organization 9.5% 9.7% 4.4% 1.5% 2.84 2.72 0.13 Sugar Factory, Inc. 21.5% 29.1% 11.2% 35.0% 1.84 1.63 0.21 Offshore Mining Organization -6.3% -8.1% -19.7% 28.6% 0.33 0.40 -0.07 Government Phamaceutical Organization 14.6% 17.1% 15.0% 17.1% 1.04 0.89 0.16 TCTAL MAINLY COMMERCIAL SEs 10.4% 31.7% 12.4% 204.4% 2.01 1.76 0.25 - 131 - Amex9-Page 14 Mainly Commercial SEs - Financial Indicators for 1991 ROA ROE ROS Debt to Revenue/ Cost/ Profit! Equity Employee Employee Employee (1) (%) (%) Thai Plywood Co.,Ltd. 13.4% 14.7% 11.6% 9.3% 0.72 0.64 0.08 Rubber Estate Organization 5.4% 9.4% 6.9% 74.0% 0.15 0.14 0.01 The Marketing Organization Farmers -1.0% NA -2.3% NA 2.38 2.44 -0.06 Fish Marketing Organization 1.4% 1.7% 11.3% 16.0% 0.29 0.26 0.03 Forestry Industry Organization 1.3% 1.6% 2.9% 17.0% 0.38 0.37 0.01 Dairy Farm Promotion Organization 4.6% 25.5% 1.5% 450.9% 1.10 1.08 0.02 Cold Storage Organization -18.4% NA -81.2% NA 0.25 0.45 -0.20 Thai Maritime Navigation Co., Ltd. 35.2% NA 18.3% NA 11.38 9.29 2.09 Thai Airways International Co., Ltd. 6.0% 23.81 8.9% 296.6% 3.05 2.78 0.27 Transport Co., Ltd. 17.5% 24.1% 15.1% 37.9% 0.42 0.36 0.06 Public Warehouse 0.5% 2.3% 2.0% 357.7% 1.73 1.69 0.04 Textile Organization -1.1% -2.7% -1.7% 149.9% 0.20 0.21 -0.00 Tanning Organization 5.4% 14.7% 6.1% 172.9% 0.38 0.35 0.02 Battery Organization -4.3% -5.6% -6.7% 29.8% 0.30 0.32 -0.02 Bang-Na Glass Organization 3.0% 11.8% 2.3% 293.3% 0.34 0.33 0.01 Bangkok Dock Co.,Ltd. 16.2% 19.1% 16.8% 17.6% 1.17 0.98 0.20 Thailand Tobacco Monopoly 34.5% 39.1% 14.6% 13.2% 3.89 3.32 0.57 Playing Cards Factory 44.9% 50.9% 34.0% 13.2% 0.20 0.13 0.07 Liquor Distillery Organization 32.7% 38.9% 49.3% 19.0% 1.03 0.52 0.51 The Police Printing Press 14.9% 15.2% 21.8% 2.4% 0.55 0.43 0.12 Marketing Organization 11.6% 11.7% 4.5% 0.8% 3.51 3.35 0.16 Sugar Factory, Inc. 15.1% 17.9% 11.1% 19.1% 1.02 0.91 0.11 Offshore Mining Organization -11.7% -15.4% -38.3% 31.5% 0.28 0.39 -0.11 Government Phamaceutical Organization 14.4% 16.9% 14.4% 17.7% 1.19 1.02 0.17 TOTAL MAINLY COMMERCIAL SEs 8.9% 26.2% 10.4% 195.4% 2.04 1.83 0.21 Mainly Commercial SEs - Financial Indicators for 1992 ROA ROE ROS Debt to Revenue/ Cost! Profit/ of Equity Employee Employee Employee (%) (%;) (%) (%) Thai Plywood Co.,Ltd. 9.9% 11.3% 10.5% 14.9% 0.69 0.62 0.07 Rubber Estate Organization 4.6% 9.0% 5.8% 98.2% 0.48 0.45 0.03 The Marketing Organization Farmers 1.5% NA 3.9% NA 2.13 2.05 0.08 Fish Marketing Organization 1.1% 1.2% 6.9% 13.9% 0.34 0.32 0.02 Forestry Industry Organization -3.0% -3.6% -12.3% 21.7% 0.21 0.23 -0.03 Dairy Farm Promotion Organization 0.2% 1.9% 0.1% 714.9% 1.01 1.01 0.00 Cold Storage Organization -20.9% NA -86.1% NA 0.24 0.45 -0:21 Thai Maritime Navigation Co., Ltd. 34.7% NA 17.7% NA 10.19 8.39 1.80 Thai Airways International Co., Ltd. 3.8% 15.1% 7.3% 295.0% 2.97 2.75 0.22 Transport Co., Ltd. 18.9% 27.4% 17.1% 45.0% 0.46 0.38 0.08 Public Warehouse 6.0% 6.6% 4.9% 9.8% 17.94 17.06 0.88 Textile Organization 3.3% 7.6% 4.2% 131.9% 0.24 0.23 0.01 Tanning Organization -1.2% -4.0% -1.4% 228.1% 0.44 0.45 -0.01 Battery Organization 0.3% 0.4% 0.5% 36.0% 0.35 0.34 0.00 Bang-Na Glass Organization -8.5% -48.7% -6.6% 471.0% 0.31 0.33 -0.02 Bangkok Dock Co.,Ltd. 8.0% 11.5% 12.5% 44.1% 1.06 0.93 0.13 Thailand Tobacco Monopoly 28.5% 34.2% 13.1% 20.3% 3.84 3.34 0.50 Playing Cards Factory 12.9% 13.9% 27.2% 7.2% 0.24 0.17 0.06 Liquor Distillery Organization 34.2% 36.2% 47.8% 5.7% 1.05 0.55 0.50 The Police Printing Press 6.7% 7.1% 11.2% 6.6% 0.55 0.49 0.06 Marketing Organization 10.4% 10.5% 3.5% 0.7% 4.30 4.15 0.15 Sugar Factory, Inc. 23.1% 26.0% 19.8% 12.9% 1.25 1.00 0.25 Offshore Mining Organization -14.3% -20.9% -49.7% 46.1% 0.27 0.41 -0.14 Government Phamaceutical Organization 12.4% 15.1% 12.7% 21.8% 1.26 1.10 0.16 TOTAL MAINLY COMMERCIAL SEs 6.3% 19.1% 9.1% 205.3% 2.13 1.93 0.19 - 132 - Annex 9 - Page 15 Mainly Comnuercial SEs - Financial Indicators for 1993 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) (U) Thai Plywood Co.,Ltd. 10.4% 12.5% 8.2% 20.2% 0.96 0.88 0.08 Rubber Estate Organization 4.6% 9.0% 5.8% 98.2% 0.17 0.16 0.01 The Marketing Organization Farmers 0.2% NA 0.61 NA 1.98 1.95 0.01 Fish Marketing Organization 2.6% 2.8% 12.4% 9.7% 0.39 0.35 0.05 Forestry Industry Organization 0.7% 1.01 1.8% 38.1% 0.42 0.41 0.01 Dairy Farm Promotion Organization 1.3% 7.5% 0.5% 488.2% 2.68 2.66 0.01 Cold Storage Organization -18.5% NA -66.6% NA 0.27 0.46 -0.18 Thai Maritime Navigation Co., Ltd. 35.5% 91.9% 20.6% 159.1% 8.08 6.42 1.67 Thai Airways International Co., Ltd. 6.6% 23.4% 12.4% 252.6% 2.95 2.58 0.37 Transport Co., Ltd. 6.8% 9.2% 4.91 33.9% 0.75 0.72 0.04 Public Warehouse 0.7% 1.5% 1.2% 110.9% 1.98 1.96 0.02 Textile Organization 0.51 1.6% 0.7% 219.4% 0.22 0.22 0.00 Tanning Organization 0.8% 2.7% 1.0% 225.6% 0.41 0.41 0.00 Battery Organization 1.4% 1.9% 1.7% 36.6% 0.45 0.44 0.01 Bang-Na Glass Organization 0.3% 1.4% 0.3% 319.0% 0.36 0.36 0.00 Bangkok Dock Co.,Ltd. 10.2% 11.9% 5.3% 17.6% 2.84 2.69 0.15 Thailand Tobacco Monopoly 24.51 30.5% 11.7% 24.4% 3.75 3.31 0.44 Playing Cards Factory 8.1% 8.6% 13.6% 7.1% 0.25 0.22 0.03 Liquor Distillery Organization 33.8% 35.3% 47.2% 4.6% 0.91 0.48 0.43 The Police Printing Press 36.1S 39.0% 39.0% 8.0% 0.91 0.55 0.35 Marketing Organization 7.8% 7.8% 2.7% 0.4% 5.41 5.27 0.14 Sugar Factory, Inc. 4.5% 5.7% 4.6% 26.71 0.57 0.55 0.03 Offshore Mining Organization -6.1% -9.1% -8.1% 49.8% 0.64 0.70 -0.05 Government Phamaceutical Organization 11.7% 14.4% 13.1% 22.7% 1.15 1.00 0.15 TOTAL MAINLY COMMERCIAL SEs 8.0% 23.0% 11.4% 187.8% 2.15 1.90 0.25 TOTAL MAINLY COMMERCIAL SEs 89 12.1% 37.5% 14.6% 209.1% 1.82 1.55 0.27 TOTAL MAINLY COMMERCIAL SEs 90 10.4% 31.7% 12.4% 204.4% 2.01 1.76 0.25 TOTAL MAINLY COMMERCIAL SEs 91 8.9% 26.2% 10.41 195.4% 2.04 1.83 0.21 TOTAL MAINLY COMMERCIAL SEs 92 6.3% 19.1% 9.1% 205.3% 2.13 1.93 0.19 TOTAL MAINLY COMMERCIAL SEs 93 8.0% 23.0% 11.4% 187.8% 2.15 1.90 0.25 - 133 - Annex 9 - Page 16 Financial SEs - Financial Indicators for 1989 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (% (%) (S) Krung Thai Bank 0.S% 11.3% 5.9% 2194.6% 1.39 1.31 0.08 Government Savings Bank 1.3% 18.4% 13.3% 1273.7% 1.66 1.44 0.22 The Government Housing Bank 0.7% 11.7% 7.9% 1557.6% 3.93 3.62 0.31 Dhipaya Insurance Co.,Ltd. 2.0% 24.5% 4.5% 1155.0% 2.33 2.22 0.10 Bank of Agriculture and Agricultural C 0.6% 6.6% 5.6% 1088.5% 0.67 0.64 0.04 Office of the Public Pawnshop 6.0% 8.9% 40.7% 48.2% 0.32 0.19 0.13 TOTAL FINANCIAL INSTITUTIONS 0.8% 13.2% 8.5% 1601.7% 1.34 1.23 0.11 Financial SEs - Financial Indicators for. 1990 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (C) (S) (%C Krung Thai Bank 0.7% 15.5% 7.0% 2008.6% 1.93 1.80 0.14 Government Savings Bank 0.8% 10.8% 8.1% 1224.6% 1.61 1.48 0.13 The Government Housing Bank 1.4% 23.5% 12.4% 1633.6% 4.92 4.31 0.61 Dhipaya Insurance Co.,Ltd. 2.6% 23.2% 3.6% 782.3% 2.33 2.24 0.08 Bank of Agriculture and Agricultural C 0.5% 6.1% 5.0% 1026.3% 0.78 0.74 0.04 Office of the Public Pawnshop 5.5% 8.3% 36.9% 49.6% 0.32 0.20 0.12 TOTAL FINANCIAL INSTITUTIONS 0.8% 12.8% 7.5% 1532.6% 1.63 1.51 0.12 Financial SEs - Financial Indicators for 1991 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (C) Cl) Krung Thai Bank 0.6% 13.1% 5.0% 2208.0% 2.47 2.35 0.12 Government Savings Bank 1.0% 12.1% 9.7% 1150.5% 1.60 1.44 0.15 The Government Housing Bank 1.5% 25.7% 11.8% 1634.6% 6.32 5.58 0.74 Dhipaya Insurance Co.,Ltd. 3.2% 25.2% 3.0% 699.1% 3.08 2.99 0.09 Bank of Agriculture and Agricultural C 0.5% 6.7% 5.4% 1151.6% 0.90 0.85 0.05 Office of the Public Pawnshop 4.0% 6.8% 26.71 71.5% 0.35 0.25 0.09 TOTAL FINANCIAL INSTITUTIONS 0.7% 12.6% 6.6% 1620.5% 1.96 1.83 0.13 Financial SEs - Financial Indicators for 1992 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Krunig Thai Bank 1.3% 22.8% 11.2% 1708.8% 2.45 2.17 0.28 Government Savings Bank 1.4% 16.3% 15.3% 1039.4% 1.54 1.30 0.24 The Government Housing Bank 1.7% 27.7% 16.2% 1543.9% 5.56 4.65 0.90 Dhipaya Insurance Co.,Ltd. 2.8% 29.4% 2.8% 938.6% 4.01 3.90 0.11 Bank of Agriculture and Agricultural C 0.8% 10.3% 8.4% 1216.3% 0.85 0.78 0.07 Office of the Public Pawnshop 6.3% 9.8% 37.6% 56.6% 0.38 0.24 0.14 TOTAL FINANCIAL INSTITUTIONS 1.3% 19.3% 12.0% 1403.5% 1.90 1.67 0.23 Financial SEs - Financial Indicators for 1993 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (C) Krung Thai Bank 0.6% 11.2% 5.2% 1727.6% 3.05 2.89 0.16 Government Savings Bank 1.2% 13.9% 14.1% 1067.4% 1.52 1.30 0.21 The Government Housing Bank 1.2% 19.6% 10.3% 1586.4% 5.59 5.02 0.58 Dhipaya Insurance Co.,Ltd. 1.9% 13.9% 1.7% 647.6% 2.75 2.70 0.05 Bank of Agriculture and Agricultural C 0.5% 3.7% 4.1% 711.0% 0.86 0.83 0.04 Office of the Public Pawnshop 3.8% 6.4% 24.6% 68.3% 0.30 0.23 0.07 TOTAL FINANCIAL INSTITUTIONS 0.8% 11.1% 7.0% 1332.2% 2.16 2.01 0.15 TOTAL FINANCIAL INSTITUTIONS 89 0.8% 13.2% 8.5% 1601.7% 1.34 1.23 0.11 TOTAL FINANCIAL INSTITUTIONS 90 0.8% 12.8% 7.5% 1532.6% 1.63 1.51 0.12 TOTAL FINANCIAL INSTITUTIONS 91 0.7% 12.6% 6.6% 1620.5% 1.96 1.83 0.13 TOTAL FINANCIAL INSTITUTIONS 92 1.3% 19.3% 12.0% 1403.5% 1.90 1.67 0.23 TOTAL FINANCIAL INSTITUTIONS 93 0.8% 11.1% 7.0% 1332.2% 2.16 2.01 0.15 -134 - Annex 9 - Page 17 Other Public Enterprises - Financial Indicators for 1989 ROA ROE ROS Debt to Revenue/ Cost! Profit/ Equity Employee Employee Employee (%) (%) (%) Rapid Transit Metro NA NA NA NA NA NA NA Aeronautical Radio of Thailand 0.0% 0.0% 0.0% 1311.7t 0.30 0.30 0.00 National Housing Authority 5.5% 29.4% 37.8% 436.4% 0.58 0.36 0.22 Industrial Estate Authority of Thailan 4.0% 24.1% 33.4% 510.6% 0.83 0.55 0.28 TOTAL OTHER PUBLIC ENTERPRISES 4.9t 27.9t 31.6% 465.4% 0.53 0.37 0.17 Other Public Enterprises - Financial Indicators for 1990 ROA ROE ROS Debt to Revenue/ Cost! Profit/ Equity Employee Employee Employee (%) (%) (%) Rapid Transit Metro NA NA NA NA NA NA NA Aeronautical Radio of Thailand 0.0% 0.0% 0.0% 1784.4% 0.33 0.33 0.00 National Housing Authority 4.0% 19.4% 30.0% 382.9% 0.57 0.40 0.17 Industrial Estate Authority of Thailan 5.8% 23.9% 49.4% 310.2% 1.22 0.62 0.60 TOTAL OTHER PUBLIC ENTERPRISES 4.3% 20.6% 29.7% 375.5% 0.57 0.40 0.17 Other Public Enterprises - Financial Indicators for 1991 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Rapid Transit Metro NA NA NA NA NA NA NA Aeronautical Radio of Thailand 0.0% 0.0% 0.0% 562.4% 0.38 0.38 0.00 National Housing Authority 2.0% 13.5% 24.0% 576.6% 0.60 0.46 0.14 Industrial Estate Authority of Thailan 4.5% 17.8% 49.1% 292.7% 1.37 0.70 0.68 TOTAL OTHER PUBLIC ENTERPRISES 2.6% 14.7% 25.7% 463.4% 0.62 0.46 0.16 Other Public Enterprises - Financial Indicators for 1992 ROA ROE ROS Deb- to -.e.enue/ Cost/ Profit/ Equi'y E-::loyee Employee Employee (%) (%) (%) Rapid Transit Metro NA NA NA NA NA NA NA Aeronautical Radio of Thailand 0.0% 0.0% 0.0% 169.1% 0.56 0.56 0.00 National Housing Authority 1.2% 9.1% 15.0% 677.1% 0.61 0.52 0.09 Industrial Estate Authority of Thailan 3.7% 13.1% 43.5% 256.3% 1.11 0.62 0.48 TOTAL OTHER PUBLIC ENTERPRISES 1.7% 9.6% 17.4% 448.5% 0.66 0.54 0.11 Other Public Enterprises - Financial Indicators for 1993 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Rapid Transit Metro Aeronautical Radio of Thailand ERR -10.1% -7.1% 257.1% 0.63 0.67 -0.04 National Housing Authority 0,6% 5.6% 8.9% 900.9% 0.68 0.62 0.06 Industrial Estate Authority of Thailan 3.2% 12.0% 26.3% 275.8% 1.88 1.38 0.49 TOTAL OTHER PUBLIC ENTERPRISES 0.9t 6.4% 9.7% 578.1% 0.81 0.73 0.08 TOTAL OTHER PUBLIC ENTERPRISES 89 4.9% 27.9% 31.6t 465.4% 0.53 0.37 0.17 TOTAL OTHER PUBLIC ENTERPRISES 90 4.3% 20.6% 29.7% 375.5% 0.57 0.40 0.17 TOTAL OTHER PU3LIC ENTERPRISES 91 2.6t 14.7% 25.7% 463.4% 0.62 0.46 0.16 TOTAL OTHER PUBLIC ENTERPRISES 92 1.7% 9.6% 17.4% 448.5% 0.66 0.54 0.11 TOTAL OTHER PUBLIC ENTERPRISES 93 0.9% 6.4% 9.7% 578.1% 0.81 0.73 0.08 - 135 - Annex 9 - Page 18 Other SEs (Promotional and Non-Commercial) - Financial Indicators for 1989 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Office of The Rubber Replanting Aid Fu 26.6% 28.7% 44.7% 7.6% 1.20 0.66 0.54 Promotion of Teaching Science and Tech 8.6% 12.0% 7.9% 40.1% 0.27 0.25 0.02 Government Lottery Bureau 9.5% 32.4% 1.6% 240.3% 13.53 13.31 0.22 Scientific and Technological Research 2.6% 5.5% 2.0% 108.6% 0.32 0.32 0.01 Zoological Park Organization 1.2% 1.2% 3.8% 0.7% 0.12 0.11 0.00 Tourism Authority of Thailand 3.2% 4.4% 3.9% 37.6% 0.68 0.65 0.03 Sports Organization of Thailand 1.5% 1.8% 3.6% 17.8% 0.26 0.25 0.01 TOTAL OTHER STATE ENTERPRISES 18.6% 24.7% 10.2% 32.9% 2.45 2.20 0.25 Other SEs (Promotional and Non-Commercial) - Financial Indicators for 1990 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Office of The Rubber Replanting Aid Fu -19.3% -20.6% -83.7% 6.8% 0.41 0.75 -0.34 Promotion of Teaching Science and Tech 16.2% 22.7% 14.7% 40.2% 0.35 0.30 0.05 Government Lottery Bureau 10.7% 38.2% 1.8% 257.4% 13.44 13.20 0.24 Scientific and Technological Research 3.4% 8.4% 2.7% 146.8% 0.40 0.39 0.01 Zoological Park Organization 1.5% 1.5% 4.0% 1.1% 0.13 0.12 0.01 Tourism Authority of Thailand 6.7% 9.5% 7.6% 41.1% 0.85 0.78 0.06 Sports Organization of Thailand -0.6% -0.7% -2.4% 16.4% 0.28 0.29 -0.01 TOTAL OTHER STATE ENTERPRISES -7.1% -9.7% -4.3% 35.0% 2.12 2.21 -0.09 Other SEs (Promotional and Non-Commercial) - Financial Indicators for 1991 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Office of The Rubber Replanting Aid Fu -11.1% -12.1% -32.0% 8.8% 0.85 1.12 -0.27 Promotion of Teaching Science and Tech 1.5% 2.2% 1.2% 39.8% 0.41 0.40 0.01 Government Lottery Bureau 7.7% 29.1% 1.3% 279.2% 12.91 12.74 0.17 Scientific and Technological Research 9.6% 24.2% 13.4% 152.9% 0.27 0.24 0.04 Zoological Park Organization -0.9% -0.9% -2.5% 0.9% 0.16 0.17 -0.00 Tourism Authority of Thailand 13.6% 16.0% 14.4% 17.9% 0.79 0.68 0.11 Sports Organization of Thailand 4.3% 4.8% 19.1% 11.2% 0.35 0.28 0.07 TOTAL OTHER STATE ENTERPRISES -1.6% -2.2% -0.9% 38.7% 2.75 2.77 -0.02 - 136 - Annex 9- Page 19 Other SEs (Promotional and Non-Conunercial) - Financial Indicators for 1992 ROA ROE ROS Debt to Revenue! Cost/ Profit/ Equity Employee Employee Employee (U} (U) (U Office of The Rubber Replanting Aid Fu -8.5% -9.4% -14.3% 10.9% 0.80 0.91 -0.11 Promotion of Teaching Science and Tech 1.3% 1.8% 0.9% 41.11 0.47 0.47 0.00 Government Lottery Bureau 11.4% 36.7% 1.9% 221.4% 16.80 16.48 0.32 Scientific and Technological Research 2.7% 3.61 8.4% 33.9% 0.33 0.30 0.03 Zoological Park Organization -0.2% -0.2% -0.9% 1.0% 0.11 0.11 -0.00 Tourism Authority of Thailand -4.8% -5.3% -4.3% 10.5t 1.02 1.06 -0.04 Sports Organization of Thailand -0.7% -0.8% -3.8% 1.8% 0.35 0.36 -0.01 TOTAL OTHER STATE ENTERPRISES -0.4% -0.6% -0.2% 36.6% 2.82 2.82 -0.01 Other SEs (Promotional and Non-Commercial) - Financial Indicators for 1993 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Civil Aviation Organization Botanical Garden Organization Office of The Rubber Replanting Aid Fu -28.9% -34.8% -32.1% 20.5% 0.70 0.92 -0.22 Promotion of Teaching Science and Tech 0.2% 0.2% 0.1% 38.9% 0.67 0.67 0.00 Government Lottery Bureau 9.6% 30.0% 1.7t 212.3% 15.81 15.54 0.26 Scientific and Technological Research 3.2% 4.2% 9.9% 32.4% 0.42 0.38 0.04 Zoological Park Organization -4.4% -4.5S -22.4% 1.0% 0.08 0.10 -0.02 Tourism Authority of Thailand 5.1% 5.3% 3.0% 4.7% 2.11 2.04 0.06 Sports Organization of Thailand -0.6% -0.6% -3.4% 0.6% 0.43 0.44 -0.01 TOTAL OTHER STATE ENTERPRISES -3.9% -5.4% -1.7% 39.9% 2.79 2.83 -0.05 TOTAL OTHER STATE ENTERPRISES 89 18.6% 24.7% 10.2% 32.9% 2.45 2.20 0.25 TOTAL OTHER STATE ENTERPRISES 90 -7.1% -9.7% -4.3% 35.0% 2.12 2.21 -0.09 TOTAL OTHER STATE ENTERPRISES 91 -1.6% -2.2% -0.9% 38.7% 2.75 2.77 -0.02 TOTAL OTHER STATE ENTERPRISES 92 -0.4% -0.6% -0.2% 36.6% 2.82 2.82 -0.01 TOTAL OTHER STATE ENTERPRISES 93 -3.9% -5.4% -1.7% 39.9% 2.79 2.83 -0.05 - 137 - Annex 9 - Page 20 Public Utilities - Financial Indicators for 1989 ROA ROE ROS Debt to Revenue/ Cost/ Profit! Equity Employee Employee Employee Cl) C() (1) Telephone Organization of Thailand 11.5% 44.9% 42.1% 291.0% 0.76 0.44 0.32 State Railway of Thailand -2.9% -7.9% -14.7% 177.8% 0.16 0.18 -0.02 Port Authority of Thailand 32.4% 39.5% 58.1% 21.9% 0.64 0.27 0.37 Express Transportation Organization 9.3% NA 3.7% NA 0.42 0.40 0.02 Communications Authority of Thailand 29.1% 34.4% 34.6% 17.9% 0.48 0.31 0.17 Bangkok Mass Transit Authority of Thai-112.0% NA -23.0% NA 0.17 0.21 -0.04 Airports Authority of Thailand 19.7% 48.4% 61.9% 145.9% 1.29 0.49 0.80 Provincial Waterworks Authority 5.3% 7.2% 21.0% 35.7% 0.33 0.26 0.07 Provincial Electricity Authority 5.7% 30.2% 9.6% 431.6% 0.59 0.53 0.06 Metropolitan Waterworks Authority 4.9% 17.2% 21.0% 251.8% 0.77 0.61 0.16 Metropolitan Electricity Authority 4.1% 15.6% 3.2% 279.1% 2.37 2.29 0.07 Expressway and Rapid Transit Authority 2.8% 9.8% 33.0% 248.8% 0.72 0.49 0.24 Petroleum Authority of Thailand 4.6% 13.2% 3.8% 184.1% 12.32 11.85 0.47 Mass Communications Organization of Th 25.0% 26.3% 47.8% 5.0% 0.63 0.33 0.30 Electricity Generating Authority of Th 8.5% 24.0% 24.4% 182.1% 1.34 1.02 0.33 TOTAL 15 PUBLIC UTILITIES 8.1% 25.3% 15.6S 213.6% 0,93 0.79 0.15 Public Utilities - Financial Indicators for 1990 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (a) (%) (%) Telephone Organization of Thailand 12.9% 43.9% 46.7% 241.0% 0.92 0.49 0.43 State Railway of Thailand -3.7% -11.2% -17.5% 202.0% 0.18 0.21 -0.03 Port Authority of Thailand 29.4% 37.8% 56.3% 28.6% 0.74 0.32 0.42 Express Transportation Organization 15.0% NA 5.0% NA 0.37 0.35 0.02 Communications Authority of Thailand 29.7% 34.9% 34.9% 17.7% 0.58 0.38 0.20 Bangkok Mass Transit Authority of Thai-112.2% NA -24.0% NA 0.18 0.22 -0.04 Airports Authority of Thailand 22.0% 44.7% 63.4% 103.2% 1.51 0.55 0.96 Provincial Waterworks Authority 5.7% 7.6% 21.6% 32.5% 0.35 0.27 0.08 Provincial Electricity Authority 7.5% 31.6% 12.4% 320.5% 0.69 0.60 0.09 Metropolitan Waterworks Authority 7.2% 20.1% 26.5% 178:2% 0.94 0.69 0.25 Metropolitan Electricity Authority 6.5% 23.9% 5.1% 269.9% 2.52 2.39 0.13 Expressway and Rapid Transit Authority 3.5% 12.9% 42.7% 265.9% 0.79 0.45 0.34 Petroleum Authority of Thailand 6.9% 19.3% 5.3% 178.6% 15.57 14.74 0.83 Mass Communications Organization of Th 23.1% 24.4% 46.4% 5.5% 0.65 0.35 0.30 Electricity Generating Authority of Th 8.4% 24.2% 24.6% 189.5% 1.52 1.15 0.37 TOTAL 15 PUBLIC UTILITIES 9.2% 27.4% 17.2% 199.0% 1.09 0.90 0.19 Public Utilities - Financial Indicators for 1991 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (S) (%) Telephone Organization of Thailand 14.4% 38.0% 51.4% 164.4% 1.07 0.52 0.55 State Railway of Thailand -3.4% -10.7% -14.2% 211.1% 0.21 0.24 -0.03 Port Authority of Thailand 26.4% 35.9% 57.7% 35.8% 0.78 0.33 0.45 Express Transportation Organization -9.1% NA -2.6% NA 0.34 0.35 -0.01 Communications Authority of Thailand 31.6% 36.4% 37.1% 15.0% 0.69 0.43 0.26 Bangkok Mass Transit Authority of Thai -3.8% NA -5.3% NA 0.21 0.23 -0.01 Airports Authority of Thailand 21.5% 43.4S 61.8% 102.5% 1.57 0.60 0.97 Provincial Waterworks Authority 5.7% 7.4% 21.1% 29.1% 0.38 0.30 0.08 Provincial Electricity Authority 9.9% 32.6% 15.6% 227.7% 1.32 1.11 0.21 Metropolitan Waterworks Authority 8.4% 20.5% 30.1% 144.2% 1.04 0.73 0.31 Metropolitan Electricity Authority 8.0% 27.3% 6.9% 240.1% 2.66 2.47 0.18 Expressway and Rapid Transit Authority 3.2% 16.4% 48.4% 407.5% 0.71 0.36 0.34 Petroleum Authority of Thailand 13.4% 30.7% 7.9% 129.5% 20.24 18.64 1.60 Mass Communications Organization of Th 25.5% 26.7% 49.7% 4.8% 0.76 0.38 0.38 Electricity Generating Authority of Th 6.7% 19.0% 20.4% 185.1% 1.64 1.31 0.34 TOTAL 15 PUBLIC UTILITIES 9.9% 26.6% 18.3% 168.7% 1.38 1.13 0.25 - 138 - Annex 9 - Page 21 Public Utilities - Financial Indicators for 1992 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) /%) Telephone Organization of Thailand 14.1% 35.6% 49.4% 153.2% 1.12 0.57 0.55 State Railway of Thailand -4.8% -17.8% -20.1% 273.4% 0.23 0.28 -0.05 Port Authority of Thailand 20.01 28.21 46.6% 41.0% 0.79 0.42 0.37 Express Transportation Organization -37.0% NA -10.8% NA 0.37 0.41 -0.04 Communications Authority of Thailand 26.8% 30.6% 33.1% 14.5% 0.74 0.49 0.24 Bangkok Mass Transit Authority of Thai 0.7% NA 1.0% NA 0.27 0.26 0.00 Airports Authority of Thailand 19.1% 35.1% 57.6% 83.7% 1.49 0.63 0.86 Provincial Waterworks Authority 2.51 3.1% 8.4% 24.4% 0.42 0.39 0.04 Provincial Electricity Authority 11.0% 30.6% 18.1% 179.2% 1.42 1.16 0.26 Metropolitan Waterworks Authority 7.0% 15.9% 27.3% 125.9% 1.02 0.74 0.28 Metropolitan Electricity Authority 6.4% 2C.8% 5.81 225.1% 2.88 2.71 0.17 Expressway and Rapid Transit Authority 3.3% 15.8% 52.8% 375.1% 0.89 0.42 0.47 Petroleum Authority of Thailand 13.7% 29.4% 9.3% 113.6% 20.86 18.91 1.95 Mass Communications Organization of Th 26.1% 27.6% 52.4% 5.7% 0.88 0.42 0.46 Electricity Generating Authority of Th 6.4% 18.0% 19.7% 181.2% 1.79 1.44 0.35 TOTAL 15 PUBLIC UTILITIES 9.3% 24.1% 18.2% 157.9% 1.44 1.18 0.26 Public Utilities - Financial Indicators for 1993 ROA ROE ROS Debt to Revenue/ Cost/ Profit/ Equity Employee Employee Employee (%) (%) (%) Telephone Organization of Thailand 9.1% 20.1% 53.2% 119.6% 0.79 0.37 0.42 State Railway of Thailand -3.3% -11.3% -19.8% 239.4% 0.22 0.27 -0.04 Port Authority of Thailand 18.3% 25.2% 44.4% 37.6% 0.82 0.46 0.37 Express Transportation Organization -27.1% NA -6.9% NA 0.59 0.63 -0.04 Communications Authority of Thailand 18.7% 21.6% 27.9% 15.4% 0.62 0.45 0.17 Bangkok Mass Transit Authority of Thai -7.2% NA -9.3% NA 0.27 0.30 -0.03 Airports Authority of Thailand 18.1% 33.8% 54.2% 86.21 2.10 0.96 1.14 Provincial Waterworks Authority 0.8% 1.1% 2.8% 36.2% 0.47 0.46 0.01 Provincial Electricity Authority 11.2% 22.2% 19.7% 97.3% 1.49 1.19 0.29 Metropolitan Waterworks Authority 8.7% 18.6% 36.0% 113.9% 1.14 0.73 0.41 Metropolitan Electricity Authority 7.2% 21.2% 7.2% 196.2% 2.90 2.69 0.21 Expressway and Rapid Transit Authority 0.7% 4.8% 34.3% 551.8% 0.52 0.34 0.18 Petroleum Authority of Thailand 11.6% 25.9% 8.3% 123.7% 22.96 21.05 1.90 Mass Communications Organization of Th 21.9% 22.4% 60.6% 2.2% 1.05 0.41 0.64 Electricity Generating Authority of Th 4.4% 11.4% 16.6% 162.0% 1.62 1.35 0.27 TOTAL 15 PUBLIC UTILITIES 6.9% 17.1% 16.2% 147.1% 1.48 1.24 0.24 TOTAL 15 PUBLIC UTILITIES 89 8.1% 25.3% 15.6% 213.6% 0.93 0.79 0.15 TOTAL 15 PUBLIC UTILITIES 90 9.2% 27.4% 17.2% 199.0% 1.09 0.90 0.19 TOTAL 15 PUBLIC UTILITIES 91 9,9% 26.6% 18.3% 168.7% 1.38 1.13 0.25 TOTAL 15 PUBLIC UTILITIES 92 9.3% 24.1% 18.2% 157.9% 1.44 1.18 0.26 TOTAL 15 PUBLIC UTILITIES 93 6.9% 17.1% 16.2% 147.1% 1.48 1.24 0.24 - 139 - Annex 10 - Page 1 Thailand Private Sector Participation and Improved Efficiency of State Enterprises Financial Results and Indicators for the 15 Public Utilities SEs (Million Baht) (In Alphabetic Order of SEs) Consolidated Results and Indicators for 15 Public Utilities CONSOLIDATED 15 SEs 1986 1987 1988 1989 1990 1991 1992 1993 Assets 274714 296635 325934 366839 433995 512390 580405 695396 Liabilities 208711 222796 236777 249874 288853 321679 355327 413936 Equity 66003 73839 89157 116965 145142 190711 225077 281459 Revenues 135431 146813 165257 189826 230255 277280 297492 296943 Costs 125099 131920 146005 160202 190539 226477 243350 248939 Profits before Tax 10332 14893 19252 29624 39716 50803 54141 48003 Capital Expenditures 37365 23379 28364 50670 64522 111861 116112 243216 Remittance to Government 3363 4016 4448 6580 9335 11196 17295 19538 Subsidy 78 1249 2066 3013 3633 5558 6007 11180 Number of Employees 182573 180386 179780 203355 211773 200803 205924 200242 % Return on Assets (Profit/Total Assets 3.8% 5.0% 5.9% 8.1% 9.2% 9.9% 9.3% 6.9% % Return on Equity (Profit/Equity) 15.7% 20.2% 21.6% 25.3% 27.4% 26.6% 24.1% 17.1% % Return on Sales (Net Income/Sales) 7.6S 10.1% 11.6% 15.6% 17.2% 18.3% 18.2% 16.2% Debt Equity 316.2% 301.7% 265.6% 213.6% 199.0% 168.7% 157.9% 147.1% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 1.01 1.08 1.18 1.13 1.24 1.50 1.50 1.48 Cost per Employee (Million Baht) 0.93 0.97 1.04 0.96 1.03 1.22 1.23 1.24 Profit per Employee (Million Baht) 0.08 0.11 0.14 0.18 0.21 0.27 0.27 0.24 Operating Ratio (Cost/Revenues) 92.4% 89.9% 88.4% 84.4% 82.8% 81.7% 81.8% 83.8% 3 Remittances to Government 32.6% 27.0% 23.1% 22.2% 23.5% 22.0% 31.9% 40.7% Addit.Remittances if Minimum is 30% 1434 1696 1857 3762 4361 6019 3106 2171 Total Remit, if Minimum is 30S 4797 5711 6305 10342 13695 17215 20401 21709 X Remittance on Capex 13% 24% 22% 20% 21% 15% 18% 9% Airports Authority Of Thailand (AAT) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 5287 6981 8371 10173 11551 12958 14071 14824 Liabilities 2609 4375 5450 6036 5867 6558 6411 6864 Equity 2678 2606 2922 4137 5684 6400 7660 7960 Revenues 1389 1672 2394 3237 4008 4500 4670 4962 Costs 558 676 1013 1233 1467 1719 1981 2274 Profits before Tax 832 996 1381 2004 2541 2780 2b90 2688 Capital Expenditures 1263 1412 789 1296 1069 4035 5910 5545 Remittance to Government 190 300 400 690 1002 1300 1391 1345 Subsidy 0 0 0 0 0 0 0 0 Number of Employees 2255 2209 2394 2505 2650 2875 3128 2365 S Return on Assets (Profit/Total Assets 15.7% 14.3% 16.5% 19.7% 22.0% 21.5% 19.1% 18.1% % Return on Equity (Profit/Equity) 31.1% 38.2% 47.3% 48.4% 44.7% 43.4% 35.1% 33.8% % Return on Sales (Net Income/Sales) 59.9% 59.6% 57.7% 61.9% 63.4% 61.8% 57.6% 54.2% Debt Equity 97.4% 167.9% 186.5% 145.9% 103.2% 102.5% 83.7% 86.2% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.84 1.00 1.28 1.57 1.73 1.70 1.55 2.10 Cost per Employee (Million Baht) 0.34 0.41 0.54 0.60 0.63 0.65 0.66 0.96 Profit per Employee (Million Baht) 0.50 0.60 0.74 0.97 1.10 1.05 0.89 1.14 Operating Ratio (Cost/Revenues) 40.1% 40.4% 42.3% 38.1% 36.6% 38.2% 42.4% 45.8% % Remittances to Government 22.8% 30.1% 29.0% 34.4% 39.4% 46.8% 51.7% 50.0% Incr. in Remittance if minimum is 30% 59 0 14 0 0 0 0 0 1/ Source: Consolidated from annual reports prepared by the Comptroller's Department, Ministry of Finance Annex 10 - Page 2 - 140 - Bangkok Mass Transit Authority Of Thailand (BMTA) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 596 646 696 789 869 6709 9410 8210 Liabilities 7132 8093 8893 9849 10844 11770 13205 11990 Equity -6536 -7446 -8197 -9060 -9976 -5061 -3795 -3780 Revenues 3143 3217 3398 3840 4066 4828 6400 6390 Costs 4269 4130 4165 4723 5040 5087 6336 6981 Profits before Tax -1126 -913 -767 -884 -974 -258 64 -591 Capital Expenditures 148 105 26 46 16 10 6311 4133 Remittance to Government 0 0 0 0 0 0 0 0 Subsidy 0 0 0 0 0 0 100 199 Number of Employees 22255 19892 19738 22703 22973 22469 23941 23506 % Return on Assets (Profit/Total Assets -189.01 -141.21 -110.2% -112.0% -112.2S -3.8% 0.7% -7.2% % Return on Equity (Profit/Equity) NA NA NA NA NA NA NA NA % Return on Sales (Net Income/Sales) -35.8% -28.4% -22.6% -23.0% -24.0% -5.3% 1.0% -9.2% Debt/Equity NA NA NA NA NA NA NA NA EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.19 0.21 0.22 0.21 0.20 0.23 0.28 0.27 Cost per Employee (Million Baht) 0.26 0.28 0.27 0.25 0.25 0.25 0.28 0.30 Profit per Employee (Million Baht) -0.07 -0.06 -0.05 -0.05 -0.05 -0.01 0.00 -0.03 Operating Ratio (Cost/Revenues) 135.8% 128.41 122.6% 123.0% 124.0% 105.31 99.0% 109.2% i Remittances to Government 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Incr. in Remittance if minimum is 30% 0 0 0 0 0 0 19 0 Conmnunications Authority Of Thailand (CAT) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 6332 7287 10011 12558 15602 19109 22413 22607 Liabilities 1392 953 1801 1910 2342 2500 2842 3025 Equity 4940 6334 8210 10648 13259 16609 19571 19582 Revenues 5068 6099 8367 10568 13295 16272 18097 15192 Costs 3413 4053 5654 6909 8661 10229 12102 10957 Profits before Tax 1655 2046 2713 3659 4634 6043 5996 4235 Capital Expenditures 3301 971 888 1801 1381 3751 9585 11446 Remittance to Government 500 744 720 1086 1830 2320 3030 3298 Subsidy 0 0 8 8 0 0 0 0 Number of Employees 21414 20873 21423 21979 22833 23604 24589 24,456 % Return on Asset (%) 26.1t 28.1% 27.1% 29.1% 29.7% 31.6% 26.8% 18.7% % Return on Equit (%) 33.5% 32.3% 33.0% 34.4% 34.9% 36.4% 30.6% 21.61 % Return on Sales (%) 32.7% 33.5% 32.4% 34.6% 34.9% 37.1% 33.1% 27.9% Debt Equity 28.2% 15.0% 21.9% 17.9% 17.7% 15.0% 14.5% 15.4% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.32 0.39 0.50 0.58 0.67 0.75 0.77 0.62 Cost per Employee (Million Baht) 0.22 0.26 0.34 0.38 0.43 0.47 0.51 0.45 Profit per Employee (Million Baht) 0.11 0.13 0.16 0.20 0.23 0.28 0.25 0.17 Operating Ratio (Cost/Revenues) 67.3% 66.5% 67.6* 65.4% 65.1% 62.9% 66.9% 72.1% % Remittances to Government 30.2% 36.4% 26.5% 29.7% 39.5% 38.4% 50.5% 77.9% Incr. in Remittance if minimum is 30% 0 0 94 12 0 0 0 0 - 141 - Annex 10 - Page 3 Electricity Generation Authority of Thailand (EGAT) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 97645 103897 110378 122466 148178 175309 193060 212798 Liabilities 75837 77158 77485 79051 96995 113824 124409 131591 Equity 21808 26739 32892 43415 51183 61485 68650 81207 Revenues 30409 33717 37474 42650 50410 57235 62702 55772 Costs 27064 26890 30406 32226 38024 45532 50363 46492 Profits before Tax 3344 6826 7069 10424 12386 11704 12339 9279 Capital Expenditures 8530 5634 7000 13540 28800 35356 23238 54167 Remittance to Government 470 600 956 1061 1564 1000 2614 2468 Subsidy 0 72 64 186 256 0 491 202 Number of Employees 32264 31176 31342 31732 33070 34803 35065 34505 % Return on Assets (Profit/Total Assets 3.4% 6.6% 6.4% 8.5% 8.4% 6.7% 6.4% 4.4% % Return on Equity (Profit/Equity) 15.3% 25.5% 21.5% 24.0% 24.2% 19.0% 18.0% 11.4% % Return on Sales (Net Income/Sales) 11.0% 20.2% 18.9% 24.4% 24.6% 20.4% 19.7% 16.6% Debt Equity 347.7% 288.6% 235.6% 182.1% 189.5% 185.1% 181.2% 162.0% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 1.28 1.44 1.53 1.63 1.75 1.78 1.86 1.62 Cost per Employee (Million Baht) 1.14 1.14 1.24 1.23 1.32 1.42 1.49 1.35 Profit per Employee (Million Baht) 0.14 0.29 0.29 0.40 0.43 0.36 0.37 0.27 Operating Ratio (Cost/Revenues) 89.0% 79.8% 81.1% 75.6% 75.4% 79.6% 80.3% 83.4% % Remittances to Government 14.1% 8.8% 13.5% 10.2% 12.6% 8.5S% 21.2% 26.6% Incr. in Remittance if minimum is 30% 533 1448 1165 2066 2152 2511 1088 316 Express and Rapid Transit Authority (ERTA) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 7938 9900 10948 13077 15145 23847 30346 82259 Liabilities 5001 6700 7535 9328 11006 19148 23958 69638 Equity 2937 3200 3413 3749 4139 4699 6387 12621 Revenues 618 707 945 1111 1251 1598 1911 1755 Costs 357 410 704 745 717 825 902 1152 Profits before Tax 262 298 240 366 534 773 1009 603 Capital Expenditutres 2068 1558 800 2625 2407 6478 2693 58503 Remittance to Government 40 65 90 84 128 187 271 354 Subsidy 0 43 67 67 314 1300 1349 5851 Number of Employees 933 907 1297 1535 1582 2264 2145 3359 % Return on Assets (Profit/Total Assets 3.3% 3.0% 2.2% 2.8% 3.5S 3.2% 3.3% 0.7% % Return on Equity (Profit/Equity) 8.9% 9.3% 7.0% 9.8% 12.9% 16.4% 15.8% 4.8% % Return on Sales (Net Income/Sales) 42.3% 42.1S 25.4% 33.0% 42.7% 48.4% 52.8S 34.4% Debt Equity 170.2% 209.4% 220.8% 248.8% 265.9% 407.5% 375.1% 551.8% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.90 0.78 0.73 0.72 0.79 0.71 0.89 0.52 Cost per Employee (Million Baht) 0.52 0.45 0.54 0.49 0.45 0.36 0.42 0.34 Profit per Employee (Million Baht) 0.38 0.33 0.19 0.24 0.34 0.34 0.47 0.18 Operating Ratio (Cost/Revenues) 57.7% 57.9% 74.6% 67.0% S7.3% 51.6% 47.2% 65.6% % Remittances to Government 15.3% 21.8% 37.4% 22.9% 24.0% 24.2% 26.9% 58.7% Incr. in Remittance if minimum is 30% 38 24 0 26 32 45 32 0 Annex 10 - Page 4 - 142 - Express Transportation Organization (ETO) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 336 367 382 471 480 458 448 445 Liabilities 721 750 734 763 699 755 911 1002 Equity -385 -384 -352 -291 -219 -297 -463 -558 Revenues 1005 1056 1006 1186 1427 1609 1541 1751 Costs 1078 1054 974 1143 1355 1650 1708 1871 Profits before Tax -73 2 32 44 72 -42 -166 -121 Capital Expenditures 4 1 1 53 146 152 0 45 Remittance to Government 0 0 0 0 0 7 1 0 Subsidy 0 0 0 0 0 0 0 0 Number of Employees 3389 5143 3121 2858 3901 4688 4137 2973 % Return on Assets (Profit/Total Assets -21.6% 0.5% 8.3% 9.3% 15.0% -9.1% -37.1% -27.2% % Return on Equity (Profit/Equity) NA NA NA NA NA NA NA NA % Return on Sales (Net Income/Sales) -7.2% 0.2% 3.2% 3.7% 5.0% -2.6% -10.8% -6.9% Debt Equity NA NA NA NA NA NA NA NA EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Bahtl 0.40 0.27 0.41 0.50 0.42 0.37 0.39 0.59 Cost per Employee (Million Baht) 0.43 0.27 0.40 0.49 0.40 0.38 0.43 0.63 Profit per Employee (Million Baht) -0.03 0.00 0.01 0.02 0.02 -0.01 -0.04 -0.04 Operating Ratio (Cost/Revenues) 107.2% 99.8% 96.8% 96.3% 95.0% 102.6% 110.8% 1.07 t Remittances to Government 0.0% 0.0% 0.0% 0.0% 0.0% -16.8% -0.6% 0.0% Incr. in Remittance if minimum is 30% 0 1 10 13 22 0 0 0 Mass Communications Organization Of Thailand (MCTOT) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 543 695 833 955 1123 1348 1677 2846 Liabilities 35 55 44 46 59 62 91 61 Equity 508 640 788 909 1064 1286 1586 2785 Revenues 325 397 469 500 559 691 835 1029 Costs 168 197 225 261 300 348 397 406 Profits before Tax 157 200 245 239 259 343 437 623 Capital Expenditures 64 70 81 301 85 478 507 997 Remittance to Government 13 55 80 98 96 104 137 175 Subsidy 0 0 0 0 0 0 0 0 Number of Employees 590 636 669 798 857 911 949 980 % Return on Assets (Profit/Total Assets 28.9% 28.8% 29.4% 25.0% 23.1% 25.5% 26.1% 21.9% % Return on Equity (Profit/Equity) 30.9% 31.3% 31.0% 26.3% 24.4% 26.7% 27.6% 22.4% % Return on Sales (Net Income/Sales) 48.4% 50.4% 52.1% 47.8t 46.4% 49.7% 52.3% 60.5% Debt Equity 6.9% 8.6% 5.6% 5.0% 5.5% 4.8% 5.7% 2.2% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.75 0.83 0.90 0.76 0.75 0.82 0.92 1.05 Cost per Employee (Million Baht) 0.39 0.41 0.43 0.40 0.40 0.41 0.44 0.41 Profit per Employee (Million Baht) 0.36 0.42 0.47 0.36 0.35 0.41 0.48 0.64 Operating Ratio (Cost/Revenues) 51.6% 49.6% 47.9% 52.2% 53.6% 50.3% 47.5% 39.5% % Remittances to Government 8.3% 27.4% 32.8% 41.0% 37.0% 30.3% 31.4% 28.1% Incr. in Remittance if minimum is 30% 34 5 0 0 0 0 0 12 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _-- - _ _- - - - - - - - - - - - - - - - - - - - - - - - - - - -143 - Annex 10 - Page 5 Metropolitan Electricity Authority (MEA) 1966 1987 1988 1989 1990 1991 1992 1993 Assets 15777 16972 18811 21135 25451 31560 35874 39989 Liabilities 11913 12831 14162 15560 18571 22280 24840 26488 Equity 3864 4140 4650 5575 6881 9280 11034 13501 Revenues 20305 22562 24735 27596 32419 36749 39622 39555 Costs 20001 22115 24123 26727 30775 34214 37327 36689 Profits before Tax 304 447 611 870 1644 2535 2295 2867 Capital Expenditures 1149 858 1188 2105 3931 4503 7275 10973 Remittance to Government 450 157 257 756 253 247 381 540 Subsidy 0 0 0 4 0 0 0 0 Number of Employees 10567 10865 11014 11649 12858 13824 13760 13625 % Return on Asset (%) 1.9% 2.6% 3.3% 4.1% 6.5% 8.0% 6.4% 7.2% % Return on Equit (%) 7.9% 10.8% 13.2% 15.6% 23.9% 27.3% 20.8% 21.2% % Return on Sales (%) 1.5% 2.0% 2.5% 3.2% 5.1% 6.9% 5.8% 7.2% Debt Equity 308.3% 309.9% 304.6% 279.1% 269.9% 240.1% 225.1% 196.2k EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 2.61 2.76 2.87 2.87 2.89 2.88 2.99 2.90 Cost per Employee (Million Baht) 2.57 2.70 2.80 2.78 2.74 2.68 2.82 2.69 Profit per Employee (Million Baht) 0.04 0.05 0.07 0.09 0.15 0.20 0.17 0.21 Operating Ratio (Cost/Revenues) 98.5% 98.0% 97.5% 96.8% 94.9% 93.1% 94.2% 92.8% % Remittances to Government 148.1% 35.1% 42.0% 86.9% 15.4% 9.7% 16.6% 18.8% Incr. in Remittance if minimum is 30% 0 0 0 0 240 514 308 320 Metropolitan Waterworks Authority (MWA) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 15135 16455 18459 19399 19846 21925 23748 26668 Liabilities 12051 12790 14036 13885 12713 12946 13236 14200 Equity 3084 3665 4423 5514 7133 8978 10513 12468 Revenues 3624 3711 4057 4532 5412 6128 6109 6436 Costs 2986 3147 3451 3581 3976 4286 4439 4118 Profits before Tax 638 564 606 950 1436 1842 1670 2319 Capital Expenditures 2566 1912 3807 4718 2371 3983 3504 6294 Remittance to Government 30 77 104 91 143 215 276 251 Subsidy 0 89 266 303 384 119 98 41 Number of Employees 5952 5833 5817 5852 5748 5865 6011 5638 % Return on Assets (Profit/Total Assets 4.2% 3.4% 3.3% 4.9% 7.2% 8.4% 7.0% 8.7% % Return on Equity (Profit/Equity) 20.7% 15.4% 13.7% 17.2% 20.1% 2n.5% 15.9% 18.6% % Return on Sales (Net Income/Sales) 17.6% 15.2% 14.9% 21.0% 26.5% 30.1% 27.3% 36.0% Debt Equity 390.7% 348.9% 317.3% 251.8% 178.2% 144.2% 125.9% 113.9% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.83 0.84 0.89 0.94 1.08 1.13 1.06 1.14 Cost per Employee (Million Baht) 0.68 0.72 0.76 0.74 0.79 0.79 0.77 0.73 Profit per Employee (Million Baht) 0.15 0.13 0.13 0.20 0.29 0.34 0.29 0.41 Operating Ratio (Cost/Revenues) 82.4% 84.8% 85.1% 79.0% 73.5% 69.9% 72.7% 64.0% % Remittances to Government 4.7% 13.7% 17.2% 9.6% 9.9% 11.7% 16.6% 10.8% Incr. in Remittance if minimum is 30% 161 92 78 194 288 337 225 445 - 144 - Annex 10 - Page 6 Port Authority Of Thailand (PAT) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 3267 3713 4850 6712 8773 11465 12159 13614 Liabilities 465 558 785 1205 1952 3021 3537 3719 Equity 2802 3155 4065 5507 6821 8443 8622 9895 Revenues 1556 1774 2712 3745 4580 5248 5218 5603 Costs 1184 1228 1476 1568 1999 2219 2788 3113 Profits before Tax 372 546 1236 2177 2580 3028 2429 2490 Capital Expenditures 1022 272 459 1408 1719 4119 926 6037 Remittance to Government 250 230 328 742 1307 1548 1817 1458 Subsidy 0 0 0 270 75 400 207 125 Number of Employees 6963 5907 5974 5841 6184 6688 6642 6796 % Return on Assets (Profit/Total Assets 11.4% 14.7% 25,5% 32.4% 29.4% 26.4% 20.0% 18.3% % Return on Equity (Profit/Equity) 13.3% 17.3% 30.4% 39.5% 37.8% 35.9% 28.2% 25.2% % Return on Sales (Net Income/Sales) 23.9% 30.8% 45.6% 58.1% 56.3% 57.7% 46.6% 44.4% Debt Equity 16.6% 17.7S 19.3% 21.9% 28.6% 35.8% 41.0% 37.6% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.30 0.40 0.58 0.78 0.85 0.85 0.82 0.82 Cost per Employee (Million Baht) 0.23 0.28 0.32 0.33 0.37 0.36 0.44 0.46 Profit per Employee (Million Baht) 0.07 0.12 0.26 0.45 0.48 0.49 0.38 0.37 Operating Ratio (Cost/Revenues) 76.1% 69.2% 54.4% 41.9% 43.7% 42.3% 53.4% 55.6% S Remittances to Government 67.3% 42.1% 26.5% 34.1% 50.7% 51.1% 74.8% 58.6% Incr. in Remittance if minimum is 30% 0 0 43 0 0 0 0 0 Provincial Electricity Authority (PEA) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 30668 35196 39493 43416 51215 58395 69904 80315 Liabilities 26876 30916 33772 35249 39036 40578 44867 39607 Equity 3792 4279 5721 8167 12179 17818 25037 40708 Revenues 16464 18807 21602 25591 31034 37149 42212 45837 Costs 16227 18405 20232 23128 27185 31342 34530 36807 Profits before Tax 238 402 1370 2463 3849 5807 7661 9030 Capital Expenditures 2969 2688 2638 3856 6233 6792 9016 16987 Remittance to Government 30 45 60 206 370 578 871 1670 Subsidy 0 13 327 332 550 1292 216 393 Number of Employees 23120 24397 25017 43738 45213 28244 29733 30847 1 Return on Assets (Profit/Total Assets 0.8% 1.1% 3.5% 5.7% 7.5% 9.9% 11.0% 11.2% % Return on Equity (Profit/Equity) 6.3% 9.4% 23.9% 30.2% 31.6% 32.6% 30.6% 22.2% % Return on Sales (Net Income/Sales) 1.4% 2.1% 6.3% 9.6% 12.4% 15.6% 18.1% 19.7% Debt Equity 708.7% 722.5% 590.4% 431.6% 320.5% 227.7% 179.2% 97.3t EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.97 1.02 1.10 0.71 0.79 1.42 1.48 1.49 Cost per Employee (Million Baht) 0.95 1.00 1.03 0.64 0.69 1.20 1.21 1.19 Profit per Employee (Million Baht) 0.01 0.02 0.07 0.07 0.10 0.22 0.27 0.29 Operating Ratio (Cost/Revenues) 98.6% 97.9% 93.7% 90.4% 87.6% 84.4% 81.8% 80.3% S Remittances to Government 12.6% 11.2% 4.4% 8.3% 9.6% 10.0% 11.4% 18.5% Incr. in Remittance if minimum is 30% 41 76 351 533 785 1164 1427 1039 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -_-- - - - - - - - - - - - - - - - - Annex 10 - Page 7 - 145 - Petroleum Authority Of Thailand (PTT) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 34447 35346 36124 37649 44349 45604 51958 63969 Liabilities 24244 24314 23904 24399 28432 25731 27635 35370 Equity 10203 11032 12220 13250 15917 19873 24323 28599 Revenues 38578 38561 41357 45744 58047 77190 76400 89527 Costs 36934 36971 39379 43996 54968 71090 69257 82114 Profits before Tax 1644 1589 1978 1747 3080 6100 7143 7412 Capital Expenditures 2443 1252 2022 4154 3624 3792 12933 18520 Remittance to Government 1020 576 557 726 757 1105 2135 2212 Subsidy 0 0 0 0 0 0 0 Number of Employees 3792 3730 3739 3713 3728 3813 3662 3900 % Return on Assets (Profit/Total Assets 4.8% 4.5% 5.5% 4.6% 6.9% 13.4% 13.7% 11.6% % Return on Equity (Profit/Equity) 16.1% 14.4% 16.2% 13.2% 19.3% 30.7% 29.4% 25.9% % Return on Sales (Net Income/Sales) 4.3% 4.1% 4.8% 3.8% 5.3% 7.9% 9.3% 8.3% Debt Equity 237.6% 220.4% 195.6% 184.1% 178.6% 129.5% 113.6% 123.7% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 13.84 13.72 14.14 14.95 17.83 21.93 21.70 22.96 Cost per Employee (Million Baht) 13.25 13.15 13.47 14.38 16.88 20.19 19.67 21.05 Profit per Employee (Million Baht) 0.59 0.57 0.68 0.57 0.95 1.73 2.03 1.90 Operating Ratio (Cost/Revenues) 95.7% 95.9% 95.2% 96.2% 94.7% 92.1% 90.7% 91.7% % Remittances to Government 62.1% 36.2% 28.2% 41.5% 24.6% 18.1% 29.9% 29.8% Incr. in Remittance if minimum is 30% 0 0 36 0 167 725 8 12 Provincial Waterworks Authority (PWA) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 5745 6046 6354 6902 7491 8237 8656 11440 Liabilities 1906 1962 1907 1814 1837 1857 1696 3043 Equity 3839 4084 4447 5088 5655 6380 6960 8397 Revenues 1510 1610 1749 1750 1982 2238 2587 3381 Costs 1152 1240 1389 1382 1553 1765 2368 3286 Profits before Tax 358 371 360 368 429 473 219 94 Capital Expenditures 658 1292 604 1139 1224 2460 6043 8312 Remittance to Government 0 61 144 222 147 172 189 0 Subsidy 0 128 324 412 602 800 858 1385 Number of Employees 5250 5303 5216 5247 5680 5950 6091 7137 % Return on Assets (Profit/Total Assets 6.2% 6.1% 5.7% 5.3% 5.7% 5.7% 2.5% 0.8% % Return on Equity (Profit/Equity) 9.3% 9.1% 8.1% 7.2% 7.6% 7.4% 3.1% 1.1% % Return on Sales (Net Income/Sales) 23.7% 23.0% 20.6% 21.0% 21.6% 21.1% 8.5% 2.8% Debt Equity 49.7% 48.1% 42.9% 35.7% 32.5% 29.1% 24.4% 36.2% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.39 0.40 0.43 0.40 0.40 0.41 0.44 0.47 Cost per Employee (Million Baht) 0.30 0.31 0.34 0.32 0.31 0.32 0.40 0.46 Profit per Employee (Million Baht) 0.09 0.09 0.09 0.09 0.09 0.09 0.04 0.01 Operating Ratio (Cost/Revenues) 76.3% 77.0% 79.4% 79.0% 78.4% 78.9% 91.5% 97.2% S Remittances to Government 0.0% 16.5% 40.0% 60.4% 34.4% 36.3% 86.3% 0.0% Incr. in Remittance if minimum is 30% 107 50 0 0 0 0 0 28 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _ _-- - _ _-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - Annex 10 - Page 8 - 146 - State Railway Of Thailand (SRT) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 18302 18599 20066 20762 21449 22666 24709 27845 Liabilities 11614 11974 13171 13287 14346 15380 18091 19641 Equity 6689 6625 6896 7475 7103 7286 6618 8204 Revenues 3332 3370 3701 4036 4545 5489 5852 4705 Costs 4367 4355 4251 4628 5340 6268 7031 5634 Profits before Tax -1035 -986 -550 -592 -795 -778 -1178 -929 Capital Expenditures 1447 737 1261 1817 1542 8198 2103 10943 Remittance to Government 0 0 0 0 0 0 0 0 Subsidy 78 904 1010 1431 1452 1646 2689 2984 Number of Employees 26329 25769 25063 25019 25769 25864 25284 21004 % Return on Assets (Profit/Total Assets -5.7% -5.3% -2.7% -2.9% -3.7t -3.4% -4.8% -3.3% t Return on Equity (Profit/Equity) -15.5% -14.9% -8.0% -7.9% -11.2% -10.7% -17.8% -11.3% % Return on Sales (Net Income/Sales) -31.1% -29.3% -14.9$ -14.7% -17.5% -14.2% -20.1% -19.7% Debt Equity 173.6t 180.7t 191.0% 177.8% 202.0S 211.1% 273.4% 239.4% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million BahtJ 0.17 0.17 0.19 0.20 0.20 0.23 0.24 0.22 Cost per Employee (Million Baht) 0.23 0.22 0.22 0.22 0.24 0.26 0.29 0.27 Profit per Employee (Million Baht) -0.05 -0.05 -0.03 -0.03 -0.04 -0.03 -0.05 -0.04 Operating Ratio (Cost/Revenues) 131.1% 129.3% 114.9% 114.7% 117.5% 114.2% 120.1% 119.7% % Remittances to Government 0.0% 0.0% 0.0% 0.0t 0.0% 0.0% 0.0% 0.0% Incr. in Remittance if minimum is 30% 0 0 0 0 0 0 0 0 Telephone Organization Of Thailand (TOT) 1986 1987 1988 1989 1990 1991 1992 1993 Assets 32696 34536 40157 50373 62472 72800 81973 87567 Liabilities 26916 29367 33099 37491 44154 45268 49598 47697 Equity 5781 5169 7059 12882 18318 27532 32375 39870 Revenues 8105 9553 11291 13739 17221 20355 23336 15049 Costs 5342 7049 8563 7951 9180 9902 11802 7045 Profits before Tax 2763 2504 2728 5788 8041 10453 11534 8004 Capital Expenditures 9734 4619 6801 11812 9976 27754 26068 30313 Remittance to Government 370 1105 751 819 1737 2413 4181 5767 Subsidy 0 0 0 0 0 0 0 0 Number of Employees 17500 17746 17956 18186 18727 18941 20787 19151 t Return on Asset (I) 8.5% 7.3% 6.8% 11.5% 12.9t 14.4% 14.1% 9.1% % Return on Equit (%) 47.8% 48.4% 38.6t 44.9t 43.9% 38.0% 35.6% 20.1I % Return on Sales (%) 34.1% 26.2% 24.2% 42.1% 46.7t 51.4% 49.4% 53.2% Debt Equity 465.6% 568.1% 468.9% 291.0% 241.0% 164.4% 153.2% 119.6% EFFICIENCY INDICATORS 1993 Prices Revenue per Employee (Million Baht) 0.63 0.71 0.80 0.92 1.05 1.16 1.17 0.79 Cost per Employee (Million Baht) 0.42 0.53 0.61 0.53 0.56 0.57 0.59 0.37 Profit per Employee (Million Baht) 0.21 0.19 0.19 0.39 0.49 0.60 0.58 0.42 Operating Ratio (Cost/Revenues) 65.9% 73.8% 75.8% 57,9% 53.3% 48.6% 50.6% 46.8% t Remittances to Government 13.4% 44.1% 27.5% 14.1% 21.6% 23.1% 36.3t 72.1% Incr. in Remittance if minimum is 30% 459 0 67 918 675 723 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _ - - _ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 14 7 - Annex I1 - Page I Thailand Private Sector Participation and Improved Efficiency of SEs Pension Systems Executive Summary I . The Pension System of the State Enterprises. The main objective of the pension system study is to review the pension systems of the SEs to identify potential problems when their pension systems are converted to the system used by the private sector, i.e., the Provident Fund (PF). The present pension arrangements for the 15 public utility state enterprises (SEs) are defined benefit (DB) pension plans providing lump sum benefits based on one month's salary for each year of service completed. Each SE is required to contribute 10% of payroll. These contributions are held as deposits in bank accounts. Pension assets are legally owned by the SEs. The Ministry of Finance (MOF) is considering converting the pension plans into PFs. Existing employees will be given the choice of joining a new PF or of remaining in the current pension plan. The proposals are consistent with PFs already set up by several SEs which have been corporatized and one SE which was privatized. Existing benefit entitlements can be met, as existing employees are given an option to remain in the current pension plans. 2. In principle, the proposed plan benefit design on conversion is reasonable. However, the mission found that there are several shortcomings in the operational and funding aspects of the current and proposed retirement systems of the SEs. The amount of pension liability of each SE is unknown. It is clear that there has been no actuarial assessment of the pension liability of the SEs. There is also a serious mismatch of assets and liabilities. 3. We recommend that the following measures be taken: i Actuarial valuation be carried out for each SE to determine the pension liability, compared with available assets, and appropriate level of contribution. The financial status of the SEs' plans disclosed by the valuations will enable the MOF to make an informed decision on whether to retain the existing system or to proceed with the proposed conversion. * Diversified investment portfolios be allowed for the pension plan assets, including a significant proportion of equity type investments, to be consistent with its long term obligations. * Assets of pension plans should be independent of SE's finances. This will ensure equitable treatment of PF assets which are wholly secured independently of the employer and the pension plan assets. The concept of "juristic person" can be applied to the pension plans; beneficial trusts analogous to those used in the mutual fund industry are also suitable. 4. Assuming that the MOF proposed arrangements are implemented, the following measures are also recommended: * Detailed projections of expected benefits, using various financial scenarios and membership profiles, should be carried out to determine the appropriate level of contributions for PF members. Projections should be made for employees who remain in the pension plans, for those joining the PF and for new entrants. * Consideration should be given to a period of consultation with employee representatives before pension changes are implemented. In due course, an employee communications exercise should be carried out to inform and educate employees on the changes to their pension benefits. - 148 - Annex 11 - Page 2 5. Apart from the need to perform actuarial valuations, investment objectives and strategies have to be established. These issues should be addressed in the near future. Implementation considerations include establishing appropriate asset allocation, selecting and appointing fund managers, instituting regular review and monitoring of investment performance of fund managers. A "controlling body" with responsibility to institute objectives and implementation is also required. An outline of a working framework of these issues has already been suggested iii an earlier World Bank report of 10 February 1993. That report sets out the findings and recommendations of a World Bank mission to review the civil service pension plan. The comments set out in Section V of that report on implementation of investment issues are equally applicable to the SEs' pension plans. 6. Provident Funds Industry. This section reviews the pension system for the private sector which will be applicable to the SEs upon their conversion. The private sector pension system is governed by the Provident Fund Act of 1987. The main objectives of the act are to promote private sector provision of retirement benefits and to mobilize employee savings. 7. There are currently 708 PFs covering about 400,000 employees, or about 1 % of active work force in Thailand. Total assets managed by 16 licensed managers amounted to Baht 21 billion as of September 1993. Total PF assets have increased about 37 fold since 1984. However, the total size is modest compared to Thailand stock market capitalization of $90 billion and the $6 billion mutual funds industry. There is also a lack of awareness among employees and employers of PF issues and of the Provident Fund Act which regulates the operation of private sector PFs. It is clear that there has been little penetration of PFs in the work force. There is ample opportunity and potential for further growth in the retirement scheme industry to meet the objectives of mobilizing the current savings gap, and to assist in the development of capital markets. 8. The mission recommends that the following measures be taken to increase the attractiveness and coverage of PFs: * A public promotion campaign be effected to increase awareness of the act. The merits of establishing PFs should be highlighted to both employees and employers. * To encourage establishment of PFs, we recommend that the limit on tax allowance of Baht 10,000 per annum be removed and replaced by a percentage of earnings. An upper limit of, say, Baht 30,000, indexed to wage inflation, can still be maintained to cap excessive contributions. * PFs where only the employer or the employee contributes should be allowed. This will encourage the establishment of PFs, and generate savings. * There should be no difference between tax treatment of PFs and DB schemes. Fully funded DB schemes should also be permitted under the Provident Fund Act, with corresponding tax incentives. * The investment restrictions of the act should be progressively removed as the PF industry and the SET matures. Asset allocation should in time be left to the Fund Committee. When compulsory holdings are removed, guidelines may still be retained to assist Fund Committees. * Overseas investments should gradually be permitted to increase diversification. * The maximum investment fee set out under the act should be removed. Fee levels should be negotiated between the fund manager and the Fund Committee. * The MOF should license more PF managers to increase competition. Authorization should be extended to all institutions who wish to pursue the PF management business, subject to - 149 - Annex I I - Page 3 appropriate business criteria. Authorized institutions may, for example, include banks, insurance companies, and mutual fund companies. Consideration should also be given to transferring supervision of fund managers to the SEC. 9. The issues surrounding the establishment of funded schemes and their on-going monitoring are complex, and will require specialized knowledge of pension matters. Consideration should be given to training of MOF personnel involved in the supervision of pension issues. An external consultant can be retained to provide on-going advice and training on all aspects of pension matters. (A) The Pension System of the State Enterprises 10. The present arrangements for all 15 SEs are DBs plans (referred to as "pension plans" in Thailand) providing lump sum benefits based on one month's basic salary for each year of service completed. The system is similar to that of the govemment civil service pension plan except for the fact that the payment at the end is a lump sum amount. Attachment 1 sets out the broad features of the current pension arrangements operated by the SEs. 11. Each SE must contribute at least 10% of monthly payroll to finance the cost of providing the benefits promised. The funds built up from the 10% contributions paid by the SEs are currently held in bank accounts. As at September 1992, the total funds held in respect of the 15 SEs amounted to Baht 25.3 billion. These bank accounts are held off-balance sheet and we understand that legal title to these funds are held by the SEs. There is therefore no separation of assets held in respect of pension liabilities and the assets of the SEs. This would not present any difficulties at the present time as far as solvency of the plans is concerned since the Royal Thai Government is the ultimate guarantor. However, post privatization, it would be imperative that pension fund assets be constituted as legal entities separate from the SEs to increase the security of members' benefit entitlements. 12. It appears that there has been no actuarial assessments of the pension liabilities of the SEs. Such assessments, known as "actuarial valuations", conducted regularly, are essential to the proper management and operation of a DB pension scheme. It is likely that with some 200,000 SE employees, the magnitude of the accrued pension obligation would be very significant. Although the SEs are required to contribute 10% of payrolls to a fund for the cost of providing the benefits, without proper actuarial valuations, it would be fortuitous that this contribution rate would be appropriate for each separate SE. 13. Regulations issued by the MOF restrict the investment of the funds held to deposits/fixed income securities of various MOF approved Banks. As the pension benefits are based on final salary, the SE pension liabilities will increase correspondingly with salary increases granted to SE employees. The MOF investment restrictions on asset allocation of the funds to broadly fixed interest securities mean that there is a serious mismatch of liability and asset profiles; the former being essentially linked to salary and inflation growth and requiring capital growth assets lilce equities, but actual assets are invested in non-growth income stocks. 14. There are certain shortcomings in the funding and operational aspects of the current DB plans of the SEs. These are discussed below. 15. The Proposed New PF Arrangements. If as is usually the case, salaries increase at least as much as inflation, the main advantage of existing DB is that member benefits are protected against such inflation. In a tight labor market and in order to be competitive with the private sector, salary increases granted by the SEs in recent years have been relatively high. 16. In the light of the expected continuing significance of salary inflation, the MOF is concerned that the continuation of the DB schemes may lead to an increasingly heavy burden of pension liabilities. The unfunded liability of the present plan is estimated at roughly $6.0 billion. The MOF has been reviewing the - 150 - Annex Il - Page 4 current pension system for some while and is intending to convert the DB schemes to PF schemes. The proposals are described in Attachment 2. The MOF's intention is to set up PFs (PFs) for new employees. Existing employees will be given the option of switching to the new PFs with a transfer of their accrued benefits or of remaining in the existing DB plans. 17. From our discussions with officials from the MOF, it was clear that the PFs have already been implemented by a number of SEs. There are four SEs which have been corporatized and one of them partially privatized, i.e., Thai Airlines International. These SEs (Thai Airlines, PTT, Aeronautical Radio of Thailand, Dhipaya Insurance Company and Krung Thai Bank) have converted their DB plans to PFs which are governed by the Provident Fund Act of 1987. The existing employees were given an option to convert to the PFs or to continue with their DB plans. Thus far, about half of the employees of Thai Airlines have decided to convert to the PF. In the case of Krung Thai Bank, all of them adopted the PF since the previous system was essentially a PF system. We understand that the Civil Service DB scheme will also be converted along the lines proposed for the SEs. 18. The proposed arrangements will be consistent with the arrangements already in place for the various SEs that have started on the privatization route; the proposed Civil Service PF scheme, and in particular the private sector operated PFs. 19. "Grandfathering" of existing benefits is achieved by the existing employees having the choice to remain in the current DB scheme. Providing employees with a choice will inevitably mean that there will be selection against the fund, since one would expect existing employees who will be better off in the new PF choose to transfer, and vice versa. Ultimately, the cost may be higher than operating the existing scheme for all existing employees with new entrants joining the new PF. However, in principle, the proposed arrangements are reasonable. 20. The PP benefits to be offered under the proposed arrangements are broadly in line with private sector operations, although a significant number of private sector companies still operate DB schemes. To maintain competitiveness in the market place, it would be necessary to conduct a proper survey of retirement arrangements operated by the SEs' potential competitors in their particular industry, for example, compare PFI with ESSO and Shell. 21. It should be noted that the underlying objective of the MOF is to ensure that schemes operated by SEs are adequately funded. This can still be met by retaining the current DB schemes. The basic differences between the current DB schemes and the proposed PF schemes are that benefits are guaranteed in the DB schemes with the employer retaining the investment risk while, under the PF schemes, the investment risk is transferred to the employee with benefits dependent on the level of investment returns. It could be envisaged that if the employee retires or leaves service with a PF benefit in times of adverse investment experience (i.e., where asset values are depressed), the benefit available could be much smaller than the benefit from a corresponding DB. 22. Operating DB arrangements does not necessarily equate to an increasing or unmanageable cost for the employer. The two key financial factors which have an impact on the cost to the employer are salary increases and investment returns on assets held. With proper and disciplined long-term funding by the employer, which is determined and reviewed regularly by actuarial valuations, coupled with appropriate asset allocation, the long-term contribution rate required from the company sponsoring the DB scheme should be a relatively stable percentage of payroll. Indeed, generally DB schemes are more efficient in providing retirement benefits since a long-term view can be taken on investment allocation. 23. In the following paragraphs, we focus on the implementation aspects of the proposals from the CGD and, as the current DB plans will be retained (at least for the existing employees), we also recommend measures to address the shortcomings highlighted earlier. 24. Actuarial valuations of each SE's DB plan should be carried out by qualified actuaries. These -151 - Annex ll - Page 5 valuations will disclose the unfunded liability and indicate the appropriate level of contributions required in order to finance on-going accrual of plan benefits for each SE. The information on the financial status of the SEs' plans will enable the MOF to make an informed decision on whether to retain the existing system or to proceed with the proposed conversion (the value of assets held for certain SEs' plans may be more than sufficient to cover the accrued actuarial pension liability). 25. It is recognized that presently the govermnent will underwrite the cost of providing the plan benefits, and thus there will be no risk of default. However, for actual privatization of the SEs, the operational aspects of any pension system ultimately adopted by the privatized company should reflect best practice. We therefore recommend that the assets currently held in the SEs be legally separated from the SEs as soon as possible. This is a fundamental principle of securing members' plan benefit interests independent of the fortunes of the sponsoring company. The concept of "juristic person" established under the Provident Fund Act can be used or, alternatively, the assets can be constituted under a beneficial trust analogous to that used in the mutual funds industry. 26. The assets in respect of the retained DB plans should be managed by professional fund managers, as in the case of PF assets established by the private sector under the Provident Fund Act. 27. The current practice of compulsory holdings in entirely fixed interest securities is inappropriate for DB plans (and indeed for defined contribution plans also). The aim of the plans is the provision of retirement benefits for the employees and, as such, the plans' obligations are long-term. Furthermore, plan benefits are related to salary inflation. We recommend that the investment restrictions be relaxed to allow investments in a well diversified portfolio consistent with the nature of the plans' liabilities. Asset allocation should be biased in favor of capital growth securities to reflect the requirement to match the growth in liabilities. A typical portfolio distribution of assets held for DB plans found in other countries is shown in Table l. Table 1: Typical Portfolio Distribution of Provident Funds Asset Category Percentage of Total Portfolio Equities 60% to 80% Fixed Interest Securities 20% to 30% Other Liquid Assets and Cash 0% to 10% 28. Equity investment would include mutual funds, warrants, convertible debentures. Consideration should also be given to investment in overseas securities to increase diversification and reduce portfolio risk. 29. Assuming that the proposed arrangements are to be implemented, it will be necessary to determine not only the appropriate rate of contribution to fund the retained DB plans, but also the rate to be paid by both the employee and the employer to the PF. Ideally, equity of treatment between the new and existing employees participating in the different schemes is desirable. This is, however, difficult to achieve with the operation of two very different type of schemes. This underlies the conceptual difference between the benefit provision from a DB plan, where benefits can be demonstrably determined according to a formula, and a PF, where benefits are based entirely on the accumulation of contributions and investment earnings thereon. Nevertheless, it would be useful to perform projection exercises of the benefit levels expected under the different schemes to investigate broad equity of treatment. 30. We understand that officials from the CGD have performed projection exercises. We suggest - 152 - Annex 11 - Page 6 that these be extended to include various financial scenarios, which should be as realistic as possible. In particular, the salary increases expected to be granted to SE's employees in the short-term should be built into the calculations. The exercise should be performed for various age, service and salary profiles. These projection exercises will enable the appropriate level of employer PF contributions to be determined to meet the objectives of equitable treatment for: (i) a new employee (ensuring benefits under the new PF will competitive and will not be "excessive" relative to the old DB benefit); and (ii) an existing employee who elects to join the PF (ensuring that PF are expected to be comparable to that available from the old DB scheme). (B) The Provident Fund Act and the Private Sector Arrangements 31. The mission carried out a review of the pension system for the private sector which will be applicable to the SEs upon their conversion. The Provident Fund Act of 1987 regulates the operation of all registered private sector PFs. This act replaces the previous Ministerial Regulations No. 162 and confers wider tax advantages to employees and employers. The main objectives of the act are to encourage private sector provision of retirement benefits and to promote the mobilization of private savings for economic development. A summary of the Provident Fund Act is given in Attachment 3. 32. Key statistics of the PF industry are given in Table 2. The number of private sector PFs established and registered under the act has increased from 159 in 1984 to about 700 in September 1993, covering approximately 2,000 employers. As of September 30, 1993, the total number of employees covered wvas about 402,000. The growth in PFs is illustrated in Table 2 below. Table 2: Provident Fund Industry REGISTERED PROVIDENT FUNDS 1984-1993 YEAR 1984 1985 1986 1987 1988 1989 1990 1991 1992 30 1) Number of Funds 159 267 448 522 645 780 623 591 649 708 2) Number of Employers 154 260 441 514 637 834 1,349 1,419 1,764 2,021 3) Number of Members 28,413 40,832 74,153 83,254 105,240 157,189 219,637 257,642 344,461 401,840 4) Amount of Funds 562 1,122 2,421 3,204 4,048 5,316 7,110 9,685 16,720 20,600 (millions of Baht) (Note : The decrease in the number of funds in 1990 and 1991 was due to several employers participating in pooled group funds). Source: MOF, Capital Markets Policy Division. 33. As of September 30, 1993, total assets under management by the 16 licensed fund managers amounted to about Baht 21 billion (about $800 million). Total assets of the PFs have increased by about 37 fold or approximately 53% per annum since 1984. However, its total size is modest compared to the stock market capitalization of about $90 billion. Total PF assets also compare unfavorably with the $6.0 billion - 153 - Annex 11 - Page 7 mutual funds industry, which has been aggressively promoted since February 1992. Thus far, the PF industry has played a modest role in the development of Thailand's capital market. 34. Although the PF industry and coverage has shown strong growth rates over the last 10 years, the percentage of workers covered is still very low, at about 1 % of the active working population. The distribution of the working population is given in Chart 1. Even after excluding agricultural workers, who form 60% of the working population, only about 3% of the urban workers are covered. Chart 2 illustrates the distribution of workers covered by retirement benefit schemes. Distribution of Working Population Distribution of Workers Covered (December 31, 1992) by Retirement Benefits State Enterprise Ohr .... ~~~~~~~~~~~~Olher Employees Clvll Servants Knawn Employos 6% 7 Aurl.Workre ... . Chart 1 Chart 2 35. The employee benefits area in Thailand is still relatively undeveloped. Many Thai workers perceive increases in current earnings to be more important and preferable to long-term retirement benefits provided via the employers' PFs. Indeed, a guaranteed income is still being sought by a majority of the Thai workforce. Therefore, it is not surprising that the PF coverage is relatively low. There is also a compounding factor of lack of awareness among employees and employers of the Provident Fund Act. There is a need to educate both the employers and employees of the merits of retirement benefit provision. The PF industry can play an important part in the mobilization of workers savings to reduce the current savings gap, and in the development of the capital markets. 36. With increasing urbanization and the broadening of the economic base away from reliance on agriculture, the demand for employee benefits will inevitably grow. The current labor shortage leading to higher wages and the entry of more multinational companies, which would typically provide a wider range of employee benefits, will also provide an impetus towards more formal retirement benefit provisions in Thailand. - 154 - Annex 1 1 - Page 8 37. The majority of employers who operate retirement benefits for employees have set up PFs although, as mentioned earlier, a significant number provide benefits via DB schemes. Typically, in the private sector practice, PF members are required to contribute at between 3% to 5%. Some PFs allow employees to contribute at a level within a range of contribution rates. Employers must match employee contributions, and a number contribute on a sliding scale with higher rates for employees who have completed longer service. Most of the PFs specify a minimum vesting period before the employees are entitled to the full amount of the employers' contributions. 38. In Thailand, it is believed that many employers, particularly multinational companies, have established DB (final salary) schemes to provide retirement and leaving service benefits for their employees. The benefit is usually based on a multiple of salary for each year of service. These schemes are usually unfunded and operated as book-reserve plans, which provide benefit payments directly from the employer's accounts. These plans are currently not eligible for registration under the Provident Fund Act, and thus do not qualify for favorable tax treatments and tax incentives. However, benefits paid by the employer can be treated as a tax expense in the year benefits are paid. One advantage of operating such a DB scheme is that the Statutory Severance payment under the Labor Law may be included in the scheme benefit, whereas the statutory benefit would be separate and payable in addition to any benefit from a registered PF. This lack of flexibility to integrate statutory and PF scheme benefits may be an inhibiting factor in employers' setting up PFs. 39. The typical asset distribution of private sector PFs as of 30 September 1993 is given in Table 3. Table 3: Assets Distribution of Provident Funds I [%] i) Cash and Bank Deposits 40 ii) Banks and Financial Companies' Note 47 iii) Government and Stock Enterprises Bonds 2 iv) Stocks and Unit Trusts 1 1 Total 100 40. The amount invested in the stock market amounted to about Baht 2.0 billion, or about 0. I % of stock market capitalization. PFs are established for the provision of retirement benefits and, as such, have long- term obligations and liability profiles. Correspondingly, it is expected that asset allocation would be biased in favor of equity type investments rather than fixed income securities. In general, assets of PFs may be expected to be invested in at least 40%-50% equities, and the remainder in fixed income securities. 41. The typical Thai PF asset distribution as of September 1993 was 10% equities and 90% fixed interest (Table 3). This asset allocation is very conservative. The Provident Fund Act currently imposes investments restriction on the asset allocation of PFs. Broadly, the restrictions are that a minimum of 60% must be invested in fixed interest securities, and a maximum of 40% in equities (stocks and unit trusts). Principal factors that may have led to the conservatism of private sector PF asset allocations are that the Fund Committees of PFs are inherently conservative and risk averse, and are inhibited by the maximum limit on equities. They may also wish not to be seen to be too out of line with the general practice. - 155 - Annex 11 - Page 9 42. Average investment earnings of the PFs have been about 12% per annum for the 9 years to 1992 (Table 4). This exceeded the average interest rate on bank deposits by about 2 % per annum over the same period, but was far below the return on the SET index of 23 % per annum during the same period (Graph 1). Although the actual investment returns obtained were attractive relative to average bank interest rates, the returns would have been higher if a more balanced and diversified portfolio of asset distribution were adopted. It is clear that by inhibiting investment in equity holdings, the returns obtained by PFs have suffered. There is, of course, a higher risk attaching to equity investment which should be recognized, but empirical evidence of pension assets investments has shown that returns from balanced and diversified portfolios can be expected to be higher in the long-term. Table 4: Comparison of Investment Returns of Provident Fund Assets with Selected Financial Indicators COMPARISON OF INVESTMENT RETURNS OF PROVIDENT FUND ASSETS WITH SELECTED FINANCIAL INDICATORS Years Average Investment Average Interest Rate on Increase in Index Rate of Price Return on Provident Bank Deposits j Stock Exchange of Inflation Fund Assets j Thailand 1984 14.50 12.92 5.82 0.90 1985 13.15 12.12 -5.16 2.40 1986 10.75 8.73 53.54 1.80 1987 10.60 7.25 37.52 2.50 1988 9.96 8.27 35.72 3.80 1989 11.22 9.50 127.34 5.40 1990 12.82 11.30 -30.29 6.00 1991 13.07 12.38 16.07 5.70 1992 11.60 9.15 25.59 4.80 Total Compound Average 12.00 10.20 23.40 3.70 per annum Source: MOF, Capital Markets Policy Division. - 156 - Annex 11 - Page 10 Graph 3 140% 120% 1 20% 1 10% 100% 90% 80% 70% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% I 1984 1985 1985 1987 1988 1989 1990 1991 1992 0 Avg PF nv RetLvn + Avg Bnrk Dep Pete o Incr In SET Inctex L R-ice Inflation Source: MOF, Capital Markets Policy Division. 43. PF managers are licensed by the MOF. The number of authorized managers as of September 30, 1993, was 16. However, three or four large players dominate the industry, accounting for about 75% of the total assets under management. There is a clear need to promote the expansion of the industry. Furthermore, some fund managers are providing guaranteed investment returns. The ability to provide investment guarantees in the present situation, where asset allocation of PFs is restricted, may inhibit further growth in the PF management industry. However, if the investment restrictions are removed, this will encourage more competition, and guaranteed returns will be part of consumer choice of different investment service offered by fund managers. 44. In the time available, the mission's review of the Provident Fund Act and the industry was necessarily limited. Nevertheless, in our review, we found that there were areas of the Provident Fund Act and aspects of the industry that may inhibit the growth of PFs. There is limited penetration of PFs in the workforce. Inducements must be presented to encourage formally established and funded schemes. There is clearly ample opportunity and potential for further growth in the retirement scheme industry to meet the objectives of mobilizing employee savings to reduce the current savings gap and to assist in the development of capital markets. Some measures to increase the attractiveness of the PFs are recommended below. - 157 - Annex I I - Page 1 1 45. To promote the continuing growth of PFs and the coverage of employees, we recommend that the MOF consider undertaking a public campaign to increase awareness of the act and retirement benefit provision. The merits of establishing PFs should be highlighted to employees (e.g., tax savings on investments, retirement planning) and to employers (e.g., a good employer provides retirement benefits, PFs can assist in recruiting and retaining staff). This may be done via newspaper advertisements, television and radio broadcasting. The key for future growth will be the increase in coverage and aggressive promotion of PFs. 46. The limit on the tax allowance of Baht 10,000 per annum for employees' contributions is relatively low and is not indexed to inflation earnings. This represents about 8% of average salaries of about Baht 130,000 ($5,000) per annum. To encourage the establishment of PFs, we recommend that this limit be removed, and replaced by a percentage of earnings, say, between 10% to 15% of earnings. An upper limit of Baht 30,000, indexed to wage inflation, can still be maintained to cap excessive contributions. This revision would provide strong fiscal incentive and promote establishment of PFs. This threshold should be reviewed within the overall fiscal context. 47. Currently, the Provident Fund Act only allows the establishment of PFs where both employees and employer contribute. Such a PF can be registered under the act and will be granted tax allowances. However, we recommend that PFs where only the employer contributes or where only the employees contribute should also be allowed. This will encourage the establishment of PFs, and thus generate more savings. 48. In addition, the Provident Fund Act only allows the establishment of DB schemes. The Provident Fund Act does not make any reference to the establishment of DB schemes (known as pension plans in Thailand). This is surprising given that the government operates such schemes in the Civil Service and the State Enterprises. Nevertheless, some employers have provided, and still maintain, DB schemes from unfunded book-reserve provisions which will not attract the tax privileges afforded by the Provident Fund act. There should be no difference in the tax treatment of PFs and DB schemes. Funded DB schemes should also be permitted under the Act, with corresponding tax breaks. We recommend that employers providing DB schemes should be encouraged to fund their schemes properly by being provided with tax incentives equivalent to those provided for PF schemes under the Provident Fund Act. 49. The mission feels that it is in principle inappropriate for asset allocation to be laid down by law. The PFs are operated by the Fund Committee (consisting of employers and employees) and they should be given the flexibility to decide on the appropriate asset allocation. However, in an emerging PF industry and an immature stock market where the level of sophistication in general investment issues and asset allocation criteria may be considered fairly low, some guidelines rather than specific compliance requirements would be acceptable. The investment restrictions of the act should be progressively removed as the PF industry and the SET matures. Asset allocation should in time be left completely to the Fund Committee. When compulsory minimum and maximum holdings are removed, guidelines may still be retained to assist Fund Committees. 50. The Provident Fund Act also specifies the maximum level of investment management fees that can be charged by the authorized managers. The mission feels that it is also inappropriate for the MOF to specify maximum fees. The level of fees to be charged should be negotiated between the Fund Committee and the fund manager, determined with reference to the market. We recommend the maximum fee be removed. 51. To increase competition for the PF business, the MOF should considei licensing more fund managers. Authorization should be extended to all financial institutions who wish to pursue PF management business, - 158 - Annex 11 - Page 12 subject to their meeting the specified business criteria. Authorized institutions may, for example, include banks, insurance companies and mutual fund companies as well as finance companies. 52. Currently, the MOF issues authorization for fund management business. The mutual fund industry, which is much larger, is currently regulated by the SEC. The MOF may want to consider whether it would be desirable for supervision of the PF industry to be transferred to the SEC. - 159 - Annex 11 - Page 13 Attachment 1 - Summary of Pension Arrangements of State Enterprises Benefits Structure All of the 15 public utility State Enterprises (SEs) have basically the same benefit structure: A lump sum benefit of one months' basic monthly salary per year of service completed is promised. Schemes providing benefits based on members' final salary are known as DB schemes. (They are sometimes referred to FINAL SALARY schemes). Members do not have the option of electing for a pension unlike the employees in the Civil Service pension scheme. The lump sum benefit is payable on resignation, subject to completion of a minimum number of years' of service, and death and on retirement at age 60. Each SE has different minimum period of service for vesting of benefits. Employees are not required to contribute. The SEs (ultimately the government) pay for the cost of the benefits. Ministerial Regulations currently specify minimum SE contributions of 10% of payroll. Coverage The total number of employees covered by the 15 public utility SEs' DB schemes is approximately 212,000. This represents nearly 70% of the total number of employees in all of the 63 SEs. This may be compared with the total number of employees covered by PF schemes set up under the Provident Fund Act of approximately 400,000 as at September 1993. The corresponding assets under management amounts to approximately Baht 21 billion. It can be seen that if and when the SEs employees benefits are backed by appropriate level of assets the size of the PF assets under managements would increase significantly. - 160 - Annex I 1 - Page 14 Attachment 2 - Summary of MOF Proposed Provident Fund Arrangements The CGD's intention is to convert the current arrangement from a DB plan to a PF benefit. Broadly the proposed arrangements are as follows: Eligibility A new PF is to be set under the provisions of the Provident Fund Act. Existing employees have the options of remaining in the existing DB schemes or to elect to join the new PF. All new employees will join the PF. Contributions Employees who join the PF will be required to contribute a percentage of monthly salary to the PF, typically at 3% to 5%. The SEs will contribute to the PF in respect the employees who joined the PF. An Initial Amount will be deposited into the PF in respect of the existing employees who elected to join equal to the their accrued benefits in the DB schemes. The accrued benefit is calculated as years of service completed x salary at the time of changeover. Benefits The benefit from the PF is the accumulation of both the employee and employer contributions plus investment earnings. The benefit arising from the employers contributions will be subject to the vesting condition of the DB schemes which will be replicated in the PF. For those employees who have elected to remain in the DB schemes their benefit will remain unchanged, i.e., a lump sum based on a number of months of salary. - 161 - Annex 11 - Page 15 Attachment 3 - Summary of the Main Provisions of the Provident Fund Act Effective Date. The Provident Fund Act is effective from December 1987. The provisions of the act have been amended from time to time with the latest Ministerial Regulations being issued in 1991. Establishment of Provident Fund. Establishment of PFs are by voluntary agreement between the employer and employees. The PF must be established as a separate legal entity from the employer's business. The concept of a "juristic person" is used. Contributions. Employee contributions must be at least 3% of basic earnings, and employer contributions may not be less than the employee's contribution. Maximum contributions are 15% of basic earnings. Fund Committee. A committee has to be established consisting of employer's appointees and employee elected representatives. This committee will be responsible for giving investment guidelines to the appointed investment manager. Registration. The plan rules must be approved and registered with the Registrar, who is the Director-General of the Fiscal Policy Office. Authorized Fund Managers. The PF assets has to be managed by one of the authorized PF managers. Currently, there are 16 companies authorized to perform fund management although this number is expected to increase. Investment Guidelines. All registered PFs must comply with the following investment guidelines: (a) Minimum Compulsory Holdings - totalling 60% 1) Cash or Cash in banks 2) Government Bonds, Treasury Bills or Bonds of Bank of Thailand 3) MoF guaranteed Debt instruments 4) State Enterprises' instruments 5) Bills of Exchange or Promissory Notes endorsed, availed or certified by banks 6) Bank Debt instruments (b) Maximum Optional Holdings - totalling 40% 7) Debt instruments of SEs (other than 4), IFCT, Finance companies 8) Unit Trusts 9) Shares, Debentures, Convertible Debentures, Warrants 10) Other securities as authorized by MoF (c) Maximum total investment in shares, debentures, CD and warrants is 25%, with a further restriction of a maximum of 5% in any one company. - 162 - Annex 11 - Page 16 (d) Fund assets may not be invested in the sponsoring company. Investment Fees. Investment management fees shall not exceed 10% of gross earnings. Benefits. Benefits must be paid in lump sum upon death, retirement or termination of service (vesting of benefits are not specified in the act). Tax Benefits. o Employer's contributions are deductible in the period expended, up to a maximum of 15% of employees earnings. o Tax allowance of employees' contributions at amounts paid, up to a maximum of Baht 10,000 per annum. o Earnings of registered PFs are tax-exempt. o Benefits paid to employees are allowed two categories of deductions i) an allowance of Baht 7,000 per year of service or the benefit if lower ii) half of the product of years of service and final salary, less (i) 0 Benefits attributable to employees contributions are tax fee. - 163 - Annex 12 - Page I Thailand Private Sector Participation and Improved Efficiency of State Enterprises Government Guidelines for Improving the State Enterprises l. Following the instructions of the Cabinet, Deputy Prime Minister Amnuay Veerawan, presented a proposal on December 18, 1992, (Attachment 1) to improve the performance of State Enterprises (SEs) to achieve: (a) State revenue contributions that are effective and incremental. (b) Reduction in consumers' burden, for example, by reducing service fees to conform with international standard practices. (c) Management systems providing flexibility and non-bureaucratic rules, especially for their financial systems. 2. The following aspects will be considered in improving the management of SEs: 1. Functioning and reporting systems. 2. Investment budget review. 3. Determination of prices or service fees. 4. State revenue contributions. 5. State role. 6. Policy implementation recommendations. 3. The objectives of these reforms, while maintaining adequate flexibility, will be: (a) To conform state enterprise management with a liberalized economy and achieve state efficiency enhancement. (b) To conform state enterprise policy administration with the government principal policies and promotion of income distribution and rural advancement. (c) To enable proper state control and monitoring of state enterprises to ensure adequate performance and make their managers responsible for achieving set goals and policies. 4. The Council of Economic Ministers added the following comments: (a) The proposals are in line with government policy to improve the efficiency of state enterprises. Consequently, clear policies should be formulated immediately. (b) Some issues require further study, for example, the divestiture of state enterprises that are no longer necessary to the policy, methods to determine the rate of return, impact of reduced service fees on ongoing privatization policies. Mechanisms in the form of committee or work group should be introduced to make a study, especially on the sales of state enterprises or their assets, which by law necessitate state revenue contributions (except for sales of their shares which the Government can re-invest). - 164 - Annex 12 - Page 2 (c) Tenure of top state enterprise managers should be defined in conformity with the respective state enterprise laws. Their performances should be appraised by their governing boards whose performance will in turn be appraised by the Cabinet. (d) Annual performance audits of state enterprises should be effected by work groups comprising representatives of related agencies responsible for monitoring rather than assigned to Office of Auditor General of Thailand or auditors. (e) Any immediate improvement should be implemented. Those that require revisions of law or related rules should proceed accordingly. 5. Resolutions of the Council of Economic Ministers: (a) Agreed to approve the principles and ways to improve various state enterprise operations proposed by Deputy Prime Minister Amnuay Veerawan, and the comments and observations of the Council of Economic Ministers. (b) Approve establishing a follow-up committee (para. 4 (d)), to be chaired by the Prime Minister. The Ministry of Finance and the National Economic and Social Development Board will recommend the members of the committee, for review and immediate appointment by the Prime Minister. These resolutions were approved by the Cabinet on January 5, 1993 - 165 - Annex 12 -Attachment 1 - Page 1 Attachment 1 - Operating Policies to Improve the State Enterprises In order to conform the state enterprise operations with a liberal economy and to enhance the state efficiency for the common good; In order for the Government to be able to control (and monitor state enterprises) in ways that the latter still performs conveniently whilst their managers are responsible for achieving set goals and policies. Such policy determination is not a rigid rule, but rather a flexible approach. And to conform state enterprise policy administration with the government policies on income distribution and rural advancement disparity, as well as promoting them; The following ways to improve the state enterprise operations are proposed for further consideration and approval: 1. Functioning and reporting systems 2. Investment budget review 3. Determination of prices or service fees 4. State revenue contributions 5. State role 6. Policy implementation recommendations 1. Functioning and reporting systems 1.1 Governing Board (1) As a rule, the members on board should not exceed 11. (2) Wherever appropriate, all large enterprises can increase this number up to 15, out of which at least three are to from academia and should not be government officials or civil servants. 1.2 Governor, Director, Managing Director or Equivalent (1) The governing board would present to the Cabinet every two years an evaluation of the performance of top management of the state enterprise, and suggestions justifiable improvements. (2) The Cabinet or the authority appointing the governing board would review the performance of the governing board once every two years. 1.3 Improvement of Functional Systems (1) The governing board would employ regularly (at least twice a year) consultants to study and recommend improvements of the state enterprises. (2) All state enterprises must formulate personnel development plans and allocate at least 3% of their net profits for education and training of all staff and managers. Another 3% would be used for investments in technological improvement plans. If there are no net profits, the personnel development and technological improvement plans would be included in their operating or investment budget. - 166 - Annex 12 -Attachment 1 - Page 2 1.4 Record-Keeping and Reporting (1) Public utilities, public services and business state enterprises should implement cost accounting for board management purposes. (2) All state enterprises are to prepare quarterly balance sheets and profit and loss statements subject to quarterly audits by auditors as same as listed companies. (3) All state enterprises are to arrange for annual performance audits by Office of Auditor- General of Thailand or others approved by the reporting ministries. The audits would include: (a) Do income from service rendered and quality of service meet the goals? To what extent? And why? (b) Are costs or expenses as estimated or as in operating budget? To what extent? And why? (c) Does utilization of personnel, materials and finance realize the objectives? To what extent? And why? (d) How much is the overdue payment especially with other state enterprises? And why? (e) Do services rendered and investment performances follow the goals and plans? To what extent? And why? Reports for (2) and (3) would be reviewed by the governing boards together with suggestions for actions and improvements, for information and consideration to the reporting ministries and to the Cabinet. 2. Investment Budget Review (1) The approval of the investment budget is within the authority of the Cabinet, as established by the laws creating the state enterprises (2) The Cabinet by the Council of Economic Ministers will consider and approve the investment budgets of all state enterprises dealing with public utilities and services as well as others proposing a project investment above B500 million. (3) State enterprises which are public utilities or public services would prepare long-term investment plans (at least 5 years), annual investment budgets and report operating results and financial status for the previous five years. (4) The work plans and information on annual and long term investment plans would be updated continuously. (5) Annual investment budget proposals must take into account the operational capacity of each state enterprise, because their investment performance and investment management capability will be evaluated. (6) Investment budgets proposed for Cabinet review via National Economic and Social Development Board must at least contain the following data for consideration: - 167 - Annex 12 -Attachment 1 - Page 3 (a) Aggregate operating goals for work expansion and efficiency enhancement (increased productivity or cost reduction). (b) Annual capital investments. (c) Sources of investment funds. (d) Investment operational plan. Private collaboration, if any and if yes, how? (e) Style of management, recruitment and training of employees to support investment plans. 3. Determination of Prices or Service Fees Public Utilities and Public Services Enterprises whose operations affect people's livelihood and which earn an excessive net income or profit in relation to their capital or assets, or other criteria established by the Cabinet, should consider reducing service rates or fees to achieve an appropriate profit level, except in extraordinary cases agreed by the Cabinet. In case any state enterprise requires consumer deposits, it shall accept government bonds, state enterprise bonds or bank guarantees and consider minimizing the deposit amounts. 4. State Revenue Contributions 4.1 Income-Generating Category Revenue is to be contributed at the rate fixed by Ministry of Finance, usually at least 80% of net earning. 4.2 Public Service and Public Utilities Category At least 30% of net earning or net profit is to be contributed in accordance with the requirements of the Budget Bureau or the Ministry of Finance. Exceptions would be made on a case-by-case basis, taking into consideration the investmnent requirements. Such relaxation shall be within a defined time frame 4.3 Agricultural, Commercial, Industrial, Financial and Service Categories Limited company state enterprises shall pay a minimum dividend of 40% of net profit after tax (already subject to a net income tax at 30% of net profit). Non-limited company state enterprises, whether exempt or non-exempt by law from revenue contributions, shall contribute at least 30% of their net earnings. Exception would be granted case by case in view of the need to finance future expansion. 4.4 Promotional Category. No obligation for revenue contribution - 163 - Annex 12 -Attachment 1 - Page 4 5. State Role 5.1 The government shall implement a liberal economic policy using market mechanism and stem monopolistic system as well as unfair competition. 5.2 The government shall play a role in operating certain enterprises for the sake of national development and social services, for instance income-generating, public service/utilities and promotional categories. It may do it by itself or cooperating with the private sector in different manners. 5.3 Some of agricultural, industrial, commercial, financial and services state enterprises established by a special policy and operating well should be retained by the state. Yet, others not longer needed by policy and output terms should be discontinued by the state. 5.4 The government should sell shares, operations or assets of state enterprises not needed by policy and output terms, and which are not conforming to liberal economic policy especially those where competition and the number of private operators is already abundant. 5.5 Proceeds from sales of shares, operations or assets shall be invested by budgetary law or procedures to generate employment and income for remote areas. 6. Suggestions on Policy Implementation 6.1 Upon the Cabinet approval of these proposals as principles and policies for state enterprise conduct, the relevant ministries shall instruct their respective state enterprises to implement them. 6.2 Meetings should take place so that HE the Prime Minister can clarify and assign the implementation of these policies to the top management of large state enterprises, including ministers and permanent secretaries, chairpersons and directors, managers (or equivalent). 6.3 A committee represented by related government agencies should be established and chaired by the Prime Minister. The Permanent Secretary of the Ministry of Finance shall serve as Director and Secretary. The committee would monitor the policy implementation of state enterprises and suggests ways to execute the Item 5 on state withdrawal from the operation of state enterprises. It should comprise representatives of the Ministry of Finance, Budget Bureau and National Economic and Social Development Board, which co-serves as Secretary. - 169 - Annex 12 -Attachment 1 - Page 5 Government Classification of State Enterprises 1. Income-Generating Category 1. Thailand Tobacco Monopoly 2. Government Lottery Office 2. Public Utilities and Public Service Category 1. Electricity Generating Authority of Thailand 2. Metropolitan Electricity Authority 3. Provincial Electricity Authority 4. Metropolitan Water Works Authority 5. Provincial Water Works Authority 6. Expressway and Rapid Transit Authority of Thailand 7. Airports Authority of Thailand 8. State Railway of Thailand 9. Bangkok Mass Transit Authority 10. Telephone Organization of Thailand 11. Communications Authority of Thailand 12. Aeronautical Radio of Thailand 13. National Hosing Authority 14. Industrial Estate Authority of Thailand 15. Metropolitan Rapid Transit Authority 3. Agricultural, Commercial, Industrial, Financial and Service Category 3.1 Limited Company State Enterprises 1. Krung Thai Bank Ltd. 2. Thai Parawood Co., Ltd. 3. Thai Maritime Navigation Co., Ltd. 4. Thai Airways International Co., Ltd. 5. Transport Co., Ltd. 6. Bangkok Dockyard Co., Ltd. 7. Dhippaya Insurance Co., Ltd. 8. Union Hotels and Tourism Co., Ltd. 9. Bangchak Petroleum Co., Ltd. 10. PTT Petroleum Exploration and Production Co., Ltd. - 170 - Annex 12 -Attachment 1 - Page 6 3.2 Non-Limited Company State Enterprises 1. Government Savings Bank 2. Government Housing Bank 3. Bank of Agriculture and Agricultural Cooperatives 4. Public Pawn Shop Office 5. Petroleum Authority of Thailand 6. Offshore Mine Organization 7. Forest Industry Organization 8. Dairy Farming Promotion Organization 9. Rubber Farm Organization 10. Marketing Organization for Farmers 11. Fishery Pier Organization 12. Government Cold Storage Industry Organization 13. Marketing Organization 14. Public Warehouse Organization 15. Liquor Distillery Organization, Excise Department 16. Pharmaceutical Organization 17. Express Transportation Organization 18. Glass Organization 19. Textile Organization 20. Battery Organization 21. Tanning Organization 22. Sugar Factory Inc., Industrial Plant Department 23. Police Printing Press 24. Playing Cards Organization, Excise Department 3.3 Promotional Category 1. Tourism Authority of Thailand 2. Sports Authority of Thailand 3. Scientific and Technological Promotion Institute 4. Thailand's Scientific and Technological Research Institute 5. Office of the Welfare Fund for Rubber Estate 6. Zoological Park Organization 7. Civil Aviation Organization 8. Botanical Garden Organization - 171 - Annex 13 - Page 1 Thailand Private Sector Participation and Improved Efficiency of State enterprises A Regulatory System for Thailand 1. Regulation and Deregulation 1.1 Regulation. Regulation means the direct or indirect monitoring and control by government of the prices, quality of service, operating and investment decisions of a private or government owned enterprise. Regulation can be made effective in many ways, but it usually takes the form of controlling the structure of the enterprise, its conduct or its performance, or a combination of all three. 1.2 The principal objectives of a regulatory regime are: (a) monitoring; (b) control; (c) transparency; and (d) certainty (an absence of confusion). Monitoring may often be as effective as direct control of an industry by government or a regulatory authority. 1.3 Regulation has the advantage to the regulated enterprise of giving it the freedom to make its own commercial decisions. It also benefits the government by achieving better and more informed decision-making, improved performance, greater efficiency and accountability, and better use of scarce resources. This results in a better performing, more efficient industry than one in which decisions are directly or inflexibly controlled by direct and often uncoordinated government intervention. A further advantage to governmnent is a more effective and efficient monitoring (and control) mechanism which places clear duties on the regulated enterprise. Apart from an)thing else, it facilitates the obtaining of information. 1.4 In its Seventh Five-Year Economic and Social Development Plan, the Royal Thai Government recognizes the need for regulation, while realizing that red tape obstruct the activities of the state enterprises ("3.2.2 (1) The public administrative system lacks flexibility and is governed by a myriad of rules, regulations and restrictions"). The Plan in numerous parts recommends the establishment of improved regulatory systems. For example, in 5.1.3 it proposes to "amend relevant laws, rules and regulations for supervision of state enterprises to promote greater flexibility for state enterprises", while in 6.1. 1 it proposes to "transform the role of government from being regulatory with emphasis on control to being supervisory with emphasis on promotion". It further proposes to "revise rules, regulations, criteria, restrictions and reduce unnecessary steps of the government to support flexibility and speed in consideration of projects and to be conducive to a more business oriented approach in the provision of services, as well as set up and efficient monitoring and evaluation system" (3.1.2 (2)) and to "support setting up of a permanent body which is independent from political intervention to supervise and determine price levels for each type of infrastructure services to reflect actual production costs in order to encourage an efficient use of services and to be fair to both the suppliers and users of services" (3.1.4 (1)). There are numerous other references in the Plan on the need for an independent regulatory system." it 5.1.1 The intemal administration of state enterprises should be appropriately left to the respective executive boards, and the administrators of each state enterprise. 5.3 Employ a pricing policy to enable state enterprises to deternine prices of goods and services which reflect production costs, based on efficient operations with high quality, by comparing the set prices with intemational standards. Chapter 5. 1.2.6 The procedure to determine price levels is neither sufficiently flexible nor responsive in the business sense. It is highly dependent on the political situation, instead of actual production costs. - 172 - Annex 13 - Page 2 1.5 Regulation v. Deregulation. The introduction of a regulatory regime can amount to deregulation. Deregulation is a minced legal, political and an administrative concept2'. It generally means a reduction of government regulation to permit freer markets and competition. Deregulation, in practice, does not simply mean the repeal or cancellation of regulations, so they cease to exist. It has been taken to mean: (a) the reduction or abolition or governmental agencies with authority to make regulations; (b) the restriction or abolition of the ability of governmental agencies to monitor or control activities; (c) the reduction of monitoring or control activities generally; (d) the rationalization of rules and activities relating to the monitoring and control of the enterprise; (e) the setting of rules or standards by voluntary consensus of those required to conform to them without making regulations embodying them (with or without regulatory oversight); and (f) leaving a particular group of persons or a particular industry to adopt its own system of regulation (with or without regulatory oversight). 1.6 Governmental Authorities are Difficult to Coordinate. It is inevitably the case with any state owned industry or enterprise that many governmental agencies, bodies or ministries will have authority over that enterprise. From the point of view of the government in question, the exercise of that authority is always difficult to coordinate and there will be a variety of objectives of the different governmental bodies at play. The ultimate authority and coordinating role can of course rest with the Cabinet, but the Cabinet will not wish to be involved in the day-to-day affairs of the state enterprises. 1.7 Equally, the many spheres of governmental authority make it difficult for the state enterprise to make decisions efficiently and with the necessary speed to conduct business effectively. Moreover, it is extremely difficult to make a decision that will please all the different bodies and authorities. For example, in England and Wales, the privatized water companies complain that they are over-regulated, even though, by most standards, their regulation is regarded as light. In addition, the economic regulator is in 3.2 (2) Remove price control of liquified petroleum gas, and introduce the full deregulation for implementation by the beginning the Seventh Plan, as well as remove subsidies for liquidized petrolcum gas depot and for gas transportation to wholesale depots nationwide. 3.2.2 (2.3) Establish a high level regulation body under the law which is independent, comprising representatives from the public and private sector to formulate policies covering various aspects of communications, including determination of pricing of services to ensure fairness of providers and users of services, as well as co-ordination of work programs and communication services. In the initial stage a National Committee for Communications may be set up based on the authority of the executive branch. 1.4.3 The structure and pricing level of energy still do not reflect real economic costs and are not determined by market mechanisms due to political reasons. Therefore, the use of energy has been inefficient and wasteful, particularly in the case of electricity.] 1.4.5 The administrative mechanism and operation of such public agencies involved in energy development still lack efficiency to promote energy development to respond to the rapid rising needs and economic expansion. 3.1.4 (1) Amend criteria for purchase of petroleum by government agencies to reduce monopoly of the Petroleum Authority of Thailand, particularly for state enterprises which are large users of petroleum products.] 3.1.4 (2) Encourage free and fair competition in the liquified petroleum gas market at every stage, particularly the lifting of control on liquified petroleum gas imports. [3.2 (3) Formulate clear and transparent criteria for natural gas pricing .. while considering gas pipeline systems as a form of public utility. 3.2.2 (1) Improve organizational structure and administration of state enterprises involved with the energy sector to assume a more business-oriented approach .. including increase in competition, which will eventually lead to removal of control of energy prices. 2'N.W. Sterling Achievements in Regulatory Reform in Ontario, (1982); Dianne Gayler, Deregulation: A Plan of Action to Rationalize South Australian Legislation: Notes on Airline Deregulation and Airport Regulation, (1983) 93 Yale Law Journal 319; Dr. Rongphol Charoenphandhu Law Reform and Deregulation (1993) - 173 - Annex 13 - Page 3 conflict with the main environmental regulator over investments in infrastructure to improve water quality. 1.8 Extent of Regulation. In establishing a regulatory system for the government of Ontario in Canada, key questions to establish the extent of regulation were set out as follows: (a) What is the public policy or abuse that renders the regulation necessary for the benefit of the public? (b) Can the purpose be accomplished with the proposed regulation or any part of it? (c) Are there any provisions that duplicate existing provisions elsewhere that are applicable and sufficient? (d) Are there any provisions that are more detailed or more particular than is necessary to accomplish the main purpose or, in other words, can the particular regulation be "thinned out" to a degree where it is sufficient and adequate to achieve the required goal?" 1.9 While there will always be scope for rationalizing and reducing the involvement of different governmental bodies in monitoring and controlling state enterprises, the same is also true of the bodies that are involved in the drafting and formulation of new laws and regulations. It will be unsatisfactory if it is conducted by different bodies unsystematically and without any coordinating agency. 1.10 The extent of regulation planned for Thailand is not clearly defined. However, the Economic Law Comnr.ission has declared as a first priority an extensive de-regulation and regulatory reform of about 40 laws with the reform of the Announcement of the National Executive Council, No. 281 (Alien Business Law). 1.11 Which activities of an industry should be regulated depends on what the policy aims and objectives are, e.g., whether competition is a priority. It is possible, for example, to regulate: (a) an enterprise in its capacity as a buyer by establishing detailed procurement laws for works and service contracts; this type of regulation has been widely adopted both in the USA and the EC; (b) an enterprise as a seller usually by performance and quality of service monitoring and price regulation; (c) an enterprise as a network owner generally by regulation of transpcrtation charges and by stipulating the terms on which access or connection to that network is offered; (d) an enterprise as an operator by setting security, quality or environmental standards, e.g., by regulating emissions or discharges. 2. The Need for Regulation 2.1 The regulatory system needs to be able to adapt over time to external changes and serve the interests of consumers, investors, and government in the regulated enterprise, which may well conflict. 2.2 Monopoly. The need for regulation arises where the structure or nature of an industry or an enterprise is such that it has the features of a monopoly. A natural monopoly occurs when it is most - 174 - Annex 13 - Page 4 economical for a single producer to supply the entire market. In particular, many utilities are characterized as natural monopolies, primarily because of the requirement for transport or transmission networks in the gas, electricity, water, telecommunications and, to a certain extent, transport sectors. The existence of monopoly in any industry and, in particular, in essential industries with relatively inelastic consumer demand, will inevitably leave scope for abuse both in terms of cost inefficiency and high prices. Regulation is needed therefore to protect consumers and encourage efficiency while preserving the beneficial (least cost) features of a monopoly, e.g.. economies of scale. New networks are expensive to build and this can be a barrier to the creation of competition and deter new market entrants (particularly in the private sector). Similar arguments also apply where markets are dominated by only a small number of producers able to exploit or abuse their dominant positions. 2.3 Privatization in itself will never ensure efficiency or that the interests of consumers are protected. Private monopolies can perform just as poorly as public companies. Indeed, one of the original reasons for placing certain industries in the public sector was that they had performed unsatisfactorily either in terms of quality of service or price in private hands. Accordingly, it is appropriate to regulate industries in both the public and the private sectors. 2.4 One of the main reasons for the failure of industries (whether in the private or public sectors) to perform in a cost-efficient, consumer-orientated manner is lack of competition. However, competition is no panacea and, where essential industries are concerned, prudent governments will always have other objectives, including social policy objectives, in mind. Competition is, however, generally recognized as the best means of ensuring minimized costs, the lowest prices and the best quality of service. 2.5 In some industries, however, effective competition is not possible and to create it artificially would mean the loss of economic efficiency, e.g., from economies of scale or sub-optimal use of existing capacity. One of the principal aims of regulation is to replicate the benefits of a competitive market structure in industries in natural monopolies. The best regulation will introduce into a monopoly the same types of economic incentives that characterize a properly competitive industry while taking advantage of the economic benefits (primarily in terms of economies of scale) that characterize a natural monopoly. 2.6 Consumer Protection. Consumers do not simply need protection from monopoly abuse. They also need certainty that a service will be provided to them at a price they can afford and that the required quality of service be maintained. Investrnent in infrastructure must be encouraged in order to ensure that service can be offered and that the quality of service does not deteriorate. 2.7 Investor Protection. Regulation is also useful in protecting the interests of investors by preventing the direct or indirect expropriation of investment capital. If regulation is independent from government, it can act as a buffer against interference by that government in the investment and pricing decisions of the company. This buffer function is particularly important since a government may have its own objectives in relation to capital investment which may act as a disincentive to investment and, indeed, may not even be in the consumer interest. Similarly, governments, for political or social reasons, may wish artificially to deflate prices to the detriment of investors. Again, this will discourage private sector investment. 2.8 Government Requirements. The government's need for regulation is securing that essential industries operate efficiently and optimize the resources ava.lable to them in line with broader policy objectives ranging from social policy to environmental protection. Regulation can be used not only to monitor and control, but also to obtain the information that government needs to undertake essential or strategic planning and policy making. - 175 - Annex 13 - Page 5 2.9 Enterprise Requirements. The regulated enterprise needs regulation to ensure freedom from political influence and from being subject to the requirements of many governmental bodies and unforeseen changes in policy. Enterprises wish to have maximum flexibility to operate in their commercial and increasingly competitive environments, and are keen to see regulatory certainty, transparency and consistency of decision making, allowing for well informed business and investment decisions. The management and staff of state enterprises will want to be motivated and stimulated in their working environments by being responsible and accountable for the decisions they take. 2.10 The financial and other resources of the private sector and the state enterprises are limited. Banks, investors or the government cannot be asked to, nor will they agree to, write open checks. All commitments to provide finance or to invest will be finite. A well designed regulatory regime will ensure that the regulated enterprises plan for the future and make best use of their limited resources. The private sector needs a great deal of certainty and protection against unforeseeable changes and, therefore, a stable and predictable regulatory regime is a necessary precursor to private sector participation and privatization. 2.11 Experience in Other Countries. The privatization programs of such countries as the UK, Chile, Portugal and, to a certain extent, Argentina, have all commenced with the creation of a new legal and regulatory framework. The regulatory methodologies were different, but they all addressed the needs outlined above in this section. 2.12 There is considerable advantage to the public sector in establishing a stable regulatory framework to facilitate the acceptance by the private sector of more regulatory risk (the risk that the regulations may change in a manner that adversely affects an enterprise) and encourage investments. Regulatory risk is of increasing concern to private sector investors and lenders. Novel contractual terms are being introduced into infrastructure project documents (e.g., Northern Ireland, Portugal, Malaysia) which pass this risk back to the public sector. Where the regulatory risk is deemed considerable, it will take the character of political risk and will act as a complete disincentive to private sector investment. 3. The Goals of Good Regulation 3.1 Regulation Does not Exist in Isolation. Regulation cannot accomplish anything useful unless there is an underlying legal and commercial framework already in place. A sound legal and commercial foundation provides the essential precondition for private investment and ownership in all the sectors of the economy, not just the utilities or regulated sector. Among the key prerequisites are: respect for ownership rights and contracts, protection from implicit or explicit expropriation, impartial and timely arbitration of commercial disputes, and currency convertibility. All of these elements are present in Thailand. Resolution of these issues is especially important for private sector participants investing in infrastructure projects. The viability and financing costs of such investment will depend crucially on the terms of investors' contracts with the government and certainty that the such very long-term contracts will be honored. government's commitment to private sector participation in the Sixth and Seventh National Economic and Social Development Plans is therefore particularly welcome. 3.2 Economic and Politic Certainty. Given certainty in the legal, political and economic environment, investors will be willing to pay more for the assets of a government-owned enterprise. Where there is considerable uncertainty, investors will pay less when government assets are offered for sale either directly or through equity shares. Uncertainty also has an effect on the return that private developers seek on infrastructure investment. Government officials in countries that are beginning to open up to private sector participation often complain of the high rates of return that private developers are seeking. Yet, in many instances, high returns are sought to compensate for the uncertainty in the country's legal and commercial system. Therefore, there is a direct financial benefit to government in providing as much - 176 - Annex 13 - Page 6 certainty as possible in the legal, commercial and regulatory regime within which privately-owned entities will operate. 3.3 Government goals will not simply be a function of government policy, but also of where government wants the enterprise to be in the market which it is serving in the short, medium and long term. Key goals are to ensure that: (a) all reasonable demand for services of the regulated utility are met; (b) the interests of consumers in terms of price and quality of service are protected; (c) the economic efficiency of the regulated enterprise is achieved; (d) direct government intervention in the operating or investment decisions of the company are minimized; and (e) interests of investors are protected by encouraging cost efficiency, a reasonable return on capital and preventing expropriation of investment. 3.4 Transparency. Transparency of accounts and charging can go a long way to achieving many of these goals. In particular, separation of accounts in vertically or horizontally integrated industries (e.g., water/sewerage or generaticn/transmission/distribution) is a major step towards securing cost efficiency. Unbundled accounts highlight what the costs are and where losses are made, together with the extent of cross-subsidy between the different activities of the enterprise. 3.5 Where competition is being introduced into only one sector of an industry (e.g., in downstream gas supply) alongside an existing vertically integrated utility, operating both in that sector and in the next sector down (e.g., in gas supply and transportation), the need for transparency is particularly acute. In such circumstances, it is only through transparency that potential investors can be assured that they can play on "a level playing field" with the existing vertically integrated utility. 3.6 Transparency in charging is also essential to ensure that competition is fair. For example, where competing generators are seeking connection to a transmission or grid system, it will be important for them to be satisfied that they are being offered the same terms and conditions as their competitors. Further, if there is a requirement that all consumers are offered services of any regulated enterprise on a non-discriminatory basis, transparency will also be a pre-requisite for achieving this. 4. Industry Structure, Competition and Regulation 4.1 Structure. Industry structure is the single most important determinant of the kind of regulation that is appropriate. A regulatory approach that may serve a useful purpose under one industry structure may be unnecessary or even counter-productive in another. Regulation also reflects the degree of competition that is present in the industry. Competition is far from being a panacea, particularly in the context of essential industries, but if the customers already have a choice of supplier (however limited), then there is an argument that the need for price regulation, at least, could be reduced. As Mr. Charles Stallon, a former Commissioner of the Federal Energy Regulatory Commissioner (FERC) in the US says "competition is not a state of nature - it needs rules and the power of government to protect it." 4.2 In formulating a regulatory regime, other important issues and considerations are: (a) whether and where new competition is going to be introduced and where monopoly power will be retained; (b) what sorts of market mechanisms are going to be used in the competitive sectors; (c) what sort of regulatory regime will be used to govern and protect the non-competitive sectors and competitive sectors; (d) the extent to which the industry is vertically or horizontally integrated. In a vertically integrated business, there is more scope for hidden inefficiency, e.g., there may be cross-subsidy between the different businesses of the utility; and (e) ease of entry and exit into the industry. Where barriers to entry are high, the scope for monopoly abuse is correspondingly increased, for example, by encouraging predatory pricing. 4.3 The Cost of Regulation. Regulation is not costless. There is, of course, the obvious cost - 177 - Annex 13 - Page 7 of the regulatory commission's budget (which in many countries such as the UK and Argentina is met by the regulated enterprises). However, there is a potentially more important cost. Whenever economic behavior is controlled, it will inevitably be changed or distorted. The rate of return or cost of service regulation, for example, may result in too much capital investment and may encourage utilities to be lax over cost controls or even deliberately inflate them. Alternatively, regulating prices on an RPI-X basis may result in too little investment and a poorer quality of service. In creating a regulatory system, it is important that distortions on investments and operating decisions of the enterprises involved be minimized. At the very least, the guiding principle should be that the economic costs of regulation never outweigh its tenefits. 5. Regulatory Independence 5.1 It is recognized that no regulator or regulatory commission can be totally independent of political considerations. Nor should it be. It is, after all, the function of any government to establish the broad political and economic goals for the country, which will inevitably include goals relating to essential industries. The issue, then, is a question of degree. Once the structure is in place and broad policy goals have been established, these goals are more likely to be achieved if government restrains itself from getting heavily involved in the investment and operating decisions of the sector's various commercial entities. 5.2 This would require keeping the involvement of bureaucrats in an enterprise to a minimum, as recognized by the government's Seventh Plan, establishing a policy that it should not engage in activities that can be better managed by the private sector. Those involved most closely in the day-to-day decisions of the regulated enterprise will almost invariably be in a better position to take necessary investment and operating decisions. The art of regulation is to know when to regulate and when not to regulate. 5.3 Incentives are Better Than Controls. The overall performance of the enterprise is likely to be better if the regulator can establish incentives to induce good performance rather than trying to mandate specific operating and investment decisions. In this way, regulation can be a tool to achieving better management and more accountability in an enterprise. Mandating a specific decision is sometimes referred to as conduct regulation. It is usually unsuccessful where no business or economic incentives exist that would indicate that the specific decision be taken (like transmission access in the US). 5.4 Location of the Regulator. The question of where to locate a regulator or regulatory commission will, therefore, be a crucial one. There are usually three basic options: (a) leave regulatory responsibilities dispersed within various existing ministries or bodies; (b) create a separate regulatory division within an existing ministry or body; or (c) create an independent regulatory body that would be separate from existing government ministries and other governmental bodies or authorities. 5.5 We recommend the establishment of an independent regulatory as the best solution, since it would best avoid micro managing the investment and operating decisions of the various state enterprises. Government has a long and commendable tradition of not interfering in the day-to-day decisions of the main state enterprises. The creation of an independent regulator or regulatory commission would institutionalize this tradition of minimal political interference. - 178 - Annex 13 - Page 8 6. Regulatory Accountability 6.1 In all countries with significant regulatory regimes, there is debate about "who regulates the regulator?". No regulator or regulatory commission can be totally free from political considerations or government policy. The regulator will have been appointed by government and must reflect its overall priorities. The tasks allotted to the regulator must be performed in an efficient and satisfactory manner. It could be argued that the regulator should be accountable to all the interests he must balance, the Thai people, the enterprise and the enterprise shareholders or investors. However, this would put him in an impossible position, and achieving a balance of interests would never please everyone all the time. 6.2 In our view, the regulator should be accountable to government. The government, after all, appoints the regulator and sets the boundaries of his powers and the scope of his duties. Further, of all these interest groups, the governmient has the broadest political and social interests in mind, and is best able to achieve the necessary degree of balance and overview. 6.3 Achieving Independence and Accountability. Achieving both independence and accountability in regulation is a careful balancing act in itself. Independence may be achieved by: (a) setting out clearly the powers and duties of the regulator or regulatory commission in the primary legislation; and (b) appointing a regulator or commission members for a fixed term, during which they may only be removed in limited circumstances, such as incapacity or misbehavior. 6.4 During the period of his appointment, the regulator or commission member should be free from political interference (in a similar fashion to the judiciary where independence is enshrined in the Constitution of Thailand) although, depending on the length of appointment, it is inevitable that he will have one eye on reappointment. Independence may often be promoted by appointing a senior (or even retired) businessman or academic rather than a career bureaucrat, since they would be less dependent on the appointors. The US experience with regulators elected by the people is mixed. It seems likely that they will avoid unpopular but necessary decisions (e.g., to increase tariffs) in the run up to an election. An election is also an expensive process to carry out and is, therefore, not recommended. 6.5 Where a commission rather than a single regulator is in place, then staggering the terms of office of commissioners will lend continuity and a broader political blend since appointments would span governments. 6.6 Achieving accountability is difficult without creating a situation where the regulator is directly answerable to the minister or government appointing him. A specific reporting requirement, at least in the form of a published annual report, would be a first step. 6.7 Transparency can be achieved by: (a) imposing tirne limits on regulatory decision-making; (b) requiring the regulator to consult with affected interests, consuner groups, and government bodies in particular; (c) requiring the regulator to give reasons for his decisions (not a striking feature of the UK or US regimes); and (d) requiring the regulator to publish his agenda, planned deliberations, activities or issues that are to be addressed. In this way, the interests of the regulator, the regulated enterprise and the government could all be better served. Regulators usually resist transparency on the basis that they do not want to have their authority undermined by being proved wrong. - 179 - Annex 13 - Page 9 6.8 In England and Wales, scrutiny of regulator performance is carried out by the all-party Parliamentary Public Accounts Committee (PAC), which may require the regulator to appear in person and answer detailed questions. As the PAC is a cross-party committee, there is less direct political influence. The activities of regulators in England and Wales in terms of performance and value for money are also subject to detailed scrutiny by the National Audit Office, the UK government's independent financial watchdog, which reports on the performance of public bodies. There is a similar body in Thailand within the Ministry of Finance. 6.9 When establishing the independence of the regulator in any regulatory regime, it is important that the duties and powers of the minister responsible for appointing the regulator be clearly defined and consistent with those of the regulator. Such decision is one of the best ways of restricting political interference in a regulator's activities. A minister would be directly accountable to Parliament for performance. 7. A Single Regulator or a Regulatory Commission? 7. 1 Any new regulatory regime must tackle the issue of whether to have a single regulator (following the British model) or a regulatory commission (following the US model). The benefits of a single regulator are: * decisions can usually be made more quickly than would be the case if they were made by committee; * transparent and direct accountability could be achieved (committee structures tend to mask or lack accountability); there might be greater certainty; and clarity and direction of political and economic purpose (committees are more likely to have conflicting motivations and political affiliations). 7.2 A single regulator poses these drawbacks: * a single regulator may be more subject to political influence and may have a strong interest in securing tenure of office; * it is doubtful whether one individual should be able, single-handedly, to control the fate of an industry; and * the effectiveness of the regulatory regime will be at the mercy of the personiality, preoccupations and interests of the regulator. 7.3 Benefits of a Commission. By contrast, if a commission were created, it is less subject to political interference and the terms of office for the regulators can be staggered. Further, it is possible (and highly desirable) to have commissioners with different backgrounds (accountancy, engineering, economics and law) to broaden and deepen the intellectual input into regulatory decision-making. Given Thailand's tradition of committee style and multi-disciplinary decision making, this option seem preferable for cultural reasons. Another advantage of a commission is that there is safety in numbers. Any individual can be manipulated by a special interest group, a regulated enterprise or the government. It is harder to embark on a manipulation process where more than one person is involved. - 180 - Annex 13 - Page 10 7.4 Disadvantages of a Commission. A commission also have some inherent disadvantages: * reduced direct accountability. * greater potential for conflict. * delay in decision-making. compromise or sub-optimal decisions. * increased regulatory uncertainty. 7.5 The Use of Existing Organizations. The danger of using existing government bodies to regulate industries lies in the potential for political manipulation. Regulation and private sector investment will not be successful unless they can be protected from the political pressures of each successive government. Further, a feature of regulation by government departments is the frequently overlapping and confusing responsibilities of departments in relation to the same industry. For example, in the Seventh Plan, there is some confusion on the electricity regulation (Chapter 6, Section 3.3.2 (2)); it seems to give primary responsibility to NEPO by recommending that it be upgraded to a permanent department within the Office of the Prime Minister. However, it also makes mention of reassigning a "regulatory role" to the National Energy Administration within the Ministry of Science, Technology and Energy. Adding to the confusion is the fact that EGAT's investment plans require approval by several departments within the Ministry of Finance. Simplicity and certainty of regulation are essentials to a successful regime. These are best achieved by an independent regulatory body with clearly defined responsibilities. This will create a single point of entry for the private sector to their relationship with government along the lines of the concept of "one stop shopping". 8. One Regulator for All Sectors? 8.1 An important question is whether it would be better to have one regulator or regulatory commission for all related industries, or individual commissions for each industry. The main issues are: (a) given the different natures, needs and stages of development of each industry, how far it is possible to apply common regulatory rules and methodology to each sector?; (b) whether it is desirable to place so much power in the hands of one regulator or regulatory commission; (c) whether a single regulator or regulatory commission for all sectors will have sufficient in-depth knowledge of each sector; and (d) the extent to which it is important to avoid inconsistency in decision making between sectors. 8.2 At state level in the US, utility commissioners regulate more than one sector and, on the whole, the experience is satisfactory. Perhaps the reason for this is that all sectors are bound by what is called the "Common Regulatory Pact"; they are all at a mature stage of development and they share a common regulatory methodology. At the federal level, the commissions are more specialized. In view of the interstate nature of the regulation and the national perspective, a cross-sectoral approach would probably be too cumbersome and bureaucratic. For example, the Federal Energy Regulation Commission (FERC) regulates electricity and gas. 8.3 There are clear advantages for regulating all the energy industries or all the transport industries together in order to achieve a coordinated policy and to optimize the best use of natural resources. There are also advantages in cross-fertilization of ideas and regulatory solutions from one sector to another, as some of the needs and goals of the regulatory regime will be similar. With good internal organization, sufficient and in-depth knowledge of a sector could be achieved. The danger of regulating all sectors is that there could be a tendency to assume that a common regulatory methodology or a particular regulatory solution is applicable to more than one sector when in fact there are good reasons for different treatments, methodologies or solutions. - 131 - Annex 13 - Page 11 8.4 In Thailand, however, given the very different stages of development and needs of each sector, not to mention their diverse nature, it seem less justifiable to establish a regulatory commission that deals with all sectors. 8.5 In order to achieve some consistency, the choice would lie between a single regulatory commission capable of extension from, for example, telecommunications (where the need for a regulatory regime is already evident) to electricity (where the need is clear but a structure must be determined) and then to gas, transport and water, if and when appropriate. The alternative is to replicate the chosen model for a regulatory commission and, when the need arises, to introduce a new regime for a particular sector. Ultimately, there could be separate telecommunications, energy and transport commissions, for example. The US (at a federal level), the UK, Malaysia and Argentina have adopted a sector-by-sector approach. However, this latter approach may give rise to political problems in that it may appear to the state enterprises and their staff associations or trade unions that government has singled them out for special treatment in a run up to privatization, even though privatization may not be planned in the short-term. 9. Organization of the Commission 9.1 The optimum number of commissioners is a small, odd number (three or five). Even numbers can, potentially, create deadlocks which prevent or delay decisions being made. If a chairman is given a second or casting vote in order to deal with deadlocks, there is usually perceived to be too much concentration of power in one person. A large number of commissioners would make the decision process long and unnecessarily bureaucratic. The time taken to conduct meetings is usually proportionate to the number of people present. Large numbers tend to engender the creation of factions and entrenched positions. 9.2 The main concern with the organization of a commission is to ensure that the decision making is carried out with the benefit of: (a) the best specialist knowledge of the enterprise or sector in question; and (b) cross-fertilization of ideas from informed specialists and generalists in other sectors. To achieve the ideal balance of specialist and generalist knowledge being applied in the decision and policy making process, it is always better to establish a simple and flexible structure rather than one that involves many working groups and committees where reporting lines and accountability can become extremely unclear. The only groupings suggested is by expertise in a particular state enterprise or sector legislation (water, electricity, gas, telecommunications, transport). The members of the specialist working groups would deal with the day-to-day issues affecting the sector with which they are concerned. They would be appointed on the strength of their background experience and specialist knowledge and not to represent a particular ministry or governmental body. Their method of working should not be over-specified or bureaucratic and they should have clear reporting lines and accountabilities. 9.3 It would be the task of the specialized working groups to report to the board or panel of commissioners themselves and also to a single policy group covering all sectors. The advantage of having a single policy group would primarily be: (a) the ability to stand back from the specialist knowledge and advice with informed advice and observations from other disciplines, thereby achieving the necessary cross-fertilization of ideas; (b) some consistency of treatment and regulatory methodology across all sectors could be achieved; and (c) an integrated and coordinated policy relating to all aspects of the sector could be achieved. - 182 - Annex 13 - Page 12 It goes without saying that in policy making in particular, but also regulatory decision making in general, it is vital that the decision making is of the highest possible quality. The need for a coordinated policy is vital in order to optimize the natural financial and human resources involved in the sector (which will, of necessity, be limited). 9.4 The commission would need its own legal staff and, as recommended in the previous paragraph, there should be a single legal department covering all sectors. 9.5 Appointing the Right People. The key to good regulation, as with everything else, is the appointment of the right people with the best available background experience. It is also important that the appointments should not be political at any level within the Commission. Terms of office should be staggered for a sufficiently long period to achieve stability and consistency in the decision making process so that the government, the regulated enterprise, the consumers, the investors in the regulated enterprise and potential private sector lenders and investors in infrastructure projects in Thailand can all have confidence that the interests are being correctly balanced and the regulatory risk is minimized. 9.6 At the beginning there will be, inevitably, a shortage of trained manpower for regulatory positions. Part of the problem can be overcome by setting out clear powers and duties in the legislative framework of the regulatory regime so that it is clear what the tasks and priorities are. It would also be helpful, in the initial stages, to enlist the help of some experienced international regulators or regulatory consultants. 9.7 Abuse of Power. It is always a concern, whether there is a single regulator or a regulator commission, that the regulator will somehow abuse his powers or fail adequately to balance all the affected interests. Prevention is always better than cure, and it does not seem sensible to rely purely on some process of administrative law to establish a right of appeal against the decision of a regulator, or simply to remove a regulator from office. 9.8 At a more practical level, abuse of power can be addressed by imposing clear duties on the regulator such as in the UK utilities legislation. For example, the Director General of Electricity Supply is required to: (a) secure that all reasonable demands for electricity are satisfied; (b) secure that the regulated enterprises are able to finance the carrying on of their activities; (c) protect interests of consumers in respect of prices charged, continuity of supply and quality of service; and (d) promote efficiency and economy, and so on. These duties are very general and are open to interpretation by the regulator. In some cases, the duties may overlap or conflict with each other because, of course, the interests that have to be balanced inevitably conflict to some extent. 9.9 It is tempting to over-specify the duties of the regulator, but there is considerable danger in constraining the regulator, who must be in a position to regulate in what, by definition, is a very fast changing world for state enterprises and for Thailand. A better approach is to set out certain specific, but fairly general, duties indicating priorities (primary and secondary duties as in the UK legislation, for example), but subject to certain overriding principles that regulatory decisions must be even-handed and fair. This approach, coupled with the requirements as to transparency of the regulatory process which were recommended in section 6, should go a long way in minimizing the abuse of power. The question of appeals from the decision of the regulator is dealt with in Section 14. 9.10 Experience in the UK. The most developed experience of single regulators and regulatory commissions is in the UK and US. The adoption of a single regulator or director general for each sector in the UK is probably an accident of history. When the privatization of the telecommunications industry was undertaken, it was not clear at that time whether it would be possible or, indeed, whether it was on - 183 - Annex 13 - Page 13 the political agenda, to privatize the other utilities. There has been much talk of creating a commission to regulate electricity and gas (as opposed to having separate Directors General as at present), as they are very inter-related, primarily because the electricity industry is a large purchaser of gas. The current government does not intend to make any changes, but the Labour Party sees distinct advantages. 9. 11 A brief but critical overview of the differences in style and functions of the UK regulators in the water, electricity, telecommunications and gas industries are explained below. (a) Water. The Director General appears to be extremely interested in all activities, even the unregulated activities of the privatized water companies. He exercises all of his powers and even some that he does not tcchnically have. For example, he has issued guidelines, relating to unregulated activities overseas, where he is asked for undertakings that management time will not be deflected from the core domestic businesses. The water companies feel over-regulated, but the consumer is also unhappy as prices for water have increased dramatically over recent years, largely resulting from the need to make the major investments in infrastructure which many previous governments have managed to avoid. (b) Telecommunications. The Director General has been preoccupied with introducing competition into the telecommunications sector. From the point of view of the consumer, it has taken him a long time to achieve a real change in culture in British Telecom, and he has had to introduce a penalty system in order to achieve a real improvement in the quality of service at a domestic level. (c) Gas. The Director General appears to have entered into a personal vendetta against British Gas, which may have been aimed at achieving the restructuring of British Gas (which many believe should have been undertaken before it was privatized as an integrated monopoly). There has been a long, time-consuming and expensive reference to the Monopolies and Mergers Commission (at the expense of both the shareholders and the consumers), which might have been avoided by negotiation. However, the Director General has achieved a reduction in gas prices and significantly improved terms offered to the industrial market. (d) Electricity. The Director General of Electricity Supply is often said to keep the lowest profile of all. Part of the problem may not be of his own making. The electricity market is governed by a commercial agreement under which he has very few rights and powers. The legal and regulatory framework in which he is required to operate does not allow him to cut across the principles of ordinary contract law or to re-write the contracts as he would like to see them. 9.12 The conclusion is that the regulatory treatment in the different sectors in the UK is perhaps more different than warranted by differences in the states of development and the nature of the regulated industries would dictate. Regulation has its costs, and these costs will either be paid for by the consumer or the investors/shareholders in the regulated industries. So far, there has not been much criticism from the consumers concerning inconsistency of treatment. However, there is growing dissatisfaction on the part of major institutional investors in the regulated industries, although, perhaps, less from the point of view of inconsistency of treatment between one industry and the next and more from the point of view of simple regulatory uncertainty. The main point is that they invested on the basis of a description of the regulatory regime in a prospectus which is now proving to be very different in practice. It is also curious that the investors rather than the consumers are shouting more loudly because share prices in the regulated utility industries have performed extremely well, presumably at the expense of the consumer. Clearly, regulatory risk or uncertainty is of increasing concern to potential investors, even where the framework is relatively - 184 - Annex 13 - Page 14 stable. 9.13 While consistency of regulatory methodology or treatment is a good idea in theory, it seems to be of marginal value in practice, primarily because the needs, market conditions, states of development and diverse natures of the sectors are all so different. However, as regulation has its cost, ultimately inconsistency of treatment is going to be an issue for investors and consumers. Inconsistency, of course, creates uncertainty and regulatory uncertainty is of the utmost concern to government, consumers, the regulated enterprise and, above all, private sector investors in infrastructure. Everyone must have confidence in the regulatory regime. 9.14 Experience in Norway. The Norwegian regulator of the private sector energy industry is NVE (Norwegian Water Resources and Energy Administration). It regulates the developed, sophisticated and interactive markets in electricity, gas and water. Norway has very considerable hydro generating capacity. The regulatory regime is relatively light-handed and appeals from NVE's decisions can be made to the Minister of Energy. For example, an appeal is currently being considered on a decision by NVE not to require a transmission line to be undergrounded. 9. 15 Argentina. Argentina put in place new regulatory regimes for most of its industries before privatizing them. It has adopted a commission-style approach on a sector-by-sector basis i.e., telecommunications, energy, water etc. The regulating body is set up by legislation and its powers and duties clearly specified. Five commissioners hold office for a period of 5 years. Accordingly, there is independence in theory, although the staffing by civil servants is undermining this to some extent. The legislation also undermines the independence of the regulatory body by placing it under the "ambit" of the relevant government ministry. It is too early to draw any conclusions from the Argentine experience. 10. Division of Responsibilities between the Regulator and Government 10.1 As has explained above, no government regulatory commission can be totally independent of political considerations. The role of government in relation to a rzgulated industry is an important one, that is, to set the broad strategic and political framework for the industry. For example, for the power sector, government policy decisions will include: (a) the type of fuel that will be used, including the degree of imports acceptable; (b) environmental factors and the extent to which these should be taken into account in setting targets for industries; (c) the extent to which provision for security of supply is necessary; (d) social policy objectives, for example, whether all consumers be charged at the same rate, including those in rural areas - a universal service obligation - a disconnections policy or rebates; and (e) macroeconomic policy objectives, for example, whether the output of certain industries or the provision of services should be publicly subsidized. 10.2 The regulator, by contrast, will be concerned with narrower microeconomic objectives within the political framework set by the government. These will generally include: (a) price setting; (b) quality of service monitoring; (c) monitoring compliance with public service obligations; (d) dealing with customer complaints; (e) ensuring fair and open competition wherever possible; (f) monitoring - 185 - Annex 13 - Page 15 investment in and repair of infrastructure; and (g) third party access to networks, grids, pipelines, etc. 11. How are Regulatory Rules Created? 11. 1 Legislation. Regulatory regimes are best created by primary legislation. Indeed, we know of no cases where an effective regulatory regime has been created without it. Primary legislation sets the framework for the industry and will generally reflect the overall political objectives of the government of the day. The responsibilities and powers of the relevant minister and the regulatory commission or single regulator will usually also be an integral part of the regime as well as enabling subordinate (delegated) legislation to be promulgated in relation to specific issues. The powers could also include the authority to issue licenses to which conditions can be attached. These conditions are simpler to set in the details of the regulatory regime in language that is simpler to write than in le-gislation (whether primary or subordinate). Legislation is usually written in language of general application, whereas a regulatory regime will need to be very specific to the needs of the industry and the separate participants. A license is, therefore, a vehicle to introduce specific requirements. 11.2 Licenses. Licenses are often a key feature of the legal framework under which a regulated industry operates. A license will usually define the relationship between a particular regulated company and the government. Although operating without being duly licensed will usually be an offence, this is not the primary enforcement tool. Indeed, if a license has to be revoked., it will probably mean that major areas covered by a license may include: (a) price regulation; (b) quality of service; (c) investment obligations; (d) third party access to networks; (e) infrastructure maintenance obligations; (f) transparency of accounts and charging methodology; (g) cross-subsidy issues; and (h) restriction on disposal of assets. In other words, it will cover the areas within the competence and concern of the regulator, rather than the government. 11.3 Concessions. Alternatively, the regulatory regime for a regulated industry may take the form of a concession agreement supported either by specific primary legislation or a developed body of administrative law, as in France. Concession agreements are most commonly used for the development of new infrastructure projects such as build-own-operate (BOO) or build-own-operate-transfer (BOT) schemes for roads, bridges or water treatment or sewerage plants. 11.4 Concession agreements perform an analogous role to licenses in that they define the service operator's rights and obligations for the length of the concession period. Sometimes the word "license" and the word "concession" are used to mean the same thing. For example, an Argentine concession agreement has all the characteristics of an English license. However, they may also operate as a contract between the service provider and the government, setting out allocation of risk for matters such as construction, environmental liabilities and financing. 11.5 Regulator's Decisions. Other important forms of regulatory rules include "case" law built up from the regulators' decisions and their "interpretation" of various provisions in legislation or licenses. Such decisions may, once the regulatory regime is well established, form a significant body of jurisprudence in their own right. 11.6 Other types of regulatory rules may include: (a) codes of practice; (b) agreed procedures; (c) performance contracts (between the government and the regulated enterprise); (d) management contracts; and (e) lease and operate (affermage) contracts. 11.7 In the water industry in France, for example, the only means of regulating all of the issues referred to in Section 12.2 is by means of concessions and contracts such as these, supplemented by a - 186 - Annex 13 - Page 16 well developed body of administrative law. Some of these may be drawn up by government in standard form, others may be heavily negotiated between the parties, but certain documents may be better drawn up implemented by the industry itself, subject to regulatory oversight. 11.8 For example, the technical, day-to-day operating procedures in the electricity industry in the UK are drawn up by the industry, subject to minimal regulatory oversight. In the US and Portugal, the same approach is taken with even less oversight. The view is taken rightly, that the specialist knowledge of what is needed rests with the industry. However, in Malaysia, the Director General is undertaking the review, but has asked for outside assistance. In Argentina, the rules are entrenched in subordinate legislation and are thought to be inflexible and difficult to change to reflect the daily needs of a dynamic system. In a sense, the regulator can delegate day-to-day regulatory activities to an inlustry participant such as the network operator subject to certain rules and monitoring by the regulator. 12. Enforcement of Regulatory Rules 12.1 Regulatory rules may be enforced in a number of ways: (a) by the regulator: this requires giving the regulator powers to decide disputes between parties (particularly in relation to contracts for connection to or use of networks); to amend and revoke licenses in the event of non-compliance; to set performance targets, obtain information and monitor activities closely; (b) by the govermnent: this involves a department of government fulfilling some of the same functions as the regulator, but with the disadvantage that it may severely undermine the independence of the regulator and the regulatory regime; (c) by the courts: e.g., by fines and injunctions; the courts usually have the disadvantage of being slow and uncertain; the courts may also lack the specialist knowledge required to give the best decisions; (d) by the petitions councils; or (e) by special administrative tribunal: such a body may be quicker than the courts and have the requisite specialized industry knowledge, but the need for independence of the tribunal is even greater than that of the regulator and may be difficult to achieve. 12.2 Regulatory Process. The way in which the regulator or regulatory authority exercises powers and duties is always a matter of some debate. In the UJS, the process is criticized for being over legalistic and formalized. There are many judicial type hearings and formal filings of evidence. In the UK, the process is almost the reverse and much of the regulation is conducted over the telephone, by letter and by discussions in meetings between the regulators, the regulated companies and the consumer interests. Under English administrative law principles, the process, if it is abused, can be the subject of judicial review although, in the ten year history of modern utilities regulation, this has never happened. There have, instead, been references on specific regulatory issues to the minister concerned. 12.3 Given the Thai culture and method of decision making, we recommend that the lighter, more informal style of the UK would be more appropriate for Thailand. It is also much less expensive and bureaucratic. It may be advisable to allow appeals to the Supreme Court for judicial review, which - 187 - Annex 13 - Page 17 is a mechanism to question the process rather than the decisions on particular issues. 12.4 The UK system is a product of the technique of imposing a regulatory regime through licenses which can be made very specific to the needs of a particular industry or regulated company. Even where formal regulatory approval is needed for particular action or where a license modification is needed, the license can be drafted much more easily than is the case with primary or secondary legislation, to create a simple and speedy process to ensure that no unnecessary time or money is spent on the exercise. The license can be used as a mechanism to create transparency in the regulatory process on the lines recommended in Section 6. It can also impose deadlines and timetables for the various processes. 12.5 Another important and widely accepted principle is that there needs to be some level of participation in the regulatory process by industry stakeholders and consumers, although there is a legitimate caution that this should not be carried too far. Ultimately, it is a question of achieving a balance. If there are rules as to the transparency of the regulatory process or the so-called "sunshine" or open meetings legislation, it is possible to dispense with a legalistic or over judicialized regulatory process. However, in the UK the criticism is made that the Directors General take the informality to an untransparent extreme. It is possible for the regulator to go into a series of essentially private negotiations with the regulated entities and, indeed, impose some level of confidentiality on them. At the end of the process, the regulator issues his decision, but need not consult the public about it. There is, however, considerable pressure on the UK Directors General to consult widely. The current UK process can provide for a high level of expedition and efficiency in the decision making process, but it seems largely to preclude transparency and participation, at least until the later stages of the process. 12.6 AppevIs. In establishing a regulatory regime, consideration also needs to be given to whether a right of appeal should be given against a regulator's decision and, if so, to what body such an appeal should be directed. Provided that the regulator's powers and duties are clearly specified in the legislation, it may be possible to rely on the general law to safeguard against abuses of the regulator's powers. Alternatively, it may be desirable to create a full blown appeals procedure. In the UK, utility companies who are unhappy with license amendments proposed by their industry regulator have the right to refer them to the MMC, which can only make decisions on public interest grounds. However, utility companies will generally only be willing to use their rights of referral as a last resort. Companies will usually be anxious not to get on the "wrong side" of their regulator. - 138 - Annex 14 - Page 1 Thailand Private Sector Participation and Improved Efficiency of State Enterprises Key Legislation on Privatization (A) Royal Act on Private Participation in State Affairs (BE 2535) (March 11, 1992) In the 471 year of the present reign, H.M. the King Bhumibhol Adulyadech instructed to announce that it is appropriate to promulgate a law on Private Participation in State Affairs. As a result, this Royal Act was enacted by the National Assembly serving as the Parliament as follows: Article 1. This Royal Act is called "the Royal Act on Private Participation in State Affair B.E. 2535" Article 2. This Royal Act shall be in force on the date following the date of announcement in the Royal Gazette. Article 3. All laws, rules, regulations, cabinet resolutions and other orders already enacted or conflicting with this Royal Act shall be superseded. This Royal Act shall be applicable to private participation in state affairs except for concessions by the law on petroleum and minerals. Article 4. The Prime Minister and Minister of Finance are to implement this Royal Act and be empowered to issue ministerial rules to ensure the implementation of this Royal Act. Such ministerial rules are to be in force after being gazetted. Chapter 1 - General Article 5. By this Royal Act, "Project Owner" means a government agency which is a department or equivalent, a state enterprise, a state agency or local administration owning the project. "State Enterprise' means a state enterprise by the Budgetary Procedures Law. "Local Administration" means 'ocal administration by Government Administration Law. "Reporting Ministry of Government Units means a ministry or a bureau with reported government units by the law on improvements of ministries, bureaus and departments. "Reporting Ministry' of State Enterprises." 1. For limited companies, it means Finance Ministry or a ministry or a bureau authorized to exercise their share holder's rights for Ministry of Financc. 2. For non-limited companies, it means a ministry or a bureau which the minister takes care of by the law on state enterprise setup or the minister responsible for such state enterprise. "Reporting Ministry of Local Administration" means Ministry of Interior. - 189 - Annex 14 - Page 2 "State Affairs" means affairs that one or any of the government agencies, state enterprises, government units or local administration empowered by law, or those needing to utilize natural resources or assets of any government agencies, state enterprises, other governrnent units or the local administration. "Project" means an investment in state affairs whose fund or assets exceeds a billion baht or more an accordance with the royal decree. "Joint Venture" means joint investment with private sector by any means or sole private investments by permission or concession or grant of rights in any manner. "Committee" means the committee that selects the private sector to participate by Article 13. Chapter 2 - Project Proposal Article 6. The project owner desiring private participation in any project is to propose to the reporting ministry a detailed study and project analyses of the items required by the Office of the National Economic and Social Development Board. Article 7. If the project by Article 6 has to finance assets that exceed five billion baht, the project owner should hire a consultant, who must prepare a separate report following requirements established by the office of National Economic and Social Development Board and others matters as deemed appropriate by the consultant. The project owner shall also send the consultant's report for consideration by Article 8. The consultant by the first paragraph must be qualified according to the requirements of the Minister of finance announced in the royal gazette. Article 8. The reporting ministry of the project owner shall review the study results and project analyses and present a proposal to the following government agencies: 1. New projects should be proposed to the Office of National Economic and Social Development Board. 2. Projects with existing assets should be proposed to Ministry of Finance. Article 9. The Office of National Economic and Social Development Board or Ministry of Finance shall proceed as follows: 1. New Projects: (a) If the Office of National Economic and Social Development Board agrees with the project a proposal shall be made to the Cabinet for approval in principle. (b) If the Office of National Economic and Social Development Board disagrees with the project, the project owners will be notified. If the project owner disagrees with Office of National Economic and Social Development Board additional explanations shall be presented to the reporting minister for a Cabinet review and decision, by presenting the requirement of the Office of National Economic and Social Development Board (Article 6) as well as other information deemed relevant by the project owners. 2. Projects with Assets. - 190 - Annex 14 - Page 3 (a) In case the Ministry of Finance agrees with the project a proposal shall be presented to the Cabinet for approval principle. (b) In case the Ministry of Finance disagrees with the project, the project owners shall be so notified. If the project owner disagrees with the Ministry of Finance, additional explanations shall be presented to the reporting minister for a Cabinet review and decision, by presenting the information required by Article 6. to Office of National Economic and Social Development Board as well as other information deemed relevant by the project owners. The Office of National Economic and Social Development Board, and the Ministry of Finance shall complete the review of projects by this Article within sixty days after their receipt. After this period, the Office of National Economic and Social Development Board and the Ministry of Finance are held in agreement. Article 10. In case a government agency, a state enterprise, another government unit or local administration is to be engaged with state affairs and the Cabinet approves private participation, such agency shall proceed along the Cabinet resolution and comply with this Royal Act. Article 1 1. For any project costing less than one billion baht or less than the amount increased by the royal decree, the Cabinet may allow imp!ementation by this Royal Act. Chapter 3 - Project Implementation Article 12. After the Cabinet approves a project, the project owner shall draft an invitation for private participation or the project scope and conditions required for inclusion in the joint venture agreement. Article 13. The project owner is to appoint a committee comprising representatives of the reporting ministry including a permanent civil servant, a state enterprise employee, an employee of another government agency or a local administrator, whichever the case, as chair person, Ministry of Finance, Judicial Council, Supreme Public Prosecutor's Office, Office of National Economic and Social Development Board, Budget Bureau and two other ministries and no more than three qualified representatives of the project owner as members and as member and secretary. Article 14. The committee by Article 13 shall have the following powers: 1. approve the invitation draft for private participation or the draft of project scope and requirements of the joint venture agreement. 2. Determining guarantees for bidding and agreements. 3. Selecting the private sector to participate. 4. Other related undertakings as appropriate. Article 15. Public invitations, joint venture proposals, public invitations methods, committee review methods which are bidding, and the bidding and contractual guarantees must contain the details required by ministerial rules. Article 16. In the process of selection, if the committee agrees not to implement bidding methods, with the - 191 - Annex 14 - Page 4 project owner agreement, this shall be reported to the Office of National Economic and Social Development Board and the Ministrv of Finance and if both agree. cabinet approval will be sought. If the project owner disagrees which the committee opinions a report shall be presented to the Office of National Economic and Social Development Board and the Ministry of Finance, and if both agree or either of them opines differently a bidding method should be followed. Article 17. In case the Cabinet approves the project by Article 12 costing or with assets exceeding five billion baht, the project owner shall require the qualified consultant (Article 7) to draft the project scope and prepare evaluation systems for the private participation in such project. Article 18. If there is no response to the public invitation on private participation, such invitation shall be canceled and repeated. In case of a single or multiple responses, one of which satisfies the description of the joint venture proposals on Article 15, the contracting can be completed provided the govermnent will benefit. Article 19. At a committee meeting, at least three-fourths of the members must be presented to be a quorum. Resolutions approving selection and negotiation must be voted in favor by at least three-fourths of the attendees. A commnittee member represents one vote In case of a tie-up, the chair person will rule. Article 20. The Office of Supreme Prosecutor shall review the joint venture agreement prior to affixing siignatures. Article 21. The committee shall propose the selection results, justification, issues discussed on government interests, agreement draft and other papers to the reporting minister for consideration by the Cabinet within ninety days after the committee decision. If the Cabinet disagrees, the matter will be back- to the committee for revision and the results will be proposed to the Cabinet for a final decision. (Chapter 4 - Supervision and IMIonitoring Article 22. After contract signing, the project owner shall form a coordinating committee, each of whose members represented by itself as chair person, Mlinistry of Finance, Office of National Economic and Social Development Board, another agency than itself, joint private sector, reporting ministry and the others, at most three, deemed suitable by it, totalling to not exceed nineteen, as members. The meeting of such committee in Paragraph 1 and the quorum shall be as it requires. Article 23. The Coordinating Committee will have the following powers: 1. Monitoring and supervision of operations according to the contract. 2. Reporting of activities, progress, problems and solutions to the reporting ministry. Reporting periods shall be as required, but not exceeding once every six months. Article 24. In case the project owner ignores or does not comply with the obligations in the signed contract, the representative of Ministry of Finance on the Coordinating Committee shall report this to the Ministry of Finance for Cabinet review. - 192 - Annex 14 - Page 5 Chapter 5 - Provisional Article 25. Any project participated or implemented by a private sector before this Royal Act comes into effect remains valid, however, all its future implementation shall follow this royal Act. Anand Panyarachun Prime Minister Note The justification for the promulgation of this Royal Act is that most of the present laws on concession or grant of rights to private sector or joint public-private investment define the review authority as a single person or agency, and all important matters with the minister. As a result, the review criteria is uncertain, especially the concession by the Revolutionary Council Announcement No. 58, dated January 26, 1972, most of which does not define methods of compliance. Therefore, the law on private participation in state affairs is required to be enacted to set an approach and enforce the concession or private participation, especially in the project whose investment or asset exceeds a billion baht. Annex 14 - Page 6 - 193 - Attachment 1 Guidelines for Reviewing Private Sector Participation Projects By virtue of Article 6 of the Royal Act on Private Participation in State Affairs B.E. 2535, the National Economic and Social Development Board deems it appropriate for project owners desiring private participation in any project to provide preliminary guidelines on the following matters: 1. Project Requirements: Proposed projects should study and analyze the followings 1.1 Policy outline: Study and analyses of compliance of proposed projects with: National Economic and Social Development Plan Government Policy 1.2 Socio-Economic State: Study and analyses of advantages and disadvantages for the country's overall socio-economic system. 1.3 Convergence with other projects in the same or different categories 1.4 Organizational Preparation: Study and analyses of preparedness of the government agency that will participate with the private sector on personnel and related rules and regulations. 2. Suitabilitv of Projects: Preliminary feasibility study and analyses are to be made on: - Project location - Related infrastructure of the project - Steps and timetable for project imnplementation - Technical appropriateness - Financial appropriateness, such estimated investment expenses, sources of fund and computation of the project financial return. - Economic appropriateness: Study and analyses of economic gains or returns for the state. 3. Impact of the Proiect: Study and analyses on the project impact on, for example: 3.1 The environment and the commnunity as well as public users. 3.2 Political and national stability. 3.3 Long-term operations of the project owner, such as financial status, administration, organization, personnel and long-term work plan. 3.4 Requirements to comply with other laws, rules and regulations. - 194 - Annex 14 - Page 7 4. Role of Private Sector: Study and analyses should be made on the following matters: 4.1 Rational and need for private participation and benefits accrued to the project owner. 4.2 Alternatives for appropriate joint private-public ventures. 4.3 Private sector conditions requested from the government, such as application for investment promotional privileges, land procurement, request for state joint investment and state protection. Effective from now on. Announced on January 13, 1993. Signed Mr. Pisit Pakkasem Secretary-General Office of the National Economic and Social Development Board - 195 - Annex 14 - Page 8 (B) P.M. Order Regarding the Selling of Business and Shares of SEs B.E. 2504 (1961) Whereas it is appropriate to have regulations on selling off of businesses and shareholdings by the official and SEs, the cabinet has decided to have regulations as follows: 1. This order shall be called "the cabinet's order on selling off businesses and shareholdings by the government. B.E. 2504". 2. This order shall be enforced from now onward. 3. Definitions in the order include: "selling off" means to sell, exchange, give, let, let-hire-purchase or transfer rights by any means; but does not include temporary share transfers to any individual or a limited company for the purpose of being director in the company. "business" means an asset or business incorporated into an organization when selling off shall render the seller to be away from that business or liquidation. "shares" means shares in the limited company or partnership or equity in other businesses. "official" means official in legal term in relation to budgetary procedures. "SEs" means state enterprise under the law governing budgetary procedures. "Ministry in charge of a state enterprise" means ministry or sub-ministry official or state enterprises who owns the businesses or holds shares. 4. Selling off businesses or shares of the official or SEs in the following cases must be in principle approved by the cabinet prior to further action. (1) the businesses or shares to be sold should be valued more than 500,000 Bht. (2) the shares to be sold should be valued not more than 500,000 Bht, but selling off shares deprived the business or being SE or (3) selling off businesses or shares in other cases which the min-in-charge of SE deems it as a policy issue. 5. Selling off businesses or shareholding by the official or SEs in any other cases apart from No. 4 must be principally approved by the ministry in charge of SE before 6. After the approval by its authority in selling off of businesses or shareholdings by the official or SE. The ministry in charge shall nominate a committee members comprising representative from the ministry in charge, MOF, Budget Bureau, NOSEB and from the Office of National Finance Auditing Board as follows: - 196 - Annex 14 - Page 9 7. The board of committees shall take responsibilities as follows: - (1) To recommend the means to sell off with great concerns the SE's benefits (2) To recomrnmend on the price to sell with great concern to the security, financial status, profit earning efficiency and timing. (3) To recomrnend any other issues (if any). 8. Meeting of the Board of Committees shall constitute all the members to constitute the quorum. The meeting's resolution shall be judged by majority, in case of even votes the chairman vote will be made to conclude or finalize the issue. 9. It deems to propose the consideration result to the ministry in charge and to the MOF, whereas the min-in-charge and the MOF final decision shall be carried out subsequently under the rule No. 10. 10. In case that the min-in-charge and MOF can not agree with each other, or in case that businesses have more than 5 million Bht value or the price to be sold is more than 5 million Bht; the min- in-charge have to ask for the cabinet's approval. Issued on NMarch 17, 1961 By General Thanom Kittikajorn Deputy Prime Minister Signed in lieu of Prime Minister